TWF v. HWKR

FCMC 16534/2015

[2019] HKFC146

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 16534 of 2015

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DECISION
(Specific Discovery)

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The application

1.  This is the substantive hearing for the petitioner’s summons dated 4 October 2018 (“Discovery Summons”) seeking specific discovery and production of various bank statements and details of deposits and withdrawals appearing in such statements over SGD20,000 from the respondent, the first and second interveners.

2.  By letter of the petitioner’s solicitor dated 8 April 2019, the petitioner indicated her intention to take out a Summons for an amendment to the Discovery Summons asking for details of deposits and withdrawals over SGD2,000 instead of SGD20,000.  The Summons (the “Amendment Summons”) was allowed to be filed on 9 April 2019 and fixed to be heard at this substantive hearing.  It however was only filed into Court at a later stage because of some procedural complications on the petitioner’s side. That said, the Amendment Summons has been dealt with by the parties in their written submissions and at this hearing.

3.  For easy reference, I should name the petitioner as the wife, the respondent as the husband, the first intervener as the brother and the second intervener as the sister.  The brother and the sister, being the siblings of the husband, collectively as the siblings.

4.  At the call-over hearing of the Discovery Summons on 9 October 2018 and by consent, an order was made for the siblings and the husband to file affirmations confirming whether the bank statements sought were in their possession, custody or power, and the costs of that hearing be in the cause of the preliminary issue. 

5.  In compliance of the said order, the siblings filed affirmations confirming that they have been able to retrieve from the relevant banks copies of the statements in the case of the brother since January 2012 and in the case of the sister since January 2013.  In March 2019, the husband and the siblings, by a joint letter, provided copies of the bank statements of five Singaporean bank accounts, namely,

(a)     the brother’s HSBC account (the “Brother’s Account”) from 7 January 2012 to 7 October 2017.  Those statements (the “Brother’s Statements”) have been partly redacted;

(b)     the sister’s UOB account (the “Sister’s Account”) from 26 January 2013 to 31 October 2017.  Those statements (the “Sister’s Statements”) have been partly redacted;

(The two accounts collectively as the “Siblings’ Accounts”); the two sets of statement collectively as the “Siblings’ Statements”)

(c)     the OCBC account held by the siblings jointly (the “Joint Account”) from 1 January 2012 to 31 October 2017

(d)     the husband’s HSBC account; and

(e)     the husband’s DBS account

6.  Shortly before this hearing, the husband agreed to provide the wife with the details of the deposits and withdrawals over SGD2,000 contained in his own bank statements. Both parties agreed that the costs of the Discovery Summons and the Amendment Summons between them be reserved.

7.  What is left to be dealt with at this hearing is whether the siblings shall produce the unredacted Siblings’ Statements to the wife.

Preliminary issue

8.  This discovery application arose from a preliminary issue of the ancillary relief proceedings.  The preliminary issue to be determined is who is the beneficial owner(s) of a landed property which consisted of a piece of land in Sentosa Cove, Singapore and a multi-storey house built thereon (the “Property”). 

9.  By a notice of transfer, the said land was acquired in September 2005 for a sum of SGD3.78 million by the husband, the brother and the sister as tenants-in-common with each holding 10%, 40% and 50% respectively.   The purchase was assisted by a secured loan of SGD2,289,000 from OCBC (“Land Loan”).

10.  Following the purchase of the land, OCBC provided a loan facility of SGD 2.1 million (“Construction Loan”) for the purpose of construction of the multi-storey house on the land in November 2007.  In 2009, the construction of the house was completed.  The Property was usually used by the husband for his own purpose who paid the day-to-day expenses of it.

11.  Installment payments of the Land Loan and the Construction Loan (collectively as the “Property Loans”) were made through the Joint Account. 

12.  In 2011 and 2013, two additional term loans of SGD5 million (the “2011 Loan”) and SGD2 million (the “2013 Loan”) were obtained from OCBC respectively, which was secured by mortgage on the Property. The siblings say that the 2011 Loan was for the personal use of the brother and the 2013 Loan for the sister.

13.  In October 2017, the Property was sold at a sum of SGD15,500,000.

14.  Despite the legal title as recorded, the wife claims that the husband was the sole beneficial owner of the Property for the purchase, construction, maintenance and expenses of the Property was solely funded by the husband. Some of the payments were made through the siblings.  The siblings only held the shares of the Property on trust for the husband, and accordingly, the Property shall be considered as part of the family assets for distribution between the husband and wife in the ancillary relief application.

15.  The husband and the siblings resist the wife’s claim. They say that they had each contributed to the acquisition, construction, maintenance and expenses of the Property and the beneficial interest followed the legal ownership.

16.  The beneficial ownership of the Property poses a preliminary issue in the present action. Pleadings on the issue have been filed.

17.  To resist the wife’s claim, the husband and the siblings instructed RSM, a firm of accountants in Singapore, to undertake an examination of such records provided by them as to the individual financial contributions made by them to the purchase, construction, maintenance and some expenses of the Property.  Two reports were compiled with the first one dated 18 October 2016 (the “First Report”) and the second one dated 26 October 2018 (the “Second Report”) (collectively the “Two Reports”).

18.  The First Report was attached to the husband’s answer to the wife’s questionnaire. By looking at some personal and joint bank accounts of the husband and the siblings, the net contributions made by them were ascertained as the husband 6%, the brother 68% and the sister 26%. 

19.  In the Second Report, RSM computed the net contributions made by the husband and the siblings to determine the entitlements of the husband and the siblings to the sale proceeds of the Property.

20.  Leave was granted by Deputy District Judge David Cheung to the husband and the siblings to adduce the Two Reports as evidence at the trial of the preliminary issue.

The dispute

21.  In this hearing, the wife seeks to have the complete Siblings’ Statements without redactions be disclosed to her on the ground that the beneficial ownership of the Property was and can be established by tracing transactions from the individual and joint accounts of the husband and the siblings.

22.  In opposition, the siblings argue that the blanked-out parts are irrelevant and/ or unnecessary to the issue before the court and which are private and confidential to them.

The legal principle

23.  The relevant legal principles on discovery are well-established which have been set out in the parties’ respective skeleton submissions.  In summary: -

(a) under Order 24 rule 7 and 8 Rules of the High Court, a party will be ordered to disclose documents in his possession, custody or power which are relevant to the matters in issue, but discovery will be refused if it is not necessary either for disposing fairly of the cause or matter or for saving costs.

(b) The Peruvian Guano test of relevance applies.  The test is whether the documents relate to the matters in question in the action, which not only be evidence on any issue, but also which contains information which may either directly or indirectly enable the party to advance his own case or to damage the other side’s case.  A document which may lead to a train of inquiry, which may have either of these two consequences should be disclosed.  See Compagne Financiere du Pacifique v Peruvian Guano Company [1882] 11 QBD 55

(c) the matters in question cover wider ground than the issues as disclosed in the pleadings.  See Melvin Waxman v Li Fei Yu and others HCA 1973/2012 30 January 2015

(d) It is trite that confidence alone is not a basis for not giving disclosure in civil litigation.  Merely personal information is not confidential.  It does not constitute a valid objection in discovery process.  See Hong Kong Civil Procedure 2019 at 638, 652-3.

24.  On redaction, Mr Clough, Counsel for the wife, seeks support from K&L Gates v Navin Kumar Aggarwal unrep. HCA1061/2011 [2017] HKEC 2538.  The relevant legal principles have also been succinctly elaborated in the case of Capital Corporate Finance Group Limited v bankers [1995] 1 W.L.R 172.  In summary,

(a)   redaction for irrelevance is permissible provided that the irrelevant parts can be covered without destroying the sense of the rest or making it misleading.

(b)   the oath of the party giving discovery is conclusive, unless the court can be satisfied not on a conflict of affidavits, but either from the documents produced or from anything in the affidavits made by the party giving discovery, or by 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.

(c)   the Peruvian Guano test must be applied to the information contained in the covered-up parts of the documents

Discussion

25.  With these principles in mind, I turn to consider the arguments of the parties.

26.  The preliminary issue to be determined is the beneficial ownership of the Property.  In law, the burden rests on the wife to establish that the beneficial ownership differs from the legal title.  One of the main arguments for trial goes to who actually funded the acquisition, construction, maintenance and expenses of the Property.  Given the Brother’s Statements only concern the period after January 2012 and the Sister’s Statements after January 2013, the parties’ arguments focus on the payments relating to the Property after January 2012.

27.  In the present application, it appears to be the case that the installment payments of the Property Loans were met by the Joint Account and that the major source of the money which funded the Joint Account was the Siblings’ Accounts — the corresponding entries are left unredacted in the Siblings’ Statements. 

28.  The present argument goes to whether the source of the money in the Siblings’ Accounts, which in turn funded the Joint Account to meet the repayments of the Property Loans, are relevant to the matters in question in the preliminary issue proceedings, which may, either directly or indirectly, enable the wife either to advance her own case or to damage the others’ case. 

29.  In my view, for the following reasons, the test of relevance is satisfied and the redacted entries are necessary for disposing fairly of the matter.

30.  First, the siblings have relied on the Siblings’ Accounts to prove the contributions they say they made to the repayments of the Property Loans so as to establish their ownership in the Property.  It is particularly so as they rely on the Two Reports to substantiate their positions. 

31.  In the Two Reports, RSM, having reviewed and utilized the documents including the unredacted Siblings’ Statements, computed the net contributions made by the husband and the siblings of the purchase, construction, maintenance and other expenses of the Property, including repayments of the Property Loans and some recurring expenses, to determine the entitlements of the husband and the siblings to the sale proceeds of the Property.

32.  Since the siblings are claiming that the transactions in the Sibling’s Accounts are relevant to the issue of beneficial ownership.  Tracing the original source of funds become necessary.  

33.  Second, the Two Reports expose a number of unredacted copies of the Siblings’ Statements.  One can easily see from those copies that the redacted parts of the Siblings’ Statements provided to the wife contained entries for payments of the property tax of the Property amounted to SGD200,274.73. Those entries have been taken into account for computation as cost of the Property and contribution of the siblings in the Two Reports.

34.  In the premises, the affirmations of the siblings in claiming that the redacted parts are unrelated and irrelevant to the purchase, construction cost or any mortgage loans cannot be regarded as conclusive on the issue of relevance. 

35.  Third, the Siblings’ Statements have been redacted almost entirely. Their statements amount to 152 pages and 141 pages respectively, yet all disclosed transactions can be summarized into a one-page statement (see Appendix 1 of the skeleton submissions for the wife).

36.  As to the Brother’s Statements, only 22 transactions (all cheque withdrawals) ranging from SGD16,000 to SGD60,000 were disclosed. The account, having a relatively low balance (total deposits and investments as at 8 December 2014 amounted to SGD5,684; remaining balance as at 15th October 2015 was SGD87,165.31; total relationship balance for January      2017 was SGD5781.41) yet supports continuous significant cheque      withdrawals, invites serious argument for inferences that the account was being used as a vehicle to receive funds from another party who was funding the brother’s payments.  

37.  As to the Sister’s Statements, only 15 transactions (all cheque withdrawals) ranging from SGD42,000 to SGD111,000 were disclosed. The monthly total withdrawals for three particular months were also disclosed. The total withdrawals for March and April 2016, were SGD 125,839.44 and SGD 171,613 respectively.  There were no deposits for both months. For November 2016, the total withdrawal was SGD105,195.11.  No individual transaction was disclosed for the month.

38.  In the circumstances, I accept Mr Clough’s submission that as the state of the documents provided now stands, there are significant transactions yet to be disclosed and that the source of funds for these accounts call for investigation.

39.  Fourth, as to the wife’s argument that the siblings had no or insufficient fund themselves to have funded the Joint Account to meet the monetary obligations, the siblings have provided no justification of their ability to pay other than relying on the 2011 Loan and the 2013 Loan, said to be the loans for their personal use.

40.  The siblings have neither put forward any information about the actual use or the flow of the fund of the 2011 Loan and the 2013 Loan, nor have they mounted any real challenge to the wife’s statements that the Siblings did not have financial means for such substantial investment (the sister was a housewife of modest means and the brother was a retiree without income other than from the husband), that the siblings had no connection with Singapore leading to the investment of the Property but for the husband (they did not reside in Singapore or had any business connection there), that the Siblings’ Statements were addressed to the offices of the husband’s business in Singapore.  I am accordingly persuaded by Mr Clough’s submission that the siblings’ ability to pay is in doubt and the circumstances under which they invested in the Property are suspicious which invites investigation.

41.  Mr Pilbrow, Senior Counsel for the siblings, seeks to argue that as the husband has produced unredacted copies of the statements of his accounts for the same period and will provide details of all transactions in excess of SGD2,000 appearing therein, it must logically follow that if, during the relevant period, the husband transferred funds to the Siblings’ Accounts, details of the same will be apparent from the Husband’s providing the details requested. 

42.  I see the force of Mr Pilbrow’s submissions, I however cannot ignore the fact that the husband was a resourceful person who had engaged in a number of property investments and corporation operations.  There is solid basis for the wife to believe that there are other sources of fund in addition to those bank accounts already disclosed.

43.  Another attractive argument of Mr Pilbrow is that only the purchase cost of the land and the construction cost of the house but not the recurring cost should be taken into account for determination of the beneficial ownership.  The beauty of such argument is nevertheless eroded by the siblings having regard to the recurring cost as property tax and insurance premium for computation in the Two Reports they seek to rely on, for the purpose of establishing their beneficial ownership.

44.  Suffice it to say that the disclosure of the unredacted Siblings’ Statements to RSM who has incorporated some entries, which have not been disclosed to the wife, in the Two Reports is an indication of relevance and the argument on the issue of confidentiality cannot stand.

45.  In any event, it is clear to me that the information now sought is not confidential but merely personal information according to the legal principles aforesaid.  Further, the siblings’ rights will be well protected by the undertaking given by the wife at the hearing that the information obtained will be used solely for the purpose of these proceedings.

46.  Having considered all the evidence before me and the submissions of the parties, I am satisfied that the blanked-out parts of the Siblings’ Statements contain information relates to the matters in question in the preliminary issue proceedings.  Such information will lead to a train of inquiry for they will enable the relevant transactions to be identified and the sources of funds be investigated in greater details.  It may either directly or indirectly enable the wife to advance her own case or to damage the other side’s case and is necessary for fairly disposal of the issue on the siblings’ contributions to the payments relating to the Property and ultimately, on the beneficial ownership of the Property.

47.  As for the request for details of all entries appearing in the Siblings’ Statements in excess of SGD20,000 or SGD2,000, I take the view that a blanket direction for such detailed information, involving hundreds of pages of bank statements, to be disclosed by the siblings by way of affirmation at this stage is inappropriate. For better case management and to save the parties’ costs and time, the wife should first review the unredacted Siblings’ Statements together with the bank statements provided and the information to be provided by the husband, making reference to all the self-explanatory entries contained therein, before asking for further information from the siblings.  Minute investigation may not be necessary for the determination of the beneficial ownership of the Property between the wife and the siblings.  In my view, the direction sought in the Amendment Summons is pre-mature at this stage.  I accordingly make no order for it save as to costs as set out below.

Order

48.  In conclusion, I order that : -

(1)     the brother do produce to the wife the complete Brother’s Statements without redaction within 14 days from the date hereof;

(2)     the sister do produce to the wife the complete Sister’s Statements without redaction within 14 days from the date hereof.

Costs

49.  I also make a costs order nisi that : -

(1)    the costs of the Discovery Summons between the siblings and the wife, including all costs reserved, be in the cause of the preliminary issue save that the costs of this hearing, including all affirmations filed during this hearing, be paid by the siblings to the wife, to be taxed if not agreed, with certificate for one counsel. 

(2)     the costs of the Amendment Summons between the siblings and the wife be paid by the wife to the siblings, in any event, to be taxed if not agreed, with certificate for counsel.  

50.  This costs order nisi shall become absolute at the expiration of 14 days after the date of this Decision.

51.  I would like to thank counsel for their valuable assistance.