CHAN HUNG v. YUNG KWONG CHUNG

HCA 216/2004 and HCA 217/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 216 OF 2004

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(Consolidated by Order of Master J. Wong dated 30^th June 2004)

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D E C I S I O N

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Applications

1.  The Action herein is a consolidated action of 2 sets of proceedings, being HCA 216 of 2004 and HCA 217 of 2004 respectively. The claims made by the respective Plaintiffs in HCA 216/04 and HCA 217/04 (against the same Defendant) are essentially the same and for the purpose of the present applications, no distinction needs be drawn between the case of the two Plaintiffs.  I will for convenience refer to the Plaintiff in HCA 216/04 and HCA 217/04 collectively as “the Plaintiffs”.   Where necessary, I will refer to the individual Plaintiff in each of the actions simply by their names.

2.  There are 2 summonses before me.  The first Summons (“1^st Summons”) was dated 25^th July 2008 and the second Summons (“2^nd Summons”) was dated 23^rd September 2008.   Both summonses were issued by the Defendant.

3.  The orders sought by the 1^st Summons may be summarised as follows:

(a)  that leave be granted to the Defendant to serve on the Plaintiff certain interrogatories (“Interrogatories”) set out in a Request for Interrogatories attached to the 1^st Summons;

(b) that the Plaintiff do within 28 days answer the Interrogatories (from the date of the Order to be made herein) in writing by affidavit or affirmation;

(c) that a previous request for interrogatories issued without order (“Previous Request”), which was filed by the Defendant on 21^st July 2008, be withdrawn;

(d) that the Plaintiffs do within 7 days (from the date of the Order to be made herein) provide specific discovery of certain documents set out in a Schedule attached to 1^st Summons;

(e)  that the Plaintiff do within 7 days (from the date of the Order to be made herein) file and serve a Further and Better List of Documents.

4.  The 2^nd Summons, which was issued after the Master hearing the 1^st Summons had adjourned the same to a Judge, sought specific discovery of 2 classes of documents as set out in Schedule A attached to the 2^nd Summons.

5.   Both summonses seek against the Plaintiffs the “costs of and occasioned by the applications”.

THE PRESENT ACTION

6.  The Plaintiffs and the Defendant were previously fellow shareholders in a Hong Kong company known as Golden Mastery Limited (“Golden Mastery”). 

7.  In this consolidated action, each of the Plaintiffs alleges that pursuant to a written agreement respectively made by them with the Defendant on 25^th November 1993 (collectively as the “alleged Agreements”), they had each transferred to the Defendant 500 shares in Golden Mastery (which represented 5% of the company’s issued share capital) upon certain terms, the details of which I do not need to recite.   Suffice to point out that it is the Plaintiffs’ case that in consideration for the said transfer, the Defendant had agreed to pay to each of the Plaintiff a sum of HK$3,000,000 by 30^th December 2003 (10 years from the date of the alleged Agreements).  It is also alleged that the Defendant had agreed to pay a monthly interest in the sum of HK$15,000 per month during the interim 10 years.  Accordingly, the total interest payable on 30^th December 2003 by the Defendant was HK$1,800,000 (HK$15,000 x 12 x 10).    The Plaintiffs claim that the Defendant failed to pay the total sum of HK$4,800,000 when the same was due on 30^th December 2003, and the sum has remained unpaid by the Defendant despite the Plaintiffs’ demands.

8.  The Defendant denies the existence of the alleged Agreements.  Indeed in his Amended Defence, the Defendant expressly challenged the authenticity of the alleged Agreements.  The Defendant admitted that in December 1993, each of the Plaintiffs had transferred to him 500 shares in Golden Mastery but he alleged that the shares were transferred at their par value, in the total sum of HK$500, which he had fully paid.

9.  It appears not to be in dispute that Golden Mastery was a shareholder of a joint venture company called Hunan Golden Shine Colour Printing Limited, which carried on a joint venture printing business in China (“Joint Venture”).   Golden Mastery was a corporate vehicle used by the parties to hold their interests in the Joint Venture.   Again, it does not appear to be in dispute that the parties intended that their contributions to the Joint Venture would be made by them through Golden Mastery, in proportion to their respective shareholdings in Golden Mastery.

10.  It is not necessary for me to recite the details of the claims made by the Plaintiffs and the Defendant regarding the Joint Venture.  What is not in dispute is that in about 1992, each of the Plaintiffs had agreed to reduce their shareholdings in Golden Mastery from 20% to 5%.  On that occasion, each had transferred to the Defendant 1,500 shares in Golden Mastery at par value.

11.  It is the Defendant’s case that following a call for contributions by the Joint Venture in about November 1993, the Plaintiffs agreed to withdraw from the Joint Venture as they were unwilling to put up the contributions required by the Joint Venture.  It is alleged by the Defendant that the Plaintiffs agreed to transfer their remaining shareholdings in Golden Mastery to the Plaintiff at par value.  Accordingly, in mid-December 1993, each of the Plaintiffs transferred 500 shares in Golden Mastery to the Defendant at par value, which he had fully paid.

12.  According to the Defendant, the Plaintiffs were prepared to transfer the shares to him at par value because, up to the time of the transfer, Golden Mastery had not engaged in any active business activities and the Plaintiffs had not made any monetary contributions or investments, save for the paid up capital (at par value) of the shares that they owned.  There was therefore every reason why, according to the Defendant, the Plaintiffs were prepared to transfer the shares to them at par value.   The Plaintiffs however disputed this.  They claimed that in fact they had invested a total sum of HK$3,900,000 (i.e. HK$1,950,000 for each of the Plaintiffs) in Golden Mastery.   The sum was allegedly paid by them on 27^th October 1993, as their share for the contributions required to be made by them as shareholders of Golden Mastery, to enable Golden Mastery to meet the call for contributions by the Joint Venture. 

13.  According to the Plaintiffs, the said sum of HK$3,900,000 was paid in the manner as follows.   HK$3,300,000 was allegedly withdrawn from the Plaintiffs’ Joint Account No. 033-659-1-002764-0 with the China State Bank Limited (“CSB Joint Account”) on 27^th October 1993 and paid into the Defendant’s account at the same bank.  The remaining sum of HK$600,000 was allegedly set off against moneys due from the Defendant to the Plaintiffs.  It is pleaded in the Plaintiffs’ Reply that the sum was “by consent deducted from the Plaintiffs’ payment”.

14.  The Defendant has not sought leave to file any Rejoinder and the Plaintiffs’ Reply to the Amended Defence was the last pleading filed in the consolidated action.  However, in his witness statement dated 28^th July 2004 (but filed on 2^nd February 2005), the Defendant alleged that he had arranged the Plaintiffs to open a bank account “on his behalf”, which account was used for the purpose of the business of a company called “聚利發煙草有限公司”(translated as “Chui Lee Fat Tobacco Limited”, and referred to hereinafter as the “Tobacco Company”).  It was alleged that until 2002, each of the Plaintiffs owned 20% of the shares in the Tobacco Company while the Defendant owned the remaining 60%.   In 2002, according to the Defendant, the Plaintiffs withdrew from the Tobacco Company and transferred their shares to the Defendant.

15.  It is not entirely clear from the Defendant’s witness statement whether the account referred to therein (i.e. the account which he claimed was opened by the Plaintiffs on his behalf) was the CSB Joint Account.    However, in an affirmation filed on 18^th May 2005, the Defendant referred, inter alia, to his own witness statement and identified the account stated therein as the CSB Joint Account. 

16.  At this stage of the proceedings, it is not necessary for me to recount in detail the allegations and cross-allegations made by the Plaintiffs and the Defendant in the various affirmations filed by them regarding the CSB Joint Account.   In short, the Defendant alleged that the account was in truth “a trust account held by the Plaintiffs on trust for the Defendant” (see, for example, paragraph 8 of the Affirmation of Leung Tat Kin, Anthony, filed on behalf of the Defendant).  It was alleged by the Defendant that the Plaintiffs had to report to him how the funds held by them for him in the CSB Joint Account were to be utilised and that from time to time the Plaintiff in fact prepared statement of accounts in respect of the funds so held.  The Plaintiffs denied this, and maintained that the CSB Joint Account was their private account and that the funds in that account were moneys beneficially belonging to themselves. 

17.  On 9^th May 2008, each of the Plaintiffs filed a Supplemental Witness Statement in which they referred to the Tobacco Company in some detail.  They alleged that the business of the Tobacco Company was a joint venture between them and certain Chinese partners.  The transactions carried out by the Tobacco Company had been recorded in a cash book (“Cash Book”), which the Plaintiffs have discovered in their 2^nd Supplemental List of Documents.     Although the Defendant held shares in the Tobacco Company, it was alleged that the shares held by him were actually shares held by him as nominee and for the benefit of the Chinese joint venture partners.  In any event, the Plaintiff denied that the CSB Joint Account was a trust account for the Defendant or that the funds in the account were funds beneficially belonging to the Defendant.

18.  In short, the Defendant’s case, as one may gather from his witness statement and the affirmations (but not from his pleadings), is that the CSB Joint Account was a trust account which he had arranged the Plaintiffs to open on his behalf, and used for the purpose of the business of the Tobacco Company.  The Plaintiffs, on the other hand, denied (in their Supplemental Witness Statements and also the various affirmations filed by them in these proceedings) that the CSB Joint Account was a trust account.   They alleged that the Tobacco Company was actually a joint venture between them and certain Chinese partners, and the Defendant was merely a nominee of the Chinese partners.

19.  I would add that all the allegations and cross-allegations concerning the Tobacco Company were never pleaded by the parties.   Indeed the Tobacco Company received no mention at all in the pleadings.  Further, the Defendant’s allegation to the effect that the CSB Joint Account was a “trust account” was never pleaded by him.   As pointed out before, the Defendant never sought leave to file a Rejoinder to plead such a case.   The allegation was only made originally (and in rather imprecise terms) in the Defendant’s witness statement, and subsequently elaborated upon in the various affirmations filed by the Defendant in these proceedings.    I note, in this connection, that the Defendant has not made any counterclaim for account, whether in respect of the moneys in the CSB Joint Account, or any other bank account.  The Defendant’s allegation of “trust” is thus relevant to a narrow point only, namely, whether the amount of HK$3,300,000 alleged paid to him on 27^th October 1993 from the CSB Joint Account was in truth a payment by the Plaintiffs, or whether it was merely a transfer of funds which belonged to him beneficially and thus not a true payment by the Plaintiffs.

20.  I find the pleadings in this case extremely unsatisfactory.  If the Defendant wishes to raise an issue regarding the nature of the CSB Joint Account (e.g. that it was a trust account and that the funds therein beneficially belonged to him), or an issue regarding the Tobacco Company, he should have properly pleaded his case precisely – if not in his Defence, by filing a Rejoinder.  In an action begun by writ, issues should be defined by the pleadings and not by way of affirmations.   Affirmations are in the nature of evidence and not pleadings.  In any event, affirmation evidence is not automatically admissible at trial and leave under O.38, r.2 must first be obtained before an affidavit or affirmation of any witness may be read at the trial:  see, for example, Cheung Wei Man Vivien and another v. Centaline Property Agency Ltd. HCA 286/2000, unreported, 25 September 2003, Lam J.   It is therefore not right to take the affirmations as defining the issues as if they were pleadings.

SPECIFIC DISCOVERY

21.  I propose to deal with the discovery applications in the 1^st and 2^nd Summons first, before dealing with the application to administer the Interrogatories referred to in the 1^st Summons.

22.  The legal principles are well-settled.  The burden is upon the party seeking specific discovery to make out a prima facie case:

(a)    that there is in existence a specified document or class of documents;

(b)   that the party against whom the order is sought has or had the document in his possession, custody or power;

(c)   that the document or class of document relates to a matter in question in the action; and

(d)   that discovery thereof is necessary either for disposing fairly of the cause or matter or for saving costs.

See, Deak & Co (Far East Ltd.) v NM Rothschild & Sons Ltd. & others [1981] HKC 78, at 80H-81A, Berkeley Administration Inc. & Others v. McCelland & Others [1990] FSR 381 at 382-3.

23.  On the question of relevance, the classic statement on the test of relevancy is that made by Brett L.J. (as he then was) in the case of Compagnie Financiere du Pacifique v Peruvian Guano Co. [1882] 11 QBD 55, at 63:

“It seems to me that every document relates to the matters in question in the action, which not only would be evidence upon any issue but also which, it is reasonable to suppose, contains information which may – not which must – either directly or indirectly enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary.  I have put in the words “either directly or indirectly” because, as it seems to me, a document can properly be said to contain information which may enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary if it is a document which may fairly lead to a train of enquiry…”

24.  The test is cast in very wide terms – a document is relevant if it relates to the matters in question in the action in the sense that it may either directly or indirectly enable a party either to advance his own case or to damage his adversary’s case – and it is sufficient if the document may fairly “lead to a train of inquiry” that may produce such a consequence.   Taken literally and to its extreme, the application of such a wide test would lead to very wide-ranging discovery obligations, and oppressive applications for specific discovery. 

25.  It will be noted that formulating the test of relevancy, Brett L.J. referred to “every document [which] relates to the matters in question”.    The learned judge did not confine his formulation to the pleaded issues.   It may be argued that what are “matters in question” should be deduced from the pleadings, and the distinction between a “matter in question” and a “pleaded issue” is a distinction without difference.   Indeed I note that in the editors’ notes of the White Book, it is stated that “Relevance will be determined by reference to the pleadings” (see, Hong Kong Civil Procedure 2009, para.24/2/10, which cited the case of Re Estate of Ng Chan Wah HCAP no.5 of 2003, a decision of Madam Justice Chu).  

26.  In my view, while it is basically correct to say that relevance is determined by reference to the pleadings, for discovery purposes one is not concerned with the detailed particulars of the parties’ pleaded case.  Rather one is concerned with the pleaded claims or defence in the broad sense.  The point was canvassed by Colman J. in O Company v M Company [1996] 2 Lloyd’s Law Rep. 347. In that case, Milligan Q.C. (acting for the plaintiffs), relying on Brett L.J.’s formulation, submitted that the test is not one of relevance to a pleaded issue, but whether the document relates to a matter in question (at p.349).  The submission by Charlton Q.C. (acting for the Defendants) was that “matters in question must, in [that] case, be deduced from the pleadings, although this may not be the position in every case” (at p.350).   With regard to these submissions, Colman J. held as follows (at p.350):

“Whether a class of documents as a whole is relevant for discovery purposes must depend upon what information it is reasonable to suppose the documents of the class contain and whether such information may enable the plaintiffs to advance their own case or damage that of the shipowners.  The “case” of the plaintiffs or the defendants respectively can be defined only by looking at the pleadings.  It must be defined by reference to the plaintiffs’ pleaded claim in its general sense, as distinct from its detailed exposition and by the defendants’ pleaded defence in the sense of its general refutation of the plaintiffs’ claim.  What matters for discovery purposes is the claim and defence to it in the broadest sense and not to the detailed particulars of either claim or defence.  A document in a defendant’s possession, custody or power which provides information as to a ground not hitherto pleaded in a cargo claim upon which it can be said that they failed to exercise due care of the cargo is just as relevant for discovery purposes as one which contains information as to the ground of want of due care which has already been pleaded….”

27.  With respect, I agree with Colman J.  For the purpose of discovery, the relevance of a document should not be solely tested against the detailed particulars pleaded by the parties.  It is the pleaded case of the parties in the broad sense that one should be concerned with.   A document may be generally relevant to a party’s case as pleaded (many so-called “background documents” are of this nature) although its relevance cannot be specifically pinned to some pleaded particulars.  For discovery purposes, the pleadings have to be looked at broadly.

28.  In O Company v M Company, Colman J. sought to narrow down the formulation of Brett L.J. by holding, in an oft-cited passage of his judgment at pp350-351, that:

“The principle [enunciated by Brett L.J. in the Peruvian Guano case] was never intended to justify demands for disclosure of documents at the far end of the spectrum of materiality which on the face of it were unrelated to the pleaded case of the plaintiff or defendant and which were required for purely speculative investigation.  The excessively wide application of Lord Justice Brett’s formulation of relevance has probably contributed more to the increase of the costs of English civil and commercial litigation in recent years than any factor other than the development of the photocopying machine.  That formulation must not, in my judgment, be understood as justifying discovery demands which would involve parties to civil litigation being required to turn out the contents of their filing systems as if under criminal investigation merely on the off-chance that something might show up from which some relatively weak inference prejudicial to the case of the disclosing party might be drawn.  On the contrary, the document or class of documents must be shown by the applicant to offer a real probability of evidential materiality in the sense that it must be a document or class of documents which in the ordinary way can be expected to yield information of substantial evidential materiality to the pleaded claim and the defence to it in the broad sense which I have explained.  If the document or class cannot be demonstrated to be clearly connected to issues which have already been raised on the pleadings or which would in the ordinary way be expected to be raised in the course of the proceedings, if sufficient information were available, the application should be dismissed.”

29.  These sentiments as expressed in Colman J’s judgment certainly make good sense.  However, as pointed out by the editors of Hong Kong Civil Procedure 2009, the approach of Colman J represented “a marked departure from the very wide Peruvian Guano test that Hong Kong courts have accepted as the appropriate test to determine relevance” (see, Hong Kong Civil Procedure 2009, para.24/2/10 at p.455).  Colman J’s approach was followed by Findlay J in A v. B (action number withheld), May 19 1998, [1998] HKLRD. (Yrbk) 542, and Deputy Judge Wright in Yung Yuen Ling Alice v. Wong Ming Kan Michael, unreported, HCA 231/2004, 1 December 2006.   I however have doubt whether it is open to the Court of First Instance to adopt this approach of Colman J, given the fact that our own Court of Appeal has accepted the Peruvian Guano test as the appropriate test for relevancy in the case of Deak & Co (Far East Ltd.) v NM Rothschild & Sons Ltd. & others mentioned above.   On my part, I cannot reconcile the difference between the test advocated by Colman J and the much wider formulation of Brett L.J.

30.  However, it is not necessary for this Court to embrace the approach of Colman J. on the test of relevancy in order to prevent the “excessively wide application” of Brett L.J.’s formulation.  For the purpose of specific discovery, relevance (in the broad sense mentioned above) is not, and should not be, the only consideration by the Court.   O.24 r.8 of the Rules of High Court expressly provides:

“On the hearing of an application for an order under rule 3,7 or 7A the Court, if satisfied that discovery is not necessary, or not necessary at that stage of the cause or matter, may dismiss or, as the case may be, adjourn the application and shall in any case refuse to make such an order if and so far as it is of opinion that discovery is not necessary either for disposing fairly or the cause or matter or for saving costs.”

31.  In my judgment, Colman J was right when he pointed out in O Company v M Company that a two-stage approach should be adopted (at p.350):

“…  the Court must first be satisfied that the class as a whole is relevant for discovery purposes and, if it is, must secondly consider whether discovery of such documents is necessary either “for disposing fairly of the cause or matter or for saving costs.”

32.  In any given case, there is likely to be a spectrum of evidential materiality within which documents may fall.   There may be documents which are central to the pleaded issues; but there may also be documents which fall at the other end of the spectrum in that though they may “fall within the letter of Lord Justice Brett’s formulation of relevance for discovery purposes”, they are documents which are unlikely to contain or yield information of such evidential materiality to the pleaded case (in the broad sense mentioned above) of the parties as to make their disclosure necessary for the fair disposal of the proceedings or to save costs.  The Court is entitled to take the view that although relevance in the Peruvian Guano sense has been established, it is not necessary for them to be disclosed.   The power to refuse unnecessary discovery of documents is expressly conferred by the rules of court.

33.  Indeed in the O Company v M Company case mentioned above, after dealing with the question of relevance, Colman J further held at p.352:

“… I would only add that if I had held that the applicable analysis of relevance derived from Compagnie Financiere du Pacifique v Peruvian Guano Co., sup., was wide enough to include as relevant those documents in respect of which I have refused to make an order for discovery, I should in each case have held that discovery was not necessary either for disposing fairly of the matters in issue or for saving costs under O.24. r.8.  Documents of which discovery is necessary for the fair disposal of a matter in issue must at least have a demonstrable evidential materiality.  For the reasons which I have given in relation to relevance I am not satisfied that all those documents covered by items 9,10 and 20 do so.”

Hence Colman J would have arrived at the same conclusion by applying O.24 r.8 if he had simply followed the “letter” of Brett L.J.’s formulation in the Peruvian Guano case on the question of relevance.

34.  With these principles in mind, I will now turn to the various items of documents sought to be discovered under the 1^st and 2^nd Summons.

1^st Summons

35.  The 1^st item sought to be discovered by the Defendant in the 1^st Summons is the Cash Book, which I have referred to in paragraph 17 above.  The Cash Book was in fact disclosed in the Plaintiffs’ 2^nd Supplemental List of Documents, and by the time of the hearing, the Defendant’s solicitors had had the opportunity of inspecting the original of the Cash Book.   As I understand the arguments of Ms. Priscilla Wong (Counsel for the Defendant), the complaint of the Defendant is essentially that the Cash Book disclosed by the Plaintiffs is incomplete.  It is alleged that there are some pages in the Cash Book that are missing.  I have inspected the original Cash Book at the hearing and I note that the Cash Book is in a rather worn-out condition and pages from page 70 onwards have come off the spine of the Cash Book.  Some pages are apparently missing.  There are two page 69.

36.  It is plain from my inspection of the Cash Book that the two page 69 is a defect in the binding, and nothing turns on it.  As regards the missing pages, Mr. K.M. Chong, Counsel for the Plaintiffs, relied on the case of Dah Sing Bank Ltd v. Chu Roger [1946-1972] 1 HKC 296 at 306 D-G and argued that the Plaintiffs’ list of documents is conclusive against the Defendant both as to possession and as to relevance.   I do not think that the case relied upon by Mr. Chong assists him at all for, as rightly pointed out by Ms. Wong, insofar as that case referred to the well-known authority of Jones v Monte Video Gas Co. (1879-1880) 5 QBD 556 for the proposition that a party’s affidavit is conclusive against his adversary both as to possession and as to relevance, it does not apply to the present situation where there is no affidavit verifying the list.   Be that as it may, I do not think that Ms. Wong has made out a case for specific discovery.  There is simply nothing to show that the missing pages are in the possession, custody or power of the Plaintiffs.   The original Cash Book as discovered is in a worn condition and I am not satisfied that there is anything to suggest that the Cash Book has been tampered with, or that the missing pages have been torn off from the Cash Book and are now in the possession, custody or power of the Plaintiffs.  In these circumstances I am not satisfied that the Defendant has made out a prima facie case that the Cash Book, in the condition as it was discovered by the Plaintiffs, is not the complete Cash Book in the Plaintiffs’ possession, custody or power.   I therefore refuse to make any order for specific discovery in respect of this item.

37.  Turning to item 2 of the Schedule to the 1^st Summons, the documents for which discovery is sought are stated as “all bank pass-books, statements, and records showing transaction that had taken place since the opening of the account up to the date of its closure of (1) bank account No.033-659-1-004177-9; and (2) the foreign account maintained with the China State Bank Limited (Hong Kong Branch) now Bank of China (Hong Kong) Limited jointly by the Plaintiffs”.  In his 4^th Affirmation filed on 26^th August 2008, the Defendant states that the account no. 033-659-1-004177-9 is in fact a typing mistake, and what is sought to be discovered relates account no. 039-737-1-004177-9 instead.  This has been confirmed by Ms. Wong during the hearing before me.

38.  In his said 4^th Affirmation, the Defendant explained the basis of his application for discovery of this item as follows (paragraph 21):

“I should specifically point out that the [CSB Joint Account] and the corresponding Cash Book had been a continuing arrangement, starting from 1991 and well into 1996.  I need to add though in mid-1995 (the exact time I can no longer recall), the relationship with [China State Bank] took a turn for the worse, and so as to forge a new, or stronger tie with another bank, with my consent, the Plaintiffs had opened another Joint account or trust account at the [Chiyu Banking Corporation Limited] was opened and used in lieu of the [CSB Joint Account] as the new trust account since then).  The recent search made by my secretary, following the Plaintiffs’ supplemental witness statements, happened to remind me of this new Joint Account (I recall that there should have been a similar trust account in foreign exchange opened and operated by the Plaintiffs on trust for me during the material time)”.

39.  I do not consider that the above constitutes a good basis for the Defendant’s application for specific discovery.  As pointed out before, the Defendant’s claim that the CSB Joint Account was a trust account is relevant only to a narrow point, namely, whether the payment on 27^th October 1993 was truly a payment by the Plaintiffs from their own funds, or whether it was merely a transfer to the Defendant from funds in the CSB Joint Account which belonged beneficially to the Defendant in the first place.  Whether or not the CSB Joint Account might have subsequently been replaced by some other trust account is not simply not relevant to that issue.   It might have been different if in the present action, the Defendant is counterclaiming for an account of trust monies and has properly pleaded a cause of action for say, breach of trust.  As it is, there is no such counterclaim before the Court, and in my view the alleged new account is not relevant to any of the issues in the present case.   Alternatively, I am of the clear view that even if it is relevant (in the Peruvian Guano sense), discovery is not necessary for the fair disposal of the cause or matter in this action, or necessary for saving costs.

40.  There is no evidence of the existence of a “foreign exchange account maintained with the China State Bank Limited (Hong Kong Branch) at all, save for a bare and wholly unsubstantiated allegation by the Defendant in paragraph 21 of his 4^th Affirmation that he purportedly recalled “that there should have been a similar trust account in foreign exchange opened and operated by the Plaintiffs on trust for him during the material time).   The account number of this “similar trust account in foreign exchange” has never been identified, and no other evidence has been put before this court to establish a prima facie case of the existence of such an account at any particular time.   In any event, for the same reason mentioned above, I am not satisfied that such an account, even if it had existed as alleged by the Defendant, is relevant to any of the issues in this case or that discovery of documents relating to such an account is necessary for the fair disposal of the cause or matter in this action, or for saving costs.

41.  Items 3 and 4 of the Schedule to the 1^st Summons are no longer in issue, and were not argued at the hearing.

42.  I can deal with the remaining items, i.e. item 5 and 6 together.  Item 5 relates to the allegations specifically raised by the Plaintiffs in paragraph 18 of the Supplemental Witness Statement of Chan Hung, and seeks discovery of all documents relating to those specific allegations.  Similarly item 6 relates to the allegations specifically raised by the Plaintiffs in paragraph 24 of the said Supplemental Witness Statement of Chan Hung.    Chan Hung had filed a witness statement back in July 2004, but in May 2008, he had sought leave and filed a Supplemental Witness Statement in which he raised various specific allegations, including inter alia, an allegation concerning the deposit of a sum of $1,560,880 in the CSB Joint Account (in paragraph 18) and an allegation concerning certain commission payment made to the Defendant by the Plaintiffs.    Clearly the Plaintiffs must have considered that these allegations are relevant to their case or else they would not have sought leave to file the Supplemental Witness Statement to make them.   At trial, one would expect Chan Hung to give evidence on the matters stated in his witness statements, including the said Supplemental Witness Statement.  Having made the allegations in those paragraphs of Chan Hung’s Supplemental Witness Statement, I cannot see how the Plaintiffs can resist providing discovery of the documents relating to these allegations.   I agree with Ms. Wong that specific discovery should be ordered for these two items.

2^nd Summons

43.  The 2^nd Summons seeks discovery of 2 items of documents, as follows:

“1. The profit and loss accounts of the alleged joint venture business allegedly recorded or reflected in the Cash Book  (Item 97 of the Plaintiff’s List of Documents and please also refer to paragraphs 21 and 24 of Chan Hung’s Supplemental Witness Statement) since 1991.

2. The ledger books and accounts regarding all payments (in and out) and account payables and account receivables between the Plaintiffs and the Defendant in respect of the alleged joint venture business since 1991.”

44.  I can deal with both items together.  The alleged joint venture business referred to in both items is a reference to the business of the Tobacco Company.

45.  I am not satisfied that discovery of the profit and loss accounts, or the ledgers, books and accounts of the Tobacco Company is necessary for disposing fairly of the issues involved in this case, or for saving costs.   I have already referred to the unsatisfactory state of the pleadings in this consolidated action, which makes no reference to the business of the Tobacco Company at all.    Even if I take a broad view of the pleadings, it is difficult to see any real probability that the profits and loss accounts of the Tobacco Company, or its ledgers, books and accounts, will yield any information that is of evidential materiality to the issues in this case.   The transactions that may have been made by the Tobacco Company over the years (the 2^nd Summons seeks discovery of the documents since the year 1991) are not in issue in the present case.  What is in issue is whether the shares in question were agreed to be sold or transferred for the consideration as alleged by the Plaintiffs, or at par value as alleged by the Defendant.   I can see that relevant to that issue is the question whether the Plaintiffs had, before agreeing to transfer the shares to the Defendant, invested any money in Golden Mastery.  If they had, it would be less likely that they would have agreed to transfer the shares to the Defendant at par value, and vice versa.  Hence whether the payment allegedly made on 27^th October 1993 was a true payment by the Plaintiffs may be relevant.   This makes it relevant for the Court to consider whether the moneys transferred on that day were moneys belonging to the Plaintiffs themselves, or whether they were moneys held on trust by the Plaintiffs for the Defendant.

46.  It is true that the transactions of the Tobacco Company, according to the Plaintiffs, had been recorded in the Cash Book.  It is also true that the Cash Book contained entries involving the CSB Joint Account.  This, however, does not mean that all the business transactions of the Tobacco Company over the years are put in issue in the present case, and it certainly does not mean that the Defendant should be allowed to fish for evidence by seeking discovery of all the accounts, books and ledgers, or the profit and loss accounts of the Tobacco Company.  I respectfully agree with the following observation made by Madam Justice Chu in the case of Re Estate of Ng Chan Wah (supra., at para.16):

“It is not sufficient for the plaintiffs to say that because there is on the pleading allegation of improper conduct against the defendants as executors, they are entitled to test the basis of the estate accounts generally or to check the accuracy of the items presented in the estate accounts, irrespective of whether they are in issue.  It is not the purpose of discovery to give the plaintiffs an opportunity to hunt around the documents in the hope that they will reveal some improprieties on the defendants’ part or will provide information for them to pursue more enquiries.”

47.  I also associate myself to the view of Colman J., expressed in the case of O Company and M Company mentioned above, that it is not the function of discovery that “parties to civil litigation [should be] required to turn out the contents of their filing systems as if under criminal investigation merely on the off-chance that something might show up from which some relatively weak inference prejudicial to the case of the disclosing party might be drawn” (at p.351).

48.  In my judgment, the application for specific discovery made in the 2^nd Summons is oppressive and clearly unnecessary.   I will refuse the application and dismiss the 2^nd Summons.

INTERROGATORIES

49.  I will now deal with the Defendant’s application to administer the interrogatories referred to in the 1^st Summons.

50.  The principles are well known.  They have been well-summarised by Ma J. (as he then was) in the case of Kao Lee & Yip v Donald Koo Hoi Yan and others, unreported, HCA 8847/1993, 23 April 2002, as follows:

“(1)   The general principle is that interrogatories are admissible where they go to support the applicant’s case or destroy the opponent’s: see Hong Kong Civil Procedure 2002 at paragraph 26/4/7.   The width of this general principle is similar to the Peruvian Guano principles governing discovery of documents.

(2) However, this only goes to the question of admissibility.  Whether a court will in its discretion allow interrogatories is entirely a different matter.  Too often in the past, there has been a tendency to order interrogatories once admissibility is demonstrated.  This is wrong.

(3) In the exercise of its discretion, the court must bear in mind that interrogatories will be ordered only where they are necessary either for disposing fairly of the cause or matter, or for saving costs:  c.f. RHC, Order 26, rule 1(1); Hong Kong Civil Procedure 2002 at paragraph 26/4/11.  This is a key consideration going to the exercise of discretion.

(4) The particular factors that a court will take into account in deciding whether or not to exercise its discretion are well-known: see Lee Nui Foon v. Ocean Park Corporation (No. 2) [1995] 2 HKC 395; Hong Kong Civil Procedure 2002 at paragraphs 26/4/5 to 26/4/34.  It is not necessary for me to repeat these paragraphs at length.

(5) I would, however, draw special attention to the case of Det Danske Hedeselskabet v. KDM International Plc [1994] 2 Lloylds 534.  There, Colman J referred to various considerations (or “yardsticks” as he termed them) for the court to bear in mind when considering the question of interrogatories; see page 537 (col.1).  I set out one of these considerations in full:

‘Fifthly, requests for information ascertainable by cross-examination at the trial are inappropriate unless the party questioning can establish that it is essential for the proper preparation of his case that such information is made available to him before trial, in the sense that if the matter is left until cross-examination at the trial that party will, or probably will be irremediably prejudiced in his conduct of the trial or the trial may be unduly interrupted or otherwise disorganised by the late emergence of the information.’

(6) The administering of interrogatories is not for the purpose of enabling a party to indulge in some sort of deposition-taking exercise or to enable him to have a “dry-run” in cross-examination against the other side prior to trial.  As I have already said, the key consideration is the factor of necessity referred to the RHC, Order 26, rule 1(1).”

51.  With these principles in mind, I can now turn to the specific interrogatories requested by the Defendant.

52.  The 1^st Interrogatory requires the Plaintiffs to state the reason why the sum of HK$3,300,000 was transferred on 27^th October 1993 to the personal bank account of the Defendant, instead of the account of Golden Mastery.

53.  I consider that the information sought by this Interrogatory as essential for the Defendant to prepare his case.   One of the crucial matters that the Court will consider at trial, before resolving the issue whether the alleged Agreements had in fact been made by the parties is the inherent likelihood of parties making the alleged Agreements in the terms as   alleged by the Plaintiffs.   That question in turn will be affected by the Court’s finding, to be made at trial, on the Plaintiffs allegation that they had “invested” in Golden Mastery by paying the contributions on 27^th October 1993 in the manner as alleged by them.   As the relevant payment was allegedly for the purpose of making contributions to Golden Mastery, one would have thought that it should have been paid to Golden Mastery.  Yet, according to the Plaintiffs, they made the payment by transferring the sum of HK$3,300,000 into the Defendant’s account.  The circumstances that caused, or might have caused, the Plaintiffs to make the payment in this manner have not been explained or alluded to in the Plaintiffs’ pleadings or their witness statements.  I do not agree with Mr. Chong’s submission that the matter interrogated upon merely goes to credit.  In my judgment, this is a very crucial matter for which the Defendant is entitled to elicit information or to extract an admission from the Plaintiffs in order to properly prepare his case before trial.    Obviously this is a matter on which the Plaintiffs can be, and likely to be, cross-examined at trial.  However, I consider that fairness requires that the Defendant be properly informed, before trial, of the circumstances which caused the Plaintiffs to act in the way they allegedly did; and to prepare his case accordingly.   The matter is of crucial importance in the present case, and it would not be fair to put the Defendant in a position to have to speculate what might be the answers that would be given by the Plaintiffs upon cross-examination, and to incur unnecessary costs to prepare their case based on speculations rather than information or admission provided by the Plaintiffs.  It would also not be fair to put the Defendant in a position whereby he might find himself caught by surprise on such an important point, if the relevant information is to be ascertained only at the time of cross-examination.   I would for these reasons allow the Interrogatory.

54.  The 2^nd Interrogatory seeks answers relating to various transactions recorded in the Cash Book.    The Plaintiffs have provided answers to part of the Interrogatory (i.e. Interrogatory 2(1) and 2(7)), but have refused to answer the rest.

55.  I do not consider that the 2^nd Interrogatory is justified.  The transactions subject to this Interrogatory have not been pleaded by the Defendant and it is not clear to me in what way are they relevant to the issues in the present case.  The transactions were transactions of the Tobacco Company, and as pointed out above, I do not consider that the transactions carried out by the Tobacco Company over the years are in issue in the present case.    I therefore consider this Interrogatory as a “fishing” interrogatory – in the sense of the term as used by Findlay J. in the case of Zhu Kuan Company of Zhuhai SEZ and Brickell Limited (In Liquidation) and others, unreported, C142/95, namely, an interrogatory which seeks “to gather facts to establish a line of attack not already pleaded, or which seek to ascertain whether a fact exists where the interrogating party has no reasonable grounds for belief in the existence of the fact”.   Insofar as the Defendant’s reason for administering the Interrogatory was to “demonstrate that the Plaintiffs [were] less than frank with what they said in the recent witness statements” (see, paragraph 18 of the Affirmation of Leung Tat Kin, Anthony), that is not a legitimate reason for administering interrogatories, for the purpose of interrogatories “is not to cross-examine the other party as to his credit, but is to get discovery of facts which tend to prove or do prove issues material to the case”: see, Allhusen v. Labouchere (1878) 3 QBD 661, at 664-665.   I do not consider that the Interrogatory is necessary for disposing fairly of the cause or matter in this action, or for saving costs, and I would disallow this Interrogatory.

56.  The 3^rd Interrogatory seeks answers relating to “the details” of the transactions that involved payment of commission by the Plaintiffs to their Chinese business partners.   In paragraph 21 of the Supplemental Statement of Chan Hung, Chan Hung has mentioned generally that the business of the Tobacco Company included transactions that involved payment of commission to the Plaintiffs’ Chinese partners.  This Interrogatory is designed to ask for the details of every such transaction.  For the same reasons that I gave when dealing with the 2^nd Interrogatory, I am of the view that this Interrogatory is a fishing interrogatory; and insofar as it is sought to be administered for the purpose of showing that the Plaintiffs had been “less than frank”, it is not permissible.   I do not consider that this Interrogatory is necessary for disposing fairly of the cause or matter in this action, or for saving costs, and would also disallow this Interrogatory.

57.  The last Interrogatory seeks answers relating to “the details” of the transactions whereby certain commission payments were allegedly paid to the Defendant by the Plaintiffs, referred to in paragraph 24 of the Supplemental Witness Statement of Chan Hung.  Unlike the 3^rd Interrogatory, here the amounts (in the total sum of $800,000) and the time of the commission payments had been specifically identified in the said paragraph of the Supplemental Witness Statement of Chan Hung, and it was alleged by Chan Hung that the relevant amounts were paid into the bank account of Golden Mastery in accordance with the Defendant’s instructions.   Those payments, however, were made in April 1995, well after 27^th October 1993, and well after the Plaintiffs had ceased to be the shareholders of Golden Mastery.   I do not consider that such commission payments have any direct relevance to the issues in the present case (although at trial the Plaintiffs may well be cross-examined upon these matters), and in my judgment it is not necessary for disposing fairly the issues, or for saving costs.  Accordingly, I disallow this Interrogatory as well.

WITHDRAWING A PREVIOUS REQUEST

58.  Paragraph 3 of the 1^st Summons seeks to withdraw a Request for Interrogatories Without Order purportedly filed by the Defendant on 21^st July 2008.  The Defendant had already exhausted his right to administer interrogatories without order, and therefore had no right to require the Plaintiff to comply with the said Request for Interrogatories Without Order.   Mr. Chong does not oppose the withdrawal application, but seeks costs in respect of the same.  

59.  In these circumstances, I will allow the Defendant to withdraw the said Request.

ORDER

60.  I will make the following orders:

(a)  the Defendant shall have leave to serve on the Plaintiffs the Interrogatory set out in paragraph 1 of the Request for Interrogatories attached to the 1^st Summons;

(b)  the Plaintiffs do within 28 days from the date of this Order answer the said Interrogatory in writing by affidavit or affirmation;

(c)   the Plaintiffs do within 14 days from the date of this Order make and file an affidavit or affirmation stating whether they have or have at any time had in their possession, custody or power the class of documents specified as items 5 and 6 in the Schedule to the 1^st Summons, and if the documents or any of them has or have been but is or are not now in their possession, custody and power, stating when it parted with the same and what has become of the same;

(d)   if such documents or any of them referred to in (c) above are now in the Plaintiffs’ possession, custody and power, the Plaintiffs do file and serve a Further and Better List of Documents within 7 days thereafter;

(e)    the 2^nd Summons is dismissed.

61.  As to costs, on the matters that have been argued before me, the Defendant has succeeded on 2 items of discovery and 1 item of interrogatory only.   He has failed entirely on the 2^nd Summons.  I bear in mind, as mentioned above, that some of the items subject of the Defendant’s application had been satisfied or answered by the Plaintiff and were therefore not argued before me.

62.  In the exercise of my discretion, I will make an order nisi as follows:

(f) the Defendant do pay the Plaintiffs half of the Plaintiffs’ costs of and occasioned by the 1^st Summons in any event;

(g)   the Defendant do pay the Plaintiffs their costs of and occasioned by the 2^nd Summons in any event.