CYBERWORKS AUDIO VIDEO TECHNOLOGY LTD (in Compulsory Liquidation) v. MEI AH (HK) CO LTD

HCA 677/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 677 of 2006

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AND

HCA 678/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 678 of 2006

AND

HCA 2780/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 2780 of 2006

__________________

__________________

AND

HCA 658/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 658 of 2011

__________________

________________________

D E C I S I O N

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THE APPLICATIONS

1. There are three applications before this Court, namely summons for discovery under O 24, rr 7, 8 and 13 RHC taken out by the Plaintiff (“P”); summons for amendment to P’s summons for discovery and summons by P for an order for production of documents by the defendants (“Ds”).  They are respectively called “the Discovery Summons”, “the Amendment Summons” and “the Production Summons”.

2. Ds seem to have raised no serious objection to the Amendment Summons except for the issue of costs.  This summons will be allowed.  The costs of this application will be dealt with below.

3. The other two summonses are contested.

4. The parties are legally represented.[1]

THE PROCEDUAL BACKGROUND

5. By an Order dated 17 July 2014, the following actions have been consolidated:

(a)  HCA 677/2006;

(b)  HCA 678/2006;

(c)  HCA 2780/2006 &

(d)  HCA 658/2011

6. There was an application on expert evidence, which I had given written Decision on 12 January 2016 wherein I had set out the brief facts and the live issues of dispute between the parties. I do not intend to repeat them in this Decision.  However, I shall rely upon them for discussion of the disputes between the parties on these applications.

THE DISCOVERY SUMMONS

Items 1-6 of Schedule 1

7. The legal principles on discovery as set out in respective counsel’s written submissions are not in dispute.  I shall apply them to the discussion below.

8. As submitted by the plaintiff, as a result of the latest affidavits/affirmations filed by Ds, the practical value of P’s application for an order in terms of §§1 and 2 of the Amended Summons has been somewhat reduced.[2]

9. Ds submit that since Ds’ affidavits or affirmations, Ds should have satisfied P’s requests for item 1 to item 6, leaving items 7 and 8 in substantive dispute.[3]

10. But P disagrees and says that the Court should still make an order in terms as follows:

(a)  Ds do within 7 days from the date of the order to be made herein file an affidavit stating whether the documents or class of documents set out in Items 1, 3(a) & (c), 4-6 of Schedule 1 to the Amended Summons have been within their possession, custody or power and if so when they parted with them and what have become of them;

(b)  Ds do within 7 days from the date of the order to be made herein file an affidavit stating whether the documents or class of documents set out in Items 7 and 8 of Schedule 1 to the Amended Summons are, or have been, within their possession, custody or power, and if not then within the possession, custody or power when they parted with them and what have become of them; and

(c)  Ds do within 14 days from the date of the order to be made herein produce to P for inspection the documents or class of documents set out in Items 7 and 8 of Schedule 1 to the Discovery Summons as amended.[4]

11.  Ds submit that such a stance is untenable, and is contrary to well-established legal principles that “[s]tatements in a party's affidavit of documents are conclusive”, and that “[t]he respondent may answer an application for specific discovery by an affidavit stating that he does not have the documents, and this will be conclusive at the interlocutory stage”, relying upon Jade’s Realm Ltd v Director of Lands (supra) HCA 1509/2012 (unrep, 10 June 2014 §21(7)-21(8).[5]

12.In the matter of Prudential Enterprise, Ltd (unreported, HCCW 594/1999, Chu J (as she then was), 24 October 2003) at paragraph 16 the court held that challenge to the affidavit of documents made under O 24, r 10 could only be made “if it can be shown by admissions in pleadings or the contents of the affidavit itself or documents referred thereto that the affidavit is insufficient: Jones v. Monte Video Co (1880) 5 QBD 556 at 558.”  At §18 of the judgment it was held:

“……At this interlocutory stage, this affidavit has to be accepted as conclusive, and the petitioners cannot seek to challenge or contradict it.”

13.  An affidavit is not regarded as conclusive where it can be shown that there has been insufficiency of discovery, demonstrated by (i) the pleadings, the list and affidavit of documents themselves, or documents referred to therein; (ii) any other source that constitutes an admission of the existence of a discoverable document not so far discovered; (iii) an apparent exclusion of documents from discovery by a party under a misconception of the case (see Lee Sai Nam v Li Shu Chung & Ors (unreported, HCA 1711/2009, DHCJ M Ng, 10 January 2014), at §§55-57.  See also §24/7/1 of HKCP 2014, Vol 1.

14. P has set out the reasons in support of its proposals.  See paragraph 31 of Counsel’s written submissions.

15.  The first reason simply does not come close to the factors as set out in the two authorities above.

16. The second reason does not assist P in the argument as it follows from the first reason.

17. P gives the third reason as follows:

“Ds’ stance that they cannot confirm whether some documents ever existed due to the long lapse of time is unsatisfactory. There is no reason why the deponents to the affidavits filed on behalf of Ds (who are or were directors of Ds) cannot themselves provide the confirmation sought. There is otherwise no explanation as to what efforts have been made to locate suitable personnel who would have personal knowledge of these matters. Further, merely conjecturing that the documents may have been destroyed simply because of a normal practice to retain documents for 7 years for audit and tax purposes is highly unsatisfactory. No evidence of such a policy has been produced, and even if such a policy existed and was carried out, documents such as board resolutions plainly have a more general significance than just for audit and tax purposes. There is also no clarity as to whether, for example, all board resolutions from over 7 years have been destroyed, or whether they may still be located just that no board resolution authorizing the sale of the fixed assets could be located from the board resolutions still kept.”[6]

18. There is no dispute that those documents under the requested items, ie, paragraphs 1, 3(a) and (c), 4-6 of Schedule 1 to the Amended Summons are relevant to the issues of dispute between the parties at trial.

19.  Mr Chang for Ds has raised a rhetorical question what the court will require from the directors of Ds other than the answers that they had given, one example being on page 394 paragraph 5 of Bundle A2, the affirmation of Mr Law telling the court “As of November 2015, Silver Kent did not have in its possession, custody or power any of its fixed asset registers for the period between 15 March 2000 and 31 March 2001.  Due to the long lapse of time, Silver Kent cannot confirm whether any such fixed asset registers ever existed, and even if they did exist in the past, Silver Kent cannot confirm what has become of them save to say that they may have been destroyed (and Silver Kent did not know when) in accordance with the company’s normal practice to retain documents for 7 years (for audit and tax purposes) as explained in paragraph 5 of my Fourth Affidavit.”

20.  The fact that Ds can simply say that they do not have the documents on affidavit should be final at the interlocutory stage under the above authorities may apply to some circumstances where the answer to the requests is simply no such documents were ever in possession, custody or power and no further explanation may be required.  But this is not an absolute answer and the principle should not be applied mechanistically.  This case is an example.  The answers given by Ds in the affidavits or affirmations are clearly insufficient to meet the requirement of honest disclosure under O 24, r 7 RHC. Mr Law made his affirmation without telling this Court what search or enquiry he had made before making it.  He certainly has not answered the questions under O 24, r 7 RHC by giving those answers.  He has to be certain about whether those documents existed, not telling the court that he was not certain.  It will be for him to ascertain the facts of his case before making his affirmation.  These issues are going to be hotly contested at trial.  Ds will have to answer the questions in any event.  To disclose the documents or information relating to the absence or loss of them at this stage will clearly save costs for a fair trial.  To say that such questions can be put to Mr Law at the trial will only serve the purpose of testing his credibility, without taking into account that the purpose of O 24 is to make investigation into the documents relevant to the case for the preparation of evidence before trial, which will be defeated by Mr Law’s answers in his affirmation.

21. I therefore accede to P’s request in relation to paragraphs 1, 3(a) and (c) and 4-6.

Items 7 and 8 of Schedule 1

22. As to items 7 and 8, which are contested by Ds, Ds have set out their grounds of objection in the written submissions, which I shall not set out here as I shall simply deal with these items briefly in the following reasons.

23.  Mr Nip for P has specifically told me that these two items of documents are for the purpose of making enquiry into the accounts, the alternative remedy to damages for P.  I agree with Mr Chang that only if after the liability of Ds are found will the court order enquiry to be made. Since P seeks an order for enquiry to be made, the trial court, will only make the order as pleaded by P if it agrees with P’s case.  Mr Nip says that the documents will be for P to make the election before trial or for the trial. I consider that it is not proper to make discovery for P to make up the mind.  If it is for the trial, I tend to accept Mr Chang’s argument that the enquiry cannot be done as the pleadings stand.  Probably, P may have to amend the pleadings, causing further delay to the proceedings.  I am not convinced that they are for saving costs at least.  These two items are disallowed.

THE PRODUCTION SUMMONS

24.  Ds say that all the documents that should be disclosed to P had been given copies to P or P has not set out the documents clearly.  Upon reviewing the correspondence between the solicitors, it is quite clear that Ds had been trying to be difficult with P for the requests, which should have been acceded to by Ds’ solicitors without argument, saving time and costs.  This Court deprecates such conduct in civil litigation.

25. Accordingly, I shall make an order in terms of this summons.

COSTS AND ORDER

26. As to the costs of these applications, P agrees that the costs of and occasioned by the amendment be to Ds.  Parties have no objection that there be no order as to costs for the Discovery Summons; the costs for the Production Summons be on an indemnity basis assessed at $35,000 to be paid by Ds to P; the costs of the Amendment Summons are assessed at $20,000 to be paid by P to Ds.  The net amount will be $15,000 to be paid by Ds to P after setting off, as agreed by the parties.

27. This Court shall now make an order in terms as follows:

(a)  The Discovery Summons: an order in terms as per paragraph 21 and paragraph 23 above and the time will be 28 days from the date hereof for the affidavit to be filed and served;

(b)  The Production Summons: an order in terms as per paragraph 25 above;

(c)  The Amendment Summons be allowed; and

(d)  Costs as per paragraph 26 (with Counsel’s Certificate) to be paid within 7 days from the date hereof.