LEE CHUN FAT v. CHAN KIN WO AND ANOTHER

DCCJ 18123/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 18123 OF 2001

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(By Order to carry on proceedings filed on 7 May 2002)

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DECISION

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1. This case involves a dispute over rental income received by the Defendant on behalf of Chan Suk Yee (the Deceased), who passed away in the course of this action, which is now being carried on by her sister as the Executrix of the estate (the Executrix).

2. The Plaintiff sought discovery of the documents listed in the Schedule annexed to the Summons dated 30 October 2002 under Order 24 rule 7.

The Pleadings

3. The Deceased and the Defendant let their property Factory No. 2, 2nd Floor, Hong Man Industrial Centre, No. 2 Hong Man Street, Hong Kong held as tenants in common to Ivanhoe Construction Maintenance Co Ltd (the company) of which they were the only shareholders and directors at $8,800 per month from 1 October 1992 under an oral tenancy agreement. Since 1 October 2000 the tenancy was extended by a written tenancy agreement for 2 years to September 2002. The Plaintiff seeks to recover $466,400 being half share of the rent of $4,400 over 106 months between October 1992 to 31 July 2001 held by the Defendant and interest.

4. The Defendant accepts that the monthly rent of $8,800 from the company was credited into his director's account throughout the tenancy period up to 1 July 1999 but he alleges that he was the one who had paid off the mortgage at $14,886.30 per month for 84 months. He further alleges that he had, by using half the monthly rent of $4,400 belonging to the Deceased and his own money, paid off the mortgage on behalf of the Deceased. He now counterclaims for the aggregate sum of $264,424.60 and interest.

5. In reply, the Deceased said that she paid her half share of the monthly installments $7,443.15 (i.e. $14,886.30 x 0.5) out of her own money in cash and that on the Defendant's instructions paid the Defendant's half share of the monthly installments to the joint mortgage account with Overseas Trust Bank by drawing cash from the company. The Defendant therefore became indebted to the company.

The Evidence

6. The following evidence have been filed:

(a) The Deceased's Affirmation filed on 30 July 2002;

(b) Witness statement given by the Executrix filed on 30 July 2002;

(c) Defendant's witness statement filed on 30th July 2002;

(d) Affirmation of the Plaintiff's solicitor Wong Lai Ming filed on 30 October 2002 to support this application for discovery;

(e) Defendant's Affirmation filed on 29 November 2002 to contest this application for discovery;

(f) Affirmation of the Executrix filed on 12 December 2002 to support this application for discovery.

7. According to the Deceased, the Defendant was the majority shareholder having a large degree of administrative control of the company's profitable business whereas she was responsible for making entries to the books and accounts. The Defendant had used monies of the company to pay mortgage installments for his own residential property since November 1989 until 1998.

8. In about 1990 the Deceased and the Defendant started a relationship and thereafter the subject property was bought in their names as tenants in common. Rent was paid into the Defendant's director's account. She paid her share of the mortgage out of her own money. As instructed by the Defendant she drew cash from the company to pay for the Defendant's share. She made deposit every month into the joint account with Overseas Trust Bank.

9. In about June 2001, because of her illness, the Deceased demanded payment of her share of the rent so far received by the Defendant. Thereafter when the relationship deteriorated, the Deceased tried to cash a company cheque of $100,000 but it was dishonoured. In about July 2001 the Deceased gave the Defendant the login password of the company's computer which had all the accounting records, ledger account, etc of the company. In August 2001 the Deceased found that the login password had been changed and as a result she had no access to the records. At or about the same time the Defendant dismissed all the staff of the company.

10. In the Plaintiff's List of Documents filed on 15 February 2002 two sets of company documents were disclosed (items 16 and 17):

(a) Copy of Director's Current Account - Mr. Tsao Yiu Tung for the years from 1998 to 2000.

(b) Copy of Audited Financial Statement of Ivanhoe Construction Maintenance Company Limited for the year ended 31 March 2000.

11. According to the Defendant, the monthly rent of $8,800 credited to his director's account was used to meet the monthly mortgage repayments and the outstanding $6,086.30 (i.e. $14,886.30 - $8,800) was to be borne by them equally. He paid all 84 mortgage payment installments by depositing cash drawn from his director's account, but sometimes by personal cheques or direct transfer from his own bank account, into the joint account with Overseas Trust Bank A/C No. 12-31697089. He kept all the original cash deposit slips. The monies paid into the joint bank account were then directly transferred to the mortgage loan account A/C No. 12-00298-4 for repaying the mortgage. The Plaintiff had never made any single repayment for her half share of the mortgage repayments. The Defendant denies that he now holds any rental income on behalf of the Deceased and says that the Plaintiff knew the details of the director's account.

The Issue

12. Accordingly, the conflict between the parties concerns who made the mortgage repayments, from what source and by what means, giving rise to the claim and counterclaim.

The Application

13. The List of Discoverable Documents annexed to the Summons contains 9 items. I shall deal with them in turn.

Items 1 and 2 - About 1977 - Birth certificates of Tsao Chin Bon, Defendant's 1st Son and Tsao Chin Kiu, Defendant's 2nd Son

14. Paragraph 39 of the Executrix's statement makes an allegation that the Deceased, with a view to maintaining her relationship with the Defendant, assisted the Defendant to make false accounting records about his two sons working full time receiving a salary of $96,000 per annum each from about 1998 to 1999. It was said that because the Defendant does not admit that allegation these documents are needed "in support of the general observation that the Plaintiff's general credibility is to be preferred to the Defendant's" (Paragraph 16 of the Executrix's affirmation).

15. First, this allegation has no bearing on the issues. Second, it is not clear whose general credibility is to be preferred to the Defendant's credibility. If paragraph 39 of the Executrix's witness statement refers "the Plaintiff" as the Deceased, what could be the issue of credibility of the Deceased? If it is the Executrix's credibility as a witness, it has not been demonstrated how it is to be relevant to the determination of the issues as the Executrix was not involved in the false accounting exercise, and presumably she was recounting what the Deceased told her about the false accounting.

16. I am not satisfied that these documents are relevant or necessary for the fair disposal of the action. In any event, the age of the children is unlikely to be disputed by the Defendant and answers can be easily obtained by interrogatories or through cross- examination. The request for these documents is refused.

Item 3 - Nov 89 to date - All document showing installment amounts under the Defendant's mortgage(s) on New Jade Gardens, e.g. monthly mortgage account statements

17. These documents relate to the Deceased's allegation that she drew monies from the company to pay for the mortgage of the Defendant's own residential property.

18. It was submitted that these documents are relevant to "the potential plea of breach of fiduciary duty" (paragraph 19 of the Executrix's affirmation).

19. This case concerns the recovery of rental income held by the Defendant on trust for the Deceased and the recovery of the Defendant's money used to pay off the Deceased's share of her mortgage. It has nothing to do with breach of fiduciary duty. These documents cannot be relevant or necessary for the fair disposal of this action. The request is refused.

Item 4 - Nov 89 to date - All of Ivanhoe's savings and current account(s) from 1989 to date, including: Ivanhoe's Savings Account Book (account no. 144-10-15868-1) with BEA

20. I should deal with items 4, 5 and 6 together.

21. The Deceased said she was asked by the Defendant to draw cash from the company and deposit them into their joint account with Overseas Trust Bank. She could not recall if the Defendant had instructed her to make entries in relation to these transactions.

22. The Defendant said he made all the 84 repayment installments by drawing cash from his director's account and deposited them into the joint account with Overseas Trust Bank.

23. The company's savings and current accounts, financial records and financial statements from the 1 October 1992 appear to be relevant to the parties' assertions.

24. There is a dispute as to who is in possession of the company documents. The Deceased and the Executrix both alleged that the Defendant has the documents and that he even changed the login password of the company computer. The Defendant, on the other hand, alleges that it was the Deceased who took away a lot of the company documents and that she had failed to return them. He now has some documents which he cannot say what exactly they are.

25. No company documents are disclosed in the Defendant's List of Documents filed on 13 June 2002.

26. As stated in the Plaintiff's List of Documents the Deceased had possession of two sets of company document - director's current account from 1998 to 2000 and audited financial statement for year ended 31 March 2000. The Executrix says that those are the only company documents she has in her possession.

27. I am satisfied that these documents are relevant. The Defendant is now the only person in control of the company and has admitted that he has some documents. I would make an order that the Defendant to file an affirmation in relation to items 4, 5 and 6 but limited to the tenancy period between October 1992 to September 2002.

Item 5 - Nov 89 to date - All of Ivanhoe's financial records including books, journals, ledgers, including the Defendant's Director's Account entries

28. I have dealt with this item above.

Item 6 - Nov 89 to date - All of Ivanhoe's annual audited financial statements

29. I have dealt with this item above.

Item 7 - Nov 89 to Jul 99 - The monthly statements of the Joint Current Account of Plaintiff and the Defendant (no. 12-31697089) with the OTB

30. Both sides accepted that monies were paid into this joint account with Overseas Trust Bank for paying the mortgage. In my view, these documents are not necessary for the fair disposal of this action. This request is refused.

Item 8 - July 92 to July 99 - All of Defendant's saving and current account(s) from July 1992 to July 1999 inclusive, including the Defendant's:

(1) Monthly statements of Savings Account (account no. 12-100-63505) with OTB

(2) Monthly statements of Current Account (account no. 12-31694527) with OTB

31. The Defendant alleges that he took cash from his director's account and deposited them to the joint account with Overseas Trust Bank apart from a few payments by personal cheque or direct transfer from his own bank account. The relevance of these documents is limited in that if available they would only show the alleged few installment payments by the Defendant's personal cheques or direct transfer from his own account. The cash withdrawals presumably can be seen in the director's account. The Defendant has in his affirmation said that he is no longer in possession of these documents. To request the bank to reprint these documents covering such a long period of time, in my view, will involve disproportionate time and expense. This request is refused.

Item 9 - July 92 to July 99 - All Installment Loan statement of the Plaintiff and the Defendant's Mortgage Account (no. 12-00298-4) with OTB in respect of the Property

32. There is no dispute that the loan has been fully repaid by monthly installments. The question here is who made those payments and from what source. It was not suggested that these documents are capable of showing who effected the monthly installments. This requested is refused.

33. I shall accordingly make an order in terms of paragraph 1 of the Plaintiff's Summons dated 30 October 2002, but only limited to these classes of documents:

(a) All of the savings and current account(s) of Ivanhoe Construction Maintenance Co Ltd from October 1992 to October 2002 including the savings account book A/C No. 144-10-15868-1 with BEA;

(b) All of the financial records of Ivanhoe Construction Maintenance Co Ltd from October 1992 to October 2002 including books, journals, ledgers and the Defendant's director's account, entries and records;

(c) All of the annual audited financial statements of Ivanhoe Construction Maintenance from October 1992 to October 2002.

34. I also make an order nisi that costs of and occasioned by this application be costs in the cause with a certificate for counsel. This Order will become absolute in 14 days.