SAMUEL TAK LEE AND ANOTHER v. YAN YAN & CO LTD AND ANOTHER

HCMP 1395/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1395 OF 2010

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J U D G M E N T

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Introduction

1.  This is a renewed application by the Plaintiffs against the same two defendants for discovery based on section 21M, High Court Ordinance and on Norwich Pharmacal principles.  The previous application had been made to Fok J on 26 May this year which he dismissed.  The Plaintiffs have revived the application seeking identical discovery on the basis that since Fok J’s refusal to order what they require, further information has been obtained which purports to rectify the deficiencies in their previous application, which the judge had drawn attention to in his judgment, and which was the basis of his dismissal of the application.

2.  The starting point to my consideration of this matter has to be Fok J’s judgment, from which there was no appeal and which Mr Chain, on the Plaintiffs’ behalf, accepts was the correct disposal of the application and for the right reasons.  What I need to do is to have regard to the new material which has been put in evidence and decide whether this is sufficient for me to exercise my discretion to make the orders that are asked for.

Factual Background

3.  This has been set out in paragraphs 2 to 7 of Fok J’s judgment which I gratefully reproduce here:

“2. The defendants are companies offering, amongst other things, corporate secretarial and incorporation services. In the summer of 2007, the 1st plaintiff, Mr Samuel Tak Lee, wished to purchase a property in the UK and asked a Madam Wu Fuk Fei to incorporate an offshore company for this purpose. Madam Wu used the services of the defendants to cause the 2nd plaintiff (‘the Seychelles company’) to be incorporated in the Seychelles on 12 November 2007. Mr Lee is the holder of the sole bearer share of that company and Madam Wu was appointed the sole director of it.

3. In December 2007, Mr Lee provided the purchase monies to Madam Wu to enable her to arrange for the purchase of the property in question in the name of the Seychelles company. This purchase was duly made and the property was registered in the name of the Seychelles company.

4. In the spring of 2008, Madam Wu informed Mr Lee that the property adjacent to the first property he had acquired through the Seychelles company was available for sale. Mr Lee wished to purchase the property and therefore instructed her to buy it in the name of the Seychelles company.

5. However, unbeknownst to Mr Lee, Madam Wu had earlier caused another company with the same name as the Seychelles company to be incorporated in the BVI on 3 November 2007. Instead of causing the purchase of the second property to be in the name of the Seychelles company, in July 2008, Madam Wu caused the second property to be bought by this BVI company.

6. At the same time, Madam Wu caused the Seychelles company to transfer the first property to the BVI company for a nominal consideration.

7. Mr Lee and the Seychelles company have commenced civil proceedings in England against Madam Wu and the BVI company for the return of the two properties and/or for damages, equitable compensation and/or restitution. Those proceedings are due to be heard in November 2010.

8.           It is in these circumstances that the plaintiffs apply for discovery in this action.  They seek, in summary, orders (1) requiring the defendants to disclose the identity of the person or persons from whom the defendants received instructions to incorporate the 2nd plaintiff, and (2) requiring the 2nd defendant to disclose the identity of the person or persons from whom it received instructions to incorporate, or to whom it sold, the BVI company bearing the same as the 2nd plaintiff.”

The learned Judge then made clear that what he had set out in paragraph 8 was only a brief summary of the discovery that was being sought [see pages 1-2 of the bundle for the full extent of the application].

4.  Having set out the Norwich Pharmacal principles which he was required to apply, Fok J then applied them to the facts that were being relied on by the Plaintiffs.  Essentially, he refused the application for two reasons.  Firstly, and this was the principal ground for his refusal, that the Plaintiffs’ had a difficulty in establishing that there was an unidentified wrongdoer or wrongdoers complicit with Madam Wu whose identities were known to the Defendants, but not by the Plaintiffs, in whose wrongdoing the Defendants had become innocently mixed up [para.16].

5.  The learned Judge then proceeded to make good that conclusion by demonstrating, on the evidence, that Madam Wu was said to be acting alone in the transactions that had given rise to the action in the Chancery Division in London.  Indeed, in the Particulars of Claim in that action, this is the way that the matter had been pleaded [see paras.17-22 of Fok J’s judgment].

6.  The second basis for the refusal was that the Plaintiffs could obtain the information which they were seeking within the discovery process in the London action.  The judge observed that he had no evidence as to what steps had been taken in London to get that information [para.24].

7.  And so, for these reasons the application was refused.

What Has Happened Since

8.  This application is supported by two affidavits of Mr Malcolm Kemp, the Plaintiffs’ solicitor in Hong Kong, dated 23 July 2010 [Bundle 13-116] and 30 August 2010 [Bundle 120-217].  The 1st Plaintiff’s case is that Madam Wu, who was attached to his personal staff, has abused his generosity and trust and has misappropriated two valuable properties at 64 and 66, Avonmore Road in West London.  What is alleged to have been done by her is conveniently summarised for my assistance by Mr Chain, in his skeleton argument, all of which has been described in Mr Kemp’s two affidavits as follows:

“In around October 2007, the 1st Plaintiff wished a purchase properties in the UK and asked a Madam Wu to incorporate an offshore company as a special purpose vehicle for holding the properties (§§7-8 Kemp 1st [14-15]; pp.1-2 of MBK-1 [22-23]).

Madam Wu, using the services of the Defendants, caused to be incorporated the 2nd Plaintiff, a Seychelles company, on 12^th November 2007. The 1st Plaintiff was the holder of the sole bearer share of the 2nd Plaintiff and Madam Wu was appointed the sole director of the 2nd Plaintiff (§9 Kemp 1st [15]; pp.11-25 of MBK-1 [32-46]).

However, Madam Wu also secretly (using the services of the Defendants) acquired FEMBVI, a BVI company with the exact same name as the 2nd Plaintiff, on 3rd November 2007, Madam Wu was the sole shareholder and director of FEMBVI (§8 Kemp 1st [14-15]; pp.3-10 of MBK-1 [24-31]).

In around December 2007, the 1st Plaintiff instructed the 2nd Plaintiff (through Madam Wu who was then in control as sole director) to purchase a property at No.66 Avonmore Road, London, paid for by the 1st Plaintiff. The 2nd Plaintiff accordingly acquired the No. 66 Avonmore Road property (§10 Kemp 1st [15]; pp.26-31 of MBK-1 [47-521]). In the course of doing so, Madam Wu obtained assistance from solicitors David Tang & Co. (‘DTC’) (§15 Kemp 2nd [125]).

In around spring 2008, the 1st Plaintiff instructed the 2nd Plaintiff (again through Madam Wu who was then in control as sole director) to purchase a property at No. 64 Avonmore Road, London, with the purchase price to be reimbursed by the 1st Plaintiff. However, Madam Wu secretly caused FEMBVI to acquire the No. 64 Avonmore Road property instead of the 2nd Plaintiff, and at the same time personally accepted the reimbursement funds paid by the 1st Plaintiff (§12 Kemp 1st [15-16]; pp.32-34 of MBK-1 ) 53-55]).

In July 2008, Madam Wu further secretly caused the 2nd Plaintiff to transfer the No. 66 Avonmore Road Property to FEMBVI for nominal consideration (§12 Kemp 1st [15-16]; pp.35-38 of MBK-1 [56-59]).

Madam Wu has effectively, through use of FEMBVI, misappropriated the No.64 and No.66 Avonmore Road properties from the 1st and/or 2nd Plaintiffs.”

9.  In August, Madam Wu provided her witness statement in the London action [Bundle 149-168].  She has set out in considerable detail, the history of her relationship with the 1st Plaintiff who she met in London as a result of having placed a notice in the dating columns of a Chinese newspaper published there.  The brief summary that I am about to give is no substitute for reading the whole of her witness statement.  She says that she had been a masseuse and beautician in Hong Kong.  She went to London for a break because her marriage was in difficulties.  On meeting her, the 1st Plaintiff was immediately attracted to her and she became his mistress.  He accommodated her in a mews house next to his house in Belgravia.  Because she gave him much sexual gratification, he became greatly attached to her.  She would travel with him around the world.  In consideration of how he felt about her she says that he decided to purchase the two properties at Avonmore Road which were to be run as a hotel and could provide employment for two of her relatives. He arranged for everything to be done in relation to the formalities and, of course, the very considerable finance required to make these purchases.  In response to the suggestion made by the 1st Plaintiff that he had left it to her to establish the offshore companies, through which the purchases were to be made, and see to the conveyancying, she says that she knew nothing of such things.  She is not capable of making these sort of arrangements.  Insofar as she was required to meet with solicitors to sign documents, these meetings had been arranged by or on behalf of the 1st Plaintiff by his own staff.

10.  In seeking to make out a case as to the existence of additional wrongdoers, Mr Chain has referred to and relies on the part in Madam Wu’s witness statement where she has said that she knows nothing of how to go about setting up offshore companies and the like.  Although the context of that passage is to support her version that she was his mistress providing him with sex and companionship rather than attached to his office team, Mr Chain submits that this provides evidence that she must have involved another or more than one wrongdoer to help her in establishing the Seychelles company which bore the identical name to the BVI company in order to appropriate the two properties for herself.

11.  In addition, Mr Chain refers to documents that are now available from David Tang & Co., the London solicitors in the purchase of 66, Avonmore Road, which suggest the existence of a Mr Liu and somebody referred to as “her H”, presumably her husband, as being involved in this conveyance.

12.  There is also Mr Lo Wai Man’s witness statement in the London action, he being of the 2nd Defendant in this application, mentioning the existence of a Madam Yuan Feng Sha, who would appear to be Madam Wu’s mother-in-law, although Mr Chain rightly points out that Mr Lo also says that he only dealt with Madam Wu in the company secretarial work that he did on her behalf.

13.  Mr Chain relies on the fact that this material was not before Fok J.  The conclusion that he wishes me to draw is that these snippets of evidence, for they are no more than that, support a case of the existence of other wrongdoers in the background who may have given Madam Wu knowing assistance in perpetrating this alleged fraud on the 1st Plaintiff.

14.  Mr Chain submits that this material is sufficient to establish a reasonable suspicion that they may have been other wrongdoers besides Madam Wu.  What is clear is that as matter of law, reasonable suspicion is the required standard of proof [see Wellcome Foundation Ltd v Attorney General [1992] 1 HKC 171 at 188B-C per Kaplan J and Evergreen International Storage &Transportation Corporation v HSBC [2008] 5 HKLRD 49 at page 70 per Deputy Judge Lisa Wong SC].

15.  This, submits Mr Chain, deals with the principal reason for Fok J’s refusal to grant the order in May.

16.  The other reason was that the Plaintiffs had not exhausted remedies that are available to them in the London action, principally in the discovery process.  Mr Kemp has related what steps have been taken.  The references are at paras.18-22 of his first affidavit, pages 17-18; pages 49-95 of exhibit MBK-1 [70-116] and paras. 8-13 of his second affidavit [123-125]; pages 41-80 of exhibit MBK-2 [169-2008].  These are the detailed references, in addition to which everybody concerned with the purchase of 66 Avonmore Road has been written to but that correspondence has produced nothing helpful.

17.  The action in London is due to start in November.  Time is very short. Mr Kemp has complained that Madam Wu’s solicitors in the London action have deliberately being delaying the exchange of witness statements and only exchanged on the eve of an application for an unless order to compel them to do so.  In all the circumstances, say Mr Chain, the Plaintiffs have done everything that they can reasonably do in London to obtain the information which might lead to the identity of other wrongdoers so that the Plaintiffs can make an application to join them as Defendants in the London action.  This application before me is therefore both urgent and one of last resort.

18.  There is no doubting its urgency given the proximity of the trial date.  Nevertheless, it seems to me that the plaintiffs will be hard pressed to add Defendants at this late stage and certainly not without having the current trial dates vacated.  It is inconceivable that any alleged wrongdoers would consent to facing allegations of fraud with only 5 or 6 weeks to prepare for trial.  Madam Wu also would probably be most unwilling to consent to an adjournment of the trial.  This is an added difficulty for the Plaintiffs to contend with although perhaps, it is not a matter that I need to concern myself with in deciding this application.

Conclusions

19.  Burrell J in Danone Asia PTE v SB Chow & Co. [2009] 1 HKLRD 470 at 474, helpfully summarised what an applicant for this type of order needs to show in order to persuade the court to grant the order that is sought:

“(i) Norwich Pharmacal jurisdiction is unusual and exceptional.

(ii) A wrong must have been committed by an ultimate wrongdoer.

(iii) The order must be necessary to enable the action to be brought against the wrongdoer.

(iv) The defendant to the application is a person who has become ‘mixed-up in’ and has (albeit innocently) facilitated the wrongdoing.

(v) The defendant will be able or is likely to be able to provide information which will or is very likely to reap benefits for the plaintiff beyond what is already known by them.

(vi) Being an exceptional remedy it must not be framed too widely or be vague.

(vii)          It is a remedy of ‘last resort’.  If thee are other avenues which the plaintiff can properly and reasonably pursue in order to get the information a Norwich Pharmacal order should be resisted.”

20.  Of these seven features (ii), (iii) and (vii) are relevant.  As I have already said Fok J was not satisfied that it had been shown that there was evidence of other wrongdoers and that the Plaintiffs had reasonably pursued all other avenues within the interlocutory process available to them in the London action.

21.  As to the latter point, I am persuaded by Mr Kemp’s evidence that everything that could reasonably be done has now been done in London to obtain information about any other alleged wrongdoers.

22.  What has emerged from those enquires and from the exchanged witness statements however is thin, to say the least.  By that I mean that evidentially in terms of an action for complicity in a very substantial fraud, it does not add up to anything like reasonable suspicion that other individuals may be involved in Madam Wu’s alleged fraud against the Plaintiffs.  When one examines what has emerged since Fok J’s refusal, there is Madam Wu’s witness statement which, in its relevant part, is a denial by her that she has the knowledge or expertise of legal and business practices to form offshore companies.  From that denial by her, Mr Chain has sought to turn that on its head, as it were, to suggest that this must therefore point to a reasonable suspicion that Madam Wu must have conspired with others to perpetrate the fraud on the 1st Plaintiff.  Her denial is perfectly consistent with the evidence that this was done through the professional services of solicitors and innocent company formation and secretarial services which had been engaged by the 1st Plaintiff’s staff in London.  Then there is the reference, vague in the extreme, of a Mr Liu and the reference to “her H” and of Madam Wu’s mother-in-law.  It is a very big step indeed to say that the mere mention of such individuals amounts to a reasonable suspicion that they were complicit in such a fraud.  And it should also be remembered that Mr Lo, of the 2nd Defendant to this application, has said that he only took his instructions from Madam Wu and nobody else.

23.  It strikes me that this material, obtained after Fok J’s refusal in May, cannot elevate the application above the level of a fishing exercise on the part of the Plaintiffs.  It has failed to come anywhere near the requirement of a reasonable suspicion that there are alleged unknown or indeed other named wrongdoers.

24.  Accordingly, I am not prepared to grant the orders sought with the result that the application must stand dismissed with costs to the Defendants to be taxed, as is usual on such applications, on an indemnity basis.