ALLIED WELI DEVELOPMENT LTD AND ANOTHER v. CHUANG YUE CHIEN, EUGENE AND OTHERS

HCA 57/2018

[2020] HKCFI 2151

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 57 OF 2018

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DECISION

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Introduction

1.  This is the 7^th Defendant’s application by summons dated 29 July 2019 (the “Summons”), pursuant to Order 24 rules 10, 11 and 11A of the Rules of the High Court for (a) an order that the Plaintiffs be required to produce for inspection and copying the documents identified in the Appendix to the Summons; and (b) permission to use the copy documents in related proceedings that have also been brought against her by the liquidators herein, ie the winding up proceedings in HCCW 337/2015.

2.  The 1^st Plaintiff (the “Company”) was an investment holding company closely associated with its founder, the 1^st Defendant.  In June 2011, the Company entered into a guarantee with Penta Investment Advisers Limited (“Penta”) in respect of an investment Penta made in one of the Company’s 29 direct and indirect subsidiaries.  Subsequently, Penta sued on the guarantee and obtained judgment in the sum of around $210 million against the Company.  On 22 February 2016, upon the petition of Penta in HCCW 337/2015, the Company was wound up.  The 2^nd Plaintiff are appointed as the joint and several liquidators of the Company (the “Liquidators”). 

3.  Extraordinarily, the Liquidators were denied access to any books and records of the Company upon their appointment. They were even refused entry to the Company’s premises and escorted away by security guards.  Their investigations into the affairs of the Company and their attempts to gather and preserve its assets were frustrated by the absence of any books and records of the Company being made available to them on their appointment; and the lack of meaningful cooperation from the Company’s former directors, officers, solicitors and other persons previously involved in the affairs of the Company, including the 7^th Defendant. 

4.  Subsequently, the Liquidators obtained from the Company’s former auditor and tax advisor, Jonten Hopkins, audited accounts and working papers for the Company for the period between 31 March 2011 and 31 March 2014.  The documents were supplied in two lots, one lot in 2017 (the “2017 Documents”) and the second lot under threat in 2018 (the “2018 Documents”)

5.  By December 2017 or January 2018, the Liquidators formed the opinion that prior to the commencement of legal proceedings by Penta and during the period 31 March to 25 May 2012 the Company had substantially reorganised its shareholding and may have fraudulently divested itself of all its assets thereby rendering it judgment-proof from its creditors (the “impugned transactions”), but further investigations were necessary to clearly understand, inter alia, the commercial rationale of the impugned transactions.  The Liquidators believed the Company may have claims against various individuals and corporations associated with the impugned transactions but are not yet in a position to determine whether such claims, or which of them, should be pursued.  These potential claims may be the only means through which the Company’s creditors will be able to make any meaningful recovery in the liquidation. 

6.  On 22 December 2017, the Plaintiffs issued two protective writs in HCA 2995/2017 targeting the former officers and directors of the Company, including the 7^th Defendant, and in HCA 2996/2017 targeting potential beneficiaries and accomplices in relation to the impugned transactions.

7.  On 9 January 2018, the Plaintiffs issued the replacement protective writ in this action.  The replacement writ consolidated the claims in the two previous writs and added further claims.  The previous two writs were allowed to lapse unserved.

8.  By June 2018, the Liquidators concluded that meaningful assistance was unlikely to be provided by the directors and others involved without compulsory orders from the court.  Thus, on 29 June 2018, they applied within HCCW 337/2015, pursuant to section 286B and 286C of the Companies (Winding-Up and Miscellaneous Provisions) Ordinance Cap. 32, for orders against 9 respondents, including the 7^th Defendant herein, for the production of documents and an oral examination in relation to the impugned transactions (“S286B Application”).  The application was supported by the 2^nd affidavit of Mr Batchelor, one of the joint and several liquidators, in the winding-up proceedings (which is not the same one as “Batchelor 2” filed later in this action referred to in paragraph 11 below).  The S286B Application was heard before Recorder Jason Pow on 11 and 12 March, 14 May, 13 August and 17 September 2019 when it was concluded with decision reserved.

9.  In the meantime, on 8 January 2019, Mr Batchelor swore his 1^st affidavit in this action (“Batchelor 1”) in support of the Plaintiffs’ ex parte application to extend the validity of the replacement writ which had not been served. Specific relevant documents within the 2017 Documents (but not all the documents) were exhibited throughout that affidavit.  The Liquidators indicated that they had also reviewed the 2018 Documents and had decided to conduct a more intensive review.  The application was granted and the validity of the writ was extended to 8 January 2020.

10.  On 21 February 2019, at the request of the 7^th Defendant’s solicitors, Haldanes, and the other respondents to the S286B Application, Batchelor 1 filed in this action was included in the hearing bundle for the S286B Application.  At the time, the 7^th Defendant did not ask for production or inspection of all the 2017 Documents.  The hearing of the S286B Application commenced 11 March 2019.

11.  On 7 May 2019, in compliance with their continuing duty of full and frank disclosure, the Liquidators filed the second affidavit of Batchelor (“Batchelor 2”) in this action to update the court about their review of the 2018 Documents which they had only just completed.  The specific relevant documents within the 2018 Documents (but not all the documents) relied upon in Bachelor 2 were exhibited throughout that affidavit.  Given its relevance, a copy of Batchelor 2 with exhibits was included in the hearing bundles of the S286B Application.  That explains why the 7^th Defendant had a copy of Batchelor 1 and Batchelor 2 which had not been served on her in this action.

12.  At the resumed hearing of the S286B Application on 14 May 2019, the Liquidators were granted leave to rely on Batchelor 2 filed in this action.   The Liquidators only broadly referred to the remaining vast volume of documents which have not been exhibited to explain the nature and extent of their work, and to confirm that they have not been able to obtain from those other sources information sought through the S286B Application which they reasonably require.  The respondents requested for more than two weeks’ time to respond to the specific documents in Bachelor 2.  In rejecting their request, Recorder Pow acknowledged that the crux of Batchelor 2 was to update the court as to the state of the Liquidators’ knowledge or understanding after completing their review of the 175,000 pages of additional documents and that the areas of factual disputes remain largely the same as before.

13.  On 20 May 2019, while the S286B Application was on-going, Haldanes, then acting for 7^th Defendant solely in the S286A Application, asked for production and inspection of and only of the 2018 Documents.  No request was made in respect of the 2017 Documents.  In reply the Liquidators’ solicitors, Kirkland & Ellis (“K&E”) requested Haldanes to identify the issues in the S286B Application which they considered can only be fairly determined following production of the documents.  They did not respond.  Instead, on 29 July 2019, Haldanes filed a notice to act on behalf of the 7^th Defendant in this action and, without prior notice to the Plaintiffs, filed the present Summons seeking discovery of all the 2017 Documents and 2018 Documents.

14.  On 8 August 2019, K&E sought an explanation from Haldanes as to why the present Summons was issued when there was no proceeding on foot as between the Liquidators and the 7^th Defendant, and that Batchelor 1 and Batchelor 2 had not been served on her.  That letter identified precisely the jurisdictional issue raised in this Summons.  Other than a brief reply, Haldanes provided no substantive response. 

15.  The hearing of the S286B Application continued in August and September 2019.  The 7^th Defendant did not raise issues relating to this Summons or otherwise seek orders compelling production of the 2017 Documents and/or the 2018 Documents for the purpose of the S286B Application.  The hearing of the S286B Application concluded on 17 September 2019 with decision reserved.

16.  On 20 December 2019, Mr Batchelor swore his 6^th affidavit in this action (“Batchelor 6”) to support the Plaintiffs’ application for a second extension of the validity of the writ.  On 31 December 2019, the validity of the writ was extended for a further 12 months as from 9 January 2020. 

The law

17.  The 7^th Defendant’s application is made pursuant to Order 24 rules 10, 11 and 11A.  Order 24 rule 10(1), rule 11(1) and rule 13(1) provide as follows:

“10. Inspection of documents referred to in pleadings and affidavits (O. 24, r. 10)

(1)  Any party to a cause or matter shall be entitled at any time to serve a notice on any other party in whose pleadings, affidavits or witness statements served under Order 38, rule 2A, or experts’ reports, reference is made to any document requiring him to produce that document for the inspection of the party giving the notice and to permit him to take copies thereof.”

11.  Order for production for inspection (O. 24, r. 11)

(1)  If a party who is required by rule 9 to serve such a notice as is therein mentioned or who is served with a notice under rule 10(1)—

(a) fails to serve a notice under rule 9 or, as the case may be, rule 10(2), or

(b) objects to produce any document for inspection, or

(c) offers inspection at a time or place such that, in the opinion of the Court, it is unreasonable to offer inspection then or, as the case may be, there,

then, subject to rule 13(1), the Court may, on the application of the party entitled to inspection, make an order for production of the documents in question for inspection at such time and place, and in such manner, as it thinks fit.

13.  Production to be ordered only if necessary, etc. (O. 24, r. 13)

(1)  No order for the production of any documents for inspection or to the Court or for the supply of a copy of any document shall be made under any of the foregoing rules unless the Court is of opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs.

18.  The 7^th Defendant argues that Order 24 rule 10 regime is separate and distinct from the rules governing general discovery and specific discovery.  She argues that where the requirements are met, the applicant has a right to inspection.  The inter-relations between these rules have been settled by the Court of Appeal in Moulin Global Eyecare Holdings Limited (in Liquidation) v Olivia Lee Sin Mei[1].  Fok JA (as he then was) said in paragraphs 21 to 35:

“21. The Judge accepted that where a document is referred to in an affidavit in support of an application, the court will ordinarily order production because the purpose of requiring production is to give the opposite party the same advantage as if the document had been fully set out: see Matthews & Malek, Disclosure (4^th Ed.) at §§9.04-9.05.

22. He also considered that it was a theme running through many of the cases cited to him, including Quilter v Heatly (1883) 23 Ch D 42, Zida Technologies Ltd v Tiga Technologies Ltd [2001] 4 HKC 163; [2001] 3 HKLRD 698 and Rubin v Expandable Ltd [2008] 1 WLR 1099, that:

“… for practical purposes, a court is likely to take the view that absent any special factors, where a document has been referred to, it would generally be appropriate to regard its production as being so necessary as being in the interests of fairness and equality of information.”

…

31. I have set out above the rules of Court relevant to the present appeal. It is clear from those rules and from the authorities that have considered them (or the precursors to those rules) that there is a distinction between discovery of documents in an action in general and an application for production of documents referred to in pleadings or affidavits: see, in this respect, Quilter v Heatly per Lindley LJ at p. 49 and Shun Kai Finance Co Ltd v Japan Leasing (HK) Ltd per Rogers VP at pp. 523J-525B.

32. In the latter situation, where a party has referred to a document in his pleading or affidavit, the opposite party has a prima facie entitlement to see it, “unless good cause to the contrary is shewn” (per Jessel MR in Quilter v Heatly at p. 48), or “unless there is some sufficient ground for refusing production” (ibid per Lindley LJ at p. 50), or “unless he can shew good cause why he should not” produce it (ibid per Bowen LJ at p. 51).

33. Nevertheless, it is clear from the rules that any order for production for inspection under O.24 r.11 is expressly “subject to rule 13(1)” and that latter rule plainly places, on an applicant for an order for production, a burden to demonstrate to the court that “the order is necessary either for disposing fairly of the cause or matter or for saving costs”.

34. In Dynamic Way, Godfrey VP expressed the position thus (at p. 142B-D):

“We are concerned here with a document referred to in an affirmation, that is to say, the list of purchase orders mentioned in para 36. Although, prima facie, the party against whom it was sought to be used had a right to inspect this document and take copies of it, the court will not order production of the document for inspection unless the court is of the opinion that such an order is necessary either ‘for disposing fairly of the cause or matter or for saving costs’; see O. 24 r. 13 of the Rules of the High Court.”

35. There are thus two separate stages to be considered, although in practice these will usually be examined together. First, the party who has referred to the document in a pleading or affidavit bears the burden of showing good cause why an order for production should not be made. As a matter of practicality, at that stage, the fact of reference to a document in a pleading or affidavit will make it difficult for the referring party to contend that the document does not exist and it may also make it difficult for him to contend that it is not relevant. However, that is not the end of the inquiry as there is not then a presumptive rule in favour of an order for production and the referring party may be able to show, for example, that the document is privileged from production. In any event, under O.24 r.13 there remains, secondly, and independent of the first stage, a burden on the applicant for an order for production to show the court that the order is necessary either for disposing fairly of the cause or matter or for saving costs.

19.  In situations to which rule 10 applies, a party to whom pleadings or affidavits in a cause or matter has been served, has a prima facie entitlement to see the documents referred to therein.  He is entitled to make a request for inspection and production.  The burden is on the party who referred to the documents to show there is some sufficient ground for refusing production.  On the other hand, rules 11 and 13 make it clear that any order for production or inspection is expressly subject to rule 13(1) which places on an applicant for an order for production, a burden to demonstrate to the court that “the order is necessary either for disposing fairly of the cause or matter or for saving costs”.  Hence, the Court of Appeal developed the two-stage analysis.  Order 24 rule 10 cannot be construed as a presumptive, rigid or inflexible rule requiring production of a document as of right once it has been referred to in a pleading or affidavit.  Its production is subject to the court’s discretion under rule 13.

20.  The 7^th Defendant argues that since the 2008 Civil Justice Reform (“CJR”), rule 13 does not contain the discretionary override that the old rule used to contain as demonstrated in C.W. Rome v Punjab National Bank[2]. This question of discretionary override post-CJR was discussed in Moulin Global.  Fok, JA said at paragraphs 47-48 and 52:

“47.  Given the real reason and context for Rogers VP’s use of the phrase “very unusual circumstances”, I am quite satisfied that it is wholly wrong for the plaintiff to suggest that the decision in Dynamic Way constrains the court when it is considering, as it must under O.24 r.13, whether the applicant for an order for production has demonstrated that such an order is necessary either for disposing fairly of the cause or matter or for saving costs.

48.  Such an approach would largely deprive the court of any discretion under O.24 r.13 when considering an application for production under O.24 r.11 and I do not accept that this is the effect of the rules or the authorities relied upon by the plaintiff.

…

52.  In requiring the court to consider the necessity of an order for the production of a document for the fair disposal of a cause or matter, O.24 r.13 confers, in my judgment, a broad discretion rather than a narrow or fettered discretion as the plaintiff would suggest.  That the discretion is broad rather than narrow or fettered is supported by the following passage in the judgment of Sir Thomas Bingham MR in Taylor v Anderton [1995] 1 WLR 447 at p. 462, which the Judge quoted, namely:

“… The crucial consideration is, in my judgment, the meaning of the expression ‘disposing fairly of the cause or matter.’ Those words direct attention to the question whether inspection is necessary for the fair determination of the matter, whether by trial or otherwise. The purpose of the rule is to ensure that one party does not enjoy an unfair advantage or suffer an unfair disadvantage in the litigation as a result of a document not being produced for inspection. It is, I think, of no importance that a party is curious about the contents of a document or would like to know the contents of it if he suffers no litigious disadvantage by not seeing it and would gain no litigious advantage by seeing it. That, in my judgment, is the test.””

There is no change in the wording of rules 10, 11 and 13 after CJR to justify the inference suggested by the 7^th Defendant.  By quoting with approval the dicta Bingham MR in the pre-CJR decision of Taylor v Anderton, the Court of Appeal expressly preserved the discretion post-CJR. 

21.  Thus, the correct approach in considering an application for discovery pursuant to Order 24 rule 10 is to adopt the two-stage analysis.  While as a matter of practice, the two stages are considered together, as a matter of logic, the burden is first on the applicant, ie 7^th Defendant, to show that production is necessary either for disposing fairly of the cause or matter or for saving costs; and if he is able to discharge that burden, the party who referred to the document, ie the Liquidators, has to show good cause for refusing production.  On the facts, this case is one in which the two stages could be analysed separately.  If 7^th Defendant fails to discharge the burden in the first stage, that basically is the end of her application.

The basis of the application

22.  The 7^th Defendant advanced two basis for seeking production of the documents.  Her first basis is to enable her and her legal advisor to consider and assess (a) whether to apply to set aside the two orders extending the validity of the writ in this action; and (b) how to defend herself against the claim in the writ.  Her second basis is to obtain the documents for the purpose of resisting the S286B Application for examination and production orders in the winding-up proceedings in HCCW 337/2015.

23.  In essence, the Liquidators’ objections are that the 7^th Defendant’s first basis is misconceived as the writ remains unserved and her second basis is equally untenable as the S286B Application has been concluded and in any event it is a matter for the Companies Court in its supervision of the winding-up proceedings.  

The documents sought

24.  The documents sought are all the 2017 Documents and all the 2018 Documents mentioned in Batchelor 1 and Batchelor 2.  The majority of these documents concern work undertaken by Jonten Hopkins for other entities in the group of companies to which the Company belonged during the same period.  The documents may be divided into two broad classes, namely:

(1)  audited accounts and working papers for the Company for the period between 31 March 2011 and 31 March 2014 produced to the Liquidators by Jonten Hopkins in around April 2017, ie the 2017 Documents; and

(2)  an additional 24,050 documents totalling approximately 180,000 pages (understood to be approximately 175,000 pages at the time of Batchelor 1) produced by Jonten Hopkins to the Liquidators under threat between July and August 2018, ie the 2018 Documents. 

25.  The Liquidators admit they have possession of the documents.  In fact, Batchelor 1 and Batchelor 2 with some specific documents which the Liquidators considered relevant to the ex parte application for extension of the writ had been provided to 7^th Defendant in connection with and for the purpose of the S286B Application. 

The context of this application

26.  Before considering the two-stage analysis, it would be helpful to set out the context in which this application arose.  The documents which the 7^th Defendant seeks production are not documents which have been served on her in this action, but are documents referred to in Batchelor 1 and Batchelor 2 filed in support of the ex parte application for extension of the validity of the writ.  She only came into possession of Batchelor 1 and Batchelor 2 in another set of proceedings which have now been concluded.  The application to which this discovery relates is therefore in respect of an action, the writ of summons of which has not yet been served on the 7^th Defendant.

Jurisdiction

27.  There is no dispute that the writ in this action has not been served on the 7^th Defendant.  The thrust of the Liquidators’ argument is that not until the writ has been served on the 7^th Defendant would this court has jurisdiction on this cause or matter over her.  Relying on Cameron v Liverpool Victoria Insurance Co Ltd[3], Mr Lam SC, leading counsel for the Liquidators, submits that it is trite law that the jurisdiction of the court in civil proceedings against a defendant is premised upon service of the writ having been effected upon him and not the mere issuance of the writ.  Conversely, unless and until such service has been effected, a putative defendant is not yet a party to the proceedings, which would neither be binding nor have any effect upon him (save the legal consequence of any order made pursuant to an ex parte application).

28.  Mr Barlow SC, leading counsel for the 7^th Defendant, argues that Mr Lam SC’s analysis is based upon a misunderstanding or misrepresentation of the relevance herein of the decision of the English Court of Appeal in Dresser UK Ltd v Falcongate Freight Management Ltd[4], quoted in Cameron v Liverpool Victoria Insurance Co Ltd,which is concerned with the interpretation of articles 21 and 22 of the Brussels Convention on Jurisdiction and the Enforcement of Judgements in Civil and Commercial Matters.  He also quoted Canada Trust Co v Stolzenberg (No 2)[5] in which Lord Steyn said “it is trite law that an action is begun in the High Court when a writ of originating summons is issued”, when expressing his disagreement with the Court of Appeal in Dresser v Falcongate.

29.  I respectfully disagree.  Except for the suggestion that a putative defendant is not a party to the proceedings until the writ has been served on him, the proposition advanced by Mr Lam SC is basically correct.  That proposition is also trite law as affirmed by Supreme Court of the United Kingdom in Cameron v Liverpool Victoria Insurance Co Ltd.  In that case, Lord Sumption said at paragraph 14, quoting Dresser v Falcongate:

“14. … There is no doubt that a claim form may be issued against a named defendant, although it is not yet known where or how or indeed whether he can in practice be served. But the legitimacy of issuing or amending a claim form so as to sue an unnamed defendant can properly be tested by asking whether it is conceptually (not just practically) possible to serve it. The court generally acts in personam. Although an action is completely constituted on the issue of the claim form, for example for the purpose of stopping the running of a limitation period, the general rule is that “service of originating process is the act by which the defendant is subjected to the court’s jurisdiction”: Barton v Wright Hassall LLP [2018] UKSC12, [2018] 3All ER 487[2018] 1 WLR 1119, (para [8]). The court may grant interim relief before the proceedings have been served or even issued, but that is an emergency jurisdiction which is both provisional and strictly conditional. In Dresser UK Ltd v Falcongate Freight Management Ltd, The Duke of Yare [1992] 2 All ER 450, [1992] QB 502, the Court of Appeal held that, for the purposes of the Brussels Convention (the relevant provisions of the Brussels Regulation are different), an English court was “seised” of an action when the writ was served, not when it was issued. This was because of the legal status of an unserved writ in English law. …”

30.  It is true that Dresser v Falcongate was concerned with construction of the Brussels Convention, but that construction was based on the legal status of an unserved writ under English law.  The parties’ position under an unserved writ under English law has been summarised by Bingham LJ in Dresser v Falcongate as follows[6]:

“… it is in my judgment artificial, far-fetched and wrong to hold that the English court is seised of proceedings, or that proceedings are decisively, conclusively, finally or definitively pending before it, upon mere issue of proceedings, when at that stage (1) the court’s involvement has been confined to a ministerial act by a relatively junior administrative officer; (2) the plaintiff has an unfettered choice whether to pursue the action and serve the proceedings or not, being in breach of no rule or obligation if he chooses to let the writ expire unserved; (3) the plaintiff’s claim may be framed in terms of the utmost generality; (4) the defendant is usually unaware of the issue of proceedings and, if unaware, is unable to call on the plaintiff to serve the writ or discontinue the action and unable to rely on the commencement of the action as a lis alibi pendens if proceedings are begun elsewhere; (5) the defendant is not obliged to respond to the plaintiff’s claim in any way, and not entitled to do so save by calling on the plaintiff’s to serve or discontinue; (6) the court cannot exercise any powers which, on appropriate facts, it could not have exercised before issue; (7) the defendant has not become subject to the jurisdiction of the court.

31.  As prescribed by Order 5 rule 4, civil proceedings in the High Court begin with filing of a writ of summons or an originating summons.  As affirmed by Lord Sumption, an action is completely constituted on the issue of the originating process but the general rule is that it is only upon service on the defendant that the defendant comes under the court’s jurisdiction.  The true position is that an action is completely constituted on the issue of the writ or originating process.  The parties named therein become parties to the action.  The court has jurisdiction over the cause or matter.  But the extent of the court’s jurisdiction varies depending on the stage of the proceedings.  Before service, the court’s jurisdiction is limited, for example, amending the writ, adding additional parties, granting extension of time as to its validity and so on.  But it has no jurisdiction over the party who has not been served with the process.  Upon service, the extent of the court’s jurisdiction is enlarged.  I do not think Canada Trust Co v Stolzenberg (No 2) would assist the 7^th Defendant because while it is true that an action is completely constituted on the issue of the writ, it is well-established principle that it is not until service of the writ has been effected on the defendant, would the court have jurisdiction over the defendant.  I think the above analysis of Lord Sumption’s dicta is sufficient to dispose of Mr Barlow SC’s argument, save two points.

32.  Firstly, Mr Barlow SC further seeks to justify 7^th Defendant’s ability to presently apply to set aside the ex parte orders based on Order 10 rule 1(5) and Order 12 rule 8(1).  He submits that should the 7^th Defendant decide to invoke these procedures, her application will be a rule 13 matter, which is likely to assist in saving costs.  When deciding whether or not to invoke those procedures, she will also need to consider the duty of any party whose legal rights are infringed by the ex parte litigation misconduct of another party to exercise the available legal procedure to alert the court to the litigation misconduct and to seek redress from it.  Any failure timeously to do so may disentitle the party affected from later obtaining discretionary relief from the court.  Thus, the clock is presently ticking on the matter of any application by the 7^th Defendant to set aside the ex parte orders.

33.  Again, with respect, that argument is also misconceived. As mentioned earlier, civil proceedings may begin with filing a writ of summons under Order 5.  Order 6 provides that a writ is valid for a period of 12 months which may be extended up to 12 months.  Order 10 and Order 12 respectively provides for service of the writ and acknowledgement of service.  Order 12 rule 8 deals with disputes about jurisdiction where a writ has been served and acknowledged.  Order 12 rule 8A deals with compelling service of an unserved writ and discontinuation of the action, where the writ has not been served. 

34.  Order 10 rule 1(5) provides as follows:

“1. General provisions (O. 10, r. 1)

(5)  Subject to Order 12, rule 7, where a writ is not duly served on a defendant but he acknowledges service of it, the writ shall be deemed, unless the contrary is shown, to have been duly served on him and to have been so served on the date on which he acknowledges service.”

35.  This sub-rule covers situations where service of the writ has not been effective, and in that sense was not duly served, but has been acknowledged and is therefore deemed served.  Where the writ is deemed served and service has been acknowledged, the court has jurisdiction over the defendant.  Rule 1(5) does not cover situation like the present case where the writ has actually not been served, has not been acknowledged and has not been deemed to have been served. This court plainly has no jurisdiction as yet over the 7^th Defendant in respect of the cause or matter stated in the writ.  The 7^th Defendant’s argument that it is open to her at present to apply to set aside the ex parte orders is utterly misconceived.

36.  Secondly, Mr Barlow SC argues that the “jurisdiction of the court” is a hopelessly broad concept unless it is placed in some relevant context.  He submits that the context suggested by Mr Lam SC is that this court’s jurisdiction “against a defendant” which would be appropriate if a defendant (fox example, a foreign defendant) was challenging service – but that is not the 7^th Defendant’s case.  The 7^th Defendant is domiciled and a resident in Hong Kong and is therefore unquestionably amenable to the jurisdiction of this court.  “Jurisdiction” is a broad concept.  It may mean geographical jurisdiction as Mr Barlow SC now argues.  Alternatively, it may mean juridical power, which is what I have hitherto been discussing.  There is no justification for Mr Barlow SC to now shift the focus from juridical power to geographical jurisdiction.

37.  Reference has been made to Dubai Bank Ltd v Galadari (No 2)[7] and C.W. Rome v Punjab National Bank[8]  by the 7^th Defendant in support of her argument that the court’s power under Order 24 rule 10 can be invoked at this stage, allegedly to promote or ensure a fair contest within an interlocutory matter.  In Dubai Bank, Slade LJ quoted Lindley LJ from Quilter v Healey[9] as follows:

“These rules were evidently intended to give the opposite party the same advantage as if the documents referred to had been fully set out in the pleadings.”

By relying on the words “cause or matter” in rules 10 and 13, the 7^th Defendant argues that the court’s power can be invoked in order to promote or ensure a fair contest within the trial or in any proposed summary disposition of the cause or in order to promote or ensure a fair contest within an interlocutory matter as in Dubai Bank.  In C.W. Rome, this regime was applied to interlocutory challenges to the court’s jurisdiction or to the validity or otherwise of purported service of the writ.

38.  There is no doubt that the purpose of these rules is to promote fairness.  The question is whether the rules may be invoked before the writ has been served.  In the two cases relied on by the 7^th Defendant, there was a cause or matter already on foot.  In Dubai Bank, the plaintiff applied ex parte for an injunction against one of the defendants restraining it from disposing of its property into which the respondent claimed diverted moneys could be traced.  The plaintiff is of course entitled to orders of inspection and production of documents to which reference had been made by that defendant in its affidavit filed in opposition to the injunction application.  The defendant has been served with an originating process.  The fact that the proceeding commenced by way of an application for ex parte injunction is irrelevant.  In C.W. Rome, the plaintiff insurers commenced proceedings for a declaration that two policies of insurance under which the defendants were the assured had been validly avoided and for repayment of sums paid pursuant to a claim under those policies.  The writ had been served and the defendants applied for orders that the service of the writ be set aside and/or it be declared that the writ had not been duly served.  It was for the purpose of dealing with the defendants’ summons that the plaintiff applied for discovery under Order 24 rule 7.  It was under those circumstances that the court held it had jurisdiction.  These two cases are distinguishable from the present case in which the writ has not been served.

First basis – setting aside the ex parte extension orders and defending the claim under the writ

39.  The 7^th Defendant’s first basis in support of her request for production is to enable her and her legal advisor to consider and assess (a) whether to apply to set aside the two orders extending the validity of the writ in this action and to understand whether the Liquidators have been frank and candid with the court when applying for the two extension orders; and (b) how to defend herself against the claim in the writ. 

40.  The 7^th Defendant’s application is based on Order 24 rule 10(1).  As already explained, the application of that rule is subject to rule 13.  Under the two-stage analysis, the 7^th Defendant bears the burden of proving that production is necessary to enable the cause or matter to be disposed of fairly and for saving costs; if she succeeds in discharging that burden, the Plaintiffs have to show good cause for refusing production. 

41.  The writ had been issued but remains unserved. For the first stage analysis, the first question one must ask is what is the cause or matter to be disposed of for which Order 24 rule 10(1) is sought to be invoked?  As was held in Dresser v Falcongate, not until the 7^th Defendant has been served with the writ, does this court has jurisdiction over her in respect of the cause or matter.  The 7^th Defendant has not yet come under the court’s jurisdiction.  She has neither liability nor obligation in respect of any cause or matter pleaded in the writ.  She has no obligation or need to participate in the action or to plead to the writ in any way.  The time has not come for her to defend herself against the claim in the writ, let alone for her and her legal advisor to consider how to defend.

42.  At this stage of the proceedings, the court’s jurisdiction is only against the Liquidators who issued the writ.  In the exercise of that jurisdiction, the court extended the validity of the writ twice upon the ex parte applications by the Liquidators.  The 7^th Defendant has no right to participate in the hearing or to contest those applications.   The only right exercisable by her is to invoke Order 12 rule 8A to compel service of the renewed writ on her or discontinuation of the action against her.  Under this rule, she may serve a notice on the Liquidators requiring them within a specified period not less than 14 days after service of the notice, either to serve the unserved writ on her or to discontinue the action as against her.  If the Liquidators fail to comply with the notice, she may apply to court for an order to that effect or to make such order as the court thinks fit.  Arguably, for that purpose the documents might be relevant.  As submitted by Mr Lam SC, an applicant who seeks to accelerate this legal process bears the burden of proving that it would be unjust if the proceedings are allowed to run its natural course or that the plaintiff’s reliance on the period of validity of the writ is unjust: China Medical Technologies Inc (in liquidation) v KPMG (a firm)[10]. Whether it is unjust is solely within the 7^th Defendant’s realm of knowledge.  As the 7^th Defendant chose not to invoke Order 12 rule 8A but sought discovery under Order 24 instead, I do not wish to speculate what was in her mind.  But not until she has invoked this rule, it is not open to her to challenge whether the Liquidators had been frank and candid with the court when applying for the two ex parte extension orders.  The discovery sought is premature.

43.  Putting aside the jurisdictional issue which renders any application to set aside the two extension orders premature, it is incumbent upon the 7^th Defendant, if she wishes to challenge those two ex parte orders, to allege with proper and sufficient particulars that the Liquidators have breached their duty to court. Except for some speculative comments contained in her affirmation, the 7^th Defendant has not provided a proper foundation for such allegations against the Liquidators.  To the extent that she is seeking to conduct an audit of all the 2017 Documents and the 2018 Documents to “verify” or “validate” the truthfulness of the Liquidators’ account in Batchelor 1 and Batchelor 2, she is plainly attempting to embark on a fishing exercise.  Fishing is generally impermissible for discovery.  In Re the Estate of Ng Chan Wah[11], Chu J (as she then was) said:

“It is not sufficient for the plaintiffs to say that because there is on the pleading allegation of improper conduct against the defendants as executors, they are entitled to test the basis of the estate accounts generally or to check the accuracy of the items presented in the estate accounts, irrespective of whether they are in issue. It is not the purpose of discovery to give the plaintiffs an opportunity to hunt around the documents in the hope that they will reveal some improprieties on the defendants’ part or will provide information for them to pursue more enquiries.” ”

There is no doubt that discovery will not be ordered for the purpose of “fishing” or to enable a party to turn a non-issue into an issue.  

44.  The 7^th Defendant also made other responses to the Liquidators’ objections.  She alleged that the Liquidators have “pursued” against her since December 2017.  That is not true as the Liquidators have decided not to serve the writ on her yet.  They have sought her assistance in investigating the affairs of the Company, though.  Her reference to the alleged limitation defence is also neither here nor there. The issue would have been considered by the court when granting the two extensions.  This may become a live issue when the Liquidators decide to serve the writ on her or when she invokes Order 12 rule 8A to compel service.  Then, she may seek to have the writ or the two ex parte orders set aside for that reason.  None of these have any relevance to her grounds for seeking discovery at this stage.

45.  On the state of affairs now before me, when asking myself the question “what is the cause or matter for which the production sought is necessary to enable it to be disposed of fairly and for saving costs”, the only answer is an emphatic “none”.  There is no live cause or matter which requires to be disposed of.  Order 24 rule 10 is not engaged.  The first basis of her application for discovery is misconceived.

Second basis - The S286B Application

46.  The circumstances leading to the making of the S286B Application and the hearing are set out in paragraphs 3 to 15 above.  The reason for making the application are set out in paragraphs 3 and 8.  In essence, the Liquidators were denied access to books and records of the Company and the former directors and officers of the Company, including the 7^th Defendant, were not forthcoming in assisting the Liquidators in their investigation into the affairs of the Company.  Paragraphs 10 to 15 describe how Batchelor 1 and Batchelor 2 in this action found their way in the S286B Application.  Paragraphs 13 and 14 describe how towards the end of the hearing of the S286B Application the 7^th Defendant suddenly sought, in this action instead of in the S286B Application, production of the documents exhibited to Batchelor 1 and Batchelor 2.

47.  The 7^th Defendant’s second basis for discovery is to obtain the documents for the purpose of the Liquidators’ S286B Application in the winding-up proceedings for examination and production orders.  That application has been concluded and is now pending for decision. That application is not a cause or matter in this action or a live cause or matter in the S286B Application.  Reliance on that application as a basis for discovery in this action may be readily dismissed on jurisdictional ground.  Anyway, I shall consider the 7^th Defendant’s argument on this ground for what it is worth.

48.  The 7^th Defendant said in paragraph 38 of her affirmation:

“… I believe that, if a proper and more thorough review of the Documents is undertaken the Court is likely to discover that the Liquidators already have enough information to proceed to make any claims that they actually have in respect of the Impugned Transactions …”

This is plainly a self-confessed attempt of fishing which for reasons as explained in paragraph 43 above is impermissible.

49.  Fishing and jurisdiction aside, the 7^th Defendant had been provided with a copy of Batchelor 1 and Batchelor 2 as early as 21 February 2019 and 14 May 2019 respectively.  Specific documents referred to in those two affidavits were exhibited to the affidavits.  But she made no request for inspection or production of the other 2017 Documents and 2018 Documents which were not exhibited.  The learned Recorder has already considered whether the Liquidators had provided a satisfactory description of all the documents for the purpose of determining the S286B Application.  At the hearing on 14 May 2019, Recorder Pow said:

“… Before the matter was last adjourned, it was the common understanding that the court will consider this application on all the materials so far presented. Mr Dawes SC was particularly concerned that during the adjournment, the applicants could put in a “one-liner” response saying they had considered the 175,000 odd pages of accounting papers [i.e. the 2018 Documents] and they made no difference to their case on reasonable requirement…

[2]  On 7 May 2019, the applicants filed Batchelor 2 in HCA [57/2018].  It effective (sic) stated that the liquidator had completed reviewing the 175,000 pages of papers in early May and updated the court with their view that the papers did not materially change their understanding of the Company and hence, the continual existence of “reasonable requirement” in support of the present application.  It was not a “one-liner”.  It provides reasons and referred to some specific documents which relate specifically to individual respondents.”

Apparently, the learned Recorder was satisfied that he had all the documents necessary for him to come to a conclusion whether the Liquidators had shown reasonable requirement in support of the S286B Application.  No application was made before the Recorder for inspection or production of the documents now sought. Instead, while the S286B Application was still on-going, the 7^th Defendant sought production in this action.  It must follow that the documents sought by this Summons is not necessary for the S286B Application.  Her express purpose is not a genuine purpose.  In the absence of a purpose relevant to the cause or matter, the 7^th Defendant has utterly failed to show how the discovery sought is necessary for disposing fairly of the cause or matter or for saving costs.  In any event, an order one way or the other in this action could not affect the Recorder’s decision in the S286B Application.

50.  The Liquidators suggest that the 7^th Defendant’s real purpose is to circumvent the Companies Court’s control of the examination process which she anticipates may be ordered against her.  If an order for examination is made against her, she may be entitled to advance notice, in general terms, of the topics on which she is to be examined.  There is no invariable rule or practice what further information or document should be provided to the examinee to prepare herself for the examination. It is a matter for the unfettered discretion of the Companies Court seized with the conduct of the examination to do what is fair in all the circumstances of the case.  A fair balance would be struck between the uninhibited right to legal advice and the need to ensure the integrity and effectiveness of the examination: see Re Kong Wah Holdings Limited (in liquidation)[12].  That decision is one which the Companies Court is best placed to make.  It would be improper and unprincipled for the 7^th Defendant to attempt to circumvent the process by seeking such information and documents in another action through the backdoor.  In the circumstances, the 7^th Defendant’s application for permission to use the documents in the S286B Application in the winding-up proceedings or for the purpose of any examination is inapt and completely beside the point.  In any case, the same request for leave was not sought under the Summons or requested in the draft order annexed to her skeleton submission. 

51.  In conclusion, insofar as the discovery is sought to produce the documents for use in the S286B Application, there is no cause or matter in this action to which discovery under Order 24 rule 10 is applicable.  As the hearing of the S286B Application has been concluded, any order of this court will have no effect on the Recorder’s decision in that application.  Furthermore, the 7^th Defendant has failed to satisfy this court of the genuine purpose of the application.  Hence, she has failed to discharge the burden of showing that discovery is necessary whether for disposing fairly of the cause or matter or for saving costs.  All in all, the 7^th Defendant has failed to discharge the burden of proof under the first stage of the two stage analysis.

Good cause why the order should not be made

52.  Having come to the above conclusion in respect of the first stage analysis, there is no need to consider the second stage analysis.  However, as is not unusual, good cause why the order should not be made may be drawn from the conclusion reached in the first stage analysis.  The absence of a live cause or matter for disposal for which the discovery sought is necessary for fair disposal and for saving costs is a good cause why the discovery should not be ordered.  Besides, there are particular reasons why the documents should not be produced to the 7^th Defendant at this stage of the proceedings.

53.  First and foremost, the documents were produced to the court by the Liquidators in the discharge of their duty of full and frank disclosure in connection with their application for extension of the validity of the protective writ.  There is no reason why the 7^th Defendant is entitled to obtain production before service of the writ or before a decision is made to prosecute the action against her.  Production of this kind would be particularly oppressive to the Liquidators who are duty-bound to preserve potential claims including to file and apply for extension of protective writs on a full and frank basis, while focusing their efforts and resources on reconstructing the affairs of the Company and determining whether to pursue claims against potential wrongdoers.

54.  Second, the 7^th Defendant has advanced no justifiable purpose for production.  She is not entitled to challenge the two ex parte orders extending the validity of the writ at this stage as she suggested.  There is no live cause or matter for disposal for which discovery is necessary.  Should the cause or matter become live when the writ is served on her or should she invoke Order 12 rule 8A to compel service of the writ or discontinuation of the action, she may apply for discovery at that stage.  As for her intention to use the documents obtained for challenging the S286B Application, the hearing has been concluded.

55.  Third, the 7^th Defendant has not shown any genuine purpose for which the discovery is sought.  There is a real likelihood that the purpose is to enable the 7^th Defendant to circumvent the Companies Court’s control of the examination process which she anticipates may be ordered against her.  If an order for examination is made against her, she may be entitled to advance notice, in general terms, of the topics on which she is to be examined.  She may seek discovery from the Companies Court at that stage, if appropriate.

56.  Fourth, the documents sought are voluminous. Apart from the audited accounts and working papers produced in 2017, ie the 2017 Documents, there is an additional 24,050 documents among the 2018 Documents totalling approximately 180,000 pages.  Though the use of USB memory stick may reduce the volume of paper involved, the documents sought are voluminous and not to be disclosed for no reason.  Furthermore, absent any genuine purpose for the production, the 7^th Defendant’s curiosity is not a reason for the Liquidators to satisfy her demand.

57.  Even if the 7^th Defendant succeeds in discharging the burden under the first stage of the analysis, the Liquidators have demonstrated good cause why the documents should not be produced.

Conclusion

58.  For the above reasons, the 7^th Defendant’s Summons has to be dismissed with costs with certificate for two counsel.  Such costs are to be assessed by summary assessment in Chambers.  The 7^th Defendant is invited to lodge with the court her objections to the Plaintiffs’ statement of costs with 14 days and to serve a copy to the Plaintiffs.  The Plaintiffs shall lodge their reply within 7 days thereafter.