TOP POINT LTD v. K&L GATES (A FIRM OF SOLICITORS)

HCA 1088/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1088 OF 2011

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DECISIONS

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1.  There are 2 cross-applications before me dealing with the consequences of alleged failures by both camps in this action to disclose documents:

(i) the summons dated 10 July 2015 (“the Firm’s Summons”) by the Defendant in the Main Action and the Plaintiff in the Counterclaim, K&L Gates (a firm of solicitors)(“the Firm”), for the  dismissal of the Main Action and entering of judgment on the Counterclaim for the failure to comply with the unless order made by Master M Wong on 9 October 2014 (“the Unless Order”); and

(ii) the summons dated 23 September 2015 (“the Top Point Parties’ Summons”) by the Plaintiff in the Main Action and the Defendants in the Counterclaim (“the Top Point Parties”) for striking out of the Firm’s Re-Amended Defence and Counterclaim and the entering of judgment on the Main Action for failure to comply with the order for discovery made by Master M Wong on 14 July 2015 (“the Discovery Order”).

BACKGROUND

2.  This action is one of the many concerning the deposit of various “escrow funds” in the client account of the Firm. Unfortunately, one of the Firm’s lawyers, Mr Navin Aggarwal (“Aggarwal”), committed a massive fraud and as a result considerable sums of “escrow funds” went missing from the Firm’s client account.

3.  The Plaintiff in the Main Action, Top Point Limited (“Top Point”), sues as the assignee of the rights of the 1^st and 2^nd Defendants in the Counterclaim, Geminis Funds SPC (“Geminis Fund”) and Capital Cosmos Financial Ltd (“Capital Cosmos”) respectively, under 2 escrow agreements pursuant to which a total “escrow fund” of US$4.5 million was paid into the Firm’s client account in May 2011 but was never repaid.

4.  Top Point applied for summary judgment which was heard by DHCJ L Chan (as he then was) on 6 December 2011.  It transpired that Top Point and the 1^st to 7^th Defendants in the Counterclaim are all offshore corporate vehicles owned and controlled by Mr James Yang (“Yang”), the 8^th Defendant in the Counterclaim.  These corporate vehicles are collectively referred to as “Yang’s Companies” and together with Mr Yang “the Top Point Parties”.  The Top Point Parties are all represented by Messrs Tse Yuen Ting & Wong (“TYTW”).

5.  According to the Firm, Yang’s Companies had signed 51 “escrow agreements” with Aggarwal and received payments thereunder from January 2009 to May 2011.  Over HK$88 million in purported fees and interest (excluding principals) were paid from the Firm’s client account to them, and they were paid more than HK$55 million over and above what they paid to the Firm.  Those which signed the “escrow agreements” were not necessarily those which deposited monies into the Firm, or those which received the enormous fees and interests.

6.  The Firm was given unconditional leave to defend, with costs.

7.  The Firm then amended the Defence and added a Counterclaim against the Top Point Parties with leave on 17 September 2012. The Firm’s case is that the purported escrow agreements are sham.  In any event, they are not binding on the Firm as Aggarwal had no actual or ostensible authority to execute them, and they do not fall within the Firm’s ordinary course of business.

8.  On the other hand, it is the Top Point Parties’ case that Aggarwal told Yang that he had some Mainland clients interested in acquiring substantial stakes in Hong Kong listed companies and required what is commonly referred to as “fund proof” to demonstrate that they had readily available funds, or ability to arrange funds within Hong Kong to finance the acquisitions. Yang then caused his companies to deposit monies into the Firm’s client account under the purported escrow agreements which enabled those “Mainland clients” to provide the requisite fund proof, in return of an “arrangement fee” for the provision of the funds.  It is their case that such fund proof was a normal and common arrangement in Hong Kong for substantial acquisitions by Mainland-based entities.

9.  This is disputed by the Firm.  According to it, proper fund proof in a general offer is regulated by the Securities & Futures Commission (“SFC”) under the Code on Takeovers and Mergers and Share Repurchase and nothing like the one depicted by the Top Point Parties.  In response, the Top Point Parties say that there are various types of fund proof in financial market in Hong Kong, including the type Yang’s Companies were engaged in.

10.  Yang’s Companies had made various attempts to challenge the service of the Counterclaim outside jurisdiction.  All these challenges were rejected by the court.  In the Reasons for Decision handed down by DHCJ Seagroatt on 28 November 2013, the learned judge observed that the appeal lodged  by the Third Point Parties against the master’s decision was an “entirely unmeritorious appeal based on a pettifogging technicality which had already been corrected”[1], and the court found that the conduct of the Top Point Parties was “a waste of time and cost, entirely without merit, a cynical delaying tactic of the worst kind, an unacceptable abuse of the court process and a pointless attempt to circumvent the rationale and spirit of the Civil Justice Review.”[2]

11.  Instead of the Top Point Parties, the Firm took out the case management summons on 12 March 2014.

12.  On 16 January 2015, Top Point obtained leave to re-amend its Statement of Claim.  The amended pleadings were exchanged in January and February 2015.  Because of the protracted history of the case, it took quite some time for the pleadings to be finally closed.

THE FIRM’S SUMMONS

13.  The Top Point Parties filed their list of documents on 24 February 2014.  On 21 May 2014, the Firm took out a summons (“the Discovery Summons”) seeking a further and better list of documents and specific discovery of 5 classes of documents.

14.  Class 2 of the schedule of the Discovery Summons provides for the provision of the following class of documents (“Class 2 Documents”):

“Communications by [the Top Point Parties] with the SFC in relation to the escrow agreements and mandates the subject of this Action.”

15.  Class 1 of the schedule comprised internal communications of the Top Point Parties.  Classes 3, 4 and 5 comprised Top Point Parties’ audited accounts, tax returns and similar fund proof or escrow agreements.

16.  On 22 July 2014, the Top Point Parties filed their 1^st Supplemental List of Documents.  In September 2014, there were without prejudice discussions ensued in respect of the withdrawal of the Discovery Summons.

17.  On 9 October 2014, with the consent of the parties, Master M Wong made the Unless Order.  §2 of the Unless Order provides that:

“Unless [the Top Point Parties] do file and serve a further supplemental list of documents by 5:00 pm on 31 October 2014 in relation to classes 1 and 2 of the schedule to [the Discovery Summons], the claim against [the Firm] be dismissed and [the Firm] be at liberty to apply for judgment of its Counterclaim against [the Top Point Parties].”

18.  The parties also agreed for the Firm to withdraw the Discovery Summons with no order as to costs.  Apparently, these 2 classes of documents are the ones that require further disclosure.

19.  Just before the deadline, the Top Point Parties filed a 2^nd Supplemental List of Documents in purported compliance with the Unless Order (“the 2^nd Supplemental List”).  The 2^nd Supplemental List contained 520 items.  5 lever-arch files of copied documents were provided to the Firm on two occasions on 7 and 18 November 2014.

20.  After more than 6 months, the Firm’s solicitors, Messrs Robertsons (“Robertsons”), wrote to TYTW on 29 May 2015, pointing out that the Top Point Parties had breached the Unless Order.  In particular, it was the Firm’s case that the Top Point Parties had not disclosed any Class 2 Documents.

21.  It was then followed by a chain of lengthy argumentative correspondence between the parties as to whether there was such breach.  In one of the letters by the Top Point Parties dated 18 June 2015, they maintained that the Unless Order was made by consent.  Further, the Top Point Parties claimed that all the documents included in the 2^nd Supplemental List were the documents which they were able to locate at the moment and which they considered to be relevant for disclosure.  They would continue to disclose documents to the Firm in order to fulfil their continuing obligation of discovery.

22.  Robertsons refuted the arguments of the Top Point Parties in their letter dated 25 June 2015, and asked whether the Top Point Parties would consent to approaching the SFC seeking copies of the Class 2 Documents.  TYTW replied a week later saying that they were still “taking instructions”.  The Firm issued the Firm’s Summons on 10 July 2015.

23.  On 17 July 2015, Yang filed his 7^th Affirmation on behalf of the Top Point Parties to oppose the Firm’s Summons.  He tried to give an account of the efforts made by the Top Point Parties in complying with the disclosure of the Class 2 Documents.  In essence, Yang said he instructed his solicitors to search the emails of two staff of Evenstar Master Fund SPC (“Evenstar”) which is the 3^rd Defendant in the Counterclaim, namely Mr Horace Chow and Mr Karvan Wong (“Evenstar’s 2 Staff”).  According to Yang, Evenstar’s 2 Staff were the only persons responsible for communicating with SFC relating to the escrow agreements.  It was said nothing could be found.  He added a “caveat” that, in discharging their ongoing discovery obligation, the Top Point Parties would continue to disclose other relevant documents if they were able to locate them in the future.

24.  About a month after the Firm’s Summons, the Top Point Parties filed a 3^rd Supplemental List of Documents (“the 3^rd Supplemental List”), which produced emails (“Liu’s Emails”) between Mr Richard Liu of Geminis Advisory Limited (“GAL”) and the SFC.  GAL is not a party in the present proceedings.  In his 8^th Affirmation, Yang gave the following explanation:

“ ... ... I gave further thought to the Top Point Parties’ discovery in respect of the Class 2 Documents - in particular the sources of documentation there might be – either in the particular or similar categories.  While I do not understand it to be within the scope of the order, it seemed possible to me there might in fact be one further source: Geminis Advisor Limited (“GAL”).  GAL is not party to these proceedings but as Geminis Fund SPC’s relevant advisory company, have had communications with the SFC which could assist a court resolving this dispute.”

Yang then carried on arguing that the items produced in the 3^rd Supplemental List did not fall within the ambit of Class 2 Documents.

25.  The Firm complains that the documents contained in the 3^rd Supplemental List, i.e. Liu’s Emails, clearly fall within the meaning of Class 2 Documents.  As the Top Point Parties had failed to comply with the Unless Order in disclosing the Class 2 Documents before the deadline, the sanction should take effect.

(i) The relevant legal principles

26.  A breach of an unless order can occur in a number of ways.  It may be the case that the defaulting party has simply failed to do anything before the deadline (eg. failing to file any list of documents at all), or that the alleged defaulting party has done certain thing before the deadline (eg. filing a list of documents), but the other side complains that the compliance is insufficient (eg. the list is incomplete or deficient).

27.  The Firm argues that there was no compliance so far as Class 2 Documents are concerned.  On the other hand, the Top Point Parties contend that there was proper compliance with the Unless Order by the filing of the 2^nd Supplemental List, and some of the documents contained therein were arguably Class 2 Documents.  Unless the Firm can establish that the filing of such List was illusory or made in bad faith, there was proper compliance on the part of the Top Point Parties.  There is also a dispute as to whether the Liu’s Emails do fall within the meaning of Class 2 Documents. If they are not Class 2 Documents, the case on non-compliance must fail.

28.  The proper approach to an alleged breach of an unless order has been considered in a number of local authorities.

29.  In Ka Wah Bank Ltd  v Low Chung-song[3], orders were made that the defences of the respondents be struck out unless they filed a list of documents and a verifying affirmation within 14 days.  A list and affirmation were filed within 14 days, but the lists were incomplete and the affirmation gave an address at which the respondents could not be contacted, because they had instructed persons there to deny knowledge of them.  The Court of Appeal approved the principles in Reiss v Woolf[4] and held that the defences should be struck out.  The Court found that the lists of documents were illusory and displayed no evidence of a conscientious effort to meet the respondents’ obligations on discovery.  There was no evidence whatever that the respondents had acted in good faith over the matter of the deliberately misleading address they had given.

30.  In Lau Chi Wang v Ip Fook Chuen[5], the unless order was for the 1^st and 2^nd defendants to file an affidavit giving specific discovery of certain documents as ordered. There was disagreement between the parties as to whether the specific discovery made by the defendants was sufficient.  Sakhrani J held that the unless order was a time order.  In such case, following the principles in Reiss v Woolf[6], a default referred to a default in the delivery of a document within the specified time.  This did not mean that any document would suffice.  It must be a document made in good faith which was not illusory.  The learned judge found that the discovery made by the 1^st defendant in his affirmation was not illusory, as there was a genuine conflict of opinion which could only be resolved by further adjudication on an application.

31.  In Daimler AG v Leiduck[7], the unless order was for the plaintiff to answer certain interrogatories in an inquiry as to damages proceedings.  Consequently, the senior legal counsel of the plaintiff made an affirmation claiming legal professional privilege in respect of certain interrogatories.  For one other interrogatory, the legal counsel explained that, due to certain misunderstanding, such interrogatory was based on a false premise.  In any event, the filing of the answers missed the deadline by 30 minutes and 107 minutes respectively.

32.  The Court of Appeal held that it was not possible to reject the legal counsel’s explanation at the interlocutory stage.  There was no basis for holding that the claim to legal professional privilege was advanced in bad faith or that the plaintiff did not genuinely believe it was entitled to answer the interrogatories in that way.  The Court rejected the argument that those answers were no answers at all.  Had the answers been filed within time under the unless order, the automatic sanction would not have taken effect.  As to the failure to file the answers in time, the Court granted relief from sanction and so the Points of the Defence of the plaintiff was reinstated.

33.  In Re AJK Co Ltd[8], an unless order was made requiring the plaintiff to file and serve answers to requests for further and better particulars of her reply.  Answers were filed within time.  However, the answers were served on the wrong party by mistake which was rectified on the following day.  There was also an issue as to whether the answers provided were deficient.  Anthony Chan J held that the proper approach to an alleged breach of an unless order was set out in Lau Chi Wang[9], applying Reiss v Woolf[10]. The issue of compliance turned on whether the deadline was met and not on the adequacy of compliance, eg whether the request for particulars was sufficiently answered, unless it could be said that the compliance was not made in good faith or illusory.  That approach remained binding in Hong Kong though it was no longer followed in England.  When the court considered the question of compliance, the exercise was not to put the matters under the microscope.  The test was whether the compliance was clearly inadequate.  If so, relief should not be granted.  Otherwise, any arguments over adequacy of compliance should be resolved in a further application.

34.  Having considered these authorities, it is clear that an unless order even requiring specific discovery of certain kinds of documents should be construed as a time order, and the issue will therefore turn upon whether the deadline has been met and not on the adequacy of compliance, unless it can be said that the compliance is not made in good faith or illusory.

35.  On the other hand, the Firm advocates for a stricter test.  According to Mr Sussex SC, counsel for the Firm, there is a distinction between unless order dealing with the time of compliance on the one hand and mode of compliance on the other.  Whether it is a case of the former or latter is a question of construction depending on the facts of each case. The Unless Order here falls within the latter category.   It is specific not only in terms of the time of compliance, but also on the mode of compliance by specifying the contents of the supplemental list of documents to be filed by the prescribed time.  In other words, not any supplemental list of documents would suffice, the list must disclose, inter alia, the Class 2 Documents. In a situation like this, the Firm, relying on the case of Hytec Information Systems Ltd v Coventry City Council[11], argues that the only sufficient exoneration will almost inevitably require that the defaulting parties satisfy the court that something beyond their control caused their failure to comply with the order.  There is none in this case.  If a party intentionally or deliberately flouts the unless order, then he can expect no mercy from the court.

36.  Despite the able submission of Mr Sussex, I do not accept his argument.  First, such submission does not sit well with dicta in the various local authorities mentioned above, in which the courts accepted that unless order requiring the filing of a further list of documents relating to certain kinds of documents is a time order.  Second, the Unless Order required the Top Point Parties to do a certain act, i.e. to file a further list of documents, by a specified time.  The fact that the Unless Order specifies a mode of compliance or specifies the contents of the list does not alter the nature of the Unless Order which is a time order.  Hence, I refuse to adopt the stricter test as advocated by the Firm.

(ii) Whether the compliance was made in bad faith or illusory?

37.  As the Top Point Parties had filed the 2^nd Supplemental List before the deadline, the question before the court is, therefore, whether such purported compliance with the Unless Order was made in bad faith or illusory.  Having carefully considered the facts of the present case, I answer such question in the negative.

38.  First, the Top Point Parties had made a serious attempt to comply with the Unless Order.  520 items had been disclosed in the 2^nd Supplemental List.  It is not the Firm’s case that none of these documents fall within Class 1 of the Discovery Summons, and so there must at least be compliance with that part of the Unless Order.  If the Top Point Parties had made serious attempt to comply with at least part of the Unless Order, it is very difficult for the court to say that the filing of the entire 2^nd Supplemental List was made in bad faith or illusory.

39.  In respect of the Class 2 Documents, Yang in his 7^th Affirmation gave the following explanation:

(i) between January 2009 and June 2011, there was only direct communication between Evenstar (one of the Top Point Parties) and SFC, but no direct communication between the other entities of the Top Point Parties;

(ii) the persons in Evenstar responsible for communicating with the SFC were Evenstar’s 2 Staff;

(iii) for the purpose of complying with the Unless Order in respect of the Class 2 Documents, Yang arranged for all the emails of Evenstar’s 2 Staff in the period from January 2009 to June 2011 to be sent to his solicitors for review, which constituted 17 GB of data volume comprising 120,000 emails; and

(iv) the solicitors then conducted keyword searches on certain words which might relate to Class 2 Documents and caused the documents revealed from the search (over 2,500 search results) to be disclosed.

40.  Mr Sussex argues that there was no reason for restricting the search to emails of Evenstar’s 2 Staff.  However, as there is no opportunity of cross-examining Yang at this interlocutory stage, there is no sufficient basis for the court to reject Yang’s explanation in this regard, in particular it would be draconian for the court to deprive the Top Point Parties of their rights to be heard by the court on the substantive merits of the case.  As the Top Point Parties had made attempt to locate the Class 2 Documents, I do not consider that the filing of the 2^nd Supplemental List was made in bad faith or illusory.

41.  Second, it is the Firm’s case that there had been no compliance with the Unless Order so far as Class 2 Documents are concerned.  However, there was genuine dispute between the parties as to whether some of the documents included in the 2^nd Supplement List were Class 2 Documents.  In fact, Robertsons confirmed in a letter dated 29 May 2015 that there was “a solitary email (item 412) which comes within [Class 2]”. If there was a genuine doubt as to whether there was some compliance with Class 2 Documents, it is hard to say that the 2^nd Supplemental List was an illusory one.

42.  Third, there was another genuine dispute between the parties as to whether the Liu’s Emails (documents disclosed in the 3^rd Supplemental List) do fall within the meaning of Class 2 Documents.  The exact words used to describe Class 2 Documents are “communications by the 1^st-8^th Defendant (by Counterclaim) with the SFC”.  On the face of those words, it does not include communications by anyone other than the Top Point Parties.  GAL is not one of the Top Point Parties and so it is arguable that the Liu’s Emails do not fall within the ambit of Class 2 Documents.

43.  The exact words used in the Unless Order are important.  As observed by Tuckey LJ in Realkredit v York Montague[12], the dismissal of an action at an interlocutory stage is a very serious matter and may well work injustice.  It is imperative that the thing to be done in order to avoid dismissal of the action should be specified in the clearest and most precise language, so that it may be possible for the party on whom the necessity of doing the act lies to be in no doubt whatsoever as to the steps which he is to take if he is to avoid his action being dismissed.  In other words, the applicant must show that the language of the order is sufficiently precise and that which the order contemplates has occurred.[13]  DHCJ Saunders had also made similar observation in Chinacast Education Corporation v Chan Tze Ngon[14].

44.  Mr Sussex submits that the Liu’s emails clearly fall within the ambit of Class 2 Documents as those emails were all copied to Yang.  However, it is quite arguable that the Unless Order does not cover emails copied to Yang simpliciter.  None of those emails was sent by Yang or otherwise received by him in such a way so as to constitute “communications by” him and the SFC.  Further, the Evenstar’s 2 Staff were the persons responsible for communicating with the SFC relating to the escrow agreements, and the Top Point Parties had made attempt to locate the documents by referring to the express words used in the Unless Order.  In the circumstances, it was not unreasonable for Yang to have overlooked those emails which had been copied to him, or to have restricted the keyword searches to be conducted on the emails of the representatives of the only Top Point Parties (i.e. Evenstar’s 2 Staff) that directly communicated with the SFC. 

45.  As a matter of fact, just the emails of the Evenstar’s 2 Staff turned up over 120,000 emails.  Compliance with the Unless Order was therefore a laborious exercise, and there might be innocent failure to disclose documents which may be relevant.  Provided that a party acts bona fide and the approach taken was reasonable, which I have no reason to doubt that was the case here, a party should not face criticism or adverse consequences if it should transpire that, despite best effort, some documents slipped through the net.[15]

46.  Mr Sussex also argues that the conduct of the Top Point Parties in the course of these proceedings shows bad faith on their part.  They adopted delaying tactics by lodging various jurisdictional challenges to the service of the Counterclaim.  They failed to make proper disclosure that necessitated the taking out of the Discovery Summons.  After having agreed to the Unless Order, the Top Point Parties put forth a succession of hopeless arguments to justify the non-compliance of the Unless Order.

47.  I do not accept that these arguments can take the Firm’s case any further.   The conduct of the Top Point Parties at the earlier stage of the proceedings may be subject to criticism, but that does not necessarily follow that they also tried to delay the discovery process.  In fact, the Top Point Parties readily agreed for the court to grant the Unless Order without a history of repeated non-compliance with court orders.  Further, they have in general been cooperative in disclosure.  Substantial discovery has been made at least in respect of 4 out of 5 classes of documents requested by the Firm.  Although the Top Point Parties could have been more forthcoming with the disclosure of the Liu’s Emails, one cannot wholly dismiss their argument that such emails do not fall within the ambit of Class 2 Documents.  Neither can the court conclude that they had failed to take reasonable steps to locate the Class 2 Documents.

48.  For the above reasons, I do not find that the filing of the 2^nd Supplemental List was made in bad faith or illusory.  Although such List did not contain the Liu’s Emails, I have no reason to reject Yang’s explanation as to why the 2^nd Supplemental List did not contain GAL’s communications.  I therefore find that there was compliance with the Unless Order.  If the Firm takes the view that there may be further communications between other related parties with SFC, it has liberty to apply to the court for a further list relating to these documents.

(iii) Relief from sanction

49.  In case that I am wrong on the issue of compliance, this is also an appropriate case for the court to exercise discretion to grant relief from sanction.

50.  In Daimler v Leiduck[16], Fok JA (as he then was) had emphasised that striking-out is a remedy of last resort, such that in appropriate cases the court may grant relief from sanction against the automatic consequences of an unless order despite that there being no application for relief from sanction.  Delay can be compensated in costs and deficiency in the provision of documents or answers can be addressed by the court requiring the defaulting party to provide further documents and answers. The use of such kind of alternative is not contrary to the spirit of the CJR, and the court is encouraged to consider other measures that may be more appropriate to be taken.  Fok JA had also emphasised that the primary aim of the court in exercising its powers is to ensure the just resolution of disputes in accordance with the substantive rights of the parties.[17]  A weighty factor in the weighting exercise to be undertaken by the court is the question of proportionality of the sanction in the circumstances of the case.[18]

51.  In Daimler, the defendants’ application for leave to appeal to the Court of Final Appeal was refused.  Fok JA once again made it clear that there is a wide discretion to grant relief from sanction even where the relevant breach is all along denied by the party in breach and no application has been made for relief.[19]

52.  In my judgment, the following factors weight in favour of the granting of the relief.

53.  First, as mentioned above, the Top Point Parties have made serious effort to comply with the Unless Order.  At least substantial disclosure has been made of other important classes of documents such as Class 1 of the Discovery Summons, which Mr Tso Shiu Kei (“Tso”), a solicitor of Robertsons, recognised as a “central plank” of the discovery application[20] and as one of the “central pillars” of the Firm’s case against the Top Point Parties[21].  Therefore, any non-compliance with the Unless Order was unlikely to be contumelious or an intentional flouting of the Unless Order.

54.  Second, the Top Point Parties had indicated at the call-over hearing that they had no objection for the Firm to approach the SFC for the purpose of obtaining the Class 2 Documents.  This might not amount to proper compliance with the Unless Order, but at least it shows that the Top Point Parties had no intention to conceal the Class 2 Documents from the Firm.

55.  Third, assuming that the Liu’s Emails do fall within the ambit of Class 2 Documents, there has been compliance with the Unless Order even though the compliance was late.  A fair trial can still proceed and there is no prejudice to the Firm apart from costs.  Further, the filing of the 3^rd Supplemental List shows that the Top Point Parties were nonetheless willing to comply with the order for discovery.  The disclosure of Liu’s Emails would certainly lead to complaint by the Firm and yet the Top Point Parties did not make any attempt to conceal such documents from the Firm.

56.  Fourth, the Unless Order was not imposed as a penalty for the Top Point Parties’ persistent failure to comply with court orders.  Whilst the Firm complains of belated disclosure, the fact remains that the only discovery order that had been made against the Top Point Parties was the Unless Order, and even that order was made by consent in return for the withdrawal of the Discovery Summons with no order as to costs.  Although this does not amount to a good reason to justify the non-compliance of the Unless Order, it remains a favourable factor for the court to exercise the discretion to grant relief in the present case.

57.  In contrast, striking out the claim in the Main Action and the defence in the Counterclaim would be very draconian, effectively disallowing the Top Point Parties from having their day in court, in particular, where strong allegations of fraud, dishonesty, sham and conspiracy are made against them.  I agree with Mr Maurellet (before his admission to the inner bar), counsel for the Top Point Parties, that this would be a most disproportionate penalty.  It is not in the interest of the administration of justice that serious findings go by way of default against a party.[22]

58.  I also do not accept that the granting of the relief would offend the spirit of the CJR.  After all, the court is concerned with the proper administration of justice and so the court should weight all the factors in determining whether to grant the relief.  Further, I do not accept that the conduct of the Top Point Parties was so faulty to the extent that their case should not be heard by the court.  Hence, if necessary, I would also grant relief from sanction and refuse to strike out the Top Point Parties’ claim in the Main action or to enter judgment against them on the Counterclaim.

THE TOP POINT PARTYS’ SUMMONS

59.  I then turn to the Top Point Parties’ Summons. As compared with the Firm’s Summons, the Top Point Parties have a much weaker case to ask the court to strike out the Firm’s Defence and Counterclaim.

60.  The Top Point Parties took out a summons for specific discovery on 19 January 2015.  After a contested hearing, Master M Wong made the Discovery Order on 14 July 2015 for the Firm to file and serve an affidavit stating whether it had in its possession 3 classes of documents, including:

“1. All books and accounts including ledgers, cash book and reconciliation statement in respect of RIM China Company Limited (”RIM”) under or related to [the Firm’s] file reference under its file reference number 4045645-00002 (“Reference 404”) required to be kept under the Solicitors’ Account Rules Cap. 159F, insofar as relating to the payment requisitions, authorization letters signed or purportedly signed on behalf of RIM and bank transfer or other remittance records disclosed in items 431 to 565 of [the Firm’s] List of Documents filed on 24 February 2014, for or covering the period from 23 May 2011 to 11 June 2011.

  ... ... ...

3. Statements and records of interviews made by [the Firm’s] partners and staff to the Commercial Crime Bureau in relation to Aggarwal’s fraudulent activities as uncovered in June 2011 which refer to Geminis Greater China Fund I Segregated Portfolio and/or Capital Cosmos Financial Limited (with appropriate redaction in respect of any irrelevant matters).”

61.  On 25 August 2015, the Firm filed Tso’s 16^th Affidavit and the 2^nd Supplemental List of Documents in purported compliance with the Discovery Order.  However, the Top Point Parties complain that: (i) the Firm has not disclosed any document named as a “cash book” as required in §1 of the schedule; and (ii) the Firm has not disclosed any statements or records of interview with the Commercial Crime Bureau (“CCB”) apart from one witness statement of Mr David KY Tang dated 7 June 2012 (“Tang’s Statement”).  Furthermore, the copies of the bank reconciliation statements provided by the Firm are heavily redacted.  As a result, the Top Point Parties allege that the Firm has breached the Discovery Order which warrants the striking out of the Defence and Counterclaim.

(i) Cash book

62.  For the cash book, the Firm claims that it has made full discovery.[23] On the other hand, the Top Point Parties argue at length that what the Firm disclosed was not cash book in accordance with the requirements of the Solicitors Accounts Rules, Cap 159F (“SAR”).

63.  In support of the application, the Top Point Parties seek to rely on the expert opinion of Mr Colin Cohen who is a solicitor with considerable experience.  He is of the view that the SAR require proper cash book to be kept by solicitors.  They also have to prepare a reconciliation statement from time to time to show any difference between the balance in the cash book and the balance in the bank account.  Mr Cohen is of the view that none of the documents disclosed resemble a cash book.  Without the disclosure of a cash book, it would be impossible to confirm whether the reconciliation statements have been properly prepared and whether there have been breaches of the SAR.

64.  I do not find it necessary to go into the arguments in details, save as to say that the parties have a genuine dispute as to what was required by the SAR.

65.  In Realkredit v York Montague[24], a case cited by Mr Maurellet himself to oppose the Firm’s Summons, Tuckley LJ held that where an unless order is made in the context of a specific discovery application, if the deponent says that there are no documents in the class specified, that is conclusive, however incredible that may be.[25]

66.  Since the Firm has made a clear and unequivocal confirmation that it has disclosed its cash book, the court, at least at this stage, has to accept the answer as conclusive.  The court should not carry out a detailed investigation as to what were the requirements of the SAR and what books should be kept by the Firm.  Obviously, the Top Point Parties can administer interrogatories, for example by asking the Firm to account for the preparation of the statements, or simply ask the court to draw adverse inference against the Firm by reason of the absence of proper cash book.  The court cannot assume that there are other undisclosed documents.  In any event, in line with the approach adopted in cases such as Lau Chi Wang v Ip Fook Chuen[26] and Daimler AG v Leiduck[27], this court should not strike out the Defence and Counterclaim as the parties had a genuine conflict of opinion on such issue.

(ii) Redactions in reconciliation statements

67.  The Top Point Parties complain about the heavy redactions in the reconciliation statements.  According to them, one of the main purposes of disclosing the reconciliation statements is to put the Top Point Parties in a position to prove the negligence on the part of the Firm in relation to the keeping of its accounts, especially in reconciling its statements. The Top Point Parties claim that the Firm had breached its duty of care in, inter alia, failing to detect unauthorised withdrawals from its client accounts, failing to properly supervise its client accounts and failing to implement accounting control, for example under the SAR, and failing to correct the position despite being required to make reconciliation of its client accounts. It is also pleaded in defence to the Counterclaim that any loss and damage suffered by the Firm was caused by its own negligence for its failure to put in place adequate internal control.

68.  The Top Point Parties claim that another purpose of the reconciliation is to trace the escrow sums paid by the Top Point Parties to the Firm’s client account on the basis that those sums are held on trust. Since the escrow sums had been mixed with the other funds in the client’s account, all the entries in the reconciliation statements would be relevant to ascertain whether the escrow sums had been exhausted according to the rules of equitable tracing.  In such case, there should be no redaction in the statements, at least up to the entry where the escrow sums can safely be said to be exhausted in the mixed funds.

69.  Finally, the Top Point Parties argue that the extensive redaction has made it impossible for anyone to assess whether the relevant provisions in the SAR have been complied with or to conduct a sensible audit.

70.  The Discovery Order actually allows for “appropriate redaction in respect of any irrelevant matters”.

71.  I have been assigned as the docket judge to hear all the cases against the Firm relating to the claims for the loss of the various “escrow sums”.  It has all along been the Firm’s position that only the movements of the subject escrow funds deposited by the particular claimant in the client account are relevant to the related dispute in a particular case. In other words, the movements of other “escrow funds” belonging to other clients or parties are not relevant to the particular case in issue, and so the Top Point Parties, and indeed all the other third parties making similar claims against the Firm for the loss of the “escrow funds”, are not entitled to all the Firm’s bank and reconciliation statements without redaction in order to conduct an “audit” of the Firm.

72.  In my judgment, the concern of the Firm is a legitimate one.  It is still unclear as to how the Top Point Parties are going to rely on the movements of the other escrow funds in establishing negligence on the part of the Firm.  If the Top Point Parties are relying on the breach of duty owed by the Firm to other parties in establishing negligence against the Firm in this particular claim, then the court would possibly have to deal all the claims for the loss of escrow funds in one single action.  If that is the case, does it mean that all the cases against the Firm will have to be heard together?  Does it mean that the Firm would have to justify in this particular action as to why it was not negligent in dealing with each and every escrow fund paid into the client account by other third party?

73.  The court is not provided with the details of the arguments before Master M Wong, and so I do not propose to make a final determination as to whether the movements of other “escrow sums” are relevant for the purpose of the present claim.  The matter should be left for further argument in the future.  At this stage, it would be suffice for me to say that, due to the fact that there is a genuine dispute between the parties as to the appropriateness of the redactions, the court should not strike out the Firm’s Defence and Counterclaim simply because the Firm takes a particular stance about such issue.  If the Top Point Parties are not satisfied with the redactions, they should take out a further application for the court to determine whether the redactions are appropriate in the circumstances.

(iii) CCB statements

74.  The Discovery Order specifies that the Firm is to disclose statements and records of interviews made by the Firm’s partners and staff to the CCB in relation to Aggarwal’s fraudulent activities which refer to Geminis Fund and Capital Cosmos.

75.  The Firm has disclosed the redacted Tang’s Statement, and the Firm has also confirmed that it has disclosed all the statements within this category.[28] Further, Tso explains that Robertsons had taken the “prudent and responsible step” to ask the CCB to provide the statements and interviews records.  However, the CCB replied stating that the documents had been destroyed after Aggarwal’s conviction.

76.  The Top Point Parties complain that this is not sufficient.  In light of the sheer magnitude of Aggarwal’s fraud, it would be hard to believe that there was only one record or statement made by the Firm’s partners or staff.  By relying on the CCB’s reply, the Firm seems to accept that there had been documents in the possession of the Firm but they cannot now be located.  In such circumstances, the Firm is required by the Discovery Order to reveal what has become of the documents that used to be in its possession, custody or power.

77.  I do not accept that there is any substance in such complaint.  Even if the partners and staff of the Firm had given statements to the police, that does not automatically mean that copies of these statements had been supplied to the Firm before.  So far as the Firm is concerned, it has already filed an affidavit to confirm that full discovery has been made for such class of documents.  This would be sufficient as far as the compliance of the Discovery Order is concerned.  As mentioned above[29], if the deponent says that there are no documents in the class specified, that is conclusive however incredible that may be.

78.  For the above reasons, I dismiss both the Firm’s Summons and the Top Point Parties’ Summons.  The parties are at liberty to make further applications for discovery and interrogatories resulting from these Decisions. 

79.  I also make a costs order nisi that:

(i) the costs of the Firm’s Summons be costs in the cause with certificate for 2 counsel;

(ii) the costs of the Top Point Parties’ Summons be to the Firm with certificate for 2 counsel.

80.  The costs order nisi shall be made absolute 14 days after the date of the handing down of these Decisions.