ALLINGTON INVESTMENTS CORPORATION and Others v. FIRST PACIFIC BANCSHARES HOLDINGS LTD. and Another

Civil Appeal No. 179 of 1994

HEADNOTE

Discovery is not required of documents which relate to irrelevant allegations in pleadings which even if substantiated could not affect the result of the action - adopting para.4.13, p.49 of Matthews and Malek's "Discovery" and following Martin and Miles v. Scrib [1950] 67 RPC 127 at 131 L25-30; p.134 L15-20.

IN THE COURT OF APPEAL

1994, No. 179
(Civil)

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J U D G M E N T

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Nazareth, V.-P.:

1. This is an appeal by the plaintiffs against the order of Deputy Judge Jones made on 18th September 1994. By that order he required the plaintiffs to make discovery of documents including those relating to the removal of the 5th plaintiff and the resignation of his son, David Chiu, as directors of the 1st defendant, and also those relating to the claims in High Court Action No. A8215 of 1988.

2. The underlying facts can be stated quite shortly. The plaintiffs are minority shareholders in the 1st defendant. The two defendants are companies in the First Pacific Group of Companies, the 2nd defendant being the majority shareholder in the 1st defendant. The plaintiffs are suing the defendants for $10m under an oral agreement said to have been entered into by the parties on 2nd August 1993. The defendants, they say, had announced a Proposal by which the shares of the minority shareholders in the 1st defendant would be cancelled on terms including cash payments. A special general meeting was held on 2nd August 1993 to enable the minority shareholders to vote on the Proposal. At the meeting, the plaintiffs aver, the 5th plaintiff and his son David Chiu, acting for the plaintiffs, told representatives of the defendants that it was the intention of the plaintiffs to vote against the Proposal. This, they aver, led to the oral agreement.

3. In their defence, the defendants agree that the Proposal was announced, the special general meeting held and that at that meeting their representative was informed by David Chiu that some minority shareholders might vote against the Proposal. They aver that thereupon their representative discussed with the 5th plaintiff and David Chiu the following matters which had also been discussed earlier:

(i)	The settlement of High Court Action No. A8215 of 1988 brought by the 5th plaintiff against two companies in the First Pacific Group;
(ii)	The demand of the 5th plaintiff that he and David Chiu be re-instated to the 1st defendant's board of directors; and
(iii)	Assertions by the 5th plaintiff and David Chiu that the 1st defendant had been mismanaged by its board of directors.

4. The defendants aver that David Chiu proposed that HK$10m be paid in full and final settlement of those three issues. The defendants' representatives informed David Chiu that such proposal would have to be suitably documented, would receive the attention of the board of directors of the 1st defendant and would have to be reviewed by lawyers advising the First Pacific Group. In the premises it was expressly denied that any agreement was reached between David Chiu acting for the plaintiffs and the defendants' representative.

5. The Deputy Judge's order of 18th September 1994 was made in response to the defendants' summons for specific discovery of documents specified in nine items or categories of documents. The plaintiffs agreed to make discovery in respect of all but items 5 and 8, which comprise the documents mentioned.

6. It can be seen from the outline of the pleadings given that what is in issue is whether the oral agreement was entered into, as submitted by Mr Clifford Smith for the plaintiffs before us and below. He submitted, as his first point, that the judge misapprehended the nature of the defendants' case when he stated in his reasons for judgment that the defendants' case was that the suggested payment of HK$10m was not confined to the isolated matter of the Proposal to cancel the minority shareholding but was intended to cover other issues. The portion of the judgment he refers to is in the following terms:

"It is the defendants' case that the suggestion for the $10 million payment was not confined to the isolated matter of the Proposal to cancel minority shareholdings. It was intended to cover all matters outstanding between the parties. That is what the defendants have pleaded and what the plaintiffs, inter alia, have put in issue."

It is convenient to record here the immediately succeeding paragraph in the judgment:

"That being so, the plaintiffs cannot be heard to say at this stage that these other matters are mere extraneous material. The plaintiffs may seek to prove them so at trial, but their relevance now is that they are part of the defendants' case. The documents sought concern those matters and it is not for me to say now that they are irrelevant to the central issue, namely the existence of the oral contract for the $10 million payment. Neither am I able to say on the papers before me that discovery at this stage would be unnecessary for disposing fairly of the matter or for saving costs."

7. It can be seen from the outline of the pleadings I have given, that the judge did indeed misdirect himself. Moreover, it is apparent from the latter of the two foregoing paragraphs quoted from the judgment that the misdirection was a material one. It is therefore necessary for this Court to itself address the application for discovery in relation to items 5 and 8. In that context, counsel have renewed before us their submissions made below.

8. Mr Clifford Smith submits that the issue in the action being that already identified, the three matters in dispute between the parties are extraneous to the issue in this action. Mr John Scott, who appeared also for the defendants below, disputes that. He submits that the three matters mentioned were in issue in the pleadings because there had been no reply and that therefore being thus in issue they cannot be dismissed as extraneous matters. I do not find that submission attractive or of assistance. As pointed out in para.4.13 at p.49 of Matthews & Malek's "Discovery" cited to us by Mr Clifford Smith:

"The fact that an issue is raised in the pleadings is not determinative as to whether it relates to a matter in question. Discovery is not required of documents which relate to irrelevant allegations in pleadings which even if substantiated could not affect the result of the action."

Those statements seem to me to be amply justified by the first authority cited in support, which was produced to us by Mr Clifford Smith (i.e.Martin and Miles v. Scrib [1950] 67 RPC 127 at 131 L25-30; p.134 L15-20).

9. It is apparent from the affidavit of the defendants' solicitor that the matters in dispute are sought to be relied upon as making it unlikely that the defendants would have acquired the minority shareholdings if that would yet leave them with the matters in dispute unresolved. It is then upon these matters, which I am satisfied are not in issue, that the defendants seek to found their request for discovery of potentially a large number of documents simply upon the chance that they may re-enforce the credibility of the contention that the matters in dispute, if unresolved, would render the agreement contended for unlikely. That seems to me so tenuous a basis of discovery, particularly in the circumstances of this case, as to be without merit both as a matter of entitlement and of such discretion as the court may have. In the particular context, I do not think that the wide basis of relevance propounded by Brett L.J. in the Peruvian Guano case, [1882] 11 QBD 55, upon which Mr Scott has sought to rely, assists him.

10. For the reasons I have endeavoured to give, I am satisfied that the appeal must be allowed and the order of the judge set aside insofar it relates to the two disputed items, paras.5 and 8 of the schedule to the summons.

11. I would also make an order nisi setting aside the costs order below and ordering that the appellants have their costs of the appeal and of the summons below.

Chan, J.:

12. This is an appeal against the order dated 18.9.94 of Deputy Judge Jones granting specific discovery in favour of the defendants against the plaintiffs for documents relating to (i) the removal of the 5th plaintiff and the resignation of his son as directors of the 1st defendant; and (ii) the claims in High Court Action No. 8215 of 1988.

13. The plaintiffs' claim herein is for the sum of $10 million allegedly due under an oral agreement made between the parties on 2.8.93 to secure the plaintiffs' votes as minority shareholders in the 1st defendant in favour of a proposal at a special general meeting to cancel the minority shareholdings for a cash payment. Though admitting there was such a proposal for cancellation of minority shareholdings, the defendants refuted the existence of the alleged oral agreement. The defendants went further and pleaded that the plaintiffs did propose settling with the defendants 3 other disputes outstanding between the parties for a sum of $10 million. In other words the defendants' case is that though there was mention of $10 million, it was in respect of something totally different; and, in any event, no agreement was ever reached.

14. After holding that the burden was on the plaintiffs to establish that specific discovery should not be ordered, the learned deputy judge went on to find that :

"It is the defendants' case that the suggestion for the $10 million payment was not confined to the isolated matter of the Proposal to cancel minority shareholdings. It was intended to cover all matters outstanding between the parties. That is what the defendants have pleaded and what the plaintiffs, inter alia, have put in issue.

That being so, the plaintiffs cannot be heard to say at this stage that these other matters are mere extraneous material. The plaintiffs may seek to prove them so at trial, but their relevance now is that they are part of the defendants' case. The documents sought concern those matters and it is not for me to say now that they are irrelevant to the central issue, namely the existence of the oral contract for the $10 million payment. Neither am I able to say on the papers before me that discovery at this stage would be unnecessary for disposing fairly of the matter or for saving costs."

15. The plaintiffs contended that the learned deputy judge had misread the defendants' pleadings. They submitted that the defendants' case is not that the suggested sum "was not confined" to the securing of minority votes, and the alleged offer was not "intended to cover all outstanding matters between the parties". Paragraphs 6 and 7 of the defence made it perfectly clear that the allegation is that the suggested sum was solely related to the issues of (i) the settlement of High Court Action No. 8215 of 1988, (ii) demand of reinstatement of directorship of the 5th plaintiff and his son in the 1st defendant, and (iii) assertions from the 5th plaintiff and his son against the board of directors of the 1st defendant for mismanagement. Mr. Scott also confirmed to us that it is not the defendants' case that the suggested sum of $10 million had anything to do with the plaintiff's alleged vote-securing scheme. In the premises, factually the plaintiffs and the defendants are talking about totally different and unconnected discussions. However, Mr. Scott pointed out that the learned deputy judge did get the pleadings right in the beginning paragraphs of his judgment.

16. We are of the view that the learned deputy judge has indeed misunderstood the case of the defendants as submitted by the plaintiffs. The defendants were alleging totally different discussions from that of securing the minority votes for the said sum of payment. It was never an allegation of the defendants that the objectives discussed comprised of a package including the said purpose of securing minority votes. In the premises, there is a total absence of factual link between the plaintiff's alleged oral agreement and the defendants' alleged discussion. The resolution of the dispute over the existence or otherwise of the alleged oral agreement to secure minority votes will not require any resolution of the defendants' alleged package offer. The plaintiffs' alleged oral agreement and the defendants' alleged discussion are not, and cannot be mutually exclusive. Nor can it be said that the existence of the defendants' alleged discussion will make it less likely that the plaintiffs' alleged oral agreement could have been made. It would have been otherwise if it had been the defendants' case that the parties were negotiating for an overall settlement of all outstanding disputes between them, as the learned deputy judge had erroneously assumed. It is highly debatable whether the further pleading of the alleged offer for settling the 3 outstanding disputes is at all relevant to the present case. It is certainly not a material fact for the resolution of the subject matter of the claim. Whatever marginal relevance it may have can only possibly relate to the credibility of witnesses. It cannot have any bearing on the subject matter of the existence or otherwise of the alleged oral agreement for securing votes.

17. Furthermore, the plaintiffs had already conceded the existence of such outstanding disputes between the parties. In the premises, one fails to see how the details, substance or the underlying documents concerning the said disputes will assist the defendants in any trail of enquiry that may either advance their defence or damage the plaintiffs' case. The relevance such underlying documents of the said outstanding disputes may have on the credibility of witnesses has not been demonstrated by Mr. Scott, nor is it apparent to us at all.

18. With respect, the learned deputy judge fell into error when he held the view that the relevance of an issue can be dictated by a party unilaterally simply by placing it in his pleadings. Even if the opposing party has failed to apply to strike out an irrelevant allegation in the pleadings of the other side, he is not barred from taking the point in an application for specific discovery that the allegation made in the pleadings is irrelevant to the subject matter of the action and ought to be disregarded for the purpose of discovery. The court is certainly not bound to take account of any immaterial or irrelevant averment of fact improperly inserted into the pleadings by a party. Otherwise, the court will become helpless and innocent litigants will be held to ransom. An abuse of the discovery process in this manner not only frustrates the legitimate objectives of the judicial process, it will bring the administration of justice into disrepute. A denial, or an implied joinder on pleadings, by the opposing party per se is not sufficient to bring relevance to an otherwise wholly irrelevant allegation. The relevance of an issue, or of a document, is dependent on its substance and contents in the light of the subject matter of the trial; and not simply on its mere presence in pleadings or the existence of a denial of it by a party. The fundamental principle is well illustrated by the decision in Martin v. Scrib (1950) 67 PRC 127 though that case is distinguishable from the present in several respects.

19. The plaintiff was, and is in this appeal, entitled to submit that the documents sought are irrelevant to the matters to be resolved by the trial. They have successfully demonstrated so in the application. It is our view that the said documents are not necessary for the fair disposal of the matters to be resolved at the trial. The discovery of such documents would occasion unnecessary costs rather than saving costs. In the premises, the order ought not have been granted by the learned deputy judge.

20. I agree that the appeal must be allowed and the order of the learned deputy judge set aside insofar it relates to items 5 and 8 of the schedule to the summons. I also agree with the costs order made by My Lord the Vice-president.

Cheung, J.:

21. I also agree that the appeal should be allowed.