TANG CHUNG WAH aka TANG CHUNG WAH, ALAN AND ANOTHER v. JONATHAN RUSSELL LEONG AND OTHERS

HCA 1691/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO HCA 1691 OF 2011

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DECISION

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The application

1.  By their Summons dated 11 December 2013, the plaintiffs apply for leave to file a supplemental witness statement of the 1st plaintiff [1/1-38][1]. The defendants oppose the application.

2.  Mr. Siu, counsel acts for the plaintiffs.  Mr. Chang, counsel acts for the defendants.

The factual background

3.  In his written submissions, Mr. Siu has set out the factual background of the plaintiffs’ case against the defendants. For brevity of this Decision, I would adopt Mr. Siu’s factual background, which the defendants have no dispute, as follows:

“3. The Plaintiffs, Defendants, as well as a number of other individuals were at all material times the equity partners of a partnership carrying on a practice as a firm of certified public accountants in Hong Kong (“Partnership”). 

4. Between 2007 and 2010, the Partnership also comprised some salaried partners, including six former partners of an accounting firm named Moores Rowland (“Ex-MR Partners”).

5. Until December 2010, the Partnership had been the Hong Kong member firm of the Grant Thornton international network of accounting firms (“GT Network”).  Grant Thornton International Limited (“GTIL”) is the umbrella organization entity for the GT Network.

6. The relationship between the partners of the Partnership was governed by a partnership deed dated 1 October 2001.

7. The Partnership was expulsed from the GT Network in late October 2010.  The equity partners of the Partnership formed the consensus view that the Partnership should be closed down for new business with effect from 1 January 2011.

8. On 22 November 2010, partners of the Partnership entered into a deed of termination (“DOT”), where they dealt with, among others, the modalities for approaching the litigation against third parties, including GTIL, Jingdu Tianhua Certified Public Accountants Company Limited (“Jingdu”), Ex-MR Partners, etc.

9. On 27 September 2011, the Defendants as majority partners purportedly entered into a settlement deed (“Settlement Deed”) in the name of the Partnership with, among others, GTIL, Jingdu and the Ex-MR Partners.

10. On 6 October 2011, the Plaintiffs commenced this action.  The Plaintiffs’ claims against the Defendants can essentially be categorized into the following four matters:-

(1) Failure by the 1st, 4th and 7th Defendants to make disclosure pursuant to the DOT, and the breach by the 2nd, 3rd, 5th, 6th, 8th and 9th Defendants for condoning the 1st, 4th and 7th Defendants’ failure to make disclosure (§§25-32 of the Statement of Claim  [1/51-54]);

(2) Breach of good faith and fiduciary duties by using their majority votes to purportedly force all partners of the Partnership to settle disputes with the counter-parties of the Settlement Deed;  wrongful implementation of the Settlement Deed; and conspiracy to injure the Plaintiffs in relation to the Settlement Deed (§§48-72 of the Statement of Claim [1/61-83]);

(3) Failure to give a full account to the Plaintiff all work-in-progress and outstanding receivables accrued to the Partnership but received by them (§§73-79 of the Statement of Claim [1/83-86]); and

(4) Failure to provide the Plaintiffs with full and unrestricted access to all computer systems and data with the Partnership’s IT systems (§§80-85 of the Statement of Claim [1/86-88]).”

The procedural history

4.  As the defendants allege that the plaintiffs are delaying the progress of the proceedings, the procedural history will be significant for this discussion.

5.  Mr. Siu has also set out the procedural history in his written submissions, which the defendants have raised no objection:

“Procedural History

1. The first round of witness statements were exchanged on 21 January 2013. The first CMC was held on 6 February 2013, and by consent it was adjourned to 15 May 2013 for the 2nd CMC [1/194-196].

2. On 13 April 2013, the Defendants applied to strike out §§54-72 and reliefs 3-5, 12 and 13 of the Statement of Claim [1/157]. Had that application been successful, the bulk of the Plaintiffs’ claims would have been disposed of.

3. At the 2nd CMC on 15 May 2013, it was ordered that the matter be adjourned to 27 November 2013 for the 3rd CMC, pending the outcome of the Defendants’ strike-out application [1/210-212].

4. On 15 October 2013, the Defendants’ strike-out application was dismissed by Suffiad J [1/175].

5. At the 3rd CMC on 27 November 2013, leave was granted to the Defendants to set down the case for trial.  The order also specifically provided that the Plaintiffs could take out an application to serve a supplemental witness statement by 11 December 2013, which is exactly what the Plaintiffs did [1/221-223].”

The relevant legal principles

6.  Mr. Siu relies upon the reasons of my Decision in Bel Nickel Resources Ltd v Eastbourne Trading Pte Ltd HCA 2042/2009 (unreported, 3 January 2014) at §9 for the consideration of the court’s discretion in relation to the plaintiffs’ application as follows:

“(1) Whether the trial date has been fixed yet;

(2) Whether the proposed supplemental witness statement is so substantial that it will cause longer trial time;

(3) Whether the other party will suffer any real prejudice if leave is granted for serving the supplemental witness statement;

(4) Whether filing the supplemental witness statement will help secure the just resolution of disputes in accordance with the substantive rights of the parties; and

(5) Whether the party’s rights will be affected if leave is refused.”

7.  Mr. Siu also refers to my Decision in another case Chui Pui Kun v Chui Wai Kwan HCA 2339/2009 (unreported, 26 May 2011) at §11 in which I held that if certain parts of the proposed supplemental witness statement overlapped with the witness statements already filed, provided that the overlapped parts were relevant and would not prolong the trial unnecessarily, the Court should not do the editing, which would cost more costs and time and even lead to further disputes.

8.  Of course, those reasons were given for the facts of the cases before me when I was to exercise my discretion.  They were catered for the special factual circumstances of the cases. For example, in Chui Pui Kun case, the respondent argued that part of the supplemental witness statement was in duplication of the witness statement of the same witness.  Having considered the contents of the witness statement and the supplemental witness statement, I considered that there were, in fact, some parts of the supplemental witness statement, which were in duplication with the witness statement filed. However, I took the view that there would be some parts in the supplemental witness statement that would overlap with the original witness statement.  Otherwise, the supplemental witness statement would appear to be incomprehensible.  That was the situation in that case.  I considered that to argue on such trivia would be tantamount to playing tactical games between the parties.

9.  In the exercise of judicial discretion, the court has to bear in mind whether the exercise is just and fair in all the circumstances as advocated in the case of Wing Mou Construction Co Ltd v Cosmic Insurance Corporation Ltd & Mansion Holdings Ltd HCCT 40/2001 (unrep. Ma J. as he then was, 20 June 2002) in which the learned judge discussed whether the Court should exercise its discretion to make an order allowing the third party to be joined as a defendant in the action.  At paragraph 15 of the Reasoned Decision, the learned judge discussed the way a court should exercise its discretion and he said:

“(5) The exercise of the court’s discretion in any given case depends on a number of factors. Of course, the court must first identify exactly the ambit of the order sought before considering what are the relevant factors going towards the exercise of discretion. No exhaustive list of factors can be enumerated but I would suggest the following will regularly feature : the individual prejudice to the parties in the event an order is or is not made, the stage that the action has reached when the application is made, any delay in making the application and any delay that may be caused should an order be made. What weight the court will give to any particular factor will depend on the precise form of the order or orders sought.

(6) Ultimately, the discretion is exercised bearing in mind the object of the two sub rules I have earlier set out and, as with any exercise of discretion by the court, orders should only be made where necessary, just and convenient.” (emphasis added)

10.  There is no dispute that in this application, the parties are asking this court to exercise its discretion on whether the plaintiff’s application for leave to adduce the supplemental witness statement should be granted. I consider that I should be guided by the above legal principles.

The defendants’ cited cases

11.  Mr. Chang invites me to take into consideration of the following factors:

a. The parties should exchange all their witness statements simultaneously in one go in order to avoid unfairness which may arise from possible tailoring of the testimony, in the form of further or supplemental witness statements that are crafted on what the other side’s witnesses say in the “first round”.

b. The party who wants to serve supplemental witness statement must obtain leave from court and where no satisfactory explanation is given, it would be a rare case for the indulgence to be given: Chan Wing Cheung, Allan v Ho Shu Yee Susana, CACV 393/2004 (unreported, 10 January 2005) at §9(4); and

c. It is not proper for a supplemental witness statement to be filed simply to repeat what has already been stated in the existing witness statement.  Nor would the Court allow supplemental witness statements to be filed when their relevance is tangential at best: Liu Wai Keung v Liu Wai Man, HCA 1106/2011 (unreported, 22 March 2013) at §§11-13.

Discussion

12.  There is no dispute on the first factor. Under Order 38 rule 2A(2) RHC, a party is not allowed to serve other witness statements other than those that the court has given directions, usually at the Case Management Summons hearing, without leave.[2] However, the defendants have not stated what prejudice would be caused by the 1^st plaintiff’s proposed supplemental witness statement, which cannot be compensated by their having the liberty to serve the supplemental witness statement in response or by costs.

13.  In Chan Wing Cheung, Allan v Ho Shu Yee Susana, CACV 393/2004 (unreported, 10 January 2005), the defendant made an application for leave to adduce a supplemental witness statement at the Pretrial Review hearing, some 4 weeks before trial without explanation for the delay.  It was a lengthy witness statement setting out the loans allegedly made by the defendant to the plaintiff, which the defendant relied upon as her defence and counterclaim. [5][3]  The trial judge refused her application, taking the view that, if the application were allowed, the length of the trial would be increased from 5 days to 20 days.  On appeal, the Court of Appeal held that it should not disturb the judge’s case management decision unless his decision was on some error or obviously wrong [8]; that the judge was right to refuse her application because despite the fact that defendant would be prejudiced by not having her evidence admitted at trial, the court had to consider the prejudice that would cause to the plaintiff as the trial might have to be adjourned to another date; that the prejudice was made by herself; that the defendant had waited until the last moment to take out the application and that the plaintiff’s prejudice could not be compensated by costs. [9]

14.  In Liu Wai Keung v Liu Wai Man, HCA 1106/2011 (unreported, 22 March 2013), the defendant made an application for leave to adduce a supplemental witness statement on a date less than 4 weeks before trial.  The supplemental witness statement was to serve the purpose of explaining why some documents should be incorporated in the trial bundle. The Judge considered that it was not appropriate for the supplemental witness statement to serve such purpose. [10]  The contents of the supplemental witness statement were only of tangential value. [12]  There was repetition of evidence of the witness statement and part of it was in anticipation of the plaintiff’s argument, which the Judge found to be distractive of the main issue. [13]  The application was too late. The defendant had mentioned in the Listing Questionnaire that there would be supplemental witness statement.  But the defendant had not taken out the application, not even at the stage of the Pretrial Review hearing.  The application was refused.

15.  It can be seen at once that in both cases cited by Mr. Chang above, the applications for admission of the supplemental witness statements were made at very late stage; that if the applications were granted, they would affect the trial date, a milestone date under Order 25 RHC.  Chang Wai Cheung, Allen case was decided before the CJR, where there was no milestone date provision in Order 25 RHC.  In the analysis of the courts in the above cases, the courts had obviously applied the legal principles as stipulated in Wing Mou Construction Co Ltd. Substantial weight was accorded to the factors that the applications were made at a very late stage without good explanation and such delay would cause prejudice to the other party to have a fair trial and such prejudice could not be compensated by costs.

16.  The last complaint by Mr. Chang is that the supplemental witness statement is a repetition of the first witness statement of the 1^st plaintiff.  At first blush, it seems surprising that the plaintiffs will do this as this is obviously a waste of costs and time.  I have noted that Mr. Siu has, in his written submissions, set out the relevance of the supplemental witness statement.[4]  Mr. Chang, in response to Mr. Siu’s written submissions, has made a general comment that the various aspects of the supplemental witness statement are covered by the original witness statement. I have to take Mr. Chang’s comment that the supplemental witness statement is a repetition of the 1^st plaintiff’s first witness statement.  The first witness statement of the 1^st plaintiff has taken 61 pages and 112 paragraphs; his supplemental witness statement 32 pages and 62 paragraphs.  On this issue, I had requested Mr. Siu, counsel for the plaintiffs to assist me to identify the supplemental facts in the supplemental witness statement and the significance of such supplemental facts to the plaintiffs’ pleaded case.

17.  Mr. Siu has helpfully given his supplemental written submissions within the time proposed. I am very grateful to him for his assistance. His supplemental written submissions have taken eight pages, in which Mr. Siu has set out the supplemental facts in the supplemental witness statement of the 1^st plaintiff and their relevance to the pleadings.  For brevity of this Decision, I shall not set out Mr. Siu’s supplemental written submissions here.

18.  Mr. Siu’s supplemental written submissions have been given to Mr. Chang on the same day I received them. Today, Mr. Chang submits that the substance in the supplemental witness statement of the 1^st plaintiff was covered by his first witness statement although there are additional facts.  However, he submits, that the additional facts are irrelevant because that was not pleaded by the plaintiffs.  Mr. Chang has also helpfully told the Court that the supplemental witness statement will not prejudice the defendants’ case as the defendants will not serve any supplemental witness statements in response thereto and that the length of trial will not be affected.

19.  When considering the contents of the supplemental witness statement, the Court should take into account the nature of the disputes between the parties.  This case concerns about the breakdown of relationship between the plaintiffs and the defendants and the defendants’ conduct in the course of the settlement of the third party claims.  The parties will make use of the course of business to reflect the unreasonableness of the other party.  Take an example of paragraph 16(3) of Mr. Siu’s supplemental written submissions. Mr. Siu explains that the alleged offer of $1 as indemnity was only a practical joke by the 1^st plaintiff.  Mr. Chang comments that this is irrelevant because in paragraph 58 of the Statement of Claim, the plaintiffs pleaded it was not necessary to provide indemnity. Therefore, this additional fact is irrelevant.

20.  However, when asked where this issue of $1 indemnity arose, Mr. Chang agrees that it was put in the witness statement by the defendants’ witness. The purpose of putting it in the witness statement is to demonstrate to the Court how unreasonable the 1^st plaintiff was when he made the proposal of $1 indemnity.  Mr. Chang accepts that it will be unfair to the 1^st plaintiff if he is not allowed to give an explanation to his proposal of $1 indemnity.  This example will illustrate the way the parties will prove their cases at trial. This matter, no doubt, is facts sensitive. The Court has to take the nature of the matter on board when it considers the witness statements and the supplemental witness statement.

21.  As Mr. Chang has commented in his written submissions that the fact that I had given leave to the defendants instead of the plaintiffs to set the matter down for trial indicates that the plaintiffs had been sluggish in the proceedings, I consider I should clarify the position, lest this will be taken as the court has agreed to Mr. Chang’s comments.

22.  At the 3^rd Case Management Conference, the plaintiffs indicated that they would take out an application for leave to serve the supplemental witness statement.  The defendants informed the court that they were ready for trial and they wanted the matter to be adjudicated expeditiously.  The only outstanding matter is the plaintiffs’ application for leave to serve the 1^st plaintiff’s supplemental witness statement.  At the Case Management Conference, I had no idea how much substance the 1^st plaintiff would put in his supplemental witness statement.  As the defendants indicated that they were ready to set down for trial, in order to save argument on whether the plaintiff was playing delaying tactics, in which event, the court has to take on board all the procedural historical background and the outstanding matters.  There would not be enough time for the 30-minute hearing.  The most effective way would, in the circumstances, be to allow the defendant to have the right to set down, with a draconian order that the plaintiffs had to take out the application within the prescribed time on the one hand, on the other hand, there would be mechanism built in the leave direction that all the outstanding matters had to be cleared before setting down.  This would save time for the matter to be adjourned for argument or for another Case Management Conference. If it happens that the plaintiffs were really trying to play delaying tactics, the defendants would have the remedy of setting the matter down for trial.  However, if the plaintiffs were serious about making the application, they had the opportunity of so doing.  This is what they have done here.  Those were the considerations that I had in giving leave to the defendants for setting down.

23.  As of today, this application remains the only outstanding matter before the matter can be set down for trial.  The defendants are unable to set down the matter for trial before this application is disposed of.  The matter can be set down for trial after I have disposed of this application.

24.  All these should clarify the comments of Mr. Chang.  The Court’s position remains neutral.

25.  The following factors should be taken into account for the plaintiffs’ application:

a. the facts in the supplemental witness statement of the 1^st plaintiff are relevant to the plaintiffs’ pleaded case and it would be unfair to exclude them from the trial under the present circumstances;

b. the matter has not been set down for trial.  Therefore there is no milestone date of trial yet;

c. the procedural history at paragraphs 4 and 5 supra;

d. the reason for the delay, if there has been, is clear that if the defendants succeeded in striking out parts of the plaintiffs’ claim, it would not be necessary or appropriate to have the supplemental witness statement of the 1^st plaintiff; and

e. the defendants have not been able to show prejudice by the proposed supplemental witness statement.

Conclusion

26.  Having considered the above circumstances relating to this matter, I decide that leave should be given to the plaintiffs to serve the 1^st plaintiff’s supplemental witness statement as per the draft annexed with the summons.  The defendants shall have the liberty to serve supplemental witness statement in response to the said supplemental witness statement within 28 days from the date hereof.

27.  As the application is disposed of today, leave for setting down should be given to the plaintiffs, who have the conduct of the proceedings in accordance with Order 34 rule 2, RHC.  The defendants have no objection. So I order.

28.  As to the costs of this application, Mr. Chang submits that the fair order should be the costs of the application be given to the defendants.  But the costs for today’s hearing should be in the cause because the plaintiffs had given no explanation for the delay and that the defendants are quite entitled to argue.  Mr. Siu has no objection to the costs of the application being given to the defendants. As I have said above, the plaintiffs’ stance is quite clear from the procedural history. There is no ground for the defendants to say that it is the plaintiffs’ delaying tactics. Also, the defendants may elect not to argue after receipt of Mr. Siu’s written submissions.  The costs of this hearing, including the costs reserved should be given to the plaintiffs (with counsel certificate for today’s hearing) to be assessed under Order 62 rule 9A RHC at $60,000.  I appreciate Mr. Chang’s observation on the counsel fees claimed, as compared to his fee.  However, I have to take into account of the burden on the plaintiffs to support their application and I have also taken on board Mr. Siu’s efforts in the preparation of the plaintiffs’ case for this hearing.

29.  I shall now make an order in terms as follows:

a. Leave to the plaintiffs to serve the 1^st plaintiff’s supplemental witness statement as per paragraph 26 supra;

b. Costs of and occasioned by the 1^st plaintiff’s supplemental witness statement be to the defendants, to be taxed, if not agreed in any event;

c. Costs of the plaintiffs’ application, including the costs reserved and today’s hearing (with counsel certificate) be to the plaintiffs, assessed at $60,000 to be paid within 14 days from the date hereof;

d. The Order dated 27 November 2013 be varied to the extent that leave be given to the plaintiff to set down for trial within 42 days from the date hereof, the remaining parts of the said Order shall remain.