HONG KONG SPACE SHUTTLE LTD v. WILLIS HONG KONG LTD AND ANOTHER

HCA 468/2013

[2018] HKCFI 552

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 468 OF 2013

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D E C I S I O N

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1.  This matter has come before me for paper decision or resolution today, 27 February 2018. It is in the form of an application for leave to appeal my decision of 17 October 2017 when I dismissed the 1^st defendant’s application by way of summons, taken out nine months earlier, for specific discovery of 21 classes of documents. A few days before the hearing before me the defendants had abandoned 15 of the classes of documents in respect of which they originally sought discovery. I was therefore concerned with 6 classes of documents. It is to be noted that the present application for leave is being advanced some four months after my ex tempore decision given immediately following the hearing. There is a transcript of that decision with exchanges in the course of it.

2.  The action itself was begun in 2013 with the Statement of Claim being served in June 2014.  The defence was served at the end of October 2014.  In view of the lapse of time and the fact that I have only a transcript of my decision of mid-October last year, it may be helpful to review the issues between the parties and any other relevant background.

The plaintiff’s claim

3.  The plaintiff was the co-organiser (with CSS Worldwide Ltd (“CSSW”)) of a proposed event to be known as “Space Shuttle 2007”.  It had two directors involved with the planning, Karen Loh (Loh Yuk Ying Karen) who was also a director of the other co-organiser and Sam Lam, who was the project manager for both organisers.

4.  The 1^st defendant was the firm of brokers tasked by the co-organiser of the plaintiff (CSSW) with advising on the appropriate insurance for the event and, of course, as to the possibility of obtaining the necessary insurance for the event.  The 1^st defendant appointed the 2^nd defendant (no doubt linked to it in some way) to act as a sub-broker in respect of any insurance sought.

5.  The key feature of the event was to be the exhibition of a Russian space shuttle named Buran.

6.  The 1^st defendant advised that CSSW should obtain event cancellation insurance before the exhibition commenced, if cancellation was necessary for some reason beyond CSSW’s control.  The policy was to provide reimbursement for loss in the event of necessary cancellation, postponement or rescheduling “due to any perils” other than those specifically excluded.

7.  The 1^st defendant confirmed that CSSW could obtain cancellation insurance to protect against losses including those due to non‑delivery of the exhibits.

8.  Another business, Mactus Far East, was party to a meeting between the 1^st defendant and Karen Loh, and also the beneficiary of the advice.  That advice included confirmation that the cancellation insurance would cover the failure of Mactus Far East to deliver the exhibits including the Buran (Russian space shuttle) being an event beyond the plaintiff’s control.

9.  As a consequence of this advice CSSW did not obtain a performance bond or bank guarantee in respect of the obligations of Mactus Far East to deliver the Buran.  A leasing agreement was entered into between CSSW and Mactus Far East whereby the latter was to supply all exhibits and components for the event including the Buran.

10.  The 1^st defendant confirmed that in the event of Mactus Far East being in breach of its obligations the insurer will have the right of subrogation to proceed against Mactus Far East after making any payment under the policy to CSSW and any other losing insured.

11.  The following day Karen Loh made it clear to the 1^st defendant that CSSW required insurance cover, if the event had to be cancelled for any reason, up to US$6 million being the cost of the event, and, if cancellation was due to failure on the part of Mactus Far East, for whatever reason, cover up to the amount of US$12 million being the loss of potential revenue.  Her e‑mail also included the possibility of Mactus sharing in the policy and needing extra policy cover to meet the provision for extra revenue loss.

12.  The 1^st defendant failed to respond to this or to inform CSSW of any reaction from the proposed underwriters on this aspect.  In due course the 2^nd defendant issued a cover note in which the limit of the indemnity under the policy was “USD 6 million and in all being Expenses”.

13.  The policy was subsequently amended on a number of occasions for a variety of reasons but not until July 2007 in respect of the limit of the indemnity.  CSSW remained the insured under the policy with the plaintiff as one of the specified payees or beneficiaries under the policy.

14.  However the plaintiff or CSSW pursued the matter of cancellation cover for the extra revenue loss, being quantified up to US$12 million in total and with effect from 25 July 2007.  “The change in the basis of coverage results in an increase in the Limit of Indemnity from USD 6 million and in all being Expenses, to USD 12 million in all being Gross Revenue.”  This was communicated to the plaintiff by the 1^st defendant on 2 August 2007.

15.  The defendant failed to inform the plaintiff that if Mactus Far East failed to deliver for any reason the Buran for the event in Hong Kong there was no insurance coverage and that the plaintiff should obtain alternative insurance or seek a performance bond or bank guarantee to cover that consequence.

16.  In due course it became apparent that Mactus Far East was experiencing difficulties in securing delivery of the Buran for the plaintiff’s event and the plaintiff endeavoured to obtain a bank guarantee or a performance bond but Mactus Far East could not provide either.

17.  Concerning a further meeting between the plaintiff (Karen Loh) and the 1^st defendant on 16 August 2007, the 1^st defendant confirmed that the Event Cancellation Policy would cover, inter alia, default by Mactus Far East in failing to deliver the Buran, provided the plaintiff had fulfilled its obligations under the policy.  Mactus would not be able to make any claim itself under the policy as a loss payee by reason of its own default.

18.  The 1^st defendant confirmed in an e‑mail this advice on 17 August 2007.  The plaintiff then ceased to require from Mactus Far East any bank guarantee or performance bond, or pursue the possibility of alternative event cancellation insurance to cover the risk of default by Mactus Far East.

19.  Mactus Far East failed to deliver the Buran. The event was postponed and eventually had to be cancelled.  The claim brought by the plaintiff under the policy was rejected by the underwriters who elected to avoid the Event Cancellation Policy ab initio. 

The crux of the allegations against the 1^st defendant

20.  These are easily identified from the factual exchanges between the parties identified by the documentation with specific reference to the e‑mails which passed between the parties’ representatives.  They are in essence negligence and breach of duty of care.

21.  The 1^st defendant’s failure consisted of:

 (1) representation that the policy would and did provide insurance cover for the failure of Mactus Far East to deliver the Buran for the event;

 (2) a failure to communicate to the plaintiff (or CSSW) the contents of an e‑mail communication of 2 April 2007 from HCC Speciality Underwriters (UK) Ltd representing the underwriters in which was stated, inter alia, “it cannot provide cover for non-performance for Mactus.”

 (3) a failure to investigate properly with the underwriters whether the policy would provide insurance cover for the failure of Mactus to deliver the Buran, or for the loss of revenue before the plaintiff had made any advance sales of tickets for the event; and

 (4) other failures which were repetitions of the principal shortcomings set out above.

22.  The quantification of the claim amounted to a net figure of HK$126,034,785 being largely lost revenue in one form or another.

The defence of the 1^st defendant

23.  In answer to the 25-page statement of claim the defence consisted of 21 pages, filed on 31 October 2014.

24.  It is a prolix document containing a large amount of irrelevant content and assertions, with a bald contention (at paragraph 3) that the Statement of Claim “fails to set out fully or adequately the case that the first defendant has to meet.”

25.  I do not find it necessary to review all the material pleaded in the defence or enumerate the many admissions as to facts. Essentially the pleading contains, at paragraph 50, its primary case that alleged losses were caused by the plaintiff’s own breaches of warranty or of conditions precedent or of breaches of the Event Cancellation Policy or of non-disclosures as identified in paragraph 46.

26.  The High Court action commenced by the plaintiff against specified underwriting consortia and two other defendants claiming indemnity under the Event Cancellation Policy features in both pleadings, the plaintiff giving credit for the amount it received under a confidential settlement, the sum of US$1,162,000, with each side bearing their own costs.  The plaintiff in this action against the 1^st defendant brokers also seeks to recover the costs of the settled action.

27.  It is not necessary, or relevant for me to consider the contending allegations in that settled action.

Discovery/disclosure

28.  The plaintiff and the 1^st defendant gave substantial discovery in December 2015.  On 20 March 2017 the 1^st defendant took out a summons for further discovery by the plaintiff which was initially returnable on 7 April 2017 before the Master.  This came before me on 17 October 2017.

29.  Initially the application was in respect of 21 classes of documents but this was reduced to 6 classes on the date of the hearing.  The skeleton argument submitted on behalf of the 1^st defendant at this hearing consisted of 34 pages, the first page of which at §3 clarified that the 1^st defendant sought an order for specific discovery only in respect of 6 categories being 1 – 4, 13 and 21.

30.  The plaintiff’s skeleton submissions in reply consisted of 17 pages.

31.  Before the hearing on 17 October I had read all the relevant papers and had regard to Ms Eleanor Yeung’s supplementary oral argument.  I did not call upon the plaintiff’s counsel Mr Charles Sussex SC, having concluded that there was no merit in the 1^st defendant’s application.  My decision was ex tempore but for the purposes of this application for leave to appeal against my decision, and in view of the lapse of time referred hitherto I will continue to give a fuller account of my original decision as well as reasons for my decision in this application.

The original categories pursued on 17 October 2017

32.  Although referred to as categories 1 to 4 inclusive they are related to documents concerning the plaintiff’s action against the underwriters (HCA 2611/2008) which was compromised with the brokers paying the sum of US$1,162,000 to the plaintiff, leaving each side to pay its own costs.  They cover the pleadings, witness statements and affidavits, lists of documents and the documents disclosed therein, all witness statements (this is mere repetition of part of category 1) and correspondence and documents relating to the compromise settlement reached with the underwriters.  In short the plaintiff asked for complete disclosure of all material in that action which was terminated by a confidential agreement between the parties to it.  It is difficult from the outset to see how the 1^st defendant could be entitled to such material unless both parties to the settlement agreed to suspend or set aside the mutual confidentiality clause.  It is quite impossible for the plaintiff to act unilaterally and, of course, for a court to act similarly.  Such agreements reached by parties at arm’s length, reinforced by mutual undertakings as to confidentiality, are to be honoured as such and not lightly to be set aside or opened up by a court unless there is an overwhelming interest of justice.  It will not be appropriate for such a decision to be made on an application for discovery.  At trial there may— and I stress the word may—be considerations which the trial judge could entertain but from this standpoint I would not give any grain of comfort in that regard to the 1^st defendant.

33.  The 1^st defendant’s argument proceeded along these lines: 

● The settlement with the brokers is not privileged. 

● The documents are relevant to the action against it. 

● There is in the public interest no justification for a claim of confidentiality. 

● The settlement sum may not only have been in respect of the dispute with the brokers, and it may not have been a reasonable sum so as to raise an argument that the credit or deduction pleaded in the Statement of Claim may not be adequate.

34.  I find the whole of this argument fallacious and in parts illogical. The action against the underwriters was based on the policy itself including the construction of the terms and the extent of the cover.  This is wholly different from the cause of action against the brokers which is premised upon negligence, misrepresentation and breach of duty of care.

35.  The plaintiff has unequivocally stated the amount of the settlement and that the 1^st defendant is to be given credit for it as it represents a portion of the loss suffered by the plaintiff consequent upon the cancellation of the event.  There is no basis for the 1^st defendant raising a suggestion that the settlement sum may not be adequate, or that it may have gone beyond the ambit of the dispute with the underwriters.  This is tantamount to ventilating the causation and settlement as to damages, two issues which concerned the compromised action against the underwriters.  There can beno justification for such a course.  The authorities cited in the 1^st defendant’s counsel’s skeleton argument are not apposite to the confidential agreement which terminated the action against the brokers.

36.  The plaintiff is under no obligation to seek from the brokers the latter’s agreement to disclose to the 1^st defendant any of the material it seeks.  The 1^st defendant is of course at liberty to approach the underwriters to that end, and if it deems it wise or appropriate to subpoena the representative of the underwriters to produce documents at trial or give evidence on that occasion.  The 1^st defendant would still have to satisfy the trial judge of the relevance of this course quite apart from any other consideration.  It is a misnomer to describe the action against the brokers as the “Underlying Action” to the one against the 1^st defendant.  It is, or was, a discrete action with its distinctive cause of action.

37.  As far as the plaintiff’s key witness, Karen Loh, is concerned, the 1^st defendant’s counsel will have the opportunity to cross-examine her fully at trial.  The trial judge will then have to decide, on the basis of relevance, what other statements in other proceedings which she has made, should be disclosed.  The same position applies to the affidavits.  The reference to “cherry-picking” is not appropriate.

38.  I gave the defendants’ argument on these four categories short- shrift.  It was not necessary to descend into particulars.  I have done so in this exercise simply to repeat what I took into account at the hearing having read the voluminous paper submissions.

39.  Category 13 is not strictly disclosure of documents. The 1^st defendant if so advised can proceed by way of interrogatories but it will have to lay a clear basis for relevance and its entitlement.  I recall that the plaintiff in its counsel’s argument raised the matter of the request being in effect an unauthorised interrogatory.  There is no valid argument that it is relevant or that the potential witness Karen Loh has custody or control of the e‑mail.  I do not consider that, in the light of Ms Loh’s statement in relation to this matter, that it can be properly pursued by the 1^st defendant.

40.  Finally, category 21 calls for copies of e‑mail threads for items already disclosed by the plaintiff.  The 1^st defendant had already excluded item 215.  I am satisfied that the plaintiff has already provided sufficient discovery/disclosure within the ambit of relevance (and power).  It seems to me overall that this has been “fishing” exercise with no apparent relevant justification and is well wide of the substance of the issues in this case.

41.  In my ex tempore decision and exchanges with counsel, I set out my decision regarding the remaining six contentious categories.

42.  The brevity of my expression is of concern to the 1^st defendant.  It has to be understood that after considering 51 pages of submissions and counter-submissions it is quite unnecessary to regurgitate every argument and counter-argument as a background to the decision in an interlocutory matter.  Such applications are not to be turned into a trial of the substantive issues or a wide-ranging forensic foray. 

43.  Having reviewed the material and arguments set out in this latest application, I am satisfied that there is no merit.  Leave to appeal is refused with costs.