BRUCE JAMES STINSON v. GU MING GAO

HCA 2352/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2352 of 2012

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J U D G M E N T

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The Summonses

1.  I have three summonses before me.  They are referred to in §§8(7), 8(9) and 9(3) below.

The agreement between the plaintiff and the defendant

2.  The plaintiff and the defendant made an agreement in writing (“Agreement”) dated 27 January 2004.  For present purposes, the following provisions are relevant:

Clause 2:

“[The defendant] to manage a team, including himself and whatever assistants are deemed necessary at any time, to provide a mathematical model which provides accurate probability estimates for Hong Kong horse races (hereinafter referred to as ‘the modeling team’). The services of the modeling team are to be available for the life of the business and whatever improvements or modifications to the mathematical model are deemed necessary for the ongoing success of the business will be carried out by [the defendant] and his team. In the same way, the services of the management team (see 3 below) are also to be available for the life of the business, including any further developments required to ensure the ongoing success of the business.”

Clause 3:

“[The plaintiff] to manage all other aspects of the business including, but not limited to, securing necessary investment, providing required data, office space, plant and equipment including computers and software, building required software and means of betting, arranging for and paying whatever staff and ancillary personnel are required. This role hereafter referred to as ‘management’.”

Clause 4:

“Both parties agree that, in the period from the date of this agreement to the end of the current Hong Kong racing season (June 2004), they will focus on fine tuning the mathematical model and putting in place all management areas to ensure the business is ready to operate at the commencement of the following season in August 2004. During this period, various betting simulations will be conducted and if deemed practical, some trial betting will occur.”

Clause 15:

“The mathematical model, betting software, and their continuing development are considered to belong to the business. Neither party to this agreement will deal with, sell, or share with others, any part of the means of operation of the business. This provision does not exclude the possibility that, with the agreement of both parties to this agreement, such dealing with the property may occur for mutual benefit.”

3.  By email dated 27 July 2012 from the defendant to the plaintiff, the partnership business made by the Agreement was dissolved with effect on 27 July 2012.

Background

4.  On 19 December 2012, the plaintiff issued the writ against the defendant.  The claims endorsed on the Endorsement of Claim include:

(1) A declaration that the mathematical model (the “Mathematical Model”) developed pursuant to the Agreement belongs to the Partnership Business established under the Agreement.

(2) An injunction to restrain dealing with the Mathematical Model.

(3) An order for delivery up by the defendant to the plaintiff a current working version of the Mathematical Model.

(4) Damages for breach of the Agreement.

(5) An account of all profits made by the defendant from horse racing betting using the Mathematical Model on his own account.

5.   (1) The Statement of Claim is dated 21 January 2013.

(2) The Defence and Counterclaim is dated 18 February 2013.

(3) The Reply and Defence to Counterclaim is dated 18 March 2013.

(4) The Reply to Defence to Counterclaim is dated 28 March 2013.

6.   (1) The plaintiff’s witness statement is dated 16 August 2013.

(2) The defendant’s witness statement and the witness statements of Lam Yuk Fai and Leung Man Kit are all dated 9 August 2013.

7.  I regard the service of witness statements as an indication that the parties were ready to proceed to trial.  That took place more than 2 ½ years ago in August 2013.  However, the parties did not proceed to trial.  The parties (the plaintiff in particular) seemed more interested in making one interlocutory application after another.  These interlocutory applications included those referred to in §§8 and 9 below.  The proliferation of interlocutory applications after the service of witness statements and after the introduction of the CJR is amazing.  The parties put in a total of 10 lever arch files (not including written submissions and authorities) before me. There are no dividers and the only index is inserted in Bundle 1.  Many documents were not referred to at all.

8.  1) The plaintiff issued a summons on 19 September 2013.

(2) The plaintiff issued a summons to amend the 19 September 2013 summons and amended it on 14 November 2013.

(3) On 11 June 2014, the plaintiff issued a summons.

(4) On 12 August 2014, the plaintiff issued a summons.

(5) On 11 November 2014, the plaintiff served a notice to produce documents for inspection.

(6) On 27 November 2014, the plaintiff issued a summons for non‑party discovery.

(7) On 27 November 2014, the plaintiff issued another summons for various orders (“the plaintiff’s November 2014 Summons”).

(8) On 22 April 2015, the plaintiff gave notice of appeal to judge.

(9) On 14 December 2015, the plaintiff issued a summons (“the plaintiff’s December 2015 Summons”) to amend the November 2014 Summons.

9.   (1) On 2 December 2013, the defendant gave notice of appeal to judge.

(2) On 4 April 2014, the defendant issued a summons for variation.

(3) On 18 December 2015, the defendant issued a summons (“the defendant’s December 2015 Summons”) for abridgement of service and expunging affirmations and exhibits or alternatively discovery and leave to file affirmation evidence in response.

The Registrar’s Unless Order dated 22 August 2014

10.  By Order dated 22 August 2014 (“the Unless Order”), the Registrar ordered that:

“Unless the Plaintiff by 4:00 pm on 28^th November 2014 takes out all interlocutory applications that may be advised, the Plaintiff is debarred from taking out further interlocutory applications.”

The Unless Order recited two applications by the plaintiff:

“... the application of the Plaintiff by way of Inter Partes Summons filed herein on the 11^th June 2014 and the application of the Plaintiff by way of another Inter Partes Summons filed herein on the 12^th August 2014 to amend the said Inter Partes Summons.”

11.  I am not aware of any appeal from the Unless Order.

12.  There is no application for extension of the time limit imposed by the Unless Order.

Dismissal of the plaintiff’s December 2015 Summons

13.  The plaintiff is thus debarred from taking out further interlocutory applications after 4:00 pm on 28 November 2014.  The plaintiff’s December 2015 Summons is barred by the Unless Order and I dismiss the plaintiff’s December 2015 Summons.

Master Chow’s case management Order dated 6 August 2015

14.  By an Order dated 6 August 2015 (“Master Chow’s case management Order”) made on the joint application of the parties by way of consent summons, Master Chow ordered that:

(1) an unless order that the defendant do file and serve its affirmation in opposition to the plaintiff’s November 2014 Summons by 4:00 pm on 7 August 2015; and

(2) “The Plaintiff do file and serve its Affirmation in reply, if any, on or before 4:00 pm, 10 December 2015”.

Affirmations filed on behalf of the plaintiff after 10 December 2015

15.  The following six affirmations were filed on behalf of the plaintiff after 10 December 2015, in breach of Master Chow’s case management Order, without leave, and without any application for leave:

(1) 13^th Affirmation of Bruce James Stinson (filed on 11 December 2015).

(2) 2^nd Affirmation of Wong Lai Yi (filed on 11 December 2015).

(3) 2^nd Affirmation of Lam Chui Fung Mimi (filed on 11 December 2015).

(4) 4^th Affirmation of William Thomas Ziemba (filed on 16 December 2015).

(5) Affirmation of J. James Reade (filed on 11 December 2015).

(6) 5^th Affirmation of Leung Wun Man Emba (filed on 11 December 2015).

16.  In §§26 and 27 of her judgment handed down on 26 February 2016 on the plaintiff’s appeal referred to in §8(8) above, Au‑Yeung J commented on the defendant’s lack of discipline and declined to rely on the evidence filed after the evidence in relation to the summons before her was closed, except one affirmation which Ms Tam SC did not object to.

17.  The Affirmations filed on behalf of the plaintiff after 10 December 2015 were filed after the evidence was closed under Master Chow’s case management Order.  I shall not rely on any of them.

The plaintiff’s November 2014 Summons

18.  This summons was issued within the time limit imposed by the Unless Order.  It asked for, among others:

(1) Leave to amend the Statement of Claim.

(2) Leave to adduce expert evidence at the trial on the issue whether the defendant has used the Mathematical Model “and/or a mathematical model derived and/or developed from the [Mathematical] Model, for placing his own private bets on his own account”.

(3) The defendant do produce the following documents ... the “Probit model” and the “Logit mathematical model”.

(4) Unless the defendant do produce within seven days:

(a) “a clean unencrypted copy of the [Mathematical] Model, within 7 days ... which is capable of being executed on a computer and being studied, analysed and verified”; and

(b) the following documents comprising the discrete elements of the Mathematical Model.

Amendment of the Statement of Claim

19.  The plaintiff seeks to amend the Statement of Claim by adding after “the Mathematical Model”:

“and/or a mathematical model/mathematical models derived and/or developed from the Mathematical Model.”

20.  In my judgment, the amendment is not permissible for a number of reasons.

21.  The first is that a derivative model, a model “derived ... from the Mathematical Model”, does not come within clause 15 of the Agreement.  Clause 15 provided that “the mathematical model, betting software and their continuing development are considered to belong to the business” (emphasis supplied).  It covers “the” Mathematical Model, but does not cover a derivative product.  Further and in any event, the term “derived from” is lacking in precision and is not defined in the pleading or in the order sought.

22.  So far as “development” is concerned, only “continuing development” is covered by clause 15.  And “development” is limited by clause 2 to “whatever improvements or modifications to the mathematical model are deemed necessary for the ongoing success of the business”.  It does not cover any and all developments.

23.  The Agreement covers only one model — the Mathematical Model, as continually developed, whether by way of improvements or modifications.  The number of models does not increase with each continuing development.  A continuing development includes improvements or modifications under clause 2 and is similar to a “fine tuning” under clause 4. There is still one model after each updating, fine tuning or continuing development.  The original model is subsumed in the updated model.

24.  The amendment seeks to include models which are not partnership property under the Agreement and is not permissible.

25.  Secondly, Order 18, rule 15(2) of the Rules of the High Court provides that:

“(2) A statement of claim must not contain any allegation or claim in respect of a cause of action unless that cause of action is mentioned in the writ or arises from facts which are the same as, or include or form part of, facts giving rise to a cause of action so mentioned; but subject to that, a plaintiff may in his statement of claim alter, modify or extend any claim made by him in the endorsement of the writ without amending the endorsement.”

26.  The amendment goes beyond the Endorsement of Claim which claims:

(1) A declaration that the mathematical model (the “Mathematical Model”) developed pursuant to the Agreement belongs to the Partnership Business established under the Agreement.

(2) An injunction to restrain dealing with the Mathematical Model.

(3) An order for delivery up by the defendant to the plaintiff a current working version of the Mathematical Model.

(4) Damages for breach of the Agreement.

(5) An account of all profits made by the defendant from horse racing betting using the Mathematical Model on his own account.

27.   (1) Prayer (1) referred to in §26 above does not cover a derivative product.

(2) Prayer (2) is restricted to “the” Mathematical Model.

(3) Prayer (3) is restricted to the “current working version of the Mathematical Model”.

(4) Prayer (5) is restricted to “the” Mathematical Model.

(5) The Endorsement of Claim has no claim in respect of a model “derived or developed from the Mathematical Model”.

(6) The amendment contain allegations or claims in respect of a cause of action not mentioned in the writ and do not arise from facts which are the same as, or include or form part of, facts giving rise to a cause of action so mentioned.  The amendment contravenes Order 18, rule 15(2) and is not permissible.  That is another reason why I decline to give leave to amend.

Expert evidence on the issue whether the defendant has used the Mathematical Model “and/or a mathematical model derived and/or developed from the [Mathematical] Model, for placing his own private bets on his own account”

28.  As I have declined to give leave to amend to introduce the issue of a mathematical model derived and/or developed from the Mathematical Model, it follows that no evidence on a non‑issue is permissible.

Production of documents ... the “Probit model” and the “Logit mathematical model”

29.  The defendant deposed in §9 of his affirmation that:

“At no point have I converted the Mathematical Model to my own use or benefit as the Plaintiff has alleged. Such private betting as I have undertaken has been with the benefit of a ‘Probit’ model risking my own money and using my own resources and time and is of no concern to the Plaintiff.”

The “documents” which the defendant asks for production are the “Probit model” and all documents comprising such Probit model.

30.  The defendant deposed in §4 of his 2^nd affirmation that:

“The Mathematical Model I developed for us by the Partnership Business was in the form of a ‘Logit’ model. All along, however, such private betting as I have pursued independently of the Partnership Business has been with the benefit of a different model, namely a ‘Probit’ model.”

The “documents” which the defendant asks for production are “the Probit model” and all documents comprising such Probit model.

31.  The defendant pleads in §11(c) of his Defence and Counterclaim pleads that:

“The Defendant had prior to the execution of the Agreement on 27 January 2004 already developed a Logit mathematical model along with the necessary programs for Hong Kong racing probability estimation. Following execution of the Agreement the Defendant and the Modeling Team derived from the earlier Logit mathematical model and programs the Mathematical Model required by the Agreement.”

The “documents” which the defendant asks for production are “the Logit mathematical model along with all the necessary programs for Hong Kong horse racing estimation” and all documents comprising such Logit mathematical model.

32.  An applicant under Order 24, rule 10 must show that “reference is made to any document”.

(1) The reference which the defendant made in §9 of his affirmation was to the “ ‘Probit’ model”.  Ms Tam SC argued that the reference here was to probability distributions functions, not documents. For interlocutory purposes, I accept her submission as a plausible construction of the defendant’s reference.  The defendant was not making reference to any document or bundle of documents.  This can be tested by replacing “the ‘Probit’ model” in §9 of the defendant’s affirmation by “documents”.  It does not make sense after the replacement.  Plainly, the defendant was not referring to documents.  A party referring to a “safe” refers to a “cabinet”, not to any document which may be contained in the cabinet.

(2) The reference which the defendant made in §4 of his 2^nd affirmation was to the “ ‘Probit’ model”.  Likewise, reference to “documents” has not been made out.

(3) The reference in §11(c) of the Statement of Claim was to the “Logit mathematical model and programmes for Hong Kong racing probability estimation”, not to documents.  Production of all versions of the Mathematical Model and its discrete elements has been ordered by L Chan J under his Order dated 2 April 2014.  The plaintiff has not satisfied me that the discovery now sought is necessary either for disposing fairly of the cause or matter or for saving costs.

A “clean unencrypted copy of the Mathematical Model which is capable of being executed on a computer and being studied, analysed and verified” and “the documents comprising the discrete elements of the Mathematical Model”

33.  As production of all versions of the Mathematical Model and its discrete elements has been ordered by L Chan J under his Order dated 2 April 2014, I am not satisfied it is necessary either for disposing fairly of the cause or matter or for saving costs to order production of:

(i) “a clean unencrypted copy of the Mathematical Model which is capable of being executed on a computer and being studied, analysed and verified” or

(ii) “the documents comprising the discrete elements of the Mathematical Model”.

34.  The defendant contends that the files and programmes contained in the USB drive are viewable, readable, analysable, and executable and that the reason why the Mathematical Model in the USB drive cannot be executed was due to the need to update the associated software, as the data feed received from third party sources has changed.  The defendant’s contentions are disputed by the plaintiff.  It is not appropriate to conduct a trial on affidavits.  I regard the defendant’s contentions as plausible for interlocutory purposes.

The plaintiff’s November 2014 Summons

35.  For reasons given above, I dismiss the plaintiff’s November 2014 Summons.

The defendant’s December 2015 Summons

36.  As I have dismissed the plaintiff’s summonses, it is not necessary to deal with the defendant’s December 2015 Summons and I make no Order in respect of this Summons.

Disposition

37.   (1) I dismiss the summons dated 27 November 2014 issued by the plaintiff.

(2) I dismiss the summons dated 14 December 2015 issued by the plaintiff.

(3) I make no order on the summons dated 18 December 2015 issued by the defendant.

38.  I make an order nisi under Order 42, rule 5B(6) that the defendant’s costs of the plaintiff’s summons dated 27 November 2014 and of the plaintiff’s summons dated 14 December 2015 are to be paid by the plaintiff to the defendant, to be taxed if not agreed, with a certificate for two counsel.