TAIHAN GLOBAL HOLDINGS LTD v. LAU SIU MING AND OTHERS

HCA 1687/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 1687 OF 2011

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D E C I S I O N

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1.  For alleged non-compliance with an unless order for disclosure, the plaintiff[1] (“Taihan”) applies to strike out the pleadings of the 2^nd defendant (“Yuanzhi”) and the 3^rd defendant (“Winful); and to enter judgment against these defendants respectively. Before me are also Taihan’s summonses for leave to file and serve 2 further affirmations respectively in support of its present application.

BACKGROUND

2.  The unless order in question was made by the master on 17 October 2012 (“the Unless Order”) pursuant to and in terms of Taihan’s summons for such purpose filed on 12 October 2012:

“1. Unless by 4:00 pm on the 31^st October 2012, the 2^nd Defendant discloses the credit balance of its bank account with Bank of China (Hong Kong) Limited numbered 012-883-92-11697-3, the 2^nd Defendant be debarred from defending the Plaintiff’s claim and judgment be entered for the Plaintiff with costs;

2. Unless by 4:00 pm on the 31^st October 2012, the 3^rd Defendant discloses the credit balance of;

a. the 3^rd Defendant’s multi-currency bank account with The Hongkong & Shanghai Corporation Limited numbered 808-804520-274, 808-804520-285 and 808-804520-292;

b. the 3^rd Defendant’s bank account with Bank of China (Hong Kong) Limited numbered 012-677-9-205338-6; and

c. the 3^rd Defendant’s ‘WINFU 1’ bank account with Standard Chartered Bank Plc

the 3^rd Defendant be debarred from defending the Plaintiff’s claim and prosecuting its Counterclaim and judgment be entered for the Plaintiff with costs; and

……”

3.  I would refer to the 4 specific bank accounts mentioned above in the same order as follows:

(1)   Yuanzhi’s BOC account;

(2)   Winful’s HSBC account;

(3)   Winful’s BOC account; and

(4)   Winful’s SCB WINFU 1 account.

4.  Yuanzhi and Winful filed their respective affirmations in answer to the Unless Order. Lee Chi Yuen Arctic (“Lee”), director of both companies deposed on their behalf, and thus his 11^th (“11^th  Lee”) and 12^th affirmations (“12^th Lee”) filed on 22 October 2012 and 24 October 2012 respectively.

5.  Taihan took the view that 11^th Lee and 12^th Lee fall short of compliance with the Unless Order.  Correspondence between the parties ensued.

6.  On 2 November 2012, Taihan took out the present application by summons, which is supported by the 5^th affidavit of its then solicitors, Mr Luxton of Messrs Homan Fenwick Willan (“5^th Luxton”).

7.  Directions were then given by the master.  Pursuant to the directions, the 13^th affirmation of Lee (“13^th Lee”) was filed in opposition of the application.  Taihan did not file its affirmation in reply within the time directed.  Now represented by its current solicitors, Taihan took out a summons on 6 September 2013 for leave to file the 1^st affirmation of Mr Georgiou of its current solicitors (“1^st Georgiou”).

8.  Before Taihan’s summons for leave to file 1^st Georgiou mentioned above, Lee actually filed a further affirmation (“16^th Lee”) in opposition of the present application on behalf of Winful.  By then, Yuanzhi and Winful have been represented by their current solicitors.

9.  On the day before the hearing, Taihan took out another summons for leave to file and serve a further affirmation (“2^nd Georgiou”).

POINTS TO NOTE

10.  Several points to note.

11.  First, Yuanzhi and Winful oppose the late application for leave to file and rely on 1^st Georgiou and 2^nd Georgiou.  However Mr Zimmern for these 2 defendants had no objection to reference to these affirmations de bene esse.  His stance was that the materials in these late affirmations were in any event irrelevant to the determination of the present application.

12.  Second, Taihan saw fit to set out an alternative in its summons for judgment.  It takes the form of application for another unless order whereby Yuanzhi and Winful were given a further deadline for disclosing the “outstanding information” about the abovementioned bank accounts.

13.  Such alternative at the initiative of Taihan is difficult to understand.  If the non-compliance of the Unless Order is proved, Taihan would succeed in its application for judgment.  In that event, the question of whether further indulgence should be given to its opponents would not set in at Taihan’s initiative or in the form of another unless order.

14.  The simple fact is that there is no request by Yuanzhi or Winful for such indulgence by way of a cross application for relief from sanction, in the event that the court finds against any of them for non-compliance with the Unless Order.  Mr Zimmern confirmed this position.

THE ALLEGED NON-COMPLIANCE

15.  Mr Hughes for Taihan referred to Hong Kong Civil Procedure 2013 (at 3/5/6) and Hytec Information Systems Ltd v Coventry City Council [1997] 1 WLR 1666 at 1674.  I find it helpful to recite his summary of principles as follows:

(1)   An unless order is an order of last resort, not made unless there is a history of failure to comply with other orders.  It is the party’s last chance to put its case in order.

(2)   Because it is the last chance, a failure to comply with ordinarily result in the sanction being imposed.

(3) The sanction is a necessary forensic weapon which the broader interests of the administration of justice require to be deployed unless the most compelling arguments are advanced to exonerate the failure.

(4) It seems axiomatic that if a party intentionally flouts the order he can expect no mercy.

(5) A sufficient exoneration will almost invariably require that he satisfies the court that something beyond his control has caused the failure.

(6) The judge will exercise his judicial discretion whether to excuse the failure in the circumstances of each case on its own merits, at the core of which is service to justice.

(7) The interests of justice require that justice be shown to the injured party for procedural inefficiencies causing the twin scourges of delay and wasted costs. The need for the public administration of justice to contain those blights also weighs heavily.  Any injustice to the defaulting party, though never to be ignored, comes a long way behind the other two.

16.  Much of the above summary relates to the exoneration of failure to comply with an unless order.  As mentioned, in the absence of application for relief against sanction, there will be no question of excuse or exoneration of default in compliance with the order, if this is what I am going to find.

17.  Likewise, as far as Daimler AG v Leiduck [2012] 3 HKLRD 119 and Top One International (China) Property Group Co Ltd v Top One Property Group Ltd [2011] 1 HKLRD 606 (referring to the case of Hytec) relate to the court’s exercise of discretion to grant indulgence or relief from sanction upon default in complying with an unless order, what Mr Hughes cited from these cases would not be relevant, in the absence of such question before the court.

18.  The single question before the court is whether Yuanzhi or Winful has failed to comply with the Unless Order.  In Realkredit Danmark v York Montague Ltd, unrep, UK Court of Appeal (26 November 1988), the appellate court identified the issue of principle that arose on the appeal before it, namely, what the test for establishing whether or not there has been compliance with an unless order of the kind (ie disclosure) is.  The court had this to say:

“This court has recently considered the effect of failure to comply with unless orders in Hytec v Coventry City Council [1997] 1 WLR 1666. Usually a failure to comply with such an order will result in the proceedings being struck out. It follows, I think, that before this drastic consequence is visited upon the offending party, the court must be sure that there has been a failure to comply with the order in question. The onus is ordinarily on the party who alleges that there has been a failure to comply. Usually the discharge of this onus presents no problem because in almost all cases the court is concerned with a total failure to comply. But this is not such a case. I think the right approach in a case such as this is to be found in two cases cited by Mr Elliot. First Abalian v Innous [1936] 2 All ER 834 where, at page 838 Greene LJ said:

“The dismissal of an action at an interlocutory stage is a very serious matter and may well work serious injustice.  If an order is to be made in the form that, unless one party or another does something, the action will be dismissed, 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.  Looking at it in another way: where the defendant, in reliance on such order, goes to the court and asks it to say that, as a result of the order, the action stands dismissed and is no longer existent, he must be able to show first of all, that the language of the order is sufficiently precise, and, secondly, that which the order contemplates have occurred.”

There was nothing unclear about the order made in this case, in that it required service of a list of documents. But a list was served so, prima facie, the order was complied with. Interestingly there is no reported case of an action being struck out as a result of a list being incomplete. But there is in the much litigated field of Further and Better Particulars where, in Reiss v Woolf [1952] 2 QB 557, at pages 559-560, the Court of Appeal approved a passage from the judgment of Devliln J who said:

“So construed, ‘default’ refers to default in the delivery of a document within the specified time.  I do not, of course, mean that any document with writing on it will do.  It must be a document made in good faith and which can fairly be entitled ‘particulars’.  It must not be illusory; …… That is the test, in my judgment, and not as the plaintiff contends, whether each demand for particulars has been substantially met.”

……

These general principles have to be applied to orders for discovery with the provisions of Order 24 in mind…..”[emphasis added]

19.  The Unless Order provided for the drastic consequence of shutting out Yuanzhi and Winful with judgment against them.  In the premises, the need for the court to be certain about non-compliance and the burden of Taihan as the applying party to establish non-compliance should be obvious.  Mr Zimmern submitted that the test of whether there was non-compliance as explained in Reiss (above) likewise applies in the context of the present case.  I agree.

Terms of the Unless Order

20.  Much was argued about whether the Unless Order refers to the current balances of the bank accounts.  Mr Hughes referred to the correspondence, both before and after the Unless Order, for the purpose of showing that the parties understood his client’s request to be one for the current balances of the accounts.  For the same purpose, he also referred to what was allegedly said during the hearing before the master.

21.  In the absence of reference to any specific date or period, the balances expected under the order could well be the balances as far as Yuanzhi and Winful managed to tell at the time of the disclosure.  I say this simply to make practical sense out of the order but not because of what was allegedly said between the parties before or during the hearing before the master or afterwards.

22.  The specific reference to credit balance in the Unless Order also prompted much argument.  Again Mr Hughes referred to what was said before and after the Unless Order has been made.

23.  Literally construed, the so-called ambiguity, if at all, about whether the order meant to cover credit balance only, in my view, does not exist.  The Unless Order was made in terms as sought by Taihan’s summons, which did refer to credit balance only.  Even assuming that one approaches the term of the Unless Order other than as a matter of literal construction, I still do not lose sight of the fact, which Mr Hughes actually reiterated, that the order stemmed from that first made in aid of the mareva injunction made in October 2011 for the disclosure of asset with individual value of HK$50,000 or more.  The concern about credit, as opposed to debit, bank account balance should be obvious.

24.  However Mr Hughes also pointed out that in the affirmation in support of the summons for the Unless Order, the terms ‘credit balance’ and ‘current balance’ were used interchangeably by the former solicitors for Taihan and therefore could only be reference to the same thing.

25.  To say that references to “credit balance” and “current balance” mean the same thing, in my view, is hard to accept both literally and objectively.  I only need to point out that in setting out the terms of the alternative order being sought in the summons for judgment, the former solicitors for Taihan did not seem to use the terminology interchangeably as argued.  They actually referred to the ‘current credit balance’ and ‘latest credit balance’.

26.  The point here is that in line with Reiss and Realkredit Danmark (above), precision is expected of the terms of an order being applied for, particularly when it is an unless order providing for drastic consequence on the rights of the party subject to it in the event of non-compliance.  The court expects no less from a party who was legally represented at all material times.

Yuanzhi’s BOC account

27.  By 11^th Lee, Yuanzhi produced copies of the account passbook containing entries up to 30 August 2011, i.e. just before the mareva injunction was made.  The balance was US$5.93.  Lee deposed that it remained the balance as there has been no activity in the account since the injunction.

28.  Tailan complains that the current balance of the account was not specified; and hence non-compliance with the Unless Order.

29.  I disagree.  In 13^th Lee (filed in opposition of the present application), Yuanzhi explained that the passbook of this account as at 30 September 2011 was what he had then to disclose.  It could not have the passbook of this bank account updated since the imposition of the mareva injunction; but there has been no activity in the account.  This was in line with its earlier explanation in the correspondence between the former solicitors of both sides in October 2012.

30.  In view of the present application, Yuanzhi formally wrote to BOC in early November 2012 seeking assistance.  By letter dated 15 November 2012, Yuanzhi’s solicitors wrote to BOC putting on record the exchange between them and the bank in this regard.  It was only on 20 November 2012 when the bank passbook could be updated.  Copies of them were produced.  They show exactly what Lee deposed to in 11^th Lee.  There has been no activity in the bank account since the last entry on 30 September 2011.

Winful’s HSBC Account

31.  Taihan accepts that the Unless Order in respect of this bank account has been complied with.

Winful’s BOC Account

32.  By 12^th Lee, Winful produced the passbook of this account which contained the last entry dated 30 September 2011 and balance HK$290.16.

33.  Taihan complains about the lack of disclosure of the balance of this account since then.  During the hearing, Mr Hughes further complained that unlike what was said in respect of Yuanzhi’s BOC account, Lee was silent in 12^th Lee as to what happened to the account afterwards.

34.  As far as this was what Winful managed to disclose, I do not agree that a clear case of non-compliance has been made out, particularly bearing in mind that the mareva injunction against disposal of value of asset up to US$7,400,000 was imposed less than a week later.

35.  As mentioned, by 13^th Lee in opposition of the present case, Winful managed to have the passbook for this account updated on 20 November 2012. Again it shows no activity in the account since the last entry dated 30 September 2011 and thus confirming the truth of and good faith behind the disclosure in respect of this account by 12^th Lee.  This was also in line with the previous explanation by correspondence mentioned above.

Winful’s SCB WINFU 1 account

36.  By 16^th Lee, it was clarified that this account should properly be called WINFU account, which is one of the 2 WINFU accounts (the other being WINFU 2) held by Winful with SCB.  In 12^th Lee, it was deposed that this account with SCB was at the time of the affirmation having a negative, or debit, balance.

37.  Taihan complains that that does not tell the amount.

38.  In view of the terms of the Unless Order, as discussed above, I do not agree that Taihan may argue that the lack of disclosure of the amount of debit balance amounted to non-compliance with the order specifically to disclose credit balance.

39.  Even if one looks beyond the literal terms of the order, one still doubts how the disclosure of the amount of debit balance would have fitted into the purpose of a disclosure order first stemming from the order to disclose asset of the stated value made in aid of the mareva injunction.

40.  By 16^th Lee, Winful also produced, on a without prejudice basis, copy of the cash ledger statement for WINFU 1 account which shows continuing debit balance in millions (US$) since the end of 2011.  This confirmed the truth of what was deposed to in 12^th Lee in respect of this account.

Conclusion

41.  In my view, any possible confusion as to the terms of the Unless Order (particularly whether the order extended to credit balances only) could only be attributed to how the former solicitors for Taihan chose to word the order sought.

42.  In any event, economical in details as they were, 11^th Lee and 12^th Lee contained the bona fide disclosure of what Yuanzhi and Winful managed to make at the time.  There is nothing untruthful about the disclosure made by 11^th Lee and 12^th Lee on behalf of Yuanzhi and Winful.  When asked in court, Mr Hughes accepted that.  In my view, what were disclosed were neither illusory nor meaningless.

43.  However Mr Hughes submitted that what were said and produced by 13^th Lee and 16^th Lee should have formed part of the disclosure by the deadline set by the Unless Order.  Now both affirmations have become too late for such purpose.

44.  I disagree.  11^th Lee and 12^th Lee served the purpose of complying with the Unless Order.  13^th Lee and 16^th Lee were filed (pursuant to the directions of the court) serving a different purpose, namely, opposing Taihan’s present application for judgment.  That was done pursuant to the directions of the court (as usual).  Evidence was collected and produced in support of their position that they have (by the 11^th Lee and 12^th Lee) complied with the Unless Order and thus Taihan has no valid ground for its present application.

45.  The terms of the Unless Order did not go so far as requiring Yuanzhi or Winful to give explanation as now contained in 13^th Lee or 16^th Lee.  I notice that the explanation for the lack of such further and better details as well as that of the attempt to obtain them form part of the alternative unless order set out in Taihan’s summons only now.  In the circumstances, what Taihan regards as incomplete, rather than lack of relevant and true disclosure, does not enable it to condemn Yuanzhi or Winful for non-compliance with the order.

1^ST GEORGIOU AND 2^ND GEORGIOU

46.  As directed, Taihan was supposed to file its affirmation in reply within 7 days after the defendants’ affirmations in opposition have been filed; and there shall be no further evidence thereafter without leave of the court.  13^th Lee was filed on 21 November 2012.  Taihan did not do so.  It was on 6 September 2013, some 5 days before this hearing, did Taihan seek to file 1^st Georgiou.  As to 2^nd Georgiou, leave to have it filed is sought by summons on the day just before this hearing.

47.  By the 1^st Georgiou, Taihan refers to the history leading to the Unless Order.  References are also made to various instances of breach of orders on the part of Yuanzhi and Winful.  Taihan also seek to refer to another action that it commenced this year against, among others, Lee, Yuanzhi and Winful – HCA 454/2013 – as well as these defendants’ conduct of proceedings in the course of that recent action.  Essentially it was argued that Yuanzhi and Winful have demonstrated a pattern of default in disclosure and had to be pressed hard from time to time.

48.  In line with the summary of principles in the case of Hytec (§15(1) above), the history must have already been taken into account when the master was considering whether to make the Unless Order.  But the same would hardly be relevant to the question of whether Yuanzhi or Winful have failed to comply with the order made.  This is a matter of the terms of the order and whether and, if yes, what the defendants did.

49.  As to the reference to the history to aid the construction of the terms of the order, I shall not repeat my discussion above.

50.  The past conduct of proceedings on the part of Yuanzhi and Winful would also have been relevant to the consideration of whether any failure to comply with the Unless Order may be excused or, in practical terms, whether relief from sanction may be granted.  However, as mentioned, there is no such issue here.

51.  For the same reason, the factual premise for reliance on the discussion in the case of Hyetc (particularly the principles summarised in §15(3) to (7) above) is also lacking.

52.  As to the action newly commenced, the rights of Taihan remain theirs to take action against the defendants in respect of the latter’s conduct of proceedings in that action.

53.  By 2^nd Georgiou, Taihan repeats the account of the history leading to the Unless Order and the present application as set out in Mr Hughes’ submissions. It also exhibits full sets of bank statements of Winful’s WINFU account all the way up to June 2013.  Taihan aims to point out that there were dealings with the account after the mareva injunction.

54.  The relevant time for the present purpose should be that when the Unless Order was made or when Winful made the disclosure by way of 11^th Lee and 12^th Lee.  Further, the balances referred to remained debit balances.  What the Unless Order obliged Winful to disclose was the credit balance, not debit balance, or to set out the transactions in the account by then.

55.  By the 2^nd Georgiou, Taihan also exhibits the full set of bank statements in respect of Winful’s HSBC account.  As mentioned, this account is not in issue in the present application.

56.  Mr Zimmerns submitted that the materials in the 1^st Georgiou and the 2^nd Georgiou were largely irrelevant to the question of whether the defendants have failed to comply with the Unless Order.  I agree.

ORDER

57.  Taihan’s application for judgment is dismissed.  So are its applications to file 1^st Georgiou and 2^nd Georgiou.

58.  Yuanzhi and Winful should have their costs occasioned by Taihan’s 3 summonses.  Mr Zimmern indicated that his clients would seek costs to be taxed on an indemnity basis.  By their solicitors’ letter dated 29 May 2013, exhibited to the 16^th Lee, Yuanzhi and Winful set out their arguments and invited Taihan to withdraw the present application with no order as to costs.  Notice of intention to seek costs on indemnity basis, if Taihan failed in the present application, was thus given.

59.  There is point in the argument that Taihan should not have proceeded with the application at the latest after the filing of the 16^th Lee.

60.  On that basis, I make a nisi order that (1) the costs of and occasioned to Yuanzhi and Winful by Taihan’s summonses shall be paid by Taihan; (2) unless otherwise agreed, costs shall be taxed on a party and party basis save that the costs from 5 September 2013 (after the filing of the 16^th Lee), including the costs of the hearing, shall be taxed on an indemnity basis.  In the absence of application within 14 days to vary, the nisi costs order shall become absolute.