WEALTHY CATERING HOLDINGS LTD v. SUPERIOR LUCK LTD AND ANOTHER

DCCJ 5075/2015
DCCJ 5628/2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5075 & 5628 OF 2015

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DECISION

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1.  By a summons dated 19 April 2017, the 1^st defendant makes an application under Rules of the District Court (“RDC”), Order 38 rule 21, for an order that:-

(a) leave be granted to the 1^st defendant to call and cross-examine the following persons on the contents of the documents listed as items 5, 14 to 18 of the plaintiff’s list of documents filed on 7 November 2016 (“P’s LOD”):-

(1) Mr Leung Kui Tang (“KT Leung”) and/or Mr Lau Ying Wo (“Lau”); and

(2) Mr Leung Yat Wong (“YW Leung”);

(b) leave to the 1^st defendant to issue and serve writs of subpoena in accordance with Order 38 rule 14 for the purpose of securing the attendance of the said persons at the trial of these proceedings; and

(c) costs of the application be in the cause.

2.  The summons is supported by the affirmation of Ho Shek Wing (“Ho”), who is a director of the 1^st defendant.

3.  The 1^st defendant and the 2^nd defendant are represented by the same legal team in these proceedings, but the 2^nd defendant does not take part in this application.

4.  The plaintiff adopts a neutral stance in respect of this application but invites this court to exercise the case management powers as stipulated in RDC Order 1A to scrutinize the 1^st defendant’s application.

5.  The pre-trial review of these proceedings will take place on 3 July 2017, and the trial will start on 4 September 2017 with 4 days reserved.

Background

6.  The plaintiff and the 2^nd defendant are shareholders and directors of the 1^st defendant.  The 1^st defendant was the corporate vehicle through which the plaintiff and the 2^nd defendant ran the “Joy Luck Club” pursuant to the agreement(s) entered between the parties in 2011.  Joy Luck Club was a mahjong entertainment business.

7.  According to the relevant agreement(s), the plaintiff granted the 1^st defendant a franchise to run Joy Luck Club for 4 years, ending by 30 September 2015.  Joy Luck Club was operated on premises situated in Fanling (“the Premises”).   In the plaintiff’s case, the landlord of the Premises was Easter Group Trading Limited (“Eastern Group”), who let the Premises to a company called “Appreciate”.  Appreciate then sub-let the Premises to the plaintiff, and the plaintiff entered into agreement(s) with the 1^st defendant permitting the 1^st defendant to run Joy Luck Club therein.

8.  In September 2015, before the end of the term of the franchise, the said mahjong entertainment business was no longer covered by any valid and effective licence.  The mahjong entertainment business could not be carried on.  On 26 September 2015, the 1^st defendant delivered the possession of the Premises to Appreciate.

9.  The disputes between the parties ensued.  The plaintiff initiated DCCJ 5075/2015 against the 1^st defendant, and the 2^nd defendant commenced DCCJ 5628/2015 against the plaintiff.  On 9 August 2016, the court ordered that the two actions be consolidated.

10.  The disputes in these proceedings include the following:-

(a) In the 1^st defendant’s case, all matters concerning the licence for the mahjong entertainment business were agreed to be handled by the plaintiff exclusively.  The 1^st defendant says that there was a breach of agreement(s) between the parties and/or in any event the breach of director’s duties on the part of the plaintiff in relation to the licensing matter which led to the situation.

(b) The plaintiff denies the breaches suggested by the 1^st defendant.  On the other hand, the plaintiff says, inter alia, that the tenancy agreement between Appreciate and Eastern Group required Appreciate to reinstate the Premises when delivering vacant possession at the end of the lease.  Such duty was incorporated into the lease between Appreciate and the plaintiff, and also the agreement between the plaintiff and the 1^st defendant.   As a result of the 1^st defendant’s failure to reinstate the Premises, the plaintiff has incurred costs on reinstatement.  Further, for the purpose of doing the reinstatement, the plaintiff occupied the Premises until October, ie 19 days after the expiry of its lease with Appreciate.  The plaintiff claims against the 1^st defendant for, inter alia, the costs incurred in the said reinstatement and the amount payable to Appreciate for the occupation of the Premises for the period beyond 30 September 2015.

(c) Regarding such matters raised by the plaintiff, the 1^st defendant denies the duty to reinstate as suggested by the plaintiff.  The 1^st defendant further says that the amount incurred and the time spent on reinstatement are unreasonable.  The 1^st defendant also says that on 26 September 2015, Appreciate took delivery of the Premises and confirmed of the acceptance of the interior state of the Premises.  The plaintiff was not present on that occasion.  Appreciate asked the 1^st defendant to inform the plaintiff of Appreciates’ acceptance of the Premises, which the 1^st defendant did accordingly.

11.  The plaintiff filed the P’s LOD on 7 November 2016, in which the plaintiff discloses, inter alia, the following documents:-

Category A - Documents concerning Appreciate

(a) Item 5 on P’s LOD - Copy of a written confirmation signed and sealed by Eastern Group and Appreciate, in which the parties confirmed that on 20 October 2015, Eastern Group had taken back the Premises from Appreciate

(b) Item 14 on P’s LOD - Copy of an invoice issued by Appreciate to the plaintiff dated 29 October 2015 for the rent and the management fee in October 2015

(c) Item 18 on P’s LOD - Copy of a demand letter dated 8 October 2015 issued by Appreciate to the plaintiff together with a copy of the invoice No.006220 dated 29 September 2015, which concern the electricity fee, the rent and the guarantee money for September 2015

Category B - Documents concerning Art Work Engineer (“AWE”)

(d) Item 15 on P’s LOD – Copy of an official receipt issued by AWE to the plaintiff dated 29 October 2015

(e) Item 16 on P’s LOD – Copy of a quotation dated 16 September 2015 from AWE to the plaintiff concerning the demolition works in a club in Fanling

(f) Item 17 on P’s LOD – Copy of a quotation dated 22 October 2015 from AWE to the plaintiff

12.  On 2 December 2016, the defendants issued a notice disputing authenticity of the aforesaid documents.

13.  On 17 February 2017, the plaintiff issued a hearsay notice covering, inter alia, the said documents.

14.  On 20 February 2017, in the case management conference, the 1^st defendant briefly mentioned cross-examining the makers of the said documents but there was no detailed discussion on that issue.

15.  After the case management conference, the 1^st defendant wrote to the plaintiff asking it whether it would tender the makers of the said documents for cross examination and the identity of such witnesses.

16.  On 19 April 2017, the 1^st defendant took out the summons.

The principles

17.  Order 38 rule 21 provides:-

“(1) Where a party tenders as hearsay evidence a statement made by a person but does not propose to call the person who made the statement to give evidence, the Court may, on application-

(a) allow another party to call and cross-examine the person who made the statement on its contents;

(b) allow any party to call-

(i) additional evidence to attack or support the reliability of the statement;

(ii) additional evidence to attack or support that first-mentioned additional evidence.

(2) Where the Court allows another party to call and cross-examine the person who made the statement, it may give such directions as it thinks fit to secure the attendance of that person and as to the procedure to be followed.” (Emphasis added)

18.  As to what should be considered in exercising the jurisdiction under Order 38 rule 21, in High Fashion Garments Co Ltd v Ng Siu Tong & Others [2004] 1 HKLRD 928, DHCJ Lam (as hen then was) said at [12]:-

“I hasten to add that each case must depend on its own facts and circumstances. In holding as I did in para.11 above, I am not suggesting that in every case where a party seeks to adduce hearsay evidence, the other party would be entitled to seek an order from the court directing the former party to procure the attendance of the maker for cross-examination. Such a proposition is plainly untenable and would probably defeat the main purpose of the Evidence (Amendment) Ordinance 1999 to further liberalise the admission of hearsay evidence. The discretion must be exercised in the light of, amongst other things, the impact of that piece of hearsay evidence, the relationship of the maker with either party, the history of the case, the practicalities as to the procurement of the maker to give evidence and other relevant considerations. I am of the view that the factors set out in s.49 of the Evidence Ordinance (albeit in the context of weighing hearsay evidence) would also be relevant.” (Emphasis added)

Basis of the application

19.  The basis of the 1^st defendant’s application is set out in the supporting affirmation, in which Ho said:-

“16. As the Documents are concerned, according to the Plaintiff's pleadings, they are related to the present actions in this way:-

(1) In the Plaintiff's case, the Plaintiff signed a lease (as sub-tenant) with Appreciate Limited (as head-tenant) pursuant to which Appreciate Limited let the business premises of the Joy Luck Club to the Plaintiff. The Plaintiff then signed a lease with the 1st Defendant to further sub-let the said premises to the 1st Defendant. The 1st Defendant ran the Business thereon.

(2) In the Plaintiff's case, the lease between the Plaintiff and the 1st Defendant came to an end by 30 September 2015. Under the lease, it was a contractual duty of the 1st Defendant to reinstate the premises. However, the 1st Defendant delivered possession of the premise without reinstatement.

(3) In the Plaintiff's case, the Plaintiff reinstated the premises, which resulted in the late delivery of the possession of the premises by the Plaintiff to Appreciate Limited.  The Plaintiff had to pay Appreciate Limited rental and/or mense profits and management fees for occupying the premises in October 2015.  Furthermore, the Plaintiff also incurred costs in reinstatement of the premises.

The 1st Defendant's Application

17. In view of the Plaintiff's case, I am advised and I verily believe that the Plaintiff is now relying on the Documents as to their truth in order to support the Plaintiff's case.

18. However, as mentioned before, the Plaintiff did not reply the 1st Defendant's request made by way of letter of 17 February 2017.  The Plaintiff has failed and/or refused to provide any information or take any step as is reasonable and practicable in the circumstances for the purpose of enabling the 1st Defendant to deal with the matters arising from the Document's being hearsay.

19. I am aware of the fact that the authenticity of the Documents is in dispute.  Therefore, if they are not authentic, the persons named in the summons may not be the true makers of the Documents, and that the calling of them may not be necessary because the Court will not admit or otherwise attach any weight to the Documents.  However, I verily believe that it will be too late if the 1st Defendant does not make an application basing on an assumption that the Documents were made by [Appreciate] and [AWE] now but wait until after the Court has finally determined the issue of the authenticity if the Documents, which could well be after the end of the trial.

20. In the circumstances, although the authenticity of the Documents is in dispute and has not been determined, I verily believe that the 1st Defendant should be given the opportunity to cross examine the persons named in the summons at the trial, otherwise the 1st Defendant’s right will be prejudiced.” (Emphasis added)

20.  The 1^st defendant says that KT Leung and Lau are Appreciate’s representatives.  During the hearing of the summons, Mr Chai, counsel for the 1^st defendant, makes it clear that the 1^st defendant is only seeking an order to cross-examine Lau.

21.  The 1^st defendant also says that AWE is a sole proprietorship run by YW Leung, and hence the 1^st defendant is seeking leave to cross-examine YW Leung.

No jurisdiction under Order 38 rule 21 if the documents are unauthentic

22.  In the supporting affirmation, the position adopted by the 1^st defendant is that the documents in question are not authentic, in the sense that Category A documents are not made by Appreciate, and Category B documents are not made by AWE.  If the 1^st defendant is correct on this, I do not see how Order 38 rule 21 would be applicable.  It is clearly and unequivocally stated in rule 21(1) that the rule concerns “a statement made by a person” in hearsay evidence.  Further, in rule 21(1)(a), it is clearly stipulated that the person to be called and cross-examined is “the person who made the statement”.  By saying that Category A documents are not made by Appreciate, the 1^st defendant is saying that the statements therein are not statements made by Appreciate.  Similarly, by saying that Category B documents are not made by AWE, the 1^st defendant is saying that the statements therein are not statements made by AWE.  In this scenario, it would not be permissible for the 1^st defendant to mount the present application pursuant to Order 38 rule 21.

23.  If the documents in question are not made by Appreciate and AWE respectively, I do not have jurisdiction to give an order in terms of the summons under Order 38 rule 21.

24.  In answering the queries raised by the court on this point during the hearing, Mr Chai, after taking instructions, tells this court that the 1^st defendant accepts that Category A documents are documents made by Appreciate, and Category B documents are documents made by AWE.  In other words, the 1^st defendant has elected to abandon their previous challenge on the authenticity of these documents. 

No satisfactory reason in support of cross-examination

25.  I proceed to consider whether the order sought by the 1^st defendant should be made on the basis that the documents in question are made by Appreciate and AWE respectively.

26.  I am of the view that no satisfactory reason has been given in support of cross-examining the maker of Category A documents.

(a) One of the disputes between the plaintiff and the 1^st defendant is whether Appreciate has taken back the Premises on 26 September 2015 and confirmed acceptance of the interior state of the Premises.  The 1^st defendant says “Yes”, and this is a positive case put forward by the 1^st defendant.  The plaintiff says “No”, and the plaintiff has incurred costs to reinstate the Premises and has only been able to return possession of the Premises to Appreciate in October 2015, and the plaintiff has paid to Appreciate for occupation of the Premises beyond 30 September 2017.

(b) I understand that the documents set out in §11(a) and (b) above may be relevant to this dispute.  However, I do not see in what way the document mentioned in §11(c) above is relevant to the dispute or any other disputes in these proceedings.

(c) Since the 1^st defendant has put forward a positive case, I would expect the 1^st defendant to adduce evidence to prove its positive case at trial.

(d) Whether the documents set out in §11(a) and (b) above can lend any support to the plaintiff’s case depends upon the weight given to these documents.  The court would assess and determine how much weight should be given to these documents by taking all the relevant factors into account, including the other evidence adduced by the plaintiff, the evidence adduced by the 1^st defendant, the true meaning of these documents, the fact that these documents are hearsay evidence and the makers of the same have not given any evidence at the trial.

(e) By merely saying that a hearsay document is relevant to an issue at the trial would not be sufficient to justify an order for cross-examining the maker of the document.  The applicant must show a satisfactory reason justifying the proposed cross-examination.  See High Fashion Garments (supra).

(f) In my view, no satisfactory reason has been shown by the 1^st defendant.

27.  I am also of the view that no satisfactory reason has been given in support of cross-examining the maker of Category B documents.

(a) The 1^st defendant says that the reinstatement costs and the time spent in doing the reinstatement are unreasonable.  Category B documents may be relevant to these challenges.

(b) What I have said in paragraph 26 above also apply here.  I expect the 1^st defendant  would adduce evidence at trial to make good its challenges.  The court would assess and determine the weight to be given to Category B documents after taking all the relevant factors into account at trial.  By merely saying that these documents are relevant to an issue at the trial, without more, would not be sufficient to justify an order for cross-examination.  The 1^st defendant has not shown a satisfactory reason justifying the proposed cross-examination.

Disposition

28.  For these reasons, I exercise my discretion against the 1^st defendant and dismiss the 1st defendant’s summons.

29.  I have heard submissions on costs.  Although the plaintiff has adopted a neutral stance, they have incurred costs in this application.  The application was made by the 1^st defendant, in which the 1^st defendant fails.  In my view, there is no reason to depart from the general rule of costs following the event.  I order that the plaintiff’s costs in this application be paid by the 1^st defendant to the plaintiff in any event, with a certificate for counsel, to be taxed if not agreed.

30.  I thank both Mr Chai and Mr But for the assistance rendered to the court.