SUEN CHUEN LAI AND OTHERS v. MATCH POWER INVESTMENT LTD

DCCJ 3061/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3061 OF 2005

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DECISION

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THE BACKGROUND

1. By a Tender document dated 11 June 1999 and a Memorandum of Agreement dated 30 June 1999, the Defendant in this action – subject to the obligations of the General and Special Conditions contained in the said Tender document  (respectively described as “General Conditions” and “Special Conditions” and collectively known as “the Conditions of Sale”) - obtained a lease for the government grant of a piece of land described as New Kowloon Inland Lot No.6277 at Beacon Hill Road, Kowloon Tong, Kowloon. By the said government grant, the Defendant was given the right to develop the said Lot by erecting upon the said site private residential buildings, which were named by the Defendant as One Beacon Hill (“the Development”).  The Defendant further obtained the consent of the Director of Lands (“the Director”) to sell the individual units of the Development.

2. For a consideration of HK$17,235,000, the Plaintiffs in this action purchased from the Defendant a unit still under construction described as Duplex B on the 7^th Floor and 8^th Floor and Flat Roof on 7^th Floor and 8^th Floor of Tower 2 of the Development by virtue of the Sale and Purchase Agreement dated 5 March 2003(“the Agreement”) entered between the parties.

3. As the Development was not completed at the time of the Agreement, the Agreement therefore contains a number of provisions requiring the Defendant to complete the Development within a stipulated time.  The relevant provisions are found in clause 4, sub-clause (1)(a) to (c). They are as follows:

“	(1)	The Vendor shall:
		(a)	continue the construction of the Development with all the expedition:
		(b)	comply with the requirements of the Building Authority and of any other relevant Government authority relating to the Development; and
		(c)	complete the Development in all respects in compliance with the conditions of the Government Grant and the building plans on or before the 31st day of December 2003 subject to such extensions of time as may be granted by the Authorised Person…”

4. There is no dispute that the Government Grant generally refers to the Conditions of Sale and further it is also not in dispute that the Authorized Person extended the completion date until 29 February 2004 and that an occupation permit by the Building Authority under the provisions of the Buildings Ordinance was issued on 9 February 2004.

5. Notwithstanding the said occupation permit, the Defendant was still not able to obtain assignment of the property due to the provisions in clause 4(6) and (7), which stipulate that:

“	(6)	The vendor shall apply in writing for a Certificate of Compliance or the consent of the Director of Lands to assign in respect of the Development within 14 days of his having completed the Development as stipulated in sub-clause (1)(c) above.
	(7)	For the purpose of this Clause the issue of a Certificate of Compliance or consent to assign by the Director of Lands shall be conclusive evidence that the Development has been  completed or is deemed to be completed as the case may be and nothing in this sub-clause shall preclude the Vendor form proving that it has complied with sub-clause (1)(c) above by other means.”

6. A Certificate of Compliance according to the Agreement means a certificate issued by the relevant Government authority - which is the Lands Department in this case – to the effect that all the positive obligations of the Defendant under the Government in relation to the said lot have been fulfilled.

7. It is not disputed that the Defendant was only issued the Certificate of Compliance (“the Certificate”) until 29 July 2004 by which the Director certified that all the positive obligations imposed on the Defendant in respect of the Development under the General and Special Conditions have been complied with.   The Plaintiffs alleged that the reason for the Defendant’s failure to obtain the Certificate until 29 July 2004 was due to the Defendant’s breach of condition no. 12 of the Special Conditions  (“the Environmental Condition”), which provide:

“No tree growing on the lot or adjacent thereto shall be interfered with without the prior written consent of the Director who may, in granting consent, impose such conditions as to transplanting, compensatory landscaping or replanting as he may deem appropriate.”

8. The Plaintiffs therefore allege that the Defendant was in breach of the said clause 4(1) and in particular sub-sub clause(c) of the Agreement in having failed to complete the Development by the extended completion day of 29 February 2004, hence a delay of 150 days – from the extended date of completion of 29 February 2004 to the date of the issue of the Certificate on 29 July 2004. 

9. Notwithstanding the Defendant’s delay in completing the Development in accordance with clause 4(1)(c) of the Agreement, the Plaintiffs elected to exercise their contractual right provided in clause 4(4)(a) and (b) of the Agreement by waiting for completion of the Development instead of rescinding the Agreement.  Upon the issue of the Certificate by the Lands Department and the assignment of the Property by the Defendant to the Plaintiffs on 30 September 2004, the Plaintiffs seek to rely on the said provisions to claim liquidated damages for the Defendant’s delay in completing the Development.  The said clause 4(4)(a) and (b) provide:

“

(4)(a):  Subject to sub-clause (4)(b), if the Vendor fails to complete the Development by the date specified in sub-clause (1)(c) as extended by any extensions of time granted by the Authorised Person… the Purchaser shall be at liberty by notice in writing to the Vendor to rescind the Agreement …

(4)(b): If the Purchaser does not rescind the Agreement under sub-clause (4)(a) within 28 days from the date specified in sub-clause (1)(c) or any extended date, he shall be deemed… to have elected to wait for completion of the Development.  In such event the Vendor shall pay to the Purchaser interest at the rate of 2% per annum above the prime rate specified in the Hong Kong and Shanghai Banking Corporation Limited from time to time on all amounts paid under this Agreement from the date following the date or extended date specified in sub-clause (1)(c) or any extended date up to the date of completion of the Development…: ”

10. As the Plaintiffs elected to wait for completion of the Development in accordance with sub-clause (4)(b), the Plaintiffs therefore claim in their writ and Statement of Claim issued on 28 June 2005 inter alia for a sum of $494,446 as liquidated damages – calculated in accordance with an interest rate of 2% per annum above the prime rate on the total purchase price paid by the Plaintiffs.

11. According to the Defence dated 1 August 2005, the issues taken by the Defendant are two: (1) the denial of the allegation of the breach of the Environmental Condition and (2) the denial of having failed to complete the Development in accordance with Clause 4(1)(c) on the ground that it had completed the Development by 29 February 2004.

12. On 15 August 2005, the Plaintiffs applied for summary judgment against the Defendant.   After both parties filed their affirmations in respect of the application, it was withdrawn.    After the Defendant had filed its list of documents on 16 June 2006, the Plaintiffs’ solicitors wrote on 21 June 2006 to the Defendant’s solicitors asking for a supplemental list of documents disclosing documents in relation to the Defendant’s application for a Certificate.  When the request was ignored, the Plaintiffs on 26 June 2006 took out an application under O.24 r.7 of the Rules of the District Court for specific discovery of “any documents or class of documents in relation to their application to the Director of Lands for the issue of a Certificate of Compliance in respect of the One Beacon Hill Development.” (“ the 1^st Summons”). 

13. Shortly before the hearing for the 1^st Summons, the Plaintiffs issued a further summons dated 16 August 2006 under O.24 r.3 of the Rules of the District Court for a further and better list of the documents “ in relation to their application to the Director of Lands for the issue of a Certificate of Compliance in respect of the One Beacon Hill Development.” (“the 2^nd Summons”).  I was told that the 2^nd Summons was only issued as a fall-back option in the event that this court were to refuse to make an order under the 1^st Summons.

14. The Defendant opposes both applications. The objections raised by the Defendant, broadly speaking, are on the grounds that the documents sought are too wide-ranging and that they are not relevant or necessary to the issues in this case.

THE APPLICABLE PRINCIPLES

15. The principles governing a discovery application under O.24 r.7 are settled and not in dispute.  I cannot do it better but quote the passage referred to by counsel for the Plaintiffs, Mr. Stock, in Deak & Co (Far East) Ltd v. NM Rothschild & Sons Ltd [1981] 1HKC78 at 80 H-I:

	“	Thus, in order to obtain an order for discovery under O.24 r.7, the party seeking it has to make out a prima facie case
1.	that there is existence a specified document or class of documents;
2.	that the party against whom the order is sought has or had the document in his possession, custody or power;
3.	that the document or class of document relates to a matter in question in the action; and
4.	that discovery thereof is necessary either for disposing fairly of the cause of matter or for saving costs.”

16. Apart from the same requirement of necessity and saving costs, an application made under r O.24 r.3 can only be made if it can be shown that (1) from the list itself; or (2) from the documents referred to in it; or (3) from admissions made either in the pleading or otherwise that the party making discovery has omitted from his list of documents other relevant documents which clearly are or have been in his possession, custody or power. ( See Hong Kong Civil Procedure 2006, para. 24/3/7 and Atkin’s Court Forms (2^nd. Ed., 1994 issue, Vol.15, p.100)

17. The Principles governing both applications are therefore by and large similar. With these principles in mind, I now turn to deal with each of the applications.

THE 1^ST SUMMONS

The Objections

18. The Plaintiffs by their solicitors’ correspondence as well as their counsel’s opening submissions have made it clear that so far as the 1^st Summons was concerned, they were prepared to narrow down the scope of the discovery by seeking the following categories of documents:

19.  No issue was taken by the Defendant on the formality of whether the 1^st Summons - as a result of the reformulation above - should be amended.  Thus I shall deal with the 1^st Summons on the basis of the amended request formulated by Mr. Stock.

20. Apart from the two main grounds of opposition already mentioned above, Mr. Man, in his written submissions also objected to the grant of an order for specific discovery on the ground of oppression, citing a dictum of Mummery J. in Molnlycke AB v Proctor & Gamble Ltd. (No.3) [1990] RPC498. During the hearing, Mr. Man informed the court that the Defendant no longer wished to pursue the oppression ground.  I should also mention that no issue is taken on the “existence” or “possession” point.

21. Thus, it is clear that the 1^st Summons at the very least already fulfills the 1^st and 2^nd criteria required for specific discovery propounded in Deak (supra.). Before I should consider if I ought to exercise my discretion to accede to the amended request, the Plaintiffs would have to show that the application under the 1^st Summons meets the other two prerequisites of whether the documents sought relate to a matter in question and that discovery of the same is necessary for disposing fairly of the cause of matter.

22. The last two criteria mentioned in Deak (supra.) are to be considered in the context of relevancy and the test to be applied – according to the frequently-cited English decision of Compagnie Finaciere du Pacifique v Peruvian Guano Co. (1882) 11 QBD 55 in a specific discovery application - is the requirement that the documents requested must contain information which enable the applicant “either to advance his own case or to damage the case of his adversary if it is a document which may fairly lead to a train of enquiry…” (Peruvian Guano (ibid.) at p.63)

23. The question of relevance is therefore closely connected with the issues of a case, which I now examine.

Issues of the case

24. The basis of the Plaintiffs’ claim is on the Defendant’s alleged failure to complete the Development in accordance with the provisions of the Agreement, in particular with clause 4(1)(c) due to its alleged failure in complying with the Environmental Condition. It is common ground that the Defendant was not able to obtain the Certificate until 29 July 2004 – it being conclusive evidence of the completion of the Development in accordance with clause 4(7) of the Agreement – the Defendant however is not precluded from proving compliance with clause 4(1)(c) of the Agreement by other means. Thus a strange anomaly of the said provision is that in spite of the Certificate being conclusive evidence of completion, the Defendant, according to Mr. Stock, is contractually entitled to use other means to prove it has completed the Development. Thus absence a definition of what constitutes completion in the Agreement, the central issue of this claim – as submitted by Mr. Stock – is whether the Defendant had “completed” the Development within the meaning of clause 4 (1) (c) of the Agreement.

25. By virtue of clause 4(7) of the Agreement, the Defendant is entitled to argue that it had in fact completed the Development by other means notwithstanding the existence of the conclusive evidence of the Certificate that the completion was 150 days late.  Mr. Stock therefore submitted that despite the Defendant having been issued with the Certificate after the specified date of completion, it does not obviate the need of the Plaintiffs to prove late completion by the Defendant of the Development.  It therefore becomes necessary, submitted by Mr. Stock, that documents relating to the refusal by the Lands Department to issue the Certificate until 29 July 2004 and the reasons for their refusal would be highly relevant to the question whether there had been completion in accordance with the provisions of the Agreement.

26. The central issue set out above is not disputed by Mr. Man.  He however contended that the documents sought were neither necessary nor relevant and in any event they were only fishing for evidence.

Necessary and relevant?

27. In his written submissions, Mr. Man contended that documents relating to the refusal of the Certificate were not necessary as the Plaintiffs already had a letter from the Lands Department confirming this. The letter (“the said Letter”) being referred to by Mr. Man is the letter dated 7 September 2005 from the Lands Department to the Plaintiffs’ solicitors who had previously written to the former to inquire into the reason for the delay of the issue of the Certificate.  The said Letter discloses the following information:

28. Mr. Man contended that the said Letter would render the documents sought unnecessary.

29. Regarding the documents relating to the reason for the refusal of the Certificate, Mr. Man further contended that any reasons given for the refusal by the Lands Department were of little value as these reasons would be no more than a third party’s opinion evidence which would be irrelevant and inadmissible in the trial between the parties, citing Hollington v Hewthorn [1943] KB587 and Secretary of State for Trade and Industry v Bairstow [2003] 1BCLC 696.

30. In the course of the hearing, Mr. Man made a further point not previously raised in his written submissions.  It is on the joinder of issue.  Mr. Man submitted that in order to put the matter into context, one should first look at the way the issue in this case is joined – which is the allegation of non-compliance as a result of the alleged breach by the Defendant of the Environmental Condition.  Mr. Man therefore submitted that this joinder of issue would require the Defendant rather than the Plaintiffs to adduce evidence such as correspondence and documents to prove completion as required under clause 4(7) of the Agreement.

31. On the existing Defence, this new argument submitted by Mr. Man does not seem to be consistent with the Defendant’s pleaded case. Mr. Man therefore had to spend a substantial part of his oral submissions in elaborating this new argument.  He submitted that this new argument the Defendant is going to run –though not alluded to or pleaded in the Defence – is primarily on the construction of clause 4(7) of the Agreement which provides a right to the Defendant to argue that it has completed the Development in accordance with the Agreement.  Mr. Man further informed the court that the Defendant would argue during the trial in this action that it had completed the Development before the specified deadline of completion by complying with obligations other than the positive obligations imposed by the Conditions of Sale.  Mr. Man further informed this court that as there were 12 other parallel litigations current in the Court of First Instance, the Defendant has - by way of litigation management – chosen, though not explicitly, not to plead in the Defence a positive case of compliance or factual completion.  Notwithstanding the denialof the alleged breach of the Environmental Condition as currently pleaded by the Defendant, Mr. Man submitted that it will not contradict the Defendant’s intended line of defence as Environmental Condition is a negative obligation rather than a positive obligation.  Hence, Mr. Man contended that since the Plaintiffs already have the uncontroverted evidence of the Certificate which was undisputedly issued 150 days after the specified date of completion– it provides conclusive evidence of the Defendant having failed to comply with clause 4(1)(c) of the Agreement.  Mr. Man further pointed out that in view of the intended defence of the Defendant, the Defendant’s defence would fail if it chooses not to adduce any evidence to prove due completion in accordance with the Agreement.

32. Mr. Man’s exposition from the Bar table on how the Defendant is going to conduct its case is, if I may say so, most inappropriate.  In spite of Mr. Man’s valiant attempt to dovetail the Defendant’s case with his arguments – even at the expense of making concessions not made in the Defence – it does not change the fundamental principle that issues are required to be defined by pleadings.  In this regard, I agree with Mr. Stock that the Defence clearly shows that the Defendant takes issue with the allegation of breach of the Environmental Condition, a fortiori, of the delay in completing the Development as required by clause (4)(1)(c). It is also patently clear that the Defence has not alluded to any reference of any positive and negative obligations – a distinction Mr. Man drew for the purpose of giving an indication of Defendant’s intention of not taking issue with the allegation of its failure to comply with the positive obligations  – and hence, the Defendant must still be bound by its Defence until it is amended.  It is a fundamental principle of civil litigations that parties are to be bound by their pleadings.  Thus, as not disputed by Mr. Man, the central issues remain to be – based on the present pleadings- whether the Defendant had completed the Development before 29 February 2004. Thus, documents relating to the refusal of the Certificate by the Lands Development until 29 July 2004 are relevant to the subject matter of the case.

33. The provision in clause 4(7) of the Agreement in my view is quite unusual and to a large extent, vague.  I am not entirely comfortable with both counsel’s view that a proper construction of the said provision will provide a contractual right to the Defendant to prove completion after a Certificate of Compliance has been issued.  That said, however, on the present pleadings – without speculating on whether the Defendant will ultimately argue the defence in the way suggested by its counsel - documents relating to the refusal by the Lands Department to issue the Certificate until 29 July 2004 in my view are relevant.  At this moment, apart from the said letter and the newspaper clippings reporting on the Defendant’s interference with the said Lot by chopping down trees without the consent of the Lands Department, the Plaintiffs have no other documents to advance their claim.

34. The said Letter unquestionably is an extremely useful document to the Plaintiffs as it confirms the Defendant’s breach of the Special Conditions by “interfering with a number of trees” without the consent of the Director as being one of the reasons for “withholding the Certificate of Compliance”. Further and more importantly, it also reveals that there are other reasons for the Lands Department to withhold the issuance of the Certificate as it stated in the said Letter:“Non-compliance with SC (12) was not the sole reason for withholding the Certificate of Compliance” (emphasis added). 

35. From the said Letter, the Plaintiffs would certainly, for the purpose of advancing their own case, need to know the other reasons for the Lands Department to withhold the issuance of the Certificate.  Presently, the Plaintiffs are only able to rely on the Defendant’s breach of the Environmental Condition based on the said Letter and the newspaper clippings. And yet, the Plaintiffs do not have sufficient materials to enable them to properly and adequately particularize the said breach.  The newspaper cuttings- the only information the Plaintiffs have apart from the said Letter - on how the Defendant breached the Environmental Condition can hardly assist the Plaintiffs in proving the breach of Environmental Condition. Hence, all documents relating to the refusal and the reason for the said refusal by the Lands Department are directly relevant to this matter.

36. I am unable to agree with Mr. Man’s contention that the reasons for the refusal of the Certificate are no more than inadmissible third party opinion.  Whether the information contained in the documents relating to the reason for the refusal of the issuance of the Certificate is opinion or factual assertions remains unknown.  However, I am satisfied that such documents will either contain factual information relevant to the issues of this case or lead to a train of enquiry pertinent to this case.

37. In the circumstances, I am of the view that all documents relating to the refusal and reason for the refusal of the issuance of a Certificate of Compliance by the Lands Department are necessary for fairly disposing of this action.

Documents sought too wide – fishing expedition?

38. The principal objection to the amended request of the 1^st Summons is the wide-ranging nature of the classes of documents sought by the Plaintiffs.  Mr. Mans contends that the classes of documents cover the entire correspondence between the Defendant and the Lands Department on matters not relating to the issue of the breach of the Environmental Condition.  They also include matters relating to other conditions of the Government Grant – when there are no allegations of other breaches of the conditions by the Plaintiffs.  Thus, Mr. Man contends that the discovery sought in its amended form will include many documents not relevant to the issues of the case and the Plaintiffs are not entitled as a matter of law to fish for evidence. 

39. The contentions by Mr. Man in my view are not without merit.  The classes of document sought are indeed wide enough to cover documents not relating to the issues of the case.  An imprecise and indiscriminate discovery will not be acceded to. As rightly observed by Mustill L.J. in Berkeley Administration Inc. v McClelland [1990] FSR 381 at p.382:

“The order must identify with precision the document or documents or categories of documents 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.”

40. With this requirement in mind and the conclusion I have reached above regarding the documents relevant to the issues of this case, I should now look at each of the categories of documents requested by the Plaintiffs and decide if they are too wide.

41. The 1^st and 2^nd categories of the documents can be considered together as they are both concerned with documents relating to attempts by the Defendant to obtain the issue of a Certificate of Compliance. The difficulty of this request for these two categories of documents is their lack of precise identification of documents directly relevant to the issues. I am therefore not persuaded to exercise my discretion to order discovery of these two categories of documents.

42. As to the last category of documents, they are more narrowly defined and only confined to documents relate to any “ breach of the Conditions of Sale including the Environmental Condition, as defined in the Statement of Claim.”  From the above discussion, it is clear that the breach of Environmental Condition directly relate to the issues of this case, I will therefore make an order for discovery.    Further, documents throwing light on other breaches by the Defendant of the Conditions of Sale should fall into the Peruvian Guano’s classification of capable of either advancing the Plaintiffs’ case or damaging the Defendant’s case.  However, what is in issue as discussed above is not whether there are other breaches by the Defendant – rather it is the reason or reasons for the refusal by the Lands Department of the issue of a Certificate of Compliance. As the said Letter has established that the non-compliance with the Environmental Condition is not the sole reason, the discovery of documents relating to other reasons for withholding the issue of a Certificate of Compliance is clearly not fishing for evidence.  I will therefore limit the discovery of documents to allow only those relating directly to the reasons for withholding the Certificate by following as closely as possible the wording of the said Letter. I am unable to find from the wordings of the third category of documents to include also correspondence passed between the Defendant and its architects and representatives as contended by Mr. Man. However, in order to avoid any ambiguity, I should amend this part of the request to read as “ all correspondence passing between the Defendant (or its architect or its representative) and the Lands Department…”

43. Further, in order to strictly confine the documents only to the subject-matter concerning the application by the Defendant for a Certificate of Compliance and the refusal to issue of such Certificate by the Lands Department until 29 July 2004, I find it necessary to confine the discovery of documents within the said period.  According to paragraph 8 of the Affirmation of Yip Kin Ming filed by the Defendant on 26 August 2005 in opposition of the Plaintiffs’ O.14 Application – which application has since withdrawn – the Defendant made the application for a Certificate of Compliance through its Authorized Person on 26 January 2004. I find this should be the relevant starting date from which the documents should be disclosed until the date of the issue of the Certificate on 29 July 2004.

44. In light of the matters aforesaid, I am inclined to exercise my discretion to make an order of discovery in respect of the documents I identify above.

THE 2^nd SUMMONS

45. The consideration for the 2^nd Summons is similar – albeit not identical – to that of the 1^st Summons.  As I have granted an order of discovery for a disclosure of documents above – notwithstanding the fact that I have declined to make an order for all the classes of documents sought by the Plaintiffs - there is no practical need as suggested by Mr. Stock for me to give an order in respect of the 2^nd Summons and I therefore dismiss it.

ORDER

The 1^st Summons

46. In view of the time the Defendant will be required to prepare the affirmation, I will give the Defendant 21 days instead of 14 days to comply with my order.  Thus my order is as follows:

The 2^nd Summons 

47. The summons is dismissed. I further grant a costs order nisi that there shall be no order to costs, including all costs previously reserved if any, in respect of this application.