PREMIERE AGRI TECHNOLOGIES ASIA INC AND ANOTHER v. WONG SIU HUNG JOHN AND OTHERS

HCA790/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.790 OF 2001

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J U D G M E N T

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1. The 3rd defendant appeals against the order of Master de Souza dated 10 June 2003 that judgment be entered against her for her failure to comply with an unless order to give full and proper discovery.

2. The plaintiffs were the employers of the 1st defendant. The 3rd defendant is his wife. The 2nd defendant is a BVI company of which the 3rd defendant was the sole shareholder, sole director and sole authorised signatory. It is the plaintiff's case that the 1st defendant caused the 2nd defendant to be incorporated for the purpose of competing with the plaintiffs.

3. The plaintiffs say that the 2nd defendant was used to conceal the 1st defendant's competing with them and making secret profits in breach of his duties as a fiduciary and/or employee, and that the 3rd defendant assisted him and profited thereby. The plaintiffs claim that the 3rd defendant is a party to a conspiracy to injure the plaintiffs. The 1st defendant's defence is basically that he was acting in pursuance of an arrangement between himself and the plaintiffs to buy up lysine, a biochemical used in making pig food, from competitors who were trying to undercut them. The 3rd defendant admits the various acts pleaded against her in paragraph 35A of the Amended Statement of Claim, but denies that they were taken pursuant to a conspiracy, denies that the plaintiffs suffered loss as a result of them, says that the various sums of money transferred to her account neither belonged to the plaintiffs nor were secret profits, and says that she had every right to carry out the various acts.

4. The plaintiffs obtained an order for the inspection of records of the bank account of the 2nd defendant with the Hong Kong and Shanghai Banking Corporation in Hong Kong. On 12 March 2002, a bankers' affirmation was filed disclosing significant transfers from the account of the 2nd defendant to the account of the 3rd defendant. A summary of the 2nd defendant's account no. 559-194881-838 is appended as a schedule to the Amended Statement of Claim.

5. Originally only the 1st and 2nd defendants were sued; the 3rd defendant was added later. The 2nd defendant has taken no part in the proceedings. Pleadings closed as between the plaintiffs and the 3rd defendant on 26 November 2002. Discovery without order under Order 24 Rule 2 of the Rules of the High Court was due by 10 December 2002 but was not given. On 9 January 2003, Master Yuen made a consent order for directions including that lists of documents be exchanged within 14 days. The 3rd defendant did not file a list, and on 12 February 2003 the plaintiffs obtained an unless order for discovery within 14 days, or in default judgment to be entered.

6. On 26 February 2003, the 3rd defendant served a List of Documents, disclosing in Schedule 1 Part 1:

1. Various copy bank statements of the bank A/C no. 559-194881-838 maintained with the Hong Kong and Shanghai Banking Corporation.

and in Schedule 2:

Pleadings and documents which have been filed in Court in this action and original copies of letters sent to the respective addresses.

7. On 4 March 2003, the plaintiff's solicitors asked the 3rd defendant's solicitors for a further and better list. Specifically the complained that the 3rd defendant had not disclosed the 2nd defendant's Macau bank accounts, other banking documents of the Hong Kong account, records of the 2rd defendant, minutes of meetings of the 3rd defendant, instructions to transfer money to Mr. Shi (an employee of a Shanghai company involved in some of the transactions pleaded) or otherwise of the accounts of the 2rd defendant, the 3rd defendant's own bank account records and statements and relevant correspondence relating to the issues in question.

8. On 5 March the 3rd defendant filed a witness statement in which she admitted acquiring the 2nd defendant at the 1st defendant's request and opening the company's accounts in Hong Kong and Macau. She admitted that there were transactions on the two accounts and that she signed bank documents at the request of the 1st defendant.

9. On 18 March 2003 the plaintiffs filed a summons applying for an unless order for further and better discovery within 7 days. This was supported by an affirmation of the 2nd plaintiff's operations manager, Ms. Shiu, complaining of failure to disclose:

1. documents relating to transactions which the 3rd defendant admitted;

2. statements of her own bank account;

3. documents showing what happened to money paid to her by the 2nd defendant;

4. the 2nd defendant's banking documents other than for the Hong Kong account; and

5. corporate documents relating to the 2nd defendant.

10. On 21 March 2003, Master Levy made an unless order giving the 3rd defendant until 4 p.m. on 4 April 2003 to file a further and better list. On 4 April 2003, the 3rd defendant filed a Supplemental List of Documents disclosing in Schedule 1 Part 1:

1. Various copy bank statements of the bank A/C no. 594-051773-888 maintained with the HSBC, Macau

and in Schedule 2 the same formula as before. In fact this account number is that of the 3rd defendant's Hong Kong account.

11. On 9 April 2003, the plaintiff's solicitors asking for a comprehensive further and better list, and threatening that if it was not forthcoming they would apply for judgment. On 11 April the 3rd defendant filed a Second Supplemental List of Documents, disclosing four bank statements of the 2nd defendant's Macau account no. 001-116078-151, between 17 August and 17 November 1999. A copy of a December statement was later also provided.

12. On 2 May 2003 the plaintiffs applied for judgment. The application was supported by an affirmation of Ms. Shiu complaining of failure to disclose the 2nd defendant's bank statements, bank documents relating to transactions undertaken through the 2nd defendant's accounts, and corporate documents of the 2nd defendant. On 6 June 2003 the 3rd defendant's solicitors wrote admitting that some bank statements had not yet been disclosed, and offering to obtain and disclose them. They also claimed that the application was misconceived and suggested that the plaintiffs apply for specific discovery. The application was heard on 10 June 2003 and the Master ordered that judgment be entered. It was in fact entered on 18 July 2003.

13. On an application for judgment for non-compliance with an unless order for discovery there are two questions to be considered, the first being whether there has in fact been a failure to comply and the second being whether the court should in its discretion decline to enter judgment. The onus of proof of non-compliance rests on the party alleging it.

14. In relation to the proof of non-compliance the 3rd defendant relies on dicta in Reiss v Wolf [1952] 2 QB 557 to the effect that for compliance, the document must be made in good faith and one which can fairly be entitled 'particulars' and one which is not illusory. She also relies on Realkredit Danmark A/S v York Montague Ltd., Court of Appeal, England and Wales, 26 November 1998 in which Tuckey LJ considered the test for establishing whether or not there has been compliance with an unless order of this kind. His Lordship held that the court must be sure that there was a failure to comply with the order, and followed a dictum of Greene LJ in Abalian v Innous [1936] 2 All ER 834 at 838 that

"the thing to be done in order to avoid dismissal of the action should be specified in the clearest and most precise language so that it may be possible for the party on whom the necessity of doing the act lies ...to be in no doubt whatsoever as to the steps which he is to take if he is to avoid his action being dismissed."

15. His Lordship went on to apply the criteria in Reiss v Wolf (which related to particulars of pleadings) to a case of alleged failure to give proper discovery.

16. In the present case it is argued for the 3rd defendant that the two supplemental lists represent a conscientious effort to produce a further and better list. There is nothing to show that her attempts were not made in good faith or that the lists were simply illusory.

17. Mr. Man for the 3rd defendant argues that although Ms Shiu's affirmation filed in support of the application for judgment identifies three further accounts of the 2nd defendant it is not clear where the account numbers came from and therefore it is not possible to be sure if they are relevant. In fact as Mr. Beresford who appears for the plaintiffs has pointed out they appear in the exhibits to the banker's affirmation dated 12 March 2002, and appear to be accounts of the 2nd defendant. In any event any bank account of the 2nd defendant must be relevant.

18. With regard to the bank accounts and corporate documents of the 2nd defendant, Mr. Man says that it does not necessarily follow that these are or have ever been in the possession, custody or power of the 3rd defendant. Even on the plaintiff's case it was the 1st defendant who controlled the 2nd defendant. The 3rd defendant was merely used. With respect I do not accept this. It is not in dispute that the 3rd defendant was the sole shareholder, director and signatory of this BVI company. Documents would necessarily pass through her hands. In particular she would receive bank statements, and she would have to make resolutions on behalf of the company. She would have the power to retrieve information from the company's banks. Even if documents were immediately passed on to the 1st defendant so that they did not remain in her possession, custody or power, they would fall to be included in Schedule II to any list of documents; but the schedule in both cases merely recites a formula.

19. In general it is also argued that the requirement to disclose all the bank documents and indeed all the corporate documents is too wide, and would fail on an application for specific discovery. Further in respect of all the discovery sought, reliance is placed on a passage in Matthews & Malek on Disclosure, §4.09 to the effect that

"If an allegation of the plaintiff was admitted then it was not a "matter in question" and there could be no discovery in relation to it".

Dealing with the latter point first I note that one of the cases in which the learned authors rely for support of this proposition, Gould v National Provincial Bank Ltd. [1960] 1 Ch. 337, is only good for an obiter dictum that an order for discovery should not be made against a defendant in default of appearance because there is no issue, at that stage, between the plaintiff and the defendant, and therefore nothing in relation to which discovery can be ordered. That does not help us here. The wonders of electronic technology have not been able to track down the other case cited. But I think the simple answer is this: the 3rd defendant's actions may not be in question but her intentions are. This is a case of fraud and conspiracy. It is of particular importance that defendants in cases where fraud or dishonesty is alleged be compelled to give full and proper discovery. See Myers v Elman [1940] AC 282.

20. No doubt the discovery sought is very wide, and I take into consideration all that was said by Tuckey LJ in Realkredit. Obviously in many cases the proper course is to apply for specific discovery, so that if it is ordered the party ordered to disclose knows exactly what it is he must disclose. But a party cannot sit still and wait for the other party to obtain an order for further and better discovery. See Myers v Elman, above.

21. It seems to me that this court also must apply the criteria set out in Reiss v Wolf and decide whether the discovery given was made in good faith; whether the supplemental lists provided may fairly be regarded as such; or whether they are illusory.

22. It seems to me quite clear that the 3rd defendant has made no attempt whatsoever to give full and proper discovery either of the 2nd defendant's bank documents, or its corporate documents, both of which must be or have been in the possession, custody or power of the 3rd defendant. What has been provided is woefully inadequate. There are matters which are apparent from other documents, and of which discovery should have been given; for instance, the schedule to the Amended Statement of Claim shows movements between the 2nd defendant's and the 3rd defendant's accounts in 2000 but there is simply no disclosure of the account documents relating to them, as there should have been. There is nothing at all relating to the totally suspicious payment to Mr. Shi, the employee of one of the companies in China with which transactions were undertaken. It is no answer to say, and I think this is now accepted on the 3rd defendant's side, though it was not originally, that the plaintiffs may have got information from other sources. That does not affect the 3rd defendant's duty of discovery.

23. The discovery given is so woefully inadequate as to be illusory, and the obvious inference is that the lists were compiled in bad faith and merely as some kind of delaying tactic. The 3rd defendant relies on an affirmation filed by her solicitor Mr. Chan Man Hon, Edward, who says that his side has done its best to disclose all documents in its possession. He deposes to the difficulties arising from the fact hat the 3rd defendant lives in Shanghai, and the 1st defendant travels a lot, and has had to be telephoned many times to press him for documents or to obtain documents from his wife. Of course no one suggests that the solicitors are in bad faith but the old excuse of difficulty in obtaining instructions because the client is on the Mainland has no value in this day of extensive and rapid communications there, if indeed it ever had any except in the most exceptional circumstances. Further a party cannot rely on his own lack of co-operation with his solicitor as an answer to an allegation of non-disclosure in bad faith.

24. I have no doubt, therefore, that the 3rd defendant has not complied with the unless orders made against her and that she has generally not complied with her general duty of discovery.

25. The next question is whether the court should decline to enter judgment as a matter of discretion. The principle was set out by Browne-Wilkinson VC in the case of In re Jokai Tea Holdings [1992] 1 WLR 1196 at 1203 as follows:

In my judgment, in cases in which the court has to decide what are the consequences of a failure to comply with an 'unless' order, the relevant question is whether such failure is intentional and contumelious. The court should not be astute to find excuses for such failure since obedience to orders of the court is the foundation on which its authority is founded. But if a party can clearly demonstrate that there was no intention to ignore or flout the order and that the failure to obey was due to extraneous circumstances, such failure to obey is not to be treated as contumelious and therefore does not disentitle the litigant to rights which he would otherwise have enjoyed.

26. There is, I think, nothing in the solicitor's affirmation or elsewhere to suggest that the 3rd defendant's failure to obey was due to extraneous circumstances or that there is any other excuse for her failure to give full and proper discovery. There are no grounds for declining to enter judgment.

27. Accordingly the 3rd defendant's appeal against the Master's order is dismissed, with costs to the plaintiffs to be taxed if not agreed.

Remarks: