HCA 342/2006
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO. 342 OF 2006
______________________
BETWEEN
CLUB ACE LIMITED 1st Plaintiff
ISLAND ASIAN INC 2nd Plaintiff
And
PANG KIN SHING, MICHAEL
1st Defendant
CHAN CHUN CHUNG
2nd Defendant
LO CHI SUM
3rd Defendant
______________________
Coram : Before Master J. Wong in Chambers
Date of Hearing : 16 February 2007
Date of Decision : 20 April 2007
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D E C I S I O N
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Application
1. This is an application for discovery under Order 24 rules 3 and 7 of the Rules of High Court (“RHC”) by the Plaintiffs against the Defendants.
Preliminary matters
2. Two housekeeping matters were dealt with. With no objection from Mr. Simon K.M. Lui, Counsel for the Defendants, I allowed:
(a) the Plaintiffs to rely on the 3rd Affidavit of Barry Paul Hoy filed on 16 February 2007 at the hearing before me with costs reserved, and
(b) Mr. Patrick Chong, Counsel for the Plaintiffs, to inspect the documents contained in six High Court files HCA 2030 to 2035, all of 2006.
Background
3. Both Plaintiffs are BVI companies incorporated on 2 July 1999. In 2000, they subscribed at the price of HK$60 million for 20% of the shareholdings of NDT Companies whereby the Defendants were founders and directors. Under the Subscription, the Defendants as Covenantors jointly and severally agreed, inter alia, to pay the Plaintiffs the followings:
“(a) If the 2000 Net Profit was less that US$3.24 million: 15% of twice the amount of the shortfall;
(b) If the 2001 Net Profit was less than US3.24 million: 15% of twice the amount of the shortfall; and
(c) If the Net Assets (amount) was less than HK$20 million: 15% of the amount of such shortfall.”
(paragraph 10 of the Statement of Claim herein)
4. It is the Plaintiffs’ case that
(a) the audited 2000 Net Profit was HK$8,947,000,
(b) the unaudited 2001 Net Profit was HK$9,237,000 and no audited account thereof has been completed, and
(c) the Net Assets were “minus HK$29,727,000” only.
5. As a result, the Plaintiffs issued 2 letters of demand on 31 October 2002. Failing payment and the provision of audited accounts, the Plaintiffs commenced the present proceedings on 17 February 2006.
6. The Defendants contested the proceedings and filed their Defence on 16 March 2006. They denied and/or did not admit the breaches. Further or in the alternative, it was said that the matter had been settled as follows:
“11. … by 3 [hand-]written settlement agreements all dated 7th November 2002 entered into by Mr. Paul Tse, on behalves of the Plaintiffs, and the Defendants (“the Settlement Agreements”), in consideration of the Defendants transferring to the Plaintiffs all their beneficial interests, in terms of shareholdings, directly or indirectly, held in NDTBVI, the Plaintiffs confirmed that they would waive and withdraw all claims against the respective Defendants in respect of the Subscription Deeds, the Supplemental Deeds and the Shareholders Deed in full and final settlement of all the Plaintiffs’ claims.
12. Pursuant to the Settlement Agreements, on or about 24th July 2003, the 1st and 2nd Defendants had duly transferred all their beneficial interests, in terms of shareholdings, in NDTBVI, to the Plaintiffs.
13. Pursuant to the Settlement Agreements, in or about early 2006, the 3rd Defendant had duly transferred all their beneficial interests, in terms of shareholdings, in NDTBVI, to the Plaintiffs.”
(paragraphs 11 to 13 of the Defence herein)
7. The Plaintiffs did not file the Reply and there was an implied joinder of the issues on the Defence pursuant to Order 18 rule 14 RHC.
8. In October 2006, both parties filed their lists of documents. The Plaintiffs then sought specific discovery of certain documents against the Defendants who refused the same. By the present summons, the Plaintiffs asked for discovery of:
Item No.
Description
1.
Audited Financial Statement of the NDT Group, NDT (BVI) Trading Limited (NDTBVI) and New Digital Technology Holdings Limited (NDTHL) for the financial year 2001-2002.
2.
Board resolutions, memoranda, correspondence between NDTBVI and/or NDTHL and its Solicitors (Messrs Or, Ng & Chan), Counsel’s advice, pleadings, affidavits and affirmations, documents, in relation to all matters related to HCA nos. 2030 of 2006, 2031 of 2006, 3032 of 2006, 2033 of 2006, 2034 of 2006 and 2035 of 2006.
(The Schedule attached to the summons of 6 December 2006)
9. On 16 January 2007, the documents as per Item No. 1 were provided to the Plaintiffs by the Defendants’ Supplemental List of Documents. As such, the parties only argued on Item No. 2 before me.
10. Briefly, the 6 High Court Actions (“the Lo Actions”) were commenced by NDT Companies against Mr. Lo Chi Sum, the 3rd Defendant herein, for, inter alia, breaches of fiduciary duties as directors. The followings are noted:
(a) The Lo Actions were all commenced by Messrs. Or, Ng & Chan as solicitors for the NDT Companies and the references of the 1st Defendant herein Pang Kin Shing, Michael “… Michael Pang \ Pleadings \ Writ …”, appeared on all the back-sheets of the Writs thereof.
(b) The 3rd Defendant instructed Messrs. Simmons & Simmons to lodge acknowledgments of service on 27 September 2006 for him, indicating that the Lo Actions were contested.
(c) On 19 October 2006, the parties filed 6 consent orders. The Lo Actions were then discontinued with no order as to costs.
11. The Plaintiffs’ solicitors argued that:
“……
The Plaintiffs have certainly never sanctioned any sort of legal action against the 3rd Defendant, save for the abovementioned Action.
We therefore assume that the Lo Actions were either wrongfully commenced by NDTBVI (and more importantly, by your clients with the exception of the 3rd Defendant of course), in which case the Plaintiffs reserve their rights and entitlements, or your clients’ pleading in paragraphs 12 and 13 is demonstrably (and knowingly by your clients) to be untrue.
Your client, the 3rd Defendant, must in the circumstances provide the discovery as requested below, in particular relating to the Lo Actions, further or alternatively, your client, the 1st Defendant, Mr Pang, also has the same obligation to provide discovery as intimated below, since it appears as if the 1st Defendant is the individual purporting to represent NDTBVI (please see the filename in the individual Writ of Summonses).
We require discovery in the form of all board resolutions, memoranda, correspondence between NDTBVI and its Solicitors (Messrs Or, Ng & Chan), Counsel’s advice, pleadings and affidavits, which relate to the Lo Actions.”
(letter of 16 November 2006)
12. All the Defendants did not concede to the application.
13. The 1st Defendant deposed in his Affirmation filed herein on 10 January 2007 that:
“10. … I was alleged to be involved in some litigation brought by NDTHL and NDTBVI against the 3rd Defendant. I categorically deny it and hereby confirmed that I had no knowledge about it. I could not explain why a reference to “Michael Pang” appeared as part of a filename appended to the end of the Writs and I verily believe that the Plaintiffs could have easily asked Messrs. Or, Ng & Chan directly since the 1st Plaintiff is always a beneficial owner of NDTHL and NDTBVI. For these reasons, I verily believe that this application is wholly unnecessary and based on ill foundation.
11. In any event, regarding the board resolutions, memoranda, correspondence between NDTBVI and NDTHL and their Solicitors (Messrs. Or, Ng & Chan), Counsel’s advice, pleadings, affidavits and affirmation documents in relation to all matters related to HCA nos. 2030 of 2006, 2031 of 2006, 2032 of 2006, 2033 of 2006, 2034 of 2006 and 2035 of 2006, I do not have possession or custody of any of them and further I have no knowledge of any of them exist at all. I am advised and verily believe that all these documents were protected by legal professional privilege and NDTBVI and NDTHL are not under any obligation and I have no power, authority or control to produce them at all even if any of them exist at all.”
14. On the other hand, the 2nd Defendant disputed that:
“6. Pursuant to … the Settlement Agreement … executed by me and the Plaintiffs, I ceased to be a beneficial shareholder with effect from 24th July 2003 of the Companies when I executed all the documents for transfer of all my beneficial interests in the NDTBVI to the 1st Plaintiff …
7. I verily believe that, pursuant to the Settlement Agreement, the 1st Plaintiff must have become the shareholder of NDTBVI and taken up the beneficial ownership of the Companies as the original Instruments of Transfer duly executed by me were never returned to my solicitors to me and there were no express denial of such settlement arrangement. It is therefore wholly unnecessary for the Plaintiffs now being the beneficial owners of the Companies to make such an unreasonable request against me when I do longer have the possession, custody or power of any of the requested documents as described on the Summons.”
(Affirmation filed on 28 December 2006)
15. Finally, the followings were put forward by the 3rd Defendant in his Affirmation dated 28 December 2006:
“ 9. … I was alleged to be involved in some litigation brought by NDTHL and NDTBVI against me. In fact, the matter was successfully resolved and the actions were all discontinued against me. They are entirely irrelevant to the present action. Without prejudice to my right to object that they are irrelevant in the present action, there are now produced and shown to me copy of all the relevant consent orders for discontinuation of all the actions which are now still in my possession … Further it would be quite unreasonable to suggest that I would be in possession, custody or power of the Board resolutions, memoranda, correspondence between NDTBVI and/or NDTHL and its Solicitors (Messrs. Or, Ng & Chan), Counsel’s advice, pleadings affidavits and affirmations as the action was against me personally.”
Ruling
16. Having heard from both Counsels on 16 February, I reserved my decision to be delivered. I now do so. Upon consideration of all the evidence authorities and submissions from the parties, I have come to the conclusion that the application is to be declined. My reasons appear in below.
Reasons
17. The following extracts from page 458 the White Book 2007 provide a starting point to resolve the parties’ argument.
“… the same principles apply to a list of documents verified by affidavit; subject to the following paragraphs the affidavit is conclusive (Walker (John) & Sons Ltd v. Ost (Henry) & Co. Ltd [1970] R.P.C. 151, CA). Thus where an affidavit or affirmation is made pursuant to an order under O.24, r.7 the other party is not entitled to contravene what is sworn or affirmed therein by a further contentious affidavit or by obtaining an order to cross-examine that party since the latter’s oath/affirmation in answer is conclusive at interlocutory stage of the action ……
The position is subject to two qualifications. First, a party was and is entitled to apply for a further and better list, where it appears on the face of the list already served (e.g. where a plea of privilege is taken on grounds inadmissible in law) or on the face of disclosed documents (e.g. letters referring to other letters) or on an admission that in all probability the party has or has had other relevant documents beyond those disclosed. For the purpose of such an application no affidavit is required (see “Application for a further and better list of documents”, para. 24/3/7).
The second (and more important) qualification is that under the present rule an application may be made for an affidavit as to specific documents or classes of documents. This must be supported by an affidavit stating that in the brief of the deponent the other party has or has had certain specific documents which relate to a matter in question. But this is not sufficient unless a prima facie case is made out for (a) possession, custody or power, and (b) relevance of the specific documents (Astra National Productions Ltd v. Neo Art Productions Ltd [1928] W.N. 218; Wong Wai Chun v. Au Yeung Fung Sim & Others [2001] 2 H.K.L.R.D. G2, CFI; Re Estate of Ng Chan Wah , unreported, HCAP No. 5 of 2003, March 5, 2003, [2003] H.K.E.C. 317). 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 the 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.”
18. Applying the above principles to our present case, the Plaintiffs have failed this Court in the followings.
(a) All the Defendants deposed that they had produced all the requested documents in their possession custody or power. This is generally conclusive at the interlocutory stage, leaving the matter to be argued by the parties at trial. Mr. Chong has advanced a number of propositions to argue that the documents did/do exist and were/are within power of the Defendants, including leading me go through the references of the 1st Defendant in each of the Writs in the Lo’s Action. However, it suffices for me to conclude that they are not sufficient for me to make any findings against the Defendants at the present stage.
(b) The parties’ dispute at the coming trial lies on:
(i) Whether the Defendants did or did not commit the breaches under the Subscription?
(ii) If so, did they settle the matter by the 3 handwritten Settlement Agreements?
(iii) And if so, did they transfer 72% shareholdings of the NDT Companies to the Plaintiffs?
From the issues identified above, it is difficult to argue that the discovery involving the Lo’s Action are relevant for the purpose of resolving the issues herein. If the parties did settle the matter, the same would be completed before the Lo’s Action. Even assuming that the 1st Defendant did give instructions to Messrs. Or, Ng & Chan to commence the Lo’s Action against the 3rd Defendant, the former could have been performed his part under the Settlement Agreements by transferring his shareholdings in NDT Companies to the Plaintiffs.
(c) Once I have come to the above conclusions, that is, there is no jurisdiction for me to allow the discovery, let alone the exercise of discretion. Nonetheless, assuming that I do have the necessary discretion, I believe that, on balance, the application is still to be refused because the discovery is not necessary either for disposing fairly of the cause or matter or for saving costs in the circumstances. By the discovery, the Plaintiffs attempted to attack the credibility of the Defendants. The Defendants (probably only the 1st and 2nd Defendants) lied to the Court on the Settlement Agreements. If there were such agreements, the Plaintiffs would have held 92% of the shareholdings of the NDT Companies. However, the Plaintiffs knew nothing about the Lo’s Action. It was the 1st and 2nd Defendants who gave instructions to commence and settle the same. The 3rd Defendant herein, being also the defendants in the Lo’s Action, knew everything. However, all of them lied to the Court and refused the discovery. In my view, credibility of witnesses is to be resolved at trial. Such credibility, even if relevant, will only be marginally relevant to the issues to be decided by the Court. The probative value of these evidence does not justify for time and costs spent in the discovery.
Costs
19. I do not have benefit from both Counsels on the question of costs. Nonetheless, having taken into account the fact that the Defendants did provide documents as per Item No. 1, the Plaintiffs failed on the discovery as per Item No. 2 and the correspondence between the parties in late January and early February 2007, I believe that costs of the application, including costs reserved and Certificate of Counsel for hearing on 16 February 2007, in the cause, are appropriate in the circumstances. I will make such an order nisi accordingly.
(Jack Wong)
Mr. Patrick Chong instructed by Messrs. Robertsons for Plaintiffs.
Mr. Simon K.M. Lui instructed by Messrs. Lau, Chan & Ko for Defendants.