LEE SAI NAM v. LI SHU CHUNG AND ANOTHER

HCA 1711/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1711 OF 2009

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DECISION NO 3

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I. INTRODUCTION

1.  This is the third tranche of pre-trial interlocutory applications before me.  For convenience, I shall adopt the abbreviations in my earlier Decisions Nos 1 and 2 handed down on 15 May and 31 May 2013 respectively (“Decision Nos 1 and 2”).  

2.  Pursuant to the order of Master K K Pang dated 7 September 2011, FS filed their List of Documents on 4 October 2010, and KJ filed theirs on 6 October 2011.

3.  On 23 March 2012, Master Ho granted inter alia the following order:

“1. Unless by 4:00pm on 13 April 2012 [Yuen Hing] do file and serve its Defence to Counterclaim, failing which [Ken] be at liberty to apply for judgment to be entered against [Yuen Hing].

2. [Ken] and [Yuen Hing] do, after the filing and service of the Defence to Counterclaim by [Yuen Hing], exchange the list of documents within 14 days, with inspection of documents within 7 days thereafter.

……”

4.  On 19 April 2012, Master Ho granted inter alia the following order:

“5. [FS] and [KJ] do within 14 days from the date hereof serve Supplemental List of Documents, if any, on the other parties with inspection of the documents within 7 days thereafter. ……”

5.  On 13 April 2012, Yuen Hing filed the YH Defence. On 27 April and 3 May 2012 respectively, KJ filed their Supplemental and 2^nd Supplemental Lists of Documents.  On 3 May 2012, FS filed their Supplemental List of Documents.  But Yuen Hing did not file any List of Documents within the prescribed time or at all.

6.  On 26 April 2012, Yuen Hing filed a summons seeking an order inter alia that Ken’s counterclaim against the Father, Seline and Yuen Hing be tried separately from the main action as if they were separate actions, and further or alternatively, an order that the counterclaim be stayed pending the final determination of the main action (“Split Trial Summons”).

7.  On the same day, Yuen Hing filed the affirmation of Seline in support of the Split Trial Summons.  Such affirmation claimed that Ken’s counterclaim stood apart from the main action as it involved different parties and witnesses, and would fall away if Ken failed in his defence in the main action, hence a split trial order would save time and costs and would not cause any prejudice.  Seline went on to say in her affirmation as follows:

“8. …… substantial time, costs and efforts would have to be incurred by Yuen Hing to go through its accounting records and make discovery of documents dated back to 2008. Such time, costs and efforts will be completely wasted if [Ken]’s defence failed at the Counterclaim. Also, if [Ken]’s defence failed, he is in fact not entitled to the discovery of Yuen Hing’s accounting records.

9. …… The Counterclaim also involves a substantial amount of documentation not relevant to the main claim. The proceedings will be increasingly burdened and delayed with the additional facts, documentation and evidence brought in by the Counterclaim. The trial date will also be prolonged as a result.”

8.  On 21 May 2012, Ken issued a summons against Yuen Hing inter alia for an order that “[unless Yuen Hing] file and serve its List of Documents within 7 days from the date of the Order to be made herein, the Defence of [Yuen Hing] shall be struck out and judgment for the Counterclaim shall be entered accordingly” (“Unless Summons”).

9.  On 24 May 2012, Yuen Hing issued a summons inter alia for the following order (“Extension Summons”):

“1. The time for [Ken] and [Yuen Hing] to exchange their respective List of Documents be extended to 21 days after the adjudication of [Split Trial Summons] at the Global [CMC] before the Honourable Mr Justice Harris on 25^th July 2012, unless otherwise directed by the Court at the hearing on 25^th July 2012; ……”

10.  The Split Trial, Unless and Extension Summonses were adjourned to be heard by Harris J at the global CMC on 25 July 2012.  By the Harris J Order, it was ordered inter alia that:

(a)     the issues of liability and quantum in respect of the counterclaim in the present action be split, and the determination of quantum and issues (including interlocutory matters) relating thereto shall take place after the trial on liability in respect of the counterclaim (ie the Split Trial Order);

(b)     the Split Trial, Unless and Extension Summonses be dismissed with no order as to costs.

11.  The applications before me were the 1^st and 2^nd Discovery Summonses referred to in paragraphs 63-64 of Decision No 1.  To recap, the 1^st Discovery Summons was a summons issued by Ken against FS on 7 June 2012 (and amended on 5 December 2012 pursuant to the order of L Chan J dated 21 November 2012) for specific discovery and production of various documents and/or classes of documents specified in the schedule annexed thereto pursuant to Order 24 rules 7, 11 and 11A of the RHC, and the 2^nd Discovery Summons was a summons also issued by Ken against FS on 3 September 2012 (and amended on 5 December 2012 pursuant to the order of L Chan J dated 21 November 2012) for production of documents and/or classes of documents specified in the schedule annexed thereto pursuant to Order 24 rules 10 and 11 of the RHC.

12.  Ken claimed that none of the documents in respect of which discovery and/or production were sought were included in the List and Supplemental List of Documents filed by FS.

13.  The 1^st and 2^nd Discovery Summonses were first scheduled to be heard before me on the 1^st Hearing Day.  They were not dealt with on the 1^st, 2^nd and 3^rd Hearing Days because Mr Joffe (with him Mr Wou), counsel for Ken, and Mr Wong (now Mr Wong SC) (with him Mr Kwong), counsel for FS, anticipated that the ambit of such summonses would have to be revisited upon close of pleadings after the latest round of amendments following disposal of the Misappropriation Claim, Striking Out and Amendment Summonses and after finalising the witness statements following disposal of the Statements, Relief and Ken’s 1^st Statement Summonses. Following the disposal of the aforesaid summonses, the 1^st and 2^nd Discovery Summonses were restored before me for substantive argument on 3 December 2013 (“Discovery Hearing”).

14.  For the purpose of the 1^st and 2^nd Discovery Summonses, Mr Joffe relied on Parts V and VI of his written submissions dated 18 March 2013, and Mr Wong SC relied on paragraphs 77-108 of his written submissions dated 19 March 2013. At Yuen Hing’s request, this court excused their attendance at the Discovery Hearing.

15.  The first pre-trial review (“PTR”) for the Liability Trial was held before the trial judge DHCJ Leung on 10 December 2013. A further PTR will be held on 23 January 2013 (“Further PTR”).  The Liability Trial was due to commence in March 2014.

II.  1^ST DISCOVERY SUMMONS

16.  By the 1^st Discovery Summons, Ken sought specific discovery and production of the following documents and/or classes of documents against FS:

(a) register of members and directors for Rich Prime Limited from 2002 to date;

(b) all banking records and supporting documents of Luen Tat and Yuen Hing in respect of:

(i) distribution of the Group’s profits to Ken, Richard and Seline from 1992 to 2008;

(ii) withdrawals of profit share by Ken, the Father, Richard and Seline from 1992 to 2008;

(c) bank statements for Yuen Hing’s three specified bank accounts from 2002 to date;

(d) all accounting records and supporting documents of Luen Tat and Yuen Hing in respect of:

(i) distribution of the Group’s profits to Ken, the Father, Richard and Seline from 1992 to 2008;

(ii) withdrawals of profit share by Ken, the Father, Richard and Seline from 1992 to 2008;

(e) audited financial statements of Yuen Hing from 2002 to date;

(f) monthly management accounts of Yuen Hing from 1 December 2008 to 31 March 2009;

(g) all notes, records and documents relating to the re-invoicing operations and the setting up of Yuen Hing in Macau, including but not limited to minutes of board meetings and management meetings, written advices from Mazars and other professional advisor(s), etc;

(h) all notes, records and documents relating to the alleged transfer and assignment of the 49 “new ordinary shares” from Full Moon to Allied Ever on/around 20 April 2009;

(i) register of members and directors of Allied Ever from 2009 to date.

17.  On 7 June and 8 August 2012, Ken respectively filed his 3^rd and 5^th affirmations in support of the 1^st Discovery Summons.  On 11 July 2012, FS filed the 3^rd affirmation of Seline in opposition.

18.  Prior to the Discovery Hearing, the parties agreed as follows:

(a) Ken would abandon his application for the documents in paragraph 16(f) above;

(b) FS would discover and produce the transfer documents in respect of the transfer of 49% shareholding from Full Moon to Allied Ever, and Ken would abandon his application for the remaining documents referred to in paragraph 16(h) above;

(c) FS would discover and produce the register of members and directors of Allied Ever from 2009 to date referred to in paragraph 16(i) above.

19.  For paragraph 18(a) above, Ken’s 5^th affirmation referred to the Split Trial Order made at the global CMC, and accepted that the documents in paragraph 16(f) above “would only affect the quantum of [his] counterclaim, [so he] would make [such application] at a later date and after the trial of issues regarding liability”.

20.  I note that (a) by an order of the court dated 6 July 2010 in HCCW497/2009 Luen Tat was wound up pursuant to section 177(1)(a) of the Companies Ordinance Cap 32, and (b) subsequently the Liquidators were appointed. By the Pak Tak WU Order dated 1 December 2011, Pak Tak was also wound up by the court in HCCW 236/2011.  Hence, at the Discovery Hearing, I queried Ken’s basis for suggesting that the documents in paragraph 16(b) and (d) above concerning Luen Tat would be in the possession, custody and/or power of FS rather than with the Liquidators.

21.  Upon further consideration, Mr Joffe asked for an adjournment of the application for specific discovery and production of the documents in paragraph 16(b) and (d) above concerning Luen Tat to the upcoming Further PTR so that Ken could make inquiries about such documents with the Liquidators.  I declined such application in the exercise of my case management discretion.  I bear in mind that the Liability Trial is only a few months away and to defer the application to the Further PTR scheduled on 23 January 2014 would be quite unsatisfactory as (a) there would be other trial-related matters to be canvassed at such PTR, and (b) any delay in adjudication of such interlocutory application would serve to derail the parties’ preparations for trial.  More significantly, there was no or no good explanation why to date efforts had not been made to raise enquiries with the Liquidators.  Mr Joffe tried to shift the blame onto FS by saying they had not raised such complaint previously, but this did not alter the burden that fell on Ken to establish to the satisfaction of the court the Luen Tat documents in question were in the possession, custody or power of FS (as distinct from the Liquidators). Upon my dismissal of the application for adjournment, Mr Joffe confirmed that Ken would abandon his application for discovery and production of the Luen Tat documents in paragraph 16(b) and (d) above.

22.  Thus, the remaining application for discovery and production of documents under the 1^st Discovery Summons concerned the documents and/or classes of documents in paragraph 16(a), (b) (only for Yuen Hing for the period from 2002 to 2008), (c), (d) (only for Yuen Hing for the period from 2002 to 2008), (e) and (g) above.

III. 2^nd DISCOVERY SUMMONS

23.  By the 2^nd Discovery Summons (with reference to updated pleadings and witness statements), Ken sought an order for production of the following documents and/or classes of documents against FS:

(a) Charles Jourdan Undertaking referred to in paragraph 10 of the RRASOC;

(b) assets and liabilities status reports referred to in paragraphs 3 and 5 in Seline’s re-amended witness statement dated 20 March 2012 and re-re-filed on 30 May 2013 (“Seline’s Re-Amended Statement”);

(c) audited financial statements and audited accounts of Yuen Hing referred to in paragraph 69 in Seline’s Re-Amended Statement.

No affirmation was filed in support or opposition of the 2^nd Discovery Summons.

24.  At the Discovery Hearing, Mr Joffe confirmed that Ken would abandon his application for production of the document referred to in paragraph 23(a) above, which meant the remaining application for production of documents under the 2^nd Discovery Summons concerned the documents and/or classes of documents in paragraphs 23(b) and (c) above.

IV.  PARTIES’ RESPECTIVE CASE

25.  FS’, KJ’s and Yuen Hing’s respective case prior to the disposal of the Misappropriation Claim, Amendment and Striking Out Summonses were summarised in paragraphs 69-90, 91-113 and 114-115 of Decision No 1. As explained in paragraph 68 of Decision No 1, such summaries were made to give a broad overview of the parties’ respective case in order to put the interlocutory applications in context, and were not intended to be comprehensive.

26.  After the disposal of the aforesaid summonses, the Father filed his Re-Re-Amended Statement of Claim (RRASOC) on 10 April 2013, Ken filed his Re-Re-Amended Defence and Re-Re-Amended Counterclaim (RRAD&RRAC) on 29 May 2013, Yuen Hing filed their Amended Defence on 25 June 2013 (“AYH Defence”), and FS filed the Father’s Re-Amended Reply and FS’ Re-Amended Defence to Re-Re-Amended Counterclaim (RAR&RRDAC) on 26 June 2013.

27.  For the purpose of the 1^st and 2^nd Discovery Summonses, the most significant changes in RRASOC and RRAD&RRAC were the removal of the Father’s Misappropriation Claim and the inclusion of the Ken Investment and Profit Pleas.  The Ken Investment and Profit Pleas were amendments to existing averments in the pleadings summarised in paragraphs 123-130 and 178-180 in Decision No 1.

28.  Since the 1^st Discovery Summons and corresponding affirmations were filed before the latest round of amended pleadings, the issues discussed in those affirmations must be viewed through the prism of the current pleadings.

29.  In a nutshell, the disputed issues on liability concerned inter alia:

(a) the beneficial ownership of the shares held by KJ in Luen Tat and by Ken in Pak Tat, and the propriety of Ken’s arrangement to transfer 51 ordinary shares in Luen Tat to Joseph;

(b) the alleged Luen Tat and Pak Tat trust arrangements by the Father;

(c) the alleged misconduct by Ken in the affairs of Luen Tat;

(d) the alleged wrongful retention and/or conversion by Seline and Yuen Hing of HK$25,602,977.76 being the alleged balance of Ken’s share of cumulative profits of the Group up to 30 November 2008 (in addition to the partial payment which Ken had allegedly received); and

(e) the alleged claim by Ken to all cumulative profits of the Group from 1 December 2008 to date.

V.  LEGAL PRINCIPLES: ORDER 24 RULE 7 OF THE RHC

30.  There is no essential dispute between Mr Joffe and Mr Wong SC over the principles of discovery.  Under Order 24 rule 7 of the RHC, a party may apply for an order requiring any other party to make an affidavit stating whether any document or any class of document specified or described in the application is or has at any time been in his possession, custody or power, when he parted with it and what has become of it.  But if the court is satisfied that discovery is not necessary, or not necessary at that stage of the cause or matter, it may dismiss or adjourn the application, and shall in any case refuse to make such an order if and so far as it is of opinion that discovery is not necessary either for disposing fairly of the cause or matter or for saving costs (see Order 24 rule 8 of the RHC).

(a) Court’s approach

31.  Hong Kong Civil Procedure 2014 states inter alia as follows:[1]

“…… But this is not sufficient unless a prima facie case is made out of (a) possession, custody, or power, and (b) relevance of the specified documents …… This prima facie case may be based merely on the probability arising from the surrounding circumstances or in part on specific facts deposed to. …… See too Berkeley Administration v. McClelland[1990] F.S.R. 381 where at 382 the court restated the principles as follows: (1) There is no jurisdiction to make an order under RSC, O.24 r.7, for the production of documents unless (a) there is sufficient evidence that documents exist which the other party has not disclosed; (b) the document or documents relate to matters in issue in the action; (c) there is sufficient evidence that the document is in the possession, custody or power of the other party. (2) When it is established that those three prerequisites for jurisdiction do exist, the court has a discretion whether or not to order disclosure. (3) The order must identify with precision the document or documents or categories of document which are required to be disclosed, for otherwise the person making the list may find himself in serious trouble for swearing to a false affidavit, even though doing his best to give an honest disclosure ……”[2]

(b)  Existence of the documents

32.  In Ngan In Leng v Chu Yuet Wah (No 1), DHCJ Queeny Au-Yeung (as she then was) said as follows:[3]

“42. A prima facie case on existence may be established on merely showing the probability arising from the surrounding circumstances or on specific facts deposed to: Hong Kong Civil Procedure 2012, Vol 1, p.553 para.24/7/1. For example, a prima facie case on existence may be established simply by assessing whether it is business practice for a certain type of document to exist: Union Bank of India v General Nice Resources (Hong Kong) Ltd(unrep., HCA 299/2007, [2010] HKEC 704), 10 May 2010, Bharwaney J, [10].”

(c)  Possession, custody or power over the documents

33.  “Possession” is distinguished from mere corporeal holding or actual physical possession, ie “custody”; it meant the right to the possession of a document.[4]  Since disclosure is required for documents that are or have been in a party’s custody, a company director who had the company’s documents in his physical custody was obliged to give discovery of them if relevant, although such custody was only in his capacity as an officer of the company.[5]

34.  “Power” includes all documents which, though they are not in a party’s possession or custody, he has a presently enforceable right to obtain from those whoever actually holds them without the need to obtain the consent of anyone else.[6]

35.  If a defendant is a shareholder, chairman and managing director of a company, the decision as to whether documents relating to the company are in his power (as opposed to his possession or custody) cannot be determined based solely on the extent of his shareholdings in the company.[7]  In Ngan In Leng, DHCJ Queeny Au-Yeung (as she then was) referred to the principles in B v B as follows:[8]

“44. Where documents are in the possession of a company of whom the respondent to an application is a director, the applicable principles are as follows:

…

(2) The documents of a company are in the legal possession of the company. If they are or have been in the actual physical possession of a director who is a party to litigation they must be disclosed by that director, if relevant to the litigation, even though he holds them as servant or agent of the company in his capacity as an officer of the company.

(3) Whether or not documents of a company are in the power of a director who is a party to the litigation is a question of fact in each case. “Power” in this context means “the enforceable right to inspect or obtain possession or control of the document”. If the company is the alter ego of such a director so that he has unfettered control of the company’s affairs, he must disclose and produce all relevant documents in the possession of the company.

(4) Where relevant documents in the possession of a company are disclosed by a director as being in his custody or power, the court has a discretion whether or not to order production of them.

(5) The discretion is a judicial discretion, and in exercising it the court will have regard to all the circumstances. The court will balance the relevance and importance of the documents and the hardship likely to be caused to the [applicant] by non-production against any prejudice to the [respondent] and third parties likely to be caused by production. It has not hitherto been the practice of the court to order production of company documents to which the board of directors objects on affidavit, provided that the court is satisfied that the objection is not contrived for the purpose of frustrating the powers of the court. The court will not in exercise of its discretion order parties to do that which they have no power to do. The court will not order production unless it is satisfied that production is necessary either for disposing fairly of the issues between the parties or for saving costs.

B v B (Matrimonial Proceedings: Discovery) [1978] Fam 181, 193D-194A”

36.  In the situation of “one man companies”,[9] it was suggested that disclosure might be ordered where companies in possession of relevant documents were under the “unfettered control” of the litigants “so as to be their alter egos”.[10]

37.  In the Canadian case of Dallas v Dallas, the court held on the facts of that case the company was the alter ego of the controlling director and shareholder, and therefore the companies’ documents were within his power.[11]

38.  On the other hand, there were cases where the company was held, on the facts of the case, not to be the alter ego of the controlling director and shareholder.[12]  In B v B, it was said that the respondent may not be ordered to give discovery if his control of the documents is in another capacity, eg as a director of a company.[13]  In Re Tecnion Investments Ltd, it was said that documents of a company are not necessarily “in the power” of its majority shareholder; dominance in the running of the company’s business does not prove the requisite degree of control; it must be shown that the company is under the unfettered control of the shareholder.[14]

39.  In Innovisions Ltd v Chan Sing-chuk Charles & ors,[15] Kaplan J found that the company was not the alter ego of the 1^st defendant and not under his unfettered control, but the Court of Appeal noted the 1^st defendant was founder, chairman, managing director and substantial shareholder who had a dominant role in the executive and management functions of the company. Whether or not it could be properly said that the company was his alter ego, the Court of Appeal was satisfied that there was prima facie evidence which indicated a real likelihood that the contested documents would have come into his possession or custody during the relevant period.

40.  In Re The Prudential Enterprise, Limited,[16] Chu J (as she then was) also said:

“10. In the context of corporate documents, normally dominance in the running of a company’s business does not necessarily mean that the person has the requisite degree of control so that he can access the corporate documents without obtaining the consent of anyone else: Innovisions Ltd v. Chan Sing Chuk & Ors at p.354. On the other hand, if the company is the alter ego of such a person so that he has unfettered control of the company's affairs, he may be regarded as having power over the documents in the possession of the company: B v. B [1978] Fam 18. Each case, however, must depend upon its own facts.”

In that case, the petitioner sought various corporate documents from the 1^st respondent who was not a shareholder of the companies, and the 1^st respondent went on affidavit to say that he no longer had entitlement to access the documents of those companies and he did not then have them or copies of them in his possession, custody or power. It was held that the true question was whether it could be said that the affairs of those companies were controlled by the 1^st respondent to the extent that the companies could be regarded as his alter ego.  Even though the court found the 1^st respondent’s assertions that he had no control over the companies and that he had no access to the documents did not sit well with some of the assertions in his affidavits that he was able to control the board and the relevant scheme, and there was some force in the complaint over the timing of the 1^st respondent’s resignation as a director just two weeks after the petitioner’s request for discovery, the court should not conduct a mini-trial on the affidavits when the issues of whether there was failure to make full disclosure or of whether the 1^st respondent was the person in control of the companies were also part of the complaints in the main proceedings such that there should not be interlocutory pre-judging of those issues.  “The court should not conclude that the 1^st respondent was untruthful and that these companies are indeed his alter ego by just comparing the affidavits and before the evidence may be completed”.  Therefore, the learned judge was not prepared to conclude that the 1^st respondent’s affidavit was insufficient answer to the petitioner’s specific discovery application.

41.  In Chow Shiu Kei v Lee Wai Jane,[17] the petitioner alleged there was a deadlock and breakdown of trust and confidence between him and the 2^nd respondent such that the family company ought to be wound up. Although the 2^nd respondent was an active director of the company, Barma J (as he then was) was satisfied she did not exercise such overwhelming control over the affairs of the company to render it her alter ego, and indeed the deadlock in the management of the company suggested otherwise. In the circumstances, it could not be said that the company’s documents should be regarded as being within her control. Further, evidence as to her physical custody of the documents kept in locked drawers to which both sides had access was inconclusive.  The learned judge declined to make an order for discovery against her.

42.  In Ngan In Leng, the learned judge had reservations about the director’s denial that she had possession, custody or power of the documents sought and went on to infer that she had chosen to make disclosure only when it suited her, but the learned judge was not satisfied that the director was/is in possession, custody or power of the documents belonging to the company except for two classes which were documents which she would have. Since the company was not a one-person company and there were other shareholders from the public and other independent directors, the learned judge was unable to find the company was her alter ego or the directors contrived with her to pass board resolution to forbid disclosure and/or production of the company’s documents.[18]

(d)  Relevance

43.  It is for the party seeking specific discovery to demonstrate a prima facie case for inter alia the relevance of the documents sought to the “matters in question”.  The well-known test for determining “relevance” is set out in The Compagnie Financiere et Commerciale du Pacifique v The Peruvian Guano Company as follows:[19]

“…… It seems to me that every document relates to the matters in question in the action, which not only would be evidence on any issue, but also which, it is reasonable to suppose, contains information which may – not which must – either directly or indirectly enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary. I have put in the words “either directly or indirectly” because, as it seems to me, a document can properly be said to contain information which may enable a party requiring the affidavit either to advance his own case or to damage the case of his adversary, if it is a document which may fairly lead him to a train of enquiry, which may have either of these two consequences: the question upon a summons for a further affidavit is whether the party issuing it can shew, ……, that the party swearing the first affidavit has not set out all the documents falling within the definition which I have mentioned and being in his possession or control ……”[20]

44.  On the aforesaid test of “relevance”, the real question is whether the documents sought to be discovered are relevant to the issues between the parties to the litigation or, putting it in another way, to the “questions in the action”.[21]

45.  There has been suggestion that the issues or questions must be those identified in the pleadings,[22] but in Thorpe v Chief Constable of Greater Manchester Police[23] it was held that matters can be “in question” even though not expressly raised on the pleadings. At p 833, Neill LJ said as follows:

“…… It is clearly established, however, that “the matters in question” cover wider ground than the issues as disclosed in the pleadings.  Thus a party is obliged to disclose any document which it is reasonable to suppose contains information which may enable the party applying for discovery either to advance his own case or to damage that of his adversary or which may fairly lead to a train of inquiry which may have either of these two consequences.  It follows that discovery is not necessarily limited to documents which would be admissible in evidence.”

46.  But even if an issue is raised in the pleadings, it is not necessarily determinative as to whether it relates to a “matter in question”. Anthony Chan J in Li Tak Yee Samuel v Sociéte Générale Bank and Trust & anor said “…… the relevance of an issue cannot be dictated by a party unilaterally simply by importing it in the pleadings”.[24]  Cheung JA in Paul’s Model Art Gmbh & Co v UT Limited & ors[25] said as follows: “…… Discovery is not required of documents which relate to irrelevant allegations in pleadings which even if substantiated could not affect the result of the action: Allington Investments Corp & Others v First Pacific Bancshares Holdings Ltd & Another [1995] 2 HKC 139”.[26]  In Wu Ching Sau v New World First Bus Services Limited,[27] I also said that:

“…… although the pleadings and particulars will usually determine relevance to a matter in question, the obligation to provide discovery in respect of a matter in question does not necessarily mean a matter on which issue has joined in the pleadings, but the documents must be matters as to which an inference can properly be drawn that they are the subject of controversy between the parties ……”

(e) Necessity

47.  According to Hong Kong Civil Procedure 2014,[28] if the party seeking discovery establishes a prima facie case, it is for the party objecting to the order for discovery to satisfy the court that the discovery is not necessary either for disposing fairly of the cause or matter or for saving costs under Order 24 rule 8 of the RHC.[29]

48.  Linked to the requirement that discovery should be necessary either for disposing fairly of the cause or matter or for saving costs is the need to give effect to the new approach under the Civil Justice Reform (“CJR”).  Mimmie Chan J in Billion Lead Investment Limited v Union Joyce Limited said as follows:[30]

“It is also clear that post CJR, the Court should give effect to the underlying objectives of the rules and procedures when it exercises its powers under Order 24 and when it interprets the provisions of Order 24. In deciding whether any document relates to a matter in question in the action, whether any document is or has been in the possession, custody or power of a party, and whether discovery of a document sought is necessary either for disposing fairly of the cause or matter or for saving costs, the Court should always bear in mind the objectives of cost effectiveness, expeditious disposal of cases, proportionality, procedural economy and ensurance of fairness between the parties.”

It was also observed by DHCJ Lok in HSBC Private Bank (Suisse) SA v Mission Bridge Limited & anor that “following the CJR, the increasing emphasis is for the court to limit discovery in the context of its duty actively to manage the case”.[31]

(f)  Necessity – evidential materiality

49.  In Chan Hung v Yung Kwong Chung, DHCJ Horace Wong SC said as follows:[32]

“32. In any given case, there is likely to be a spectrum of evidential materiality within which documents may fall.  There may be documents which are central to the pleaded issues; but there may also be documents which fall at the other end of the spectrum in that though they may “fall within the letter of Lord Justice Brett’s formulation of relevance for discovery purposes”, they are documents which are unlikely to contain or yield information of such evidential materiality to the pleaded case (in the broad sense mentioned above) of the parties as to make their disclosure necessary for the fair disposal of the proceedings or to save costs.  The Court is entitled to take the view that although relevance in the Peruvian Guano sense has been established, it is not necessary for them to be disclosed.  The power to refuse unnecessary discovery of documents is expressly conferred by the rules of court.

33.  Indeed in the O Company v M Company case mentioned above, after dealing with the question of relevance, Colman J further held at p.352:

“… I would only add that if I had held that the applicable analysis of relevance derived from Compagnie Financiere du Pacifique v Peruvian Guano Co., sup., was wide enough to include as relevant those documents in respect of which I have refused to make an order for discovery, I should in each case have held that discovery was not necessary either for disposing fairly of the matters in issue or for saving costs under O.24. r.8. Documents of which discovery is necessary for the fair disposal of a matter in issue must at least have a demonstrable evidential materiality. For the reasons which I have given in relation to relevance I am not satisfied that all those documents covered by items 9,10 and 20 do so.”

Hence Colman J would have arrived at the same conclusion by applying O.24 r.8 if he had simply followed the “letter” of Brett L.J.’s formulation in the Peruvian Guano case on the question of relevance.”

50.  This is echoed in Hong Kong Civil Procedure 2014 which states that “[an] application for discovery of a specific class of documents was refused in Kahn (David) Inc. v. Conway Stewart & Co. Ltd [1972] F S R 69 upon the grounds that the probative value of the documents, if they existed, would be so slight as not to justify the inconvenience of giving discovery; and upon grounds that such discovery was not in the circumstances necessary for determining the issue to which it was said to relate ……”[33]

(g)  Width of discovery sought

51.  Where the applicant seeks to see a class of documents, the class must not be defined or described so widely as to include documents which are not relevant to the issue.[34]  In other words, the prerequisites for invoking Order 24 rule 7 of the RHC mentioned in paragraph 31 above must be established in respect of the class described as a class and not as regards some in the class only.[35]  Even though an excessively wide class remains a valid class, the fact that the party will be compelled to discover much irrelevant material in addition to relevant material is something which goes to the issue of whether a discovery order is necessary “either for disposing fairly of the cause or matter or for saving costs”.[36]  Put in other words, if the class of documents sought covers a large number of documents, and “disclosure is resisted on the grounds that it would be oppressive ……, the Court will weigh against any such potential oppression the possible injustice that would be caused if the material were not available at trial ……”[37] But where an oppressive, too wide or imprecise request contains within it a proper request which can be revealed without prejudice to the other side, the blue pencil test can be applied to limit the scope of the order.[38]

52.  In Culturecom Limited & ors v Chin Kwok Chung alias Tony Zie,[39] the 3^rd defendant sought specific discovery of “all papers and documents” relating to seven legal actions save and except for those papers and documents already discovered by the plaintiffs. It was held that:

“The first difficulty is that the very definition of the class of documents as “all papers and documents relating to” a particular legal action is far too wide to permit a person faced with an order in those terms ever to be sure that he has complied with it. Secondly, it is not enough that a document relates in some way to proceedings. ……

…… it appears to be the 3^rd defendant’s case that in the papers relating to [a particular legal action], there may be some documents which, if the defendant saw them, might be considered to be relevant to the issues in those proceedings, but [counsel for the 3^rd defendant] was unable to name a particular specific issue and identify a document or a class of documents which could be shown to be directly related to that issue in such a way as to satisfy the requirements for specific discovery.

As a matter of common sense, it must be that many documents relating to the various proceedings referred to must be quite irrelevant to the issues to be tried between the plaintiffs and the 3^rd defendant, and on that ground alone, the 3^rd defendant’s application must fail.

It is not enough to show the possible relevance of some parts of a class of documents: it is necessary to identify the documents or show that the whole class must be relevant. ……  It is not sufficient to speculate as to whether documents might be helpful.  It is necessary to demonstrate that they satisfy the criteria.

……

…… It is not enough to say that a particular class of documents may be relevant: it is necessary to be much more specific and to identify the issue, the document and the manner in which it relates to the issue and is probative. ……

…… The application is a fishing expedition.  It is misconceived and it will be dismissed.”

53.  In Molnlycke AB v Proctor & Gamble Ltd (No 3), [40] Mummery J noted that an order for discovery was discretionary, and held that the specific discovery sought was too wide for it embraced documents which did not relate to the matters in question between the parties in the action, and were not necessary for disposing fairly of the action or for saving costs.[41]  He found it would have been oppressive to order discovery on the scale sought by the defendants of documents which were no more than marginally relevant background material to one of the issues in the action, and opined that the court would take into account considerations such as the value of the discovery to the person seeking it and the burden imposed on the party giving it with a view to restricting the volume of documents and the labour and expense involved to that which was necessary for fairly disposing of the issues in this case.[42]

(h) Fishing request

54.  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.[43]  In Re the Estate of Ng Chan Wah, Chu J (as she then was) stated that:[44]

“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.”

(i) Discovery affidavits are conclusive

55.  The making of an order for specific discovery does not preclude the other party from deposing in the affidavit that he in fact does not have the documents in his possession, custody or power. Generally speaking, the affidavit in answer is invariably taken at face value, and subject to limited exceptions, it is conclusive as to relevance and existence or otherwise of documents at the interlocutory stage so that the applying party cannot seek to contravene the statements or assertions in the affidavit either by way of a further contentious affidavit or by applying to cross-examine the deponent.[45]

56.  In Edmiston v British Transport Commission, there was already on the file an affidavit sworn by the defendant’s staff setting out certain documents and deposing to the fact that there were no other relevant documents before the application for further discovery was made.  Singleton LJ found there was nothing in the supporting affidavit for the application which enabled the court to go behind the conclusiveness of the discovery affidavit, and discovery was refused.[46]

57.  But if the affidavit is shown to be insufficient by its content or by admissions made in the proceedings, in such a case a further affidavit may be ordered.[47] “[The discovery] affidavit is not regarded as conclusive only where it can be shown that there has been insufficiency of discovery.  The insufficiency can be demonstrated by (a) the pleadings, the list and affidavit of documents themselves, or documents referred to therein; (b) any other source that constitutes an admission of the existence of a discoverable document not so far discovered; (c) an apparent exclusion of documents from discovery by a party under a misconception of the case: Matthews & Malek, §6.43”.[48]

VI.  LEGAL PRINCIPLES: ORDER 24 RULES 10 AND 11 OF THE RHC

58.  Order 24 rule 10 of the RHC provides as follows:

“(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.

(2) The party on whom a notice is served under paragraph (1) must, within 4 days after service of the notice, serve on the party giving the notice a notice stating a time within 7 days after the service thereof at which the documents, or such of tem as he does not object to produce, may be inspected at a place specified in the notice, and stating which (if any) of the documents he objects to produce and on what grounds.”

59.  Order 24 rule 11 of the RHC provides as follows:

“(1) If a party …… who is served with a notice under rule 10(1)-

(a) fails to serve a notice under …… 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.”

60.  Order 24 rule 13(1) of the RHC provides as follows:

“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 the opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs.”

61.  The court has jurisdiction to order discovery of a document referred to in a pleading or affidavit or witness statement, whether or not the document is in the possession, custody or power of the party in whose pleading or affidavit or witness statement the reference is made.  An order will not be made if good cause to the contrary is shown.  The absence of possession, custody or power may amount to good cause, but will not invariably be so; the decision depends on the facts of each particular case.  The party requesting inspection must satisfy the court that inspection is necessary either to dispose fairly of the matter or to save costs.[49]

62.  Mr Joffe cited Dynamic Way International Ltd & anor v Ho Kui Chee & ors.[50]  He submitted that the Court of Appeal in that case held that (a) where a document was referred to in an affirmation prima facie the party against whom it was sought to be used had a right to inspect the document and take copies of it, (b) in exercising its discretion the court should be satisfied that the order was necessary for disposing fairly the cause or matter or for saving costs, and (c) except in very unusual circumstances a party should not be faced with the predicament of having to deal with evidence which it was not permitted to see.

63.  Mr Joffe also referred to Zida Technologies Ltd v Tiga Technologies Ltd & ors,[51]and he submitted that DHCJ McCoy SC relied on the principles in Dynamic Way International Ltd and held that under Order 24 rule 11(1) of the RHC the court could as a matter of jurisdiction order discovery of documents referred to in an affidavit notwithstanding that they were not in the possession, custody or power of the party against whom the order was sought on the following basis:

“ …… The thrust of the rule was emphasised by Lindley LJ in Quilter v Heatly (1883) LR 23 Ch D 42 at p.50, namely that the intention was to provide the other party with the same advantage, just as if the document had been fully set out. In short, one party could not use or rely upon the probative value of the document, yet simultaneously deny the other party the same forensic advantage. That would be an approach to litigation that elevated the document into a status approaching that given to a privileged document ……”[52]

64.  However, neither Mr Joffe nor Mr Wong SC cited the recent Court of Appeal decision in Moulin Global Eyecare Holdings Ltd v Olivia Lee Sin Mei[53] which explained the proper reading of Dynamic Way International Ltd and Zida Technologies Ltd and the correct approach to an application under Order 24 rules 10 and 13 of the RHC.  I summarise the principles as follows:[54]

(a) 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; 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 shown or unless there is some sufficient ground for refusing production;

(b) any order for production for inspection under Order 24 rule 11 of the RHC 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”;[55]

(c) there are thus two separate stages to be considered, although in practice these will usually be examined together: (i) 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 (and 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), and (ii) since 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, there remains independent of the first stage a burden on the applicant to show the court that the order is necessary either for disposing fairly of the cause or matter or for saving costs;

(d) there is no rigid, inflexible rule that production of a document referred to in a pleading or affidavit will always be ordered; on the contrary, there may be exceptions to the general rule;

(e) the enquiry under Order 24 rule 13 of the RHC necessarily imports an evaluation of the circumstances in order to determine whether an order for inspection should be made;

(f) the concept of the fair disposal of a cause or matter must entitle and require the court to make an assessment of the “degree of relevance or importance of the document to that matter”, which is an important safeguard deliberately put in place to allow the court to assess each case in its context and determine whether production is warranted under the particular circumstances of the case.

65.  In Moulin Global Eyecare Holdings Limited,[56] Fok JA (as he then was) discussed Dynamic Way International Ltd and other authorities as follows:[57]

“41. The plaintiff’s reliance on Dynamic Way and the expression “very unusual circumstances” is, in my judgment, misplaced.

42. The facts in that case were that a party had placed a list of purchase orders placed by its customers in a sealed envelope which was exhibited to an affirmation in support of an application for an interlocutory injunction.  The purpose of the list was to demonstrate that the customers had been its regular customers. It requested that the list be kept confidential on the basis of the information was a trade secret pertinent to its business.

43. The Court granted an order that the defendant be permitted to inspect the contents of the envelope.  The Court held that, given the nature of interlocutory injunction proceedings, parties should not be permitted to put in confidential exhibits and deny the opposing party any opportunity whatsoever of looking at the documents.  The plaintiff had chosen to put its confidential information in evidence and to rely on it and there was therefore no reason for denying access to this by at least the solicitors and counsel of all parties.  In was in this context that Rogers JA (as he then was) ([11]):

Except in very unusual circumstances, a party should not be faced with having to deal with evidence which it is not permitted to see.

44. It was the, in effect, ex parte nature of the deployment of the contents of the sealed envelope, which was provided to the Court but not to the opposing parties, that prompted Rogers JA (as he then was) to refer to the requirement of “very unusual circumstances” as a justification.

45. I do not believe that Rogers JA (as he then was) was there purporting to lay down a rule limiting the circumstances in which an order for production under O.24 r.11 would be refused.  That was plainly not the context of his remark and it is wrong to read it as such.

46. The plaintiff has, however, plainly elevated that reference to the status of the equivalent of a rule of Court albeit there is no such requirement or limitation in O.24 rr.10, 11 or 13.  Indeed, one can see from the plaintiff’s skeleton submissions how the dictum has been inflated.  From the reference to “very unusual circumstances” ([1]), the phrase becomes, in turn, “narrow and exceptional circumstances” ([2]) and “most exceptional and unusual cases” ([12]).  And in the plaintiff’s reply skeleton, the phrase is interpreted to mean “extraordinary extenuating circumstances” ([7]) and “all but exceptional circumstances” ([10]).

47. Given the real reason and context for Rogers JA (as he then was)’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.

49. There is nothing in Quilter v Heatly which suggests that “good cause” for non-production is limited to relevance or privilege.  Nor is that limitation supported by Shun Kai Finance Co Ltd v Japan Leasing (HK) Ltd, which was a case concerning whether the implied undertaking arising on discovery applies to documents supplied pursuant to a notice under O.24 r.10.  That was not a case about the burden on a party seeking to resist production.  There was no issue in Shun Kai as to whether an order for production should be made since the documents had already been produced; instead, the issue there was simply whether, having been produced, they were subject to the implied undertaking.  In contrast, Godfrey V-P’s judgment in Dynamic Way is a clear statement of principle – which is binding on us – that an application for an order for production of a document referred to in an affidavit is subject to O.24 r.13.

50. Whilst it is true that Rubin v Expandable Ltd and Barr v Biffa Waste Services Ltd identified privilege as a basis for a party successfully resisting an order for production under the CPR equivalent of O.24 r.11, I do not accept that those cases, which were decisions on their own facts, are authority for the proposition that production may only be resisted on grounds of relevance or privilege.  There is no suggestion to this effect in Matthews & Malek at [9.05] where those two cases are referred to.

51. On the contrary, Matthews & Malek there make the point that the court’s power to order production under the CPR is subject to the overriding objective in CPR r.1.1 which the court must seek to give effect to in exercising any power under the rules and that this may be compared with the former rule under O.24 r.13 that production should be necessary either for disposing fairly of the cause or matter or for saving costs.  Matthews & Malek also go on to comment that where a document has been mentioned, inspection can be resisted not only on grounds of privilege, but also on the more general grounds in CPR r.31.3, such as that the document is not within a party’s control or that an order for inspection would be disproportionate to the issues in the case.

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 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.

53. The plaintiff submitted that the Judge erred in relying on those remarks because they were made in the context of an application under O.24 r.13 for production of documents that had been disclosed in a list of documents.  I accept that this is a distinction in the context of the case but it is a distinction without a difference for present purposes because there is no doubt that O.24 r.11 is subject to O.24 r.13 and there is no reason to confine the application of Sir Thomas Bingham’s general observations as to the interpretation of the latter rule to one type of case rather than another.  As Mr Paul Shieh SC pointed out in his submissions on behalf of the defendant, O.24 r.13 is a general rule governing a number of different strands under O.24 by which an application for production of a document might be sought, for example following disclosure of a document by list under r.2, or by further and better list applied for under r.3, or by affidavit ordered under r.7, as well as by reference in a pleading or affidavit under rr.10 and 11.

54. I do not accept the plaintiff’s submission that the Judge’s test would open the floodgates to contested satellite litigation.  The Judge’s discretionary balancing exercise, of which the plaintiff complains, was of a type which courts customarily conduct in many interlocutory contexts.

55. Further, the suggestion that O.24 r.10 is “summary and self-executing in nature” is, with respect, a self-serving characterisation and one that is inconsistent with the structure of the relevant rules which provide for a mechanism to object to production and make an order for such production subject to consideration of the necessity for production by reference to the fair disposal of a cause or matter or for the saving of costs.  The plaintiff’s approach would, in contrast, make the words “subject to rule 13(1)” in O.24 r.11 redundant.”

66.  In Moulin Global Eyecare Holdings Ltd, it was suggested that the judge wrongly took into account various matters:[58]

(a) It was suggested that the judge wrongly took into account that the defendant might have been able to present her case without referring to the document in question, and that he should have addressed the application solely on the basis of what the affidavit said. The Court of Appeal held that this matter was plainly relevant to the degree of relevance and importance of the document to the cause or matter which the judge could take into account in the exercise of his discretion.

(b) It was next suggested that judge wrongly took into account the fact that the plaintiff would gain a tactical advantage to the prejudice of the defendant if they had access to information in the document on the basis that the collateral effect of production of the document was irrelevant if production was otherwise required by the rules and that if prejudice resulted from a deliberate and voluntary deployment of the document that was something a party knowingly brought upon itself. In that case, it was plain that disclosure of the document would provide the plaintiff with a windfall and manifest advantage in respect of the main action. The court was required under Order 24 rule 13 of the RHC to consider whether production was necessary for the fair disposal of the cause or matter, so it became relevant to consider the relative advantages or disadvantages – which plainly went to the question of fairness – of ordering production of the document in question.

(c) It was then suggested that the judge wrongly considered that the document was irrelevant to the issues between the parties in relation to the litigation generally on the basis that whether or not that was so was not a relevant consideration for the purposes of Order 24 rule 10 of the RHC. The Court of Appeal held that it was open to the judge to take this broader view of the “cause or matter” for the purposes of the exercise of discretion under Order 24 rule 13 of the RHC.  Since fairness was a relevant consideration, it could not have required him to ignore the irrelevance of the document to the action as a whole.

However, Fok JA (as he then was) reminded that the decision should not be taken to suggest that, generally speaking, where a party referred to a document in a pleading or affidavit, he would not normally be required to produce it for inspection, and in most cases the fact that he had referred to the document in his pleading or affidavit would be a strong indicator of the relevance of the document and also of the necessity for its production. He added that the circumstances of Moulin Global Eyecare Holdings Ltd were somewhat out of the ordinary, and it was not really necessary for the defendant to refer in her affidavit to the insurance policy or to set out the provisions of that policy.[59]

VII.  HARRIS J ORDER

67.  Some documents or classes of documents sought by Ken under the 1^st and 2^nd Discovery Summonses were Yuen Hing’s documents (eg Yuen Hing’s accounting, financial and banking documents, bank statements and re-invoicing operations documents) and not FS’ personal documents. But Yuen Hing did not file any List of Documents, and at the global CMC on 25 July 2012 Harris J dismissed the Unless Summons. In short, Yuen Hing was not sanctioned for not making any general discovery of documents.

68.  Although (a) Mr Joffe submitted that the Harris J Order did not preclude Ken from seeking specific discovery of documents on the question of liability from Yuen Hing, (b) Ken still complained that (i) Yuen Hing neglected or failed to give any general discovery and (ii) the Father, Seline and Yuen Hing had been evasive when it came to discovery of Yuen Hing’s books and records, and (c) Yuen Hing was all along a party to Ken’s counterclaim, to date Ken had not made any application for specific discovery against Yuen Hing.  No explanation was given in Ken’s 3^rd and 5^th affirmations as to why Ken would forego a direct discovery application against Yuen Hing for Yuen Hing’s documents and instead pursued one against FS as persons allegedly in control of Yuen Hing.

69.  Mr Wong SC complained that Ken should not be allowed to bypass the Harris J Order and seek discovery of Yuen Hing’s documents by the backdoor via the 1^st and 2^nd Discovery Summonses against FS without any appeal against Harris J’s dismissal of the Unless Summons. Mr Wong SC submitted that the Unless Summons was dismissed because documents relating to quantum issues under Ken’s counterclaim were not relevant/necessary for the Liability Trial under the Split Trial Order, so Ken could not (and hence to date he did not) seek specific discovery against Yuen Hing.  Mr Wong SC referred to the transcript of the proceedings in respect of the global CMC (“CMC Transcript”) and submitted that at the global CMC Harris J was satisfied that Ken had all the discovery he needed for his counterclaim for entitlement to the profits of the Group.[60]  He further claimed that the learned judge considered that no document was required for Ken to prove the alleged oral agreement which entitled him to 100% of the Group’s profits in/after 2009 since “nothing was ever done consistent with that oral agreement”, and if Ken could not establish such oral agreement “he has got no entitlement to anything for that period and therefore there is no point in doing any calculation at all”.[61]  Mr Wong SC also contended there was no dispute there had been past distribution of profits, but the only question was whether they were distributed according to the Father’s wishes (as the Father claimed) or by a series of oral agreements (as Ken claimed). He said Yuen Hing’s documents would not have assisted in determining such issue; rather they would only be relevant for the tracing/accounting exercise if and after Ken succeeds in the Liability Trial.

70.  Mr Joffe submitted that Mr Wong SC misunderstood the Harris J Order, and a careful study of the CMC Transcript would reveal that discovery remained a live issue notwithstanding the Split Trial Order.  At the global CMC, KJ’s counsel Mr Wou expressed concern about discovery upon the Split Trial Order:[62]

“MR WOU: I’m only concerned about discovery but …

COURT: Yes, so, well, of course all the time the trial is going ahead and liability is a live issue, you can ask for discovery relevant to liability.

MR WOU: I’m grateful.

COURT: All right. I’m not saying you can’t do that.

MR WOU: I’m grateful, my Lord. Well, so long as that’s clear, then …

COURT: Yes, yes.

MR WOU: It’s not stayed per se.

COURT: No, no, all the time …

MR WOU: It’s just a split.

COURT: All the time liability is still in play, you can ask for discovery.

MR WOU: I’m most grateful for that …

COURT: Yes, all right.

MR WOU: … confirmation, my Lord.

……

MR WOU: My Lord, just a point of clarification. Insofar as liability is concerned, you’ll recall that I brought to the court’s attention there is dispute over certain distributions of 20 million worth.

COURT: Yes.

MR WOU: That’s a liability issue, is it not, because whether we were entitled to that distribution before we reached to the bottom number is in issue.

COURT: Well, if there’s no dispute about figures, it’s just whether or not you are entitled to something, yes..

MR WOU: It’s not a dispute about the figures.

COURT: No.

MR WOU: It’s a dispute about whether it was paid.

COURT: But then this should be something that’s clear from the pleading.

MR WOU: It is.

COURT: Yes.

MR WOU: We raised that. So therefore it must be in issue and we are entitled to apply at least for specific discovery …

……

MR WOU: My Lord, if I may just clarify one last point. We’ve come to a stage to say that for 1711, the quantum of the counterclaim be split, so to speak, have the liability of the counterclaim be tried first. Can I check with your Lordship that therefore discovery relating to the liability of the counterclaim and I take it naturally the liability from whoever side in the original action still are very much alive?

I raise this for this reason, my Lord, because you know that in the main action, well, actually, in 1811 there are four big heads. There’s the beneficial ownership of Luen Tat, beneficial ownership of Pak Tat. There’s the misappropriation …

COURT: Well, I think the only question is whether or not the summonses which are floating around at the moment deal with liability.

……

COURT: If they do, then that’s fine.

……

COURT: If they don’t, then they fall by the wayside, don’t they?

MR WOU: They do. We say they do, But I only wish to clarify one point, your Lordship, just to make sure that it’s within your Lordship’s consideration. Insofar as the beneficial ownership of Pak Tat is concerned, your Lordship would have read from the pleadings that we rely on the fact that as evidenced by the ledger, the money was jointly invested from Hong Kong Luen Tat, and therefore we assume the beneficial ownership by way of this investment, So that’s all I wish to clarify that this ledger does not just concern with quantum of the counterclaim that actually even with the beneficial ownership of Pak Tat …

COURT: Right. Well, you’ll just have to get away and obviously formulate any application you’ve got quite precisely.

MR WOU: Very well, my Lord, very well.

……”

71.  In my view, it is plain from the above extract of the CMC Transcript that Harris J was aware of the 1^st Discovery Summons against FS in its original unamended form even though it was not returnable before him. The learned judge indicated that he was not going to deal with the original 1^st Discovery Summons. Indeed, Mr Wong SC (who also appeared for FS at the global CMC) suggested that such summons might need to be amended to exclude requests for documents as to quantum, and that insofar as the 1^st Discovery Summons went to liability the same ought to be dealt with by a judge and not a master.[63]  The 1^st Discovery Summons was eventually amended on 5 December 2012 and came before me on the 1^st Hearing Day.  As explained in paragraph 13 above, such summons was eventually adjourned to be the heard at the Discovery Hearing before me.  I agree with Mr Joffe that even though the Unless Summon was dismissed, disclosure of liability documents (if any) remained a live issue and it would be up to Ken to establish that the documents sought under the 1^st Discovery Summons (which was not dismissed by the Harris J Order) went to the liability issues for the purpose of the Liability Trial.

72.  Thus, the Split Trial Order and/or the Harris J Order would not preclude the 1^st and 2^nd Discovery Summonses, but it would be up to Ken to show that the documents sought were unrelated to quantum issues and relevant to the issues for the Liability Trial.

73.  Subsequent to the Discovery Hearing, KJ Solicitors wrote to this court on 19 December 2013 suggesting that Ken might contemplate making a potential application for specific discovery against Yuen Hing. It is a matter for Ken (as advised) to decide whether and if so when to apply for specific discovery against Yuen Hing.  Bearing in mind that Yuen Hing has been a party to Ken’s counterclaim since its inception and that each party bears their own discovery obligation, I do not see how any such application would be dependent on the outcome of the 1^st and 2^nd Discovery Summonses. In any event, this court is not seized of any or any potential discovery application by Ken against Yuen Hing.

74.  However, it is interesting to note that according to Mr Joffe’s submissions at the Discovery Hearing, it was not expected that Ken would bring a separate discovery application against Yuen Hing:

“…… But the fact of the matter is that there’s no indication that [Harris J] thought that any application for specific discovery on liability had to be brought against Yuen Hing and he would have known from the fact that the [1^st Discovery Summons] had already been issued, that there was a specific discovery application in relation to various classes of documents against [FS] and so it’s perfectly proper for me to make the submission that the learned judge, knowing that that application had already been made, thought that there was no need to continue against Yuen Hing, because any documents which needed to be discovered would be discovered pursuant to the summons which had already been issued [ie the original 1^st Discovery Summons]. And so that he didn’t think that the parties … would go away and issue a summons against Yuen Hing. The parties would issue a summons against – or rather continue with the summons against [FS]. And, again, another reason, my Lady, why the learned judge might well have reached that conclusion is that he was perfectly well aware of the fact that the reality that Yuen Hing was owned by the [Father] and/or [Seline] …… the learned judge had it well in mind that Yuen Hing and [Seline] and the [Father] were effectively one and the same and so in those circumstances, to suggest that because he dismissed [the Unless Summons], he therefore thought that the parties would go ahead and bring proceedings against – or bring a separate application against Yuen Hing when they already had a summons out against the parties who owned Yuen Hing, in my submission, simply doesn’t stand up.” (my emphasis)

VIII.  HCA1831/2010

75.  Next, Mr Wong SC reminded that in HCA 1831/2010 Ken issued a summons under Order 24 rules 10, 11 and 11A of the RHC against the Father, Seline and Richard (being the plaintiffs in that action) for production of Yuen Hing’s audited financial statements, audited accounts and “accounting records” for the financial years ended 30 September 2003 to 30 September 2009 as referred to in Seline’s affirmation dated 14 December 2010.  Such application was resisted by the Father, Seline and Richard, and was dismissed by Master Woolley on 11 May 2011. Although Ken filed a Notice of Appeal on 25 May 2011, it had not been pursued to date.

76.  Seline claimed that the 1^st and 2^nd Discovery Summonses were nothing more than second bites at the cherry, and Mr Wong SC suggested that the discovery summons in HCA 1831/2010 and the 1^st and 2^nd Discovery Summonses demonstrated that Ken was desperate to seek Yuen Hing’s financial and accounting records/documents to fish for evidence. Mr Wong SC submitted that FS were legitimately concerned that Ken would utilise such records/documents of Yuen Hing to complicate the proceedings or even to derail the Liability Trial.

77.  Ken denied the 1^st and 2^nd Discovery Summonses were fishing expeditions and claimed he was entitled to the discovery sought.  Mr Joffe said the discovery summons in HCA 1831/2010 was made under Order 24 rules 10, 11 and 11A of the RHC, which was different from the 1^st Discovery Summons made under Order 24 rules 7 and 11 and 11A of the RHC, and the “matters in question” in the two legal actions would be different.

78.  Mr Joffe argued (and I agree) that the dismissal of the discovery summons in HCA1831/2010 would not preclude Ken from pursuing the 1^st and 2^nd Discovery Summonses against FS in the present action so long as the documents or classes of documents sought did not infringe the Split Trial Order.  Although both Ken’s and Seline’s affirmations filed in respect of the 1^st Discovery Summons attacked each other’s alleged ulterior motive and litigation gamesmanship, I prefer to deal with the 1^st and 2^nd Discovery Summonses on their merits.

IX.  POSSESSION, CUSTODY OR POWER

79.  Apart from certain documents which Seline expressly admitted to have in her possession, custody, power and/or control, FS denied that the documents and/or classes of documents sought by Ken in relation to Yuen Hing (ie the documents in paragraph 16(b) and (d) (insofar as they related to Yuen Hing) and 16(g) above, “Non-FS Documents”) were in their possession, custody or power:

(a) the Father had/has no formal role in Yuen Hing;

(b) between 17 February 2011 and 21 August 2012 Seline was not the sole director of Yuen Hing;

(c) Ken excluded FS from the affairs of the Group and did not allow them access to the accounting and banking documents of the Group including Yuen Hing.

80.  FS claimed that insofar as Seline deposed that they did not have the Non-FS Documents in their possession, custody or power, it was difficult to see how Ken could travel outside Seline’s 3^rd affirmation to say that “this [was] simply untrue”.  Mr Wong SC submitted that Ken could not go behind Seline’s 3^rd affirmation unless there were good grounds that demonstrate FS had access to those documents, and it could not be reasonably inferred that just because Seline was the sole director of Yuen Hing she would have possession, custody or power of the Non-FS Documents, especially when she fairly admitted to have possession, custody or power over certain documents and clearly deposed FS had no access to the Non-FS Documents after being ousted by Ken in 2009.  

81.  There is no dispute that the Father by his own affirmation dated 19 May 2010 admitted that at all material times he controlled/controls Yuen Hing. Seline was the sole director of Yuen Hing from the date of its incorporation (ie 28 October 2002) until 17 February 2011 when she stepped down as director (but remained as manager). Madam Li So Chi (“Li”), who gave an address in Inner Mongolia, Mainland China, was appointed as sole director in her place. At a shareholders’ meeting of Yuen Hing on 17 February 2011 in relation to inter alia Seline’s resignation and Li’s appointment, Seline attended as representative of Rich Prime Limited, and she was both the chairman and secretary at such meeting. In Seline’s Re-Amended Statement, she stated she “decided to resume [her] position as Yuen Hing’s director in the near future” (my emphasis).  Eventually on 22 August 2012, Li stepped down and Seline succeeded her as sole director of Yuen Hing. Seline also signed the statements of truth dated 12 April 2012 and 24 June 2013 verifying the YH Defence and AYH Defence respectively, and Yuen Hing filed Seline’s affirmation in support of the Split Trial Summons.

82.  Ken rejected Seline’s suggestion that the Non-FS Documents were not in FS’ possession, custody or power. Mr Joffe confirmed it was Ken’s primary case that FS had “possession” or “custody” of such documents, which could readily be inferred from the affirmation evidence and available documents:

(a) Ken claimed that the documents in items 8-14, 19 and 42-43 of FS’ List of Documents filed on 4 October 2011[64] suggested that FS had possession, custody or power over Yuen Hing’s documents. But as pointed out by Mr Wong SC and conceded by Mr Joffe, the Luen Tat documents in items 19 and 42-43 were in fact produced by Ken in HCCW497/2000.[65] Mr Wong SC submitted it was disingenuous for Ken to use these documents as a springboard to say that FS (who had been ousted by Ken from the Group) kept accounting, banking and financial documents of the Group including Yuen Hing. But Mr Joffe maintained that the Yuen Hing documents in items 8-14 disclosed by FS suggested they had access to Yuen Hing’s books and records.

(b) Ken argued it was inconceivable that FS could make up the allegations against Ken (to the last dollar) in paragraphs 86-96 of the Father’s witness statement and paragraphs 18-61 of Seline’s witness statement both dated 20 March 2012 by reference to the few discovered bank documents without reference to any banking and accounting records of Yuen Hing (as they now claim).

(c)     In Seline’s affirmation made on 14 December 2010 in HCA1832/2010 (and also in paragraph 69 of Seline’s Re-Amended Statement), she admitted to possessing Yuen Hing’s audited financial statements and audited accounts of Yuen Hing and making them available to an accounting firm Thomas Lee & Partners Ltd. Mr Joffe submitted that FS should not be allowed to make discovery on piecemeal basis as it suited their purpose.

83.  Ken also argued that Yuen Hing’s documents in question were within FS’s “power” because the Father openly admitted he controlled/controls Yuen Hing, and Seline was/is the sole director and manager of Yuen Hing.  Ken claimed that Seline’s resignation as Yuen Hing’s sole director was not bona fide, and no credible reason was offered as to why Li was appointed in her place. It appeared that she could resume her office as sole director as she chose which was what happened. However, I note that in fact Seline’s Re-Amended Statement explained why she resigned as the sole director of Yuen Hing.  She claimed that Ken orchestrated a scheme of nuisance and harassment against her, and it was stressful and frightening to be threatened, assaulted and harassed by debt collectors who behaved very rudely and aggressively. “In the circumstances, for these personal reasons, [she] ceased to serve as a director of Yuen Hing from 17 February 2011.  [She did] not wish the debt collectors to have any excuse to harass [her] again”. But with the interlocutory injunction granted against Ken by DHCJ L Chan (as he then was) on 15 December 2010 (which injunction order was varied on 24 December 2010) in HCA 1831/2010, she had not been subject to any harassment in the past few months.  “As such, [she] decided to resume [her] position as Yuen Hing’s director in the near future.”

84.  Ken further believed Seline was in control of Yuen Hing’s bank accounts in both Macau and Hong Kong as (to the best of his knowledge) sole authorised signatory. Ken’s 5^th affirmation also claimed that Seline was in charge of finance and accounting for the entire Group, which included Luen Tat, Yuen Hing and Rich Prime Limited, from early 1990s to January 2009.  It was Ken’s case that Seline was responsible for implementing Yuen Hing’s re-invoicing operations. Ken claimed that the court could readily infer from the evidence (most of which was FS’ own affirmation evidence) that FS were/are very much in control of Yuen Hing, and by reason of such control FS at all material times had been “directors or de facto directors” of Yuen Hing,[66] and they must have or at some time had Yuen Hing’s books/records and the Non-FS Documents in their possession, custody or power.

85.  In my view, in considering FS’ access to Yuen Hing’s documents, it is necessary to distinguish between the Father and Seline (who sued and were sued as independent parties to the main action and counterclaim) in respect of access to Yuen Hing’s documents in the broad sense, and then go on to consider their common allegation in respect of their non-access to the historical Non-FS Documents.

86.  In respect of the Father, by his pleadings he admitted that before/about December 2008 (when he was ousted by Ken from the Group) he was involved in and in ultimate control of the Group[67] (and as Ken also recognised, the Group included Yuen Hing).[68] He also admitted by affirmation dated 19 May 2010 that at all material times he controlled/controls Yuen Hing. FS also averred that although Seline used to be responsible for overseeing the financial affairs of the Goup before she was ousted, all along she acted pursuant to the instructions and directions of the Father insofar as the accounting and financial affairs of Luen Tat and/or the Group were concerned.[69] In the circumstances, even though the Father had no formal role in Yuen Hing and did not expressly state he was the alter ego of Yuen Hing, I am persuaded that even on his own case (but subject to the allegation in respect of the Non-FS Documents in paragraph 79(c) above) he arguably had unfettered control over Yuen Hing such that broadly speaking Yuen Hing’s documents were within his “power” even if not within his possession or custody.

87.  In respect of Seline, even though she was all along the manager of Yuen Hing and also their sole director (except for the period from 17 February 2011 to 21 August 2012), I am not persuaded there is sufficient evidence for me to conclude that she was the alter ego and/or had unfettered control of Yuen Hing. Indeed, it is FS’ case that the Father had ultimate control (even though he had no formal role in Yuen Hing), and Seline acted in accordance with his instructions and directions in relation to accounting and/or financial matters of the Group.  I am therefore not persuaded that she necessarily had “power” over Yuen Hing’s documents.  But bearing in mind there was no evidence before me that Yuen Hing had any other director, manager and/or other responsible officer, I am persuaded that (but again subject to the allegation in respect of the Non-FS Documents in paragraph 79(c) above) broadly speaking Seline arguably at some stage had or would have had Yuen Hing’s documents in her custody.

88.  In paragraphs 86-87 above, I was referring to the company’s documents of Yuen Hing in the broad sense vis-à-vis FS’ respective role and/or function, which is in line with Seline’s admission that she had Yuen Hing’s audited accounts. Further, even though it was said that some Yuen Hing’s bank statements had been misplaced, it is arguable that FS either had custody over Yuen Hing’s bank statements or power to obtain them from Yuen Hing’s bankers (if such records were still maintained by the banks).

89.  But whatever might have been the position in respect of Yuen Hing’s documents in the broad sense, it is necessary to turn specifically to the historical Non-FS Documents in the relevant factual matrix. FS claimed Ken well knew the profit-sharing and re-invoicing documents/ records of Yuen Hing were not in their possession, custody or power since around October 2008 when he hijacked the affairs of the Group and removed all documents relating to the Group’s profits.  They no longer had access to any accounting documents/records of the Group previously kept in Luen Tat’s office, and it was Ken who had been maintaining these documents and wrongfully excluding the other members of the family, especially when he assaulted Seline and prevented her from assisting the Father to inspect Luen Tat’s accounting documents on/about 11 June 2009.[70]  FS also claimed that in/about June 2009 Ken stole the Father’s Ledgers from the Father, and it was Ken who made discovery of the Father’s Ledgers in the present action.[71]

90.  In Ken’s 5^th affirmation, he denied stealing the Father’s Ledgers and claimed that such allegation by FS was refuted by a taped conversation between the Father and Ken[72] (but FS challenged such taped conversation).[73]  Ken also claimed that on 11 June 2009 FS attempted to seize from Luen Tat and fax to an unknown destination without his knowledge and consent documents which (he was informed by his staff) contained confidential customer information,[74] and since the commencement of the present action there was anonymous email sent to the Group’s most important customer with malicious intent to destroy the Group’s and Ken’s reputation.

91.  Ken’s 5^th affirmation further claimed that having worked with Seline (who was (a) in charge of finance and accounting for the Group from the early 1990s to January 2009 when Ken decided to sack her and (b) responsible for setting up and maintaining the re-invoicing operations through Yuen Hing) over the years, he believed Seline kept a set of the Group’s accounting records, especially those relating to Yuen Hing and the re-invoicing operations. I note, however, other than mere inference or assertion, Ken did not describe any particular event or incident which showed (or lent credence to the assertion) that Seline kept a copy set of the Group’s accounting records.

92.  Mr Joffe submitted that Seline’s assertions on affirmation would not prevent the court from ordering a further and better affirmation to be filed if the court thought her assertions to be wrong. He argued that the matters in paragraph 82 above showed that Seline’s 3^rd affirmation should not be taken at face value, and it could reasonably be inferred that FS must have the Non-FS Documents, and on such basis the court could also order production of those documents.

93.  FS’ case as set out in paragraph 89 did not expressly deny that before their ouster from the Group they had possession or custody of the Non-FS Documents,[75] which is not inconsistent with the analysis in paragraphs 86-87 above. Rather, FS claimed they no longer had possession, custody or power because of the events set out in paragraphs 79(c) and 89 above.  It is plain there are serious factual disputes as to whether (a) the Father’s Ledgers were stolen by Ken, (b) Ken ousted FS from the Group and/or (c) Ken prevented FS’ access to the accounting, financial and profit-sharing records/documents in respect of the Group such that they no longer had possession, custody or power over such records/documents in relation to the profit-sharing and re-invoicing operations of the Group (which included Luen Tat and Yuen Hing).  As apparent from the pleadings, these issues are very much part of the disputed issues for the main proceedings in the Liability Trial (as they clearly went to the question of whether, as FS claimed, Ken was the usurper).  I consider it inappropriate to conduct a mini-trial on the pleadings/affirmations and to have any interlocutory pre-judging of these disputed issues in the main proceedings. In my view, the court should not conclude that FS are untruthful by comparing affirmations and pleadings, and before the evidence is to be completed.

94.  In coming to this view I bear in mind that FS did not give a blanket denial of all Yuen Hing documents, and Seline frankly admitted to have Yuen Hing’s audited accounts in her possession, custody or power. Although Mr Joffe urged me to consider the matters set out in paragraph 82 above in order to go behind Seline’s 3^rd affirmation, Seline clearly deposed that the limited documents FS produced in the present action were those pertaining to the Liability Trial that they had obtained before being ousted by Ken.  I am not persuaded that possession/custody of (a) the documents in items 8-14 of FS’ List of Documents filed on 4 October 2011 in respect of particular transactions and/or (b) documents in relation to the specific heads of complaints by the Father in respect of the Misappropriation Claim necessarily equated to FS still having possession, custody or power of the Non-FS Documents.

95.  In the circumstances, I am not prepared to conclude that Seline’s 3^rd affirmation was insufficient answer in respect of the Non-FS Documents.

X.  OVERVIEW

96.  Before turning to the particular documents or classes of documents sought by Ken, it is useful to set out the underlying themes that ran through Ken’s and FS’ arguments and counsel’s submissions in order to put the applications in context.

97.  Ken claimed that the presently outstanding documents or classes of documents sought under the 1^st and 2^nd Discovery Summonses related to one or more matters in question in the Liability Trial, and were relevant to and necessary for a fair and expedient disposal of the issues disclosed in the pleadings, and insofar as the documents sought related to a BVI company the application would also help to save legal/investigation costs. Ken further claimed that he would be placed in a difficult position to prove his case and/or rebut FS’ case without the documents sought, and as a matter of fairness FS were obliged to give full and not selective discovery of documents. It was further suggested there was no challenge on necessity and (in respect of the 2^nd Discovery Summons) no suggestion of any unusual circumstances that warranted departure from the usual rule.

98.  On the other hand, FS claimed that the relief sought by Ken in his counterclaim was an account/inquiry in respect of the alleged trust monies belonging to him.  The 1^st Discovery Summons was a forensic exercise that aimed at (a) tracing/locating the whereabouts of accumulated profits of the Group maintained by Yuen Hing and (b) identifying the persons who controlled Yuen Hing’s bank accounts that allegedly held monies on trust for Ken.  The 1^st and 2^nd Discovery Summonses were therefore premature in that the accounting, banking, financial and re-invoicing documents of Yuen Hing sought thereunder went only to the amount of the Group’s profits and were irrelevant to the Liability Trial.  Ken should not be allowed to start the exercise for account/inquiry/tracing under his counterclaim when his entitlement had not yet been established.  Ken’s discovery application (a) flied in the face of the Split Trial Order in which Harris J made clear that all interlocutory matters relating to the quantum of Ken’s counterclaim should be dealt with only after judgment in the Liability Trial, and (b) threatened to turn the upcoming Liability Trial into a costly and time-consuming forensic investigation exercise to go through the accounts of the Group (probably even with the assistance of forensic accountants).

XI.  1^st DISCOVERY SUMMONS: REGISTER OF MEMBERS AND DIRECTORS FOR RICH PRIME LIMITED FROM 2002 TO DATE

99.  Seline admitted that the register of members and directors of Rich Prime Limited were in her possession, custody, power and/or control, but not in the Father’s since he never occupied any formal position in Yuen Hing.  However, in light of my conclusion that the Father allegedly had unfettered control over Yuen Hing, such documents would also be within his “power”.[76]

100.  Mr Joffe submitted that Yuen Hing was a vital part of Ken’s counterclaim, and who was in control of Yuen Hing was a “matter in question”. He noted that FS denied the averment in the RRAD&RRAC that FS were in control of Yuen Hing.[77] Ken’s 3^rd affirmation further claimed that the documents in question would “help him establish who own(s) Yuen Hing ultimately. Such information will enable [him] to obtain relief from these individuals, including but not limited to obtaining accounting and tracing of all moneys belonging to him that have been wrongfully retained and/or converted to their use”. Since Rich Prime Limited was a BVI company and Seline had the documents in question, discovery would hardly incur any time or costs, and indeed would help save legal/investigation costs.

101.  Plainly, Ken premised his case on an alleged need to establish who controlled/controls Yuen Hing. But as explained in paragraph 86 above, the Father did not dispute (and indeed it was his pleaded case) that before he was ousted by Ken he was in ultimate control of the Group including Yuen Hing, and he confirmed on affirmation that he controlled/ controls Yuen Hing.  In my view, one must not lose sight of FS’ pleadings as a whole, and it is inappropriate to adopt a narrow and blinkered view of the denial in paragraph 15C (8) of the RAR&RRDAC. Read in its proper context, the essence of such denial (for present purposes) was to deny that the Father by reason of his control of Yuen Hing is and at all material times has been a de facto director of Yuen Hing. But such denial does not detract from the clear admission in his pleadings and on affirmation that he exercised control over Yuen Hing.  As for Seline, she accepted that she was the sole director (except for a spell in 2011-2012) and manager of Yuen Hing (which in any event can be easily proved by the already available company search records), and she admitted in her pleadings that she used to be responsible for overseeing the financial affairs of the Group before she was ousted and that all along she acted pursuant to the instructions and directions of the Father insofar as the accounting and financial affairs of Luen Tat and/or the Group were concerned.[78]  That being the case, I agree with Mr Wong SC that the identity of the upstream owners of the shareholder of Yuen Hing would not be necessary for understanding who was in de facto control of Yuen Hing. Indeed, save for the dispute as to whether Ken coerced Seline to cause Yuen Hing to pay a total sum of HK$28,000,000.00 to him,[79] it is doubtful whether this will be a live issue for the Liability Trial in view of FS’ admissions as aforesaid unless Ken seeks to suggest otherwise.

102.  Further, I also agree with Mr Wong SC that it is not open to Ken (as he openly admitted) to embark on a fishing expedition to ascertain further potential parties whom he may wish to sue.  This has nothing to do with the issues to be decided at the Liability Trial, and is not what Order 24 rule 7 of the RHC is designed to achieve.  Ken can only trace or recover profits of the Group if the court eventually rules he had/has beneficial and/or proprietary interests in such profits in the Liability Trial.  But not having been awarded any remedy of account/inquiry/tracing under his counterclaim which has not been tried or established as yet, it is premature for Ken to seek discovery of the register of members and directors of Rich Prime Limited.

XII.  1^ST DISCOVERY SUMMONS: (A) ALL BANKING RECORDS AND SUPPORTING DOCUMENTS AND (B) ALL ACCOUNTING RECORDS AND SUPPORTING DOCUMENTS OF YUEN HING IN RESPECT OF DISTRIBUTION OF THE GROUP’S PROFITS TO AND WITHDRAWALS OF PROFIT SHARE BY KEN, RICHARD AND SELINE FROM 2002 TO 2008, (C) BANK STATEMENTS FOR YUEN HING’S THREE SPECIFIED BANK ACCOUNTS FROM 2002 TO DATE, AND (D) AUDITED FINANCIAL STATEMENTS OF YUEN HING FROM 2002 TO DATE

103.  Mr Joffe accepted that the application for discovery and production of the documents in paragraph 16(b) and (d) (insofar as related to Yuen Hing for the period from 2002 to 2008), (c) and (e) above would stand or fall together since Ken relied on the same grounds.

(a)  Existence of documents

104.  Mr Joffe submitted that Seline’s denial that the documents in paragraphs 16(b) and (d) above (insofar as they related to Yuen Hing for the period from 2002 to 2008) were in FS’ possession, custody or power was untrue. I refer to the discussion in Part IX above in which I concluded that I should not go behind Seline’s 3^rd affirmation and come to such finding at this interlocutory stage, which is sufficient for me to dismiss the 1^st Discovery Summons in respect of such documents in question.  But in case I am wrong, I shall go on to discuss whether specific discovery ought to be ordered. In any event, Seline’s 3^rd affirmation did not expressly deny having the documents in paragraph 16(c) and (e) above (but this would not preclude FS from saying so on affirmation if that were the case and if they were to be ordered to give such specific discovery), and Seline admitted to have Yuen Hing’s audited accounts in her possession, custody or power.

(b) Issues

105.  In considering whether specific discovery and/or production ought to ordered, one had to ask whether the documents in question were related to the true issues in dispute at the Liability Trial and why they would be necessary for the disposal of those issues.  Since Ken claimed these documents were likely to support his pleaded investment and profit claims that were amended by the Ken Investment and Profit Pleas (“Ken Investment Claim” and “Ken Profit Claim”), it is necessary to turn to those claims for proper understanding of Ken’s present application.

(c) Ken Investment Claim

106.  In the RRAD&RRAC, KJ pleaded that in around 1992, Ken and the Father decided to buy a parcel of land in Shezhen, Mainland China, and construct the Group’s manufacturing plant and facilities thereon, and to invite a Mr Wong Shun Chiu to be their local partner.  Ken and the Father resolved to invest “their respective shares (50:50) of Luen Tat’s retained earnings into the Project”, and over time Wong also contributed some cash to the Project. In consideration of all such contributions, it was agreed that Ken and the Father would each own 50% of the equity in Lianda, and Wong would become its legal authorised person.  On such basis, Ken was/is the beneficial owner of 50% equity in Pak Tat, which in turn held/holds 100% equity in Lianda. The Ken Investment Plea (a) provided particulars of Ken’s and the Father’s investments, ie that such investments were made before sharing of profits with other family members, and (b) averred that according to the Father’s Ledgers Ken and the Father through Luen Tat jointly invested total sums of about RMB4,800,000.00 and about RMB63,000,000.00 in the Project and Lianda between 1992 and 2006 (with itemised breakdown of such investments in the schedule annexed to the RRAD&RRAC).  

107.  In the RRAD&RRAC, KJ averred that Pak Tat, which was formed in 1999, was an investment holding vehicle holding all the shares in Lianda.  From the outset until August 2006 the Father acted as trustee holding a 50% stake in Pak Tat and Lianda for Ken.  The Ken Investment Plea provided particulars as to how the Father as trustee held a 50% stake in Pak Tat and Lianda for Ken, ie such 50% stake in Pak Tat and Lianda were held in the Father’s own name or in the name of his sole proprietorship, Pak Tat Trading Co. 

108.  KJ pleaded that Ken acquired his 50% stake in Pak Tat and Lianda by contributing his share of Luen Tat’s retained earnings to set up the Shenzhen factory in 1992, and the Father formally transferred such 50% stake to Ken by causing Pak Tat to allot 50 new shares to Ken.  The Ken Investment Plea clarified that Ken contributed his 50% share of Luen Tat’s retained earnings before sharing with other family members, which justified the issuance and allotment of 50 new shares to Ken to “reflect [Ken’s] true beneficial ownership in Pak Tat”. 

109.  In the RRAD&RRAC, Ken sought a declaration that each of the 50 shares in Pak Tat held by Ken was wholly and beneficially owned by him, and a further declaration that “prior to [September 2006, the Father] held, whether in his own name or [Pak Tat Trading Co], half of the shareholding in Pak Tat on trust for and on behalf of [Ken]”.

110.  By way of counterclaim, Ken also sought a declaration of his beneficial ownership of 51% equity in Luen Tat (5% non-voting deferred shares and 51 new ordinary shares in Luen Tat).

(d) Ken Profit Claim and the re-invoicing operations

111.  Ken also claimed he was entitled to share in the profits of the Group which increased substantially through his efforts. His share of the Group’s profits varied from 10% in 1986 to 50% since 1988 (due to his efforts in increasing the Group’s new profits), 37.5% (due to Richard joining the Group), 33.75% since 1994 (due to Seline sharing the profits), 50.4% since 2002 (due to the Father’s offer to forego his share of the profits), 90% since 2006 (due to Richard’s departure from the Group), and 100% since 2009 (due to Seline’s departure from the Group).

112.  For the purpose of administering the profit-sharing, the Father kept the Father’s Ledgers in respect of the Group’s profits and sharing details from 1990 until 2008 when the relationship between the Father and Ken turned sour.  As there were disputes over Richard’s final share of the Group’s profits, the family members agreed to instruct an accounting firm Mazars to independently verify the Father’s calculation of Richard’s profit share.  Based on the Father’s Ledgers, Mazars discussed with the Father and checked his calculations.  In the course of this exercise, the Father represented to Mazars that once he withdrew his entitlement to the Group’s profits, all monies in the Group belonged to Ken and he personally would have nothing further to do with the Group.  At the discussion in December 2008, the Father confirmed that both he and Richard had received their final entitlement to the Group’s profits in August/September 2008, and Ken would be entitled to receive or use all monies of the Group thereafter. 

113.  Mazars’ calculations (which was based on the Father’s Ledgers and confirmed by him)[80] eventually confirmed that Ken was entitled to receive the cumulative profits of the Group up to November 2008 in the sum of HK$53,602,977.76 (ie the sum of HK$32,640,696.95 under-withdrawn by him as per Mazars’ calculations with two further sums of HK$9,450,000.00 and HK$11,512,280.81 which the Father’s Ledgers suggested had been distributed to Ken but Ken claimed he had not received), and that Richard and Seline had overdrawn their entitlements.

114.  For tax planning purpose, Seline set up and administered the re-invoicing operations with Yuen Hing acting as the re-invoicing centre (ie Yuen Hing paying for goods manufactured by Lianda and selling the same to Luen Tat), so that most of the Group’s profits were captured in the books of Yuen Hing which company enjoyed tax exempt status in Macau subject to certain conditions, and the profit shares were paid out periodically from Yuen Hing’s bank accounts to the Father, Richard, Seline and Ken. [81]  It was said that Yuen Hing had always been under the control of Seline being the sole director and sole authorised signatory of Yuen Hing’s bank accounts. 

115.  Between February and March 2009, upon Ken’s demand, Seline caused Luen Tat to transfer a total sum of HK$28,000,000.00 to Yuen Hing in settlement of invoices issued by Yuen Hing to Luen Tat as part of the Group’s re-invoicing operations.  Seline then caused Yuen Hing to transfer a similar sum of HK$28,000,000.00 to Ken as distribution in part of his share of the cumulative profits of the Group up to November 2008 as per agreements between Ken and the Father based on the Father’s Ledgers. 

116.  Ken claimed the Father, Seline and Yuen Hing were liable to repay the balance of his share of the cumulative profits of the Group up to 30 November 2008 in the sum of HK$25,602,977.76 (ie HK$53,602,977.76 – HK$28,000,000.00) which had been wrongfully retained by them.[82]  Ken further claimed for an account of the cumulative profits of the Group from 1 December 2008 until the winding up of Luen Tat, an account of all monies belonging to Ken that were wrongfully retained/converted by the Father, Seline and/or Yuen Hing, and repayment of any sums found due to Ken upon taking such accounts.  In summary, Ken claimed he owned all the undistributed profits of the Group on or after 1 December 2008.

(e) Discussion

117.  As regards Yuen Hing’s banking records and supporting documents in respect of the distribution of profits and withdrawals of profit share as well as Yuen Hing’s bank statements, Ken claimed they were relevant to establishing the Ken Investment and Profit Claims, and probative in establishing the following matters:

(a) the Goup’s profits were shared between the Father and Ken dating back to 1988;

(b) over the course of time, the Father and Ken agreed to share the Group’s profits with Richard and Seline also in accordance with specific formulae for specific periods of time;

(c) Yuen Hing was the re-invoicing centre for the re-invoicing operations;[83]

(d) the Group’s profits were captured in Yuen Hing’s bank accounts;[84]

(e) such profit share was paid out from Yuen Hing’s bank accounts from around 2002 upon setting up of Yuen Hing and their bank accounts; [85]

(f) as the Group’s financial controller, Seline knew, approved and caused to distribute such profit shares to the Father, Richard, herself and Ken periodically;

(g) such distributions were made by Seline with the consent and approval of the Father, Richard and Ken;

(h) such distributions were properly made in the ordinary course of business or trade of the Group.

118.  On the other hand, Seline claimed in respect of (a) and (c) above there was no dispute that the profits of the Group were shared between Ken, Richard, Seline and the Father in the past, and that the profits were paid out of Luen Tat and Yuen Hing and not personally by the Father. The relevant issue was the basis of the distribution, and it was disingenuous for Ken to allege that he needed the documents going back to 2002 to prove past distribution of the Group’s profits to him out of Yuen Hing’s bank accounts when in reality there was no dispute.

119.  Mr Joffe submitted that such belated admission by Seline was nothing but a desperate attempt to deflect the court’s attention in the vain hope that she could evade her obligations to give discovery.  It was in fact untrue since the profit sharing arrangements were still very much in dispute as evident from the pleadings.[86]

120.  I do not accept there is any belated admission by FS.  There is no dispute that the Group’s profits from the incorporation of Yuen Hing in 2002 until about April 2009, insofar as they were in cash (but excluding accounts receivables), were captured under the books of Yuen Hing, and Yuen Hing paid for the operation expenses of the Group.[87]  The admission that Yuen Hing paid for the operation expenses of the Group is also consistent with Ken’s averment that the profits of the Group were distributed after investment into the Project and Lianda were made (see also paragraph 132 below). Further, since it is admitted that the profits were captured in Yuen Hing’s books, it must be plain that the distributions after 2002 would be made out of Yuen Hing’s and not the Father’s personal accounts.  Indeed, it is common ground that Ken received a total sum of HK$28,000,000 from Yuen Hing.[88] The only question was whether such monies paid out of Yuen Hing’s accounts to Ken were partial payment of his profit share (as he claimed) or whether Ken without the Father’s approval ordered Seline to draw cheuqes for payments in his favour (as FS claimed).  But, in my view, such dispute (insofar as liability and not quantum is concerned) turns largely on witness rather than documentary evidence.

121.  Whilst there is still dispute between the parties over the profit-sharing arrangements, the essential difference between them is not whether there had been any profit-sharing amongst the Father, Seline, Ken and Richard, but whether the profit-sharing (which was not disputed) was pursuant to the Father’s own wishes under the Original and Supplemental Formulae as pleaded by FS or pursuant to the series of binding oral agreements as pleaded by Ken. These arrangements were not in written form.

122.  Indeed, there is consensus between the parties that for the period up to 1994 Ken’s share of the Group’s profits varied from 10% in 1986 to 50% from 1988 to 1992 and 37.5% from 1992 to 1994,[89] and the only question was the basis of such profit-sharing.  There is also no dispute that there was distribution of profits to the Father, Ken, Seline and Richard after 1994 and distribution of profits to Ken, Seline and Richard after 2002,[90] and again the only question was the basis of such profit-sharing.  The fact that there had been past distribution of the Group’s monies to Ken was also plainly admitted by FS in paragraphs 7(1) and 11(2)(c) of the RAR&RADC.

123.  Mr Wong SC submitted that it was not open to Ken to embark on a forensic accounting/inquiry exercise by way of discovery at this stage of the proceedings without any ruling/judgment in Ken’s favour that he was beneficially entitled to 100% of the profits of the Group as from 1 December 2008. He argued that Ken’s application for accounting and banking records and documents going back to 2002 was simply a premature fishing expedition irrelevant to this stage of the proceedings.

124.  Mr Joffe submitted that Yuen Hing’s accounting and banking records and supporting documents for the period from 2002 to 2008 were at least relevant to another aspect of the Ken Profit Claim, ie the pre-existing profit-sharing arrangements from 2002 to 2008.  But as explained about, the parties’ true dispute is not about the existence of profit-sharing amongst family members but whether there were a series of oral agreements during the period from 2002 to 2008 which entitled Ken to a share of the Group’s profits that were less than 100% (as Ken claimed) or whether such past profits were to be distributed according to the Father’s wishes (as FS claimed).

125.  Even though these are clearly oral matters, Mr Joffe suggested that the accounting and banking records/documents would support the existence of the legally binding agreements (as Ken claimed) and their terms, [91] and would help to establish Ken’s counterclaim for repayment of the sum of HK$25,602,977.76 and for account/inquiry of all profits belonging to Ken.  Mr Joffe submitted that the accounting records and supporting documents and the audited financial statements of Yuen Hing would show what was paid into and out of Yuen Hing and the nature of such payments, and it would be too narrow a view of the Peruvian Guano discovery obligation to say that a claim based on oral agreements would not require any documentary support. Mr Joffe said discovery was not limited to issues in the pleadings, but also applied to “the facts relating to the issues in the proceedings”.  He submitted that the documents in question were probative of Ken’s case, and if they were not discovered, the trial judge would be asked to make his decision on an incomplete view of the facts.

126.  I am not persuaded by such arguments.  As an initial observation, it is Ken’s case that his past profit share up to 30 November 2008 was under-withdrawn by HK$32,640,696.85, a not insubstantial sum, so the actual distribution by or withdrawal of profits from Yuen Hing would not mirror or reflect Ken’s alleged profit-sharing agreements.

127.  More significantly, it is Ken’s own pleaded case that for the purpose of profit-sharing, the Father kept the Father’s Ledgers with profit-sharing details for the period from 1990 to November 2008,[92] and Mazars were instructed to check the calculations in the Father’s Ledgers.[93] It was “[based] on Mazars’ calculations, according to the [Father’s Ledgers] and as confirmed by [the Father]” that Ken claimed he was entitled to a further share of the Group’s profits, which formed the basis for the Ken Profit Claim for the outstanding balance of his share of the cumulative profits of the Group up to 30 November 2008 in the sum of HK$25,602,977.76.[94]  Since Ken’s pleaded cause of action for the outstanding balance of his entitlements to the Group’s past profits up to 30 November 2008 was based on (a) oral agreements as to the basis for profit-sharing and (b) Mazars’ calculations based on the Father’s Ledgers and as confirmed by the Father, I am unable to see how discovering and producing Yuen Hing’s accounting, banking and financial documents with item by item entries over six years would assist in resolving the liability issues at the Liability Trial.

128.  Even though paragraph 69 of Seline’s Re-Amended Statement referred to the audited financial statements, the context in which such documents were introduced in such witness statement (originally filed on 20 March 2012 before the Split Trial Order) was to deal with a quantum matter, ie whether there was any outstanding amount of cumulative profits (if at all) due to Ken as at 30 November 2008. Hence, even though the audited financial statements and audited accounts have been deployed in Seline’s Re-Amended Statement, they are irrelevant for the Liability Trial which is now confined to liability issues.

129.  Further, it did not follow that because I allowed the amendments being the Ken Profit Plea to enable Ken to clarify the amount of Ken’s further share of the Group’s cumulative profits up to 30 November 2008 to be HK$32,640,696.95 and not HK$53,602,977.76 and to explain how such sum was derived, the documents in paragraph 16(b) and (d) (insofar as related to Yuen Hing for the period of 2002 to 2008), (c) and (e) above must therefore be discovered and produced. In Decision No 1, I accepted that these are material facts for Ken’s cause of action and he has to prove at the Liability Trial that an outstanding amount was due to him. I went on to refer to Mazars’ verification exercise and said that “[even if such amounts can only be ascertained by persons applying accounting skills, it does not alter the fact that they are material facts that need to be pleaded”.[95]  Quite plainly, I was referring to Ken’s pleaded cause of action which relied on Mazars’ calculations based on the Father’s Ledgers and as confirmed by the Father.[96] But Mazars’ calculation sheet and the Father’s Ledgers had been disclosed. Despite Mr Joffe’s suggestion otherwise, I do not see how my observations would open the door to allow discovery and production of the documents in question.

130.  Mr Joffe referred to the casual nature of the Father’s Ledgers which he claimed justified the need for disclosure of Yuen Hing’s accounting and banking documents to enable Ken to advance his counterclaim and to rebut FS’ claim.  He pointed out that FS admitted that the Father’s Ledgers contained the Father’s understanding of the assets of the Group in the past based on his informal calculation and concepts from a layman’s perspective, so the Father’s calculations “simply do not conform to acceptable accounting standard” and the figures shown in the Father’s Ledgers “do not indicate [the Father’s] understanding about the cash belonging to the Group (but the combination of cash, account receivables, loans to be repaid). Besides the Group also had liabilities (including production costs and expenses) to meet”.[97]  In my view, whilst these concerns may be relevant to the tracing exercise, they are irrelevant to the liability issues which turned on whether the oral agreements for profit distribution, Mazars’ verification exercise and the Father’s confirmation as Ken alleged justified his claimed entitlement to repayment of any outstanding balance of his past profit share and 100% future profits.

131.  Mr Joffe next suggested that the documents in question were relevant to the Ken Investment Claim and the re-invoicing operations which were the heart of Ken’s counterclaim.  Mr Joffe submitted that the accounting records and supporting documents and the audited financial statements of Yuen Hing would show what was paid into and out of Yuen Hing and the nature of such payments, which was particularly relevant to the Ken Investment Claim.

132.  But FS did not dispute that investments had been made for the Project.[98]  Indeed, FS admitted in the RAR&RADC that the Father’s Ledgers showed that some of the earnings of the Group were used for the purposes of the Project.[99]  The question was whether the investments from retained earnings were attributable to the Father or to Ken as well, and that turned on whether and to what extent Ken was entitled to share in the retained earnings and profits of the Group, which harked back to the debate whether such profits were to be shared pursuant to the Father’s wishes or pursuant to a series of oral agreements. Further, it is Ken’s pleaded case that “[based] on the [Father’s Ledgers] kept by [the Father] himself ……, [Ken] and [the Father] had jointly invested, through Luen Tat, total sums of around RMB 4.8 million and of around HK$63 million into the Project and [Lianda] between 1992 and 2006”,[100] and the particulars given were all extracted from the Father’s Ledgers.[101]

133.  It was on such basis that in Decision No 1 I allowed the amendments being the Ken Investment Plea, which made three essential points: (a) Ken’s and the Father’s investments in the Project in 1992 drawn from their respective equal share of Luen Tat’s retained earnings were made before the sharing of profits with other family members, (b) the amendments gave a description of the amounts of their investments in the Project and Lianda between 1992 and 2006 with itemised breakdown drawn from the Father Ledgers, and (c) the Father held 50% stake in Pak Tat and Lianda on trust for Ken either in his own name or in the name of Pak Tat Trading Co.  Plainly, I allowed the Ken Investment Plea in Decision No 1 on the basis that such amendments were premised on the Father’s Ledgers, and it was also on such basis that I held that the Ken Investment Plea (including the itemised breakdown of Ken’s and the Father’s joint investments over the relevant period drawn from the Father’s Ledgers) went to Ken’s claim for a declaration that he was/is beneficially interested in Pak Tat and hence Lianda.[102] The Father’s Ledgers had been disclosed. I am unable to see how the documents in question would assist on such liability issue.

134.  As regards the relevance of the documents in question to the re-invoicing operations, Mr Wong SC submitted that although the re-invoicing operations were background material for the Liability Trial, there is no dispute that re-invoicing operations took place.  I agree. Indeed, there is no dispute that Yuen Hing was set up for such tax planning purpose and to act as a “cushion” between Luen Tat and Lianda.[103] For reasons explained in Part XIV below, I am not persuaded that the documents in paragraph 16(b) and (d) (insofar as related to Yuen Hing for the period from 2002 to 2008), (c) and (e) above would assist.

135.  The legal principles discussed above made clear that documents are not discoverable simply because an issue is raised in the pleadings. To be discoverable the documents must relate to a “matter in question”, ie a true dispute between the parties that requires resolution at trial. On such basis, I am of the view that the documents in question are plainly not relevant.  But should I be wrong and they are somehow relevant to the disputed issues, then I am persuaded that the documents sought are certainly not central to and are unlikely to yield information of evidential materiality to the disputed issues viewed in the broad sense. In view of (a) the limited scope of the Liability Trial which is confined to liability matters and (b) the admissions by FS and Yuen Hing as discussed above, the probative value of the documents in question (even if they were in FS’ possession, custody or power), given their nature (ie a mass of individual accounting and banking entries over a six-year period), is likely to be of such marginal evidential materiality as not to justify the inconvenience of giving such discovery. I am not convinced that the order sought is necessary either for disposing fairly of the cause or matter or for saving costs.

XIII.  2^ND DISCOVERY SUMMONSES: AUDITED ACCOUNTS AND AUDITED FINANCIAL STATEMENTS OF YUEN HING

136.  Mr Joffe submitted that it was misconceived to say that these audited accounts and financial statements only concerned the quantum of Ken’s counterclaim. Since there was no challenge as to the necessity of such documents nor any suggestion of unusual circumstance that warranted departure from the general rule, production of such documents should be ordered.

137.  But even though Ken had a prima facie entitlement to see these documents since they were referred to Seline’s Re-Amended Statement, there is no presumptive rule in favour of an order for production.  Ken still had to go on and show the court that the order was necessary either for disposing fairly of the cause or matter or for saving costs. In considering whether production would be necessary, the court had to evaluate the circumstances and to assess the “degree of relevance or importance of the document to the matter”.  Taking such considerations into account and bearing in mind the analysis in Part XII above (especially paragraph 128 above) and Part XIV below, in the context of a broad view of the issues for the Liability Trial, fairness requires me not to ignore the irrelevance or at best marginal relevance of the audited accounts and audited financial statements to the Liability Trial. In the circumstances, Ken’s application for production of such documents in question is refused.

XIV. 1^ST DISCOVERY SUMMONS: ALL NOTES, RECORDS AND DOCUMENTS RELATING TO THE RE-INVOICING OPERATIONS AND THE SETTING UP OF YUEN HING IN MACAU

138.  Mr Joffe submitted that Seline’s denial of access to the documents in paragraph 16(g) above was untrue. Suffice for me to refer to the discussion in Part IX above and say that I am not persuaded I should go behind Seline’s 3^rd affirmation and come to a contrary finding at this interlocutory stage.  This conclusion is sufficient for me to dismiss Ken’s application for discovery and production of the documents in question. But I shall go further to consider Ken’s request in case I am wrong.

139.  Ken claimed that the re-invoicing operations were at the heart of Ken’s counterclaim. Ken’s 3^rd affirmation stated that such documents are likely to support his case that (a) upon advice from Mazars, Luen Tat resolved to set up the re-invoicing operations initially in Singapore in 1999 and later on in Macau in 2002, (b) it was Seline who set up and administered the re-invoicing operations, and (c) under the re-invoicing operations, as from 2002 goods manufactured by Lianda were first sold to Yuen Hing in Macau at a slight profit margin, Yuen Hing then resold the same to Luen Tat at substantial mark-up, and this way most of the Group’s profits were captured in the books of Yuen Hing.  Mr Joffe made no apology for the breadth of this class of documents which covered “all notes, records and documents” “relating to” the re-invoicing operations and the setting up of Yuen Hing.

140.  FS claimed that in view of the Split Trial Order and without any ruling on liability in his favour as yet, Ken’s application was premature and at this stage he was not entitled to conduct a purported tracing exercise in relation to the re-invoicing operations.  Mr Wong SC submitted that Ken had two witnesses from Mazars, Mr Cho Yee Chun and Mr Chan Ming Wai, and he should be able to elicit evidence from Mazars’ staff as to Mazars’ involvement and advice for setting up Yuen Hing if he was minded to do so.  Mr Joffe said the parties and the court should not waste time in cross-examining witnesses when discovery of documents would enable the parties to know what the case was before they got to trial.

141.  As explained in paragraph 134 above, there is in fact no dispute that Yuen Hing was set up for such tax planning purpose and to act as a “cushion” between Luen Tat and Lianda.[104]  There is also no dispute that the Group’s profits from the incorporation of Yuen Hing in 2002 until about April 2009, insofar as they were in cash (but excluding accounts receivables) were captured under the books of Yuen Hing, and Yuen Hing paid for the operation expenses of the Group.[105] Given such common ground, I am unable to see why it would be necessary for disposing fairly of the matters in the Liability Trial or for saving costs to discover and produce the documents in question.

142.  I also bear in mind the width of the discovery sought. Since the formation and existence of Yuen Hing was for tax planning purpose, arguably every sale and purchase transaction with Lianda and with Luen Tat with corresponding whole set of transaction documentation would be “notes, records and documents” “relating to” the re-invoicing operations. Given the amount of alleged profits of the Group (even in broad terms), the business turnover of Lianda and Luen Tat would have been quite substantial, and hence the volume of such documents (if they exist) would not have been small.  As a matter of common sense, there must be many documents relating to these individual re-invoicing transactions from 2002 to 2008 (eg purchase orders, sale and purchase contracts, delivery notes, invoices, receipts etc) that must be quite irrelevant to the liability issues to be tried at the Liability Trial in March 2014.  Mr Joffe did not seek to blue pencil this class of documents, and on this ground too the application must fail.

XV.  2^nd DISCOVERY SUMMONS: ASSETS AND LIABILITIES STATUS REPORTS

143.  In paragraphs 3 and 5 of Seline’s Re-Amended Statement, Seline explained that after joining the Group in/about 1990 at the Father’s request, she was mainly responsible for taking care of accounting matters of the Group.  Her tasks included making sure the Group’s cash flow was able to meet expenses requirements, checking invoices, preparing cheques for payment and arranging for the Father to sign them, going to Lianda to analyse/verify the expenses of the Shenzhen Factory, and preparing “an asset and liabilities status report to [the Father] in each and every month for his inspection”.

144.  Seline explained in her 3^rd affirmation that in October 2008 FS had been ousted by Ken, and they no longer maintained documents of the Group.  In a letter dated 14 August 2012 by FS Solicitors to KJ Solicitors, FS informed Ken that as a result of Ken hijacking the affairs of the Group since around October 2008 to the exclusion of the rest of the family, the assets and liabilities status reports “are in the possession of [Ken]”.  Mr Wong SC submitted that since the liquidation of Luen Tat, such monthly reports should be with the Liquidators.

145.  FS claimed the assets and liabilities reports sought by Ken only concerned quantum matters of his counterclaim, and the application was premature and irrelevant at this stage of the proceedings, and in any event it would not be necessary to produce such reports dating back to 1990.  Mr Joffe submitted that such assertion was misconceived. He referred to paragraph 4(3) of the AYH Defence which averred that the Group’s profits from the date when Yuen Hing began to operate until about April 2009 insofar as they were in cash (but excluding accounts receivables) were captured under the books of Yuen Hing (but Yuen Hing also paid for operation expenses of the Group). He submitted that the documents in question were closely linked to the above averment in the AYH Defence since they would reveal the Group’s cash position and the accounts receivables being part of the assets of the Group.  Mr Joffe also relied on Ken’s arguments set out in Parts XII and XIV above, and argued that production should be ordered since there was no challenge on necessity nor suggestion of any unusual circumstance that warranted departure from the general rule.

146.  In my view, whilst Ken had a prima facie entitlement to see the assets and liabilities status reports because they were mentioned in Seline’s Re-Amended Statement, there is no presumptive rule in favour of an order for production. It is true that FS’ denial of having such documents in their possession, custody or power is made by letter and not on affirmation, but I bear in mind that such reports related to the financial status of the Group and Luen Tat, and it had always been FS’ case that they no longer had access to the financial and accounting documents in respect of the Group and Luen Tat after the 11 June 2009 incident and their ouster from the Group.  I refer to the discussion in Part IX above and say that I am not convinced I should order production of the assets and liabilities status reports in view of the disputes over the alleged ouster of FS from the Group that have to be resolved at the Liability Trial.

147.  More importantly, Ken had to show that an order for production would be necessary either for disposing fairly of the cause or matter or for saving costs. There is no explanation as to why it would be necessary to produce the assets and liabilities status reports dating back to 1990. Further, I note that Seline only referred to such reports to explain her scope of duties whilst working for the Group, and I am not persuaded that each and every such report over the years would not be of relevance to establish or refute that point. Further, since Yuen Hing already admitted that the Group’s profits from the date when it began to operate until about April 2009 insofar as they were in cash (but excluding accounts receivables) were captured under their books, I do not see any need for the purpose of the Liability Trial to produce documents to establish the dollars and cents of the Group’s cash position. Still further, whether there are any accounts receivables and if so what is the amount thereof are at best quantum/tracing matters. I am not persuaded that production of the assets and liabilities status reports is necessary either for disposing fairly of the cause or matter or for saving costs.

XVI.  CONCLUSION

148.  Ken has failed in all of the contested requests for discovery and production of the documents sought. Given the parties’ consensus over the disclosure and production of the documents in paragraphs 18(b)-(c) above, it appears to be an unnecessary exercise in time and costs to ask FS to file an affidavit under Order 24 rule 7 of the RHC to state whether they had those documents in their possession, custody or power.  A more practical approach is called for in view of the imminence of the Further PTR and the Liability Trial, and indeed at the Discovery Hearing I urged FS to provide copies to the conceded documents to Ken pending the handing down of this decision. In the circumstances, I grant the following order:

(a) in respect of the 1^st Discovery Summons,

(i) FS do within 7 days from today file and serve further supplemental list of documents giving discovery and disclosing (1) the transfer documents in respect of the transfer and assignment of 49 “new ordinary shares” of Luen Tat from Full Moon to Allied Ever on/around 20 April 2009, and (2) the register of members and directors of Allied Ever from 2009 to date;

(ii) FS do within 7 days from today serve on Ken copies of the documents in (i) above upon payment of reasonable copying charges;

(iii) save as provided in (i) and (ii) above, the 1^st Discovery Summons be dismissed;

(b) the 2^nd Discovery Summons be dismissed.

149.  There is no reason why costs should not follow event.  But I bear in mind that FS only agreed to disclose and produce the documents in paragraph 18(b)-(c) above at a late stage. I therefore grant a costs order nisi that Ken do pay FS 90% of their costs of the 1^st and 2^nd Discovery Summonses (including all costs reserved, if any) to be taxed if not agreed.