XCHRX LAU CHI WAN JAMES & OTHERS v. IP FOOK CHUEN THOMAS & ANOTHER

HCA18950/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.18950 OF 1998

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(Consolidated by the order of Master Poon dated 16 December 1998)

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R E A S O N S   F O R    J U D G M E N T

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1. This is an appeal by the defendants against the order of Master Au-Yeung given on 21 September 2001 in which the Master ordered the defendants to give specific discovery of the documents contained in Schedule 3 and 4 of the plaintiff's summons dated 10 July 2001. After hearing the parties in argument, I dismissed the appeal, affirmed the order made by the Master, (save that the time ordered by the Master to run from the dismissal of this appeal) and indicated that I would give my reasons at a later date. I now do so.

The plaintiff's claim

2. The dispute between the parties concerns a joint venture to purchase and redevelop a piece of landed property at No. 36, Sands Street, Hong Kong which is known as Tai Pak Terrace ("the Property"). The initial parties to this joint venture used a corporate vehicle Lucky Wealth Development Limited ("LWDL") to carry out the venture. The defendants, being husband and wife, used a company under their control, Oxometric Ltd, to hold 30% of the shares of LWDL. HK$40.9 million was injected into LWDL in the form of shareholder's loans to finance the joint venture.

3. Due to differences between the initial parties to this joint venture, the defendants opted to buy out the shares of other parties to the joint venture for HK$10.5 million but the defendants did not have sufficient cash.

4. As at 30 June 1996, LWDL was valued at HK$15 million.

5. In May 1996, the 1st defendant offered to the 1st plaintiff 30% of LWDL HK$4.6 million. This offer was ultimately taken up by all the plaintiffs collectively and the sum of HK$4.6 million was paid to the defendants by the plaintiffs. Upon the defendants buying out the initial parties to this joint venture, the defendants held 70% and the plaintiffs 30% of the shares of LWDL.

6. Between September and December 1996, the plaintiffs further contributed by four monthly installments, a total of HK$858,743.10 being 30% of the interest paid by LWDL on loans.

7. On 23 November 1996, the defendants had secretly (without informing the plaintiffs) entered into an agreement with Chi Cheung Investment Limited ("CCIL") to sell the entire joint venture project including all the shares of LWDL and the shareholders loans to CCIL for HK$100 million. Completion of that sale took place in December 1997.

8. The plaintiffs claim for an account of the profit made upon such sale, alternatively on the basis that the plaintiffs were guaranteed a 70% profit at the time by the defendants when they made the investment into this project.

The defence

9. The defendants agree that after the defendants bought out the other initial parties to the joint venture, the 1st plaintiff was offered a 30% of the joint venture and accepted.

10. However, the defendants say that at the time when the 1st plaintiff joined in, the net asset value of the joint venture project including the shareholders loan to LWDL came to HK$40 million. Therefore the plaintiff's 30% share amounted to HK$12 million which was agreed by the 1st plaintiff. Moreover, due to the fact that further funding was required to complete the project, a further HK$17 million would be required to be injected into LWDL. The 1st plaintiff also agreed to contribute his share of 30% of further funding which came to HK$5.1 million by January or February of 1997. This was termed by the defendants as "the Agreement".

11. Of the HK$12 million which should have been paid, the 1st plaintiff was in breach of what had been agreed as he was only able to make payment of HK$4.6 million by 9 August 1996 leaving a deficit of HK$7.4 million outstanding.

12. When pressed by the defendants to pay up the HK$7.4 million and the further funding of HK$5.1 million, the 1st plaintiff informed the defendants that he and his associates had difficulty raising the full amount but offered to pay 30% of the interest payable by LWDL to its bank on current loan until the full HK$12.5 million had been paid. The 1st plaintiff also promised to make good the deficit of HK$11,641,256.90 in three months' time. The defendants were forced to agree to this arrangement which is termed by the defendants as "the Varied Agreement".

13. The total sum of HK$858,743.10 paid by the 1st plaintiff between September and December 1996 by four different payments in each of those months represented monthly interests on the outstanding deficit amount which the 1st plaintiff owed to the defendants.

14. In breach of the Varied Agreement, the 1st plaintiff failed to pay any further interest or capital on the deficit owed after the December 1996 payment of interest.

15. Because of the 1st plaintiff's failure to pay, the defendants had no choice but to strike a deal to sell off the project to New Compton International Limited ("NCIL") in November 1996. The 1st plaintiff had been informed of that in December 1996.

16. The defendants admit that the project was ultimately sold to NCIL for HK$100 million on 12 December 1997 in accordance with the agreement made between the defendants and NCIL on 23 November 1996. The defendants further allege that in so doing a loss of HK$15.5 million odd had been incurred from that sale and counterclaim against the plaintiffs the sum of HK$670,603.92 in the manner as particularized in the counterclaim.

The issues in dispute

17. From the above, the issues in dispute can conveniently be summarized as follows :

(1) the amount of the investment which the 1st plaintiff/plaintiffs was/were required to pay for 30% share of LWDL and whether that contribution by the 1st plaintiff/plaintiffs had been fully paid up;

(2) whether the relationship between the 1st plaintiff/plaintiffs and defendants was one of partnership;

(3) whether the sale of the entire joint venture project and the shares of LWDL was to CCIL or NCIL and whether or not the 1st plaintiff/plaintiffs had been informed of that sale by the defendants; and

(4) whether that sale resulted in a profit or a loss.

 

Documents ordered by Master

18. The Master ordered the defendants to give specific discovery of the following documents pursuant to Schedule 3 of the plaintiffs' summons :

"All documents relating to payment records of interest or capital e.g. deposits, transfer and cheques etc., if any, made by the 1st and/or 2nd defendants and paid pursuant to the alleged Varied Agreement in respect of the development of the Property after 9th December 1996."

19. The Master further ordered the defendants to give specific discovery of the following documents pursuant to Schedule 4 of the plaintiffs' summons :

"All documents relating to records for payments made by the Purchaser/New Crompton International Limited ('NCIL') e.g. copies of bank deposits, transfers and cheques etc. made by the Purchaser/ NCIL and paid to :

(i) Rita Fu and /or Tom Ip's personal accounts including bank statements and passbooks of bank accounts maintained and controlled by 1st and 2nd defendants from June 1996 onwards until final payment for the sale of the shares of LWDL; and

(ii) LWDL and Oxometric."

Arguments of defendants

20. The argument put forward by the defendants as to the Schedule 3 documents is that since it is common grounds by the parties that the plaintiffs only paid four installments of bank interests totaling $858,743.10, and had not pleaded as part of the plaintiffs' case that there were any other further payments of bank interests, there is therefore no issue between them in that respect and specific discovery of those documents are therefore irrelevant and unnecessary.

21. It is further submitted by the defendants that if the plaintiffs are taking issue with the defendants' "unfounded allegation" that the plaintiffs stopped paying interests and capital after December 1996, then it is for the plaintiffs to plead what other payments had been made by the plaintiffs to the defendants before the plaintiffs would be entitled to specific discovery of such documents.

22. As for the Schedule 4 documents, the contention by the defendants is that since it is common grounds between the parties that the sale price for the entire project was $100 million there is no issue between them which would entitle the plaintiffs to specific discovery of those documents.

Decision

23. In so far as the Schedule 3 documents are concerned, the argument advanced by the defendants are based solely on the plaintiff's case and whether or not specific discovery of such documents can advance the plaintiff's case. What has been overlooked by the defendants is the fact that the dispute between the parties is whether the plaintiffs have fully contributed to the bank interests and whether the plaintiffs were required to make further payments after 9 December 1996. The clear inference from the defendants' pleaded case is that the defendants continued to pay interests and capital after the plaintiffs' default. Whether this was so or not can only be determined by reference to the documents showing the defendants' payment of interest or capital after 9 December 1996. On the other hand, if there are no further payments by the defendants after that date, this will advance the plaintiff's case that they had fully contributed their share by the payment of the $858,743.10 and will damage the defendants' case.

24. On that basis it must be clear that the Schedule 3 documents are both relevant and necessary to the issue between the parties and that the Master was quite correct in ordering specific discovery of them.

25. As for the Schedule 4 documents, it is quite clear that there is no dispute between the parties that the entire project was sold for $100 million. However, what is in dispute between them is the entire accounts relating to the joint venture (whether or not it was a partnership) since the plaintiffs allege that a profit, and a substantial one at that had been made from this sale while the defendants say that it resulted in a loss.

26. On that score alone, I would have thought that the documents ordered must, together with all the other documents which relates to whether or not a profit or a loss resulted from such sale, have been relevant to the case as a whole.

27. However, quite apart from that, it is also not in dispute that the $100 million was not paid at one go, but in stages between November 1996 and December 1997. That is a further reason why the documents evidencing payment of the $100 million ought to be disclosed as it surely will have a bearing on the accounts which is in issue.

28. Finally one further reason is that the Schedule 4 documents ordered will be able to show whether the project was sold to CCIL or NCIL, a matter which on the pleadings also raises an issue.

29. For the above reasons, I had dismissed the defendants' appeal.