TECHNALLOY CHEMICAL CORPORATION v. INTERNATIONAL MERONA LTD.

IN THE COURT OF APPEAL

1992, No.107
(Civil)

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J U D G M E N T

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Nazareth, J.A.:

1. This is an appeal by the plaintiff against the order of Mayo J. made on 9th June 1992, refusing it leave to adduce certain documents in evidence at the trial of the action.

2. The plaintiff is an United States company carrying on business in the U.S.A. in chemical products among other things. The defendant is a Hong Kong company carrying on business as an exporter, inter alia, of chemical products to the U.S.A. The plaintiff's action relates to 4 lots of titanium dioxide ("TiO2") which were exported to the plaintiff by the defendant in pursuance of agreements to sell and purchase. The TiO2 it is said was intended to be used for the enamelling of iron ware. For that purpose TiO2 of what is known as the anatase form is apparently suitable. TiO2 with certain or relatively higher proportions of rutile is claimed to be unsuitable or less suitable. What appears to be primarily in issue is whether the TiO2 supplied was required to have not more than a certain proportion of rutile, and whether it did have more than that proportion.

3. The plaintiff's statement of claim and amended statement of claim were dated August 1990 and June 1992, and the defendant's defence, the 23rd October 1990. On 22nd May 1992, the plaintiff served notice of desire to give in evidence a large number of hearsay documents. The defendant served counter-notices. On the 9th June 1992, when the trial was due to commence before Mayo J. he was confronted with an interlocutory application by the plaintiff for leave to adduce the documents in respect of which notice had been served. He granted leave in respect of a large number of documents but refused leave in respect of the documents that are now the subject of this appeal. Upon application by counsel for the plaintiff, he then adjourned the proceedings to the next day and then adjourned them generally to a date to be fixed, giving the defendant the costs of the adjournment.

4. Notice of appeal was filed by the plaintiff on 27th June 1992 and a supplementary notice of appeal on 26th May 1993, seeking the setting aside of the order of Mayo J refusing leave to adduce the documents concerned, and the replacement of that order by an order giving leave.

5. In the light of the helpful submissions of Mr Clifford Smith on behalf of the plaintiff, who did not appear below, and those of Mr John Scott who also appeared for the defendant below, I find it appropriate to go directly to the first point taken by Mr Scott, since it was presented as disposing of the entire appeal. It relates to the absence of any affidavit or explanation for the delay of almost a year by the plaintiff in serving its notice of desire to adduce the documentary hearsay evidence. That application, it was submitted by Mr Scott without dissent from Mr Clifford Smith, must have been made under O.38, r.29(1)(a) of the Rules of the Supreme Court:

" (1) Without prejudice to sections 47(2)(a) and 49(2)(a) of the Ordinance and rule 28, the Court may, if it thinks it just to do so, allow a statement falling within section 47(1), 49(1) or 50(1) of the Ordinance to be given in evidence at the trial or hearing of a cause or matter notwithstanding-

(a) that the statement is one in relation to which rule 21(1) applies and that the party desiring to give the statement in evidence has failed to comply with that rule; or

(b) ....."

6. Rule 21(1) in the present context requires notice of desire to give evidence to be served within 21 days after the cause or matter is set down. It is not in dispute that this was not done and that therefore the plaintiff was seeking the exercise of the court's discretion in its favour.

7. Mr Scott submits that it is a fundamental principle of the court's discretionary jurisdiction that, before a party will be relieved from the consequences of a procedural default or oversight and an indulgence is granted, that party must make full and frank disclosure of the facts underlying the failure. Otherwise, he submits, the court will not be in a position to consider the bona fides of the application. He relies upon Ford v Lewis [1971] 1 WLR 623, referred to in paragraph 38/21/1 at p.671 of Volume 1 of the Supreme Court Practice 1993, in particular the following words of Edmund Davies L.J. at p.633A:

"Rule 29(1) empowers the court to admit such a statement as is here in question, notwithstanding failure to comply with the preceding rules, 'if it thinks just to do so.' In order that the court may adjudicate upon the justice of relaxing the rules in favour of a defaulting party, it must surely be placed in possession of all the relevant facts."

He submits therefore that without such explanation or evidence of the circumstances, the court could not exercise its discretion, and that therefore in any event it should properly have refused the application.

8. I do not find it necessary to set out all the relevant passages in the judgments of Edmund Davies and Karminski L.JJ. who delivered the majority judgments. However, it seems clear to me that on a proper reading of their entire judgments, supported by the view taken by Harman J. in Rover International v Cannon Films [1987]1 WLR 1597, 1600C, that they did not go so far and in allowing the appeal relied upon the fact that there was a deliberate breach of r.22 in the failure to give notice of the kind required, that this was a vital fact in the exercise of discretion which was not brought to the attention of the judge below and that its absence vitiated the exercise of his discretion. I am accordingly not persuaded that a court cannot exercise its discretion in favour of a defaulting party in the absence of an explanation because the result of that would be that it would not be in possession of all the facts. Mr Scott's submission made upon that basis therefore fails and in my view is not assisted by any doubts that might, for the sake of argument, be supposed to have risen about the bona fides of the plaintiff because its stance was taken so late, or by any suspicions arising out of one of the witness statements having been amended or not having originally been signed.

9. I turn then to the appeal, which is concerned with two categories of documents, first correspondence and sampling, test and analyses certificates pertaining to the TiO2 supplied, and second the statements of 4 witnesses. The judge dealt with these in the following way:

" The rules governing the admission of Hearsay Evidence are contained in Part III of Order 38, Rules of the Supreme Court.

What is clear is that the evidence must be admissible in accordance with s.47 of the Evidence Ordinance Ch.8. What is also clear is that the rule does not extend to expert evidence. The provisions relating to this are contained in Part IV of Order 38. It is not surprising that this should be so as otherwise the whole rationale of the provisions relating to expert evidence could readily be circumvented.

Mr Scott contended that the evidence in the Notices referred to on p.109 of Bundle D was in fact expert evidence. Mr Aiken [counsel for the plaintiff] argued to the contrary that this was not so. He submitted that all that they amounted to was reports made by technicians. Their expert, Mr Cotton, would give evidence relating to the reports in due course. I was taken through the evidence in some detail and I have no doubt that Mr Scott was right in his contention. Overwhelmingly the evidence bears the characteristics of expert evidence and should not be admitted by way of Hearsay Notices. In coming to this conclusion, I found it helpful to consider the analysis undertaken by Lawton L.J. on p.74 of R. v. Turner (1975)1 All ER 70 of Lord Mansfield's test as to what constitutes expert evidence.

There were also other problems relating to this evidence. The main one being the fact that the source of the samples referred to and the standard of the tests conducted were ill defined and the evidence was most unsatisfactory in the form presented. I am not prepared to admit this evidence."

10. The judge then proceeded to the second category:

" I will now consider the 4 witness statements.

Speaking in general terms, the main objection made by Mr Scott to these statements was the failure to comply with s.47 of the Evidence Ordinance, Ch.8.

The main complaint made was that large parts of the statements contained hearsay evidence. It is not an altogether simple matter to separate what is hearsay and what is not. I agree with Mr Aiken that the most helpful formulation on this topic is the passage cited on p.563 of the 14th Ed. of Phipson on Evidence:

'Evidence of a statement made to a witness by a person who is not himself called as a witness may or may not be hearsay. It is hearsay and inadmissible when the object of the evidence is to establish the truth of what is contained in the statement. It is not hearsay and is admissible when it is proposed to establish by the evidence, not the truth of the statement, but the fact that it was made.'

However, in adopting this test it seems clear to me that significant parts of these statements fall foul of the rule.

It is desirable to consider each of the said statements individually."

The judge then proceeded to address the evidence of each of the 4 witnesses. He excluded that of Madam Brock on the ground that on reading her statement as a whole it purported to establish the truth of certain evidence and therefore fell foul of the hearsay rule; that considerable prejudice would be occasioned if this statement was adduced, and that the defendant would have no opportunity of challenging it by cross-examination.

11. He excluded the statement of the 2nd witness, Mr Stein, who negotiated the contracts on behalf of the plaintiff, for reasons similar to those given by Harman J. at p.991 of Rover International (1987)3 All ER 986 (at pp.1604, 1605 of [1987]1 WLR 1597) i.e. primarily because the statements were taken very late and they required the judge's discretion to be exercised in the plaintiff's favour, and in his view that discretion should not be exercised in favour of letting in statements so late from persons so central to the issue and so actively interested in the matter. Mayo J was, in addition, satisfied that significant parts of the statement offended the hearsay rule.

12. He excluded the statement of the 3rd witness Mr Parrish because "the most important parts of it contained hearsay evidence" and the evidence is of very considerable importance and unless excluded the defendant would suffer great prejudice.

13. Finally, he excluded the statement of the 4th witness, Mr Paul Lee, the manager of manufacturing of the plaintiff's sub-sub-purchaser, because "much of his evidence is hearsay", but mainly because his evidence constituted expert evidence and he appeared to the judge to assume the mantle of being an expert.

14. In respect of both categories of evidence, Mr Clifford Smith first pursued ground 7 of the plaintiff's grounds of appeal:

"The principle which the learned judge ought to have applied in deciding whether to allow the service of the hearsay notices out of time is the extent, if at all, to which the defendant was prejudiced by the lateness of the application. Instead the learned judge approached the question of prejudice in terms of the admissibility of the evidence contained within the statements themselves, and thus the entire exercise of his discretion was vitiated by the said error in principle."

15. Mr Clifford Smith referred to the dictum of another division of this court in Cluett HK Ltd v Hercules Knitters Ltd (1986) HKLR 1112 at 1116C:

"... Once the applicant states one of the reasons set out in O.38, r.25, the only attack that can be launched is upon the correctness of that reason. If the reason is not challenged, there is no discretion in the court to refuse to admit the evidence. The reason in the present case, absence beyond the seas, was not challenged and the admission by the trial judge of the statements cannot, therefore, be called into question on the grounds advanced on behalf of the defendant below and in this court."

That is the position in this case, as it is not in dispute that all the statements which the plaintiff sought to put in were made by persons beyond the seas. The question therefore, as submitted by Mr Smith, was for the judge to decide whether in his discretion he should allow the plaintiff to rely upon those statements notwithstanding that the requisite hearsay notices had not been served within the prescribed time.

16. In my view it follows from the foregoing dictum in Cluett that a judge ought not in such circumstances to have any regard to the weight of the evidence contained in such statements, nor, as a general rule at least, to whether any part of the evidence might be held to be inadmissible as hearsay or on any other ground. The weight of such evidence is clearly a matter to be determined by the trial judge (The "Ymnos" [1981] 1 Lloyds Rep.550; 551; Rover International at p.1603F), and so too in my view is the admissibility of parts of such evidence save in exceptional or the clearest of cases.

17. Ground 6 was in the following terms:

(6) In refusing leave to rely upon the statement of Mr Irwin Stein, the learned judge failed to take into account the fact that Mr Stein had left the employ of the Plaintiff in March 1992. The learned judge therefore erred in principle in treating Mr Stein as though he were an 'actual plaintiff' in the sense referred to by Harman J in Rover v. Cannon Film Sales (1957)1 WLR 1597."

18. It is common ground that Mr Stein is no longer in the employment of the plaintiff. Moreover, from the second affidavit of Mr Wolfgang Otto Roehr, the managing director of the defendant, on receipt of the notice of intention to adduce Mr Stein's statement, he telephoned Mr Stein to tell him about it. He says Mr Stein was surprised and stated that he had no idea about any statement and had not given, revealed, approved or signed any statement. Although he may have signed the statements subsequently, on the foregoing it seems to me that it was a misdirection of fact for the judge to have treated Mr Stein as though he were an "actual plaintiff" in the sense referred to by Harman J in Rover International so as to rely upon that judgment for the purpose of excluding the statement.

19. I turn now to the grounds of appeal pertaining only to the second category of documents. The first ground is that the judge erred in fact and/or in law in holding that the contents of those documents amounted to expert evidence and were not admissible as hearsay evidence under s.47 of the Evidence Ordinance, Cap.8 and O.38 of the Rules of the Supreme Court.

20. As he indicated in the first passage from his judgment quoted above, in concluding that overwhelmingly the evidence bears the characteristics of expert evidence, he relied upon the analysis by Lawton L.J. at p.74 of R. v. Turner [1975]1 All ER 70 of Lord Mansfield's test as to what constitutes expert evidence. The adoption of that analysis has not been questioned before us, but it is part of the plaintiff's first and third grounds of appeal that the contents of the documents and part of the statement of one of the witnesses, Mr Lee, which the judge appears to have regarded as expert evidence, did not amount to such evidence. Both counsel have taken us through the documents in some detail, I suspect in considerably more detail than the time the matter was before the judge, could have allowed below. The bulk of the documents concern test, sampling and analysis reports which plainly are not expert evidence in the sense suggested in Turner. While minor parts of the contents of those documents might amount to expert evidence, that in my judgment would not warrant the exclusion of the remainder. The same applies to Mr Lee's statement; moreover, that part of his statement in which he testifies to certain matters from his own knowledge is not expert evidence and in the same way should not be excluded.

21. Finally, I turn to the plaintiff's second ground of appeal i.e. that the judge erred in fact and/or in law in holding that the statements of the 4 witnesses, Messrs Brock, Stein, Parrish and Lee, are inadmissible in their present form. As I have said, we were taken through these statements by counsel in what must have been substantially greater detail than time would have allowed before the judge. It must be acknowledged that Mr Scott's contention, that the statements were carefully drafted in the passive voice so as to gloss over the questions of whether the particular witness was speaking from personal knowledge or not, is not entirely without justification. Nevertheless it seems to me plain that much of Mrs Brock's evidence must be founded upon her personal knowledge; moreover she does say in the first paragraph of that statement that she has direct personal knowledge of the matters referred to in the statement.

22. So far as Mr Stein is concerned, while there may be significant parts of his statement that offend the hearsay rule, there are other parts that do not. Likewise in the case of Mr Parrish and Mr Lee. That significant parts of their statements are couched in the passive voice, which as I have indicated, makes it difficult to determine whether the particular evidence is founded upon personal knowledge, does not I repeat, in my view warrant exclusion of the entire statements.

23. In the result, I am satisfied that the foregoing misdirections in the exercise of his discretion, coupled with the foregoing misdirections on fact which the judge took into consideration, in my view vitiate the exercise of his discretion. It accordingly becomes necessary for this Court to discharge the exercise of that discretion it not having been suggested to us that the matter be remitted to the court below, nor that being in my view appropriate in the circumstances.

24. There is still no explanation of the plaintiff's delay. But as I have said, this of itself does not preclude the exercise of discretion. On the other hand there is considerable material before this Court as to the justice of the situation, and as to other relevant aspects of the entire matter, and these have been canvassed at length by counsel. Mr Scott submits that the prejudice to the defendant was manifest to the judge. The plaintiff putting in all its testing evidence and results by hearsay evidence and so late would deny the defendant a fair opportunity to check that evidence and to refute it. But in exercising its discretion this court is now entitled, indeed bound to address the changed situation before it. Given the adjournment and that no date has yet been fixed for the adjourned hearing, I am unable to accept that the defendant is now prejudiced in the way originally suggested. Moreover I accept the view of Harman J. taken in just such a situation as this involving the expiry of the 21 day period under O.38, r.21 and expressed at p.1600B of Rover International that:

"In the normal way the period of 21 days from setting down is a period far more usually broken than observed because, in the usual way, the period between setting down and trial is some months at the least ..... In my view, as a general proposition, the court should not exclude evidence unless it is satisfied that real prejudice has been caused or unless it is clear that a deliberate attempt has been made to take the other side by surprise, a practice which it is the exact purpose of the rules to prevent."

It is by no means clear that there has been such an attempt. Finally the trial judge would be better placed to deal with the admissibility of specific parts of the evidence and of the weight to be attached to such. As stated by Power J. (as he then was) in Cluett immediately after the passage already quoted:

"When so holding, we make it plain that we are giving no indication either as to the admissibility of individual parts of the statements or as to whether the credentials of the experts have been properly established. These will be matters for the trial judge to decide, in accordance with the relevant provisions of the Evidence Ordinance and Rules of the Supreme Court."

Having regard to all the material before me and to the foregoing considerations, I am satisfied that my discretion should be similarity exercised and I would allow the appeal, set aside the judge's order to the extent sought, and grant leave to the plaintiff to adduce the documents in question, making it plain in turn that no indication is being given as to the admissibility of specific parts of that evidence or the weight to be attached to such parts. As to costs I would make an order nisi giving the plaintiff its costs of the appeal

Kempster, V.-P.:

25. I agree with the order proposed by Nazareth J.A. and with his reasons.

Penlington, J.A.:

26. I also agree.