CHEUNG PAK CHI CECILIA v. CHU WING LUNG AND ANOTHER

HCA 3122/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3122 OF 2000

_________________________

_________________________

_______________

D E C I S I O N

_______________

The Application

1. In their Summons filed on 24 April 2003, the Defendants apply under Order 24, rules 3 and 7 of the Rules of the High Court for (a) a further and better list of the Plaintiff's documents and (b) specific discovery of the following documents:-

"	(1)	All contracts or agreements or other documents evidencing the Plaintiff's commitments for her service as an artist or performer since February 2000.
	(2)	All documents evidencing the Plaintiff's receipt of fees paid to her as consideration for her service as an artist or performer pursuant to such contracts or agreements or commitments."

These documents cover from the period after the subject management agreement was terminated, rightly or wrongly by the Plaintiff to date. The documents sought will be referred to below as "the Documents Sought".

2. The Plaintiff opposed the application. The hearing for argument was fixed to take place on 15 October 2003. On 14 October 2003, one day before the hearing, the Plaintiff took out a Summons to amend her Statement of Claim as per the draft annexed to that Summons. In paragraph 2 of the Plaintiff's Skeleton, Mr. Johnny Mok, Counsel for the Plaintiff submitted that "the documents sought by way of discovery are wholly irrelevant to the Plaintiff's case: see draft Amended Statement of Claim".

3. On 15 October 2003, after hearing Counsel, for reasons set out in another Reasons for Decision, I decided to give leave to the Plaintiff to amend her Statement of Claim and proceed with the Defendants' application for specific discovery on the basis of the Statement of Claim as amended. I should mention that according to Ms. Priscilla Wong, Counsel for the Defendants, the Defendants' case is that they are entitled to the Documents Sought with or without the amendment.

The Test

4. There is no dispute that in considering this application, the Court should follow the following principles as summarized in Berkeley Administration v McClelland [1990] F.S.R. 381 at 382 and cited in Hong Kong Civil Procedure 2002 at paragraph 24/7/1:

"	(1)	There is no jurisdiction to make an order under the Rules of the Supreme Court, O.24, r.7 [the England equivalent of Order 24, rule 7 of the Rules of the High Court] for the production of documents 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; (c) there is sufficient evidence that the document is in the possession, custody or power of the other party.
	(2)	When it is established that those three prerequisites for jurisdiction do exist, the court has a discretion whether or not to order disclosure.
	(3)	The order must identify with precision the document or documents or categories of document which are required to be disclosed, for otherwise the person making the list may find himself in serious trouble for swearing to a false affidavit, even though doing the best to give an honest disclosure."

5. The key dispute at the hearing lies on whether the Documents Sought relate to matters in issue in this action.

Grounds of the Application

6. The Defendants' then solicitors, Messrs. Johnson Stokes & Master, started off the demand with a letter issued to the Plaintiff's solicitors on 13 January 2003. In that letter, it was asserted that the Documents Sought relate to:

(1)	the Plaintiff's claim for damages;
(2)	the loss and damage the 1st and/or 2nd Defendants have suffered and will suffer; and
(3)	whether the Plaintiff has complied with the Undertaking to the Court recited in the Order made by the Honourable Madam Justice Yuen on 30 May 2000 ("the May 2000 Order").

7. In paragraph 8 of her Skeleton Submission filed on 13 October 2003, Ms. Wong expressly abandoned reliance on Ground (3) in paragraph 6 above.

Relevancy: The Plaintiff's Claim for Damages

8. Mr. Mok submitted that Ground (1) (that the Documents Sought are relevant to the Plaintiff's claim for damages) was no longer a ground because in the Amended Statement of Claim, the Plaintiff had dropped (a) the plea that by virtue of the Defendants' wrongdoings, the Plaintiff has suffered loss and damage including damage to her reputation, goodwill and image (the original paragraph 32 of the Statement of Claim) and (b) all claims for damages, i.e. "damages for deceit or negligent misrepresentation in addition to or in lieu of rescission and/or damages for mistake and/or breach of contract and/or breach of fiduciary duties" (the original paragraph 2 in the prayer of the Statement of Claim).

9. That might be so, said Ms. Wong, but the Plaintiff's claims in tort are not actionable without proof of damage. According to Ms. Wong, the Plaintiff's case alleges that both Defendants have been guilty of a variety of misdeeds with the result, and in some cases with the intention, of injuring and harassing the Plaintiff. She relied on the general principle explained in paragraphs 1-46 and 2-06, Clerk & Lindsell on Torts, 18th ed. and argued that actual damage which is not too remote and is caused by the Defendant, is a necessary element which must be proved by the Plaintiff in order to ground a case in tort.

10. Ms. Wong also relied on the Plaintiff's allegation that the Plaintiff entered into the subject management agreement as a result of various misrepresentations made fraudulently and/or negligently by a Miss Louisa Loo on behalf of the 1st and/or 2nd Defendants to induce the Plaintiff into signing the subject management agreement. She relied on the principle stated in paragraph 15-39 of Clerk & Lindsell on Torts that, "Proof of damage in consequence of acting on the representation is required" and also Diamond v. Bank of London and Montreal Ltd. [1979] 1 Q.B. 333 per Lord Denning M.R. at 344-349 (where there was no sufficient evidence of loss suffered by reason of the tort of fraudulent as well as negligent misrepresentations). She submitted that to establish the misrepresentation as alleged, the Plaintiff has to prove damage suffered as a result of acting on the alleged misrepresentations.

11. If proof of damage was required in establishing misrepresentation, as Ms. Wong submitted, the Documents Sought were clearly relevant (to the question of damage), and hence subject to discovery, notwithstanding that the Plaintiff has dropped all claims for damages.

12. Mr. Mok submitted that the Plaintiff does not found her claims on tort. Rather, the Plaintiff's cause of action is based on contract. As I have asked Ms. Wong at the hearing, and as what Mr. Mok later on submitted, misrepresentation, if proved, is a vitiating factor which entitles the Plaintiff to rescind the subject management agreement. In proving misrepresentation as a vitiating factor under contract law, there is no need to prove damage.

13. When one looks at the Amended Statement of Claim, the Plaintiff's claims are indeed founded on contract and not on tort. In a nutshell, paragraphs 5 to 18 raise the plea that the subject management agreement was void or voidable for fraudulent and/or negligent misrepresentations and/or mistake. Paragraphs 19 to 22 plead the Defendants' fundamental/repudiatory breaches of the agreement and gross incompetence in performing the agreement. Paragraphs 23 to 24 deals with rescission and/or termination of the agreement. Paragraph 25 alleges some post-termination misconduct of the Defendants but no relief is sought in the prayer basing on the facts pleaded in this paragraph (with the exception of paragraphs 25(v) and (vi), where the Plaintiff in effect alleges that the Defendants still conducted themselves as if the subject management contract was still continuing and binding on the Plaintiff). Paragraphs 26 to 27 pleads the Defendants' failure to account for sums received in respect of the Plaintiff's works as an artiste, in further breach of the subject management agreement. Paragraph 28 pleads the Defendants' wrongful holding-out as the Plaintiff's agent and/or manager notwithstanding that, according to the Plaintiff's case, the agreement had been rescinded and/or terminated. Paragraphs 29 to 30 plead the Defendants' breach of fiduciary duties as a manager/agent under the agreement.

14. Therefore, in my view, on the Plaintiff's present pleaded case, in establishing misrepresentation and/or fundamental breach of contract, it is not necessary for the Plaintiff to prove damage. Hence, the Documents Sought are irrelevant in this respect.

Relevancy: The Remedy of Rescission

15. However, the arguments do not rest here. Ms. Wong, at the second day of the hearing, drew me to the attention section 3(2) of the Misrepresentation Ordinance, where it reads:-

"Where a person has entered into a contract after a misrepresentation has been made to him otherwise than fraudulently, and he would be entitled, by reason of the misrepresentation, to rescind the contract, then, if it is claimed, in any proceedings arising out of the contract, that the contract ought to be or has been rescinded the court or arbitrator may declare the contract subsisting and award damages in lieu of rescission, if of opinion that it would be equitable to do so, having regard to the nature of the misrepresentation and the loss that would be caused by it if the contract were upheld, as well as to the loss that rescission would cause to the other party."

16. Although the Plaintiff amended her Statement of Claim at the eleventh hour before the hearing, the remedy sought at paragraph 1(1) of the prayer remains unimpaired. Paragraph 1(1) seeks a declaration that the subject management agreement "is void or voidable and/or has been validly rescinded by the Plaintiff on the ground of fraudulent and/or negligent misrepresentation". This is squarely within section 3(2) of the Misrepresentation Ordinance. That being so, at the trial, if the Court is satisfied that the Defendants have been guilty of negligent misrepresentation (i.e. a misrepresentation has been made to the Plaintiff otherwise than fraudulently under section 3(2)), in considering whether the contract ought to be rescinded or has been rescinded, the Court should then proceed to consider whether it would be equitable to award damages instead. This is a discretion of the Court, not a right given to the Plaintiff to claim damages. See paragraph 6-095, Chitty on Contracts, Volume 1, 28th ed. Two of the factors that the Court is bound to consider under section 3(2) are "the loss that would be caused by [the misrepresentation] if the contract were upheld" and "the loss that rescission would cause to the other party [i.e. the 1st and/or 2nd Defendants]". Since there can be no dispute that the Documents Sought relate to both losses, they are subject to discovery.

17. In rebuttal, Mr. Mok argued three points. Firstly, he said this argument was raised too late, only at Ms. Wong's replying submission. Secondly, on a true interpretation of the May 2000 Order and the undertakings given by the parties thereunder, the Defendants have no longer any right or could in any way ask the Court to uphold the subject management agreement. To illustrate, Mr. Mok submitted that as the Plaintiff has been given liberty under the May 2000 Order to undertake any jobs without the consent of the Defendants, it is impossible to resurrect their management agreement. Thirdly, Mr. Mok orally applied to the Court to further amend the Amended Statement of Claim by deleting, in Mr. Mok's words, "all reference to negligent misrepresentation" in the Amended Statement of Claim. He relied on paragraph 6-105, Chitty on Contracts, Volume 1:-

"The right to rescind for fraudulent misrepresentation is unimpaired by the Misrepresentation Act [the England equivalent of the Misrepresentation Ordinance], but there is no longer any absolute right to rescind for negligent or innocent misrepresentation."

Mr. Mok submitted that if the Plaintiff was allowed to drop the claim for negligent misrepresentation, since the Court has no discretion to order damages in lieu of rescission of the subject management agreement for fraudulent misrepresentation, parties' losses would not then be factors that the Court should consider. As such, the necessity for discovery of the Documents Sought is obviated.

18. Notwithstanding Mr. Mok's skillful submissions, I am afraid that I cannot accept these points. On his first point of rebuttal, I see no prejudice on the Plaintiff's part. Ms. Wong's argument on section 3(2) is a pure law point and involves no factual dispute. There is no evidence that the Plaintiff needs to produce in replying. On Mr. Mok's second point of rebuttal, Ms. Wong disputed the effect of the May 2000 Order. She submitted that it could not be right for the Defendants to be denied of a substantive right by an interlocutory order (i.e. the May 2000 Order), the whole purpose of which was to maintain status quo. While the effect of the May 2000 Order may or may not be open for arguments, I have to remind myself that at this interlocutory stage certainly I should not fetter the trial judge's power and discretion whether under section 3(2) or otherwise, by making a finding which affects parties' substantive rights and liabilities. Thirdly, I cannot find any reason that enables me to accede to Mr. Mok's belated application for further amendment of the Amended Statement of Claim with nothing in writing. Nor can I find any justification for departing from the general practice of this Court in dealing with amendments of pleadings as set out in paragraph 20/8/4 of Hong Kong Civil Procedure 2002, such as:

(1)	"If the application is before the trial, it should be made by summons before the master, or it may be made on the summons for directions, or by notice for further directions under O.25, r.7 (2)".
(2)	"It is desirable to specify the intended amendments (see Lawrence v. Lord Norreys (1890) 39 Ch. D. 213 at 217; Derrick v. Williams (1939) 55 T.L.R. 676) either by stating them (if short) in the body of the summons or notice, or by referring to them, e.g. 'as set forth in red ink in the pleading annexed' or 'copy documents served herewith'."
(3)	"In practice, leave to amend is given only when and to the extent that the proposed amendments have been properly and exactly formulated, see Derrick v. Williams" etc.

It is not quite possible for the Court to locate for the Plaintiff "all reference to negligent misrepresentation" from the Amended Statement of Claim and delete those references on the Plaintiff's behalf. This submission must also be rejected.

19. I therefore hold that the Documents Sought are relating to this issue in question, namely, whether the contract ought to be rescinded or has been rescinded.

Relevancy: Gross Incompetence and Fundamental Breaches of Duties

20. Ms. Wong submitted that the Plaintiff has pleaded extensively (some 9 pages) that the 1st and/or the 2nd Defendants had demonstrated gross incompetence and had committed fundamental breaches of their duties, and that as a result of the gross incompetence and the failure to carry out their duties, the Plaintiff often found herself bogged down with extra responsibilities and works and eventually her health suffered. In Ms. Wong's submission, in order to determine these issues raised by the Plaintiff, it is necessary for the Court to see the nature and extent of the Plaintiff's engagements after the break-up, how busy she had become or otherwise, how well-organized her schedule had become or otherwise, how hard she had had to work or otherwise and whether she made progress in terms of status and earnings as an artist or otherwise.

21. I cannot agree with Ms. Wong's submission. What the Plaintiff seeks to prove here is breach of contract. In order to decide whether a party has breached a contract, one needs to consider the party's conduct at the relevant time to see whether that conduct amounts to a breach. It is not helpful for the Court to look at conducts of the other party after the alleged breach. Such subsequent conducts cannot in one way or the other prove or disprove whether a breach has been committed previously. Moreover, as Mr. Mok pointed out, many items of breach or gross incompetence pleaded refer to specific incidents. There is no use, and indeed irrelevant to look at what happened thereafter in deciding whether a breach had occurred.

22. Therefore, in my view, the Documents Sought do not relate to the question of gross incompetence and fundamental breaches.

Relevancy: the 2nd Defendant's Damages

23. Although in the Defendants' correspondence and written submission, "the loss and damage the 1st and/or 2nd Defendants have suffered and will suffer" was asserted as one of the grounds of the application, only the 2nd Defendant was averred in the Defendants' Defence and Counterclaim to have suffered loss and damage. Therefore, in paragraph (4) of the prayer, the 2nd Defendant counterclaims:-

"An enquiry or an assessment as to what damages the 2nd Defendant has suffered by reason of the wrongful acts of the Plaintiff."

24. Mr. Mok treated this prayer as an indication by the 2nd Defendant that the 2nd Defendant wants an assessment of damages to take place after the trial. I asked Mr. Mok if that was so, what was the effect of "damages to be assessed" if pleaded in the prayer. His answer was that the effect would be the same as asking for "assessment of damages". I then referred him to the Statement of Claim before it was amended, where "damages for deceit ..." and "damages for mistake ..." were prayed for and asked him the effect. His submission was that the damages would be assessed at the trial together with the determination of liability. Therefore, the words "assessment" or "to be assessed", in Mr. Mok's submission, makes the difference. In effect, if such words are used in the prayer, according to Mr. Mok, there would be an automatic split trial of liability and quantum and hence no need for any party to apply for a split trial order.

25. I cannot accept this submission as a matter of principle (and in passing I would also comment that this interpretation of the prayer is highly artificial). The general rule is that all the issues in the case are to be tried at the same time. The Court has discretion on the summons for directions, in determining the mode of the trial, to order the trial of quantum of damages to take place after the trial of liability. See paragraph 33/4/9, Hong Kong Civil Procedure 2002. There is no split trial ordered in the present case. The position on discovery was explained by Mr. Justice Godfrey (as he then was) in Auto-Treasure Ltd t/a Albert Jewelry Creation v Noble Diamond Ltd t/a Noble Jewellery & Anor [1992] 1 HKC 117 at 120-121:

"In an ordinary common law action for damages the practice will be different. The general policy is no doubt that all disputes in the same proceedings should be tried together. Where, as in the ordinary case, all questions of liability and quantum are to be dealt with at one trial, no distinction falls to be drawn, as a general rule, between discovery of those documents which relate to the question of liability, and those which relate to the question of quantum. But where there is an order for a 'split trial' (more accurately, where the issue of liability in the action is ordered to be tried before the issue of damages), the order for a 'split trial' provides for discovery to be limited to the issue of liability in the action: see for example, Atkin's Court Forms (2nd Ed), Vol 23 (1998 Issue), at pp 155-156 and Chitty and Jacob's Queen's Bench Forms (21st Ed), at pp 420-421. In the absence of such an order, in an ordinary common law action, it may indeed be difficult to justify an order for discovery which proceeds on the footing that documents relating to quantum do not fall to be discovered at the same stage as documents relating to liability."

26. The mode of the trial is to be determined by the Court under Order 33, rule 4 of the Rules of the High Court. Whether to order split trial is within the Court's discretion after taking into account all relevant circumstances and hearing parties' submission. Mr. Mok submitted that with those words "assessment of damages" or "damages to be assessed" in the prayer, there is no need for his client to apply for a split trial order. I cannot see there could be any basis for parties to the proceedings to be able to fetter the Court's power and discretion by just adding a few words in the prayer.

27. It follows that in my view, the Documents Sought are relating to the quantum of the 2nd Defendant's damages.

Result

28. Ms. Wong must be correct that if any one of the grounds that she advanced is successful, her clients would be entitled to discovery of the Documents Sought. As I have held that the Documents Sought are relating to the issues of rescission and the 2nd Defendant's damages, the Court has the jurisdiction to make such order. I see no reason (and there were neither evidence produced nor arguments advanced to the contrary) why having the jurisdiction to do so I should not exercise my discretion to allow the discovery of the relevant documents. Since it is plain that the Plaintiff has not produced documents relating to the issues of rescission and the 2nd Defendant's damages, I am also prepared to order the Plaintiff to serve a further and better list of the same.

29. The order that I make is as follows:-

(1)	The Plaintiff do within 14 days from the date hereof file and serve a Further and Better List of the documents which are or have been in her possession, custody or power relating to the issues of (a) whether the agreement in dispute ought to be rescinded or has been rescinded and (b) the 2nd Defendant's damages.
(2)	The Plaintiff do within 14 days from the date hereof file and serve on the Defendants an affidavit stating whether she has or has at any time had in her possession, custody or power the following documents and if these documents or any of them has or have been but is or are not now in her possession, custody or power, stating when she parted with the same and what has become of the same:-
	(a)	All contracts or agreements or other documents evidencing the Plaintiff's commitments for her service as an artist or performer since February 2000.
	(b)	All documents evidencing the Plaintiff's receipt of fees paid to her as consideration for her service as an artist or performer pursuant to such contracts or agreements or commitments.

30. As to costs, the costs of this application should follow the event. In the Summons, the Defendants also ask for the costs occasioned by this application, e.g. the costs of the affidavit and the further and better list. I see these steps as part of the costs in preparation for the trial, i.e. discovery of documents relevant to the determination of parties' rights and liabilities. I do not think the costs of taking these steps should be covered by the present order. As such, I make an order nisi that the costs of this application be to the Defendants in any event with certificate for counsel.

31. I wish to express my gratitude towards Counsel for their able assistance.