XCHRX TULLETT & TOKYO INTERNATIONAL SECURITIES LTD. v. DHARMALA SECURITIES CO. LTD.

1997 No. A12467

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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J U D G M E N T

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Introduction

1. This is an appeal by the Defendant from the refusal of the master to order specific discovery by the Plaintiff under Ord. 24 r. 7(1) of six classes of documents. The claim for specific discovery of one of those classes has been abandoned. I am satisfied that there is a prima facie case that documents in all the other five classes exist, and that they are or have been in the possession of the Plaintiff. The six original classes of documents were set out in the schedule to the Defendant's summons dated 3rd September 1998. It is the documents in para. 5 of that schedule which are no longer sought by the Defendant.

Classes 1, 2 and 4

2. The principal issue in the case is whether the alleged agreement for the sale of the shares to the Defendant was illegal and therefore unenforceable. The principal basis on which it is said that the agreement was illegal and therefore unenforceable is

(a) that the Plaintiff was operating a stock market otherwise than through the Unified Exchange, which if correct would be prohibited by section 20(1) of the Securities Ordinance (Cap. 333), and

(b) that the alleged agreement to which this action relates constituted trading on that prohibited stock market.

Whether the alleged agreement constituted such trading depends, in part at any rate, on the true nature of the agreement - for example, whether the shares were being sold by the Plaintiff as principal in its own right or as agents on behalf of the sellers. The documents in classes 1, 2 and 4 are limited to the particular agreement to which the action relates, and will throw light on the nature of the agreement. In my view, it cannot sensibly be said that they do not relate to the principal issue in the action. I am satisfied that the probative value of the documents in those three classes outweighs by a significant margin any inconvenience to the Plaintiff in disclosing them, and I am satisfied that their disclosure is necessary if the court is to determine the principal issue in the case in an informed way.

Class 3

3. Among the other pleaded issues in the action are

(a) whether there is a custom of the trade that an oral agreement for the sale of shares would be subject to written confirmation by the parties to it, and

(b) whether the Plaintiff should have been concerned as to whether the employee of the Defendant who is alleged to have concluded the agreement with the Plaintiff had actual or ostensible authority to do so.

In my view, extracts from the documents in class 3 could throw light on those issues, though I would limit those documents to such extracts from the Plaintiff's internal procedure manuals as relate to the making and confirmation of transactions and trading with new customers. Again, I am satisfied that the probative value of those documents outweighs any inconvenience to the Plaintiff in disclosing them, and I am satisfied that their disclosure is necessary if the court is to determine those issues in an informed way.

Class 6

4. Finally, I can see how the documents in class 6 might be said to be relevant to whether the Plaintiff was operating a stock market otherwise than through the Unified Exchange. However, Mr. Andrew Hadley, the Plaintiff's registered compliance officer, has admitted that the Plaintiff was involved in broking grey market issues. That admission goes so far towards establishing what the Defendant needs to establish factually that, in my judgment, the probative value of the documents sought in class 6 does not outweigh such inconvenience as there will be to the Plaintiff in disclosing them.

Conclusion

5. Accordingly, this appeal must be allowed in part, the order of the master must be set aside, and in place of the master's order, there will be an order for specific discovery limited to the documents in the classes specified in paras. 1, 2, 3 and 4 of the schedule to the Defendant's summons of 3rd September 1998, subject to the redrafting of para. 3 to which I have referred.