LAM SIU SUN DENNIS AND ANOTHER v. CHEUNG TAK MAN DESMOND AND OTHERS

HCA 2413/2018

[2022] HKCFI 78

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2413 OF 2018

_________________

_________________

_______________

DECISION

_______________

Introduction

1.  This action arises out of disputes among the former partners and staff of the law firm Li, Wong, Lam & W I Cheung (“the firm”). The firm formally ceased practice on 15 February 2019. The 1^st and 2^nd plaintiffs (by original action) and the 1^st and 2^nd defendants (by original action) were the partners at the time of the cessation.

2.  The application before me this morning concerns these former partners only.

3.  In this action, serious allegations are made by the plaintiffs against the 1^st defendant, including unauthorised transfers out of client account to the 1^st defendant’s personal accounts from 2008 to 2016. The plaintiffs also allege that in June 2016, the 1^st defendant signed 172 bills which were falsified and were never sent to the clients and that based on these bills, cheques were drawn on the client account and eventually transferred to the 1^st defendant. Lastly, there is also an allegation that the 1^st defendant played a part in certain secret profit-sharing arrangement involving other defendants and that was in breach of his duty to the firm.

4.  The 1^st defendant denies any breach of duty. In essence, he contends that the moneys transferred to him personally over the years did not belong to the firm but were assets owned by W I Cheung & Co. That firm had been merged with another firm in 2008 to form the firm. The 1^st defendant claims that rectification works were undertaken since 2008 in respect of the pre-merger monies under the supervision of the Law Society.

5.  The 1^st defendant denies that he deliberately falsified the 172 bills. But he admits that he had made a mistake about those bills and he had since taken steps to rectify the error.

6.  The 1^st defendant denies the alleged secret profit-sharing arrangement.

7.  The plaintiffs commenced this action in October 2018. Pleadings were closed in July 2020. Case management directions were given in December 2020. That included the usual direction to make general discovery. The original deadline for that fell in February this year. That deadline was not met.

The plaintiffs’ application

8.  The plaintiffs’ position is that they need to retrieve the documents of the firm from storage in order to prepare their list of documents. Some of the firm’s documents have since February 2019 been stored in a Crown warehouse. According to undertakings given by the plaintiffs in a related action in HCA 262/2019, the documents can only be retrieved pursuant to the joint instructions of the plaintiffs and the 1^st and 2^nd defendants. The latter were approached for that purpose earlier this year. But no consent was given for the retrieval. This is the background leading to the plaintiffs’ present application taken out in April 2021. The plaintiffs ask for an order that the 1^st and 2^nd defendants do sign the instruction to Crown to retrieve 122 carton boxes containing the firm’s documents.

9.  After the application was taken out, the 2^nd defendant has indicated that he would adopt a neutral stance. The 1^st defendant opposes the application.

10.  I should at once note that the action was commenced more than three years ago. Parties are however still at the discovery stage. As contended by the plaintiffs, their application is merely a step to facilitate them to comply with their discovery obligation.

11.  It is important that the application should be dealt with speedily so that the action can progress to the next stage. Hence I do not propose to spell out the background facts or the parties’ extensive arguments in detail. (For the background facts, one may refer to the decision of Deputy High Court Judge Leung made in HCA 262/2019 at [2020] HKCFI 381 and the decision of Recorder Houghton, SC also made in the same action at [2020] 5 HKLRD 492, [2020] HKCFI 2763.)

12.  Having considered parties’ submissions, I am satisfied that an order should be made to compel the 1^st defendant to sign the instruction to Crown such that the plaintiffs can retrieve the firm’s documents from the storage and proceed to prepare their list of documents.

Discussion

13.  It is important to appreciate at the outset the true nature of the present application and to correctly identify what the application is about and, equally importantly, what the application is not about.

14.  As emphasised by Mr Lau Ka Kin, counsel for the plaintiffs, the application is not an application for general or specific discovery against the 1^st and 2^nd defendants. It is not an application made under Order 24. And, most importantly, it is not an application to seek discovery of documents of the opposite party.

15.  On the contrary, the plaintiffs are seeking to have access to what is in substance their own documents, as opposed to the other side’s documents.

16.  This is made clear on the face of the summons. The plaintiffs apply for the order pursuant to Order 1B, rule 1, Order 25, rules 1B and 7 and the inherent jurisdiction of the court. It is plain that they are seeking to invoke the court’s case management powers.

17.  The proper starting point of the analysis is that the documents which the plaintiffs seek to retrieve are documents belonging to the firm. Generally speaking, a partner is, when he thinks fit, entitled to have access to and inspect the books and records of the partnership: see section 26(i) of the Partnership Ordinance, Cap 38.

18.  The 1^st defendant does not dispute this general legal position but points out that the right is subject to any agreement made between the parties, as provided for in the introductory paragraph of section 26.

19.  When the firm formally ceased business in February 2019, the plaintiffs, the 1^st and 2^nd defendants were its partners. As such, any one of them should prima facie be entitled to inspect the firm’s documents.

20.  The complicating factor in the present case is that the plaintiffs have given an undertaking to the effect that any retrieval of the firm’s documents from the Crown storage would need to be agreed by all the four former partners.

21.  The circumstances in which the undertaking was given is relevant here. They have been set out in detail in the two decisions delivered in HCA 262/2019 mentioned above.

22.  In short, disputes arose between the plaintiffs on the one hand and the 1^st and 2^nd defendants on the other as to whether the plaintiffs had taken adequate steps to implement the cessation of the business in February 2019. In the end, the above undertaking and other undertakings were given by the plaintiffs to resolve the impasse and to facilitate the dissolution of the firm. As such, the giving of the undertaking is a means to implement and facilitate the administration process of the dissolution. The giving of the undertaking does not and should not take away the substantive entitlement of each of the former partners to access the firm’s documents.

23.  If the plaintiffs have a proper reason to retrieve the firm’s documents, the 1^st defendant should not unreasonably withhold his consent.

24.  In the present case, I am satisfied that the plaintiffs do have a good reason to access the firm’s documents. I am satisfied that, as the plaintiffs claim, the documents now in the storage with Crown may contain documents relevant to the allegations made against the 1^st defendant by the plaintiffs and are discoverable in this action.

25.  The plaintiffs do not have knowledge of the content of the 122 carton boxes save that there is an inventory list stating a short description of each carton box. For instance, the inventory list shows that the documents contain bank statements, payment vouchers and journal vouchers for the relevant period in which the unauthorised transfers allegedly took place. These are potentially relevant to the allegations of unauthorised transfers and the 172 bills. The inventory list also shows that the documents contain correspondence with the Law Society during the relevant period when the rectification works alleged by the 1^st defendant were undertaken. Hence they are potentially relevant to that issue. In the same way, the human resources records may be relevant to the allegation of secret profit-sharing.

26.  Ms Maggie Wong, SC, who appears with Mr Dexter Leung for the 1^st defendant, submits that there is insufficient basis for the plaintiffs to take the view that the documents would relate specifically to the 172 bills and the alleged unauthorised transfers. They appear to be doing so, Ms Wong contends, simply because the documents can generally be described or characterised as, eg, “accounting record” or “correspondence with Law Society” and based on that the plaintiffs say that they believe that the documents are relevant. This, the 1^st defendant contends, is clearly fishing and the plaintiffs are doing so in the hope that something relevant may turn up. And that is impermissible under the general principles governing discovery.

27.  Ms Wong also highlights the evidence of the 1^st defendant. In his 3^rd affirmation, he said this:

“Based on the descriptions for the 122 Cartons, I verily believe that they do not relate to the 172 Bills, BOC Account and NCB Account [which relate to the allegation of unauthorised transfers] (for the period from April 2008 to July 2016) and the purported Secret Profit-Sharing Arrangement.”

28.  Applying the well-known discovery principles, Ms Wong submits that the 1^st defendant’s assertion should be regarded as conclusive and on that basis, discovery should be refused: see, eg, Lee Sai Nam v Li Shu Chung HCA 1711/2019, 10 January 2014, at para 56.

29.  I do not consider that the above are valid objections in the present context.

30.  In effect, the 1^st defendant is treating the plaintiffs’ request as a request for discovery. However, as pointed out above, this is not a discovery application. The plaintiffs are not seeking to see documents of their opponent. They are trying to gain access to what may be said to be their own documents in order to ascertain whether they are in fact relevant to the issues in the action.

31.  In a normal situation, they can search through their own documents. Here, given the special circumstances arising out of the cessation of the firm’s business, they need to first seek the consent of the 1^st and 2^nd defendants before gaining access to the documents. As ruled above, the plaintiffs have demonstrated that the 122 carton boxes may contain documents which are disclosable. It is therefore only right that they be allowed to access the documents and search through them so as to comply with their general discovery obligation.

32.  As Coleman J remarked in China Shanshui Cement Group Limited v Zhang Caikui [2020] HKCFI 2560, at para 78:

“I also accept that as regards the giving of discovery in general, a party is required to take all reasonable steps and to use best endeavours to discover relevant documents. Those reasonable steps and best endeavours require making a reasonable search for documents. …” (underline added)

33.  This search is only a preliminary step which the plaintiffs have to go through before they can produce the list of documents for general discovery. The principles relied upon by Ms Wong have no application to this preliminary step. It would be wrong to apply these principles when the plaintiffs are merely trying to search through their own documents, as opposed to seek discovery of documents of others.

34.  In my view, the plaintiffs should be allowed to look at the documents now in storage unless the 1^st defendant is able to put forward any valid ground of opposition.

35.  The main ground put forward by the 1^st defendant is costs concern.

36.  Before today’s hearing, the 1^st defendant’s stance is that if access is given to the plaintiffs, a joint inspection exercise should take place involving the plaintiffs and the defendants. Given that the documents are voluminous, it would be a very costly exercise. It would be contrary to the underlying objectives in that the costs and time involved would be wholly disproportionate and oppressive to the 1^st defendant.

37.  The short answer to this is that the inspection is to be done by the plaintiffs only. They would bear the costs at the first instance which may form part of the costs of the action. If they get costs of this action, the costs would be subject to taxation. Any costs to be borne by the 1^st defendant should not be oppressive.

38.  The 1^st defendant himself has taken and maintained the view that the documents are not relevant for discovery purposes (see para 27 above). Hence there would be no need for the 1^st defendant to inspect in order for him to compile his list of documents. No costs would have to be incurred by him in that regard.

39.  The 1^st defendant’s remaining concern is the risk that there may be tampering with the documents in the inspection process. And there is therefore a need for him to send a representative to be present when the plaintiffs inspect the documents. As explored in the course of submissions, this concern can be addressed by the plaintiffs’ solicitors giving an appropriately worded undertaking to take all reasonable steps to ensure that there is no tampering of the documents. With that undertaking, the need for the defendants to send representatives to be present throughout the inspection process can be dispensed with.

40.  In light of the above, the costs concern does not arise and is not a good reason for refusing leave to the plaintiffs to access the firm’s documents.

41.  For completeness, I should add that the 1^st defendant also opposes the application on the ground that the present application seeks to depart from the plaintiffs’ undertaking given in HCA 262/2019. This is not a valid point. I have dealt with the context of that undertaking. The plaintiffs have a good reason and a need to access the documents. They should be allowed to do so. The 1^st defendant has, in my view, unreasonably withheld his consent.

Order

42.  For the above reasons, I make the following orders upon the undertaking of the plaintiffs’ solicitors, MinterEllison LLP, to (i) to store the Retrieved Items (as defined below) in a secure place and not allow access to them other than for the inspection provided below or otherwise by unanimous consent of the plaintiffs and the 1^st and 2^nd defendants; (ii) not to tamper, obliterate, damage or destroy any of the Retrieved Items without the unanimous consent of the plaintiffs and the 1^st and 2^nd defendants; and (iii) to comply with the terms of this order to the extent that it relates to MinterEllison LLP:

(1)  The 1^st and 2^nd defendants do cause Messrs Herbert Tsoi & Partners to sign and return the order form enclosed to MinterEllison LLP’s letter to Paul CK Tang & Chiu dated 24 March 2021 (“the Order Form”) to the plaintiffs within 7 days of this order, such that inspection and reproduction of the items subject to the said order form (“the Retrieved Items”) be carried out in the manner as set out below:

(a)  Within 7 days of the signed Order Form being returned to the plaintiffs, the plaintiffs’ solicitors do instruct Crown Worldwide (HK) Limited (“Crown”) to deliver the Retrieved Items to the office of the plaintiffs’ solicitors;

(b)  The plaintiffs’ solicitors should forthwith inform the 1^st defendant’s solicitors and the 2^nd defendant’s solicitors of their receipt of the Retrieved Items upon receipt and should give 7 days’ prior notice to the 1^st defendant’s solicitors and the 2^nd defendant’s solicitors about the expected date or dates on which the plaintiffs will inspect the items. Should the 1^st and 2^nd defendants wish to be present at the inspection, they shall give at least 2 days’ notice to the plaintiffs’ solicitors, in which event the inspection shall be carried out by the plaintiffs in the presence of the 1^st defendant and/or the 2^nd defendant or their representatives. The 1^st defendant and/or the 2^nd defendant shall bear their own costs of such attendance in any event. In the absence of such notice, the plaintiffs may inspect the Retrieved Items but only in the presence of their solicitors;

(c)  During each inspection session, the plaintiffs shall tag any item which they wish a copy of which to be made. Should any party require a copy of the tagged items, that requesting party shall bear the relevant reasonable costs of copying;

(d)  At the end of each inspection session, the plaintiffs’ solicitors do take out the tagged items from the boxes containing the Retrieved Items for the purpose of copying, and the plaintiffs’ solicitors shall make records and compile a table of those items (including a general description of the document and the particular carton box from which it is retrieved);

(e)  At the end of each inspection session, after the step in (d) above has been completed, the plaintiffs’ solicitors do seal forthwith with their signatures the boxes inspected;

(f)  Within 14 days thereafter, the plaintiffs’ solicitors shall do the copying of the tagged items and shall deliver to the respective parties a true and complete copy of the tagged items;

(g)  Within 14 days thereafter, the plaintiffs’ solicitors do open the sealed boxes for the purpose of returning the items noted in step (d) above into the relevant boxes, and the plaintiffs’ solicitors do seal with their signatures the relevant boxes thereafter forthwith; and

(h)  Within 7 days after the filing of the plaintiffs’ 1^st list of documents, the plaintiffs’ solicitors do return the Retrieved Items to the storage of Crown.

(2)  The Retrieved Items shall be stored in locked room(s) without any storage fee in MinterEllison LLP’s office for their exclusive and safe possession, custody and control until the plaintiffs file their 1^st list of documents, and in any event not later than the extended date as may be granted by the court for the filing of the plaintiffs’ 1^st list of documents.

(3)  Liberty to apply.

43.  Costs should follow the event. All along, it is clear that the plaintiffs are seeking access to the documents relying on their rights as partners of the firm. I do not accept Ms Wong’s argument that the plaintiffs have somehow misled the 1^st defendant as to the true basis of their application, through correspondence or otherwise.

44.  I order that as between the plaintiffs and the 1^st defendant, the plaintiffs do have costs of the application. There be no order as to costs as between the plaintiffs and the 2^nd defendant.

45.  The plaintiffs have handed up a statement of costs. The 1^st defendant do lodge and serve a list of objections, if any and not exceeding 2 pages, within 7 days from today. The costs of the plaintiffs vis-à-vis the 1^st defendant will be summarily assessed on paper after the deadline.