LAW MEI SING v. ING Bank N.V AND ANOTHER

HCA 544/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 544 OF 2010

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D E C I S I O N

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Background

1.  This is an appeal from the Order of Master J Wong given on 21 June 2013 concerning certain interrogatories served by the defendants on the plaintiff.

2.  The action is brought by the plaintiff who is one of the sons, and the administrator of the estate, of one Madam Lui Kam Fung, deceased, against the defendant banks, for losses allegedly suffered by Madam Lui as a result of her investment in certain financial products called Boosted Knock-Out Discount Accumulators (or, in short, “KODA accumulators”) in respect of various companies whose H-shares were listed in the stock exchange of Hong Kong.

3.  Madam Lui invested in the accumulators in 2007 and died in August 2008.  The loss she had suffered from those investments is alleged to be in the region of $37 million.

4.  It is said in the Re-Amended Statement of Claim that Madam Lui could not read, understand or write English.  While she would occasionally invest in the stock market, she did not have “the requisite knowledge and capacity to deal in complex, high risk and great quantity of financial products” and was a “conservative investor with the primary investment goal of capital preservation”.  It is said that the KODA accumulators were in truth “equity derivative products” and “equity derivative instruments involving great risks and substantial financial exposures”.

5.  The defendants sought particulars of the plaintiff’s allegation that Madam Lui did not have “requisite knowledge and capacity to deal in complex, high risk and great quantity of financial products” and asked specifically whether it is the plaintiff’s case that Madam Lui had never invested or dealt in “complex, high risk and great quantity of financial products” other than through the defendants.  The particulars supplied by the plaintiff in February 2012 are as follows:

“To the best of the Plaintiff’s knowledge, prior to the subject dealings in KODAs, Madam Lui had never invested or dealt in complex, high risk financial products like KODAs and in such frequency through other financial institutions.”

6.  The plaintiff further pleads in the Re-Amended Statement of Claim that Madam Lui’s agreements to invest in the KODA accumulators were void on the ground of non est factum, that the defendants knew or ought to have known that Madam Lui “could not be reasonably expected to assume the significant financial risks inherent in the KODA Accumulators”, that she relied on the defendants “to offer sound investment advice, including but not limited to recommending financial products commensurate with her background, personal circumstances, investment objectives and risk appetite”, that the defendants ought to have recommended only “low risk investments” to Madam Lui, that the defendants had failed to consider whether the KODA accumulators were “suitable investments” for Madam Lui, and that the defendants were in breach of duty to Madam Lui.

7.  In their Amended Defence, the defendants aver that Madam Lui was not a conservative investor, that she was instead an “experienced and sophisticated investor” and that she had actively engaged in foreign exchange trading and stock trading, and had acquired equity derivatives such as equity linked notes and call options.  The defendants deny that they gave advice to Madam Lui to acquire the accumulators, and plead that Madam Lui had her own independent views towards her investments.

8.  There is evidence that Madam Lui had made investments through Fubon Bank, Hang Seng Bank, Wing Hang Bank, Ever-long Securities Ltd and Cheer Pearl Investment Ltd.  There is also evidence that Madam Lui did in October 2007 hold through Fubon Bank and Hang Seng Bank investment products which appear to have required her to receive and perhaps “accumulate” stock.  The plaintiff’s list of documents filed in September 2012 however does not disclose any document in relation to Madam Lui’s investments in other financial institutions.

Proceedings on interrogatories

9.  On 22 November 2012, pursuant to RHC Order 26 rule 3, the Defendants served on the Plaintiff a set of interrogatories.  The interrogatories are as follows:

“In relation to Answer 3 to the Plaintiff s Answers to Further and Better Particulars of the Re-Amended Statement of Claim filed on 16 February 2012 (“P’s Answer 3”) on Madam Lui's dealings in complex and. high risk financial products and quantity thereof with financial institution(s) other than the 1^st and/or the 2^nd Defendants, and in particular the P’s Answer 3 stating that “To the best of the Plaintiff’s knowledge, prior to the subject dealings in KODAs [Knock-out Discount Accumulators], Madam Lui had never invested or dealt in complex, high risk financial products like KODAs and in such frequency through other financial institutions” (emphasis added):-

1. Which financial institution(s) (as referred to in the P’s Answer 3 or otherwise) did Madam Lui make her investments through other than the 1^st and 2^nd Defendants at any time in the past 10 years before she passed away (“the Period”)?

2. Out of those financial institution(s) identified in Interrogatory 1 above, please list the financial institution(s) through which Madam Lui traded in KODAs during the Period.

3. Out of those financial institution(s) identified in Interrogatory 1 above, please list the financial institution(s) through which Madam Lui traded in derivatives products and/or complex and high risk investment products other than KODAs during the Period.

4. Please list out all investment account(s) maintained by Madam Lui in her name and/or under her control and/or operation and/or management and/or in which she had beneficial interest during the Period with the financial institution(s) other than the 1^st and 2^nd Defendants as referred to in Interrogatories 2 and 3 above.

5. For each of the investment account(s) listed in Interrogatory 4 above, please state:-

(a) the date on which the account was opened; and

(b) the date of the first KODA trade or other derivatives product or complex and high risk investment product conducted through that account.

6. Please identify and particularize the details of each trade made by Madam Lui in KODAs and/or derivatives products and/or complex and high risk investment products conducted through a financial institution other than the 1^st and 2^nd Defendants as identified above.”

At the end of that document, the Defendants asked the Plaintiff to provide answers in writing by affidavit within 28 days.

10.  On 17 December 2012, the plaintiff served his answers.  They took the form of a document which contains a jurat at the end but is defective for having no affirming clause at the beginning (“I … solemnly and sincerely affirm”), contrary to the requirement of section 7(4) of the Oaths and Declarations Ordinance (Cap 11).

11.  The plaintiff’s answers to the interrogatories are as follows:

1. “To the best of my knowledge and information, Madam Lui had made general investments through Hang Seng Bank Limited and Fubon Bank (Hong Kong) Limited during the said Period.”

2. “None.”

3 and 4.  “I am advised by the Plaintiff’s lawyers and verily believe that the Defendants’ requests are unduly wide and neither necessary for disposing fairly of the cause or matter nor for saving costs.”

5 and 6.  “N/A.”

12.  On 3 January 2013, the defendants took out a summons under RHC Order 26 rule 4 which, as amended subsequently, sought an order that “the Plaintiff do file an affirmation to provide full and proper answers to Interrogatories 3 to 6 inclusive of the Defendant’s Request for Interrogatories filed and served on 22 November 2012 …”.

13.  On 21 June 2013, the Master ordered, inter alia, that the plaintiff file an affirmation within 60 days to provide full and proper answers.  From this decision, the plaintiff appeals.

Procedural points

14.  At this hearing, Mr Wou for the plaintiff takes the point that the defendants’ summons was irregular in that it referred to Order 26 rule 4 as the basis for the application. He submits that the application should have been made under rule 5(3).  In my view, neither is correct.

15.  What the defendants served on the Plaintiff is a set of interrogatories without order.  By virtue of Order 26 rule 3(2), the plaintiff, as the party on whom interrogatories without order were served, could have applied, within 14 days of service of the interrogatories, to the court for the interrogatories to be varied or withdrawn.  That was not, however, done.

16.  Rule 2(2) provides:

“Subject to rule 5(1), a party on whom interrogatories are served shall, unless the Court orders otherwise on an application under rule 3(2), be required to give within the period specified under paragraph (1)(a) answers, which shall (unless the Court directs otherwise) be on affidavit.”

Rule 5(1), which concerns objection to an interrogatory on the ground of privilege, is not relevant for present purposes.

17.  Rule 5(3) provides:

“Where any person on whom interrogatories without order have been served answers any of them insufficiently, the party serving the interrogatories may ask for further and better particulars of the answer given and any such request shall not be treated as service of further interrogatories for the purposes of rule 3(1).”

18.  If the defendants consider that the plaintiff had insufficiently answered some of the interrogatories, they could have asked the plaintiff for further and better particulars of the answers given pursuant to rule 5(3).  This does not require a summons. In this case, however, the plaintiff had in substance refused to answer, rather than answered insufficiently, Interrogatories 3 to 6.  The application that the plaintiff should have made is one under Order 26 rule 6(1), which provides:

“If a party fails to answer interrogatories or to comply with an order made under rule 5(2) or a request made under rule 5(3), the Court may make such order as it thinks just including, in particular, an order that the action be dismissed or, as the case may be, an order that the defence be struck out and judgment be entered accordingly.”

19.  It is clear that the phrase “[i]f a party fails to answer interrogatories” applies to interrogatories served without an order which have not been ordered to be withdrawn by the court on an application under rule 3(2) by the person served with the interrogatories.  In contrast, rule 6(2), which provides for liability for committal, applies only to interrogatories ordered by the court.

20.  There is perhaps an argument that, no application having been by the plaintiff under rule 3(2), it follows from rule 2(2) that the plaintiff was required to answer the interrogatories.  However, I am satisfied that even in the absence of an application under rule 3(2), the court still has a discretion to refuse to make an order under rule 6(1) including an order requiring the interrogatories to be ordered: see Maxiplus Ltd v Lunn (CA), The Times, 27 February 1992.

21.  The court is not bound to make an order under rule 6 merely because the party served with the interrogatories has failed to take out an application under rule 3(2) for the interrogatories to be varied or withdrawn, though it may be thought that the prudent course is for a party who objects to certain interrogatories to apply for orders for variation or withdrawal.

22.  It follows that the power that is engaged here is that of the court under rule 6(1).  In exercising that power the court may take into account all the circumstances in determining what it thinks “just”, including (but not limited to) the matters referred to in rule 4(2): Hui Sui Hop v Ng Chiu Construction Co [1995] 1 HKC 478, at 481C.

The plaintiff’s objections

23.  A number of objections have been raised by Mr Wou on behalf of the plaintiff to Interrogatories 3 to 6.

24.  First, he submits that the interrogatories relate solely to credit and not to any matter in question.  I reject this submission.  Having regard to the allegations pleaded by the plaintiff as described earlier, the investment experience and knowledge and risk appetite of Madam Lui is in my view an issue in the action.  Interrogatories 3 to 6 plainly relate to that issue and not only to credit.

25.  Mr Wou says because in his answer to Interrogatory 2 the plaintiff has already stated that Madam Lui did not trade in KODAs with either Hang Seng Bank or Fubon Bank, pursuit of Interrogatories 3 to 6 is tantamount to challenging the plaintiff’s credit.  I disagree.  KODAs are a specific type of derivative financial products.  Pursuing Interrogatories 3 to 6 does not necessarily involve going behind the plaintiff’s answer to Interrogatory 2.  In any event, it seems to me the object of Interrogatories 3 to 6 is to find out the investment experience and risk appetite of Madam Lui, not to discredit the plaintiff.

26.  The plaintiff seems to think that because his complaint concerns KODA accumulators, anything other than KODA accumulators, whether it is options or equity linked notes or any other derivative products, that Madam Lui had dealt in is irrelevant.  With respect, that takes far too narrow a view of the scope of what relates to the matters in question in the action.

27.  For the same reasons I do not accept the submission that the Interrogatories are fishing.

28.  Then it is said that the Interrogatories are unduly wide and imprecise.  In particular, Mr Wou says the phrase “derivative products and/or complex and high risk investment products” in Interrogatory 3 is not defined and the plaintiff does not know what it means.  Had the phrase “complex and high risk” been invented by the defendants I might have been able to see more force in this submission.  It will however be noted from the description of the plaintiff’s pleaded case above that it is the plaintiff who first used these terms in material averments in his pleading.  Further, the plaintiff confirms in his affirmation more than once that Madam Lui did not have requisite knowledge of “complex, high risk financial products” (see paras 4, 5 and 21 of the plaintiff’s second affirmation).  Mr Wou says the plaintiff’s particulars refer not just to “complex, high risk financial products” but “complex, high risk financial products like KODAs”.  I do not think this invalidates the defendants’ argument on this point.

29.  Still, I have to say that it is not entirely satisfactory that the Interrogatories are to be answered on the basis of whatever meaning the plaintiff chooses to put on the phrase “complex, high risk financial products”, and such an answer may not be of much use except in elucidating the meaning placed by the plaintiff on that phrase. 

30.  It is however unnecessary to decide this point because, in the course of the hearing this morning, Mr Wou states that his client is willing and offers to give discovery of the statements of investment accounts (or accounts holding investments) of Madam Lui held with the five banks and brokerage firms I have mentioned earlier for the period of 5 years ending on 15 October 2007 (subject to his being able to locate them among Madam Lui’s personal effects or to obtain them from the institutions in question).

31.  This is a matter that I should take into account, and indeed, “any offer made by the party to be interrogated to … produce documents” is specifically referred to in rule 4(2) as one of the matters the court shall take into account in deciding whether to give leave to serve ordered interrogatories.  In the present case, once these documents are produced, the defendants can readily see for themselves whether Madam Lui invested in derivative products during that period and can readily assess for themselves whether she invested in “complex, high risk financial products”.  In fact it is probable that they are better equipped than the plaintiff to judge the risks involved in the investments held by Madam Lui.  If at that point the defendants still wish to know what meaning the plaintiff puts on the phrase “complex, high risk financial products”, they can try to seek particulars of his pleadings (though I express no view on the propriety of such a request).  I am therefore satisfied that, on this basis, Interrogatories 3 to 6 are no longer necessary for disposing of the cause or matter fairly or for saving costs.

32.  Indeed, Mr Chan who appears on behalf of the defendants says that if discovery is given of those documents, he would not press the interrogatories in question.

33.  There are other objections raised by Mr Wou including that the Interrogatories are premature, in that witness statements have yet to be filed and exchanged.  It is unnecessary to deal with these objections. Suffice it to say that the differences between interrogatories and witness statements have been explained by Hunter JA in Re Parfums Yves Saint Laurent Ltd, CACV 28/1989, 7 April 1989.  Moreover, one can see from the plaintiff’s stance on the interrogatories that this is a case where the plaintiff’s witness statements are unlikely to supply the information sought by the interrogatories: c.f. Wenden Engineering Service Co Ltd v Technic Construction Co Ltd, HCCT 120/1997, 14 June 2001, para 6.

34.  The Interrogatories are also said to be oppressive, on the ground that the plaintiff does not have in his possession all the statements and records of the investments and accounts of Madam Lui going back all those years and the exercise of locating them will cost him or the estate much time and money.  I reject this objection.  There can be no suggestion that it is not within the power of the plaintiff, as administrator of the estate of Madam Lui, to obtain the information from third parties if necessary.  In the context of a $37 million claim, I do not think that the costs involved in doing so can be said to be disproportionate or oppressive.

Conclusion

35.  Having regard to the plaintiff’s offer to produce the statements of account of Madam Lui as referred to earlier (which offer was not made by the plaintiff at the hearing before the Master), I am satisfied that Interrogatories 3 to 6 are no longer necessary for the fair disposal of the matter or for saving costs.  The appeal against the Master’s decision is therefore allowed.  I shall now hear counsel on the form of order and costs.