MAXFUL SAIL LTD v. YAU CHUNG WO JEREMIAH AND ANOTHER

HCA 2003/2019

[2024] HKCFI 1140

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2003 OF 2019

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BETWEEN

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D E C I S I O N

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1.  These proceedings were commenced in 2019 by the Plaintiff, a BVI company, against the two Defendants, in respect of the Plaintiff’s rights under an assignment bearing date 10 October 2019 (“Assignment”) between the Plaintiff as assignee and Mr Pun Wai Hei (“Mr P”) as assignor of a debt of HK$4 million (“Debt”) evidenced by a Mortgage Memorandum dated 27 August 2010 (“Mortgage”) made between Mr P and the Defendants. The Defendants dispute the genuineness and effectiveness of the Assignment and the Plaintiff’s rights thereunder, counter-claiming (inter alia) that the property referred to in the Mortgage is held on trust by the Plaintiff for the Defendants, and that there was no valid or effective assignment by Mr P to the Plaintiff of either the Debt or Mr P’s interest in the property.

2.  The trial of the action has been fixed to commence on 20 May 2024, for 6 days. On 22 February 2024, the Defendants issued a summons (“Summons”) seeking specific discovery of documents relating to the transfer by Mr P of his 50% shareholding in the Plaintiff to Madam Luk Ka (former wife of Mr P) (“Mrs P”), including the board resolution authorizing the transfer, and documents relating to the appointment of Mrs P as a director of the Plaintiff, and the dismissal of Mr P as director, including the notice of the general meeting, minutes and resolution in respect of Mrs P’s appointment and Mr P’s resignation/dismissal, and the register of members and of directors of the Plaintiff.

3.  The Summons was opposed, and due to the imminence of trial, the matter was directed for paper disposal, with submissions served in April 2024.

4.  Having considered the affirmations filed and the submissions made in respect of the Summons, I refuse the application for specific discovery for the following reasons.

5.  The real issue in dispute for determination at trial is whether the Assignment was valid and effective to transfer Mr P’s interests in the Debt due from the Defendants to him (which Debt is admitted save for the dispute as to whether there had been repayments made to Mr P and/or whether the Defendants are entitled to set off against the Debt sums claimed to be due from Mr P to the 1^st Defendant).

6.  It is trite, that discovery will only be ordered if the documents sought relate to one or more of the matters in question in the cause or matter. Order 24 rule 8(1) states that on the hearing of an application for an order for discovery under rule 7, the Court shall refuse to make such an order if and so far as it is of the opinion that discovery is not necessary either for disposing fairly of the cause or matter or for saving costs. Order 24 rule 13(1) RHC also states that no order for production of any documents for inspection or to the Court or for the supply of a copy of any document shall be made unless the Court is of the opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs.

7.  When the Court exercises any of its powers under the RHC, it is of course also relevant to bear in mind the underlying objectives stated in Order 1A: of increasing cost effectiveness of any practice or procedure, ensuring that a case is dealt with as expeditiously as is reasonably practicable, and to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings, subject to the primary aim of securing the just resolution of disputes in accordance with the substantive rights of the parties.

8.  The Defendants have put the Plaintiff to proof of the authenticity and effectiveness of the Assignment, but their case can be summarized as follows. Mr P had disappeared in mid-2013, and had allegedly been kidnapped from Hong Kong, was taken to the Mainland, detained there and sentenced to prison for 16.5 years in around 2015. The Defendants had not been in contact with Mr P since, and they had reason to believe from these matters that the Assignment purportedly dated October 2019 was not in fact signed by him, and they did not know whether Mrs P had taken the opportunity of Mr P’s imprisonment to take financial advantage of him, by procuring the repayment of the Debt from the Defendants to the Plaintiff, and by their purported enforcement of the Mortgage in reliance on the purported Assignment. The Defendants claim that they may be liable to Mr P for dishonest assistance or as a constructive trustee, and may later be found liable to Mr P for payment if they should acknowledge the Assignment and make payment to the Plaintiff of any part of the Debt found to be due and outstanding.

9.  The Defendants seek to rely on the fact that Mrs P had divorced Mr P in 2019. In their Defence and Counterclaim, the evidence in support of the Summons, and the submissions made for the Defendants both in support of the Summons and at the time of the pretrial review, the Defendants referred to the hypothesis, submitted as a “what if” scenario, of Mrs P taking the opportunity of Mr P’s imprisonment to take financial advantage of him, as the Defendants did not know if Mr and Mrs P’s marriage had ended on good terms and how they had divided their assets when their marriage was ended. They also referred to the likelihood of Mr P not having executed the Assignment voluntarily, and his seeking repayment from the Defendants upon his release.

10.  All these remain the Defendants’ pure speculation and hypothetical guesswork.

11.  On the Plaintiff’s part, there is the evidence of Qu (the Mainland lawyer of Mr and Mrs P) as to his/her attestation of Mr P’s execution of the Assignment and the notice of Assignment on one of Qu’s visits to Mr P in prison on the Mainland in 2019. Qu and Mrs P have also made affirmations in opposition to the Summons, in which they deposed to the circumstances leading to the execution and dating of the Assignment.

12.  Clearly, documents relating to the shareholding of the Plaintiff, and the transfer of the shares of the Plaintiff from Mr P to Mrs P, and relating to the appointment of Mrs P as director and the dismissal/resignation of Mr P as director of the Plaintiff do not relate directly to the question of the authenticity or validity of the Assignment, or the Plaintiff’s rights to the Debt. At most, documents relating to the appointment of Mrs P as director relate to Mrs P’s due authority to commence or conduct these proceedings, and whether the action had been properly issued, but with the proceedings having progressed from October 2019 to trial being imminent in May 2024, it is much too late and no longer open to the Defendants to take issue on locus. Discovery to establish lack of authority or locus is not necessary.

13.  The Defendants and Counsel sought to contend that the documents on the transfer of shares and on directorship may establish a “pattern” that helps to challenge the credibility of the Plaintiff’s case.

14.  The “pattern” alleged is that Mrs P engaged in unlawful conduct in the documentation relating to the transfer of shares and directorship to herself, that she had made up the documents for the purported transfer and the appointment/resignation of directors, and that there might be a pattern to suggest that she did similar things relating to the Assignment and the purported notice of the Assignment. When there is nothing to suggest the making up or forgery of either the Assignment/notice of Assignment or the documents for the transfer of shares and the appointment/resignation of directors, I take the view that the discovery sought is purely a fishing expedition, launched in the hope of finding something suspicious in the directorship and/or shareholding documentation, when there is presently nothing to suggest same. This is not permissible. Each case must turn on its own facts, and on the claims made and the documents sought, and I do not find the decision in Man Won Company Limited v Tay Vi Bing HCA 2553/1989, which relates to a claim of misappropriation of property and the defendants acting in concert, to be helpful to the Defendants’ present case.

15.  In fact, the passage of Walton J’s judgment in Kennedy v Dodson [1895] 1 Ch 334, cited in Man Won Company Limited, is (ironically) apposite to the Defendants’ application for discovery in this case:

“… if the present application for discovery is not a pure fishing expedition… then it is really one which is directed exclusively to credit, since it is simply and solely directed towards putting the plaintiffs in a position to say: ‘You did a wicked act in Ecuador (or wherever), ergo you are a person who would do a dirty deed in the five countries with which the action is specifically concerned.’ In other words, give a dog a bad name and hang him.”

16.  Apart from being a fishing expedition, the discovery is sought on matters which would go solely to cross-examination as to credit, or credibility, and should not be allowed (Hollander QC on Documentary Evidence in Hong Kong, 2^nd edition, para 8-034, citing Thorpe v Chief Constable of Greater Manchester [1989] 1 WLR 665). In this case, all the matters referred to by the Defendants and Counsel, as to the circumstances of the execution and the dating of the Assignment, and the payment made by Mrs P, can be made the subject matter of cross-examination, to test the plausibility and credibility of the claims made by Mrs P and Qu. It is not necessary, and it will indeed be a waste of the time and costs of the trial, to refer to or rely on documents relating to the shareholding and directorship of the Plaintiff.

17.  Even if the trial dates will not have to be postponed by the discovery sought, I maintain that it will be disproportionate to allow the discovery at this stage bearing in mind the marginal relevance of and the lack of necessity for the documents in question. Nor do I consider it fair or just, to allow the Defendants to distract the Plaintiff and the Court from the due preparations for trial at this late stage.

18.  The discovery application is accordingly dismissed, and the costs of the Summons are to be paid by the Defendants to the Plaintiff, with certificate for Counsel.

19.  Incidentally, the Plaintiff has referred to “LSF-1” produced in evidence by the Defendants as having been improperly obtained and adduced in breach of the duty of confidentiality owed by the 2^nd Defendant as a solicitor. This is a serious matter. The Defendants are directed to file and serve affidavit evidence within 14 days to explain this to the Court.