AKAI HOLDINGS LTD (IN COMPULSORY LIQUIDATION) AND OTHERS v. HO WING ON, CHRISTOPHER AND OTHERS

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AND

COMMERCIAL ACTION NO. 40 OF 2005

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(Consolidated)

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J U D G M E N T

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The application

1. This is an Order 24 rule 10 application.

2. It arises on a 9.30am appointment, and in purely practical terms is very much a storm in a teacup.  Equally, however, the points underpinning the argument are not without procedural interest.

3. The defendants’ summons dated 26 May 2008 requests that the plaintiff produce for inspection to the defendants “the 25 lever arch folders of documents referred to in paragraph 13 of the Fourth Affidavit of Mr Cosimo Borelli dated 15 December 2007 and/or do permit the defendants to take copies thereof”.

4. This is resisted in principle at this hearing, notwithstanding the efforts of the respective solicitors to settle the argument upon mutually agreeable terms.

The factual background

5. These consolidated actions form part of that which generally has become known as the ‘Akai litigation’, wherein in a number of actions, of which these are but two, the liquidators of Akai – of whom Mr Borelli is the constant deponent – are engaged in the attempt to recover, as against a wide variety of defendants, assets of Akai Holdings Ltd which were stripped from that company prior to its liquidation.

6. This Order 24, rule 10 application is mounted by the ‘Grande defendants’ in both actions: the 1^st, 2^nd, 4^th, 6^th, 7^th, 9^th, 15^th, 16^th and 19^th defendants in HCCL 37 of 2005, plus the original defendant in HCCL 40 of 2005 (now named as the 20^th defendant in the consolidated action).

7. That which procedurally occurred was this.

8. On 24 December 2007 Mr Borelli, on behalf of the liquidators, applied for leave of the court to extend time for the purpose of serving the Amended Writ in these actions, and for leave to serve a concurrent writ out of the jurisdiction pursuant to Order 11, rule 1, against several of the defendants.

9. The affidavit leading this ex parte application was the Fourth Affidavit of Mr Borelli sworn on 15 December 2007, and it is the cumulative reference to documents within this affidavit which forms the subject-matter of this application.

10. As usual in these ‘Akai cases’, Mr Borelli’s affidavit was full and fair, and contained a great deal of information.  In particular, in this instance he had exhibited what was a draft of Points of Claim which it then was intended to serve. 

11. In this regard, paragraphs 13 and 14 read as follows:

“13.  The documents referred to in the POC, which are identified in the listing at Tab 2, comprise 25 lever arch folders.  For administrative convenience only, I have not exhibited the documents to this affidavit.  A set of the documents will be in court at the hearing of this application.  Further, if the court considers it appropriate, I undertake to file a set of these folders, either in hardcopy or electronically on a disk, in a supplementary affidavit.  I confirm that the documents in the 25 folders are the ones identified in the Tab 2 listing.

14.  I verily believe that the material facts upon which the plaintiffs rely to make their claim for relief are accurate and are substantiated by the documents listed in Tab 2.”

12. Upon this application that this court granted Mr Borelli’s application to extend time and to serve out, and in one of the actions this Order was perfected; in the other action, I am informed that no order was perfected because Messrs Wilkinson & Grist had obtained instructions from their clients, the relevant defendants, to accept service within the jurisdiction on their behalf.  At the time of this application, which took place on Christmas Eve, this court did not see fit to ask Mr Borelli to comply with his proffered undertaking, and to file in court the 25 folders of documents to which he had made reference in his affidavit.

13. So far, so good.

14. What then happened was that the Points of Claim as ultimately filed was not precisely in terms of the exhibited draft.  I would add that the Points of Claim is a significant document, being in excess of 300 pages, and I suspect that the draftsman, whom I am told is Mr Charles Manzoni, had taken the opportunity to hone and refine the exhibited draft, with the result that the Points of Claim as actually filed now made reference not to 25 box files of documents, but now only to 4 such box files.

15. Thereafter Messrs Wilkinson & Grist, who had been served with, inter alia, the 4th affidavit of Mr Borelli, and who had spotted the reference within that affidavit to the “25 lever arch folders”, made request to Messrs Haldanes, acting for the liquidators in these actions, that they be permitted to inspect and to copy the documents within these folders; when no satisfaction was forthcoming, the present Order 24, rule 10 summons was issued on 26 May 2008.

16. On behalf of the liquidators Messrs Haldanes, by letter dated 4 June 2008, formally placed on record why this request had been declined. 

17. They argued that the 25 folders of documents referred to in Mr Borelli’s 4^th affidavit related to the then draft Consolidated Points of Claim, and had only been referred to in that affidavit in the context of the plaintiffs’ application in December 2007 for leave to serve out of the jurisdiction. 

18. In this letter Messrs Haldanes went on to observe that “that application has been determined” and that Order 24, rule 13 stipulates that the court will not order the production of any document for inspection unless it is necessary either for disposing fairly of the cause or matter or for saving costs.  Thus, the argument continued, given that the cause or matter in issue in the application for which Mr Borelli’s affidavit had been filed “is now determined”, and that “the draft Consolidated Points of Claim therein referred were not served”, they questioned the basis upon which it now was asserted that production of the 25 box files of documents was necessary to fairly dispose of any cause or matter, citing in this regard a 1987 decision of Deputy High Court Judge Litton QC (as he then was).

19. By this stage, however, this procedural dispute, as activated by the defendants’ Order 24, rule 10 summons, had achieved a degree of internal momentum; by letter dated 5 June 2008 Messrs Wilkinson & Grist responded that the letter of 4 June 2008 had been received after their counsel (Mr Carolan) briefed for the summons had “prepared substantively” his skeleton submission, and that it was believed that his submission, as enclosed, “has addressed the issues raised in your letter”.

20. All was not yet quite lost, however, and there remained a chance that common sense would prevail, and that valuable time would not have to be spent on what in substance is, and always was, no more than an entirely avoidable and intrinsically minor discovery spat.

21. Because on the day prior to the hearing an agreement purportedly was reached between the two senior and highly experienced solicitors acting on each side, Mr Budge for the defendants/applicants and Mr Hoare for the plaintiffs/respondents. 

22. I dare say the telephone lines had been running hot, because by a draft Consent Summons, a copy of which has been shown to the court during this hearing (albeit sadly remaining unsigned), the parties had envisaged an agreement whereby the plaintiffs were to produce for inspection the 25 lever arch folders referred to in the 4^th affidavit of Mr Borelli dated 15 December 2007, the hearing fixed for 11 June 2008 at 9.30am before this court was to be vacated, and that within 14 days the plaintiffs were to pay to the defendants’ solicitors, Messrs Wilkinson & Grist, “a contribution to costs in the sum of HK$40,000.”

23. There was, however, to be a stumbling block to this clearly sensible resolution.  It was this.  The plaintiffs’ solicitors wished to obtain an undertaking in usual form from the defendants to the effect that these 25 files of documents as now to be discovered would not be used for any purpose collateral to the instant litigation.  To this request, the defendants declined, maintaining, I am told, that such an undertaking was not necessary in the circumstances, and would be given only if required.

24. The upshot, therefore, was that no agreement was able to be put in place, leading counsel, Mr Scott SC, duly was briefed at the eleventh hour – he did not even have time to file a skeleton argument – to represent the plaintiffs upon the hearing of the summons, and accordingly the full majesty of the law was deployed upon a 9.30 appointment before the Commercial Court in order to debate this contentious discovery issue.

25. In the event this debate lasted for a full 90 minutes, and it is fortuitous for those responsible for setting down what was estimated to be no more than a 15 minute hearing that the court was in the position to indulge a clearly ambitious piece of listing.

The argument

26. In moving the Order 24, rule 10 application Mr Carolan was brief and to the point.

27. From his viewpoint, he suggested, there was little to argue about.  These documents had been specifically, albeit cumulatively, mentioned in Mr Borelli’s 4^th affidavit, and what is more Mr Borelli had made a point of stating, in terms in paragraph 14, that “the material facts upon which the plaintiffs rely to make their claim for relief are accurate and are substantiated by the documents in Tab 2”.

28. Thus, there could be no question but that these documents were relevant, and his clients should have the opportunity to inspect them.  And not only his clients.  Even now, he said, Mr Godfrey Lam SC, whose case this is, was in the course of labouring under severe time constraints in order to draft a Defence to Mr Manzoni’s magnum opus, and clearly Mr Lam would be much assisted in knowing what was in these 25 box files; in fact some of the documents therein probably already were in the 4 files of documents as in fact had been delivered to the defendants by the plaintiffs, but the problem was that the defendants did not know which of the documents which now were in their possession came into this category, and which did not.

29. Accordingly, Mr Carolan asked for an order in terms of his summons.

30. For the plaintiff liquidators, Mr Scott SC, whom, as earlier noted, had been seized with this application at the last minute when settlement negotiations had foundered, mounted a spirited defence of his clients’ position.

31. At bottom Mr Scott took two points.

32. First, that Order 24, rule 10 itself was expressly subject to Order 24, rule 13(1), which reads:

“No order for the production of any documents for inspection or to the Court or for the supply of a copy of any document shall be made under any of the foregoing rules unless the Court is of opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs.”

33. In this instance, he said – mirroring the argument which had been advanced in inter-solicitor correspondence – such production of documents as now was sought was not ‘necessary’ because the cause or matter with reference to which the 4^th affidavit of Mr Borelli had been sworn was now ‘spent’, the court having granting the application by the liquidators to extend time and to give leave to serve out of the jurisdiction, and that in any event the burden of establishing such ‘necessity’ lay upon the defendants, and had not been discharged.

34. In this context Mr Scott relied upon the decision of Deputy Judge Litton (as he then was) in Allied Arab Bank Ltd v. Taj El Arefin Hajjar & others, unrep., decision dated 30 June 1987.

35. Second, in terms of the disagreement as to whether an undertaking in ‘usual form’ should be forthcoming as to the non-use of discovered material for any collateral purpose, Mr Scott said that that which now was sought essentially was ‘pre-pleading discovery’, and that his client was entitled in the circumstances to request such an undertaking, which up to now had been declined – and as to which an inquiry by the court during this hearing had elicited the response from Mr Carolan that such indeed would be forthcoming “if required by the court”.

36. I consider these arguments in turn.

Decision 

37. As to the ‘necessity’ issue, I do not regard the 1987 decision of Deputy Judge Litton QC in Allied Arab Bank Ltd, op cit., as being of assistance in the particular circumstances of this case.

38. In Allied Arab Bank, the background was that that eminent judge had been faced with adjudicating a strike out summons, and as a consequence of this strike out application two out of four pleaded causes of action had been struck. 

39. Thereafter the learned judge was required to deal with a specific discovery summons taken out by the defendants, pursuant to Order 24, rule 11, whereby the 1st plaintiff, Allied Arab Bank, was required to produce for inspection certain documents, in particular certain assignments of debt, which had been referred to in an affidavit sworn by the bank’s solicitor, Mr Stokes; this affidavit had been sworn in connection with two interlocutory matters then before the court: an application to join Barclays Bank plc as a plaintiff to the action, and second, the application to strike out the Points of Claim.

40. In the event Deputy Judge Litton acceded to one of the arguments mounted by the plaintiff’s counsel, Mr Ronny Wong, to the effect that having struck out the particular claim with reference to which the assignments in question clearly had been relevant, equally clearly they were not relevant to the surviving causes of action, which as a result of the strike out were based solely upon misappropriations, and not conspiracy.

41. Hence, the learned judge concluded (at paragraph 25 of his judgment):

“Now in my judgment Mr Wong’s contentions are correct.  I cannot at present see the relevance of the debt claims against the customers and/or guarantors, when all that survives are actions based upon misappropriations by Hajjar and others to which the defendant companies might be parties.  But the main point which in my judgment is decisive is this: the main action in Hong Kong is stayed [in favour of an existing English action]…at the present time in Hong Kong, there is simply no cause or matter to which an application under Order 24, rule 11 could relate.  I cannot therefore see what costs could be saved in terms of Order 24 rule 13 if an order for production be made; and a fortiori there is no cause or matter in terms of rule 13 which could be “fairly disposed of” by my ordering production of the documents for inspection…”

42. With respect, on those particular facts the logic of the learned judge is impeccable, but the circumstances of that case are very far from the factual situation with which this court now is confronted.

43. I agree with Mr Carolan that when the deponent in question, in this case Mr Borelli, solemnly avers in his 4^th affidavit that he believes that the material facts upon which the plaintiffs rely to make their claim for relief are accurate and are contained in the documents within the 25 folders, it is clear that he is making this statement with respect to all the causes of action as contained in the draft Points of Claim then before the court.

44. True it is that, as Mr Scott was keen to point out, it was not the draft Points of Claim as exhibited that ultimately was the pleading which was served, but a revised, and in all probability a ‘tighter’ version, but there is no suggestion, and I doubt if such could be made, to the effect that the revised pleading as served – and to which counsel apparently now is in the course of pleading – has jettisoned any of the causes of action hitherto relied upon in the draft document as exhibited to Mr Borelli’s affidavit.

45. In this connection the court felt constrained to point out to counsel that had it taken up Mr Borelli’s undertaking, if so required, to file in court a set of these 25 folders, there would and could have been no argument; as I understand the position, all documentation so filed in the Registry, unless expressly subject to contrary order and ‘brown bagged’, is open for inspection by the parties to the particular litigation.

46. Be that as it may. 

47. The end result, therefore, contrary to the particular factual position as prevailed before Deputy Judge Litton in Allied Arab Bank, op cit., is that every cause of action so pleaded by the plaintiff liquidators remains at large, and thus on the plaintiffs’ own case cannot be characterised as irrelevant.

48. In this regard I take the view that this is the analytical answer to Mr Scott’s ‘burden point’ – in short, in his own words Mr Borelli effectively had done that which otherwise arguably would have fallen upon the defendants.

49. I confess that this entire argument struck me as a waste of time and costs for the parties, not to mention judicial time, which, whilst rarely considered significant, is, if I may say so, better spent in deciding arguments which actually matter. 

50. Mr Scott was candid enough to accept that in any event these 25 folders of documents indeed would be discoverable in normal course after the close of pleadings, so that all that is happening in this case is that the defendants would have sight of this documentation several months earlier than otherwise would be the case.

51. This conveniently brings me to the second primary objection on the part of the liquidators, who are concerned whether production of these 25 folders of documents at this early stage attracts what is generally referred to as the ‘usual discovery undertaking’ as to non-use for collateral purpose in a situation in which the defendants have refused, unless “required” by the court, to proffer such an undertaking.

52. At first blush this struck me as a distinctly arguable point.  In principle I am able to divine no good reason why, merely because documentation is discovered pre-pleadings rather than post-pleadings, that the usual undertaking which accompanies discovery should not automatically follow – and thus it was unclear why those acting for the defendants had not been inclined to give such an undertaking when the plaintiffs’ solicitors had so requested in correspondence; indeed, the draft unsigned Consent Summons had made no reference to this.

53. However, during argument Mr Carolan drew the attention of the court to the decision of the Court of Appeal in Shun Kai Finance Co. Ltd & others v. Japan Leasing (HK) Ltd (No 2), [2000] 3 HKLRD 539, wherein the issue was whether the implied undertaking in the normal process of discovery not to use documents thus disclosed for any purpose other than the litigation in which they were disclosed applied where documents referred to in pleadings were produced for inspection under Order 24, rr 10 and 11 RHC; in this case in the court below the judge had found that the undertaking did apply.

54. However, by a majority the Court of Appeal (Rogers VP and Le Pichon JA, Keith JA dissenting), allowed the appeal and held that where a document was voluntarily referred to in a pleading or affidavit, the party so acting voluntarily had destroyed the privacy of the document, in contrast to the normal discovery process which was not voluntary, and that it was precisely this invasion of privacy that gave rise to the implied undertaking.  Hence in this voluntary situation the ‘usual undertaking’ did not impliedly attach.

55. This view is reinforced by academic comment: see Hollander, Documentary Evidence, 9^th ed (2006), wherein, under the heading ‘Early disclosure in proceedings’, the learned author suggests (at p 37) that “Under Order 24, r 10 the better view was that there was no undertaking”, citing in this regard Eagle Star Insurance Co. v. Arab Bank, unrep., 25 February 1991, per Hobhouse J, albeit also noting (at footnote 14), that “the contrary was assumed without argument in Bhimji v. Chatwani (No 2) [1992] 1 WLR 1158, at 1163.”

56. Had I been seized with this argument de novo, and had I been unaware of this appellate decision on the point, I am bound to say, with respect to a very strong court, that I should have decided the point the other way, for much the same reasons as those relied upon by Keith JA, who delivered a dissenting judgment.

57. However, my view is nothing to the point given that this is a first instance court, which thus is bound by this decision of the Court of Appeal directly on the point.

58. Accordingly, on the basis of this authority I must hold that no implied undertaking attaches to documents disclosed pursuant to Order 24, rr 10 and 11, and thus the refusal of the defendants to accede to the request of the plaintiffs to confirm that they will provide such an undertaking has legal underpinning, given that in this situation such undertaking does not impliedly arise.

59. Nevertheless, I do not read the judgment of Le Pichon JA, with whom Rogers VP agreed, as precluding this court, in the exercise of its discretion, from requiring such an undertaking to be given by the defendants if it considers it just and appropriate in all the circumstances – as in this case I most certainly do.

60. It seems to me that if and in so far as the defendants object to the imposition of an undertaking not to use the documents as discovered and as produced pursuant to this application other than for the purpose of this litigation, it is always open to them to make application to this court, upon good grounds, to lift the undertaking with respect to any one or more of the documents thus discovered prior to the normal process of Order 24 discovery.

61. In terms of the summons now before the court, therefore, it follows from the foregoing that I have decided to grant the defendants’ application, subject to requiring the defendants to give the ‘usual undertaking’ with regard to the documents to be thus discovered.

62. This conclusion, however, in turn raises the thorny issue of costs.

63. As the court remarked during the hearing of this application, this is one of those occasions when the court effectively is placed in the position of having had to decide the substantive issue in order fairly to adjudicate the question of costs.

64. I am of course aware of the terms which had been provisionally agreed as to costs in terms of the draft Consent Summons, although since this provisional agreement was not perfected perhaps this matters not – or, at least, not a great deal.

65. In terms of the actual result of this application, the defendants can say that they have won on both substantive issues, namely in terms of necessity and as to whether the undertaking impliedly attaches to the documents to be discovered at this ‘pre-close of pleadings’ stage.

66. On the other hand, it seems that the straw that broke the back of the provisional inter-solicitor agreement, as evidenced by the draft Consent Summons, was the protection of the documents by the ‘usual undertaking’, which in the circumstances I have seen fit now to impose, and thus the plaintiff liquidators can argue that in this regard resistance on this basis was justified, although in the event they chose to lock horns and to fight this application across the board, and did not confine their submissions simply to their concerns about the absence of any undertaking not to use these documents for collateral purpose.

67. The Commercial Court not infrequently finds the issue of costs to be more problematic than the substantive issue for decision, and perhaps this is one of those occasions.

68. I have reflected on the point, and I confess that at one stage I was sorely tempted to say ‘a plague on both your houses’ and to make no order as to costs – which costs in themselves will not be wholly insignificant, given the presence of experienced junior and of senior counsel, and what appeared to be more than one solicitor on each side attending at the hearing.  I bear in mind, as he has said, that Mr Carolan had been briefed to appear prior to the negotiations for the settlement of this application, although it seems that Mr Scott only was instructed to appear when it became clear that formal argument was inevitable.

69. At the end of the day I have come to the view that the correct approach as to costs in the situation as has arisen is that the defendants are to have but a proportion of their costs of and occasioned by this application, and I propose to make an order nisi to this effect.

Order

70. Accordingly, the order of the court upon the defendants’ application by summons dated 26 May 2008 is as follows:

1.   Subject to the defendants undertaking to the court that the documents to be produced pursuant to this application are not to be used for any purpose other than for the purposes of these consolidated actions, such undertaking formally to be given by solicitor’s letter, there is to be an order in terms of paragraph 1 of the defendants’ summons dated 26 May 2008;

2.   There be leave to the defendants to make application to be released from such undertaking with respect to any document or documents as so produced consequent upon this order;

3.   There is to be an order nisi, to become absolute unless written application be made so to vary within 21 days of the date hereof, that the defendants are to have 70% of the costs of and occasioned by this application in any event, such costs to be taxed if not agreed.