XCHRX GATMORE ENTERPRISES S.A. and Another v. THE PEOPLE'S INSURANCE COMPANY OF CHINA

1993 No. CL204

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

COMMERCIAL LIST

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J U D G M E N T

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1. This is an application by the Defendants for discovery in respect of a number of classes of documents. It is extensive. There are also two applications by the Plaintiff, essentially on an alternative basis, which relate to the position, reserved by the Defendants on the pleadings, as to discovery and/or interrogatories. It makes sense if I consider the Defendants' application first.

2. The subject matter of the action itself is a claim by the owners of a ship the "New Orient Princess" against the insurers of the hull. The ship was destroyed by fire. It is a total loss. There are a number of issues. They fall conveniently under five headings:

1) Non-disclosure and

2) misrepresentation;
both in relation to insurance cover.

3) Unseaworthiness of the vessel;

4) Unlawful adventure in relation to the use of the vessel; and

5) Failure and incompetence of the crew in respect of fire-fighting on board.

3. My attention has been directed by the parties to a number of affirmations/affidavits. The deponents are, in order of time:

Chung Kam Man (16 July 1996) for the Defendants;

K.S. Ma (21st August 1996) for the Plaintiffs - 1st Affidavit.

- 2nd Affidavit. (8th November 1996)

Nicholas Mallard (11th November 1996) for the Defendants.

Simon Davidson (18th November 1996) for the Plaintiffs.

Andrew Kinnison (18th November 1996) for the Plaintiffs.

4. I have read all those affidavits which have been referred to in detail by counsel appearing on behalf of the Defendants and the Plaintiffs, respectively Mr. Raymond Faulkner and Mr. Clifford Smith.

5. The Defendants' request was set out in a Schedule of Classes of Documents for which an Amended Schedule was substituted in respect of the majority of the categories. The original schedule now covers only classes 1, 11, 12 and 14 with the Amended Schedule covering the remainder. I have to bear in mind that Mr. Ma's affidavit deals with the classes as set out in the original schedule, as indeed does Mr. Chung, but the subject matter i.e. the essential class of the documents, has not changed, only the form or type of document. I have not found that that raises any significant difficulty nor is it contended by either counsel that that is problematical.

6. Much argument has centred around whether or not Mr. Ma is the appropriate person to make affidavits as to discovery on behalf of the Plaintiffs.

7. He has been employed by the first Plaintiff since 8 June 1993, three months before the vessel was lost. He described himself as the office manager, "responsible for the conduct of these proceedings", "duly authorised" and "employed principally on the financial management of the company and the vessel". Mr. Mallard at paragraph 3 (p. 47) of his affidavit describes a meeting with Mr. Ma on 25 September 1993 at the premises of Sovereign Superb Shipping Co. at which the latter purportedly said he "knew very little about the vessel and had no knowledge of technical matters relating to the vessel as his job was to organise the sale of tickets to passengers." I am not in a position, simply upon the strength of affidavit evidence, to decide whether Mr. Ma is an appropriate officer of the first Plaintiff to deal with these matters of discovery. It is certainly clear that he has been the conduit between the Plaintiffs solicitors and the Plaintiffs themselves, but that does not make him an appropriate officer. My attention is focused on the letter of 4th September 1995 from the Defendants' solicitors to the Plaintiffs solicitors wherein Mr. Ma's status and credentials are called into question. Their contentions were not fully answered but setting aside that particular issue in the form in which it was then raised, a clearer picture is to be seen from the ways Mr. Ma deals with the matters in his affidavit (the second) to which I will come in due course.

8. Strictly speaking, Mr. Ma is not a "Proper officer" of the corporation. He is neither director nor company secretary. I can envisage a situation in which he could be regarded as a "Proper officer" using that term in a broader sense. But the requirement that a "Proper officer of the corporation" is not one which should easily be relaxed - nor should it be delegated save in circumstances of which the court approves. The incentive for full disclosure, and the sanctions for knowingly making a false statement, are more easily established for an officer of the corporation. It is too easy for the obligations to be avoided by delegating to an employee who is not an "officer", and who is himself subject to the control and direction of an officer from whom he seeks co-operation, information and complete candour. In that situation a non-officer can be manipulated. In my view the requirement should not be relaxed. As will be seen from Mr. Ma's affidavit the proper officer is in a position to swear an affidavit. It is not for me to comment on why he has declined to do so or avoided doing so. I will confine myself to a simple analysis of each class and the statements I have already made.

9. Finally, of the preliminary matters, the principles to be observed under Order 24 rule 7, require stating: there must be sufficient evidence that the documents exist, that they relate to matters in issue in the action, and that there is sufficient evidence that the document is in the possession custody or power of the other party. The party seeking such an order must make out a prima facie case for possession, custody or power, and the relevance of the specified documents. This may be based on the probability arising from the surrounding circumstances or in part on specific facts deposed to. I do not need to review the authorities which are set out in Paragraph 24/7/1 (p. 446) of the Supreme Court Practice 1997.

10. I consider each class of documents in turn according to the two schedules.

Class 1 (Original Schedule)

11. The directors are the proper officers to deal with this. Mr. Ma would have no power to compel production of these for his consideration. I do not see how he can depose to their existence without proper inquiries or to their relevance without considering the contents of the contracts. The order is properly sought.

Class 2

12. The Defendants have made out a clear case for these. Mr. Ma's reply is unsatisfactory. It clearly suggests that there exist bills and invoices which have not been disclosed (Section 5.2) and that Mr. Wong Hon had clear-cut first-hand contact in respect of the management of the vessel. I regard the contents of Mr. Ma's affidavit on this aspect unsatisfactory. It does not suggest the requisite application, investigation and consideration necessary for disclosure.

Class 3

13. This is a matter on which I am satisfied Mr. Ma has not either the experience or status within the Plaintiff company. It is clearly a matter for Mr. Wong Hon to deal with. The request is self-explanatory although Mr. Ma says he has "difficulty in identifying the documents in respect of which discovery is sought". In the case of class 2 and 3 disclosure is properly sought.

Class 4

14. Mr. Ma has not sought to answer this request properly. The issue is clear. He has disclosed within the reply under this class a further document. Once again it is Mr. Wong Hon, who was at the forefront of the matter of crew recruitment, who is in the best position to deal with such documents.

Class 5

15. The request hereunder sets out the nature of the matter. There ought to be documents of the nature sought. The diagram Mr. Ma exhibits though of some interest is no answer. He does not even say on whose knowledge the diagram is based. Mr. Wong is clearly the person best able to deal with this. Mr. Ma's reply at Paragraph 8.3 is unsatisfactory.

Classes 6, 7 or 8

16. These relate collectively to the matter of insurance, and specifically to non-disclosure and misrepresentation. They cover a period prior to Mr. Ma's involvement with the Plaintiff. Mr. Ma deposes that he does not know to what extent the documents referred to in each of these three classes differ from one another. I am satisfied that they are properly identified in each of the three cases. The reply of Mr. Ma is prima facie a clear indication that he has made no inquiries beyond the "brokers' file" and what Mr. Davidson told him.

Classes 9 & 10

17. These can be incorporated into one class by adding (in class 9) after "and/or between any of the managers ...", "notes and memoranda upon the files of all and any of them"

Class 11 (Original Schedule)

18. Mr. Ma's reply at Paragraphs 12.2, 12.3 and 12.4 is in my view deficient and unsatisfactory. Reliance is placed to a large extent upon a letter from the Plaintiffs' solicitors to the Marine Department dated 4th July 1994 (p. 42) and the Marine Department's reply of 8th July 1994 (p. 44). That letter does not ask the Marine Department to provide copies of all correspondence in relation to the vessel since 2nd December 1992. The last sentence of the Marine Department's letter of 2nd December 1992 says - "Please advise me in writing when all the items have been made good." There is no such advice in writing. I am asked to infer from the second paragraph of the Marine Departments letter of 8th July 1994 that Mr. Ma's statement in Paragraph 12.4 to the effect that all was in order from the point of view of safely, is accurate. I cannot do so. The Marine Department's letter requires careful reading - it says "The vessel was in compliance with the requirements of the Convention Certificates issued by the Panamanian Authorities ... and hence port clearance from Hong Kong was granted." It says no more than that and does not identify the dates of the inspections save to say that they were prior to the fire of 25 August 1993.

19. All three classes (now two) are clear in what they identify. I am satisfied that the Plaintiffs have not dealt with them properly. The Marine Department's "refusal" has been misunderstood.

Class 12 (Original Schedule)

20. It is evident to me that Mr. Ma has not begun to carry out the requisite inquiries (see Mr. Mallard's affidavit paragraph 17 p. 54).

Class 13

21. Mr. Ma does not set out precisely what he has done to trace these documents. He refers to possession only and a belief that the log remained on board. There is no statement as to investigations, enquiries etc. in relation to 1993.

Class 14 (Original Schedule)

22. This is capable of a short statement as to the extent of the inquiries made, the source of the information and the belief arrived at by the authoritative person. It is not for Mr. Ma in view of his understanding expressed in Paragraphs 16.1 and 16.2.

Class 15

23. This class is also self-explanatory. Mr. Ma's limited understanding and experience has already been referred to.

Class 16

24. Mr. Ma's answer to this is quite inadequate. His answer suggests that he has not carried out any inquiries or investigation beyond an examination of "all documents in the possession of the 1st Plaintiff". The avenues of inquiry are obvious.

Conclusion

25. The Defendants' requests meet the criteria of Order 24 rule 7. I am satisfied that they have not been properly answered. If I had any thoughts that Mr. Ma might have been the proper person to deal with the question of discovery, such have been dispelled by my detailed consideration of his comments on the classes of documents sought and his approach to the question of discovery. Mr. Wong Hon is the proper officer to make an affidavit on all these matters. The frequent references by Mr. Ma to Mr. Wong Hon's involvement in significant areas of the Plaintiff's business makes me wonder why he did not deal with the matter at the outset. Although it is not necessary for me to deal with the possible implications of this, I do not accept that because Mr. Ma has been dealing with the Plaintiffs documentation to assist their solicitors, that makes him the appropriate person. Mr. Davidson in his affidavit does not seek to explain why Mr. Wong Hon was excluded from his consideration when, in my view, on all the references, he is the obvious candidate, and Mr. Kinnison, in Paragraph 5 of his affidavit, cannot elevate Mr. Ma into the position of a proper officer by stating that 'he believes that Mr. Ma believes' a certain state of affairs.

26. The order is that the Plaintiffs by their proper officer, Mr. Wong Hon, do within 21 days, comply with the Defendants request set out in paragraph 4 of its Notice of Directions dated 16th July 1996. The Defendants are to have their costs of this application.

27. The applications of the Plaintiff, which are in the alternative can be dealt with quite shortly. Paragraph 6 of the main summons (they are both dated 5th July 1996) seeks an order that the Defendants have one month in which to make any applications for discovery and/or interrogatories. In effect they have done so. But it is by no means certain yet that further discovery may not be justified. Furthermore interrogatories may yet be necessary. We are not far enough down the road to exclude the Defendants from such an application. Such an order may well handicap the efficient and fair trial of this action. In any event it would be pointless.

28. The alternative proposed by the Plaintiffs is an order which strikes out from the Defendants pleadings references to "pending discovery and/or interrogatories." I do not see any point in such a course. Time itself will take care of the matter. The phrase does not prejudice or embarrass the Plaintiffs. It is a common saving phrase the potential of which is exhausted by effluxion of time - after a reasonable time the Defendants will be unable to avail themselves of it. They will then be less likely to be able to persuade a court to exercise its discretion in their favour. The summons are dismissed with costs to the Defendants, but I indicate for the assistance of the Master that such costs must be minimal in relation of the overall costs of this hearing. The Defendants effectively have their costs of the whole matter paid by the Plaintiffs so the question of costs can be dealt with compositely.