XCHRX LAM SHU CHIU v. CHAN KWONG WING

HCA6789/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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J U D G M E N T

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1. This is an appeal from an order made by Master Jones on 2nd of March 1998 whereby he ordered that the Defendant do make specific discovery under Order 24 rule 7 of the Rules of the High Court of the documents set out in the schedule to the order, namely audited reports of Polytrade Chemicals Company Limited (hereinafter called "Polytrade") for the years 1990 to 1996 inclusive.

2. The statement of claim in this action pleads that on or about 11th September 1990 the Plaintiff and the Defendant entered into an oral agreement, inter alia, to jointly invest in the buying/selling of foreign currency and to share the profit/loss equally. It is also pleaded that the oral agreement was witnessed by a Mr. Martin Hui, Senior Account Manager of the Hongkong and Shanghai Banking Corporation Limited, and Mr. John Tang of Wardley-Thomson Limited.

3. Pursuant to the oral agreement, the Defendant through his company "Polytrade" issued a cheque in favour of the Plaintiff's dealer Wardley-Thomson Limited for the sum of $500,000.00 as his initial contribution of capital towards the investment. In pursuance of the oral agreement, the Plaintiff also paid $500,000.00 to Wardley-Thomson Limited on or about 12th September 1990. It is alleged that the investments were unsuccessful and losses were incurred or made by both the Plaintiff and Defendant and upon request by the dealer to make payment of the excess in the total sum of US$457,165.00, the Plaintiff did so.

4. The claim against the Defendant is for half this amount, being his share of the loss which it is alleged that the Defendant has despite demands failed to pay to the Plaintiff. The Defendant in his defence denies any such oral agreement. He pleads that at the Plaintiff's request he procured Polytrade to grant a loan of $500,000.00 to the Plaintiff and the loan was at the request and direction of the Plaintiff paid to Wardley-Thomson Limited by a cheque drawn by Polytrade on 11th September 1990. It is also pleaded by the Defendant that the loan was repaid by the Plaintiff on or about 15th February 1996, almost 6 years later, by a cheque drawn by Lam Shu Chiu Company Limited in favour of Polytrade. That in essence is the defence.

5. The Plaintiff sought specific discovery under Order 24 rule 7 Rules of the High Court of the audited reports of Polytrade. It is said by the Plaintiff in paragraph 4 of his affirmation in support of the application, that if the Defendant's allegations are true and correct, Polytrade should have made appropriate accounting entries to its books and accounts recording the alleged loan on or about 11th September 1990. He also goes on to say that since the loan was not repaid until almost 6 years later, Polytrade's audited accounts and balance sheets for the period from 1990 to 1996 should have stated the alleged loan as "account receivable", or the debtors' column of the fixed and current assets.

6. The ground on which the application has been made is contained in paragraph 7 of the Plaintiff's affirmation which reads as follows:

"As a controlling director and the majority shareholder of Polytrade, the Defendant is in possession of the audited statements of accounts and reports of Polytrade. However, the Defendant simply refuses to produce the same."

7. That is the only ground relied on in the affirmation and as Mr. Leung, counsel for the Defendant has rightly pointed out "possession" means the right to the possession of a document. Polytrade is a limited company with separate legal entity. Any audited reports necessarily belong to Polytrade, not to the Defendant. There is no evidence in the affirmations that the Defendant has somehow acquired the right to possess these audited reports and in law, he cannot be in possession of the audited reports.

8. As I have said, that is the only ground relied on in the affirmation. "Custody" or "power" have not been relied on in the affirmation in support. However, it has never been suggested that the audited reports were in the custody of the Defendant. And as to "power", this must mean an enforceable right to inspect the document or to obtain possession or control of the document from the person who ordinarily has it in fact. I accept Mr. Leung's submission that the power concerned must be one vested in the person concerned in his personal capacity and not, for example, as a company director unless it can be demonstrated that the company is the alter ego of the director. Here, I do not regard the Plaintiff's counsel's submission as going so far as to suggest that the company Polytrade is the alter ego of the Defendant. See the case of B.-v.-B. [1978] Fam. 181 and Re Tecnion Investments Ltd. [1985] BCLC 434.

9. In my judgment, the Plaintiff has failed to make up his case that the audited reports are either in the possession, custody or power of the Defendant. That really is the end of the matter in my view. I would also observe that in my view the audited reports would probably not reveal much information about the loan that is alleged to have been made to Polytrade. It is really the books and the accounting records that might throw light on this matter, not the audited reports. The audited accounts would in all probability merely show debtors without identifying the debtors and I am not satisfied that relevance has been made out.

10. In the circumstances, I allow the appeal and set aside the order of Master Jones. Costs of the appeal to the Defendant. Costs of the hearing before Master Jones to the Defendant as well with a certificate for counsel for that hearing.

(Arjan H. Sakhrani)

Judge of the Court of First Instance