SUN YUET TAI LTD v. BRITISH AMERICAN TOBACCO CO (HK) LTD

CACV 95/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 95 OF 1999

(ON APPEAL FROM HCCL 281 OF 1996)

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J U D G M E N T

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Rogers, J.A. :

1. This is an appeal from a decision of Deputy Judge Z.E. Li given on 31st March this year. By that order, the Judge ordered that further discovery should be given of :-

"(1) Sales invoices from BAT China to World Trading Company for the period between January 1992 and January 1997.

(2) Correspondence between BAT China and World Trading Company since the beginning of 1995 in relation to supply of the Defendant's products to the ports and ferries of the Guangdong port corporations."

2. This action, in brief, concerns a contract which was made between the Plaintiff and the Defendant. The Defendant is a subsidiary company in a multi-national group of companies and it supplies cigarettes. The Plaintiff sells cigarettes, inter alia, in China. The Plaintiff says that it entered a contract with the Defendant that the Defendant would supply cigarettes to it on an exclusive basis for certain areas in China, namely duty free areas, and it would also supply them on what is sometimes called "a favoured nation's basis". In other words, it would not supply them on more favourable terms to other companies than it supplies them to the Plaintiff.

3. The action is defended on a number of grounds which do not concern us today, inter alia, the Defendant avers that the Plaintiff is no longer in a position to take the supplies of cigarettes because it has lost the particular franchises which it had which enabled it to sell the cigarettes.

4. The Plaintiff came into possession of a number of documents which had been supplied to it by mistake by the Customs and Excise Department. The Plaintiff considered that those documents showed that the Defendant had been supplying cigarettes to a company by the name of "World Trading Company". The basis upon which that was said was that the export permit showed that the goods were removed from BAT Co. (HK) Ltd GDM.A 6th Floor, Hong Kong International Distribution Centre, Kwai Chung Container Terminal.

5. On the basis of those documents, the Plaintiff applied before Stone, J. and obtained an order that the Defendant should provide the following discovery, namely, sales invoices from the Defendant to World Trading Company for the period between January 1992 and January 1997; and correspondence between the Defendant and World Trading Company since the beginning of 1995 in relation to the supply of the Defendant's products to the ports and ferries of the Guangdong port corporations.

6. That order was made on 11th March 1998 and on the 1st April of that year, a Miss Fiona Li, who is the Company Secretary of the Defendant, filed an affidavit in compliance with the order. That affidavit disclosed that the Defendant had no relevant documents which fell within the terms of the order. It went on to explain the documents which had been exhibited in the Plaintiff's affidavit which was the basis of the application. Miss Li said, inter alia, in relation to the those documents that :-

"4. ... None of these documents was previously within the possession, control or power of the Defendant.

5. I must point out at the outset that the cigarettes covered by the Export Permits did not belong to the Defendant. They belonged to an associated company of the Defendant, namely, B.A.T. China Limited and were sold by BAT China, not the Defendant, to World Trading Company. At all material times, it was BAT China rather than the Defendant who had business with World Trading Company."

7. Miss Li then went on to explain that the Defendant was a private company incorporated in Hong Kong and is a subsidiary of the British American Tobacco Company Limited which is a UK private company. On the other hand, BAT China is a company incorporated in the United Kingdom and registered in Hong Kong as an overseas company. She says it is obvious that BAT China and the Defendant were two separate legal entities.

8. Finally, she goes on in paragraph 7 of the affidavit to explain that :-

"7. At all material times, BAT China did not have any godown facilities in Hong Kong, therefore it had to make use of the Defendant's facilities to store its goods. The goods which belonged to BAT China were always separately stored in the Defendant's godown specifically designated for BAT China. Besides, the goods which belonged to BAT China had different markings than those of the Defendant. It was highly unlikely that the goods of BAT China could be mixed up with those of the Defendant.

8. It was under the aforesaid circumstances that the cigarettes referred to in the Export Permits and sold by BAT China to World Trading Company were removed from the Defendant's godown for delivery to World Trading Company."

9. On the basis of that affidavit, the Defendant avers that the order which was made by Stone, J. had been complied with and that was the end of that matter.

10. However, on 8th June of last year, it would seem apropos nothing very much in particular, the Plaintiff saw fit to file an affirmation of Chan Kar Leung. The affirmation is somewhat rambling. Paragraph 2, said, for example, that :-

"2. The Plaintiff does not agree with Ms. Li's assertion that BAT China was only an associated company of the Defendant. I verily believe that in actual fact, BAT China and the Defendant conducted themselves as one and the same person in their transactions with the Plaintiff.

.....

4. ... The Plaintiff was led to believe that BAT China and the Defendant were in fact the same person."

Paragraph 10 concludes :-

"... This was a piece of evidence to show that BAT China and the Defendant were in fact the same person."

11. I regret to say that all this cannot even be dubbed as evidence. To suggest that the two companies are the same, requires some flight of imagination.

12. The Defendant was, to a certain extent, suspicious of what the Plaintiff might be up to. It had no real idea and on 15th July, the Defendant's solicitors wrote to the Plaintiff's solicitors a letter pointing out that it had not been made clear just what purpose this affirmation was supposed to serve but they were not going to let it go unanswered.

13. The next step in the proceedings was 17th September 1998 was a letter from the Plaintiff's solicitors to the Defendant's solicitors indicating that they proposed to restore the matter before the Judge under the liberty to apply under Stone, J.'s order and invited the Defendant's solicitors' attendance before the Clerk of Court for the purposes of fixing a date.

14. A date was eventually fixed and it came on before Deputy Judge Li on 24th March of this year and, as I have said, the decision was given on the 31st March.

15. I have to say that even at that stage, in September of last year, it was by no means clear precisely what the Plaintiffs were intending to do before the Judge when they came before him. It was not until the day before the hearing before the Deputy Judge that the Plaintiff served a skeleton argument making clear what it was that they were seeking, namely the order which they ultimately obtained.

16. Before us today, objection is first taken that the matter should never have been restored to the Judge in the way it was. I have to say that that is correct. Why a "liberty to apply" was inserted in the original order of Stone, J. of 11th March 1998 is by no means clear. "Liberty to apply" is simply there for the purposes necessary for working out an order. There was nothing further to be worked out in this order and there was no need to insert the words "liberty to apply". Liberty to apply does not give a party authority to make some new application without taking an appropriate step, namely issuing a summons or a notice of motion or whatever it may be, to bring the matter before the Court to ask for some other relief or some further order to which it may consider it is entitled.

17. This matter was raised before the Judge below and he took the view that he had power under the Rules of the High Court to sweep aside formal requirements. In my view, it is most important that on any application the parties are given proper notice of what it is the application is about. To give one day's notice after something like a year's delay as to precisely what application is being made is quite insufficient. Although the point was taken in the Court below that the procedure was incorrect, there was no application for an adjournment and it was not said before the Deputy Judge, for example, that a further affirmation had to be filed or that evidence was required or an adjournment was required to prepare the Defendant's case.

18. So, in those circumstances, in my view, this Court should regard the matter as having been waived by the Defendant, although I consider the procedure was incorrect and highly undesirable.

19. The short point which arises in this case, seems to me to be this. The Plaintiff is now asked for documents not between the Defendant and World Trading Company but between what might at best be called "a sister or cousin company" of the Defendant and World Trading Company. Nowhere in the pleadings is it alleged that "the sister or cousin company" in effecting sales of cigarettes to the World Trading Company was causing the Defendant company to be in breach of contract. There may well be a possibility of a pleading in that regard but that has not been made. The closest which the Plaintiff comes to making such an allegation is in paragraph 9 of the Re-amended Points of Claim where it is said that :

"9. In breach of clause (iv) of the agreement, at a time which the Plaintiff cannot fully particularise until after Discovery herein but which was on a date in 1995 the Defendant began to supply its cigarette and tobacco products directly or through Third Parties to the passenger vessels of which Chu Kong was agent and to the duty free shops the ports of in Guangdong served by the vessels. It has also been granting Third Parties greater discounts on prices of its products than it has been granting the Plaintiff."

20. The particulars under that paragraph do not seem to me to be of any assistance. They simply again aver that there is a third party through whom that the Defendant has sold its products.

21. So far as this case is concerned, the Plaintiff has had in its possession, since the 1st April of last year, evidence which clearly shows that BAT China has been selling cigarettes to World Trading Company. If the Plaintiff wished to make an allegation that because of that fact, somehow or other the Defendant was in breach of contract, then it beheld the Plaintiff to make that allegation. If that allegation were made, discovery under that might become relevant. However, the discovery ordered in this case has, in the first place, been of all sales invoices from BAT China Ltd to World Trading Company. That, on the face of it, would not assist the Plaintiff anymore than at the moment because it has some of the documents, export permits as well as Miss Fiona Li's affidavit making quite clear that BAT China Ltd has been selling to World Trading Company no allegation of breach of contract has been founded on that.

22. The discovery which has been ordered has been in relation to the supply of the Defendant's products via BAT China Ltd to World Trading Company. On the face of Miss Fiona Li's affirmation, there have been no products of the Defendant supplied to the World Trading Company whether via BAT China Ltd or anybody else.

23. In my view, for those reasons alone, this order should not have been made. The Judge in coming to the conclusion that the issues in this case encompass those which would permit this discovery, said at paragraph 9 :-

"Whether the provision of facilities or assistance by the Defendant to BAT China amounts to breach of contract between the Defendant and the Plaintiff is a question of mixed law and fact to be determined at the trial. It follows that evidence tending to show (1) how and to what extent the Defendant provided facilities and assistance to BAT China to supply goods to World Trading Co. and (2) the role of BAT China in the conduct of the business affairs of the Defendant are relevant matters for the court to consider at trial. In particular, if there are documents evidencing dealings between BAT China and World Trading Company, the fact that such documents are or were in the possession, custody or power of the Defendant is in itself material tending to show conduct on the part of the Defendant that is inconsistent with its contractual obligations towards the Plaintiff. Of course, again, whether such inconsistent conduct amounts to breach of contract is not an issue to be resolved before trial, but it is a relevant issue that the Defendant is entitled to explore by the process of discovery."

24. I would content myself by commenting that it would only be a relevant issue for the Plaintiff to explore by the process of discovery if it has made out a case on the pleadings that there is a breach of the contractual obligations towards the Plaintiff.

25. One further point was taken by Mr. Tong, S.C. in relation to the order which was made and that was the order encompassed documents not of the Defendant but documents of BAT China Ltd. Mr. Tong rightly points out on the basis of the case of Lonrho Limited v. Shell Petroleum Co. Ltd. [1980] 1 W.L.R. 627 and Re Tecnion Investments Ltd. [1985] B.C.L.C. 434 that such discovery should only be ordered if it can be shown that the documents are or have, at some stage, been in the power of the Defendant. The fact that the documents belonged to a sister or cousin company of the Defendant does not show that. What needs to be shown is that there is some sufficient control by the Defendant over the company whose documents are sought to be disclosed for discovery to be ordered.

26. In my view, the Deputy Judge below has erred in his approach because he has not considered the issues which arise on the pleading and this appeal should be allowed.

Godfrey, J.A. :

27. I agree that for the reasons given by Rogers, J.A., we must allow this appeal.

28. The plaintiff in this action alleges that, in 1995, the defendant supplied to another party cigarette and tobacco products, "directly or through third parties" in a manner which involved the defendant in a breach of its agreement with the plaintiff.

29. If the plaintiff amends its points of claim specifically to allege that the defendant so supplied its cigarette and tobacco products through British American Tobacco Company (China) Limited (as now appears to be its case), then, if that is denied by the defendant an issue will be raised on the pleadings on which further discovery may be appropriately ordered. But that is not the present position.

30. I will add a few words on the matter of "liberty to apply". The order of Stone, J., mentioned by Rogers, J.A. expressly confers on the parties "liberty to apply". Why it does so, I do not know. In fact, the giving of "liberty to apply" is not necessary or appropriate in interlocutory orders. When an action is proceeding, it is always possible for the parties at any time to apply for any relief they think to be necessary by notice under the summons for directions (if the action has got that far) or by an ordinary summons. And in any case, where "liberty to apply" is given, this does not authorise the parties to come back to the court without taking the appropriate procedural steps. (It may be that the expression "liberty to apply" is sometimes used when what is really meant is "liberty to restore". If it is desired for some reason that an application should come back before the judge or master for some further order, then it is appropriate that, in the original order, the plaintiff or the defendant be given "liberty to restore", something which can then be done without the issue of another summons.)

31. In contrast, "liberty to apply" may need to be included in an order made in an action for administration of an estate or for an execution of a trust, or in an action for the winding-up of a partnership, or something of that sort. After the trial of the action, accounts and inquiries will probably need to be taken and made. For that purpose, it is appropriate that that "liberty to apply" be inserted in the order, usually to direct that further consideration of the action is to take place in chambers (rather than in open court). All this is something with which solicitors or counsel in Hong Kong are not overly familiar. I would express the hope that, in future, no solicitor, or counsel will invite the judge to make an order giving "liberty to apply" or "liberty to restore" without first considering whether such an order is necessary or appropriate.

32. There is nothing further I wish to add.