LDB SALES CO LTD v. GERMAIN ELECTRONIC LTD AND OTHERS

HCA5439/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.5439 OF 2001

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D E C I S I O N

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1. This is an application under Order 24, rule 16(1).  The defendants seek an order that the action be dismissed on the ground that the plaintiff has failed to comply with the court’s orders for discovery.  The defendants submit that :

(i)	there is a real risk or a substantial risk that a fair trial of the action is no longer possible, and/or
(ii)	that the plaintiff has deliberately suppressed discovery of relevant documents in circumstances amounting to contumacious conduct.

2. Somewhat unusually, the application has come after the commencement of the trial.  The trial of the action commenced on 15 March 2005.  The action involves claims of copyright infringement and wrongful interference with contracts resulting in loss of business to the plaintiff.  The trial was originally listed for four days.  At the end of the 3^rd day, the plaintiff’s opening was nearing completion.  It was agreed that the matter would have to be adjourned part-heard.  Seven days was allocated for the part-heard hearing commencing on 12 September 2005.  The entire seven days has been taken up with interlocutory matters including applications for subpoenas ad testificandum and duces tecum, applications to set aside the subpoenas, applications for further discovery, an application to commit a director of the plaintiff for contempt under Order 52, rule 1 and the present application to dismiss, which included an application for leave to cross-examine deponents, together with a number of short adjournments for the taking of instructions and the preparation of submissions and responses.  Thus, after 10 days not a word of evidence has yet been heard.

3. This application under Order 24, rule 16(1) has been launched at this stage, namely after the opening but before evidence, because of events which occurred whilst the matter was part-heard.  Whilst the matter was part-heard there were 10 interlocutory hearings heard by four different judges.  The main subject matter of those hearings (but not the sole subject matter) was discovery.

4. The need for further discovery came about because during the plaintiff’s opening at trial it was disclosed for the first time that the quantum of the plaintiff’s claim for loss of business arising out of wrongful interference with contact was in the region of HK$10 million.  In the course of the opening, documents were produced in support.  The defendants later sought further discovery and on 19 April 2005 an order was made.  The defendants now submit that there has been serious default of that order and that there has been wilful suppression of documents to the extent that the court should invoke its discretionary power under Order 24, rule 16(1) and dismiss the claim.

5. In the course of the legal arguments, the issues have widened to encompass matters not confined to the events since going part-heard.  The entire history of the matter has been touched upon.  The basis of the claims has been criticized; allegations of subterfuge, dubious tactics, lack of good faith, attempts to derail the case and deliberate concealment of evidence have been made.  Whilst issues and allegations relating to events prior to the commencement of the trial can have some relevance, they are, at best, peripheral to the Order 24, rule 16(1) application.  Grounds for an application to dismiss did not exist prior to 19 April 2005.  Therefore, pre-trial events, in this case, serve as little more than make-weights and little or no purpose is served in dwelling on them.  Of course, their relevance increases if and when the matter comes for trial.  Whilst acknowledging that the entire history of the case can, as a matter of law, be relied on I nonetheless confine this decision to an evaluation of the plaintiff’s efforts to comply with the discovery order of 19 April 2005 in order to decide if they are guilty of contumacious default and to decide if there is a risk that a fair trial is no longer possible. 

Cross-examination of witnesses

6. As a preliminary issue, the plaintiff sought leave to cross-examine two deponents.  Ms Selina Lau, counsel for the plaintiff, submitted that it was necessary, in order to achieve a just outcome, for her to have the opportunity to cross-examine Ms Petra Ko, the defendants’ solicitor who has filed 16 affirmations and Mr Louie Chan, the 4^th defendant.

7. The application for leave to cross-examine possessed an unusual feature.  The Order 24, rule 16(1) application to dismiss is the defendants.  Thus, the conduct under scrutiny is that of the plaintiff’s two directors and yet it was the defendants’ deponents who were the subject of the application to give oral evidence and be cross-examined.  Ms Priscilla Wong, counsel for the defendants, made no counter- application for leave to cross-examine the plaintiff’s deponents in support of her application.  Ms Lau’s argument was that it would not be fair to evaluate the plaintiff’s conduct without looking at “the other side of the coin”.  My preliminary view was that it would not be fair to hear only the defendants’ deponents.  I should either hear the plaintiff’s deponents or both sides or neither side; but not the defendants’ witnesses only.

8. The parties ultimately agreed with the following procedure.  It was agreed that the oral submissions should continue to a conclusion.  I would then decide whether or not I needed to hear either Ms Petra Ko or Mr Louie Chan being cross-examined in order to justly dispose of the application.  If I did, another day or two would be set aside to receive such evidence.

9. We have now reached that point.  Do I need to hear the applicants’ deponents being cross-examined in an interlocutory summons about which the key issue is conduct of the plaintiff’s deponents?  In answering that question, I bear in mind that, although it is unusual to do so, one circumstance in which it may be desirable to hear evidence is when the outcome of the interlocutory hearing could be an order which will bring the entire action to an end.  This is such a circumstance.

10. However, the short response to the question is that I do not need to hear evidence from the two deponents because, for the reasons which follow, I have come to the conclusion that the application to dismiss under Order 24, rule 16(1) should be dismissed.

The defendants’ complaints

(a)   The plaintiff has launched and maintained a false claim

11. This allegation is highly contentious.  It is not possible to resolve it at an interlocutory stage.  An investigation into such an allegation is permissible at this stage but, in all the circumstances, it is better left as a matter for trial.

(b)   The plaintiff’s efforts to comply with discovery orders prior to the commencement of the trial were unsatisfactory and/or illusory

12. The plaintiff is guilty of some default in this regard.  However, an analysis of it is of only peripheral value because it could not have formed the basis of an application to dismiss in March 2005 and the weight to be attached to those particular defaults does not increase as a result of subsequent events.

(c)   The plaintiff’s “opening” at trial in March 2005

13. During the opening, Ms Lau, for the first time, quantified the plaintiff’s claim for loss of business.  In a nutshell, the plaintiff’s claim is that for about two to three years prior to 2 August 2001 it had been building up business with the large USA corporation “General Electric” (“G.E.”).  However, that business was terminated from 2 August 2001 as a result of the defendants’ wrongful interference.  The plaintiff claims HK$9.7 million loss of future business with G.E.  The court and the defendants were informed during the opening that this figure was arrived at as a result of calculating a hypothetical figure for one year’s profits prior to August 2001 and then multiplying that figure by 3½ years.  When asked why a multiplicand of 3½ had been used for future loss of business, Ms Lau acknowledged that the argument would be in “unchartered waters” and that she would be submitting that an argument akin to personal injuries cases would be advanced.

14. Not surprisingly this new information prompted further discovery requests and applications.  The requests, applications, correspondence and orders have helpfully been put into schedule form.  To set it all out in detail would be to embark on an inappropriate and unnecessary exercise in the course of giving this decision.  Two matters only are at the heart of the matter.

15. Firstly, the “Tab 9” issue.  Initially, the plaintiff, in response to the discovery order, had revealed eight transactions (as Tabs 1 – 8 inclusive) it had had with G.E. between 1999 and August 2001.  Its case being that in August 2001 its business with G.E. came to a grinding halt.  However, as late as September 2005, a 9^th transaction (Tab 9) was disclosed.  This concerned business with G.E. in late 2001 (i.e. after August 2001).  The transaction, at first, suggested a sale of 53,760 “2AA” push lights to G.E. and a sale of 4,776 “4AA” push lights in the same purchase order.  The latter (the “4AAs”) being the subject matter of the copyright infringement claim.

16. The defendants, through their own enquiries with G.E., had some knowledge of the Tab 9 transaction for some time before September 2005.  Clearly if the plaintiff was still doing business with G.E. after August 2001, it would damage their claim that the defendants had caused the termination of all its business in August 2001.  The defendants did not tell the plaintiff what they knew about Tab 9 and accordingly complain that not only was the discovery by the plaintiff on 12 September 2005 very late but more, it was a contumacious, wilful default.  It is suggested that they were deliberately concealing it.

17. The plaintiff conceded that the sale of 53,760 2AA lights had been completed in late 2001.  I will deal with the explanation later.  As to the 4,776 4AA lights (upon which the profit to the plaintiff would have been about US$2,000), they say that that order was never fulfilled.  An analysis of the various contemporary emails and documentary attachments thereto makes it impossible for the defendants to gainsay that proposition.

18. Secondly, the “Tab 7” issue.  Documents relating to the 7^th transaction were disclosed in the first round of discovery in March 2005.  The defendants complain that the purchase order (“PO”) was missing.  They submit, inter alia, that the date of the PO affects the arithmetic adopted by the plaintiff when calculating the loss of profit.  If, in fact, the 7^th transaction dates from 2000 and not 2001, it should not be used when calculating the last year’s profits and thus, it is argued, the plaintiff has deliberately inflated its claim by suppressing the Tab 7 PO.  The issue is whether, because the date of the Tab 7 PO is earlier in time, it should be included in the arithmetic or not.  The plaintiff submits that the date of the PO is irrelevant, it is the date of delivery which is relevant.  It is true that the inclusion of the Tab 7 transaction in the plaintiff’s chosen method of quantifying its claim does significantly increase its value.

19. It is the defendants’ case that the above important information only came to light as a result of continuous requests for further discovery, applications for subpoenas ad testificandum and duces tecum directed at 3^rd parties involved in the “undiscovered” transactions (which the plaintiff unsuccessfully applied to set aside) and the commencement of contempt proceedings against Mr Bruce Chaiko of the plaintiff company.

20. The defendants refute the plaintiff’s complaint that they are guilty of “entrapment” (because they had become aware of the Tab 9 and Tab 7 shortcomings of the plaintiff earlier in time, but did not tell them).  

21. I accept the defendants’ position as to the alleged “entrapment” which, in a nutshell, is that they were under no duty to disclose the results of their investigations with 3^rd parties.  “Entrapment” does not arise.

22. The above is not a comprehensive outline of the defendants’ complaints.  It merely addresses the more important issues.  If the defendants fail to satisfy the court in relation to these key issues, consideration of the remainder becomes academic.

THE PLAINTIFF’S RESPONSE

(a)   The Tab 9 transaction

23. The plaintiff acknowledges that the Tab 9 transaction is relevant to both liability and quantum in the ‘wrongful interference’ claim.  The plaintiff also accepts that they were not discovered in compliance with the 19 April 2005 order.

24. On 14 September 2005, both Bruce Chaiko and Peggy Liu, his wife and co-director, filed affirmations which set out the reasons for the non-disclosure.  Briefly, it is stated that the order for 53,760 2AA lights dated back to an order in May 2001 which the plaintiff had been asked to store on a “stand by” basis.  During conversations in August G.E. confirmed that they would take this outstanding order.  However nothing more was heard until December when, as a result of further email exchanges, the order was sent.  The plaintiff never regarded it as new business after 2 August 2001 and it was omitted from Tabs 1 – 8 because as at 2 August 2001 G.E. had not confirmed it and it was later overlooked when Tabs 1 – 8 were being prepared.  Both deponents go into much greater detail but this is this gist of their explanation. 

25. As for the 4776 4AA lights they were never sent.  The emails strongly suggest this.  The defendants were aware of the emails and should not have suggested (as Louie Chan did in his 4^th affirmation) that the plaintiff was concealing the fact that this very consignment was also sent in about January 2002 when they knew it had not been.

(b)   The Tab 7 PO omission

26. This is dealt with on affirmation solely by Peggy Liu as follows.  Firstly, because of a typographical error by the defendants, the PO being requested was given the wrong number.  The plaintiff was therefore searching for a non-existent document.  Secondly, once the error was rectified and the correct number was searched, it has always been the plaintiff’s case that it never received an original copy.  Thirdly, all other documents relating to the Tab 7 order had been disclosed timeously.  All the necessary information relating to the Tab 7 order could be gleaned from the documents actually disclosed.  The actual PO adds nothing.  Fourthly, the effect of the date of the PO on the calculation of loss of business is a matter for argument.  If the plaintiff’s method is accepted by the court, the date of the PO makes little or no difference to the final sum.  Sixthly, the defendants never specified this document in their requests even though they had their own copy of it.  Seventhly, when, as a result of receiving the contempt proceedings originating notice, they realized precisely what was required in this regard, they unearthed a very faded, hardly legible fax copy which they then disclosed.

(c)   Other defaults in discovery and other matters

27. As already stated, these relate to matters not only since the opening of the trial but also beforehand.  As already stated, these are not wholly irrelevant, but I regard them as peripheral and adding little weight to the key issues in the Order 24, rule 16(1) application.  They include inadequate compliance with requests for further and better particulars, maintaining a false claim, claiming to be ready for trial when they were not and attempts to evade service of contempt papers.

28. Each allegation is dealt with briefly in the affirmations.  They deny evading service of the contempt proceedings, they continue to maintain readiness for trial and dispute the inadequacy of their further and better particulars.

The court’s decision

29. Firstly, it should be emphasized that I have carefully considered Miss Wong’s cogent attack on the explanations proffered for the admitted defaults by the plaintiff.  In many respects the arguments, which I need not outline, are persuasive.  However, the question is : are they sufficient to cause the court in the exercise of its equitable jurisdiction to close the door on the plaintiff’s claim.  For the following reasons, I do not think that they are :

(1)	In order to succeed the plaintiff’s evidence on affirmation should be regarded as unacceptable, without merit and an inadequate answer to the complaints.  I find myself unable to reject that evidence on a mere reading of it.  Had the defendants sought leave to cross-examine the plaintiff’s witnesses it would have been difficult to refuse the application.  Their oral evidence may have damaged their case, it may have improved their case; it is impossible to say which.  However, the contents of the affirmation are such that they should not be rejected without more.  In short, the issues which have been canvassed in the course of the dismissal application have wounded the plaintiff’s claim but not fatally.  Whether a full recovery from those wounds is made will be an issue at trial.
(2)	I accept Miss Lau’s argument that the usual situation in which an Order 24, rule 16(1) application is made is when there has been a breach of an “unless order”.  This is not such a case.  Plainly it does not have to be a breach of an “unless order” but the fact that it is not presents one more hurdle for the applicant to overcome.  In the entire tortuous history of this matter so far, there has been only one application for an “unless order”.  It was made by the defendants and was refused.
(3)	Looking at the whole picture of the events since the trial opened in March 2005, I do not regard the plaintiff’s conduct as a wilful flouting of or ignoring of court orders.  The problems could have arisen not so much because of a refusal to provide any documents at all but because of an insufficiency in what was disclosed due, arguably, to a misapprehension of what was required on the plaintiff’s side together with, arguably, a lack of precision in the requests on the defendants’ side.
(4)	A number of authorities have been cited to me in the course of submissions.  In particular, Ka Wah Bank Ltd v. Low Chung Song & another [1981] 1 HKLR 451, Image Technology (HK) Ltd & 3 others v. Ho Ying Cheong and 2 others, HCA6861/1993, Logicrose Ltd v. Southend United Football Club Ltd, The Times, 5 March 1988, Chan Chun Lung Allen v. Ryland Ltd & others, HCA4904/1996 and A v. B [1998] HKLRD 542.
	The above cases are, broadly speaking, illustrative.  The evaluation of a particular default or alleged default must always be put in the context of the particular facts of the case.  Consideration of the many and various different types of defaults or alleged defaults in the above cases invariably concludes with the two questions with which this decision started; namely, is there a real risk that a fair trial is no longer possible and has a party deliberately suppressed documents in circumstances amounting to contumacious conduct?

30. Although not easy questions to answer in this particular case, I have come to the conclusion that both be answered in the negative.

31. As to the meaning of “contumacious” I refer to a passage in the Chan Chun Bing Allen case where Ribeiro J, as he then was, said :

“The PT Bank Pembangunan test makes it clear, that, as with any other case in which a party approaches the Court for an indulgence, it is incumbent on the Applicant to adduce evidence upon which an exercise of discretion in his favour may be founded.  As has often been pointed out, the dual requirements of (i) the lack of contumelious conduct and (ii) the existence of extraneous circumstances excusing non-compliance, overlap.  Thus, in Hytec (at p.1677), Auld LJ stated :-

‘There is inevitably some scope for overlap between these two separate notions for an applicant seeking to avoid a strike out.  In showing that his failure was due to extraneous circumstances, he would in ordinary circumstances demonstrate that it was not intentional.’

For non-compliance to be contumelious, there is no necessity for it to involve anything akin to a contempt of court.  Non-compliance is contumelious where it is the result of the litigant’s conscious and deliberate decision to ignore or disobey the court’s order in the absence of any extraneous excuse.  Such deliberate conduct may be contrasted, for instance, with cases where the litigant has made a serious effort to comply in good faith but has been unsuccessful through bad luck or incompetence (c.f., Ka Wah Bank Ltd v. Lo Chung-song & Anr [1989] 1 HKLR 451), or with cases where the litigant has not complied because of circumstances outside his control (including cases where his solicitor has negligently or otherwise missed the deadline through no fault of the litigant).”

32. There is no distinction of any significance between “contumacious” and “contumelious”, the latter (meaning insolent or insulting) being descriptive of the former (meaning a wilful disregard of authority, such as a summons).

CONCLUSION

33. In spite of the wholly disproportionate amount of time and money already spent on this case, the parties have now arrived back at the starting gate.  Both parties have been warned that the court’s diary will not permit a resumption of this case for a considerable time.  If nothing else this will provide both parties ample time to reflect on the present state of their respective cases.  The defendants have not succeeded in this particular battle but neither has the plaintiff emerged unscathed.

34. The application under Order 24, rule 16(1) is dismissed with a costs order nisi that the defendants are liable for the costs of arising out of and occasioned by the application.