PAUL'S MODELS ART GMBH & CO. KG v. U.T. LTD AND OTHERS

HCA 1501/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1501 OF 2000

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BETWEEN

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(BY COUNTERCLAIM)

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JUDGMENT

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Introduction

1.  As the action number identifies, this is an action which commenced by writ dated more than 10 years ago. 

2.  The claim arises out of alleged breaches of an agreement dated 28 December 1996 (“the Agreement”), made between the plaintiff and the 1^st, 2^nd and 3^rd defendants.

3.  The statement of claim has already been the subject of significant red and green amendments.  The red amendments were made in November 2002 and, amongst other things, added the 4^th and 5^th defendants as parties to the action originally brought against just the 1^st, 2^nd and 3^rd defendants.  The green re-amendments were made in September 2005.

4.  The plaintiff was a manufacturer and seller of die cast scale models of cars and motorbikes.  The 1^st defendant was a manufacturer of moulds for the production of models and a manufacturer of those models.  The 2^nd and 3^rd defendants were the majority and minority owners respectively and the directors of the 1^st defendant.

5.  The Agreement was for a duration of 10 years, to 2006, and under it the parties agreed not to produce products in competition with each other, and to avoid selling any of the products produced by the plaintiff or 1^st defendant to a purchaser whom they knew or ought to have known might re-sell them outside the countries specified by the Agreement.

6.  The plaintiff was appointed by the 1^st defendant as the sole and exclusive distributor of specific products of the 1^st defendant in Germany and Belgium, and the sole and exclusive selling agent for the 1^st defendant’s products in some specific countries (“the agency territories”).  The 1^st defendant agreed to pay the plaintiff 5% commission on the sales of the 1^st defendant’s products sold to purchasers in the agency territories.

7.  The 1^st defendant also agreed that it would avoid selling any of the 1^st defendant’s products to any person whom it reasonably believed might resell them in Germany, Belgium and other countries where the plaintiff was the agent of the 1^st defendant for its products.  The 2^nd and 3^rd defendants agreed that they would cause and procure the 1^st defendant to comply with these various terms of the Agreement.

8.  The thrust of the claim is that the 1^st, 2^nd and 3^rd defendants had been in breach of the Agreement by causing and procuring the incorporation of the 4^th defendant and its subsidiaries (including the 5^th defendant) and thereafter by embarking on a course of conduct to circumvent the contractual obligations owed to the plaintiff under the Agreement, in particular the plaintiff’s sole and exclusive distributorship and selling agent rights.

9.  The red amendments to the claim formulated the claim against the 4^th and 5^th defendants based on the tort of unlawful interference with contract.

10.  I think a fair summary of the claim was provided by Mr Nick Pirie (appearing with Miss Annie Lai on behalf of the plaintiff) as being a claim arising from a scheme to establish, construct and operate a new corporate and distribution structure to manufacture, market and distribute models in breach of the Agreement.

11.  Mr Pirie criticized the defendants for being at least less than forthcoming in their approach to the provision of material information and documents over the years, exemplified (he said) by the only recent provision of facts and documents in broad terms giving rise to the applications now before the Court.  As to the criticized defendants’ discovery so far in the action, I was provided with a decision of the Court of Appeal arising from an application for specific discovery against the 4^th defendant (see further below).

The summonses

12.  There were three summonses before the Court, all brought by the plaintiff.  In chronological order, they were:

(1)   a summons dated 3 June 2010, pursuing against all defendants further and better lists of documents, alternatively specific discovery of the documents or classes of documents set out in the Schedule to the summons (“the discovery application”);

(2)   a summons dated 2 July 2010, seeking leave to file and serve a Re-Re-Amended Statement of Claim so as to add the proposed purple amendments, and consequential directions (“the amendment application”); and

(3)   a summons dated 11 November 2010, seeking leave to amend the Schedule to the 3 June discovery summons, and seeking an order that the further and better lists or specific discovery sought should be deposed to by the 2^nd and 3^rd defendants and the directors of the 1^st, 4^th and 5^th defendants in person, in default of which the Defence(s) should be struck out.

Order of play

13.  The proposed amendment to the Schedule of classes of documents was not controversial and I allowed that amendment to be made at beginning of the hearing.  The argument on disclosure, therefore, proceeded on the basis of the Amended Schedule.  (For the avoidance of confusion later, it may be helpful to point out here that the amendments to the schedule included adding two new categories of documents sought and deleted one, so that the categories pursued are lettered A, B, C, D, E, G and H—no F.)

14.  But it was therefore necessary to decide in which order to deal with the issues of (a) proposed amendments to the claim by the amendment application and (b) the pursued discovery under the discovery application.

15.  At the commencement of the hearing, I indicated to the parties my provisional view that the amendment application should be dealt with first.  (Indeed, I understood that at the most recent CMC or call-over hearing Mr Justice Au may also have independently indicated his view that that would be the appropriate order for dealing with matters.)

16.  Mr Edward Shum (appearing for the 4^th and 5^th defendants) sought to persuade me otherwise.  Referring to the decision of the Court of Appeal in Iu Po Cheung v. The Commissioner for Census and Statistics (unreported, CACV240/2008, 13 May 2009), Mr Shum suggested that by its discovery application the plaintiff was trying to make a collateral attack on an order already made by the Court of Appeal in the course of these proceedings—see CACV139/2005, 14 December 2005, reported at [2006] 1 HKC 238—which order was binding on the plaintiff and the 4^th and 5^th defendants.  As a result, he said, the amendment application was made after the discovery application with the ulterior purpose of justifying another round of discovery.  I should, therefore, deal with the applications in the order in which they were issued.

17.  At the hearing, I ruled that I would hear the amendment application first.  As I briefly reasoned, I decided to do so because it seemed to me that, though there was some force in the suggestion that the amendment application was in part a reaction to the response by then received to the discovery application, it would be pointless to hear the discovery application on the basis of the then state of the pleadings, at a time when the amendment application had already been issued and would fall to be determined. If any amendment might be allowed, it would alter the context against which any discovery should be considered.  It seemed to me that at best the points taken by Mr Shum in this regard were technical and as to form, and might well lead to a waste of time and costs if discovery were to have to be potentially sought and argued again in the light of any amendments as might by then have been allowed.

The amendment application

18.  The precise amendments sought at the hearing were slightly different from the version appended to the 3 June summons, and the hearing proceeded upon the ‘final’ version draft Re-Re-Amended Statement of Claim as was placed in the hearing bundle.

19.  Those proposed purple amendments to the claim were not opposed by Miss Queenie Lau (appearing for the 1^st, 2^nd and 3^rd defendants), but were opposed by Mr Shum (for the 4^th and 5^th defendants).

20.  The principles applicable to applications to amend pleadings are well-settled and were not the subject of dispute between the parties.  They can be set out very shortly. 

21.  In essence, the general position is that amendments will be allowed at any stage of the proceedings if they are for the purpose of identifying for determination the real question(s) in controversy between the parties; necessary for disposing fairly of the cause or matter, or saving costs; and would not result in prejudice to the other party which cannot be compensated for by costs.

22.  Of course, any amendment proposed should be properly formulated and particularized, and proposed amendments which are immaterial or useless will not be permitted.

23.  The Court has power to grant or allow an amendment after the expiry of any relevant period of limitation notwithstanding that the effect of the amendment will be to add or substitute a new cause of action, provided that the new cause of action arises out of the same facts or substantially the same facts as a cause of action in respect of which relief has already been claimed in the action by the party applying for leave to make the amendment. 

24.  In such a case, the Court has to decide (a) whether any amendment introduces a new cause of action, (b) if so, whether any applicable limitation period has expired by the date of the hearing, and (c) if so, whether the new cause of action arises out of the same or substantially the same facts as the cause of action already pleaded: see RHC O. 20 r. 5(2) and (5); and Paragon Finance plc v. DB Thakerer & Co. [1999] 1 All ER 400, at 404h.

25.  Mr Shum made it clear that there were a number of proposed amendments which he did not oppose.  This was either because they were minor corrections to the existing pleading or because they were parts of the pleading apparently directed at the 1^st, 2^nd and 3rd defendants.  Those parts of the proposed amendments which were controversial were essentially to be found in the new paragraphs 17A and 17B.

26.  After hearing argument in this case, I allowed the amendments, for reasons which I now give.

27.  First, as a result of the non-opposition from three of the five defendants, I was left in the slightly odd position of perhaps allowing amendments to one claim document, but only insofar as the amendments were to be taken as being against one group of defendants, but not the other.  Hence, it seemed to me that, notwithstanding the position taken by Miss Lau, I should be satisfied that the amendments were appropriate for leave to be granted as against any defendant.

28.  Secondly, I do not accept Mr Shum’s first submission— attractive though it is at first blush—that the amendments should be disallowed because of inconsistent claims.  Mr Shum points to various parts of the existing pleading (in particular in paragraph 16A) which highlight the role of the 2^nd defendant as the ‘puppet-master’.  He then suggests that it would be contrary to common sense to argue in the same pleading that the 4^th and 5^th defendants have induced the 1^st, 2^nd and 3rd defendants to breach the Agreement.  He also points to an inducement occurring if the breach of contract is fairly attributable to “any pressure, persuasion or procuration on the part of the defendant”: see Halsbury’s Laws of Hong Kong, Vol. 25(1) (2007 Reissue) [380.504] fn 3.

29.  But I think this submission forgets the corporate personality, nature and identity of the 4^th and 5^th defendants, and the allegation that the 2^nd defendant was in control of both the 1^st defendant and the 4^th and 5^th defendants (Mr Pirie describing them loosely as being in one ‘group’).  It also overlooks the way in which the liability of those defendants is said to arise, namely as accessories to the liability of the other defendants who are the contracting parties: see, for example, OBG Limited v. Allan; Douglas v. Hello [2008] 1 AC 1, at [5].

30.  Mr Shum’s other main submission was as regards the limitation point.  It proceeded from the starting point that whatever the cause of action, the limitation period had long ago expired. 

31.  Then he pointed out that the claim as previously formulated against his clients was (as the Court of Appeal pointed out in late 2005) on the tort of unlawful interference with contract, whereas the proposed new plea seemed expressly to delete that plea, and to replace it with a claim based on the tort of procuring or inducing breach of contract.

32.  He referred to the OBG case, in which—following a review of the relevant authorities of the two areas—the distinct identities of these two torts was set out.  Earlier characterizations of the unlawful interference tort as being a ‘genus’ of which the procuring breach tort was a ‘species’ were there rejected.

33.  Hence, Mr Shum submitted that the proposed amendments clearly introduced a new cause of action, so that if any amendment were to be permitted it must be under an exception to the rule that amendment will not be permitted if it seeks to introduce a new cause of action after limitation has expired.

34.  Whilst it is undoubtedly correct that the OBG case highlighted the distinct identities of the two torts, the historical review of the relevant authorities also clearly identified that the separate torts were for a considerable period of time considered part of a “unified theory”.  It seems to me that it is part of the ratio of the OBG case that the unified theory is taken to be discredited, for the reasons explained in the speeches, in particular in that of Lord Hoffmann.  As that case was not decided until 2007, it would seem a little unfair if the pleading against the 4^th and 5^th defendants is criticized for proceeding on a theory of the law as was prevalent at the time of the pleading in 2002.

35.  But, in any event, liability for inducing breach of contract was first established by the famous case of Lumley v. Gye (1853) 2 E&B 216, where the court based its decision on the general principle that a person who procures another to commit a wrong incurs liability as an accessory. 

36.  This is to be contrasted with the tort of causing loss by unlawful means, where a defendant’s liability is primary, for intentionally causing the plaintiff loss by unlawfully interfering with the liberty of others.  While such “interference with business” does not require that existing contracts have been broken, the cause of action only exists where the claimant has suffered damage which the defendant has intentionally brought about by the use of unlawful means.

37.  Mr Pirie submitted that the plaintiff’s claim has always been one of the Lumley v. Gye sort.  I tend to agree that the factual circumstances delineated in the Re-Amended Statement of Claim would seem more akin to that sort of claim.

38.  I am not, therefore, satisfied that it is either correct—or would be fair—to consider the proposed amendments to paragraphs 17A and 17B as the setting up of a new cause of action.

39.  But that may not matter as I am also perfectly satisfied that, even if it is a new cause of action, it arises out of the same or substantially the same facts as the cause of action already pleaded.  The thrust of the claim brought by the plaintiff against all defendants was, and under the amendments it would remain, one arising from an alleged scheme to establish, construct and operate a new corporate and distribution structure to manufacture, market and distribute models in breach of the Agreement.

40.  The way in which that claim is now to be particularized is within the principles set out in the case of Nagata v. New Japan Securities International (HK) Limited [1994] 1 HKC 134, another case in which criticism was made as to the way in which discovery had been given by the party resisting the amendment.

41.  As to the submission of Mr Shum that the proposed amendments also introduce new allegations of fact of a different character from those pleaded, by reference to new definitions of products, I accept Mr Pirie’s submission that the definitions now used are intended to be closer to those terms used in the Agreement.  Of course, it will be a major battleground at trial as to what those terms mean in that context, but that is not, in my view, a basis for refusing in the exercise of my discretion to allow the amendments.

42.  I note that there was no suggestion of any prejudice which might be suffered by the 4^th or 5^th defendants not remediable by the appropriate costs order.  Whilst I agree that there may not be, to use Mr Shum’s words, ‘any magic’ in an affirmation, the absence of any evidence filed by those defendants asserting prejudice is something for me to bear in mind, as I consider the application against the other circumstances.

43.  I have taken account of the timing of the amendment application against the progress, or lack of it, of this action generally, but I do not think the timing is determinative of the application to amend.  Indeed, there is at least some force in the point made for the plaintiff that the amendment comes in part from the ability to make express factual matters which were long suspected to be the case (such as the ownership of the Davidson factory), but confirmation of which came from the defendants only in documents and supplemental witness statements filed earlier this calendar year.

44.  For the avoidance of doubt, I express that I consider it just in the circumstances I have outlined above to grant leave to amend: see RHC O. 20 r. 5(2) and (5).

45.  In the exercise of my discretion, therefore, I allowed the purple amendments.  The consequential directions for leave to the defendants to make responsive amended pleadings are not controversial, and I grant then 28 days each within which to file those pleadings.

46.  As to costs, I make an order nisi that the costs of and occasioned by the amendments shall be payable by the plaintiff to the defendants in any event, to be taxed if not agreed.  The costs of the application will fall into those costs, save for the costs of the argument itself, which I order to be paid by the 4^th and 5^th defendants to the plaintiff in any event, to be taxed if not agreed.  The argument in question lasted 2½ hours.

The discovery application

47.  Again, the principles applicable on the discovery application are well settled and need not be set out at any length.

48.  Mr Pirie told me his main application was for a further and better list of documents under RHC O. 24 r. 3.  The effect of that rule includes enabling a party to apply for discovery by list, or for an affidavit verifying a list, against a party who has not fulfilled his obligations under O. 24 r. 2.

49.  Ordinarily, a list of documents verified by affidavit is conclusive, subject to two qualifications. One is that an application may be made for a further and better list of documents where it appears (a) from the list itself, or (b) from the documents referred to in it, or (c) from admissions made either in the pleadings of the party making discovery or otherwise, that the party making discovery has or has had other relevant documents in its possession, custody or power.

50.  The other qualification is that an application may be made under O. 24 r. 7 for an affidavit in regard to specific documents or classes of documents, where the facts fall within that rule.  An application under that rule must be supported by an affidavit stating that in the belief of the deponent the other party has or has had certain specific documents which relate to the matter in question.  If a prima facie case is made out for (a) possession, custody or power, and (b) relevance of the specified documents, an order may be made.

51.  There is no jurisdiction to make an order unless (a) there is sufficient evidence that the documents exist which the other party has not disclosed; (b) the document or documents relate to matters in issue in the action; and (c) there is sufficient evidence that the document is or was in the possession, custody or power of the other party.  If those matters are established, the court has a discretion whether or not to order disclosure.

52.  One area of dispute at the hearing was whether or not the test of relevance in Hong Kong is still that in the Peruvian Guano case, Mr Shum suggesting that the excesses of that type of discovery are to be deplored.  But, whatever one might personally think of the application of that test to many cases, I accept Mr Pirie’s submission that the Peruvian Guano test is still the applicable test even after the Civil Justice Reforms of 2009 (when the possibility of removing that test was rejected).

53.  At the hearing, Mr Pirie told me that his main application was under r. 3, but it seems to me that where the application has largely proceeded by reference to the Amended Schedule of documents or classes of documents sought, the application is more likely to be treated as one primarily under r. 7.

54.  As a successful application under that rule would lead to an order for provision of an affidavit of disclosure, it is of course possible to meet such an application by filing an affidavit.  The assertions made in that affidavit are able to be tested, albeit by reference to the fact that an affirmation as to disclosure is usually conclusive at the interlocutory stage of an action.

55.  Anyway, as the argument (in skeletons and orally) focused on the categories in the Amended Schedule, I shall approach the issues by reference to that schedule.

56.  I should first, however, deal with Mr Pirie’s submission (presaged in the affidavit of his instructing solicitor, Mr Fyfe, that led the application) that the discovery from the defendants so far is plainly defective.  I can do so shortly, as I think there is real force in the suggestion that the defendants have been less than forthcoming in their disclosure, and I note that Mr Justice Au has already expressed concern as to the approach to disclosure taken at least by the solicitor for the 4^th and 5^th defendants.

57.  With the benefit of the further information (the plaintiff would say ‘admissions’) provided this year in disclosure and supplemental witness statements, the plaintiff has now pleaded a case of the alleged arrangements by which it says the 2^nd defendant and companies it alleges are under his control schemed to avoid the Agreement.  I was provided with a flow chart of the way in which the 1^st defendant manufactured models to order, and how the 4^th defendant did so too, the latter in part from the 1^st defendant and in part from Davidson, and how the orders from otherwise different defendants and sources appear to have been consolidated for shipment to the same customers at the same time.

58.  I was shown a schedule produced in a Bundle F for an earlier CMC hearing on 12 April 2010, from which it can fairly be asserted by the plaintiff that a number of documents as might well have been expected to be disclosed have not been disclosed.  These are documents of a standard type usually generated on the manufacture and shipment of products.

59.  I accept, on the other hand, that the case now put in the Re-Re-Amended Statement of Claim (leave for which amendments I granted—see above) is put rather more clearly as to the alleged connection between the various individual and corporate entities said to have been part of the scheme to avoid compliance with the Agreement, and to conceal the alleged non-compliance.  This is following the confirmation by the 1st, 2^nd and 3^rd defendants of those matters of fact previously suspected by the plaintiff, and from which it will seek to invite certain inferences at trial.

60.  So it may not be productive to spend too much time analyzing precisely what certainly should or should not have been disclosed previously.  As I have said, it will be more productive to look at the categories of documents sought in the Amended Schedule.  If it seems that such documents should now be disclosed, that can be ordered without deciding whether or not they might or should earlier have been disclosed. 

61.  That there are apparently fair criticisms of disclosure so far is perhaps more use in deciding whether any further disclosure should be verified by affidavit/affirmation personally from the defendants or their officers.

Category A—Invoices issued by the 1^st defendant to customers in Europe in respect of the sale and supply of 1/18 scale die cast model cars together with purchase orders, shipping documents and accounting records relating to these invoices for the period between 28 December 1996 and 27 December 2006

62.  This category of documents is sought against the 1^st, 2^nd and 3^rd defendants only.

63.  As a result of points taken by Miss Lau, it was accepted by Mr Pirie that any such documents ordered should be for the period only from 1 October 2001 (as earlier matters were dealt with in another action between the parties relating to commission for goods up to September 2001).

64.  Miss Lau also submitted that though the discovery sought now expanded the documents beyond the two brands previously relevant (and already disclosed), the 1^st, 2^nd and 3^rd defendants were prepared to make discovery in respect of the models of the “UT brand”.

65.  The only point of contention remaining, therefore, on this category was whether the class of documents to be disclosed should be limited to the “invoices” or whether it should also include the “purchase orders, shipping documents and accounting records relating to these invoices”.

66.  As this point of contention arises also for categories B, C, D, E, G and H (that is, all other categories sought), I shall decide the point in this context, but it will have application across all categories.

67.  The submission of Miss Lau—and Mr Shum in relation to the other categories—is that in light of the fact that the connection between the various entities is not denied, then should there be any finding of wrongdoing by the defendants the documents now sought are really relevant only to quantum, in showing the value of the goods that will be said to have been traded in breach of the obligations owed under the Agreement.  For that purpose, the invoices showing the number of items and their value is all that is reasonably necessary, and all the other documents sought are simply not necessary, and to order disclosure of them would be oppressive.

68.  For his part, Mr Pirie says that the invoices may not tell the whole story, as some of the goods shipped may have been returned (for example, as defective) and so the proper quantum amount might not be revealed by invoices alone.  But this is a risk borne by the defendants, as any returned goods would only go to reduce damages, and the defendants cannot suggest any lower figure than the invoices show.

69.  Similarly, although I understood Mr Pirie to be suggesting also that the other documents might reveal matters which are not otherwise apparent from the invoices, such as which invoiced goods might have been consolidated and shipped with which other invoiced goods, I do not think that identifies any need for any wider discovery than the invoices themselves.  If the plaintiff is correct in its allegations, all the goods sold in circumvention of the Agreement will give rise to a good claim and it does not matter in what way or with what other goods they were shipped.  Also, the other documents sought are only those relating to the invoices, so they will not identify any other invoices.

70.  The wide request by reference to “accounting records”— which Mr Fyfe expanded in the headings in his affidavit as “including sales and accounting ledgers” (note, including but apparently not limited to those ledgers)—to me rather smacks of ‘fishing’, and an order for discovery of such material is almost bound to cover material which is plainly irrelevant.

71.  I will therefore only make an order in relation to the invoices themselves.

Category B—Invoices issued by the 1^st defendant to the 4^th defendant in respect of the sale and supply of 1/18 scale die cast model cars and for delivery to destinations in Europe, together with the purchase orders, shipping documents and accounting records relating to these invoices for the period 27 March 1998 to 27 December 2006

72.  This category of documents is sought against all five defendants.  It relates primarily to indirect sale of the 1^st defendant’s products to customers in Europe via the 4^th defendant (or its subsidiaries).

73.  For the reasons set out above, I shall read down the category to include only the invoices and not the other documents relating to these invoices.

74.  For this category, Miss Lau submitted that the 2^nd defendant had already deposed to the fact that he has disclosed all invoices in respect of sales by the 1^st defendant to the 4^th defendant regarding 1/18 scale models.

75.  If it were necessary to say so, this fact identifies a recognition that such invoices are relevant and discloseable, but I note that the relevant 6th Affirmation of the 2^nd defendant deals only with documents the 1^stto 3^rd defendants “have”.  By use of this word “have”, it is at least not clear if this is actually deposing to documents presently in their possession custody or power, and it certainly does not deal with documents which may formerly have been in their possession custody or power.

76.  In my view, the 1^st, 2^nd and 3^rd defendants should file a further affirmation or affidavit dealing properly with the category in accordance with the full and correct terminology of discovery (not simply as a matter of form, of course, but to ensure dealing with the substance).

77.  One real area of dispute on this category relates to the period of the invoices to be disclosed.  The plaintiff points to the fact that the 1^st defendant has disclosed invoices issued by it to the 4^th defendant for 1999–2000, whereas the 4^th defendant has disclosed invoices issued by it to the European customers for the period from 1998 to 2006.  From this, it is suggested that the sale of 1/18 models by the 1^st defendant to the 4^th defendant must have started before 1999 and continued after 2000 to 2006.

78.  The discrepancy in dates arises because the 1^st, 2^nd and 3^rd defendants assert, at paragraph 25(d) of their Re-Amended Defence and at paragraph 33 of the Supplemental Witness Statement of the 2^nd defendant, that the 1^st defendant sold its factory Dongguan UT to an unrelated third party, Kolara Limited (“Kolara”), with completion of the sale in late November 2000.  Therefore, it is those defendants’ case that after that date they had nothing to do with any sales or shipments by Dongguan UT into Europe via the 4^th defendant.

79.  Kolara is a company incorporated in Mauritius on 30 March 2000, and the plaintiff points to certain materials as giving it good reason to doubt that Kolara was really an independent third party.  For example, there is an invoice in relation to professional services rendered in regards registration and licence fees, issued by Dynamic Consultants Limited to Kolara at a GPO Box address in Mauritius marked specifically for the attention of the 2^nd defendant. The plaintiff says this shows he is behind and financing Kolara, and the real owner.

80.  It is also pointed out that Dynamic Consultants is the same company registered as the Company Secretary for the 1^st defendant and the 4^th defendant companies.

81.  Kolara has apparently been struck off from the Mauritius register, albeit that steps are being taken (by persons and for reasons unknown) for its registration to be re-activated.

82.  I accept that this material does give rise to at least some suggestion that the 2^nd defendant is involved with and may even be the owner and controller of Kolara, but this issue is not something I am able to decide now on the materials I have, and without cross-examination.

83.  But, in any event, the category of documents sought is as regards invoices issued by the 1^st defendant to the 4^th defendant, so even were I to proceed on an assumption that the 2^nd defendant somehow has power over the documents of Kolara (a non-party to this action), invoices which might have been issued by Kolara to the 4^th defendant do not fall within the category sought.

84.  For the 4^th and 5^th defendants, Mr Shum says that they have already given “voluntary” disclosure of the relevant invoices from the 1^st defendant.  (I do not, for the moment, need to worry about the idea of “voluntary” disclosure, though I see some force in Mr Pirie’s submission that this may identify an error in approach to the obligations of disclosure.)

85.  Mr Shum can also point to the 5^th Affirmation of Jimmy Arafino Ibrahim, aka Jimmy Yee, a director of the 4^th and 5^th defendants, where he states in paragraph 7 that after the sale by the 1^st defendant of the production facilities in late 2000, the 4^th defendant ceased placing orders with the 1^st defendant.

86.  Again, it seems obvious that whoever owns Kolara, the practical likelihood is that any invoices from the 1^st defendant would have ceased after November 2000.  To put it another way, I would not be prima facie satisfied that there are any other documents in existence as fall within this category beyond those already disclosed (subject to a properly worded affirmation or affidavit confirming the position as regards documents previously in possession custody or power, but since given up).

Category C—Invoices issued by Davidson to the 4^th defendant in respect of the sale and supply of 1/12 and 1/43 scale die cast model cars and for delivery to destinations in Europe, together with the purchase orders, shipping documents and accounting records relating to these invoices for the period 18 December 1998 to 24 April 2003

87.  This category of documents is sought against all five defendants.  It relates primarily to indirect sale of the plaintiff’s products by the 1^st defendant to customers in Europe via Davidson and the 4^th defendant (or its subsidiaries).

88.  For the reasons set out above, I shall again read down the category to include only the invoices and not the other documents relating to these invoices.

89.  The 1^st, 2^nd and 3^rd defendants say the 2^nd defendant has affirmed at paragraphs 28–31 of his 6th Affirmation that they do not have any documents beyond those already disclosed in their 2^nd Supplemental List. Again, I think the affirmation is not full in that it refers only to documents those defendants “have” and I would require a proper affirmation as set out above.

90.  The 4^th and 5^th defendants, through the 5^th Affirmation of Mr Ibrahim, say that all model cars ordered from Davidson were covered in the relevant 1,073 invoices disclosed in the 2^nd Supplemental List.  I do not think there is any basis for me to assume any prima facie case otherwise.

Category D—Invoices issued by Davidson to the 4^th defendant in respect of the sale and supply of 1/12 and 1/43 scale die cast model cars and for delivery to destinations in Japan, Australia, New Zealand, Africa and South America, together with the purchase orders, shipping documents and accounting records relating to these invoices for the period 18 December 1998 to 24 April 2003

91.  This category of documents is sought against all five defendants.  It relates primarily to indirect sale of the plaintiff’s products by the 1^st defendant to customers in Japan and the other listed countries via Davidson and the 4^th defendant (or its subsidiaries).

92.  For the reasons set out above, I shall again read down the category to include only the invoices and not the other documents relating to these invoices.

93.  Now that the purple amendments have been allowed, the defendants’ objection to this category on the basis that it was not relevant to the case previously pleaded must fall away.

94.  It seems to me that this category should be disclosed.  Insofar as the 1^st, 2^nd and 3^rd defendants have said that they have in any event already disclosed all items falling within the category, that was in correspondence and a proper affirmation of discovery in this regard should be made.

Category E—Invoices issued by the 4^th defendant to customers in Japan, Australia, New Zealand, Africa and South America in respect of the sale and supply of 1/12 and 1/43 scale die cast model cars, together with the purchase orders, shipping documents and accounting records relating to these invoices for the period 27 March 1998 to 27 December 2006

95.  This category of documents is sought against all five defendants.  It is said to relate primarily to indirect sale of the plaintiff’s products by the 1^st defendant to customers in Japan and the other listed countries via Davidson and the 4^th defendant (or its subsidiaries).

96.  For the reasons set out above, I shall again read down the category to include only the invoices and not the other documents relating to these invoices.

97.  First, I would point out that as the documents sought are those issued by the 4^th defendant, there is no basis for suggesting that the 1^st, 2^nd and 3^rd defendants would have possession or custody of them.  It also seems to me that there is also no real basis for suggesting that the 1^st or 3^rd defendants might have power over the documents.

98.  The only suggestion properly made is that the 2^nd defendant has power over the documents.  This is suggested by the plaintiff on the basis that the 2^nd defendant is the owner and controller of at least a majority shareholding in the 4^th defendant. 

99.  Of course, this may be a major issue at trial, but in any event I do not accept that is shown to be the case on the evidence I have.  The evidence shows that the 2^nd defendant is the minority 40% shareholder of the 4^th defendant, the remainder being held by two other minority shareholders, namely Mr Ibrahim as to 40% and the 2^nd defendant’s wife as to 20%.

100.  I do not think I can assume even for the purpose of this application that the other shares are in reality owned or controlled by the 2^nd defendant.  He is also not a director of the 4^th defendant or 5^th defendant.  So, in sum, I do not accept that the documents in this category are in his power.

101.  In any event, where the same discovery is also sought directly from the 4^th and 5^th defendants, there is no real need to order disclosure against the other defendants.  The situation is quite different from one where discovery is sought of documents from a non-party over which documents it is said a party has power.

102.  But, I also do not think that discovery is to be ordered against the 4^th and 5^th defendants.  Insofar as there is any claim by the plaintiff arising from goods which were manufactured by the 1^st defendant or Davidson and sold on by the 4^th defendant, the relevant documents are already covered by other categories of documents sought.  Insofar as there may have been the onsale of goods manufactured by other manufacturers, those matters are not relevant on the pleadings.

Category G—Purchase orders, shipping documents, sales ledgers and the accounting records relating to: (i) all sales to the European customers named in the 1,073 invoices issued by the 4^th defendant disclosed in the 4^th and 5^th defendants’ 2^nd Supplemental List of Documents; and (ii) sales of 1/12, 1/18 and 1/43 scale die cast model cars to other European customers of the 4^th defendant.

Category H—Invoices issued to the 4^th defendant by suppliers of the products, whose onward sales by the 4^th defendant are represented in the sales invoices and other documents in Categories E and G, together with purchase orders, shipping documents, purchase ledgers and other account in records relating to these invoices.

103.  Both these categories of documents are sought against all five defendants, and for the period from 27 March 1998 to 27 December 2006.

104.  Again, the reasons I have outlined above, I would read down this Category H so that it is limited to invoices.

105.  Again, for the reasons I have also given above, I see no basis on which to order disclosure of these two categories against the 1^st, 2^nd and 3^rd defendants.

106.  In any event, by virtue of the disclosure already provided by the 4^th and 5^th defendants, and by reference to the other points which I have made above, I am not persuaded that either category of documents is necessary to be disclosed.  In other words, even assuming that there is a proper foundation for jurisdiction for me to exercise the discretion in favour of an order for disclosure of these categories of documents (of which I am not convinced), in the exercise of that discretion I would refuse to make such order.

107.  The categories are also far too widely drawn, and it is plain that the documents within them cannot all be considered relevant to the issues in this action.  Some of the documents must or prima facie would relate to sales of models to customers, which sales have nothing to do with the issues framed by the pleadings.

Confirmation of disclosure on affirmation/affidavit

108.  In light of the way discovery has so far come about, and because of the importance of the discovery matters, in the exercise of my discretion I consider that it is appropriate for the defendants’ discovery to be confirmed on oath or affirmation, such deponents to be the individual defendants personally and an officer of each of the corporate defendants in person.

109.  As to the form of further disclosure, I consider that a further and better list should be provided, namely by further supplemental lists of documents, of any further documents which are to be disclosed under the categories of documents I have ordered as will be affirmed to in the affidavits of specific discovery.

110.  I shall not at this juncture accede to the plaintiff’s application that the Defences be struck out in default of the confirmation of discovery on oath or affirmation.

111.  I am conscious that not all the documents sought by the plaintiff have been ordered, and it seems to me that the defendants have had some success in defeating parts of the application as framed.  Not only have I refused entire categories sought, I have read down others, and ordered some against one ‘camp’ of defendants only.  On the other hand, I have accepted that there was some valid criticism of the approach to disclosure so far taken by the defendants.  In the circumstances, I would be inclined to exercise my discretion as to the costs of the discovery application by allowing the plaintiff half its costs of the application in any event.

Conclusion

112.  In conclusion, and by reference to the amendment application and the discovery application (as amended), having taken into account all the circumstances and in the exercise of my discretion I order as follows.

113.  On the amendment application:

(1)   Leave is granted to the plaintiff to file and serve the Re-Re-Amended Statement of Claim in the manner shown in purple on the copy included in the hearing bundle A1 pages 1–29.

(2)   Leave is granted to the 1^st, 2^nd and 3^rd defendants consequentially to amend their Re-Amended Defence, if so advised, within 28 days thereafter.

(3)   Leave is granted to the 4^th and 5^th defendants consequentially to amend their Amended Defence, if so advised, within the same period of 28 days.

(4)   There shall be an order nisi that the costs of and occasioned by the amendment shall be payable by the plaintiff to the 1^st to 5^th defendants in any event, save that the plaintiff’s costs of the argument on 24 November 2010 (2½ hours) shall be payable by the 4^th and 5^th defendants in any event.

114.  As to the discovery application:

(1)   The plaintiff is granted leave to amend the Schedule to its summons dated 3 June 2010, in the manner shown in red in the Amended Schedule attached to the 11 November 2010 summons.

(2)   The 1^st, 2^nd and 3^rd defendants shall make and file an affidavit stating whether any document or any class of document specified or described in the following Categories is or has at any time been in their possession custody or power, and if not then in their possession custody or power when they parted with it and what has become of it:

(a)   Category A—Invoices issued by the 1^st defendant to customers in Europe in respect of the sale and supply of 1/18 scale die cast model cars for the period between 1 October 2001 and 27 December 2006;

(b)   Category B—Invoices issued by the 1^st defendant to the 4^th defendant in respect of the sale and supply of 1/18 scale die cast model cars and for delivery to destinations in Europe for the period 27 March 1998 to 27 December 2006;

(c)   Category C—Invoices issued by Davidson to the 4^th defendant in respect of the sale and supply of 1/12 and 1/43 scale die cast model cars and for delivery to destinations in Europe for the period 18 December 1998 to 24 April 2003;

(d)   Category D—Invoices issued by Davidson to the 4^th defendant in respect of the sale and supply of 1/12 and 1/43 scale die cast model cars and for delivery to destinations in Japan, Australia, New Zealand, Africa and South America for the period 18 December 1998 to 24 April 2003.

(3)   The 4^th and 5^th defendants shall make and file an affidavit stating whether any document or any class of document specified or described in following Categories is or has at any time been in their possession custody or power, and if not then in their possession custody or power when they parted with it and what has become of it:

(a)   Category D—Invoices issued by Davidson to the 4^th defendant in respect of the sale and supply of 1/12 and 1/43 scale die cast model cars and for delivery to destinations in Japan, Australia, New Zealand, Africa and South America for the period 18 December 1998 to 24 April 2003.

(4)   Insofar as further discovery is thereby given by any defendant, the documents so disclosed shall be listed in a further supplemental list of documents.

(5)   Any such further list and all prior discovery by the defendants shall be confirmed on oath or affirmation, in the case of the individual 2^nd and 3^rd defendants deposing in person, and in the case of the corporate 1^st, 4^th and 5^th defendants by a director deposing in person.

(6)   All such affidavits shall be filed within 28 days.

(7)   There shall be a costs order nisi that half the costs of the application shall be payable by the defendants to the plaintiff in any event.