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

HCA 790/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 790 OF 2001

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ASSESSMENT OF DAMAGES

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Background

1. By an agreement dated 18 May 1994, the 1st Plaintiff employed the 1st Defendant as the General Manager of the 2nd Plaintiff.  On or about 7 January 2000, the 1st Defendant admitted to the Plaintiffs that he had set up the 2nd Defendant in March 1999 to compete with the Plaintiffs.  The secret profits were in the sum of US$180,000.00

2. The parties entered into a termination agreement dated 7 January 2000 whereby the 1st Defendant was dismissed summarily.  He returned the said sum of US$180,000 to the 2nd Plaintiff who then agreed not to pursue the matter further.  However, the Plaintiffs later discovered that the 1st Defendant had concealed other fraudulent transactions and secret profits.  On 17 February 2001, the Plaintiffs commenced the present proceedings against the 1st and 2nd Defendants for, inter alia, rescission of the termination agreement, accounts and damages.

3. In an interlocutory application, the Plaintiffs obtained an order for inspection of the banking records of the 2nd Defendant.  It was then disclosed that funds had been transferred to the account of the wife of the 1st Defendant.  She was therefore made the 3rd Defendant herein, being a party to the conspiracy to injure the Plaintiffs.

4. In the Re-re Amended Defence of the 1st Defendant filed herein on 30 November 2002, he did not admit or denied all allegations against him.  It was also said that he only signed the termination agreement under threat, duress and inducement.  Nonetheless, the 1st Defendant was made bankrupt on 15 July 2003 by his own petition and the Plaintiff has since then decided not to pursue the matter against him further.  The 2nd Defendant was and is a BVI company and has never taken any step herein.

5. On the other hand, by the Defence filed herein on 23 October 2002, the 3rd Defendant denied the Plaintiff’s claim against her.  By paragraph 7 thereof, she specifically:

“i.    denies that the said acts of the 3rd Defendant were taken pursuant to any conspiracy as described or at all;

ii.    denies that the Plaintiffs suffer any loss resulting from the said acts;

iii.    says that the various sums of money as referred to in sub-paragraphs (1) to (23) under the heading of “Third Defendant” neither belonged to the Plaintiffs nor were secret profits;

iv.    says the 3rd Defendant had every right to carry out the said acts.”

6. As between the Plaintiffs and the 3rd Defendant, it went on to the discovery stage.  However, the Plaintiffs complained that the 3rd Defendant failed to disclose the documents in her possession and successfully obtained an unless order from Master Levy on 21 March 2003.  The 3rd Defendant still failed the Plaintiffs and the matter went to Master de Souza and, then Deputy High Court Judge Muttrie.  Both of them agreed that judgment should be entered for Plaintiffs against the 3rd Defendant for non-compliance of the unless order.  The argument was further taken up to the Court of Appeal.  On 30 September 2003, the 3rd Defendant’s appeal was dismissed.  In the Reasons for Judgment dated 10 October 2003, the Hon Le Pichon JA said that:

“24.      That the plaintiffs were prejudiced by the 3rd defendant’s failure to provide a full list of documents that were or had been in her possession, custody or power is obvious.  The absence of such a list of objectionable inasmuch as the existence or otherwise of relevant documents is left entirely open-ended.  Plainly, it would be unfair to the plaintiffs to have the trial conducted on such a basis.  The 3rd defendant has unquestionably compromised the proper administration of justice by failing to give a full and proper disclosure of documents which the efficient and fair disposal of the action required.  In my view, the judge had every reason to conclude that such discovery as had been provided by the 3rd defendant was illusory.  He was quite right to dismiss the 3rd defendant’s appeal.

Order

25.    The judgment entered for the plaintiffs against the 3rd defendant provided for the payment by the 3rd defendant to the plaintiffs of, inter alia, damages under paragraph 35B of the amended statement of claim to be assessed.  These related to four items namely:

(1)    US$50,000 paid to Mr Shi

(2)    secret profit paid to the 3rd defendant of US$71,550.06

(3)    secret profit paid to the 3rd defendant of HK$700,106.71

(4)    damages under paragraph 35 of the amended statement of claim

Mr Beresford accepted that there were difficulties in relation to the claim under paragraph 35 and, upon instructions, agreed to abandon the plaintiffs’ damages claim under the fourth head.  Accordingly, this court dismissed the appeal save that it ordered that paragraph 1 of the judgment entered on 10 June 2003 be amended by adding “items 1, 2 and 3 of” after the words “damages under” and there is to be added the following paragraph:

              ‘4.    There be liberty to apply for such further or other relief as the plaintiffs shall be so advised.’ ”

7. Upon the above order, the Plaintiffs proceeded to assess damages against the 3rd Defendant.  Usual directions for discovery were obtained from Master de Souza on 22 October 2003 and the matter was set down for assessment for 1 day before Master Mimmie Chan on 26 March 2004.  Despite objections from the Plaintiffs, the 3rd Defendant managed to persuade the Master to, inter alia, adjourn the assessment to a date to be fixed with 3 days reserved.

8. The assessment then came before me.  On or about 3 September 2004, the solicitors for Plaintiffs sent to the court bundles of documents as well as Counsel’s skeleton.  On 4 September 2004, Messrs. Chan, Wong & Lam, solicitors acting for 3rd Defendant throughout the proceedings until then, filed also a separate bundle to the Court for the coming assessment.

9. On the scheduled date for assessment, 6 September 2004, one Mr. Lee from Messrs. Y.C. Lee, Pang & Kwok appeared before me for the 3rd Defendant.  He said that a notice of change of solicitor had been filed on 4 September 2004.  He was instructed to apply for an adjournment.  By the affirmation of the 3rd Defendant made also on 4 September 2004, it was said that:

“2.    I have been working in Shanghai since 2002 and so I entrusted Mr. Chan Man Hon (“my former solicitor”) of Messrs. Chan Wong Lam to handle this case on my behalf.

3.    I was informed by my former solicitor in May or June 2004 that there would be a hearing in September 2004 (“the said hearing”).  The nature of the said hearing was unclear to me but my former solicitor said that I would be required to give testimony at the hearing.  He would do the preparation work and would rehearse the matter with me about a week before the said hearing.

4.    ……

5.    At the end of August 2004, I asked my former solicitor when I would need to go to Hong Kong for my preparation of the said hearing.  Then my former solicitor agreed to meet me on 1st September 2004.  In order to prepare for the meeting, I asked my former solicitor what I should do.  He only said he would do all the preparation work and I needed not do anything.  I felt very uncomfortable as I would be required to give testimony in Court.  Therefore, upon suggestion of a friend, I consulted another solicitor for advice on how I should prepare for the meeting and the hearing.  This solicitor friend commented that without reading the papers of this action, he was not in a position to give any advice.  Then I realized that a lot of documents requested by this solicitor friend including some interlocutory judgments that I was told that had been rendered against me had not been given to me.  Indeed, I neither knew nor was informed that these were written judgments.

6.    On 30th August 2004, I demanded and received from my former solicitor some documents including copies of the Judgment of this action dated 25th July 2003 made by Deputy High Court Judge Muttrie in Chambers and the Reasons for Judgment of Action no. CACV 246/2003, dated 30th September 2003 handed down by The Honourable Mr. Justice Rogers, Vice President and The Honourable Madam Justice Dorren Le Pichon, Justice of Appeal (“Reasons for Judgment”).  From which, I was shocked to note that judgment had already been entered against me by the Court on 10th June 2003 which was further affirmed on 25th July 2003 and re-affirmed by the Court of Appeal on 30th September 2003.  However, I have never been informed by my former solicitors about the true nature of such judgments nor have I ever seen them.  I was given the impression that I could still set aside the “interlocutory judgments” entered against me in the coming hearing.

7.    ……

8.    Upon my arrival in Hong Kong on 3rd September 2004, I consulted my present solicitors and decided to change my solicitors in this matter.  Therefore, I seek leave from the Court to adjourn this case so that my new solicitors can have sufficient time to peruse all documents and advise me…….”

10. Mr. Beresford, Counsel for the Plaintiffs, strongly opposed the application.  Having heard arguments from the parties, I refused to grant any adjournment and agreed to give written reasons later.  Here are them:

 (a)    It is not disputed that the Court has an inherent jurisdiction to adjourn the hearings in the interest of justice, upon such terms he thinks fit.

(b)     Useful guidelines can be located in paragraph 35/3/1 at p.572 Hong Kong Civil Procedure 2004:

“The following matters should be taken into account when deciding whether or not to grant an adjournment:

1.    The importance of the proceedings and their likely adverse consequences to the party seeking the adjournment.

2.    The risk of the party being prejudiced in the conduct of the proceedings if the application were refused.

3.    The risk of prejudice or other disadvantage to the other party if the adjournment were granted.

4.    The convenience of the court.

5.    The interests of justice generally in the efficient dispatch of court business.

6.    The desirability of not delaying future litigants by adjourning early and thus leaving the court empty.

7.    The extent to which the party applying for the adjournment had been responsible for creating the difficulty which had led to the application.

(R. v. Kingston-upon-Thames Justices, ex p. Martin [1994] Imm.A.R. 172, DC).”

(c)    Applying the above guidance to the present case, I notice that:

(1)    By the assessment, the Plaintiffs seek to recover from the 3rd Defendant a total of US$121,550.06 and HK$700,106.71 together with interest and costs.

Particulars

(i)    US$50,000 paid to Mr Shi

(ii)    secret profit paid to the 3rd defendant of US$71,550.06

(iii)    secret profit paid to the 3rd defendant of HK$700,106.71

(2)     With the said judgment from the Court of Appeal, as far as the 3rd Defendant is concerned, the only real question left to be decided is the quantum of damages to be assessed.  Liability is not and cannot be an issue to be disputed.  Both the Affirmation of the 3rd Defendant notarised on 3 November 2003 and 4th Affirmation of the 1st Defendant made on 19 February 2004 were filed herein for the purpose of assessment.  During the assessment, among others, I read over these 2 documents to the 3rd Defendant.  They did represent the case she wanted to put before Court.  I do not consider that there be any prejudice or risk of prejudice suffered by the 3rd Defendant for the assessment to be continued.

(3)     The prejudice or disadvantage to be suffered by the Plaintiffs is great if further adjournment will be allowed.  The 1st Defendant has made himself bankrupt.  The 2nd Defendant never appears.  The 3rd Defendant is now residing in Shanghai.  There is an apparent risk that the Plaintiffs will never recover anything from the Defendants.

(4)     3 dates from the Court’s diary has been reserved for the adjourned assessment of damages.

(5)     On 26 March 2004, this Court exercised her discretion in favour of the 3rd Defendant for an adjournment.  Fresh dates for assessment were fixed on 30 March 2004 by agreement.  By 6 September 2004, the parties knew the new dates for more than 6 months.

(6)     In the said “1st” application for adjournment in March 2004, the solicitors for the 3rd Defendant argued, inter alia, that certain people from the Plaintiffs had to attend to be cross-examined and leave should be given to allow the 1st Defendant to testify for the 3rd Defendant.  The Plaintiff was only entitled to nominal damages.  The respective legal advisers started to argue the question in February 2004.  On this occasion, the “2nd” application for adjournment, it was made only at the very last minute.  Effectively, no prior notice was given to the Plaintiffs.  The reason for application boiled down to “lost of confidence” in the solicitor.  A new solicitor firm was hired shortly before the assessment.  Without laying any blame on the new solicitor, he knew nothing about the case and only insisted to ask for an adjournment on the ground of “justice”.  As pointed out by Mr. Beresford, the “lost of confidence” argument was doubtful as

(i)    Paragraph 2 of the said Affirmation of the 3rd Defendant states that:

“By the Amended Judgment dated 10th June 2003, I was adjudged to pay the Plaintiffs damages under items 1, 2 and 3 of the paragraph 35B of the Amended Statement of Claim herein to be assessed.”

(ii)    The 3rd Defendant was present at last hearing on 26 March 2004.

(7)     Any prejudice or difficulty, if applicable, suffered by the 3rd Defendant, is self-induced and, in any event, she might look to her former solicitor for redress.

11. At about noon on 6 September 2004, a Notice to Act in Person signed by the 3rd Defendant was placed before me.  The assessment then proceeded with on that basis.  A learned interpreter was arranged to assist the 3rd Defendant to understand the documents and proceedings before the Court.  To start with, I briefly identified the papers, issues and court procedures.  Mr. Beresford led everybody go through the Plaintiff’s Amended Statement of Claim, then his skeleton and authorities.  When Mr. Beresford came to those paragraphs touching on the 3rd Defendant directly, I asked him to slow down and drew the 3rd Defendant’s attention to them.

12. From time to time while Mr. Beresford was opening his case, the 3rd Defendant represented that she needed time to read the papers.  She did not understand and she could not handle the matter.  I took these as de facto and repeated applications for adjournment.  I declined them and informed the 3rd Defendant that this Court would not allow any delay in the matter.  I would try my best to assist her procedurally up to the limit allowed by Mr. Beresford.  After all, the question key remained: tell the Court the truth, nothing but the truth.

13. On 7 September 2004, the 3rd Defendant asked if she could appeal my decision to refuse her application(s) for adjournment.  It transpired that she attended before the Duty Judge yesterday evening.  She could not get the assistance she wanted.  The 3rd Defendant further mentioned that she had sought assistance from the Director of Legal Aid (“DLA”).  I replied that it was not uncommon for a party to find one or more “interlocutory” ruling(s) unhappy during a trial.  However, the trial would still be continuing and that party’s right to appeal was not affected.  Further, attending the office of DLA was neither here nor there.  Section 15 of the Legal Aid Ordinance (Cap. 91) required a memo from DLA to be filed with the Court before the statutory stay could start to operate.  There was no such memo in the Court’s record.  Alternatively, even if such memo had been filed, I would probably exercise my discretion to uplift the stay.  The assessment continued.

14. Mr. Beresford called his only witness Ms. Shiu Siu Fan Anliza.  She adopted her statement of 14 January 2002, with minor clerical amendments, as her evidence.  At about 10:30 a.m., I stood down the case to allow the interpreter to explain Ms. Shiu’s statement to the 3rd Defendant.  It took up the rest of the morning.  At about 12:45 p.m., the court resumed, the 3rd Defendant appeared to be unable to cross-examine Ms. Shiu.  I attempted to sum up the 3rd Defendant’s case by leading her to go through her Amended Defence, her said Affirmation notarized on 3 November 2003 as well as the said 4th Affirmation of the 1st Defendant.  She confirmed that it was indeed her case.  I further attempted to tell her that she should try to put her case to Ms. Shiu and/or to look for faults inconsistencies and loopholes from Ms. Shiu’s evidence.  I explained that I could not go further to step into the arena.  Here came the lunch break and I adjourned the matter to be resumed in the afternoon.

15. The assessment resumed at about 2:30 p.m.  There was no cross-examination on Ms. Shiu.  There was also no re-examination.  The Plaintiffs’ case closed.

16. The 3rd Defendant started to present her case.  She told me that the 1st Defendant would not come.  She asked if she could rely only on the affirmations.  I answered by saying that she had full control of her case.  She had to make up her mind.  There was no absolute rule that the Court could not accept evidence by way of affirmations.  However, without stepping into the witness box to give evidence and be cross-examined, the Court would usually attach lesser “weight” to the “written evidence”.  She elected not to risk herself to be exposed for cross-examination.  She asked me to rely on the documents statements and affirmations filed by her former solicitors.  Her case closed.

17. Both Mr. Beresford and the 3rd Defendant gave their respective closing speeches to me.  I adjourned the matter for judgment to be handed down.

18. The Plaintiffs’ case is that: the Defendants formed a conspiracy to defraud the Plaintiffs.  The 1st Defendant made use of his position in the Plaintiffs.  A BVI company, the 2nd Defendant, was formed to hide the wrongdoings.  The wife was made the sole owner of the 2nd Defendant to further cover up the matter.  The Plaintiffs discovered partially the fraud.  The 1st Defendant confessed and was sacked.  He returned US$180,000 to the Plaintiffs.  It turned out that the 1st Defendant did not disclose everything and so, the present proceedings were commenced.  The 3rd Defendant failed to disclose relevant documents and made the Plaintiffs difficult, if not impossible, to assess the rightful damages.  Upon the limited documentation in hands, the Plaintiffs sought to recover “profits” made by the Defendants out of the known transactions.

19. On the other hand, the 3rd Defendant’s case is that: she should have never been brought into this litigation.  She should be able to dispute liability.  No one asked her for any document.  Her former solicitor did not advise her properly.  She relied on the case of the 1st Defendant completely.  There was nothing wrong with the 1st Defendant’s dealings.  Further, she was an innocent housewife and simply followed the directions from her husband.

20. Upon carefully consideration of the evidence, authorities and submissions by both parties, I have come to the conclusion that the Plaintiff’s assessment is to be allowed in full.  My reasons appear as follows.

 (a)    I agree with the submission of Mr. Beresford that, as a matter of law, it was not open for the 3rd Defendant to dispute liability any further.  This Court is bound by the Judgment of the Court of Appeal herein dated 30 September 2003.  It is indeed the very basis how the proceedings have been carried forward from then until now and towards the future.

(b)     In any event, I accept the evidence of the Plaintiffs on balance of probabilities.

(1)     The 1st Defendant set up of a BVI company, the 2nd Defendant, secretly held in the name of his wife, the 3rd Defendant, to conduct same business with his employer, the Plaintiffs.  It is a classic model of betraying employee breaching his fiduciary duties and making secret profits behind the back of the boss, trying to cover up the same with something eventually being revealed.

(2)     There is insufficient evidence to persuade me to accept that the confession by the 1st Defendant on or about 7 January 2000 was made under threat, duress and inducement.  It does not make any sense at all by inducing or forcing an employee to admit something amounting to or amounting almost to criminal offence together with a summary dismissal.  Further, the repayment of US$180,000 speaks for itself.

(3)     Even assuming that the 3rd Defendant was not bound by her Defence (see paragraph 5 of this Judgment), in my view, she is not an innocent housewife as she represented to me during the hearing.

(i)    She married to the 1st Defendant in 1991.  She was then an air-stewardess.  She is now in charge of a restaurant in Shanghai.

(ii)    She signed her witness statement in English and affirmations in English without the assistance of any interpretation.

(iii)    She acquired a BVI company, the 2nd Defendant, under her sole name.  Two bank accounts were opened for the company, one in Macau and one in Hong Kong.

(iv)    There were substantial monetary transactions within these 2 accounts.  The 3rd Defendant was the sole signatory for all of them.

(v)    Substantial funds were also taken out from these accounts and transferred to the personal accounts of the 3rd Defendant.

(vi)    The Court of Appeal, upon careful analysis, found her having “unquestionably compromised the proper administration of justice by failing to give a full and proper disclosure of documents”.

(vii)    The above undisputed or indisputable facts are more convincing to me than the explanation offered by the 3rd Defendant during her final submission.

21. In the circumstances, I find the 3rd Defendant liable to pay the loss and damages suffered by the Plaintiffs in the total sums of US$121,550.06 and HK$700,106.71 as prayed under paragraph 35B of the Amended Statement of Claim herein.  There will also be interest on the said sums at the rate of 12.5% per annum from the commencement of the present proceedings on 17 February 2001 until today, and thereafter at judgment rate until payment.  I have not heard from the parties as to the question of costs but there appears to be no reason to depart from the rule that costs should follow event.  Hence, I further grant a cost order nisi, which will be made absolute within 14 days from today, that the 3rd Defendant shall bear costs of the assessment for the Plaintiffs, including certificate for counsel for hearings on 6 and 7 September 2004.

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.

Representation:

Mr. R. Beresford instructed by Messrs. Baker & McKenzie, for the Plaintiff

Mr. B. Man instructed by Messrs. Chan, Wong & Lam, for the 3rd Defendant

Remarks:

HCA 790/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 790 OF 2001

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REASONS FOR DECISION

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The summonses before the court

1. On 26 September 2002, I dealt with two summonses:-

(1) The 1st Defendant's summons dated 15 March 2002 to strike out the Statement of Claim.

(2) The Plaintiffs' summons dated 8 May 2002 for leave to amend the Writ and Statement of Claim seeking, inter alia, to add a third defendant, being the wife of the 1st Defendant.

2. After hearing submissions, I made the following orders:-

(1) On the 15 March 2002 summons to strike out the Statement of Claim, I dismissed the summons with the costs of and occasioned by the summons to be to the Plaintiffs, such costs to be taxed on and indemnity basis, if not agreed, and paid forthwith.

(2) On the 8 May 2002 summons for leave to amend, I gave leave to amend in terms of paragraphs 1, 2 and 4 of that summons except that the costs of and occasioned by the hearing itself were to be to the Plaintiffs in any event.

3. The Writ in the present action was issued on 17 February 2001. It was endorsed with a Statement of Claim which was the subject matter of the 15 March 2002 summons. There have been three versions of the Defence of the 1st Defendant (the original Defence is dated 23 March 2001, the Amended Defence is dated 1 September 2001 and the Re-Amended Defence is dated 9 October 2001). The action has progressed to the stage of witness statements having been exchanged in December 2001 and January 2002. Only after this exchange did the 1st Defendant decide to apply to strike out the Statement of Claim.

The Plaintiffs' claims in the Statement of Claim

4. As pleaded in the Statement of Claim:-

(1) The Plaintiffs carry on business in the bioproducts industry and are part of a group known as the Archer Daniel Midlands Group of companies. The 1st Plaintiff is a US incorporated company (but registered under Part XI of the Companies Ordinance). The 2nd Plaintiff is a Hong Kong registered company carrying on the business of trading in amino acid lysine in the Mainland.

(2) The 1st Defendant was employed by the 1st Plaintiff under an employment agreement dated 18 May 1994 ("the Employment Agreement") whereby he was engaged as the general manager of the 2nd Plaintiff. Contractual duties were owed by the 1st Defendant to the1st Plaintiff (by reason of the Employment Agreement). Fiduciary duties were also owed by the 1st Defendant towards both Plaintiffs (by being the employee of the 1st Plaintiff and also the agent of the 2nd Plaintiff).

(3) In addition, the 1st Plaintiff and the 1st Defendant entered into a Non-Disclosure Agreement also dated 18 May 1994 ("the Non-Disclosure Agreement") whereby the 1st Defendant agreed, whether by himself or his wife (the 3rd Defendant brought in by the proposed amendments to the Writ), not to have a financial interest greater than 10% in any company or enterprise which was in competition with the 1st Plaintiff and also to file a list of any such interests greater than 2% with the Secretary of the 1st Plaintiff. There is said to have been a breach of this Agreement by the fact that the 1st Defendant caused to be incorporated in the British Virgin Islands, the 2nd Defendant, obviously without the Plaintiff's knowledge.

(4) As the general manager of the 2nd Plaintiff, the 1st Defendant entered into a number of transactions on behalf of that company. One was an Import Agency Agreement made on or about 1 June 1999 ("the Import Agency Agreement") whereby the 2nd Plaintiff engaged a company called Shanghai MT Industrial Limited ("SMIL") to assist in its operations of selling lysine in the Mainland, including associated matters such as the transportation and warehousing of that commodity.

(5) Another transaction made by the 1st Defendant on the 2nd Plaintiff's behalf in or about August 1999 was the sale by the 2nd Plaintiff of 340 metric tonnes of lysine to a PRC entity called Sichuan Poultry Husbandry ("SPH") for the price of US$442,000.00.

(6) After the delivery of the 340 metric tonnes of lysine to SPH, the 1st Defendant arranged, through the 2nd Defendant, the payment of only US$212,000.00 to the 2nd Plaintiff. It was represented by the 1st Defendant that the balance US$230,000.00 had been paid directly by SPH to SMIL in relation to various charges due to SMIL under the Import Agency Agreement.

(7) On 6 January 2000, the 1st Defendant was dismissed by the 1st Plaintiff. By a written statement dated 7 January 2000, the 1st Defendant made various representations (which were no doubt intended as admissions of breaches of contract and duty on his part). I need only refer to two of these representations for the time being:-

(a) that while he acknowledged that the sale of the lysine to SPH involved the 2nd Defendant as an intermediary (unknown to the Plaintiffs since the only intermediary known to them was Shanghai Jiao Da Ang Li BioProducts Limited but the contract with this entity was a forgery), nevertheless of the said purchase price of US$442,000.00, $212,000.00 was paid to the 2nd Plaintiff while the balance of US$230,000.00 was indeed paid to SMIL;

(b) that he (the 1st Defendant) was liable to the 2nd Plaintiff for US$180,000.00.

(8) Relying on these representations made by the 1st Defendant, the 2nd Plaintiff and the 1st Defendant then entered into a termination agreement ("the Termination Agreement") whereby it was agreed that the 1st Defendant's employment would be terminated for gross misconduct and that provided the 1st Defendant paid to the 2nd Plaintiff the said sum of US$180,000.00, the 2nd Plaintiff would not pursue any claims it had against the 1st Defendant arising out of or in connection with the matters stated in the first paragraph of the Termination Agreement.

(9) The Plaintiffs now wish to rescind the Termination Agreement on the basis of misrepresentation. Again, I need only refer to two such allegations. First, it is now discovered that far from US$230,000.00 having been paid to SMIL, this was not received by SMIL at all. SMIL has since claimed successfully in arbitration proceedings in Shanghai against the 2nd Plaintiff for this sum. The relevant award is dated 25 December 2000. It is alleged by the Plaintiffs that in fact US$200,000.00 of this sum was transferred to a time deposit in the 2nd Defendant's name. Secondly, various unauthorised transfers totalling US$740,000.00 of the 2nd Plaintiff's money were made to the 2nd Defendant's account on 23 and 28 June 1999. This had been asserted by the 1st Defendant to be some indebtedness owed presumably by the 2nd Plaintiff to SPH. By a contract dated 23 June 1999, however, the 2nd Defendant agreed to purchase 510 metric tonnes of lysine as for its own account from BASF China Limited ("BASF). On 29 June 1999, the 2nd Defendant used $490,000.00 of the said sum of US$740,000.00 to make payment to BASF.

(10) The Plaintiff also claims against the 1st Defendant in relation to the said sum of US$230,000.00 and other breaches of duty, some of which I have already referred to above. There is also a claim based on the 1st Defendant making unauthorised amendments to the Import Agency Agreement which is alleged to have caused the 2nd Plaintiff loss and damage.

(11) In summary, the relief claimed by the Plaintiffs against the 1st Defendant include the rescission of the Termination Agreement, damages (both common law and equitable) and an account of profits.

The application to strike out

5. In the 1st Defendant's summons to strike out, the stated grounds are that the Statement of Claim discloses no reasonable cause of action or is frivolous or vexatious or is otherwise an abuse of the process of the court.

6. The first ground requires the court to look only at the Statement of Claim itself with no extraneous evidence. In my judgment, it clearly discloses viable causes of action on its face.

7. The other grounds permit affidavit evidence to be adduced but the same rule of practice applies on a consideration of a strike-out application based on these grounds. It is only in clear and obvious cases that a striking out order will be made. The reason of this is of course simple: a party should not be deprived of the right to have its claims resolved at trial unless it is clear and obvious that its claims are unsustainable.

8. In the hearing before me, two hearing bundles were prepared comprising some 800 pages and these bundles contained:-

(1) 4 affirmations or affidavits.

(2) 7 witness statements.

(3) Other documents which Mr Edward Chan (who represented the 1st Defendant) said comprised most but not all of the relevant documents in the action.

9. The 1st Defendant's application to strike out was based essentially on:-

(1) The implausibility or sheer improbability of the Plaintiffs' version of events.

(2) Inconsistencies in the Plaintiffs' evidence.

(3) Contrary versions of the relevant events proffered by the 1st Defendant himself.

10. It is clear that the disputes between the parties will have to be resolved at trial. Even on the 1st Defendant's own version of events, his allegations will need to be tested by cross-examination. For example, in relation to the written statement dated 7 January 2000 which he signed after meeting with various representatives from the Plaintiffs, the 1st Defendant says his signature was procured by threats, duress and inducements. In relation to the said sum of US$230,000.00 which SMIL has apparently successfully claimed against the 2nd Plaintiff in arbitration proceedings, the 1st Defendant maintains that of this sum, US$50,000.00 was paid to a Mr Shi Yue Hing of SMIL on his instructions with the balance US$180,000.00 being left in the 2nd Defendant's account pending further instructions from this Mr Shi. Mr Shi is said by the 1st Defendant to have been in charge at SMIL.

11. In a case involving allegations of fraud, duress and breaches of fiduciary duty, an application to strike out requiring the court not only to go though quite voluminous documentation but also to reach findings of credibility based purely on affidavit evidence and witness statements, is really quite hopeless.

12. Ultimately, I think Mr Chan did not really press these points with too much enthusiasm. His main argument, rather, was that since the 2nd Plaintiff had already received payment of US$180,000.00 from the 1st Defendant under the Termination Agreement, the case based on the rescission of that Agreement was not possible without first returning this sum to the 1st Defendant. This is correct only insofar as credit will have to be given to the 1st Defendant should the Plaintiff succeed, but it is quite wrong to say that the claim for rescission must fail unless this sum (representing restitutio in integrum) is first paid "upfront". It will go into the final reckoning should the Plaintiff succeed. In any event, had this sum been repaid to (and accepted by) the 1st Defendant, there must be an argument open to the Plaintiffs that by such an acceptance, the 1st Defendant would have implicitly accepted that the Termination Agreement should indeed be set aside.

13. I have no hesitation in dismissing the 1st Defendant's application to strike out. The order for costs reflects the lack of merit in the application.

The application for leave to amend the Statement of Claim

14. In resisting the application for his client, Mr Chan submitted that there was an insufficient case of conspiracy pleaded against the proposed 3rd Defendant. I would dispose of this objection quite shortly. Quite apart from the fact it is questionable whether this point is open to the 1st Defendant to take (albeit he is the 3rd Defendant's husband), the pleading when read as a whole is sufficient in my view. In particular, see paragraphs 15A and 35A of the amended pleading.

Representation:

Mr Roger Beresford, instructed by Messrs Baker & McKenzie, for the Plaintiffs.

Mr Edward M.H. Chan, of Messrs Chan, Wong & Lam, for the 1st Defendant.