LLWL v. MCM

FCMC 2917 /2023

(FCMC 917 / 2022)

[2023] HKFC 235

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER FCMC 2917 OF 2023

(FCMC 917 of 2022)

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DECISION
(Non - Party Discovery)

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Note: For the protection of privacy, the personal information in this decision has been redacted.

Introduction

1.  There are 2 related summonses taken out by the petitioner (“the wife”) on 28 October 2022 for non-party discovery against two solicitors’ firms, namely, Messrs.               (“I & Co. – the 1^st non-party”) and Messrs.           (“W & Co. – the 2^nd non-party”).

2.  The respondent (“the husband”) has been employed by both the 1^st and 2^nd non-parties during different periods. The wife seeks discovery on documents relate to the income earned by the husband during employment.

3.  The husband did not file his affirmation(s) in opposition in both applications.

Background

4.  The wife and husband were married on 25 September 2005, this was both their second marriage, they have no children. The wife is now in her sixties whereas the husband is in his seventies. Both parties are retired, it is known to the Court that both of them have been insurance consultants at time of marriage. Prior to retirement, the wife has worked as a civil servant until September 2021 and the husband has worked as a legal executive until 14 February 2022.

5.  On 31 January 2022, the wife petitioned for divorce on ground of unreasonable behaviour (FCMC 917 of 2022), the parties then agreed to replace the ground of divorce to that of one – year separation by consent. On 20 March 2023, the wife filed a fresh petition, as at the date of this decision, no decree nisi has been granted.

6.  I am aware the wife has pleaded in her petition commonly on a full range of ancillary reliefs, she sought orders in her Form A including but not limiting to transfer of 3 following properties,

Property	Registered owner	Value – husband’s view	Value – wife’s view
Lung Yan Court (“the matrimonial home”)	Husband	HK$6.8 million	HK$6.7million
Cloudview Road Carpark	Husband	HK$800,000	HK$650,000
Whampoa Garden	N/A, sold in March 2022	Husband’s share of HK$3,993,214 paid into Court	N/A

7.  The husband, however, made no claim on ancillary relief.

8.  Both parties stated in their respective Form Es they have incurred substantive liabilities, as at the date of the husband’s Form E, charges registered against the matrimonial home was as high as HK$5.65 million. Presumably, both the wife and husband do not have much cash at hand, the above 3 properties are the main assets of the family.

9.  In March 2022, the husband sold the Whampoa Garden property, as directed by Court, on 3 May 2022, the husband effected payment into Court in sum of HK$3,993,214 being his share of sale proceeds of the said property.

10.  I can see from the background that both the parties are retired, the ancillary relief of this petition would likely be sharing of matrimonial assets. With a view to ascertain the size of matrimonial pot, it is understandable that the wife takes out these applications for evidence of the husband’s income derived prior to his retirement.

The wife’s application

11.  Despite being employed by I & Co. (from 1 April 2017 to 29 April 2021[1]) and W & Co. (from 3 May 2021 until 14 February 2022) as a filing clerk / legal executive, the husband referred clients to both firms in the capacity as an insurance agent of Mxxx Fxx insurance. It is known to the wife that both firms rewarded the husband with commission on top of his salary.  The wife witnessed the husband, during marriage, receiving cash income from the both firms on top of his fixed salary. The husband collaborated his conduct by admitting this fact in his letters and answers to the wife’s questionnaire. However, the husband did not ascertain the amount of cash income or commission he had received.  

12.  On this, the wife sought discovery from both I & Co. & W & Co. on documents relating to the amount of cash salaries or income already paid and/or due and owing to the husband.

13.  Particularly, the wife is seeking extensive discovery on 3 identical categories of documents from both firms, namely,

(i)    the husband’s earning records prepared by both firms including a signed and filed Employer’s Form IRD56B and MPF record (“Class A”);

(ii)   a list of all concluded/closed cases that were referred to both firms by the husband to set out: (a) the amount of legal fees; the amount of cash salaries (commission / handling fees) the husband had received from both firms and the case numbers; cheque copies and signed acknowledgment receipts (if any) (“Class B”); and

(iii)  a list of all ongoing cases that are referred to both firms by the husband by setting out (a) the current status of each case; (b) the date of accident and the name of claimant; (c) case number; (d) estimated compensation to be received and estimated legal costs to be paid by the opponent of that case (“Class C”).

Discovery against I & Co.

14.  The husband was employed by I & Co. as a clerk for the period from 1 April 2017 to 29 April 2021, four unsigned IR56Bs were disclosed to the wife stating the husband’s earnings at HK$3,000 per month. The wife is dissatisfied with such disclosure because the husband has admitted in a signed letter dated 5 September 2019 that I & Co. had paid him HK$480,000 on top of his fixed salary. The wife said the husband was in fact sharing legal fees with I & Co.

15.  In or about 2019, the husband further told the wife I & Co. still owed him HK$2 million cash salary. As far as the wife understands, the husband would be entitled to 30% commission/handling fees at conclusion of each legal case referred by him (as an insurance agent) to the firm. The above was evidenced by the husband’s handwritten memorandum and documents kept at the matrimonial home. The wife also has in her possession the husband’s name card, representing himself as a filing clerk of I & Co. and at the same time stating on the name card a contact email address of Mxxx Fxx insurance.

16.  I & Co. denied arrangement of “cash commission” or “cash income” between the husband and themselves. They further said the husband was not authorized to print business card for his own use. The wife’s application is a fishing exercise.

Discovery against W & Co.

17.  The husband was employed by W & Co. as a part time manager for the period from 3 May 2021 until 14 February 2022. On 9 February 2023, the husband disclosed an unsigned employer’s tax return IR56B to the wife, in that it stated the husband was employed as a manager with an earning of HK$45,000 of the entire employment period. In one of the answers given by the husband in his Answer to the Wife’s Questionnaire[2], he stated he had received income in cash on top of his fixed income from this firm. Because of this, the wife challenged HK$45,000 was not the real income of the husband. The wife says, despite working as a “manager” with W & Co., on referral of  personal injury cases to the firm, the husband developed a “connected / associated business relationship” with W & Co. which allowed him to share 30% legal fees of each case.

18.  On 24 April 2021, the wife suffered personal injuries in a traffic accident, upon referral by the husband, she retained W & Co. to represent her in the personal injuries claim against the tortfeaser. As a client, she has knowledge of the dealings between the husband and W & Co.

19.  W & Co. opposed to the discovery application by saying there was no written employment contract. They further say the wife’s application is a fishing exercise.

Applicable legal principles

20.  Non-party discovery application is governed by Order 24 Rule 7A of the Rules of High Court (Cap 4A). In that the party applying for such order shall state the following as per Order 24 rule 7A(3)(b):

“7A(3)(b) …in any case, specify or describe the documents in respect of which the order is sought and show, if practicable by reference to any pleading served or intended to be served in the proceedings, that the documents are relevant to an issue arising or likely to arise in the proceedings and that the person against whom the order is sought is likely to have or have had them in his possession, custody or power.” [emphasis added]

21.  Disclosure orders against a non-party is discretionary in nature, the same is best illustrated in Global Gaming Philippines LLC v. Deutsche Bank AG (HCCL 1 of 2017), Madam Lisa Wong J stated the following from paragraphs 39 to 49:

“39. Non-party discovery is granted by the discretionary exercise of the power vested in the court by s 42 of the HCO and Order 24 rule 7A(2) of the RHC and there is no existing ‘right’ or ‘entitlement’ to such discovery vested in a plaintiff: per Bharwaney J in Chan Yim Wah Wallace v New World First Ferry Services Limited [2015] 3 HKC 382 at [18].

40. Such exercise of discretion involves the conventional considerations of ‘existence, relevance and necessity’ under Order 24 rules 7A and 8(2) as well as a balancing exercise of the need for disclosure in the interest of the administration of justice to ensure a fair trial on full evidence and applicable countervailing factors: see again Chan Yim Wah Wallace at [19].

41. So at the first stage, the usual criteria of existence, possession custody or power, relevance and necessity apply equally to discovery from a non-party.

42. The Peruvian Guano test applies to determine whether the documents sought from the non-party are relevant to an issue arising out of the claim that has been made: per To J in Tullett Prebon (Hong Kong) Limited v Chan Yeung Fong Nick, HCA 219/2009, unreported, 9 June 2011 at [74] and [76].

43. Nevertheless, the need to ensure reasonable proportionality and procedural economy in the conduct of proceedings under Order 1A may inhibit the court from granting non-party discovery under s 42 and Order 24 rule 7A(2) for background or ‘chain of inquiry’ documents: Chan Yim Wah Wallace at [20] and [53].

44. When what is sought is a class of documents, each document of the class must be relevant in the Peruvian Guano sense. The court has power to order a non-party to disclose relevant documents which meet the Peruvian Guano test but has no power to order disclosure of documents that do not. This principle cannot be circumvented by including the relevant documents in a class which also includes documents which do not meet the Peruvian Guano test. See Tullett Prebon (Hong Kong) Limited at [81]-[84], where To J adopted what Chadwick LJ said in Three Rivers District Council v Bank of England (No 4) [2003] 1 WLR 210 (CA) at [34]-[38].

45. Fishing expedition with a view to hunting around the documents in the hope that they will reveal some improprieties on the part of the opposite party or will provide information for the applicant to pursue more inquires is not permitted. See Ngan In Leng v Chu Yuet Wah (No 1) [2013] 1 HKLRD 717, per Deputy Judge Queeny Au-Yeung (as her Ladyship then was) at [26] and [62(5)].

46. The court must also consider whether disclosure is necessary in order to dispose fairly of the claim or to save costs. The following considerations are relevant: (1) how important is the information to the issues; (2) has the applicant taken appropriate steps to obtain the information within the proceedings before seeking discovery from the third party; (3) would it be sufficient to draw adverse inferences on the basis that the party from whom the information was sought within the proceedings has failed to supply the information; (4) what is the nature of the relationship, if any, between the parties to the proceedings and the third party; and (5) if disclosure is necessary and proportionate, will the editing of documents protect private information? See Tullett Prebon (Hong Kong) Limited at [85] at which To J adopted, for the purposes of considering whether to exercise his discretion to order non-party disclosure, Hartmann JA’s approach in SMSE v KL (No 2), HCMC 2/2006, unreported, at [63] in the context of an application to set aside a subpoena duces tecum.

47. The condition of necessity requires the court to focus on the necessity of the third party being required to make discovery. A third party should not be ordered to make discovery if it is not necessary to do so, e.g. where the information can be obtained from within the proceedings or other sources: Chan Yim Wah Wallace v New World First Ferry Services Limited at [55].

48. If there is no other route to obtain the relevant and necessary information, the court must in the third and final stage proceed to balance the different interests: Chan Yim Wah Wallace v New World First Ferry Services Limited at [60].

49. The third party’s right to privilege is preserved by Order 24 rule 7A(6).”

22.  The above is good law and the same principles are applicable in the matrimonial context.

Analysis - generally

23.  The general issues of the two applications are whether the documents under Class A, Class B and Class C shall, in light of the principles above, be disclosed by the non-parties to the wife.

24.  The wife substantiated her case on cash profits / income derived by the husband from I & Co. and W & Co. by (i) her encounter as a client of W & Co; (ii) conversation with the husband during marriage; and (iii) the husband’s admission on his answers to the wife’s questionnaires. On this point, I accept the wife is able to establish a prima facie case that the husband had obtained earnings other than the fixed salaries paid by both firms.

25.  The vital question here is whether discovery from both firms, being non-parties to the petition, shall be ordered. It is pertinent that the husband bears the duty to disclose his real financial position, however, the husband had failed to do so through rounds of questionnaires and answers. It is understandable that the wife was driven to apply for an order of non-party disclosure.

26.  It is clear that discovery against a non - party is of discretionary nature, not as of right. I remind myself that in exercising the power to order such discovery, conventional consideration of “existence, relevance and necessity” comes into play.  The Court shall also embark on a balancing exercise of the need of disclosure by taking into account the interest of the administrative of justice to ensure a fair trial on full evidence and applicable countervailing factors. (See Global Gaming Philippines LLC v. Deutsche Bank AG, supra)

27.  I shall decide on the 3 classes of documents accordingly.

Class A – the husband’s earning records, signed Form IR56B & MPF record

For both I & Co. and W & Co.

28.  I believe records of salary payment, MPF records and signed Forms IR56B existed. Both I & Co. and W & Co., as the husband’s employers, must have in possession, custody and power of those documents.

29.  Secondly, I am satisfied the payment records and the signed Forms IR56B are relevant to the wife’s ancillary relief claim. I am aware both the wife and the husband have retired, in other words, the income of the husband is highly relevant in assessing the size of the matrimonial pot of the parties.

30.  Disclosure of the above documents falls within reasonable, proportional and procedural economy of the proceedings and parties could dispose of the issue of the husband’s income fairly.

31.  On this item, I shall exercise my discretion that both I & Co. and W & Co. to disclose to the wife Class A documents for the entire period of employment.

Class B – List of all concluded / closed cases that were referred to the I & Co. and W & Co. by the husband

32.  Under this head, the wife is seeking disclosure on the amount of legal fees, cash salaries (commission / handling fees) received by the husband. All cases numbers, all cheque copies and signed acknowledgment receipts.

33.  The extent of disclosure may not be classified as fishing but the extent is certainly too far fetch.  

34.  At this stage, it is fair for the wife to ascertain the real income of the husband prior to his retirement.In exercising discretion, with a view to dispose of the issue fairly, it is appropriate to limit the extent of discovery to that of (i) all copies of cheques, including but not limiting to cash cheques issued to the husband and (ii) all signed acknowledgment receipts by the husband which are in possession, custody and power of both firms. The extent of disclosure of the two identified documents should be able to cover all cash salaries both firms have paid to the husband. I see it is also proportionate that only documents evidencing income of the husband are to be produced.  

35.  In this petition, when the wife’s ancillary relief claim is also based on real income of the husband, an order on disclosure of the above would be sufficient for the wife to advance her case and to damage the husband’s.  Evidence will be elicited from the husband during ancillary relief trial, the wife can always, if so advised, to invite the Court to draw adverse inference against the husband who had failed to disclose his true financial position. In doing so, the Court is empowered to “determine the extent of undisclosed resources; to draw adverse inference as are justified and where appropriate infer the resources are sufficient that the proposed award represented a fair outcome:”.  (See: TCP v KLS (Ancillary relief) [2020] HKFLR 254)

36.  In light of the matrimonial assets shown in this petition, there are 2 landed properties registered under the name of the husband and HK$3,993,214 payment into Court. In other words, the wife’s ancillary relief award can be satisfied by an order to transfer the property (or properties) and release of funds. In this regard, disclosure on particulars of the personal injuries cases with both firms are unnecessary.

Class C – A list of all on going cases referred to both I & Co. and W & Co. and to set out current status of each case, date of accident, name of plaintiff, case numbers, estimated compensation to be received and estimated legal costs to be paid by the paying parties

37.  Class C information requires both firms to compile a list to provide information of date of accident, name of plaintiffs, case numbers, estimated compensation to be received and estimated legal costs. I am of the view that the wife’s request under this head exceeds the proportionality and procedural economy of the proceedings.

38.  I failed to see the wife is able to specify and describe the documents which are capable to be ordered for disclosure under Order 24 rule 7. Order 24 rule 7A(3)(b) only limit disclosure on documents. An order to compile a list to provide specific information is beyond the ambit of the relevant order.  

39.  In fact, when the wife has possession of the husband’s written note or record of cash income on the referral cases, the issue on the husband’s real income can be canvassed during the ancillary relief trial.

40.  On balance and in the administrative of justice, I refuse to exercise my discretion to order disclosure of Class C information.

Conclusion

41.  To conclude, I exercise my discretion to order both I & Co. and W & Co. to disclose Class A documents and limited Class B documents.  The wife’s application on disclosure on Class C information be dismissed.

Costs

42.  Although the wife did not succeed in obtaining an order against both the 1^st and 2^nd non-parties in all 3 classes of documents but I see her application was taken out upon the husband’s non-disclosure of his real income during employment with both firms. I order costs on a nisi basis that costs of the two summonses be reserved.

43.  A hearing on 12 December 2023 at 11:00 am in Court 41 be fixed with 30-minute be reserved for parties to make submissions on costs.  I direct all parties to lodge and serve written submissions on costs within 7 days from date of this decision.

Orders

44.  I make the following orders:

For summons against I & Co.:

(i)      I & Co. shall disclose the husband’s earning records including both salary payment and MPF records and also signed and filed  Forms IR56B during the period of the husband’s employment to the wife within 28 days hereof.

(ii)     I & Co. shall disclose all copies of cheques, including but not limiting to cash cheques, issued to the husband and all signed acknowledgment receipts by the husband to the wife within 28 days hereof.

(iii)   Paragraph 4(c) of the schedule of the summons filed on 28 October 2022 against I & Co. be dismissed.

(iv)    There be a costs order nisi that costs of the summons filed on 28 October 2022 against I & Co. be reserved.

(v)     A hearing on 12 December 2023 at 11:00 am in Court 41 be fixed with 30-minute be reserved for parties to make submissions on costs. 

(vi)    All parties do lodge and serve written submissions on costs within 7 days from date of this decision.

 

For summons against W & Co.:

(i)      W & Co. shall disclose the husband’s earning records including both salary payment and MPF records and also signed and filed Forms IR56B during the period of the husband’s employment to the wife within 28 days hereof.

(ii)     W & Co. shall disclose all copies of cheques, including but not limiting to cash cheques, issued to the husband and all signed acknowledgment receipts by the husband to the wife within 28 days hereof.

(iii)    Paragraph 4(c) of the schedule of the summons filed on 28 October 2022 against W & Co. be dismissed.

(iv)    There be a costs order nisi that costs of the summons filed on 28 October 2022 against W & Co. be reserved.

(v)     A hearing on 12 December 2023 at 11:00 am in Court 41 be fixed with 30-minute be reserved for parties to make submissions on costs. 

(vi)    All parties do lodge and serve written submissions on costs within 7 days from date of this decision.