CHAN WAI SUN AND ANOTHER v. LAW SHIU KAI ANDREW

HCA44/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.44 OF 2002

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J U D G M E N T

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1. This is an action brought by the plaintiffs to recover monies claimed to have been loaned by the plaintiffs to the defendant and which have not been repaid notwithstanding demands that it should.

2. The 1st plaintiff is the chairman of a group of companies called the Dynasty Group which invests in shares and operates hotels in the Asia Pacific region. One of those companies is called Dynasty International Hotel Corporation ("DIHC"). In or about 1996, that company was exploring a joint venture with Inter-Continental Hotels Corporation ("ICHC") to do business in the region.

3. It was agreed that the defendant, who is a solicitor, was employed in 1996 by ICHC as their corporate counsel for the Asia Pacific region, and that he and the 1st plaintiff became good friends upon their meeting in 1996.

4. In March 1999, the agreement between the two companies to launch the joint venture ceased. Prior to that time the defendant had been involved both with the plaintiff and ICHC in his advisory work towards the formation of the joint venture.

5. In January 1999, the defendant left ICHC and an association commenced between 1st plaintiff and the defendant in respect of a joint venture company, called TravelMart Inc. Their dealings together in respect of that company are now the subject of a matter brought in the Labour Tribunal and transferred to the High Court, being Action No.4 of 2002. The matter is on-going and is yet to be determined.

6. It is the plaintiffs' case that in April 1999, he had a conversation with the defendant who said to him that he had been out of work for several months and asked the 1st plaintiff for a loan in the sum of US$255,000. The 1st plaintiff agreed to lend him the money and agreed to do so in Hong Kong dollars.

7. The 1st plaintiff wholly owns and had control at all material times of a company named Oceanic Wings Limited ("OWL") which is the 2nd plaintiff herein. His son-in-law is the sole director of that company and takes instructions from the 1st plaintiff in respect of the running of OWL. It is the evidence of the 1st plaintiff that OWL is his personal investment holding company and his personal funds were deposited in it. The 1st plaintiff was the sole signatory to it's bank account and the company did not carry out any business activities other than the investment functions of the 1st plaintiff. It was the case of the plaintiffs that in respect of the sum of US$255000 the defendant sought to borrow he gave to the 1st plaintiff a figure of HK$1,976,525 as being its equivalent in Hong Kong Dollars.

8. It is the case of the 1st plaintiff that the defendant told him that the sum should be made out in four cheques. As a consequence four cheques were issued on an account of OWL payable to a company called General Profits Asia Limited ("GPA) as payee. The evidence of the 1st plaintiff and Ms Tong Po Fong was that the name of the payee was given by the defendant to Ms Tong Po Fong. She was a director and senior vice-president of Dynasty Management Limited and a personal assistant to the 1st plaintiff since the inception of his companies. The four cheques were as to HK$500,000 in respect of the first three and HK$476,525 in respect of the 4th cheque.

9. Ms Tong at the time of the giving of her evidence, no longer worked for the 1st plaintiff or for any of his companies and had ceased to have any financial dependence upon him or his companies in anyway. I must however take into account that at the time these events occurred she was an employee with allegiance to the 1st plaintiff and to his companies.

10. The four cheques were produced and each is payable to GPA. The stubs for the cheques were also produced indicating upon what date the cheques were drawn, that the payee was GPA and showing the amount of each cheque. The four stubs each relating to one of the cheques also had on them in brackets the words "Andrew Law". Ms Tong testified, the notation was written by her on each of the stubs to remind her for whom the cheques were drawn notwithstanding the name of the payee. She said she placed this notation upon the stubs some months after the issue of the cheques. On the day the cheques were drawn the 1st plaintiff testified the cheques were collected from him personally by the defendant. Bank statements produced indicate that the cheques were cleared on four different dates between 11 May 1999 and 3 June 1999.

11. A company search in respect of GPA and produced before me indicates that the company was established on 7 April 1999, some 16 days before the date shown on the face of each of the cheques.

12. The sole director and shareholder of GPA from the date of incorporation until 1 December 2002 was one Leung Pui Ling, Mandy. It was the testimony of both the 1st plaintiff and Ms Tong that neither the 1st plaintiff nor any of his companies had at any time had any dealings with the company called General Profits Asia Limited.

13. The only other evidence concerning GPA comes from a letter from solicitors, Messrs Ma Tang & Co. who, on 6 October 2003 wrote a letter to the solicitors for the plaintiffs alleging that GPA had performed services for the 1st plaintiff and his group of companies in respect of projections that the plaintiff would use in negotiating a settlement with ICHC upon the failure of their joint venture referred to above. The letter claimed the alleged loans were service charges for preparing those figures.

14. It was the evidence of the 1st plaintiff that the loan made by the four cheques was payable at the expiration of a year from the issue of the cheques and carried interest at the same rate charged to the 1st plaintiff for provision of the funds by his bankers the American Express Bank. It was the evidence of the 1st plaintiff that the defendant failed to repay the loan on the due date but at that time he was still on good terms with the defendant. The defendant he said asked the 1st plaintiff for extension of the first loan for a period of one further year upon the same terms and conditions. It was his evidence that the defendant requested the 1st plaintiff make a further loan to him in the sum of US$89,000, being equivalent to the sum of HK$692,972. That loan was to be for a period of one year at an interest rate equal to the interest charged by his bankers to the 1st plaintiff upon the funds.

15. On 28 April 2000, the 1st plaintiff said that he asked Ms Tong to write out another cheque on the account of OWL in the sum of HK$692,972 for the defendant with the name of GPA as payee. He signed the cheque and took it to an office of solicitors where the defendant was working and handed it to the defendant in private. It was the case for the 1st plaintiff that the defendant never repaid either the 1st or the 2nd loan resulting in a demand being made for payment by his solicitors from the defendant.

16. It was the case for the defendant that he has no connection with or relationship with GPA. He testified that he made no request for either the 1st or the 2nd loan from the 1st plaintiff, that he was not in need of money at either of the times when the cheques to GPA were drawn and that he has no knowledge of the loans and he is not liable for their repayment.

17. The defendant put in evidence transcripts conversations of he secretly recorded between himself and the 1st plaintiff. The transcripts were not a complete record of the conversations as he had concealed the recorder in his sock and when interruptions to the conversation occurred he switched the recorder off. The conversations concerned the business of the plaintiffs and the claims made by the defendant that he was owed, shares and salary. There was no reference by the 1st plaintiff or the defendant to the loans and the defendant argues that this is clearly a result of there being no loans at all otherwise this was the appropriate time for the 1st plaintiff to have raised the issue.

18. There was further produced a worksheet which indicated that Leung Pui Ling, Mandy, who was at all relevant times the sole shareholder and director of GPA, worked for the 1st plaintiff for a brief period of time in August and September 2000. She worked with the 1st plaintiff at the same time as the defendant worked for him and in a notation on worksheet in handwriting purporting to be that of Ms Leung, she noted that the defendant had paid her salary already and was entitled for repayment of the money from the company. She worked as a casual worker doing research, analysis and giving secretarial support for a period of 83.5 hours at HK$120 per hour. It is evident that the defendant introduced Leung to work for the 1st plaintiff in August 2000 and he accepts that she was known to him, they having worked together previously in another company.

19. The last significant piece of evidence is the letter from Messrs Ma Tang & Co. alleging that GPA had done work for the 1st plaintiff and his companies, and that all the loans were monies due to it. This letter is supported by what appeared to be some projections concerning the arbitration proceedings between the plaintiffs and ICHC started in September 1998 and settled in February 1999. It is to be noted that GPA was not established until 7 April 1999 and was not in existence when the negotiations and final settlement with ICHC was reached. The documents included by Messrs Ma Tang & Co. did not include any invoice from GPA nor any receipt for the payment to it. It amounts to a bare allegation that the company was entitled to a fee in excess of HK$2.6 million for work done prior to its incorporation.

20. The 1st plaintiff argues that mistakes were made in the figures of payments in the letter from Messrs Ma Tang & Co. and that it came very late in the day, the day before this trial was to commence. It is suggested by the 1st plaintiff that I put little weight upon this letter and its enclosures.

21. The issue between the parties is simple, either the 1st plaintiff and Ms Tong are telling the truth and the defendant asked for a loan of monies on two occasions upon certain terms and that loan was granted by the 1st plaintiff and cheques drawn upon OWL to GPA at the direction of the defendant and were, by inference, received by him and that he is liable to repay the monies together with interest to the plaintiffs; or the defendant is telling the truth that he has never sought a loan from either of the plaintiffs, that he has no connection with GPA and that the case being brought by the plaintiffs is to bring pressure to bear upon him in respect of the labour tribunal matter which has been transferred to the High Court and which is presently on-going. The issues are issues of credit.

22. Evidence was given for the plaintiffs by the 1st plaintiff Mr Chan and by Ms Tong to whom I have already referred. I was impressed by their evidence. Both gave evidence in a straightforward manner and whilst I must bear in mind that the two of them worked together for many years and must be presumed to have some loyalty toward each other, Ms Tong is no longer employed by the 1st plaintiff or any of his companies. She has no discernable reasons to now fabricate evidence on his behalf. She clearly recalled being instructed to draw the cheques and being telephoned by the defendant who told her who the payee on the cheques was to be. She said her notation of his name upon the stubs of the first four cheques albeit done later was not done in anticipation of these proceedings but as a reminder to herself of the ultimate beneficiary of the money represented by the cheques. She clearly recalled that at no time did any of the companies associated with the plaintiffs engage GPA to do work for them. I was impressed by both and found them to be witnesses of truth.

23. The defendant gave evidence but he did not appear as straightforward. He was evasive concerning Ms Leung, the sole director and shareholder of GPA. From matters he brought forward he clearly had kept in his possession documentation the property of either the plaintiff's group of companies or ICHC which he now wished to use for his own benefit.

24. Whilst I view with some distaste the secret recording by the defendant of conversations between the parties without notice to the 1st plaintiff, that has not affected my assessment of his truthfulness. I am also aware that it is difficult for a defendant rebut an allegation of events which he denies ever took place. However, I am not satisfied that the defendant was fully frank in all that had happened nor do I accept his denials as to the agreement leading to the loan on either of the two occasions.

25. I felt some concern in respect of the letter from Messrs Ma Tang & Co. solicitors representing GPA. It was surprising that a broad allegation was made by the solicitors on behalf of their company supported only by a fragment of the work they said that they had done but not supported by any copy invoices, copy receipts, correspondence between the parties or any other material which would go to the existence of a contract between GPA and the plaintiff's group of companies.

26. I accept that it is outside the power of the defendant to order solicitors to divulge such information and Messrs Ma Tang & Co. must have been acting on instruction. Nonetheless, they were putting forward a position which, if they expected it to be taken at its highest, could easily have been supported with the documents I have referred to above. I am not prepared to put any weight upon this letter.

27. None of the other documentation is of assistance, in that there is no direct evidence showing that on each occasion the loan monies were payable to the defendant, that evidence comes solely from the 1st plaintiff and from Ms Tong, both of whom I am prepared to believe on this issue. I am not prepared to believe the defendant.

28. Mr Wong for the defendant has argued that there is no evidence for the court to safely conclude that Ms Leung was an agent of the defendant. The he argues the plaintiffs fail in the proof that there was a transferral of funds to the defendant or his agent. This argument must fail in the face of my finding that I accept the direct evidence of Mr Chan and Ms Tong that the cheques were drawn in favour of GPA but that it was intended the money be paid to him. I accept their evidence that Ms Tong was advised by the defendant of the name of the company and that he nominated that company for the purpose of receiving the money which was a loan to him.

29. Mr Wong also argues that even if I find that the funds were payable to the defendant the plaintiffs must fail in its proof that the transfer was a loan. Again, once I accept the evidence of Mr Chan and Ms Tong of the agreement to pay the sums of money to the defendant as loans on the two occasions, the sequence of events that led to the drawing of the cheques and the giving of the cheques to the defendant with the name of the payee being one provided by the defendant, the fact that the loans were made is clearly made out.

Representation:

Mr Jason S.M. Wan, instructed by Messrs William Sin & So.,for the 1st and 2nd Plaintiffs

Mr Melvin Wong, instructed by Messrs Andrew Law & Franki Ho,for the Defendant

Appeal by the Defendant to Court of Appeal. Appeal dismissed. Please refer to the appeal judgment of CACV18/2004.

HCA44/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.44 OF 2002

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D E C I S I O N

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1. This is the plaintiffs' application for discovery against a bank, which is not a party to the action.

Background

2. In this action, the plaintiffs claim against the defendant for repayment of two loans. The plaintiffs' case is that at the defendant's request, five cheques for the loans were made out in favour of a company called General Profits Asia Limited ("General Profits"). The defendant denies liability for the loans and states that he has no relationship nor dealing with General Asia and that he is neither a director, shareholder, nor officer-bearer of it or in any way related to it.

3. General Profits is not incorporated in Hong Kong, nor is it registered in Hong Kong. Accordingly, nothing about it can be found from the company registry records. However, from the records provided by the 1st plaintiff's bank, it appears that General Profits maintains an account with Hongkong Bank and the five cheques were paid into this account.

4. By summons filed on 2 May 2003, the plaintiffs applied under Order 38, rule 13, Rules of the High Court, for an order, inter alia :

(1)	the 1st plaintiff by himself or his authorised agent, on giving due notice, be allowed to enter the premises of Hongkong Bank for the purpose of inspecting and photocopying the bank records in relation to the identities of the directors, shareholders, office bearers and signatories of the account held in the name of General Profits, and
(2)	alternatively, Hongkong Bank do produce the said documents for the purpose of this proceeding.

5. Hongkong Bank does not oppose the application. The defendant, however, opposes on the basis that, firstly, Order 38, rule 13 is inapplicable and, secondly, there are insufficient grounds for the exercise of the court's discretion in favour of the application.

6. Order 38, rule 13(1), Rules of the High Court provides :

"At any stage in a cause or matter, the Court may order any person to attend any proceeding in the cause or matter and to produce any document, to be specified or described in the order, the production of which appears to the Court to be necessary for the purpose of that proceeding."

Prima facie, there is power under the Rules to order a non-party to attend court to produce documents.

7. At the same time, section 21(1) of the Evidence Ordinance provides :

"On the application of any party to any proceedings, the court or a judge may order that such party be at liberty to inspect and take copies of any entries in a banker's record for any of the purposes of such proceedings."

8. From authorities such as Elder v. Carter (1890) 25 QBD 184 and also from Hong Kong Civil Procedure 2002, para.38/13/1-8, it is clear that Order 38, rule 13 is directed at production of documents for a particular proceeding in the cause or matter. It is not intended to create a general right to discovery against third party in the absence of a pending proceeding in the cause or matter. The wording of the plaintiffs' summons is therefore inapt and the reliance upon Order 38, rule 13 is also inappropriate. The application should be made under section 21 of the Evidence Ordinance.

9. The authorities have stated that the power for inspection under section 21 of the Evidence Ordinance should be exercised with great caution. In my view, that must be right especially if the inspection is directed at an account held in the name of party who is not a party to a proceeding. It has been said that the power should only be exercised where it is clearly established that the account is really that of the party to the proceedings or that the party is so closely connected with it that it would be evidence against him : South Straffordshire Tramsways Company v. Ebbsmith [1895] 2 QB 669 at 675.

10. In Assets Investment PT Limited v. The United Islamic Investments Foundation (unreported), HCA No.4392 of 1993, Barnett J held that in a section 21 application, it must be shown that there is a probability that the account will contain materials germane to an issue to be tried between the parties. In short, the test is one of relevance. This in fact echoed what Lord Esher, MR said in South Staffordshire Tramways Company at 675, namely, "the party asking for the inspection ought to be able to show the court very strong grounds for suspicion, almost amounting to certainty that there are items in the account which would be material evidence against the defendant upon the matters in issue."

11. In the present case, the plaintiff's case is that the cheques for the loans were at the defendant's request made out in favour of General Profits, and the cheques were paid into the account with Hongkong Bank. On that basis, the plaintiffs believe that the account and General Profits are closely related to the defendant. It must be borne in mind that at this interlocutory stage, the court is not in a position to adjudicate on the veracity of the plaintiffs' averments or allegations but has to proceed on the assumption that the plaintiffs will be able to make good its case that the cheques were paid into the account at the defendant's request.

12. On that assumption, there are good reasons for the plaintiff's belief that the account-opening record of the account will shed light on the relationship between the defendant and General Profits and also between the defendant and this account, which may turn out either to strengthen or support the plaintiff's case, or to discredit the defendant's case.

13. For my part, I consider Mr Wan may well have overstated the plaintiff's position when he said the inspection will determine the ultimate outcome of the case. This may or may not be so, depending on what information is revealed from the account-opening record. But what is certain is that the inspection applied for is not a fishing expedition. There is clear evidence that the cheques have been cleared and paid through this account of General Profits. The identity and information of the person or persons controlling or operating the account must be relevant to the question of to whose benefit were the loans made and, in turn, whether the defendant was in any way involved in these loans.

14. In the normal course of events, a company search of the account-holder would have been the proper thing to do and the information reviewed will be most relevant. What takes the present case out of the ordinary is that General Profits is not a Hong Kong company and is not registered under the Companies Ordinance so that the usual modes of inquiry cannot be undertaken and that alternative modes of inquiry have to be undertaken. The inspection sought if viewed from this perspective must be a proper train of inquiry that the plaintiff should be permitted to pursue.

15. On the question of notice of this application, the authorities had considered that it is necessary to give notice of the application to both the bank and the holder of the account. In the present case, the summons and the affirmation had been served on Hongkong Bank, and it has no objection to it. In the case of General Profits, the difficulty is that no information about it can be obtained from the public records. It is simply not possible to serve on General Profits or to give due notice of the present application, a fact that the court has to bear in mind when deciding in what way it should exercise its discretion.

16. Having regard to the circumstances of this case and of the considerations that I have outlined, I consider that the court's discretion under section 21 of the Evidence Ordinance ought to be exercised in favour of granting the order. Accordingly, I make an order in terms of paragraph (1) of the summons. It is not necessary to make any order under paragraph (2).

Costs

17. The plaintiffs accept that the costs of Hongkong Bank in complying with this order should be borne by them in the first instance and may be recoverable against the defendant as an item of disbursement in the event they succeed on the claim.

18. As to the costs of the summons, as a matter of general principle, the plaintiffs having succeeded in the application should be awarded the costs of the application and of the hearing for argument. However, before the summons came to be heard by me, it had on three occasions gone before a master. Those were unnecessary had the plaintiffs made the application returnable before a judge in the first instance. The action had already been set down such that all further interlocutory applications should be made before a judge. The defendant should not bear the costs of the appearances before the masters. I therefore order that the costs of this application be costs in the cause. As to the costs of today, it would be to the plaintiffs against the defendant in any event.

19. The plaintiffs ask that a gross sum costs order be made. I do not consider this is an appropriate case to do so. Firstly, the schedule of costs that the plaintiffs had prepared had included a number of items that, by the present order, the plaintiff is not entitled to and it is not for this court to recast the schedule to work out the plaintiffs' entitlement. Secondly and more fundamentally, the plaintiffs' schedule of costs is not a schedule suitable for a gross sum assessment. Items such as mechanical preparation, scale costs for filing of bundles and service of documents and so on should not be included for a gross sum assessment schedule. On the other hand, there is no summary of the time spent on a particular task or document, for example, the drafting of an affirmation. The plaintiffs' schedule is casted in a chronological order and in a manner more appropriate for a full-scale costs taxation. Thirdly, some of the time said to have been spent on the items are rather excessive and it will require some scrutiny to scale them down to an appropriate level. These tasks are more appropriately left to the taxing master on a taxation.

Representation:

Mr Jason Wan, instructed by Messrs William Sin & So,for the 1st and 2nd Plaintiffs

Mr Melvin Wong, instructed by Messrs Andrew Law & Franki Ho,for the Defendant