i-PRO HOLDINGS LTD v. KONG KAR BONG AND ANOTHER

HCA 1449/2014

[2019] HKCFI 1837

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1449 OF 2014

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D E C I S I O N

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1.  This is the plaintiff’s application for judgment on the basis of the non-compliance with an unless order against the 1^st defendant previously given in respect of discovery of documents. The defendants act in person.

Background

2.  Briefly, the plaintiff was formed with the defendants being two of its shareholders and directors.  The plaintiff had at the material times opened accounts with various securities companies for trading in securities.  In 2014, the plaintiff commenced the present action against the defendants for alleged misappropriation of company funds and proceeds of security trading.  The plaintiff also obtained from the court a mareva injunction against the defendants, which has since been extended until the determination of this action.

3.  Pleadings have closed, and discovery of documents has been carried out.  The present application stemmed from the 1^st defendant’s discovery of documents in his possession by his list of documents dated 26 July 2018.  In Part 1 of Schedule 1 of his list, the 1^st defendant disclosed 4 categories of documents which are said to be in his possession.  They are:

(1)  statement of all related trading accounts;

(2)  bank account of the plaintiff;

(3)  cheque records; and

(4)  CPA audit reports of the mentioned accounts.

4.  The 1^st defendant did not give notice for the inspection of the documents disclosed by his list pursuant to O24, r9 of the Rules of the High Court (“RHC”).  After repeated requests by the plaintiff’s solicitors, the 1^st defendant produced a stack of copies of various documents in October 2018.  The plaintiff’s solicitors managed to sort out amongst the copies produced what they believe should fall into the descriptions of the documents respectively mentioned in (1), (2) and (3) of the preceding paragraph.  There was however no sign of any document fitting the description mentioned in (4) of the preceding paragraph, namely, the CPA audit reports of the various accounts.

5.  The plaintiff’s solicitors failed to obtain any reply from the 1^st defendant to their subsequent repeated requests.  Upon its application, the plaintiff obtained from the court the following unless order against the 1^st defendant with costs on 15 October 2018 (“the Unless Order”):

“Unless the 1^st Defendant by 4:00 pm on 29 October 2018 provides to the Plaintiff copies of the documents specified in Schedule 1 Part 1 of his List of Documents dated 26 July 2018, the 1^st defendant’s Amended Defence filed on 8 February 2018 be struck out and the plaintiff shall be at liberty to enter judgment against the 1^st Defendant as per the Amended Statement of Claim with interest and costs to be taxed if not agreed.”

6.  The 1^st defendant failed to comply with the Unless Order.  The plaintiff therefore took out the present application by summons filed on 29 November 2018 for leave to enter judgment against the 1^st defendant.

7.  The application first came before Hon B Chu J on 19 December 2018.  Her Ladyship directed, amongst other things, the 1^st defendant to file and serve an affidavit setting out the reasons for failing to provide copies of the CPA Audit Reports specified in his list of documents.  This the 1^st defendant has done.  On 2 April 2019, her Ladyship further adjourned the application for argument.  Hence the present hearing.

8.  The 1^st defendant was absent from the present hearing.  On the force of the affirmation of service filed by the plaintiff, and its solicitors’ undertaking to file and serve a further affirmation verifying the service of the hearing bundle and skeleton submissions on the 1^st defendant in person, who signed in acknowledgement of the receipt of the same, on 17 July 2019, I allowed the plaintiff to proceed.

Discussion

9.  For the following reasons, the 1^st defendant has himself to blame for bringing about this matter before the court.

10.  First, it was he who chose to state in his list of documents the existence and his possession of the CPA audit report(s), and thus bringing upon himself the duty to produce the same for inspection or a copy of it, if requested by the plaintiff.

11.  Second, the 1^st defendant provided copies of the documents disclosed in his list to the plaintiff in a stack without index, and thus leaving it to the plaintiff’s solicitors to sort out the documents amongst the categories described in the 1^st defendant’s list.

12.  Third, the plaintiff, and I think justifiably, detected no such document that fit the description of a CPA audit report(s) disclosed in the 1^st defendant’s list.  When the plaintiff’s solicitors wrote between July and September 2018 to ask the 1^st defendant about that, he paid no heed to their letter and their subsequent reminders.  Hence the application for the Unless Order, which the master duly gave.

13.  Fourth, now faced with the Unless Order, the 1^st defendant allowed himself to fail to comply with it, but never sought to explain to the court until the court at the call-over hearing of the plaintiff’s present application directed him to do so by affirmation.

14.  Fifth, in his affirmation that was supposed to explain his failure to comply with the Unless Order as mentioned above, the 1^st defendant denied non-compliance.  He maintained that a copy of the CPA audit report was among the stack of documents produced to the plaintiff earlier as mentioned above.  It was only then he came to reveal that by the CPA audit report(s), he was referring to a document called accounts transactions summary.  There is no way a fair reader would view such summary as a CPA audit report as normally expected.

15.  Sixth, in equating the accounts transactions summary with a CPA audit report, the 1^st defendant attributed the misunderstanding to the plaintiff’s different expectation of what a CPA audit report should be like.  This is not objective or fairness.  The 1^st defendant never identified the certified public accountant who was allegedly responsible for compiling the summary.  The document bears no indication whatsoever on its face that this is a CPA audit report.  It is expressly described as an accounts transactions summary.  The 1^st defendant explained that he relied on the expertise of this accountant, and he did not possess the qualification or knowledge to question the format of the document compiled.  I share the plaintiff’s scepticism about his alleged ignorance, in view of his educational and business background as he has represented.  More importantly, the description of the document as a CPA audit report was the 1^st defendant’s own choice and making in his list of documents. 

16.  Seventh, the 1^st defendant offered to instruct the CPA to revise and to produce an(other) audit report, if necessary.  As explained below, this is beside the point.  In any event, he has not done so as offered, since his affirmation was filed in January 2019.

17.  Last, and rather consistent with his attitude as demonstrated above, the 1^st defendant seemed to question why he should be burdened with disclosure of documents while it should be the plaintiff’s burden of proving its claim by evidence, including the necessary documents.  The simple answer is that he is wrong about that.  Pursuant to O24, the duty of discovery of relevant documents in the action rests on both sides of the litigation.

18.  In the circumstances, I can understand the grievance of the plaintiff, and its urge to seek an order provided for in the Unless Order consequential upon the 1^st defendant’s non-compliance.

19.  The 1^st defendant may apply for relief from the sanction imposed by the Unless Order pursuant to O2, r4 within 14 days of his failure to comply with the order.  O2, r5 provides:

“(1) On an application for relief from any sanction imposed for a failure to comply with any rule or court order, the Court shall consider all the circumstances including –

(a) the interests of the administration of justice;

(b) whether the application for relief has been made promptly;

(c) whether the failure to comply was intentional;

(d) whether there is a good explanation for the failure to comply;

(e) the extent to which the party in default has complied with other rules and court orders;

(f) whether the failure to comply was caused by the party in default or his legal representative;

(g) in the case where the party in default is not legally represented, whether he was unaware of the rule or court order, or if he was aware of it, whether he was able to comply with it without legal assistance;

(h) whether the trial date or the likely trial date can still be met if relief is granted;

(i) the effect which the failure to comply had on each party; and

(j) the effect which the granting of relief would have on each party.

(2) An application for relief must be supported by evidence.”

20.  Whilst there is no formal application by the 1^st defendant, the plaintiff fairly proceeded on the basis that the 1^st defendant’s opposition to the present application and his explanation amount in effect to an application for relief from sanction.  In such context, the plaintiff argues that no relief should be granted.

21.  The plaintiff referred to Ping Kai Engineering Co Ltd v Hong Kong Teakwood Works Ltd, HCCT 2/2001 (23 January 2001 & 6 February 2002); Ka Wah Bank Ltd v Low Chung Song [1989] 1 HKLR 451; and Top Point Ltd v K&L Gates (a firm of solicitors) [2016] HKCU 2183 as instances of how the court has approached the exercise of discretion whether to grant relief from sanction.  I do not propose to labour on whether analogy may be drawn between those cases and the present one.  This would not take us far, once we identify the peculiar feature of the present case.

22.  As mentioned, it was not until the 1^st defendant filed his affirmation to explain his apparent failure to comply with the Unless Order when the plaintiff and the court came to realise that by the CPA audit report(s) in his list of documents, the 1^st defendant was actually referring to the accounts transaction summary.  The plaintiff was therefore not to blame for pursuing its request for the document that objectively fits such description from the 1^st defendant, the Unless Order as well as the present application.

23.  As mentioned, much can be said about how the 1^st defendant has conducted this matter from the moment he chose to describe the document in question in his list of documents. However, the question of compliance remains to be approached not merely in terms of the deadline but also in substance.  The substance of discovery is founded on the existence of the document.

24.  Had there been basis for suggesting the actual existence of a document in the 1^st defendant’s possession that fits the description as per his list other than the accounts transactions summary that he claimed he has actually been referring to, the court might have been in a position to consider whether the 1^st defendant is genuine in his explanation or merely seeking to withhold such document from the plaintiff and the court.  Whilst casting doubt on the 1^st defendant’s explanation, the solicitor for the plaintiff fairly refrained from going so far as suggesting such basis.

25.  Essentially, the 1^st defendant has himself to blame for causing the plaintiff and the court to take it from his list of documents the existence and his possession of the document of such description, by which he is actually referring to another document that would not conceivably be so described in his list.  It does not appear to me that one could draw any other conclusion on the basis of the available materials, including the 1^st defendant’s evidence on oath.  That being the reason for his default in complying with the Unless Order, I do not think it is relevant to consider if the 1^st defendant should now proceed to compile one CPA audit report as he offered in his affirmation.

26.  In the circumstances, I do not take the view that allowing the plaintiff to obtain the consequential order, as provided for in the Unless Order, in the event of non-compliance will either be proportionate or serving the interest of justice.  I therefore am not prepared to accede to the present application.

Costs

27.  Notwithstanding the outcome of the present application, be this in terms of refusing to give judgment or agreeing to grant relief from sanction, I need say no more than the above observations adverse about the 1^st defendant, who should be held accountable for bringing about the present application.  It is in my view fair to order the 1^st defendant to pay the plaintiff’s costs of and occasioned by the present application, and so I order on a nisi basis.

28.  In the absence of application in 14 days to vary, the nisi costs order shall become absolute without further order of the court.  Upon that the plaintiff shall lodge and serve its statement of costs within 7 days, to which the 1^st defendant shall have 7 days thereafter to lodge and serve his written comments.  Upon the expiry of such deadline or the receipt of the 1^st defendant’s comment, whichever is earlier, this court will assess the plaintiff’s costs summarily.