CHARTER VIEW HOLDINGS (B.V.I.) LTD. v. CORONA INVESTMENTS LTD. AND ANOTHER

1995, No.A8190

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H E A D N O T E

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1. The Plaintiff's inability to complete a sale and purchase agreement to take-over the Defendant's majority shares in a listed company is a relevant issue to be tried in this action where the Plaintiff is seeking recovery of the deposits paid thereunder. Accordingly, documents thereof are discoverable documents.

2. The scope of such documents including negotiations with banks and financial companies which eventually failed is not too wide as those documents will prove the Plaintiff's inability. The fact that they are sensitive and confidential documents is not a ground for resisting discovery action unless they are privileged documents which is not the case of the Plaintiff.

1995, No.A8190

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

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D E C I S I O N

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1. This is the Plaintiff's appeal against the Order of the learned Mr Registrar Betts of 11th June 1997 that the Plaintiff should make specific discovery of all documents concerning the Plaintiff's ability or lack of the same to complete a transaction of sale and purchase of shares.

2. Both sides do not dispute the established principle under the case of Compagnie Financiere du Pacifique v. Peruvian Guano Co. (1882) 11 Q.B.D. which decided that : any document which, it is reasonable to suppose, "contains information which may enable the party (applying for discovery) either to advance his own case or to damage that of his adversary, if it is a document which may fairly lead him to a train of enquiry which may have either of these two consequences" must be disclosed.

Facts

3. The Plaintiff is a B.V.I. company and it had entered into a Sale and Purchase Agreement with the Defendants being the majority shareholders of a listed company in the Unified Exchange in the name of Tungtex (Holdings) Company Limited.

4. In this action, the Plaintiff alleged that the majority shareholders were in breach of some implied terms of the agreements between them, inter alia, for failing to permit the Plaintiff to inspect the share certificates within a reasonable time prior to completion.

5. The Defendants denied that there was any implied terms and pleaded that their obligation to deliver the documents including share certificates was at the time of completion should the Plaintiff have been able to complete the transaction. The Plaintiff was unable to complete the transaction.

Are those documents discoverable?

6. Mr Ronny Tong, S.C. together with his junior, Mr Rimsky Yuen, who appeared for the Plaintiff submitted that the Plaintiff's ability to complete the transaction is irrelevant since the deposits paid under those agreements would have to be returned to the Plaintiff if :-

1. the Court finds it was the Defendants who failed to complete, and the Plaintiff was not also in default; or

2. alternatively, the Court finds that it was the Plaintiff who failed to complete, and that the Defendants were in default, too.

7. Thus, it was so submitted, the key consideration is whether the Defendant was in default and those documents sought by the Defendant were irrelevant.

8. However, I agree with Miss Audrey Eu, S.C. who appeared with Mr Chua Guan-hock for the Defendants that the Plaintiff's ability to complete the transaction must be relevant in this case in order to ascertain whether the Plaintiff is entitled to the recovery of the deposits paid by the Plaintiff under those agreements. Miss Eu submitted that the surrounding circumstances must be relevant and they are as follows :-

a. the Plaintiff's inability or otherwise to complete;

b. the Plaintiff's financial position up to and after the agreed time for completion;

c. the issue of causation, in particular why the Plaintiff failed to complete the purchase;

d. whether the Defendants were entitled to forfeit the Plaintiff's deposits in the light of its failure to complete; and

e. whether the Plaintiff had suffered any loss.

9. Mr Tong clarified the Plaintiff's position by withdrawing the Plaintiff's allegations in paragraph 38 of the Re-Amended Statement of Claim which says :

"Further alternatively, by reason of the matters aforesaid, the Plaintiff has suffered loss and damages, namely, the deposits and the interest accrued thereon."

Mr Tong said that it has never been the Plaintiff's case to claim anything other than the refund of the deposits. In respect of paragraph 38 which could have given the impression that the Plaintiff was claiming damages for breach of contract, the Plaintiff would formally abandon such a claim (if it was ever made) and would undertake to amend the Re-Amended Statement of Claim accordingly by the deletion of this paragraph 38 together with paragraph (4) in the prayer for relief, i.e., a claim for damages.

10. That would only clarify paragraph (e) of Miss Eu's submissions as pointed out herein before. In this action, the Plaintiff, in order to succeed, must establish that it was not also in default. In paragraph 7(iv) of the Re-Amended Statement of Claim, the Plaintiff said,

"If the Controlling Shareholders fail to complete the Sale and Purchase Agreement in circumstances where the Plaintiff is not also in default, the deposits paid by the Plaintiff should be refunded to the Plaintiff with all interests accrued thereon......."

11. Further, in paragraph 14.3, the Plaintiff says,

"If the Controlling Shareholders fail to complete the Sales and Purchase Agreement where the Plaintiff is not also in default, then .........('the Deposits') shall be refunded to the Plaintiff with interest accrued thereon......."

12. In short, the Plaintiff's ability to complete the transaction must be a relevant issue at the trial and the documents now sought under this discovery action must be relevant documents.

13. Mr Tong further submitted that we are only concerned with the fact of ability to complete, or the fact of non-completion and not the motive or reason of such or the consequence thereof. He submitted that the reason for the failure to complete comprised of the Plaintiff's inability to complete. In other words, the inability of the Plaintiff is only the reason behind its failure to complete. He said that one should not confuse admissibility with relevance.

14. I do not think there is any confusion here. We are only concerned with the question of relevance in this appeal. The Plaintiff's ability to pay, as I have decided, is relevant. It is not the motive behind the non-completion, it is the surrounding factor which would enable the Court to decide whether the Plaintiff is or is not at fault, at the trial. That included the cause for such an inability.

15. In deference to Mr Tong's detail submission, I would also like to consider his example of a party's failure to complete because he was late. He said the reason why he was late might be because he could not get a taxi to the place of completion. Assuming, for the purpose of argument, that party's inability to secure a taxi until quite late was, for one reason or another, filmed in a video camcorder. The video recording would be a discoverable document if and only if the cause for (not only the fact of) such a delay was also relevant, for example, when there is an equitable jurisdiction to extend the time of completion on top of the agreement of the parties. If there is no equitable jurisdiction to extend the same, then the video recording is entirely irrelevant and therefore it is not a discoverable document. Hence, when the Plaintiff's inability to complete is per se relevant, then all documents revealing the same would be relevant and therefore discoverable.

Scope of the Order

16. The Plaintiff also submitted that the scope of the Order is too wide because it contained all documents relating to financial arrangements for the Plaintiff, including without limitation the requisite banker's cashier order in the sum of $249,624,181.25 to be tendered at the time of completion. Mr Tong submitted that if the negotiations did not lead to the granting of facilities, obviously, such negotiations are not relevant. Thus it submitted that the documents necessary in this discovery action should only be limited to documents relating to the granting of financial assistance or financial arrangement for the payment of the balance of the purchase price.

17. Mr Tong further submitted that those documents concerning the negotiations, which did not bear any fruit at all, are very sensitive documents and they are highly confidential and should not be disclosed to the other side. In this respect, I agree with Miss Eu for the Defendants that in a discovery action, one can only ask for a class of documents but not documents relating to their contents. Documents which revealed that the Plaintiff was unable to complete, as I have decided herein before, are relevant documents. Confidentiality, as submitted by Miss Eu, is not an excuse to resist discovery. The only legitimate refusal to disclose document is that the document, or a class of documents, is privileged.

18. All the Defendants want and can have, at this stage under the aforesaid Order of the learned Registrar, is that the Plaintiff should make discovery of those documents. If the Plaintiff considers them to be privileged (not just confidential), it can include those documents with the necessary description and dates under Part II of Schedule I of the list of documents. Similarly, if those documents are not privileged but they were only once in the possession of the Plaintiff but no longer in its possession, it can put them under Schedule II. Otherwise all of them should be properly disclosed and described in Part I of the first Schedule and they shall be subject to the Defendant's inspection. Whether those documents are privileged or not would be another matter to be decided when the same is raised. In short, we are only concerned with discovery and not whether they are privileged as no front was put forward by the Plaintiff that those documents are privileged.

19. In other words, confidentiality is not an excuse for not making discovery for those documents. After all, it is the Plaintiff's action for the refund of the deposits (if this is a relevant factor to be considered at all).

20. Accordingly, this appeal is dismissed with costs to the Respondents, with certificate for two counsel.