LEUNG PING CHIU, ROY appointed by Order dated 12th May 2020 to represent the ESTATE OF YANG FOO-OI, since deceased v. WAI WAI CHEN

HCA 1739/2010

[2022] HKCFI 1897

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1739 OF 2010

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BETWEEN

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DECISION

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1.  This hearing concerns the request by Mr Johnathan Lai (“Expert”), who was appointed as the Court Expert pursuant to an Order dated 22 May 2017 (“Order”), that he be provided with various documents and information for the purpose of preparing his report to the Court.

Background

2.  By a Judgement of this court dated 29 November 2016 (“Judgment”), Yang[1] was awarded the alternative remedies of equitable compensation or account of profits. This arose from the court’s finding that Vivien was in breach of fiduciary duties arising from her obligation under Proposal A to transfer 1/3 of the assets she received from Chen to Yang.

3.  Yang had passed away after the Judgment. These proceedings are conducted by the Next Friend for the benefit of Yang’s Estate.

4.  For the purpose of making an informed choice between the remedies, Yang applied for post-judgment discovery from Vivien by Summons filed on 13 December 2016.

5.  By a Decision dated 3 April 2017 (“Decision”), the court agreed that Yang should be entitled to discovery to enable her to make the election, but the court was not in a position to judge what further documents were required to enable Yang to make an informed election. The Expert was subsequently appointed to assist the court.

6.  Pursuant to the Order, §1, the Expert was appointed to prepare a report to the court. The Expert is to advise on :

“… what (if any) documents, in addition to those listed in §3 below, would be required to be provided by [Vivien] to give sufficient information to [Yang] for the purpose of enabling her to make an election between her claim for equitable compensation and her claim for an account of profits.”

7.  Under §3 of the Order, for the purpose of enabling the Expert to prepare the report, it was directed that he be provided with certain specified materials and “such documents that the Expert may request and approved by the Court, which in his opinion are necessary to enable him to advise on the matters set out in § 1 above” (§3.11).

8.  After considering the materials, the Expert wrote to the court requesting to be provided with further documents and information, which were set out in Appendix 2 of his letter dated 28 June 2017 (“Request”). There are altogether 15 items and Vivien opposes the Request, save for the first 5 items.

9.  After a call over hearing on 28 November 2017, the Request was fixed to be heard on 2 August 2018. However, due to Vivien’s post-Judgment challenge to Yang’s locus to which Yang responded with 2 applications by way of a Joinder Summons and a Rectification Summons, this matter was adjourned sine die (there was no formal order to that effect) at the hearing on 2 August 2018.

10.  Vivien’s locus challenge was subsequently dismissed by this court in 2020, to which there was no appeal. In June 2021, the Court of Appeal also dismissed Vivien’s appeal against the Judgment.

11.  After considering various letters from the parties, this matter was restored for hearing pursuant to the directions of this court’s set out in 2 letters dated 6 and 13 May 2022.

The Request

12.  In a letter to the court dated 28 June 2017, the expert stated that after perusal of the documents supplied to him, he was of the view that the documents provided to him were insufficient and it would be difficult for him to provide an advice pursuant to the Order. He identified by a list of 15 items further documents or information which he considered was necessary to review before he would be in a position to provide his advice to the court.

13.  The Expert stated that :

“I consider that most of the documents requested are the basic accounting records of [Crosby] and its subsidiaries and provision of the request documents would not be overly burdensome or oppressive to [Vivien]. On this basis, I humbly request the Court to order [Vivien] to provide me with the documents listed in Appendix 2 if they are readily available.”

14.  Items 6-15 (each in respect of the period from 2004 to 2016, save for Items 13 and 14 which cover the period from 2008 to 2016) are as follows :

Item 6: List of transactions in relation to the disposed properties shown in Annex B which the disposal price is (sic) lower than the assessable value for the purpose of stamp duty;

Item 7: Un-redacted audited financial statements of Crosby as at 31 March;

Item 8: Trial balances of Crosby as at 31 March (e-copy);

Item 9: Un-redacted audited financial statements of each of the subsidiaries of Crosby as at 31 March;

Item 10: Trial balances of each of the subsidiaries of Crosby as at 31 March (e-copy);

Item 11: Consolidating schedules of financial positions of the Crosby Group;

Item 12: Nature and details of shareholders’ loan;

Item 13: Nature and details of the amounts due from investee companies to the Crosby Group;

Item 14: Nature and details of the amounts due from a jointly-controlled entity to the Crosby Group;

Item 15: Defendants’ beneficiary (sic) interests in the abovementioned related companies, investee companies and jointly-controlled entity of the Crosby Group.

Vivien’s grounds of objections

15.  Four grounds of objection can be seen from the skeleton arguments of Vivien :

(1) The documents sought under Items 6-15 are excessive and onerous. Specific objections to each item had been identified, including: (a) the documents did not exist or had been destroyed according to the Crosby Group’s document retention policy; (b) the documents involve information with confidentiality obligations owed to third parties; and (c) the documents were voluminous, coming to “tens of thousands of pages”;

(2) On an account of profits, Yang would not be entitled to trace beyond the first level of profits, eg, sale proceeds or rental income, because any further profits had no relation to the breach of fiduciary duty on her part;

(3) Even if Yang would be entitled to tracing, post-judgment discovery does not allow her to any information relating to the tracing exercise because it is not supported by any authorities;

(4) Even if the Request is acceded to, Yang should not be given access to the information at this stage.

16.  In his viva voce submissions, Mr Dawes SC, who appeared with Mr Chan for both Defendants, (a) took the court to the materials which had already been made available to the Expert under the Order; (b) reminded the court of the principles identified in the Decision, in particular §26, which he said explained how this hearing came about; (c) addressed the purpose and scope of the account of profits; and (d) made submissions on the proper scope of pre-election discovery.

The court’s approach

17.  Regrettably, it is pointless for the court to try to encourage the parties to resolve their remaining disputes amicably or to instil proportionality in the further conduct of this highly charged litigation. In the Judgment, §233, the court recorded its concern that an account for profit was “likely to be a long and highly contentious process, and there was no evidence that it will lead to any substantial advantage over the equitable compensation.” Further, at §264, it was observed that: “Yang [was] of an advanced age and in very poor health. It is highly undesirable for the resolution of this action to be delayed”. Such comments had nought effect on the parties.

18.  It is the duty of this court to maintain discipline in these proceedings so that the other court users will not suffer from the unfair use of the court’s resources by these parties. This, and any further, interlocutory matter must be dealt with robustly and efficiently.

19.  Vivien may have difficulty accepting the findings of this court and the Court of Appeal on her breach of fiduciary duties owed to her mother. However, it will be wrong to allow her to delay the consequence of her wrong by turning every issue into satellite litigation.

Applicable principles

20.  The relevant legal principles on discovery in aid of election had been sufficiently covered in the Decision.

21.  It must be borne in mind that the Expert was appointed because the court was unable to decide without assistance on the parameters of the discovery needed to allow Yang to make an informed choice of the remedy.

22.  In the Order, §4, the Expert was directed to bear in mind the following principles and matters :

(1) In addition to §§21-24 of the Decision, it was explained in Comic Enterprises Ltd v Twentieth Century Fox Film Corp [2014] ETMR 51 that: “Island Record v Tring disclosure is not intended to be an onerous and totally accurate exercise. It is intended to give the Claimant what I might call an order of magnitude idea as to what the Claimant might be able to get at the end of the day”;

(2) Under the remedy of an account of profits, if the account discloses an unauthorised disbursement by the fiduciary using the trust money or trust property, the Plaintiff may ask for the disbursement to be disallowed (i.e. falsifying the account), thus requiring the fiduciary to make good the deficit, or to adopt the disbursement as authorised, and to treat any investments and profits made with the disbursement as part of the trust fund; and

(3) Costs reasonably incurred for any profits derived should be deductible.

23.  These directions were given after having considered the position of the parties on the appropriate guidance to the Expert. It is evident from the Expert’s letter to the court that para (1) had been taken into account by the Expert.

Yang’s response to Vivien’s objections and the court’s analysis

24.  First, Yang says that Vivien’s approach is illegitimate and highly unfair because she had previously sought leave to file additional evidence for this hearing, which was declined by the court. Further, it is impermissible for her legal representatives to give evidence via submissions. The suggestion of an undertaking to file an affirmation to verify the new evidence given in submissions is abusive. A party cannot slip in evidence against the directions of the court by offering such undertaking.

25.  The new evidence was not foreshadowed in any correspondence. The letter of Vivien’s solicitors dated 25 April 2022 seeking leave to adduce additional evidence referred to updating the grounds of opposition because there had been “new developments in the matter” since 2017. However, none of the new evidence relates to any new developments.

26.  Plainly, there are strong merits in Yang’s complaint, and this court shall ignore the new evidence contained in Vivien’s skeleton arguments. On the other hand, I am prepared to accept that given Crosby’s business as a land developer it might well have a number of subsidiaries and engaged in joint venture with other developers from time to time.

27.  Second, on legal principles, I am unable to agree with Mr Dawes that there is no tracing claim by Yang. I believe that Yang’s tracing claim which arose from Vivien’s breach of trust can be seen from the Judgment, §§126, 148, 151-156, as well as the Court of Appeal’s Judgment, §§148 and 237.

28.  I agree with Mr Yu SC, who appeared with Mr Lam for Yang, that the authorities relied upon by Vivien concerned breaches of copyright, patent or trademark. An account of profits in these contexts is not the same as the present which involves an account to be given by a fiduciary who profited from applying her principal’s money for her own benefit (see Tang Ying Loi v Tang Ying Ip (2017) 20 HKCFAR 54, §§15, 16 and 27). In the case of the former, there was no tracing remedy.

29.  In respect of Vivien’s arguments on limiting the account of profits in terms of time, causation and attribution, I fail to see why Yang should be shut out at this stage based on trite principles of tracing. For instance, and I agree with Mr Yu, it is difficult to see why the discovery should be limited to immediate profits. It will be part of the later account exercise for the court to decide whether to accept Vivien’s contention that, eg, the second level profits were attributable primarily to the skill, expertise and labour of the Crosby Group.

30.  I am unable to accept Vivien’s submissions on legal inhibition to the Request. The issue was ventilated at the hearing on 3 April 2017 and the Decision was given.

31.  Third, I agree with Mr Yu that considerable weight should be given to the Expert’s view that the documents made available to him are not sufficient for him to provide the advice to the court.

32.  The Expert’s view on the additional materials should be readily acceded to in the absence of clear and sufficiently strong reason. Otherwise, the whole purpose of appointing the Expert would be defeated, and everyone would be back to square one on Yang’s discovery application in aid of election.

33.  There is neither clear nor sufficiently strong reason not to accede to the Request.

34.  I see no valid reason to doubt the Expert’s view that the Request concerns readily available documents and it is not unduly onerous to comply with it. Items 7-11 are basic accounting documents and can reasonably be expected to be readily available. As to information relating to the shareholders’ loans and amounts due from investee companies or jointly controlled entities (items 12-14) and Vivien’s interest in these companies (item 15), these should all be readily available in the accounting or company documents.

35. Vivien is a person of considerable resources. If the compilation of the documents requires time and manpower, it is the consequence of her breach of duty. In any case, I believe that the amount of documents involved is overstated. The Request does not ask for the underlying source documents.

36.  Fourth, I can accept that in light of the substantial monetary amount and/or number of properties at stake, the discovery required to be made by Vivien will be a heavy responsibility. However, it should not be forgotten that she had been found by the court to be in breach of fiduciary duties, and it is her duty, if so elected by Yang, to return the benefits obtained by her breach. It was she who decided to use the trust properties the way she did and to keep the profits for many years. She can hardly complain about the consequence of her use of the trust properties.

37.  Direction (1) (see para 22 above) given to the Expert confines the scope of the discovery exercise within legitimate boundaries. I am satisfied that the Request is both within the boundaries and necessary in order for the Expert to assist the court.

38.  In respect of any document which is no longer in existence, Vivien should provide an explanation in an affirmation with reference to document(s) where appropriate, eg, the Crosby Group’s document retention policy (assuming there exists such a document).

39.  Fifth, I am prepared to assume that some of the requested documents may contain confidential information involving third parties because the Crosby Group was engaged in land development and it was not uncommon for such development to take the form of joint venture.

40.  However, the court is guided by the following :

(1) The fact that confidentiality obligations are owed to third parties is a factor to be taken into account. It is not of itself a reason to refuse discovery: see Hollander: Documentary Evidence in Hong Kong, 2^nd edn, [10-003] to [10-007];

(2) It is trite that making discovery of documents subject to confidentiality obligations under compulsion of a court order would not be a breach of the confidentiality obligations;

(3) Any document or information disclosed under compulsion of a discovery order is subject to an implied undertaking preventing the receiving party to use those documents and information for collateral purposes: see Hong Kong Civil Procedure 2022, Vol 1, [24/14A/1].

41.  There is no evidence of any real prejudice which will be suffered by Vivien or other third parties in the event of discovery. I am satisfied that the implied undertaking would be sufficient protection against any misuse of the disclosed information, bearing in mind that the Next Friend is an officer of the court. Out of abundance of caution, the Expert may be appropriately remained that the materials supplied to him are not to be used for collateral purposes.

42.  Finally, I am unable to agree with Vivien that the Requested information should be kept from Yang until the Expert has rendered his report. It appears that the concern is to maintain confidentiality over the information. On the other hand, there is no evidence on the harm in letting Yang have the information. I also bear in mind the implied undertaking not to misuse the information for collateral purposes.

43.  There is clearly a need to provide Yang with the information supplied to the Expert because the Next Friend will need to know what information and documents the Expert had considered before he can make submissions to the Expert under §5 of the Order prior to the finalisation of the Expert’s report.

44.  I do not consider it appropriate to defer the decision on allowing Yang access to the information. It is highly likely that it will be another substantial interlocutory battle, if not a satellite litigation. It is rare for litigation to be conducted with information withheld from a party. I see no sufficient reason to do so here. Further, in the interest of economy of procedure, costs effective and expeditious disposal of these matters, there should be no delay in providing Yang with the Requested information.

Disposition

45.  For these reasons, I order the disclosure sought in the Request. I allow 42 days from today for compliance. Minor amendments are to be made to Appendix 2, which had been discussed at the hearing. The draft order before the court is approved with amendments to reflect the above, including attaching a copy of the amended Appendix 2 to the order. In addition, the documents, information and affirmation are to be served on Yang.

46.  I am grateful to counsel for their assistance.