REMEDY ASIA LTD v. CITI DIGITAL TECHNOLOGY CO LTD AND ANOTHER

HCA 264/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 264 OF 2011

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BETWEEN

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D E C I S I O N

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1.  This is the plaintiff’s application for discovery under, presumably, Order 24 Rule 7 (instead of Order 20 Rule 3 as stated on the Summons).

I.  Background

2.  The plaintiff, a limited Hong Kong company, is the assignee of the benefit of Videotehnics Limited, a limited Russian Federation company (“Videotehnics), in a contract made between Videotehnics and the first and /or the second defendant dated 30 March 2007 (“the Contract”).

3.  Under the Contract, the 1^st defendant (the 2^nd defendant being the director of the 1^st defendant) was to procure various TV parts and equipment from China for Videotehnics.

4.  It was not in dispute that a 40% advanced payment amounting to US$685,000.00 was made by Videotehnics to the 1^st defendant.

5.  It was also not in dispute that the goods were shipped to a port in Lithuania.

6.  For whatever reasons, Videotehnics did not pay the balance of the purchase price.  The goods were freighted back to China and stored, and freight charges and warehouse costs incurred were paid by Videotehnics. The 1^st defendant did not return the advanced payment.

7.  The plaintiff’s case was that the goods could not be shipped from Lithuania to Russian Federation and were kept in transit in the Lithuania port. Thus they were not delivered and/or did not arrive, and possession and ownership not transferred pursuant to the Contract.  The plaintiff was claiming for, amongst others, return of the advanced payment as well as reimbursement of freight and warehouse charges.

8.  The defendants’ case was that the Contract was supplemented by an Addendum and Proforma Invoices which specified “FOB any China ports terms (Inconterms 2000)” “FOB any China port” or “FOB Zhuhai China” with the payment methods.  As such, the 1^st defendant was not liable to deliver the goods to Russian Federation but have discharged its obligations under the Contract to deliver the goods through a shipping agent. It was therefore entitled to forfeit the advance payment when Videotehnics failed to pay the balance.

9.  Under paragraph 9 of the Re-re-re-amended Defence of the 1^st Defendant, the 1^st defendant did not admit that Videotehnics paid freight and warehouse costs but then averred that :-

“...pursuant to the 2007 contract and/or the agreements and/or trade practice, the freight charges and the warehouse costs were costs borne by Videotehnics; and that in any event, the freight charges and warehouse costs are not recoverable under the 2007 Contract or at law.”

II.  The issues in dispute

10.  The plaintiff took out an application for discovery on 16 July 2012 for the following class of documents: -

a) All bank statements between July 2008 to date in respect of the bank account/s into which were received the advance payments, freight payment and warehouse costs.

b) All cheques or other transfer instruments by which payments/transfers were made to 3^rd parties … from the said bank accounts above-referred from the said advance payments, freight payments and warehouse costs.

c) All Minutes of Board Meetings or Shareholder Meetings authorizing payments/transfers from the said bank accounts above-referred in respect of the said advance payments, freight payments and warehouse costs.

d) All records of director’s fees, expenses, emoluments and receipts thereof during the period of July 2008 to date.

e) All records of payments/receipts of dividends paid by the 1^st defendant during the period July 2008 to date.

11.  In the 5^th Affirmation of the 2^nd defendant filed on 10 August 2012, the 2^nd defendant stated (under paragraph 8), that: -

“it is the plaintiff’s allegation that Videotehnics had incurred the freight charges and the warehouse costs… But it is not the plaintiff’s allegation that the 1^st or 2^nd defendant received the payment of the warehouse costs and the freight charges.”

12.  Mr. Haddon-Cave, counsel for the plaintiff, told the court that the plaintiff had abandoned seeking discovery for documents regarding the freight charges.

III.  The legal principles

13.  Mr Haddon-Cave explained that the plaintiff would require the bank statements because a bank must be involved in the transfer of money from Videotehnics, a Russian company, to the 1^st defendant, a Hong Kong company.  Further, the plaintiff needed to know what had become of the sum transferred in order to see, for example, if there was fraud involved. This was the reason why the plaintiff was seeking discovery of transfer instruments, Board Minutes, records of director fees, shareholder’s dividends etc..

14.  With regard to the documents concerning the advanced payments, the amount received was admitted by the 1^st defendant (see paragraph 10 of the Re-re-re-Amended Defence of the 1^st defendant) and thus not in dispute.  The relevant issue in dispute here was whether the 1^st defendant was entitled, under the Contract, the agreements and / or trade practice, to retain such payments.

15.  I agree with Mr. Gormley, Counsel for the 1^st and 2^nd defendants, who quoted the case of Wu Ching Sau v New World First Bus Services Limited [2010] HKCU 1926 :-

“the obligation to provide discovery … does not necessarily mean a matter on which issue has joined in the pleadings, but the documents must be matters to which an inference can be properly be drawn that they are subject to controversy between the parties.”

16.  The documents concerning the sum of advanced payments received were clearly not subject of controversy between the parties.  Mr Haddon-Cave admitted himself that the plaintiff would not need such documents to prove its case.

17.  As for the request for discovery of transfer instruments, Board Minutes, records of director fees, shareholder’s dividends etc, I cannot see how knowing how the money received has been ultilised by the 1^st and/or 2^nd defendant is relevant to the plaintiff’s claim.

18.  Mr Haddon-Cave also admitted that he has no evidence of any fraud etc. involved.  Therefore, seeking discovery of 1^st defendant’s company documents was simply a “fishing exercise”.

19.  As for the documents regarding the warehouse costs, similarly, the relevant issue in dispute here was whether any warehouse costs borne by Videotehnics was recoverable from the 1^st and/or 2^nd defendant under the Contract, the agreements and/or trade practice.

20.  I agree with the defendants’ position that the plaintiff never pleaded that the 1^st or 2^nd defendant received the payment of the warehouse costs from Videotehnics.  As such, any document that concerned the receipt by the 1^st or 2^nd defendants of such a payment, and any document that concerned how 1^st and 2^nd defendant subsequently ultilised such a payment, were clearly irrelevant to the plaintiff’s pleaded case.

21.  In any case, the 2^nd defendant, in paragraph 9 of his 5^th Affirmation dated 10 August 2012, has already stated that, with regard to documents listed in paragraph 10 (a), (b) and (c) above: -

“In any event, I do not know whether such documents exist and I confirm that neither the Defendants, nor the solicitors nor any other person on their behalf, has now, or ever had, in possession, custody or power (of) such documents”.

22.  As submitted by Mr Gormley, the Hong Kong Civil Procedure 2013 24/7/1 on page 558, stated that: -

“It was well established under the former O.31 in the United Kingdom, and in the days before discovery was given by lists, that statements in a party’s affidavit of documents are conclusive – for example, on the question whether he has or has had any documents other than those disclosed….or as to their relevancy…”

IV.  Conclusion

23.  As such, the plaintiff’s application was entirely misconceived and a complete waste of time and costs.  The spirit of the CJR aims to discourage such unwarranted “satellite litigation”.

24.  I will therefore dismissed the plaintiff’s application with an order nisi that the costs of and occasioned by this application be to the 1^st and 2^nd defendants with Counsel’s Certificate on an indemnity basis.

25.  If no application is made to vary the cost order nisi within 28 days of this order: -

a)  the 1^st and 2^nd defendants shall submit and serve a summary statement of costs within 7 days thereafter; and

b)  the plaintiff shall submit and serve a summary list of objections within 7 days thereafter for summary assessment of costs.