PREMIERE AGRI TECHNOLOGIES ASIA INC AND ANOTHER v. WONG SIU HUNG JOHN AND OTHERS

CACV 246/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 246 OF 2003

(ON APPEAL FROM HCA NO. 790 OF 2001)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1. I agree with the reasons set out in the judgment of Le Pichon JA.

Hon Le Pichon JA:

2. This was an appeal by the 3rd defendant from the order of Deputy High Court Judge Muttrie dated 25 July 2003 dismissing the 3rd defendant's appeal against Master de Souza's order dated 10 June 2003 that judgment be entered against the 3rd defendant for damages to be assessed on the grounds of non-compliance with an unless order made by Master Levy on 21 March 2003. At the conclusion of the hearing, the appeal was dismissed save that the judgment entered was amended in certain minor respects.

Background

3. The 1st defendant used to be employed by the plaintiffs. The 3rd defendant is his wife and the 2nd defendant is a BVI company which the 3rd defendant caused to be incorporated. The 3rd defendant was the sole shareholder, director and authorised signatory of the 2nd defendant. The plaintiffs' claim was that the 1st defendant competed with them and made secret profits in breach of his duties as a fiduciary and/or employee through the 2nd defendant and was assisted in that purpose by the 3rd defendant who profited from so doing. The 3rd defendant was added as a defendant after the plaintiffs obtained an order for the inspection of the banking records of the 2nd defendant with HSBC. A banker's affirmation had disclosed transfers from the 2nd defendant's account to the 3rd defendant's account. According to the plaintiffs, the 3rd defendant was a party to a conspiracy to injure the plaintiffs. The 3rd defendant admitted various acts pleaded against her in paragraph 35A of the amended statement of claim but claimed that she had every right to do them. In short, she denied that there was a conspiracy, that the plaintiffs sustained loss as a result, or that the sums transferred to her account belonged to the plaintiffs or were secret profits.

4. Discovery which was due by 10 December 2002 under Order 24 rule 2 was not given by the 3rd defendant. On 9 January 2003, the master made a consent order for directions which provided, inter alia, that lists of documents be exchanged within 14 days. The 3rd defendant failed to comply with the order and on 12 February 2003 the plaintiffs obtained an unless order for discovery within 14 days or in default, that judgment be entered. On 26 February 2003, the 3rd defendant provided a list disclosing only one item under Schedule 1 Part 1, namely various copy bank statements of the 2nd defendant's account (no. 559-194881-838) maintained with HSBC.

5. On 4 March 2003, the plaintiffs sought a further and better list. On the following day, the 3rd defendant filed a witness statement from which it became apparent that the 2nd defendant had a Hong Kong account and a Macau account, that she had acquired the 2nd defendant at the 1st defendant's request that she had signed bank documents at the 1st defendant's request. She also admitted that there were transactions on the two accounts. On 18 March 2003, the plaintiffs took out a summons for an unless order for a further and better list of documents which were or had been in her possession, custody or power. In support thereof, the plaintiffs filed an affirmation ("the 4th affirmation") complaining of failure to disclose:

(i)	documents relating to transactions admitted by the 3rd defendant;
(ii)	statements of the 3rd defendant's Hong Kong account;
(iii)	documents showing what happened to money paid to her by the 2nd defendant;
(iv)	the 2nd defendant's banking documents (other than the statements of the 2nd defendant's Hong Kong account);
(v)	corporate documents relating to the 2nd defendant.

6. On 21 March 2003, Master Levy made the unless order sought. In response to that order, the 3rd defendant filed a supplemental list disclosing one item in Schedule 1 Part 1 namely, "various copy bank statements of bank account no. 594051773888 maintained with HSBC Macau". The reference to 'Macau' transpired to be an error as that was the 3rd defendant's Hong Kong account rather than a Macau account.

7. The plaintiffs' solicitors sought a further and better list which resulted in the second supplemental list of the 3rd defendant disclosing four bank statements from the 2nd defendant's Macau account. It was in these circumstances that the plaintiffs took out the summons for judgment on the ground for non-compliance with the order of Master Levy resulting in Master de Souza's order of 10 June which is the subject matter of this appeal. The application for judgment was supported by another affirmation ("the 6th affirmation") complaining of the failure to disclose the 2nd defendant's bank statements, banking documents relating to transactions and corporate documents relating to the establishment in business of the 2nd defendant.

8. On 6 June 2003, the 3rd defendant's solicitors disclosed further documents and effectively admitted that discovery of the 3rd defendant's bank statements of her Hong Kong account had been defective. They further asserted that their "duty was only to file a further and better list of the documents in our client's possession". By that stage, there had already been three orders from the court in relation to discovery including two unless orders quite apart from the letters from the plaintiffs' solicitors requesting further and better lists.

The proceedings below

9. The judge below considered that there were two questions to be considered namely, first, whether there had in fact been a failure to comply and, second, whether the court should in its discretion declined to enter judgment. On the first question, he concluded that the 3rd defendant had made no attempt whatsoever to give full and proper discovery either of the 2nd defendant's bank documents or its corporate documents and that these documents must have been or had been in the possession, custody or power of the 3rd defendant. Master Levy's unless order had not been complied with and as what had been provided was "so woefully inadequate as to be illusory", he dismissed the 3rd defendant's appeal.

This appeal

10. In brief, the submissions of counsel for the 3rd defendant may be summarised as follows:

(a)	there can be no discovery of matters pleaded in the amended statement of claim that have been admitted;
(b)	in any event, the failure to make discovery because of a misconception of the law should not be described as rendering that discovery "illusory" or lead to the conclusion that the list had been compiled in bad faith.

11. Counsel for the 3rd defendant relied on a passage in Matthews and Malek on Disclosure, (paragraph 4.09) which stated that:

"If an allegation of the plaintiff was submitted then it was not a 'matter in question' and there could be no discovery in relation to it."

As the judge below pointed out, the authority relied on in support of this proposition i.e. Gould v National Provincial Bank Limited [1960] 1 Ch 337 was a case where a defendant had failed to appear. As at that stage there was no issue between the plaintiff and that defendant no relief by way of discovery was required. The judge found the Gould case to be of little assistance. I am inclined to agree. The Gould case is distinguishable on the facts and, in any event, does not support the proposition put forward. Further, the admission of an act is not necessarily the admission of an issue. It would be wrong to equate them in every case.

12. Before moving to the second of the submissions, it would be convenient to deal with the breaches in question.

13. It would follow from the alleged misapprehension of the law on the part of the 3rd defendant's solicitors that the 3rd defendant has failed to comply with the unless order by failing to disclose documents not in her possession but over which she had control. In addition, Mr Man accepted that documents formerly in the possession of his client had not been produced nor was there a list of such documents.

14. Mr Man submitted that what the 3rd defendant had sought to do was to respond to the complaints made in the 4th and 6th affirmations. When pressed by this court as to what was outstanding by way of discovery as at 10 June 2003 (the hearing) before Master de Souza, Mr Man produced a schedule which had been prepared by his solicitors listing out the categories of documents about which complaint had been made in the 4th and 6th affirmations and a column setting out the status of these categories of documents. One response was that the plaintiffs already had some of the categories of documents set out from a different source. The nub of the schedule was that everything in the possession of the 3rd defendant had been produced although it was accepted that some were only produced shortly before the appeal hearing. It would appear that the 3rd defendant considered that only those specific complaints needed to be addressed, that she was under no obligation to provide discovery of matters relating to any question in the action that had not been specifically requested or complained about, and if the plaintiffs had already received the requested documents from a different source, she was not under any obligation to provide copies of those documents that were or had been in her possession or control.

15. It is quite clear that the 3rd defendant's stance that she was under no obligation to provide discovery of documents already in the plaintiffs' possession and obtained from a third party is plainly wrong. The 3rd defendant's duty to disclose is not discharged simply because the plaintiffs may have obtained the documents from another source. There may be markings on one set that do not appear on the other. For example, the bank statements disclosed in the 3rd defendant's list of documents dated 26 February 2003, whilst replicating part of the banking records disclosed by the bank, were different in that the 3rd defendant's copies bore material annotations.

16. Counsel for the plaintiffs provided the court with a list of 26 documents actually produced by the 3rd defendant on 17 March 2003 but which had not been disclosed in any list. Amongst those documents was a business account signature card. Counsel for the plaintiffs submitted that that document could only have been obtained from the bank. That demonstrated that the 3rd defendant had control over banking documents which were not in her possession. As noted above, the 3rd defendant made no proper disclosure of the existence of documents over which she had control.

17. Amongst the documents disclosed by the bank was an invoice for the purchase of 17,000 kg of lysine by the 2nd defendant. Mr Beresford pointed out that this clearly gave rise to questions as to what had happened to the lysine so purchased. If it had been resold, there would have been documents relating to the sale. If it had not been sold but stored, again, one would have expected documents relating to such storage. In my judgment, not only were the documents exhibited to the affirmation of the bank officer plainly relevant to the issues raised in this action, they also demonstrated the existence of other relevant documents concerning some of the transactions disclosed by the bank's documents which the 3rd defendant had neither listed nor produced.

18. Another example of the failure to make proper disclosure relates to the 2nd defendant's corporate documents. These showed that George W Ho & Co were involved in the establishment of the 2nd defendant. Yet there were no documents from them or, indeed, the BVI agents involved in the establishment of the 2nd defendant.

19. Having heard Mr Beresford, I am more than satisfied that the 3rd defendant has flouted the unless order made by Master Levy. It has been shown that there were documents in her possession that have never appeared in any list, that there were documents which it was within her power to obtain which, again, have never appeared on any list.

20. As to the point about the solicitors' misconception of the law. Mr Man submitted that the 3rd defendant's solicitors understood their duty to be limited to filing a list of documents in their client's possession. It was said that the solicitors' mistake should not be visited upon the client. Mr Man referred to the judgment of Bokhary JA (as he then was) in PT Bank Pembangunan Indonesia (Persero) v Tan Eddy Tansil [1997] HKLRD 57 at 59I to 60C to the effect that the court should not allow a client to suffer for the mistake of his legal advisers if it can be rectified without injustice to the other side and that any injustice could be removed by an order as to costs.

21. But what was the mistake here? It was said to be a 'misconception of the law'. By the time of the hearing before Master de Souza, there had been three orders for discovery made against the 3rd defendant. The first two orders made respectively on 9 January and 12 February 2003, ordered the 3rd defendant within 14 days of the relevant order to serve on the plaintiffs a list of document stating which documents were in her "possession, custody, or power". It is to be noted that the second order was an unless order. The third order, that made by Master Levy on 21 March 2003 was also an unless order and required the 3rd defendant to file a further and better list of documents.

"which are or have been in her possession, custody or power ..."

22. Quite apart from the explicit terms of these orders, the list of documents as well as the supplemental and second supplemental lists served by the 3rd defendant described the respective lists as "relating to the matters in question in this action which are or have been in the possession, custody or power of the above-named 3rd defendant ...". (italics supplied) Paragraph 3 of each of those lists represented that:

"3. The 3rd Defendant has had, but has not now, in its possession, custody or power the documents relating to the matters in question in this action enumerated in Schedule II hereto."

23. Given the terms of the lists served on behalf of the 3rd defendant by her solicitors and the explicit terms of the three discovery orders made against the 3rd defendant, it stretches one's credulity to believe that the 3rd defendant's solicitors could have been labouring under a misapprehension of the law. What happened in this case appears to have gone well beyond a mistake or even negligence: it would appear to bring into question the professional competence of the practitioners concerned.

24. That the plaintiffs were prejudiced by the 3rd defendant's failure to provide a full list of documents that were or had been in her possession, custody or power is obvious. The absence of such a list is objectionable inasmuch as the existence or otherwise of relevant documents is left entirely open-ended. Plainly, it would be unfair to the plaintiffs to have the trial conducted on such a basis. The 3rd defendant has unquestionably compromised the proper administration of justice by failing to give a full and proper disclosure of documents which the efficient and fair disposal of the action required. In my view, the judge had every reason to conclude that such discovery as had been provided by the 3rd defendant was illusory. He was quite right to dismiss the 3rd defendant's appeal.

Order

25. The judgment entered for the plaintiffs against the 3rd defendant provided for the payment by the 3rd defendant to the plaintiffs of, inter alia, damages under paragraph 35B of the amended statement of claim to be assessed. These related to four items namely:

(1) US$50,000 paid to Mr Shi

(2) secret profit paid to the 3rd defendant of US$71,550.06

(3) secret profit paid to the 3rd defendant of HK$700,106.71

(4) damages under paragraph 35 of the amended statement of claim.

Mr Beresford accepted that there were difficulties in relation to the claim under paragraph 35 and, upon instructions, agreed to abandon the plaintiffs' damages claim under the fourth head. Accordingly, this court dismissed the appeal save that it ordered that paragraph 1 of the judgment entered on 10 June 2003 be amended by adding "items 1, 2 and 3 of" after the words "damages under" and there is to be added the following paragraph:

"4. There be liberty to apply for such further or other relief as the plaintiffs shall be so advised."