MA (HK) LTD AND ANOTHER v. YEUNG YUK SING AND OTHERS

HCA 1641/2010
[2018]HKCFI158

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1641 OF 2010

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REASONS FOR DECISION

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I.   INTRODUCTION

1.  On 31 October 2017, I handed down judgment in this action (“Judgment”). For convenience, I shall adopt herein the abbreviations in the Judgment. References to “Paras.#” below are references to paragraphs in the Judgment.

2.  For the Claim, I granted judgment in favour of Au as follows:

(a) Yeung and Ng do jointly and severally pay damages in the sum of HK$400,000 to Au for the tort of harassment;

(b) a permanent injunction to restrain Yeung, Ng and Moon, whether by themselves, their servants or agents, or otherwise howsoever from causing any nuisance or harassment to Au (whether in writing or orally, by telephone or other means); and

(c) interest on damages in (a) above at judgment rate from the date of the writ until payment.

I also granted a costs order nisi that the Defts do pay Au costs of the Claim (including all costs reserved if any) to be taxed if not agreed.

3.  For the Counterclaim, I concluded that as a matter of principle Yeung was entitled to an order for proper accounts of the Property Investment and Lloyds Account and an enquiry as to what is due to Yeung upon taking such accounts, and an order for payment of the sum found due to Yeung (if any). Such accounts and inquiries would necessarily include an account of profits as a result of deployment of Yeung’s assets and properties, but such accounts and inquiries would be subject to the Caveat and would be taken in light of the findings in the Judgment. I also ordered that the above accounts and inquiries be heard before a Master of the High Court.

4.  At the trial, the parties agreed they would work out the final order for approval by the court after the Judgment was handed down, and in the Judgment I granted case management directions for such purpose.

5.  On 28 November 2017, the Defts’ solicitors wrote to inform this court that the parties were unable to reach full agreement on the terms of final order.

6.  On 5 December 2017, the Defts’ solicitors wrote to this court enclosing a bundle of solicitors’ correspondence, and urged this court to resolve the matter of the terms of the final order on paper by eliciting the parties’ differences from the enclosed correspondence. This court did not find it appropriate to go through solicitors’ discussions / negotiations in their correspondence to figure out what were the true issues in dispute and the reasons therefor, so on 6 December 2017 I directed the parties to fix a hearing with 30 minutes reserved to deal with outstanding issues in relation to the final order.

7.  The hearing was scheduled to be heard before me on 25 January 2018 (“Hearing”).

8.  By the time of the Hearing, the parties were able to narrow down their differences and come up with a draft order (“Draft Order”). The remaining differences fell within a narrow compass, and largely concerned 2 aspects in relation to the order for accounts under the Counterclaim for (i) each and all of the sums as set out in Annexure 1 (including Crossed-Out Items 1, 3 and 6-7 but excluding Items 8-9, 15-18, 25, 30-31 and 36 thereof) and (ii) all sums that had been deposited into and withdrawn from the Lloyds Account (collectively, “Ordered Accounts”):

(a) whether Au’s obligation to state and/or provide the information for the Ordered Accounts as set out in paragraphs 4(b) and 5(b) of the Draft Order shall be expressly made subject to the words “to the best of [Au’s] knowledge”; and

(b) whether Au’s obligation to exhibit all related invoices, vouchers, receipts and other supporting documents to the verifying affidavit referred to in paragraphs 4(c) and 5(c) of the Draft Order shall be expressly made subject to the words “within [Au’s] possession, custody or power”.

9.  In my view, the Ordered Accounts were premised on this court’s findings in the Judgment inter alia that:

(a) Au accepted he was responsible for keeping accounts for the Property Investment (Para.129) in respect of which he was the sole accounting party (Para.135). Such contractual duty to keep/give accounts came about because the capital outlay for the Property Investment came under Au’s control/management after the relevant Remittances left HK shores and Au/Marchant took charge of the purchase, letting and sale of the relevant PIA Properties (which matters fell outside Yeung’s knowledge/ command so that Yeung was dependent on Au’s proper, complete and accurate account with the essential features referred to below in order to give intelligent understanding of the Property Investment – Para.135), hence Au had a duty to:

“(a) keep/give accounts of the Status/Transformations of (i) Remittances / capital outlay given (eg payment of price and associated expenses for acquisition of each PIA Property) and (ii) Net Proceeds received (eg disposal of Yeung’s Refund, distribution of profit shares and payment of associated expensesfor sale of each PIA Property), (b) give overall account upon sale of each PIA Property to work out Yeung’s Refund and the net profit/loss, and (c) give overall account of Rental Income and PIA Outgoings for each PIA Property that was tenanted (since such income/expenses were for Yeung alone). Whilst (a)-(b) might overlap (but this would merely be a matter of how to present the requisite accounts), they set out the matters essential for giving proper, complete and accurate account of the Property Investment ……” (my emphasis) (Para.132)

Au also owed fiduciary duties in relation to Yeung’s funds for the Property Investment. Au was also responsible for collecting the Rental Income and handling the Net Proceeds, and it was Au who caused some if not all of the Net Proceeds of the 10 Properties to be deposited into the Lloyds Account that he controlled/operated on behalf of Yeung. So Au by his own conduct had placed himself in a fiduciary position and come under a fiduciary duty to account (Para.136).

So Au owed both contractual duty (which he admitted) and fiduciary duty (which I have found) to keep accounts for the Property Investment in the manner described above (Para.137). On such basis, Yeung as principal was entitled to a proper, complete and accurate account as of right (which right arose immediately upon receipt of property in an accountable capacity), and under the Property Investment Agreement and/or as a fiduciary Au had duty to keep/give accounts of the Property Investment in the manner described above (Paras.138-139 and 141).

The time for Au to prepare the overall account was upon sale of each PIA Property (Para.133).

(b) Au stood as agent/fiduciary to Yeung with custodial control of (i) the Lloyds Account which was Yeung’s own bank account and (ii) Yeung’s Refund out of the Net Proceeds that Au caused to be deposited in the Lloyds Account (and Au was a fiduciary and/or constructive trustee of Yeung’s Refund – Para.144), and as such Au owed fiduciary duties, including a duty to account for the Status/Transformations of the Lloyds Account and monies therein until Au handed back control of such account to Yeung (Para.143):

“As recipient in control of the Net Proceeds, and by allowing co-mingling of Yeung’s Refund with other monies which might not belong to Yeung (eg deposits from MAY-UK / unknown sources) and by causing monies to be paid out of the Lloyds Account for extraneous purposes, Au had a duty to account for the Status/Transformations of monies in the Lloyds Account which was Yeung’s own bank account, and this would be the first step to enable Yeung to identify/quantify any deficit and to seek appropriate remedy/relief. ……” (Para.144)

(c) In relation to the lapse of time between the events and the Judgment, I found as follows:

“Long lapse of time would not necessarily justify refusing re-opening of accounts. Yeung had been chasing for accounts since 2004, and the present state of affairs was brought about by Au who tried to avoid giving proper, complete and accurate accounts at every turn. …… I find the parties’ historical relationship and Au’s conduct cried out for re-opening of accounts, especially when Au was in breach of his fiduciary duty by mishandling/misusing funds in the Lloyds Account, and when the Property Investment and Lloyds Account were left in Au’s control/management and outside Yeung’s knowledge/command. I am also unable to perceive any oppression in ordering re-opening of accounts given the available documentation, Au’s personal knowledge and his ‘primitive records’.” (Para.292)

“The 2005/2006 Accounts were not accurate, settled or binding on Yeung, and Au failed to discharge his duty to account to Yeung. In my view, the deliberate sparsity of the 2005/2006 Accounts, their unexplained discrepancies, the lack of contra-account arrangement for the Property Investment and Lloyds Account, Au’s abuse of Yeung’s trust/confidence in seeking Remittances for his own use whilst at the same time using monies in the Lloyds Account, and Au’s concession under cross-examination that he ought to give proper re-account to Yeung in respect of the Property Investment and Lloyds Account all led inexorably to the conclusion …… Au must give to Yeung proper, complete and accurate accounts of the Property Investment and Lloyds Account in the manner as explained above.” (Para.293)

(d) In Para.131, I have defined Status/Transformations in the context of the Property Investment as including “an account of the status of the relevant investment monies and the acts/ dealings thereto, the fund-flows of such monies, and the transformations they had undergone”.

10.  Order 43 rule 3(1) of the Rules of the High Court (“RHC”) provides that where the court orders an account to be taken or inquiry to be made it may by the same or subsequent order give directions with regard to the manner in which the account is to be taken or vouched or the inquiry to be made. In my view, after a full trial, when ordering accounts to be taken of the Property Investment and Lloyds Account, the directions with regard to the manner in which the Ordered Accounts are to be taken or vouched must give effect to the findings and conclusions in the Judgment.

II.   “TO THE BEST OF [AU]’s KNOWLEDGE”

11.  Mr Chan, counsel for Au, submitted that paragraphs 4(b) and 5(b) of the Draft Order (as proposed by the Defts) went beyond the conventional form of order and contained a long laundry list of information that the Defts wished to obtain in the accounting process that would effectively pre-empt the vetting process to be undertaken by the Master of the High Court. Mr Chan pointed out that whilst it was understandable that the Defts wished to obtain as much information as they could conceive of, it must also be recognised that in the accounting process the information available to Au as the accounting party might not cover all the requests, especially when the relevant transactions were from some 18 years ago. Mr Chan submitted that as a compromise and in the hope of streamlining the accounting process, instead of proposing to delete paragraphs 4(b) and 5(b) altogether and leaving those questions to be dealt with at the accounting stage, Au reasonably agreed to provide all the information sought so long as the information was within his knowledge (and alternatively, Au was prepared to adopt the more comprehensive phrase “knowledge, information and belief”).

12.  Since Au conceded he would not challenge what he described as the “laundry list” of information that the Defts wished to obtain in the accounting process, there is no need for me to review the specific items of information sought. But I go further. In the Judgment, I have found Au’s duty to keep/give account for the Property Investment was set out in Paras.132 and 136, and that Yeung was entitled to a proper, complete and accurate account in such manner as of right (Paras.138-139 and 141) (see paragraph 9(a) and (d) above). I have also found Au had a duty to account for the Status/Transformations of the Lloyds Account and the monies therein until Au handed back control of such account to Yeung (see paragraph 9(b) and (d) above). In light of such findings, I am quite unable to see how Au could have objected to the so-called “laundry list” in paragraphs 4(b) and 5(b) of the Draft Order.

13.  Mr Chan said the so-called “laundry list” in paragraphs 4(b) and 5(b) of the Draft Order would pre-empt the vetting process to be undertaken by the Master of the High Court. But it must be remembered that in this case the parties had been through a lengthy trial that canvassed in depth the extent and scope of Au’s duty to account. Paragraphs 4(b) and 5(b) of the Draft Order did no more than to set out the extent and scope of Au’s duty to account distilled from the findings and conclusions in the Judgment so that the Master can effectively carry out the accounting process within the parameters of such duty. It was said in Atkin’s Encyclopædia of Court Forms in Civil Proceedings 2^nd ed Vol 1 (1992 Issue) para 12 at p 611 that “[the] order for accounts [at trial] should contain all necessary directions for taking the account and future conduct of the action, though in many cases this would be left for the master”. Thus, the trial court can give (and in this case the Judgment did give) guidance as to the manner for taking the Ordered Accounts (see also Order 44 rule 3(1)(a) of the RHC).

14.  Further, the matter of long lapse of time had been considered and dealt with in the Judgment (see paragraph 9(c) above), but such consideration did not sway this court from concluding that Au must give Yeung proper, complete and accurate accounts of the Property Investment and Lloyds Account in the manner as explained in the Judgment.

15.  Mr Chan then suggested it was apparent from the standard form order for account and verifying affidavit found in Atkin’s Court Forms Forms 23 and 31 at pp 644 and 648 that the accounting party’s obligation to account is limited to matters within his knowledge, information and belief. However, it transpired that such limitation only appeared in the standard form verifying affidavit in Form 31, and not in the standard form order for accounts in Form 23. But at this stage this court is dealing with the order for accounts rather than the verifying affidavit for the accounts yet to be rendered in the course of the accounting process. I do not see any limitation of “to the best of [the accounting party’s] knowledge” in the description of the account ordered in Form 23 (see paragraphs 22-23 below).

16.  Atkin’s Court Forms Form 25 at p 645 gave other descriptions of accounts ordered as follows:

“An Account of all money received by the Defendant as collecting agent on behalf of the Plaintiff from debtors of the Plaintiff.

An Account of all transactions carried out by the Defendant as [literary] agent or otherwise for the Plaintiff.

An Account of the whole of the Defendant’s dealings with the property of the Plaintiff as his agent, which agency was determined by notice in writing sent to the Defendant and expiring on ……… 19 ….

An Account of money received by the Defendant as solicitors and agent of the late ………, deceased, and of the Plaintiff.” (my emphasis)

The above sample orders for accounts all emphasised giving accounts in respect of “all” money received, “all” transactions or “whole of” the dealings rather than those to the best of the defendant’s knowledge.

17.  At the Hearing, Mr Chan submitted Au could not consent to the Draft Order in the form proposed by the Defts as he might not be able to provide complete Ordered Accounts and/or exhibit all related vouchers in the verifying affidavits. Hence, Au maintained his objection, and proposed the amendments as aforesaid.

18.  In my view, the scope of the Ordered Accounts (as I have found in the Judgment) must necessarily be in line with the duty/obligation to account (whether contractual or fiduciary), and should not be dictated by the accounting party’s subjective knowledge, information and belief. If the accounting party was in breach of such duty/obligation and kept accounts in a way that met, say, only 30% of his contractual or fiduciary obligations, it would be wrong to say he only had to give accounts up to 30% of his contractual or fiduciary obligations because that was to the best of his knowledge, information and belief.

19.  As explained in Hollingworth v Juson [2006] 3 HKLRD 381, 387-388 (see paragraph 49 of the Judgment) (and see also subsequent decision in the same case in HCA249/2006, Chu J (as she then was) (unreported, 16 October 2006)), Chu J (as she then was) said:

“34. …… If the defendant is, as I find him to be, under a duty to account, then he is obliged to give a proper, complete and accurate account of all his dealings and acts in respect of the funds in question, no matter how the duty arises.”

In Ironwood Capital Limited v KTH Capital Management Limited HCA2836/2004, Suffiad J (unreported, 20 November 2007), the defendant (under the control of Wang and Li) had been dealing with investments on behalf of the plaintiff by transferring funds from the ABN Account to the Sub Account opened by the defendant with BTEF and using such funds in the Sub Account for such investments on behalf of the plaintiff (paras 5, 22 and 34), and Wang and Li were the only 2 persons who could and did operate the Sub Account for investment purposes on behalf of the plaintiff (para 23). There was no dispute the defendant was an accounting party to the plaintiff (paras 34-35). In such circumstances, the learned judge ordered “the defendants to render the necessary accounts to the plaintiff and verified by affidavit as to the dealings carried out by the defendant on behalf of the plaintiff and using funds of the plaintiff from the ABN Account and the Sub-Account” (my emphasis) (para 36) without limiting the ordered accounts to the best of the defendant’s knowledge.

20.  Further, Au’s duty to account covered the Status/ Transformations of monies for the Property Investment and the Lloyds Account, and as I have explained in Para.144, the rendering of proper, complete and accurate accounts would be the first step to enable Yeung to identify/quantify any deficit and to seek appropriate remedy/relief. Using the above illustration, if the accounting party only gave accounts up to 30% of his contractual or fiduciary obligations, ie his accounts (even if they were to the best of his knowledge, information and belief) did not satisfy his duty to account as found by the court (which set the parameters of the accounting process), then the principal would be in a position to identity/quantify the deficit as measured against the yardstick of the duty to account as found, and would be in a position to seek appropriate remedy/relief. Quite plainly, the Ordered Accounts could not and would not be constrained by Au’s best knowledge or his best knowledge, information and belief. I disagree with Au’s proposed amendment to the Draft Order in this respect.

III.   “WITHIN [AU’S] POSSESSION, CUSTODY OR POWER”

21.  Mr Chan submitted Au’s duty to verify the Ordered Accounts by relevant documents would only extend to those that were within Au’s possession, custody and power. He referred to Hong Kong Civil Procedure 2018 Vol 1 para.43/3/1 at p 932 as follows (see also Ironwood Capital Limited at para 35):

“The accounting party will generally be directed to lodge his account, duly verified by affidavit, in accordance with r.4(3), and to serve copies on the other parties concerned. …… In a simple case the vouchers may be ordered to be exhibited to the affidavit: otherwise it is generally ordered that each party permit inspection of all relevant documents in their possession or power relating to the account, toenable the opposing parties in effect to carry out an audit, and so that any necessary verification of the account can be dealt with out of court.

The opposing parties will then file a notice of objections, or an affidavit setting out their contentions with regard to the account, so that it can be seen what issues require determination by the court. ……” (my emphasis)

22.  Mr Chan also drew my attention to Atkin’s Court Forms para 14 at p 612, and two standard forms, ie standard form order for accounts in Form 23 (p 644) and standard form affidavit verifying accounts in Form 31 (p 648). Form 23 provides for as follows:

“IT IS ORDERED that the following Accounts be taken that is to say

(1) An Account of the number of copies of (state title of books) published by the Defendant of the profits made by the Defendant as a result of such publication and of the number of such books sold by the Defendant

……

AND IT IS ORDERED that the Defendant do on or before ……… 19… or subsequently within four days after personal service of this Order leave at [address of The Royal Courts of Justice] the said Account duly verified by affidavit and within the same period serve copies thereof on the Plaintiff

AND the Plaintiff is to be at liberty to serve notice of objection thereto within 56 days after service upon him of copies of the said Account and Affidavit.

AND IT IS ORDERED

(1) that the parties do give each other access on demand to all books vouchers and other documents in their respective possession or power relating to the said Accounts*

……” (my emphasis)

* “An order in this form is intended to avoid formal vouching (as to which see Paragraph 14 ante), and also to avoid the expense of formal discovery by lists, which might be substantial in the case of a long account. However, if the order is not complied with, it may be necessary to seek a more specific order.” (my emphasis)

23.  Two matters are of note. First, as explained in paragraph 15 above, the standard form order for accounts in Atkin’s Court Forms Form 23 is not subject to or limited by the words “to the best of [the accounting party’s] knowledge”. Such limitation is only found in the standard form verifying affidavit in Form 31 which states “I have in the account marked “A”, now produced and shown to me, according to my knowledge, information and belief set forth a full account of all money of the Plaintiff ……”

24.  Secondly, the provision in the standard order for accounts in Atkin’s Court Forms Form 23 for access on demand to all books vouchers and other documents in their respective possession or power relating to the ordered accounts was said to be a short-form order that “avoids formal vouching”. This reflects what has been stated in Hong Kong Civil Procedure 2018 in paragraph 21 above. But what is envisaged by these provisions is that both parties have in their possession, custody or power documents in relation to the ordered accounts, so the parties can inspect and audit each other documents with verification done out of court in order to save time and costs. These provisions contemplate some mutuality between the parties.

25.  However, under the Ordered Accounts here, Au was the only accounting party, and he (and not Yeung) should have kept all necessary vouchers. The Judgment also did not contemplate mutual checking of each other’s documents for verification. Instead, the Judgment contemplated that Au would render proper, complete and accurate Ordered Accounts. Thus, I do not find the provision in Form 23 helpful. Of more interest is Atkin’s Court Forms Form 24 at p 645, which is another standard form order for account that deals with supporting vouchers:

“IT IS ORDERED that the Defendant do within … days lodge with [Master or Masters’ Secretary ……] an account (specify it), with all necessary vouchers and verify the said account by affidavit and within … days deliver a copy of such account and affidavit ……” (my emphasis)

This standard form provides for an account “with all necessary vouchers” without any limitation of or without being subject to those vouchers within the defendant’s possession, custody or power. In my view, this standard form is more pertinent where one party (ie Au in the present case) is the sole accounting party. I do not agree with Au’s proposed amendments to paragraphs 4(c) and 5(c) of the Draft Order. Rather, it would be appropriate to require “all necessary related invoices, vouchers, receipts and other supporting documents” to be exhibited to the verifying affidavit. Mr Lau, counsel for Defts, had no objection.

IV.    CONCLUSION

26.  For the above reasons, at the Hearing, I approve the Draft Order subject to the following: (a) the amendments marked in red in paragraphs 4(b)-(c) and 5(b)-(c) thereof were disallowed, (b) the amendments marked in red in the preamble of paragraphs 4 and 5 thereof are allowed as agreed, and (c) the word “related” wherever it appears in paragraphs 4(c) and 5(c) thereof shall be replaced by the word “necessary”.

27.  At the Hearing, I also ordered Au to pay the Defts costs of the application for approval of formal order (including all costs reserved if any) to be taxed if not agreed. Mr Chan doubted whether the Defts should get costs since the eventual order granted was not entirely what they contended. But the Defts were successful in refuting the amendments proposed by Au, and the change in paragraph 26(c) above was initiated by the court (and not by Au), and was not resisted by the Defts at all.