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Civil Procedure — Discovery — Specific discovery — Relevance — Whether necessary for disposing fairly of petition — Privilege against self-incrimination
Mr Ivan Cheung instructed by Messrs Cham & Co for the petitioner. Mr C Y Li instructed by Messrs Fred Kan & Co for the 1st to 4th respondents.
Chu J DECISION[1] By summons dated 29 July 2009, the 1st to 4th respondents seek specific discovery against the petitioner for "[a] ll transaction details as contained in bank passbooks and/or bank records and/or bank statements" in three bank accounts maintained by the petitioner in her own name ("the three Bank Accounts") for the periods specified in the schedule to the summons. Despite the reference to transaction details, the respondents’ application, as I understand it, is primarily for the bank passbooks, statements or records of the three Bank Accounts for the period specified ("the Documents"). [2] Specifically, the respondents seek the following relief:
(1) An order under Order 24 rule 7 Rules of the High Court , Cap.4A for the making and filing by the petitioner of an affidavit stating whether she has or had in her possession, custody or power the Documents, and if they or any of them have or has been but are or is no longer in her possession, custody or power, when she parted with them and what has/ have become of the same.(2) An order for production of the Documents in her possession, custody or power.
[3] Of the three Bank Accounts concerned, the first two are a RMB fixed deposit account and a multi-currency savings account maintained with the Bank of China, Shenzhen and the third one is a RMB savings account maintained with Bank of China, Hong Kong. They are referred to by the parties as "Account 1", "Account 2" and "Account 3" respectively. [4] There is no dispute between the parties that the petitioner did in the past have possession, custody or power of the bankbooks or bank statements / records relating to the three Bank Accounts. There is also no dispute that it is within the power of the petitioner to obtain copies of the statements or records of the three Bank Accounts from the banks. [5] The main objections of the petitioner to the present application are twofold. First, it is said that the Documents are not relevant to the Petition and the discovery sought is not necessary for disposing fairly of the Petition or for saving costs. Second, it is said that she is entitled to withhold discovery on the ground of privilege against self-incrimination. Relevance [6] In deciding whether the Documents are relevant, it is necessary to consider what the issues on the Petition are and how, if at all, do the three Bank Accounts bear on the issues. [7] The present Petition is brought under section 168A of Companies Ordinance , Cap.32 on the ground that by reason of the 1st to 3rd respondents’ conduct, the affairs of the 4th respondent ("the Company") have been conducted in a manner unfairly prejudicial to the petitioner. The petitioner seeks an order that the respondents purchase her shareholding at a price to be determined. [8] The petitioner had since 1993 until her resignation been an employee of the Company. The 1st respondent is the managing director and majority shareholder of the Company. The 2nd respondent is the son of the 1st and 3rd respondents and a director of the Company. It is common ground that the 3rd respondent takes no active part in the management and operation of the Company. [9] As a result of two allotments in 2000 and 2007 and a transfer of shares from the 1st respondent in 2002, the petitioner holds 300,000 shares in the Company. The remaining shares in the Company are held by the 1st , 2nd and 3rd respondents in the proportion of 1,700,000 shares, 400,000 shares and 200,000 shares respectively. The petitioner was appointed a director in October 2000. Apart from her and the 1st and 2nd respondents, there is one other director, who is an employee of the Company. The petitioner resigned from her employment and directorship with effect from 28 February 2008. [10] In summary, the petitioner’s complaints in relation to the 1st to 3rd respondents as appeared by the Petition are the following:
(1) The 1st to 3rd respondents have charged their personal and living expenses as the expenses of the Company;(2) The 1st to 3rd respondents had through the Company acquired properties for their exclusive use;(3) The 1st to 3rd respondents had through the Company acquired luxury cars for their exclusive use; and(4) Since the petitioner left the Company, the respondents have, without justification, withheld declaration of dividends.
[11] The respondents’ case in opposition to the Petition is that:
(1) The 1st respondent had reimbursed or paid back the Company the personal expenses incurred by the 1st to 3rd respondents.(2) Of the properties acquired, two are used as directors’ quarters and the 1st and 2nd respondents have paid rent by way of deductions from their salaries. The third property in Thailand is not for the exclusive use of the 1st to 3rd respondents whereas the fourth property in Japan is an investment and has been used for the Company’s business.(3) The company cars are provided to the 1st and 2nd respondents for use in connection with the Company’s business.(4) There has been no agreement relating to declaration of dividends. The Company has good reasons for not declaring dividends.
[12] The 1st respondent, in his affirmations opposing the Petition, has also refuted the petitioner’s suggestion that she resigned from the Company because of the oppressive and unreasonable attitudes of the 1st and 2nd respondents. The 1st respondent says that the petitioner might have committed misdeeds against the Company and it is possible that she resigned for fear of being discovered. In this connection, the 1st respondent further says that Tricor Services Limited ("Tricor"), which was engaged by the Company after the petitioner tendered her resignation, had reported that the petitioner did not deliver up the bank documents and records of the three bank accounts in question and that some of the supporting vouchers for the Company’s accounts could not be located. [13] In respect of the three Bank Accounts, it is common ground that due to currency control in mainland China, they were opened in the petitioner’s name and had been used for the purpose of receiving payments from the Company’s customers in the mainland and for transferring the monies out to Hong Kong. According to the petitioner, Account 2 was used for receiving payments from the Company’s mainland customers. To reduce the balance of Account 2, some of the money received would be transferred to Account 1. When funds were transferred or taken to Hong Kong, they would be deposited in Account 3 for the future use of the Company. [14] When the petitioner handed over the Company’s accounts to Tricor upon her leaving the Company, a note prepared by Miss Winnie Chiu of Tricor was signed by the petitioner and Miss Chui. The note records the petitioner had indicated that: (1) The bankbook of Account 1 was kept by the petitioner; (2) When the bankbook of Account 2 was changed, the old bankbook (relating to transactions before 3 December 2007) was returned to Bank of China, Shenzhen; and (3) Account 3 was cancelled and the bankbook had been destroyed. In her 3rd affirmation opposing the present application, the petitioner states: "Shortly after I left [the Company] , I have not kept the bank saving passbook or statements [for the three Bank Accounts] ." [15] In his affirmation leading the present application, the 1st respondent justifies the discovery on the basis that the Documents are useful to prove whether the petitioner had misappropriated monies belonging to the Company and had mishandled the Company’s accounts. The relevance is said to be twofold. First, the Documents are relevant as to the reason for the petitioner’s resignation from the Company, whether it was the manner in which the respondents conducted the affairs of the Company or whether it was her fear that her misdeeds might be discovered. Second, the Documents are relevant to whether the Petition is an abuse of process, having regard to the petitioner’s misdeeds or breach of duties. [16] Mr Li who appears for the respondents summarises the relevance of the Documents as follows:
(1) The Documents will lead to a train of enquiry into the conduct of the petitioner. The conduct of the petitioner is relevant to: (a) what was the real reason for the petitioner’s resignation from the Company; and (b) whether any relief should be granted to the petitioner under section 168A.(2) The Documents are required to verify the exact income and expenses of the Company, which is relevant to the determination of the value of the shares of the Company.
I shall deal with these grounds in turns.[17] On the petitioner’s conduct, it is a matter raised by the respondents. Plainly from the evidence before the Court, the respondents have, since the petitioner’s departure from the Company, been actively examining the Company’s accounts and records with a view to establishing the accuracy of the company books and accounts. Despite that, Mr Li accepts that while the respondents are suspicious, they presently do not have a positive case of misconduct, let alone misappropriation of funds, against the petitioner. Mr Li has been careful to stress that the petitioner might have committed misdeeds against the Company. Indeed, as the petitioner points out, the audited reports of the Company (including the one after the petitioner’s departure) are all unqualified. [18] Much has been said about the unsatisfactory or suspicious explanations given by the petitioner for not handing over the bankbooks of the three Bank Accounts when she left the Company. The underlying suggestion is that she must have something to hide. I am however unable to agree that this alone is necessarily or probably indicative of the petitioner having mishandled or misappropriated funds of the Company. In my view, the submission that the Documents will lead to a train of inquiry into the petitioner’s conduct is on thin ground. On the contrary, it is more a case of the respondents hoping to see whether the Documents may reveal information or indication of misdeeds. It is in short in the nature of fishing for evidence. [19] That aside, the relevance of the petitioner’s conduct to the Petition is not apparent. In so far as the reason for the petitioner’s resignation is concerned, it is not an aspect of the petitioner’s case of unfairly prejudicial conduct against the 1st to 3rd respondents. It is only a subsidiary issue that has no direct bearing on the various conducts of the 1st to 3rd respondents that provide the grounds for the petitioner’s complaint and the Petition. Furthermore, it is the respondents’ own case that the petitioner possibly resigned for fear of her misdeeds being discovered. The burden is therefore on the respondents to make good the averment. [20] As for the question of whether the petitioner should be refused relief under section 168A because of her conduct, the relevant legal principles were stated by Kwan J (as she then was) in Chow Yat Tim v. Tang Hing Keung & Others , unreported, HCMP 418/2008 (20 June 2009), para.115 as follows:
"In a petition under section 168A, there is no independent or overriding requirement that it should be just and equitable to grant relief or that the petitioner should come to court with clean hands. The conduct of the petitioner may be material in that it may render the conduct on the other side not unfair even if prejudicial, or may affect the relief which the court thinks fit to grant in the event unfair prejudice is made out (In re London School of Electronics Ltd. [1986] Ch 211 at 222 B to C). In the latter situation, depending on the seriousness of the matter and the degree of its relevance, such conduct would be capable of leading a court to deny the petitioner any relief at all, even though the conditions for the exercise of the discretion in his favour under section 168A are otherwise satisfied. And if misconduct by the petitioner is relied on as a reason for exercising the court’s discretion under section 168A so as not to grant any relief, some of the cases on the clean hands doctrine may provide useful guidance by way of analogy (Richardson v. Blackmore [2006] BCC 276 at 289H to 290A, paras. 53 and 54)."
[21] In Mr Li’s submissions, the conduct of the parties is put into issue by the petitioner’s allegations that the respondents had through the Company acquired properties and luxury cars for their exclusive use. It is said that this is tantamount to alleging misappropriation of company assets by the respondents. Hence, if the petitioner had been using company funds for her own purposes, this would be by nature no different from what the respondents are alleged to have done. Mr Cheung for the petitioner says that this is a misreading of the petitioner’s case. I agree. What the petitioner complains of is that the 1st to 3rd respondents, by providing themselves with excessive remuneration packages on the one hand and withholding the declaration of dividend on the other hand, have acted unfairly and have prejudiced her interests as a shareholder of the Company. The petitioner has not made allegation that is in the nature of misappropriation of company assets against the respondents. [22] The fact is: in all the affirmations filed on the Petition, the respondents have not raised any concrete or substantive allegation of misappropriation of company funds or misconduct against the petitioner. All that the 1st respondent has said is that there is suspicion about the petitioner’s real reason for resignation and she might have committed some misdeeds against the Company. Critically, the 1st respondent has not said in any clear terms that the petitioner is not entitled to relief under section 168A by reason of her misconduct. The present situation is therefore far removed from those in Chow Yat Tim v. Tang Hing Keung & Others, supra, and In re London School of Electronics Ltd. [1986] Ch 211 . [23] As to the determination of the value of the shares, the relevance of the Documents is also premised on the suspicion that the petitioner might have committed some misdeeds or might have misappropriated funds of the Company. Deloitte Touche Tohmatsu had all along audited the Company’s accounts and none of the audited reports was qualified. There is thus no apparent need to verify the income and expenses of the Company. Further, the Petition has raised no issue on the accuracy of the accounts or audited reports of the Company. Therefore in the ultimate analysis, the discovery is mounted because the respondents entertain doubts as to the petitioner’s handling of the accounts of the Company and wish to confirm their suspicions about the petitioner’s conduct before she left the Company. [24] In any case, there is presently no indication that the question of the value of the shares will be dealt with together with the question of the petitioner’s entitlement to relief at the trial. I note that the parties’ lists of documents have not included documents relevant to the issue of the value of the shares. The respondents, for example, have not disclosed the Company’s accounts and audited reports. Considering that the Petition is brought on narrow grounds and does not involve complex allegations, it is not in the parties’ interests or conducive to saving costs to include the question of valuation at the trial. Discovery of the Documents, in so far as they are said to be relevant to the valuation of the shares, is best to be dealt with when the Court gives direction on the valuation of shares. [25] In the circumstances, the respondents have not demonstrated that the Documents are relevant to the cause of the Petition and/or that their discovery is necessary for disposing fairly of the Petition or for saving costs. The respondents’ application ought therefore to be refused. Privilege against self-incrimination [26] Given my conclusion on the issue of relevance, the issue of whether the petitioner is entitled to withhold discovery on the ground of privilege against self-incrimination does not arise for determination. I need therefore make brief observations on the arguments advanced. [27] The petitioner says in her affirmation that the respondents, in suggesting misappropriation of company funds, are in fact making an accusation of theft against her, therefore the rule against self-incrimination applies. I agree with Mr Li that this is misconceived, as the rule has no application where theft is involved: section 33 of Theft Ordinance , Cap. 210 ; and see Pheby v. Paie [2003] 2 HKC 328 paras.12 to 18. [28] In his submissions, Mr Cheung argues that the petitioner has reasonable ground to apprehend danger of being exposed to a charge of conspiracy to defraud because the 1st respondent’s allegation that she asked an employee of the Company (Metatron Lam) to open a bank account in mainland China to receive the Company’s monies in the Mainland and further directed him to transfer the funds to a stranger to the Company (Leung Chi Ming). [29] I do not agree the materials before he Court support a real risk of an exposure to the criminal charge of conspiracy to defraud. Among other matters, the transfer of funds that the 1st respondent refers to in his affirmation concerns transfer of funds from Metatron Lam’s Mainland account, and not from the three Bank Accounts in question. Neither the petitioner herself nor Mr Cheung has identified who is/are the co-conspirator(s), what is possibly the scope or subject matter of the conspiracy and how will the Documents bear or relate to Metatron Lam or Leung Chi Ming. Conclusion [30] For the reasons indicated above, the application for specific discovery is refused. The respondents’ summons is dismissed. There is no disagreement that the normal rule of costs follow event should apply. I therefore make an order that the respondents pay the petitioner the costs of the application, to be taxed if not agreed.
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