UNION BANK OF INDIA v. GENERAL NICE RESOURCES HONG KONG) LTD

HCA299/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 299 OF 2007

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J U D G M E N T

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1. This is an appeal against the order of Master de Souza dated 4 December 2009 ordering the defendant to make, file and serve an affidavit stating whether it has or has at any time had in its possession, custody or power the documents listed in the order and, if the said documents or any of them have been but are not now in its possession, custody or power when it parted with the same and what has become of the same.  The order is clearly very extensive because some 30 documents or classes of documents have been listed.  

2. By #2 of the said order, the defendant was ordered within 2 months from the date thereof to provide to the plaintiff for inspection the original of all documents enumerated in the List of Documents filed by the defendant on 28 July 2008.  All the documents therein were described as copies and #1(A) of the said order required the defendant to make specific discovery of the original of all these documents. 

3. The plaintiff bank sues the defendant on a written assignment dated 18 January 2007 from West Bengal Essential Commodities Supply Corporation Limited (“West Bengal”) assigning all amounts payable by the defendant to West Bengal.  West Bengal and the defendant were parties to an agency agreement dated 22 April 2005 whereby the defendant contracted to act as West Bengal’s agent in arranging for the discharge and sale of cargoes of iron ore shipped to Mainland China.  These cargoes were sold by the defendant in China and, by a fax dated 27 August 2005, the defendant informed West Bengal that US$1,365,423.11 was the amount it owed to West Bengal under the agency agreement.  The defendant does not dispute that the cargoes were sold and that this was the balance amount due to West Bengal under the agency agreement.  However, the defendant claims a set-off in respect of its claims under a series of other contracts between the defendant and West Bengal.  These claims may be summarised as follows :

(1) West Bengal was in breach of a contract dated 15 December 2004 whereby the defendant agreed to buy 2 x 60,000 of wet metric ton iron at US$49 per dry metric ton (“1^st Contract”).  As West Bengal failed to deliver, the defendant had to buy a higher grade cargo from elsewhere and also sustained a loss of profits.  The amount claimed is US$1,140,000.

(2) By another contract in writing dated 8 February 2005 (“2^nd Contract”), the defendant agreed to buy from West Bengal 2 x 50,000 of wet metric ton iron at US$55 per dry metric ton.  By reason of West Bengal’s failure to deliver, the defendant suffered an alleged loss of US$701,950.

(3) By another contract dated 18 February 2005 (“3^rd Contract”), the defendant agreed to purchase a prompt shipment of 49,900 metric ton iron ore from West Bengal at US$55.4/per dry metric ton.  By reason of the poor quality of the cargo, the defendant sustained a loss of US$152,618.

(4) By an oral agreement between the defendant and West Bengal in about February 2005 relating to MV Gulser Ana (“4^th Contract”), West Bengal agreed to supply 36,665 dry metric ton of goods.  As the “Fe content” of the cargo was below the rejection level as stated in the LC and as there was a balance payment, due to quality adjustment and overcharging, under a debit note of the defendant, the total loss sustained by the defendant was US$278,192.18.

(5) By another written contract dated 18 February 2005 (“5^th Contract”), West Bengal agreed to sell 50,000 of wet metric ton iron at US$60 per metric ton by 15 March 2005 at Tianjin Xingang.  However, West Bengal wrongfully diverted the cargo to Yantai which resulted in a month’s delay in arrival in Tianjin Xingang.  This resulted in a loss of US$334,135.42.

(6) The defendant claimed under a 6^th Contract for US$515,375.  The claims consisted of LC opening charges, interest charges and compensation to customer.

(7) The defendant also alleged that the agency agreement was amended twice on 6 June 2005 (“7^th Contract”) and that, in breach of the agreement, West Bengal wrongfully sold the cargoes discharged from MV Maritime Light and MV Tanate to third parties.  The claims were for service fees/handling fees in the sums of US$185,814.87 and US$42,396 respectively.

(8) By a sale and purchase agreement in writing dated 6 June 2005 (“8^th Contract”), West Bengal agreed to sell 90,000 metric tons, +/- 10%, of iron ore lumps of Indian origin to the defendant at US$63.5 per dry metric ton to be delivered on or before 30 June 2006 at Xingang China.  As a result of West Bengal’s failure to deliver the goods on time, the defendant sustained a total loss of US$215,908.77.

4. In addition, the defendant alleges that an oral agreement had been made with West Bengal in or about December 2005 to the effect that the said sum of US$1,365,423.11 due to West Bengal was to be retained in the account of the defendant to give the defendant confidence to continue purchasing iron ore from West Bengal and that the defendant was entitled to set off losses that it had suffered from previous contracts with West Bengal from the retained amount (“the oral set-off agreement”). 

5. Commercial cases of this nature are largely determined upon a detailed examination of the contemporaneous documents created at the time of the relevant events.  The discovery of such contemporaneous documents is critical to the fair determination of such disputes between parties.  Whilst, at first blush, one might think that the Master’s order was unduly extensive, the order was only as extensive as the set-offs claimed by the defendant.  In fact, Mr Johnny Mok, SC for the defendant did not take the point before me that the application for specific discovery was oppressive.  Instead, he addressed me on 4 discrete areas :

(a)  production of originals;

(b) the order for specific discovery in respect of certain documents and classes of documents;

(c) the proper deponent for the affidavit to be served by the defendant; and

(d) costs.

Production of originals

6. Mr Mok conceded that the defendant would produce the original of two disputed faxes dated 22 April 2005 and 28 August 2005.  The defendant had the original of the latter document and it was trying to locate the original of the earlier fax.  However, the defendant objected to the order in respect of the rest of the documents enumerated in the defendant’s List of Documents filed on 28 July 2008 on the grounds that the plaintiff had not disputed the existence or authenticity of these other documents and that the burden was on the plaintiff to show that the production of the originals was necessary for disposing fairly of the cause or matter or for saving costs.

7. It is incumbent on the party making discovery to list the originals of all relevant documents it has or has had in its possession.  Mr Mok was trying to put the cart before the horse when he suggested that the person seeking specific discovery had to demonstrate that the production of the original was necessary for fairly disposing of the cause or matter or for saving costs.  The orders requiring the defendant to make specific discovery of all original documents in its possession and to produce the same was entirely proper.  As the copy documents have already been disclosed without any claim that they or some of them are privileged, the original of the same documents cannot enjoy any privilege from disclosure.  I uphold the order made by Master de Souza in #1(A) of his order.  However, for the avoidance of doubt, I would vary the 2^nd order made by the Master to read as follows :

“The defendant do within 2 months from the date hereof provide to the plaintiff for inspection the original of all documents disclosed under para. 1(A) of this order and enumerated in the List of Documents filed by the defendant on 28 July 2008, and the application for forensic examination be adjourned sine die with liberty to restore.”

Order for specific discovery in respect of certain documents and classes of documents

8. The scope of the appeal in this regard has been substantially narrowed by Mr Mok who made concessions in respect of many of the listed documents and classes of documents that he now accepted were discoverable.  However, objection was maintained in respect of the following documents and classes of documents listed in #1 of the order. 

9. (C) All correspondence and communications between Ravi Shanker (“Ravi”) or Bharat Minmet Corporation (“Bharat Minmet”) and the defendant relating to an alleged oral agreement allegedly allowing the defendant to deduct its losses under other sale contracts with West Bengal Commodities Supply Corporation Limited (“West Bengal”) from the amount payable to West Bengal under an agency agreement entered into by West Bengal and the defendant on 22 April 2005 (“Agency Agreement”).

 This is a request for discovery of all correspondence and communications relating to the alleged oral set-off agreement.  Mr Mok objected to this order on the grounds that the defendant had already disclosed 2 faxes dated 22 April 2005 and 28 August 2005 in support of the oral set-off agreement and that there was no reason for Mr Alex Wong Chin Pang (“Alex Wong”) to assert in his affidavit of 17 September 2009 that the discovery in this regard was incomplete and selective.  In #15.2 of his affidavit, Alex Wong stated that no response or reply from Ravi to the defendant relating to the alleged oral agreement had been disclosed.  I agree with Mr Alexander Stock, counsel for the plaintiff, who submitted that the plaintiff need only show a prima facie case of the existence of the documents in question.  Judging from the contents of these faxes, one would have expected a response from Ravi in the normal course of business affairs.  These documents clearly relate to the matters in issue and are likely to be, or to have been, in the possession, custody or power of the defendant. 

10. (D) and (E)  The fax transmission report of the fax message from the defendant to Ravi or Bharat Minmet dated 22 April 2005 and 28 August 2005.

 Mr Mok made the point that there was no evidence that such documents existed.  However, it is, and has been, good business practice to create fax transmission reports of faxes that have been sent.  I am satisfied that the plaintiff has established a prima facie case of the existence of such fax transmission reports which are clearly highly relevant to the issue of the authenticity of these two disputed faxes.

11. (F) The IDD telecom invoices for telephone and fax of the defendant for the period from April 2005 to December 2005. 

 Clearly, these documents must be in existence and in the possession of the defendant.  Mr Mok, however, submitted that this particular class is drawn too widely since it covers all IDD telecom invoices for telephone and fax for the whole period, and that I should vary the order of Master de Souza by narrowing the discovery to invoices relating to the two faxes of 22 April 2005 and 28 August 2005. 

12. Relevance must be judged in the context of the dispute between the parties.  Here the existence of the alleged oral set-off agreement is hotly contested.  The existence and extent of communications between Ravi or Bharat Minmet and the defendant must be closely examined.  The documents requested will enable the court to do so. 

13. (H) All correspondence and communications between the defendant and Transworld Enterprises Private Limited (“TEPL”) relating to an alleged 1^st Contract between West Bengal and the defendant allegedly made on or around 15 December 2004 (“1^st Contract”) and/or any of the other alleged contracts entered into between West Bengal and the defendant.

 This request is related to the request under #(G) in respect of the commission letter for TEPL referred to in an email from Mr Rajesh Khanna (“Rajesh”) to Mr Paul Hung (“Paul Hung”) of the defendant dated 30 December 2004.  It has been conceded that this document should be disclosed.  In para. 16.2 of his affidavit, Alex Wong made the point that the 1^st Contract was allegedly signed by a Mr  Biswal of Bharat Minmet as authorised representative of West Bengal, and that Rajesh also signed as a witness on the alleged Contract.  It appeared from the limited disclosed correspondence and communications relating to the alleged 1^st Contract that Rajesh was from TEPL, yet he was also involved in the negotiation of the alleged 1^st Contract with the defendant.  For this reason, he verily believed that the defendant had in its possession, custody or power further correspondence with TEPL relating to the alleged 1^st Contract that has not been disclosed.  At the very least, there would have been some correspondence and communications leading to the signing of the alleged 1^st Contract as well as some complaints by the defendant for West Bengal’s alleged failure to perform the 1^st Contract. 

14. Mr Mok submitted that Alex Wong’s assertions in para. 16.2 were no more than a bare assertion that it was his belief that there would be further documents, but that belief could no longer be sustained in the light of the further discovery made by the defendant in the form of the documents attached to the witness statement of Paul Hung.  In the light of that further discovery, there was insufficient evidence to establish that the defendant’s discovery was incomplete. 

15. I am not impressed by this submission.  Attaching undisclosed documents to a witness statement is not the proper way to make discovery as doing so cannot assure the other party that all relevant documents have been disclosed.  The email of 30 December 2004 from Rajesh to Paul Hung requesting a commission letter from the defendant for TEPL “as per agreed commission rate” and attaching the “format of commission letter to be signed and sealed by your company” raises a strong inference of the existence of further communications, between the defendant and TEPL, leading to the alleged 1^st Contract and the other alleged contracts.  This scope of the discovery is necessarily wide because the commission arrangement does not appear to be limited only to the 1^st Contract.

16. (I)  All pre and post contract correspondence and communications between the defendant and West Bengal relating to the alleged 1^st Contract.

 Mr Mok submitted that the requested category was too wide, as it potentially covered many documents not relevant to the issues in the action.  He also pointed out that some of the requested documents had been disclosed.  I do not agree.  The request for the documents is restricted to documents relating to the alleged 1^st Contract.  The disclosure of the further documents attached to the witness statement of Paul Hung is insufficient to demonstrate that the disclosure has been complete.  The 1^st Contract was dated 15 December 2004, but the 1^st correspondence disclosed was dated 27 December 2004.  There ought to have been correspondence prior to the date of the 1^st Contract.  The email dated 17 January 2005 referred to “your email of date”, but there was no such email disclosed. 

17. (J)  All pre and post contract correspondence and communications between the defendant and General Nice (Tianjin) Industry Co., Ltd (“GN Tianjin”) relating to an alleged sub-sale contract between them dated 20 December 2004.

 The claim for specific discovery of this class of documents is made on the basis, as Alex Wong asserted in para. 18.2 of his affidavit, that the defendant advanced the claim for loss of profits without any evidence except an alleged sub-sale contract dated 20 December 2004 allegedly entered into by the defendant with a company called GN Tianjin.  Alex Wong believed that the defendant must have had substantial correspondence with GN Tianjin regarding the subject transaction, and that the defendant must be in possession of such correspondence.

18. Mr Mok, however, submitted that there was simply no evidence that the contract between the defendant and GN Tianjin, which were related companies, would be the subject of written communications as opposed to oral conversations.  I am not impressed by this submission and conclude that the plaintiff has established a prima facie case of the existence of this class of documents.  In accordance with good business practice, related companies in different cities, and even in the same city, are likely to correspond in writing. This transaction is the subject matter of an item of pleaded loss suffered by the defendant, and there has been no disclosure, such as, for example, documents evidencing the cancellation of the sub-contract, to substantiate the claimed loss.

19. (K) All pre and post contract correspondence and communications between the defendant and LMJ International Limited (“LMJ”) relating to an alleged sale contract between them dated 24 February 2005 for replacement goods. 

 The next class of documents, sought by the specific discovery application under #1(L) of the order, is documentary evidence of payments allegedly made by the defendant to LMJ for replacement goods.  Mr Mok conceded that these documents were discoverable.  However, Mr Mok submitted that there was no sufficient evidence of the existence of the class of documents under #1(K) of the order.  I disagree.  It is obvious to me that there must be more documents within this class, in respect of a substantial contract of the value of US$780,000, than the provisional invoice and the bill of lading that were disclosed together with an illegible copy of the replacement contract.

20. (M)    All pre and post contract correspondence and communications between West Bengal and the defendant relating to an alleged 2^nd Contract between them made on or around January 2005 and its amendment by an addendum dated 8 February 2005 (“2^nd Contract”).

 Alex Wong asserted in para. 19.1 of his affidavit that it was impossible that the defendant could have entered into the alleged 2^nd Contract, with the alleged amendment, without any correspondence with West Bengal, and that the defendant had in its possession correspondence and communications relating to the 2^nd Contract.  I find that the plaintiff has established a prima facie case of the existence of this class of documents, and I disagree with the submission of Mr Mok that this class of documents has been drawn too widely.  The documents requested are limited to those that relate to the alleged 2^nd Contract and to its addendum.  The addendum was not signed by West Bengal.  There must have been some correspondence on the matter resulting in its creation.  

21. Mr Mok also submitted that the specific discovery order should be set aside in respect of classes (N), (O), (Q), (S), (T), (U), (W), (X), (Z), (AA), and (BB) for the same reasons that had been advanced in respect of the classes discussed above.  However, I would uphold the specific discovery order in respect of these classes of documents, again for the same reasons that I have set out above, namely, that I am satisfied that the plaintiff has established the prima facie case of the existence of these documents and classes of documents and that they are in the possession, custody or power of the defendant, that they relate to the matters in issue in the action, and that their discovery is necessary for disposing fairly of the cause or matter or for saving costs.

22. (R) Documentary evidence of alleged payment made by the defendant to West Bengal for goods sold by West Bengal to the defendant under the 3^rd Contract including the alleged letter of credit and all amendments/notices issued by the issuing bank, receiving bank and notifying bank and documentary evidence of encashment of the letter of credit.

 Mr Mok submitted that the payment under the 3^rd Contract, which was a substantial sum of almost US$2.5 million, has not been denied either by the plaintiff or by West Bengal and that the payment of the sum was not a matter in issue.  Accordingly, documentary evidence of the payment was irrelevant.  However, I agree with Mr Stock that the entire claim of the defendant in relation to the 3^rd Contract has been denied, including the 3^rd Contract itself.  The defendant’s claim in respect of the alleged 3^rd Contract is based on the payment made.  No document has been disclosed in connection with the payment.  Those documents are clearly relevant to the defendant’s claim under the alleged 3^rd Contract

23. For these reasons, I dismiss the defendant’s appeal in respect of #1 and 2 of the order of Master de Souza.  I see no reason to disturb the order of Master de Souza in respect of these documents and classes of documents.  I am satisfied that the plaintiff has established a prima facie case of the existence of these documents and classes of documents, and that they are in the possession, custody or power of the defendant.  I am also satisfied that the documents and classes of documents ordered to be specifically discovered are relevant to the issues in question, and that their discovery is necessary for disposing fairly of the cause or matter or for saving costs. 

The deponent of the affidavit to be filed by the defendant

24. Mr Mok has submitted that Paul Hung, the manager of the defendant, should be the person to make, file and serve the requisite affidavit instead of Mr Jaffe Lau Yu, the director of the defendant.  He placed before me the 8^th affirmation of Paul Hung affirmed on 26 March 2010 in support of this application.  Despite objection from Mr Stock, I agreed to look at this affirmation de bene esse.

25. Paul Hung deposed to the fact that he had the most direct knowledge of the matters in issue, that he handled the relevant transactions mentioned in the specific discovery order, and that he had made a witness statement and all the affirmations in this case for and on behalf of the defendant.  On the other hand, Mr Jaffe Lau Yu had not made a witness statement or affirmation in this action, was not well versed in these matters, and would run the risk of making an incorrect affirmation.  Further, no prejudice would be caused to the plaintiff if he made the requisite affidavit instead of Mr Jaffe Lau Yu.

26. Mr Stock submitted that Mr Lau is and was a director of the defendant and was described on the documents as managing director.  Since the specific discovery affidavit was a matter of considerable importance, it should come from a sufficiently senior representative of the defendant.  

27. I am not satisfied that I should vary the order of Master de Souza and depart from the usual order, that is made in these cases, that a director of the corporation make the requisite affidavit.  As a director, or managing director, of the defendant, Mr Jaffe Lau Yu should know of the matters raised in these proceedings or, if he does not, he should make himself aware of these matters and, no doubt, he will have the assistance of Paul Hung when he makes the affidavit in question.  We are not here dealing with a small retail transaction and a consumer’s claim against a large corporation: we are here dealing with the defendant’s substantial counterclaim of over US$4.6 million.

Costs

28. Finally, Mr Mok submitted, on the issue of costs, that the Master was wrong to award costs to the plaintiff and that the order for costs should be for costs reserved.  He referred me to the Hong Kong Civil Procedure 2010 at marginal note 24/7/2 where it is stated that :

“Costs—If, on the application under this rule, the master decides a point of law or practice against the respondents, he will normally award the costs against him.  If, however, only a prima facie case for relevance and possession is made out, and it will not be seen till the affidavit is filed whether the respondent in fact has or has had relevant documents, the costs are usually reserved to a further application to the master, but to save such further application, an order as to costs is often agreed”. 

29. I disagree with Mr Mok and I decline the invitation to vary the order of costs made by Master de Souza.  This is a case where the defendant disputed the plaintiff’s claim that a prima facie case, of the existence and possession of the documents sought, had been made out.  It also disputed the plaintiff’s case in connection with the relevance of the documents sought to be disclosed.  The defendant did not make the concessions to Master de Souza that had been made to me.  It was wholly unsuccessful in its opposition to the application for specific discovery.  The order made by the Master, which is the usual order for costs to follow the event, must stand.

Conclusion

30. For these reasons, I dismiss the defendant’s appeal with costs to the plaintiff, to be taxed if not agreed.