H. v. M.

CACV 88/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 88 OF 2000

(ON APPEAL FROM FCMC 12560/1999)

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J U D G M E N T

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Hon Godfrey VP (giving the judgment of the court) :

Introduction

1. This is an appeal by M. ("the husband") from an order of Ms Bina Chainrai (sitting as a deputy judge of the District Court) requiring the husband to give further and better particulars of some answers given by the husband in response to questions asked by H. ("the wife") in matrimonial proceedings between them.

Background

2. The husband and wife were married on 5 September 1987 in Hong Kong and have two daughters. They separated in 1997. The husband is the major shareholder and a director of a stationery company called Hip Wall Industries Limited ("Hip Wall"). The wife is a minority shareholder and a director in Hip Wall. (The husband contends that he holds half his shareholding for the benefit of a third party but for present purposes nothing turns on this.) The matrimonial home had been charged to the bank to secure facilities granted to Hip Wall; but it has been repossessed by the bank in consequence of Hip Wall's failure to make repayment.

3. The husband has dealt satisfactorily with some of the wife's questions relating to Hip Wall, but is unwilling to comply with the judge's order insofar as it requires him (1) to produce to the wife copies of all invoices, accounts, receipts and vouchers of Hip Wall for a number of years; and (2) to produce bank statements of Hip Wall since 1 June 1996. The judge's order also comprehended in these respects a company called Great Mark Industries Limited ("Great Mark"); but this company is dormant and we need not consider it further. There is a further question outstanding relating to other companies.

The proceedings below

4. The judge recorded the wife's contentions. These were that the accounts of Hip Wall were relevant to see how the money was actually spent by Hip Wall, and this could not be determined by viewing the audited accounts alone; that Hip Wall had outstanding debts but had recently bought a new Mercedes Benz for the use of the husband; that the husband was in sole control of Hip Wall and how its funds were utilised; and that as a result of Hip Wall's indebtedness to the bank it had repossessed the matrimonial home.

5. The husband made concessions which the judge recorded. These were that (1) the documents of which production was sought were in the possession, custody and control of the husband; (2) that there could be no objection to the production to the wife, in her capacity as a director of Hip Wall, of the documents which the wife requested to be produced to her in her (different) capacity as a party to the matrimonial proceedings. The judge also recorded the husband's contentions that the accounts of Hip Wall were irrelevant in the absence of any suggestion of impropriety in its audited accounts, and that the wife's request for the particulars sought were onerous and would escalate costs.

The judgement

6. The judge came down in favour of the wife on these disputed matters. The judge (referring to the wife as "the Petitioner" and to Hip Wall as "the company") said this :-

"Clearly, how the company has been conducting its business under the direction of the husband is a relevant matter and important to the Petitioner in this application for ancillary relief by the Petitioner. The prejudice to the Petitioner by their non-disclosure far exceeds any prejudice to the Respondent or any third parties."

7. In coming to this conclusion, the judge referred to the case of B v. B (Matrimonial Proceedings : Discovery) [1979] 1 All ER 801. She said, correctly, that it had been held in that case as follows :-

"1: Under RSC Ord 24, r 7(1), the court had a discretion to order the disclosure of particular documents specified or described in the application of the party seeking discovery which were in the possession, custody or power of the other party to the suit. Accordingly, company documents which were relevant to the matters in issue in the litigation, although in the legal possession of the company, might be required to be disclosed by a director of the company who was a party to the suit if they were or had been in his actual physical possession, even though he held them merely as servant or agent of the company, since in that circumstance they were or had been in his custody. Furthermore, even where the relevant company documents had never been in his custody, he might be required to disclose them because they were within his power, in the sense that he had an enforceable right to inspect them or to obtain possession or control of them. Where the company was the director's alter ego, so that he had unfettered control of its affairs, company documents would be within his power.

2: Where disclosure was ordered of relevant company documents in the custody or power of a husband who was a director of the company, the Court's discretion under RSC Ord 24 whether to order production of them should be exercised by balancing the relevance and importance of the documents and the hardship likely to be caused to the wife by their non-production against any prejudice likely to be caused to the husband or to third parties, such as other directors and other shareholders, if an order for production was made. However it was not the Court's practice to order production of company documents where the board of directors of the company objected on affidavit to production, provided that the production was not contrived to frustrate the court's powers.

3: Although, in an application by a wife for financial provision, the disclosure of the audited accounts of a company of which the husband was a shareholder would in most cases be sufficient disclosure, together with full disclosure of the husband's financial records, there were cases where the court would go behind the company and order discovery of specific company documents.

4: The courts shall refuse to make an order for discovery if and in so far as it is of the opinion that discovery is not necessary either for disposing fairly of the proceedings or for saving costs or is premature."

Conclusion

8. We have reached the conclusion that, in applying or attempting to apply these principles, the judge plainly went wrong. She must have failed to appreciate just how wide in its operation her ruling that the husband should "produce copies of all invoices, accounts, receipts or vouchers" over several years would be. It would cover every petty cash voucher or receipt for the most trivial items of expenditure. It does require "copies" of all these documents to be produced, presumably at the expense of Hip Wall or the husband. The judge's order in this connection goes much further than is necessary for the purpose of disposing fairly of the matrimonial proceedings; and, so far as costs are concerned, far from saving costs, this order, as Miss Anita Yip for the husband contended forcefully and persuasively before us, would only serve unnecessarily to escalate them.

9. As to the bank statements, we have come to a similar conclusion. A bank statement does not, of itself, convey any significant information; reference to cheques, etc. are by number only and most other entries in bank statements are cryptic rather than revealing in nature.

10. So we consider the judge's order as to the production for further and better particulars to be oppressive and unnecessary and we will set it aside. But that is not the end of the matter. It will be recalled that it was conceded for the husband below (correctly : see the Companies Ordinance, Cap. 32, s.121) that the wife in her capacity as a director of Hip Wall is entitled to inspect the books of account of Hip Wall.

11. In our opinion, we should make now, instead of the judge's order as to the disputed matters, an order that the husband do make Hip Wall's books of account available for inspection by the wife. The court does not favour unnecessary technicality and formalism. To send the wife away to make a formal application against Hip Wall for that purpose (which Hip Wall would be unable to resist) would, in our view, be pointless. If as a result of the wife's inspection of the books of account, she is advised that she should ask for production for inspection of other company documents, she will be able to do so. As to the further question outstanding as to other companies, we will order the husband to disclose if he holds any shares, directorships or investments in any company other than Hip Wall or Great Mark; but no further order should be made in this connection until after that information has been provided.

Result

12. We will set aside the judge's order as to the disputed matters but substitute therefor the order we have just indicated. As to costs, subject to the provisions of Order 42 rule 5B(6) of the Rules of the High Court, we propose to make no order.

13. There are now no special rules as to how the court's discretion as to costs should be exercised in matrimonial cases (the discretion is described by Sir Jocelyn Simon P in Povey v. Povey [1972] Fam. 40 at p.50H as "unfettered") and here we consider there are grounds for departing from the rule that costs follow the event. These are that although in form the appeal has succeeded, in substance the wife has achieved a considerable measure of success in this court in the orders we have substituted for those of the judge.