XCHRX WELTIME HONG KONG LTD. v. COSMIC INSURANCE CORPORATION LTD.

HCCT 72/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS NO. 72 OF 2002

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J U D G M E N T

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1. This is an application for discovery of documents referred to in an exhibit to an affirmation filed on behalf of the Plaintiff in a pending O. 14 application which will be heard on 16 December 2002.

2. In this action, the Plaintiff sues the Defendant under a performance bond. The Plaintiff has obtained an interim arbitral award against the main contractor in a construction project in which the Plaintiff is the employer. The Plaintiff claims payment under the performance bond issued by the Defendant in respect of the liability of the main contractor towards the Plaintiff. The Plaintiff took out an O. 14 application.

3. It is the intended defence of the Defendant that the interim arbitral award is not binding on the Defendant and the Defendant is entitled to challenge the allegation that the main contractor is liable to the Plaintiff under the construction project. The exhibit referred to by me just now is indeed the interim arbitral award made by the arbitrator. The discovery sought relates to key documents relating to the underlying dispute between the employer and the main contractor which eventually resulted in the interim award in favour of the employer i.e. the Plaintiff.

4. Miss Chan on behalf of the Plaintiff opposes the application this morning. Her main point is that in the forthcoming O. 14 hearing, the only issue to be decided by the court is a legal one, namely whether the arbitral award is binding on the Defendant or put another way, whether the Defendant can go behind the arbitral award to deny the liability of the main contractor to the Plaintiff and thus the liability of the Defendant to pay up under the performance bond.

5. I agree this is an issue to be decided in the O. 14 application in the sense that the Defendant has to show an arguable case that it can go behind the arbitral award to challenge the alleged indebtedness of the main contractor to the Plaintiff.

6. However, Miss Chan is not in a position to concede that if that issue is decided by the judge hearing the O. 14 application in the Defendant's favour, i.e. that if the judge is of the view that arguably the Defendant can go behind the interim arbitral award to challenge the alleged indebtedness, the Defendant should be given leave to defend. I can understand Miss Chan's unwillingness to make that concession. However, without such a concession, in my judgment, the Defendant needs to go further in the forthcoming O. 14 application in order to get leave to defend. The Defendant needs to show that in the underlying dispute between the Plaintiff and the main contractor, the main contractor has an arguable defence to the claim of the Plaintiff.

7. Establishing that the Defendant is arguably not bound by the arbitral award will not be sufficient for the Defendant. This is because the Defendant would still need to demonstrate to the court, bearing in mind that this is an O. 14 application and the burden is on the Defendant to show an arguable defence, that in the underlying dispute between the Plaintiff and the main contractor, the main contractor has an arguable defence to the claim of the Plaintiff. Otherwise the Defendant may still be called upon to honour the performance bond.

8. For that reason, given the lack of any concession from the Plaintiff, the documents sought in the present application are, in my judgment, necessary for the Defendant to demonstrate, if they can, that the main contractor has an arguable defence in the underlying dispute with the Plaintiff, notwithstanding the interim arbitral award against the main contractor.

9. In other words, the documents are necessary to the Defendant in its defence of the O. 14 application. Having borne in mind the provision in O. 24 r. 13 relating to the circumstances under which the court may, in the exercise of its discretion, order discovery of documents, I am with Mr Hill, appearing for the Defendant in this application, and I am prepared to make an order in terms of paragraphs 1 and 2 of the Defendant's summons.

10. I should add that there appears to have been some delay between the time when the Defendant's solicitors first wrote to the Plaintiff's solicitors asking for discovery of the documents in question and the taking out of the present application, that delay being relevant (so Ms Chan argues) given the timetable laid down by the court relating to the filing of evidence in the O. 14 application. I have heard Mr Hill's explanation for the delay; I have no reason to doubt what he says. In any event given that the O. 14 application will only be heard on 16 December 2002, I do not think that the delay would result in any real prejudice to the parties relating to the conduct and defence of the O. 14 application.

11. So for all these reasons, as I have said, I have come to the view that the present application should be granted. I make an order in terms of paragraphs 1 and 2 of the summons with the exception that the period of 7 days in paragraph 1 be changed to 14 days.

12. As regards costs, having heard the parties' submissions, there is nothing to persuade me against applying the general principle that costs should follow the event. As the Defendant is successful in this opposed application, I see no reason why costs should not be awarded in favour of the Defendant against the Plaintiff. Costs of this application be to the Defendant in any event, to be taxed if not agreed.