GOLDON INVESTMENT LTD. v. N P H INTERNATIONAL HOLDINGS LTD.

HCA5457/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.5457 OF 1999

-------------------------

-------------------------

---------------------------------------------------------

REASONS FOR DECISION

---------------------------------------------------------

The applications before the court

1. At the hearing before me on 24 May 2002, there were two matters for decision :

(1) The defendant's appeal from the order of Master Lung dated 21 February 2002 in which the defendant was ordered to make an affirmation providing specific discovery of 12 classes of documents.

(2) The plaintiff's application by summons dated 2 April 2002 for leave to amend the Statement of Claim.

2. At the conclusion of argument, I dismissed the appeal and also gave leave to the plaintiff to amend the Statement of Claim in accordance with the draft annexed to its summons. I said that I would hand down the Reasons for my decisions at a later date.

3. I should point out that in the defendant's Notice of Appeal dated 6 March 2002 (from the Order of Master Lung), the defendant also applied for leave to amend its Defence and Counterclaim by deleting paragraph 7 thereof and for further and better particulars of one paragraph in the Reply and Defence to Counterclaim. These applications were not in the end pursued by Mr Benjamin Chain (who appeared for the defendant).

4. In dealing with the two matters before me, I think it necessary first to identify the issues in the action, both on the original pleadings and also on the amendments contained in the Amended Statement of Claim.

Issues in the action

5. By a tenancy agreement dated 14 September 1998 ("the Lease"), the plaintiff let to the defendant commercial office premises situate at 28th Floor, Citic Tower, Wanchai ("the Premises") for a period of 27 months from 1 September 1998 to 30 November 2000 at the monthly rental of $1,002,687.58, excluding service charges, rates and government rent.

6. By a license agreement also dated 14 September 1998 ("the License Agreement"), the plaintiff granted to the defendant the use of four carpark spaces in the building, again for a period of 27 months between the dates referred to above at the monthly license fee of $16,000.

7. In breach of the Lease and the License Agreement, the defendant has since 1 January 1999 failed to pay the rent for the Premises and since 1 February 1999 failed also to pay the service charges for the Premises as well as the license fees for the carpark spaces.

8. As pleaded in the original Statement of Claim, the non-payment by the defendant of these various items constituted a repudiation of the Lease which was accepted by the plaintiff by a letter dated 31 March 1999 from its solicitors to the defendant.

9. The defendant admits the non-payment of rent and the license fees but denies that it had repudiated the Lease. It is pleaded in the Defence and Counterclaim that these failures did not amount to a repudiation of the Lease by reason of the following :

(1) Clause 5.2 of the Lease which provides, inter alia, that the defendant would be liable for interest on any outstanding rental.

(2) On 3 March 1999, a meeting took place at the plaintiff's offices during which it is alleged an agreement was made between the plaintiff and the defendant whereby the plaintiff agreed that the defendant was permitted to pay the arrears of rent on 31 March 1999.

(3) The defendant had paid to the plaintiff a rental deposit from which the plaintiff could deduct any amounts owing by the defendant.

10. The defendant further pleads that since its conduct was not repudiatory, the plaintiff was therefore wrong to seek to terminate the Lease by the said letter dated 31 March 1999. Accordingly, it is alleged that, instead, it was the plaintiff who had repudiated the Lease, which repudiation the defendant accepted by vacating the Premises on 7 April 1999 and/or by a letter dated 14 April 1999 from its solicitors. The defendant counterclaims against the plaintiff for the sum of $1,013,635.45 being the rental deposit less the amounts admitted to be due to the plaintiff.

11. In answer to the Defence and Counterclaim, the plaintiff pleads in its Reply and Defence to Counterclaim, inter alia, as follows :

(1) The defendant's version of what took place at 3 March 1999 meeting is disputed. The plaintiff alleges that at the meeting, it was said that provided the defendant remained as a tenant for the duration of the Lease and paid all amounts punctually and provided that all outstanding amounts were paid on or before 30 March 1999, the plaintiff would not institute proceedings before 31 March 1999. It is further pleaded that this was a gratuitous forbearance on its part and was not in law a binding agreement.

(2) In any event, even if the parties had made a binding agreement on 3 March 1999, the defendant breached it by commencing to move out of the Premises on about 28 March 2002 and further, by failing to pay the outstanding amounts whether on or before 30 March 1999. In these circumstances, the defendant was again in repudiation of the Lease, which repudiation the plaintiff accepted by the issue of the writ in these proceedings.

(3) As to the defendant's allegation of vacating the Premises on 7 April 1999 (which was one of the acts of acceptance of the plaintiff's repudiation alleged by the defendant), the plaintiff repeats its assertion that the defendant in fact commenced vacating the Premises on about 28 March 1999.

Issues raised by the amendments contained in the Amended Statement of Claim

12. As I have said, by a summons dated 2 April 2002, the plaintiff sought leave to amend its Statement of Claim.

13. The amendments introduced in the Statement of Claim those factual allegations already made in the Reply and Defence to Counterclaim regarding the plaintiff's version of what transpired as a result of the 3 March 1999 meeting and also the allegation that the defendant had commenced moving out of the Premises on or about 28 March 1999. In this latter regard, particulars are provided of the fact that removal notices were given by the defendant to the management office at that time and that the defendant in or about March 1999, contacted transportation and removal companies and other contractors. The plaintiff pleads that as a result of these matters, the defendant manifested an intention not to remain in possession of the Premises nor to abide by the terms of the Lease or the terms of the forbearance offered by the plaintiff at the 3 March 1999 meeting. These being further acts of repudiation of the Lease by the defendant, it is said, the plaintiff accepted the same by issuing the writ in the present action.

Ought leave to amend the Statement of Claim be given?

14. I deal first with this issue.

15. In my judgment, leave should clearly be given to the plaintiff to amend its Statement of Claim. The amendments clarify the plaintiff's case enabling it to raise additional or alternative grounds to allege that the defendant repudiated the Lease and that the plaintiff has accepted this repudiation and therefore terminated the same. While this was already pleaded in the Reply and Defence to Counterclaim, it was, strictly speaking, inconsistent with what was pleaded in the original Statement of Claim in that the act constituting the acceptance of the repudiation was different. Under the existing rules of pleading, an alternative claim inconsistent with what is pleaded in the Statement of Claim must be included in the Statement of Claim by way of amendment and not be pleaded only in the Reply : see RHC Order 18, rule 10; Hong Kong Civil Procedure 2002 at paragraphs 18/10/1 and 18/10/2. The word "inconsistent" here (which is found in Order 18, rule 10(1)) means "new" or "different" and not just "mutually exclusive" : see Herbert v. Vaughan [1972] 1 WLR 1128, at 1131H.

16. Mr Chain opposed the application to amend on the basis that to allow these amendments at this stage would cause the defendant such prejudice as could not be compensated in costs. The affirmation of Chan Meily, the defendant's company secretary, deposes to the following facts and matters in support of this contention :

(1) It is said that as regards the issue whether the defendant commenced moving out on 28 February 1999, the staff who were responsible for making decisions and coordinating the moving out by the defendant from the Premises, have now left the defendant's employment and either cannot be located or unwilling to assist further in the litigation. Three staff members and the former chairman of the defendant are identified. Ms Chan said that had the plaintiff pleaded in good time the case it now seeks to rely on, the defendant would have taken steps to gather the necessary evidence. As it is, she deposes to the fact that these four persons left the defendant during the period from about May 1999 to February 2000.

(2) Further, specifically regarding the particulars of the defendant commencing to move out on 28 March 1999, Ms Chan asserts the following : "The Defendant will be prejudiced if the staff responsible for issuing the notices to management office and contacting the estate or removal agents are not available to give an account of the reasons and circumstances for issuing the notices or contacting the estate or removal agents. Even if they can be located now, it is doubtful whether they are able to have clear memory on the exact time, date and reasons for issuing the notices after such a long lapse of time." Such staff are not identified nor are any details given of their unavailability, but the general point is again made that had the plaintiff acted in a timely manner, the defendant would have taken the appropriate steps to protect itself.

17. As a matter of principle, the court can indeed in its discretion refuse leave to amend where the prejudice caused to the other side cannot be compensated in costs : see Hong Kong Civil Procedure 2002 at paragraph 20/8/6.

18. However, in my view, that principle does not apply in the present case. The defendant has simply not demonstrated why the court should not exercise its discretion in the plaintiff's favour by allowing it to bring all matters before the court to enable the real question in controversy between the parties to be determined :

(1) As I have said, the factual matters that the amendments to the Statement of Claim introduce, were already pleaded in the Reply and Defence to Counterclaim which was dated 7 May 1999. Therefore, by that time at the latest, the defendant must have known that these issues had to be dealt with. In fact, by a letter dated 16 April 1999 from the plaintiff's solicitors to the defendant's solicitors, reference was made to the moving out on 28 March 1999 as constituting a repudiation. Mr Chain's response to this was that his client took the view that since these matters were irrelevant and should properly have been pleaded in the Statement of Claim anyway, it was therefore unnecessary to take any measures at that time to deal with these allegations. Quite apart from the fact that this assertion was not made in any affidavit (but Mr Chain said it could easily be if this was the only objection), even if true, I take the view that it was unreasonable for the defendant to adopt such a stance. For reasons that will appear below, I take the view that the matters pleaded in the Reply and Defence to Counterclaim were properly pleaded there even though in so far as they were relied on to found an additional cause of action, they should also have been pleaded in the Statement of Claim.

(2) Further, it is not clear from the said affirmation of Ms Chan whether it is asserted that every person who knew about the defendant's move from the Premises and who could therefore give evidence in this regard, are now unavailable. If this was what was meant, I would have expected the affirmation to have been in clearer terms. Certainly, as far as the assertions regarding the unidentified staff are concerned (dealing with the issue of the notices given to the management office and the contacts with the estate or removal agents and contractors), these are couched in conditional and speculative terms.

(3) Ultimately, in any event, I take the view that the amendments do not raise any new matters for the first time. Rather, they merely clarify issues already in the pleadings. This distinction is relevant : see Ketteman v. Hansel Properties Limited [1987] AC 189, at 220.

19. Mr Chain finally contended that the amendment raised an important legal issue that should first be determined by the court before leave to amend was given. This issue, he argued, should first be determined as a preliminary issue whether under Order 14A or Order 33 rule 3. I will deal with this further below.

Discovery

20. Thirteen items were included in the plaintiff's summons for specific discovery. Master Lung ordered discovery of 12 items. As I have said, the defendant appeals against this order but there is no appeal from the plaintiff in relation to that class of documents not ordered by Master Lung.

21. In my view, Master Lung was correct in making the order for discovery. The documents were clearly relevant to the issues raised in the Reply and Defence to Counterclaim regarding principally the plaintiff's allegation that the defendant commenced moving out the Premises on 28 March 1999. No argument was raised by the defendant that these documents were not prima facie in its possession, custody or power either.

22. Mr Chain did not really submit that the documents were not relevant. His main contention here, rather, was that the documents related to an issue or issues that may ultimately prove to be irrelevant and that therefore, in the exercise of the court's discretion, to order the documents now before those issues were determined was not just premature but also prejudicial. The prejudice was that if the court were to have sight of the documents sought, this would somehow colour its view of the defendant even if, at the end of the day, they were shown to be irrelevant.

23. I approach the application for specific discovery on a simple level. The documents relate to issue which are raised in the pleadings and are therefore for this reason alone, relevant. Further, there being no allegation that they are not prima facie in the possession, custody or power of the defendant, they are therefore discoverable. The fact that, ultimately, they may relate to an issue or issues that may be shown, for whatever reason, to be irrelevant, is of no great moment. As long as it is demonstrated at this stage that the documents sought are prima facie relevant and prima facie in the possession, custody or power of the defendant, this is enough. Otherwise, there is an appreciable risk, if Mr Chain's submission are correct, of the whole system of discovery being rendered quite ineffective. As for the point that the court may be unduly prejudiced against the defendant if the documents sought were discovered, I fail to see any risk of this at all. In so far as any document or matter is irrelevant to the issue to be determined by the court, the court will simply ignore it.

24. Of course, I have not forgotten the important limitation imposed by Order 24 rule 8 that discovery should be ordered only if necessary either for disposing fairly of the cause or matter or for the saving of costs. Here, Mr Chain does not allege any oppression other than the fact that his client should not be made to give discovery of documents that may turn out to be irrelevant. These objections I have already dealt with. I am satisfied that the discovery sought is necessary and justified in the present case.

25. There remains only Mr Chain's fallback argument that discovery should not be ordered because the documents relate to an issue of law that should first be determined on a preliminary basis. It is to this aspect I next turn but I should just say that even if I had acceded to the defendant's request that certain issues should be dealt with as preliminary issues, this would not have changed the outcome of the discovery appeal. If nothing else, the discovery sought were relevant to the defendant's own allegation that it vacated the Premises on 7 April 1999, an event which, it will be remembered, is pleaded in the Counterclaim as constituting an acceptance of the plaintiff's alleged repudiation.

Should a trial of a preliminary issue be ordered?

26. Mr Chain contended that the following legal issue or issues were relevant, indeed crucial, to both the application to amend and that for specific discovery :

"A rather interesting point of law will then arise :- it can be put in 2 ways :- (a) can a party terminating a contract on the basis of acceptance of repudiation rely to establish repudiation on renunciation specifically on acts of renunciation not otherwise constituting breaches unknown to him and not relied on by him at the time of termination?, or (b) whether the principle that 'a party who specifies one inadequate reason for his termination of a contract is not precluded to later relying on other facts if they constitute breaches of the necessary importance to amount to repudiation' extends to cases whether the 'other facts' are not breaches, but consist only of pure renunciation, i.e. words or acts which are not in themselves breaches apart from the fact that they evince an intention not to be bound by the contract?"

27. He accepted that these issues were arguable but contended that before the court made orders on either of the applications, the court should determine the said issues either as preliminary issues or under the Order 14A procedure, meanwhile adjourning both applications. Forcefully though it was put, I am unable to accept this submission :

(1) The usual rule is that all matters in dispute should be determined at trial at the same time. There are, of course, notable exceptions to the rule, such as applications to strike out and the procedures under Order 14A and Order 33 rule 3.

(2) In order for the court to depart from the normal rule, the party applying must be able to demonstrate that it would in the interests of justice be desirable for isolated points of law or issues to be determined other than at trial together with the other issues arising in the relevant proceedings. The court's discretion is not fettered but factors such as the saving of time and costs, the efficient and just disposal of the action will regularly feature.

(3) In the present case, I am not convinced there exist any factors to suggest that the usual rule should not prevail. Indeed, in my view, it would be quite wrong to order the determination of the issues identified by Mr Chain under either Order 14A or Order 33 rule 3.

(4) In my view, the existence of factual disputes between the parties underlying the issues that the defendant wants determined as a preliminary issues or under Order 14A is enough to decide this question against the defendant. Mr Chain confirmed to me in argument that his client does not accept the plaintiff's version of 3 March 1999 meeting nor the allegation that it commenced moving out of the Premises on 28 March 1999. These factual disputes, together with the other factual disputes in this action, will at some stage have to be determined and that stage should be the trial of this action.

(5) The determination of legal issues without a firm finding as to the relevant facts is not as a rule permitted : see Hong Kong Civil Procedure at paragraphs 14A/2/4 (in respect of Order 14A applications) and 33/3/1 (relating to Order 33 rule 3). It would take a wholly exceptional case (and one not easily envisaged) for the court to adopt such course in these circumstances.

(6) Mr Chain, ultimately, did not really suggest that his client would suffer any hardship or undue prejudice if these issues were not determined on a preliminary basis. The highest he put it was that if the trial judge were to have sight of the documents which the plaintiff wanted in the specific discovery application (which he says may prove to be irrelevant once the legal issues are determined), he may somehow be unfairly prejudiced against the defendant. I am not really sure what was meant by this rather obscure submission but, as indicated above, in any event I think it can be left to the good sense of the judge to be able to excise from his consideration any irrelevant or prejudicial material.