BRUCE JAMES STINSON v. GU MING GAO

HCA 2352/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2352 OF 2012

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D E C I S I O N

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1.  This is an appeal by the defendant against an order of specific discovery made by Master de Souza on 27 November 2013.

2.  Master de Souza ordered that:

“(1) The Defendant do within 7 days from the date of this Order produce for inspection by the Plaintiff and his Solicitors at the office of the Defendant’s Solicitors at … the following documents referred to in Paragraph 8 of the Defendant’s Defence and Counterclaim dated 18th February 2013, namely:-

(a) The statistical model using mathematical concepts and language and reduced to a series of written mathematical formulae referred to in paragraph 8(a) therein;

(b) The variables generation program (together with written operating instructions) written in a publicly available ‘MatLab’ software capable of receiving Hong Kong Jockey Club and ‘RaceMate’ data feed and converting such data into a series of specific race meeting variables referred to in paragraph 8(b) therein;

(c) The computer values program written in the publicly available ‘Excel’ software (together with written description of and series of commands used) capable of converting specific race meeting variables into numerical values to be assigned to each of the horses listed to start in each race meeting referred to in paragraph 8(c) therein;

(d) The written formulae enabling such numerical values to be represented as probability estimates for each of the four bet types: Win; Place; Quinella; and Quinella Place, referred to in paragraph 8(d) therein,

and permit the Plaintiff and/or his solicitors and/or agents to peruse the documents so produced and to make notes of their contents;

(2) The Defendant do within 7 days from the date of this Order,

(i) make an affidavit stating whether any document specified or described below has at any time been, in his possession, custody or power, and if not then in his possession, custody or power when he parted with it and what has become of it; and

(ii) produce for inspection by the Plaintiff and his Solicitors the following documents in the possession, custody or power of the Defendant:

(a) all statements and records of all betting accounts on horse racing with the Hong Kong Jockey Club under the name of the Defendant and/or his nominees or agents on his behalf (including, but not limited, to Leung Man-kit, Lam Yuk-fai and Siong Liying Ivan) covering the period from the start of 2004/2005 racing season to the end of 2011/2012 racing season; and

(b) all statements and records of all betting accounts on horse racing with the Hong Kong Jockey Club under the name of the Defendant and/or his nominees or agents on his behalf (including but not limited to Leung Man-kit, Lam Yuk-fai and Siong Liying Ivan) covering the period from the start of the 2012/2013 racing season onwards;

(3) The Defendant do within 7 days from the date of this Order supply the Plaintiff with copies of the documents referred to in paragraphs (1) and (2) herein on payment of reasonable charges; and

(4) Costs of and occasioned by this application including any costs reserved in respect thereof be to the Plaintiff with certificate for Counsel to be taxed if not agreed in any event.”

Background

3.  By an agreement dated 27 January 2004, the plaintiff and defendant agreed to form a partnership to establish and operate a horseracing betting operation.  The operation was to develop and use a mathematical model to provide accurate probability estimates for Hong Kong horse races.  

4.  The defendant’s obligation under the agreement was to provide, develop, and maintain the mathematical model.  He and those working under him were called “the modelling team”.  The modelling team at all material times had and the defendant still has sole control of and access to the mathematical model as developed from time to time.  The modelling team included the defendant, Leung Man-kit, Lam Yuk-fai and Siong Liying Ivan. 

5.  The plaintiff, on the other hand, was responsible for managing all other aspects of the partnership business, including the provision of capital and seeking outside investment.  The plaintiff was also responsible for paying all costs incurred by the business.  The plaintiff also had people working under him and his team was called “the management team”.  The management team did not have access to the mathematical model. 

6.  Under clause 15 of the agreement, the mathematical model, including all of its components and their continuing development, constitute the property of the business, and both the plaintiff and defendant undertook that they would not deal with, sell or share with others the model. 

7.  Since around 2007 and 2008, the model had been able to produce accurate estimates and generated profits for the business. 

8.  There is no dispute that the defendant had been making private bets, but there is a pleaded dispute on whether he did so with the use of the mathematical model and, hence, in breach of the partnership agreement and his obligations as a partner.  The plaintiff alleged that the defendant’s private betting had gone on to a much bigger scale around the 2010/2011 racing season, but the defendant refused to discuss with the plaintiff about the defendant’s private betting.  The plaintiff has also adduced evidence alleging that the defendant had placed private bets through nominee betting accounts held by members of the modelling team as well.

9.  By an email dated 27 July 2012, the defendant gave notice to the plaintiff to terminate the partnership there and then.  The plaintiff then proposed that both the plaintiff and defendant should walk away with a working copy of the mathematical model, but the defendant refused the proposal.  

10.  The plaintiff then launched this action on 21 January 2013 for delivery up by the defendant of the model and other reliefs. 

11.  The defendant in paragraph 8 of his defence and counterclaim referred to the mathematical model, and pleaded that it comprised of four discrete elements.  Particulars of the elements were also given.  The plaintiff then served a notice to produce documents dated 12 July 2013 on the defendant under Order 24 rule 10 for the production of the mathematical model for inspection, but the defendant refused to comply with the request in the notice.

12.  By an amended summons dated 14 November 2013, the plaintiff applied under Order 24 rule 10 and 11 for a production of the mathematical model and its discrete elements as referred to in the defence and counterclaim.  The plaintiff also applied for discovery of the defendant’s betting records under Order 24 rule 7.  

13.  On 27 November 2013, Master de Souza made the orders sought.  The mathematical model and its discrete elements are the subject matters of paragraph 1 of the order, which has been cited above.  The betting records are the subject matters of paragraph 2 of the said order. 

14.  The defendant then gave notice of appeal.  The execution of the order of discovery was then stayed by consent. 

The appeal

15.  On this appeal, Ms Tam, leading counsel for the defendant, submitted that the contents of the mathematical model are of little relevance to the pleadings, and the defendant may be prejudiced if he should disclose the same to the plaintiff before the partnership is wound up. 

16.  This submission is pregnant with an implication that the plaintiff would abuse the model by exploiting it for its own benefit if he should be in possession of it. 

17.  I am not in favour of this unsupported attack on the good faith of the plaintiff.

18.  Counsel further submitted that the model is not the subject matter of the dispute between the parties, but is property owned by the partnership.  Hence, it should not be delivered up to the plaintiff now, but should only be made available after the taking of the partnership account so that it could then be sold or disposed of properly.

19.  Alternatively, counsel submitted that even if the model is the subject matter of the partnership agreement, its contents are irrelevant to the main issues to be resolved in the action, and has no bearing on the result of the action. 

20.  Counsel also submitted that the plaintiff already had access to the outputs of the model through computers, but I think this is neither here nor there. 

21.  The defendant, however, acknowledged that one major issue between the parties is whether the defendant had used the model in his private betting. 

22.  Mr Yan, leading counsel for the plaintiff, submitted that delivery up of the model is important and relevant to the issues as the defendant intends to engage an expert to study the contents of the model and the defendant’s private bets to see if the bets were placed with the benefit of the output of the model.  For that purpose, it is necessary to have possession and use of the model. 

23.  I think the stance of the plaintiff is reasonable, and it is necessary to have the model delivered up by the defendant to the plaintiff.  I also do not think that there should be any condition to be imposed on the plaintiff for the model to be delivered to him unless the defendant be subject to the same.

24.  For these reasons, I am inclined to dismiss the appeal in relation to the production of the mathematical model. 

25.  At the end of the hearing yesterday, the parties jointly proposed that they would work out an undertaking for the custody of the model in the event that I should dismiss the appeal in relation to the model.  However, the good intentions of the parties failed to bear fruit, and they have not been able to reach agreement on the undertaking. 

26.  In the premises, I dismiss the defendant’s appeal on paragraph 1 of the order.  I further vary the mathematical model referred to in paragraph 1 of the order to include all versions of the model and its discrete elements developed by the defendant and/or the modelling team from time to time up to the date of delivery up.

27.  Regarding the betting records, Miss Tam attacked strenuously on the strength of the plaintiff’s claim against the defendant on private betting.  She also referred to the defendant’s denial on oath that he had undertaken private betting with the use of the model in question.  However, this is not an application to strike out this claim of the plaintiff on any basis.  There is also no such application.  Hence, this is a claim that needs to be resolved.  Documents relevant to this claim should likewise be produced in discovery.  The records of the defendant’s private betting are obviously documents relevant to this claim and should be disclosed.

28.  Furthermore, it is the plaintiff’s case that he needs these records for examination by an expert to find out whether they show a pattern that is related to the output of the model.  This is indeed a reasonable argument.

29.  Finally, Ms Tam said that the defendant’s private betting records to be produced should be limited to the racing days when the partnership had placed the bets.  For racing days that the defendant had placed the bets but not the partnership, there would be no record of the partnership to compare with.  Hence, she submitted that the defendant’s betting records for those days need not be produced. 

30.  Mr Yan, in reply, however, pointed out that the study by the expert would have to include all the defendant’s private betting records regardless of whether they were records of bets on racing days when the partnership had placed no bet, as the study is to discern a pattern which would be produced by the mathematical model.

31.  I agree with this submission too.  But, I would limit the production of such records up to the date when the defendant should perform and comply with paragraph 1 of the order as varied by me.

32.  In the premises, I dismiss the appeal as a whole.  I also lift the stay of execution, if it has not expired by its own terms.

33.  I further make a costs order nisi that the defendant do pay the plaintiff the costs of this appeal with certificate for two counsel.