CHINA CONSTRUCTION REALTY LTD v. SINO BUSINESS SERVICES PROPRIETARY LTD AND OTHERS

HCA 1294/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1294 OF 2005

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D E C I S I O N

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Background:

1.  At the Case Management Conference in this matter the Plaintiff, (China Construction), has taken out two interlocutory summonses:

(a) for an order pursuant to O 24 r 7 and r 10 RHC, for specific discovery/inspection of certain documents set out in a schedule attached; and

(b)    for an order pursuant to O 26 r 5(3) & 6(1) that the 5^th Defendant, (Lucky Dragon), answer certain interrogatories, failing which Lucky Dragon’s defence be struck out, and judgment be entered against Lucky Dragon.

2.  To a large extent there has been an agreement and the focus of the dispute is narrow.

3.  The background circumstances to the proceedings are set out in a decision of Poon J dated 22 January 2009.  I adopt paragraphs 3-13 of that decision as accurately setting out those circumstances.  I will deal only with those matters which are in dispute.

The inspection summons:

4.  China Construction seeks discovery of certain documents which have been referred to, either in the Further and Better Particulars of the Amended Defence of Lucky Dragon, or in a witness statement, or two affirmations made by Peter Choi Kin Kuen, (Mr Choi), for Lucky Dragon.

5.  In respect of those documents which Lucky Dragon does not agree to produce, Mr Tsang says that Lucky Dragon will “try to obtain them from third parties”.

6.  Ms Tong correctly points out that pursuant to O 24 rr 10 & 11 the Court has jurisdiction to order inspection of documents referred to in pleadings, affidavits and witness statements, notwithstanding that they may not be in possession, custody or power of the party in question.  The importance of the partial order inspection is dealt with in Zida Technologies Ltd v Tiga Technologies Ltd & Others [2001] 3 HKLRD 698.  There, Deputy Judge McCoy SC summarised the matter in these terms:

“However, the rationale for the jurisdiction is relevant to the formulation of a principled approach to the exercise of the underlying discretion.  The thrust of the rule was emphasised by Lindley LJ in Quilter v Heatley (1883) LR 23 Ch D 42 at p.50, namely that the intention was to provide the other party with the same advantage, just as if the document had been fully set out.  In short, one party could not use or rely upon the probative value of the document, yet simultaneously deny the other party the same forensic advantage.” (original emphasis)

7.  The obligation is on the party objecting to inspection is, by O 24 r 10(2), obliged, within four days after service of a notice under O 24 r 10(1), to serve on the party giving notice stating which of the documents he objects to produce and on what grounds.  No such notice has been given.  Instead, Mr Tsang referred me to an unrelated paragraph of an affidavit filed by Mr Choi in which it is asserted that some of the financial records of a certain company had been destroyed.  That assertion falls a long way short of the requirements of the notice required under r 10(2).

8.  The documents will be crucial in the trial.  If they are as alleged they may go to establish the genuineness of Lucky Dragon’s assertions in its defence.  It would be quite unfair to allow the matter to go to trial and to permit Lucky Dragon to rely upon documents as a crucial part of its defence, without having to produce those documents.

9.  Inspection is accordingly ordered.

The interrogatories summons:

10.  Lucky Dragon has agreed to answer all of the interrogatories save the ones dealt with below.

11.  I heard argument on each of the questions that were resisted.

12.  An overriding factor in my consideration of these interrogatories is the nature of these proceedings.  Central to China Construction’s allegations is an assertion that there has been at worst collusion, and at best association between the 1^st to 4^th Defendants, and Lucky Dragon.  In these circumstances as Poon J held, interrogatories which might otherwise be objectionable as being directed at obtaining the names of witnesses that Lucky Dragon might call become unobjectionable as going to the issue of ascertaining whether or not there is collusion or association.  They go also to ascertaining whether or not the agreement relied upon by Lucky Dragon by which it says it made its acquisition bona fide, for value and without notice is a genuine agreement.

13.  My ruling is as follows:

Question 1:  In the context of this case this question, otherwise objectionable for the reasons contained in § 26/4/20 Hong Kong Civil Procedure 2009, is, for the reasons given in paragraph 12 above, proper and must be answered.

Question 5(2):    The issue being whether or not the agreement is genuine, and having regard to the very late disclosure of the involvement of Mr Choi, China Construction is entitled to know the exact date of issue of the bonus shares.  The statement made in the affidavit relied upon in objection refers only to the general period at which there was an agreement that Mr Choi should receive bonus shares, not the exact date upon which they were allegedly issued.  The question is proper and must be answered.

Question 8(2):    In the course of argument, Mr Tsang said that Lucky Dragon relied upon the agreement is being enforceable.  That statement being made in Court, there is no reason why Lucky Dragon should not affirmed that position by affidavit.  If Lucky Dragon asserts that the agreement is not enforceable it must state the grounds upon which it relies for that assertion.  The question is proper and must be answered.

Questions 10, 11 & 20:    The objection raised was that if Lucky Dragon cannot be required to ask for information from third parties, China Construction should not be able to ask either whether it is possible to obtain the information from third parties, or whether the information has been obtained.  The questions go again to the veracity of the allegation that Lucky Dragon has been excluded from the operation of the joint-venture.  They go also to Lucky Dragon’s bona fides and involvement and role in the project.  Answering these questions will save time and cost at trial.  The questions are proper and must be answered.

Question 23 (1): For the reasons set out in paragraph 12 above this question is proper and must be answered.

Question 26:   The assertion that this question has been answered in Mr Choi’s witness statement is not a satisfactory response.  The answer is ambiguous, and Lucky Dragon must clearly state its position in relation to the financing.  Lucky Dragon has purportedly taken on a liability in excess of RMB38 million, and its arrangements and ability to finance the project are directly relevant to the genuineness of the agreement.  The questions are proper and must be answered.

Question 34:  The question is not hypothetical as argued.  Mr Choi does not contend that Lucky Dragon possessed sufficient finance to complete the project without a partner, but it approached the Qingdao Company after the execution of the agreement by which time it had undertaken the liabilities.  In those circumstances it ought to explain prior to trial, in order to save time and cost, who the other investors were they intended to approach.  The question is proper and must be answered.

Question 40(2):  While it is arguable that the expression “at all” might extend to constitute a statement that Lucky Dragon has received no other benefit, the matter ought to be clarified so that it is beyond doubt.  The answer in paragraph 32 of Mr Choi’s witness statement refers only to the “sale proceeds”, and not to any other benefit that Lucky Dragon might have received in place of actual sale proceeds.  The question is proper and must be answered.

Question 44(2):  This question is relevant both in relation to the genuineness of the agreement, and with that, whether Lucky Dragon’s purported participation in the project is genuine or a sham, and to ascertain the real reason for the purported involvement of Li Ping Mei in the project.  The use of the expression “chaos” in Mr Choi’s affidavit is ambivalent and ought to be clarified.  The question is proper and must be answered.

Question 45:  The use of the expression “on the instructions of the Plaintiff” is, in the circumstances ambivalent.  Mr Tsang clarified the matter orally in argument by saying that Lucky Dragon acted on the instructions of Mr Chiu.  In those circumstances Lucky Dragon must answer the question.

Costs:

14.  Ms Tong sought costs forthwith.  This is the second occasion on which China Construction had to come to court on the question of discovery/question/interrogatories.  They have succeeded entirely.  It was only after the close of business two clear days before the hearing that Lucky Dragon conceded the substantial part of the requests contained in the two summonses.  No reason was offered why they did not respond earlier.  Costs of preparation had already been incurred.

15.  This is a plain case for an order for costs forthwith.

16.  There will accordingly be ordered in directions in terms of paragraph 15(1)-(8) of Ms Tong’s supplemental skeleton, save that the order for costs will be an order nisi that Lucky Dragon pay forthwith China Construction’s costs of an occasion by the Discovery Summons and Interrogatories Summons, including the costs of the hearing on 27 August 2009, to be taxed on the party and party basis if not agreed.