CMBICDHAW INVESTMENTS LTD v. LI LEI AND OTHERS

HCA 905/2020

[2023] HKCFI 2176

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 905 OF 2020

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BETWEEN

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D E C I S I O N

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A. INTRODUCTION

1.  There are three summonses before me:

1.1 the Plaintiff’s summons dated 15th March 2023 (“the 2nd Judgment Summons”), seeking to enter judgment against the 1st, 2nd and 4th Defendants (“the CDH Defendants”);

1.2 the CDH Defendants’ summons dated 14th April 2023 (“the Relief Summons”), seeking an extension of time to apply for relief from sanctions, and relief from sanctions;

1.3 the CDH Defendants’ summons dated 31st May 2023 (“the Evidence Summons”), seeking leave to adduce the 4th Affirmation of Li Lei (the 1st Defendant) (“Li 4th”) in draft form annexed to a solicitor’s affirmation and then in notarised form.

B. THE EVIDENCE SUMMONS

2.  The parties agreed that for the purposes of the hearing, Li 4th could be considered on a de bene esse basis, and that the 6th Affirmation of Henry Qiu Han Rong (“Qiu 6th”), which sought to oppose the Evidence Summons and to respond to Li 4th, should also be considered on the same basis.

3.  The Plaintiff filed the 5th Affirmation of Henry Qiu Han Rong (“Qiu 5th”) on 17th May 2023, said to be in reply to the 3rd Affirmation of Li Lei (“Li 3rd”) and the Affirmation of Xiong Fei (“Xiong 1st”), and for the purpose of the 2nd Judgment Summons. On 31st May 2023, the CDH Defendants issued the Evidence Summons, seeking leave to adduce Li 4th. The CDH Defendants say that as Qiu 5th is made not only for the purpose of the 2nd Judgment Summons but also to oppose the Relief Summons, the CDH Defendants should have the opportunity to adduce reply evidence.

4.  The Plaintiff opposes the application on the basis that Qiu 5th was not made in opposition to the Relief Summons. Qiu 5th is indeed stated to be made in reply to the CDH Defendants’ evidence which was filed in opposition to the 2nd Judgment Summons. However, as the CDH Defendants point out, Qiu 5th was also relied on in the 3rd Affidavit of Samuel, Cheuk Sum Ngo (“Ngo 3rd”) for the purpose of opposing the CDH Defendants’ Relief Summons. The CDH Defendants should in principle be able to file evidence in reply thereto.

5.  Furthermore, Qiu 5th raised a number of new allegations, including in relation to matters that occurred in the Arbitration, to which the CDH Defendants should have the opportunity of responding.

6.  Counsel for the Plaintiff, Mr Barrie Barlow SC (leading Mr Keith Tam), submitted that if Li 4th were to be admitted, then the Plaintiff should also be allowed to rely on Qiu 6th, which was filed to oppose the New Evidence Summons but which in any event also responds to Li 4th, in addressing the substantive arguments under the other two summonses. I did not understand the CDH Defendants to oppose this, since they rely on Qiu 6th to say that the Plaintiff suffers no prejudice from the admission of Li 4th.

7.  In the circumstances, I grant leave to file Li 4th, and leave to the Plaintiff to rely on Qiu 6th for the purpose of the substantive arguments in relation to the Relief Summons and 2nd Judgment Summons.

C. THE BACKGROUND

C1. The underlying dispute between the parties

8.  The Plaintiff’s case against the CDH Defendants is essentially one of fraudulent misrepresentation.

9.  The Plaintiff pleads that:

9.1 Mr Henry Qiu is a beneficial owner and director of the Plaintiff;

9.2 the 4th Defendant is a Hong Kong company which is part of a private equity investment group. The Plaintiff says that the 4th Defendant acted as the executive manager for a Cayman Islands limited partnership fund named CDH Fund V, LP (“CDH Fund V”) and CDH Grand Cattle Holdings Limited (“the JV Company”). The 4th Defendant denies having acted in such capacity and says that it was engaged by the Manager of the CDH Fund V to provide investment advisory services, and that the JV Company was a wholly owned subsidiary of the CDH Fund V and did not have any executive managers;

9.3 the 1st Defendant was the managing director of the 4th Defendant;

9.4 the 2nd Defendant was an employee of the 4th Defendant;

9.5 the 3rd Defendant was the controlling shareholder of Heilongjiang Hengyang Cattle Group Co Ltd (“HHCG”).

10.  The dispute between the parties concerns an investment (“the Investment”) made jointly by the Plaintiff and CDH Fund V in a minority stake in HHCG. The Plaintiff pleads[1] that the Defendants conspired to defraud the Plaintiff, and investors in CDH Fund V, into making the Investment, by:

10.1 making fraudulent misrepresentations for the dishonest purpose of persuading the Plaintiff (and the investors in CDH Fund V) to join in the Investment so that their invested funds could be misappropriated;

10.2 falsely reporting to the Plaintiff about the Investment in a manner calculated to deceive the Plaintiff into believing that the Investment was legitimate, whilst knowing that the Defendants had caused or assisted in the misappropriation of the investors’ funds;

10.3 further attempting to deceive the Plaintiff, after HHCG’s insolvency became apparent in 2018, into believing that the misappropriated funds could be recovered through a bogus proposed restructuring of the HHCG Group.

11.  The Investment was made pursuant to an agreement of 17th March 2014 (“the Co-Investment Agreement”). The Co-Investment Agreement contains an arbitration clause. The CDH Defendants say that the Plaintiff commenced the present proceedings against the present Defendants, rather than against CDH Fund V and the JV Company who (it is said) would be the natural defendants to the Plaintiff’s allegations, in order to avoid resolving the dispute through arbitration.

12.  There have in fact been arbitration proceedings brought by CDH Fund V, the JV Company, and the CDH Defendants against the Plaintiff (“the Arbitration”), seeking (inter alia) a declaration that CDH Fund V, the Joint Venture Company and each of the CDH Defendants have no liability to the Plaintiff regarding the latter’s allegations of fraud and conspiracy, and that the current proceedings are in breach of (inter alia) the arbitration agreement in the Co-Investment Agreement. In a final award of 10th March 2022 (“the Award”) the sole arbitrator (“the Arbitrator”) made declarations in favour of CDH Fund V and the Joint Venture Company, but held that the CDH Defendants were not parties to the arbitration agreement so that he had no jurisdiction to decide their claims. The Arbitrator further held that the current proceedings were not a breach of the arbitration agreement. The Plaintiff has since successfully applied to set aside parts of the Award on the grounds that (inter alia) it deals with a dispute not contemplated by the parties’ submission to arbitration. The decision is under appeal.[2]

C2. The events leading to the current applications

13.  Following on from the Award, on 27th April 2022 (as amended on 26th July 2022) the Plaintiff issued a summons seeking specific discovery. Some 50 categories of documents, formulated in wide terms, were sought.

14.  On 7th September 2022, Master Gary Lam made an order requiring the CDH Defendants to give discovery of 27 classes of documents within 28 days (that is, by 5th October 2022) (“the Discovery Order”). The CDH Defendants sought extensions of time, to which the Plaintiff did not consent.

15.  On 18th November 2022, Master Mathew Leung made an unless order requiring the CDH Defendants to give discovery by 16th December 2022 (“the 1st Unless Order”).

16.  On 2nd December 2022, Mr Registrar Kwang ordered an interim stay of proceedings pending the outcome of the CDH Defendants’ application for security for costs.

17.  On 16th January 2023, Master Alexander Tang ordered the Plaintiff to pay security for costs within 35 days, and that the action be stayed pending such payment. The Plaintiff made payment on the same day.

18.  On 17th January 2023, the Plaintiff issued a summons seeking judgment against the CDH Defendants (“the 1st Judgment Summons”) on the ground that the CDH Defendants had failed to comply with the 1st Unless Order.

19.  On 27th January 2023, Master Matthew Leung dismissed the 1st Judgment Summons, but made an unless order requiring the CDH Defendants to give discovery by 4pm on 10th February 2023 (“the 2nd Unless Order”).

20.  On 10th February 2023, shortly before 4pm, the CDH Defendants filed and served the 6th Affirmation of Lam Sek Kong, a partner of the solicitors’ firm acting for the CDH Defendants (“Lam 6th”), exhibiting an unsigned copy of the 2nd Affirmation of Li Lei (“Li 2nd”), said to have been prepared pursuant to the Discovery Order. Copies of the documents which were disclosed by the CDH Defendants were placed on a USB device and served on the Plaintiff’s solicitors at about 4:30pm. The CDH Defendants say that the delay was due to technical difficulties encountered with transferring all the documents onto a CD-ROM as originally intended.

21.  Also on 10th February 2023, the Plaintiff issued a notice of appeal against the dismissal of the 1st Judgment Summons. This was subsequently dismissed by DHCJ Le Pichon, who held that there was no breach of the 1st Unless Order whilst the interim stay of proceedings was in place ([2023] HKCFI 1089 dated 24th April 2023).

22.  Meanwhile, on 15th March 2023, the Plaintiff issued a fresh summons seeking judgment against the CDH Defendants (the 2nd Judgment Summons) on the ground that the CDH Defendants had failed to comply with the 2nd Unless Order.

23.  On 14th April 2023, the CDH Defendants issued the Relief Summons.

24.  On 21st April 2023, a signed and notarised copy of Li 2nd was filed.

25.  The discovery given on 10th February 2023 comprised over 400 documents, spanning thousands of pages.[3]

D. THE APPLICABLE PRINCIPLES

D1. Whether breach of unless order for discovery

26.  It is common ground[4] that whether there has been compliance with an unless order for discovery turns on whether the deadline has been met, and not the adequacy of compliance, unless it can be said that the compliance was not made in good faith or is illusory. The rationale is that before the drastic consequence of an unless order is to be visited upon the offending party, the court must be sure that there has been a failure to comply with the order in question. See Bruce James Stinson v Gu Ming Gao [2018] HKCA 10 at [50] (Kwan JA), approving Top Point Limited v K&L Gates (a firm of solicitors), unreported, HCA 1088/2011, 13th September 2016 (Lok J) (see [28] to [36]).

D2. General principles regarding discovery

27.  The oath of a party giving discovery is conclusive, including on the question of relevance, unless the court can be satisfied, not on a conflict of affidavits, but either from the documents produced or from anything in the affidavit made by him, or any admission by him in the pleadings, or necessarily from the circumstances of the case, that the affidavit does not truly state that which it ought to state: GE Capital Corporate Finance Group Ltd v Bankers Trust Co Ltd [1995] 1 WLR 172 at 174D; Wong Kar Gee Mimi v Severn Villa Ltd [2012] 1 HKLRD 887 at [51]. Mr Barlow disagreed, on the basis that this would render any affirmation, however incredible, immune from the court’s scrutiny.[5] However, it should be apparent that the principle does not contemplate that incredible affirmations would be conclusive.

28.  The CDH Defendants further relied on the following principles, which the Plaintiff did not dispute.[6]

28.1 The documents of a company are in the legal possession of the company. If they are or have been in the actual physical possession of a director who is a party to litigation they must be disclosed by that director, if relevant to the litigation, even though he holds them as servant or agent of the company in his capacity as an officer of the company.

28.2 Whether or not documents of a company are in the power of a director who is party to the litigation is a question of fact in each case. “Power” in this context means “the enforceable right to inspect or obtain possession or control of the document”. If the company is the alter ego of such a director so that he has unfettered control of the company’s affairs, he must disclose and produce all relevant documents in the possession of the company.

28.3 A person’s dominance in the running of a company’s business does not necessarily mean that he has the requisite degree of control such that he can access the corporate documents without obtaining the consent of anyone else.

See Ngan In Leng v Chu Yuet Wah (No. 1) [2013] 1 HKLRD 717 at [44] (DHCJ Queeny Au-Yeung) citing B v B [1978] Fam 181 at 193D-194A; Re The Prudential Enterprise Ltd, unreported, HCCW 594/1999, 10th August 2001 at [10], [17], [19].

D3. Relief from sanctions for breach of order

29.  RHC O.2 rr.4 and 5 provide as follows.

“4. Where a party has failed to comply with a rule or court order, any sanction for failure to comply imposed by the rule or court order has effect unless the party in default applies to the Court for and obtains relief from the sanction within 14 days of the failure.

5. (1) On an application for relief from any sanction imposed for a failure to comply with any rule or court order, the Court shall consider all the circumstances including –

(a) the interests of the administration of justice;

(b) whether the application for relief has been made promptly;

(c) whether the failure to comply was intentional;

(d) whether there is a good explanation for the failure to comply;

(e) the extent to which the party in default has complied with other rules and court orders;

(f) whether the failure to comply was caused by the party in default or his legal representative;

(g) in the case where the party in default is not legally represented, whether he was unaware of the rule or court order, or if he was aware of it, whether he was able to comply with it without legal assistance;

(h) whether the trial date or the likely trial date can still be met if relief is granted;

(i) the effect which the failure to comply had on each party;

(j) the effect which the granting of relief would have on each party.

     (2) An application for relief must be supported by evidence.”

30.  The effect of O.2 rr.4 and 5 is that the sanction imposed in any unless order takes effect automatically and immediately upon default, and it is for the party in default to apply for relief from the sanction. Only if there is an application for relief from sanction is the court required to consider whether, in all the circumstances, it is just to make an order granting relief from the consequences that would otherwise follow. See Daimler AG v Leiduck [2012] 3 HKLRD 119 at [47] to [48] (Fok JA, as he then was).

D4. Extension of time for application under O.2 r.4

31.  In considering whether to extend time for an application seeking relief from sanctions, the court has to consider all relevant factors, particularly (a) the length of the delay, (b) the reasons for the delay, (c) the merits of the proposed application for relief from sanction – which will bring into focus the nine factors listed in O.2 r.5(1), and (d) the degree of prejudice to the other party. See Bruce James Stinson v Gu Ming Gao [2019] HKCFI 43 at [144] (M Ng J).

D5. Considerations applicable to an application for relief from sanctions

32.  Non-compliance with a peremptory order is contumelious where it is the result of the litigant’s conscious and deliberate decision to ignore or disobey the court order in the absence of any extraneous excuse. Such deliberate conduct may be contrasted, for instance, with cases where the litigant has made a serious effort to comply in good faith but has been unsuccessful through bad luck or incompetence, or with cases where the litigant has not complied because of circumstances outside his control (including cases where his solicitor has negligently or otherwise missed the deadline through no fault of the litigant). See Top One International (China) Property Group Co Ltd v Top One Property Group Ltd [2011] 1 HKLRD 606 at [34] (Fok J, as he then was).

33.  The court’s discretion to decline to grant relief from sanctions is not limited to cases of intentional and contumelious disregard of a court’s peremptory order. Depending on the circumstances, including those in O.2 r.5, failure to comply with one or a number of orders through negligence, incompetence or sheer indolence may be such as to lead the court to conclude that there is an existence and degree of fault which warrants a refusal of an extension of time, so that relief from a sanction for non-compliance specified in a peremptory order (including an order striking out a pleading) should not be granted. See Top One International (China) Property Group Co Ltd at [35], [41].

34.  Nevertheless, a weighty factor in the weighing exercise to be undertaken by the court is the question of proportionality of the sanction in the circumstances of the case. See Daimler AG at [57].

35.  The court will generally use striking-out as a remedy of last resort and is encouraged to consider other measures that may be more appropriate to be taken. See Daimler AG at [66].

E. THE RELIEF SUMMONS

36.  Whilst the Relief Summons postdates the 2nd Judgment Summons, logically, the Relief Summons should be considered first, since the outcome of this summons will effectively determine the 2nd Judgment Summons, the latter being advanced on the basis that the CDH Defendants’ Defence has been struck out for failure to comply with the 2nd Unless Order, and that the CDH Defendants are unable to obtain relief from sanctions.

E1. Whether to grant extension of time for applying for relief from sanctions

37.  The deadline under the 2nd Unless Order was 10th February 2023. The application for relief under O.2 r.4 should have been made within 14 days, but it was not until 14th April 2023 that the CDH Defendants issued the Relief Summons. The period of delay cannot be said to be insubstantial.

38.  The CDH Defendants appear to have taken the view that the delay in delivering the USB drive was a technical and insignificant one,[7] and it was only on 15th March 2023, when the Plaintiff took out the 2nd Judgment Summons, that the CDH Defendants learnt of the breaches being alleged against them. The 1st Defendant says that it then took him some time to go through the allegations and understand them properly, go through all the documents again to ascertain whether the CDH Defendants had fallen short in complying with the Discovery Order, and to give instructions to respond to the allegations made against them.[8] The 2nd Defendant says that after the Plaintiff took out the 2nd Judgment Summons, he carried out another thorough and diligent search of the documents in his possession, custody and power, to see whether they fell within any of the classes covered by the Discovery Order.[9]

39.  O.2 r.5(2) requires that an application for relief should be supported by evidence. Any application by the CDH Defendants would therefore not have been complete until such time as they filed their evidence.

40.  I further note that prior to 15th March 2023, the allegation of breach against the CDH Defendants was in relation to the 1st Unless Order (rather than the 2nd Unless Order), as the Plaintiff had filed a notice of appeal on 10th February 2023, appealing against the dismissal of the 1st Judgment Summons.

41.  With hindsight, it can be said that the CDH Defendants should have applied earlier for relief from sanctions in relation to the breaches of the 2nd Unless Order. However, I accept that they have explained the reasons for the delay: prior to 15th March 2023, they were not aware that it would be said that they were in breach of the 2nd Unless Order, and after 15th March 2023, they were occupied with preparing a substantive response to the allegations made against them, without which they were not in a position to put forward the Relief Summons properly supported by evidence.

42.  As regards the merits of the proposed application for relief from sanctions, it will be seen from what follows below that I am of the view that there are merits in the application.

43.  As regards the degree of prejudice which the Plaintiff would suffer, the Plaintiff argues that at the time it issued the 2nd Judgment Summons, it did so in reliance on the fact that the CDH Defendants had chosen not to apply for relief from sanctions and was entitled to pursue its application on this basis.[10] However, in terms of timing, the 2nd Judgment Summons was adjourned for argument on 14th June 2023, and the Relief Summons was then subsequently fixed for argument on the same day – in other words, no delay has been caused by the late issuance of the Relief Summons. As to the Plaintiff’s expectation that it could argue the 2nd Judgment Summons on the basis that no relief from sanctions would be sought, it would no doubt have been aware that it remained open to the CDH Defendants to apply, belatedly, for relief.

44.  I bear in mind that any injustice to the defaulting CDH Defendants from a refusal to extend time should come “a long way behind” (a) the requirement that justice be shown to the injured party, and (b) the public interest in the administration of justice in containing delay and wasted costs: Yang Kerwin Catherine v Woo Ma Man [2019] HKCFI 3032 at [24] (Ng J), citing Hytec Information Systems Ltd v. Coventry City Council [1997] 1 WLR 1666 at 1675C. However, having regard to the consideration of proportionality, which I will address further below, the matters which I have referred to in this section, and the consideration that the primary aim in the exercise of the court’s powers is to secure the just resolution of disputes in accordance with the substantive rights of the parties (O.1A r.), I consider that it would be in the interests of the administration of justice for the CDH Defendants to be allowed to argue the Relief Summons despite the delay in the making of the application.

E2. The breaches of the 2nd Unless Order complained of

45.  The Plaintiff says that there were four breaches of the 2nd Unless Order. The CDH Defendants admit two of these but say that they were not contumelious or deliberate and have been rectified, and deny that the other two were breaches. The breaches (or alleged breaches) are as follows.

45.1 The 1st Breach: the affirmation filed by the CDH Defendants to comply with paragraph 2 of the Discovery Order (Lam 6th) was non-compliant as it merely annexed the 1st Defendant’s unsigned and unnotarised 2nd Affirmation (Li 2nd).

45.2 The 2nd Breach: Li 2nd only addressed the CDH Defendants’ possession of the requested documents, but not the issue of whether they had previously been in the custody or power of the CDH Defendants.

45.3 The 3rd Breach: the USB drive containing the documents disclosed by the CDH Defendants was only received by the Plaintiff’s solicitors after 4pm on 10th February 2023.

45.4 The 4th Breach: the discovery given in relation to certain classes of documents ordered to be disclosed under the Discovery Order was inadequate.

E2.1 The 3rd Breach

46.  The 3rd Breach complained of is that the USB drive containing the Requested Documents was delivered late.

47.  Shortly before 4pm on 10th February 2023, the CDH Defendants served on the Plaintiff Lam 6th, exhibiting an unsigned copy of Li 2nd. Paragraph 6 of Li 2nd stated that the Requested Documents (as defined in the Discovery Order) which were in the possession of the CDH Defendants were numerous and had been saved on a CD-ROM to be provided by the CDH Defendants’ lawyers to the Plaintiff.

48.  The evidence of the trainee solicitor of the CDH Defendants’ solicitors (“Ms Li”) is that:

48.1 the solicitors worked on the discovery process after the Discovery Order was made on 7th September 2022, were instructed to pause work when the interim stay of 2nd December 2022 was granted, resumed work upon the lifting of the stay on 16th January 2023, were diverted when the Plaintiff issued the 1st Judgment Summons on 17th January 2023, and continued the discovery process at an urgent pace after the 2nd Unless Order was made on 27th January 2023. However, the volume, number and breadth of classes of documents sought was such that the discovery process continued right up to the day of the deadline under the 2nd Unless Order;

48.2 instructions as to the documents to be disclosed were confirmed by the CDH Defendants at about 2pm on 10th February 2023, and then Ms Li sought to prepare a CD-ROM with all the documents;

48.3 however, Ms Li’s computer was not working properly and the documents could not be transferred to the CD-ROM despite a long wait and several attempts. Ms Li informed the handling partner (“Mr Lam”) at about 3:15pm, and he also tried to prepare the CD-ROM, but it appeared that this would take a long time to complete. Mr Lam then asked Ms Li to obtain an empty USB drive, and he then transferred the documents to the USB drive;

48.4 in the meantime, Mr Lam had given instructions for Lam 6th, without any accompanying CD-ROM or USB, to be despatched to the Plaintiff’s solicitors’ office, so that it arrived before 4pm;

48.5 the USB drive was despatched separately and arrived at the Plaintiff’s solicitors’ office at around 4:25pm.

49.  The CDH Defendants admit that the 3rd Breach was a breach of the 2nd Unless Order, but say that it was rectified shortly thereafter,[11] and caused no real prejudice to the Plaintiff, so that it would be wholly disproportionate for the CDH Defendants not to be given relief from sanctions for this slight delay.

50.  The Plaintiff says that it was reckless for the CDH Defendants to have left compliance with the 2nd Unless Order to the last minute. However, as DHCJ Le Pichon observed in dismissing the appeal against the dismissal of the 1st Judgment Summons, the point of granting an interim stay of the proceedings was to put a brake on the proceedings, with the consequence that no more costs should be incurred during the stay ([2023] HKCFI 1089 at [14]). The Plaintiff therefore cannot complain that the CDH Defendants did not proceed with the discovery process during the period from 2nd December 2022 to 16th January 2023. I note also that the Plaintiff issued the 1st Judgment Summons on 17th January 2023, and it is said that this diverted some of the attention and resources on the part of the CDH Defendants and their solicitors.

51.  The Plaintiff also says that if relief from sanctions is given, then the Plaintiff will be forced to proceed to trial without the CDH Defendants ever providing the discovery which they have been ordered to provide.[12] I do not agree. Insofar as the Plaintiff is saying that the CDH Defendants have further documents to provide (which is indeed the essence of the Plaintiff’s submission in relation to the 4th Breach), it is open to it to apply for further discovery. Mr Barlow submitted that Fuad VP in Ka Wah Bank Limited v Low Chung-song and another [1989] 1 HKLR 451 held that this was an irrelevant consideration. However, what Fuad VP said was that it was wrong to take into account the possibility of further discovery in assessing the gravity of a breach of an unless order (see 453J, 462B). I am not suggesting the possibility of further discovery is relevant to the assessment of the gravity of any of the CDH Defendants’ breaches. Rather, the point is simply that it is incorrect for the Plaintiff to say that it will be forced to proceed to trial without obtaining discovery.

52.  Bearing in mind that the delay of about thirty minutes in delivering the USB drive to the Plaintiff’s solicitors was relatively short, that the delay was not deliberate or contumelious but caused by computer problems of the CDH Defendants’ solicitors, that the delay could not really be said to have been caused by the CDH Defendants personally, that the delay caused no real prejudice to the Plaintiff, and that it would in the circumstances be wholly disproportionate to strike out the CDH Defendants’ Defence, leaving them with no opportunity to defend grave allegations of fraud mounted by the Plaintiff, I consider that relief from sanctions should be given in respect of this breach.

E2.2 The 2nd Breach

53.  The 2nd Breach complained of is that Li 2nd only referred to documents in the possession of the CDH Defendants, and failed to address the issue of whether the Requested Documents had previously been in the custody or power of the CDH Defendants.

54.  The CDH Defendants admit that the 2nd Breach was a breach of the 2nd Unless Order, but say that it was due to the oversight of their solicitors. The handling solicitor has filed an affirmation explaining that since the discovery process continued all the way up to the day of the deadline for compliance with the 2nd Unless Order, the draft of Li 2nd was prepared by him urgently and in a rush. By reason of his oversight, the draft he prepared omitted to identify which of the Requested Documents, if any, were in the CDH Defendants’ custody or power, or had been in their possession, custody or power, and what had become of them. Furthermore, he failed to advise the CDH Defendants to include such information in the draft before it was annexed to Lam 6th and filed.

55.  The CDH Defendants say that they have since rectified this breach in the form of Li 3rd (on behalf of the 1st and 4th Defendants) and Xiong 1st (both filed on 14th April 2023).

56.  The Plaintiff says that the breach has not been rectified. It says that:[13]

56.1 in respect of the nineteen classes of the documents complained of in the Affirmation of Shum Ka Ming (“Shum 1st”), although the CDH Defendants said (in Li 3rd paragraphs 20 to 96) that they did not previously have any other documents in that class in their possession, custody or power, this failed to comply with paragraph 2 of the Discovery Order;

56.2 in respect of the other eight classes of documents complained of in Shum 1st, the CDH Defendants had nothing to say;

56.3 neither Li 3rd and Xiong 1st actually rectifies the 2nd Breach. It appears that the complaint is that the affirmations were not in compliance with paragraph 2 of the Discovery Order.

57.  I deal first with the position of the 2nd Defendant. The 2nd Defendant’s rectification was contained in Xiong 1st rather than Li 3rd.[14] The 2nd Defendant stated in his affirmation that other than as set out in his affirmation, he did not have, and had not previously had, any documents in his possession, custody or power which fell within the classes in the Discovery Order. The affirmation also addressed those of the Requested Documents disclosed on 10th February 2023: the 2nd Defendant said that some of them had never been in his possession, custody or power; and the rest of them had previously been in his possession but were no longer so because (for emails and documents) he had returned his work laptop and materials upon leaving the employment of the 4th Defendant, or (for WeChat records) he had lost some of his WeChat history when changing mobile phones.

58.  Given the content of Xiong 1st, I consider that the 2nd Defendant rectified his breach by dealing with issue of whether the Requested Documents had previously been in his possession, custody or power.

59.  As to the 1st and 4th Defendants, in fact, it appears that:

59.1 as the Plaintiff acknowledges, Li 3rd paragraphs 20 to 96 dealt with nineteen classes of the Requested Documents which were the subject of specific complaints raised in Shum 1st.[15] In respect of those classes, Li 3rd stated that other than as set out in Li 2nd and Li 3rd, neither the 1st nor 4th Defendant have, nor had, in their possession, custody or power other documents in those classes. As regards these classes, I consider that the 1st and 4th Defendants have rectified their breaches;

59.2 Li 3rd paragraphs 97 to 102 dealt with four other classes of the Requested Documents which were the subject of specific complaints raised in Shum 1st.[16] In respect of one of those (class 2(l)), Li 3rd stated that the documents did not exist. In respect of the other three, Li 3rd stated that other than as set out in Li 2nd and Li 3rd, neither the 1st nor 4th Defendant have, nor had, in their possession, custody or power other documents in those classes. For these four classes, I consider that the 1st and 4th Defendants have rectified their breaches;

59.3 Li 2nd paragraph 7 dealt with one other class of the Requested Documents which were the subject of specific complaints raised in Shum 1st,[17] saying that the CDH Defendants “were and are not in possession of documents of said description”. Strictly speaking, the 1st and 4th Defendants have not addressed the issue of whether any of this class of documents are or have been within their custody or power;

59.4 in respect of the remaining three classes of the Requested Documents,[18] no specific complaint was made about the inadequacy of the disclosure. There was a general complaint in Shum 1st[19] that the CDH Defendants had failed to indicate whether the documents were (1) in their custody or power and (2) whether they had previously been in the CDH Defendants’ possession and what had become of them. Strictly speaking, the 1st and 4th Defendants have not addressed these points, which were required under the Discovery Order.

60.  I therefore agree with the Plaintiff that strictly speaking, Li 3rd did not fully rectify the 1st and 4th Defendants’ non-compliance with the Discovery Order. Again, however, a weighty factor which should be borne in mind in the exercise of my discretion is that of proportionality. The allegation mounted by the Plaintiff against the CDH Defendants is one of fraud. An allegation of fraud is one which, pre-eminently, should be the subject of a trial. The effect of the refusal to grant relief from sanctions would be to debar the CDH Defendants from contesting the allegation of fraud made against them, so that the Plaintiff would be able to obtain judgment in default – a windfall advantage, since it would not then have to prove the allegation of fraud on the evidence. Furthermore, this would be despite the fact that the CDH Defendants have, in fact, provided discovery which could not be said to have been made in bad faith or be illusory,[20] including for classes 2(t), 2(u) and 2(aa). In my view, this would not only be disproportionate, but would also not be in the interests of administration of justice. See Daimler AG at [58].

61.  I consider that the more appropriate order to make would instead be to extend the time for the 1st and 4th Defendants to comply with the 2nd Unless Order, with the sanction remaining in place to ensure that there is such compliance. Cf. Daimler AG at [70].

E2.3 The 1st Breach

62.  The 1st Breach complained of is that Lam 6th, filed by the CDH Defendants to comply with paragraph 2 of the Discovery Order, was non-compliant as it merely annexed an unsigned and unnotarised Li 2nd.

63.  Mr Yu submitted that there is an accepted practice for a party to file an affidavit from a deponent who is out of the jurisdiction by doing so in the form of a draft annexed as an exhibit to the party’s solicitor’s affidavit and with an undertaking to swear and file the deponent’s affidavit in due course. Mr Barlow did not deny that there was such a practice. This addresses the objection that Lam 6th was non-compliant in form.[21]

64.  Insofar as the objection is that Lam 6th or the unsigned Li 2nd failed to deal with documents formerly in the CDH Defendants’ possession, custody or power, that is a complaint relating to the 2nd Breach,[22] which I have addressed above. It should not be confused with the issue of whether filing a solicitor’s affidavit annexing an unsigned and unnotarised Li 2nd is, in itself, a breach of the 2nd Unless Order.

65.  In the circumstances, I agree that the 1st Breach is not, in fact, a breach of the 2nd Unless Order.

66.  In any event, even if it were a breach, it was rectified by the filing of the signed and notarised Li 2nd,[23] and I would have given relief from sanctions for this technical breach which has not caused any prejudice to the Plaintiff.

E2.4 The 4th Breach

67.  The 4th Breach complained of is that the discovery given in relation to certain classes of documents ordered to be disclosed under the Discovery Order was inadequate.

68.  I will first make a preliminary observation. There was some debate before me as to whether the 2nd Unless Order was self-executing. Mr Yu submitted that there was room to argue that it was not, and that there needed to be a hearing to determine whether the unless order took effect, since there was an issue as to whether the discovery given was “illusory”. Reliance was placed on Ka Wah Bank Ltd at 459J-460B.[24] However, Mr Barlow submitted that what Fuad VP said in Ka Wah Bank Ltd is of no application in the present case,[25] since the effect of the (undisputed) 3rd Breach is that the 2nd Unless Order must have taken effect already, so that the CDH Defendants’ Defence has been struck out and the CDH Defendants need to apply for relief from sanctions.

69.  It seems to me that the effect of the 3rd Breach is that the CDH Defendants’ Defence was indeed automatically struck out (although, as I have indicated above, I consider that relief from sanctions should be given in respect of this breach). Nevertheless, in relation to the 4th Breach, the issue of substance to be determined remains to be that of whether the discovery provided was illusory, since, as referred to above, it was common ground that the adequacy of compliance turns on whether the deadline has been met, and not the adequacy of compliance, unless it can be said that the compliance was not made in good faith or is illusory. Indeed, the Plaintiff’s approach was to argue that the discovery provided was illusory.[26]

70.  I agree with the CDH Defendants that the discovery given in response to the 2nd Unless Order cannot be said to have been illusory.

71.  First, it should be borne in mind that the CDH Defendants gave discovery of some 400 documents, spanning thousands of pages. The Plaintiff is not saying that these documents were not responsive to the Discovery Order, but rather, that there are further documents to be provided. Of course, in theory, the mere fact that a large volume of documents has been produced does not preclude the possibility that such production was incomplete, but it indicates that the context of the present dispute is not one where discovery is said to be illusory by reason of non-responsive documents being put forward to create the illusion of compliance.

72.  Second, in relation to all the classes of documents about which specific complaint has been raised by the Plaintiff in Shum 1st, the CDH Defendants have now confirmed on affirmation[27] that in their 10th February 2023 discovery, they have disclosed all of the documents falling within those classes which are in their possession, custody or power, and that they do not have, and have not had, any other documents falling within those classes. The affirmations are conclusive at this interlocutory stage unless it can be shown that they do not truly state that which they ought to state; and the mere filing of a contradictory affirmation does not do this.

73.  At the hearing before me, Mr Barlow did not really seek to identify any particular aspect of the CDH Defendants’ affirmations which show that their conclusiveness, at this stage, is open to question. He indicated that the Plaintiff relied on its skeletons. However, in my view, the Plaintiff’s skeletons[28] do not demonstrate that any particular aspect of the CDH Defendants’ affirmations should not be taken to be conclusive for present purposes.

73.1 Insofar as the skeletons referred to the Plaintiff’s affirmations to contradict the CDH Defendants’ affirmations, as I have indicated, it is not appropriate at this interlocutory stage to make findings by comparing the affirmations and deciding which version of events is to be preferred. I will give an example.

73.1.1 It is said that the CDH Defendants have not complied with their obligations of discovery in relation to class 1(a), which required discovery of documents for the period prior to 21st March 2014 in relation to the relationship defining the rights, roles and responsibilities of (i) CDH V Holdings Company Limited, (ii) CDH China Management Company limited, and (iii) the 4th Defendant, vis-à-vis CDH Fund V.

73.1.2 As earlier referred to, there is a dispute between the parties as to whether the 4th Defendant acted as an executive manager (as the Plaintiff says) or provided advisory services (as the CDH Defendants say).

73.1.3 The CDH Defendants have given discovery of investment advisory agreements, termination agreements, a limited partnership agreement, and management agreements.

73.1.4 The Plaintiff’s Reply Points paragraph 42 says that Shum 1st and Shum 2nd explain that the CDH Defendants have not complied with their obligations regarding class 1(a). Shum 1st paragraph 13 complains that only two of the documents relate to the time period referred to in class 1(a), and that the unsigned Li 2nd did not disclose what other responsive documents were now within the CDH Defendants’ custody or power, or had previously been within their possession, custody or power. Shum 1st paragraph 14 complains the stance could not be accidental or inadvertent. Shum 2nd at paragraphs 42 to 44 refers to some background in the making of the Discovery Order, and the Plaintiff’s case that it was the 4th Defendant who managed Fund V and the JV Company whereas the Fund V General Partner and Manager had no office or employees, then at paragraph 48 complains that Li 3rd was incredible in saying that the CDH Defendants did not have, and have not had, any other responsive document in their possession, custody or power.

73.1.5 Plainly, I cannot at this stage make a finding as to whether the 4th Defendant did or did not manage Fund V, such that the CDH Defendants’ evidence that they do not have, and have not had, any other documents falling within class 1(a) is incredible evidence.

73.2 Insofar as the skeletons said that the CDH Defendants have impermissibly advanced a form of “Generic Defiance” to refuse disclosure (“Generic Defiance” apparently being a reference an argument that disputed matters of fact are to be left to trial[29]), I agree with the CDH Defendants that where there are disputed issues of fact on the pleadings, these are matters which cannot be determined now, and should be left for trial, and cannot render the CDH Defendants’ affirmations incredible (or their disclosure illusory). I give an example.

73.2.1 It is said that the CDH Defendants have not complied with their obligations of discovery under classes 1(b), (c) and (d), which required discovery of various types of documents relating to the implementation of an agreement called the HHCG Investment Agreement.

73.2.2 The CDH Defendants have given discovery of various documents falling within the class, which they say were documents given or copied to them, but say that they are not party to the HHCG Investment Agreement and therefore they have a limited number of documents relating to its implementation.[30] These matters are referred to in the Defendants’ Supplemental Skeleton paragraphs 66 and 72.

73.2.3 The Plaintiff’s Reply Points paragraph 43 says that the CDH Defendants’ Supplemental Skeleton paragraphs 66 and 72 “adopt[s] the impermissible Generic Defiance”. As far as I can understand, and having regard to Shum 2nd paragraph 51 which asserts that the CDH Defendants’ evidence that they do not have any other responsive documents is untruthful and incredible evidence, the argument is that the CDH Defendants cannot rely on the dispute about the role of the 4th Defendant or the stance that HHCG’s documents are not within the power of the 1st Defendant. However, the argument (or Shum 2nd paragraph 51) does not show that the CDH Defendants’ evidence about discovery is unbelievable or that their attempt at discovery is illusory. At best, it shows that that there is a dispute about the roles of the 4th Defendant and the 1st Defendant.

73.3 Insofar as the skeletons said that the CDH Defendants’ case as to the roles of the 1st and 4th Defendant was “absurd” because Fund V, the Fund V General Partner, the Fund V Manager, and the JV Company had no office and no staff whereas the 4th Defendant did, and whereas both the 1st and 4th Defendants had SFC licences,[31] again, these are at best disputed issues of fact on the pleadings, and the Plaintiff’s evidence in this regard in support of its case does not render the CDH Defendants’ evidence unbelievable.

73.4 Insofar as the skeletons complained that the CDH Defendants had simply repeated the “D1 Mantra” (which apparently is a reference to the statements in Li 3rd that neither the 1st nor 4th Defendants had ever had certain documents in their possession, custody or power[32]), the argument appears to be that this was not a sufficient effort at compliance with the Discovery Order. I do not agree that where a defendant is ordered to produce documents but he does not have them in his possession, custody or power, it is insufficient for him to state this in an affirmation or that such a statement can in itself demonstrate that his affirmation is unreliable.

74.  Mr Barlow relied on Ka Wah Bank Ltd as an illustration of illusory compliance, and said that there were “great similarities” between the defendants’ conduct in that case and the present.[33] However, each case turns on its own facts, so that it is of little assistance to identify what may superficially appear to be similarities between the cases. For example, it was said that in Ka Wah Bank Ltd, the fact that the defendants provided the same list of documents indicated that they did not take their discovery obligations seriously, and that the same finding should be made in the present case. However, in the present case, the 2nd Defendant explains in Xiong 1st that he undertook an independent search of the documents in his possession, custody or power, and afterwards, it was found that the documents he identified overlapped completely with those in the 1st Defendant’s possession, custody or power, so that it was decided that an affirmation would be prepared in the name of the 1st Defendant on behalf of all the CDH Defendants for the purpose of satisfying the 2nd Unless Order.

75.  I am therefore of the view that the 4th Breach is not made out.

F. THE 2ND JUDGMENT SUMMONS

76.  Given that I am of the view that the 1st and 4th Breaches are not established, that relief from sanctions should be granted in respect of the 3rd Breach, and that the time for the CDH Defendants to comply with the 2nd Unless Order should be extended so as to enable rectification in relation to the 2nd Breach, default judgment cannot be obtained at this stage.

G. DISPOSITION

77.  I therefore order that:

77.1 leave be granted to the CDH Defendants to file Li 4th on the terms in paragraph 1 of the Evidence Summons, and to the Plaintiff to rely on Qiu 6th in relation to the Relief Summons and 2nd Judgment Summons;

77.2 the time for the CDH Defendants to seek relief from sanctions be extended in terms of paragraph 1 of the Relief Summons;

77.3 the time for the CDH Defendants to comply with the 2nd Unless Order be extended for a period of 28 days from the date of this decision. Upon rectification (within this period) of the omissions set out in paragraphs 59.3 and 59.4 above, but not before, relief from sanctions in the 2nd Unless Order will be granted, and (1) the CDH Defendants’ Defence will be restored, and (2) the 2nd Judgment Summons will be dismissed.

78.  I further make a costs order nisi that:

78.1 the costs of and occasioned by the New Evidence Summons be in the cause of the Relief Summons and the 2nd Judgment Summons;

78.2 the costs of and occasioned by both the Relief Summons and the 2nd Judgment Summons be paid by the CDH Defendants to the Plaintiff in any event, with certificate for two counsel, as the CDH Defendants were in breach of the 2nd Unless Order and have had to apply for relief from sanctions.