WONG LONG HIN v. TWINTEK HOLDINGS LIMITED, A PARTNER OF TRISTAR BUILDING MATERIALS CO AND ANOTHER

HCA 1830/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1830 OF 2011

(TRANSFERRED FROM LABOUR TRIBUNAL LBTC 2841 OF 2011)

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AND

HCA 2020/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2020 OF 2011

(TRANSFERRED FROM LABOUR TRIBUNAL LBTC 3293 OF 2011)

______________________

AND

HCA 9/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 9 OF 2012

(TRANSFERRED FROM DISTRICT COURT NO. DCCJ 1966 of 2010)

______________________

______________________

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DECISION

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THE APPLICATIONS

1. (a)   There are three actions, two transferred from the Labour Tribunal and one from the District Court.  By an order dated 15 February 2012, the matters were consolidated and the parties are:

Plaintiff	Wong Long Hin
1st Defendant	Kwan Tai Engineering Co. Ltd.
2nd Defendant	Tristar Building Materials Ltd.
3rd Defendant	Twintek Holdings Ltd.
	A partner of Tristar Building Materials Co.
4th Defendant	United Aim Ltd.
	A partner of Tristar Building Materials Co.

1.(b)   There are 3 applications for today’s hearing:

a.  Plaintiff’s application for specific discovery under Order 24 rule 3 RHC by summons dated 21 November 2012 for D1 to D4 to produce the documents set out in Schedule 1 within 14 days of the order.  Schedule 1 refers to (1) audited accounts for the projects and for “the relevant periods” of 2008 and 2009 respectively as per Schedule A and Schedule B annexed to the summons (the projects); (2) all contract documents in respect of the project and of the relevant periods; (3) audited accounts of Sun Warm for the project for the relevant periods as Mr. Lo referred to in his witness statement at paragraph 23; (4) all contract documents in respect of the projects for the relevant periods as Mr. Lo referred to in his witness statement at paragraph 23.  Item (5) has been provided and will not be pursued.

b.  Plaintiff’s application by summons dated 20 November 2012 for amendment of the Amended Consolidated Statement of claim as per the attached;

c.   Defendants’ application for specific discovery under Order 24 rule 7 RHC by summons dated 20 November 2012 for the plaintiff to produce (1) audited account of GDE for the years from 2001 to 2010 and (2) payroll record and bonus payment including bank statement and receipts by GDE to the plaintiff for the years from 2001 to 2010.

2. Miss Vivian Ho, Counsel acts for the plaintiff and Mr. H. Cheung, solicitor acts for the defendants.

THE FACTUAL BACKGROUND

3. Briefly stated, the plaintiff claimed to be an employee of D1, D2 and Tristar Building Materials Company (Tristar) trading by D3 and D4 as partners, collectively called the defendants.  They are, in fact, controlled and owned by Mr. Lo Wing Cheung (Lo) and his wife.  The plaintiff pleaded that he was, under an oral agreement between himself and Lo, employed by the defendants as the sales manager of building materials and apart from his monthly salary, his terms of employment included pre-paid monthly commission of $15,000 and annual commission of 20% of the profits of the projects of the defendants, less the pre-paid monthly commission.[1]  He also claimed that the defendants had carried out projects in Macau through a company Sun Warm Engineering Co. Ltd. (Sun Warm), he was therefore entitled to the sharing of the profits made by Sun Warm.  The plaintiff said that he had terminated his employment with the defendants by one month’s notice to Lo on 30 December 2009.  He now claims for the outstanding commission for the years 2008 and 2009 in the amount of HK3,152,000.00.

4. The plaintiff admitted that he had used first, a business G+F Company and later replaced by Global Dragon Engineering Limited (GDE) to receive salaries, commissions and reimbursements from the defendants instead of in his own personal capacity for the purpose of tax reduction.

5. The defendants’ defences are: the 2nd defendant had never entered into employment contract with the plaintiff; the employment contract was between the plaintiff and the 1st defendant and Tristar, which was terminated on 30 June 2001.  There was a service agreement between the plaintiff on behalf of GDE and the 1st defendant and Tristar.  The 1st defendant and Tristar denied that the plaintiff’s term of employment included commissions and they said that the payment of lump sum bonuses was made at the discretion of the 1st defendant and Tristar.  There is a counterclaim against the plaintiff for loans to the plaintiff.

THE PLAINTIFF’S APPLICATION FOR AMENDMENT

6. I shall, by consent, first deal with the plaintiff’s application for amendment.  There is no objection from the defendants.  As the matter has not been set down for trial, the amendments will not cause prejudice to the defendants. I shall therefore make an order in terms of the plaintiff’s summons as per paragraphs (1) and (2) and I should add: (3) the defendants be at liberty to make consequential amendment to the defence and counterclaim and file and serve the same within 28 days from the date hereof (4) the plaintiff be at liberty to amend and serve the Amended Reply and Defence to Counterclaim within 28 days thereafter, (5) automatic discovery of documents shall take place within 14 days after the close of the amended pleadings; (6) parties are to exchange their supplemental witness statements on the amendments within 28 days thereafter and (7) the costs of and occasioned by the plaintiff’s application and the amendment be to the defendants in any event, to be taxed if not agreed.

THE PARTIES’ APPLICATIONS FOR SPECIFIC DISCOVERY

7. I shall now deal with the plaintiff’s and the defendants’ applications for specific discovery.

The legal principles

8. Miss Ho says in her skeleton submission §14 that the application is made under Order 24 rule 7 whereas in the summons, it was stated that the application was made under Order 24 rule 3.  I consider that the application should be under Order 24 rule 7 as they are specific documents or class of documents to be discovered from the defendants.

9. Miss Ho relies upon the legal principles in Paul’s Model Art GmbH & Co. KG v. UT Limited & Others CACV 139/2005. At §24, Cheung J.A. said:

“The principles

24. The relevant principles for specific discovery under Order 24 Rule 7 of the Rules of the High Court can be summarised as follows :

(1) There is no jurisdiction to make an order under RSC, O.24, r.7, for the production of documents unless

(a) there is sufficient evidence that the documents exist which the other party has not disclosed;

(b) the document or documents relate to matters in issue in the action;

(c) there is sufficient evidence that the document is in the possession, custody or power of the other party.

(2) When it is established that those three prerequisites for jurisdiction do exist, the court has a discretion whether or not to order disclosure.

(3)   The order must identify with precision the document or documents or categories of document which are required to be disclosed, for otherwise the person making the list may find himself in serious trouble for swearing to a false affidavit, even though doing his best to give an honest disclosure.  (See : Berkeley Administration v. McCelland [1990] F.S.R. 381)”

10. Miss Ho has also referred to the Decision of Master M. Ng in Wu Ching Sau v. New World First Bus Services Limited [2010] HKCU 1926 at para. 66 that “although the pleadings and particulars will usually determine relevance to a matter in question, the obligation to provide discovery in respect of a matter in question does not necessarily mean a matter on which issue has joined in the pleadings, but the documents must be matters as to which an inference can properly be drawn that they are the subject of controversy between the parties.”

11. I am rather puzzled by the reference to the above Decision as Miss Ho has not disclosed why she had to rely on that case.  This morning, Miss Ho has told me that this authority will be relied upon if she were to deal with the application for documents from Sun Warm before leave is given to amend the statement of claim.  Now that leave has been given, she no longer requires that authority.  Since this authority has been brought up for my consideration in her skeleton submission and I had considered it, I wish to clarify the legal position on the issue of relevance, I consider that I should express my views on this decision here.  With respect, Master Ng’s  decision seems to be inconsistent with the judgment of the Court of Appeal in Paul’s Model Art GmbH & Co. KG v. UT Limited & Others CACV 139/200whereas at §25, the Court of Appeal said:

The real issue of relevance

“25. The real issue that has been focused at this hearing is whether the documents sought to be disclosed are relevant to the issues in this case between the plaintiff and the 4^th defendant. In this context the issue must be one identified in the pleadings : Sun Yuet Tai Ltd v. British American Tobacco Co. (H.K.) Ltd (CACV No. 95 of 1999). On the other hand the fact that an issue is raised in the pleadings is not determinative as to whether it relates to a matter. Discovery is not required of documents which relate to irrelevant allegations in pleadings which even if substantiated could not affect the result of the action : Allington Investments Corp & Others v. First Pacific Bancshares Holdings Ltd & Another [1995] 2 HKC 139.”

12. In fact, Master Ng had also considered the judgment by Colman J. in O Company v. M Company [1996] 2 Lloyd’s Rep 347, 350-351, in which the court said: “…The case of the plaintiffs or the defendants respectively can be defined only by looking at the pleadings…”

13. It is trite law that the parties’ disputes must be clearly defined by their pleadings. The Court of Appeal in Tempra Virginia Pido v. Compass Technology Company Limited & Another CACV210 to 217/2009 delivered by Ma CJHC (as he then was) at §§24 and 25 as follows:

“24. If what has been set out in the previous paragraph represented the Plaintiffs’ true cause of action, it was nowhere pleaded in the Amended Statements of Claim. This version was also nowhere to be found in the various affidavits filed on behalf of the Plaintiffs by their solicitors, these affidavits purporting to set out the Plaintiffs’ version of events. Mr Kwok submitted that this version of the Plaintiffs’ case could be inferred from both the existing pleadings and the affidavits. With respect to him, this was simply not possible.

25.  In any event, the formulation of a party’s cause of action should clearly and cogently be made in the pleadings.  It should not be left to an exercise of drawing inferences.”

14. In another case Pony H K World Limited v. Vand Petro-Chemicals (BVI) Company Ltd. & Another CACV270/2011 the defendants had raised the issue of penalty for the plaintiff’s claim of remedy for the first time before the trial judge, who had rejected the argument because it was not pleaded in the pleadings.  On appeal, the Court of Appeal said at §78:

“78. The argument about penalty was raised for the first time before the judge in the closing submission of the defendants’ counsel. The judge refused to entertain this as the issue had not been pleaded and there was no evidence in support of the penalty allegation. The judge is clearly correct. I reject Mr Thomas’ submission that the court could take judicial notice on the 12% compound interest as being on its face inequitable. I agree with Mr Sussex whether this was a genuine pre-estimate of loss could and should have been dealt with in evidence. It is pertinent to bear in mind that the SPA was entered into in June 2007, before the global financial crisis had altered the financial environment for investors.”

15. In another case Paron Gloves International Limited v Wu Wai Kit & Leung Yuk Chun, delivered by M Chan J. yesterday at paragraph 5, the Judge had emphasized the importance of pleadings, especially after the CJR and she said: “The relief and remedy sought by the parties in the action should always be defined by, and confined to, the pleadings, as the Court will not be furthering the underlying objectives of dealing with cases expeditiously.”

16. In light of the above authorities, it seems that Master Ng’s Decision is inconsistent with the higher courts’ decisions.

17. I would also agree with the observations of Deputy Judge Mimmie Chan (as she then was) in Sunny Tadjudin v Bank of America, National Association (HCA 322 of 2008; 22 December 2011) when she said at paragraph 7 of her judgment:

“7. It is also clear that post CJR, the Court should give effect to the underlying objectives of the rules and procedures when it exercises its powers under Order 24 and when it interprets the provisions of Order 24. In deciding whether any document relates to a matter in question in the action, whether any document is or has been in the possession, custody or power of a party, and whether discovery of a document sought is necessary either for disposing fairly of the cause or matter or for saving costs, the Court should always bear in mind the objectives of cost effectiveness, expeditious disposal of cases, proportionality, procedural economy and ensurance of fairness between the parties.”

18. In the exercise of the Court’s discretion for discovery, the Court should adopt the following approach:

“The court should be expected to exercise its case management powers with a view to tailoring an appropriate discovery regime for the case at hand. It should have a residual discretion both to direct what discovery is required – to narrow or widen the scope of discovery required, to include, if necessary and proportionate, full Peruvian Guano style discovery – and in what way discovery is to be given.”[2]

The Peruvian Guano style discovery is for the purpose of either advancing the applicant’s case or weakening the opponent’s case.

19. The above legal principles should apply to the applications of the plaintiff and the defendant for specific discovery.

Significant features of the matter

20. Perhaps, I should point out here that this matter has the following significant features, which I consider that I should take into consideration for the purpose of these applications:

a. There will be argument on the relationship between the parties as from 1 June 2001 and thereafter. The plaintiff insisted that the employment relationship was terminated in 2010 whereas the defendants’ case is that it  was terminated in 2001.[3]

b. The plaintiff admitted that he had used another corporate vehicle, GDE, to receive the money from the defendants;

c. The agreement between the plaintiff and the defendants were made orally;

d. The trial judge will have to place heavier reliance upon documentary evidence in order to find the facts of the matter.

e. The plaintiff maintained that his terms of employment, which started from 1998 until 2010 included 20% commission of the profit for the projects obtained by him less the monthly commission, same as what he is claiming under this action.[4]

f. The plaintiff had made no complaint on the commission for the past years between 1998 to 2007.  The present claims cover the commissions for 2008 and 2009.

g. The burden of proof is on the plaintiff for the commission in respect of his entitlement and the quantum, which the defendants had denied.

h. The plaintiff has not disclosed in his affirmations in support of his application the way his commissions were paid prior to 2008.  Therefore, there is no information before me today as to what documents or material the plaintiff had relied upon for the calculations of his commissions before 2008, for which he had made no complaint.

i. In view of the plaintiff’s application for class of documents, the Court will not be assisted to tailor the appropriate regime for the parties.

The plaintiff’s application

21. I shall now deal with the plaintiff’s application.

22. Mr. Cheung submits in his skeleton submissions that the items for discovery should be divided into Sun Warm documents and non-Sun Warm documents because for the Sun Warm documents, the application was made before the proposed amendments to the plaintiff’s pleadings.  As such, the defendants will rely on the fact that they were made pre-maturely.  Even though the plaintiff’s application has been dealt with today, the pleadings are still subject to the consequential amendments to the pleadings.  Mr. Cheung has sensibly agreed to have the applications for specific discovery dealt with as his defence to the plaintiff’s claim on Sun Warm has been disclosed in his skeleton submissions and the consequential amendments will not affect the applications today.  Mr. Cheung agrees to abandon his ground of objection of pre-mature application by the plaintiff.  I agree and this will save time and costs.

23. Item (1) refers to the audited accounts for the projects for the relevant periods in Schedule A and Schedule B.  The defendants object to this item.  Mr. Cheung submits that under this item as also for other items, there should be a differentiation between the non-Sun Warm projects and the Sun Warm projects.  As to the non-Sun Warm projects, Mr. Lo had, on behalf of the defendants, made an affirmation that they never existed. [5]  He relies upon Re the Prudential Enterprise Ltd., unreported HCCW 594/1999 (24 October 2003) at §18 where the Court of Appeal held that the affidavit of the party had to be accepted as conclusive, and the applicant cannot seek to challenge or contradict it.  Miss Ho concedes to this argument and she abandon item (1) for non-Sun Warm documents.

24. As to the Sun Warm projects documents under item (1), Mr. Cheung argues that the documents are not relevant to the issues in dispute, saying that Sun Warm is not an agent of the defendants.[6]  I note that the basis of the plaintiff for this allegation is on the web-site of the defendants, which mention Sun Warm’s projects in Macau. Mr. Cheung comments that this basis is rather flimsy.  This, however, will be a fact to be found by the trial judge.

25. Item (2) refers to the contract documents of the projects for the relevant periods.  The defendants dispute that the class is too wide and it amounts to fishing.

26. Item (3) refers to audited accounts of accounts of Sun Warm for the relevant periods as per Schedule A and Schedule B, which Mr. Lo alleged to be the projects of Sun Warm as per paragraph 23 of the witness statement filed on 10 October 2012.  Mr. Cheung’s objection is the same as for item (1).

27. Item (4) refers to all contract documents of the projects for the relevant periods which Mr. Lo alleged to be the projects o f Sun Warm as per paragraph 23 of his witness statement filed on 10 October 2012.  The defendants object on the same ground of the documents being irrelevant and the class is too wide.

28. Bearing in mind that the plaintiff has the burden to prove the quantum at the trial and those documents, as according to Miss Ho, are relevant to determine the quantum, the involvement of the plaintiff in the projects and that he had obtained the projects for the defendants, I would not say that the documents requested are wholly irrelevant.  However, I refuse to make the order as requested for all the items for the following reasons:

a.  It is the plaintiff’s burden to show that those documents requested are for advancing his case (the Peruvian Guan’s principle)

b.  The plaintiff also has the burden to show to the court the documents required are limited to relevant documents only and no more (principle against fishing);

c.   It is the plaintiff’s case that the plaintiff had obtained commissions before 2008 without complaint, it will be incumbent upon the plaintiff to tell the court the documents that he had used for the calculation of the commissions, which he has failed to do in support of this application;

d.  Absent the information in c. above, the court may order class of documents more than enough for the plaintiff’s purpose of calculating the commissions;

e.   This will not save costs for the proceedings.  On the contrary, this will waste the court’s time too. (Order 24, rule 8)

f.   On this basis, I refuse the plaintiff’s application in respect of item (1) to item (4).

The defendants’ application

29. I shall now deal with the defendants’ application.

30. Item (1) of the defendants’ application refers to the audited accounts of GDE for the period from 2001 to 2010.  Miss Ho opposes this item on the ground that the documents do not relate to a matter in question in the action and it will not assist the Court in deciding the disputed issue at the trial.[7]

31. Miss Ho admits that one of the main issues for the trial is to determine the relationship between the plaintiff and the defendants, especially the period between year 2001 to year 2010.  The plaintiff maintains that throughout this period, he remained an employee of the defendants.  See paragraph 2 and paragraph 6 of the Re-Amended Consolidated Statement of claim.  The defendants disputed that the employment had been terminated on 30 June 2001 and replaced by a sales and marketing Service Agreement with GDE.  See paragraph 7(3) of the Defence and Counterclaim [B15].

32. The plaintiff had also admitted that he had use GDE as the corporate vehicle for receipt of his salary, commissions and other disbursements for the purpose of reducing tax.  However, the plaintiff had also pleaded in paragraph 2 (e) and 2(h) of the Re-Amended Consolidated Statement of claim that he had to report to work at the office and the office hours were between 9 a.m. and 6 p.m. on Mondays to Fridays and between 9 a.m. to 1 p.m. on Saturdays and that he had 2 weeks’ annual leave including the Chinese New Year.

33. The plaintiff had not pleaded that he had the defendants’ consent to work for another employer during his employment.  Nor had he pleaded that he had been working for another employer during his employment with the defendants.

34. As I have said above, the trial judge has to place heavier reliance on the documentary evidence as the agreement was only orally made between the parties.  I believe that item (1) will shed light on the business activities of GDE during the relevant period.  If GDE were carrying on business during this relevant period by the plaintiff or if it had paid the plaintiff for the works done by the plaintiff for GDE, the evidence will assist the trial judge to assess the evidence of the plaintiff and of the defendants on their relationship during the relevant period.

35. For the same reasons, I consider that item (2) is also relevant for the trial.

36. The authority of Allington Investment Corp & Ors v First Pacific Bancshares Holdings Ltd. & Anor. [1995] 2 HKC 139 at 145 referred to by Miss Ho referred to a situation where the party mentioned in the pleadings was irrelevant and should have been struck out in the first place.  As such, the court should not rely upon this party for its determination of relevance for the matter.  This is a completely different situation from our case here.  The plaintiff cannot say the GDE is an irrelevant party in this matter because GDE was pleaded by him.  He had pleaded that this company was his corporate vehicle for reducing tax.  The defendants will say that GDE is the party under the sales and marketing Services Agreement (again oral) and therefore the plaintiff is not entitled to make the claims here.

37. For those reasons, I hold that both item (1) and item (2) of the defendants’ summons for discovery are relevant.  The information sought for will assist the trial judge to evaluate the oral evidence at the trial.

38. Since Miss Ho has raised no other grounds for her opposition, I hold that an order should be made in terms of the defendants’ summons for specific discovery.

39. On the question of costs for the applications including the costs reserved and for today’s hearing, the costs of both summons should be given to the defendants, which are summarily assessed as $25,860 for the plaintiff’s summons and $24,900 for the defendants’ summons, to be paid by the plaintiff within 14 days from the date hereof.

ORDER

40. For the reasons above, I shall now made an order in terms as follows:

a.  For the plaintiff’s summons for amendment, there be an order in terms of paragraph 6;

b.  The plaintiff’s summons for discovery be dismissed with costs;

c.  The defendants’ summons for discovery be an order in terms of the summons but the time for the affidavit be, by consent, varied to 28 days from the date hereof;

d.  Costs, as per paragraph 39.