PERFORMANCE PROPERTIES LTD AND ANOTHER v. YIP KIM PO AND OTHERS

HCA1709/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.1709 OF 2000

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D E C I S I O N

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1. This is the plaintiffs' application for an order of a split trial on the issues of quantum and liability.

The relevant principles

2. Order 33, rule 4(2), Rules of the High Court provides that one or more questions or issues may be tried before the others. Under this rule, the court has a wide discretion and is to be exercised where it is just and convenient to do so. As a matter of general rule, issues of liability and quantum should be tried together. An order of split trial may be ordered where it is just and convenient to do so, but it is only to be made in exceptional cases where there is a clear demarcation between the issues of liability and quantum and where there will be a substantial saving as to time and expense : see Hong Kong Civil Procedure 2002, Vol.1, para.33/4/11.

3. The onus is on the party applying for such an order to show that it is just and convenient, having regard to the circumstances of the case : Tin Shui Wai Development v. Attorney General [1989] 2 HKC 492.

The application

4. In the present case, the plaintiffs say that it is just and convenient for the order to be made because there will be substantial saving in terms of time and costs. It is said that this would avoid an extensive inquiry into the finances of Kenlap Securities Limited ("KSL") and also the preparation of expert evidence that will no doubt delay the trial on liability.

5. The 1st and 2nd defendants oppose the application. They say there is no clear demarcation between the issues of liability and quantum and that there will be no saving of time and costs. It is also said that the plaintiffs are taking advantage of their failure to pursue the issue of quantum by asking for an order for a split trial.

6. An analysis of the issues to be resolved in these proceedings is helpful in deciding whether the issues of liability and quantum are clearly separated.

The issues in these proceedings

7. The present dispute arises out of a joint venture agreement between the plaintiffs and the 1st to 4th defendants. The 5th defendant is the joint venture company. Under the joint venture agreement, the 1st plaintiff was to make capital contribution of $1.5 million to the 5th defendant, the 2nd defendant was to inject two companies, KSL and Kenlap Finance Limited ("KFL"), into the 5th defendant, and the 4th defendant was to inject another company, Berlin Financial Corporation, into the joint venture.

8. The plaintiffs' case against the 1st and 2nd defendants is that they had committed a material breach of the agreement in failing to inject KSL into the 5th defendant. The plaintiffs claim a declaration that the joint venture agreement has been terminated and also damages arising from the breach. The damages sought by the plaintiffs fall into two heads. The first is for waste of expenditure represented by the $1.5 million injected into the 5th defendant. The second head of damages is the loss of opportunity of operating the joint venture and to make profits from that operation. The plaintiffs also seek an account and inquiry for the assessment of the damages. However, it appears from Mr Burns' submission today that the plaintiffs' claim is in reality confined to a claim under the common law for damages, and is not after the equitable relief of inquiry or account. It is explained that the prayer for inquiry or account is part and parcel of the claim for damages and is only to aid the assessment of damages.

9. The 1st and 2nd defendants deny any breach on their part. Their case is that the plaintiffs had repudiated the agreement by failing to proceed with the joint venture agreement. They say the repudiation came about after the plaintiffs had gone through the books and accounts of KSL, which they were not happy with. The plaintiffs then complained that the management account attached to the joint venture agreement was misleading. The plaintiffs also did a number of acts, including the service of a statutory demand on KSL, which amount to repudiation of the agreement.

Reasons for decision

10. Plainly, this is not a case where there is a clear demarcation of liability and quantum. A primary issue between the parties is whether the 1st and 2nd defendants were in breach of the joint venture agreement. Strictly speaking, the financial position of KSL is not directly related to this primary issue, but it is a relevant matter that the parties will invariably have to go into. It is a relevant factor when assessing the credibility of the witnesses, and also when considering the propensity of the defendants' case. As observed by Finlay J in Wincheer Investments Limited & Ors v. Lobley Company Limited & Anor (unreported), HCA No.A8145 of 1992 :

"I also doubt if it is helpful to talk of whether allegations are distinguishable between issues of liability and issues of damages. Usually, allegations will go to one or other, and not to both. It is the evidence from witnesses, not allegations, that will frequently cross the dividing line between liability and damages, and, in this sort of case, it will usually be better for the same judge to hear that evidence. This may be what Lord Justice Jenkins had in mind when using the words 'a clear line of demarcation'. Clearly, it [will] be embarrassing if different judges came to different conclusions regarding the evidence of the same witness."

11. In the present case, the issue of the financial position of KSL cannot be wholly separated from the primary issue of whether the defendants were in breach. There is every possibility that witnesses have to testify twice on the same point if an order for split trial were made. It would be desirable for one trial judge to deal with all these issues.

12. As to whether there would be any saving in terms of time and costs, the plaintiff's affirmation in support of this application really says nothing about saving of time and costs. Counsel has endeavoured in his submission to make some suggestions as to the likely savings. But that is not worked out scientifically; it is more a matter of guesswork. This is hardly sufficient to ground the application especially where there is no clear demarcation on liability and quantum.

13. A great deal has been said about the need to investigate into the accounts of KSL, which would necessitate expert analysis of the accounts and the possibility of issuing subpoenas for the production of these accounts. It is said that if these could be avoided at this stage, there will be some savings in terms of time and costs.

14. Clearly, the sort of savings that are envisaged will only be savings if the plaintiffs were to fail in their claim. It is not an additional saving as to justify an exception to the normal rule of having one trial to deal with both liability and quantum. What it rather shows is that the plaintiffs' case at the moment is just not ready for trial. And this brings me to the point on delay.

15. There is no doubt that if the parties have to, at this stage, proceed to discovery on the financial position of KSL, there will be delay and the trial will not come on until a while later. But that is not a point that can be said in the plaintiffs' favour or advantage because even assuming that the defendants had indeed failed with regard to their duty to make discovery, the fact remains that the plaintiffs have taken no action to pursue this aspect for almost a year after they felt that the defendants' discovery was insufficient and despite writing a number of letters to the defendants' solicitors to protest against the position. If there was delay, surely, the plaintiffs had contributed to that delay.

16. It has also been said that it would be known from the outset that without inquiry or discovery, the plaintiffs would not be in a position to give particulars of damages. I accept that that is a matter quite plain from the pleading of this case. But even then, it does not relieve the plaintiffs from the duty to press for discovery, if indeed they feel that the defendants had failed to make proper discovery. Therefore, the points on delay or the defendants' failure to make discovery do not advance the plaintiffs' application. Neither is it useful to argue that the parties should now move on to deal with liability and leave the question of quantum behind.

Conclusion

17. For the reasons indicated above, the plaintiffs' summons is dismissed. The costs of the summons, including the costs of the appearance before Master Lung and today, will be to the 1st and 2nd defendants against the plaintiffs in any event, to be taxed if not agreed.

18. The checklist review of this case will also be adjourned sine die with liberty to restore. The costs of the checklist review as between the plaintiffs and the 3rd and 4th defendants will be in the cause of the action.