HEALTH CHAMPION LTD v. LEE SHUET MAY AND OTHERS

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.6517 OF 1995

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JUDGMENT

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1. The Court is presently seized with a Master's appeal on ...(illegible) the 3^rd Defendant herein. On 30^th March 1999, Master Ho, sitting as a ...(illegible) in the High Court General List, made an order for discovery in this case...(illegible) order he made, at paragraph 1 of his Order dated 30^th March, reads as ...(illegible)

"The 3^rd Defendant do within 21 days from the date hereof ...(illegible) and serve on the Plaintiff an affidavit stating whether it has ...(illegible) has had at any time in his possession custody or power any class of documents specified in the schedule hereto and if the said documents or any of them have been but are not now in his possession custody or power, stating when he parted with the same or what has become of the same."

The Schedule to that Order at paragraph 2 reads :

"All correspondence and other documents passing between the 3^rd Defendant and the purchasers under the contracts pleaded in paragraph 15(1) to (4) of the Statement of Claim in relation to the negotiation of such contracts."

2. Mr Daniel Fung, SC, who appears with Mr Lawrence Ng, on behalf of the 1^st and 3^rd Defendants today, has made application, on the back of a short-served summons which as yet has not found its way to the Court Bundle, to mount this appeal on behalf of the 3^rd Defendant together with a strike out application on behalf of the 1^st Defendant. Mr Jat Sew Tong, on behalf of the Plaintiff opposes the hearing of the strike out, and in the circumstances I upheld that opposition. Resulting from that ruling, the only matter that is before the Court today, therefore, is the discovery appeal.

3. There was also, in the context of the appeal argument, a dispute as to whether the Defendants should be permitted to put in new affidavits which were not before the learned Master. Mr Jat criticises these affidavits as containing a new case which is as yet unpleaded, and further objects that there is no explanation on affidavit as to why this new affidavit material has only now found its way before the Court. I accept without question all that Mr Fung, SC, tells me about the circumstances, but, of course, he is only as good as his instructions. And for my part, the fact that the instructions which form the basis of this new affidavit evidence were not taken until after the hearing before the Master is not, in my judgment, sufficient for me to exercise my discretion to admit these affidavits on this appeal.

4. In any event, Mr Fung, SC, is undaunted. He has a simple point. It is this : this is an action by the Plaintiff against the 1^st Defendant, formerly a director of the Plaintiff, the 2^nd Defendant (who is her husband) and the 3^rd Defendant, which is the company owned and operated by the 1^st and 2^nd Defendants. The action actually is, inter alia, for breach of fiduciary duty, and the Plaintiff's complaint is that at the time she was a director, the 1^st Defendant diverted business, which would otherwise have come to the Plaintiff, to the 3^rd Defendant. Against this background, Mr Fung, SC, points out that paragraph 1 of the Statement of Claim recites that:

"The Plaintiff was incorporated in Hong Kong on 28^th October 1988 and since about April 1989 has been carrying on the business of sale of medical equipments to hospitals and medical practitioners in Hong Kong." (emphasis added).

whereas paragraph 15 of the Statement of Claim reads as follows :

"Further or in the further alternative, since about September 1991, the 1^st Defendant without the Plaintiff's knowledge or consent wrongfully procured various contracts for the sale of medical equipments to be entered into by the 3^rd Defendant instead of the Plaintiff, thereby diverted the Plaintiff's business to the 3^rd Defendant."

5. Mr Fung, SC, argues that the particulars that are given pursuant to paragraph 15, namely, recitation of four China contracts, should not found a discovery order such as that ordered by the learned Master because by its own hand, if you like, the Plaintiff has restricted the ambit of the business diverted to Hong Kong. This argument, I suppose, also founds the proposed application under the Court's inherent jurisdiction to strike out which, of course, I have declined to hear pending due notice to Mr Jat. In fact, it seems to me the latter can return to the Master for ventilation in the normal course.

6. In response, Mr Jat says it has never been his case that the Plaintiff company was set up exclusively for business in Hong Kong. The Plaintiff's case is simply that it was always in its line of business, namely, the sale of medical equipment, and whilst its actual business hitherto had only been in Hong Kong, it was never intended to be the case that that should be the exclusive ambit of the Plaintiff's business. The sole question for trial, he said, is whether the business that is presently particularised in paragraph 15 constitutes business that the 1^st Defendant should have directed to the Plaintiff, and this primary question has nothing to do with the fact of whether or not other existing business had hitherto been confined to Hong Kong.

7. Mr Fung, SC, in turn, castigates this approach as "disingenuous", but I do not think that it is. Perhaps Judges of the Commercial Court take a pretty broad view of pleadings, but it is quite clear to me, even on cursory examination, that the gravamen of this case is an attack on the 1^st Defendant's behaviour, acting allegedly with her husband, to divert business which would or should otherwise have gone to the Plaintiff to their own company, the 3^rd Defendant. And I do not recognise on the face of the pleading any strict geographical limitation which would preclude complaint that China contracts, were not, so far as the Plaintiff's business were concerned, fair game. Possibly, the matter could have been better pleaded. But, as I have said, the essence of the case seems to me to be fairly clear, and no doubt it is that case that underpins the claim for relief for an account and damages for breach of fiduciary duty.

8. Mr Fung, SC, has very properly accepted that discovery is a good thing. All that the present application is intended to achieve, he said, is to "clear the decks" for the trial. That, of course, is entirely laudable. I, too, think that discovery is a good thing, as all commercial practitioners no doubt know by now. And when it comes to allegations of breach of fiduciary duty for wrongful diversion of business, it seems to me that this unexceptional principle has increased force. I do not know whether this Plaintiff will succeed at this trial, but what seems to me to be essential is that this Plaintiff should have the assistance of the normal discovery process in furtherance of its primary complaint that business -- dare I say geographically unconfined business -- was redirected from the Plaintiff to the 3^rd Defendant. In my view it is as simple as that.

9. The result of these observations, therefore, is that I reject this appeal and formally dismiss it. I do not know whether there are any directions that need to be made consequent on such dismissal but, if there are, I will hear Counsel. I will also hear Counsel on the issue of costs.

[Counsel address]

10. Counsel do not think that anything arises consequentially. So far as costs are concerned, they must follow the event. The appeal is dismissed with costs to the Plaintiff, such costs to be taxed if not agreed.

11. That being all for this afternoon, I thank Counsel for their assistance.