CHAN YEE KIT v. CHAN YEE MAN

HCA 1743/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1743 OF 2014

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D E C I S I O N

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1. By summons dated 8 March 2016, the defendant (“D”) asks for specific discovery against the plaintiff (“P”) pursuant to O.24 r.7 RHC in relation to two groups of documents:

(a)  Corporate documents of Profit Sail Int’Int’l Express (H.K.) Ltd (“the Company”); AND

(b)  Documents relating to the sale and purchase of various properties that feature in this Action[1].

2. The documents are:

(a)  Supporting documents for the Company’s entertainment expenses in respect of the year-on-year increase from HK$2,798,532 in 2010 to HK$3,950,537 in 2011[2];

(b)  Bank statements of the Company from 2009 to 2014[3]; and

(c)  Documents concerning the transactions described in paragraphs 78 and 98 of P’s witness statement[4].

3. P opposes the application.  In the written submissions, P set out the documents in question:

(a)  Supporting documents for the Company’s entertainment expenses in 2010 and 2011 (item 3(iv) of the Class 1 Documents) [62];

(b)  Bank statements of the Company from 2009 to 2014 (item 7 of the Class 1 Documents) [62];

(c)  Documents concerning the transaction of the SZ 33rd Floor Property described in paragraph 78 of the Plaintiff’s witness statement (item 11 of the Class 1 Documents) [63];

(d)  Documents concerning the transaction of the SZ 32nd Floor Property described in paragraph 78 of the Plaintiff’s witness statement (item 11 of the Class 1 Documents) [63]; and

(e)  Documents concerning the transaction of the Sham Tseng Property described in paragraph 98 of the Plaintiff’s witness statement (item 11 of the Class 1 Documents)[63].[5]

4. The parties now agree that the documents described by P and D are the same documents.  I shall now discuss the issues.

THE FACTUAL BACKGROUND

5. This is a fight between brothers over the property of a unit of Tower 1, Island Crest, No.8, First Street, Hong Kong (“the Property”).

6. P’s case is simple and straight forward. P is the sole equitable and beneficial owner of the Property and claims for the Property held by D on trust for P under the Common Intention.[6] In fact, P’s case is that the claim is on a resulting trust or a constructive trust by virtue of their common intention.[7]

7. D’s defence is that his 50% share in the Property was acquired through the application of sale proceeds of the SZ Property and the Sham Tseng Property.  The SZ Property and the Aldrich Property were intended to be a gift from P to D.[8]

8. Accordingly, the two main issues are whether or not the SZ Property and the Aldrich Property [which was exchanged into Sham Tseng Property] were intended to be a gift from P to D and whether D is holding half of the interest of the Property on trust for P under the Common Intention[9].

9. D also says that the crux of the action is therefore who was the beneficial owner(s) of D’s Shenzhen Property and the Sham Tseng Property.  If D was the owner, then whether his interests in those properties became “transferred” or traceable to his 50% interest in the Property.

DISCUSSION

The relevant legal principles

10. The relevant legal principles are trite. Failing agreement, the court should exercise its case management power to tailor an appropriate discovery regime for the case at hand, with the residual discretion to define the scope of discovery on the basis of necessity and proportionality as the case requires for justice.  See Recommendation 80 at page 259 of the Final Report & The Incorporated Owners of Kodak House II and No. 321 Java Road v Kai Shing Management Services Limited (unreported, HCA 711/2011, 9 October 2012).  See also Hong Kong Civil Procedure 2016 at 24/0/2A.

11. In order to obtain an order for discovery under Order 24 rule 7 the party seeking it has to make out a prima facie case:

(a)  that there is in existence a specified document or class of documents;

(b)  that the party against whom the order is sought has or had the document in his possession, custody or power;

(c)  that the document or class of document relates to a matter in question in the action; and

(d)  that discovery thereof is necessary either for disposing fairly of the cause or matter or for saving costs.

See paragraph 12 of Deak and Company (Far East) Ltd. v N.M. Rothschild and Sons Limited & Others [1981] HKC 78

The main issues of dispute between the parties

12. The main argument between the parties for this application is whether those documents requested are relevant to the issues in dispute.  The burden is on D to show that they are relevant.  See Deak and Company (Far East) Ltd.

13. D says that the payments for the properties in question for the deposits or payments of the mortgage loans were made through the Company.  D therefore says “Given the involvement of the Company as the paying party of the aforesaid properties (and some of these payments were booked as entertainment expenses, see Defence and Counterclaim §16), these documents are obviously relevant because they would show whether the Company actually made those payments and for what amount.”[10]

14. In paragraph 9 of the supporting affirmation of Wong Ka Hing dated 8 March 2016, Mr. Wong, the solicitor for D said that Class 1 documents will further indicate whether the Company consistently made significant profits (which is asserted by D but denied by P) and this issue is relevant because it sheds light on the Company’s financial position at the time and whether D’s assertions are believable as to the fact that the various gifts were made by P to D through the Company’s funds.

15. It should be noted that §§8-9 of the Defence alleged that D had lent his helping hands to P at the difficult times of the Company.  P was grateful for his assistance. P promised to give 20% of the Company’s profit to D, but went back on his promise by giving D HK$50,000 a year whereas the Company consistently made annual profits of at least HK$800,000 since 1998.  P replied that the Company did not consistently make annual profit of HK$800,000 and its profit was marginally profitable since 1998.  In the Reply, P also denied having made the promise to give D 20% profit of the Company.

16. According to P, P has already confirmed that all purchase price and mortgage loans were indeed made through the Company in respect of the properties including the Property, the SZ Property and the Sham Tseng Property. Since this is not even an issue in dispute, these documents are not relevant.  In any event, as long as the payments for the SZ Property, the Aldrich Property and the Sham Tseng Property were made by the Company, whether they were made from the account of entertainment expenses or other accounts would not advance D’s case or damage P’s case.[11]

17. Given the fact that D admits that P had paid the initial deposit, the further deposit, the mortgage installments and the relevant outgoings[12] and that P admits that the payments were made through the Company, the real issue of dispute turns on the facts of the case as to whether there was an oral agreement between P and D as pleaded in paragraph 42 of the Defence and Counterclaim; whether the SZ Property and the Sham Tseng Property were gifted by P to D as pleaded in paragraph 51 of the Defence and Counterclaim and also whether D can rely on proprietary estoppel as pleaded in paragraph 52 of the Defence and Counterclaim.  All these are matters of facts to be found at the trial.  The corporate documents and the bank statements do not play an important role in the finding of the facts.

18. In this hearing, D says that it falls upon P to prove that the payments were made by P and D is entitled to put P to prove.  If P is not the payer, but the Company, then P has no locus to claim against D on resulting trust.  I ask if this issue was pleaded in the Defence and Counterclaim.  The answer is “no”.  This is a very important issue for this action which cannot be considered without proper pleadings.  I shall rely upon the above factual matrix for the determination of this application.

19. It appears to me that D is concerned with credibility of the evidence as to whether the Company has been consistently making profit of at least $800,000 annually, which P denied in the Reply.  However, looking at the merits of the case, this factual issue has no direct bearing on the result of the matter.  The Court of Appeal held that 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 – adopting para. 4.13, p.49 of Matthews and Malek’s “Discovery” and following Martin and Miles v Scrib [1950] 67 RPC 127 at 131 L25-30; p.134 L15-20.  The Court of Appeal further said: “The relevance of an issue, or of a document, is dependent on its substance and contents in the light of the subject matter of the trial; and not simply on its mere presence in pleadings or the existence of a denial of it by a party” per J. Chan J. in Allington Investments Corp. & Others v First Pacific Bancshares Holdings Ltd & Another [1995] 2 HKC 139 at page 8.

20. Further, P says that D is also one of the directors of the Company who approved the accuracy of the audit reports.  Where the accuracy of the audit reports does not relate to any matter in issue for the present action, there is simply no good reason for D to insist on inspecting documents concerning entertainment expenses of the Company when the audit report itself will suffice.[13]  To this allegation, there is no dispute from D.

21. Looking at the merits of this case globally, it appears to me that the main issue of dispute between the parties is whether P had made the promise of gifting the Property, the SZ Property and the Sham Tseng Property to D for his gratitude towards D for his assistance given to the Company during its difficult times as pleaded in paragraphs 6-9 of the Defence and Counterclaim.  The fact whether the money for the acquisition of the various properties in question was through the Company’s disbursement account or otherwise is not relevant as P has already admitted that the money was from the Company.

22. This will also apply to the minutes in relation to the SZ Property, which will not throw light on whether the SZ Property was given to D by P as a gift.

23. As such, D has failed to satisfy O.24, rr.7 and 8.  The documents are not relevant and they are not for the purpose of a fair trial or for saving costs.

24. D’s application has to be dismissed.

COSTS AND ORDER

25. As to the costs of this application, they should follow the events and the costs are summarily assessed at $80,000 to be paid by D to P within 14 days from the date hereof.

26. I shall now make an order in terms as follows:

(a)  D’s application is dismissed;

(b)  The costs (including all the costs reserved) for this application are as per paragraph 25 above.