SINOCARD TECHNOLOGY LTD v. LEE CHI KEUNG AND OTHERS

HCA 2022/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2022 OF 2005

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D E C I S I O N

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The Dispute

1. There are two summonses before me.  Parties have been able to agree on some items of discovery sought therein, leaving costs to be disputed.  However, they still disputed over 6 items of documents.

Preliminary question

2. Shortly before the hearing, the Defendants issued a summons asking leave to adduce further evidence.  The Plaintiff opposed to it.  To avoid waste of time, I allowed it on a de bene esse basis.  Having considered the matter further, I agree to grant leave to the Defendants to rely on the new evidence.  The Plaintiff will suffer no prejudice that cannot be compensated by costs.  Costs of the summons will be borne by the Defendants to the Plaintiff, to be taxed if not agreed, in any event.

Background

3. On 15 October 2005, the Plaintiff commenced the present proceedings against the Defendants.  It is the Plaintiff’s case that they were competitors.  However, in or about December 2003, by a Joint Venture Agreement (“the Agreement”), the Plaintiff stopped its business and sent its staff and machinery to help the 3rd Defendant.  Its business was therefore substantially improved.

4. Regrettably, the Defendants failed to honor their obligations under the Agreement.  The Plaintiff then sought specific performance, damages, accounts and various declarative as well as injunctive relieves.

5. The Defendants contested the proceedings and denied the conclusion of the Agreement.  There was discussion only.  Nonetheless, there was also an Interim Arrangement whereby the 3rd Defendant would employ staff and use equipment of the Plaintiff.  If the Agreement would be materialized, the Plaintiff would be paid 1/3 profit of the 3rd Defendant and its associated companies.  However, if Agreement were not concluded, the Plaintiff would be paid rental only.

6. The parties have moved into the discovery stage.  Various lists and witnesses statements have been filed and served.

7. By 2 summons issued on 19 December 2006 and 4 June 2007 respectively, the Plaintiff sought specific discovery against the Defendants.  Parties have resolved partially their dispute, leaving the questions of costs thereof and the following disputed areas.

(a)	Sales ledgers of OPT for the period from June 2002 to 30 November 2003; sales ledgers of POE and POE Shenzhen for the period from June 2002 to 31 December 2005;
(b)	Sales ledgers or records of OPT’s Shenzhen Factory for the period from June 2002 to 30 November 2003; and
(c)	Annual examination record (including audit report and accounts) of OPT’s Shenzhen Factory covering the period from June 2002 to December 2002;
(d)	Sales ledgers of POI for the period from 1 June 2002 to 31 December 2005;
(e)	Purchase orders and purchase ledgers of POI for the period from 1 June 2002 to 31 December 2005; and
(f)	Audited financial statements for POI for the years ended 31 December 2002, 31 December 2003, 31 December 2004, and 31 December 2005.

8. The parties appeared before me on 26 September 2007.  Mr. Andrew Mak of Counsel acted for the Plaintiff and Mr. Richard Hudson of Messrs. Deacons represented the Defendants.  Having heard from them, I reserved my decisions to be handed down.

Ruling

9. Now, upon consideration of all the evidence authorities and submissions before me, I have decided to allow the Plaintiff’s application.  My reasons appear in below.

Reasons

10. Mr. Hudson raised 3 objections to the discovery.

(a)	It was premature.
(b)	The documents relating the associated companies, POE, POE Shenzhen and POI, were irrelevant.
(c)	All documents before December 2003 were also irrelevant because the Agreement was made after December 2003.

11. However, with respect, I do not agree on all 3 objections.

12. To start with, the application cannot be described as premature because there has been no order for split trial.  From the pleadings, the Court will deal with the following issues.

(a)	Was there the Agreement?
(b)	If yes, should specific performance or damages be ordered?
(c)	If no, was there the Interim Arrangement?
(d)	If yes, how and what should the Plaintiff be compensated?
(e)	If no, was the Defendants still caught by unjustly enrichment and could the Plaintiff get some redresses?

13. For the time being, unless the Court will order otherwise, all alternative issues are to be put before the Court.  Though the discovery sought is only be relevant when unjust enrichment will become a choice of this Court, it does not alter the fact that all evidence should be ready.

14. The authorities of Ho Lee Man v Wong Wai Kai [1993] 1 HKC 183, CA and Kids World Limited v XL Machine Limited & Others (Reyes J, unreported, HCA 125/2002, 18 September 2003) were relied upon by Mr. Hudson to make good his proposition that this Court would not order for an account to be taken before disputed factual issues, like scope or duration of partnership, were resolved.  I agree only to the extent that these authorities are applicable to Order 43 RHC application.  Here, we are not dealing with application for interim account and as such the two cases will not help the Defendants.

15. Second, as to the argument of irrelevancy of the documents concerning the related companies, briefly, it was the Defendants’ case that POE, POE Shenzhen and POI were not defendants in the proceedings.  They were also not mentioned in the pleadings.  They therefore had nothing to do so with the present proceedings.

16. I do not agree.  As pointed out by Mr. Mak, in relation to the claim for unjust enrichment, it was the Plaintiff’s case that the Defendants had been benefited from a number of ways.  They included the stop of the dropping of the price of the goods, customers of the Plaintiff became those of the Defendants, reduction of overhead, including rental, depreciation, administrative costs and transportation expenses.  Hence, to ascertain the “unjust enrichment” earned by the Defendants, it requires the discovery of those documents relating to the associated companies.  It is therefore relevant.

17. Further, Mr. Mak also took this Court go through the financial statements of the 3rd Defendant.  He attempted to show that there were connected transactions with related companies.  Moreover, it appeared that there was a change in booking of the transactions after the Agreement or the Interim Arrangement.  In this respect, I notice that the Defendants have denied any improper practice.  However, it does raise a concern for further tracing of the original accounting records, like purchase and sales ledgers.  Hence, if discretion is to be exercised, I will do so for ordering a discovery.

18. Third and finally, the Defendants objected to the discovery because the Plaintiff asked for a longer period than the Agreement and/or the Interim Arrangement.  Nonetheless, to put this Court in a position to assess the “unjust enrichment”, if applicable, he has to be informed the “Pre-Agreement” and/or “Pre-Interim Arrangement” situation so that a meaningful “comparison” can be made.

Order

19. In conclusion, I will order that the Defendants do within 14 days from today file and serve a further and better list of documents as set out at paragraph 7(a) to (e) hereto and to be verified by affidavit.

Costs

20. I do not have the benefit of oral submissions from the parties in relation to the question of costs.  However, having taken into account the matters stated in their skeletons and the decision herein, I will make the following costs order nisi.

(a)	The Plaintiff shall have costs of the hearing on 24 September 2007, including Certificate for Counsel, as well as one-thirds of the costs of the 2 summonses, to be taxed if not agreed, in any event.
(b)	The remaining two-thirds of the costs of the 2 summonses be costs in the cause.