JADEMAN (HOLDINGS) LTD. AND OTHERS v. TONY WONG CHUN LOONG AND OTHERS

1990, CL No. 15

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H E A D N O T E

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    Application under Order 24, rule 16(1) of the Rules of the Supreme Court to strike out the defence and to enter judgment on the grounds that there had been a contumelious failure to comply with an order for discovery.

1990, CL No. 15

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

COMMERCIAL LIST

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J U D G M E N T

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1. Although this application was heard in Chambers I have decided to deliver the judgment in open court having regard to the public interest.

2. The plaintiffs by summons dated the 9th April 1991 to strike out the defence and for judgment to be entered against all the defendants except the 3rd and 7th defendants on the grounds that there has been serious default by the defendants in complying with an order for discovery originally made in aid of a Mareva injunction on the 28th February 1990.

3. The 1st defendant acted in person at the hearing, but neither the 2nd defendant nor any of the other defendants appeared. I shall refer to the 1st defendant either as the 1st defendant or Tony Wong.

Background

4. The 1st plaintiff, Jademan (Holdings) Limited (Jademan) was incorporated on the 29th June 1979, its founder being Tony Wong who is a very talented artist. Tony Wong was originally the sole shareholder and managing director of Jademan which is the parent company of the Jademan Group of companies. The principal business of the group is that of publishing comics, magazines, periodicals and newspapers. Jademan became a public listed company in ]986 when Tony Wong became Chairman and Executive Director. He held these positions until he resigned on the14th June 1989 after criminal charges were preferred against him. The other six plaintiffs are wholly owned subsidiaries of Jademan.

5. Patricia Wong, the 2nd defendant, is the 1st defendant's sister and was a director of various companies in the Jademan group and acted under the instructions of Tony Wong as his personal assistant and nominee. She was in charge of the affairs and kept the books of several of the Jademan companies. She played a major part in handling money and facilitating its transfer from the plaintiffs' companies to the private companies of Tony Wong. In her evidence the 2nd defendant said that she did not know how the monies received by the private companies from Jademan were used.

6. Yin Shui Yee, the 3rd defendant, is the mother of the 1st and 2nd defendants and was a director of the 5th, 11th and 12th defendants and of other.companies in the Jademan group.

7. The 4th to the 10th defendants and the 12th defendant are companies incorporated in Hong Kong whilst the 11th defendant is a company incorporated in the Isle of Man. It is not in dispute that all these companies were either under the direct or indirect control of the 1st and 2nd defendants.

8. Following substantial losses incurred by Jademan which were revealed in accounts as at the end of March 1989, investigations were carried out by the Commercial Crime Bureau into the 1st defendant's dealings with the funds of the company. As a result of this investigation, the company was delisted by the Hong Kong Stock Exchange on the 20th April 1989. The company was relisted on the 2nd January 1990. On the 1st June 1989, the Financial Secretary appointed an inspector to investigate Jademan under s.143.(1)(c) of the Companies Ordinance. The report of the inspector dated the 15th August 1989 revealed that grave breaches of fiduciary duty had been committed by the 1st defendant by his misappropriation of monies belonging to the company. Subsequently, charges were preferred against the lst, 2nd and 3rd defendants. The lst and 2nd defendants were convicted in the High Court of conspiracy to defraud and were sentenced to terms of imprisonment in January 1991. The 2nd defendant has completed her term of imprisonment, but the 1st defendant is still serving his sentence.

9. The 3rd defendant was joined as a party in this action as it was believed that she was a recipient of some of the plaintiffs' monies in her capacity as a director. However, in view of the evidence that she has filed in which she said that she is illiterate and had no knowledge of the financial dealings of the companies, Mr Thomas, counsel for the plaintiffs, said that she was a victim of the lst defendant's financial manipulations so that the plaintiffs do not intend to pursue the claims against her. Further, the plaintiffs are not proceeding with their claims against the 4th to the 6th and the 8th to the 12th defendants on this application.

10. The 7th defendant is a joint venture company formed for the purpose of making films. A separate defence has been filed on behalf of the 7th defendant, and the action to strike out does not apply to this defendant

Points of Claim

11. The present proceedings were instituted on the 28th February 1990 for breach of contract, breach of fiduciary duty or breach of trust arising from allegations of fraud, misappropriation and misfeasance by the 1st and 2nd defendants. The particulars of the breaches can be summarised as follows :-

(1)    A secret profit was made by the 1st defendant of $3 million from the sale of a property known as hwan Yick Property.

(2)    The 1st defendant misappropriated $24.9 million due from the Distributor to Jademan for his own use and benefit.

(3)    An unlawful advance of $5,180,000 was procured from Jademan to the 7th defendant, a company in which the lot defendant had a controlling interest.

(4)    Negligent loan transactions of $19,089,500 were made to various employees of the 1st defendant.

(5)    Unliquidated damages are claimed by Jademan for its suspension from the Stock Exchange.

12. Relief is sought by way of claims for payment of liquidated sums due, damages for breach of the Ist and 2nd defendants' fiduciary duty in misappropriating the funds of Jademan, an account and enquiry as to loss and damage suffered, and an indemnity for the wrongful advances. Credit will be given by the plaintiffs for all monies recovered in the meantime.

Defence

13. A defence was filed on behalf of the lst to the 6th and the 8th to the 12th defendants denying the allegations of fraud and misappropriation and put the plaintiffs to proof.

Order

14. Before the writ was filed, but upon the plaintiffs' undertaking to do so forthwith, the plaintiffs, on the 28th February 1990, obtained, on an ex parte application before Barnes J., an Anton Piller order and Mareva injunction against the defendants. A further order for discovery was made in aid of the Mareva injunction together with an order for tracing.

15. On the 10th April 1990, after a contested hearing of the inter partes summons before me, I made an order in favour of the plaintiffs continuing the injunctions and dismissed the defendants' application to discharge the order. I also refused the defendants' application to vary the order for payment of sums for legal fees and living expenses on the grounds that there had been a manifest failure by the defendants to make a full and frank disclosure of their assets. However, the order for tracing made by Barnes J. that was wider in scope was modified. The relevant parts of the order of the 10th April 1990 as modified for the purposes of the present application read as follows :-

    "2 .......

    (a) the first three named Defendants and each of them give d iscovery of the following facts and matters;

i) details of any monies or assets received from the 1st plaintiff or any company in the Jademan Group since August 1986 by any of them (the first three named Defendants), and, save for any sums received by way of agreed salary or bonus or dividends, what became of such monies or assets, including the identity of any bank accounts into which such monies or assets were paid;

ii)    names and addresses of all companies or corporate bodies or trusts controlled or beneficially owned in whole or in part by any one or more of them;

iii)    details of any monies or assets received since August 1986 directly or indirectly from the 1st plaintiff or any company in the Jademan Group by any one or more of those companies or corporate bodies or trusts;

iv)    details of what became of the said receipts in the hands of those companies or corporate bodies or trusts, including the identity of any bank accounts into which such monies or assets were paid."

16. At another contested hearing before me that commenced on the 4th May 1990 to consider inter alia, summonses issued by the defendants to vary and for an extension of time to comply with the order for discovery, it was apparent that very little progress had been made with regard to discovery since my judgment of the 10th April 1990. During this hearing, Mr Thomas, described. the 1st defendant's attitude to the court's order as casual, off-hand and sluggish'. With regard to the state of compliance by the defendants with the court order, I had this to say at p.8 of my judgment delivered on the 11th May 1990 :-

"The defendants concede that the plainitffs have a good arguable case relating to serious breaches of fiduciary duty that have resulted in massive losses by the 1st plaintiff and its subsidiaries. It is also admitted that the defendants have failed to make full compliance with the court's orders for discovery, the first having been made over two months ago. None of the defendants has made an apology for their failure whilst their counsel has made the rather lame excuse that it is better late than.never despite the fact that until the summons issued on the 7th May, the defendants had made no further application for an extension of time. The defendants' solicitors in fact only sent letters to various banks in Hong Kong requesting information on the 2nd May, two days before the present hearing started. The areas of non-disclosure can in no way be described as minimal. In particular, the 1st defendant has still provided no explanation with regard to the whereabouts of the monies alleged to have been misappropriated from the lst plaintiff and companies in the Jademan Group nor has he come grips with the details required concerning the companies that were under his control or beneficial ownership."

17. Although I dismissed the 1st defendant's application to vary, I granted a further three months extension to comply with the order for discovery.

18. At this stage, the 1st defendant had secured the services of the accountants Price Waterhouse in order to make an investigation and report in an attempt to comply with the order for discovery. Following their investigations, Price Waterhouse delivered three draft reports to the 1st defendant's solicitors and a final report on the 17th August 1990. However, when the final report was submitted, the solicitors for the defendants, acting upon the advice of counsel informed Price Waterhouse that the wrong methodology for tracing had been adopted. They drew their attention to a passage in Snell's Equity that now appears in the 29th Edition at p.301 which is the rule in Re Hallett's Estate [1879] 13 Ch 691 and reads as follows :-

"Where a trustee draws on a bank account which contains both his own money and trust funds, he is deemed to draw on his own money first, even if it was the most recently paid in, and to draw on the trust funds only after all his own money has gone; for the presumption is against a breach of trust."

It is unnecessary for me to consider this issue for it is irrelevant to the determination that I have to make. Nevertheless, I agree with the argument that was presented by Mr Thomas that the rule can only be invoked when the fiduciary is presumed to have acted honestly. It is incumbent upon the fiduciary however to establish what are his own monies and what.are trust monies, see In re Tilley's Will Trusts [1967] 1 Ch 1179. The advice therefore given to Price Waterhouse was wrong and based upon the false assumption that the fiduciary had acted honestly which is not the position in these proceedings. By their misconception of the law, Price Waterhouse produced an inequitable result for if a fiduciary is dishonest, it is obviously not right to treat withdrawals first from non-trust money, but when they are insufficient to treat the balance of withdrawals as trust money. Not only was the methodology used wrong, but there are examples of monies that are described in the accounts as trust monies which later appear as non-trust monies. No explanation was provided for these inconsistencies.

19. As a result of the methodology that was used, the defendants sought a further adjournment to enable Price Waterhouse to prepare a fresh report, adopting the methodology advised by the defendants' legal advisers, and I granted a further adjournment on the 24th August 1990 until the 31st October 1990.

20. After the extension that was granted on the 24th August 1990, subsequent extensions of time were granted by orders made on the 25th October and the 7th November 1990. On the 24th December 1990 the time was again extended to the 28th February 1991. On the 26th February 1991, I made a final order against the defendants that unless the order for disclosure was complied with by the 31st March 1991, the plaintiff's would have leave to enter judgment. A further application for an extension of time on the 28th March 1991 was dismissed whilst an appeal against this decision was dismissed by consent on the 19th October 1991.

21. The present summons was issued on the 9th April 1991 and came before me on the 22nd April 1991 when the application had to be adjourned because of lack of time. When the summons came before me for the substantive hearing on the 10th December 1991, the 1st and 2nd defendants appeared in person and obtained a further adjournment so that they could apply for legal aid. Both applications for legal aid were refused and when the proceedings were restored for hearing on the 11th May 1992, the 1st defendant, as I have said, appeared in person whilst the 2nd defendant was absent.

Report of Price Waterhouse

22. At the hearing, I had before me the report by Price Waterhouse dated the 22nd February 1991 upon which the 1st defendant relies for his contention that there has been substantial compliance with the order. However, the 1st defendant also sought to adduce a further report of Price Waterhouse dated the 26th November 1991. After hearing submissions, I granted the 1st defendant's application for leave to admit this evidence.

23. Attached to the report is a covering letter from Price Waterhouse addressed to the 1st defendant's former solicitors Wai & Co. from which I set out the following extracts which are relevant :-

    "Results and limitations of our work

Details of receipts from the Jademan Group by the first three defendants and identification of their subsequent use, where possible, is provided at Appendices IIIA and IIIB. Details of receipts by the companies related to the first three defendants and identification of their subsequent use is provided at Appendices IVA and IVB. With regard to the transactions referred to in paragraphs 17 to'22 of the Points of Claim, we have, where possible, specifically addressed each point and provided details of the bank accounts, ledgers, individuals, etc involved in the transactions. This information is given at Appendix V.

24. This information is subject to the following limitations:-

1. In preparing the schedules shown at Appendices IIIB and IVB, all monies received by the first three defendants (with the exception of agreed salary, bonus or dividend) and by the companies related to them, from companies in the Jademan Group,. were treated as 'trust' monies. Where we have not been able to identify the source of a lodgement it has been treated as 'non-trust' monies. Withdrawals are made initially from 'non-trust' monies, but where these are insufficient, the balance has been treated as a withdrawal of 'trust' monies. This treatment was that advised to us ..... More detailed assumptions made in preparing Appendices IIIB and IVB are given in the notes to these Appendices.

2.    To obtain a complete analysis of receipts of monies and what became of them, as required by the Order, it is necessary to identify the source of all deposits or withdrawals. Any incorrect identification of a payment or lodgement due to inadequate information could result ~in a misstatement of subsequent 'trust' and 'non trust' balances. As described at Sections 7, 8 and 9 below, we have been unable to trace the source of a majority of the deposits as shown in the. bank statements set out at Appendix IIIB due to lack of information. In consequence, the findings set out in Appendices IIIB and IVB are inconclusive.

3.    We have been advised ....... that there are 44 companies related to the first three defendants. In our discussions with Pat Wong, we were informed that 13 of these companies were dormant and no accounting records had been kept. We have performed no further work on these companies ..........

4. Of the other 31 companies, we have had access to all of the accounting records of 16 of such companies for the period under review. Despite repeated requests of both yourselves and Pat Wong, the records of the remaining companies have not been made available to us. (We have been advised by Pat Wong that she did not have access to these records, which were in the custody of third parties.) Consequently, we cannot be certain that we have identified all amounts received by companies related to the first three defendants from the Jademan Group. A list of the records which we requested together with details of those subsequently received is provided at Appendix VIA.

5.     ......

6.     ......

7.    In the books of all companies, both of the Jademan Group and companies related to the first three defendants, the records only indicate the general ledger account to which each payment was allocated (e.g. Tony Wong's loan account) and not the name of the payee. Nonetheless, we have attempted to identify the payee from cheque stubs where these are available. Where this work provided insufficient information, due to incomplete or missing cheque stubs, we requested you to write to the banks requesting copies of returned cheques. Despite repeated requests by ourselves, returned cheques were only received in relation to 28 bank accounts out of requests made on 35 bank accounts. The copies of returned cheques received represent principally minor bank accounts (see Appendix VIC). In consequence, it has proved impossible to provide details of all payments made subsequent to the receipt of monies from companies in the Jademan Group.

8. other than a book maintained by Tony Wong relating to one of his bank accounts, and apart from the bank statements described at Appendix VID, no accounting records for the personal bank accounts of each of the first three defendants appear to have been maintained. As in section 7 above, we have relied upon the cheque stubs and copies of returned cheques to trace payments. Even when cheque stubs were available, the payee details were often incomplete. In consequence, to identify the payee, we were heavily dependent upon the various banks to provide us with copies of returned cheques. As mentioned above, not all copies of returned cheques have been forthcoming. A list of the bank documents requested is provided at Appendix VIC.

9. No documentary evidence of the source of deposits in the bank accounts of the first three defendants has been provided. Information on deposits is not maintained by the banks to enable us to determine thesource of deposits. Limited matching of receipts and payments was possible on the basis of information arising from a review of records of the Jademan Group and cheque payments shown in the bank statements of the first three defendants (See Appendix IIIA), but it has not been possible to ascertain the quantum of the receipts in these banks accounts which are sourced from the Jademan Group.

10. With regard to the transactions described at paragraphs 19, 20, 21 and 22 of the Points of Claim, we have not been provided with sufficient documents to allow us to give all of the necessary details. We have been advised by Pat Wong and Tony Wong that they have provided us with all the documents to which they have had access.

11. There are discrepancies between the documents actually supplied to us by the CCB, and the written list of documents attached at Appendix VII. For example, we were handed documents relai: ng to companies in the Jademan Group which-according to the CCB listing should not have been among the documents passed over. It is therefore possible that some of the documents we require may still be at the CCB.

The difficulties referred to above, which we have experienced in obtaining information throughout this exercise, and the length of time that has elapsed since we last received copies of documents from the bankers to the defendants, lead us to conclude that we are unlikely to be provided with sufficient information to complete our work. This fact, coupled with the lack of information maintained by the banks on lodgements into bank accounts, indicates that it will not be practicable to complete the Appendices to this Report. Accordingly, we see no further benefit in delaying finalisation and issuance of this Report."

25. Price Waterhouse then set out details of the work that they performed in accordance with the order in which they referred to the clauses in the order of the 11th May 1990 which were numbered differently to the earlier orders. In the report of the 22nd February 1991, Price Waterhouse stated that a total of $304m was unaccounted for, but this figure was revised down to $196m in the second report of the 26th November 1991. This figure has not been disputed.

26. The first report of Price Waterhouse was exhibited to the 1st defendant's 25th affirmation of the 20th March 1991. Having perused the report, the plaintiffs' solicitors Wilkinson & Grist wrote to the lst defendant's solicitors Wai & Co. on the 16th April 1991 contending that the defendants were in serious and contumelious default of the court orders. In particular, they referred to five examples in the report where the accounts stopped at the first payment out by the first recipient of a sum received from the Jademan Group. The first reveals that the lst defendant made five payments totalling $3.06m to Hatfield Limited (Hatfield), a Tony Wong company from the 9th to the 18th September 1986. The second relates to a payment by the 1st defendant of $10m. to Bain and Co. Securities Limited which reduced the trust balance from over $9m to nil. The third is a payment by the 1st defendant to Profitway Limited, another Tony Wong company of $3.6m on the 9th September 1987 which reduced the trust balance from $2.4m to nil. The fourth shows a payment by the 1st defendant of $5.25m paid to his wife Ma Kam Har, which reduced the trust balance by $2.4m. The fifth is a payment by the 2nd defendant of $7.2m to the 1st defendant on the 15th July 1987 which followed a receipt of $7.25m from Jademan. This reduced the trust balance by $7.1m. The corresponding entry in the accounts of the 1st defendant however describes the sum of $7.2m as non-trust money. This is one of the examples to which I have referred where money originally described as trust money later changed its character to non-trust money for no apparent reason. In fact Tony Wong conceded that this example was an error. The five illustrations of Wilkinson & Grist reveal a total failure on the part of the 1st and 2nd defendants to explain what happened to any of the monies that were received.

27. The five illustrations are referred to in greater detail in the analysis of Price Waterhouse's report prepared by Wilkinson & Grist that appears in the schedule to this judgment. The first example appears in examples 4, 6 and 7, the second in example 19, the third in example 25, the fourth in example 3 and the fifth in example 20. The analysis of the first report had already been prepared for the hearing, but upon the second report being admitted, a further analysis was prepared to take into account the additional details. In fact, the only significant difference in the two reports relates to the reduction of the sum unaccounted for from $304m to $196m. The analysis describes the methodology adopted with charts that set out details of 28 illustrations of the movement of trust monies as disclosed in the report. Notes have also been prepared in respect of the illustrations, with one exception, which are appended at the foot of each example. This very helpful analysis is, as I have said, set out in a schedule to this judgment.

28. It is clear from the evidence that with regard to the 44 private companies that were the nominees of the 1st defendant, some may have had genuine trading activities which were often in direct conflict with those of the plaintiff companies. However, other companies had no genuine trading activities at all and do not appear to have served any other purpose than, as was described by Mr Thomas, to be used as corporate cash boxes for the misappropriated funds of Jademan. In particular, three companies Hatfield, Petworth Limited (Petworth) and Mentmore Limited (Mentmore) which are all registered in Panama were used for this purpose. The accounts disclose transfers and re-transfers of funds on a single day of very substantial sums of money. Mr Thomas therefore submitted that these transactions were carried out in order to cover over the traces in order to make it more difficult later on to retrieve the company's funds. It is also significant that of the accounting records produced they related mainly to the trading companies whilst there was very little documentation for the non-trading companies.

Submission of Tony Wong

29. Tony Wong asked me to take into account his present circumstances, his lack of knowledge of the law and to the fact that he has little knowledge of accounts and financial affairs. He said that the defendants have observed and complied with the order for discovery on the basis that all the documents in their possession have been disclosed whilst all relevant information has been supplied to the plaintiffs. Tony Wong said that the accounts of the defendant companies had been handled by staff of the accounts department of Jademan which was only loosely controlled. As a result, this led to incomplete accounts or confusion in the accounts which was not deliberate, but was due to poor management.

30. He criticised the plaintiffs' attitude when they resisted his application for the release of funds to pay his professional advisers. He also contended that the plaintiffs have an ulterior motive for pursuing the present application on the grounds that it will affect his shareholding in Jademan. No reference was made by the 1st defendant to this issue in his evidence, but it appears that the Stock Exchange requires the joint shareholding of Tony Wong which amounts to 40% and that of Sing Tao which amount's to 4796, making a total of 87%, to be reduced to 75% by the end of June 1992. Tony Wong's shares are apparently charged to Sing Tao so if I understand him correctly, he believes that the plaintiffs-are acting in conjunctiod with Sing Tao in order that his shares can be subject to execution if judgment is entered. Neither of these complaints has the slightest justification for the plaintiffs' refusal of consent to the payment of the professional fees and living expenses was made at a time when there was a manifest failure by the 1st and 2nd defendants to make full and frank disclosure of their assets while the Sing Tao Group are in no way concerned with this action which is being conducted upon behalf of Jademan by two independent directors. Further, it is purely coincidental that the application has been heard at this time, for had it not been for the various adjournments, the application would have been heard some time ago.

31. The 1st defendant went on to say that he had invested very heavily in the stock market in Hong Kong in 1986 and 1987 and had entered into joint ventures to invest in shares with the company. By so doing, he said it was easier to control the buying and selling price which would be beneficial to himself and the company. The shares were bought in his own name and that of the 2nd defendant. He pointed out that his solicitors had written to brokers for information in May 1991 about these purchases and that he had sent reminders in May 1992, but he had not received any satisfactory replies. No reference to these investments was made by Tony Wong in his evidence

32. Tony Wong commented upon Wilkinson & Grist's letter of the 16th April 1991 and said that his 28th affirmation had sufficiently answered the questions raised. He also referred to the further evidence that had been filed since receipt of that letter, and to the second report of Price Waterhouse where he emphasised that the figure now unaccounted for had been reduced to $196m.

33. He said that the lack of information in respect of Hatfield to which I referred earlier was not deliberate, but was due to negligence on his part, his former legal representatives and Price Waterhouse. Tony Wong claimed that he was unable to provide any further information in respect of the monies received by his wife as he has not seen her for a long time and is now divorced. He also commented that the plaintiffs had acted precipitately by seeking judgment which if granted will deprive him of a fair trial.

Conclusions

34. Both the 1st and 2nd defendants in their capacities as directors owed a fiduciary duty to the creditors and shareholders of their companies. They had a duty to act responsibly and to use company funds for proper purposes. In this case, massive sums were transferred from the public company to accounts of the 1st and 2nd defendants and were received in the bank accounts of the private companies. A great many of the sums received were, as I have said, paid into the accounts of Petworth, Mentmore and Hatfield which were described by Mr Thomas as black holes. Although Tony Wong complains that it would not be fair to deprive him of a trial, yet he has not put forward any explanation as to what happened to those monies for which he and the 2nd defendant are clearly accountable.

35. The original order, as I have said, was made in aid of the Mareva injunction and no challenge has been made at any time to the making of that order for which there is clear authority, see A.J. Bekhor & Co. Ltd. v. Bilton [1981] 1 QB 923 and Bankers Trust Co. v. Shapira [19801 1 WLR 1274.

36. Far from acting precipitately as was contended by Tony Wong, over two years have now elapsed since the first order for tracing was made. That order has still not been complied with. Price Waterhouse were neither supplied with all the information that they required nor with the documents to which they were entitled. This resulted in an inconclusive report being prepared.

37. With regard to the order for discovery, the defendants quite clearly left this matter to be sorted out. by other persons that placed Price Waterhouse in great difficulty with regard to the documentation which they described as incomplete, confusing or not available. The state of the books of the company was indeed lamentable and it was as a result of,the failure by the 1st and 2nd defendants to provide proper information to Price Waterhouse that the information requested was not forthcoming. Further, there is no doubt that the 1st defendant was fully aware of,his obligations under the court order for, in his 20th affirmation of the 24th October 1990 in paragraph 10, he states that after Price Waterhouse had ascertained the identities of the recipients of funds, the next stage was to make enquiries with the recipients as to how the funds were used and what had become of them, and if funds had been invested in securities, it was envisaged that there would be a complicated exercise of following through with one investment being switched into another. This affirmation was made in support of one of the applications to extend time to enable Price Waterhouse to complete their work.

38. Tony Wong in his submission made no comment upon the analysis by Wilkinson & Grist of the report nor did he attempt to explain what had happened to the monies received by his companies, and put forward no explanation as to why they were set up or why his mother, the 3rd defendant, had been appointed to be a director.

39. The disadvantage that he experienced at the hearing without legal representation could in no way be said to be prejudicial for the material time during which he was required to make proper discovery was during the period when he was legally represented and had the assistance of Price Waterhouse. Indeed the 1st-defendant presented his submission upon.this.application.ably and with clarity.

Striking Out for Non-compliance

40. The application to strike out is made under 0.24, r.16(1) of the Rules of.the Supreme.Court which provides:-

"16.(1) If any party who is required by any of the foregoing rules, or by any order made thereunder, to make discovery of documents or to produce any documents for the purpose of inspection or any other purpose or to supply copies thereof fails to comply with any provision of that rule or with that order, as the case may be, then, without prejudice, in the case of a failure to comply with any such provision, to rules 3(2) and 11(1)', the Court may make such.order as it thinks just including, in particular, an order that the defence be struck out and judgment be entered accordingly.

41. Mr Thomas, in support of his submission that the 1st defendant's failure to comply with the order for discovery will result in a serious risk that a fair trial is no longer possible drew my attention to Landauer Ltd v. Comins & Co. (a Firm) (The Times 7th August 1991) where Lloyd, L.J. had this to say:-

"... it was common ground that the question which the judge had had to ask himself was whether there had been a real or substantial or serious risk that a fair trial was no longer possible. That was the test which had been adopted by Mr Justice Millett in Logicrose Ltd v. Southend United Football Club Ltd (The Times March 5, 1988).

In that case, the plaintiff's claim was not struck out, since the relevant documents had eventually been produced. So far as the court had been made aware, the instant case was the first occasion on which a claim had been struck out for breach of a. discovery obligation.

In Logicrose the.judge had said that it was no part of the court's function in exercising its discretion under Order 24, rule 16 of the Rules of the Supreme Court to punish the party in default. In all ordinary cases that had to be so.

But his Lordship could imagine cases of contumacious conduct, such as the deliberate suppression of a document, which might justify striking out, on the analogy of striking out for want of prosecution, even if a fair trial were still possible.

On the facts of the case, and assuming that the plaintiffs' destruction of the documents had been merely inadvertent, the judge had been justified in reaching the conclusion which he had done and in striking out the action. The appeal would be dismissed."

42. In Re Jokai Tea Holdings Ltd (Financial Times, 24th February 1989) the Court of Appeal held that "a defence will not be struck out because of the defendant's failure to comply with a'peremptory court order, unless non-compliance was contumelious (insolent) in that it was deliberate and without excuse; ..." This decision was approved in another case in the Court of Appeal Grand MetroiDolitan Nominee (No. 2) Co. Ltd v. Evans (The Times May 15th 1992).

43. The 1st defendant contends that it will be unfair if the action is not allowed to proceed to trial. However the plaintiffs are also entitled to be treated fairly which clearly cannot be achieved in this case by the 1st and 2nd defendants' failure to comply with the court's order. The 1st defendant has spent a great deal of money on his professional advisers while an abundance of evidence has been filed. However, at the end of the day, the 1st and the 2nd defendants have not provided the discovery to which the plaintiffs are entitled. The monies were received by the "black holes" where they sank without trace. From this failure to comply with the order I draw the inference that the 1st and 2nd defendants' conduct has been deliberate by milking the funds-of Jademan for their own purposes.

44. As a result, I am quite satisfied that there has been a contumelious disregard of the court's order that will render a fair trial impossible with the result that the plaintiffs are entitled to an order to strike out the defence under 0.24, r.16(1) of the Rules of the Supreme Court and for judgment to be entered.

45. The effect of striking out a defence places the defendant in the position of a person who has not filed a defence to the action, see Bains v. Patel (The Times 20th May 1983).

46. I will hear the parties upon the orders to be made.

Schedule

   ANALYSIS OF THE NOVEMBER 1991 PRICE WATERHOUSE REPORT

Methodology

    In this document charts have been prepared to demonstrate, as far as is possible, the movement of trust funds disclosed by the Price Waterhouse Report (the "Report").

    Each chart consists of 6 (or more) boxes:

    (1)    The first line details a payment of money belonging to the Plaintiff into an account controlled by one of the Defendants:

    The first entry under "Date Ref" contains the date the deposit_.was received and the page number (in square brackets) in the Report where the payment in can be found.

    The second entry under "payment" shows from which company the deposit originated and by which Defendant it was received, and if possible, which account was debited in the Plaintiff's records. "C/A" means the current account with that company.

    The third entry under "Amount" shows the amount paid.

    (2) All lines underneath the 1st line detail the subsequent movements of trust funds out from the initial recipients account as detailed in the first line:

    The first entry again shows the date and the relevant page number in the report where the payments out can be found.

    The second entry sets out who received the funds, and, if possible, the account which was credited with the funds in the recipients' records.

    The third entry shows the amount received by the payee. If that payment includes a combination of trust and non trust (i.e. Partly Trust: "PT" funds) the amount of trust monies (Trust: "T") is shown in brackets beneath the "PT" figure.

    References in the accompanying notes to numbers in square brackets with three digits refer to the Report as prepared by Price Waterhouse, references to 5 digit numbers are to page numbers in the General Ledgers ("G.L.") of the Defendant's related companies as disclosed by the Defendants and attached to the Report.

The Charts

EX. 1

Notes:

    (i)    This payment is not recorded in the JHL books according to the Report [63] but appears in TW's Personal Bank Book: see [23] and [63]. It was in fact debited to the Koo Sai Kwong C/A with JHL [11].

    (ii)     Hatfield's bank statements do not appear in Appendix IV B of the Report.

    The BCC account in Hatfield's general ledger ("G.L.") [00828) shows a $3,000,000.00 deposit debited to the account on the 13/8/1986, reducing the credit balance in BCC's account to $19,730,482.32. The credit was created by the purchase of Hysan and JHL shares. The corresponding credit entry in Hatfield's books of 3,000,000.00appears to have been made to Dg's C/A [00828]. Note that the 86/87 Hatfield G.L. consists only of its BCC and Chase bank ledgers.

    (iii)     Example of a complete failure to state what became of Jademan's money.

    (iv)    No explanation is given as to why payments should have been made to the distributor.

Ex. 2

Notes:

(i)    The Report states that this payment was not recorded in the books of JHL; [23] and [63]. It was in fact debited to Koo Sai Kwong's C/A with JHL. [11].

(ii)    ......

(iii)    It is not clear whether "YL" refers to "YLP", "YLM" or "YLA":.[30]. Price Waterhouse had all the relevant documents: [332], [379] and [380]. The sum is not shown in the YLP Appendix IVB [323] or in its G.L. [02240]. It is not shown in the YLM G.L. [02190] or in its Appendix IVB [322]. No YLA G.L.s were provided

(iv) No explanation is given as to what became of this sum, or why it was paid to Chung Kam Lok.

Ex. 3

Notes:

(i) Although the Report states this deposit is not to be found in JHL's books the swas debited to Koo Sai Kwong's C/A with Jademan.

(ii) No explanation is given of what became of this money in the recipient's hands

(iii) Example of a complete failure to state what became of Jademan's money.

(iv) This figure does'not appear in the "YLP" Appendix IVB: [323] or in its G.L. (02243]. Payment may have been made to "YLM" or "YLA": [30]. The figure does not appear in the YLM G.L. [02190] or in its Appendix IVB [322].

(v) No explanation is given as to why this payment was made to Empire, nor is it stated against which C/A the payment was credited.

(vi) No Flying Step Appendix IVB is provided. Flying Step was a T/W company at this time and Price Waterhouse had access to its G.L.'s. No explanation is given as to which C/A this payment was credited to, or what happened to the resulting credit balance in that account.

(vii)    Said to be a payment to cash.

(viii)    Not shown in "YLP" Appendix IVB (323] or in the YLP G.L. [02243]; it may have been payment to "YLM" or "YLA": [30], though it is not shown in the "YLM" G.L.s [02100-02189) or its Appendix IVB [322].

Ex. 4

Notes:

(i)    Appendix IVA [106] shows receipt by Hatfield of a single transfer of $22,000.00 from JHL.

(ii) The Hatfield GL [00832] shows a deposit of $1,600,000.00 debited to the BCC A/C with Hatfield on the 9.9.86. This deposit increases the ACC A/C debit balance in Hatfield's A/C to $2,098,387.66, and is immediately followed by the purchase of 1,492,000 JHL shares for $2,009,790.04 of which at least $1,423,103.02 must have been funded by this JHL payment to TW.

Ex. 5

Notes:

(i) It is not clear which "YL" company this refers to: [30]. The payment is not shown in the "YLP" Appendix IVB [323] or in its G.L. [02243]. Price Waterhouse had sufficient documentation to identify the recipient: [332], [379] and [380]. The deposit is not shown in the "YLM" G.L. [02190]; or in its Appendix IVB [322].

(ii) No explanation is given as to the reason for this payment to Huge Glory.

Ex. 6

Notes:

(i) There is no Hatfield Appendix IVB, though Price Waterhouse had the relevant accounting documents: [332].

(ii)    The Hatfield GL [00833] shows $200,000.00 was deposited with BCC; possibly clearing an O/D of $193,903.60 created by the purchase of JHL shares the previous day.

Ex. 7

Notes:

(i) There is no Hatfield Apppendix IVB; though Price Waterhouse had relevant accounting documents: [3321].

(ii)    [00832] shows $1,220,000.00 deposited on the 13.9.86. Possibly it clears an O/D of $1,217,768.16 created by the purchase.of $1,219,968.40 worth of JHL shares on the 12.9.86.

Ex. 8

Ex. 9

Notes:

(i) Not shown in the Petworth Appendix IVB (252]-(255]. Price Waterhouse were not given the relevant bank statements [336] for this period, though they did have the accounting documents. No Petworth 86/.87 GL was provided by the Defendants. Note discrepancy in BCC A/C numbers between [350] and [336].

(ii)    The Hatfield Appendix IVB does not cover the period. The Hatfield "GL" for 86/87 consists only of bank accounts running 12.8.86 to stops at31.10.86 [00836] and therefore does not show this payment as a deposit.

(iii) No Flying Step Appendix IVB was provided though the company was owned by Di at this time and Price Waterhouse had access to its accounting records.

Ex. 10

Notes:

(i) Shown as a payment to "Cash" [101]; however in original report the payment was made to "Cash TT".

    Not clear if "TT" is Top Tactic see [30]. Not shown in the Top Tactic Appendix IVB [317] to [319].

    There is no Top Tactic GL for 86/87 provided by the Report: [02082].

(ii) Shown as a payment to "Cash" [101]; however in original report the payment was to "Cash H".

    Not clear if "H" is Hatfield, see [30]. No Hatfield Appendix IVB is provided in any event. The Hatfield 86/87 GL stops 31.10.86 [00836] so no further details are ascertainable.

Ex. 11

Notes:

    Flying Step was a T/W company at this time; there is no Flying Step Appendix provided although Price Waterhouse had access to the General Ledgers.

Ex. 12

Notes:

(i) The "Non Trust" balance of $5.58m comes from a deposit of the same sum the previous day [781 from an unknown source. May be trust out from Grant [1821].

(ii)    [203] shows these sums were dissipated by payments to salary and allowance.

(iii)    Though Fresh Weekly was a Tony Wong company at this time and Price Waterhouse had access to all accounting documents; no Appendix IVB was provided.

Ex. 13

Notes:

(i) No explanation is given as to why this sum was paid to JIH or against which a/c it was credited.

(ii)    The non trust balance of this figure is funded by "unknown" sources in T/W accounts see [671 and [34].

(iii)    Not specifically shown in T/W's A/Cs: [34], [60], [62], [68], [73].

    There is a deposit from an unknown source on the 5.2.87 [34].

Ex. 14

Notes:

(i) Non trust balance of $1.5m from Grant. There is no Grant 86/87 GL provided. No explanation is given as to which C/A this was credited to.

(ii) In the original Report [80] this payment was made to "733 Nathan Road", a property owned by Kasos, then owned by T/W. No Appendix IVB was provided for Kasos; although Price Waterhouse had access to its General Ledgers. No explanation is given as to what A/C was credited or of what became of the resulting credit balance.

Ex. 15

Notes:

(i)    The non trust balance of this figure was funded by $3m from "unknown" sources [80].

(ii)    Balance of trust monies ($2,361.42) dissipated [79].

(iii)    Flying Step was a T/W company at this time. No appendix IV A or B is provided, though Price Waterhouse had access to the accounting documents.

Ex. 16

Notes:

(i)    Complete failure to account.

Ex. 17

Notes:

(i) Not shown in Dg's A/Cs in this report: [37], [611, [621, [701, [73]

Ex. 18

Notes:

(i) Not shown as received by D, in the Report: [37], [61], [70], [73].

Ex. 19

Notes:

(i) The Defendants contend that the operation of assumption 2(i) [118] prevents tracing Jademan's money to the extent that this money has reduced his personal overdraft.

(ii) No explanation is given as to why this payment was made to Tommy Lee

Ex. 20

Notes:

    (i) No explanation is given as to why this payment was made to Hang Seng.

An example of a failure to state what happened to Jademan's money.

    (ii) & (iv) These call deposits do not reappear.

    (iv) The Grant Appendix IVB does not cover the period of this payment [182-186].

    [00513] shows $750,000.00 credited to Pat Wong's C/A 17.7.87.

    [00535] shows that this payment cleared an O/D created by a payment the previous day to the Commonwealth Bank of Australia (C.B.A.) as interest on GIL's $10m loan with the C.B.A.

    Note that though [39] now shows the $750,000.00 as trust out [84] shows the payment as Non-Trust in.

Ex. 21

Notes:

    (i)    Example of a complete failure to account.

    (ii)    No explanation is given in respect of this payment to Peary Enterprises.

    (iii)    The Appendix IVB [252] [255] does not show this sum as being deposited. BCC's A/C in Petworth's general ledgers [01544] shows on deposit debited on the 25.8.87 and credited to C/A Wong [01501]. This deposit clears an 0/D on the BCC A/C of $44,922.72. A sum of $3m is thereafter shown as paid out to Philip Mo & Co. [01544]. There is no Philip Mo account in the GL as provided in the Report.

Ex. 22

Notes:

    (i)    Note that the payment is credited to Tony Wong.

    (ii)    Not shown in a Di's Bank A/Cs [43], [62], [71] and [73], though this period is still missing from T/W (4) [711.

    (iii)    Then a company controlled by DL. No Appendix IVB was provided for Kasos, though Price Waterhouse had access to the accounting documents see [2111 - [212].

Ex. 23

Notes:

    (i)    Shown as "trust" in report: JHL's C/A with NTMW was credited with these amounts. [01430]

    (ii)    O/D in TW (1) [42] created by payment of $3.1m to P/W (2) [88]; where a similar sum was paid out to Mentmore (01211] on th e same day where it clears an O/D created by payments on behalf of Thraki; there is nothing in Thraki's general which illuminates this transaction. [02012-02038]

    (iii)    [332] shows that no Profitway Investment accounting documents were made available to Price Waterhouse. Neither is it clear which "Profitway" this refers to; "PCC"'or PIL (30]. (Note the original analysis mistook Petworth's Appendix IVB for Petworth's Appendix IVB. There was and is no Profitway Appendix IVB.)

    (iv)    The Alan Appendix IVB does not show this payment [156] and (168]. Note that only 2 of 9 A/Cs are shown in any event [341].

Ex. 24

Notes:

    (i)    This money is showing in the books of STVW as a debt due to it from Empire. [286]

    (ii)      Not found in a T/W A/C disclosed in Report.

Ex. 25

Notes:

    (i)    Another example of trust money clearing Dg's O/D but yet substantial payments are made to D2 or related companies on the same day.

    (ii)    It is not clear whether this refers to "PCC" or "PIL" [30]. Price Waterhouse received some accounting documents for each company [332] and [3741.

    (iii)    No income to "Profitway" is shown on [111] - [112] other than dividends.

    There is still no Profitway Appendix IVI A or B.

Ex. 26

Notes:

    (i)    Not in the Mentmore Appendix IVB does not cover this period (212] - (213]. [01215] shows $5.5m was debited to BCC's A/C in Mentmore's G.L. and was credited to Thraki's C/A with Mentmore [01236]. [01216] shows that $5,484,725.00 was paid out to Annie Ma (DA's wife) as AU$1,011,000.00 on the same day.

    (ii)    No Profitway Appendix IVB is provided, Price Waterhouse saw some accounting documents from "PCC" or "PIL" [332] and [374].

    (iii)      (a) On the 29.12.87 in P/W (2) [93] there is a deposit shown from Thraki (A/C 1371913) for $920,000.00 being $810,000.00 plus a non trust cheque from Thraki. This figure is paid out to Top Tactic ($350k) and Mentmore ($370k). Neither Company's Appendix IVB shows the relevant deposits (317-319] and (212-213].

    (b)      The payment to Top Tactic can be seen debited to its BCC account [02069] and it may clear a possible overdraft created by a payment of interest made the previous day to the Royal Trust Bank.

    (c)      The payment to Mentmore can be seen debited to BCC's account with Mentmore (01217], and is paid out to James Capel on the same day (01229).

Ex. 27

Notes:

    (i)    This payment is shown as clearing O/D created by payment of the same amount to Di on the same day.

    (ii)    Not shown in a D1 Bank A/C, though this period is still missing from T/W (4) [71].

Ex. 28

Notes:

    (i)      Not shown in a Dz A/C; [79], (93] and [101].