MCYP v. CWYW

CACV 413/2022, [2023] HKCA 1196

On Appeal From [2022] HKFC 147

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 413 OF 2022

(ON APPEAL FROM FCMC NO 11432 OF 2018)

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J U D G M E N T

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Hon Yuen JA (giving the Judgment of the Court):

1.  This is an appeal from a Judgment of DDJ R. Chow (“the Judge”) given on 26 July 2022 (“the Judgment”)[1] in an application by the Respondent (“the Wife”) in ancillary relief proceedings for non-party discovery against three companies (“the Companies”) in which the Petitioner (“the Husband”) has shareholdings.

2.  The application before the Judge was conducted by way of written submissions only. Before this court, the Wife was represented by Ms Anita Yip SC[2] and the Companies were represented by Ms Rachel Lam SC[3]. The Husband did not file submissions and his attendance was excused.

Background

3.1.  The Husband and Wife were married in 1995 and have 3 adult children. The Husband is a businessman from a wealthy family.

3.2.  In 2018, the Husband petitioned for divorce. The couple exchanged Form E’s in May 2019 followed by two rounds of answers to questionnaires in 2020.

3.3.  The Husband has shares in a number of companies, the value of which shares are obviously relevant to the Wife’s claim for ancillary relief.

The Companies

4.  The present appeal relates to the 3 Companies which are said to be the Husband’s most valuable assets[4]. They are referred to as KC & Co Ltd (“KC”), H Ltd (“HL”) and TSLD Ltd (“TSLD”).

-  KC is a private company (which has interests in a bank “TSB”) in which the Husband has 25% of the issued shares[5]. He is one of 13 shareholders, and one of 7 directors.

-  HL is also a private company in which the Husband has 26.28% of the issued shares[6]. He is one of 12 shareholders, and one of 6 directors.

-  TSLD is a public company listed on the Hong Kong Stock Exchange (“HKSE”) in which the Husband has 0.0444% of the issued shares[7]. He is also a director of this company.

5.  Although there had been negotiations between the legal representatives of the Wife and the Husband that a single joint expert be appointed for valuation of the Husband’s shareholdings at a fair market value, this was eventually rejected by the Husband whose case[8] was that:

-  the value of his shares in TSLD can be ascertained by reference to the price quoted on the HKSE; and

-  no market value can be attached to his shares in KC and HL, for a market sale is impossible as transfer of shares in these private companies to third parties is restricted under the terms of his late father’s Will (“the father’s Will”) and these companies’ articles of association. As a minority shareholder, he has no controlling power in these companies and any proposed sale and/or transfer of his shares to outsiders would not be approved by the boards in view of the terms of the father’s Will.

The Summons

6.1.  On 14 December 2020, the Wife filed a summons for an order for discovery by the Husband.

6.2.  On 5 May 2021, the summons was amended for an order for discovery by the 3 Companies as well. By a consent order given on 23 December 2021, the Judge gave leave to re-amend the summons.

6.3.  The re-amended summons (“the Summons”) with an attached schedule (“the Schedule”) was filed on 24 December 2021. In the Summons, the Wife sought the following orders (among others):

“1. Mr Frank Yuen [“FY”] of Frank Forensic and Corporate Recovery Ltd be appointed as the Respondent’s expert to prepare expert reports on the fair market value of the Petitioner’s beneficial interests (including direct and indirect shareholdings) in respect of each of the following companies as at 31 March 2021:

(i) [KC]

(ii) [HL]

(iii) [TSLD]

(collectively, the “Valuation Reports”)

and shall file such Valuation Reports within 70 days upon the provision of all information and documents by the Petitioner, [KC], [HL] and [TSLD] pursuant to paragraphs 2, 3, 4 and 5 herein below.

2. The Petitioner do produce:

(1) updated organizational charts of [KC], [HL] and TSLD respectively as of 31 March 2021;

(2) the audited financial statements [“AFS”] for TSLD for the year ended 31 December 2020;

(3) the [AFS] for [KC] for the year ended 31 March 2021;

(4) the [AFS] for [HL] for the year ended 31 March 2021;

(5) the [AFS] of [TSB][9] for the year ended 31 December 2020

within 42 days from the date of the Order.

3. [KC] do produce all documents as per items 1, 2, 3, 4 of the Schedule to the Respondent as requested by [FY] for the preparation of the Valuation Reports within 42 days from the date of the Order.

4. [HL] do produce all documents as per items 1, 2, 5 of the Schedule requested by [FY] for the preparation of the Valuation Reports within 42 days from the date of the Order.

5. TSLD do produce all documents as per items 1, 2, 6 of the Schedule to the Respondent as requested by [FY] for the preparation of the Valuation Reports within 42 days from the date of the Order”.

(Emphasis added).

6.4.  By the time the matter came before the Judge, the items in the Schedule which remained in issue between the Wife and the Companies fell into 4 categories which are set out in §9.2 below.

7.1.  The Summons was supported by 2 affirmations from the Wife (4^th and 8^th). It was opposed by 2 affirmations of the Husband (2^nd and 4^th), an affirmation of KM a director of KC and HL, and an affirmation of AM, a director of TSLD.

7.2.  In the Wife’s 4^th affirmation filed on 14 December 2020, she

-  referred to her proposal for a single joint expert which had been rejected by the Husband[10],

-  said “I do not seek an appointment of SJE [Single Joint Expert]” because of the Husband’s “resistance”[11], and

-  referred to FY repeatedly as “my own expert”[12].  

These matters are relevant to one of the points argued before us by Ms Yip, which will be discussed later in this Judgment[13].

7.3.  The Wife exhibited a resume of FY[14], and referred to seeking his advice and explanation on the following matters:

(A)  If he were asked to value the 3 Companies for the purpose of ancillary relief, what would be the basis of his valuation?

(B)  Whether the proposed valuation figures for the 3 Companies in the Husband’s Form E are the appropriate valuations for the 3 Companies? If no, why?

(C)  What documents and information would FY need to prepare the valuations for the 3 Companies?

FY’s Notes

8.1.  The Wife exhibited “a true copy of the Note from [FY] dated 11 December 2020” (“FY’s 1^st Note”). This document of 28 pages was headed “Note of Advice”. The writer states (§§87-88) that he had read the Code of Conduct for expert witnesses, and that if required, he was willing to produce the above content in the form of an expert report and verify it by a statement of truth.

8.2.  At the end of p.26[15], FY’s full name is typed out, but no signature appears on the document.

8.3.  The above matters are relevant to the decision of the Judge on admissibility of FY’s Note(s) which will be discussed below[16].   

8.4.  FY’s 1^st Note referred to the instructions to advise on the questions in §7.3 above, and then set out the following (in summary):

(A)  The basis of valuations for the 3 Companies would be “Market Value”. He set out 6 different bases of valuation, and explained why 5 bases were not appropriate for the present purpose[17].

He then addressed the reasons given by the Husband’s legal representatives for saying there was no open market for the shares in KC and HL. He then discussed 2 issues on using fair market value as the basis of valuation of these shares, being:

(i)  the existence of a market, and

(ii)  fairness.

In relation to (i), the writer said that the group of “family members” mentioned in the father’s Will and the articles of association constituted a “market” as defined in the IVS104 basis of valuation in the International Valuation Standards 2020 approved by the International Valuation Standards Council[18].

In relation to (ii), the writer said it was not uncommon for there to be restrictions on transfer of shares or pre-emptive rights, and “on the basis that there are willing sellers and willing buyers who shall act rationally and without compulsion, a market would still exist for the shares and therefore, fair market value should be used as basis of value for the valuation of [KC] and [HL]”[19].

(B)  The writer said it was inappropriate to adopt the Husband’s estimated value of the shares in the 3 Companies[20] for the following reasons.

KC

(i)  The “Company level NAV” point

The Husband had arrived at the value of his shares ($304,071,121.18) by multiplying only the “Company level” net asset value (“NAV”) of KC as at 31.3.2018 ($1,216,284,484) by 25% (his shareholding).  

(1)  However, the writer said this ignored the financial positions of KC’s subsidiaries and associates[21] (which include TSB), and the Consolidated NAV as at 31.3.2018 ($1,286,991,908) was $70,707,424 more than the Company level NAV ($1,216,284,484).

(2)  Further, the writer said that KC’s AFS for the year ended 31.3.2018 had not reported 6 types of assets at fair market value, as:

(i)  Property, plant and equipment,

(ii)  Leasehold land, and

(iii)  Overseas freehold land and building

were recorded at cost (ie historical value), with no professional valuations;

and

(iv)  interests in subsidiaries

(v)  interests in associates, and

(vi)  available-for-sale financial assets[22]

were recorded at cost (ie historical value) less provision for impairment losses, and the details of unlisted shares were unknown. Specifically, the writer considered, by reference to takeover offers for other banks, that the bank licence of TSB, an associate company of KC, was of substantial value.

(ii)  Assets held by the father’s estate on trust for KC

The writer said it was not known if assets stated in the father’s Will as held on trust for KC have been accounted for.

(iii)  The Husband’s shareholding as stated in Form E

The writer said that the Husband’s estimate of the value of his interest in KC was not correct as:

-  he had not disclosed that he also had 10,000 B shares in KC, and

-  his indirect interest in KC through his shareholding in HL and his interest in his father’s estate had not been included.

HL

(i)  HL NAV

The writer said that the HL NAV did not reflect the fair market value of the shares in HL, as:

-  in respect of unlisted shares:

-  they were only recognized at cost less impairment losses,

-  details were unknown, and

-  it was uncertain if the value of HL’s investments in KC and TSLD had been included.

(ii)  The Husband’s shareholding as stated in Form E

The writer said that the Husband had not taken into account his indirect beneficial interest in HL through his shareholding of KC.

TSLD

(i)  Price quoted on the HKSE

The writer said that the price quoted on the HKSE was inappropriate for the valuation, as:

(a)  the PE ratio of this company was much lower than those of comparable companies;

(b)  the share prices of this company showed a substantial discount (79% - 84%) to the NAV, which may have been caused by thin trading volume;

(c)  the trading volume has been thin from 2015 to 2020;

(d)  the share price may not reflect or include the value of the company’s goodwill, including its listing status.

(ii)  TSLD’s beneficial interest in shares in private companies

The writer said it was not known if the shares stated in the father’s Will as held on trust for TSLD have been accounted for in its annual report.

8.5.  On the basis of the above, FY stated that he needed data which could be categorized into 3 groups:

(a)  Company-specific data, being the documents listed in Annex 1, some of which have been reproduced in the Schedule;

(b)  data about the subject company’s industry and economic environment;

(c)  data about the market for ownership interests in the subject company.

8.6.  As noted above, FY’s 1^st Note was exhibited to the Wife’s 4^th affirmation in support of the Summons.

8.7.  The Husband then filed his 2^nd affirmation exhibiting a Note of Advice from Eric Pat, his accountant, and producing various documents.

8.8.  The Wife then filed her 5^th affirmation exhibiting a Note of Reply of FY (“FY’s 2^nd Note”) to Mr Pat’s Note of Advice. A revised Annex 1was exhibited.  

8.9.  On 28 September 2021, KM a director of KC and HL, filed an affirmation stating, among other things, that:

-  the intention of both companies is to continue running as going concerns, and for the shares to remain within the family not readily disposable on the market,

-  the value of the Husband’s interests in the companies can be calculated based on the AFS provided,

-  in March 2021, some shares in KC were transferred between family members, and the Stamp Duty Office was content to adopt the NAV as shown in the AFS supplemented by updated management accounts without question,

-  KC’s auditors had accepted the net realisable value of vehicles in its car trading business,

-  as for HL, over 90% of its investments is in listed securities in Hong Kong and their fair values are based on quoted prices,

-  as the documents and information sought by the Wife were confidential and not even generally available to shareholders of the companies, the boards had rejected her request for them, and

-  production is not necessary and it is oppressive for the Wife to ask for them.

8.10.  On the same day, AM, a director of TSLD, filed an affirmation stating, among other things, that:

-  as a listed company, its audited annual and unaudited interim reports are required to be published on its website and on the website of the HKSE,

-  the documents and information sought contain price-sensitive information, and disclosure to the Wife would be to the prejudice of public investors,

-  as the documents and information sought by the Wife were confidential and not even generally available to shareholders of the company, the board had rejected her request for them, and

-  production is not necessary and it is oppressive for the Wife to ask for them.

8.11.  On 23 November 2021, the Wife filed her 8^th affirmation exhibiting FY’s Note of Advice dated 22 November 2021 (“FY’s 3^rd Note”).

9.1.  Directions were given by the Judge for written submissions to be filed.

9.2.  By the time the matter was considered by the Judge,

-  there were no outstanding issues between the Husband and the Wife as regards the Summons[23];

-  the Companies having provided a number of documents to the Wife[24], there remained 4 categories of requested documents (“the Requested Documents”) in contention between the Wife and the Companies.   

THE REQUESTED DOCUMENTS

Category 1

(applicable to all 3 Companies, i.e. A1, B5 and C8[25])

Detailed breakdown of

-  liabilities, and

-  outstanding borrowings

of each of the Companies as at 31 March 2021; and

documents to support the existence of each of the liabilities and borrowings.

Category 2

(applicable to all 3 Companies, i.e. A2, B6 and C9)

Detailed breakdown of non-current assets (including but not limited to property, plant and equipment, leasehold land, investment properties, overseas freehold land and building, and available-for-sale financial assets) of each of the Companies as at 31 March 2021; and

valuation report(s), if any, on fair market value basis of each item within the aforesaid non-current assets owned by each of the Companies as at 31 March 2021.

Category 3

(applicable to all 3 Companies, i.e. A3, B7 and C10)

Management accounts and/or AFS for the last 3 consecutive fiscal years of

-  each associate, and

-  each company in which the Company owns less than 20% voting power for 3 fiscal years before 31 March 2021,

including:

-  in the case of KC, two specifically identified companies

-  in the case of TSLD, three specifically identified companies.

Category 4

(applicable to KC only, i.e. A4)

List of inventories of KC as at 31 March 2021.

The Judge’s Judgment

10.  For the reasons set out in the Judgment, the Judge dismissed the Wife’s summons and ordered her to pay the costs of the Companies with certificate for counsel on an indemnity basis, with no order as to costs as between the Wife and the Husband.

Appeal

11.  The Wife applied to the Judge for leave to appeal, which was granted on 10 October 2022.

Grounds of Appeal

12.  There are essentially 4 grounds of appeal which may be summarized as follows.

(1)  The Judge was wrong in holding that FY’s Note(s) was/were inadmissible evidence.

(2)  The Judge was wrong in adopting an overly restrictive approach in assessing the “necessity” requirement.

(3)  The Judge misunderstood and misread FY’s Note(s).

(4)  The Judge was wrong in ordering the Wife to pay the Companies’ costs.

Respondent’s Notice

13.  On 28 October 2022, the Companies filed a Respondent’s Notice to affirm the Judgment on additional and/or alternative grounds.

DISCUSSION

(1)  Admissibility of FY’s Notes

14.  In §§87 - 137 of the Judgment, the Judge summarized FY’s 1^st Note, and set out his views on the points made in it. However, at §§139-146, he held that it was inadmissible as FY did not prepare any affirmation for the application, and both notes[26] were unsigned. The Judge noted that neither the Husband nor the Companies had raised this point, but said “I do not consider it right for me to ignore it by reason of the quasi-inquisitorial role of the Family Court”. He concluded that the Wife’s Summons must therefore be dismissed.

15.1.  With respect, it would appear that the Judge had failed to take into account s.47(1) Evidence Ordinance Cap. 8 which provides that in civil proceedings, evidence shall not be excluded on the ground that it is hearsay unless (a) a party against whom the evidence is to be adduced objects to the admission of the evidence; and (b) the court is satisfied, having regard to the circumstances of the case, that the exclusion of the evidence is not prejudicial to the interests of justice. In the present case, it is clear from §145 of the Judgment that the Companies had not objected to the admission of FY’s Note(s) as hearsay evidence.

15.2.  In deciding that FY’s Note(s) were inadmissible, the Judge referred to Order 38 Rule 37C(1) of the Rules of the High Court[27], which is contained in Part IV setting out the rules for expert evidence. Rule 37C refers to “an expert report disclosed under these Rules”. It provides that an expert report disclosed under these rules is not admissible unless the report contains a declaration by the expert witness that he agrees to be bound by the code of conduct, understands his duty to the court and has complied with that duty. The Judge considered that no declaration had been made as he mentioned that the Note(s) were unsigned, even though the declaration had been referred to in FY’s 1^st Note.

15.3.  However, in our view, that rule did not apply at the stage of the application before the Judge. FY’s Notes were not “expert reports disclosed under these rules”. The Notes simply explained why the Wife was applying for the Requested Documents, so that FY may subsequently prepare an expert report which would then be disclosed under those rules[28].

16.1.  Accordingly, this ground of appeal has been established. Indeed, Ms Lam for the Companies adopted a neutral position on this ground and noted that it was raised by the Judge on his own volition.

16.2.  In light of the above, the Judge’s order dismissing the Summons on this ground alone must be set aside. Accordingly, it falls to this court to determine the Summons by reference to the materials before the Judge, although we will take into account the Judge’s views on them insofar as expressed in the Judgment.

(2)  The “necessity” requirement

17.1.  Section 47B of the District Court Ordinance empowers a court to order discovery against a non-party.

17.2.  Order 24 r.7A(2) RDC sets out the procedural requirements for an application for non-party discovery.

17.3.  Order 24 r.8(2) RDC provides that “no order for the disclosure of documents shall be made under section ... 47B of the Ordinance, unless the Court is of opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs” (emphasis added).

18.  Ms Yip’s submission on necessity was encapsulated in her skeleton submissions as follows:

“27. The unique feature of this case is that FY has already been appointed (by consent) as an expert and has been tasked by the Court to do W’s valuation of H’s shareholdings (direct and indirect) in the Companies. It effectively means that FY is free to use his own methodology to come to his valuation. Based on FY’s expertise, he requests the [Requested Documents] to complete the valuation exercise. He has already explained in his notes why the documents are needed. Plainly, necessity was established as FY needed the documents to discharge his function as the court-appointed expert”.

“30. The Learned Judge ought to have held that, unless H and/or the Companies can show that the request for specific documents/information is clearly and plainly irrelevant or oppressive, they should not be permitted to deny ‘necessity’ or what FY deems necessary documents he requires for compiling his expert report”.

(Emphasis added).

19.1.  We do not agree with that submission. First, the two consent orders, made on 27 April 2021 and 23 December 2021[29] respectively, were only for leave to amend and re-amend the Wife’s summons. Although the Husband had originally[30] indicated his consent to appointing another person as Single Joint Expert, eventually no order (by consent or otherwise) was made.   

19.2.  Second, the order made on 23 December 2020[31] was for FY to be appointed as the Wife’s expert (as she well understood from her references to him as her own expert in her affirmations[32]) and the only directions given were for the time of production of his report.  

19.3.  Third, the order of 23 December 2020 was made without having heard the Companies, as the summons for non-party discovery against the Companies was not filed until 5 May 2021. The Companies could not be bound by issue estoppel even if any decision on necessity had been made by the court, which it had not.

19.4.  Fourth, in any event, even in the case of a single joint expert appointed by the court, the court is not bound to accept the expert’s opinion, which would include his methodology and his views as to what would be required for its application[33].

19.5.  Accordingly, Ms Yip’s submissions that “necessity was established” and “the ... Companies should not be permitted to deny necessity” are rejected. We will therefore consider the submissions of Ms Yip and Ms Lam in relation to each category of Requested Documents below, with the burden on the Wife to satisfy the requirement of necessity.

(3)  The Requested Documents       

20.1.  Whether the necessity requirement is satisfied in an application for non-party discovery depends on all the circumstances of the case. The relevant backdrop in the present case is as follows.

20.2.  First, it is important to note that the Husband does not have a controlling interest in KC or HL, let alone TSLD. This is not a case of a private company being a party’s alter ego.

20.3.  Second, the Husband is only one of 7 KC and 6 HL directors, and there is no evidence that he is the chairman, or the managing director, or otherwise controls the board of either company. The Wife has not adduced any evidence, other than her bare assertion, that the Husband “has ganged up with his siblings”[34] to refuse her requests. The mere fact that the other directors are the Husband’s siblings/cousins (which is normal in family companies established by a patriarch) does not create such a presumption.

20.4.  Third, an important consideration is that the Wife has already been provided by the Companies with:

-  the AFS of KC and HL for y.e. 31 March 2017 to 31 March 2021,

-  the Annual Reports (containing AFS) of TSLD for y.e. 31 December 2017 to 31 December 2020, and

-  the Annual Reports of TSB[35] for y.e. 31 December 2016, 31 December 2017 and 31 December 2020 (the Wife has previously been provided with the AFS and the Financial Disclosure Statements of TSB for y.e. 31 December 2018 and 31 December 2019).  

21.  In B v B (Matrimonial: Discovery)[36], Dunn J held in the Family Court (in an application against the husband only) that:

“In many, perhaps most, cases, audited accounts of companies of which the husband is a shareholder will be sufficient, together with full disclosure of all the husband’s personal financial records. But there are cases when the court will go behind company accounts and order discovery of company books and documents, if it has the power within the law and within the Rules to do so. It is not usual however for the court to take this course unless there is evidence before it from accountants or other experts that the published accounts of the company cannot be relied upon”. (Emphasis added).

22.  The issue therefore is whether, against the backdrop referred to above, the Wife has shown that the AFS of the 3 Companies are unreliable such that it is necessary for the court to order discovery of the Requested Documents. In addition, it is clear beyond argument that a sense of proportionality is required when the court considers whether it should exercise its discretion to do so.

Category 1 (i.e. A1, B5 and C8)

23.1.  In respect of Category 1, the Judge appears not to have dealt with it in his Judgment.

23.2.  As mentioned above, the AFS of KC and HL as well as the Annual Reports of TSLD (including the AFS) have been provided to the Wife. The companies’ liabilities and borrowings can be found in them. In FY’s Note, the only explanation given for further requesting “detailed breakdowns” is at §86(d):

“The detailed breakdown of liabilities of the Group ... provide information on the nature and details of its liabilities. Depending on the valuation methodology selected by the expert for the Valuations, the details of the liabilities may have an impact on the assumption(s) and/or adjustments made for the Valuations and hence, the values of the Companies assessed”. (Emphasis added).

23.3.  The first sentence merely states the obvious and does not add anything useful for the court’s consideration. As for the rest of the passage above, it is expressly contingent on the valuation methodology to be selected, and even then, only “may” have an impact on any assumptions or adjustments made for the valuations. It clearly does not justify the oppressive nature and wide-sweeping extent of this request against non-parties, when the Hong Kong Court of Final Appeal has held that even between the parties to the matrimonial proceedings themselves, the principle that “ ... the outcome of ancillary relief cases depends upon the exercise of a singularly broad judgment that obviates the need for the investigation  of minute detail ...”[37] should be applied to the exercise under s.7 Matrimonial Proceedings and Property Ordinance when making orders for ancillary relief[38].

24.  The requests made against all the Companies for this category of documents (i.e. A1, B5 and C8) should therefore be rejected.  

Category 2 (i.e. A2, B6 and C9)

25.1.  In respect of Category 2, the Judge considered[39] that the application for this category should be granted for KC (i.e. A2) and HL (i.e. B6), but not for TSLD (i.e. C9).

25.2.  As noted by FY, the AFS of KC revealed that the value of non-current assets[40] of this company was recognized at cost[41] (i.e. historical value) less provision for impairment losses, and the revaluation of its investment properties was done by the directors[42], not professional valuers. Whilst this may be adequate for an auditing exercise, it is not adequate for even a broad brush valuation to form a base value for the s.7 exercise. From this base value, the court would then have to consider the impact (if any) of the restrictions placed by the father’s Will and/or the articles of association on transfer of shares on the value of the Husband’s shareholdings[43], but the provision of this category of Requested Documents is necessary in the first instance to assess the base value (albeit on a broad brush basis) of the shares of these two companies. The request made against KC for this category of documents (i.e. A2 and B6) is therefore allowed.

26.  HL’s non-current assets comprise only of “available-for-sale financial assets” which were also recognized at cost less impairment losses. Insofar as the unlisted securities are concerned, they would be covered by the request in Category 3, which will be discussed later in this Judgment.

27.1.  As for the listed company TSLD (i.e. C9), we agree with the Judge[44] that the Wife has failed to show why this category of documents is necessary. She has failed to show why this public company’s AFS are unreliable, given the stringent audit and accounting requirements in the Listing Rules. The matters raised by FY, such as a low PE ratio and thin trading volume, do not demonstrate that the stock price on the HKSE is not the fair market value.

27.2.  Further, the documents sought are price-sensitive information. Even though the Wife has offered a specific undertaking to keep the information confidential, we consider that it would be oppressive and disproportionate to expose TSLD to the risk of a leak, however inadvertent.

27.3.  The request made against TSLD for this category of documents (i.e. C9) should therefore be rejected.

Category 3 (i.e. A3, B7 and C10)

28.  In respect of Category 3, the same reasons in §§27.1-27.2 above apply to the request made against TSLD for this category of documents (i.e. C10), which request should therefore be rejected.

29.1.  As for this category of documents relating to HL (i.e. B7), the principal activity of this Company is “long term investment in shares”[45]. This company did not have consolidated financial statements as it had no subsidiaries or associates[46]. However, its available-for-sale financial assets include unlisted investments in Hong Kong[47] which value have been recognized at cost (ie historical value) less impairment losses[48]. Accordingly, for the purpose of valuing HL, we consider it is necessary to order discovery of the AFS of these companies.

29.2.  However, it has not been shown why management accounts would be required in addition to the AFS. In FY’s Notes, he refers to “management accounts and/or AFS”, without any explanation as to why management accounts would be necessary in addition to the AFS. Accordingly, the request made against HL for the AFS in this category of documents (i.e. B7) is allowed (but not the request for the management accounts).

30.1.  As for this category of documents relating to KC (i.e. A3), KC did have consolidated financial statements. Whilst its subsidiaries and associate companies were identified[49], it was observed by FY that they did not identify companies in which it had less than 20% holdings. Therefore, it was not known if they had, or had not, been included as “available-for-sale assets”. Further, investments in associate companies and “available-for-sale financial assets” which do not have a quoted market price are stated at cost (i.e. historical value) less provision for impairment losses[50]. For the same reasons as set out for HL above, subject to one exception, we consider it is necessary to order discovery of the AFS (but not the management accounts) of these companies.

30.2.  The exception referred to above is in relation to KC’s associate company TSB. We consider that the Wife has failed to show why documents in relation to TSB are necessary when its Annual Reports have been provided (which the Judge appears to have failed to take into account). FY did not refer to the bank’s Annual Reports in his Notes and has not suggested any unreliable items in them. Ms Yip[51] has only fallen back on her general argument that if FY said he needed a document, then the “necessity requirement is satisfied”, which argument we have rejected above.

Category 4 (i.e. A4)

31.  This relates to the inventories of KC, being motor vehicles. In KC’s AFS, the estimated net realisable value of inventories is stated to be by reference to the opinion of the directors only[52]. In FY’s 1^st Note, he noted a substantial write-down and said details of these inventories were necessary so that an expert (e.g. a specialised appraiser)[53] could consider if the reported values represented their fair market value. As it would appear from Note 13 of the AFS that the auditors have not independently verified the realisable value of the vehicles, we consider that Category 4 is necessary.

(4)  The Judge’s Costs Order

32.1.  As the Judge’s order that the Wife do pay the Companies’ costs on an indemnity basis was no doubt influenced by his view on the inadmissibility of FY’s Notes which led to his dismissal of the Summons, it must follow that this order should also be set aside.

32.2.  However, it is well-established that the starting point is that a non-party against whom discovery is sought would normally be entitled to its costs. We do not consider that the Companies’ opposition to the Summons was unreasonable, particularly when the Wife sought to argue that they were “not permitted to deny necessity”.   

Costs of the appeal

33.  As for the costs of the appeal, we note that we have found in favour of the Wife in relation to some items, but have upheld the Companies’ resistance to the requests for discovery for some other items. In light of this, we would make a costs order nisi that:

-  the Wife do pay the Companies’ costs below on a party and party basis, and

-  there be no order as to costs of the appeal (including the costs of the application for leave).