COCOA MERCHANTS LIMITED v. FERRYVIEW HOLDINGS INC. AND OTHERS

1984, No. 1346

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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RULING

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1. This is an application by Cocoa Merchants Limited the plaintiff in the issue ordered to be tried between that company and the Intervener, to administer interrogatories to the Intervener. The case is a complicated one. In short, at an earlier stage in the action the plaintiffs got judgment against the 2nd defendant, Chuang Ming Chi, for a substantial sum of money and, with the assistance of the Court appointed receivers by way of equitable execution of a parcel of shares. That having happened the Intervener claimed to be beneficially entitled to that parcel of shares under an agreement for loan and hypothecation made in February 1983. The outstanding issue is whether at the time that the plaintiffs sought to levy execution as against the 2nd defendant, the 2nd defendant was possessed of any asset or any interest to these shares capable of being executed upon.

2. The plaintiffs, I think somewhat unfortunately, were appointed plaintiffs in that issue. Because their only claim could be that on the face of the register, their judgment debtor was the registered proprietor of the shares. The claim to a beneficial interest was advanced by the Intervener in the Defence. The answer to that claim is raised by the plaintiffs in the Reply. There is unlikely to be any further pleading, so that there will be no document before the Court which summarised in any shape or form the Intervener's answers to the wide ranging allegations made in the Reply.

3. The Reply puts a number of matters in issue; the availability of the shares to the 2nd defendant at the time it is said that he entered into the pledge agreement with the Intervener: the genuineness of that, agreement; and more particularly the allegation that all this was really done by way of what I can only describe as "dynastic re-adjustment" when the 2nd defendant was in dire trouble in Singapore having apparently lost $11 m. on speculation in commodities like cocoa in a quite short period of time which was followed by, what Mr. Walker fairly described as the 'spectacular failure' of three companies with which he is associated with the total deficiency I have been told of a billion dollars Hong Kong. So the serious issue is being raised here by this judgment creditor that this adjustment happened in the family to preserve the family assets and to keep them out; putting the thing very shortly and bluntly.

4. In those circumstance, a very substantial application for interrogatories is made. It may be because there is a certain mystique about interrogatories, that it was referred to me rather than being dealt with by the Master. Interrogatories, are things, which are not very often used.  My own personal belief is that very often this is because people cannot be bothered to go to the trouble of drafting them upon a speculation: that speculation being whether they will get the leave of the Court to administer them. It may well be regarded as too much trouble. But in principle, I am minded respectfully to agree with the views expressed by Tomlin J. in Duke of Sutherland v.British Dominions Land Settlement Corporation, Limited⁽¹⁾ that "interrogatories have very often a more useful function in an action than is always appreciated. " Although it is said that they have been more popular in the Chancery Division than in the queens Bench Division in London, I have certainly met a number of cases sitting in Hong Kong where plaintiffs would have been in rather better order than they in fact were, if they had been sensible enough to administer interrogatories before they arrived at Court.

5. This is a case where I think, interrogatories are justifiable for a number of reasons. The first is that there will be no pleading further to define the matters in dispute. The second thing is the basic framework upon which the Reply is based is detailed and involves a number of limited companies, company structures and shareholdings.  Admissions in respect of certain of those holdings and that structure would save a great deal of time and money.  Thirdly, the case seems to me to fall within the principle which was expressed by Lindley L.J. in Attorney General v. Gaskill⁽²⁾ where he said in relation to the past Chancery practice upon which interrogatories are based: "The plaintiff is entitled now, as he always was, not only to discovery of facts not in the knowledge of the plaintiff or of facts which the defendant knows personally and which the plaintiff does not know, but he is also entitled to admissions if he can get them, as he very often can, so as to render it unnecessary to adduce evidence. " Although detailed allegations are raised in the pleadings and detailed particulars are given, basically all the facts asserted are particularly here within the knowledge of the Intervener.

6. With that preamble I turn to the interrogatories which are sought. I should say first that some of the interrogatories are directed to the Intervener in respect of a number of matters, some of which were known personally to him some of which were not.  But it seems to me that under the rules interrogatories can be directed to "matters in question" between the parties, and therefore the Intervener can be asked to answer interrogatories, but he can only do so to the best of his information, knowledge and belief. That formula it is agreed must be added to the end of the request for interrogatories in any event. It is important because all that anyone can do in relation to questions like this is to answer to them to the best of his knowledge. If the questions concern the affairs of companies, financial positions of companies, the activities of other persons, he can only answer subject to that framework. I think the importance of that framework was perhaps not sufficiently appreciated in the earlier stages. But it has certainly been made absolutely clear in the course of the very helpful argument that has gone on before me. This has resulted in the parties being agreed as to the appropriateness of these interrogatories down to page 12 of the 're-arranged document' that I have before me. I use that phrase because it is re-arranged under subject headings which are extremely useful.

7. I go straight on now to nos. 56 to 59. The problem here, and in certain subsequent interrogatories, is one of language. The interrogatory talks in terms of financial situation, insolvency, critical financial condition and phrases of that nature. Mr. Ma says these are ambiguous terms and they are not sufficiently precise to the subject matter of an interrogatory. Perversely in the course of the discussion that has taken place in argument it almost looked as though there are certain phrases in the vernacular which are more precise in their meaning than the perhaps more gentlemanly English in which the interrogatories are phrased. It is a curious reversal, but perhaps true. I have to decide really whether it is appropriate to permit questions in this general form, when it is very difficult, in fact, to be more precise. Is this the type of question which should be asked in this sort of case which concerns a man's solvency, the 2nd defendant's solvency, as a particular point in time, particularly either early 1983 or early 1984? Was he then in financial difficulties? Was he then going to be unable to pay his debts as they fell due? Were his companies then in financial difficulties which may come to the same thing? Was this a serious matter for anyone like the Intervener who, at that time, says that he was owed, I believe, U.S. $4,000,000 by the 2nd defendant on moneys which have been lent either to the 2nd defendant or to other persons at the 2nd defendant's request, from back in 1978 through to 1983 and 1984?

8. I think in that sort of circumstance phrases like reviewing financial situation, ascertaining whether a company was insolvent or in a critical financial position, really do not admit of such ambiguity that a question like this should be disallowed for the purposes of interrogatories.  I do not think that I would feel minded to disallow a question like that, if put either in examination-in-chief or in cross-examination. So I believe that interrogatories 56 to 59 are proper. Coming on to 68 the question gives rise to the same problem. It refers to the defendant being sought by his creditors.  Again I do not think that anyone can have any doubt as to the meaning of that. It is not being put bluntly in the phrase like: did this man leave Singapore to evade his creditors?  It is being put rather more neutrally: was he aware that creditors were looking for him? There again I do not think there is any objection to a question in that form. The same applies to the references to financial difficulties and severe financial difficulties in 80 to 83.

9. I then come on to the next, and I think more difficult group of interrogatories 84-92. They start by asking questions about a shareholder's agreement of November 1979. They go on to ask the steps taken to implement that agreement. They then ask questions about a share certificate of December 1979, and an undated declaration of trust in respect of 120 shares. They likewise go on in 92 to ask question about a letter addressed in 1982 by a firm of attorneys Graham and James in San Francisco to the Vice-President of the Federal Reserve Bank of San Francisco, giving notice that the Intervener intends to purchase 150 shares in Grandville constituting 30% of its issued and outstanding stock from the majority shareholder of Grandville, that is the 2nd defendant Mr. Chuang. It said that the proposed purchase price comes to a total consideration of U.S.$8 million, of which one million will be paid in cash, and the remaining 7 million would be offset against the cancellation of an unsecured loan in that amount made by Mr. Lim to Mr. Chuang. That is a very large sum of money and a very large transaction. One of the oddities is that a loan of that sum at that time, is nowhere referred to in any of the earlier documents. What is referred to is an agreement to lend, I think is up to U.S. $6 million made the following spring.

10. What is said here by the plaintiff is this. It is true that the issue which directly arises on the pleadings is the assertion that this agreement was made in February 1983 and certain loans were made under that agreement. We, the plaintiffs, are putting all that those facts in issue because we do not understand how this is being put together particularly when we see that the loans there alleged to be made go back to 1978. We are therefore putting this Intervener to strict proof of all these matters. The apparent conflicts between what is said by the solicitors in the letter I have just read from, and in the pleadings and the other documents are one of the difficulties.

11. Further they say they do not accept that the shares were then available to the 2nd defendant to deal with in the way alleged. They were then, in fact, held by solicitors in Hong Kong in escrow in whole or in part, for an unpaid vendor, and the unpaid vendor is said to be one of the person's named in the original shareholding agreement as one of the founder members of this particular company. All these initially are said to have taken up 120 shares, the four principal ones, because the fifth one only took up 20. In order to see how this situation could have arisen in 1983, it is necessary to go into the build up and the changes of control; the various ramifications in relation to the shares; how they changed hands; what the consideration was; what these very large sums of money which are said to be lent amount to, and how they were repaid and so on.

12. In other words what they really say is that the history of the shares and these antecedent loans is in issue in the sense that the existence or non-existence of these facts had relevance "to the existence or non-existence of the facts directly in issue," and I am there quoting from Lord Esher, M. R. in Marriott v. Chamberlain⁽³⁾.  The facts directly in issue are the availability of the shares, the amount of the loans and so on in 1983. All these questions are relevant to enable that history to be ascertained. At some stage, they add, in this hearing these facts will have to be gone into, and going into them in cross-examination at the hearing would be time consuming. It is a great deal more sensible to get the whole thing out on paper now before the hearing commences.

13. In my judgment that reasoning is in fact persuasive. I think that it makes a great deal of sense that these questions are asked now and answered now, so that the whole story can be seen from the beginning, and the beginning is the shareholder's agreement of November 1979 which formed the company in question. The trial judge should then have by way of answers to these questions the whole story in front of him as to where these shares lay, what the beneficial interests were, how that situation has been brought about, both at the time of the first material events in this case which is February 1983, and likewise the time of the second material events which is February 1984.

14. So with certain small alterations I propose to allow this group of interrogatories. The alterations are first at the end of interrogatory 85 to add the words 'in part or at all' so that the question reads "Did the parties to the shareholders agreement give effect to such agreement in part or at all?". Second to define the period of time covered by interrogatory 89 by adding at the start:

 

"prior to October 1985, did any further changes take place. "

 

To make it clear this is changes between the making of the initial agreement and that date. I likewise allow the interrogatories about the shares certificate and declaration of trust and about the questions on the matters raised in the San Francisco Attorney's letter.

15. The final pair of interrogatories arises on a plea of the Money Lenders Ordinance. That arises because in his original affirmation seeking liberty to intervene, the Intervener deposed that he "had entered into many business transactions with the 2nd defendant. Many of those transactions were not documented because of the trust that existed between the two families. In the same way I often lent money to the 2nd defendant."  There have been different schedules of loans advanced which, no doubt, will be the subject matter of much more detailed investigation at the hearing. But this has prompted aplea in the Reply that the Intervener is carrying on the business of money lending. I am minded to think that the allegation must mean carry on the business of money lending in Hong Kong.

16. Now, in these circumstances, where an allegation of money lending is made in the pleadings there is authority in the decision in Nash v. Layton⁽⁴⁾ that the person raising that allegation is entitled to interrogate the other party about the details of such transactions as he has entered into which might shed light upon the allegation that he is in business as a money-lender. In that case there was simply an allegation of loan. There was nothing else in the pleadings, or as far as I can see by way of particulars, to support the allegation that the plaintiff was in business as a money lender. That produced a vigorous dissent in the judgment of Fletcher Moulton L. J. that the request was oppressive in the circumstances of that case. With respect to the majority I am not a little sympathetic to this view. But the position here goes a good deal further than that. It is obvious that there have been a number of loans/are alleged to have been made by this Intervener to the 2nd defendant. In answer to the request for specific discovery, it was said there were no other documents. The affirmation says they were "not documented". So this certainly invites interrogatories directed to the loans made to the 2nd defendant. Mr. Ma would not have resisted an interrogatory so directed. But he said that I should not allow the interrogatory as drafted which is not so limited and particularly I should not allow the question, which was in fact disallowed in Nash as to the persons to whom the loans are made.

17. Having considered this I am minded to think that this is a case where the real issue here is whether this man is, in fact, in business as a money lender. It by no means follows, I would suspect, that the fact that he has made or he has been prepared to make loans within the family necessarily puts him in business as a money lender. From the nature of the loans made there must be a question as to the location where that business is being carried on, if any. So in the circumstances of this case, one has got a much stronger apparent background of money lending than you had in Nash v. Layton⁽⁴⁾. But the real question here is whether this is a business and therefore one of the crucial questions is whether loans have been made to anyone outside the family. I therefore believe that this is a case where it is proper to allow the interrogatory substantially as drawn, because that requires that question to be asked and its answer may well be decisive of this issue one way or the other. Because if this gentleman is able to say that this is purely family and nothing more, and that is all that the plaintiff has, I suspect that that will put an end to this particular defence. It may be a simple way of bringing that matter into the open once and for all.

18. Therefore, what I am proposing to do is to allow interrogatories 94 and 95. I have a possible alteration to interrogatory 94 which I do not think I have yet revealed. It seems to me that the qualification "other than those referred to in the pleadings filed on your behalf" is somewhat ambiguous, and it might be more precise to say "other than those referred to in the schedule of particulars under paragraph 12 of the defence. "

(1) [1926] Ch. 746

(2) 20 Ch. D. 519

(3) 17 Q.B.D.154, 163.

(4) [1911] 2 Ch. 71

(4) [1911] 2 Ch. 71