KEIRON PETER ARCH ROCHESTER v. GLORY SKY PRECIOUS METALS LTD

HCA 395/2019

[2023] HKCFI 2536

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 395 OF 2019

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J U D G M E N T

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A.  INTRODUCTION

1.  This is the defendant’s appeal against Master Rita So’s decision given on 14 December 2022 dismissing the two applications made by the defendant:

(1)  First, the defendant’s application to file and serve (i) 許少英的補充證人陳述書 (“Hui Supplemental WS”) and (ii) 陳兆榮的證人陳述書 (“Chan WS”), by way of summons dated 2 September 2022 (the “Witness Statement Summons”).

(2)  Second, the defendant’s application for an order that the plaintiff do file and serve a further and better list of documents in relation to the police statements made by the plaintiff to the Hong Kong Police, by way of summons dated 22 September 2022 (the “Discovery Summons”).

2.  In gist, the defendant submits that the applications are meritorious and should be allowed:

(1)  Witness Statement Summons: Both Hui Supplemental WS and Chan WS are relevant to the key disputed issues of the case.  The trial of this action will not take place until 25 November 2024. The plaintiff will have ample time and opportunity to respond to any matters arising out of the witness statements.  There would be no prejudice caused to the plaintiff.

(2)  Discovery Summons: the plaintiff’s case is that the plaintiff had made formal complaints and statements to the Hong Kong Police, and has disclosed drafts of statements made by the plaintiff to the police as relevant evidence.  The plaintiff should also disclose the signed, final version of the police statements, or at least verify by way of affidavit that the plaintiff does not possess the final statements.

B.  RELEVANT BACKGROUND

3.  The following background as set out in the defendant’s Skeleton Submissions is not disputed by the plaintiff.

4.  The plaintiff is ordinarily residing in Australia, who opened a trading account with the defendant for spot gold trading.

5.  The defendant is a company incorporated in Hong Kong, which provides a trading platform and brokerage services for customers to trade in spot gold.

6.  It is the plaintiff’s case that:

(1)  The plaintiff befriended one Ms Jan KC Choi (“Ms Choi”) through WeChat with a view to discussing potential investment in gold derivatives in around August 2016.

(2)  Ms Choi represented herself to be an investment consultant in gold trading working for the defendant, and the plaintiff later opened a trading account with the defendant upon Ms Choi’s representations on the defendant’s ability to make significant profits for its clients through gold derivatives’ trading.

(3)  Over meetings with Ms Choi and “Steve”, the plaintiff had an agreement with the defendant that the defendant would provide investment management services to the plaintiff (with Ms Choi’s as the manager), and the plaintiff would be “able to achieve high returns on his investment with low risk” - especially through a Semi Fund System Scheme (“SFS Scheme”) which Ms Choi said was open for participation only to the defendant’s and its parent company’s executives.

(4)  The plaintiff subsequently deposited a total of US$1,294,518.10 into the plaintiff’s trading account with the defendant from 30 December 2016 to 7 February 2017, and provided the passwords of the online trading account to Ms Choi for the purposes of enabling her to conduct gold derivatives’ trading on his behalf.

(5)  The plaintiff alleges that he was not allowed to withdraw profits from his trading account.  The plaintiff later realized that there had been significant losses on his investment, and the trading accounts were inactive since August 2017.

(6)  Subsequently, the plaintiff was told by an alleged former employee of the defendant - and the plaintiff alleges - that the defendant had no SFS Scheme and that the trades were not conducted on the open market but were only placed on the defendant’s internal system, and the precious metal transactions were fraudulent - resulting in victims eventually losing all their capital as a result of significant investment losses (the “Scam”).

(7)  The plaintiff therefore claims for loss and damage suffered against the defendant, on the basis of (i) breach of contract, (ii) misrepresentation, (iii) breach of common law duty of care, (iv) breach of fiduciary duties, and (v) restitution for unjust enrichment on the basis of the Scam.

7.  In gist, the key elements of the defendant’s case include the following:

(1)  The defendant provided a trading platform and brokerage services for customers to trade in “spot gold”.  The defendant was not in the business of providing investment consultancy or advisory services.

(2)  Ms Choi was not an “investment consultant” of the defendant.  The defendant also denies that Ms Choi had any authority to make the alleged representations.

(3)  Instead, under a “Letter of Authorisation” addressed to the defendant, the plaintiff appointed Ms Choi as an authorised representative, with the authority and power to carry out sale and purchase of precious metals on the plaintiff’s behalf.  The plaintiff was the one who provided Ms Choi with the log in details of his trading account to trade on his behalf.

(4)  The defendant denies the plaintiff’s allegation that there was the “Scam” (ie the trade were not conducted on the open market and the transactions were fraudulent transactions which resulted in victims losing all their capital).

(5)  The defendant also seeks to rely on the provisions of the “Terms and Conditions” and “Letter of Authorisation”, including the duty exclusion and indemnity provisions, which the plaintiff had agreed to when the plaintiff opened the trading account with the defendant.

8.  The live issues in dispute between the plaintiff and the defendant at trial therefore included at least the following:

(1)  Whether the defendant contracted to provide (i) investment consultancy or advisory services (including the alleged SFS Scheme), as opposed to (ii) a trading platform and brokerage services?

(2)  The role of Ms Choi, specifically:

(a)   Whether she was (i) an investment consultant employed by the defendant, or whether she was (ii) appointed by the plaintiff as the plaintiff’s authorised representative to execute sale and purchase transactions on the plaintiff’s behalf?

(b)  Whether she had authority to make representations on the defendant’s behalf, or authority to enter into agreements (including oral agreements) on behalf of the defendant?

(3)  Whether clients of the defendant were allowed to withdraw funds from their trading accounts?

(4)  Whether the transactions executed by the defendant’s clients were (i) genuine transactions on the spot gold open market, or whether it was (ii) only a Scam perpetrated by the defendant?

C.  WITNESS STATEMENT SUMMONS

C1.  Relevant legal principles

9.  A supplementary witness statement may be allowed to be served to give the witness of a party the chance to fill in gaps in his own statement or to answer the statement of the opposite party: Hong Kong Civil Procedure 2023, Practice Note 38/2A/12.

10.  The relevant principles and considerations for the filing of further witness statements and evidence have been succinctly stated by Mr Recorder William Wong SC in Re Cao Zhong [2021] HKCFI 3143 at §§22 and 23:

(1)  The primary aim is to secure the just resolution of the dispute in accordance with the substantive rights of the parties, and which must include the right of a party to rely on admissible, relevant and probative factual evidence.

(2)  The court must also have regard to other relevant circumstances, such as the potential disruption to the trial, the prejudice to the other parties, and the explanation offered by the applicant for the late application.  These matter have to be considered and weighed in the light of and against the underlying objectives of Civil Justice Reform to ensure costs effectiveness and economy, expedition, proportionality, and fairness between the parties.

11.  The learned Recorder summarised the relevant considerations as follows:

(1)  the merits of the proposed application: whether the application if granted would assist the court in securing the just resolution of the dispute in accordance with the substantive rights of the parties;

(2)  whether there is any disruption to the trial or any milestone date;

(3)  the presence or absence of any real prejudice to the other party;

(4)  any conscious flouting of the rules of court, practice directions and/or case management directions/timetables, or any over-reaching or deliberate manoeuvring on the part of the applicant; and

(5)  the objectives of the Civil Justice Reform.

C2.    Lateness of the defendant’s application

12.  In opposing the application, the plaintiff has laid emphasis on the lateness of the defendant’s application and the lack of explanation to account for the delay.

13.  In his Skeleton Submissions, the plaintiff submits that:

“25. Necessarily, if D offers no explanation (that makes any sense), then D has not provided a necessary element for the Court’s consideration and the test cannot be resolved in D’s favour and the application must fail.

26. The Court is asked to review the affirmation in support (‘Ching 4^th’) for any such explanation. What Ching 4^th contains is a procedural history, but no explanation is offered as to why the Hui Supplemental Statement is provided at this late stage. None of the matters listed after the exchange of witness statements (being from when the time for filing any further witness statements must be measured) have anything to do with the Hui Supplemental Statement. Similarly, for the Chan Statement, there is no explanation as to why this is being dealt with at this late stage. This is fatal to the application.” (Original emphasis)

14.  I do not agree with such a mechanistic approach.

15.  As submitted by the defendant, there is no inflexible rule that a party should be debarred from adducing relevant evidence on the ground of inexcusable or unexplained delay.

16.  As held by Mr Registrar K W Lung in Yeung Shuk Mei v Choi Sun Man, HCA 2308/2012 (unrep, 9/08/2017):

“12. The court’s discretion must not be exercised mechanistically, which is also the remark of the Court of Appeal in Chan Cheung Ming Jacky … [that] as with the exercise of other kinds of discretion, the exercise of case management power must be with reference of the facts and circumstances of the case before the court. There is no place for the application of a mechanical rule that the court will invariably refuse an application simply because a party is guilty of serious delay without any good explanation. The court must conduct an overall balancing exercise.

…

18. Even if the explanation is not acceptable and that P has been delayed in making the application, the question then turns on whether P’s conduct amounts to abuse of the process and whether the prejudice that Ds may suffer cannot be compensated by costs. In my view, there is insufficient evidence to show that P’s late application is an abuse of the process. Ds have not gone to that length to say so. Delay alone, under the present circumstances, should not be conclusive factor for determination of its admissibility, bearing in mind that the disputes are mainly factual in nature. … The Court has a primary duty of determining the matter on the merit of the case for the resolution of the disputes.” (Emphasis supplied)

17.  In the present case, there is insufficient evidence to show that the defendant’s late application is an abuse of process.  The court has a primary duty of determining the matter on the merit of the case for the resolution of the dispute.

C3.  Both witness statements are relevant and probative

18.  The defendant’s case on the relevance of Hui Supplemental WS and Chan WS to the issues in dispute in this action has been set out in respectively paragraphs 10 to 12 and 13 to 19 of the defendant’s Skeleton’s Submissions, to which I refer.

19.  The plaintiff, on the other hand, submits that Chan WS has no probative value.

20.  The plaintiff submits that it is wholly irrelevant to the matters in dispute how Mr Chan claims the defendant might generally go about its business.  To the extent that Mr Chan claims to have first-hand knowledge of the defendant’s operations, it is not relevant when he has no first-hand knowledge of the relevant transactions between the plaintiff and the defendant.  Not only does the Chan WS not address how the plaintiff’s money was traded, there is not even explanation as to how the defendant trades generally.  As such, the Chan WS contains unhelpful and self-serving generalisations without providing any real evidence of what the defendant did with the plaintiff’s money or even how the defendant trades more generally.

21.  Similar criticisms have been made by the plaintiff regarding the Hui Supplemental WS.

22.  In short, I do not agree with the plaintiff’s submissions.

23.  Whilst various criticisms can be levied at the two witness statements, these criticisms are best left to be dealt with in the cross-examination of the witnesses at trial.

24.  As submitted by the defendant, regardless of whether Ms Hui and Mr Chan’s evidence is ultimately accepted at trial, the defendant should be allowed to rely on the clearly relevant factual evidence of these witnesses.  The plaintiff will have the opportunity to test its veracity under cross-examination (and/or adduce further evidence in reply).

C4.  No disruption to trial and no prejudice to the plaintiff

25.  As a very important consideration in the exercise of my discretion, the filing of the Hui Supplemental WS and Chan WS will not cause any disruption to any milestone date.  Notably, no evidence has been filed by the plaintiff alleging any prejudice.

(1)  The defendant took out the Witness Statement Summons on 2 September 2022 before the case was set down for trial pursuant to the order dated 22 November 2022.

(2)  The trial is currently fixed to commence on 25 November 2024.

(3)  There is very little risk of disruption of the trial dates, and it is open to the plaintiff to apply to file a supplemental witness statement to deal with the allegations in the Hui Supplemental WS and Chan WS.  No real prejudice would be caused to the plaintiff, and no prejudice is alleged.

26.  I agree with the defendant that ultimately, the balance of considerations falls heavily in favour of allowing the Witness Statement Summons.

C5.  Chan WS contains expert evidence

27.  As a separate point, the plaintiff submits that having been denied expert evidence on gold trading in 2020 (from which there was no appeal), the defendant is trying to “slip in” expert evidence under the guise of a late lay witness statement and circumvent the order made.

28.  There is considerable force in the plaintiff’s argument, particularly when in paragraph 21 of Ching 4^th filed in support of the Witness Statement Summons, it was stated frankly that: “the present witness statements, among others, aim to deal with some if not all of the issues upon which the Defendant had intended to adduce expert evidence, by way of factual evidence”.

29.  At the hearing before this court, counsel for the plaintiff confirms that the objectionable expert evidence is contained in paragraphs 3, 4, 5, 6, 8 and 22 of Chan WS.

30.  As further refined by the defendant’s counsel (which I agree to be correct), the objectionable parts of Chan WS are in fact as follow[1]:

(1)  In paragraph 3: “I confirm that the Defendant’s business is the same as … and the business that other companies operate are legitimate”.

(2)  In paragraph 6: “The Defendant provides an online trading platform, which is a computerised and digitalised trading platform, and is similar to the online trading platforms used or provided by other spot gold trading companies” and “Such a practice is similar to the situation in which stocks are traded in the form of margins”.

(3)  In paragraph 22: “This practice is also very normal and common within the spot gold trading industry. Basically, most of the spot gold trading companies make such business decisions and have such conduct”.

C6.  Conclusion on the Witness Statement Summons

31.  For the reasons stated above, I grant leave to the defendant to file and serve the Hui Supplemental WS and the Chan WS, save and except the portion of Chan WS identified in paragraph 30 above.

32.  For the purpose of trial, the defendant should file and serve a copy of Chan WS with the portion excluded above covered up.

D.  DISCOVERY SUMMONS

33.  The Discovery Summons requests the plaintiff to provide a further and better list of documents, verified on affidavit pursuant to Order 24, rule 3 of the Rules of the High Court (“RHC”), in respect of any written statements made incidental to the formal complaint made by the plaintiff to the Hong Kong Police, as alleged/disclosed in paragraph 57 and paragraph 58 of the plaintiff’s witness statement.

34.  Those paragraphs state:

“57. On or around 17 July 2018, I contacted the Hong Kong police hotline number to file a complaint in the hope of recovering my lost funds and assisting the police with their investigation into the Scam.

58. The police informed me on or around the same day that they were investigating a ‘conspiracy to defraud’ case against Glory Sky. I provided my first statement to the police on 18 July 2018, with a subsequent statement on or around 23 October 2018, and additional information (as requested by the police) on or around 4 January 2019 ²⁷. During one of my visits to Hong Kong to provide a statement, the Hong Kong police provided me a letter dated 13 August 2018 ²⁸ in respect of the Scam which stated, “This is a case of ‘Conspiracy to defraud’ where 170 victims were reportedly lured to make payment of about HK$100 million in total to bank accounts of two bullion companies for allegedly Loco London Gold investment. As at today, the Commercial Crime Bureau had arrested a total of 49 persons who were found in connection with this case. The number of victim (sic) surfaced and amount of loss are increasing upon the appeal for information from the public in July 2018 …”. (Emphasis supplied)

35.  The plaintiff refers in the second sentence of paragraph 58 to a first statement on 18 July 2018, a subsequent statement on or around 23 October 2018 and the provision of additional information on or around 4 January 2019.  The second sentence then ends with a reference to footnote 27.  For convenience, the drafter of the witness statement provided this footnote so that the documents referred to in this sentence could be easily located by indicating that they were provided in “PLOD Item 27” referring to the plaintiff’s List of Documents Item 27.

36.  The documents contained in Item 27 contain:

(1)  The plaintiff’s statement to the Police (“First Statement”);

(2)  The plaintiff’s statement to the Police (“Second Statement”);

(3)  An email dated 18 July 2018 sending the First Statement to the Police in answer to the Police’s request for a statement;

(4)  A request by the Police on 22 August 2018 for the WeChat and WhatsApp messages between the plaintiff and Ms Choi that had been referred to in the First Statement, and the emails in response;

(5)  An email from the plaintiff to the Police dated 23 October 2018 resending the First Statement and providing the Second Statement; and

(6)  An email dated 4 January 2019 from the plaintiff to the Police providing additional information orally requested by the Police.

37.  The defendant mounted the discovery application on the basis that it is clear from the plaintiff’s documentary evidence that the First Statement and the Second Statement were only “draft” documents.

(1)  In an email dated 23 October 2018 at 11:10 am from the plaintiff to the Police, the plaintiff stated:

“Dear Tim, please find attached 2 draft statements for your review. The first was provided to your department previously, the second has additional information you requested.”

(2)  In the reply sent to the plaintiff dated 23 October 2018 at 12:42 pm, the police officer wrote:

“I am editing the statement now and your preparation are excellent, thank you so much.” (Emphasis added)

(3)  From the email correspondence, it appeared that the plaintiff scheduled a meeting with the Police on 26 October 2018.

38.  The defendant submits that despite disclosing the draft First Statement and Second Statement, the plaintiff did not disclose the final signed police statements, and maintained (through the plaintiff’s solicitors) that the First Statement and the Second Statement were the only statements in the plaintiff’s possession.

39.  As confirmed at the hearing, the Discovery Summons was taken out on the sole basis of Order 24, rule 3 RHC.

40.  As explained in Hong Kong Civil Procedure 2023, Practice Note 24/3/7:

“an order may be made for a further and better list of documents where it appears (a) from the list itself, or (b) from the documents referred to in it, or (c) from admissions made either in the pleadings of the party making discovery or otherwise, that the party making discovery has or has had other relevant documents in his possession, custody or power.” (Emphasis supplied)

41.  The burden is on the party seeking discovery under Order 24, rule 3 to prove relevance, possession custody or power and the existence of further documents: Crown Limited v Wong Hon Chee David, HCA 9593/2000 (unrep, 18/09/2001), per Chu J (as she then was) at §10.

42.  The existence of further documents needs to be evident from the documents already disclosed.  This is obvious because the documents must exist (as opposed to speculated to exist) as otherwise the discovering party risks being ordered to produce a further and better list for documents that may not exist.  The above test for Order 24, rule 3 can be contrasted with the test for Order 24, rule 7 dealing with specific discovery, where an order can be granted under the latter rule where there is merely a prima facie case for the existence of documents which may be established from the surrounding circumstances: Hong Kong Civil Procedure 2023, Practice Note 24/7/2.  The same strictness does not arise because under Order 24, rule 7, it is possible to answer by affidavit that there are in fact no such documents.  Order 24, rule 3 contains no provision for the existence of the relevant documents to be inferred from the surrounding circumstances.

43.  For the reasons set out at paragraphs 77 and 78 of the plaintiff’s Skeleton Submissions, clearly the defendant has not discharged the burden of proving the existence of further documents.

44.  First, there is a fallacy in the argument that if a document is described as a “draft” that it cannot also be the final version, if no changes are required.

45.  Second, the use of the word “editing” by the police officer does not mean that he made changes to the plaintiff’s statement.  As is clear, at the time of the relevant email the police officer was in the process of “editing” the statement.  That means he was reviewing the statement with the possibility that he would make changes, but it does not mean that he had made any changes at that time or that he did at any time thereafter.  It is notable that the police office did not identify that he has made any changes, rather he suggests the draft provided was “excellent” (and thus may have required no changes).  The police officer did not send a new draft of the statement, as would typically be the case if changes were made.

46.  Accordingly, I affirm the Master’s decision to dismiss the Discovery Summons.

E.  COSTS

47.  The defendant is partially successful on the Witness Statement Summons.  The plaintiff is successful on the Discovery Summons.

48.  In the circumstances, the fair order is that each party should bear his/its own costs of the appeal and of the applications before the court below, and I so order.  The costs order made by the Master below is set aside.

49.  I further order that each party should bear his/its own costs of the argument on the time summons filed by the defendant on 24 July 2023.

50.  The above orders as to costs are nisi and shall become absolute in the absence of any application within 14 days to vary the same.

51.  Lastly, I express my gratitude to counsel on both sides for their helpful assistance in this matter.