TONG CHOI YAU v. KONG, SIN MAN (also known as SIN MAN KONG, KEN S KONG, KENNETH S KONG and SINMAN S KONG)

HCA 1056/2014

[2019] HKCFI 640

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1056 OF 2014

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J U D G M E N T

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Introduction

1.  The plaintiff claims against the defendant under an agreement dated 18 June 2008 between the plaintiff, Vicstar International Inc (“Vicstar”) and the defendant under which the defendant agreed to pay the sum of US$668,457.01 (“the Debt”) by instalments (“the Agreement”).  According to the terms of the Agreement, Vicstar acknowledged that it owed the Debt to the plaintiff.  The plaintiff assigned the Debt to the defendant, and in return the defendant agreed to pay the plaintiff a sum equivalent to the Debtby monthly instalments from date of the Agreement to end of February 2010. The plaintiff says that the defendant has not paid the instalments.

2.  The defendant denies that he was a party to the Agreement and denies that he had ever executed the Agreement.  He further denies the existence of the Debt as between Vicstar and the plaintiff, that he had never received any notice of the assignment of the Debt whether in his own capacity or on behalf of Vicstar.

3.  This is the trial of the action between the plaintiff and the defendant.  At the heart of the dispute between the parties is whether the defendant actually executed the Agreement.  The background as to the Debt and the relationship between the plaintiff and the defendant and indeed Vicstar is also in dispute.  The background is relevant to the main issue insofar as it sheds light on the inherent probabilities.  Both sides’ versions are diametrically opposed.  There is little common ground between the parties.  It is ultimately a contest of credibility.

The Agreement

4.  The Agreement is expressed to be between the plaintiff defined as “Creditor”, Vicstar defined as “Debtor” and the defendant defined as “the First Assignee”.  (Although there is mention of a “Second Assignee”,such party is neither defined nor actually expressed to be a party.)

5.  The Agreement is a short agreement comprising of just three pages, of which the third page is the execution page.  Although short, it is expressed in formal language of the sort which would normally be associated with the involvement of lawyers in the drafting.  The substantive parts of which are succinctly set out in four paragraphs:

“ 2. Acknowledgement of existing debt

Whereas the Debtor hereby acknowledges that it is indebted to Creditor for the sum of USD668,457.01 in respect of the loan advanced (‘the Debt’).

3. Assignment of the USD668,457.01 of the Debt to the First Assignee

Creditor assigns to the First Assignee absolutely all the rights, claims, titles and interest etc whatsoever Creditor has againstthe Debtor in respect of the USD668,457.01 of the Debt with the following terms and conditions:

The First Assignee shall pay the sum of USD668,457.01 to the Creditor by monthly installments until the end of February 2010

4. Acknowledgment of assignment of Debt

The Debtor hereby acknowledges that due notice has been given for the assignments of the Debt by Creditor to the First and Second Assignees as set out above by signing this Agreement.”

6.  On the execution page, the plaintiff signs as Creditor, the defendant is expressed to sign firstly as director on behalf of Vicstar, and also on his own behalf.  There is expressed to be a witness who also appears to have signed as witness, one Chan Lai Man.

The plaintiff’s case

7.  The plaintiff owned and operated a garment manufacturing company called Daily Fine Industrial Limited (“Daily Fine”).  Vicstar was first introduced by a middleman company called Paway International Limited (“Paway”) to do business with Daily Fine in 2004.  The person in charge of Paway was Mr Cheng Fai Wah (“Cheng”).  Cheng introduced the defendant to the plaintiff as being the owner of Vicstar.

8.  Vicstar would order goods from Daily Fine, with Paway acting as a middleman which would liaise concerning the details of the orders.

9.  Business initially was smooth, but from around June 2006, Vicstar started to delay in its payment for goods ordered from Daily Fine.  By July 2007, Vicstar was indebted to Daily Fine in the sum of US$742,098.01.  Daily Fine refused to continue trading with Vicstar in view of the sums outstanding.

10.  The amount outstanding in favour of Daily Fine was reduced by two payments, one in December 2007 in the sum of US$50,000 and another in February 2008 in the sum of HK$200,000, leaving a sum of US$668,457.01 still outstanding.  In view of the partial payments, the defendant requested the plaintiff to let Daily Fine continue to trade with Vicstar.  However, the plaintiff refused to continue Daily Fine’s trade with Vicstar in view of the substantial sum still outstanding. 

11.  The plaintiff then heard that Vicstar was in great financial difficulties as other suppliers to Vicstar were not being paid and also refused to trade with Vicstar.

12.  In view of this information, the plaintiff contacted the defendantrequesting the defendant make himself personally liable for Vicstar’s debts. The plaintiff offered in return to cause Daily Fine to resume supplying goods to Vicstar.  The defendant accepted this proposal.

13.  As a result, the plaintiff instructed solicitors to prepare the necessary documentation and the Agreement came into being.  It was signed by the defendant while the administrative officer of Daily Fine Miss Chan Lai Man (“Chan”) was standing in the next room which was separated by a glass partition.  The defendant also provided his Hong KongIdentity Card which was inspected by the plaintiff.  After both the plaintiff and the defendant signed, Chan was asked to sign on the Agreement as witness.

14.  Despite the Agreement, Vicstar did not place any further orders with Daily Fine.  The plaintiff attributed this to Vicstar’s poor financial condition.

15.  In order to explain how it came to be that Vicstar’s debt to DailyFine became Vicstar’s debt to the plaintiff (as described in the Agreement),the plaintiff said that in order for Daily Fine to keep doing business with Vicstar, the plaintiff would have to personally support Daily Fine financially. The plaintiff was reluctant to do so, but agreed on condition that his [extra]financial input was guaranteed by Vicstar.  In return, he promised that his monetary input [into Daily Fine] would be used to settle the debt owed by Vicstar to Daily Fine.  Thus came about the debt between Vicstar and the plaintiff in substitution of Daily Fine.

16.  The objective of the defendant making himself personally liable for Vicstar’s debts was achieved by assigning to the defendant the debt owed by Vicstar, and the defendant promising to pay the plaintiff by monthly instalments.

17.  In the end, the monthly instalments did not materialize, hence he commenced the present action.

The defendant’s case

18.  The defendant’s case is different from that of the plaintiff’s in nearly all respects.  The defendant was and is in no way the “owner” of Vicstar.  He was not even a director or shareholder of Vicstar.  He had never been introduced or introduced himself as the boss/owner of Vicstar.

19.  He himself was employed by a well known leisure wear company as a consultant involved in the sourcing of garments from manufacturers based in Hong Kong and the Mainland.

20.  He was asked by his cousin Raymond Kong, director of Vicstar, to help investigate quality problems with garments which were sourced by Vicstar through Paway.  Vicstar supplied garments under the label of “Z Brand” to various department stores in the USA.  They were receiving complaints and had many goods rejected for quality problems.  Raymond Kong who knew that the defendant travelled often to Hong Kong and the Mainland and was very familiar with the garment business, asked the defendant to help Vicstar investigate and find the cause of the problems.

21.  The defendant then met with Vicstar’s suppliers through the introduction of Cheng.  One of the 6 – 7 suppliers he met with was Daily Fine in the person of the plaintiff.  He gathered the information from all the suppliers and then reported back to Raymond Kong.

22.  Prior to this exercise, he had no connection at all with the plaintiff.  He was neither an employee of Paway or Vicstar.  He was not paid to do this investigation which he did simply to help Raymond Kong.

23.  He had never signed the Agreement.  He seldom had contact with the plaintiff.  He did not have any private deals with the plaintiff, nor did he conclude any deals with the plaintiff representing any company.  The plaintiff was an ordinary friend/acquaintance only. 

Consideration of the issues

24.  A number of issues were raised by the parties, including whether the defendant was authorized by Vicstar to acknowledge indebtedness, whether Vicstar had acknowledged the assignment of debt,whether Vicstar owed Daily Fine the Debt, whether express notice in writingof an absolute assignment is required to be given pursuant to section 9 of theLaw Amendment and Reform (Consolidation) Ordinance (“LARCO”), etc.

25.  I do not intend to deal with all of the issues identified.  The issue on which this case is to be decided is whether the defendant executed the Agreement or not. If he did not sign the Agreement, he would not be bound.  There is no allegation of any other agreement except the signed Agreement.

26.  If he did sign the Agreement, he would be bound to pay US$668,457.01 to the plaintiff by monthly instalments over the next one and a half years.  He having signed on behalf of Vicstar, he would not be in position to say that he was not authorized by Vicstar to sign and so he received no consideration.  Similarly, he having acknowledged on behalf of Vicstar the Debt, he could not now challenge the same.  Whether the plaintiff settled the Debt owed by Vicstar to Daily Fine is a matter between the plaintiff and Daily Fine and does not affect the defendant’s obligation under the Agreement.

27.  In considering this primary issue, I am guided by the inherentprobabilities of the case.  There is a lack of contemporaneous documentation to assist in my consideration.  However, this lack of documentation itself is a matter which I take into account.

28.  The burden of proof is on the plaintiff.  The standard of proof is on the balance of probabilities.  I have been referred by the plaintiff’s counsel to the case of Nina Kung v Wang Din Shin (2005) 8 HKCFAR 387at [180] to [185], namely that in weighing up and assessing the probabilities in relation to forgery, the court must bear in mind the seriousness of the misconduct alleged, recognizing that it carries an inherent degree of improbability, and that where the court is invited to reach a conclusion of forgery as an inference to be drawn from circumstantial evidence, such inference must be grounded in the primary facts.

29.  These principles are not in doubt.  However, the application of those principles and how those principles came to be referred to by the Court of Final Appeal must be borne in mind.  The context under which those principles came about was where there was a challenge to the authenticity of a will, based not on direct evidence, but on circumstantial evidence with forensic experts in handwriting playing a major role.  However, the execution of the will was, on the other hand, proved by the direct evidence of an attesting witness.  It was in those circumstances that the Court of Final Appeal made the comments referred to.

30.  In Nina Kung, the person who executed the will was not available to give evidence.  This is to be contrasted with the present case,where it is a contest of the direct evidence between the plaintiff on the one hand and the defendant on the other, as to whether the defendant executed the Agreement.  In other words, it is a “simple” matter of who is the more credible, rather than whether there is sufficient evidence to displace the inherent improbability of forgery.

31.  Having considered the evidence, I am not satisfied that the plaintiff has proved his case to the requisite standard.  In coming to this conclusion, I rely primarily on the inherent probabilities of the case.

32.  On the plaintiff’s case, the Agreement arose because Vicstar owed Daily Fine over HK$5 million for unpaid invoices, and refused to trade anymore with Vicstar.  The plaintiff also heard that Vicstar was in financial difficulties and other suppliers also did not want to trade with Vicstar.  The Agreement was a way to secure the indebtedness, to make sure that the defendant would make himself personally liable to pay, in exchange for which Daily Fine would resume business with Vicstar.

33.  However, this purpose could be achieved by the defendant simply guaranteeing Vicstar’s debt.  There is simply no reason for such aconvoluted arrangement of Vicstar acknowledging that it owed the plaintiffthe Debt (instead of Daily Fine), the plaintiff then assigning the debt to thedefendant, and then defendant agreeing to pay the plaintiff.  The Debt was actually owed by Vicstar to Daily Fine, so the “acknowledgment” was something of a fiction at the time.  There is also no need for the plaintiff (or Daily Fine) to assign the Debt to the defendant.  The Agreement also does not address the one important feature which the plaintiff alleges was the reason why the defendant would agree to such an arrangement, namely the resumption of trading.

34.  The purported explanation by the plaintiff that this was all left to the lawyers who decided on this arrangement does not ring true.  It is difficult to imagine lawyers drafting a complicated agreement when a simple guarantee would suffice.

35.  Furthermore, the reliance on lawyers gives rise to its own evidential problems for the plaintiff.  In answer to interrogatories administered on behalf of the defendant regarding the identity of the lawyerwho was instructed to draft the Agreement, the plaintiff provided the name of a solicitors’ firm and the surname of the person who the plaintiff gave instructions to.  The defendant’s solicitors then wrote to the named solicitors’ firm requesting confirmation from them of the plaintiff’s version. That solicitors’ firm replied that after checking their record, they had not acted for any party to the agreement and had not drafted the agreement.

36.  When the plaintiff was questioned on this issue, he said that itwas his administrative assistant Amy Chan (the same person who allegedly witnessed the execution of the Agreement) who contacted the solicitors.  He further said that he did not decide whether or not to call the person from the solicitors’ firm, or the counsel who had purportedly drafted the Agreement as his witnesses, saying that he provided all the information to his present lawyers and it was not his decision whether to call a particular witness or not.

37.  I find this hard to accept.  The question of the execution of the Agreement was front and center in this case.  It would have been obvious to anyone that any evidence tending to confirm the execution of the Agreement by the defendant would be highly relevant.  Its relevance would be even greater once the solicitors’ firm had denied any involvement in drafting the Agreement, contrary to the plaintiff’s version.

38.  There is also no evidence whatsoever as to why the plaintiff would be satisfied with the defendant’s personal obligation to pay the Debt by instalments at a time when it seems very little was known about the defendant and more importantly his ability to pay.  Given that Vicstar was in financial difficulties, the defendant (who the plaintiff understood to be the owner of Vicstar) would be equally in financial difficulties. If Daily Fine were not willing to trade with Vicstar because of Vicstar’s financial difficulties, why would Daily Fine be willing to trade with Vicstar simply because the person who claimed to be Vicstar’s owner agreed to pay the Debt?

39.  The plaintiff’s version also does not make sense from the defendant’s point of view.  Assuming that the plaintiff’s version were true, the defendant was Vicstar’s owner.  Vicstar was in financial difficulties,owing Daily Fine (amongst others) large sums of money.  The defendant,however, was not personally liable.  Why would the defendant make himself personally liable just on a promise—which was not reduced to a contractual term—that Daily Fine would resume trading with Vicstar?

40.  The issue regarding the indebtedness of Vicstar to the plaintiff instead of to Daily Fine is also problematical.  This was first identified in the Amended Defence, where the defendant put in issue the consideration for the Agreement, contending that the Debt was between Daily Fine and Vicstar, and not between the plaintiff and Vicstar.  The plaintiff’s case, which was set out in the Amended Reply, was that the plaintiff has personally settled the Debt on behalf of Vicstar, so Vicstar owed the Debt to the plaintiff.

41.  In the plaintiff’s supplemental witness statement, it is not entirely clear how the Debt was personally settled, save that the plaintiff said that he had over a period of time settled the Debt. 

42.  The matter was elaborated in the plaintiff’s testimony that in fact, he paid in batches, paying Daily Fine’s suppliers instead of paying the money directly to Daily Fine, which was not the impression that the pleadings or indeed the witness statements gave.

43.  This issue of payment had already been flagged up in application for discovery of the payments.  I do not intend to go to the details of those applications and the plaintiff’s response.  Suffice to say that the plaintiff was unable to produce any evidence of payments, whether to Daily Fine, or to Daily Fine’s suppliers.

44.  The plaintiff’s explanation for this failure was that Daily Fine had been wound up, and all evidence of payments had been given to the liquidators of Daily Fine and so were not in the custody control or power of the plaintiff.  However, no explanation has been given as to whether the liquidators had been asked for copies, and no explanation had been given for the absence of those copies despite an assertion that the bank from which the payments were made had been asked for copies of those documents.

45.  All in all, I do not find the plaintiff’s version convincing.  The defendant’s version, on the other hand is not intrinsically incredible.

46.  In coming to this conclusion, I have not lost sight of the fact that the defendant’s case at trial bears little resemblance to his pleaded case, in that in the Amended Defence, the defendant pleaded that his involvement with the plaintiff was due to a specific Intended Sale and Purchase of garment products which had fallen through.  However, a similar criticism could be levelled in respect of the plaintiff’s evidence regarding how he made payment to Daily Fine.  In the Amended Reply this was said to be by the plaintiff in his personal capacity settling the Debtowed by the Vicstar to Daily Fine.  At trial, this became the plaintiff paying Daily Fine’s suppliers over a half-year period.

47.  It can be said that the evidence in the case, like in most trials, is not perfectly satisfactory.  However, I do find on the balance of probabilities that the plaintiff has not sufficiently proved his case.

48.  For completeness’ sake, I will deal very shortly with one particular point of law raised by the defendant, namely that section 9 of LARCO requires express notice in writing to the debtor in order for assignments of debt to be effectual.  I am of the view that section 9 of LARCO provides that express notice will make an assignment effectual,but lack of express notice does not mean an assignment will be ineffectual. In other words, it is a sufficient, although not a necessary condition.

Conclusion

49.  I dismiss the plaintiff’s claim and make an order nisi that costs of the action are to the defendant, to be taxed if not agreed.  Such order shall become absolute unless application is made to vary the same within 14 days from handing down of this judgment.

50.  Finally, I would like to thank counsel for their assistance, and render my apologies for the time taken in delivering this judgment.

HCA 1056/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1056 OF 2014

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R U L I N G

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1.  This is my ruling on the plaintiff’s application by way of an inter partes summons for (1) to have leave to serve the statement of Chan Lai-man as to fact as per the copy annexed to the summons within 3 days from the date of the order; and (2) for the plaintiff to have leave to file his second supplemental list of documents as per copy annexed; time for service of summons be abridged costs of the application be in the cause.

2.  The application is made very late in the day.  It is not made at the eleventh hour; it is made well past the twelfth hour.  The trial has already commenced.  The plaintiff is in the box being cross-examined.

3.  Since there are two aspects to the summons, I shall deal firstly with the application for leave to serve a witness statement late.  Although the wording of the application is for leave to serve a witness statement, the real objective is to have leave to call the witness who has not hitherto been the subject of any witness statement filed pursuant to directions of the court as a witness of fact in the trial.

4.  The intended witness, Miss Chan Lai-man, is a witness who apparently witnessed the signing of the alleged agreement, which is the central issue in this case.  The plaintiff says that the alleged agreement was executed by the plaintiff and the defendant.  The defendant says that he never signed such a document.  So the signature of or the execution of the document is central in this case.

5.  Miss Chan is the person who appears, on the face of the alleged agreement, and that is at the execution page of the agreement, to have witnessed the execution of the agreement and she is identified by her full name.  So the relevance of the intended witness’ evidence cannot be in doubt. 

6.  The central issue is also not in doubt, since the defence has from a very early stage put into issue the authenticity of the alleged agreement. 

7.  Paragraph 5 of the amended defence (not amended in this aspect) says that:

“Upon perusal of the agreement, the defendant found the agreement was allegedly signed by the defendant both in his own personal capacity and in his capacity as director of the company for and on behalf of the company as the so-called debtor. The defendant avers that he was never a director or shareholder and defendant further avers that he had never signed the agreement in any of the said capacities and his signature in the agreement had been forged.”

8.  So the relevance of the intended witness’ evidence cannot be doubted.

9.  Mr Poon admits the lateness of the application, but says that the plaintiff is willing to pay all reasonable costs caused by this late application.  Mr Poon says no prejudice is caused to the defendant. 

10.  Mr Poon, however, is unable to provide any explanation for the lateness of this application, why a witness who would be a central figure in the trial or should have been one of the major witnesses in such a trial is sought to be called as a witness only on the afternoon of the first day of the trial.

11.  This, despite the order as early as 12 October 2015, over two years ago, that the parties do file and exchange signed witness statements within 42 days of the date of the order and also an order on 17 March 2016  whereby the parties were directed to obtain counsel’s advice on the whole matter, including reliance on expert evidence, all interlocutory applications, including applications for amendment of pleadings, and/or leave to adduce supplemental witness statements shall be taken out within seven days of that order.  This was on 17 March 2016, a year and a half ago.

12.  Mr Poon says no prejudice is caused and no prejudice that cannot be remedied by costs and so the application should be acceded to.

13.  Mr Lo for the defendant objects, saying that his client is prejudiced by the matter being further delayed and he might wish to call evidence in response to this late witness, who is ill because of prostate cancer and may not be able to give evidence in the end.  In any event, the further delay of this matter is an element that cannot be remedied by costs.

14.  I consider that the starting position is that set out in Order 38, rule 2A, paragraph (1):

“The powers of the court shall be exercised for the purpose of disposing fairly and expeditiously of the cause or matter before it, and saving costs, having regard to all circumstances of the case, including the extent to which the facts are in dispute or have been admitted; the extent to which the issues of fact are defined by pleadings; and the extent to which information has been or is likely to be provided by further and better particulars, answers to interrogatories or otherwise.”

15.  And it says, paragraph (2):

“At the determination of a case management summons, in an action commenced by writ, the court shall direct every party to serve on the other parties, within such period as the court may specify and on such terms as the court may specify, written statements of the oral evidence which the party intends to adduce”.

16.  Commentary under this rule says that:

“The rule is designed to achieve: (1) the fair and expeditious disposal of proceedings and the savings of costs; (2) the elimination of any element of ‘surprise’ before or at the trial as to the witnesses each party intends to call at the trial or as to the substance of the evidence. The parties will no longer be able to spring or to be exposed to surprises as to the trial witnesses or their evidence, but will be required to ‘place their cards on the table’.”

17.  Although not specifically referred to by Mr Lo, paragraph 3 is also important:

“...the promotion of a fair settlement between the parties. With all or substantially all the factual evidence before them, subject to cross-examination, the parties will be able to make a more realistic appraisal of the strengths of weakness of their own and each other’s cases, which should contribute towards the fair and expeditious disposal of the proceedings by settlement or otherwise.”

18.  So, in this case, Mr Lo relies on this commentary, saying that this late witness statement would be taking them by surprise and would be against the spirit of Order 38, rule 2A.

19.  Another part of the rules which perhaps is also important is the case management timetable, which is Order 25 and specifically at Order 25, rule 1B, which at paragraph (3) says that:

“The court shall not grant an application under paragraph (2)...

Which is to vary a milestone date.

“...unless there are exceptional circumstances justifying the variation”.

And milestone dates includes the trial, and if I were to grant this application, it is inevitable that the trial would be delayed further than it already has been.

20.  Finally, what is important is the objectives under the CJR, which seems to have been overlooked by everyone. Order 1A, rule 1:

“...underlying objectives are

(a) to increase the cost-effectiveness of any practice or procedure to be followed in relation to procedings before the Court;

(b) to ensure that a case is dealt with as expeditiously as is reasonably practicable;

(c) to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings;

(d) to ensure fairness between the parties;

(e) to facilitate the settlement of disputes; and

(f) ensure that the resources of the court are distributed fairly.”

21.  And, in order to further the underlying objectives, there are case management powers under Order 1B, rule 1, and in the exercise of the case management powers I can, under 2(j), “exclude an issue from consideration” or “take any step to make any other order for the purpose of managing the case and furthering the underlying objectives set out in Order 1A”.

22.  This is effectively an application for extension of time and the commentary on extension of time under Order 1B is particularly apposite and the commentary in the White Book citing Fortune Asset Development v De Monsa Investments Limited is applicable in this case, where:

“Registrar Au-Yeung...”

(As she then was).

“...held that in exercising its power under Order 1B, rule 1(2)(a), the court will take into account all the circumstances including but not limited to the following matters:

1. What was the original time allowed; when has it expired?  The more the original time allowed, the more difficult it is to justify an extension.”

In the present case, as I have identified, the original direction was for witness statements to be filed and exchanged two years ago.  There was a further order a year and a half ago, requiring the parties to to make any other applications for supplemental witness statements. That was a year and a half ago.

“2. Was the original time laid down by consent or at the suggestion of the applicant?”

The timetable is the usual timetable under a case management summons.  Nothing unusual about the timetable.

“3. Why was the original time not adhered to?”

In this case, we have no explanation for that.

“4. When was the application for extension of time taken out? The greater the delay, the more difficult it is to obtain an extension.”

In this particular case, as I have mentioned, the application was taken out on the afternoon of the first day of trial.  The delay, if anything, is particularly egregious in this case.

“5. What realistically is the further time needed? An applicant should not just casually pick a multiple of seven days without regard to its adequacy.”

There is no further time required, but the time that has already lapsed is particularly great.

“6. Was there any de facto extension of time already enjoyed by the applicant, whether by way of consent, or in waiting for his time summons to be heard?”

This is not applicable.

“7. Will the extension of time sought have impact on any hearing date or milestone date?”

As I have mentioned, if I grant the application, this would inevitably have an impact on trial and that is a milestone date.

23.  In the circumstances of the case, in view in particular of the lack of any explanation or the lack of any exceptional circumstances which can be relied on by the plaintiff to justify this very late application, I dismiss paragraph 1 of the plaintiff’s summons.

24.  That leaves paragraph 2.  The explanation for the supplemental list is that the plaintiff did not know that these documents could be obtained because the plaintiff had not previously contacted Miss Chan.

25.  Now, of course, there is again no explanation why no earlier attempt had been made to contact Miss Chan, given her importance in these proceedings.  Nevertheless, under Order 24, which governs discovery and the commentary at paragraph 24/2/16 of the White Book, there is a “continuing obligation to give discovery”, so:

“The obligation is general, requires the disclosure of all relevant documents whenever they may come into a party’s possession.

Of course:

“This requirement is supported by the linked principle that a party must not seek to take his opponent by surprise and he must not, by withholding relevant documents, mislead the court...”

26.  So, prima facie, the plaintiff should file his second supplemental list of documents. 

27.  However, a distinction should be drawn between disclosure and use of the documents.  The mere fact of disclosure does not entitle the plaintiff to use or refer to those documents which have come about at a very late stage and which could have been identified and could have been brought to the attention of all the parties very much earlier. 

28.  The effect of that, of course, is that there must be disclosure, but I will not permit the documents to be relied on by the plaintiff.  If the defendant chooses to utilise those documents, I would be more disposed to allow the defence to utilise those documents, since the defence did not know of the existence of those documents until this afternoon.

29.  So, in the circumstances, the order that I make is that paragraph 1 of the summons is dismissed; paragraph 2, order in terms; time for service of the summons be abridged.

30.  Costs be to the defendant. 

HCA 1056/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1056 OF 2014

________________________

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D E C I S I O N

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The application

1.  The hearing is for the summons that is taken out by the Defendant (“D”) on 18 November 2016 for dismissal of the claim pursuant to the Unless Order of Master H. Au-Yeung dated 2 November 2016 (the “Unless Order”). This application is contested and the parties are legally represented.[1]

2.  Pursuant to the Unless Order, it was ordered that “Unless the Plaintiff do file and serve an affirmation by 4:00 p.m. on 16 November 2016 to affirm the documents set out in paragraph 1(i) to (v) of the Order dated 22 August 2016 made by Master Leong are no longer in the Plaintiff’s possession, custody and power, and when and the reason why they are no longer in his possession, custody and power, the Plaintiff’s action against the Defendant be dismissed with costs of this action to the Defendant, to be taxed if not agreed.”

The Unless Order

3.  Paragraph 1(i) to (v) of the Order dated 22 August 2016 are:

“ 1(i) Purchase Orders issued by Vicstar International Inc. to Daily Fine Industrial Ltd and invoices issued by Daily Fine to Vicstar to prove that Vicstar owed a debt to Daily Fine at the sum of USD668,457.01;

1(ii) Save as to the documents disclosed in the Plaintiff’s 1^st Supplemental List of Documents filed on 4 August 2016, i.e. copy of Report and Financial Statements of Daily Fine Industrial Limited for the year ended 30 November 2008 and copy of Report and Financial Statement of Daily Fine Industrial Ltd for the year ended 30 November 2009, other documentary evidence to prove the payment of money by P to Daily Fine to settle the Debt, including the bank transfer slips;

1(iii) Save as to the tri-parte agreement dated 18 June 2008 as pleaded in paragraph 1 of the Statement of Claim, other written agreement between the Plaintiff and Vicstar for the arrangement that the Plaintiff would in his own personal capacity settle the Debt;

1(iv) Name card of the Defendant; and

  1(v) Name card of the solicitors firm referred to in paragraph 11 of the Witness statement of Tong Choi Yau filed on 16 March 2016.”

4.  The above items correspond with those documents described as paragraph 3(a) to (e) of the 2^nd affirmation of P.[2]

Discussion

5.  It is not disputed that the Plaintiff (“P”) did file the affirmation on 15 November 2016 (the “2^nd Affirmation”), which was filed pursuant to the Unless Order made by Master H. Au-Yeung.

6.  However, the D opines that the affirmation filed was in breach of the Unless Order and took out this summons on 18 November 2016 for the present application.

7.  D submits that the present application turns on whether P has failed to comply with the Unless Order, or alternatively, even if the Unless Order is construed as a time order, whether the purported “compliance” by P was made in good faith or illusory.[3]

8.  D has raised a number of issues in support of this application.  Of those issues, I consider that only whether P has complied with the Unless Order is relevant.  As to the credibility of P and the relevancy of those documents, they are simply irrelevant to this application.

9.  An Unless Order is a draconian order with serious consequences to the party who is in breach of it.  In this case, if P is found to be in breach of the Unless Order, P’s action against D will have to be dismissed with costs of the action to D, to be taxed if not agreed.

10.  Therefore, the question falls squarely on whether P has complied with the substance of the Unless Order.  See paragraph 36 of Daimler AG v. Leiduck [2012] 3 HKLRD 119.  Alternatively, if P has not fully complied with the substance of the Unless Order, whether the sanction is proportionate to the breach.  See §57 of the Daimler case.

11.  The test is whether the sanction of the Unless Order would have taken effect automatically.  See §44 of the Daimler case.

12.  This morning, I have obtained useful assistance from D that the only issue in dispute is in respect of the whereabouts of the other documentary evidence to prove payment of the money by P to Daily Fine to settle the debt, including the bank transfer slips.  P has given the explanation that he had passed the documents over to the provisional liquidators in paragraph 11 of his 2^nd affirmation dated 14 November 2016.  But P admits that there has been no explanation as to whether he had attempted to obtain the same from the bank and when the bank will release those documents to him in order to comply with the Unless Order.

13.  The parties have been referred to the Court of Appeal of the Daimler case.  They have made no further submissions on it.

14.  In the circumstances, D asks this Court to make a further order to require P to make another affirmation in relation to enquiry with the bank, which P has raised no objection.  P asks for 49 days to make the enquiry.  D has no objection to this proposal.

15.  This Court will accede to D’s request.

16.  As to the costs of this application, D submits that since this Court will order P to make another affirmation on the other documents as requested by D, though D has failed to obtain an order in terms of the summons, the Court should award costs to D.  P submits that D has failed its application.  But P has not fully complied with the Unless Order.  He therefore submits that there should be no order as to costs.  D then counter proposes that the costs should be in the cause.  However, upon further discussion with the parties, this Court decides that the more appropriate order should be no order as to costs for this application, including the costs for today’s hearing.  So I order.

Costs and Order

17.  This Court shall now make an Order in terms as follows:

(a) D’s summons be dismissed;

(b) By consent, P shall, by 4:00 pm on 30 March 2017, make an affirmation as to what steps have been taken by him to obtain those “other documentary evidence to prove the payment of money by P to Daily Fine to settle the Debt, including the bank transfer slips” as provided in paragraph 1(ii) in paragraph 3 above, including enquiry from the bank or banks, failing which P’s claim shall be struck out with costs.

(c) The costs are as per paragraph 16 above.