WICKED FASHIONS, INC. v. EXPRESS INTERNATIONAL LTD AND ANOTHER

HCMP 516/2006

IN THE HIGH COURT OF THE

HONG KONG ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 516 OF 2006

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D E C I S I O N

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Application

1. This is an application for discovery under Order 24 rules 10 and 11A of the Rules of the High Court (“RHC”). 

Background

2. The interpleader proceedings herein were commenced by the Applicant, Wicked Fashion Inc. (“the Applicant”) on 15 March 2006.  It was said that the two claimants, namely, Express International Limited, (now called "the Plaintiff"), and World Billion Industrial Limited (in Creditor's Voluntary Liquidation), (now called "the Defendant"), disputed as to who should be entitled to the contract price of five purchase orders placed by the Applicant upon the Defendant. 

3. By the order of Master Hui dated 12 May 2006, a net sum of the contract price of US$386,867.48 was paid into this court on 7 June 2006 forming the subject matter to be argued by the parties by way of issue(s) to be formulated and affidavit evidence to be filed. 

4. Briefly, the parties' case may be summarised in the followings.  The Plaintiff said that it had manufactured garments for the Defendant from early 2005.  Contractual terms included payment within 30 days of delivery.  However, the Defendant had difficulties to pay since May 2005 and approximately US$1.75 million was then due and owing.  As such, the Plaintiff was reluctant to deliver the garments under the said five purchase orders.  Eventually, arrangement was made between the Plaintiff and the Defendants so that the Applicant would pay the contract price directly to the Plaintiff. 

5. On the other hand, the Defendant, by its liquidators, argued that the aforesaid arrangement was a fraud between former officer(s) of the Defendant and the Plaintiff to divert the contract price from creditors of the Defendant, and the person-in-charge, Mr Wong Wah Lap, also known as Valent Wong, had absconded.  The Plaintiff was not a creditor of the Defendant in the accounts prepared for the purpose of the voluntary liquidation.  The Plaintiff has not filed any proof of debt to the Defendant so far at all. 

6. On 24 May 2006, the Plaintiff filed the affirmation of Au Wing Sun to explain and support its case.  When Mr Au explained the relationship between the Plaintiff and the Defendant, paragraph 5 thereof stated the following:

"Since then World Billion had placed with EIL a number of orders(emphasis added) for cotton woven jeans and pants and/or other garment products for supply to Wicked Fashions.  My agreement with Mr Wong was that payment for all garment products applied to Wicked Fashion through World Billion was to be made within 30 days of delivery."

7. The Defendant's solicitors then wrote on 8 June 2006 to request for, inter alia, copies of the said orders (purchase orders). No agreement was reached and on 23 June 2006, the Defendant took out the present discovery summons. 

Ruling

8. Substantive argument of the matter was heard by me this afternoon and I also noticed that despite Master de Souza having granted the usual leave on 3 July 2006 for parties to file affidavit evidence, none was filed by either the Plaintiff or the Defendant.  Upon hearing from Mr Jojo of Messrs Barlow Lyde & Gilbert, solicitors for the Defendant, as well as Mr Ng of Messrs Dibb Lupton Alsop, solicitors for the Plaintiff, I have concluded that the Defendant's application is to be allowed.  My reasons appear as follows.

9. First, the words "a number of orders" were expressly employed in the subject affidavit.  On the face of it, there were documents in existence and, as such, prima facie, the Defendant is entitled to the discovery under Order 24 rule 10 RHC.

10. Second, I agree that the test of relevance in Order 24 rule 10 RHC is whether “a direct allusion” has been made to the document(s) as contained in the authority of Dubai Bank v Galadri (No.2) [1990] 1 WLR 731, CA.  The parties also agree the same and it is only the application of it that differs.  In this respect, I agree with Mr Jojo but not Mr Ng, especially his restrictive view that this court should look only at paragraph 5 of Mr Au's affirmation.  A fair reading of such phrase “in the context of the present case”, including the Schedule of Outstanding Payment issued by the Plaintiff (exhibit AWS-1) as well as the recent correspondence between the parties, is that there has been business between the Plaintiff and the Defendant for a few months since early 2005 involving a number of purchase orders and the sum of US$1.75 million approximately was outstanding, thereafter, leading to the subject arrangement now challenged by the liquidator of the Defendant as fraud.

11. Third and finally, Mr Ng has kindly and rightly conceded on Order 24 rule 13 RHC.  Further or in the alternative, in my view, the discovery now sought must be necessary for disposing fairly of the matter and for saving costs and, as such, the court's discretion should be exercised in favour of the Defendant's application.  As aforesaid, whether the said arrangement between the Plaintiff and the Defendant is at arm's length will be the key issue to be resolved.  Hence, the parties' relationship and dealings at the material times are vital in order to determine such issue, including of course how the said approximate sum of US$1.75 million was arrived at.  With the production and benefit of these purchase orders placed by the Plaintiff to the Defendant within these few months for both discovery and inspection, it will assist this court in resolving the dispute as well as saving time and costs.

(Discussion with parties on costs and time to comply the discovery)

12. It is order that:

(a) The 1^st Claimant/Plaintiff do within 7 days from today supply to the 2^nd Claimant/Defendant a photocopy of the orders placed by the 2^nd Claimant/Defendant with the 1^st Claimant/Plaintiff since early 2005 for cotton woven jeans and pants and/or other garment products for supplying to the Applicant, as referred to in paragraph 5 of the Affirmation of Au Wing Sun filed herein on 25^th May 2006;

(b) The 2^nd Claimant/Defendant do pay the 1^st Claimant/Plaintiff reasonable photocopying charges at HK$3 per page for the documents to be supplied under paragraph (a) above;

(c) Costs of this application be to the 2^nd Claimant/Defendant and borne by 1^st Claimant/Plaintiff, to be summarily assessed by this Court, if not agreed. Parties shall apply to restore the matter before this Court if agreement cannot be reached within 7 days from today.