XCHRX FILA MARKETING (HONG KONG) LTD. v. FAITHFUL PROPERTIES LTD. AND ANOTHER

1997, No. CL 66

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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JUDGMENT

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1. On 9 July 1999, the plaintiff obtained judgment against the defendants on the basis of a breach of a tenancy agreement of certain properties, and it was ordered that damages be assessed. During the course of the trial, the plaintiff discovered that the tenanted properties had been mortgaged to the Hongkong Bank on 4 March 1999 - a few days before the commencement of the trial. Mr Chang accepts that the defendants are vehicles to hold properties for the parent company. The plaintiff also received information that the defendants were alienating the properties. The plaintiff says that it was worried that the defendants were dissipating their assets to avoid the consequences of a judgment. The plaintiff's solicitors wrote to the defendants' solicitors on 8 April 1999 asking whether there had been a sale, and asking about the mortgage. That letter was not answered.

2. On 13 and 16 July 1999, the plaintiff read reports in newspapers about the defendants selling the properties, and became increasingly worried about dissipation.

3. On 23 July, 1999, the plaintiff issued a summons seeking an order for the interim payment to protect its position, the fear of dissipation being cited in support.

4. The plaintiff's solicitors wrote again on 26 July 1999 to the defendants' solicitors, mentioning these reports, and expressing concern. The mortgage was not mentioned in this letter. There was no answer, so the plaintiff's solicitors sent a reminder letter on 10 August 1999. To this letter there was a reply, the defendants' solicitors saying only that there had been no sale.

5. On 14 August 1999, the defendants filed an affirmation in opposition to the plaintiff's application for an interim payment. The main thrust of this evidence was that the court could not be satisfied that the plaintiff would recover substantial damages, but also mentioned the mortgage. It was said that the mortgage had nothing to do with the present action, but was part of a restructuring of the group's finances. The defendants' evidence is, essentially, that they have mortgaged the properties to the bank for an unlimited amount with unlimited liability for advances. It is denied that there was any the defendants were dissipating assets to render the judgment nugatory. This is said, but there is no suggestion that the defendants have any other property or assets that would avoid any judgment for damages being nugatory in the light of the bank's priority over the properties, nor is there any explanation for the apparent assuming by the defendants of a new huge potential liability.

6. The plaintiff now accepts that it cannot obtain an order for an interim payment without a trial. Mr Chang says that the plaintiff should have known this from the evidence at the trial on the issue of liability. So, Mr Fung says, that "to enable the plaintiff to determine the sensible course of action to take for the future conduct of these proceedings (including the question of whether the defendants are worth pursuing and whether further costs ought sensibly to be incurred in assessing damages", the plaintiff asked the defendants questions under Order 29, rule 14 and Order 25, rule 6(1). These questions were -

"Given the mortgage of the subject properties to the bank, what other assets do the defendants have to satisfy the order for costs of the trial . . . that the plaintiff has obtained against them and any likely future award of damages by the court against the defendants on the disposal of the hearing for assessment for damages?

What is the full extent of the liabilities assumed by the defendants vis-à-vis the bank under the terms of the said mortgage?"

7. There is no doubt that I may give directions in this situation. This is not challenged by Mr Chang. He says, however, that I should not give the directions sought by the plaintiff.

8. There is no need to recite the relevant rules in full. They say that I may give directions "as to the future conduct of the action" or "the future course of action as appear best adapted to secure the just, expeditious and economical disposal" of the action, and the parties are required to give such information and to supply such documents "as the Court may reasonably require for the purpose of enabling it properly to deal with the summons" for directions.

9. Both counsel cited Aqua-Leisure Industries Inc v Aqua Splash HCA 18928/98 (Unreported) in support of their arguments. In that case, the defendant's solicitors bowed out shortly before the trial was due to start. The plaintiff wanted the defendant to say if it was still proposing to defend the action, and, if so, details of any representation. The plaintiff wrote to the defendant saying that it proposed to ask for an order requiring the information to be given at a hearing for that purpose. The defendant did not answer the letter or appear at the hearing. Keith, J (as he then was) said -

". . . I considered whether the defendant should be required to give the information sought. I decided that it should. Effective case management required nothing else. With the trial of the action so imminent, the plaintiff's solicitors had to know the answers to their questions to enable effective preparation of the case for trial to be completed."

10. Mr Fung says that "it is necessary and expedient, in the interests of effective case management, for the defendants to be required to provide the information sought, so time and costs (including the court's time) would not be wasted in the pursuit of potentially fruitless proceedings."

11. Mr Chang responds by saying that the information sought has nothing to do with the future conduct of the action, and is confidential. He also raises the "floodgate" argument; if I order the information here, where will it stop?

12. In theAqua-Leisure case, it might have been thought that the plaintiff did not need the information sought in any sense other than to decide whether or not it should devote time, money and resources to the preparation of its case, which would be wasted if the defendant did not turn up at the trial. It cannot be said that the information was required strictly to enable it to prepare its case in any other way. The practical situation was that, if the plaintiff knew that the defendant was not coming to the party, it would be able to save a great deal of time and effort in its preparation.

13. The attitude taken by the judge in that case was, with respect, a sensible and practical one. It is one that might not have been adopted before these enlightened days of case management, but we now accept that one of the functions of the court is to take steps, as far as we are able, to reduce the very high cost of litigation, and that includes avoiding the waste of resources, including those of the court.

14. I do not myself see any great difference between the Aqua-Leisure case and the one before me. In both cases, the information does not enable the plaintiff to know what to do to meet the case of its opponent, but to know whether devoting any significant resources to its case is worth powder and shot. That purpose, in my view, is, in the new atmosphere of case management, is to be considered as part of directing "the future course of action as appear best adapted to secure the just, expeditious and economical disposal" of it.

15. As for Mr Chang's "floodgates" argument, the answer is as usual; if the situation demands it, so be it. But the fact is that, in this case, the plaintiff has a judgment; the defendants have been found liable to it in whatever sum it can establish as damages. The evidence is such that the plaintiff has good reason to be concerned about whether it is worth its while to proceed. The only assets that it, and the court, know about have been mortgaged up to the hilt. Those factors should reduce the flood to a trickle. I believe it that, in that situation, the plaintiff is entitled to assess its position as to the future course of this action, and it needs the information sought to enable it to do this.

16. On the question of the information being confidential, I think I can cope with that by ordering that the information remain confidential to the plaintiff's solicitors and counsel, with an obligation to disclose no details to the plaintiff or any other person beyond advising the plaintiff whether or not the information reveals whether or not proceeding with the action is worthwhile.

17. Accordingly, I think that it is right to order that the defendants supply the information requested on affidavit or affirmation within 14 days, with the rider as to confidentiality mentioned above. The parties are agreed that I should also direct that there be a speedy trial. I do so.

18. As to costs, this matter is not, of course, over. I think the best course is to order, at this stage, that costs be reserved. I make an order nisi accordingly.