TOURANI LACHHIRAM PARASRAM AND OTHERS v. KUSCENE DEVELOPMENT LTD.

BETWEEN

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JUDGMENT

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Clough, J.A.:

1. The 9 appellants ("the tenants") were some of numerous respondents to consolidated applications by their landlord, Kuscene Development Limited ("Kuscene"), for possession of premises at Nos. 11A and 15 Chatham Road South, Kowloon, under section 53(2) (c) of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7) on the ground that Kuscene intended to rebuild the premises. The presiding officer (His Honour Judge Yam) granted the application and made an order for vacant possession in favour of Kuscene together with orders for the usual consequential tenants compensation and other relief, including a stay of execution in respect of the tenants' premises until the 15th June 1991.

2. The tenants now appeal against that order pursuant to section 68A of the Ordinance. They seek to have the order set aside and the 9 relevant applications dismissed. They rely on two grounds for contending that the presiding officer erred in law, namely (1) his wrongful refusal to accede to their application, made in the course of the hearing, for further discovery by Kuscene, and (2) his failure to hold that there was no evidence that Kuscene had the financial ability to rebuild the premises. At the opening of the appeal Mr. Edward Chan Q.C. applied to strike out the notice of appeal for non-compliance with Order 60A rule 2(2), but the outcome was that Miss Audrey Eu for the tenants was given leave, with Mr. Chan's conditional consent, to amend the notice of appeal so as to identify an error of law in the first ground, but Mr. Chan's consent and the granting of leave were conditional upon Mr. Chan being given leave to file a respondent's notice relying on three grounds referred to hereafter.

3. Kuscene is a member of a complex corporate structure of which Paul Y. International Group Limited ("Paul Y. International") is the parent company, whose wholly owned subsidiaries include Paul Y. Holdings Co. Ltd. ("Paul Y. Holdings" a Cayman Islands company) and China Entertainment Strategic Investments Limited ("China Entertainment"). Paul Y. Holdings' numerous wholly owned subsidiaries include Moontop Limited ("Moontop") and Spark Dragon Limited ("Spark Dragon"). Kuscene is a wholly owned subsidiary of Moontop and thus a derivative subsidiary, at one remove, of Paul Y. Holdings.

4. The share capital of Kuscene comprises two ordinary one dollar shares and two preferred one dollar shares. It acquired the premises at Nos. 11A and 15 Chatham Road South, on the 22nd June 1989 for $118,080,000. It evidently financed the purchase by a loan from an associated company, Lucky Mind investment Limited which assigned the benefit of the loan (then amounting to $118,084,850) to Spark Dragon on the 17th May 1990. The latest (unaudited) balance sheet disclosed by Kuscene shows that as at the 5th March 1991 its only fixed asset was the Chatham Road South property valued at $125 million. Its net current assets were $1,093,424.43. After allowing for its debt to Spark Dragon (then $120,447,501.81 described as "Amount due to a fellow subsidiary") and a further debt of $2,105,297.27 (shown as a lesser sum of $685,297 in the disclosed balance sheet for the 31st December 1990) owing to Paul Y. Holdings (described as "Amount due to holding company") the balance sheet shows Kuscene as having total net assets amounting to only $3,540,625.35.

5. In order to finance its re-development scheme (comprising a 17 storey commercial building to be erected over a three storey podium) Kuscene proposed to raise the necessary capital by way of a loan from Paul Y. Holdings. The documents disclosed by Kuscene included a loan agreement in the form of a Deed dated the 28th February 1991 and made between Kuscene and Paul Y. Holdings whereby the latter company agreed to make an interest free loan of $40 million (plus any overrunning cost incurred in completing the development) to Kuscene to finance the project. The Deed provided that the loan should be drawn down by amounts which should not exceed $5 million per month except with the consent of Paul Y. Holdings. The draw down period was to begin when, in effect, these proceedings were successfully decided or settled and to end 30 months thereafter or on the date of issue of the Occupation Permit, whichever was the earlier. Repayment of the loan was required under the Deed to be made by 120 consecutive equal monthly payments after the Conversion Date (i.e. the 31st day immediately after the date of the Occupation Permit.)

6. A number of undertakings relating to the intercompany loans to Kuscene were disclosed to the tenants. On the 28th February 1991 Spark Dragon had executed a deed irrevocably undertaking not to call in or sue for or receive its intercompany loan (or interest, if any) of $120,447,501.81 from Kuscene (except with the latter company's consent) until the expiration of one year afterthe Occupation Permit in respect of the proposed re-development. The deed also included an irrevocable undertaking by Spark Dragon not to assign the benefit of the loan without the prior consent or approval of Kuscene.  On the 4th March 1991 Paul Y. Holdings executed a deed containing an undertaking in the same terms mutatis mutandis in respect of its loan of $685,297 to Kuscene.

7. On the 6th March 1991 (by which time Paul Y. Holdings' loan to Kuscene had increased to $2,10,5,297.27), Kuscene, Spark Dragon and Paul Y. Holdings were parties to a further deed relating to (1) the two loans which had been the subject of the previous undertakings by Spark Dragon and Paul Y. Holdings, and (2) the building loan of $40 million (or more) which Paul Y. Holdings had contracted to make to Kuscene under the terms of the deed dated the 28th February 1991. by the deed dated the 6th March 1991 Kuscene covenanted and undertook irrevocably to the Lands Tribunal that, except with the prior approval of the Lands Tribunal or of a court of competent jurisdiction, Kuscene would not repay to Spark Dragon or Paul, Y. Holaings the loans mentioned at (1) above before the expiration of one year after the issue of the Occupation Permit in respect of the proposed new building. Spark Dragon and Paul Y. Holdings respectively confirmed to the Lands Tribunal their previous undertakings regarding the recovery of their respective loans to Kuscene.

8. By the same deed Kuscene covenanted and gave a similar undertaking to the Lands Tribunal that it would not repay to Paul Y. Holdings the building loan mentioned at (2) above before the Conversion Date (as defined in the relevant deed dated the 28th February 1991). Paul Y. Holdings formally confirmed to the Lands Tribunal and declared that the building loan agreement was valid and enforceable and that it would do nothing to (a) render the agreement invalid or unenforceable, or (b) cause Kuscene to repay or prepay the loan or any part thereof before the Conversion Date.

9. For reasons which are not now material Kuscene's discovery of documents before the hearing was late. The hearing began on the 6th March 1991, but Kuscene's documents were only delivered to the tenants' solicitors on the 6th March 1991, On the first day the parties requested time for negotiation and obtained an adjournment to the 7th Match, when the tenants were given an adjournment for another day for counsel to read the documents. On the 8th March (Friday) the hearing was again adjourned to Monday the 11th March.

10. By a letter dated the 8th March the tenants' solicitors required Kuscene to furnish further and better particulars aud to make further discovery regarding the finances of Pauil Y. Holdings, Kuscene and Spark Dragon. This request was supported by an affirmation made on the same day by Mr. Yiu Hon Lam, a Certified Public Accountant. He had been supplied with the unaudited profit and loss account of Paul Y. Holdings for the period from the 1st January to the 5th March 1991 and that company's unaudited balance sheet as at the 5th March 1991. These had been disclosed by Kuscene. He had been asked to comment on the "financial ability" of the company, with particular reference to the question whether it appeared from those documents that the company could make a loan to its subsidiary Kuscene of approximately $4U million.

11. Mr. Yiu affirmed that the figure ($95,622,939.31) of Accounts Receivable (and Prepayment) in the balance sheet was exceptionally high when compared with the turnover figure ($1,813,518.69) in the profit and loss account. He indicated that he required to have particulars as to the nature of the amounts receivable and prepayment before making any further comment. He referred (albeit inaccurately) to two items in the balance sheet statement of Paul Y. Holdings' current liabilities which in fact appeared as:

He indicated that to enable him to comment he needed particulars of the nature of these liabilities and when they would become payable. He also affirmed that he would have to examine the financial position of the holding company and creditor subsidiaries in order to ascertain whether they had the means not to recall their loans from Paul Y. Holdings.

12. Mr. Yiu affirmed that it would be helpful to have available the cash budget of Paul Y. Holdings as well as its bank statements for the relevant periods. He observed that the balance sheet of the company showed it had "a negative net asset of $50,839,089.68 which is a prima facie signal of financial weakness", but he concluded by affirming that on the basis of the documents supplied he would have difficulties in giving a true and fair opinion of the financial ability of the company. We mention that the negative net asset figure given by Mr. Yiu was incorrect. The balance sheet (a copy of which was exhibited to his affirmation) showed a negative net current asset figure of $52,586,089.68 and a positive net asset figure of $1,248,843,902.29.

13. When the hearing was resumed on the 11th March 1991 the tenants' counsel relied upon Mr. Yiu's affirmation and applied for, and obtained (despite objection from Kuscene's counsel), an order requiring Kuscene to furnish further and better particulars and discovery as sought by the tenants' solicitors' letter dated the 8th March 1991. The presiding officer recorded:

"Financial status of three companies are relevant and therefore those documents and F/B particulars are relevant. It's regrettable that Respondents did not seek for them at an earlier opportunity, but Applicant's documents were only furnished recently."

The hearing was adjourned to Wednesday the 13th March.

14. The particulars and discovery sought and, where possible, supplied in respect of Paul Y. Holdings related to the following matters:

(1)    The audited accounts for 1989 and 1990 were sought, but the 1989 accounts (at 31.12.89) nad already been supplied and the 1990 accounts had not yet been audited.

 

(2)    In relation to the company's balance sheet as at the 5th March 1991:

 

	(i)       A breakdown of the $95,622,939.31 figure shown as the item "Accounts Receivable and prepayment". This was supplied, without identifying the names of the debtors, in the following manner:
		Company A Company B Company C	$95,619,931.51 3,000.00 7.80
	A note to the particulars indicated that Company A had now repaid the sum of $95,619,931.51.   (ii) Bank statements for the previous year were made available for inspection.   (iii) The amount of $68,073,731.57 shown in the balance sheet as "Amount due to ultimate holding company" was particularised as being an intercompany loan from Paul Y. International without any specific terms as to repayment.   (iv) The amount of $117,018,786.11 shown in the balance sheet as "Amount due to fellow subsidiaries" was particularised as being an intercompany loan from China Entertainment without any specific terms as to repayment.   (v) It was confirmed by Kuscene that there were no undertakings by Paul Y. International or China Entertainment that they would not call in their respective loans.

15. The particulars and discovery sought and supplied in respect of Kuscene related to the following matters touching on the balance sheet as at the 5th March 1991:

(i) A breakdown of the figure of $1,418,085.34 shown as the item "Accounts receivable and prepayments" was supplied as follows:

 

"Rental Receivable Rates Receivable		HK$671,348.00 HK$51,257.34
Deferred Expenditure -
	Redevelopment Expenses on 11A & 15 Chatham Road	HK$690,480.00
Advance Payment		HK$5,000.00
		HK$1,418,085.34

 

(ii)    Bank statements for the previous year were made available for inspection.

 

(iii)    The figure of $2,105,297.27 shown in the balance sheet as "Amount due to holding company" was particularised as the balance as at the 5th March 1991 of funds transferred on no specific terms.

16. As to Spark Dragon, the tenants required to be supplied with that company's audited accounts for "the past 3 years". The reply to this requirement was that Spark Dragon's audited accounts as at the 31st December 1989 were available for inspection but there were no other audited reports.

17. It is to be observed that although Mr. Yiu had indicated in his affirmation that he needed to examine the financial position of the holding company (Paul Y. International) and subsidiaries (China Entertainment) to see if they had the means not to recall their loans to Paul Y. Holdings, no request was made in the letter dated the 8th March (or by counsel for the tenants on the 11th March) for any accounts of these companies, although in the letter information concerning the identity of the lending companies was sought.

18. On the 13th March 1991, when the hearing resumed, counsel for the, tenants informed the presiding officer that he had not received Kuscene's documents until 6 p.m. on the previous day. He wanted time to study them. The result was that counsel for Kuscene was permitted to call his first witness (an Authorised Person) and at the conclusion of his evidence the hearing was again. adjourned, this time until the 19th March. In the meantime, the tenants' solicitors, by their letter dated the 14th March, requested further particulars and discovery from Kuscene. The only matters that are material for the purposes of this appeal (the remainder having been abandoned by Miss Eu) concern Paul Y. International and China Entertainment. The tenants' solicitors required Kuscene to provide the audited accounts and/or management accounts of both those companies for the years 1988/9 and 1989/90. In their letter dated the 14th March the tenants' solicitors claimed that they could not make this request earlier since the necessity for these accounts only arose after they had been given an answer to their previous request for particulars. Having regard to Mr. Yiu's affirmation on the 8th March regarding his need to examine the financial position of the companies in question (albeit not yet identified) this claim is not sustainable.

19. By their letter dated the 16th March 1991 Kuscene's solicitors rejected this demand as unreasonable and left it to the tenants to apply to the Tribunal, which they did when the hearing resumed on the 19th March. According to the presiding officer's notes counsel for the tenants relied on s.10(2) of the Lands Tribunal Ordinance (Cap. 17). He is then recorded as saying:

 

"      Question is how sound is the undertaking of Paul Y. Holdings and Spark Dragon Limited.

 

        Like to have a general adjournment to consider the documents."

The reference to Spark Dragon by counsel is explained by the fact that the tenants' solicitors' letter had included a request for accounts of that company, but this matter is not now pursued.

20. The presiding officer refused the applications of the tenants and recorded the following:

"Court: In my view, the documents furnished to the Respondents are adequate and sufficient. The Respondents are not entitled to other documents. I feel strongly these applications after applications for documents and adjournments are nothing but applications to avoid the evil day of final judgments on the part of the Respondents.

 

                Accordingly, I consider that the application before me is frivolous and vexation.(sic) The application is refused with costs to the Applicant (from 2:30 p.m. - 2:45 p.m.) with certificate for Counsel to be taxed if not agreed. (S.68(B) of the Landlord and Tenant (Consolidation) Ordinance referred)."

Thereafter the hearing proceeded. Kuscene called two further witnesses and the tenants called Mr. Yiu. On the 21st March the presiding officer gave his oral judgment in favour of Kuscene, holding that Kuscene had a genuine intention to rebuild the relevant premises.

(1) The discovery issue

21. The practice and procedure of the Lands Tribunal is governed by section 10 of the Lands Tribunal Ordinance and by the Lands Tribunal Rules and Lands Tribunal (Fees) Rules made by the Chief Justice under section 10(3) of the Ordinance. No provision is made regarding discovery in the Rules. Section 10(1) confers upon the Tribunal the powers which are vested in the High Court in the exercise of its civil jurisdiction in respect of the matters mentioned in paragraphs (a) to (i) of subsection(1). Those matters do not include discovery, but the concluding words of section 10(1) provide in general terms that "so far as it thinks fit" the Tribunal "may follow the practice and procedure of the High Court in the exercise of its civil jurisdiction".

22. Section 10(2) (a) and (b) of the Ordinance provide:

"(2)    Without prejudice to the generality of the powers vested in it under subsection (1), the Tribunal may -

 

(a)	on the application of any party to any proceedings before it, or of its own motion, order any party to the proceedings to disclose to the Tribunal the existence of any document which is in the power of such party to produce and which the Tribunal considers is or may be material to the determination of the matter being heard by the Tribunal;
(b)	order any party to any proceedings before it - (i) to produce to the Tribunal any ddcument which it may require and which is in the power of such party to produce; and (ii) to afford to any other party to the proceedings an opportunity to examine any such document or copy thereof and to take copies thereof."

23. The combined effect of the relevant general provisions of section 10(1) and of the provisions of section 10(2)(a) and (b) is therefore that, whilst there is no automatic discovery without order in the Lands Tribunal (as there is in the High Court under Order 24 rules 1 and 2), discovery is left at the discretion of the Tribunal which may, in the exercise of that discretion, order the disclosure to it by a party of "the existence of any document which is in the power of such party to produce and which the Tribunal considers is or may be material to the determination of the matter being heard by the Tribunal". Thus, assuming there to be no issue regarding power to produce, the existence of the document in question will only be ordered to be disclosed where the Tribunal considers that the document in question is or may be material not just to the matter being heard by the Tribunal but to the determination of that matter. In other words the document must be one which will or may affect the outcome of the proceedings. It seems to us that the jurisdiction conferred by section 10(2) (a) is therefore intended to be exercised broadly in the same way as the High Court is required to exercise its discretion to order discovery of relevant documents (i.e. documents relating to any matter in question in the cause or matter) under Order 24 rules 3 and 7 subject to the ultimate controlling test of practical necessity imposed by rule 8 which requires the court to refuse to order discovery "if and so far as it is of opinion that discovery is not necessary either for disposing fairly of the cause or matter or for saving costs."

24. Likewise the discretion conferred upon the Tribunal under section 10(2) (b) of the Ordinance to order the production (and permit examination and copying by another party) of any document which the Tribunal may require by a party which has the power to do so, is, in our opinion, clearly intended to be exercised within the same parameters as the power to order discovery under section 10(2)(a) c.f. the provisions of Order 24 rule 13 which control the jurisdiction of the High Court to order production of any documents for inspection or to the court or to order the supply of a copy of any document under any previous rule in Order 24 "unless the Court is of opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs."

25. In the present case the Tribunal was concerned (so far as this appeal is concerned) with a request, not for disclosure of the existence of documents under section 10(2)(a), but for the provision or production of documents known to be in existence. In our opinion the Tribunal should have exercised its discretion to order the production of the accounts in question if it nad been satisfied not only that all or any of them would have been relevant or material to any question arising in the matter before the Tribunal but also that the production of all or any of them would have been necessary for the fair determination of that matter or for saving costs.

26. Relevance is clearly highly material in relation to discovery. Thus for the purposes of Order 24 rule 2 "relating to any matter in question between them" is widely construed so that it is well settled that a document must be disclosed  if it is reasonable to suppose that it "contains information which may enable the party"(applying for discovery)" either to advance his own case or to damage the case of his adversary, if it is a document which may fairly lead him to a train of inquiry which may have either of these two consequences": see Compagnie Financiere Et Commerciale Du Pacifique v. The Peruvian Guano Company (1882) 11 QBD 55 per Brett L.J. at p.63, cited in the Supreme Court Practice, Vol. l., para 24/2/5. However under the modern rules, although there is no distinction between the obligation to disclose the existence of documents and the obligation to produce them, the court has a discretion whether to order discovery or production of a document by a party. The practice is summarised in the Supreme Court Practice, Vol. 1, para 24/2/4 as follows:

27. Put another way, relevance, although a necessary ingredient, does not provide an automatic sufficient test for ordering discovery because the ultimate test (as reflected in Order 24 rules 8 and 13) is whether discovery is necessary for disposing fairly of the proceedings: see Science Research Council v. Nasse [1980] AC 1028 (H.L.) per Lord Wilberforce at pp.1065-6, points 3 and 4. This authority was not cited to this court but it was cited as reported in the Weekly Law Reports by Mr. Robert Alexander Q.C. in the course of argument in a case cited by Mr. Chan on the hearing of this appeal, namely Lonrho Ltd. v. Shell Petroleum Co. Ltd. [1980] QB 358 (C.A.) at p.364H. In the latter case only Lord Denning applied these principles in relation to the court's exercise of its discretion. Shaw and Brandon L.JJ. declined to do so at p.377 B and D, but they did not reflect any doubt on the actual principles.

28. Applying these principles to the present case it is first necessary to consider what was the effective matter for determination by the Tribunal. Section 53(2)(c) of the Landlord and Tenant (Consolidation) Ordinance provides that to obtain an order for possession the landlord must satisfy the Tribunal that he "intends to rebuild the premises". The tenants had in their notices of opposition put Kuscene to proof on this matter which was the only effective matter before the Tribunal regarding the claim for possession (as distinct from compensation and other incidental matters) because the additional prerequisites to an order for possession imposed by section 53A(1) were not in issue.

29. The test for determining whether, for the purposes of section 53(2)(c) a landlord intends to rebuild the premises is one of genuine desire coupled with reasonable feasibility. It is not a test of ready ability. This is demonstrated by the authorities on the provisions of section 30(1)(f)(" .... landlord intends to demolish or reconstruct the premises") and (9) (".... landlord intends to occupy the holding" for a particular purpose) of he Landlord and Tenant Act 1954 (Part II) which are in pari materia with section 53(2)(c) of the Ordinance.

30. Thus in Betty's Cafe's Ltd. v. Phillips Furnishing Stores Ltd. [1959] AC 20 (H.L.) Lord Simonds defined the fixity of intention required to be established by a landlord under section 30(1) (f) of the 1954 Act by quoting and adopting the definition of "intention" of Lord Asquith (as Acquith L.J.) in Cunliffe v. Goodman [1950]2 KB 23.7, 253. Lord Simonds said at p.34:

31. At p.42 in the Betty's Cafe's case Lora Morton observed:

32. The second ingredient of intention in this context, namely reasonable prospect of implementation, objectively assessed, is also applied in the assessment of intention for the purposes of section 30(1)(g) of the 1954 Act. Thus in Westminster Council v. British Waterways Board [1985] AC 676 (H.L.) at p.680A Lord Bridge adopted the following dictum of Upjohn L.J. (as he them was), delivered by and agreed to by Diplock L.J. (as he them was) in Gregson v. Cyril Lord Ltd. [1963]1 WLR 41, 48, which Lord Bridge understood to have been consistently applied thereafter:

33. In the circumstances of this case the discovery issue has to be considered on the basis that the only effective material issue regarding Kuscene's intention was whether it not only intended to rebuild the premises but had a reasonable prospect of maintaining its financial viability and of obtaining the necessary finance to enable it to carry that intention into effect. In summary, the most material documents relating to this issue disclosed and produced by Kuscene prior to the application for further discovery on the 19th March were the following:

(1)    The unaudited balance sheet of Kuscene as at the 5th March 1991 from which it appeared that Kuscene had net current assets of only $1,093,424.43 and net assets of only $3,540,625.35. This balance sheet (as subsequently particularised) also showed that Kuscene had outstanding loans from its parent company Paul Y. Holdings and Spark Dragon of $2,105,297.27 and $120,447,501.81 respectively. It was therefore relevant whether (a) Kuscene had any source of capital to carry out the rebuilding of the premises and (b) whether there was any risk of the financial viability of Kuscene being put at risk or destroyed by the calling in of the two intercompany loans, particularly that of Spark Dragon. (2)     As to (1) (a) above the loan agreement dated the 28th February 1991 had been disclosed, together with Paul Y. Holdings' undertaking to the Tribunal executed on the 6th March 1991 to the effect that it would honour its obligations as Lender under the loan agreement. Kuscene had also disclosed its own undertaking to the Lands Tribunal dated the 6th March 1991 to the effect that it would not repay any part of the building loan to Paul Y. Holdings before the conversion date. (3)     As to (1)(b) above Kuscene had disclosed the undertakings to Kuscene dated the 28th February and 4th March 1991 by Spark Dragon and Paul Y. Holdings respectively and the further undertakings dated the 6th March 1991 by the latter two companies to Kuscene and the Lands Tribunal that they would not call in their loans until the expiration of a year after the issue of the Occupation Permit for the new building on the premises. A corresponding undertaking by Kuscene to the Lands Tribunal not to repay these loans before the expiration of that period was included in the deed dated the 6th March 1991. (4)    The audited balance sheet of Paul Y. Holdings as at the 31st December 1989 showing that company to have net current assets of $26,168.000 and total net assets of $1.153,269 billion, of which $1.126,651 billion dollars was the value of interests in subsidiaries. The gross value of this interest (before making provision of $97,700,000 for loss and deducting $3,610,000 due to subsidiaries) was based on figures of $255,655,000 for unlisted shares at cost and $972,306,000 due from subsidiaries. (5)    The unaudited balance sheet of Paul Y. Holdings as at the 5th March 1991 showing a net current assets deficiency of $52,586,089.68. This was almost entirely attributable to the intercompany loans of $68,073,731.57 and $117,018,786.11 from Paul Y. International and China Entertainment respectively. However the company's interests in subsidiaries were shown at $1.301,429 billion and its total net assets were $1.248,843 billion.

 

34. At the beginning and end of her argument Miss Eu for the tenants contended that the issue in relation to further discovery was one of relevance. If the documents were relevant, as Miss Eu contended, then they ought to be produced. Ground 1 of the notice of appeal had been amended to contend that the presiding officer had erroneously concluded that the documents in question were irrelevant (and that that the tenant's application had been frivolous and vexatious) whereas the documents were in fact relevant to Kuscene's "financial ability".

35. In the respondent's notice and Mr. Chan's argument it was contended that this argument represented a departure from the basis of the tenant's application to the presiding officer who had recorded that counsel for the tenants had submitted that the question was "how sound is the undertaking of Paul Y. Holdings and Spark Dragon Limited." Discovery regarding Spark Dragon is no longer in issue. As to Paul Y. Holdings, the discovery now in issue relates to the accounts of Paul Y. International and China Entertainment to whom Paul Y. Holdings owed substantial sums which the creditor associated companies had not undertaken to refrain from calling in. Our understanding, therefore, of the basis of the submission of counsel  for the tenants below is that he was in effect contending that the accounts of Paul Y. Holdings and China Entertainment were relevant and their disclosure was necessary because the assessment of their financial viability would have a bearing on the likely risk of their calling in their loans to Paul Y. Holdings and thereby adversely affecting the financial viability of the latter company to which Kuscene was looking for a loan of $40 million or more to finance its rebuilding project.

36. However, it seems clear to us that, in refusing the discovery sought on the basis that the previous discovery had been adequate and sufficient, the presiding officer was not concluding that the documents in question were irrelevant but impliedly and rightly drawing the line at a point where, as Mr. Chan put it in Kuscene's respondent's notice and in argument, the documents were only of very marginal relevance and where, having regard to the principles of discovery referred to above, it would be unreasonable and oppressive to order their production.

37. Bearing in mind the principles of discovery mentioned earlier in this judgment, and accepting that the accounts of Paul Y. International and China Entertainment are relevant to the determination whether there is any real risk of either of those companies being compelled by their own financial constrictions to call in their loans to Paul Y. Holdings, it seems to us that in the light of the documents already disclosed it would be wholly unreasonable to suppose that production of these accounts might fairly lead the tenants to a train of inquiry which would enable them to advance their case or damage that of Kuscene in such a manner as to be material to the determination of the matter before the Tribunal.

38. Let it be assumed that examination of these accounts would provide information to support the contention that one or other or both of the two creditor companies would be constrained by its own financial deficiencies to call in their respective loans to Paul Y. Holdings. The total amount of the loans is $185,092,517.68. If Paul Y. Holdings were obliged to pay this sum it would (as matters stand on the balance sheet as at the 5th March 1991) be obliged to raise the sum from its current assets ($95,619,931.57 and $40,633,097.01: say about $136 million) and its interests in subsidiaries shown at a figure of $1.3 odd billion. On these figures it seems to us that it cannot be reasonably suggested that the $50 million (appoximately) not available in current assets to meet such a liability, together (if necessary) with the $40 million (or more) loan to Kuscene, could not be raised out of the $1.3 odd billion figure shown as the value of the interest of Paul Y. Holdings in its subsidiaries. The figures referred to above appear in an unaudited up to date balance sheet, but their authenticity has not been challenged and they have been preceded by comparable audited accounts in the report for the year ending the 31st Deceimber 1989.

39. Miss Eu emphasised that the available audited accounts showed that $972,306,000 of Paul Y. Holdings' interest in subsidiaries consisted of amounts due from subsidiaries and submitted that these assets might be questionable. Many things are possible, but these figures are in audited accounts and the tenants have made no application for discovery of the accounts of the subsidiaries which it may well not be in the power of Kuscene to produce. Furthermore a note in the accounts for the year ending the 31st Decemoer 1949 lists no less than 22 subsidiaries. The list is not exhaustive, because it is pointed out that a full list would be of excessive length, so the list has been confined to those subsidiaries which principally affect the results or assets of the Paul Y. Holdings group. In these circumstances even if production of the accounts of Paul Y. International and China Entertainment were to be favourable to the tenant's case it would, in our opinion, be wholly unrealistic to conclude that their production could have any material effect on the determination of the matter before the Tribunal.

40. We therefore conclude that the presiding officer was clearly right in exercising his undoubted discretion to refuse the discovery, now in question. In our opinion it would have been oppressive to order such discovery which could not have assisted the Tribunal in fairly determining. the matter before him. Furthermore, although Kuscene's initial discovery of documents had been very late, the tenants had subsequently had the benefit of a succession of adjournments and a generous order for further discovery which had been complied with and followed by an adjournment of 6 days. In such circumstances the tenants were rightly held to have acted frivolously and vexatiously when pressing for yet further and oppressive discovery and for yet another "general adjournment to consider the documents".

41. In rejecting the tenant's first ground of appeal on the discovery issue we have not found it necessary to decide the remaining question raised in the respondent's notice as to whether in the light of the Lonrho case the tenants had established that for the purposes of section 10(2)(b) of the Lands Tribunal Ordinance it was in the power of Kuscene to produce the relevant accounts of Paul Y. International and China Entertainment. Moreover the point was never taken by Kuscene below. It raises an issue of fact and we are not satisfied that this court had before it all the facts bearing upon that issue as completely as would have been the case if it had been raised before the presiding officer: see The Tasmania (1890)15 App. Cas.223 per Lord Herschell at p.225 and the other authorities cited in the Supreme Court Practice, Vol. 1, para 59/10/6.

(2)    The evidential issue

42. The appeal on this issue was hopeless. The documents disclosed by Kuscene provided very strong evidence of its financial ability to carry out its scheme to rebuild the premises. The undertakings by Paul Y. Holdings and Spark Dragon not to call in their loans to Kuscene for the relevant period were executed under seal and therefore enforceable at law despite the absence of consideration. The undertakings were also strengthened by being given to the Tribunal.

43. As to the provision of finance for the rebuilding, Paul Y. Holdings had entered into an enforceable agreement under seal to lend the necessary capital by periodic payments. Although it had a current net asset deficiency as at the 5th March 1991, it had $40 million odd cash in the bank and had been repaid $95 million odd by a creditor. Mr. Lui, the financial controller of Paul Y. International and a director of Kuscene, Paul Y. Holdings and Spark Dragon, said in chief, regarding the loans by Paul Y. International and China Entertainment to Paul Y. Holdings, that all the companies were in the same family and none of  them would do anything to jeopardise the proposed re-development. Under cross-examination he said that the liquidity of Paul Y. Holdings was very sound, although he admitted "that it was not as good as it had been on the 31st December 1989. When it was put to him that the liquidity of Paul Y. Holdings was basically financed by the two loans from Paul Y. International and China Entertainment Mr. Lui is recorded as saying:

44. The tenants relied on the evidence of Mr. Yiu, but that did not go beyond the uncertainties contained in his earlier affirmation and it does not seem from the record that he was even cross-examined.

45. The presiding officer's judgment was subject to some justifiable criticism by Miss Eu who relied on an apparent confusion between the loans by Paul Y. International and China Entertainment to Paul Y. Holdings on the one hand and the loans by Paul Y. Holdings and Spark Dragon to Kuscene on the other hand. Miss Eu also complained of a passage in the written judgment where she contended that the judge had spoken of the loan by Paul Y. Holdings to Kuscene as if it had already been made whereas it was a future proposed loan. The written version of the extempore judgment may not be an accurate reproduction of what the presiding officer said when delivering his judgment. Be that as it may, on the evidence before the presiding officer it would have been perverse to come to any conclusion other than the one at which he arrived. The evidence as a whole showed overwhelmingly that any reasonable man would have thought that Kuscene had a reasonable prospect of giving effect to its decision to rebuild the premises.

46. Accordingly we dismiss this appeal and make an order nisi that the tenants are to pay Kuscene's taxed costs of the appeal.