DIAGCOR BIOSCIENCE INCORPORATION LTD AND ANOTHER v. ZENDEX BIO STRATEGY INCORPORATED AND OTHERS

HCA 2733/2015

[2018] HKCFI 1929

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2733 OF 2015

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DECISION

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1.  The is Ds’ application by summons of 8 August 2018 to file the 2^ndsupplemental witness statement of D2.

2.  It is important to note the procedural history of this case.  The Writ was issued with Statement of Claim indorsed on 23 November 2015.  CMS hearing took place on 26 July 2016.  The first round of exchange of witness statements took place on 2 September 2016.  Case Management Conference took place on 5 January 2017.  The 2^nd round of exchange of witness statements took place on 4 May 2017, which process included the filing of the supplemental statement of D2.  In the meantime, further and better particulars had been sought and interrogatories administered.  Rounds of Lists of Documents had been filed.  On 22 June 2017, the 2^ndCase Management Conference took place.  PTR took place on 6 June 2018.  The trial is due to commence before me on 4 September 2018 with 11 days reserved.  At no stage until the present summons had the defence indicated that a further witness statement from D2 would be coming.

3.  By the proposed 2^nd supplemental statement, D2 sought to introduce two points.  The main one concerns “the way in which the 1^stPlaintiff audits the 1^st Plaintiff’s finances on a weekly basis.”  He intends to say that P1 exercises tight financial control over P2 (para 4).  He intends to say further that:

“ 5. Whilst I was the director of [P2], [P1] sent representatives to audit [P2’s] book and account on a weekly basis. I recall [P1] appointed an accounting firm based in Guangzhou to inspect [P2’s] books and account every Monday from around 9:00am to 4:00pm. [P1’s] representative would speak with [P2’s] accounting team to check [P2’s] finances. The process was handled by a person named Karen from [P1’s] finance, and two people named Simon Kam and Jerry Chen from [P1’s] audit firm in Guangzhou.

…

7. As far as I am aware, [P2’s] finance team would send records of its account statement on a weekly basis to [P1’s] finance manager in Hong Kong. From time to time, [P2’s] finance team would have to answer queries on [P2’s] finances. I left matters to Ms Chen of [P2’s] finance team to answer.

8. Also, I understand that for every contract or spending over HK$1,000, Ms Chen from [P2’s] finance team would scan and forward copies of the receipt or contract to [P1] for record purpose.”

4.  I note that the auditing practice of the plaintiffs during the period referred to by D2 has never been previously raised either on pleadingsor otherwise, and interrogatories have never been administered in that regard. I note that in his statement of 2 September 2016, at paragraph 4 thereof, Mr Matthew Au for the plaintiffs says that “As to internal control, even basic policies such as signature authority policy were not in existence, thus creating an environment that lacked checks and balances”. Despite such evidence, no interrogatory has been raised in that regard, and D2 only seeks to raise the auditing practice of the plaintiffs now nearly two years later.  I note further that discovery of relevant documents has never been sought.  In particular, discovery of the “records of its account statement”, the “queries” and the related “answer[s]” all referred to in paragraph 7 of the proposed statement, and the “copies of the receipt or contract” mentioned in paragraph 8 thereof, have never been sought.  Even if they have been disclosed, those documents have not been identified at this stage.  I am not here making any ruling that had discovery of those documents been sought, they would have been ordered.  The discoverability of those documents would have to be properly considered. I am raising merely the fact that on the face of things discovery has not even been sought.  I further note that the name of the accounting firm is not provided, and Simon Kam and Jerry Chen are not witnesses to these proceedings.  I further note Ms Siu’s submissions for the plaintiff that, if the 2^ndSupplemental Statement of D2 were admitted, a further detailed statement would have to be obtained from Ms Chen (who is a witness to these proceedings).

5.  The explanations for the delay are tendered on the defendants’ behalf by their legal adviser Mr Cheng Sin Yi.  He says that:

“ The information contained in the Statement was not included in [D2’s] earlier statements because [D2] recently remembered the details as a result of reviewing the case. Late instructions were given to our firm last week and counsel deemed it necessary for the instructions to be recorded in the form of a witness statement since the evidence relates to [P1’s] knowledge over [P2’s] finances.”

6.  D2’s credibility as a witness will have to be considered in due course during the trial.  I should not do or say anything at this stage which will affect the Court’s impartiality in that process.  I accept what Mr Cheng has said.  But on the face of those explanations, they do not exonerate the delay. Rather, they amount to an acceptance on the part of the defence that the proposed new evidence should have been raised earlier, but just that for some reasons, D2 could not earlier remember them and as a result they were not.  That being the case, the delay, and any adverse consequences that flow from it, are of the defence’s own making.

7.  I have considered the case of Nam Ching Wun v Tsun Un Pawn Shop & Ors HCA 2151/2008 (unreported, 7 October 2014) cited to me.  Given the considerations set out in paragraphs 4 to 6 above, I am of the view that granting leave to the defence to file this proposed 2^ndSupplemental Statement of D2 at this late stage will cause serious prejudice to the plaintiffs.  A new dimension or focus in the form of the auditing process of the plaintiffs is sought to be introduced.  Substantial evidence potentially relevant to this new dimension or focus has not been but could and should have been compiled earlier but for the delay.  The trial dates, which are milestone dates, will also most probably be affected.  For these reasons, I refuse the application.

8.  I will hear the parties on costs.

(Counsel submissions on costs)

9.  Having heard parties, I order that the costs of this summons be the plaintiffs’ costs in the cause.