NICHOLAS TIMOTHY CORNFORTH HILL v. ALVAREZ & MARSAL ASIA LTD

cacv 165/2008

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 165 of 2008

(on appeal from HCA NO. 56 of 2007)

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BETWEEN

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J U D G M E N T

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Hon Rogers VP:

1.  This was an appeal by the defendant from an order made on 3 June 2008 by Deputy High Court Judge Gill whereby he ordered that the defendant should give discovery of various classes of documents identified in various paragraphs in the schedule of one of the summonses that were then before the judge.  There was also a cross-appeal by the plaintiff seeking orders for discovery in respect of the remaining paragraphs in that schedule.  At the conclusion of the hearing of this appeal judgment was reserved which we now give.

2.  These proceedings arise from the sale of a business, originally founded by Mr Hill, who will be referred to as the plaintiff.  The business was concerned with the provision of insolvency services and although it was primarily conducted in Hong Kong there were three subsidiaries which were in Malaysia, Thailand and Singapore.  The business which was originally conducted as a partnership came under the umbrella of a company namely RSM Nelson Wheeler Corporate Advisory Services Ltd.  The plaintiff’s case is, and there seems to be no dispute about this, that there were two agreements entered into both dated 24 June 2005 which may be referred to as the Asset Transfer Agreement and the LAIL Agreement.  There was then an agreement in September 2006 whereby the plaintiff was assigned all the rights and benefits under the Asset Transfer Agreement and the LAIL Agreement.  Those rights included not only the right to payment for what were termed the Fixed Assets and the Deposits Debt but also the loans that had been made to the overseas subsidiaries which were referred to as the Subsidiaries’ Loans Debt.  The full history of the matter and how the claim arose is set out in the first 32 paragraphs of the judgment below.  For the purposes of this judgment it is unnecessary to repeat them here.  The most important matter that appears to be at issue in this case was the meaning to be ascribed to the term “Net Book Value” in relation to the Subsidiaries’ Loans Debt and hence the amount to be paid by the defendant.

3.  The summons for further discovery which was heard by the judge below sought a further and better list of documents from the defendant relating to matters in question in the action by reference to documents which were referred to in the schedule to the summons.  That schedule contains an extensive list.  It starts in the following way:

“All documentation (including, but not limited to board minutes, board resolutions, internal e-mail / notes / memoranda / meeting notes / telephone notes / ledgers / schedules / management accounts / schedules / ledgers, document drafts and external e-mail / correspondence) passing internally within the Defendant, or passing between the Defendant and/or its related group companies (including its holding company) and/or their employees/officers and/or other third parties from 1 May 2005 to date relating to:-”

4.  The schedule to the plaintiff’s summons contains no less than 12 categories, one of which has 19 subcategories.  At the hearing of this appeal Mr Coleman SC, who appeared on behalf of the plaintiff, indicated that the plaintiff was not pursuing discovery in respect of 3 categories, namely 7, 8 and 12.

5.  The judge below considered the matter on a global basis.  It is fair to say that by far the greater part of the judgment was devoted to the question as to whether the plaintiff, as a director of the defendant, could in the present circumstances have access to all its books and records.  That matter was not in issue before this court.

6.  In respect of the matters arising from the summons for further and better discovery the judge referred to the factors which were necessary as a pre-requisite for the plaintiff to establish a case namely that there is in existence a specific document or class of documents, the party from whom discovery is sought has or has had the documents in his possession, custody or power and that the document or class of documents relates to a matter in question in the action and finally that the discovery must be necessary for disposal of the action or for saving costs.  The judge simply came to a decision without indicating why he ordered and, in the relevant cases, did not order discovery.  He said in respect of those categories where he refused discovery that the plaintiff had not made out a case that the documents satisfied the tests of engaging the court’s jurisdiction.  In respect of the other classes he considered that the documents did pass that test and simply stated that he exercised his discretion.

7.  This court was taken through the various classes of documents referred to in the numbered paragraphs of the schedule.  When considering those different classes it is important to have in mind the broad range of documents in the preamble of the schedule quoted above.  Quite simply, it can scarcely be argued that it has been shown that documents of the relevant nature exist in respect of the various categories.  Some might exist but for the purposes of specific discovery it is clear that the existence of all such documents in respect of all the categories has not been made out.

8.  The judge refused discovery in respect of classes 1, 2, 3, 7 and 10 of the schedule.  Of those, the documents in classes 7 and 12 are now irrelevant for the purposes of the present appeal.  The documents in class 1 relate to the plaintiff’s departure from RSM Nelson Wheeler Corporate Advisory Services Ltd and the second class relates to the plaintiff’s employment by and/or appointment as a director of the defendant.  I fail to see how either of these classes of documents is required to resolve the issues in this action.  It is fair to say that Mr Coleman did not dwell long on those 2 classes of documents and was content to pass quickly over them, referring to his skeleton argument, which, in reality, takes the matter no further.

9.  The next category, namely class 3, relates to the negotiations leading up to the execution of the 3 relevant agreements.  It was urged upon us that because the court has to construe the agreements in the light of the relevant background and matrix of facts, everything relating to and including the negotiations prior to the agreement should be disclosed.  In my view such an argument has to be considered with a great deal of care.  Evidence of pre-contract negotiations is still, as a general rule, inadmissible.  Mr Beresford, who appeared on behalf of the defendant, indicated that discovery had been given in respect of anything which could have been said to have been pertinent to show that there had been an agreed meaning attributed to any of the words or expressions in the agreements.  Other than that I fail to see how any of the documents relating to the negotiations would be relevant still less admissible in evidence.

10.  The fourth category specified in the schedule is, again, something which I consider wholly outside anything that can be required on discovery.  It relates to the Defendant’s interpretation of the 3 relevant agreements including documents relating to the defendant’s interpretation of 19 specified terms which were either referred to or, indeed, defined in the agreements themselves.  I do not see how it can be said that the defendant’s interpretation of anything in the agreements can be relevant.  What is relevant is the proper construction of the agreements.

11.  When properly considered the class of documents specified in the fifth category, namely the defendant’s implementation of the 3 agreements would amount, in effect, to discovery of nearly every document relating to the defendant’s business whether it had any relevance or not.  Without going any further it can be said that the documentation requested would include everything generated in carrying on the defendant’s business which includes the numerous cases listed in the schedule to the Asset Transfer Agreement.

12.  Paragraph 6 of the schedule specifies “The Plaintiff's requests for payment of the Subsidiaries Loans Debt and the Fixed Assets & Deposits Debt”.  Quite apart from the fact that the plaintiff’s requests would appear to be somewhat irrelevant and oppressively extensive, the plaintiff’s pursuit of these documents is seen to be, as with classes 4 and 5, because the defendant’s bona fides was said to be in issue.  As was pointed out by Mr Beresford, there is no pleading to such effect.

13.  The next classes of documents which are sought on this appeal relate to the accounts and other financial documentation of the defendant.  As Mr Beresford pointed out relevant book entries have already been disclosed.  If it can be shown that there is anything relevant relating to those entries then specific discovery may be sought.

14.  As with classes 8 and 9 of the agreement in particular, in respect of class 11 all that has been justified in the plaintiff’s evidence in support of the application for discovery were the accounts themselves.  The defendant has indicated that it is quite happy to provide the reports and audited financial statements for the year ended 31 December 2006 when they are ready, but they are not yet ready (hence they cannot be said to exist).  The defendant is happy to give the management accounts and audited financial statements of the overseas companies such as the defendant has.  In this regard it has to be pointed out that the Thai and Malaysian companies are not owned by the defendant.

15.  Whilst each of the various classes of documents which have been requested have been considered it can be said as a general observation that the request for documents and the order made in the court below was anything but specific.  This is all the more regrettable since this case is due to be heard next month.  The plaintiff’s solicitors had written a letter referring to many of these classes of documents as long ago as June 2007 but it was not until 10 December 2007 that the summons for discovery was issued.  The hearing took place in May 2008 and the judge issued his ruling on 3 June 2008.  In my view, the plaintiff has only himself to blame for leaving the matter so late and for not identifying any relevant document as opposed to making a broad request and seeking orders that would encompass virtually every document in the defendant’s office.

16.  Given the issues that have been referred to as arising in the action in the judgment below and as confirmed by the defendant’s counsel in the course of argument, in answer to a question from this court, with no demur from the plaintiff’s counsel, I do not consider that there is relevant documentation which the plaintiff has demonstrated is missing and necessary for a proper trial of this action.  In those circumstances I would allow the appeal and dismiss the cross-appeal with an order nisi of costs in favour of the defendant here and below.

Hon Le Pichon JA:

17.  I agree.