ANBEST ELECTRONIC LTD v. CGU INTERNATIONAL INSURANCE PLC

HCCL 82/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 82 OF 2000

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J U D G M E N T

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The applications

1. There are two interlocutory applications before the court, each taken out by the defendant insurer.

2. The first is an application for security for costs, pursuant to a summons dated 19 October 2006.

3. The second is an application for specific discovery, pursuant to a summons dated 3 November 2006.

4. This is the judgment upon these applications, which were ordered to be returnable at the same time.

The factual background

5. It may be useful briefly to outline the facts which have led to this litigation.

6. This action is of some age.

7. The writ was issued on 5 September 2000 by the plaintiff, Anbest, in an attempt to recover from the defendant marine insurers, CGU, the value of a cargo of electronic goods sold by Anbest to a Mid-East buyer, one First Star Electronics of Ajman, UAE.

8. The goods in question were shipped to the port of Khor Fakkan on board the vessel “Al Sabahia” under a bill of lading dated 24 December 1998.

9. The Consignee was named as Habib Bank (Sharjah Branch), and the Notify Party was First Star.

10. What apparently happened was that Anbest sold the documents to Commonwealth Finance Corporation (‘CFC’), and CFC in turn forwarded the documents to Habib Bank.

11. That which occurred thereafter will be the subject of factual determination at the trial.  It is the plaintiff’s case that delivery of the goods was obtained at destination by First Star, absent payment therefor, apparently by means of an original bill of lading obtained from Habib Bank.

12. It is presently unclear how situation this transpired.

13. One view of the facts is that Habib Bank endorsed and delivered to First Star an original bill of lading, thereby enabling the buyer to take delivery at Khor Fakkan.

14. As I understand the position, however, Habib Bank claim to have no knowledge of First Star and to have returned the documents to CFC, although I am told that the documents so returned comprised only two out of the full set of three original bills of lading.

15. It further appears that in the circumstances CFC, which originally had purchased the documents from Anbest, reversed this document sale, and repayment of the sum earlier received was made to CFC by Thakral Electronics Ltd (‘Thakral’) the parent of Anbest, to whom the funds originally had been paid by CFC.

16. In turn, this sequence of events caused legal proceedings to be commenced in Sharjah in May 1999 by CFC against Habib Bank, proceedings which also I am told were financed by Thakral.

17. On 14 December 2004 judgment was given in the courts of Sharjah in favour of Habib Bank.  It appears that the Sharjah court dismissed the claim mounted by CFC on the grounds that (i) the bill of lading used by First Star to obtain delivery of the goods had not come into the hands of the Habib Bank; and (ii) in any event CFC had suffered no loss as it had been reimbursed by Thakral/Anbest, which was not party to the Sharjah action.

18. There has been no appeal against this judgment.

Progress of the present action

19. The events in Sharjah, and in particular the failure of the CFC claim, have restimulated interest in the proceedings presently before this court, wherein Anbest pursues its claim for loss of its goods under the marine insurance policy which was issued on and dated 23 December 1998 pursuant to Open Cover No. HK-B1789.

20. Points of Claim accompanied the writ, and were dated 5 September 2000, the Points of Defence are dated 1 February 2001, with the Points of Reply dated 16 February 2001.

21. Usual directions were made by Order dated 2 May 2001, and the plaintiff’s List of Documents filed on 16 May 2001, with the defendant’s List served on the following day.

22. The plaintiff’s Supplemental List of Documents was served on 7 May 2002, and an Order for the filing and service of witness statements made by consent on 31 May 2002.

23. An Order for amendments to the pleadings and for further discovery was made on 17 June 2003, an Amended Points of Defence and Counterclaim being dated 11 August 2003, and an Amended Points of Reply and Defence to Counterclaim followed on 26 September 2003.

24. The Plaintiff’s Second Supplemental List was served on 31 October 2003, followed by the Defendant’s Supplemental List dated 6 November 2003.

25. The plaintiff took out its Notice to Proceed on 10 November 2004, and by Order dated 28 April 2005 further directions were made by the court in terms of pleading amendments/reamendments and further discovery, together with a direction for the filing and serving of witness statements.

26. Amended Points of Claim and Re-Amended Points of Reply and Defence to Counterclaim were filed on 4 May 2005, and Re-Amended Points of Defence and Amended Counterclaim were filed on 1 June 2005, with Points of Reply to the Re-Amended Defence to Counterclaim filed on the same date.

27. A Consent Order dated 28 July 2005 extended the time for filing and serving witness statements to 26 August 2005, and the Plaintiff’s Third Supplemental List of Documents was filed on 10 February 2006.

28. On 4 July 2006 a Consent Order required the parties to file and mutually exchange one expert report dealing with issues under Sharjah law by 14 July 2006, and on 23 October 2006 the court gave directions for the exchange of supplemental experts’ reports, and at the same time gave additional directions relating to the filing and service of the evidence in support of the two applications the subject of this judgment.

29. In support of the application for security for costs, Mr Simon Baker, the defendant’s solicitor, swore his Fourth Affidavit in these proceedings, dated 19 October 2006, which was followed, on 3 November 2006, by Mr Baker’s Fifth Affidavit in support of his client’s application for specific discovery.

30. In respective response thereto Mr Anil Daryanani, the plaintiff’s company secretary, swore his Fourth Affidavit dated 13 November 2006, and his Fifth Affidavit of the same date.

31. I pause to note that the earlier affidavit evidence in these respective sequences were deposed in relation to the plaintiff’s application for summary judgment and/or interim payment, and the defendant’s application for a stay of these Hong Kong proceedings pending final determination of the proceedings then ongoing in Sharjah.

32. Neither of these earlier applications were proceeded with by the parties.

Issues arising

33. There appear to be five distinct issues arising for decision in this case.

34. Mr Smith SC, appearing for the defendant, suggested that the principal issues with which the court would be concerned at trial encompassed (1) the terms of the sale of the goods from Anbest to First Star, and a correlative question of non-disclosure to the defendant insurer; (2) an issue relating to the assignment to CFC of Anbest’s interest in the electronic goods; (3) the issue of causation and the circumstances of the loss the subject of this claim; (4) the defendant’s allegation that the plaintiff is in breach of the Institute Cargo Clauses in failing to avert or minimize its alleged loss; and (5) the argument that the loss alleged occurred outside the scope or duration of the insurance cover, in short, that the loss took place after such cover had ceased.

35. Against this backdrop, I turn now to the particular applications the subject of this judgment.

(a)     Security for costs

36. On behalf of the defendant Mr Smith SC mounted this application upon the twin bases that Anbest, the plaintiff herein, is a nominal plaintiff (Order 23, rule 1(b)), alternatively that this application is made under section 357 of the Companies Ordinance, Cap 32.

37. Mr Smith accepted that in either case it was incumbent upon the defendant to demonstrate to the court to the required standard that there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if ordered to do so.

38. The amount of security sought by the defendant in this application is HK$3.567 million, which is supported by a skeleton bill of costs prepared by a costs draughtsman, and is predicated upon a 7 day trial, with at least 5 witnesses of fact and 4 experts being called.

39. Mr Smith noted that this application was supported by the Fourth Affidavit of Mr Baker.  He submitted that, for the detailed reasons outlined the present claim clearly was brought for the benefit of Thakral, the parent of Anbest,and thus that Anbest was a nominal plaintiff which did not have the means to pursue this litigation – even the costs of the Sharjah proceedings had been borne by Thakral, he noted.

40. He suggested that Anbest had no independent banking facilities (by which I assume he meant credit facilities), and he placed great emphasis on the fact that it appeared to be the standard situation that Thakral had supplied/sold the goods to Anbest at the same price as Anbest onsold to its buyers – in this instance First Star – and thus, he said, such figures as had been supplied by Mr Daryanani in the evidence filed on behalf of the plaintiff in terms of the high level of the plaintiff’s “annual turnover” was probative of very little, and potentially misleading (“meaningless and irrelevant”) given that there is nothing to indicate that the plaintiff makes any profit on its resale deals.

41. Nor, he said, had the plaintiff supplied any accounts, either audited accounts or management accounts, and thus there was nothing to support Mr Daryanani’s statement that the plaintiff had assets of at least HK$5 million : this was no more than a “bare assertion”, and should be disregarded.

42. Mr Smith further noted that if and in so far as the circumstances raise an inference that the plaintiff will be unable to pay its costs, this will at least call for the plaintiff to adduce evidence to the contrary – see, for example, Tufnell Investment v. Thosowin [1985] 2 HKC 14, at 16; and Dragages v. HK Chinese Insurance [1993] 1 HKC 617, at 620 – and plainly this had not occurred in this case.

43. He further contended that given that the plaintiff says that its parent company and the group to which it belongs have abundant assets, there is no risk of any security for costs order being said to stifle the claim, and that since Mr Daryanani opines that it is “inconceivable” that payment of any costs’ order against the plaintiff would not be satisfied, it was not easy to see why the plaintiff was reluctant to offer security.

44. Mr Smith maintained that the plaintiff was unlikely out of its own resources to be able to pay the costs of this litigation, that this was sufficient, and that accordingly the defendant had discharged the burden that was upon it in making this application under section 357, Cap 32 and under Order 23, rule 1(b).

Decision

45. This application for security for costs is dismissed.

46. On the ‘nominal plaintiff’ basis, I agree with Mr Sussex SC that this point is not well-founded, and that there is nothing to suggest that the plaintiff acted as other than principal in relation to the transactions the subject of this action, nor that the plaintiff is suing other than for itself; the fact that there is clearly a close relationship between the plaintiff and Thakral does not, in my judgment, get the defendant over this particular hurdle.

47. The real basis of this application is that relating to section 357 of the Companies Ordinance, Cap 32.

48. Once again, I consider that the defendant fails in its argument.

49. I have considered the circumstances put forward by the defendant in support of its contention, but at the end of the day I do not think that it has succeeded in demonstrating “by credible testimony” that there is “reason to believe the plaintiff company will be unable to pay the costs of the defendant if successful in its defence”.

50. The fact that in the transaction in question, (and arguably in other transactions also) that the plaintiff company had onsold to Anbest at the same cost of the goods that it had purchased from Thakral does not strike me as having the force attributed to the point by Mr Smith.

51. Whatever may be the commercial purpose of this manner of trading – and there is no need presently to speculate – I do not see that this fact in itself is indicative of an inability to pay costs, as now is suggested. 

52. The short point is that, as must be known to the defendant insurer, the plaintiff is part of a group of companies with substantial assets. 

53. As Mr Sussex pointed out, on the evidence the plaintiff is part of a group of companies with substantial net worth : its Hong Kong parent has a paid up capital of $303,594,956, and an annual turnover in the hundreds of millions of dollars, whilst that parent in turn is the wholly owned subsidiary of a publicly listed company in Singapore.

54. In this connection Mr Sussex suggested, and I agree, that this is not the sort of commercial profile wherein it may be thought that subsidiaries would be permitted to go to the wall on the basis of a potential bill of costs, even in the daunting context of Hong Kong litigation.

55. In the circumstances of this application I further disagree with Mr Smith’s contention that “the plaintiff will only have itself to blame” if it declines to adduce evidence of its audited or management accounts.  Whether or not this follows must depend upon whether the defendant has raised a sufficient case in this application for security – which in my view it has not – and absent the defendant raising the required inference the plaintiff certainly is not obliged to reveal information of this nature.  Nor do I agree that Mr Daryanani’s sworn statement that the plaintiff has assets of at least HK$5 million is an assertion that “should be disregarded”, as Mr Smith would have it.

56. Finally under the head of security for costs, it is difficult not to be struck by the timing of this application.

57. The defendant marine insurer is being pursued by its assured under a marine policy.  The case is unremarkable in itself, and the defences put forward may, or may not succeed.

58. However, the plain fact is that this is litigation of some age – the writ was issued in 2000 – and this action now has been proceeding for some 6 years.  Yet it is only at this stage, when the plaintiff wishes to set down for trial, that this application for security for costs has been mounted, and this despite the fact that the matters prayed in aid by the defendant in support of this application are most certainly not new revelations, but are likely to have been known to the plaintiff for a considerable period, if not indeed from the outset.

59. Viewed thus, even had the defendant succeed in discharging its burden (which in my view it has not) I should have been disinclined on this ground alone to have exercised the court’s discretion in favour of the defendant in this application. 

60. To mount such an application for security in the sum of in excess of $3.5 million at this very late stage, within the context of a not overly complex marine insurance claim, strikes me as opportunistic to say the least, if not obviously a tactical ploy.

61. For these reasons, therefore, this application must fail, and must be dismissed with costs to the plaintiff, such costs to be taxed if not agreed.

62. I so order.

(b)     Specific discovery

63. I turn now to the other application mounted by the defendant, that of specific discovery pursuant to Order 24, rule 7.

64. The defendant’s summons dated 3 November 2006 is supported by the Fifth Affidavit of Mr Baker, and is opposed by the Fourth and Fifth Affidavits of Mr Daryanani.

65. The schedule attached to the summons lists 16 categories of documents.  However, in respect of a number of the requests for specific discovery the plaintiff has confirmed that there are no further documents, and thus argument on this application has been confined to five classes of document only.  Argument duly has proceeded on this basis that these are the sole remaining ‘live’ issues, and thus thus it seems appropriate to frame this decision against this template, as outlined in Mr Smith’s skeleton argument.

66. I deal briefly with each of these categories.

(1)     Documents showing the cost to Thakral of the goods

67. A central tenet of Mr Smith’s submissions was that the goods the subject of this claim were sold ‘wholesale’ to Anbest by Thakral, its parent, that is, at the like price that Anbest had onsold to the defaulting buyer, First Star.

68. Mr Smith contends that in order to establish the value of the goods for the purpose of this insurance claim that clearly it is relevant to know what price Thakral paid for the goods.

69. I am unable to agree with this submission.

70. This is a claim under a marine insurance policy, and despite Mr Smith’s attempts to convince me to the contrary, I see no reason to depart from the usual principle that, save in exceptional cases, the value of the goods is that as stated in the relevant the commercial invoice representing the price to First Star.  I do not understand why the fact that apparently Anbest is onselling at the like cost as that at which it obtained the goods from its parent should make any difference.

71. Accordingly, this request is denied.  I would add that for the purpose of dealing with the present discovery request I do not need to reach any conclusion regarding the issue of whether this is a ‘valued policy’, within the meaning of this term within section 27(2) of the Marine Insurance Act, as Mr Sussex has suggested clearly is the case, although Mr Smith contends to the contrary.

(2)     Book entries

72. The next class of documents sought are the corporate ‘book entries’ relevant to the question whether any payment has been received from First Star for these goods, or whether any payment has been made therefor by Anbest to Thakral.

73. Mr Daryanani addresses this aspect at paragraph 20 of his Fourth Affidavit sworn on 13 November 2006, wherein he questions the relevance of such documents, and asserts that “The fact of the matter is that First Star has not paid the Plaintiff having stolen the goods, and the Plaintiff has not paid Thakral”, a loss which he maintains falls under the all risks policy issued by the defendant.

74. This is the Commercial Court, which generally is not attracted to, nor greatly interested in, nice questions of discovery, of which this is one.  It is unclear how the manner of entry of this transaction within the company’s books has much relevance to the issue whether this loss, as asserted, falls within the risk underwritten by this marine policy, although this perhaps is a borderline area.

75. No allegation of fraud is asserted by the defendant insurer in terms of the making of this claim by Anbest – it is currently not suggested, I think, that in fact Anbest has been paid for these goods – and I am attracted by the argument that discovery is not to be made in aid of credibility alone, which is what in substance I consider this request represents.  Accordingly, I reject this also.

(3)     Documents relating to the Sharjah proceedings

76. Then next category of documents which is sought by the defendant upon this application relate to the reports/advice upon the Sharjah proceedings which were given to the plaintiff and CFC by M/s Wilkinson & Grist, and subsequently M/s Richards Butler.

77. It was these lawyers, said Mr Smith, who had monitored and reported on the legal proceedings in Sharjah, and who had given instructions to the plaintiff’s Sharjah lawyers on behalf of the plaintiff; moreover, it appeared that advice had been received from the Sharjah lawyers as to the merits and/or prospects of an appeal against the judgment of the Sharjah court.

78. In the circumstances, Mr Smith submitted that as a consequence of the plaintiff having pleaded that it had received and acted upon advice from Sharjah lawyers as to the proper party to sue and on the question of limitation – see the Re-Amended Reply and Defence to Counterclaim, paragraphs 16-19, and also reference in the Statement of Mr Daryanani – the plaintiff thus had ‘deployed’ the content of the legal advice and related communications for the purpose of this case in such a manner that privilege had been waived: see, for example, Goldlion Properties v. Regent [2005] 4 HKC 500, and hence that all documents falling within this umbrella are discoverable.

79. In response Mr Sussex SC argued that it was well-established that such waiver must be unequivocal, and that the matters presently relied upon by the defendant did not constitute waiver.  He further submitted that the advices and reports that the defendant now sought were not relevant to the issues that the court had to determine in this case.

80. In this connection Mr Sussex maintained that that which the plaintiff had done, or not done, in Sharjah is clear as a matter of record, and that the issue of the viability of the Sharjah proceedings, and in particular the issue of an appeal from the first instance decision, was to be the subject of expert evidence on both sides.  In this context, therefore, the decision for the court to make at trial was whether in this case the plaintiff had failed to ensure that a right available against a third party had been properly preserved and exercised, and, if not, whether the defendant thereby had suffered loss.

81. I agree with Mr Sussex.

82. I do not consider that the advice received from the Sharjah lawyers is germane to the issue before the court – quite apart from anything else there can be no assurance that such advice in fact was correct – and it strikes me that this is a ‘fishing’ expedition of the first water.  I can see clear potential for embarrassment, but not any probative value.

83. In the circumstances I decline the request on the basis of relevance : it must be an objective test (perhaps assisted by expert evidence) as to whether the insurer’s rights against third parties had been properly preserved by the assured, and thus evidence of what was, or was not, the contemporaneous internal thinking upon the procedural merits, and the legal advice tendered, is nothing to the immediate point, given that the obligation under the ‘sue and labour’ clause simply is to ensure that the underwriter’s right of subrogation is not imperilled.  If this view be correct, there is thus is no necessity to decide whether in these particular circumstances there has been the implicit waiver asserted by Mr Smith.

84. Had it been necessary to decide the point, however, I should further state that I am inclined to the view that as a matter of law there has been no such implicit waiver in these circumstances, and thus had the issue arisen the discovery request would have failed on this basis also.

(4)     Listing of privileged documents

85. This strikes me as a point without substance.

86. This aspect of the list is drawn in the conventional manner, and I can only think that this request was put in as a makeweight in the context of the other requests for discovery.  Mr Sussex points out that even the defendant’s supplemental list has adopted a like rubric, which speaks for itself.

87. I reject this request.

(5)     Plaintiff’s investigations at Khor Fakkan

88. Mr Smith says that it is inherently unlikely that the plaintiff did not conduct its own investigations into the loss at the port of Khor Fakkan, and that documents recording such investigations are likely to exist.

89. In response Mr Sussex points to the manner in which Mr Daryanani has dealt with this topic in his Fourth Affidavit, in which, in substance, he deposes to the fact that not only is this “another request which is based on mere supposition and conjecture”, but that in fact the plaintiff has again checked its records, and that there is nothing further in the plaintiff’s records to disclose, the documents already disclosed clearly evidencing the checks carried out by the plaintiff in an attempt to ascertain what had happened to the goods, and which evidence that the goods in question were delivered against presentation of an original bill of lading, which apparently was done absent the plaintiff’s knowledge, consent or authority.

90. Mr Smith has asked for a further affidavit on the point, but in light of the existing sworn statement nothing would be gained by this, save for further wasting of costs.

91. The discovery position in this area has been stated in terms, and I see no reason whatever now to seek to go behind it.

92. Mr Sussex may well be correct in his conjecture that this application for specific discovery is informed by the defendant’s apparent suspicion, which seems to be bubbling under the surface but which remains formally unarticulated/pleaded (albeit in response to a question from the Bench Mr Smith, I think, accepted its existence) that in this case the defendant underwriter “has been had”, to use Mr Sussex’s words.

93. Had a case of fraud been pleaded – which demonstrably it has not – the question of discovery may have assumed a different complexion.  However, what clearly is impermissible is to use veiled allusions/suspicions in order to found what presently is, in essence, a discovery application of distinctly Micawberish hue.

94. Accordingly, if and in so far as the plaintiff actually seeks to strike, and not merely to wound, let it do so formally with a specific plea of fraud, and let the trial be conducted on this overt basis.

95. If this is not to be the case, however, in my view it is high time that this matter, as pleaded in its present form, was resolved in the court room, and absent the eruption of any further interlocutory applications I will now entertain the application (currently adjourned) to set down for trial.  With respect, this case has been simmering for too long, and the issue of the underwriter’s liability, or otherwise, under the policy in question now requires formal determination absent further delay.

Order

96. The defendant’s application by summons dated 3 November 2006 is dismissed.

97. I make an order nisi that the costs of and occasioned by the application be to the plaintiff in any event, such costs to be taxed if not agreed.