MALAYAN BANKING BERHAD v. CHINA INSURANCE CO LTD

-----------------

-----------------

DECISION

-----------------

1. There are three summonses before the court. Firstly, an application by the defendant for further discovery (dated 8 February 2001). Secondly, an application by the plaintiff for further discovery (also dated 8 February 2001). Thirdly, an application under Order 18, rule 19 by the defendant to strike out parts of the plaintiff's claim, dated 14 February 2001.

2. The applications for further discovery arise out of the plaintiff's original application dated 31 October 2000 to strike out, if the experts' reports were not exchanged in time. The defendant maintains that it cannot properly prepare its experts' reports until after the discovery issues have been resolved.

3. The defendant's recent strike-out claim arises because of certain answers given by the plaintiff to a request for further and better particulars from the defendant.

4. The contractual background of the matter has been helpfully and succinctly set out in Mr Thomas Lee's (counsel for the defendant) skeleton submission as follows:-

5. The pleaded defence, put briefly, is that the Development Agreement between UTIL and Molitoko was not terminated for the reasons alleged in the Re-amended Statement of Claim but for larger economic reasons. Molitoko's case is that they were terminated because the development was facing drastic delays and increased costs because of the Building Authority's rejection of the amended plans for the project. This came at a time, in 1997 and early 1998, when Hong Kong was being adversely affected by the Asian financial crisis and the collapse of the Hong Kong hotel market. In effect, it is said by the defence, that the project was simply abandoned for economic reasons and not because of any breach of contracts by Molitoko. When Molitoko was terminated, the site was a "big hole in the ground". It still is.

6. Because issues of precision, relevance and necessity are at the heart of this application, I consider it necessary to set out the terms of orders sought, in full :-

7. The wordings of the schedules are also important :-

"SCHEDULE

1. All documents that are or have been in the possession, custody or power of the Plaintiff or any of the members of the banking syndicate of which the Plaintiff is the agent ('the syndicate') and which have not previously been disclosed in the various Lists of Documents served on behalf of the Plaintiff, that relate to the financial planning of the project to redevelop the site at Tong Mi Road referred to in the Amended Statement of Claim, and in particular documents and correspondence emanating from any of

Or their respective agents or advisers, including any (revised) feasibility studies for the development; any (revised) cash-flow projections for the project; any (revised) valuations of the site and/or assessments of property market conditions; any (revised) budgets and financial models regarding the projected construction cost of the hotel, including any projections or advice received as to Molitoko's possible entitlements to extensions of time and/or additional payment for the hotel construction work; any (revised) projections as to the likely date of completion of the hotel; any (revised) projections as to the income to be generated by the hotel to be erected on the site, and the hotel occupancy rates underpinning those projections; any (revised) assessments as to the adequacy of the income to be generated by the hotel to service and repay the loans made (or to be made) by members of the syndicate to help finance the acquisition of the site and the construction of the hotel; any (updated) documentary evidence as to the financial worth of the entities listed in 2.1 to 2.3 above at or around the time the said decisions were made, and their prospective ability to make the interest payments and capital injections that might be called for to procure the completion of the proposed hotel, and thereafter to repay the loans made by members of the syndicate in connection with the project; and any advice received as to the risks and likely financial consequences of terminating Molitoko's employment under the Development Agreement."

8. This issue has caused extensive correspondence between solicitors. The pleadings, affirmations and affidavits are also very lengthy. It would not be appropriate, on this application, to be drawn too much into the complex contractual issues for trial. The court must simply identify the core issues for trial and then determine if the application for discovery (under Order 24, rule 7) identifies documents or clauses of documents with sufficient precision, which are relevant and necessary for the resolution of the dispute and which exist in the other side's possession, custody and power.

(a) Relevance. The main plank of the plaintiff's opposition to this application is relevance. They also submit it is a "fishing" exercise and is oppressive and the court should exercise its discretion and refuse the application. The plaintiff submits that the issue at trial will be --- has the plaintiff proved the defendant was in breach? If not, they lose. It matters not, so it is argued, what the true reason or motive for the termination was. If there was no contractual basis for the termination, the plaintiff will lose anyway.

9. In my judgment, this approach is too simplistic. It is at the very core of the defendant's pleaded case that notice of termination was given "unreasonably or vexatiously", contrary to clause 24.1 of the contract :-

"24.1 Without prejudice to any of its rights or remedies, the Owner may by notice to the Developer, which notice shall be given unreasonable or vexatiously, terminate this Agreement if the Developer shall have committed any one or more of the following defaults, viz. :- ..."

10. It is fair to say that the mere fact of an issue being pleaded is not determinative of relevance. However, in this case, the detail of the pleaded case, the length of the affidavit evidence adduced in support and the nature of the correspondence seeking discovery, all demonstrate that this is a valid defence properly advanced. The defence have nailed their colours to the mast and opened up a new dimension to the case. They take a risk in so doing but refusing their application for discovery would prevent them from running a valid defence. Should they lose they will have incurred considerably greater costs than otherwise. However, they should not be denied the evidence. They do not shy away from alleging both "unreasonableness" and "vexatiousness" on the part of UTIL. They seek to demonstrate at trial that UTIL acted "vexatiously" as defined in John Jarvis v. Rockdale Housing Association (1986) 36 BLR at page 68 that they had "an ulterior motive to oppress, harass or annoy".

11. Mr Anthony Chan, counsel for the plaintiff, also complains that this is a "fishing expedition". I do not agree. The fishing analogy is that the line is cast in the hope of catching an hitherto unknown fish. Here, the reality is that fish abound in these waters. It is more of an exercise in harvesting than in fishing. What is remarkable is that, as yet, only 10 documents have been discovered in a major building development involving loans of over $300 million.

12. In short, I consider that this application primarily turns on the issue of relevance. Once the court is satisfied that the documents or class of documents sought are indeed relevant, the remaining issues can be dealt with quite shortly.

(b) Necessity. Given the nature of the pleaded defence which, I have determined, gives rise to relevant matters, i.e. matters which need to be determined to make a just resolution of the case, the requirement of necessity follows as night follows day. To force the defendant, when seeking to prove their "economic collapse" argument, to rely on factual matters in the public domain and deny them sight of the class of document the seek from the plaintiff, would force them to fight with one hand tied behind their back.

(c) Existence of the documents and evidence that they are in the plaintiff's possession, custody and power. The evidence in support of the existence of relevant documents is extensively dealt with in the defendant's affidavits. That such documents exist is really a matter of common sense and experience. In any event, no serious argument is mounted against this ingredient.

(d) Sufficiently precise? Given that, by its very nature, the summons does not specifically identify specific documents, the terms of the schedule are as precise as it is possible to be. It is not a general request to have a look at anything which might be relevant. It is carefully drafted and aimed at specific companies and individuals and relates to specific issues relevant to the defence.

(e) Caveat. In the interests of proper case management, the court should be cautious before granting discovery applications, especially where, as with this case, the resulting discovery may be costly and time consuming. The 2001 Hong Kong Civil Procedure makes the following comments :-

"... Even if the documents requested are relevant, the discovery must be refused if it is not necessary either for disposing fairly of the cause or matter or for saving costs. So where the documents related to flagrancy of breaches of copyright, and flagrancy would become sufficiently clear from the documents already ordered to be discovered, the additional discovery requested was not be ordered (Full Range Electronics Co. Ltd v. General-Tech Industrial Ltd & Another, above)."

and :-

"... The increasing emphasis on active case management has resulted in exhortations from the Court of Appeal that interlocutory discovery skirmishes should be avoided if possible and that the real issues in dispute ought to be identified and brought to trial for resolution without waste of time and extensive discovery. A recent example is Cable & Wireless HKT Telephone Ltd v. City Telecom (H.K.) Limited, CACV197/1999, February 1,2000, CA, in which Rogers J.A. expressed the view that this was a case that required strong case management to ensure that the issues between the parties were properly and efficiently dealt with. The judge then identified the issues in the case and said that they should be resolved expeditiously and by limiting discovery where possible. ..."

13. All this must of course be balanced against the interests of justice. The ultimate driving force is always the search for the truth. In the present case, I am satisfied that, in spite of the consequential implications on cost and delay, the order sought should be granted. I think the "real issues" have been identified and the discovery summons cannot be "avoided" (see Cable & Wireless case, supra).

14. On the same day as the defendant's summons for discovery, the plaintiff filed its own summons, seeking the following order :-

Schedule

15. As to paragraph 1 of the summons, it is too vague and imprecise.

16. As to paragraph 2 and 3, the defendant resists the summons on three bases :-

17. In fact, the defendant makes the point, in lengthy correspondence, that it has attempted to acquire documents and information from Mr Chau, even though there is no obligation on them to do so. They are also reluctant to disclose personal details about Mr Chau, such as his contact number, for fear of breaching the Personal Data (Privacy) Ordinance.

18. All these points are well made and already set out in correspondence. In my judgment, however, their position should be clarified by affidavit. The affidavit may take the matter no further than their stated position in correspondence. I, nonetheless, consider such an affidavit desirable in the context of this case. The affidavit should purport to comply with paragraph 2 of the plaintiff's summons in so far as it is able to do so and without breaching the Personal Data (Privacy) Ordinance.

19. This is a discrete issue, unrelated to the discovery issues hitherto.

20. In the Re-amended Statement of Claim, three heads of damage are particularized. Firstly, "liquidated damages"; secondly, "post-termination damages arising out of Molitoko's defaults"; and thirdly, "estimated minimum additional construction costs". (There is also an alternative claim based on "wasted expenditure".) It is the third head of claim, "additional construction costs" which the defendant submits is not based on any reasonable cause of action. The particulars claim :-

21. The defendant submits that, as a fact, the state of the site when Molitoko were dismissed has not changed to this day. It was then and is now a very large hole in the ground. It has remained in this state for three years. There is no sign of any activity. The defendant "believes" it is being offered for sale.

22. They submit that the overwhelming reality is that there is not a glimmer of hope that the development will be completed by UTIL. Until new construction costs have actually been incurred, a liquidated claim cannot succeed.

23. On the other hand, the plaintiff submits that a very high threshold has to be reached before a claim is struck out. Moreover, it is always open to UTIL to complete the development and damages would be claimable at trial even if the quantum had not been crystallized.

24. Even though it took some time before Molitoko actually left the site and only then, reluctantly under a court order, the fact that this has been a totally idle site since 1998 and bearing in mind the timing and circumstances of their dismissal, I am convinced that if UTIL had the slightest intention of reviving the project, they would have taken some steps by now. None has been taken. In my judgment, the claim will never arise and should be struck out.

25. In conclusion, the court's decisions on the three summonses are as follows :-

26. Finally, there was a fourth matter before the court, namely, a request for further and better particulars in paragraph 6 of the defendant's amended summons of 8 February 2001. Those particulars have now been answered. All that remains in the question of costs. The costs of that application shall also be to the defendant.