VASHDEV ESSARDAS MAHBUBANI t/a VASHI'S EXPORT CO. (a firm) v. MOTIS EXPORTS LTD.

1992, No. A9124

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. There are four summonses before me today, two from the Plaintiff and two from the Defendants, and in this judgment I will deal with each of them individually.

2. Before doing so, however, it might be useful to say something about what this case is about. As is clear on the face of the pleadings, it is a case of some age, having been commenced in 1992, and it is certainly my view on perusing the papers that it is high time that this matter was decided. That, however, is a matter for the parties to consider. Essentially, the Plaintiff's allegation in this case is that he has been cheated into paying out certain sums of money for the benefit of the 1st Defendant, and that such advances arose by reason of certain misrepresentations made to him by the Defendants. The misrepresentations were to the effect that the Plaintiff would be given some documentary bills as 'security' for the advances to be made, and that at the end of the day the Plaintiff would be in a position to recoup these advances, together, of course, with interest, from the proceeds of these bills. The bills involved were export documentation relating to sales by the 1st Defendant's "Taiwan branch" to its foreign buyers. What actually happened, at least so far as is pleaded on the face of the amended Statement of Claim, is that the Plaintiff obtained these bills and handed them to its finance company, Oman International Finance Limited ("Oman"), which was the finance house which granted credit facilities to the Plaintiff. Oman thereafter, on the security of the bills, extended a credit line to the Plaintiff, and the Plaintiff in turn utilised the credit line and paid the advances for the 1st Defendant's benefit. I am not entirely sure at the moment where the commercial advantage lay, although I am assuming there is some form of gain in terms of an interest differential.

3. Be that as it may. It transpired that some of the bills which the Plaintiff obtained through the 1st Defendant's Hong Kong office were bogus bills, with the result that payments could not be obtained under the bills at all. The Plaintiff says that he was misled into making the advances in question and he has been left holding the baby so to speak, and has got nothing back.

4. I should mention that at this stage that I am informed that interlocutory judgment has been obtained against the 4th Defendant, and that the substantive defences in this case have been raised by the 1st, 2nd and 3rd Defendants. Interestingly, they make a series of non-admissions of the fact that the Plaintiff has made the advances in the first place. Mr. Paul Shieh, who appears for the Plaintiff, has helpfully provided me with a skeleton argument in which he has itemised the main issues which appear on the face of the pleadings and which will ultimately have to be grappled with by the Court at trial. To quote from his document, the Defendants maintain: -

(a) that any wrongdoing or fraud was that perpetrated by the 4th Defendant;

(b) that the 1st Defendant's "Taiwan branch" was in fact operated by the 4th Defendant and was a separate entity from the 1st Defendant;

(c) that the 1st Defendant lent its name to the 4th Defendant to open the aforesaid "Taiwan branch" in order to circumvent certain requirements of Taiwanese law;

(d) that the Plaintiff had dealt with the "Taiwan branch" in the past, and hence knew or should have known that the aforesaid "Taiwan branch" was a separate entity;

(e) that the 2nd and 3rd Defendants have in fact specifically warned the Plaintiff not to advance moneys to the Taiwan entity;

(f) that the 1st, 2nd and 3rd Defendants had nothing to do with the 4th Defendant's wrongdoings;

(g) that in any event they had not made or been responsible for the alleged misrepresentations to the Plaintiff.

5. I am grateful to Mr. Shieh for this analysis, because it is often the case that discovery applications such as the ones before me cannot properly be understood, or placed into context, without a recitation of exactly what the case is about. He has provided what seems to me to be a succinct summary of the issues on the face of the pleadings as they now stand, and I gratefully adopt it for present purposes.

6. Before turning to the summonses themselves I should, out of an abundance of caution, recite certain basic principles. As no doubt will become known by commercial practitioners, my attitude, as Judge presently in charge of the Commercial List, is that in general discovery is a good thing, and that in cases of doubt I am more likely to lean in favour of discovery than against it. In this connection I am reminded of one of the broad principles of the common law as expressed by Lord Justice Bingham (as he then was) in the case of Ventouris v. Mountain [1991] 1 WLR 607 at 611H, where the learned Lord Justice observed as follows: -

"Our system of civil procedure is founded on the rule that the interests of justice are best served if parties to litigation are obliged to disclose and produce for the other party's inspection all documents in their possession, custody or power relating to the issues in the action. This is not of course a necessary rule but it is firmly established here. It is not however an absolute rule, as exceptions such as legal professional privilege and public interest immunity demonstrate. Nonetheless, disclosure being generally regarded as beneficial, any exception has to be justified as serving the public interest which gives rise to the exception ..."

7. In addition to this guiding principle, which I respectfully suggest is an appropriate benchmark in any form of commercial litigation, there are of course the specific rules covering any application pursuant to Order 24, rule 7, that is the Order relating to the discovery of particular documents. I will not here recite all the principles relevant in such an application; suffice it to say that these are conveniently set out in the White Book at Marginal Note 24/7/1, and I have reminded myself of these principles.

8. With those introductory comments I turn now to the particular summonses which are before me today. In essence, the real battle, if indeed battle it be, centres around the cross-discovery summonses of the Plaintiff and the Defendants. The two other summonses are effectively side-shows and have effectively been settled with the minimum of argument. But I am getting ahead of myself.

Plaintiff's summons dated 16th October 1996

9. By this summons the Plaintiff asks for an order that the 1st, 2nd and 3rd Defendants do within 7 days from the date of such order make and file an affidavit stating whether the documents or classes of documents referred to in the schedule accompanying the summons have at any time been in their possession, custody or power, and if so to file at the Court and serve on the Plaintiff a list of the documents referred to therein. The schedule accompanying the summons lists five categories of documents. In the event, Mr. Shieh, who appears on behalf of the Plaintiff, has informed me that he wishes to pursue this relief against the 1st Defendant only.

10. Two general points need to be made at the outset. First, I am quite satisfied, for the avoidance of doubt, that the factual basis has been made out by Mr. Shieh in order for me to exercise my discretion in terms of an Order 24 rule 7 application; second, I bear in mind Mr. Shieh's opening remarks that his main aim, as his summons makes clear, is to cause the 1st Defendant to swear an affidavit in appropriate form, which, as he puts it, serves to tie the Defendants down in what he perceives, given the allegations in this case, to be an appropriate manner. I am broadly sympathetic. Miss Rattigan, who appears for the Defendants in opposition to this summons, has argued the case with considerable skill, but at the end of the day, although not accepting relevance across the board, is constrained to say that the affidavit required by Mr. Shieh is no more than the repetition of what already appears, albeit in slightly different form, on affidavit elsewhere. I am not sure that that is entirely accurate. For example, Mr. Shieh has directed my attention in particular to paragraph 2 of the affidavit dated 4th November 1996 sworn on behalf of the 1st Defendant by the 3rd Defendant, in which, at paragraphs 2 and 3 Mr. Mahbubani indicates that the documents the Plaintiff is seeking to discover "are over 20 years old and no longer in the possession, custody, care or control of the 1st Defendant and therefore none of the Defendants are able to provide copies of such documents for inspection"; and also that in relation to these two of the categories of documents sought, such documents never existed at all because, for example, there had never been any transfer of staff to Motis Exports (Taiwan branch) nor indeed any payroll records.

11. In the exercise of my discretion, I think that Mr. Shieh has just got home in convincing me that the present affidavit evidence filed on behalf of the Defendants is not in appropriate form for these purposes, and that in any event the manner in which the evidence is currently put is not sufficiently precise to give him the comfort of knowing that the point has been specifically addressed and responded to; in this regard, he recognises of course that, at the interlocutory stage, any Order 24 rule 7 affidavit is conclusive on its face.

12. Turning now to specifics, and taking the schedule to this summons in its component parts: -

(1) Mr. Shieh is content to delete from this paragraph the clause "and correspondences with the relevant Taiwanese authorities"; with this deletion, however, I am prepared to make an order in terms of paragraph 1, and in this regard I note that I am perfectly prepared to accept the inferential probability as to the existence of these documents;

(2) In response to questions from the Court, Mr. Shieh was constrained to accept, with his customary fairness, that the way that paragraph 2 of the schedule was originally put was too wide. Accordingly, he is prepared to excise the phrase "all dealings", so that the ambit of paragraph 2 of the schedule is solely concerned with the referral of customers to, and the purchase of documents from, Motis Exports (Taiwan branch). Miss Rattigan, after taking instructions, did not raise any opposition to this paragraph in such amended form. I think that was a wise decision;

(3) & (4) Paragraphs 3 and 4 of the schedule gave me pause for thought. Miss Rattigan's submission was that it is quite clear on the face of the documentation that these categories of documents were said by the Defendants not to exist; equally, however, there is sufficient on the matrix of facts on the papers to justify the jurisdictional basis of Order 24 rule 7, and Mr. Shieh accepts, of course, that if this be the case an affidavit in proper form will put the issue finally to bed. After some consideration, I am inclined to accede to the application as made, although in terms of paragraph 3 I will confine it, in terms of temporal restriction, to a period between 1975 and 1977, so that paragraph 3 would read "all minutes of directors meetings and internal memoranda of the 1st Defendant between 1975 and 1977 regarding the transfer.";

(5) The final category in the schedule is the request for the audited accounts of the 1st Defendant from 1987 to 1992. On the facts as disclosed on the papers, I can quite understand why Mr. Shieh would want these. Miss Rattigan suggests a compromise, whereby any references to the "Taiwan branch" in the said accounts could be produced, but otherwise the accounts would be set aside. I do not accept that. It begs, I think, the very question that Mr. Shieh is asking.

13. Accordingly, for all practical purposes, Mr. Shieh has got substantially the relief he came to Court to get, although I confess that it was not without some hesitation, and not without reflection upon the merits of that which Miss Rattigan put before me. In any event, I do not think it greatly matters. As Mr. Shieh points out, credibility is a crucial element in this case, and I think, almost certainly, it is appropriate to err on the side of the applicant in this regard; if for example no records exist with regard to paragraphs 3 and 4 of the schedule, so be it; the 1st Defendant will simply say so. I will hear the parties on costs arising from and occasioned by this summons at the end of this judgment.

Defendants' summons dated 18th November 1996

14. I now turn to the Defendants' cross-summons dated 18th November 1996. It is again an Order 24 rule 7 summons. The schedule accompanying the summons lists 7 categories of documents.

15. When Miss Rattigan opened her submissions on this summons Mr. Shieh was able helpfully to indicate to the Court that there was no dispute on some of the items within this schedule. It may be useful at the outset to indicate the ambit of the argument, or perhaps, more precisely, the lack of opposition. In broad terms, Mr. Shieh was constrained to oppose in toto paragraph 2 of the schedule, and also the references to "other traders" in paragraphs 4, 5 and 6 of the schedule. Save as aforesaid, he said, he was prepared to comply with the Order 24 rule 7 application taken out by the Defendants.

16. Argument before me this afternoon concentrated, therefore, on these contested elements. Despite her spirited efforts, Miss Rattigan has been unable to persuade me that there should be compliance by the Plaintiff in terms of the category at paragraph 2, and also the wider references within paragraphs 4, 5 and 6. I think perhaps I will do her an injustice if I attempted, for purely descriptive purposes, to compress her argument. I suspect that she did her best with little in the way of raw material; suffice it to say that her argument proceeded along the basis that although a primary issue in the case on the part of the Defendants was a non-admission of any advances, if such advances had taken place the Plaintiff had, in some way, been paid off via a course of dealing between the Plaintiff and the 4th Defendant. I grasp entirely the concept of a course of dealing between the 1st Defendant and the 4th Defendant; I also grasp the concept of a course of dealing between the Plaintiff and the 4th Defendant. Indeed, it is precisely this latter course of dealing that has produced the loss now complained of. What I am patently unable to do, I regret, despite Miss Rattigan's efforts, is to complete the third side of the triangle and to deduce in what manner the Plaintiff has in fact received de facto repayment of the advances, which of course it is not admitted were advanced to the 4th Defendant in the first place. I suspect Miss Rattigan is having to walk a thin and rather precarious line in this argument, which is also linked with the other primary factual issue in the case, namely, that the 4th Defendant is a discrete and separate entity from the 1st Defendant.

17. Be that as it may. I am disinclined to listen at any great length to a submission which, it seems to me on a fair reading of the pleadings, is not reflected in the Defence. Miss Rattigan attempted to show me various parts of the pleadings which, she suggested, when read together sufficed to get the plea up. In response, Mr. Shieh was scathing. Possibly with just cause. He put his finger on the nub of the problem when he said that any allegation of set-off requires there to be a pre-existing indebtedness on the part of the Plaintiff. I agree. Let it be pleaded, and let it be pleaded in the clearest possible terms. Any such proposed amendment can be considered by way of application for amendment, and thereafter any discovery consequences can be dealt with in the normal course. I confess that I had originally been minded to stand paragraph 2 of the schedule down to allow Miss Rattigan to re-evaluate her position. Mr. Shieh has ultimately persuaded me that this would neither be fair nor just and I decline to make an order as to paragraph 2.

18. As to the excision of the reference to "other traders" in paragraphs 4, 5 and 6 of the schedule to the Defendants' summons, Miss Rattigan accepted the point that, as drafted, it was far too wide, but sought to interpolate therein reference to one Mr. Pawan Khemka, pursuant to the content of paragraph 6 of an affidavit which was sworn on 25th March 1997 by the 2nd Defendant. This affidavit was handed up to me, and although I understand that it had been filed, it has not yet found its way onto the Court file. I am disinclined to permit such interpolation. There is no reference to Mr. Khemka in the pleadings, and indeed, as Miss Rattigan frankly and fairly admitted, Mr. Khemka's name has appeared for the first time in this document today.

19. In the circumstances, the references in paragraphs 4, 5 and 6 to "other traders" must go, and, as per Mr. Shieh's indication at the outset, paragraphs 4, 5 and 6 of the schedule will be read only as relating to the 4th Defendant and/or the Taiwan Branch.

20. Accordingly, with those revisions, namely the deletion of paragraph 2 and the amendment to paragraphs 4, 5 and 6 of the schedule, I grant the application as per the Defendants' cross-summons of 18th November 1996. I will in due course hear the parties as to costs of that summons.

21. Having dealt with the discovery argument, I turn to the two other summonses before me, which it seems to me are of an essentially peripheral nature. Let me take them in turn.

Plaintiff's summons dated 1st November 1996

pursuant to Order 38 rule 2A

22. The history of this matter is a little complex, and for present purposes this perhaps does not matter a great deal. I simply note that on 21st December 1995 Master Cannon made a Consent Order as to the exchange of Witness Statements, which should be exchanged, as she so ordered, 14 days after the filing and service by the Plaintiff of certain documentation by way of answers to interrogatories, and a reply to a request for further and better particulars. The short point is that these documents were filed, but it does not appear (perhaps it matters not why) that this Consent Order was not complied with. I rather think that Mr. Shieh did not want to argue the point, and chose instead to keep his eye on the main issue. Accordingly, the Plaintiff issued a summons dated 1st November 1996 in the form of an Unless Order. It was issued for listing before Master Cannon, but sensibly it has now found its way before me as part and parcel of the applications with which I am today concerned.

23. There does not seem to be any good reason why this application should not be granted, although I confess that, as Mr. Shieh frankly admitted, it is not clear what is the relevant sanction in practical terms if there is non-compliance therewith. The thrust of the application is that unless the parties exchange Witness Statements and file them by such date as I will order, such parties shall not be entitled to adduce evidence at trial. Well, so be it, insofar as it does any good. I dare say that if it comes before me as the trial Judge, I will make up my own mind at that stage. But I understand the background to the issuance of this summons, and I grasp the impatience of the Plaintiff to actually get on with it, and in the circumstances I am prepared to accede to the application. Accordingly, I order that unless the parties exchange Witness Statements and file them with the Court within 14 days from the date of the service by the Plaintiff of further answers to interrogatories, pursuant to my Order in that regard of today's date, such parties shall not be entitled to adduce evidence of trial without leave. The reference to the order for interrogatories I deal with below. The costs of this application, which Miss Rattigan was not really minded to oppose in any serious sense, are to be to the Plaintiff in any event.

Defendants' summons dated 18th November 1996

pursuant to Order 26 rule 5

24. As a matter of history, the Consent Order of Master Cannon of 21st December 1995, with which there was non-compliance, had been predicated upon service of answers to interrogatories. Such interrogatories had in fact been answered by the Plaintiff, but, I gather, in a form which was not satisfactory to the Defendants. Accordingly, the present summons was issued.

25. Mr. Shieh, sensibly in my view, short-circuited any argument under this head. He indicated at the outset that although he did not wish to be party to a Consent Order he would not oppose an order of this Court whereby the Plaintiff should further respond to the questions which had been posed by the interrogatories which had been originally issued on behalf of the Defendants. The answer to the interrogatories was served on 17th September 1996; some answers took the form of information proferred, others contained objections either on the ground that the Defendants were not entitled to an answer, or on the basis of irrelevance. It is with regard to these earlier replies that Mr. Shieh now seeks to assist. He says that he will not oppose an order that the Plaintiff now provides further answers to the answers appearing at questions 1, 2, 3, 4, 5(b), 6, 7, 8, 11, 12 and 13 of the document before me, dated 17th September.

26. Once again this is a sensible resolution of this application, and one which I will adopt. Accordingly, my Order in this regard is that the Plaintiff will within 28 days of today's date make and file a further affidavit in further answer to the Interrogatories hitherto served by the 1st, 2nd and 3rd Defendants, and that those further answers shall be in terms of the numbered questions I have already indicated. Mr. Shieh also helpfully indicates that he concedes costs in this regard, so that the costs order shall be that the costs of and occasioned by the application will be to the 1st, 2nd and 3rd Defendants in any event.

27. That, I think, completes the business before the Court today, save and except that the issue of costs on the cross-discovery summonses remains open for decision, and I will now hear counsel on that issue.

28. Having now heard counsel on costs of these two summonses, my decision is as set out below.

29. So far as the Defendants' summons dated 18th November 1996 is concerned, I notice that this summons itself asks that the costs be in the cause. Miss Rattigan does not seek to depart from that. In the circumstances with regard to this summons, my order will be that costs be in the cause.

30. This leaves to be decided the question of costs of the Plaintiff's Order 24 rule 7 summons dated 16th October 1996. Mr. Shieh asks for costs, although he recognises, of course, that technically he withdrew the summons against the 2nd and 3rd Defendants, recognising, as he frankly admitted, that in fact the correct recipient of the application should have been the 1st Defendant. I do not think anything particular turns on this, in that the matter had to be argued in any event, irrespective of how many Defendants were actually involved, and I can envisage problems on taxation if there is an attempt at apportionment. Miss Rattigan opposes Mr. Shieh's application. She says that it was not until she came to Court today that paragraphs 1 and 2 in particular were limited in the way that they were, and she also points out, as I have made clear in the course of this judgment, that the order with regard to paragraphs 3 and 4 was pretty narrowly based. She suggests costs in cause.

31. I think it is right to look at the matter on a global basis and indeed costs orders are often fairly broad-brush in their ambit. At the end of the day I am inclined to order that the costs of and occasioned by this summons should be Plaintiff's costs in cause.

32. That, I hope, completes the business for today. It remains only for me to comment that after reviewing the pleadings, and having been force-fed a good deal of the information herein in the context of these applications, it is my view that this is a case which would do well to come on soon, and I hope I will be forgiven for saying that this is also a case which could do with some penetrating and critical scrutiny on the part of the able advisers acting for the Defendants. In particular, whilst I maintain an open mind, it does seem to me that the present form of the pleading needs some consideration, particularly if what I am constrained to call 'the set-off point' is to be developed. At the moment, despite Miss Rattigan's ministrations in this regard, I am unable to discern this point on the face of the pleadings, and if this case is now to go to trial, it is clearly appropriate that the pleadings be properly considered and perfected before the trial takes place.

33. Finally, I wish to express my thanks to counsel for their fair and cogent submissions, and for the considerable assistance that they have given me in order to assist in the disposition of a variety of matters today.