LAW KWOK YAN v. LEUNG CHI MING AND OTHERS

HCMP681/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 681 OF 2005

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 D E C I S I O N

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1. This is an application by Mr Law Kwok-yan (“Mr Law”), the plaintiff in these proceedings, seeking an order against the defendants requiring them to comply with an order that I made on 12 July 2005.  The proceedings concerned an application by Mr Law seeking to exercise his right, as a director of Harvest Rise Limited (“the Company”), to inspect the accounting books and records of the Company which were said to be under the control of the other defendants, Mr Leung Chi-ming, Mr Cheng Wing-lam, and Mr Cheng Shui-yu. 

2. The background to the proceedings is somewhat complex.  There are separate proceedings outstanding between substantially the same parties in relation to an alleged agreement by Mr Law to pay certain sums by way of agreed profits to be generated from a joint venture, which the Company had with a Chinese company, which Mr Law was allegedly given a free hand to deal with as long ago as 1997.  It was said that, despite the alleged agreement, Mr Law had failed to make any payments in respect of the promised agreed profits and, as a result, the earlier set of proceedings seeking to recover the agreed profits were taken out by Harvest Rise and the three other defendants to these proceedings against Mr Law.  It was after those proceedings were instituted that Mr Law brought these proceedings by originating summons against Mr Leung, the two Mr Chengs and Harvest Rise. 

3. At the time when I made my order, there were before me two affirmations of Mr Law supporting his application and an affirmation from Mr Leung, made on behalf of the Company, in opposition to the application.  For present purposes, the only pertinent parts of Mr Leung's affirmation are the last two paragraphs of it.  In the penultimate paragraph (paragraph 18), Mr Leung sought to suggest that it was not necessary for Mr Law to have taken out an application under section 121, given the existence of the other proceedings between the Company, Mr Leung and the two Mr Chengs on the one hand and Mr Law on the other, suggesting that such documentation as Mr Law wished to inspect in relation to the company could have been obtained by way of an application for specific discovery in those proceedings. 

4. Nonetheless, Mr Leung did say in paragraph 19 of his affirmation that the Company had ceased business and had been dormant since 31 March 1997, that while its minute books were always available for inspection, the Company needed time to retrieve the other records sought, but that “by now” (i.e. at the date of his affirmation) all the other records were available for inspection by the plaintiff.   

5. To put this in context, it is relevant to have in mind the terms of the originating summons issued by Mr Law.  By the originating summons, Mr Law sought inspection of all books of account of the Company, going on to specify in some detail the nature of the books and records that it was contended should be produced for inspection.  They ran to some 11 subparagraphs setting out specific classes or categories of documentation which Mr Law wished to inspect.  In the context therefore, whatever may have been Mr Leung's intention in making the statement that he did in the last paragraph of his affirmation in opposition, the clear impression that was given was that all the records of the Company – meaning the records of the nature indicated in the originating summons – were then available for inspection. 

6. It was against that background that I made an order substantially in terms of the originating summons on 12 July 2005.  Shortly thereafter, Mr Law and those representing him sought to make arrangements to carry out the inspection which had been ordered.  The inspection did not go smoothly.  In the event, it appears that a relatively limited amount of documentation, extending only to certain of the categories specified in the originating summons and order, were produced for inspection. 

7. Mr Leung, through his solicitors, alleged that certain documents may well in fact have been in the possession of Mr Law, a suggestion which had not previously been made in the proceedings.  It was also suggested that a number of documents in respect of which the order had been made could not be located.  This too had not been previously mentioned in Mr Leung's affirmation in response to the originating summons. 

8. The matter rested there for about a year, for reasons which are not relevant to today's application.  However, in July this year, Mr Law, through his solicitors, renewed his interest in these proceedings by demanding that the documents covered by the order of 12 July 2005 be produced for inspection.  When no response was received to that request, the present application was taken out.  This application, in effect, asked for an order directing Mr Leung and the other defendants to comply fully with the order that was made on 12 July 2005, and I think it may be taken to be the precursor to eventually an application for committal for contempt or other means of enforcement if it is not fully complied with. 

9. Faced with this application, Mr Leung filed a further affirmation to explain his position.  In that affirmation, Mr Leung essentially reiterated his case that the affairs of the company, so far as the joint venture were concerned, had been in the hands of Mr Law since about 1997, but that the company had otherwise effectively been dormant since March 1997.  He went on to say that he had taken all reasonable steps to procure the documentation that was sought by the originating summons so that it could be made available for inspection.   He said, in essence, that in so far as documentation was not now available, it must have been lost over the many years that had lapsed between 1997 and now. 

10. It has to be said that even now, Mr Leung's position is not entirely clear and that it appears that there may be some scope for misunderstanding as to what he is intending to say.  In his latest affirmation he sets out a table consisting of the various categories of documents that have been asked for, against which he indicates whether or not he has any such documents in his possession or under his control.  For the most part, he says that he does not have such documents.  However, in relation to one item, which is perhaps best described as a general sweep-up category,described as “other information, hard copies, digital, electronic, disks or otherwise” (sub-paragraph (j) of both the originating summons and order of 12 July 2005), Mr Leung has indicated that he had or has some such documents without distinguishing between the various forms of documents described. 

11. It was submitted for Mr Law that no electronic documents or documents stored in electronic form or on hard disk had been made available for inspection.  It does not appear that Mr Leung disputes this.  However, Ms Yiu, who appears for him today, suggests that what was really intended was simply to set out or accept the fact that there were documents other than audited accounts or minutes (which were the subject of a different sub-paragraph of the originating summons and order) which were in existence, these having been recorded in a document prepared by both parties when the inspection was carried out in the latter part of July 2005.  Ms Yiu suggests that it was only these documents that were intended to be referred to in Mr Leung’s affirmation. 

12. It is unfortunate that Mr Leung's affirmations appear to make inaccurate statements, and say things which are either not entirely borne out by the documents, or which are surprising in the light of other statements that he has made.  For example, in his second affirmation in response to this application, Mr Leung drew attention to the fact that he had made inquiries of two firms of accountants, one of which was the auditor of the Company, and the other which was said to have performed some services by way of the preparation of financial statements prior to audit.  Mr Leung said that he had written to both of the firms asking whether any of the documents of the categories sought were in their possession and, if they were, asking for them to be returned to the Company so that they could be provided to Mr Law for inspection. 

13. Both firms wrote back indicating that they did not have any of the Company's documents in their possession and indicated that while they had been given some such documents at some time in the past, they would have returned such documents to the Company on completion of whatever work they had to do. 

14. It is surprising that although these inquiries were made and responses were received before Mr Leung filed his affirmation in opposition to the proceedings on 24 June 2005, Mr Leung nonetheless saw fit at that time to say that all the other records were “now available” for inspection. 

15. The question, however, is whether the appropriate course today would be to simply make an order effectively reaffirming the order that was made on 12 July 2005 or whether some other order should be made.  Miss Yiu has tried to persuade me that I should accept Mr Leung's statements in his second affirmation at face value and I should conclude that there are no other documents that can or should be produced by him to Mr Law.  A similar position is taken in relation to the two Mr Chengs, who each filed short affirmations indicating that they left all matters relating to the Company to Mr Leung to deal with, that Mr Leung was the person in charge of keeping the records of the Company and that they themselves have no documents in their personal possession or under their personal control. 

16. On the other hand, Mr Chung, who appears for Mr Law, has submitted that Mr Leung's statements on affirmation are incredible and ought to be dismissed as unbelievable.  With respect to Mr Chung, it is difficult for me to come to that conclusion in a situation in which both parties have gone on affidavit to make statements as to what they say the position is, and neither party has been brought before the court to be cross-examined. 

17. That said, however, it seems to me that given Mr Leung's statement in his first affirmation, it was not unreasonable for Mr Law to have pursued the matter in the way that he has.  The question, as I have said, is what should be done about that. 

18. It seems to me that in the circumstances, the appropriate course would be to order that both Mr Leung and the Company should make and file a further affirmation stating, in relation to each of the categories of documents which have been identified in the originating summons and the order of 12 July 2005, whether or not such documents are or were in his or its possession, and (if formerly in his or its possession) specifying what has become of them and what efforts have been made to try to locate them. 

19. In relation to the documents described in sub-paragraph (j) of the originating summons and order, it will be necessary for Mr Leung and the Company to specify in relation to each type of document or medium of storage, whether such documents exist; if not, whether they have ever existed; and,if they have, what has become of them.

20. In relation to one other category of documents which has been discussed before me – the Company’s bank statements, Mr Chung has suggested that these are documents which are in the control or within the power of the Company and Mr Leung to obtain from the banks with which the Company had bank accounts. 

21. Mr Leung’s response is that it has been indicated on his behalf that he has no objection to Mr Law obtaining such documentation from the banks directly.  However, no indication is given as to the identity of the banks with which the Company has held bank accounts over the period in question, nor are any other details of such bank accounts provided. 

22. It seems to me that this suggestion from Mr Leung is wholly inadequate, in that it amounts to no more than a suggestion that Mr Law should make inquiries directly of the banks himself without any indication as to which banks he should be approaching, and in respect of what accounts he should be asking for documentation to be produced.

23. It also seems to me that it may well not be possible for Mr Law to directly approach the banks concerned since he may not be someone to whom the banks would be willing to supply such documentation.  I think, therefore, that it would be appropriate to order that Mr Leung also provide, on affirmation, a list of all bank accounts that have been maintained by the Company, and that he should either obtain such bank statements and other records as he is able to from the banks concerned, or that, alternatively, he may provide to Mr Law or those acting for him, an authorisation provided on behalf of the Company that expressly authorises and directs the banks to produce to Mr Law or his solicitors, copies of any cheques and bank statements relating to the Company's bank accounts. 

24. It seems to me that this is the only way that the matter can sensibly be taken forward.  Further, having regard to the way in which the matter has developed, Mr Leung has only himself to blame for having brought this particular application upon himself by making what has turned out to be a clearly inaccurate statement in his affirmation in opposition to the originating summons. 

25. In the circumstances therefore, it seems to me that while there would be little to be gained by simply reiterating the order that was made on 12 July 2005, it would be appropriate to require Mr Leung and the Company to make a further affirmation in relation to these matters along the lines which I have indicated. 

26. I shall therefore order that Mr Leung is to make a further affirmation, on behalf of himself and the Company, stating with particularity, in relation to each of the various categories of documents listed in the originating summons and the order of 12 July 2005, whether such documents exist or have ever existed and whether they are in his possession, custody, power or control and, if not, whether they are or have ever been in his possession, custody, power or control and, if they have been but are no longer in his possession, custody, power or control, stating with the best particulars he can give, what has become of them. 

27. In doing so, I also order that Mr Leung is to identify all known bank accounts of the company at any material time in such affirmation and either take steps to obtain copies of bank statements and cheques that may exist in relation to such accounts and provide them to Mr Law for inspection, or alternatively to provide Mr Law with the necessary instructions to the bank or banks concerned, duly authorised by the Company, to enable such documents to be obtained by Mr Law directly.  

28. Given what Mr Leung needs to do, I think that 28 days is not an unreasonable period of time to do it in, since he will have to make his affirmation and also, within that time, either take steps to approach the banks himself or to put Mr Law in possession of a form of authorisation that will enable him to take the necessary steps to obtain the relevant banking documentation.  I will also give liberty to apply in case there is any difficulty in relation to any aspect of the matter.

29. The order will be in substantially these terms.  First, the 1st and 4th defendants are to make an affirmation within 28 days specifying:

(a)      In relation to each of the categories of documents listed in the order dated 12 July 2005, whether such documents are now or have at any time, been in the possession, custody, power or control of the 1st defendant and/or the 4th defendant, and if they were previously but are not now in such possession, custody, power or control, what has become of them. 

(b)     All bank accounts held at any time by the 4th defendant, providing particulars of the bank at which such account is held and the number of such account. 

30. Further, the 1st and 4th defendants shall, within 28 days, in relation to each bank account identified in the said affidavit, either:

(a)      Apply to the relevant bank for copies of all bank statements and cheques in relation to such accounts, in which case such copies are to be made available to the plaintiff for inspection with seven days of receipt from the relevant bank; or

(b)     Direct the relevant bank to provide copies of all bank statements and cheques in relation to such account to the plaintiff or its solicitors.

In either case, they are to supply to the plaintiff or its solicitors, a copy of the relevant instruction, also within 28 days from today. 

31. Further, for completeness, in so far as any documents are identified as being currently in the possession, custody, power, or control of the 1st or 4th defendants which have not previously been provided to the plaintiff, the plaintiff is to be at liberty to inspect such further documents.

32. I will also grant liberty to apply.

(Discussion re costs)

37. It seems to me quite clear it was reasonable for Mr Law to have made this application in light of the statement made in Mr Leung's first affirmation.  Mr Leung has effectively brought this application on himself, given the way in which he has expressed himself in the past.  Although Mr Law has not obtained precisely the order which he asked for in the application, the order that he has obtained is one that is designed to ensure that there has been full compliance and proper compliance with the order made on 12 July 2005.  In those circumstances, it seems to me quite clear that Mr Law has been substantially successful in relation to this application and there is no basis on which it could be said that Mr Leung has enjoyed any real measure of success.  In those circumstances, I have no doubt that the appropriate order to make is that the costs of this application should be paid by Mr Leung, the 1st defendant, to Mr Law, the plaintiff, such costs to be taxed on the party-and-party basis if not agreed.