CHOW HOW YEEN MARGARET AND OTHERS v. WEX PHARMACEUTICALS INC.AND ANOTHER

HCA 537/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 537 OF 2013

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D E C I S I O N
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THE APPLICATIONS

1. There are four summonses for determination:

a. The plaintiffs’ summons dated 5 December 2014 under O.38, r.4 on the scope of expert evidence as set out in Schedule A attached thereto;

b. The plaintiffs’ summons dated 2 February 2015 for leave to amend the above summons by amending the scope set out in Schedule A by varying the paragraph number 2.d. to 2A and by adding a new paragraph 6A therein;

c. The plaintiffs’ summons dated 10 February 2015 for leave to adduce the 3^rd affidavit of Souza Richard Alvaro filed on 10 February 2015; and

d. The defendants’ summons dated 5 December 2014 for leave to adduce expert evidence under O.38, r.36 as per Schedule 1 attached thereto.

2. The parties are legally represented.[1]

3. The defendants have no dispute over the plaintiffs’ summonses.[2]  The only dispute between the parties is the defendants’ summons.[3]

THE FACTURAL BACKGROUND

4. In a previous interlocutory application, the 2^nd defendant had appeared before G. Lam J. and applied to strike out the plaintiffs’ claim.  The learned judge delivered a written Decision on 18 September 2013, the same day of the hearing. I shall gratefully adopt the learned judge’s brief outline of the facts of this matter where he said:

“2. In very broad terms, the plaintiffs’ complaint is that as a result of certain representations by the common staff or agents of the defendants, which were made fraudulently, each of the plaintiffs was induced into purchasing certain shares of the 1st defendant on several occasions between December 2002 and October 2004 and had suffered financial loss as a consequence because the shares were worth less than what the plaintiffs paid for them.”

5. The most important representations for present purposes are that Nanning Maple Leaf Pharmaceutical Company Limited (“Nanning”), the 1^st defendant’s subsidiary company incorporated in Mainland China owned the China patent, that Nanning was in a position to manufacture and supply from its factory Tetrodin in Mainland China and that the 1^st defendant owned and was therefore in a position to grant exclusive distributor rights for Tetrodin for the treatment of symptom relief associated with withdrawal from opiate addiction in other countries especially Peru.[4]

6. The representations made to the plaintiffs are said to have been false in that:

(1) in the year 2000, the Beijing Municipal No. 2 Intermediate People’s Court had held that Nanning was not the qualified applicant for the China patent;

(2) in the same year 2000, Nanning appealed to the Beijing Municipal Higher People’s Court against the first instance decision.  On 27 November 2001 the appellate court affirmed the first instance decision, holding that Nanning was not the qualified applicant for the China patent, and that instead the People’s Liberation Army Institute of Pharmaceutical Chemistry (“the PLA Institute”) and one Qiu Fanglong (“Qiu”) jointly had the right to apply for the China patent;

(3) as from the date of the first instance decision, Nanning was not in a position lawfully to manufacture or sell Tetrodin from its factory without the licence of the PLA Institute and Qiu;

(4) from 27 November 2001 at the latest, Nanning had in fact ceased manufacturing Tetrodin at its factory;

(5) pursuant to the decision of the Beijing Municipal Higher People’s Court, on 31 October 2002, the State Intellectual Property Office (“SIPO”) changed the name of the registered owner of the China patent from Nanning to the PLA Institute and Qiu; and

(6) there was no appeal lodged with either the China Patent Office or SIPO concerning the ownership of the China patent.  Neither authority entertains legal proceedings or appeals concerning the ownership of a Chinese patent.[5]

DISCUSSION

The legal principles

7. Both parties rely upon the legal principles set out in my previous Decision in Ready Set Goal Ltd v BDZ Holdings Ltd (unreported, HCA223/2013, 18 November 2014).  For the purpose of concentrating on the application of those legal principles, I shall not set out those legal principles here.  I shall, nevertheless make reference to the individual cases in the application of the relevant legal principles to the factual situations of this matter below.

8. As a footnote to the legal principles as set out in  Ready Set Goal Ltd, it will be helpful to set out some general guidelines relevant to this matter below:

a. “It must be reiterated that expert evidence is only called for in specific areas where without such assistance the court is not in a position to properly consider the evidence.  To allow opinion evidence (even if it is an opinion from an expert) to be admitted in any other cases is a misuse of expert evidence. [39] Grand Wayfair Investment Company Ltd v Chan Yung Kan & Others (unreported, CACV238/2013, Lam VP, 26 September 2014)  See Barings plc (in liquidation) and another v Coopers & Lybrand (a firm) and others Barings Futures (Singapore) Pte Lye (in liquidation) v Mattar and others [2001] All ER (D) 110 by Evans-Lombe J.: ‘However, evidence meeting that test could still be excluded if the court took the view that calling it would not be helpful to the court in resolving any issue in the case justly.  Such evidence would not be helpful where the issue to be decided was one of law or was otherwise one on which the court was able to come to a fully informed decision without hearing such evidence.’”

b. “The Civil Justice Reforms emphasize the need to identify issues at an early stage and the making of prompt decisions as to which issues need full investigation and trial (Order 1A r.4).”  See Liu Kwong Wah v Kwan Po Ping & Others (unreported, HCMP1365/2010, Yuen JA in chambers, 16 August 2010).

c. In Chok Yick Interior Design & Engineering Co. Ltd. v Lau Chi Lun t/a Chi Hung Construction Eng. Co. (unreported, HCA1480/2008, Lam J. (as he then was) 5 May 2010) had set out extensively the importance of dealing with expert evidence in a proper manner and he said: “13. Under the CJR regime, parties and their legal representatives must address the question of expert evidence after the close of pleadings when they prepare their Timetabling Questionnaire in accordance with Practice Direction 5.2…”

d. In Kam Hing Trading (HK) Ltd v The People’s Insurance Company of China (HK) Ltd & Anor HCA1062/2008 [2009] 4 HKC 531, the then Madam Registrar Au-Yeung set out the directions on expert evidence:

a) the legal principles on relevance and admissibility of expert evidence as stated in Wong Hoi Fung v American International Assurance Co. (Bermuda) Ltd [2002] 4 HKC 225 apply;

b) expert directions should be sought as early as possible, usually after the pleadings had closed at the stage of Case Management Summons;

c) the applications should comply with paragraph 20 of PD 5.2, with issues identified and preferably to be answered by yes or no [8];

d) single joint expert should be considered [9]; and

e) no affidavit should be necessary unless ordered by the Court [10].

The proposed expert evidence

9. We shall now examine the defendants’ proposed expert evidence as set out in Schedule 1 of their summons, which the plaintiffs oppose.

10. Paragraph 8(a):

“As SIPO rejected PLA’s application on 24 May 2002 as the change had not been consented to by Qiu, how was it able, on 31 October 2002 to grant the change when Qiu’s consent had still not been given?”

Paragraph 8(b):

“In particular, on what authority was SIPO apparently able to approve the same application, (dated 12 March 2002) by the stated ‘opinion’, ‘Passed the examination’ when its earlier ruling had stated the “opinion”, ‘Should be deemed to have not been filed’?”

11. These two paragraphs can be dealt with together.  The defendants submit that they are the extension of the plaintiffs’ proposed paragraph 8, to which they have no objection.  They further submit that whether they are useful/helpful depends on what the expert say but their ability to consider the questions cannot be shut out by the plaintiffs’ objection.  The plaintiffs argue that they are irrelevant to the issues of these proceedings.

12. Without going into the details of the applications, one can readily see the difficulty of the questions posed for the expert.  The questions seem to turn on the facts why SIPO changed its stance and decision from one being rejection of the application to the other of approval of the same application.  These questions have to be answered by PLA or SIPO.  The expert is clearly not in a position to give opinion on the fact leading to the change of stance of SIPO.  The expert’s evidence will not be helpful to the court; as such, they are not issues for expert evidence and should be disallowed.  Guangzhou Green – Enhan Bio-Engineering Co Ltd & Another v Green Power Health Products International Co Ltd & Others [2004] 3 HKLRD 223 by Lam J. (as he then was) at 226G-H.  The Grand Wayfair Investment Ltd and Barings plc (in liquidation) should apply. 

13. It would be helpful to remind the defendants that the issue of expert evidence should be addressed at an early stage of the proceeding, latest at the Case Management Summons stage where they have to fill in the Timetabling Questionnaire to inform the court their positions.  See Chok Yick Interior Design & Engineering Co. Ltd. case.  The court is concerned with proper directions for expert evidence in order not to cause delay and waste of expenses.  Faith Bright Development Limited v Ng Kwok Kuen [2010] 5 HKLRD 425 at 430-431.  Where a party is uncertain about the use of the expert evidence before the expert prepares his expert report, the application for leave to adduce the expert evidence is tantamount to a fishing exercise for evidence, which is not permissible in the discovery of documents.  See Paragraph 9 of Mariner International Hotels Ltd. v Atlas Ltd. & Another (unreported, HCA10714/1998, 10752/1998 & 10821/1998 Burrell J. 18 January 2002)  This fishing exercise by way of expert evidence will waste more cost and time than the exercise of discovery because the cost for experts will be high.  The court’s time will be wasted if the expert evidence is found to be not useful.  The application for leave to adduce expert evidence must be on the basis that the applicant is certain that such evidence is necessary for the expeditious, fair and economical disposal of the matter.  This is the threshold for the application, failing which, the application will be dismissed as the applicant is unable to comply with Practice Direction 5.2 paragraph 20.

14. Paragraph 9 reads:

“Under PRC law did the owner of the China Patent have the right and/or liability to restrain manufacture or sale of TTX for the use by the third parties outside the PRC?”

15. The defendants argue: “If the ‘new owner’ of the China Patent could not restrain manufacture/use of TTX outside the PRC then Shum may have considered that the Distribution Agreement remained capable of performance based on other patents for TTX still held by D1.  The relevant pleading is D1’s Defence, para 36(c).”[6]

16. Paragraph 36 (c) of the Amended Defence pleaded that the 1^st defendant had relied upon PRC counsel’s advice that “the matter only concerned China and no other jurisdiction and was specifically restricted to drug dependence treatment and that no other patents regarding other uses of TTX were thereby affected.”  This was the reason in support of the 1^st defendant’s argument that the Public Statements were neither “false” nor “untrue”.  Whether the 1^st defendant had the PRC counsel’s opinion and had relied upon it is a matter of fact, which the 1^st defendant had to adduce as factual evidence at the trial.  This is the live issue the court is concerned with.  The burden of establishing relevance is on the applicant.  See §7 of Majorette Hong Kong Ltd v Fullmore Corporation Ltd (unreported, HCA1583/2008, Registrar Lung, 23 June 2010).  This morning counsel for the defendants submits that the advice as exhibited in page 61 and page 71 respectively in bundle B1 should not be treated as expert opinion.  They are produced to prove the fact of reliance by the defendants on the advice.  Now the defendants ask for leave to call expert evidence on the law, not the fact that whether or not such legal advice, which had been given was correct under the PRC law.  This legal question is not the live issue.  Whether it is reasonable for the 1^st defendant to rely upon the counsel advice is not an issue pleaded in the pleadings.

17. Since this question is not the live issue, it should be disallowed, in accordance with Majorette case.

18. Paragraph 10 reads:

“Under PRC law were the steps taken or applications made by Nanning to challenge the Final judgment and/or the decision of SIPO to change the name of the registered owner as described in paragraphs (b)(iii), (iv) (v) and (vi) of the particulars to paragraph 36 of the 1^st defendant’s Defence lawful and/or valid?”

Paragraph 11 reads:

“Under PRC law were the decisions of SIPO and/or the Higher People’s Court of Beijing, (the ‘Court’) in respect of the above mentioned steps/applications substantive decisions made on the merits or arrived at without any such consideration on the basis only that Nanning had no right or standing to bring such matters before the respective administrative/legal authorities?”

Paragraph 12 reads:

“If the answer to question 10 above is in the affirmative does it follow, under PRC law that it was not until 15 March 2005, (when the Court rejected the request for review) that all available administrative/legal proceedings to challenge the decision of SIPO had been finally determined?”

19. Paragraphs 10 to 12 are dealt with together as proposed by the defendants in their written submissions.  The defendants submit “These focus precisely on the particulars pleaded under para 36 (b) (iii)-(vii) of D1’s Defence which, inter alia are relied on, (in para 37 of Defence) in denying the alleged fraud and/or knowledge as pleaded in para 47 ASOC.  Subject to the experts’ opinions such evidence may help to determine whether or not Shum had been deceitful.  Specifically, Ds would be able to contend that the nature and existence of such proceedings were inconsistent with the inference of deceit which Ps’ proposed questions appear designed to support.[7]”

20. These three proposed questions for the expert bear the same defects as paragraph 9 above.

21. First of all, those proposed questions were, as pleaded by the 1^st defendant in its Amended Defence at §36, in fact the advice given by the PRC lawyers to the 1^st defendant, who relied upon such legal advice to say that the Public Statements were neither false nor untrue.  Whether the advice was correct is not the live issue.  The live issue is whether the 1^st defendant had genuinely relied upon the legal advice to form the belief that the Public Statements were true.  As the 1^st defendant has pleaded that it had relied upon the legal advice, the legal advice must be in existence.  It is unnecessary to obtain any expert evidence to prove its existence.  Nor is it necessary to prove that the legal advice is correct as this issue was not pleaded in the pleadings.  In the Reply, the plaintiffs accused the 1^st defendant of non-disclosure of the information only.[8]

22. Secondly, the purpose of adducing such expert evidence is not certain as the written submission states that “subject to the experts’ opinions, such evidence may help to determine whether or not Shum has been deceitful.”  The exercise is tantamount to a fishing exercise for evidence.  This issue has been analyzed above.

23. Based upon the authorities cited above, paragraphs 10 to 12 must be dismissed.

COSTS AND ORDER

24. The defendants fail in their application.  The costs should follow the event.  The plaintiffs should have their costs, which are to be summarily assessed under O.62, r.9A RHC.  The plaintiffs have submitted their schedule of costs for assessment.  The total amount of costs for this 2-hour hearing is, as commented by the defendants, as judged from the issues above, is on the high side.  The following matters are taken into account: the plaintiffs had not obtained leave from the Court to file and serve the affidavits in support of this application in accordance with Kam Hing Trading.  The costs for those affidavits will be disallowed.  Secondly, the issues in dispute over the applications are by no means complicated.  The main thrust is the bases upon which the defendants rely in support of their defence.  The proposed expert evidence is not on the issues of dispute.  They are digressions from the main issues.  Time required for conference with clients on those issues should not require more than 10 hours.  Taking into account all the relevant factors and circumstances including the defendants’ costs, by adopting a broad-brush approach, the appropriate costs for this application, including the reserved costs and the hearing today, with counsel’s certificate should be $250,000.00.

25. The Court now makes an order in terms as follows:

a. The plaintiffs’ summonses under paragraph 1(a), (b) & (c)  are allowed, except that the time for the parties to exchange the expert reports be 42 days from the date hereof;

b. The defendants’ summons for expert evidence under paragraph 1(d) be dismissed;

c. The costs of the defendants’ summons be to the plaintiffs as per paragraph 24 supra.

d. The costs of the plaintiffs’ summons dated 5 December 2014 be in the cause.