KABUSHIKI KAISHA YAKULT HONSHA AND OTHERS v. YAKUDO GROUP HOLDINGS LTD AND ANOTHER

HCA 2409/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2409 OF 2002

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D E C I S I O N

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1. I have set out the history of this application in my Ruling of 12 June 2003. Pursuant to the directions contained in my Ruling, Mr Ho filed further submissions on 19 June 2003 and Mr Kwan replied on 26 June 2003.

2. There is no dispute as to the correct approach that the court should adopt in an application for inspection of documents. The application is made under Order 24 Rule 11. Rule 11(1) expressly directed the court to have regard to Rule 13 in the exercise of its discretion. Rule 13 stipulates that the court could only order production of documents for inspection if it is of the opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs.

3. Mr Kwan cited a number of cases. I have duly considered the same. In my judgment, the following principles extracted from the cases are particularly pertinent. The purpose of inspection is to ensure that one party does not enjoy an unfair advantage or suffer an unfair disadvantages in the litigation as the result of a document not being produced for inspection: per Sir Thomas Bingham MR in Taylor v Anderton [1995] 1 WLR 447 at 462. The court should examine the facts of the individual case and exercise its discretion having regard to the issues in the case, the nature of the documents and the information which the documents are likely to contain (see Neill LJ in Wallace Smith Trust v Deloitte [1997] 1 WLR 257 at 267G to H).

4. In Wallace Smith Trust v Deloitte [1997] 1 WLR 257 at 272 D to E, Simon Brown LJ said disclosure will be necessary if,

(a) it will give "litigious advantage" to the party seeking inspection, and

(b) the information sought is not otherwise available to that party by, for example, admissions, interrogatories or from some other source, and

(c) such order for disclosure would not be oppressive, perhaps because of their sheer volume.

5. Mr Kwan also urged this court to bear in mind that on the question of oppression, Mayo VP had said the following in Yau Chin Kwan v Tin Shui Wai Development Ltd CACV 247 of 2001, 4 July 2001, at p. 4 of the judgment,

"It can reasonably be assumed that the defendant and those advising him should have a sophistical system for the retention and retrieval of documents and there should be no undue difficulty in compliance with the order which is being sought by the plaintiffs."

One should note that the scope of discovery sought in that case was limited by reference to specific subject matters and duration.

6. I now turn to the requests of the Plaintiffs. The Schedule in the summons for inspection listed out the documents the Plaintiffs sought. There are eight items:

(1) The agenda of the 1st Defendant's press conference and other relevant documents by the 1st Defendant relating to its press conference held on 27 September 2002;

(2) The business plan for and documents relating to the formation and organization of the 1st Defendant and its subsidiaries and factories;

(3) The minutes of the subscribers of the 1st Defendant;

(4) The minutes of the board and shareholders' meeting of the 1st Defendant;

(5) Documents relating to the 1st Defendant's attempts or plan to raise capital in Hong Kong under its present name;

(6) Documents relating to the design, manufacture and use of the bottle(s) of the 1st Defendant's products, including the one shown in exhibit "JKA-8" to the 2nd Affidavit of James Kennoway Allan;

(7) Documents that are or were distributed to the 1st Defendant's shareholders or potential investors under and by reference to the 1st Defendant's present name in Hong Kong; and

(8) Documents relating to the creation and selection of the various marks which the 1st Defendant or its related companies have applied to register, including without limitation "養樂多" "雅樂多" and "益樂多".

7. The primary submission of Mr Kwan as to the purpose for inspection of items (1) to (5) is to show the role of the 2nd Defendant in the affairs of the 1st Defendant in order to establish the Plaintiffs' case that the 1st Defendant was the alter ego of the 2nd Defendant. In the Agreed Facts set out in the Agreed List of Issues dated 30 September 2002, the Defendants agreed the following in Paragraph 48,

"D2 is and was at all material times a director, the Managing Director and/or General Manager of D1. He was a subscriber of D1 owning 20% of its shares. He is and was at all material times an authorized signatory of the majority shareholder of D1, namely Dong Long Group Limited which owns 51% shares of D1."

8. What the Plaintiffs interested in is to establish the personal liability of the 2nd Defendant in respect of the wrongful acts of the 1st Defendant. Although proving the company to be the alter ego of the 2nd Defendant could be one way to establish this, it is by no means the only way. The personal liability of a director for tortious acts committed by his company is discussed in Paras. 4-86 to 4-89 of Clerk & Lindsell on Torts, 18th Edn. Mr Kwan also referred me to Green Cartridge v Canon [1996] 2 HKC 180. That was an unusual case in which legal advice had been sought by the board before the defendant company started the manufacturing of cartridges and such legal advice was obtained through a director other than the one who was being sued. The full board consisting of several directors decided to go ahead on the basis of such advice. The second defendant in that case did nothing more than any other director and shareholder would have done in his position. The Court of Appeal held that in those circumstances, the second defendant should not be personally liable. For present purposes, I think it is sufficient to adopt the statement of principles set out recently by the English Court of Appeal in the judgment of Chadwick LJ in MCA Records v Charly Records [2003] 1 BCLC 93 at Paras. 49 to 53 and the test set out by His Lordship in Para. 53,

"But, in my view, the test can, perhaps, be expressed more accurately in these terms: in order to hold Mr Young liable as a joint tortfeasor for acts of copying, and of issuing to the public, in respect of which CRL was the primary infringer and in circumstances in which he was not himself a person who committed or participated directly in those acts, it was necessary and sufficient to find that he procured or induced those acts to be done by CRL or that, in some other way, he and CRL joined together in concerted action to secure that those acts were done."

9. With these in mind, I shall first deal with the application in relation to items (2) to (5) and (7). It is necessary to recap several features of the present case. Firstly, it has been accepted that the present action should focus on activities in Hong Kong although this court will have to take into account of activities elsewhere, e.g. in mainland China and Taiwan, insofar as they impinges upon the activities undertaken by the Defendants in Hong Kong. Hence, although the Re-Amended Statement of Claim made reference to events in Taiwan, the emphasis is on the effects of those in Hong Kong rather than Taiwan (see also Paragraphs 8, 15, 18 to 20 of my Reasons for Ruling of 6 September 2002).

10. Secondly, in the Re-amended Statement of Claim, the Plaintiffs asserted the name Yakult, "養樂多" and the Yakult Bottle as the badges of Plaintiffs' reputation. Although there was reference to the Yakult Ladies, I understand that to be more by way of background since unlike the allegations of passing off by the Defendants in the use of the name Yakudo "養樂多" and the Yakult Bottle, there is no specific plea of passing off or infringement based on Yakult Ladies. There is nothing to suggest that the Defendants had introduced a system similar to Yakult Ladies in Hong Kong to market their products.

11. Thirdly, the evidence showed that the Defendants had not yet commenced with the sale or marketing of their products in Hong Kong. Of course this should not prevent the Plaintiffs from applying for relief on quia timet basis. But this is a matter I should take into account in considering what documents are likely to be in the possession, custody or power of the Defendants and whether inspection of the same should be ordered.

12. Fourthly, the evidence showed that the 1st Defendant had 876 shareholders (see "LTK-8"). In view of that, as presently advised, it seems unlikely to me that the Plaintiffs could rely on the alter ego argument to establish the personal liability of the 2nd Defendant. It may be more realistic to see whether the 2nd Defendant participated directly in the acts complained of or whether he procured or induced those acts to be done by the 1st Defendant or that, in some other way, he and the 1st Defendant joined together in concerted action to secure that those acts were done.

13. Fifthly, the 2nd Defendant had deposed to his personal involvement in some of the activities complained of by the Plaintiffs. In particular, concerning the use of Yakudo and "養樂多" as the name of the 1st Defendant, relevant admissions could be found in Paragraphs 41 and 71 of his First Affirmation. Concerning the article of 12 September 2001, the 1st Defendant admitted that he was interviewed by reporters in Paragraph 56 of that Affirmation. In fact, the Defence case as to the choice of "養樂多" as the name of the 1st Defendant and its right to use that name for its business depends very much on the 2nd Defendant's alleged linkage with the 2nd Plaintiff.

14. On the other hand, the 2nd Defendant said in Paragraph 21 of his Third Affirmation that the press conference of 27 September 2002 was held at the advice of a financial adviser. Nor did he reveal much about the use of Yakult Bottle by the 1st Defendants. Although the Defendants have admitted in the List of Issues that such bottles were used and intended to be used in respect of the products of the 1st Defendant (and this was reinforced by concession to this effect by Mr Ho at the hearing of 15 May 2003), there is no concession as to the 2nd Defendant's involvement regarding such decision.

15. In the course of arguments on 15 May 2003, this court expressed concern as to the width and scope of certain items asked for by the Plaintiffs. In his Supplemental Submissions filed on 26 May 2003, Mr Kwan attempted to narrow items (3) and (4) in Paragraph 6 thereof,

" (3) The minutes of the subscribers of D1 relating to the formation, development plan, target group of investors, promotional activities, and selection and use of the company name and trade mark of D1, and those minutes containing references to any of the Plaintiffs or any other members of the Yakult Group.

(4) The minutes of the board and shareholders' meetings of D1 relating to development plan, target group of investors, promotional activities, and selection and use of the company name and trade mark of D1, and those minutes containing references to any of the Plaintiffs or any other members of the Yakult Group."

16. As I have said, the 2nd Defendant had already admitted his role in the choice of names for the 1st Defendant. I do not think the production of these documents are necessary within the meaning of Rule 13 for the purpose of proving the personal liability of the 2nd Defendant in that regard. However, in view of what I said in Paragraph 14 above, I am of the view that the Plaintiffs should be entitled to inspect these minutes insofar as they recorded discussions in meetings concerning the use of the bottles and the press conference of 27 September 2002.

17. Mr Kwan argued in his supplemental submissions that apart from the personal liability of the 2nd Defendant, these documents are necessary as they may shed light on whether the Defendants set out to misappropriate the goodwill and reputation of the Plaintiffs. I accept that contention insofar as the scope of the inspection is confined to discussion pertaining to the selection and use of the company name and trade mark of D1 and the bottles and the target group of investors. The last part will be relevant to the issue as to who are the relevant public regarding the passing off claims. On the material before me, I am not satisfied that this argument justifies inspection beyond that.

18. As to items (2), (5) and (7), Mr Kwan submitted that the Plaintiffs are entitled to claim against the Defendants in respect of all forms of misrepresentations and for that purpose, inspection of those documents are necessary. Items (2) and (5) seems to be internal documents and whatever misrepresentations containing therein would not support any claims for passing off. Bearing in mind the inspection of other documents permitted by me, I am not satisfy that these two items are necessary for the fair disposal of the issues in this action or for saving costs. However, documents relating to the organization of the 1st Defendant might shed light on the personal liability of the 2nd Defendant. I will allow inspection in respect of that specific class of documents. Save as to that, I will dismiss the application as to items (2) and (5).

19. Item (7) is different. As stated in Paragraphs 19 and 20 of my Ruling dated 6 September 2002, the damage the Plaintiffs relied upon to support the passing off claims is the damage to their reputations in the mind of investors. I think the Plaintiffs are entitled to inspection of these documents to ascertain the extent of misrepresentations (if any) contained in those documents.

20. I then turn to item (1). Paragraph 22A of the Re-amended Statement of Claim referred to the press conference of 27 September 2002 to support a claim for aggravated or exemplary damages. I have dealt with the minutes of board or shareholders' meetings relating to that in Paragraph 16 above. But there should be other documents which might be relevant and necessary. In view of the defence case as to the role played by a financial advisor, the correspondence between the Defendants and such advisor would be highly relevant. Likewise, the minutes of meetings between the Defendants and such advisors concerning the aftermath of my Ruling on 28 August 2002 and the press conference should be produced. The agenda would shed light on what exactly happened at the press conference. I will therefore order inspection in term of item (1).

21. As to item (6), Mr Kwan submitted that there is an issue whether the bottles of the 1st Defendant were copied from the Plaintiffs. To support that submission, he referred to Paragraph 17(b) of the Amended Statement of Claim. I do not read Paragraph 17(b) as raising such an issue. As mentioned, the use and intended use of Yakult bottles was admitted by the Defendants through Mr Ho. If the purpose of inspection were to establish likelihood of confusion and deception, I would have held that to be unnecessary. However, in his supplemental submissions, Mr Kwan argued that inspection of item (6) is necessary for the resolution of the issue of dishonesty on the part of the Defendants. In my view, that could justify the inspection of documents to a limited extent, viz. those relating to the design of the bottles. There is no justification for extending inspection for documents relating to manufacture and use of the bottles. I will therefore only order inspection of documents relating to the design of the bottles of the 1st Defendant which is in the same or similar shape as the Yakult Bottle.

22. As to item (8), inspection is sought on the basis that those documents would be relevant to the issue of the Defendants' knowledge and honesty. Mr Kwan accepted that the Plaintiffs are not suing the Defendants regarding the marks "雅樂多" and "益樂多". He however argued that these marks were confusingly similar to the Plaintiffs' marks. In so submitting, Mr Kwan apparently failed to bear in mind that there is no allegation on the part of the Plaintiffs that such marks had been used by the Defendants in Hong Kong. As it stands, item (8) is couched in terms which could encompass whatever marks the 1st Defendant or its related companies might have applied for registration. Mr Kwan has not explained what the Plaintiffs meant by "various marks" and "related companies" in the summons.

23. As I said in the course of hearing, it behoves an applicant for specific discovery and inspection of documents to identify such document or class of documents precisely. This is very important because an opponent must be able to tell if an order were made whether a particular document comes within the scope of the order. When a party describes a class of documents in vague and general terms, not only would it cause great difficulties to his opponent in deciding what exactly he needs to do to comply with the order, it would also cause difficulties to the court in testing whether the documents are relevant to the issues in dispute and whether the test of necessity under Rule 13 can be satisfied. Very often, imprecise description of documents in this kind of applications is a sign of fishing on the part of an applicant.

24. Coming back to item (8), there is no suggestion that the Defendants carried out any activities in Hong Kong using the "雅樂多" and "益樂多" marks. Those marks were registered in mainland China and in view of the parameters of this action, in particular Paragraph 9 above, I do not accept that it is necessary to have the documents relating to creation and selection of these marks. I think there has to be a limit on discovery relating to the issue of dishonesty and given that I have allowed inspection of other documents more closely related to the material issues in this case which might shed light on the issue, I am not minded to extend it to these documents.

25. Regarding "養樂多", I have already allowed inspection of minutes concerning the choice of the name and mark for the 1st Defendant. I fail to see the need to order further inspection. As I said, the 2nd Defendant had already set out his case as to the adoption of that name. Mr Kwan did not identify clearly to me what other specific documents relating to the creation of the marks he had in mind.

26. In the circumstances, I will order the Defendants to produce to the Plaintiffs for inspection the following documents,

(a) The agenda of the 1st Defendant's press conference and other relevant documents by the 1st Defendant relating to its press conference held on 27 September 2002;

(b) Documents relating to the organization of the 1st Defendant;

(c) The minutes of the subscribers' meeting of the 1st Defendant insofar as they recorded discussions concerning the selection and use of the company name and trade mark of D1 and the bottles and the target group of investors;

(d) The minutes of the board and shareholders' meetings of the 1st Defendant insofar as they recorded discussions concerning the selection and use of the company name and trade mark of D1 and the bottles, the target group of investors and the press conference of 27 September 2002;

(e) Documents relating to the design of the bottle(s) of the 1st Defendant's products as shown in exhibit "JKA-8" to the 2nd Affidavit of James Kennoway Allan;

(f) Documents that are or were distributed to the 1st Defendant's shareholders or potential investors under and by reference to the 1st Defendant's present name in Hong Kong.

27. The other requests of the Plaintiffs are refused.

28. Since the Plaintiffs are only partly successful and bearing in mind that most of the arguments which persuaded me to grant inspection to the Plaintiffs were only advanced in the supplemental submissions, I make a costs order nisi that each party shall bear his own costs for this application.