GLENWYNE V. LTD v. TISCO SECURITIES HONG KONG LTD

HCA 2068/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2068 OF 2007

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REASONS FOR DECISION

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1.  This is an appeal by the Defendant in these High Court Proceedings against an Order of the Master made on 28July 2011, refusing an application for specific discovery of documents by the Plaintiff, and awarding the costs of the application to the Plaintiff. At the hearing on 10 November 2011 I allowed the appeal in part. These are my reasons for so doing.

2.  The Plaintiff is described by the Defendant as a special purpose mutual fund vehicle incorporated in the BVI.  The Plaintiff received investments from external investors and, in turn, invested that money, so far as relevant, in Hong Kong.  The Defendant, although now in members’ voluntary liquidation was, at the relevant time, a securities dealer. 

3.  The Plaintiff opened an account with the Defendant in May 2000, and appointed a company, Asia Financial (Assets Management) Limited as its investment manager.  Subsequently, in about September 2001, International Funds Services (Ireland) Limited (“IFS”) were appointed as the administrator of the Plaintiff’s trading account with the Defendant (“the Account”).  Thereafter the investment manager (or an apparently related company) purported to inform the Defendant that authority to approve trading on the Account had been transferred to others.

4.  The Plaintiff alleges that trades that were executed thereafter, specifically in the period between 1October 2001 and 31 August 2002 were effected without proper authority of the Plaintiff, and claims substantial damages in consequence.

5.  The Defendant denies that there was any lack of authority in the making of those transactions and, moreover says that the Plaintiff was fully apprised of all transactions made in that period.  The Plaintiff is said by the Defendant therefore to have ratified the relevant transactions, or is said to be estopped from denying their validity.

6.  The terms of the relevant pleading are germane:

“18. In the premises, the Plaintiff having been aware of all transactions effected on the Account, the Plaintiff cannot now dispute the authority by which the transactions were made, no such dispute having been raised within a reasonable time and the Plaintiff having therefore now ratified the acts of its agents.

19.    Further or alternatively, by operation of laches or otherwise, the Plaintiff is estopped from bringing complaint or pursuing an action against the Defendant.”

The discovery sought

7.  The Defendant’s summons sought the following, pursuant to Order 24 rule 7 of the Rules of the High Court:

“1. Documents including but not limited to emails, letters, telephone and meeting attendance notes or recordings, management reports, summaries and memoranda (in both physical and electronic form) between International Fund Services (Ireland) Ltd (‘IFS’) and the Plaintiff regarding trades in shares and warrants on the Hong Kong Stock Exchange during the period described in paragraph 23 of the Amended Statement of Claim as the ‘Unauthorised Period’;

2. Documents including but not limited to emails, letters, telephone and meeting attendance notes or recordings, memoranda, statements, reports, board minutes and resolutions (in both physical and electronic form):

(a) internal to the Plaintiff; and/or

(b) between the Plaintiff and the investors of the Plaintiff; and/or

(c) between the Plaintiff and any other parties,

in which the Plaintiff’s investment portfolios, strategies or positions for the period from 1 October 2001 to 31 August 2002 are discussed.”

8.  In submissions counsel for the Defendant proposed adding to paragraph 1 of this formulation the words “conducted through the account” following the reference to the Hong Kong Stock Exchange.

The relevant principles

9.  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, Order 24, rule 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: Paul’s Model Art GMBH & Co KG V UT Ltd & Ors - [2006] 1 HKC 238.)

10.  Mr Maurellet, appearing for the Plaintiff emphasised the importance of the class or category of documents sought being properly defined as was emphasised by Deputy Judge Coleman SC in Re LehmanBrown Ltd [2011] 4 HKLRD 250: “The prerequisites for the existence of the jurisdiction to make an order must be established in respect of the class described as a class, not as regards only some documents in the class.”  I am reminded that the learned deputy judge recorded also that it would only be in circumstances where the discovery was necessary for fairly disposing of the cause or matter that the discretion would be exercised to require discovery to be given.

The submissions

11.  The Defendant submits that the documents which it sought under the summons are ex facie relevant to the averments made in the Defence; that the Plaintiff was aware of the transactions about which complaint is now made at the relevant time such that the Plaintiff has either ratified those transaction or is to be precluded from now asserting that such transactions were invalid or wrongful.

12.  The Defendant says that there is an unavoidable inference as to the existence of both types of documents sought and their being in the possession custody and control of the Plaintiff, as set out in the 4^th affidavit of Cosimo Borrelli.  The jurisdictional threshold having been crossed, it is the Defendant’s submission that the court’s discretion ought to be exercised so as to require the disclosure because it is necessary for the fair determination of the issues.

13.  The Plaintiff submits that the documents sought are not relevant to any issue identified in the pleadings.  Mr Maurellet refers me to the decision in Paul’s Model Art GMBH, and draws my attention to the reminder by the Court of Appeal that the identification of issues in the pleadings calls for an identification of issues that are relevant in the sense that they are issues likely to affect the result of the action.  Mr Maurellet submits that the pleadings relied on by the Defendant as raising the issues of ratification and estoppel are in themselves deficient, there being no sufficient factual basis averred to give rise to real issues to be decided between the parties as to ratification or estoppel.  In particular, it is submitted that the Defendant has not pleaded the conduct demonstrating ratification, or the detrimental reliance justifying a plea of estoppel.  There is therefore no true issue between the parties as to ratification or estoppel until these elements are properly identified and therefore no relevance in the discovery that is sought.

14.  The Plaintiff is also critical of the formulation and width of the discovery that the Defendant seeks, submitting that this will inevitably bring in documents that cannot be of relevance to any issue between the parties.  For this reason also therefore the Plaintiff submits that the applications were rightly refused by the Master.

15.  In response the Defendant, while not accepting the criticism made of the pleading, submits that the proper approach is to take a broad view of the issues between the parties, considering what the issues at the trial are likely to be rather than narrowly viewing the strengths or weaknesses of a pleading as a basis on which to judge the relevance of the documents sought to the issues between the parties.

Decision

16.  For the purposes of determining this appeal I accept, without deciding, that Mr Maurellet’s criticisms of the Defendant’s pleading are justified.  Does that, in effect, remove ratification and/or estoppel as issues between the parties for discovery purposes?  I do not think that it does.  The Defendant has undoubtedly raised these matters in its Defence, and is in my view prima facie entitled to discovery in relation to those issues, even if the Plaintiff is assumed to be entitled either to particulars of the pleading or to seek to strike out the relevant pleading.  The parties have proceeded on the basis of the present pleadings and were the matter unchanged at the trial the Defendant would, it appears be entitled to lead evidence or make submissions on these issues.

17.  However, I do not wholly accept that the Defendant is entitled to this specific discovery in connection with these issues.  There were two limbs to the application.  The first category was documentary communications between the Plaintiff and the administrator, IFS. These I believe to be both relevant and necessary for a fair determination of the issues between the parties, and accordingly I take the view that the learned Master was in error when he refused this part of the Defendant’s application.

18.  However I do not think he erred in regard to the second limb of the summons; the documents and communications relating to the Plaintiff’s investment strategy.  There is no pleading that raises this specific topic, and notwithstanding Mr Manzoni’s oral submission as to the way in which this might impinge on the question of ratification, I find it difficult to conclude that there is anything more than peripheral potential relevance in this part of the application.  That being so it seems to me that the Defendant has not crossed the jurisdictional threshold, but if it has, has not made out a case that there is any necessity in the discovery of these documents.

19.  Moreover it seems to be at least possible that an order in the terms sought in regard to this category of documents will involve the disclosure of documents which are wholly irrelevant to the disputes between the parties.  Mr Manzoni submitted that it was for the Plaintiff to show that this was the case by evidence, and that the Plaintiff had not done so. I do not need to decide this point in the circumstances, but since the party seeking specific discovery must precisely identify the relevant documents or categories of document which are to be disclosed, it seems to me to be open to doubt whether such an evidential burden lies on the Plaintiff in this case.

Order

20.  The appeal is allowed in part.  There will be an Order that the Plaintiff file and serve a further and better list of documents concerning documents in the class specified in paragraph 1 of the Schedule attached to the Summons dated 12 May 2011, as that paragraph was modified at the hearing as above.  There will be Orders in terms of paragraphs 2 and 3 of the Notice of Appeal.

Costs

21.  Having heard counsel I make no order as to the costs below which will remain as ordered by the Master.  The costs of the appeal are to be to the Defendant.