HO YAN DEVELOPMENT CO v. FASHION ACCESSORIES INTERNATIONAL LTD

HCA 1373/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1373 OF 2011

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AND

HCA 1374/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1374 OF 2011

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BETWEEN

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DECISION

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Summary Assessment of Costs for Previous Applications

1.  By my Decision delivered on 11 December 2012, I had granted leave to the defendants to amend the Defence and Counterclaim in respect of each of the actions respectively, leaving the issue of the costs to be summarily assessed.  The defendants have now submitted the schedule of costs for the sum of $43,000.00 for each of the actions. The plaintiffs have lodged the list of objections.  Taking a broad-brush approach following the approach in DBS (HK) Limited v Sit Pan Jit HCA 382/2009 delivered on 27 December 2012, I assessed the costs to be $30,000.00 for each of the actions respectively, totally $60,000.00, which is to be set off other costs payable to the plaintiffs and the balance, if any, shall be paid within 14 days from the date of this Decision.

The Application for Specific Discovery

2.  In the same Decision, I had also disposed of the plaintiffs’ application for striking out of the Counterclaim, leaving the plaintiffs’ application for specific discovery of documents from the common defendant, namely Fashion Accessories International Limited, viz.:

a.  The defendant’s audited financial reports covering the entire tenancy period of the premises i.e. between 1 August 2005 and expiring on the 31 July 2011; and

b.  All relevant account books, account ledgers and business records of the defendant regarding the payment of the (1) government rates and rent and (2) wavier fees for the premises.

3.  The plaintiffs of the respective actions now decide only to pursue (a), i.e. the defendant’s audited financial reports between 1 August 2005 and expiring on the 31 July 2011.  The plaintiffs will not seek discovery of the account books, ledgers or the business records of the defendant.[1]

4.  Pursuant to my directions in the Decision, Mr. K. Poon, Counsel for the plaintiffs lodged the skeleton submissions on 13 December 2012, and Miss L. Lau, Counsel for the defendants lodged her skeleton submissions in response on 19 December 2012.  Mr. Poon lodged his skeleton submissions in reply on 27 December 2012.

5.  Having considered Counsel’s submissions, I consider that the application can be disposed of on the papers submitted and I now do so.

The Legal Principles

6.  The plaintiffs’ application is made under Order 24 rule 7 of the Rules of the High Court:

Order for discovery of particular documents (O. 24,  r. 7)

(1)   Subject to rule 8, the Court may at any time, on the application of any party to a cause or matter, make an order requiring any other party to make an affidavit stating whether any document specified or described in the application or any class of document so specified or described is, or has at any time been, in his possession, custody or power, and if not then in his possession, custody or power when he parted with it and what has become of it.  (L. N.  157 of 2003 and L.N. 199 of 2003)

(2)   An order may be made against a party under this rule notwithstanding that he may already have made or been required to make a list of documents or affidavit under rule 2 or rule 3.

(3)   An application for an order under this rule must be supported by an affidavit stating the belief of the deponent that the party from whom discovery is sought under this rule has, or at some time had, in his possession, custody or power the document, or class of document, specified or described in the application and that it relates to one or more of the matters in question in the cause or matter.

Discovery to be ordered only if necessary (O. 24, r. 8)

(1)  On the hearing of an application for an order under rule 3 or 7 the Court, if satisfied that discovery is not necessary, or not necessary at that stage of the cause or matter, may dismiss or, as the case may be, adjourn the application and shall in any case refuse to make such an order if and so far as it is of opinion that discovery is not necessary either for disposing fairly of the cause or matter or for saving costs.  (L.N. 152 of 2008)

(2)   No order for the disclosure of documents shall be made under section 41 or 42 of the Ordinance, unless the Court is of opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs. (L.N. 152 of 2008)

7.  By Recommendation 80, the Working Party recommended adoption of proposal 29 as the starting point for case management[2]:

Proposal 29

The court should be expected to exercise its case management powers with a view to tailoring an appropriate discovery regime for the case at hand.  It should have a residual discretion both to direct what discovery is required – to narrow or widen the scope of discovery required, to include, if necessary and proportionate, full Peruvian Guano style discovery – and in what way discovery is to be given.

8.  The legal principles on Order 24 r. 7 are trite as I had set out in The Incorporated Owners of Kodak House II and No. 321 Java Road v. Kai Shing Management Services Limited HCA 711/2011 delivered on 9 October 2012.  It is the discretion of the court upon the plaintiffs having satisfied the court that the documents are existing; that they are relevant to the issues in dispute; that they are in the possession, custody or power of the defendant and that the disclosure of the documents is for the purpose of a fair trial and saving costs.

Discussion

9.  There is no dispute that the defendant has the documents, which are within the defendant’s possession or power.  The questions in dispute are whether the documents are relevant to the issues in dispute and; even if so, whether they will serve the purpose of a fair trial and saving costs.

10.  According to Mr. Poon, those documents are for the purpose of assisting the court to determine the factual dispute between the plaintiffs and the defendant.  In Mr. Poon’s skeleton, he said:

“8. It is the defendant’s case that the waiver fees were paid on behalf of the plaintiffs pursuant to the oral agreement, under which the plaintiffs promised to reimburse the defendants the waiver fees paid, or in the event of the defendant exercising option to purchase the property, be treated as part of the payment. The existence of such oral agreement is in dispute. The plaintiff’s case is that the defendant orally agreed with the plaintiffs that it would be responsible for paying the waiver fees. Therefore, parties are putting forward two different versions of oral agreements for the Court to decide which one actually existed.

9.   It is submitted that anything which may shed light on the probability of one version of oral agreements prevailing another will be relevant evidence in assisting the Court resolving the dispute.  The defendant’s audited financial reports, which contain details of the defendant’s expenses and debts, is relevant because they can show how the defendant understood the nature of its payment of the waiver fees to be, and in turn, its proper understanding as the [sic] what oral agreements had been reached.  If such payments were treated as its expenses, it tends to suggest that the defendant acknowledged its liability to pay and that is (in) accordance with the plaintiff’s version.  On the other hand, if the payments were treated as debts owed by the plaintiffs, it tends to support the defendant’s version. ”

11.  On this issue of waiver fees, Miss Lau in her skeleton submissions said:

“7. It is the defendant’s case as it now stands is that ‘the defendant was given the option to purchase B4. If the defendant so chose, the waiver fees the defendant paid on behalf of the plaintiffs would be set off against the purchase price of B4. Should the defendant decided not to purchase B4, then the defendant could demand the plaintiff to repay the defendant the waiver expenses of B3 and B4 paid by the defendant on behalf of the plaintiff.

8. It is the plaintiff’s case that although they are under the liability to pay the Government the waiver fees, and that we have paid the waiver fees, they dispute the existence of the agreement, i. e. the defendant may exercise the option to purchase; should the defendant decided to buy B4, the waiver fees can be set off against the purchase price; should the defendant decided not to purchase B4, the defendant could demand repayment of the waiver fees.

9. As a matter of good accounting practice, or common sense, without making any admission concerning the accounting treatment of the waiver fees, it must be treated as expenses. Should we exercise our option to purchase, the waiver fees would be used to set off the purchase price. Under the purchase scenario, the waiver fees the Defendant paid (on behalf of the Plaintiff) should be treated as business expenses incurred by the Defendant. Should the Defendant exercise our right not to purchase, the waiver expenses could be reverse upon receipt of the repayment of the waiver fees from the Plaintiff.

10.  Given the defendant has yet exercised any right to purchase (and such right has been wrongfully denied by the plaintiffs), even the waiver fees is correctly reflected as business expenses in the defendant’s audited reports, this would not advance or strengthen the plaintiff’s case at all and discovery of them same [sic] would not assist in disposing fairly of the cause or matter or for saving costs. ”

12.  On the face of it, it seems that it will be convenient simply to ask the defendant to disclose those audited reports, just to show the treatments of the waiver fees therein for the past years.  However, if an order were made, the disclosure of the accounts might lead to a train of discovery of other accounting documents or details that might incur more costs and time for the proceedings, which the court must deal with caution in compliance with the spirit of CJR.  In Mr. Poon’s skeleton submissions in reply, he had already indicated that there would be further discovery as “leading to a train of enquiry which may enable the plaintiff either to advance their own case or to damage the case of the defendant”[3] A party applying for specific discovery should bear the burden to inform the other party and the court the purpose of the documents required.  If those documents may lead to a train of enquiry which may enable the applicant either to advance his own case or to damage the case of the defendant, the applicant must be in a position to explain why and how those documents would enable him to do so.  Otherwise, the applicant may simply ask for the documents with a groundless hope that the documents may lead to a train of enquiry, which will amount to fishing for evidence, a practice that the Court will deprecate, as Burrell J. said in Mariner International Hotels Limited v. Atlas Limited & Another HCA10714/1998, HCA10752/1998 and HCA10821/1998 at §9:

“It should not be thought however that this represents a charter for opening the flood gates on discovery.   If doing justice is an onerous task then so be it.   The task of the court will often be to determine when “doing justice to the claim” stops and “fishing” or, to use another analogy “the scatter gun approach” starts.   At that point the onerous nature of the discovery exercise passes from the necessary and permissible to the unnecessary and impermissible. ”

13.  It appears that the plaintiffs would only be interested in the waiver fees having been treated as expenses in the defendant’s audited reports, which, as according to Mr. Poon, will advance the plaintiffs’ cases.  The question is: will such entry as “expenses” for the waiver fees advance the plaintiffs’ cases or damage the defendant’s defence?  In my view, it might do so.

14.  The defendant now relies upon an oral agreement between Miss Gogo Wong and the plaintiffs, which were represented by the authorized agent, who had passed away; and such oral agreement the plaintiffs have specifically denied.  It will be quite difficult for the trial judge to reach a decision without other documentary evidence as the plaintiffs will be unable to adduce any evidence from a live witness.  On the other hand, the defendant has Miss Gogo Wong as the live witness.

15.  Although Miss Lau submitted that the waiver expenses must have been treated as expense in the defendant’s audited account, she had specifically reserved her position in her skeleton submissions[4].

16.  Mr. Poon said that if the waiver fees were treated as expenses in the audited reports, it would advance the plaintiffs’ cases.  But that may not be fatal to the defendant’s case.  It will be for the defendant to explain to the court the situations under which the waiver fees were so treated.  Miss Lau has given some explanations in her skeleton submissions.  At least, the Court will be assisted in making the decision.

Conclusion

17.  In my view, unless the defendant, within 14 days from the date of this decision, admits in writing, which shall be admissible as evidence at trial, that all the waiver fees were registered as expense in its audited reports for the period of payment of the waiver fees, the defendant should, within the same period, make an affidavit disclosing its audited reports as requested, but only confined to the part containing the register of the waiver fees in the audited reports.  For the updated report, the defendant may produce the unaudited report.

18.  If, however, the defendant makes the admission aforesaid, it will not be necessary for it to disclose all its audited reports as the plaintiffs’ purposes for getting the documents have been served and it will not be necessary to incur further costs to examine the defendant’s audited reports.  Order 24 r. 8 applies.

19.  On the question of costs, the costs of this application should be given to the plaintiffs (with a counsel’s certificate), to be summarily assessed by the filing and serving by the plaintiffs of the schedule of costs within 7 days from the date of this Decision with liberty to the defendant to file and serve the list of objections within 7 days thereafter.  The assessment will be done on the papers only, unless otherwise directed.  This is an order nisi, which becomes absolute 14 days from the date of this Decision unless an application is filed to vary it.

Order

20.  I shall make an order in terms as follows:

a.  The order as per paragraph 17;

b.  The order as per paragraph 19 for costs.