LEANNIE CO LTD AND ANOTHER v. LAU YU KUEN

HCA 1242/2016

[2021] HKCFI 1332

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1242 OF 2016

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DECISION

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1.  This is supposed to be the trial of the Action commencing on 7 April 2021. By reason of certain revelations by Counsel for the Defendant Mr Remedios in the morning of 7 April 2021, the trial was adjourned to the afternoon of that day and then to 7 May 2021, a date originally reserved for the parties to make oral closing submissions. As a result, the trial dates are lost.

2.  Such an unsatisfactory situation arose in this way.

3.  The Writ of Summons herein annexed with a Statement of Claim was issued on 11 May 2016. 

4.  Prior to the issue of the Writ of Summons, on 7 December 2015, the Plaintiffs obtained an order from the High Court of Singapore for disclosure of documents against Paypal Pte Ltd (“Paypal”) in respect of two Paypal accounts believed to be operated and controlled by the Defendant.  The Order of the High Court of Singapore (“Singapore Order”) directed disclosure in respect of the registered account holder for each of the Paypal accounts registered under the email addresses pwbjd1@gmail.com and payment@codenoirdoll.com(“Accounts”).

5.  On 14 December 2015, Paypal provided the detailed transaction records in respect of the Accounts which were forwarded to Messrs Tanner De Witt (“TDW”), solicitors for the Plaintiffs. Delivered with the Singapore Order and Paypal’s cover letter were two Microsoft Excel files in respect of the Accounts.  Each of the Microsoft Excel files contains two spreadsheets, named “Email logs” and “Transaction logs”.  According to TDW’s records, those were all of the documents disclosed by Paypal.

6.  At paragraph 3 of the Statement of Claim, it was pleaded that the Defendant, an employee of the 1st Plaintiff until his resignation in January 2015, had misappropriated funds from the Plaintiffs by inter alia redirecting the proceeds of online sales belonging to the Plaintiffs to the Defendant’s private Paypal account pwbjd1@gmail.com (“Paypal Account”), without the Plaintiffs’ authority or knowledge.

7.  At paragraph 4 of the Statement of Claim, it was pleaded that “the Plaintiffs subsequently applied for and was granted a disclosure order against Paypal Pte Ltd (‘Paypal’) by the High Court of the Republic of Singapore.  Paypal’s disclosure documents showed that the Defendant is indeed the owner of the Paypal Account” to which the Plaintiffs’ sale proceeds were redirected.

8.  By  letter dated 29 July 2016 from Messrs Chak & Associates (“C&A”), the former solicitors of the Defendant, to TDW, the Defendant sought discovery under RHC O 24 r 10 of the Singapore Order and the “Paypal’s disclosure documents”.

9.  In purported compliance with this request, TDW issued a letter to C&A on 1 August 2016 (“1 August letter”) enclosing:

(1)  The Singapore Order.

(2)  “Paypal’s disclosure documents”.

10.  The so-called “Paypal’s disclosure documents” enclosed with the 1 August letter consisted of a spreadsheet of transaction records – 288 pages in total (“2016 Spreadsheet”). 

11.  It transpired that the 2016 Spreadsheet was in fact not what TDW had obtained from Paypal.  They were, according to Mr Lane’s 1st affidavit dated 9 April 2021 (“Lane 1”), documents generated internally by a staff of TDW as working papers to trace the monies allegedly misappropriated by the Defendant based on the documents TDW obtained from Paypal.

12.  According to Lane 1, the “correct” Paypal’s disclosure documents were listed as Item No 31 in the Plaintiffs’ list of documents dated 1 February 2017 (“Ps’ LOD”) and described as “Copy of disclosure documents received from Paypal” (“Item 31”).  The Item 31 documents are now included in the trial bundle as Tab 127 and contained in 2 bundles described as C7.1 and C7.2.  They consist of close to 200 pages of transaction records in A2 size paper with thousands of entries and are much more complicated and contain much more information than the 2016 Spreadsheet.

13.  For reasons unknown, TDW did not inform C&A of their previous mistake after serving the Ps’ LOD on them.  Since C&A thought they had already obtained the “correct” Paypal’s disclosure documents in the form of the 2016 Spreadsheet, they did not seek inspection or copies of the Item 31 documents after receiving the Ps’ LOD. 

14.  In the morning of 7 April 2021, it was brought to this court’s attention by Mr Remedios that the 2016 Spreadsheet provided to the Defendant in August 2016 was entirely different from the documents in trial bundles C7.1 and C7.2.  This court requested an explanation from the Plaintiffs for this discrepancy and adjourned the trial to the afternoon.  In the limited time available, Counsel for the Plaintiffs Mr Ng was understandably unable to provide a satisfactory explanation.  This court therefore had no choice but to adjourned the trial to 7 May 2021 to allow the parties, in the meantime, to file evidence and written submissions addressing the issue. 

15.  At the hearing on 7 May 2021, this court had the benefit of Lane 1, the 1^st Affirmation of Ms Kelly Ho dated 16 April 2021 (“Ho 1”), a solicitor with Messrs Yung, Yu, Yuen & Co, the present solicitors for the Defendant, the draft 2^nd Affidavit of Mr Lane (“Lane 2”), the draft 1^st Affidavit of Mr Paul Harris from TDW (“Harris 1”) as well as very detailed written submissions from Mr Ng and Mr Remedios. Mr Lane and Mr Harris also attended court for cross-examination. 

16.  In Mr Remedios’ written submissions, it is said that the Plaintiffs have taken a deliberate and calculated decision not to produce the “correct” Paypal’s disclosure documents in their entirety by the 1 August letter.  Rather, the 2016 Spreadsheet was not an original document but was a “doctored” document calculated to deceive.  Mr Remedios further submits that by the time of filing the Ps’ LOD, TDW would have realised their previous error but had taken a deliberate decision to perpetuate the deception in order to obtain a tactical litigation advantage by depriving the Defendant of sight of the full Paypal documents.

17.  Having carefully considered all the materials presented by the parties, this court is not satisfied that what TDW had done was a deliberate suppression of the “correct” Paypal’s disclosure documents now contained in the 2 C7 bundles.  Nor is this court satisfied that TDW’s failure to inform C & A of their mistake after serving the Ps’ LOD was a deliberate concealment of their previous failure to disclose and produce the “correct” Paypal’s disclosure documents in breach of RHC O 24 r 10.

18.  As a matter of inherent probabilities, since it is the Plaintiffs who seek to rely on the Paypal’s disclosure documents to prove their case, there is no sensible reason why TDW should deliberately withhold them from the Defendant until trial.  After all, if they wish to rely on them, they will have to refer to them at the trial and, sooner or later, their deliberate suppression and/or concealment will come to light with potentially extremely serious consequences for the Plaintiffs and TDW.  As a matter of common sense, a party would only suppress evidence against its case, not evidence in support of it. 

19.  As for the sending over of the 2016 Spreadsheet to C & A in August 2016 and the failure to inform C & A of the mistake after serving the Ps’ LOD, again, as a matter of inherent probabilities, this was either due to inadvertence or incompetence of the staff of TDW in charge with the day to day handling of the case, including discovery.  To put the record straight, Mr Lane, while being the supervising partner of this case, was not responsible for the day to day handling of the matter.

20.  The next question is: what should this court do in the circumstances?

21.  There is no doubt that the Plaintiffs were in breach of RHC O 24 r 10 by failing to send the “correct” Paypal’s disclosure documents to C&A with the 1 August letter. The breach had been perpetrated by their failure to inform the Defendant or his solicitors, former or present, of their mistake.  

22.  RHC O 24 r 16 (1) provides:

“(1) If any party who is required by any of the foregoing rules, or by any order made thereunder, to make discovery of documents or to produce any documents for the purpose of inspection or any other purpose or to supply copies thereof fails to comply with any provision of that rule or with that order, as the case may be, then, without prejudice, in the case of a failure to comply with any such provision, to rules 3(2) and 11(1), the Court may make such order as it thinks just including, in particular, an order that the action be dismissed or, as the case may be, an order that the defence by struck out and judgment entered accordingly.” (emphasis added)

23.  Mr Remedios suggests 3 options. 

(1)  Striking out and/or dismissing the Plaintiffs’ claim and/or their defence to counterclaim (“Option 1”).

(2)  Expunging the 2 C7 bundles of documents from the trial bundles and debarring the Plaintiffs from adducing them as evidence in the trial (“Option 2”).

(3)  Granting sufficient time for the Defendant to properly consider the 2 C7 bundles of documents with a suitable costs order against the Plaintiffs now that the original trial dates are gone (“Option 3”).

24.  In LDB Sales Co Ltd v Germain Electronic Ltd & Others [2006] 2 HKLRD 865[1]at [11] - [12], Cheung JA observed as follows:

“The rationale of the rule

11. Although O. 24, r. 16(1) is in wide terms it has to be recognised that its purpose is to ensure compliance with the rules and orders of the court relating to discovery and not to punish a party for not having complied with them: Husband’s of Marchwood Limited v. Drummond Walker Development Limited [1975] 1 WLR 603.

The principles

12. This being the rationale of the rule, certain principles can be gathered from the authorities on the power to strike out. These are:-

1) It is most unusual to strike out an action simply on the basis that a party has not complied with discovery within the time limit imposed by the rules or a court order (see Husband’s of Marchwood Limited).

2) In the absence of exceptional circumstances, a strike out order should only be applied for where there has been a breach of a peremptory order, namely, where a final or unless order had been made and not complied with (see Star News Shops Limited v. Stafford Refrigerator Limited [1998] 1 WLR 536 and Ka Wah Bank Ltd. v. Low Chung-song and Another [1981] 1 HKLR 451).

3) A failure to comply with a peremptory order is generally regarded as a contumelious conduct (in the sense that that was an intention to ignore or flout the order) which may justify a strike out order: see the summary of cases in Lee Shuk Yee v. Lee Suk Ping and others (Civil Appeal No. 132 of 1996) which was applied in Chan Chun Lung Allen & Another v. Ryland Limited and others (HCA 4904/1996)).

4) Even if a party has not complied with a peremptory order, it does not necessarily cause an action to be struck out (see Logicrose Limited v. Southend United Football Club Limited, The Times 5 March 1988). For example, if the default was due to extraneous circumstances: see Lee Shuk Yee.

5) On the other hand, an order to strike out may be appropriate where there has been a failure to comply with the rules relating to discovery, even in the absence of a specific order of the court, when it is shown that the failure has rendered it impossible to conduct a fair trial and would make any judgment in favour of the offender unsafe. In other words the offender’s conduct has amounted to an abuse of the process of the court which would render any further proceedings unsatisfactory and prevent the court from doing justice (see Logicrose Limited).

6) There may also be the extremely rare situation where, even if a fair trial is still possible, by reason of the contumelious conduct of a party, such as deliberate suppression of discovery, it may justify a striking out (see Landauer Limited v. Comins and Co, The Times 7 August 1991).” (emphasis added)

25.  The present case is not one which concerns the breach of a peremptory order.  This court has also concluded that there was no deliberate suppression of discovery such as to amount to contumelious conduct or abuse of process.  The question is whether the Plaintiffs’ breach of RHC O 24 r 10 via TDW is such as to render it impossible to conduct a fair trial and would make any judgment in favour of the Plaintiffs unsafe.

26.  On the impossibility of a fair trial, Mr Remedios principally relies on 2 grounds.

27.  First, at exhibit “JHL-3” of Lane 1, Mr Lane has purported to exhibit a USB drive containing soft copies of the two Microsoft Excel files obtained from Paypal pursuant to the Singapore Order.  From the 2 screenshots of the “properties” exhibited to Ho 1, the contents of the Microsoft Excel file entitled “pwbjd@gmail.com logs.xlsx” appear to have only been created at 5:17pm on 8 April 2021.  This is to be compared with the screenshot of the “properties” of the other Microsoft Excel file entitled “payment@codenoirdoll.com.xlsx” which shows that the contents of this file were created on 14 December 2015.  In the premises, the Defendant strongly suspects that the “pwbjd@gmail.com logs.xlsx” file in the USB drive was not what was originally provided to the Plaintiffs by Paypal. 

28.  This is a very serious allegation against TDW as a firm and against Mr Lane personally that amounts to nothing less than perjury.  It is trite that the more serious the allegation, the more cogent proof is required to establish it.  At the moment, all that the Defendant has are the 2 screenshots exhibited to Ho 1.  This is to be contrasted with the 2 screenshots of the “properties” of the two Microsoft Excel files exhibited to Harris 1 which suggest they had not been modified since December 2015. The discrepancies between the 2 different sets of screenshots had been explored at the hearing but remained unresolved even after Mr Harris’ cross-examination. In these circumstances, this court is not satisfied that the Defendant’s suspicion is proved to the requisite standard.

29.  Second, the “correct” Paypal’s disclosure documents should have been disclosed 5 years ago to the Defendant for his consideration and preparation of his case.  Given the long lapse of time and the complexity and volume of information contained in them, the Defendant is in a position of phenomenal and unfair prejudice occasioned by the late production of the 2 C7 bundles of documents - the Defendant cannot now be expected to explain or recall what might be material details, answers to or rebuttals of the transactions and entries contained in them, to the same degree of detail or clarity that he would have been able to back in 2016.

30.  It seems to this court the prejudice to the Defendant is substantial and real if the Plaintiffs were allowed to adduce the 2 C7 bundles of documents in evidence and rely on them at the adjourned trial. In that scenario, this court is satisfied that a fair trial is not possible and any judgment in favour of the Plaintiffs will be unsafe.

31.  However, a proportionate response is not to adopt Option 1 and strike out the Plaintiffs’ claim and/or their defence to counterclaim.  That would be too draconian a remedy for a blunder caused by inadvertence and/or incompetence. 

32.  In Wing Fai Construction Co Ltd v Yip Kwong Robert (2011) 14 HKCFAR 935, a post-CJR case concerning with an application to strike out for delay, Ma CJ made the following observations on the change in litigation culture brought about by the CJR at [31] to [34]:

“D. The CJR: a change in litigation culture

31. The CJR came into effect on 2 April 2009. Significant changes were made to those ordinances and subsidiary legislation governing civil procedure in our courts. There were of course miscellaneous provisions governing specific aspects of civil procedure. However, the main purpose of the CJR was the intention to bring about a change in litigation culture. Broadly speaking (I shall presently go into some of the more important provisions as illustrations), the principal themes of the CJR are:

(1) To ensure that parties to litigation are brought as expeditiously as possible to a resolution of their disputes, whether by way of adjudication or by settlement.

(2) To increase the cost effectiveness of the system of the civil procedure and to try to eliminate delays in litigation.

(3) To promote active case management by the courts and in doing so, not only facilitating the expeditious resolution of disputes, but also bearing in mind the position of other litigants and the courts’ own resources.

(4) To inculcate a culture among litigants and their legal representatives that there exists a duty to assist the court in furthering the principal themes of the CJR.

(5) To reduce, if not eliminate, those steps in proceedings, particularly interlocutory applications, which serve little purpose other than to prolong or render more costly civil proceedings.

32. We are of course concerned in this appeal with an application to strike out for delay. In this context, the following Rules which were introduced by the CJR are of note:

(1) It is first important to refer to the underlying objectives set out in O.1A r.1:

…

(2) The court is required to give effect to these underlying objectives whenever it exercises any procedural power (including its inherent jurisdiction) or interprets any of the Rules or any Practice Direction :- O.1A r.2.

(3) Much emphasis is placed on the case management function of the Court: O.1A r.4, O.1B. Order 1A r.4(1) states that the court shall further the underlying objectives of the Rules by ‘actively managing cases’. It will be through active case management by the courts, supported by the duty on the parties and their legal representatives to assist, that the just resolution of disputes will be achieved.

(4) The amendments to the Rules recognize that the court must be empowered and encouraged to make orders that would render effective its case management functions, and, in appropriate cases, to enforce compliance. Where appropriate, the court will be able to order that consequences might flow where there has been non-compliance.

…

33. Of course, where a party defaults or abuses the process to such an extent the court is of the view that ‘enough is enough’, the ultimate sanction of the court may be to strike out an action or the defence, without the matter going to trial. However, in the armoury of the court’s powers, striking out must be the ultimate weapon, to be used only where it is plainly and obviously the appropriate remedy. There are many orders that can be made before striking out should be considered. In other words, the court is not left with a choice of not doing anything at all on the one hand or striking out on the other; it is now encouraged to consider the many possibilities that lie in between these two extremes.

34. Critical to the success of the CJR and its objectives is the realization that litigation is not to be treated as a game, but as a serious legal contest … Here, O.1A r.3 is of fundamental importance, stating it to be the duty of parties to a litigation and (I would stress) their legal representatives to assist the court in furthering the underlying objectives set out in O.1A r.1. It is of course important to recognize, as stated in O.1A r.2(2) that the primary aim of exercising its powers is for the court to ‘secure the just resolution of disputes in accordance with the substantive rights of the parties’. This places in context the operation of the Rules under the CJR: Rules do not exist for the sake of compliance with them as an end in itself; they exist for the purpose of ensuring that disputes before the courts are justly resolved. It does not, however, provide any excuse for parties or their legal representatives not to comply with the Rules or orders made by the court, nor does it relieve them of this duty under O.1A r.3. The emphasis must be placed on the word ‘just’.”(emphasis added)

33.  As noted by Ma CJ, in the armoury of the court’s powers, striking out must be the ultimate weapon, to be used only where it is plainly and obviously the appropriate remedy.  In the present case, it does not appear to this court that striking out is plainly and obviously the appropriate remedy.

34.  In this court’s view, a proportionate response is to adopt Option 2 by debarring the Plaintiffs from adducing the 2 C7 bundles of documents as evidence at the trial, whether or not technically TDW had disclosed the “correct” Paypal’s disclosure documents in the Ps’ LOD. 

35.  In this regard, this court notes that while the Plaintiffs keep emphasising that the Paypal’s disclosure documents are crucial to their case, they have not actually made any meaningful reference to or analysis of them, in the pleadings or witness statements, so as to explain their importance.

(1)  At paragraph 4 of the Statement of Claim, it is pleaded that the Paypal’s disclosure documents showed that the Defendant is indeed the owner of the Paypal Account to which the Plaintiffs’ sale proceeds were redirected.

(2)  In the witness statement of Mr Federick Yuan dated 15 December 2017 at paragraph 50, there is a fleeting reference to the Paypal Account under the email address pwbjd1@gmail.com without any reference to, let alone analysis of, the documents in the C7 bundles. There is no reference to the Paypal Account registered under the email address payment@codenoirdoll.com at all.  This is confirmed by Mr Ng at the hearing. 

(3)  Even in Mr Ng’s Opening Submissions for the trial, there is still no attempt to explain the significance of the documents in the C7 bundles - there is only 1 sub-paragraph at 27.1 that “Subject to any further oral evidence to be given in the Court, once it is accepted that D is a fiduciary, there has been clear breach of duties by D.  Ps primarily claim for (i) interception of customer order (ii) failure to disclose material facts in regard of JollyPlus (iii) diverting customer orders’ payment to JollyPlus (which utilizes paypal account under D’s control) and gain bulk purchase discount as a result, and failure to disgorge those diversions: ASOC §11(1)-(5) [A/1/5]. This breach was subsequently identified by investigation conducted by P primarily by Frederick Yuan.” (emphasis added)

36.  In these circumstances, the prejudice to the Defendant if the Plaintiffs are allowed to deploy the documents in the C7 bundles at the adjourned trial is clearly aggravated by the fact that there has been absolutely no hint from the Plaintiffs as to how they intend to make use of those documents.

37.  For all these reasons, this court is of the firm view that Option 2 is the appropriate order to make and shall so order.

Disposition and costs

38.  The trial of this Action is adjourned to a date to be fixed in consultation with counsel’s diary, with 9 days reserved.

39.  The Plaintiffs are debarred from adducing in evidence at the adjourned trial the Paypal’s disclosure documents ie those documents now contained in bundles C7.1 and C7.2. Bundles C7.1 and C7.2 shall be expunged from the trial bundles.

40.  There be a 2nd PTR no less than 12 weeks before the adjourned trial with 30 minutes reserved.  At the 2nd PTR, counsel for the parties are to confirm to the trial Judge the estimated length of trial.

41.  Costs of and occasioned by the adjournment of the trial be to the Defendant, to be taxed if not agreed, and paid by the Plaintiffs forthwith, certificate for counsel.