CACV 359/2005
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF APPEAL
CIVIL APPEAL NO. 359 OF 2005
(ON APPEAL FROM HIGH COURT ACTION NO. 5439 OF 2001)
______________________
BETWEEN
LDB SALES COMPANY LIMITED Plaintiff
and
GERMAIN ELECTRONIC LIMITED
1st Defendant
CHAN YING KIT PETER
2nd Defendant
CHAN TAI LAI YUNG
3rd Defendant
LOUIE CHAN
4th Defendant
Before : Hon Cheung JA and Hon Reyes J in Court
Date of Hearing : 10 May 2006
Date of Judgment : 25 May 2006
______________________
J U D G M E N T
______________________
Hon Cheung JA :
Application to strike out
1. On 19 April 2005 Burrell J, pursuant to a summons taken out by the 1st to 4th defendants on 13 April 2005, ordered the plaintiff to serve a further and better list of documents and to provide inspections of the documents within three days thereafter. The documents specified in the order were :
‘All books and records of the Plaintiff relating to sales to and business with General Electric including but not limited to documents containing or relating to quotations, communications, agreements, orders, delivery, payment, receipt of monies, receipt of goods, banking documents, records, ledgers, books, accounts and audited accounts.’
2. By a summons dated 2 September 2005 the defendants asked for the plaintiff’s action to be dismissed on the ground that it had failed to make discovery of documents in compliance with Order 24 of the Rules of the High Court and/or the order of Burrell J made on 19 April 2005. The judge upon hearing the summons dismissed the application. The defendants now appeal against that decision.
The plaintiff’s claim
3. The plaintiff is a company engaged in the design, packaging, distribution and sale of electrical and electronic products including a small fixed electrical illumination device known as the auto-off light (‘touch light’). The touch light consists of two models namely, ‘2AA’ and ‘4AA’.
4. The present action is concerned with the 4AA touch light. The plaintiff claimed to be the copyright owner of certain drawings of the touch light. The plaintiff claimed that it had entered into agreements with General Electric Lighting (‘GE’) in the United States of America to sell to GE the touch lights. It had also entered agreement with the 1st defendant for the 1st defendant to manufacture the touch light for the plaintiff. The drawings of the touch light was supplied by the plaintiff to the 1st defendant. The plaintiff claimed that it was a term of the agreement with the 1st defendant that the 1st defendant would not offer to sell or sell the touch light to any persons. In breach of their agreement the 1st defendant offered to sell the touch light and indeed later sold the touch light to GE. As a result of the 1st defendant’s actions GE had ceased all its business with the plaintiff on touch light and other products.
5. The 2nd and 3rd defendants were the only two directors of the 1st defendant and were in control of and involved in the management of the business of the 1st defendant. The 4th defendant was an assistant manager of the 1st defendant and was involved in the management of the business of the 1st defendant.
6. The plaintiff sued all the defendants for :
(1) breach of agreement;
(2) copyright infringement;
(3) wrongful interference with its business relations with GE.
The action
7. The trial of the action took place on 13 March 2005. It was at the plaintiff’s opening that the plaintiff formulated for the first time its particulars of claim for damages for wrongful interference of contract by the defendants. Documents relating to the loss were disclosed during the opening. At the conclusion of the plaintiff’s opening the parties agreed that the case needed to be adjourned. After the adjournment the defendants took out the summons for specific discovery against the plaintiff.
8. The case was listed for hearing again for seven days commencing on 12 September 2005. During these seven days instead of dealing with the action itself the judge had to deal with various interlocutory applications taken out by the parties including defendants’ applications for subpoena, plaintiff’s applications for setting aside of the subpoena, defendants’ applications for further discovery and committal of a director of the plaintiff for contempt and the present application to dismiss the plaintiff’s claim. There was a cross application by the plaintiff to cross-examine the deponent of affirmations filed on behalf of the defendants.
O. 24 r. 16(1)
9. The application to strike out was issued pursuant to O. 24, r. 16(1) of the Rules of High Court and also under the inherent jurisdiction of the Court.
10. Under O. 24, r. 16(1) if a party fails to make discovery pursuant to the rules or an order of the court, the court may make such order as it thinks just including, among other things, an order that the action be dismissed.
The rationale of the rule
11. Although O. 24, r. 16(1) is in wide terms it has to be recognised that its purpose is to ensure compliance with the rules and orders of the court relating to discovery and not to punish a party for not having complied with them : Husband’s of Marchwood Limited v. Drummond Walker Development Limited [1975] 1 WLR 603.
The principles
12. This being the rationale of the rule, certain principles can be gathered from the authorities on the power to strike out. These are :-
1) It is most unusual to strike out an action simply on the basis that a party has not complied with discovery within the time limit imposed by the rules or a court order (see Husband’s of Marchwood Limited ).
2) In the absence of exceptional circumstances, a strike out order should only be applied for where there has been a breach of a peremptory order, namely, where a final or unless order had been made and not complied with (see Star News Shops Limited v. Stafford Refrigerator Limited [1998] 1 WLR 536 and Ka Wah Bank Ltd. v. Low Chung-song and Another [1981] 1 HKLR 451).
3) A failure to comply with a peremptory order is generally regarded as a contumelious conduct (in the sense that that was an intention to ignore or flout the order) which may justify a strike out order : see the summary of cases in Lee Shuk Yee v. Lee Suk Ping and others (Civil Appeal No. 132 of 1996) which was applied in Chan Chun Lung Allen & Another v. Ryland Limited and others (HCA 4904/1996)).
4) Even if a party has not complied with a peremptory order, it does not necessarily cause an action to be struck out (see Logicrose Limited v. Southend United Football Club Limited, The Times 5 March 1988). For example, if the default was due to extraneous circumstances : see Lee Shuk Yee .
5) On the other hand, an order to strike out may be appropriate where there has been a failure to comply with the rules relating to discovery, even in the absence of a specific order of the court, when it is shown that the failure has rendered it impossible to conduct a fair trial and would make any judgment in favour of the offender unsafe. In other words the offender’s conduct has amounted to an abuse of the process of the court which would render any further proceedings unsatisfactory and prevent the court from doing justice (see Logicrose Limited ).
6) There may also be the extremely rare situation where, even if a fair trial is still possible, by reason of the contumelious conduct of a party, such as deliberate suppression of discovery, it may justify a striking out (see Landauer Limited v. Comins and Co , The Times 7 August 1991).
13. There are two other matters that call for comment. First, Mr. Pao, counsel for the plaintiff has suggested that the principle in Landauer Limited may be in conflict with that of Logicrose Limited and should not be followed. Certainly it is difficult to envisage how a fair trial is still possible with the suppression of discovery. But, in the absence of full arguments on this topic, I am happy to accept principle (6) for the purposes of this case. Second, there is in substance no difference on the applicable principles of a striking out application based either on O. 24, r. 16(1) or the inherent jurisdiction of the court : see Lee Shuk Yee.
No peremptory order
14. This case is not concerned with the breach of a peremptory order. No such order was made. In order to justify the striking out of the action the defendants have to show that there is a real risk that a fair trial of this action is not possible or that the plaintiff is guilty of contumelious conduct by reason of suppression of discovery. Both matters are relied upon by the defendants.
Discovery of GE dealings
The Tab 9 transaction
15. The plaintiff in response to the discovery order had disclosed eight transactions (referred to in the judgment as Tabs 1 - 8) it had had with GE between 1999 and August 2001.
16. Notwithstanding this discovery, the defendants argued that the plaintiff had deliberately suppressed discovery of its business dealings with GE. The defendants had by themselves made enquiries with GE of its dealings with the plaintiff. GE supplied the defendants with a number of documents. Among the documents was a purchase order D66BL0013 dated 14 December 2001 placed by GE with the plaintiff. It suggested a sale of 53,760 2AA and 4,776 4AA touch lights to GE. The defendants also managed to obtain documents from third parties showing that goods under this purchase order were shipped in January 2002, payment being effected in February 2002.
17. The significance of this purchase order and the other documents is that they undermine the plaintiff’s case that as a result of the defendants’ conduct GE ceased all its trading activities with the plaintiff in August 2001. These documents suggest that there were still trading activities between the parties in December 2001. The plaintiff had not disclosed documents relating to this later transaction.
The plaintiff’s case
18. The plaintiff by their two directors namely, Robert Bruce Chaiko and Liu Yuen Kwan dealt with this matter in their affirmations affirmed on 14 September 2005. Documents relating to this purchase order were described as the Tab 9 transaction in the judgment.
19. The judge summarised the plaintiff’s case on this matter as follows :
‘17. The plaintiff conceded that the sale of 53,760 2AA lights had been completed in late 2001. I will deal with the explanation later. As to the 4,776 4AA lights (upon which the profit to the plaintiff would have been about US$2,000), they say that that order was never fulfilled. An analysis of the various contemporary emails and documentary attachments thereto makes it impossible for the defendants to gainsay that proposition.’
.......
23. The plaintiff acknowledges that the Tab 9 transaction is relevant to both liability and quantum in the ‘wrongful interference’ claim. The plaintiff also accepts that they were not discovered in compliance with the 19 April 2005 order.
24. On 14 September 2005, both Bruce Chaiko and Peggy Liu, his wife and co-director, filed affirmations which set out the reasons for the non-disclosure. Briefly, it is stated that the order for 53,760 2AA lights dated back to an order in May 2001 which the plaintiff had been asked to store on a “stand by” basis. During conversations in August G.E confirmed that they would take this outstanding order. However nothing more was heard until December when, as a result of further email exchanges, the order was sent. The plaintiff never regarded it as new business after 2 August 2001 and it was omitted from Tabs 1 - 8 because as at 2 August 2001 G.E. had not confirmed it and it was later overlooked when Tabs 1 - 8 were being prepared. Both deponents go into much greater detail but this is this gist of their explanation.
25. As for the 4776 4AA lights they were never sent. The emails strongly suggest this. The defendants were aware of the emails and should not have suggested (as Louie Chan did in his 4th affirmation) that the plaintiff was concealing the fact that this very consignment was also sent in about January 2002 when they knew it had not been.’
The Tab 7 transaction
20. The defendants also complained that the plaintiff had not disclosed a purchase order D66BL914K1 in the seventh transaction disclosed by the plaintiff (‘the Tab 7 transaction’). They submitted that the date of this purchase order affected the arithmetic adopted by the plaintiff when calculating the loss of profit. The judge summarised the plaintiff’s response to this allegation as follows :
‘26. This is dealt with on affirmation solely by Peggy Liu as follows. Firstly, because of a typographical error by the defendants, the PO being requested was given the wrong number. The plaintiff was therefore searching for a non-existent document. Secondly, once the error was rectified and the correct number was searched, it has always been the plaintiff’s case that it never received an original copy. Thirdly, all other documents relating to the Tab 7 order had been disclosed timeously. All the necessary information relating to the Tab 7 order could be gleaned from the documents actually disclosed. The actual PO adds nothing. Fourthly, the effect of the date of the PO on the calculation of loss of business is a matter for argument. If the plaintiff’s method is accepted by the court, the date of the PO makes little or no difference to the final sum. Sixthly, the defendants never specified this document in their requests even though they had their own copy of it. Seventhly, when, as a result of receiving the contempt proceedings originating notice, they realized precisely what was required in this regard, they unearthed a very faded, hardly legible fax copy which they then disclosed.’
The Regatta documents
21. In this appeal the defendants also relied on an allegation that the plaintiff has suppressed documents relating to a parallel action instituted by the plaintiff against a company called Regatta International Limited (‘Regatta’). Pursuant to a subpoena served on Regatta, the defendants obtained on 12 September 2005 documents relating to the action taken by the plaintiff against Regatta and other defendants which the plaintiff has sued for copyright infringement of designs of the touch light.
22. The defendants’ complaint on the Regatta documents is as follows :
‘ The Regatta documents demonstrated, inter alia , that in a pending and parallel action against Regatta, the Plaintiff was alleging, inter alia , that copyright drawings for the 4AA light were drawn by one Bruce Chaiko whereas in the present action, the Plaintiff was alleging that copyright drawings for the same 4AA touch light were made by one Ian Lucas. Moreover, even the number of drawings said to be copyright is different in the two actions. Furthermore, the Regatta documents demonstrate clearly that the plaintiff’s alleged original copyright works were copied from products of a rival in the trade. Both the Regatta action and this action are conducted by the same firm of solicitors for the Plaintiff. The Plaintiff gave no explanation for the glaring contradiction of basic facts, nor for suppression of documents showing of lack of originality in copyright.’
23. Mr. Chaiko had briefly dealt with the Regatta action in his fourth affirmation as follows :
‘ The Statement of Claim in HCA No. 1964/2001
14. This action was commenced in June 2001. At the time LDB (i.e. the plaintiff) was represented by Deacons. The failure to refer to lan Lucas in the Statement of Claim as the maker of the engineering drawings was in fact an omission by Deacons. Because of this omission, I became very dissatisfied with Deacons’ service and changed to another firm called So Keung Yip & Sin in early August 2001 and transferred to (sic. ) Regatta case to them. Subsequently instructions were also given to So Keung Yip & Sin to sue Germain. However, as they did not make any progress for over 2 months, I again caused LDB to change solicitors and moved both cases to LDB’s present solicitors.
The Re-Amendment of the Statement of Claim herein
15. It had always been LDB’s case that lan was paid by the Plaintiff to do the engineering drawings. This can be seen from paragraph 3 of my Witness statement dated 18th September 2002 which basically was drafted by me. The reason for the mix up between Ian Lucas being an employee of LDB was due to a misinterpretation of what I said to Mr. Ting of LDB’s solicitors. I am informed by Mr. Ting and verily believe that my instructions to him were that LDB had employed Ian Lucas to do the engineering drawings. He had interpreted that to mean Ian was an employee of LDB instead of what I had meant that LDB employed him just to do the drawings. If that in legal terms meant “commissioning” as opposed to “employment”, it was not a distinction that I appreciated.’
The judge’s reasons
24. The judge refused to strike out the plaintiffs’ action on the following grounds :
‘(1) In order to succeed the plaintiff’s evidence on affirmation should be regarded as unacceptable, without merit and an inadequate answer to the complaints. I find myself unable to reject that evidence on a mere reading of it. Had the defendants sought leave to cross-examine the plaintiff’s witnesses it would have been difficult to refuse the application. Their oral evidence may have damaged their case, it may have improved their case; it is impossible to say which. However, the contents of the affirmation are such that they should not be rejected without more. In short, the issues which have been canvassed in the course of the dismissal application havewounded the plaintiff’s claim but not fatally. Whether a full recovery from those wounds is made will be an issue at trial.
(2) I accept Miss Lau’s (i.e. former counsel for the plaintiff) argument that the usual situation in which an Order 24, rule 16(1) application is made is when there has been a breach of an “unless order”. This is not such a case. Plainly it does not have to be a breach of an “unless order” but the fact that it is not presents one more hurdle for the applicant to overcome. In the entire tortuous history of this matter so far, there has been only one application for an “unless order”. It was made by the defendants and was refused.
(3) Looking at the whole picture of the events since the trial opened in March 2005, I do not regard the plaintiff’s conduct as a wilful flouting of or ignoring of court orders. The problems could have arisen not so much because of a refusal to provide any documents at all but because of an insufficiency in what was disclosed due, arguably, to a misapprehension of what was required on the plaintiff’s side together with, arguably, a lack of precision in the requests on the defendants’ side.
(4) A number of authorities have been cited to me in the course of submissions. In particular, Ka Wah Bank Ltd v. Low Chung Song & another [1981] 1 HKLR 451, Image Technology (HK) Ltd & 3 others v. Ho Ying Cheong and 2 others, HCA6861/1993, Logicrose Ltd v. Southend United Football Club Ltd, The Times, 5 March 1988, Chan Chun Lung Allen v. Ryland Ltd & others, HCA4904/1996 and A v. B [19 98]HKLRD 542.’
Fair trial not possible?
25. Despite the efforts of Ms Wong, counsel for the defendants, in my view, she has not demonstrated that a fair trial is impossible in this case. Despite her submission that even now the plaintiff has not given full discovery, she has not really identified any further substantial non-discovery by the plaintiff.
26. Matters regarding the Tab 9 and Tab 7 discovery which according to Ms Wong highlighted the inadequacy of the plaintiff’s case are really matters that go to the merit of the plaintiff’s claim. The same would apply to the so-called inadequacy of the plaintiff’s claim for copyright as revealed by the Regatta documents. One would have thought that these new materials provided the necessary ammunition for the defendants to challenge the plaintiff’s case at the trial.
27. In respect of the Regatta documents, it should be noted that in the sixteenth affirmation of Ko Kit Ying filed on 10 September 2005 in support of the defendants’ application to strike out the plaintiff’s action, the complaint on copyright was merely in respect of the nature of ‘employment’ of Ian Lucas which Mr. Chaiko had dealt with in paragraph 15 of his affirmation. As the defendants had not set out their other complaints about the Regatta documents in their affirmation, the plaintiff cannot be criticised for failing to respond in detail to the complaints now advanced by the defendant. By the time the defendants obtained the Regatta documents it had already issued the summons of 2 September 2005 to strike out the plaintiff’s action which was heard on 12 September 2005.
Burden of proof
28. Ms Wong has argued that the plaintiff carried the burden of showing that a fair trial remained possible and that the plaintiff was not guilty of contumelious conduct. In my view much confusion has been caused by the fact that this is not a striking out based on breach of a peremptory order. Where there is such an order the defaulter carries the burden of showing that the compliance is not contumelious in that there was no intention to ignore or flout the order and that the failure to comply was due to extraneous circumstances (see judgment of this Court (Nazareth VP, Liu and Mayo JJA) in Lee Shuk Yee ). As the present case is not concerned with a peremptory order, the burden of showing that there is a real risk of a fair trial not being possible or that the plaintiff has been guilty of contumelious conduct must fall on the party making the assertion, namely, the defendants. That burden has not been discharged.
29. The discussion of contumelious conduct is usually relevant in the context of a breach of a peremptory order. It is not relevant to adopt the same approach in respect of a breach of a non-peremptory order. But even if the same approach is to be adopted, the evidence does not show that the plaintiff was guilty of contumelious conduct.
30. In considering whether there has been contumelious conduct, the overall history of the action will be considered : Lee Shuk Yee and Chan Chun Lung Allen and Another . Ms Wong also invited us to consider the overall conduct of this case including the obstructive behaviour of the plaintiff to discovery. She relied on, among other things, the fact that the defendants had applied to Court to subpoena the attendance of third parties to produce these documents and that application was resisted by the plaintiff who issued summons to set aside the subpoena. The defendants had also instituted contempt proceedings (which proved unsuccessful) against the plaintiff for not complying with the discovery order. Even by then (Ms. Wong complains) the plaintiff had still not dealt with the Tab 9 transaction. In my view, these matters do not establish Ms. Wong’s case of contumelious conduct.
Suppression of discovery?
31. I am further of the view that it has not been shown in this case that the plaintiff has been deliberately suppressing discovery. The defendants have chosen not to cross-examine the directors of the plaintiff on their affirmations. This means that one cannot go behind what has been said on affirmation unless it can be shown by other evidence that the explanation given for the lack of disclosure is inherently improbable or patently false.
32. Deliberate suppression of documents is a very serious charge. Before one can come to such a conclusion, particularly in the absence of cross-examination of deponents of affirmations, there must be strong indication that there had in fact been suppression rather than inadvertent non-disclosure. The order requiring the plaintiff to disclose documents relating to the GE transaction was drafted in wide terms. It did not specify any specific document. I agree with the judge that this may partly account for the insufficiency of discovery by the plaintiff.
33. It is clear that the defendants themselves had possession of the contentious purchase order since at least 12 April 2005. However, the evidence reveals that this purchase order was only provided by the defendants’ solicitors to the plaintiff’s solicitors in court on the morning of 13 September 2005. Had the defendants specifically asked the plaintiff to disclose documents which they already had in their possession and which they claimed the plaintiff deliberately suppressed, there might have been a different response from the plaintiff. These documents were clearly discoverable on the part of the defendants. Ms Wong disavowed any intention on the part of the defendants to suppress the documents for the purpose of entrapping the plaintiff. That may be so, but had these documents been revealed by the defendants earlier, I have no doubt that the delays and arguments on this issue could have been avoided.
34. InRe H. and others (minors) [1996] AC 563 at 586 Lord Nicholls of Birkenhead stated this :
‘ The balance of probability standard means that a court is satisfied an event occurred if the court considers that, on the evidence, the occurrence of the event was more likely than not. When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability. Fraud is usually less likely than negligence. Deliberate physical injury is usually less likely than accidental physical injury. A stepfather is usually less likely to have repeatedly raped and had non-consensual oral sex with his under age stepdaughter than on some occasion to have lost his temper and slapped her. Built into the preponderance of probability standard is a generous degree of flexibility in respect of the seriousness of the allegation.’
I would respectfully adopt this approach in assessing the evidence and find that suppression of discovery has not been established.
Conclusion
35. In the present case, I do not see how the judge can be faulted in refusing to strike out the plaintiff’s action. He has not misunderstood any relevant principles. He exercised his discretion properly. Accordingly I would dismiss the appeal with costs to the plaintiff.
Hon Reyes J :
36. I agree.
(P eter Cheung)(A. T. Reyes) Judge of Court of First Instance
Mr. Jin Pao, instructed by Messrs Siao, Wen and Leung, for the Plaintiff
Ms Priscilla Wong and Mr. Anthony L. M. Wu, instructed by Messrs Zeke Mok & Co., for the Defendants