URBAN RENEWAL AUTHORITY v. AGRILA LTD AND ANOTHER

HCA1582/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1582 OF 2002

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BETWEEN

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JUDGMENT

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Introduction

1.  By summons dated 2 December 2010, the defendants apply for specific discovery against the plaintiff.  By reference to the action number, identifying proceedings commenced in 2002, this may appear to be a rather late application.  It arises in the following circumstances.

2.  On 1 May 2001, the plaintiff replaced the former Land Development Corporation (“LDC”), which was dissolved.  All rights and obligations of the LDC were assumed by the plaintiff, and although the only material contractual arrangements were made before May 2001, I shall throughout this judgment refer to the contracting party as the plaintiff.

3.  The plaintiff and the 1st defendant were parties to a joint venture for the redevelopment of the site in Central, Hong Kong.  On 15 February 1989, they entered into a Heads of Agreement (“the 1989 Agreement”).  The project involved land resumption and payment of resumption moneys, and the 1989 Agreement provided that the 1st defendant was responsible to fund “Land Cost” including resumption payments.  The plaintiff acted in the development through its subsidiary Lillington Limited (“Lillington”).  The 2nd defendant is the parent of the 1st defendant and acted as its guarantor. Lillington and the 2nd defendant are also parties to the 1989 Agreement.

4.  The 1989 Agreement contemplated the sale of units in the development upon its completion and the equal division of profits after a guaranteed payment to the plaintiff and reimbursement to the 1st defendant.

5.  On 19 July 1997, the parties to it varied the 1989 Agreement by entering into a Restructuring Agreement, under which the plaintiff was to receive the “Guaranteed Profit” of HK$1,947,460,000 subject to adjustment.  Part of the Guaranteed Profit was payable upon the signing of the Restructuring Agreement, and the balance was payable on the “Final Payment Date” defined as meaning 31 March 1999.

6.  On the same day, 19 July 1997, the parties entered into a Memorandum of Agreement setting out how the computation of Guaranteed Profit was made, with one of the components being “land costs”.

7.  By a Supplemental Agreement dated 14 October 1998, the parties varied the date for payment of the balance of the Guaranteed Profit.    The original date was deferred to a date dependent upon when the Certificate of Compliance would be issued.  If it was issued after 31 March 2000, the time of payment would be 30 September 2000; but, if it was issued on or before 31 March 2000, the time of payment would be 31 March 2000.

8.  The Certificate of Compliance was issued on 31 March 2000 on the plaintiff’s application, and a dispute ensued between the parties concerning the correctness or otherwise of the plaintiff’s having been the applicant for the certificate.  On the 1st defendant’s objection to the plaintiff’s “unilateral and premature” application, it refused to pay the balance of the Guaranteed Profit on 31 March 2000.

9.  That dispute led to a settlement agreement contained in an Agreement and Indemnity (3) (“AI3”) made on 31 May 2000.  It is the circumstances surrounding the making of AI3 which gives rise to the current application for specific discovery.

10.  Clause 1 of AI3 records that in consideration of the plaintiff agreeing to waive all interest accrued on the balance of the Guaranteed Profit, and “in full and final settlement of the obligations and liabilities of” the 1st defendant under clauses 2.02, 2.04 and 2.05 of the Restructuring Agreement, the 1st defendant undertook the completion of certain outstanding works as specified in AI3 and to reimburse the plaintiff for all costs and expenses required to complete and/or discharge such works and obligations.  The 2nd defendant irrevocably and unconditionally guaranteed the performance of the 1st defendant’s obligations under AI3.

11.  These proceedings were commenced in April 2002 by writ specially endorsed with a statement of claim.  The defence was filed in July 2002.  

12.  On those pleadings, the plaintiff claimed entitlement to the payment of HK$3,263,160.30 (being resumption payments) upon the true construction of the Restructuring Agreement entered into a memorandum of Agreement, and/or because the first defendant is in any event estopped by convention from denying that it continues to be responsible for reimbursement of all resumption payments.

13.  Whilst denying any such entitlement, the defendants also contended that AI3 constituted a full and final settlement of the 1st defendant’s payment obligations under the Restructuring Agreement.

14.  In April 2004, the defendants applied for specific discovery of documents including a category relating to the plaintiff’s application for and obtaining of the Certificate of Compliance. That application ultimately ended up in the Court of Appeal, which held the documents sought were irrelevant.  One of the factors underpinning that decision was the absence of any plea by the defendants of any material agreement antecedent to the settlement reflected in AI3.

15.  On 19 July 2010 and 25 January 2011, the defendants first amended then re-amended their defence and counterclaim to plead a collateral agreement alleged to have been made on or around 27 May 2000 and allegedly varied on 31 May 2000.

16.  In its final form, the relevant plea in paragraph 19A is as follows (using the definitions adopted in this judgment):

Further or alternatively, and/or collateral to, [AI3]:

(1) Mr Victor Li of the defendants entered into an oral agreement with Mr Lau Wah Sum on behalf of the LDC and Lillington at a meeting held at the Cheung Kong Center between them and Mr Abraham Razack on or around 27 May 2000 for the full and final settlement of the 1st defendant’s payment obligations under the Restructuring Agreement and the other relevant joint venture agreements (“the Collateral Agreement”). It is averred that at the meeting, Mr Li agreed on the defendants’ behalf to pay the outstanding balance of the Guaranteed Profit in the sum of HK $1,051,628,400 on the basis of “無拖無欠, 沒再有其他錢銀往來”. This was agreed to by Mr Lau on behalf of the LDC and Lillington.

(2) The collateral agreement was subsequently varied in telephone conversations between Ms Marina Lo and Ms Ellen Tsao on behalf of the LDC and Lillington and Mr Emmanuel Yip and/or Ms Amy Wong on behalf of the defendants in the afternoon on 31 May 2000 whereby the parties agreed that the full and final settlement of the 1st defendant’s payment obligations under the Restructuring Agreement and other relevant joint venture agreements would not apply to the 1st defendant’s potential claimant obligations under clauses 2.06 and 5 of the restructuring Agreement and under the Agreement and Indemnity dated June July 1998 (“the Amended Collateral Agreement”).

17.  The Chinese phrase has been translated literally (and certified) as: “There is no delay and owing, there are no other further money toing and froing”.  A more ‘free’ translation has been offered as: “Let’s have an agreement that ends the financial relationship once and for all and we’ve got no money owing one way or the other”.

18.  Mr Scott SC, for the defendants, says that the effect of the Collateral Agreement is to identify what was to be paid (ie. profit guaranteed and shared) and, therefore, what was not to be paid (any further land resumption costs).  Mr Yu SC, for the plaintiff, points out that there is nothing expressly pleaded about any land acquisition costs.  But Mr Scott emphasizes that it is simply a matter of inference.

19.  In its amended reply, the plaintiff has denied the allegation of the Collateral Agreement or the Amended Collateral Agreement, and has also averred the absence of authority of Mr Lau, Ms Lo and Ms Tsao to bind the plaintiff in any event.

20.  It is against the creation of those issues on the pleadings that the defendants now seek specific discovery.  They do so notwithstanding the fact, indeed in part reliance upon the fact, that supplemental lists of documents have been filed by both parties since the amendment.

Applicable Principles

21.  The principles applicable on a discovery application are well settled and need not be set out at any length by reference to authority.

22.  The effect of RHC O. 24 r. 3 includes enabling a party to apply for discovery by list, or for an affidavit verifying a list, against a party who has not fulfilled his obligations under O. 24 r. 2.

23.  Ordinarily, a list of documents verified by affidavit is conclusive, subject to two qualifications. One is that an application may be made for a further and better list of documents where it appears (a) from the list itself, or (b) from the documents referred to in it, or (c) from admissions made either in the pleadings of the party making discovery or otherwise, that the party making discovery has or has had other relevant documents in its possession, custody or power.

24.  The other qualification is that an application may be made under O. 24 r. 7 for an affidavit in regard to specific documents or classes of documents, where the facts fall within that rule.  An application under that rule must be supported by an affidavit stating that in the belief of the deponent the other party has or has had certain specific documents which relate to the matter in question.

25.  There is no jurisdiction to make an order for specific discovery unless (a) there is sufficient evidence that the documents exist which the other party has not disclosed; (b) the document or documents relate to matters in issue in the action; and (c) there is sufficient evidence that the document is or was in the possession, custody or power of the other party.  If those matters are established, the court has a discretion whether or not to order disclosure.

26.  The order must identify with precision the document or documents or categories of document which are required to be disclosed.

27.  Where documents are sought by class or category, the class or category must not be defined or described so widely as to include documents which are not relevant to the issue. The prerequisites for the existence of the jurisdiction to make an order must be established in respect of the class described as a class, not as regards only some documents in the class.

28.  It is, of course, trite that the court will only make a discovery order if to do so is necessary for disposing fairly of the cause or matter.

This application

29.  This application is made by reference to a Schedule appended to the summons, and is led by the 2nd and 3rd affirmations of Yip Kin Ming, the Chief Manager of the Legal Department of the 2nd defendant. I note that, unlike many applications for specific discovery, Mr Yip does not depose to the matters of existence, possession, and relevance in respect of each class of documents, but deals with them compendiously.  But I accept, of course, that there is reference to the exhibited correspondence where the argument is set out in perhaps a little more detail.

30.  The application can conveniently be considered by dividing the classes of discovery sought by the Schedule into two categories.  This is because the plaintiff has refused to disclose documents in classes 1, 2, 5 and 6 of the Schedule on the basis that it does not have the documents, and the documents in classes 3, 4 and 7 of the Schedule on the basis that they are irrelevant.

31.  In respect of the former, the plaintiff relies upon the affidavit of Cheng Kai Wah, the Director of the Legal Services Department of the plaintiff, who deposes to facts from his own knowledge and as have been gleaned by him from the plaintiff’s file or information supplied by its solicitors.  He states:

“I have searched through the files and records of LDC kept by the plaintiff and I confirm that all documents of LDC answering the descriptions of items 1, 2, 5 and 6 of the Schedule which are or have at any time been in the plaintiff’s possession, custody or power have already been disclosed in the plaintiff’s lists of documents filed in this action.”

32.  In the same affidavit, Mr Cheng also deposes to his belief that items 3, 4 and 7 of the Schedule do not relate to any question in issue in this action.

Class 1: All letters, faxes, recording and notes or the telephone conferences between representatives of JSM and/or LDC and Mr Emmanuel Yip and Miss Amy Wong of the 2nd defendant

33.  Mr Scott SC has criticised Mr Cheng’s affidavit as carefully crafted, but referring only to the present tense and only to LDC (and not its wholly owned subsidiary Lillington).

34.  But Mr Yu SC has confirmed (I have assumed, on instructions) that no distinction is being made there between LDC and Lillington, so that reference to searching through the files and records of LDC includes the files and records of Lillington.  Mr Yu also asked me to read the paragraph as a whole, so that whilst the first line refers to documents kept by LDC (present tense), the paragraph as a whole clearly identifies an intention to deal with the or any documents which were and are kept by LDC (past and present tenses).

35.  Mr Scott also asserts that, absent any plea of privilege, there must be an entitlement to see the documents generated by the solicitors, which documents would be in the power of the plaintiff, but there is no reference to this in Mr Cheng’s affidavit.  On the other hand, Mr Yu points to the paragraph by which Mr Cheng identifies that his affidavit is made including by reference to the documents and information provided by the solicitors.

36.  Mr Scott has also drawn my specific attention to paragraph 8C of the amended reply, which refers to Ms Lo, Mr Razack and Mr KN Chan of LDC and Lillington and Ms Tsao of JSM meeting in the afternoon of 31 May 2000 at JSM’s office, during which meeting Ms Lo and Ms Tsao had a telephone conversation with Mr Yip of the defendants to discuss the terms of AI3, and which discussion led to the finalisation and later signing and sealing of AI3.

37.  In such circumstances, Mr Scott submits that meeting notes or other documents “must have existed”.  He says it is “unthinkable” that no piece of paper was generated at that meeting by solicitors and the high level of representation of a statutory body.

38.  In this context, I have been provided with a witness statement made by Ms Tsao.  I note that it is dated 24 April 2003, which of course pre-dates by some margin the amendments pleading the Collateral Agreement and the Amended Collateral Agreement.  Nevertheless, there is no reference to specific documents created by her in the form of attendance notes or other meeting notes and so forth.

39.  In the absence of Mr Cheng’s affidavit, I think I might have been persuaded that a prime facie case for the existence or documents under this class would have been made out.  But that would have simply triggered my discretion whether or not to order an affidavit.  Here, in the circumstances that an affidavit has been provided in order to meet the application, I do not think that I should order any further affidavit as regards this class of documents sought. 

40.  I think Mr Cheng’s affidavit means that I can no longer be satisfied of the prima facie establishment of the pre-requisites as would trigger my discretion (and simply asserting that such documents “must” exist, in the face of the affidavit which swears they do not, does not in my view amount to sufficient evidence to rebut the affidavit).  Alternatively, the assertion on oath that no such documents are or were in the plaintiff’s possession, custody or power furnishes a reason why, in the exercise of my discretion (even if I have one), I would not make what seems likely to be an empty order.

41.  In passing, there is also some force in the submission made by Mr Yu that even if an attendance note had been made, there is nothing to suggest that it would make reference to something which no one suggests was ever referred to.  The only clauses of the 1989 Agreement which anyone suggests were referred to were clauses 2.02, 2.04 and 2.05, hence the intended reliance on inference from what was said in relation to the obligations to identify what was not to be paid (see above).

Class 2: All minutes, written resolutions, circulated memoranda, notes, documents and papers etc of LDC and Lillington regarding the approval of AI3, the authorisation of Mr Abraham Razack to execute it for them and the use of the seal on AI3.

42.  By parity of reasoning, I am not persuaded that there is the foundation for the exercise of a discretion to order this class. In any event, I would not in the exercise of any such discretion make an order for any further affidavit in the light of the statement in Mr Cheng’s affidavit already filed in response to this application.

Class 5: All the memoranda, notes, documents, papers, board minutes and board resolutions of LDC from 1 March 2000 to June 2000 on the role of Mr Lau in resolving the Dispute [the dispute between the parties over the payment of the guarantee Profit] resulting from or in connection with the approval of the resignation of Mr Razack as CEO of LDC in around March 2000 (which took effect in June 2000)

Class 6: All the memoranda, notes, documents, papers, board minutes and board resolutions of Lillington from 1 March 2000 to June 2000 on the role of Mr Lau in resolving the Dispute resulting from or in connection with the approval of the resignation of Mr Razack as CEO of LDC in around March 2000 (which took effect in June 2000)

43.  These two classes can be taken together as they are mirrored requests in respect of documents of each of LDC and Lillington respectively.

44.  Mr Scott says that because Mr Razack tendered his resignation in around March 2000, and it took effect in around June 2000, accordingly during the months March to June 2000 he was primarily assisting Mr Lau in resolving the dispute, where Mr Lau had the lead role in the negotiations.  As Mr Lau’s authority is in dispute, the board minutes and other documents concerning Mr Razack’s resignation and Mr Lau’s role are relevant and important.

45.  Mr Yu’s response is to point out that Mr Yip’s affirmations do not even state a belief, let alone provide any basis for stating that there are in existence documents within these classes other than those already disclosed.  I tend to agree.

46.  In any event, in light of Mr Cheng’s affidavit, either I cannot or, in the exercise my discretion, I would not order disclosure of these classes.

Class 3: All the board minutes, written resolutions, circulated memoranda, notes, documents and papers of LDC in respect of the Dispute between 1 January 2000 and 27 April 2002 (date of issue of writ in this action)

Class 4: All the board minutes, written resolutions, circulated memoranda, notes, documents and papers of Lillington in respect of the Dispute between 1 January 2000 and 27 April 2002

47.  These two classes can be dealt with together as they are mirrored requests of similar materials in respect of each of the LDC and Lillington.

48.  Mr Scott suggests that this documentation is clearly probative of the existence of the Collateral Agreement and/or the Amended Collateral Agreement.  He further suggests that it is also well-established that a court is entitled to take into account “absolutely anything” in construing a written document.

49.  But the relevant agreements are not written; it is an alleged oral agreement as allegedly orally varied.  Further, I accept Mr Yu’s submission that documents which relate to the dispute over the grant of the Certificate of Compliance or the payment of the Guaranteed Profit ( both settled) are irrelevant to the issues which fall for determination in this action.

50.  I also accept that the internal documentation of LDC or Lillington as relates to the dispute as was allegedly settled by the Collateral Agreement cannot assist in the determination of whether such had existed. I agree that the requests smack of a “fishing expedition”.

51.  To accept that the requests made in respect of these classes of documents smack of a “fishing expedition” is simply to point out that I do not think that the pre-requisites for the exercise of a discretion to order disclosure of these classes has been established.

Class 7: Communications including but not limited to letters and faxes from files with references PMD/H6 and PHD/PLA/H6 (under the charge of Mr Lyall Alexander-Webber, Mr Stephen Poon and others) and the Lands Department files for this reference DLO/HW L/M103/NHDC/82 (under the charge of Mr HW Law and Miss Xenia Au Yueng and others) exchanged between LDC and the Lands Department regarding the granting of the Certificate of Compliance

52.  I have no difficulty in concluding that this class of documents is plainly irrelevant to the issues in the action. Certainly, this exchange of communication is not relevant to the issue of whether the Collateral Agreement existed.    Nor is the exchange of communication relevant to the terms upon which the Dispute (as defined in the Schedule) came to be settled under the AI3, or the Collateral Agreement or the Amended Collateral Agreement. 

53.  Further and in any event, it seems to me that this is a class of documents which had already been refused by the Court of Appeal, and which is not properly sought again on the back of the subsequent amendments to the pleadings.

Conclusion

54.  I, therefore, conclude that the application for specific discovery falls to be dismissed.

55.  I see no reason why the costs should not follow the event, and so the application is dismissed with costs to the plaintiff in any event with certificate for counsel, to be taxed if not agreed.  (I have considered, but in the circumstances see no particular benefit in, any immediate taxation his costs.)

Setting down

56.  At the hearing of the application for specific discovery, I was asked if I would also consider making an order permitting the parties to set this case down for trial.

57.  Plainly, this is a case which could benefit from some active case management.  It is high time that this matter was brought to a conclusion at a trial.  Therefore, at the hearing, I made an order by consent permitting the parties to set the case down for trial on dates to be fixed not before November 2011, with the time estimate of 10 days.