XCHRX ORIENTAL AIR TRANSPORT SERVICE LTD. v. CARGOCARE HONG KONG LTD.

HCA5945/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.5945 OF 1997

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D E C I S I O N

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1. This is an application for specific discovery by the defendant. The defendant wishes to have the plaintiff give discovery of invoices, agreements and/or other documents evidencing payments made and/or received by the plaintiff in connection with the computation by the plaintiff of the total costs incurred in producing the FOB revenue.

2. This case arises out of an agreement between the plaintiff and the defendant who were transport handling agents. They have an agency agreement which provided for a share of the profits arising from traffic between Hong Kong and Switzerland of carriage of goods on a 70/30 percent basis, i.e. 70% for Cargocare Hong Kong Limited, the defendant and 30% for Oriental Air Transport Service Limited, the plaintiff. The point is that the profits were to be calculated on the net figure after deduction of airfreight charges paid to the airline, garment rack charges, packing charges and handling commissions. There were other further supplemental agreements or an agreement between the parties later on but I do not think I need to go into that.

3. Basically, the defendant's case on its counterclaim is that it has been overcharged throughout the dealings with the parties by the plaintiff in respect of the various charges which were to be paid out, i.e. the airfreight charges and so forth. Now the defendant is seeking to have discovery of documents which would establish what those charges in fact were, but the course of dealings between the parties appears to be that the defendant simply accepted the charges set down by the plaintiff and they did their profit sharing on the basis of the figures provided by the plaintiff.

4. I have been shown a statement, although I am not sure that it has been filed, by the principal witness for the defendant, which shows that he knew that the plaintiff was earning extra undeclared profit but because the dealings between the plaintiff and the defendant were amicable, he did not bother pursuing the extra profit share on the transaction at the risk of upsetting the relationship between the two companies. He did not know the true extent of the undeclared profits until the defendant terminated the agreement with the plaintiff and began doing the work itself. In other words, it appears that the defendant was letting things go on the basis that it knew that it was being overcharged for these "disbursements" by the plaintiff, but only later on did it realise how bad the situation was and how much it were being overcharged.

5. Now, the documents before the court and which will be produced for trial really only consist of spreadsheets showing the figures taken from the various documents in the transactions between the parties, and of course what the defendant wants to see is the supporting vouchers for the figures given by the plaintiff. It also wants to know what the real charges were because the defendant's own figures appear to have been extrapolated from the information which it says that it subsequently gleaned.

6. Throughout the case or throughout the pleadings, or at least on the pleadings as now they appear before me or appeared yesterday, the plaintiff had pleaded the ingredients of estoppel. Yesterday, they applied to amend the Re-Re-Amended Reply and Defence to Counterclaim to include a specific pleading of estoppel and that was allowed.

7. The defendant's case on discovery is of course based on the well known test in the case of The Compagnie Financiere et Commerciale du Pacifique v. The Peruvian Guano Company [1882] 11 QBD 55 that :

"... any document must be disclosed which it is reasonable to suppose contains information which may enable the party applying for discovery either to advance his own case or to damage that of his adversary or which may fairly lead him to a train of enquiry which may have either of these two consequences."

8. The plaintiff's case on discovery is that, in effect, although the issue of estoppel is one for the trial judge to decide, on the evidence as it now appears the judge is pretty much bound to find for the plaintiff on the estoppel point, and find that the defendant by its conduct accepted the charges. Having gone back on its acceptance, all these documents and all these figures are going to be nugatory.

9. If that is so, of course, then under Order 24, rule 8, I should refuse to make the order, insofar as I will be of the opinion that discovery is not necessary either for disposing fairly of the cause or matter or for saving costs.

10. Obviously the problem which the defendant faces is that it has on the evidence, or what I expect would be the evidence, of the witness Mr Spoerri, been accepting some overcharging throughout. This does not mean that they must be bound to have accepted any form of overcharge. Obviously there may be circumstances where a party to a contract is prepared for the sake of keeping the contract alive to accept some conduct by the other party which is not strictly within the terms of the contract. But there must be, I think, a sliding scale of what an aggrieved party may be prepared to accept.

11. Estoppel is an equitable defence. If the plaintiff is relying on estoppel, it must come to equity with clean hands. It could very well be that if there is a little bit of overcharging, the trial judge may say : "well, the defendant on its own evidence accepts it and it is estopped from going back on that acceptance". But if it turns out that there is some serious overcharging, I think it would be open to the trial judge to take a different view.

12. So I am not persuaded that this is a situation, like an Order 14 application where a judge at an interlocutory stage can make an estimate of what is going to happen in the future. I think it would be wrong of me to do that. I have no doubt that in terms of the Peruvian Guano authority, the estoppel point is not made out. The documents which the defendant seeks will most definitely be relevant to that case, and I think it should have discovery of them. If the estoppel point is made good, then clearly the defendant is going to be paying the costs anyway. The balance of prejudice must be in favour of the defendant because if the plaintiff loses on the estoppel point and the documents are not before the court, there will obviously be prejudice to the defendant. If, however, the plaintiff wins on the estoppel point, then any costs that it may have incurred in giving this discovery are going to be compensated to it.

13. I find the defendant has succeeded in this application and should have the costs of the summons. Of course the costs of the discovery ultimately are not going to be to the defendant as part of the costs of the summons. They are going to be costs in the cause so that it is how the plaintiff is going to be compensated if indeed it wins on the discovery point at the end of the day. So, I will make an order in terms, including the order for costs.