ORIENTAL SHARP LTD v. HONG KONG HOUSING AUTHORITY AND ANOTHER

HCA 8794/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 8794 OF 2000

____________

____________

_______________

J U D G M E N T

_______________

1. This is an application for specific discovery.

2. Before dealing with the issues it is appropriate to provide a brief historic background.

3. In or about 1977 the Hong Kong Government announced a policy called the Home Ownership Scheme (HOS) and the following year the Private Sector Participation Scheme (PSPS). Both were designed to give those on low incomes and with modest means the opportunity to buy their own homes at a discount from the market worth when they would otherwise be unable to do so. The Housing Authority (HA) is a statutorily appointed body designated by the Government to administer its various housing policies, including the HOS and the PSPS. Under the PSPS a private developer is invited to tender for Government owned land and thereon construct tower block housing and other infrastructure on conditions of tender. The conditions provide that on completion the units are to be sold to purchasers selected by the HA. The purchasers so selected are those of the general public who have applied to participate and who satisfy the necessary criteria that will enable them to purchase at a discount fixed by the HA, a discount that will be retrieved should there be early resale. The developer contracts with the purchasers in the usual way and is entitled by virtue of these contracts to a downpayment and the purchase price on completion. But that price is fixed at so much a square metre in the conditions of tender. The HA having established the appropriate level of discount from the then market worth of the units is entitled to the difference between the developer's share and the price it decides upon. Conversely, if that price falls below the developer's fixed price entitlement, the HA must meet the difference.

4. Those who claim eligibility to PSPS housing do so under two heads; they are existing renters of public housing, squatters and the like and complete 'green form' application forms. The remainder fill out a 'white form'. Those whose applications are accepted have to pay a deposit of the designated purchase price when they sign up. White form nominees pay 10% and green form 5%. This is paid to and held by the HA, but it will, or at least a percentage of it will, go to the developer on account of the purchase price if the transaction goes through. But the nominees are, prior to completion, entitled to opt out of their commitment to buy upon forfeiture of 5% of the purchase price. In such cases thus the white form nominees lose half the deposit and the green form nominees all of the deposit paid. There is provision for waiver of forfeiture at the discretion of the HA. In the event that a purchaser cancels in this way the HA nominates his successor and a sale to and purchase by him is completed. The sale price to the developer (less any deposit already received) remains unchanged.

5. In or about mid-1995 the Government invited tenders for the construction of housing and other infrastructure under the PSPS in a residential estate in Kowloon to be known as Charming Garden. The plaintiff, a private Hong Kong developer, tendered and was successful. The developer contracted with the Government and, collaterally, with the HA, and proceeded to construct the buildings comprising the units and so on. The HA invited applicants and in the fullness of time a significant number of green form and white form nominees had been approved by the HA to proceed. They paid their deposits, held by the HA pending accounting to the plaintiff pursuant to its contract.

6. So far so good.

7. Then in December 1997 the HA announced a new policy called the Tenants Purchase Scheme (TPS). It is that and subsequent development which gave rise to the writ that the plaintiff issued against the HA as 1st defendant and the Secretary for Justice representing the Hong Kong Government as 2nd defendant.

8. Under the TPS the HA announced that, phase by phase, tenants of public rental housing units were to be offered them for sale at affordable prices. In the first instance the tenants of six designated estates were given the right to purchase. Those of them who had already committed to buy under, inter alia, the PSPS but had not completed were told they could rescind and that there would be a waiver of forfeiture on condition that they undertook to purchase their rented flats in a year.

9. In February 1998 there was another policy development. PSPS purchasers having already a right of discount from the market worth of the unit they were buying were, thereafter, given the right to choose, within given percentages, the level of discount, with appropriate amendment to the restrictions on resale.

10. In March 1998 the TPS was extended to the tenants of another eighteen public rental housing estates with the same rights to opt out of any PSPS commitment without penalty.

11. It is the plaintiff's case that the announcement and implementing of these policies by the HA had a disastrous effect on its investment in the Charming Garden project. Prospective purchasers were given leave and licence to cancel and did so in droves. Deposits which were rightfully its due by forfeiture have been wrongfully withheld. The HA in its own name and as agent for the Government has breached its contract and committed the tort of tortious interference in the plaintiff's contracts with the prospective purchasers. It has suffered loss as a consequence and seeks to recover that in damages. Both the HA and the Government deny liability; so the battle lines have been drawn.

12. There has been discovery. But the plaintiff says it has not been conclusive. It identifies thirteen more sets of documents it claims to be entitled to inspect, and now by this application pursues specific discovery of them. The HA and Government resist on various grounds of compliance, irrelevance or oppression.

13. Before dealing with the specific documents sought to be disclosed it is I believe appropriate to consider how and in what circumstance a court's discretion to order discovery should be exercised.

14. In the Hong Kong Court of Appeal case Deak & Co. (Far East) Limited v N M Rothschild & Sons Limited & Ors [1981] HKC 78, Barker JA listed the principles that should be applied in applications for specific discovery and said that the courts (in Hong Kong) adopt the test of 'relevancy' as propounded by Brett LJ in Compagnie Financiere du Pacifique v Peruvian Guano Co. [1882] 11 QBD. Miss Eu SC leading Mr Lee representing the HA conveniently summarized his ruling on the law and I adopt her summary which is as follows:

Applicable Principles

The principles relating to applications for specific discovery are as follows:-

(a) The party seeking the order has to make out a prima facie case that:-

(1) There is in existence a specific document or class of documents.

(2) The party against whom the order is sought has or had the document in his possession, custody or power.

(3) The document or class of documents relates to a matter in question in the action.

(4) Discovery is necessary either for disposing fairly of the cause or matter or for saving costs.

(b) "Relevance" means something which contains information either directly or indirectly enabling the party seeking discovery either to advance his own case or to damage that of his adversary, or which may fairly lead to a train of inquiry which may have either of those consequences.

(c) A document may be relevant either by reason of its character of being a document of a particular kind or it may be relevant by reason of its contents. If the mere fact that the document belongs to a particular kind is not sufficient to constitute relevancy, but the relevancy has to depend upon the contents, there must be a prima facie case for particular contents made, before discovery can be granted.

(d) Where a claim for discovery of a "class of documents" is made,

(1) The "class of documents" must be classified by its nature and the kind of documents referred to must be specified and identified.

(2) The "class" must not be defined or described so widely as to include documents which are not relevant.

(e) The order must not be oppressive in that it would require the person against whom the order is sought to make a search for and discover an enormous amount of documents in the hope that any relevant document may be located.

(f) The document or class of documents must be shown to be one which is clearly connected to the issues or in the ordinary way can be expected to yield information of substantial evidential materiality to the issues, otherwise discovery should be refused.

15. The plaintiff represented by Mr Griffiths SC leading Mr Graham submits that all the documents sought by this application are material to pleaded issues. He submits that both defendants rely on policy as propounded and the administration of that policy. So, documents going to those new measures or policies complained of by the plaintiff and whether or not they are justified within the HA's statutory powers are material and should be available. And he submits:

"Of obvious materiality to the Plaintiff's claim are any documents considering or discussing the effect including the financial implications of any new policies releasing purchasers under the HOS (or PSPS) from their contractual obligations or as might be expected to discourage buyers contemplating such purchases not to do so upon the property developers (including the Plaintiff) who laid out their capital to build HOS or PSPS housing developments."

16. I propose now to record the thirteen specific requests and, summarized, the grounds of objection raised by Ms Eu for the HA. I do so because these are matters in the provenance of the HA rather than the Government. The Government also raises objections; I shall deal with those following.

(i) 'A copy of the minutes of the HOC of 29.10.81, and all discussion documents thereon.'

That part of the minutes dealing with the matter at issue, namely the waiver of forfeiture of deposit in the case of two purchasers in exceptional circumstances, has been produced. The HA resists the request for so-called discussion documents (beyond a discussion paper already disclosed) on the grounds that the request is non-specific, not identified and if in existence at all, not relevant.

(ii) 'All documents (relating to or) discussing the decision to waive forfeiture of deposits under PSPS or policies relating to waiver of forfeiture.' (Mr Griffiths in the course of his submissions invited removal of the words in brackets).

The request is said to be too vague. It does not indicate whether it relates to the specific decisions of October 1981 or between 1981 and 1998 or between 1981 and the present. And it is not clear which policy is being referred to. Furthermore the request is unclear, unspecific and does not relate to a class of documents. If the intention is that there be disclosure of all documents since 1977 this would result in a massive exercise and obviously is oppressive. In any event the issue being a contractual one, the basis upon which a policy comes into being is irrelevant.

(iii) 'A copy of the minutes of the meeting of the Special Meeting of the Housing Authority dated 8 December 1997, and all discussion documents relating thereto.'

At this meeting the members of the HA were invited to consider a proposal by the HOC to introduce the TPS, before it was submitted to the Government for consideration. The proposal had already been disclosed. The minutes sought record only a general discussion by HA members. There was no discussion on green form purchasers being given a full refund of deposits already paid over under the PSPS. It is said the minutes are irrelevant and the discussion documents have already been disclosed.

(iv) 'A copy of minutes of the meeting of the HOC considering the TPS phase I dated 22 December 1997 and all discussion documents relating thereto.' This has already been disclosed as to that part said to be relevant, namely, discussion going to the waiver of penalty for rescission on HOS purchasers. Other issues discussed are said to be the recording of individual viewpoints and are not relevant. And the reference to discussion documents is too vague and non-specific; indeed it has not been established that any exist; it is the HA's position there are none.

(v) 'A copy of the minutes of the meeting of the HOC concerning adjustment to the discount rate and quota allocation of HOS flats during 12 February 1998 and all discussion documents relating thereto'.

Again relevant extracts have been disclosed. 'Quota allocation' is not a pleaded issue. And the adverse reaction to the request for discussion documents is repeated as before.

(vi) 'A copy of the minutes of the meeting of the HOC concerning the TPS forward programme dated 14 March 1998 and all discussion documents relating thereto.'

Those parts that are said to be relevant are disclosed as has a relevant discussion paper. There is noting more left to produce that is established to exist.

(vii) 'A copy of the minutes of the HA dated 14 March 1998 and all discussion documents relating thereto.' It is stated that there was no meeting of the HA that day; thus no minutes. There was of the HOC which has already been dealt with. (That is now accepted by the plaintiff.)

(viii) 'All documents discussing proposing and approving the amendments to the clause for cancellation and rescission in the Tender Notice.'

This relates to a tender concerning a different property altogether and is irrelevant. It is not clear, it is said, what the reference to amendments signifies. If the intention is to compare the conditions of sale as recorded with those in the tender documents concerning Charming Garden then the exercise is wholly irrelevant.

(ix) 'All documents emanating from the HA discussing and approving a policy whereby green form and white form purchasers could keep their status on the waiting list for public rental housing estates after rescinding their agreements with the plaintiff.'

This stems from a newspaper clipping of February 1998. The response is that it refers to a policy that does not exist. In any event it is inaccurate reporting; only green form applicants are eligible for public rental housing.

(x) 'Documents discussing and approving amendments to the terms in the nomination agreements for the phase 17B.'

The reference to this is that it is the HA's pleaded case that following the development defined as 17A (the plaintiff's is 19C) the nomination agreement provided that the nominated purchaser was to sign the agreement for sale and purchase with the developer. Before 17B there was no such requirement. The complaint is that there may have been a change in wording but no change in conditions or obligations; all along purchasers have been required to contract direct - and copies of the forms used before and after 17B have been produced.

(xi) 'All documents discussing and agreeing a policy whereby intending purchasers of units in Charming Garden and another PSPS flats irrespective of whether they were buying flats under the TPS could be allowed to withdraw or to rescind such transaction with refunds of all or part deposits paid. ' The HA says this had not been the subject of any previous request, is not referred to in the supporting affidavit and is not properly understood.

(xii) 'The minutes of the meeting of ExCo dated 16 December 1997 and discussion paper relating thereto.'

This stems from a press release of the day that the CE in council had approved the TPS. This has not been sought in the past. Its relevancy is queried.

(xiii) 'All documents relied upon as expounding or evidencing the policy and arrangement of the HA in administrating the PSPS as referred to in paras. 8 and 18 and elsewhere in the defence of the HA.'

This has not been sought before and no explanation in the supporting affidavit is given. It is said to be 'hopelessly wide, extremely oppressive and wasteful.' In any event the policy and arrangement of the HA in administering the PSPS is pleaded in detail in paragraph 7 of the defence. And it is said that all matters relied on are disclosed in memoranda and agreements that form part of the collateral agreement between the plaintiff and the HA.

17. The Hong Kong Government's position as propounded by Mr Fung is that broadly speaking insofar as the Government is implicated the arguments put forward by Ms Eu to oppose further discovery are adopted. But he goes further; insofar as the plaintiff pleads tortious interference of contractual rights this is as against the HA, so that as far as the Government is concerned documents going to that cannot be relevant.

18. And so now to the response by Mr Griffiths which I attempt to summarize below:

(i) the HA/Government's so-called policy and arrangement as pleaded, in relation to forfeiture of deposits is material. There is disclosed a file reference number in the memorandum that has been produced and this is evidence of the existence of documents in this category. These are retrievable;

(ii) this is a topic that is very likely to have been discussed in writing as it affects the contractual rights of property developers. The documents are manifestly relevant and easily retrievable;

(iii) the bare assertion of irrelevance is not accepted without inspection;

(iv) the question of what in the memorandum disclosed as the 'impact of the TPS on HOS' and the 'interference of TPS with HOS' are material. The HA has failed to demonstrate there are no discoverable documents beyond those already disclosed;

(v) discussions between members of the HOC and other officials consulting them on the impact of policies on the rights of PSPS developers reduced to writing must exist and are relevant;

(vi) the HA and Government have not satisfied the test that there are no remaining documents not discovered under this head;

(vii) the plaintiff accepts the assertion that there was no meeting;

(viii) this concerns an amendment in the conditions of tender introduced in about 1999 to give power to the Director of Housing to call upon a PSPS developer to rescind contracts 'for whatever reason'; apparently to widen the powers of the Director to compel rescission. The reason for this revised addition is regarded by the plaintiff as highly relevant. There ought to be in existence a Government file or discussion papers readily to hand;

(ix) the plaintiff is not pursuing this request at this stage;

(x) the fact that there have been introduced amendments to documents within the system of nominations, nomination agreements, payment of nomination fees, the signing of the agreement and so on goes to the heart of the litigation. Any memoranda or discussion papers leading to the change must exist and must be relevant;

(xi) the key to this request is the allegation that by conduct the plaintiff and HA are bound by a collateral contract in that the purchasers of the units would be purchasing subject to the policy and arrangement of the HA. Of relevance is the question as to what was the HA's policy in administering the PSPS concerning the waiver of deposits. Discovery, indeed extensive discovery, is sought to establish this;

(xii) this is sought because the TPS is an issue at the heart of the plaintiff's claim; the relevance is starkly obvious. Confidentiality is not raised. The press release has been disclosed. The primary document should also be;

(xiii) discovery is necessary in light of the pleading that the HA's and Government's policy and arrangements were well known to the public and in particular the private developers who participate in the PSPS. Thus the documents, albeit potentially extensive, that expound this policy are relevant to establish or refute knowledge by the plaintiff.

19. And so, now, to my ruling. The granting or otherwise of the plaintiff's application is in the exercise of my discretion. I do so having due regard to the issues as raised in the pleaded cases of the three parties to these proceedings and paying, I hope, proper heed to the competing arguments on issues of relevancy and oppression and otherwise with due regard to the principles by which I am bound as spelt out in Deak.

20. Each item specifically sought to be discovered is the subject of separate argument as I have attempted to summarize. However, in the event, I am able to deal with all together, for in the circumstances I am satisfied that each and every argument put forward by Ms Eu for the HA satisfies its entitlement not to have to disclose by discovery the documents listed in the plaintiff's application for specific discovery. By the same process the Government avoids the same obligation.

21. Accordingly I deal with the plaintiff's application by dismissing it. Costs, nisi at first instance, are to the HA with certificate for senior and junior counsel, and to the Government.