CRYSTAL JADE LA MIAN XIAO LONG BAO (TAIKOO) LTD (IN COMPULSORY LIQUIDATION) v. LEUNG YEE WAI MONA AND OTHERS

HCA 125/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 125 OF 2012

_________________________

_____________

D E C I S I O N

_____________

The application

1.  By summons dated 26 June 2014, the plaintiff applied for discovery against Shanghai Commercial Bank (“SCB”), a non-party for the documents as set out in the Schedule attached to the summons pursuant to section 42(1) of the High Court Ordinance and O.24 r. 7A of RHC.

2.  The plaintiff had agreed to abandon class (b) and SCB had agreed to disclose classes (a), (c) and (d), which are all the items set out in the Schedule.  For this reason, the parties agreed and this Court granted leave to SCB to be absent from this hearing.

3.  The 1^st defendant has made no submissions for the plaintiff’s application.  The 2^nd and 3^rd defendants (collectively called “the defendants”) oppose some of the documents and submit that the documents should be redacted before discovery by SCB to the plaintiff.  SCB therefore remains neutral in its position and will abide by any decisions that this Court may make.

4.  The plaintiff and the defendants are legally represented.[1]

The factual background

5.  The plaintiff claims against the 1^st defendant as the former director of the plaintiff  before its liquidation for breach of fiduciary duties in that she had deliberately failed to renew the tenancy agreement for the plaintiff and had also caused the landlord to terminate the tenancy agreement with the plaintiff so as to enable the 3^rd defendant to take up the tenancy of the premise on which the 3^rd defendant ran the similar business as the plaintiff’s. The 2^nd defendant is the sole shareholder and director of the 3^rd defendant.  Both 2^nd and 3^rd defendants are sued as the knowing parties to the 1^st defendant’s breach of her duties as the director.[2]

6.  The 1^st defendant has pleaded that she had no business interest in the 3^rd defendant although she had rendered some assistance to it.  The 2^nd and 3^rd defendants had also pleaded that the 1^st defendant had no business interest in the 3^rd defendant.[3]

The objections

7.  The defendants object the application in respect of item (a) with regard to their credit and liabilities because they are irrelevant to the plaintiff’s case.  The defendants also object item d(v) in that this item refers to information and documents relating to other loans whereas the plaintiff’s pleaded case is in respect of the loan of $1.2 million only.

8.  Section 42(1) of the High Court Ordinance, Cap. 4 provides:

(1) On the application, in accordance with rules of court, of a party to any proceedings in which a claim is made, the Court of First Instance shall, in such circumstances as may be specified in the rules, have power to order a person who is not a party to the proceedings and who appears to the Court of First Instance to be likely to have or to have had in his possession, custody or power any documents which are relevant to an issue arising out of that claim- (Amended 3 of 2008 s. 17)

(a) to disclose whether those documents are in his possession, custody or power; and

(b) to produce such of those documents as are in his possession, custody or power to the applicant or, on such conditions as may be specified in the order-

(i) to the applicant's legal advisers; (emphasis added)

   (Replaced 52 of 1987 s. 34) [cf. 1981 c. 54 s. 34 U.K.]

Item (a)

9.  They are credit assessment reports, credit application forms, statements of assets and liabilities, and records of credit assessment in relation to the Loan (including any schedule, attachment and/or supporting document thereto).

10.  The defendants submit that such information is not relevant to the issue of whether the 1^st Defendant had any direct or indirect interest in the 3^rd Defendant or any of the issues identified in para 12 of 2^nd Affirmation of Osman Mohammed Arab. 

11.  The plaintiff submits that the documents will throw light on the relative financial positions of the defendants and why the 1^st defendant should provide personal guarantee and deposit her insurance policy to SCB as security for the loan of 1.2 million dollars to the 3^rd defendant whereas the 1^st defendant says that she has no interest in the 3^rd defendant and the 2^nd defendant is the sole owner of the 3^rd defendant.  Throughout the investigation as disclosed in the 2^nd Affirmation of Mr. Arab, it was revealed that the 2^nd defendant’s brother had the means to provide personal guarantee for the 3^rd defendant.  The 2^nd defendant’s brother did not provide the personal guarantee.  The 1^st defendant did.  This question has not been satisfactorily answered by the defendants.  The plaintiff considers that the documents will provide the clues for the answer.  There is no evidence that those documents contain no such information.  On the contrary, it is possible that they may have the information for the answer.  The defendants’ objection cannot sustain.

12.  So far as oppression is concerned, SCB has raised no objection, it does not concern the defendants to obtain the documents.

13.  As to the argument that there may be information as to the liabilities or assets of the 2^nd and 3^rd defendants, which the defendants request redaction, this issue can be resolved by arrangement that the solicitors of the plaintiff and the defendants inspect the documents together and agree on the parts that are irrelevant and to be redacted before copy of the documents are to be taken, with liberty to apply to the court in case there is any dispute.  See §47 of Li Tak Yee Samuel v Sociéte Générale Bank and Trust & Others (unreported, HCA1198/2011, 16 April 2013).

Item d(v)

14.  Items d(v) contains  negotiations on requests, suggestions, invitations, offers, arrangements, representations and assurances made on securities to be provided to secure other loans for D3.

15.  The defendants complain that documents relating to other loans should not be discovered as they are irrelevant.  So far, there is nothing from the plaintiff to argue with the defendants.  The plaintiff is content with the information relating to the 2 million SME loan from SCB only.  Mr. Chang opposes on the ground that this loan was not pleaded in the pleadings of the plaintiff.  However, the scope of discovery should not be pinned down to particulars of the pleadings and the factual background should be taken into account as decided in Billion Lead Investment Ltd v Union Joyce Ltd & Ors (unreported, HCMP 2145/2011, 14 December 2012 at paragraphs 15-16).  I agree.

Order

16.  The Court now makes an order in terms as follows:

a. Paragraph 1 of the summons;

b. Paragraph 2 of the summons, subject to the proviso that before taking copies of the documents, the solicitors for the plaintiff and the defendants shall agree on the parts irrelevant to the issues in dispute to be redacted, with liberty to apply to the Court if in dispute;

c. The disclosure of the documents above are subject to the modification of item d(v) to confine to the 2 million SME loan;

d. The costs for this application and the costs for compliance of the order to be made be costs in the cause; the costs of today’s hearing be the plaintiff’s costs in the costs, and the costs of this application and the costs of production of the information and documents by SCB in compliance with this Order be agreed between the plaintiff and SCB, failing agreement, to be assessed by the Court by SCB submitting its bill of costs within 14 days after the discovery to the Court and the plaintiff’s objections thereto within 7 days thereafter.  The assessment will be on paper.