CHAN HUNG v. YUNG KWONG CHUNG

CACV 34/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 34 OF 2009

(ON APPEAL FROM HCA NOS. 216 AND 217 OF 2004)

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HCA 216/2004

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(Consolidated by Order of Master J. Wong dated 30^th June 2004)

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J U D G M E N T

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Hon Rogers VP:

1.  I agree with the judgment of Le Pichon JA.

Hon Le Pichon JA:

2.  This was an appeal by the defendant from an order dated 15 January 2009 of Deputy High Court Judge H Wong SC whereby the judge refused the applications of the defendant (a) for specific discovery of items 1 and 2 of the Schedule to his summons dated 25 July 2008 (“the first summons”) and for leave to serve interrogatories numbered 2 (2) to (6) (inclusive), 3 and 4 set out in the attachment to his first summons; and (b) for specific discovery set out in Schedule A to his summons dated 23 September 2008 (“the second summons”).  At the conclusion of the hearing, judgment was reserved which we now give.

Background

3.  These are consolidated actions.  Each of the plaintiffs brought an action against the defendant for payment of $4.8 million inclusive of interest under a share purchase agreement dated 25 November 1993 made between the relevant plaintiff and defendant in respect of 5% of the shares in a company known as Golden Mastery Ltd transferred to the defendant.  Golden Mastery was a shareholder of Hunan Golden Shine Colour Printing Ltd (“the joint venture”) and it was the corporate vehicle used by the parties for investment into the joint venture.

4.  The defendant challenged the authenticity of the share purchase agreements and contended that the shares had been transferred and paid for at par value.  The defendant’s case was that the plaintiffs were willing to do so because at the time of the transfer Golden Mastery had not engaged in any business activities and apart from paid-up capital (at par value) for the shares, the plaintiffs had not made any monetary contributions towards the joint venture.

5.  The plaintiffs, on the other hand, claimed that they had invested in the aggregate $3.9 million to enable Golden Mastery to meet the call for contributions by the joint venture.  The plaintiffs’ case was that on 27 October 1993, $3.3 million was withdrawn from the plaintiffs’ joint account with the China State Bank Ltd (“CSB Joint Account”) and paid into the defendant’s account with the same bank.  The remaining $600,000 was allegedly set-off against monies due from the defendant to the plaintiffs.

6.  According to the defendant, the CSB Joint Account was used for the purpose of the business of Chui Lee Fat Tobacco Ltd (“the tobacco company”), that prior to 2002, he had a 60% interest in the tobacco company while each of the plaintiffs had a 20% interest, that he became the sole owner of the business in 2002 when the plaintiffs withdrew from the business, that the CSB Joint Account was “a trust account held by the plaintiffs on trust for the defendant”, that the plaintiffs had to report him how the funds held by them for him would be utilised and that the plaintiffs would prepare statements of account from time to time.  In short, he claimed to be beneficially entitled to the monies in the CSB Joint Account.

7.  The plaintiffs dispute this and maintain that the CSB Joint Account was their private account, that the monies belonged to them and not the defendant, that the tobacco company was a joint venture between them and certain Chinese partners and the defendant was merely a nominee for the latter.

8.  As recorded by the judge, the issue is whether the amount of $3.3 million paid to the defendant on 27 October 1993 from the CSB Joint Account was in truth a payment by the plaintiffs in response for the call for contribution by the joint venture or whether it was merely a transfer to the defendant of funds that belonged to the defendant beneficially.

9.  The plaintiffs have given discovery of a Cash Book said to record transactions carried out by the tobacco company.  A large number of the transactions were payments of personal expenses of the defendant and his family, such as utility bills, mobile telephone bills, purchases of jewellery, bird’s nest etc.

10.  The original Cash Book with paginated pages was produced at the appeal hearing.  As the judge remarked, it was in a worn condition.  The printed page number is shown on each page.  It is evident that the pages between those numbered 77 and 94 are missing.  A perusal shows detailed entries made in chronological order, the last of the entries being those appearing on page 77.  These relate to a date in 1995.  The pages starting from page 94 onwards.

This appeal

The first summons

11.  The schedule to the first summons seeks discovery of two items.  The first item relates to the Cash Book.  While the Cash Book itself has been produced, the defendant seeks further discovery because of the missing pages, viz. (1) whether the plaintiffs have any of the missing pages in their possession or custody, and if not, their whereabouts; and (2) whether any of the missing pages contained entries.  The judge refused to make any order for specific discovery because he was not satisfied that the Cash Book had been tampered with, such that it could be inferred that the missing pages are now in the possession, custody or power of the plaintiffs.

12.  Whether or not the Cash Book had been tampered with is beside the point.  Two matters may be mentioned.  The plaintiffs gave discovery of what was represented as the entire Cash Book.  They also did so without redacting any part of it as being irrelevant.  In those circumstances, it is only fair that the plaintiffs should go on affidavit to state (a) whether or not they have any of the missing pages in their possession and, if not, their whereabouts and (b) whether the missing pages contained any entries.

13.  Item 2 sought specific discovery of

“All bank pass-books, statements and records showing transaction that had taken place since the opening of the account up to the date of its closure of (1) bank account No. 039-737-1-004177-9 [as corrected]; and (2) the foreign account maintained with the China State Bank Ltd (Hong Kong Branch) now Bank of China (Hong Kong) Ltd jointly by the Plaintiffs.”

The first bank account above is an account with the Chiyu Banking Corporation Ltd, the successor bank account to the CSB Joint Account after the latter was closed following a disagreement with the China State Bank and the funds transferred to the Chiyu account.

14.  I can see no valid objection to producing pass-books and statements relating to the ‘relevant period’, namely, the period corresponding to the period during which entries had been made in the Cash Book.  ‘Records showing transactions’ are a different matter.  In my view, it would be oppressive to order specific discovery of those records.  Accordingly, I would order specific discovery of this item as qualified above.

15.  The first summons also sought leave to serve various interrogatories.  The judge refused leave to serve interrogatory 2 (2) to (6) (inclusive) as well as interrogatories 3 and 4.  The Cash Book contained entries relating to rental payment.  The judge allowed service of paragraph (1) of interrogatory 2 which sought details of the property for which rent was paid.  Paragraph (2) asked that the “party or person …liable to pay such rent” be identified.  If paragraph (1) is unobjectionable, likewise paragraph (2), since the two are inextricably linked.  Accordingly, I would grant leave to serve interrogatory 2 (2).

16.  Paragraphs (3) to (6) of interrogatory 2 were directed at various entries made in the Cash Book.  Ms Wong who appeared for the defendant submitted that the interrogatories only required short and simple answers.  But that, of itself, is not a good enough reason for ordering interrogatories.

17.  Looking at paragraph (3), the plaintiffs were asked whether the entity named was the plaintiffs’ customer or that of the defendant.  But the defendant has gone on affidavit to say that the entity named was his client rather than the plaintiffs.  It would be for the defendant to adduce evidence to make that good and, if established, would demolish any case to the contrary that might be advanced by the plaintiffs.  To require the plaintiffs to answer the interrogatory would not advance matters.  Since the remaining paragraphs of interrogatory 2 are of the same vein, I would not be disposed to grant leave to serve interrogatories 2 (3) to (6) inclusive.

18.  Following observations by the court, Ms Wong reformulated interrogatories 3 and 4.  Interrogatory 3 now reads:

“With reference to paragraph 21 of Chan II, please describe the transactions, including the parties and subject matter whereby such 佣金 [commissions] became payable and rate thereof.”

Interrogatory 4 has been similarly recast in relation to paragraph 24 of Chan II.

19.  In paragraph 21, the plaintiffs alleged that the tobacco company was a joint venture that had made prepayments to its mainland partners, including the defendant, through payment of personal expenses such as utility bills, mobile telephone bills, purchases of jewellery and bird’s nest etc, all of which would be deducted from the “commissions” of the persons concerned in due course.

20.  As rephrased, I can see no objection to and would allow interrogatories 3 and 4 save that the plaintiffs should not be required to state the ‘rate’ of the commissions.

The second summons

21.  The defendant sought specific discovery of the following two items set out in Schedule A which reads:

“   Schedule A

1. The profit and loss accounts of the alleged joint venture business allegedly recorded or reflected in the Cash Book (Item 97 of the Plaintiffs’ 2^nd Supplemental List of Documents and please also refer to paragraphs 21 and 24 of Chan Hung’s Supplemental Witness Statement) since 1991.

2. The ledger books and accounts regarding all payments (in and out) and account payables and account receivables between the Plaintiffs and the Defendant in respect of the alleged joint venture business since 1991.”

22.  Ms Wong submitted that the documents sought would shed light on whether or not there was a tobacco business owned by the plaintiffs.  Clearly the ownership of the tobacco business would clarify the source of the funds used for the $3.3 million payment.  But as formulated, the discovery sought is too wide.  I would limit discovery to “documents showing that there was a tobacco business belonging to the plaintiffs during the relevant period.”

Order

23.  I would vary the order below and allow discovery and interrogatories to the extent indicated above.  Agreed draft minutes of order should be submitted for approval.  While the defendant has succeeded to a certain extent, the discovery allowed had to be extensively reformulated.  In these circumstances, I would propose that there be an order nisi that there be no order as to costs.

Hon Rogers VP:

24.  There will accordingly be an order in terms of paragraph 23.