ALUHOUSE CO LTD v. SUCCESS LANE DEVELOPMENT LTD

DCCJ 3937/2020

[2021] HKDC 1221

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3937 OF 2020

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REASONS FOR DECISION

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1.  By a summons dated 12 November 2020 (“the summons”), the defendant (“D”)  sought specific discovery of 23 categories of documents from the plaintiff (“P”). The application was heard by Master Jocelyn Leung on 15 June 2021. By the time of the hearing, D only pursued its application in relation to Items 4, 5, 6, 7 and 23 set out in the summons. After hearing the parties, the Master ordered that:-

(1)  P do provide and file “Management Accounts of the Plaintiff for the year 2020/2021 to October 2020” in relation to the following 5 projects pleaded in paragraph 16b of the Defence and Counterclaim (“the 5 Projects”)  within 7 days:-

(a)  DSD Shek Wu Hui Project Group

(b)  Kai Tak Project

(c)  The China Harbour Project at Cha Kwo Ling

(d)  Penny’s Bay Phase 1A

(e)  Penny’s Bay Phase 2

(2)  Application for discovery of Items 5, 6, 7 and 23 be dismissed.

(3)  1/3 of the costs of the application be paid by D to P, to be taxed if not agreed.

2.  On 23 June 2021, D lodged an appeal against the Master’s decision.  On 23 September 2021, after hearing submissions, I dismissed the appeal with costs.  These are my reasons.

Preliminary matters

3.  Before going to the merits of the appeal, I would briefly mention two complaints raised by D, namely:-

(1)  Amendments to the Order dated 15 June 2021 made by the Master on 21 July 2021 (“the Amended Order”); and

(2)  Format of the management accounts disclosed by P.

4.  In my view, these matters are not relevant to the merits of the appeal.

5.  Events relating to the Amended Order are as follows:-

(1)  In the hearing on 15 June 2021, the Master made an order that the discovery in relation to Item 4 in the summons is limited to the 5 Projects (“the Limitation”).  D does not dispute that the Master did make this order in the hearing on 15 June 2021.[1]

(2)  However, the Limitation has not been set out in the order sealed on 29 June 2021.  P then made an ex parte application to rectify the clerical error.  On 21 July 2021, the Master granted the application and amended the sealed order to truly reflect the order made by her in the hearing on 15 June 2021.

6.  D complained that P should not make an ex parte order to amend the order sealed on 29 June 2021 and D should be given notice of the application.  In my view, it would be more proper for P to seek amendments to the order sealed on 29 June 2021 by an inter partes application.  However, D has not been prejudiced by this irregularity in any way.  The simple indisputable fact is that the order made by the Master in the hearing on 15 June 2021 is the one now set out in the Amended Order.

7.  Pursuant to the order made by the Master, P has disclosed the management accounts relating to the 5 Projects on 17 September 2021.  D complained that the management accounts disclosed by P are not in correct format and P has not complied with the order made by the Master. I make no comment on the merit of this complaint. The appeal is not an appropriate occasion to deal with this complaint.

The principles

8.  An appeal hearing under Order 58 of the Rules of the District Court is a de novo hearing.  The hearing before me is an actual rehearing as if the application came before me for the first time[2].

9.  The principles governing specific discovery have been set out by Coleman J in Delco Participation BV v HWH Holdings Limited[3], which are as follows:-

(1)  The court should first consider whether there is “jurisdiction” to make an order for specific discovery, and where there is jurisdiction, to go on to consider whether the discretion should be exercised.

(2)  In considering the question of jurisdiction, 3 requirements need to be satisfied:-

(a)  There is sufficient evidence that the documents exist (“the Existence Requirement”);

(b)  The documents are relevant to the matters in issue, which is determined by reference to the pleadings (“the Relevance Requirement”); and

(c)  There is sufficient evidence that the documents are in the possession, custody or power of the other party (“the Possession Requirement”).

(3)  Even if jurisdiction is satisfied, the court retains a discretion whether or not to order disclosure.

(4)  Any order must identify with precision the document or documents or categories of documents which are required to be disclosed.

(5)  Discovery should be sensibly controlled and should not be allowed to be used as an oppressive weapon.  The court ought to have in mind the objectives of costs effectiveness, proportionality, procedural economy and ensure fairness between the parties.

(6)  “Fishing” – being the search for material in the hope of being able to raise allegations of facts, as opposed to the solicitation of evidence to support allegations of fact which have already been bona fide raise with adequate particulars – is not allowed.

Issues defined by the pleadings

10.  The major difference between the parties is whether the Relevance Requirement has been satisfied.  In order to investigate this matter, it would be necessary to first set out the issues defined by the pleadings.

11.  The issues defined by the pleadings are as follows:-

(1)  By a consultancy agreement entered into by P and D on 16 September 2019 (“the Consultancy Agreement”), P engaged D to provide consultancy services on terms as stipulated in the Consultancy Agreement.

(2)  On 12 June 2020, P served on D a notice to terminate the Consultancy Agreement (“the Notice”)  where P sought to terminate the Consultancy Agreement effectively on 15 June 2020.  By an email dated 15 June 2020, D acknowledged the termination and endorsed the Notice by signing in return.  In the email, D issued an invoice for notice in lieu of 1-month termination period, acknowledging effective early termination. However, in these proceedings, D sought to advance a case that the effective termination date was 12 July 2020.

(3)  Upon termination of the Consultancy Agreement, a dispute arose as to the amount of fees payable by P to D:-

(a)  P’s case is that D is only entitled to:-

(i)  HK$38,000 as service fees from 16 May 2020 to 15 June 2020;

(ii)  HK$34,200 as payment in lieu of notice of termination (i.e. the period between 15 June to 12 July 2020); and

(iii)  HK$242,522.60 as commissions in accordance with the terms of the Consultancy Agreement.

(b)  On the other hand, D is claiming for the following:

(i)  HK$336,000 as retainer/service fees; and

(ii)  HK$1,549,358.89 as commissions.

12.  D’s application for specific discovery is concerned largely with the dispute as to the amount of commissions payable (“the Commission Dispute”).

13.  Appendix A of the Consultancy Agreement contained a provision as to a 0.5% commissions payable to D, which is as follows:-

“Commissions – [D] shall be eligible for a commission on those Hong Kong projects based on the amount of work value of these projects contracted by the [P] during the term of this Agreement.”

14.  P pleaded that D is only entitled to commissions based on projects “contracted during the terms of the Consultancy Agreement” (“the Consultancy Period”).  This is not disputed by D.

15.  The real dispute arises from Clause V of the Consultancy Agreement containing provisions regarding termination.  Clause V(2)  provides:-

“Upon termination, [D] shall be entitled to the monthly retainer fee on a pro-rata basis and commission in accordance with the work completed up to the time of termination.”

16.  P’s pleaded case is that commission is payable on termination for (a)  projects contracted by P during the Consultancy Period and (b)  based on the value of work completed by P in respect of these projects.

17.  In the pleadings, although D does not dispute that commission is payable for projects contracted during the Consultancy Period, D denies that commissions should be calculated based on value of work completed by P.  D’s pleaded case is that commission should be based on the full contract sum rather than work value completed at the time of termination.

18.  This is a matter of contractual interpretation. The Commission Dispute is the main dispute defined in the pleadings.

Item 4 – Management Accounts of P

19.  D contends that the Limitation imposed by the Master concerning documents in Item 4 should be removed.  D also seeks to expand the scope of Item 4 to include “audited financial statements”.

20.  Item 4 in the summons is “Management Account of [P] for the year 2020/21 to October 2020”.  “Audited financial statements” have not been mentioned in the summons at all.  D is not entitled to seek discovery of these in the appeal.

21.  While I agree that the documents in Item 4 relating to the 5 Projects are documents relevant to the issues in dispute as defined by the pleadings, the documents not relating to the 5 Projects are clearly not relevant.  Plainly, the Limitation is necessary and appropriate.

22.  D seeks to enlarge the scope of Item 4 as ordered by the Master by saying that D may be entitled to have commission in relation to projects contracted by P after the Consultancy Period.  With respect, this is not a point pleaded by D.  In the Defence and Counterclaim, D has not put forward a case that it is entitled to commission in relation to projects contracted by P outside the Consultancy Period.

23.  Approaching the matter as if the same came before me for the first time, I would order discovery of the documents in Item 4 subject to the Limitation.  I would affirm the Master’s decision on this point.

Item 5 – Copy of all job references of P in Hong Kong since its incorporation

24.  D contends that the job references are relevant for showing:-

(1)  the number of projects contracted during the Consultancy Period;

(2)  the work-in-progress for projects contracted after the termination of the Consultancy Agreement; and

(3)  P’s track record.

25.  In my view, there is no merit in these submissions.

(1)  In [16] of the Defence, D has set out that the projects contracted by P during the Consultancy Period are the 5 Projects, but at the same time expressly said that “Exact number of projects … to be verified/discovered from [P]”.  Hence, D refuses to accept that the projects contracted by P during the Consultancy Period are the 5 Projects only.

(2)  In the hearing, D said that during the Consultancy Period, apart from the 5 Projects, P had contracted some other projects (“the Other Projects”).  In my view, there is no sufficient evidence showing that apart from the 5 Projects, P has contracted any other project during the Consultancy Period.  The Existence Requirement has not been satisfied.

(a)  D said that P had admitted in P’s official    website that P had contracted the Other Projects   during the Consultancy Period.  However, D has   not produced any documentary evidence    showing the alleged admission made by P in its    official website.

(b)  D heavily relied upon an email from D to P sent    at 11:50 pm on 30 January 2021 (“D’s Email”), in which D mentioned 5 other projects. On 5   February 2021, P’s solicitors have given a written reply to this email (“P’s Reply”). Having    examined D’s email and P’s Reply, I am of the    view that these exchanges do not constitute    sufficient evidence showing that during the   Consultancy Period, P has contracted some other    projects.

(c)  In D’s Email, D said:

“Please provide a list of projects contracted during the consultancy period.

Please also provide the contract dates of the projects per the attached files.” (Emphasis added)

The names of 5 other projects were attached at the end of this email.

(d)  The plain meaning of D’s Email is not saying that the 5 other projects were contracted during the Consultancy Period. D was merely requesting for the contract dates of the 5 other projects mentioned in the email.

(e)  In P’s Reply, while P has given some comments on D’s request concerning the 5 other projects, P has not said that the 5 other projects were contracted during the Consultancy Period.

(f)  A fair and reasonable reading of D’s Email and P’s Reply cannot lead to the conclusion that these exchanges show the existence of some other projects contracted by P during the Consultancy Period.

(3)  As to any project contracted by P after the Consultancy Period, this would not be relevant. See [22] above.

(4)  The purpose of obtaining P’s track record is trying to show that D had assisted P to increase its turnover. However, whether D has assisted P to increase its turnover would not affect D’s entitlement under the Consultancy Agreement. As such, the discovery of the track record would not be relevant to the dispute in these proceedings.

26.  I also agree with P that the documents sought to be disclosed under Item 5:-

(1)  Do not affect interpretation of the Consultancy Agreement;

(2)  Do not affect the likelihood or otherwise of the parties entering into variations to the Consultancy Agreement; and

(3)  Do not affect the circumstances of termination.

27.  For the reasons above, Item 5 should be refused.

Item 6 – Copies of certificates of qualified technical competent persons employed by P

28.  D submits that:-

(1)  The disclosure of certificates of qualified technical competent persons is required to resolve the disputes as to what extent D had completed its work at the time of termination of the Consultancy Agreement.

(2)  This shows whether P understood the quality supervision requirement under the Buildings Ordinance.

(3)  Copies of certificates of qualified technical competent persons can show that P in fact did not have a proven track record and did not have a competent management team in handling complexity of the Penny’s Bay Phase 1 Project.

29.  There is no valid basis in support of the application seeking discovery of the documents in Item 6.

(1)  It is not P’s case that D had not completed D’s work.  P’s pleaded case is simply that the terms of the Consultancy Agreement is such that commission should be calculated on the basis “work value completed by P” at the time of termination of the Consultancy Agreement.  D’s pleaded case is that the commission is based upon the contract sums.  D is not saying that its entitlement for commission is linked to the extent of its own work.  No party is suggesting D had not performed its own work.  The dispute is simply to determine what is D’s entitlement under the terms of the Consultancy Agreement.

(2)  P’s knowledge of the Buildings Ordinance would not affect D’s entitlement under the Consultancy Agreement.

(3)  P’s track record would also not affect D’s entitlement under the Consultancy Agreement.

30.  Item 6 must be refused.

Item 7 – All job references and projects in progress with the start and completion dates for the year 2019 to 2020

31.  D’s grounds for seeking discovery of this item are the same as those under Items 4 and 5.  For the reasons set out in the above, Item 7 cannot be allowed.

Item 23 – Copies of Letter of Awards of all MiC Offices in Hong Kong for other clients from 2019 to 2020

32.  D’s grounds for seeking discovery of this Item are the same as those under Items 4, 5 and 7.  For the reasons set out in the above, Item 23 must also be refused.

Disposition

33.  For the reasons mentioned in the above, I am of the view that the Master’s decision is entirely correct.  The appeal must be dismissed.

34.  Costs should follow the event.  I order that costs of the appeal be paid by D to P forthwith, with a certificate for counsel.  Those costs be summarily assessed at HK$50,000.

35.  I thank the parties for the assistance rendered to the court.