TKM also known as WTKM v. WHG AND OTHERS

FCMC 5723 / 2021

[2023] HKFC 189

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER FCMC 5723 OF 2021

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DECISION
(Discovery)

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Introduction

1.  This is an application taken out by the petitioner (“the wife”) by way of a summons filed on 3 March 2023 for an order for specific discovery against the 1^st respondent (“the husband”).   

2.  On 10 February 2023, I have handed down my decision on joinder of parties, I now quote the background of this petition as per paragraph 3 – 7 of therein.

“Background

3. The husband and wife were married in 2017 with one son now aged two. On 11 June 2021, the wife petitioned for a divorce on ground of unreasonable behaviour. The marriage is a relatively short one. Decree nisi was granted on 5 July 2022. Joint custody was granted to parties with care and control to the wife. As far as ancillary relief issues are concerned, the parties have not yet reach FDR stage.

4. Prior to the petition, the family had lived in a flat, sized around 2,000 square feet, wholly owned by the husband’s parents. In or about 2020, when the wife was pregnant, the husband’s parents suggested the family to live in another flat also wholly owned by them in the same tower. This was meant to be their new matrimonial home. Unfortunately, as the relationship between the husband and wife deteriorated, the husband moved out to a rented apartment in the vicinity leaving the wife and the child staying in the new matrimonial home. However, in June 2021, the wife moved out with the child to a rented apartment.

5. During marriage, the wife had worked as a sales director in the husband’s company earning HK$28,000 per month. She ceased to work after moving out with the child.

6. Without going into details, the wife gave a brief account of the well-off lifestyle of the husband whom has been well supported financially by his parents, including but not limiting to, providing the husband with funds to start a restaurant, supporting him financially to start his own business, and transfering handsome amount of funds to his account in millions dollars as gift.

7. To the contrary, the husband claimed to have earned HK18,000 per month as a merchant only and with a negative net value of asset and liabilities of - HK$4.054 million.”

The wife’s application & updated development

The outstanding documents

3.  The documents requested by the wife are set out in the schedule of the summons, those involved discovery of various items from the husband and his family business companies. The husband has provided most of the items therein save as except the following:

i.  Item A1 - various personal bank account statements from 1 June 2018 to June/July 2019;

ii.  Item 4 - audited accounts and management statements of Hong Kong WXXXXX Limited (“HKWL”) for years ended 31 March 2021 and 31 March 2022; and

iii.  Item 5 – bank account statements of three other companies from January 2019 to date, namely, AXXXX RXXXXX Limited (Hong Kong) (“ARLHK”); AXXXX RXXXXX Limited (Macau) (“ARLM”) and GXXXXXX Company Limited (“GCL”) (collective referred to “the Family Business Companies”).

4.  The husband has already acceded to the wife’s requests by providing financial disclosure from 2019 onwards (which is 2-year pre-Petition). I am given to understand the husband has answered 4 questionnaires, explained 121 transactions down to every $10,000 spent. The husband’s opposition is premised on the disproportionality, he said the wife’s discovery application is a fishing exercise, she should not be entitled to a “carpet search” on his finances. The outstanding items needed not be disclosed.

The legal principles

5.  The applicable law on discovery is stated in Order 24, rule 7 of the Rules of High Court, Cap 4A; Hon Ng J has succinctly set out the principles  in Jade’s Realm Ltd v. Director of Land (unrep., HCA No. 1509/2012, 10 June 2014) at para 21, that

“21. I shall first remind myself of the principles which are germane to the present application.

(1) There is no jurisdiction to make an order for specific discovery under RHC O 24 r 7 unless there is sufficient evidence or prima facie case that: (a) the documents or classes of documents exist which the other party has not disclosed; (b) the documents relate to a matter in issue in the action; and (c) the documents are in the possession, custody or power of the other party.

(2) Once it is established that those three prerequisites for jurisdiction do exist, the court has a discretion whether or not to order discovery.

(3) The Court will not make an order unless the discovery sought is necessary either for disposing fairly of the cause or matter or for saving costs.

(4) The order must identify with precision the documents or categories of documents which are required to be disclosed, for otherwise the person giving discovery may find himself in serious trouble for swearing to a false affidavit, even though doing his best to give an honest disclosure.

(5) Where discovery is sought in relation to a class of documents, it is important that the class should not be defined or described too widely, and should not be defined so as to include documents which are not relevant.

(6) Despite the Peruvian Guano test for relevance, “fishing” is not allowed, and discovery should not be oppressive.

(7) Statements in a party’s affidavit of documents are conclusive e.g. on the question whether he has or has had any documents other than those disclosed, as to their relevancy or as to the grounds stated in support of a claim for privilege from production.

(8) The respondent may answer an application for specific discovery by an affidavit stating that he does not have the documents, and this will be conclusive at the interlocutory stage.

See: Hong Kong Civil Procedure 2014 Vol. 1 para. 24/7/1; Berkeley Administration Inc v McClelland [1990] FSR 381 at 382-3; Lee Nui Foon v Ocean Park Corp (No 1) [1995] 2 HKC 390 at 391-3; Paul’s Model Art GMBH v UT Ltd [2006] 1 HKC 238 at paragraphs 24 & 32; Tai Fook Futures Ltd v Cheung Moon Hoi Jeff [2006] 4 HKC 81 at paragraphs 33 to 35.”

6.  It is helpful to revisit Rayden and Jackson on Relationship Breakdown, Finances and Children (July 2016) at para [13.104],

“In financial remedy proceedings, disclosure and discovery begins with service of the Form E and the documents which are required to be attached to the Form E, and any other documents necessary to explain or clarify any of the information contained in the Form E. Thereafter, disclosure and discovery is by means of a questionnaire served in advance of the First Appointment and considered by the court at that appointment, and, if the court gives permission, by further questionnaire at a later stage of the proceedings. Questionnaires can, like interrogatories, request information as well as seek production of documents. As part of its case management role, the court should regulate the extent of the discovery of documents so that the exercise is proportionate to the issues in question, and to ensure that the discovery process does not become a fishing expedition approved by the court.”

7.  Broadly, the above covers the general principles in a matrimonial context.

Issues to be determined

8.  In light of the outstanding items referred above, the issues to be determined are as follows:

i.  Item A1 - Whether the period for discovery of the husband’s bank statements shall start as early as June 2018 in this short marriage?

ii.  Item 4 - whether the husband shall disclose audited financial accounts and management accounts of Hong Kong WXXXXX Limited (“HKWL”)

iii.  Item 5 - whether the husband shall disclose bank account statements of the Family Business Companies?

Issue (A1) - husband’s bank statements

9.  The parties are married in 2017, the wife petitioned for divorce in 2021. Time line is of significance because their marriage had only lasted for 4 years. The wife insists disclosure of the husband’s personal bank statements should begin from June 2018 which is one-year post marriage; the husband said he had already agreed to disclose his bank statements for a period exceeded 12-month period, which starts from June 2019.

10.  It appears to the be case that the husband has led a lavish life and has been continuously supported by his parents financially. The wife has knowledge, in or about 2018 – 2019, the husband’s parents had transferred 1 million Euro to him as a gift. On this, the husband has denied in his 10^th affirmation that he did not receive this sum as gift from his parents.

11.  The present argument goes to whether the source of income of the husband had come from (wholly or partly) from his parents, this is crucial to the wife’s ancillary relief claim because the wife entire case rests with the husband’s financial relation with his parents. Notwithstanding receipt of  handsome amount of money, the husband claims to be indebted in sum of HK$4 million.

12.  On the facts, I accept the wife that a prima facie of her ancillary claim on third party assistance.

13.  The next step is for me to weigh whether those bank account statements are relevant and necessary in containing information directly or indirectly enable the wife to advance her own case and damage the other’s case.

14.  In my view, yes. The test of relevance is satisfied because by looking at the pattern of money deposited and withdrawn from the bank accounts and/or expenditures during marriage, the husband’s real income would surface. I am not with the husband that the wife’s application here is fishing by seeking an order to investigate the “extent and likelihood of on-going third-party financial resources for the purpose of her ancillary claim”.

15.  On this point, whilst disclosure remains a discretion, I accept the wife’s submission that such disclosure warrants disposing the issue of the matter fairly. I have no doubt the bank statements from June 2018 to June 2019 existed and they are within the possession, custody and power of the husband. The disclosure of the husband’s the bank statements from June 2018, at a time during marriage, is justified.

Item (4) – HKWL

16.  The husband is both a director and a shareholder of HKWL whereas the wife has been shareholder and director of the company until October 2022. On this item, the husband has only produced audited financial accounts for the year ended March 2020.

17.  The refusal of disclosing audited accounts for financial year 2020 – 2021 and 2021 – 2022 came from the board of directors. The husband explained, the wife is now a potential competitor in the industry, the board of directors came to the view that the audited accounts should not be disclosed to the wife. The husband suggested the wife should have sought third party discovery from HKWL.

18.  It is clear to me, when the wife has once been a director of HKWL, the value of the company is relevant and necessary to her in the ancillary relief application. Audited accounts are vital for a party to assess the value of the company. The husband, being a shareholder and director must have the possession, custody and power of such accounts. I am satisfied such audited accounts existed and the ought to be disclosed. When the husband has possession, custody and power of such documents, it is unnecessary for the wife to apply for third party discovery.

19.  The wife is also seeking disclosure of management accounts from HKWL. The general principles of disclosing management accounts of a company are well settled. In B v. B [1979] 1 All ER 801, Dunn J held (at 810C-E) that audited accounts of companies of which a party is sufficient with full disclosure of all the husband’s personal financial records unless there is evidence from the accounts or other experts that the published accounts of the company cannot be relied on. This principle is broadly accepted in A v. B (FCMC 9824 of 2015, 25 January 2017, unrep) by HHJ Melloy; LKY v. YLP (FCMC 4352 &18284 /2013, unrep., 30 September 2016 by HHJ CK Chan and FCP v. CJLY (FCMC 6202/2012, unrep., 3 January 2014 by HHJ Bruno Chan).

20.  The wife’s request of management account must fail or at least it is premature to apply for those when all the audited accounts of HKWL have not be canvassed.

21.  Under this head, I order the husband to disclose audited accounts of HKWL for financial year 2020 – 2021 and 2021 – 2022 only.

Item (5) – bank statements of Family Business Companies

22.  The wife, in her submissions, stated the disclosure of documents as follows:

	Audited financial statements	Management accounts	The wife’s request for management accounts
ARLHK	Yes, up to December 2020; year ended 2021 and 2022 will be produced.	Not disclosed.	From Jan 2019 – to present
ARLM	No.	Yes, disclosed from 2019 – 2022 only[1].	From Jan 2019 – to present
GCL	Yes, up to 31 Dec 2020	Management accounts of 2021 - 2022	From 18 Sep 2020 to present

23.  While the court bears a duty to safeguard documents disclosed should be proportional to the issues the wife has raised. Unless the wife can demonstrate the audited accounts are deficient, the Court should not have ordered the husband to disclose management accounts of companies. (B v. B (supra))

24.  The wife disagreed the husband is suffering from negative liability of HK$4 million, she says the audited accounts produced are insufficient and cannot be relied on, the Court should go behind the companies’ audited financial accounts to ascertain the husband’s true financial status.

25.  The wife is able to name 3 instances that the transfer of funds between the husband and the Family Business Companies are unclear. First, on 26 March 2021, the husband deposited HK$18,500 from his personal account to the ARLHK account for wines purchased from client; secondly, on 9 July 2021, a cheque in the amount of HK$28,865 was deposited into the husband’s personal bank account where the husband explained the same will be transferred to ARLM; and thirdly, on 21 April 2023, HK$13,450 deposit was explained by the husband as receipt of price paid by a person for purchase of goods from ARLHK.

26.  There are other amounts deposited to the husband’s personal accounts being reimbursement from ARLHK[2] and payments for ARLM and/or GCL[3].

27.  Apart from that, the audited accounts of ARHK for the year ended 31 December 2020 recorded an amount due to director in sum of HK$1,694,221. This is unexplained.

28.  In this case, I pay attention to the husband’s resourceful paternal family, it is still uncertain that how the husband could incur HK$4 million liabilities. I see there are inklings that the husband’s financial resources intermeddled with the Family Business Companies. However, I am unable to rely only on few instances of transactions to allow discovery without expert evidence that those published accounts cannot be relied on (See A v. B (FCMC 9824 of 2015, 25 January 2017, unrep) per HHJ Melloy) or they are deficient (See LKY v YLP per HHJ CK Chan, FCMC 4352 & 18284 of 2013, 30 September 2016, unrep). Unless the wife can demonstrate with expert opinion, discovery of Family Business Companies shall be limited to audited  accounts only.

29.  Save and except those agreed to be disclosed by the husband, the wife’s application for the bank statements of the Family Business Companies be dismissed.

Costs

30.  The wife did not succeed in all items in this discovery application, when all documents disclosed are relevant to the ancillary proceedings, I make an order nisi that the costs of the wife’s summons (including costs of all agreed items) be in the cause of the ancillary relief, with certificate for counsel, to be taxed if not agreed. The order nisi be made absolute in absence of application to vary by summons within 14 days from date of judgment.

31.  The wife’s costs be taxed in accordance with the Legal Aid Regulations.

Orders

32.  With reasons of the foregoing, I make the following orders:

i.  The husband shall produce his personal bank statements as per those stated in paragraph 1 of the schedule of the summons from June 2018 within 28 days hereof.

ii.  The husband shall produce the audited accounts of HKWL for financial year 2020 – 2021 and year 2021 – 2022 to the wife within 28 days hereof.

iii.  Paragraph 4 of the schedule of the wife’s summons on discovery of management accounts of ARLHK and GCL be dismissed.

iv.  Paragraph 5 of the schedule of summons, on discovery of bank statements of ARLHK, ARLM and GCL be dismissed.

v.  For avoidance of doubt, upon the husband’s compliance of the wife’s discovery requests, I make no order as per paragraphs 2, 3, 6, 7 and 8 of the schedule of the wife’s summons.

vi.  The costs of the wife’s summons (including costs of all agreed items) be in the cause of the ancillary relief, with certificate for counsel, to be taxed if not agreed. The order nisi be made absolute in absence of application to vary by summons within 14 days from date of this judgment.

vii.  The wife’s own costs be taxed in accordance with the Legal Aid Regulations.