KH FOUNDATIONS LTD v. CHUN YIP CONSTRUCTION CO LTD

HCCT 43/2019

[2021] HKCFI 1368

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 43 OF 2019

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D E C I S I O N

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1.  This is the Plaintiff’s application by summons issued on 22 February 2021 (“Summons”) for discovery of 16 categories of documents specified in the Schedule to the summons (“Schedule”).

2.  The principles for discovery are well-established, and will not be repeated here.  They have been summarized in the judgment of Ng J in Jade’s Realm Ltd v Director of Lands, HCA 1509/2012, unreported, 10 June 2014.

3.  Various matters can be stated generally, with regard to the Plaintiff’s application and the discovery sought.

4.  Although the Summons states that the application was made under Order 24 rules 3, 7, 10, 11 and 11A, there have already been lists of documents filed and served by the Defendant in this action.  Rule 3 therefore does not apply to the application, as rule 3 caters for a party applying for discovery by list, or for an order for an affidavit verifying a list, against a party who has not fulfilled his obligations under Order 24 rule 2 (para 24/3/1, Hong Kong Civil Procedure 2021).

5.  The present application for specific discovery of the documents specified in the Schedule is accordingly one made under rule 7, and rule 7 (3) states that an application under rule 7 must be supported by affidavit stating that the leave of the deponent that the party from whom discovery is sort has the document or had the document at some time in his possession, custody or control, and that it relates to a matter in question in the cause or matter.

6.  The Plaintiff’s claim that an affidavit is not required for the Summons which is made under rule 3, is not correct.

7.  The Plaintiff has to establish that there is sufficient evidence or a prima facie case that the documents or classes of documents specified in the Schedule exist, and which the Defendant has not disclosed; that the documents relate to a matter in issue in the action; and that the documents are in the possession, custody or power of the Defendant.  The Court will not make an order for discovery unless the discovery is necessary, either for disposing fairly of the cause or matter or for saving costs (Order 24 rule 8).

8.  An application under Order 24 is for discovery of documents, and not for information or particulars.  This is trite (see Bruno Arboit v Koo Siu Ying HCMP 2749/2012, unreported, 8 March 2016).

9.  This action concerns the dispute between the Plaintiff and the Defendant under a Contract in writing dated 7 January 2014 (“Contract”), whereby the Plaintiff was appointed to construct piling and foundation works (“Works”) at a residential development in Deep Water Bay Drive (“Development”).  The Defendant was engaged by the developer, Cheerwide, as the “Employer” to manage the construction of the Development, under a “Management Contract” between the Employer and the Defendant.  A company (“Bordon”) was separately engaged by the Employer as the contractor for the construction of the superstructure of the podium, the building services and other fitting outworks for the Development (“Superstructure Works”).  These are separate contracts, made between separate legal entities, although the Plaintiff claims that the Employer, the Defendant and Bordon are all connected, and are within the Nan Fung Group of companies (“Group”).

10.  The issues for determination at trial include: whether or not there was an agreement made between the Plaintiff and the Defendant for the Plaintiff’s handover of a portion of the Works to the Defendant on 4 June 2015, to enable Bordon to commence the Superstructure Works, and for the remaining Works to be completed within a reasonable time thereafter (“Supplemental Agreement”), without any liability for liquidated damages; and valuation of works claimed by the Plaintiff to have been carried out as variations under the Contract.

11.  Pursuant to directions of the Court, the parties have filed written submissions in support and in opposition to the application for discovery.  Counsel for the Defendant has helpfully produced a Scott Schedule summarizing the parties’ arguments.  The Schedule and the skeleton submissions have been considered.

12.  The Requests referred to below are by reference to the documents or classes of documents enumerated in the Schedule.  I will not repeat in detail the submissions made by Counsel thereon.

13.  Requests 10 (iii) and (iv), 11 and 12 have been abandoned by the Plaintiff.

Request 1

14.  The request for “payment applications made by the Defendant to Cheerwide (ie the Employer) under the Management Contract which relate to the sums deducted from the Plaintiff under the Works Contract” is refused.  The Plaintiff argued that the scope of works under the Management Contract is identical to the scope of the Works under the Contract, such that the Defendant’s payment application to the Employer should reflect the Plaintiff’s payment applications under the Contract, and will be of assistance to the expert on quantum and reflect the value of the Works completed by the Plaintiff under the Contract.  I am not satisfied that the documents sought are necessary for the disposal of the issues in dispute between the Plaintiff and the Defendant under the Contract - even if the scope of works under the 2 contracts may be the same.  How the Defendant applied for payment under the Management Contract cannot reflect the Plaintiff’s entitlement under the Contract.  The Works carried out by the Plaintiff will be assessed and valued by the single joint expert already appointed in this case, and the applications for payments made by the Defendant under the Management Contract neither binds nor affects the expert’s own independent valuation of the Plaintiff’s entitlement under the Contract.  The Defendant’s payment applications under the Management Contract only distracts from the key issues for determination at trial.

Request 2

15.  The same arguments are made in relation to the request for “payment certificates and payment records from (the Employer) to the Defendant under the Management Contract”.  The application is refused under rule 8, as being unnecessary.

Request 3

16.  This seeks discovery of “communications (including but not limited to board minutes, emails, letters, memos, minutes, instant messages, photos, audio recordings) from and to Mr Jimmy Tse, Mr Dave Pang and Mr Vincent Chow in relation to the partial handover agreement and the priority to be given the Superstructure Works under the Date of Handover”.

17.  The request is too wide and since the Defendant already disclosed documents relating to such communications, the Plaintiff should have identified what documents existed which ought to be but have not been disclosed, and that there is a prima facie case that they existed and are relevant.  This the Plaintiff has failed to do.

18.  In any event, the Defendant has made additional disclosure by its 2^nd List of Documents.  I make no further order under this request.

Request 4

19.  This request has been revised since the issue of the Summons, to seek “records in relation to the sum of $19 million referred to in Appendix B (Item 2) of Attachment D to the Superstructure Contract”.  The Plaintiff claims that the sum referred to comprises the updated budget for the entire Development as at 23 June 2015, 3 weeks after the date of handover, that it appears to include the additional costs to be paid to Bordon for picking up the tower portion of the works, and that the updated budget was prepared by the Defendant.  The Plaintiff further claims that the records in relation to the sum are relevant because there was a discrepancy between that sum and the Defendant’s subsequent statement, that it would only pay $17.07 million for those works, and that the disclosure of the Defendant’s assessment of the board pile variation included in Attachment D would provide the quantum expert with evidence from which the expert can assess the parties’ valuation.

20.  As the Defendant pointed out, there is no affidavit to establish the prima facie existence and relevance of the records for the sum of $19 million. In any event, the works undertaken by the Plaintiff are to be valued and assessed by the quantum expert, who is not bound by any subjective assessments that may have been made by the Defendant.

21.  The request is not allowed for lack of evidence of prima facie existence or relevance, and even if existence or relevance can be established, I am not satisfied that the discovery is necessary for determination of the issues in dispute at trial.

Request 5

22.  This seeks “assessment of the Plaintiff’s final account, including but not limited to the Defendant’s correspondence with, estimates, advices and replies” to the Employer.  The Plaintiff contends that the documents will show that the Employer’s assessment of the Plaintiff’s final account was more generous than that of the Defendant.

23.  I fail to see the relevance and necessity of this request.  The assessment by the Employer of the entitlement of any party is not relevant to the objective and independent assessment by the expert or the Court.  The application is refused under rule 8.

Request 6

24.  This seeks “a detailed breakdown of the sum of $438,133,374”, which sum is itemized as “Foundation Management Contract (Construction Budget)” under Attachment D and the cost information of the Superstructure Contract.  The Plaintiff claims that the budget for the Contract forms part of the overall residential development budget, to which the sum of $438 million relates, and further, that the figure must have been derived by reference to specific calculations and documents which should be relevant.

25.  I refuse this request.  Discovery does not extend to seeking breakdown of figures in a document.

26.  Even if the request should be construed as one for documents containing a detailed breakdown of the sum, I am not satisfied that the request for the budget of the separate Superstructure Contract, made between different parties, is relevant to or necessary for the determination of the disputes arising under the Contract between the Plaintiff and the Defendant.

Request 7

27.  This seeks discovery of “the Architect’s assessment of the valuation of all waterproof concreting works undertaken by Bordon under the Superstructure Contract”.  Again, it is on the basis that such documentation on valuation of Bordon’s works under the Superstructure Contract is likely to assist the quantum expert in valuing Claim No 9 disputed in these proceedings.

28.  As the Defendant rightly pointed out, the Architect’s assessment of the waterproof concreting works, carried out by Bordon, are not relevant to the issues for determination at trial in this action.  The dispute between the Plaintiff and the Defendant in relation to Claim No 9 is whether the unit price of $1,800 or $1,250 applies, and this is a matter of contractual interpretation. The Architect’s assessment is irrelevant.  The Defendant is not a party to the Superstructure Contract, and the Plaintiff has not made out a prima facie case that the correspondence between the Defendant with the Employer/Bordon exist on the issues relating to assessment of works carried out, not by the Plaintiff but by Bordon.

29.  The request is refused as being irrelevant and unnecessary.

Request 8

30.  The request is for “contract negotiations” between the Defendant and the Employer relating to the scope of works to be undertaken by the Defendant. In my judgment, this is not a request for discovery of documents, and irrelevant to the issues at trial.

31.  The Plaintiff argued that the negotiations may show the challenges posed by the particular site, and why the Group decided to subcontract the foundation works to a company outside the Group.  The issues for determination at trial relate to the interpretation of the Contract, and the scope of the Contract and of the Works.  Any negotiations between the parties before and leading to the letter of intent issued to the Defendant and the Contract are inadmissible as evidence of what the Contract means.  Why the Group decided to subcontract the Works to the Plaintiff is not relevant.

32.  The request is not allowed for lack of relevance and necessity.

Request 9

33.  The same conclusion and reasons apply to the request for “contract negotiations between (the Employer) and Bordon relating to the scope of works to be undertaken by Bordon leading up to the Superstructure Contract between the Employer and Bordon.  Under this request, the negotiations between the Employer and Bordon are even more irrelevant to the issues for trial.  In addition, there is no evidence to suggest any prima facie case that any documents relating to such negotiations are in the possession, power or custody of the Defendant.

Request 10 (i)

34.  This request is for “the Defendant’s compliance with the requirement under GCC Clause 30 (1) to inform the Architect upon notification by the Plaintiff of its claims against the Defendant”.  Again, it is not even a request for discovery of documents.

35.  In any event, if the request is to be treated as for discovery for documents relating to the Defendant’s compliance, the Plaintiff claims that if it should be established, that the Defendant had failed to comply with the notice provisions, then the Defendant should have waived its right to insist on strict compliance or is estopped, and the Plaintiff would be able to advance its case of waiver and/or estoppel.

36.  The Plaintiff has not even pleaded waiver in respect of the non‑compliance with GCC Clause 30 (1), and is seeking documents in the hope of being able to raise an allegation of fact.  I agree with the Defendant, that this is a classic case of fishing, and the request is refused.  In respect of the claim of estoppel, Counsel for the Defendant pointed out that if, as apparent from the Plaintiff’s pleadings and submissions, the Plaintiff did not even have knowledge of whether the Defendant had complied with the relevant notice provisions, there is no basis for it to claim that there had been any representation made to it for estoppel to apply.

Request 10 (ii)

37.  This request is for the Defendant’s compliance with the notice requirements under GCC Clause 36 (5).  It is rejected for the same reason as that for request 10 (i).

Request 13

38.  The request is for “communications… between the Nan Fung Companies relating to the calculation of the liquidated damages sum included in the Works Contract”.  Nan Fung Companies is defined in the Statement of Claim to mean the Group, the Employer, the Defendant and Bordon.

39.  I accept the submissions made for the Defendant, that the request is unduly wide in seeking communications between all the companies in the Group, when it is clear that not all these companies are involved in the Development, and only the Defendant is a party to the Contract with the Plaintiff.  The Plaintiff alleges that it was likely that the liquidated damages of the Contract between the Plaintiff and the Defendant would be fixed at the Group level, and probably even before the involvement of the Defendant was contemplated.  This is purely speculative and I am not satisfied that there is a prima facie case made out on the existence of such documents.

40.  Whether the liquidated damages clause under the Contract is enforceable is, again, mainly a question of construction, and is to be determined by the Court’s assessment of the purpose or objective of the clause, whether the party to whom the sum is payable had a legitimate interest in ensuring performance of the obligation, and the estimated loss that may result from the breach of the obligation, to consider whether the sum payable as damages is a genuine pre-estimate of the damages which would probably have arisen from the breach, or is extravagant or unconscionable.  I am not satisfied that it is necessary to order discovery of the correspondence within the Group which may simply show the subjective understanding or intention of the parties, and particularly of companies in the Group not parties to the Contract.

Request 14

41.  This seeks discovery of internal communications within the Defendant which relate to the calculation of the liquidated damages sum included in the Contract.  The Defendant raised the same objections as those made to Request 13, but has on without prejudice basis made further discovery in its 2^nd List of Documents filed and served.  No order will be made.

Request 15

42.  Further discovery has been made in the 2^nd List of Documents, without admission by the Defendant as to the relevance of the documents sought.

Request 16

43.  The request seeks discovery of the Defendant’s internal communications with the Group companies, the Architect and the Engineers of the Development in relation to the conditions existing at the site prior to commencement of the Works, the Defendant’s request for handover of parts of the site, and of the Architect’s assessment of all applications for extensions of time under the Contract, the Management Contract and the Superstructure Contract.

44.  I agree that it is not necessary to have discovery of the Defendant’s communications with all of the companies within the Group.  Nor is it relevant or necessary to have discovery of the Architect’s assessment of all applications for extension of time under the Management Contract and the Superstructure Contract, which do not concern the Plaintiff.  The Defendant has made discovery of further documents, on a without admission of liability basis.

45.  As for Request 16 (iv), this seeks discovery of the Defendant’s internal communications with the Group companies, the Architect and the Engineers “in relation to the Defendant’s supplemental agreement or other agreements which minimized the Defendant’s liability as pleaded in paragraph 20 of the Defence”.  Paragraph 20 reads:

“With a view to minimizing its liability due to the late completion of the Works under the Management Contract and to enable Bordon to commence the Superstructure Works, the Defendant had no alternative but to accept the proposal from the Plaintiff for a partial handover arrangement for the Tower Portion (the ‘Partial Handover Arrangement’) in around March 2015…”

46.  The Plaintiff accepts that paragraph 20 does not refer to any “supplemental agreement” or “other agreements”, so the Request is not seeking discovery under Order 24 rule 10.  I fail to see how the request can stand as one for discovery of documents, without clear identification of the documents sought.  It is speculative, and fishing.  In any event, I am not satisfied that there is evidence of a prima facie case of the existence of such documents.

Disposition

47.  From the above, it is clear that no order is made on the Summons. I make an order nisi that the Plaintiff should pay to the Defendant in any event 70% of the costs of and occasioned by the Summons, with certificate for one counsel.