FALCON PRIVATE BANK LTD v. BORRY BERNARD EDOUARD CHARLES LTD AND ANOTHER

HCA 1934/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1934 OF 2011

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REASONS FOR DECISION

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Introduction

1. This is the adjourned hearing of the plaintiff’s application by summons dated 22 March 2013 seeking to have this action stayed until the final determination of the defendants’ appeal in CACV 42 of 2013 (“Stay Summons”). 

2. The background and the progress of this litigation can be found in the various decisions handed down hitherto, in particular paragraphs 1 to 15 of my decision dated 27 January 2012.  Insofar as is relevant to the present application, the background is as follows. 

3. On 29 September 2011, the plaintiff credited US$15,760,320 into the account of Bawa by mistake.  On the instruction of Bawa, it transferred US$10 million to the account of the 1^st defendant with Standard Chartered Bank in Hong Kong.  The said sum was then dissipated by the 2^nd defendant who is the sole shareholder and director of the 1^st defendant, a HK$10 company.  On 10 November 2011, the plaintiff made an ex parte application before Deputy High Court Judge Au-Yeung, as she then was, and obtained a Mareva injunction order and disclosure order against the 1^st defendant.  The disclosure was never fully complied with and the plaintiff had to seek further orders requiring the defendants to comply with the disclosure order on five occasions.  In January and February 2012 respectively, the defendants took out a summons seeking to strike out the plaintiff’s statement claim and the action (“Strike-out Summons”) and to discharge the Mareva injunction (“Discharge Summons”). 

4. At a hearing on 22 February 2012 in connection with the plaintiff’s application for disclosure, I criticised Mr Wright, counsel for the defendants, of misleading the court.  This led to the defendants issuing a summons on 10 May 2012 seeking my recusal from hearing the Strike-out Summons and Discharge Summons (“Recusal Summons”).  The Strike-out Summons, Discharge Summons, Recusal Summons and some other summonses were heard together on diver occasions in May and June 2012.  On 7 June 2012, I dismissed the Discharge Summons and Recusal Summons but allowed the Strike-out Summons only in respect of one sentence in the pleading (in substance dismissing that summons as well) and ordered costs against the defendants.  Those costs were assessed summarily in the sum of HK$2.94 million.  On 13 November 2012, I dismissed the defendants’ application for leave to appeal my order made on 7 June 2012.

5. On 27 December 2012, the plaintiff filed a summons seeking an unless order for payment of the outstanding costs which have accumulated to over HK$3 million.  The application was heard on 29  January and 4 February 2013.  On 31 January 2013, the defendants filed a summons seeking further and better discovery against the plaintiff (“Further Discovery Summons”), which I refused to hear together with the application for unless order on 4 February 2013 due to insufficient time. On 4 February 2013, I made an order that unless the outstanding costs are paid by 4:00 pm on 25 February 2013, the defendants’ defence be struck out and judgment be entered against them.

6. In the meantime, on 1 February 2013, Yuen JA dismissed the defendants’ application for leave to appeal in HCMP 2693/2012 on paper.  Then on 7 February 2013, the defendants renewed their application for leave to appeal in HCMP 2693/2012 before the Court of Appeal.  On 28 February 2013, in CACV 42/2013, the Court of Appeal granted leave to the defendants to appeal against my dismissal of the Recusal Summons (“Recusal Appeal”) and indicated that if the Recusal Appeal succeeds, my orders made on 7 June 2012 will be set aside and the Strike-out Summons and Discharge Summons will be heard by another judge.

7. In the light of the indication of the Court of Appeal, the plaintiff filed the Stay Summons, seeking a temporary stay of the proceedings until the conclusion of the appeal.  At the time, the defendants’ Further Discovery Summons is still to be heard.

8. At the first hearing of the Stay Summons on 27 March 2013 (“the first hearing”), there were before the court, the 7^th Affidavit of Kelly Naphtali filed by the plaintiff on 22 March 2013 in support of the stay application and the 7^th Affidavit of Malcolm Kemp filed by the defendants on 26 March 2013 in opposition.  Mr Wright, counsel for the defendants, asked for an adjournment to enable further evidence to be filed.  I granted that application, gave consequential directions and ordered an interim stay of the action pending this hearing. 

9. At that first hearing, Mr Wright also objected to my continued conduct of these proceedings at the adjourned hearing on the grounds that the Court of Appeal had granted leave to the defendants to appeal my decision refusing to recuse myself from hearing the defendants’ Strike-out Summons and Discharge Summons.  After hearing counsel’s submission, I rejected Mr Wright’s argument and directed that the adjourned hearing be listed before me.

10. Subsequently, the defendants filed the 8^th Affidavit of Malcolm Kemp on 24 April 2013 and the plaintiff filed the 8^th Affidavit of Kelly Naphtali on 8 May 2013.

11. On 15 July 2013, the defendants’ solicitors, Stephenson Harwood (“SH”), wrote to the plaintiff’s solicitors, Lipman Karas (“LK”), seeking their agreement to have this hearing listed before another judge.  LK did not respond. 

12. Then six days before this hearing, SH wrote an eleven-page letter to this court to renew the defendants’ application for me to recuse myself from this hearing (“Renewed Recusal Application”).  I was not persuaded by the letter and considered it appropriate to deal with the application at the adjourned hearing.

The Renewed Recusal Application

13. At the adjourned hearing, Mr Wright confirmed that the defendants wished to pursue the Renewed Recusal Application made in SH’s letter.  This application is a re-litigation of issues which had been decided at the first hearing and other hearings.  Most of the arguments had been advanced before me at the first hearing and rejected by me.  SH raised five major points. 

14. First, SH focused on my criticism of Mr Wright’s submission as to the meaning of the phrase “possession, custody and control” in the order of Deputy High Court Judge Lok.  They repeated their argument in their earlier letter dated 15 July 2013 on the same issue.  In brief, they argued that at the hearing on 22 February 2012, Mr Wright drew a distinction between (i) the obligation imposed on the defendants by DHCJ Lok’s order to disclose documents in an affidavit and (ii) the ordinary obligation imposed on a party required to give discovery.  It was in that context that Mr Wright argued that the defendants were not required by the terms of the order to disclose any document which they did not have.  At the hearing on 22 February 2012, this was perceived as a very dumb and unarguable point in the light of the terms of the order and the course the defendants took.  The argument was dismissed instantly with the criticism now complained of. 

15. Paragraphs 1 and 2 of DHCJ Lok’s order read as follows:

“1. The 1^st Defendant (acting by a proper officer) and the 2^nd Defendant do within 14 days of the date hereof file a further affidavit in full and proper compliance with paragraph 4 of the Order of the Deputy High Court Judge Au-Yeung dated 10 November 2011, disclosing to the Plaintiff’s solicitors:

(giving certain particulars)

  2.   In the event that the documents referred to in paragraph 1 is not in the possession, custody or control of the 1^st or 2^nd Defendant, the Defendants have to explain and provide the whereabouts of such documents in the affidavits.”

 (My emphasis underlined.)

The Order of the DHCJ Au-Yeung dated 10 November 2011 was the standard form order.  Paragraph 4(3) of that order reads:

“Exhibiting true copies of all supporting documents in the 1^st Defendant’s custody, possession and/or power in respect of the matters in paragraph 4(2) above, including (but not limited to) relevant banking and accounting documents, correspondence, and receipts.” (My emphasis underlined.)

It must be amply clear that by requiring full compliance with paragraph 4 of the order of DHCJ Au-Yeung, paragraph 1 of the order of DHCJ Lok expressly required the defendants to disclose certain documents in their possession, custody or control, and not just documents actually in their physical possession.  Paragraph 2 of the order of DHCJ Lok put the matter beyond doubt by requiring the defendants to explain and provide the whereabouts of such documents if those documents were not in their possession, custody or control.  It was not open to Mr Wright to draw the distinction as he did.  The expression, “possession, custody or control” must be given their time honoured meaning.

16. The defendants did not comply.  But, by their summons dated 17 January 2012, they asked for extension of time to comply with the order of DHCJ Lok because of their concern that the affidavits they serve would be supplied to the Swiss police as result of the order of Sakhrani J.  They wanted to defer disclosure until they had the opportunity to consider the materials presented to Sakhrani J at the ex parte hearing and to challenge that order (see paragraph 24 of my decision dated 27 January 2012).  It must be noted that it was not their case that the documents were not in their possession, custody or control.  But at the hearing on 22 February 2012, counsel turned around to make the above unarguable point.  Hence, the criticism was made.  It was not made as a result of bias whether against the defendants or counsel. 

17. Second, SH argued that I was misled by the plaintiff that the convertible note deposited by Bawa with the plaintiff had a market value of US$2.5 million and as a result wrongly dismissed the defendants’ Strike-out Summons and Discharge Summons; and that the plaintiff concealed the fact that that valuation was not supported by any evidence.  The market value of the convertible note is relevant as to Bawa’s knowledge of the plaintiff’s mistake when its account was credited with US$15,760,320.  I had carefully considered the issue of Bawa’s knowledge of the plaintiff’s mistake in paragraphs 81 to 89 of my decision dated 9 July 2012.  There was a lot of circumstantial evidence pointing to Bawa’s knowledge of the mistake, the least of which was the inference to be drawn from the “market value” of the note as assessed by the plaintiff in September 2011. I have made my decision.  If I was wrong and I say I was not, there is nothing I can do about it now, nor is it a reason that I should recuse myself from hearing the Stay Summons.  Whether I was wrong or likely to be wrong such that leave to appeal my decision in the Discharge Summons and Strike-out Summons should be granted is a matter for the defendants to argue before the Court of Appeal and not before me.

18. Another issue relating to the market value of the note is that SH argued that LK concealed the basis of the calculation, including the assumptions upon which the calculation was based.  SH argued that the information should be made available before the Court of Appeal at the hearing on 20 August 2013. Assuming LK had concealed the basis of the calculation, it is not a reason that I should recuse myself from hearing the Stay Summons.

19. Third, SH argued that a fair-minded and informed individual would conclude from paragraph 6 of my decision dated 27 March 2013 that I have pre-determined the question whether the defendants’ Discovery Summons should be dealt with before the determination of the appeal on 20 August 2013 and hence conclude that I had pre-determined the key issue on the Stay Summons.  I said in paragraph 6 of that decision: 

“6. Furthermore, the Defendants’ insistence to have the present application determined before the appeal was logistically illogical. If the appeal is allowed, the Defendants’ Discharge Summons and Strike Out Summons will be restored and heard de novo by another judge. Then unless and until those summonses are re-determined and in favour of the Plaintiff and not appealed by the Defendants or their appeal is dismissed, there will be no question of further discovery as sought by the Defendants or stay of proceedings as sought by the Plaintiff. The discovery will have to wait until the final re-determination of those two summonses. If the re-determination results in the Plaintiff’s statement of claim being struck out and the action dismissed, any discovery sought by the Defendants will be a waste of time and costs for both parties. Thus, there is no real or useful purpose to be served to have the Plaintiff’s application determined before the hearing of the appeal. The course taken by the Defendants would only generate unnecessary costs. Hitherto, they were unable to pay any costs awarded.”

Such argument is frivolous and vexatious.  There, I was postulating the result of the Recusal Appeal, first one way and then the other to see what would be gained by a determination of the Further Discovery Summons before the hearing of the appeal.  Courts do that every day in deciding whether to grant interlocutory injunctions.  I fail to see any merit in SH’s argument.

20. Fourth, SH referred to S v L CACV 205/2007 in which the Court of Appeal held that the comments made by the judge in an earlier decision in the same action meant that the only available course was for the judge not to hear the case any longer.  SH argued that in view of my comment in paragraphs 22 and 44 of my decision handed down on 21 June 2013, I should recuse myself because a fair-minded and informed individual would conclude that I had pre-determined that the defendants only had a “shadowy” defence. 

21. Such argument is misconceived.  S v L is a decision on its own fact by applying the fair minded and well-informed individual test.  There, the judge drew upon his experience from other cases and made a general comment that it was rational for an expatriate who had been married to a person of Chinese race with connections in the Mainland to fear for his safety.  That comment was what the Court of Appeal found offending. Rogers VP said at paragraph 19:

“19.  …  I have no doubt that any fair reading of the decision of 24 July 2006, with particular reference to, but reading it in its context, paragraph 29, would lead the fair minded and well-informed observer to conclude that the judge considered it rational that an expatriate married to a person of Chinese race, albeit with tenuous connections to the Mainland, should fear for his safety, if not his life, should there be any major disagreement.  This is emphasised by the fact that the judge considered that the fears of the husband should be accommodated.  I would add that the reference to “ a person of Italian extraction” would be understood, in the context, as being to someone of violent criminal tendencies, despite the fact that the reference really would not stand up to any rational analysis.

20.   These matters only have to be stated for it to be appreciated that there is no other course in this case other than for the judge not hear this case any longer.  Not only are there racial implications, but those implications can only be perceived as having been expressed because of the relevance to the parties.  The fair minded and informed observer would conclude that there is a real possibility of bias.”

22. In my decision of 21 June 2013, I was considering the court’s jurisdiction in making unless order to enforce orders for payment of costs in which merit of the parties’ case is one of the necessary factors to be considered in the exercise of that jurisdiction.  My decision was based on the facts of the present case and not by relying on my experience in another case or some general comment.  In fact, it is not uncommon for judges who had granted interlocutory injunctions based on merit of the case to have further conduct of the proceedings including the hearing of the permanent injunction. I do not see how a fair-minded individual would criticise my further conduct of the case. 

23. Fifth, SH argued that in light of the Court of Appeal’s decision in granting leave to appeal my dismissal of the Recusal Summons, the circumstances of present case raise a serious question of whether there is an appearance that I was biased against the defendants.  They therefore argue that I should honour the decision of the Court of Appeal by consulting the Chief Judge in accordance with paragraph 50 of the Guide to Judicial Conduct and recusing myself from hearing the Stay Summons.  Paragraphs 49 and 50 of the Guide to Judicial Conduct are pertinent:

“49. Consideration only needs to be given to the question of disqualification if the circumstances present a real possibility that the apparent bias rule may apply. Judges should not yield to tenuous, trivial or frivolous grounds and should not accede too readily to suggestions of apparent bias. If they do, this would place a burden on a judge’s colleagues and may encourage parties to believe that by seeking disqualification, they may be able to have their case transferred from a judge whom for one reason or another they may wish to avoid.

50.   Where the circumstances do raise a question of apparent bias, a judge may wish to consult colleagues and the Court Leader for their views, and should do so when in doubt.  However, it is the ultimate responsibility of the judge to decide for himself or herself whether disqualification is required.  That decision is made applying the apparent bias test.  The judge must consider the position objectively from the viewpoint of the reasonable, fair-minded and well-informed individual and ask whether such individual would conclude that there is a real possibility that the judge would be biased if he or she were to proceed to hear the case.”

24. It was unfortunate that leave to appeal my dismissal of the Recusal Summons was granted by the Court of Appeal.  I accept that in the light of that decision the circumstances present a real possibility of apparent bias.  It would be prudent for me to consult colleagues and the Chief Judge, but only if I am in doubt.  For reasons as explained in my decision dated 9 July 2012, I am not in doubt.  I had applied the appropriate test in making my decision.  Not with the least disrespect to the Court of Appeal, I am satisfied that if the circumstances of the case were fully understood in their proper context instead of in the context of hearing an application for leave to appeal, the reasonable, fair-minded and well-informed individual would not conclude that there was a real possibility that I would be biased if I were to proceed to hear the case.  It is important in a case like this, the judge should not yield to tenuous, trivial or frivolous grounds and should not accede too readily to suggestions of apparent bias.

25. It is inconceivable that my criticism of counsel could have been taken by the defendants to the length that they took.  In my view, the defendants were searching ingenuously for criticisms in my decision as a “present help in trouble” so as to launch an attack as its best means of defence in a hopeless case.  I echo the observation of Hunter JA relating to material non-disclosure in Wo Fung Paper Making Factory Ltd And Sappi Kraft (Pty) Ltd [1988] 2 HKLR 346 at 357:

“I turn now to the two principles I conceive to be relevant, in relation to non-disclosure. First the court’s power to discharge any order obtained ex parte for material non-disclosure is salutary and necessary. As one of the earlier cases shows, ex parte Polignac [1917] 1 KB 486, it is there for the court’s own protection. It is necessary to prevent its process being abused. Secondly, there is another equally significant principle in this jurisdiction. This is to make sure that the court does not get itself in a position of what might be called “counter-abuse”: where this sort of point is regarded by litigants as “a very present help in trouble”; and where problems arise on the substance to resort to attack as the best method of defence. …

…

… I am happy to adopt the observations of Macdougall, J who at p 1191 says:

“It would be unfortunate if it were to be thought that in laying down the very sensible and necessary principles concerning disclosure of all material facts, the court have intended to give active encouragement to undeserving defendants to search ingeniously for facts which a plaintiff may innocently have failed to disclose, in the hope that a judge may consider them to be material and so discharge [the original order].” ”

(My emphasis underlined.)

In my view, the recusal application is an abuse of process, an attempt to unsaddle a judge whom the defendants think understood the case too thoroughly and wish to avoid.

26. After considering SH’s letter and Mr Wright’s submission and for reasons stated above, I am satisfied that the reasonable, fair-minded and well-informed individual would not conclude that there was a real possibility that I would be biased if I were to proceed to hear the case. Accordingly, I dismiss the application and continue with the hearing of the Stay Summons.

Principles applicable to stay of proceedings

27. The principles upon which the court will grant a stay of proceedings are well-established and conveniently set out by Kwan J, as she then was, in Tan Man Kou and Another v Chime Corporation Ltd and Others (unreported) [2005] HKCU 361, 11 March 2005 at paragraph 14 as follows:

“The correct approach … in an application for a temporary stay of proceedings is ‘to consider the balance of convenience and fairness as between the parties’ … the court should exercise its discretion in such a manner ‘to ensure that its procedures are used in a logical, fair and cost-efficient manner’ … The question at hand is not a question of deprivation of the right of a litigant to proceed altogether, but a question of case management.”

The burden of establishing that the balance is in favour of the grant of stay is of course on the applicant, ie the plaintiff herein.  These principles were followed in post CJR cases (see Lau Pik Ngai v To Chun Fong Albert [2009] HKCU 1290, 28 August 2009, per Marlene Ng DJ).  Thus, the decision is a case management decision to be made by balancing convenience and fairness as between the parties. 

The issue

28. The plaintiff is seeking a temporary stay of the action until the determination of the appeal whereas the defendants are pressing for determination of the Further Discovery Summons before the hearing of the appeal.

29. In view of the indication of the Court of Appeal, a stay of the action pending the outcome of the appeal, which hearing is imminent, has obvious advantage and convenience for both parties.  Counsel have not argued otherwise.  In addition, for the plaintiff, to proceed with the determination of the Further Discovery Summons as insisted by the defendants before the determination of the appeal will only result in further costs being incurred, which in all probabilities will be irrecoverable.

30. The thrust of the defendants’ objection to the stay application as advanced by Kemp in his 8^th Affidavit is that a stay would be highly unfair to the defendants as it prevents the determination of the defendants’ Further Discovery Summons and allows the plaintiff to avoid being required to provide particulars of the statement of claim in response to the defendants’ request for further and better particulars served on 8 February 2013.  The issue, as Mr Wright puts it, is whether the balance of convenience and fairness require the defendants to be given the opportunity to require full compliance by the plaintiff with its discovery obligations in advance of the hearing of their application for leave to appeal listed for hearing before the Court of Appeal on 20 August 2013.  It seems that Mr Wright accepts that the stay would only have an impact on the defendants’ application for leave to appeal in the event that they are unsuccessful in the Recusal Appeal, but not if the Recusal Appeal is allowed.

31. Despite the obvious advantage and convenience of a stay, I think on the facts of this case, fairness as between the parties must override convenience.  In my balancing exercise, I shall focus on the issue of fairness.

The discovery sought in the Further Discovery Summons

32. Two classes of documents are sought under the summons: items (1) to (4) which relate to documents concerning steps taken by the plaintiff against SIX SIS, Bawa, Morrison and Jaeger and/or other entitles or persons to recover the sum of US$15,760,320 mistakenly paid by the plaintiff to Bawa; and item (5) which relates to documents concerning the plaintiff’s commercial calculation of the market value of the note.

33. On the face, it is plainly obvious that steps or proceedings taken by a victim to recover damages from other wrongdoers are irrelevant as to whether the wrongdoer before the court should be ordered to recompense victim, subject to there being no double recovery; or be restrained from disposing of his assets so that after a proper determination of the case there will be assets available for paying damages, if the victim should be successful; or be ordered to disclose the whereabouts of the assets taken from the victim for the purpose of tracing.  However, Kemp sought to justify discovery in paragraph 13 of his 8^th Affidavit as follows:

“The prospect that the Plaintiff would obtain a recovery from a different source in respect of its alleged loss is directly relevant to the balance of convenience and therefore to the question whether the Injunction Order should be discharged. It would be highly unjust if the Plaintiff were able to keep hidden from the Defendants and the Court the steps that it has taken to obtain compensation from an alternative source.”

34. This argument is wholly unmeritorious and is contrary to well established authorities.  In Tang Man Sit v Capacious Investments [1996] 1 All ER 193 at 198-199, the Privy Council held that an action against one defendant is no bar to an action against another.  Kemp’s argument had been advanced by Mr Wright before this court and rejected by me when dismissing the Discharge Summons (see paragraphs 161 and 162 of my decision dated 9 July 2012).  The same argument was repeated by Mr Wright when resisting the plaintiff’s application for unless order in relation to payment of outstanding costs and again rejected.  In paragraph 48 of my decision dated 21 June 2013, I dealt with that argument at greater length.  I said: 

“Next, Mr Wright says that the list of documents contains no documents relating to the steps taken by the Plaintiff to recover from SIX, Bawa and Morrison the amount credited to Bawa’s account as a result of the Plaintiff’s mistake. He argues that rather than candidly disclosing to the court the amount that the Plaintiff expects to recover from SIX, Bawa and Morrison, the Plaintiff instead sought to obtain judgment against the Defendants for the full amount of US$10 million. He argues that the inference to be drawn is that the present application is part of a strategy by the Plaintiff to obtain judgment against the Defendants for the full amount of its claim without a detailed examination of the merits of its case at trial. Similar criticism has been advanced by Mr Wright in a different context and dismissed. It is not for the defendant or wrongdoer to dictate against whom the Plaintiff should pursue his remedy. All evidence suggests that SIX was the victim of a fraud of which at least Morrison and Bawa were parties. While SIX is under a civil liability to indemnify the Plaintiff’s loss, it is up to the Plaintiff and SIX to agree as between themselves the extent of that indemnity. It is also up to them to agree to turn to SIX only as the last resort when the Plaintiff has exhausted all remedies against the Defendants and other parties to the fraud. I was informed by counsel that Bawa was or is in the course of winding up. It is also doubtful if recovery against Morrison and, I should add, Jager would prove to be sufficient to compensate the Plaintiff’s loss. Provided the Plaintiff is not seeking double recovery, there is nothing wrong to seek judgment against the Plaintiff for the entire sum. The 2^nd Defendant has confirmed that the 1^st Defendant has no asset except for the sum of US$2,201.07 in its bank account with SCB HK. As the discovery indicates, any judgment against the Defendants is likely to be empty. In my view, the Plaintiff’s neglect in providing a fuller list of documents weighs little in balancing where the interest of justice lies. The Defendants are only repeating their tactics of resorting to attack as their means of defence in a hopeless situation.”

I adopt that paragraph.  Who to sue and against whom to recover is a matter for the victim.  For reasons as explained in the passage of my decision quoted above, the course taken by the plaintiff is entirely proper and reasonable.  There is no question of double recovery as Brandle has confirmed in his 5^th Affidavit that the plaintiff has not obtained any recovery from SIX in respect of the sum paid to Bawa or any part of it.

35. Though this is not the occasion for determining the Further Discovery Summons, for reasons as I have given above, items (1) to (4) are obviously not relevant for the purpose of the present application.  These items will not be considered in my balancing exercise. 

36. Item (5) relates to documents concerning the plaintiff’s commercial calculation of the market value of the note after the discovery of the mistake on 7 October 2011.  The disclosure sought by the defendants arose under the following circumstances. 

37. At the hearing of the ex parte application for Mareva injunction and disclosure order, Mr Lam, counsel for the plaintiffs, relied on the market value of the convertible note as evidence on which the inference of Bawa’s knowledge of the plaintiff’s mistake was drawn.  At paragraph 11(1) of his skeleton submission, Mr Lam asserted:

“Such a mistake should have been obvious to Bawa, given that the relatively insignificant balance in the Account prior to the Principal and Interest Repayments and the fact that the market value of the Bonds was only about US$2.5 million.”

That submission is supported by the draft 1^st Affidavit of Brandle in which Brandle said at paragraph 7:

“… based on further enquiries, the [Plaintiff] today attributes a market value of approximately US$2.5 million to the [note].”

In his 4^th Affidavit, Brandle also stated that the note had a market value of approximately US$2.5 million “based on a commercial calculation made by the [plaintiff] after the mistake was discovered”.  The same allegation is repeated in the plaintiff’s statement of claim. 

38. At the hearing of the Strike-out Summons and Discharge Summons in May and June 2012, counsel referred to these and other affidavits and argued extensively about Bawa’s knowledge of the plaintiff’s mistake.  The evidence showed that from the Portfolio Valuation dated 11 July 2011 issued by the plaintiff to Bawa, the plaintiff regarded the market value of the note as US$2.34 million as declared by Bawa.  In my decision dated 9 July 2012, I found that Bawa had knowledge of the plaintiff’s mistake in view of the approximate value of the note and the huge payment, and many other reasons.  It should be noted that the weight to be given to this issue is but minimal.

39. It was against the above background that SH requested the plaintiff to disclose the documents relating to the enquiries it had allegedly undertaken relating to the valuation of the note.  LK replied that they had written to the plaintiff and agreed that if documents existed they “may be discoverable in the future”.

40. As the litigation progressed, on 13 November 2012, Master de Souza ordered the plaintiff to file and serve by 4:00 pm on 16 November 2012 its List of Documents setting out all the documents which are or have been in the plaintiff’s possession, custody or power relating to the matters in question in the action.  A very comprehensive list was filed by the plaintiff, but it did not include any document relating to or evidencing the commercial calculation of the market value of the note made after the mistake was discovered.  On 31 January 2013, the defendants took out the Further Discovery Summons. 

41. On 27 February 2013, LK wrote to SH explaining that the plaintiff did not have the document sought in item (5) of the Further Discovery Summons and that the plaintiff estimated the value of the note based on online information provided through Brown Brothers Harriman & Co which was not saved or printed.  LK indicated that these matters will be further developed in the plaintiff’s witness statements in due course.

42. In their letter dated 15 July 2013, SH did not accept that information viewed online is not “document” within the meaning of discovery and insisted that the information should be included in the plaintiff’s list of document.  In their reply dated 6 August 2013, while not accepting SH’s proposition, LK agreed to file a supplemental list of documents listing that information in Schedule II if and when the interim stay ordered and any subsequent stay is lifted.  Thus, the parties’ dispute relating to discovery of item (5) was essentially resolved. The outstanding dispute is whether the disclosure should be made now or after the hearing of the appeal.

43. Unlike items (1) to (4), which are obviously irrelevant for the action, I assume item (5) is relevant.  In view of the concession made by LK, I also assume the online information as document and is discoverable.  I shall proceed with the balancing exercise on the above basis.

The balancing

44. First, Mr Wright argues that the plaintiff is in breach of their discovery obligation and there is no reason why they should continue to breach the discovery order until after conclusion of the appeal. This is a minor point only.  The real issue here is not whether there should be discovery, but whether the defendants’ Further Discovery Summons should be heard before the appeal, which as Mr Wright accepts is a case management decision to be made by balance of convenience and fairness as between the parties.  Invariably, the effect of a stay is to suspend the performance of certain obligations, including compliance of an order.  Of course, whether there was breach of a court order is an element to be considered.  But, in an appropriate case, balance of convenience and fairness may require compliance of court orders to be delayed or breach tolerated.

45. On the facts, I do not think there was any breach of Master de Souza’s discovery order.  A party’s obligation under such an order is to exchange lists of documents.  The order is a time order.  So long as the list is not illusory and disclosure made in good faith, the order is complied with (see: Reiss v Woolf [1952] 2 QB 557).  If a party disputes the sufficiency of the list, it is open to him to seek specific delivery.  Here, a comprehensive list was disclosed.  LK gave an explanation why there was no document in respect of the valuation and that the plaintiff estimated the value of the note by using online information from Brown Brothers Harriman & Co without saving that information or printing a hard copy.  They promised to show the calculation in the witness statements to be filed in due course.  They disputed if such information is “document” within the meaning of Order 24 rules 1 and 2 and subject to discovery, but nevertheless were prepared to give a supplemental list of document if the interim stay and any subsequent stay are lifted.  I do not find it necessary to determine if the information is “document” as this is not the occasion to consider the Further Discovery Summons.  In any event, there is insufficient evidence for me to make such a determination.  But I am satisfied that there was a genuine dispute as to whether the information is discoverable and it is wrong to say that the plaintiff was in breach of the discovery order. I would not take the plaintiff’s initial refusal to disclosure against them.  On the other hand, as at that date of this hearing, the defendants have still not fully complied with disclosure orders made against them.

46. The more substantial argument of Mr Wright is that compliance by the plaintiff with its discovery obligation is highly material to the issues on the applications for leave to appeal my dismissal of their Strike-out Summons and Discharge Summons to be heard by the Court of Appeal on 20 August 2013.  This is analogous to the objection raised by Kemp in his 8^th Affidavit.  I shall test this proposition against the postulated outcome of the appeal, first one way and then the other.

47. If the Recusal Appeal is allowed, my orders dismissing the defendants’ Strike-out Summons and Discharge Summons will be set aside and the summonses will be heard de novo by another judge.  There will be no question of application for leave to appeal my orders.  It will then be open to the defendants to apply to the judge then hearing the summonses for further and better particulars (no application has yet been issued) and/or for the Further Discovery Summons to be heard before, after or at the same time as the Strike-Out Summons and Discharge Summons.  No delay or inconvenience will be caused to the defendants, except those as a result of my decision in dismissing the Recusal Summons.  Indeed, Mr Wright has not advanced any argument that the defendants would suffer any unfairness if the Recusal Appeal is successful.

48. In the alternative scenario that the Recusal Appeal is dismissed, the Court of Appeal will go on to consider the application for leave to appeal my dismissal of the Strike-out Summons and Discharge Summons.  As submitted by Mr Lam, it is difficult to see how or why discovery under the Further Discovery Summons would assist the defendants with their application for leave to appeal my dismissal of the Strike-out Summons.  A strike-out application proceeds on the basis of pleading and not evidence and on the basis of the statement of claim in the form as it stands.  Either the statement of claim is bad and is liable to be struck out or it is not, in which case, the Strike-out Summons will have to be dismissed again.  The discovery sought under the Further Discovery Summons will not improve the defendants’ application for leave to appeal my dismissal of their Strike-out Summons.  The request for further and better particulars is also irrelevant.

49. As for the application for leave to appeal my dismissal of the Discharge Summons, Mr Wright argues that the online information and calculation will show how the valuation of the note was assessed.  If the information and calculation indicate that the valuation is inaccurate, it would be a material consideration which the plaintiff had failed to disclose to the ex parte judge.  The Mareva injunction is therefore liable to be discharged for the plaintiff’s breach of its duty of full and frank disclosure and material non-disclosure. 

50. Despite the apparently persuasive way Mr Wright puts it, it is apparent that neither Mr Wright nor the defendants have their own valuation of the note.  Mr Wright’s submission is put in supposition terms.  The discovery is clearly a fishing exercise.  Mr Wright argues that the defendants are entitled to know the assumptions used in the valuation and the method of valuation so as to verify the correctness of the valuation.  He also argues that there was no market for this type of note and it was misleading for the plaintiff to have assigned a value as market value, thereby misleading the ex parte judge that there was a market for the note.  He submits that if there was a doubt as to the valuation, it should be brought to the notice of the ex parte judge.  All these arguments had been rehearsed before me at the hearing of the summonses.  In his affidavits, Brandle disclosed how the valuation was arrived at.  In particular, it was also based on the value declared by Morrison on behalf of Bawa which was in turn based on the purchase price of the note when it was bought in July 2011.  Mr Wright argues that there was a tendency on the part of Morrison to understate the value of the note in order to minimise the bank charges.  That is speculation to the extreme.  If the defendants want to dispute the valuation, they could have asked Morrison or Bawa, from whom they received US$10 million, to give an affidavit.  In fact, Bawa never disputed the valuation or denied knowledge of the plaintiff’s mistake. Bawa’s defence was that the money paid into its account had been reinvested and could not be returned.  Apart from being a fishing exercise, the incontrovertible evidence suggests that the valuation could not have departed from the declared purchase price by any wide margin.  And in any event, there was other evidence in support of Bawa’s knowledge of the mistake.  The valuation is of little significance in the totality of the evidence and in my dismissing the Strike-out Summons and Discharge Summons. 

51. The application before the ex parte judge is an interlocutory application.  The plaintiff only needed to show a triable issue and not to prove their case to the necessary standard of proof or the value of the note to absolute mathematical accuracy. 

52. The ex parte judge had all the affidavits before her.  She must have known the basis on which the valuation was made and that the valuation was not a true market value.  The plaintiff could not be said to have been guilty of material non-disclosure.  This issue had been exhaustively argued before me by Mr Wright.  I dismissed those argument and said in paragraph 203 of my decision dated 9 July 2012:

“Even if, contrary to my finding, there were any omission on the part of the plaintiff before the ex parte judge which justifies a discharge of the ex parte order, this is a case which cries out for the exercise of the discretion not to discharge the ex parte order or for a re-grant by reason of the fact that any breach of duty of full and frank disclosure was not dishonest and by reason of the new evidence disclosed and the subsequent conduct of the defendants, in particular the 2^nd defendant’s knowing breach of the ex parte order in continuing the dissipation of the balance of the said Sum left in its account with SCB-Singapore since service of the injunction order.”

53. Despite the apparent emphasis placed by Mr Lam in his skeleton submission and my adoption of his submission, the valuation was an insignificant issue in the entire case.  It was some evidence on which the inference of Bawa’s knowledge of the plaintiff’s mistake was drawn.  In fact, Bawa did not dispute the valuation or knowledge of the plaintiff’s mistake.  The valuation was very close to the value declared by Bawa of the purchase price two months before.  It is difficult to see how the discovery could have assisted the defendants to show that the ex parte judge had been misled when the defendants did not even ask Morrison to provide a valuation. 

54. Mr Lam queries why all of a sudden the discovery sought became so important to the defendants.  The statement of claim was filed on 21 December 2011.  The Strike-out Summons and Discharge Summons were taken out by the defendants and listed for hearing six months later.  During the intervening six-month period, the defendants never complained to this court that unless there was further discovery or further and better particulars this court could not properly deal with the two summonses.  Similarly, they never complained to the Court of Appeal that the court could not properly deal with their original leave application to the Court of Appeal without further discovery or further and better particulars of the statement of claim.  Indeed, Yuen JA had no difficulty disposing of the leave applications pursuant to Order 59 rule 2A(5) on 1 February 2013 without the need for any further discovery or particulars.  The only inference from these circumstances is that the summons was issued out of doubtful motive, possibly to delay the plaintiff from getting judgment.

55. Mr Wright argues that the balance of convenience lies firmly against the grant of a stay because as a result of the stay the court would be deprived the benefit of full discovery and particulars of the plaintiff’s claim.  The additional costs which would be incurred by the plaintiff in providing the discovery are insignificant when compared with a judgment in the sum of US$10 million which the plaintiff is seeking against the defendants. 

56. These are very strong arguments in a proper case.  However, on the facts of the present case, for reasons as explained above, the discovery sought is unlikely to be of assistance to the court and is probably sought for doubtful motive.  Worse still, for reasons as I have explained in my other decisions, I hold a dim view of the integrity of the defendants (see my decision dated 27 March 2013).  A few characteristic features in this case are: the 1^st defendant is a HK$10 company; the 2^nd defendant is its sole director and shareholder; SIX’s mistake; the timely transfer by Bawa of the money paid to it by mistake to the 1^st  defendant; the dissipation of the money by the 2^nd defendant and that some dissipation was done with knowledge of the injunction order made against the 1^st defendant; the non-compliance of the court’s orders for disclosure; and that as of today, the disclosure orders are still not fully complied with.  On the facts of this case, I cannot give much weight to the otherwise very forceful argument of counsel.

57. The 2^nd defendant dissipated or concealed a substantial part of the sum of US$10 million transferred to the 1^st defendant.  He claims to be impecunious and unable to pay the outstanding costs of HK$3 million.  Despite that, he is able to conduct this litigation, as counsel puts it, in “Rolls Royce” manner, engages very experience Senior Counsel and very experienced junior counsel, and appeals each and every decision of this court.  Apparently, the 2^nd defendant has access to undisclosed source of funds to fund this litigation but will not pay costs ordered to be paid.  It appears to be a virtual certainty that the plaintiff will not receive a cent of the outstanding costs.  To provide discovery sought before the determination of the appeal will only result in further costs being incurred by the plaintiff which will in all probability be irrecoverable.

58. In balancing convenience and fairness, I give particular attention to the purpose which the discovery could serve the defendants. But, for reasons as explained, I cannot give the defendants much weight.  The defendants will not suffer any unfairness as a result of the stay.  On the other hand, a stay is obviously convenient to both parties and has the benefit of saving costs whatever the outcome of the Recusal Appeal.  Without a stay, the further costs incurred by the plaintiff may either be wasted or be irrecoverable in any event.  That will be unfair to the plaintiff, as there is no prospect that the plaintiff will ever be paid the outstanding costs of over HK$3 million already awarded against the defendants.  The balance is strongly in favour of a stay.  Accordingly, the plaintiff’s application is allowed with costs and certificate for counsel.