XCHRX SEACLIFF LTD. v. DECCA LTD. AND OTHERS

HCMP 4900/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 4900 OF 2000

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DECISION

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The 2 actions and the application before me

1. The Originating Summons in this action ["the Discovery Action"] was taken out by the Plaintiff ["Seacliff"] on 22nd September, 2000 against 5 Defendants including Decca Limited ["Decca"] for pre-action discovery against those Defendants. That Originating Summons was heard by Deputy High Court Judge Gill ["Judge Gill"] on 12th March, 2001. By his judgment dated 20th March, 2001 ["the Judgment"], Judge Gill ruled in favour of Seacliff and ordered discovery against Decca.

2. On 10th October, 2000, Decca instituted HCA 9393/2000 ["the Debt Action"] against Seacliff for US$772,717 and HK$3,817,475 allegedly in respect of work done in and furniture supplied to a building complex known as Shanghai Centre ["Shanghai Centre"] in Shanghai. By Summons dated 30th January, 2001, Decca applied for Summary Judgment in the Debt Action. They succeeded before Master Jones on 19th June, 2001. Seacliff is appealing against that decision.

3. By Summons dated 18th August, 2001, Seacliff seeks leave to use in the Debt Action the documents disclosed by Decca in the Discovery Action. In opening this application, Mr. Burns, Counsel for Seacliff, made it clear that his primary contention is that leave is not necessary and he would only seek leave in the event of an adverse ruling against him.

The application before Judge Gill

4. Seacliff does not dispute that it is under an implied undertaking not to use the documents discovered by Decca in the Discovery Action for an objective collateral or ulterior to that action. It is therefore necessary to ascertain the objective of the Discovery Action as explained in the Judgment in order to determine whether use of the documents in the Debt Action falls within that objective.

5. According to the Judgment, the case of Seacliff was as follows :

1. Shanghai Centre is and has at all material times been operated and managed by Seacliff. Seacliff managed and paid for capital improvements undertaken between 1995 and 2000. The budgeted costs were US$49 million. [p. 1 of the Judgment].

2. Management of the refurbishment was originally undertaken by inhouse personnel of senior rank. The Chief Finance Officer surnamed McNett was to play a predominant role. Seacliff came to engage Benswick International Limited ["Benswick"] to participate in the management of the refurbishment. Benswick is and was at all material times controlled by Howe. [p. 1 of the Judgment].

3. After the project was complete, in early 2000, Seacliff came to realise that it had exceeded the budget. Investigation revealed that the budget has been overspent by US$35 million. The total cost should have been US$41 million, leaving $43 million unaccounted for. Investigation further "points to large scale commercial fraud implicating McNett, Howe and perhaps others". [p. 3 of the Judgment].

4. "Certain of the irregularities uncovered have included what on the face of it appears to be a duplication or even triplication of payments made for the supply and installation of marble, provided by the 1st Defendant (Decca). As an example Decca was paid direct by the plaintiff an invoiced charge of HK$16.831 million. But [Seacliff] was also debited for this amount by Benswick on the basis that it paid Decca. Further, sums totalling RMB$30 million were channelled through one of the PRC companies purportedly for marble supplied, but there are wholly inadequate records to explain or justify the outlay." [p. 4 of the Judgment].

5. "Against this background, on 22nd September 2000, Seacliff filed an originating summons,...seeking production of documents as specifically named and described for the purpose of assisting it in establishing fraud and running to earth those responsible, and as a means of tracing funds which Seacliff might be entitled to recover. The application amounts to a pre-action claim for discovery, for there are no proceedings yet underway. Seacliff's stated position is that this is a necessary prerequisite to identify the wrongdoers and formulate to the required acceptable level of preciseness its pleadings. The application was brought under section 21 of the Evidence Ordinance, Cap. 8...and invoking the court's inherent jurisdiction to make the orders sought." [p. 5 of the Judgment].

6. "Seacliff will be quite unable to piece together the jigsaw without the information now sought from Decca; in particular, how much Decca received and from whom. Otherwise it will have no means of establishing a fraud and no way of formulating a claim for recovery from the wrongdoers." [p. 11 of the Judgment].

6. Seacliff invoked the principles in Norwich Pharmacal v. Customs & Excise [1974] A.C. 133 and Bankers Trust Co. v. Shapiro [1980] 1 W.L.R. 1270. Decca resisted the application on the grounds that the discovery sought was oppressive and Seacliff was embarking upon a fishing expedition. Judge Gill rejected Decca's submissions.

Is leave necessary ?

7. Decca submits that use of the documents in the Debt Action would not be consistent with the broad purpose for which discovery was given in the Discovery Action. Decca argues that the object of the Discovery Action was "for furtherance of claims arising out of the fraud committed by McNett and Benswick against Seacliff. This has nothing to do with the obligation of Seacliff to pay for work done and materials supplied by Decca; it has nothing to do with the purported defence of Seacliff of payment or overpayment of price...".

8. I am not persuaded by these submissions of Mr. Hung on behalf of Decca. First, I reject the submission that use of the documents should be confined in suit(s) against Howe, McNett and Benswick. The application was a pre-action claim for discovery. The identity of the tortfeasor(s) was not then ascertained. It was made clear to Judge Gill that apart from McNett and Howe the fraud might implicate others. Secondly, I reject the submission that the documents should not be used against Decca. Judge Gill was expressly told that even on the then available evidence, there "appears to be a duplication or even triplication of payments made ...[to Decca]". Thirdly, I reject the submission that the documents should not be used to recover overpayment to Decca. Given the express reference to alleged overpayment in favour of Decca, there is no justification to uphold the restriction urged upon me by Mr. Hung. Finally, I reject the submission that use of the documents is confined to facilitate a tracing claim. Tracing was merely one limb of the justification put before Judge Gill. The other limb of the justification was "to establish how much was spent on the capital improvements in order to ascertain the nature and extent of the fraud." I am of the view that Seacliff is entitled to use the documents discovered in the Debt Action to establish how much was spent on the capital improvements effected by Decca.

9. For these reasons, I am of the view that the proposed use by Seacliff falls within the broad purpose as outlined in the judgment of Judge Gill. It is unnecessary for Seacliff to seek leave for such use.

Should leave be granted ?

10. If I be wrong on the primary issue, I am prepared to grant leave to Seacliff to use the documents in question. In Omar v. Omar [1995] 1 W.L.R. 1428 at 1436D, Jacob J. considered without dissent the following 3 propositions advanced by Counsel as to the applicable principles for grant of leave :

(1) The court would not release or modify an undertaking as to the use to which documents may be put (express or implied) save in special circumstances and where the release or modification will not occasion injustice;

(2) It is necessary for the applicant seeking such release or modification to demonstrate cogent and persuasive reasons why the undertaking should be released;

(3) The use to which the disclosed documents may properly be put with leave depends upon the purposes for which and the circumstances in which they were disclosed.

11. The documents in that case were disclosed to further a proprietary claim. Jacob J. granted leave to use those documents in support of a personal claim. Jacab J. was of the view that both claims fell within the "broad purpose" of the original discovery and the facts giving rise to both claims were broadly the same.

12. The case of Seacliff is that they have overpaid Decca. If the documents disclosed can be used to retrieve any overpayment, I can see no logical basis for refusing leave to use those self-same documents to resist further payment. The facts would be broadly the same. In those circumstances, I fail to see any injustice to Decca. I would have granted leave had the same been necessary.