LAI SAI SANG v. UBS AG

HCA 97/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 97 OF 2010

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BETWEEN

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D E C I S I O N

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1.  This is an appeal against the decision of Master de Souza made on 11 January 2012 by which he dismissed the plaintiff’s action against the defendant and the plaintiff’s defence to the defendant’s counterclaim after the plaintiff’s failure to comply with an Unless Order made by the Master on 18 August 2011. The consequence of the dismissal was that, inter alia, judgment be entered for the defendant against the plaintiff and the sums claimed under the counterclaim, namely HK$9,624,863.34 and US$321,562.79 be paid forthwith. It also provided for the delivery of a property from the plaintiff to the defendant.

Background

2.  The plaintiff’s claim was for the repayment by the defendant bank of losses suffered as a result of unsuccessful financial transactions.  The main issue to which the discovery orders (including the Unless Order in question) was directed concerned the plaintiff’s previous financial dealings and his sophistication as an investor.  The counterclaim relates to monies due to the defendant under various financial facilities granted to the plaintiff.  The Statement of Claim is dated 3 March 2010; the Amended Defence and Counterclaim 12 April 2011.

3.  The defendant’s first request for discovery was in January 2011.  The plaintiff filed a list of documents on 7 March 2011 which did not contain any reference to his previous investment experience.  Further letters seeking discovery followed on 22 March, 1 April, 16 May and 27 May 2011 without any significant progress being made.

4.  The defendant therefore issued its first summons for specific discovery on 9 June 2011.  This resulted in an order by consent in which the plaintiff agreed to provide the discovery as requested within 35 days.  That order was not complied with which caused the defendant’s solicitors to seek an Unless Order by its second summons on 18 August 2011, 70 days after the first summons.

5.  Again, by consent, an Unless Order was made on 18 August by Master de Souza granting a further 21 days for compliance, namely by 8 September 2011.

6.  It is fair to comment, as Mr Clive Grossman SC, leading Mr Hylas Chung, does on the plaintiff’s behalf, that the orders required extensive discovery.  That however must be balanced against the fact that both orders for specific discovery were made by consent when the plaintiff was legally represented.

7.  It is also fair to say that as at 8 September 2011 some discovery had been made.  Mr Grossman concedes however that such discovery that had been made fell well short of compliance.  He acknowledged that there had been a breach of the Unless Order (the same acknowledgement had been made before Master de Souza).  The issue therefore was whether the plaintiff should have been granted further time on the basis that his breach was not so serious as to require the entering of judgment against him.

Legal principles

8.  It is sufficient to cite just two authorities which taken together represent the current legal test to be applied when an Unless Order has not been complied with.

9.  Firstly, Ribeiro J in Chan Chun Lung Allen & Anor v Ryland Ltd & Others, HCA 4904/1996 said:

“ The test I propose to adopt is that set out in the PT Bank Pembangunan case, taken from the Jakai case. …

The question is therefore whether the 5^th Defendant’s failure to comply was ‘intentional and contumelious’ or whether, on the contrary, he has been able ‘clearly [to] demonstrate that there was no intention to ignore or flout the order and that the failure to obey was due to extraneous circumstances’, keeping in mind that the court should not be astute to find excuses for such non-compliance.

Non-compliance is contumelious where it is the result of the litigant’s conscious and deliberate decision to ignore or disobey the court’s order in the absence of any extraneous excuse.  Such deliberate conduct may be contrasted, for instance, with cases where the litigant has made a serious effort to comply in good faith but has been unsuccessful through bad luck or incompetence (c.f., Ka Wah Bank Ltd v Lo Chung-song & Anr [1989] 1 HKLR 451), or with cases where the litigant has not completed because of circumstances outside his control (including cases where his solicitor has negligently or otherwise missed the deadline through no fault of the litigant).”

10.  More recently and since the introduction of the Civil Justice Reforms in Hong Kong, Fok J stated in Top One International (China) Property Group Co Ltd v Top One Property Group Ltd [2011] HKLRD 606 that:

“The exercise of the discretion to refuse an extension or to relieve a party from sanctions is not limited to cases of intentional and contumelious default. As directed by RHC O.2 r.5, the court should consider all the individual circumstances including those listed in r.5(1) at sub-paragraphs (a) to (j). Depending on the circumstances, failure to comply with one or a number of orders through negligence, incompetence or sheer indolence may be such as to lead the court to conclude there is an existence and degree of fault which warrants a refusal of an extension of time, so that relief from a sanction for non-compliance specified in a peremptory order (including an order striking out a pleading) should not be granted. Any other conclusion would, in my opinion, be to ignore the positive duty placed on parties to assist the court to further the underlying objectives of CJR (RHC O.1A r.3) and on the court to do so by actively managing cases (RHC O.1A r.4(1)).”

11.  Ribeiro J described the hypothetical litigant who should not suffer under the sword of Damocles as one who had made a serious, albeit unsuccessful, effort in good faith to comply. Mr Grossman submits that the plaintiff falls into this category.  Mr Abraham Chan, counsel for the defendant, on the other hand submits that, at the very least good faith was clearly lacking and any efforts made were far from serious.

12.  It is now necessary to turn to the evidence as to what the plaintiff actually did in purported compliance of the orders and when.

Evidence

13.  The defendant’s evidence, which is largely unchallenged, comes mainly from the 3^rd affidavit of Yuen Wai San, a solicitor representing the defendant, dated 9 November 2011 prepared for the hearing before the Master on 11 January 2012.  The affidavit also includes a 3-page chronology.

14.  It is worthy to note at the outset that a key feature of the plaintiff’s claim is his alleged lack of investment experience and financial sophistication. The defendant challenges this.  Much of the discovery exercise is aimed at the plaintiff’s investment history and his experience and sophistication.  The defendant maintains that the plaintiff’s high level of sophistication should logically result in a large volume of documentation.  It is telling, the defendant would submit, that the plaintiff only produced an inadequate number of documents prior to 8 September 2011 and the real picture only started to emerge when he faced the risk of being ‘shut out’ altogether.

15.  What follows is a summary of some of the main features of the non-compliance.  The affidavit evidence from the defendant is lengthy and detailed.  In my judgment a fair reading of that evidence when balanced against the plaintiff’s responses reveals a clear picture of lack of good faith on the plaintiff’s part, a deliberate attempt to keep discovery to a minimum so as not to jeopardize his claim of being inexperienced and unsophisticated in financial matters.  His efforts clearly cross the line from being merely unsuccessful to flouting the discovery process hoping to defeat its purpose.

16.  The facts made in support of the above conclusion include the following (which appear in more detail in Mr Chan’s skeleton submission and greater detail still in Mr Yuen’s affidavits):

(a)  Citibank’s initial response was that the plaintiff did not have an account with them.  The plaintiff knew that was wrong but did not attempt to remedy the mistake in time.  The plaintiff’s actual discovery contains items which show transfers to and from his Citibank accounts which proves the plaintiff must have known he had such accounts.

(b)  In relation to the plaintiff’s dealings with the Dexia Bank and Credit Suisse he deposed to the fact that all documentation with these banks had been ‘disposed of’ as they were ‘very bulky …’.

This was the plaintiff’s attempt to explain why there had been no response to his letters to the Dexia Bank and Credit Suisse.  Thus there is an acknowledgement that such documentation would have been “very bulky” but, on the other hand, no further steps are taken to query the bank’s lack of response.  The fact that he may have disposed of very bulky documentation does not mean that the banks would also have done so.

(c)  Coutts Bank made a similar mistake to that made by Citibank (above).  The plaintiff’s response was the same.  He let the error lie rather than try to correct it.

(d)  After the Unless Order deadline dealings with Crosby Asset Management Ltd have emerged.  The lateness of this discovery has been explained by the plaintiff stating that he had “forgotten about it”.  The evidence shows that since 2007 the plaintiff had a particular advisor at Crosby who dealt in equity linked notes for him and also had to make margin calls against him during that time.  The nature of the relationship suggests that his forgetfulness was disingenuous. 

(e)  Mr Grossman, on appeal, (and Mr Richard Leung before the Master) pointed out that the discovery which had been made within time, whilst acknowledged to be inadequate, was not insignificant.  Just under 6,000 pages of documents had been disclosed within time.  The major contributors were the Canadian Imperial Bank of Commerce (“CIBC”), Deutsche Bank and BNP Paribas (“BNP”).  It is important to assess the quality rather than the quantity.

(i)  CIBC.  The plaintiff’s dealings with CIBC were substantial and over a long period. Products such as fixed income bonds, equities, equity linked notes and forward currency contracts were apparently traded.  These are discernable from the disclosure of monthly statements.  Documentation however in relation to the trades themselves have, generally speaking, not been disclosed in time albeit that the bank itself has confirmed that such documentation is available.

(ii)  DBS Bank. Similarly, monthly statements show multi trades in securities and currencies which have not been disclosed by way of any individual documentation.

(iii)  Deutsche Bank. Dealings with this bank cover a period of 6 years up to 2009.  From the discovery made the defendant has been able to identify 24 transactions of an investment nature between the plaintiff and this bank.  Documents in relation to only 4 out of the 24 had been disclosed within time.  Even months after the deadline there is no evidence of the plaintiff attempting to remedy the deficiency.

(f)  There has been no, or no adequate, disclosures of emails and other correspondence in relation to trading with either the ‘discovered’ Banks or the additional financial institutions which were not specifically named.  The plaintiff has, by inference, disposed that he has none.  He has however ignored the fact that substantial correspondence would have been available and forthcoming from the banks had he asked for them.

(g)  Some of the blame for non-compliance within time, by way of submission on appeal, was directed at the plaintiff’s former solicitors.  Over a period of three weeks prior to the Unless Order deadline the plaintiff had three different firms of solicitors.  The third firm, who still represented the plaintiff at the time of this appeal and against whom no complaint is made, only came on to the record a week before the deadline.

  Mr Grossman submitted that the court should take into account the fact that the plaintiff placed some reliance on his solicitors to press the banks for further discovery.  It was submitted that he was ‘in the hands of his solicitors’ who failed him.  I regard this as a one-sided complaint.  The solicitors in question have had no opportunity of putting their version of events.  I regard it as a hollow complaint which is more an example of shirking responsibility than of a genuine belief that blame should be attached to the solicitors and that thereby “extraneous circumstances’ contributed to the non‑compliance.  Engaging three firms of solicitors in as many weeks would inevitably slow the discovery process rather than facilitate it.  I regard it as disruptive rather than desperate conduct.  Moreover the complaint about solicitors was not made before the Master.  The fact that it was not raised at that time supports the submission that it lacks genuineness now.

(h)  At the time of this appeal Mr Grossman was able to point to the extensive discovery that has now taken place.  “39 box files” were referred to and brought to court as proof. Assuming, as I must, that the boxes contain relevant material in answer to the discovery order, two responses are obvious.  Firstly, all the material would have been available when first requested by the defendant approximately 12 months ago and secondly, if so much documentation has always existed and relevant to the one central issue, the defendant was plainly justified in demanding strict adherence to the court orders.

The discovery made since the deadline is only relevant to the extent that it may explain why there was a breach.  The fact that it may be voluminous does not explain the non-compliance.  Also, nothing about the nature of documents themselves has been advanced as a reason for being unable to comply within time.  The submission that he “was doing his best in difficult circumstances” is, in my judgment, not made out. 

(i) Order 2, rule 4 is clear.  It states:

“Where a party has failed to comply with a rule or court order, any sanction for failure to comply imposed by the rule or court order has effect unless the party in default applies to the Court for and obtains relief from the sanction within 14 days of the failure.”

The plaintiff made an application 40 days after the Master’s order and withdrew it four days later.  Such an application should have been made 14 days after the failure to comply.  The Master considered whether he should grant relief but noted that no application had been made.  He went on to say “I do not consider that given the litany of genuine complaints which the defendant has raised that this is such a case where the court should lean backwards to grant indulgence”.

17.  In conclusion, firstly, I find that the plaintiff has failed to establish any ‘extraneous circumstances’ which caused or contributed to the non-compliance.  In particular, I reject his belated attempt to blame his former solicitors and I find no substance in the complaint that the financial institutions were too slow in their responses.

18.  Secondly, the court is not required to pin point the precise nature of the failure; for example by finding that it was specifically intentional or specifically contumelious.  The plaintiff’s conduct over a 8-month period must be considered.  Over that time there were many failures which were not remedied within time.  Sufficient of those failures were, taking a broad view, at worst intentional or contumelious and at least the result of sheer indolence or a deliberate turning of a blind eye to one’s obligations.

19.  In all the circumstances, I dismiss this appeal and make a costs order nisi in the defendant’s favour to be taxed if not agreed.