IRONWOOD CAPITAL LTD v. KTH CAPITAL MANAGEMENT LTD

HCA2836/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2836 OF 2004

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R U L I N G

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1.  By an order dated 20 November 2007, given pursuant to a written ruling in this matter, the defendant was ordered to give a Summary Account in this matter.

2.  Pursuant to such order, the defendant filed two affirmations, being the 3^rd Affirmation of Wang Du and the 8^th Affidavit of Kevin Richard Bowers both dated 26 February 2008.

3.  In this application, by Summons dated 22 April 2008, the plaintiff complains that the defendant has not complied with the order of 20 November 2007, and seek a further order for the defendant to fully comply with that order for summary account.

BACKGROUND

4.  The plaintiff is a BVI company set up in about 2000 by Luo Xian Ping (“Luo”) as an investment vehicle in distressed debts of Chinese corporations.  Luo was assisted by his assistant Guo Dan (“Guo”).

5.  The defendant, an Exempted Company incorporated in the Cayman Island, was at all material times under the control of Du Wang (“Wang”) and his wife Vivian Ding Li (“Li”).

6.  It was intended that the plaintiff’s knowledge of Chinese corporations and their financial affairs could be combined with the defendant’s expertise in distress debt trading to enable successful trades to be made.

7.  For such investment purposes, the defendant assisted the plaintiff to open an account with the ABN AMRO Bank (“the ABN Account”).  Li was one of the authorized signatory to the ABN Account and the mandate given to the bank was such that for trading purposes, Li’s signature alone would be sufficient to operate the ABN Account.

8.  In December 2000 the defendant caused to be opened a sub-account on behalf of the plaintiff with Bermuda Trust (Far East) Ltd (“BTFE”) in the name of KTH Capital Management Ltd — Ironwood Capital Ltd (“the Sub-Account”).  Wang and Li were the only authorized signatories of the Sub-Account.

9.  Thereafter the defendant was able to move funds between the ABN Account and the Sub-Account and conducted investments through the Sub-Account on behalf of the plaintiff.

10.  The plaintiff brings this claim on the basis that after the defendant had been given such authority to move funds between the ABN Account and the Sub-Account, the defendant had conducted investments from and moved funds between the ABN Account and the Sub-Account without the plaintiff’s knowledge and failed to properly account to the plaintiff in respect of such moneys and investments conducted by the defendant on behalf of the plaintiff.

11.  Since it was not disputed by the defendant that it stood in such a relationship as between it and the plaintiff to amount to an accounting party to the plaintiff, the Summary Account order was made.  In ordering the Summary Account to be given by the defendant, there was a further order that the plaintiff will be able to file its objections to the Summary Account when the Summary Account was given.  That was done in order to crystallize the issues in dispute between the parties herein.

THE ORDER FOR SUMMARY ACCOUNT

12.  Paragraph 1 of the order for Summary Account are in the following terms :

“1. the following Accounts (‘the Accounts’) be taken that is to say

(A)  all dealings by the Defendant or its directors or any of them since November 2000 with monies paid into or withdrawn from the accounts referred to in the Schedule to this Summons (the ‘relevant accounts’);

(B)  all transactions carried out since November 2000 by the Defendant or its directors or any of them using directly or indirectly monies from time to time withdrawn from the relevant accounts;

(C)  all investments made since November 2000 by the Defendant or its directors or any of them using directly or indirectly monies belonging to the Plaintiff; and

(D)  all monies and other assets currently held by the Defendant for and on account of the Plaintiff as a result of the dealings, transactions and investments referred to in (A) (B) or (C) above.”

13.  The “relevant account” referred to in that Order is a reference to both the ABN Account and the Sub-Account.

WHAT WAS DONE BY THE DEFENDANT IN PURPORTED COMPLIANCE WITH THE ORDER

14.  In purported compliance with such order for Summary Accounts, the defendant filed the 3^rd Affirmation of Wang Du exhibiting (inter alia) Exh. WD2 to WD10 inclusive.

(a)  In respect of the ABN Account

15.  Of these exhibits, Exh. WD2 to WD7 were the bank statements of the ABN Accounts (which had been disclosed by the plaintiff on 17 February 2006) and those bank statements purported to be the summary accounts given by the defendant relating to the ABN Accounts.

(b)  In respect of the Sub-Account

16.  Exh WD8 to WD10 were exhibited by the defendant as being the summary account relating to the Sub-Account.

PLAINTIFF’S COMPLAINT

17.  In this application, the plaintiff complains that the order for Summary Account has not been complied with by the defendant in the following ways :

(i)  For the ABN Accounts, all that has been given by the defendant were the bank statements of the ABN Accounts, which were in fact documents disclosed by the plaintiff, and which simply cannot amount to a summary account as ordered.  In short the defendant has simply not rendered any account in that respect;

(ii)  As for the Sub-Account :

i.  there were two outflows item, both of US$3,305,000 transferred out on 11 December 2001.  While the defendant has explained one of the two outflows, there is no explanation given in the purported Summary Account of the other amount of US$3,305,000;

ii.  there were two outflow items of HK$17 million withdrawn on 23 March 2001, and the defendant has failed to render any account or give any explanation as to what happened to the other sum of HK$17 million;

iii.  as for HK$15 million withdrawn on 26 April 2001, the defendant has failed to account for what happened to the money after it was withdrawn on 26 April 2001 up to the time when it was allegedly refunded to the plaintiff on 10 and 11 May 2001 or whether any interest had been gained from such money during that time; and

iv.  as for the withdrawal of HK$78,000 on 3 July 2001, no explanation has been given relating to this withdrawal.

DEFENDANT’S STANCE

18.  In respect of the Summary Account which has been ordered to be given by the defendant, the defendant takes the stance that since the defendant is not an accounting party in respect of the ABN Account, all it could do is to produce the bank statements (namely Exh. WD2 to Exh. WD7).

19.  As for the Sub-Account, the defendant has given a summary account in the form of Exh. WD8 to WD10 and says that it has provided all the explanations now sought by the plaintiff in Bowers 8^th in so far as they relate to the Sub-Account.

20.  Whatever further material sought by the plaintiffs should properly be included in the List of Objections for which the plaintiff has been given leave and which should rightly be the subject matter of dispute between the parties in this matter.

DECISION

21.  In so far as the ABN Account is concerned, I accept the plaintiff’s suggestion that simply by producing the bank statements relating to the ABN Account does not comply with the Order Summary Account.

22.  I cannot accept the stance of the defendant that all it could do is to produce the bank statements as being the Summary Account ordered.

23.  There is no dispute that the defendant is an accounting party to the plaintiff in respect of monies which the defendant invested on behalf of the plaintiff at the material time.

24.  It is also not in dispute that money from the ABN Account was utilized for such investment by the defendant on behalf of the plaintiff.

25.  In its pleadings, the defendant has pleaded that it has properly accounted to the plaintiff for all such money which it has invested on behalf of the plaintiff.  That would imply that the defendant should have no difficulty identifying the money which came to the defendant from the ABN Account for investment carried out by the defendant on behalf of the plaintiff.

26.  Therefore there can be no difficulty for the defendant to be able to give an account of all such monies which was transferred to the defendant from the ABN Account and more importantly, what the defendant did by way of investment on behalf of the plaintiff with such monies.  The defendant should also have no difficulty in stating how much money was transferred back to the ABN Account by the defendant after such investment.

27.  That is the summary account which the defendant has to give in relation to the ABN Account.

28.  The above matters cannot be ascertained simply by the defendant producing the bank statements of the ABN Account.

29.  As for the other objections raised by the plaintiff in relation to the summary account provided by the defendant relating to the Sub-Account and contained in Exh. WD8 to WD10, such summary account has been provided by the defendant.  Any objection by the plaintiff to such summary account provided should rightly be included in the plaintiff’s List of Objection thereto.  That would crystallize the issue in dispute between the parties which is the very purpose for which the summary account was ordered in the first place.

30.  Having decided the substantive issue relating to the plaintiff’s present summons, it has to be noted that the plaintiff’s summons seek an “Unless Order”.

31.  This is not such a case whereby the defendant has flatly refused to comply with a court order.  The defendant has made some effort to furnish a summary account as ordered, however, in relation to one part of it (namely relating to the ABN Account) what was furnished by the defendant failed to meet up with what was ordered.

32.  Given the circumstances, I do not see that an “unless order” is called for at this stage.

33.  There will accordingly be an order that the defendant do replace Exh. WD2 to WD7 with a proper summary account of the movement of funds to the Sub-Account from the ABN Account (and vice versa) of those monies used by the defendant for investment on behalf of the plaintiff in the manner ordered as per paragraph 1(A), (B), (C) and (D) of the Order dated 20 November 2007 within 28 days from today.

34.  There will be a consequential order that the leave given to the plaintiff for filing its List of Objections to such Summary Account be extended by 28 days after compliance of the above order by the defendant.

COST

35.  This application having been made necessary because of the failure of the defendant to fully comply with the Order of 20 November 2007, there will be a cost order nisi that the defendant is to bear the cost of this application and hearing in any event.

HCA2836/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2836 OF 2004

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R U L I N G

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1. This is an application by the defendant by Summons dated 13 February 2008 for leave to serve/administer upon the plaintiff Interrogatories as per the draft annexed to the Summons. 

Background

2. The plaintiff is a BVI company set up in about 2000 by Luo Xian Ping (“Luo”) as an investment vehicle in distressed debts of Chinese corporations.  Luo was assisted by his assistant Guo Dan (“Guo”). 

3. The defendant, an Exempted Company incorporated in the Cayman Island, was at all material times under the control of Du Wang (“Wang”) and his wife Vivian Ding Li (“Li”). 

4. It was intended that the plaintiff’s knowledge of Chinese corporations and their financial affairs could be combined with the defendant’s expertise in distress debt trading to enable successful trades to be made. 

5. For such investment purposes, the defendant assisted the plaintiff to open an account with the ABN AMRO Bank (“the ABN Account”).  Li was one of the authorized signatory to the ABN Account and the mandate given to the bank was such that for trading purposes, Li’s signature alone would be sufficient to operate the ABN Account. 

6. In December 2000 the defendant caused to be opened a sub-account on behalf of the plaintiff with Bermuda Trust (Far East) Ltd  (“BTFE”) in the name of KTH Capital Management Ltd — Ironwood Capital Ltd (“the Sub-Account”).  Wang and Li were the only authorized signatories of the Sub-Account. 

7. Thereafter the defendant was able to move funds between the ABN Account and the Sub-Account and conducted investments through the Sub-Account on behalf of the plaintiff. 

The plaintiff’s claim

8. It is the plaintiff’s claim that the defendant, who operated the various accounts on behalf of the plaintiff have not accounted to the plaintiff for all that is due to them.  The major relief sought by the plaintiff in the present action is for a declaration that the plaintiff is the sole beneficiary of the Sub-Account and also for an account of all investments made and all assets held by the defendant for and on behalf of the plaintiff. 

Order for Summary Account

9. In the present claim, an order for summary account has already been made for the defendant to deliver a summary account of all the dealings and investments it has made on behalf of the plaintiff from the funds in the ABN Account as well as the Sub-Account. 

10. That order for summary account was made on the basis that the defendant did not dispute that it was an accounting party vis-à-vis the plaintiff in the sense that it had been dealing with the investments on behalf of the plaintiff by transferring funds from the ABN Account to the Sub-Account and using the funds so transferred into the Sub-Account for such investments on behalf of the plaintiff. 

11. The order for summary account was made on 20 November 2007 in a written Ruling after hearing arguments from both parties. 

12. In a nutshell that order for summary account required the defendant to give a summary account to the plaintiff of the dealings and investments made by them using moneys from the ABN Account and the Sub-Account on behalf of the plaintiff within 28 days and to verify same by affidavit.  Thereafter the plaintiff could serve notice of objection thereto within 56 days after it had been served with the summary account taken by the defendant. 

13. After the order for summary account was made, the time given to the defendant to provide such summary account was extended such that the summary account was served by the defendant and verified by affidavit on 26 February 2008. 

14. I am told that the plaintiff has not, as yet, provided/served any notice of objection to the summary account served by the defendant due to the fact that the plaintiff has taken out a summons which is due to be heard some time in October, and that the notice of objection will have to wait until that summons is dealt with. 

15. It was also made clear in the written Ruling dealing with the summary account application that the order for summary account as well as giving liberty to the plaintiff to file a notice of objection thereto were intended to crystallize the specific issues in dispute between the parties relating to the accounts between them. 

The present application for Interrogatories

16. The request for interrogatories were initially made by the defendant dated 15 January 2008. 

17. Upon the plaintiff objecting to answer such interrogatories, a Summons dated 13 February 2008 was taken out by the defendant for leave to administer the interrogatories pursuant to Order 26, rule 1 of the Rules of the High Court with the interrogatories sought attached to the Summons. 

18. In a nutshell, the interrogatories sought can be conveniently compartmentalized into three separate categories :

(a)  Interrogatories 1, 2 and 3 ask whether any money was paid by or on behalf of the plaintiff into the ABN Account and the Sub-Account, if so the details of such payments and the instructions given by the plaintiff to the defendant relating to each of such payments;

(b) Interrogatories 4 and 5 ask whether the plaintiff or anyone on its behalf received money from the ABN Account and/or the Sub-Account pursuant to any of the instructions referred to in the answer to Interrogatory 3, and if so the details of same; and

(c) Interrogatories 6 and 7 ask whether the plaintiff or anyone on its behalf received money from the ABN Account and/or the Sub-Account without instructions from the plaintiff to the defendant, and if so the details of same. 

Discussion

19. It can at once be seen from the interrogatories asked that such interrogatories are framed in a completely general way. 

20. Admittedly, counsel for the defendant conceded at the hearing that although no date is included in the interrogatories, it should be understood that the interrogatories relate only to the time when the defendant was given authority to deal with and invest the funds of the plaintiff on its behalf. 

21. Even given that is so, and within the period of the defendant being given such authority to invest the funds for the plaintiff, those interrogatories are still all encompassing in that they seek to elicit from the plaintiff all the payment made by the plaintiff into the ABN Account and the Sub-Account as well as all the moneys received by the plaintiff from those two accounts during such times. 

22. In that sense the interrogatories make no distinction as to what are the specific items in dispute between the parties in so far as those accounts are concerned. 

23. Indeed, the specific items relating to the ABN Account and the Sub-Account which may be in dispute between the parties cannot at this stage be seen, at least not until the plaintiff has seen fit to file its List of Objections to the Summary Account given by the defendant. 

24. It follows from that that since the interrogatories sought are not geared either to the Summary Account given by the defendant or the List of Objection as yet to be filed by the plaintiff, in that sense, what is asked for by the interrogatories may well be much wider than what would ultimately be in dispute between the parties. 

25. In that sense, it neither saves costs nor can it be said to be necessary. 

26. Admittedly, that rules provides that in a proper case, the right to interrogate is not confined to the facts directly in issue, but extends to any facts the existence or non-existence of which is relevant to the existence or non-existence of the facts directly in issue.  However, that can only come about when it is known what facts are in issue between the parties.  In the present case, without the List of Objections being filed by the plaintiff, that stage has not even been reached. 

27. Secondly, there is nothing on the pleadings which would suggest that the moneys in the ABN Account belonged to anyone other than the plaintiff.  In those circumstances, I agree with Mr Thompson that it is both unnecessary and irrelevant for the plaintiff to have to identify every specific payment made by or on behalf of the plaintiff into the ABN Account. 

28. As for the Sub-Account, there is no dispute that the defendant had full control of the Sub-Account at all times, and therefore it must be within the defendant’s knowledge what had been paid into that account by the plaintiff, if that was done. 

29. On this basis the interrogatories sought are neither relevant, necessary nor do they save costs, but rather would incur further costs unnecessarily. 

30. In so saying I have in mind that the plaintiff’s claim relates to moneys transferred from the ABN Account into the Sub-Account by the defendant for the purpose of investment on behalf of the plaintiff, and what had become of those moneys. 

31. For the above reasons, the application for leave to administer the interrogatories sought is refused. 

32. There will be a cost order nisi that the cost of this application and the hearing be to the plaintiff in any event.

HCA2836/2004
& HCA76/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2836 OF 2004

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(HEARD TOGETHER)

Dates of Hearing : 14 March and 11 April 2008

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J U D G M E N T

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1. This is an appeal by the plaintiff from the decision of Master Hui (“Master”) given on 10 September 2007 whereby the Master ordered the plaintiff to provide additional security for the defendants’ costs in HCA2836/2004 (“the Accounts Action”) and in HCA76/2005 (“the Recovery Action”) in the respective amounts of $1 million and $1.5 million.

Background

2. The plaintiff in the Accounts Action is a BVI company set up in about 2000 as an investment vehicle to invest in distressed debts of Chinese corporations.  It was set up by Luo Xian Ping (“Luo”) who was assisted by his assistant Guo Dan (“Guo”).

3. The defendant in the Accounts Action is an Exempted company in the Cayman Island and was at all times under the control of Du Wang (“Wang”) and his wife Vivian Ding Li (“Li”).

4. The initial intention was that Luo’s knowledge of Chinese corporations and their financial affairs could be combined with the expertise of Wang and Li in distress debt trading to enable successful trades to be made.

5. For the purpose of such investment, Wang and Li assisted Luo to open an account with the ABN AMRO Bank (“the ABN Account”).  Li was one of the authorized signatory to the ABN Account and the mandate given to the bank was that for such trading purposes, Li’s signature alone would be sufficient to operate the ABN Account.

6. In December 2000, KTH Capital Management Limited caused to be opened a sub-account on behalf of the plaintiff with Bermuda Trust (Far East) Limited (“BTFE”) in the name of “KTH Capital Management Limited — Ironwood Capital Limited” (“the Sub-Account”).  Wang and Li were the only authorized signatories of the Sub-Account.  The reason for so doing was because the ABN Account could not be used directly for trading in distressed debt.

7. Thereafter funds were moved between the ABN Account and the Sub-Account for the purpose of conducting investments through the Sub-Account on behalf of the plaintiff.

8. In the Accounts Action, it is alleged by the plaintiff therein that the defendant, who operated the various accounts on behalf of the plaintiff, have not accounted to the plaintiff for all that is due to them.  The relief sought therein is for a declaration that the plaintiff is the sole beneficiary of the Sub-Account and also for an account of all investments made and all assets held by the defendant for and on behalf of the plaintiff.

9. In the Recovery Action, the parties are essentially the same as in the Accounts Action save that the further plaintiffs and further defendants therein are related companies or individuals to the main parties.

10. The claim in the Recovery Action relates to the same investment transactions and how those transactions were handled by the defendants on the plaintiffs’ behalf.

11. However, one specific allegation made by the plaintiffs in the Recovery Action was that the plaintiffs were misled by various statements made by the defendants including statements that the plaintiff did not have at its disposal sufficient funds to complete particular investment transactions.

12. It is the plaintiffs’ case in the Recovery Action that there were sufficient funds in the plaintiffs’ accounts operated by the defendants on the plaintiffs’ behalf.

13. Pursuant to an application for consolidation of the Accounts Action and the Recovery Action, Chung J, after hearing arguments, ordered both actions to be tried together at the same time before the same judge.

14. On appeal by the plaintiffs, the Court of Appeal accepted that there should be consolidation of the two actions in that they should be heard by the same judge and the findings in the Accounts Action should stand as findings in the Recovery Action.  However, the Court of Appeal ruled that the Accounts Action should be tried and decided first before the Recovery Action, the reason being that the Recovery Action, which depended on the findings in the Accounts Action, should only be heard and determined after those findings have been made.

15. In a further application by the plaintiff in the Accounts Action for summary accounts to be given by the defendant, which application was heard by me, I allowed the plaintiff’s application and ordered summary accounts by the defendant, primarily on the basis that the defendant admitted to being an accounting party, and at all times the defendants’ stance was that an account will have to be given by them.  The only question was whether that should be given at trial or summarily.

Application for additional security for defendants’ costs

16. The defendants brought the application for additional security for their costs on the basis that the plaintiffs in both the Accounts Action and the Recovery Action are foreign plaintiff.  That they are so is not in dispute.

17. The objection by the plaintiff to having to pay additional security for the costs of the defendant can be seen by looking at their grounds for this appeal which is :

(1)     the Master has taken into account irrelevant matters; namely the amendments to the Defence in the Accounts Action;

(2)     the Master had misapprehended the nature and effect of the plaintiff’s arguments relating to those amendments;

(3)     the Master failed to have regard to the plaintiff’s high probability of success in both actions;

(4)     the Master failed to have proper regard to the admission of the defendant that it was an accounting party; and

(5)     the Master failed to have proper regard to the defendant’s withdrawal of the plaintiff’s money which impacts on the strength of the plaintiff’s claims in both actions making it unjust to order security for costs against the plaintiff.

18. It can at once be seen from the grounds put forward by the plaintiff that the plaintiff does not appeal against the quantum in respect of the amount of the security ordered.

19. The entire appeal as presented by the plaintiff was that the Master was wrong to have made the order for the additional security because on merits the plaintiffs have a strong case in both actions.

20. It should also be noted at the outset that the plaintiffs did not dispute that they are foreign plaintiffs and there is no suggestion at all that the plaintiffs are impecunious or that the order for security will stifle their claims.

21. The entire appeal therefore turns on a narrow point, namely whether security for costs ought to have been ordered against the plaintiffs on the strength of the plaintiffs’ case in both actions as the case now stands.

22. When the Master heard this matter below, the reason for his decision can be seen from the following passages taken from the transcript of that hearing as follows :

“In relation to the amendment, as I said, in my view it is the more important application.  Now the parties have come to certain consensus in that the plaintiff is no longer opposing to the application.

It had much impact to this application.  The reason is that before the amendment, it is the defendants’ case that all the funds in the account and in the sub-account were funds belonging to the plaintiff, and therefore the defendant is really an accounting party, in quotation sense, and in fact that had been elaborated in that in the Court of Appeal when Rogers JA was dealing with an application for security of costs in relation to the appeal.

I believe the strongest case that the plaintiff can build up in opposing to this application is the production of the bank accounts, firstly, the redacted form, and now the unredacted form, by demonstrating that some of the funds or the transactions in these accounts had nothing to do with the plaintiff.  Before the amendment, I believe the plaintiffs were almost home with this point, but now the story is quite different.

Although Mr Thompson, counsel who appears for the plaintiffs, submitted that the defendant should explain all these so-called unrelated transactions because the sums involved are huge, they say that goes to the merits of the trial.  What is left behind before me, in my view, does not constitute substantial change of circumstances when compared with the time when I first made the first order for security for costs.  Because of all this, I will grant the application.”

23. To fully appreciate the reasons for the Master’s ruling, it should be stated that the defendant in the Accounts Action had initially provided only redacted copies of the Sub-Account to the plaintiff by way of discovery on the basis that the redacted entries in the Sub-Accounts concerned monies and/or transactions that had nothing to do with the plaintiff.

24. However, the Defence in the Accounts Action, as it stood at that time, admitted that all the monies in the Sub-Account belonged to the plaintiff.

25. Therefore on the face of it, there appeared to be an inconsistency in the defence case and which could therefore, without more, reflect on the strength of the plaintiff’s case.

26. Although an application by Summons dated 23 January 2007 had been taken out by the defendant to amend its Defence in the Accounts Action, the application to amend was strongly opposed by the plaintiff.

27. That was the position when the parties came before the Master to argue this matter on 31 May 2007.  That hearing before the Master however could not be completed and was adjourned part heard to 10 September 2007.

28. By the time the parties returned before the Master on 10 September 2007, that position had effectively changed.  On 5 September 2007, an order had been made pursuant to a consent summons taken out by the parties consenting to the amendments sought by the defendant to their Defence in the Accounts Action.  In its amended form it was pleaded that only part of the monies in the Sub-Account belonged to the plaintiff.

29. The defendants have since that time agreed to and did make discovery of unredacted copies of the Sub-Accounts.

Decision

30. Indeed, when all the grounds of this appeal are looked at, it really boils down to one issue, namely, whether the case of the plaintiff in both actions is of such strength that additional security for the defendants’ costs ought not to have been ordered in the first place.

31. In this respect it should be noted at the outset that the same Master had as early as 27 April 2006 ordered security for costs against the plaintiff in the amount of $350,000 in the Accounts Action and $700,000 in the Recovery Action.

32. That earlier order for security was not appealed against by the plaintiff.

33. It is the plaintiff’s contention that the earlier order for security was made to cover the costs up to discovery.  However, with discovery being either complete, or if not complete, having progressed to the stage that it now has, the merit and strength of the plaintiff’s case can readily be appreciated and is such that additional security ought not to have been ordered against it.

34. In that respect, a very full and complete written submission of over 90 paragraphs was lodged by the plaintiff in an attempt to go into minute detail of the issues in this case to demonstrate the merits and strength of the plaintiff’s case.  This is not to mention the numerous affidavits filed for the same purpose.

35. The hearing of this appeal from the decision of the Master has taken two full days since much of the arguments go into very much detail the disputed issues between the parties in an attempt by the plaintiff to show merits and strength of the plaintiff’s case and therefore the likelihood of success in both Actions.

36. In this respect, I can only echo the words of Sir Nicolas Browne-Wilkinson VC in the case of Porzelack K.G. v. Porzelack (UK) Ltd [1987] 1 WLR 420 at 423 :

“This is the second occasion recently on which I have had a major hearing on security for costs and in which the parties have sought to investigate in considerable detail the likelihood or otherwise of success in the action.  I do not think that is a right course to adopt on an application for security for costs.  The decision is necessarily made at an interlocutory stage on inadequate material and without any hearing of the evidence.  A detailed examination of the possibilities of success or failure merely blows the case up into a large interlocutory hearing involving great expenditure of both money and time.

Undoubtedly if it can be demonstrated that the plaintiff is likely to succeed, in the sense that there is a very high probability of success, then that is a matter that can properly be weighed in the balance.  Similarly, if it can be shown that there is a very high probability that the defendant will succeed, that is a matter that can be weighed.  But for myself I deplore the attempt to go into the merits of the case, unless it can be demonstrated one way or another that there is a high degree of probability of success or failure.”

37. In adopting the approach that it did, the plaintiff was effectively asking the court to decide the disputed issues between the parties on affidavit without a proper hearing, something which cannot and should not be done at an interlocutory stage.

38. I do not propose to go into all the issues that have been submitted at the hearing save to say that those are the very issues which need to be decided by the court at trial.

39. However, in order to sample the flavour of what transpired at the hearing going into those issues on merits, I need only to refer to one of those issues aired at the hearing.

40. One of the points submitted by the plaintiff concerned an amount of $22,422,156.25 which the plaintiff says had been withdrawn from its ABN Account on 3 July 2001and which has been paid to “Bank of Bermuda Ltd. Hong Kong.”  The plaintiff says this amount has not shown up in the Sub-Account and that the defendant has never accounted to the plaintiff where this money went.  (See para. 6 of the 8^th Affirmation of So Che Wing Rex)

41. In answer to that allegation of the plaintiff, the defendant was not only able to say that the $22 million odd was used to purchase JPY500 million face value of Tianjin ITIC bond on behalf of the plaintiff with the full knowledge and consent of Luo, but was also able to refer to the plaintiff’s ABN Account bank statement (exhibited as KRB-3 in the 7^th Affidavit of Kevin Richard Bowers) which shows that purchase of the Tianjin ITIC bond.

42. Whilst that answer of the defendant to the plaintiff’s allegation may or may not be conclusive on that issue, depending on how the finding of facts go when that and other issue are determined at trial, it nevertheless illustrates that the points put forward by the plaintiff in this hearing (this being one such) do not show the plaintiff’s case as strong as the plaintiff would like.  At the very least, it is open to argument in the way demonstrated by the defendant until it can be determined by finding of fact being made.

43. Having seen the approach taken by the Master in making his decision in this matter, I am unable to accept any of the criticism made of the Master in this appeal.  In my view the approach adopted by the Master was unimpeachable.

44. Initially, the Master had focused on that one point relating to the redacted entries in the Sub-Account which did not sit well with the admission by the defendant that all the monies in the Sub-Account belonged to the plaintiff.  This, the Master referred to as being the strongest point in favour of the plaintiff in this application on the merits of its case.

45. However, once the amendments by the defendant was consented to by the plaintiff before the resumed hearing in front of the Master, that point no longer existed but was relegated to being one of the many issues in dispute between the parties and which needed to be resolved at trial.

46. In so doing, the Master had undoubtedly declined to decide disputed issues of facts between the parties, as I now decline same, in dealing with this interlocutory application for security for costs.  That in my view is the proper approach in an application of this nature.

47. I cannot therefore see that the Master had erred in any way in exercising his discretion in the matter.

48. One further point which did not arise in the hearing before the Master, but figured in the appeal hearing before me concerned the order for summary account made by me in an earlier application in this matter.

49. The fact that I had ordered summary accounts to be given by the defendant upon the plaintiff’s application for same does not, per se, add any strength to the plaintiffs’ claim in either the Accounts Action or the Recovery Action since it was made clear in my earlier judgment for the summary accounts that the summary accounts was no more than a basis for the parties to identify and frame the particular issues in dispute between them.  It was for this reason that the summary accounts were ordered to be furnished in advance of the trial itself, and the plaintiff given an opportunity to raise its objection to the summary accounts when furnished by the defendant.  The real dispute between the parties relating to any particular item of the accounts will still need to be resolved at trial.

50. For the reasons given above, this appeal is dismissed with costs in any event (being a costs order nisi) and the order of the Master below to stand in its entirety, save that the order of the Master below is to take effect as though made upon dismissal of this appeal.

HCA2836/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2836 OF 2004

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R U L I N G 

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1. The plaintiff applies by Summons under Order 43, rule 1 of RHC for :

(a)	Summary Accounts and related reliefs; and
(b)	discovery of unredected copies of copy bank statements specified in paragraph 5 of the summons

against the defendant.

2. At the start of the hearing of this application, I was informed by counsel for the plaintiff that there is no further need to pursue the unredected copies since they have been provided to the plaintiff by the defendant before the hearing.

3. This Ruling therefore concentrates only on the application by the plaintiff for Summary Accounts under Order 43 and related reliefs thereto contained in paragraphs 1 to 4 inclusive of the Summons.

Background

4. The plaintiff, a BVI company, was set up in about 2000 as the investment vehicle to invest in distressed debts of Chinese corporations. The plaintiff was set up by Luo Xian Ping (“Luo”) and his assistant Guo Dan (“Guo”).

5. The defendant, an Exempted Company incorporated in the Cayman Island was at all times under the control of Du Wang (“Wang”) and his wife Vivian Ding Li (“Li”).

6. It was intended that the plaintiff’s knowledge of Chinese corporations and their financial affairs could be combined with the expertise of the defendants in distress debt trading to enable successful trades to be made.

7. For the purpose of such investment, the defendant assisted the plaintiff to open an account with the ABN AMRO Bank (“the ABN Account”).  Li was one of the authorized signatory to the ABN Account and the mandate given to the bank was such that for trading purposes, Li’s signature alone would be sufficient to operate the ABN Account.

8. In December 2000, the defendant caused to be opened a sub-account on behalf of the plaintiff with Bermuda Trust (Far East) Ltd (“BTFE”) in the name of KTH Capital Management Ltd — Ironwood Capital Ltd (“the Sub-Account”).  Wang and Li were the only authorized signatories of the Sub Account.

9. Thereafter the defendant was able to move funds between the ABN Account and the Sub-Account and conducted investments through the Sub-Account on behalf of the plaintiff.

The present claim

10. In this present action it is alleged by the plaintiff that the defendant, who operated the various accounts on behalf of the plaintiff, have not accounted to the plaintiff for all that is due to them.  The major relief sought by the plaintiff in the present claim is for a declaration that the plaintiff is the sole beneficiary of the Sub-Account and also for an account of all investments made and all assets held by the defendant for and on behalf of the plaintiff.

11. For convenience sake this present claim will be referred to as “the Account Action.”

High Court Action 76 of 2005

12. Again for convenience sake, HCA 76 of 2005 will be referred to as “the Recovery Action” and was brought by essentially the same plaintiff as in the Account Action against essentially the same defendant, although notably Wang and Li have also been joined as the 2^nd and 3^rd defendants respectively in the Recovery Action.

13. The Recovery Action arises essentially out of the same dealings between the parties as in the Account Action.

14. Generally, the plaintiffs’ claim in the Recovery Action relates to the investment transactions and how those transactions were handled by the defendant on the plaintiffs’ behalf.

15. However, one specific allegation made by the plaintiff in the Recovery Action was that the plaintiff was misled by various statements made by the defendants including statements that the plaintiff did not have at its disposal sufficient funds to complete particular investment transactions.

16. It is the plaintiff’s case that there were sufficient funds in the plaintiff’s accounts operated by the defendants on the plaintiff’s behalf.

Relationship between Account Action and Recovery Action

17. Since the Account Action and the Recovery Action share the same background facts given above relating to the dealings between the plaintiff and defendant leading to the investments carried out by the defendant on behalf of the plaintiff, it is apparent that there is a close affinity between the two actions albeit that the reliefs claimed are different.

18. Indeed, in an earlier application for consolidation of the two actions heard by Chung J in January 2007, Chung J ordered that the two actions be tried together at the same time before the same judge.

19. On appeal by the plaintiff from that order of Chung J, the Court of Appeal, while accepting that there should be consolidation in the sense that both matters should be heard by the same judge and the findings in the Account Action should stand as findings in the Recovery Action, ruled that the Account Action should be tried and decided first before the Recovery Action.  To that extent, it overruled the order of Chung J.

20. The reason for the Court of Appeal so ruling was that the amounts available to the plaintiffs and which has to be decided first in the Accounts Action is something which has to be decided prior to hearing the Recovery Action.

Application for summary account

21. The present application by the plaintiff is for summary account under Order 43.

22. This application is brought on the basis that it is not disputed by the defendant that it is an accounting party vis-à-vis the plaintiff in that the defendant does not dispute that it has been dealing with investments on behalf of the plaintiff by transferring funds from the ABN Account to the Sub Account opened by the defendant with BTEF and using such funds in the Sub Account for such investments on behalf of the plaintiff.

23. It is also submitted by the plaintiff that since Wang and Li were the only two persons who could and did operate the Sub-Account for investment purposes on behalf of the plaintiff, the plaintiff is in the dark as to all the dealings carried out by them from the Sub-Account without an account being given by the defendant.

Defendant’s objection to summary account

24. The first objection raised by the defendant is that, in the light of the Consolidation order of Chung J which has been varied by the Court of Appeal, and to the extent that the procedure of Summary Account under Order 43 differs in substance from what is contemplated by the Consolidation order as varied by the Court of Appeal, this application for Summary Account amounts to an abuse of process.

25. Secondly, it was submitted that the Summary Account application is not appropriate since under Order 43, rule 1(3) of the Rules of High Court, Summary Account will not be ordered if there is a preliminary question to be tried.  In the present case, as can be seen from the pleadings of the parties, there are a number of factual issues between them in the Account Action.

26. These factual issues are listed out in footnote 1 at page 10 of the skeleton submission of counsel for the defendant at the hearing before me which I do not propose to repeat here in this Ruling.

27. Thirdly, it was submitted that there was some three years delay by the plaintiff after the Writ was issued before applying for summary account and therefore the court ought not to exercise its discretion acceding to such application, delay being itself sufficient ground for disentitling a party to discretionary relief.

28. Moreover, in so far as the exercise of discretion is concerned, the court should also take into account the other matters already raised above together with the delay.

Decision

29. In claims where the relief sought is for the taking of an account, such claims will normally be accompanied by a further claim for an order for payment over of whatever is found due to the claimant upon the taking of the account.

30. It will always be possible for there to be factual disputes between the parties which is relevant to either :

(a)	whether an account ought to be ordered or taken between the parties as where the defendant disputes that he is an accounting party vis-à-vis the plaintiff; or
(b)	the details of the account when it is given and which goes to the amount that should be ordered for payment over.

At times such factual disputes which arise may affect both those issues.

31. Order 43, rule 1(3) provides as follows :

“	On the hearing of the application, the Court may, unless satisfied that there is some preliminary question to be tried, order that an account be taken and may also order that any amount certified on taking the account to be due to either party be paid to him within a time specified in the order.”

32. The “preliminary question to be tried” referred to in Order 43, rule 1(3) can only refer to a disputed factual issue or some other matter that needs to be determined at trial which relates to the question whether an account ought to be ordered as between the parties, as for instance when it is in issue whether the defendant is an accounting party to the plaintiff and whether he should be made or ordered to render an account to the plaintiff.

33. It cannot, in my view, relate to factual disputes which do not touch on the issue whether an account should be ordered, as for instance where there are only factual issues which goes to the details of such account when given.

34. In the present case, admittedly, on the pleadings there are a number of factual issues between the parties. However, none of those factual issues touch on the question of whether an account should be rendered by the defendant to the plaintiff.  Indeed, it is admitted or not disputed by the defendant that it is an accounting party to the plaintiff, having carried out investments on behalf of the plaintiff using funds of the plaintiff from the ABN Account.  Moreover, it was submitted by the defendant’s counsel during the hearing that the defendant will render full accounts but only at the trial of this matter when all the factual issues can be gone into.

35. One would have thought that where it is not in dispute between the parties that the defendant is an accounting party to the plaintiff, there can be nothing to stop the defendant from rendering to the plaintiff as to what the defendant says are the proper accounts to the plaintiff well before the trial so that any dispute between them relating to the details of those accounts can then be properly dealt with at the trial.  Support for this, if needed, can be found at note 43/3/1 of Order 43 where it states :

“

The accounting party will generally be directed to lodge his account, duly verified by affidavit, in accordance with r.4(3), and to serve copies on the other parties concerned. It it is a long account, as in a partnership action, it may be impracticable to comply with r 4 (2), an in such cases a summarized account is usually accepted. In a simple case the vouchers may be ordered to be exhibited to the affidavit: otherwise it is generally ordered that each party permit inspection of all relevant documents in their possession or power relating to the account, to enable the opposing parties in effect to carry out an audit, and so that any necessary verification of the account can be dealt with out of court.

The opposing party will then file a notice of objection, or an affidavit setting out their contention with regard to the accounts, so that it can be seen what issues require determination by the court. It may also assist the court to have the parties’ respective contentions summarized in the form of a Scott Schedule.”

36. From what has been cited above, it would appear to me that the correct and proper practice in this case is for the defendants to render the necessary accounts to the plaintiff and verified by affidavit as to the dealings carried out by the defendant on behalf of the plaintiff and using funds of the plaintiff from the ABN Account and the Sub-Account.

37. When such accounts are rendered by the defendant, only then will the plaintiff be in a position to object to any part of such accounts from the defendant and to record their objection on affidavit (as per paragraph 3 of the Summons).

38. The plaintiff is entitled to know how the defendant has applied the funds from the ABN Account and the funds in the Sub-Account before it can register its objection thereto.  Without those accounts, the plaintiff is in the dark since the defendant was the only party working the Sub-Account.

39. It is only when accounts have been rendered by the defendant and the plaintiff has made objections thereto that the court, and everyone else for that matter, will know what are the disputed issues relating to the details of the accounts that need to be determined between the parties.

40. Those issues can then be properly and effectively dealt with at trial along with all the other factual issues between the parties.

41. If, as suggested by counsel for the defendant, that such accounts asked for by the plaintiff, is only to be rendered by the defendant at trial, the consequence will be that it will effectively cause the trial to be further delayed.

42. I can see no good reason for that, nor why such accounts cannot be furnished by the defendant well before the trial of this matter so that all the issues arising from the details of the accounts can be crystallized for determination at trial.

43. Given the reasons above, I cannot see that this application is in any way an abuse of the court’s process.

44. In this case, for the reasons given above, the Summary Accounts ought to be ordered for the proper and smooth determination of the issues at trial.  That is so irrespective of whether there was any consolidation of the Account Action with the Recovery Action, and irrespective of the variation to the consolidation order by the Court of Appeal.

45. Indeed, that much was recognized by the Vice President at the hearing of this matter before the Court of Appeal when he indicated that this matter was one in respect of which an order for summary account ought to be made.  Quite obviously also, the Vice President, apart from indicating his views, could do nothing more, since an order for summary account had to be made by summons, and there was no such summons when this matter was before the Court of Appeal.

46. As for the discretion point taken by the defendant, the reasons given above, in my view, fully justify the exercise by the court of its discretion to order the summary account sought by the plaintiff in this case.

47. There will accordingly be an order in terms of paragraphs 1, 2, 3 and 4 of the plaintiff’s Summons dated 3 May 2007.

Cost

48. There will be a cost order nisi as follows:

49. Cost of the application will be the plaintiff’s cost in the cause.  Cost of the hearing before me be to the plaintiff in any event.

50. The reason for the above cost order nisi is that the application was necessary to properly determine the issue at trial and in that sense is so intertwined with the trial itself.

51. The cost of the hearing of this matter was however unnecessary if it had been consented to by the defendant as being a proper application.  Instead it was objected to by the defendant and such objection failed.  Cost therefore should follow the event.

HCA 2836/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2836 OF 2004

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BETWEEN

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AND

HCA 76/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 76 OF 2005

____________

____________

(Heard together)

Before: Hon Chung J in Chambers

_________________________________

REASONS   FOR   DECISION

_________________________________

Introduction

1.  At the end of the hearing on 24 January 2007, I ordered the two actions to be tried together (unless the trial judge otherwise directs), and gave related directions for their further conduct.  The following are the reasons for the decision.

The Defendants’ Summons

2.  The above-mentioned order was made pursuant to the defendant’s summons taken out on 1 September 2006 which sought three alternative orders:-

(a)     the actions be consolidated; or

(b)    the actions be tried together; or

(c)     the account action (as defined in para. 5 to 6 below) be stayed pending the trial of the recovery action (as defined in para. 7 to 8 below).

3.  Further to the said summons, the defendants’ preference has been made clear in their written skeleton submission (from para. 2(a) to (c) above in descending order).

4.  On the other hand, the plaintiffs’ position (also stated in their skeleton argument) was that the actions should be heard by the same judge, but the account action should be tried and determined before the recovery action (with a 3-month time gap in-between).

The Two Actions

5.  On 14 December 2004, HCA 2836/2004 was commenced alleging that the defendant therein breached its duty to account in relation to an account opened by it for the plaintiff therein (the account was called “the Sub-Account” in the pleadings).  The Sub-Account was opened with the Bank of Bermuda’s subsidiary around the beginning of 2001.  The relevant time period is pleaded to be from about October 2000 to October 2003.  Relief sought in the action include a declaration that the plaintiff is the beneficiary of the Sub-Account and for a full and proper account to be rendered by the defendant.

6.  The above action is called “the account action” in this “Reasons for Decision”.  The defendant, after admitting:-

“… the money and assets held in the Sub-Account … are beneficially owned by the Plaintiff” (para. 23(3), Defence),

pleads essentially that a full account has already been rendered to the plaintiff.

7.  On 12 January 2005, HCA 76/2005 was commenced by 3 plaintiffs (including the plaintiff in the account action (“Ironwood”)) against 4 defendants (including the defendant in the account action).  In gist, it alleges that:-

(a)     the defendants procured the plaintiffs to enter into an agreement called “the Participation Agreement” in about December 2002 by fraudulent or negligent misrepresentation.  The Participation Agreement was in short an agreement whereby the plaintiff, together with other investors, was to purchase certain non-performing loans as a means of investment;

(b)    the misrepresentation was to the effect that the plaintiffs needed to make payment for the purchase immediately and that they did not have sufficient funds to do so;

(c)     but for the said misrepresentation, the plaintiffs would have purchased the whole of the said non-performing loans (rather than purchasing them jointly with other investors).

Among the relief sought are declaration orders that the Participation Agreement has been validly rescinded and that the plaintiffs are the true owners of the said non-performing loans.  The rendering of related accounts is also sought.

8.  The above action is called “the recovery action”.  The following averment appears in the statement of claim:-

“In early 2003, sums derived from Ironwood totalling at least US$5,141,059 were paid into the Fund II Account, and used or made available for use in the purchase of [the non-performing loans in question].  The Defendants have admitted that sums derived from Ironwood totalling US$4,806,865 were so paid in.  As appears below, the Plaintiffs’ case is that sums belonging to Ironwood totalling substantially more than US$5,141,059 were in fact so paid in … ” (para. 34, statement of claim).

9.  The reason why the above averment is referred to in particular is this.  The plaintiffs accepted during the hearing that the matters referred to in that averment should be included as part of the records of the Sub-Account (being part of the assets held by or on behalf of Ironwood in that account) if those records are full and accurate.

RHC Ord. 4 r. 9(1)

10.  This rule provides:-

“Where two or more causes or matters are pending, then, if it appears to the Court -

(a)     that some common question of law or fact arises in both or all of them, or

(b)     that the rights to relief claimed therein are in respect of or arise out of the same transaction or series of transactions, or

(c)     that for some other reason it is desirable to make an order under this rule,

the Court may order those causes or matters to be consolidated on such terms as it thinks just or may order them to be tried at the same time, or one immediately after another, or may order any of them to be stayed until after the determination of any other of them” (emphasis supplied).

11.  The court’s discretionary power under this rule only becomes exercisable when the requirements set out in one or more of para. (a) to (c) of the rule are met.  The learned authors of Hong Kong Civil Procedure 2007, para. 4/9/2 said:-

“The main purpose of consolidation is to save costs and time, and therefore it will not be usually be ordered unless there is ‘some common question of law or fact bearing sufficient importance in proportion to the rest’ of the subject-matter of the actions ‘to render it desirable that the whole should be disposed of at the same time’” (emphasis supplied).

12.  But even if the above prescribed criteria of the rule are met, the court can still refuse to exercise its discretion if there are circumstances which militate against consolidation: Hong Kong Civil Procedure 2007, para. 4/9/2.

Applying Ord. 4 r. 9(1) to this Application

13.  The defendants argued that the actions fall within Ord. 4 r. 9(1) because:-

(1)     procedurally, the actions have reached basically a similar stage;

(2)     there are overlaps in the identity of the parties (the additional parties in the recovery action are in truth only different alter egos), the principal witnesses, the factual background and factual disputes;

(3)     there are common questions of law arising on the pleadings;

(4)     the same legal advisers (solicitors and counsel) act for the parties.

Reliance is also placed on how the two actions have been looked at by the parties in the past.

14.  The plaintiffs, on the other hand, while accepting the actions are related, contended that they are unsuitable to be consolidated (or tried together) for the following reasons:-

(a)     the recovery action is primarily about the defendants’ misrepresentation of the status of the Sub-Account which induced the plaintiffs to dilute their interest in the acquisition of the non-performing loans, thereby causing them loss;

(b)    the account action involves only one issue, namely, whether the defendant therein has rendered a full and proper account to Ironwood in respect of the Sub-Account;

(c)     because of its relative simplicity, the account action should be tried first because it can be resolved quickly;

(d)    further, in order to assess whether there has been misrepresentation (the main issue in the recovery action), it is necessary to examine the status of the Sub-Account (para. 5.1, plaintiffs’ skeleton argument).

The plaintiffs also said in their skeleton argument the issues in the recovery action are “narrower” (see para. 2.3 thereof).  It is difficult to understand how the issues can be narrower than the account action which involves only one issue (see para. 2.2 thereof and sub-para. (b) above).  Consequently, I read that to mean the issues are different (from those in the account action).

15.  With respect to the plaintiffs, they have over-simplified the issues in the account action, and understated the relationship between the two actions.

16.  Apart from the issue referred to in para. 14(b) above, the commencement date of the agency is also in dispute in the account action; Ironwood contends that the agency commenced from October 2000 whereas the defendant says it commenced from March 2003.  Ironwood also alleges the defendant has:-

“[since the beginning of 2001] … moved funds between the ABN Account and the Sub-Account, conducted investments through the Sub-Account and exercised full control over the funds and assets in the Sub-Account to the exclusion of [Ironwood]” (para. 17, amended statement of claim).

This allegation is denied by the defendant therein, who claims that it always followed Ironwood’s instruction in the handling of funds and investment transactions and Ironwood was fully aware of that.

17.  In order to determine if a full and proper account in relation to the Sub-Account has been rendered (which is the main issue in the account action), it would be necessary for the trial court to examine (among other things) the transactions pleaded in para. 17, amended statement of claim.  In this connection, it is likely the court also has to examine if the amount of funds available to the plaintiffs at the time of the acquisition under the Participation Agreement (one of the main issues in the recovery action).

18.  Although, as state in para. 7 above, the main dispute in the recovery action concerns the alleged dilution of the plaintiffs’ acquisition of the non-performing loans, it must be noted that allegation is built on the defendants’ misrepresentation, which in gist was pleaded as a mis-statement regarding the sufficiency of funds kept in Ironwood’s account.

19.  In view of the matters set out in para. 16 to 18 above, a proper adjudication of the main issue in the account action by the trial court will very probably be assisted greatly by having available to it evidence (both documentary and testamentary) regarding the above matters.  In fact, the plaintiffs’ argument referred to in para. 14(d) above supports this point.

20.  Having the whole dispute tried at the same time will also reduce any problem arising from the admissibility of evidence which may be only admissible in one action and not the other.

21.  Further, judging from the issues outlined above, the credibility of the witnesses will be very important to the proper determination of the two actions.  Their cross-examination will likely involve an examination of the contemporaneous records of the Sub-Account (and other financial records relating to transactions made through the Sub-Account).

22.  Because the principal witnesses in the actions overlap, the trial court will obviously benefit from being able to hear their testimony, and assess their credibility, in the same trial.

23.  In these circumstances, ordering the actions to be tried together will not only likely to result in substantial savings in costs and time, it will enable the parties and the trial court to deal with the whole matter in dispute at the same time.

24.  The plaintiffs also asserted that the determination of the account action (ahead of the recovery action) may assist it to trace Ironwood’s assets from other parties.  I do not see how they can achieve this in view of the relief sought in the account action:-

(1)     a declaration that Ironwood is the sole beneficiary of the sub-Account;

(2)     an account of all investments made and all assets held by the defendant for and on account of Ironwood;

(3)     the defendant do deliver all investments made and all assets held by it.

25.  The plaintiffs changed their argument when the matter in para. 24 above were raised with them.  They said the plaintiffs might not be able to establish their claim of misrepresentation in the recovery action due to the lack of evidence relating to the sufficiency of funds in the Sub-Account for payment under the Participation Agreement.

26.  Even if the new argument was correct, I do not consider it (which incidentally almost amounts to an admission that there is insufficient evidence to establish the claim in the recovery action) to be a valid point.

27.  Finally, the plaintiffs rely on the decision in Re Prudential Enterprises Ltd., HCCW 594/1999 and HCA 1240 & 4225/2001 (19 August 2003) wherein the court ordered the trials of the various proceedings to be held sequentially, with intervening breaks.

28.  I do not think the Prudential Enterprises decision could assist the plaintiffs in this application.  The court’s decision on this kind of application is usually dependent on the facts of the case before it.  The facts peculiar to that decision included:-

(a)     although there were substantial overlapping of parties and of issues in two of the actions (para. 7, judgment), from a case management perspective joint trial should not be ordered (para. 7 and 8, judgment);

(b)    in terms of case management, the two drawbacks of a joint trial were, one, there was a real risk of losing part or all of the scheduled trial dates (para. 11 to 13, judgment) and, two, there were outstanding interlocutory matters in relation to one of the proceedings (para. 11, judgment);

(c)     further, one proceeding involved complex and voluminous documentary and expert evidence (para. 15, judgment).

Those matters did not feature in this application.

Conclusion

29.  In short, I agree with the defendants that this application falls within Ord. 4 r. 9(1) in that:-

(a)     some common questions of fact arise in the two actions;

(b)    the right to relief claimed in the actions are in respect of or arise out of the same transaction or series of transactions.

I also find that these bear sufficient importance in proportion to the rest of the subject-matters of the actions to justify the making of an order pursuant to Ord. 4 r. 9(1).

30.  I also find that there is no militating factor which is of sufficient weight to prevent the exercise of my discretion to grant an order thereunder.

31.  It is more appropriate to order the actions be tried together than to order their consolidation.  The former option does not require the filing of consolidated pleadings and/or discovery and the like.