THE SECRETARY FOR JUSTICE v. WEMBLEY INTERNATIONAL (HK) LTD. AND ANOTHER

HCA 8518/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 8518 OF 1998

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J U D G M E N T

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1. This is an appeal against a Master's decision to dismiss the defendant's summons for specific discovery under Order 24 rule 7 RHC.

History

2. In 1993 the Hong Kong Government rebuilt what was known as the Government Stadium at So Kon Po when it was renamed the Hong Kong Stadium. Necessarily the reconstruction included the laying of a brand new pitch. The construction of this was undertaken under the guidance of experts hitherto engaged by the then Royal Hong Kong Jockey Club to lay the race course at Shatin. A similar process was incorporated in the reconstruction at So Kon Po. The Urban Council as it was then called was the authorized public body appointed to manage the stadium.

3. When it was complete, by agreement dated April 1993 the Urban Council contracted with the 1st defendant, a Hong Kong incorporated company, to operate and manage the stadium; the 2nd defendant, the UK based parent of the 1st defendant, was also joined to guarantee its subsidiary's performance.

4. The agreement was scheduled to run for ten years. But the parties fell out. The Urban Council's post 1997 successor, the Provisional Urban Council, (PUC) unilaterally terminated the agreement in May 1998. The same month it issued a writ seeking a declaration that it was entitled to terminate and damages because of the 1st defendant's breach of the agreement. The defendants filed a defence and counterclaim.

5. At the close of 1999 the PUC was abolished, and management of the stadium devolved on a department of the Government called the Leisure and Cultural Services Department (LCSD). Subsequently the Secretary of Justice replaced the PUC as plaintiff.

6. The pleadings have been amended and reamended consequent upon various claims being deleted and new ones introduced.

7. The primary complaint as originally pleaded is that the 1st defendant failed to maintain the pitch. It fell into disrepair, which severely curtailed the stadium's use as a venue for important sports fixtures and other cultural events, causing a direct loss of revenue, damaging Hong Kong's reputation as a venue for international events, and resulting in extensive capital expenditure required to restore the pitch to an acceptable condition.

8. There was a significant secondary complaint that under the 1st defendant's stewardship the stadium under-performed financially, but that has by subsequent amendment been deleted.

9. The remaining complaints relate to alleged missmanagement giving rise to specific problems which by comparison are subsidiary issues.

10. The defendants dispute missmanagement under these or any other heads and counterclaim for unpaid fees, reimbursement of expenses and damages.

11. In February 1999 the then Registrar, Ms Registrar Chu, made certain orders by consent which included the exchange of lists of documents. The plaintiff's was dated April 1999 and a supplementary list was dated September 1999.

12. Less than satisfied about the completeness of these lists, the defendants made application for specific discovery. These came before Master Kwan in November 1999.

13. The application was contested, but the outcome was that she ordered discovery by the plaintiff of a very wide range of documents regarded as pertinent to all the various allegations of missmanagement.

14. Those relating to the pitch included, inter alia, the following, under the head: 'Documents arising after 26 May 1998';

"1.31 Documents arising after 26 May 1998 evidencing the PUC's maintenance practices for the Pitch, its expenditure on Pitch maintenance and reconstruction, its event schedules, the Pitch condition, and complaints regarding the Pitch, all including but not limited to correspondence, notes, minutes or e-mails between the PUC, Board of Governors, SCWC, USD, RHKJC, HKFA, the HKRFU and any contractor engaged by the PUC for Pitch maintenance/reconstruction works."

Those relating to financial performance included, inter alia, the following:

"3.3.1 All documents evidencing the PUC's past, current and forecasted expenditure at the Stadium, operating costs (including all documents evidencing where such operating costs have been reduced by sourcing labour or resources internally within the PUC/USD), event schedules, and fees and charges for the hire of the Stadium, all from the 26th May 1998 to date and continuing."

15. There was compliance with Master Kwan's order but, in the view of the defendants, not full compliance, which brought about two further applications for specific discovery. I am concerned with one of these which came before Master de Souza in November 2001. He was asked to order discovery on the following terms:

"1. Facsimile from the Plaintiff to Dr James Beard dated 2 May 1998 and subsequent correspondence between these parties.

2. Annual financial accounts of the Plaintiff evidencing the revenue and expenditure of the Stadium for the year ending 2001 together with schedules giving a breakdown of the items of revenue and expenditure therein.

3. Documents giving the breakdown of and/or identifying the source of the interest income figure reported in the Audited Financial Statements for the Hong Kong Stadium for the year ending 31 March 1999.

4. Event files from 28 November 1999 to-date.

5. All correspondence, minutes of meetings and attendance notes created after 26 May 1998 in relation to communications with the Hong Kong Rugby Football Union regarding the amounts due, and all attempts by the Plaintiff to collect the same, in respect of the 1998 Rugby Sevens Event.

6. Documents (including but not limited to correspondence, minutes of meetings or notes) evidencing the contractual negotiations and agreements reached between the Plaintiff and the Hong Kong Rugby Football Union in relation to the 1999, 2000 and 2001 Rugby Sevens Events."

16. Prior to the hearing the defendants abandoned discovery of the documents at no. 5.

17. At its conclusion Master de Souza dismissed the remaining applications with costs. The defendants are prepared to abide by the dismissal as it relates to the documents at no. 6. So, this appeal is limited to those listed at nos. 1 to 4.

The Law

18. Before dealing with the individual applications, it is, I believe, appropriate to consider the rules which govern the exercise of this judicial discretion.

19. Order 24 rule 7 RHC states:

"Order for discovery of particular documents

7. - (1) Subject to rule 8, the Court may at any time, on the application of any party to a cause or matter, make an order requiring any other party to make an affidavit stating whether any document specified or described in the application or any class of document so specified or described is, or has at any time been, in his possession, custody or power, and if not then in his possession, custody or power when he parted with it and what has become of it.

(2) ........

(3) ........"

20. In Full Range Electronics Co. Ltd v General-Tech Industrial Ltd & Another [1997] 1 HKC 541 Cheung J (as he then was) set out what the applicant for discovery has to establish prima facie:

"1. There is in existence a specified document or class of documents;

2. the party against whom the order is sought has or had the document in his possession, custody or power;

3. the document or class of document relates to a matter in question in the action; and

4. discovery thereof is necessary either for disposing fairly of the cause or matter of for saving cost."

21. That having been achieved rule 8 comes into play which states:

"Discovery to be ordered only if necessary

8. On the hearing of an application for an order under rule 3, 7 or 7A the Court, if satisfied that discovery is not necessary, or not necessary at that stage of the cause or matter, may dismiss or, as the case may be, adjourn the application and shall in any case refuse to make such an order if and so far as it is of opinion that discovery is not necessary either for disposing fairly of the cause or matter or for saving costs."

22. The burden of establishing that a document is not necessary falls on the respondent opposing discovery. Parker L.J. said in Dolling-Baker v Merrett (1990) 1 WLR 1205 at 1209E:

"It is submitted ....... under rule 8 it is for the party who is objecting to any such order to satisfy the court that discovery by list or affidavit is not necessary. It appears to me that that approach and submission are correct, and there is a perfectly sensible reason for it. If one is merely at the stage of discovery, it does no harm in most cases for the party against whom discovery is sought merely to list his documents. That discloses that he has them or has power over them. But he can object to produce them on the ground of privilege or, indeed on any other ground. At that stage not very much has occurred except that the applying party will be enabled to know what documents the objecting party has, and it is right that the burden should be upon the objector in such case."

23. With these principles in mind I now turn to consider the individual applications.

1. Dr James Beard - the original facsimile and subsequent documents

24. Dr Beard is a world-renowned turf expert. He was not involved in the original laying of the pitch but subsequently came to be engaged by the 1st defendant to advise on maintenance and related matters. Then, following PUC's termination of the management agreement in May 1998, the PUC engaged Dr Beard to vet tenders submitted for returfing of the pitch scheduled for mid May 1998. The facsimile in question is replied to and referred to in a fax from Dr Beard of 6 May 1998 which has been disclosed. That of itself makes the fax of 2 May prima facie relevant; see Omerod, Furison & Co. v St. George's Ironworks [1906] 95 LT 694. Suffice to reproduce part of the headnote:

"For the purpose of an application for production of certain specified documents on the ground that they relate to matters in question in the action, if a relevant letter scheduled to an affidavit of documents is produced, privilege not being claimed, and it refers to any other letter or document, that other letter or document is at once prima facie relevant to the matter in question in the action, and the person making the affidavit of documents must make an affidavit respecting that document."

25. Production is opposed on the grounds that Dr Beard's engagement was irrelevant to the condition of the pitch, falling thus outside Master Kwan's order at 1.3.1; further, any 'subsequent correspondence' was not within the framework of that engagement.

26. My view is that that is too restrictive an interpretation of Master Kwan's order at 1.3.1. Dr Beard's response to a specific request was discoverable. I find nothing before me to disturb the presumption that the request itself, to which the response refers, also falls into the same category. Furthermore, the pleadings in their present form indicate the state of the pitch during the 1st defendant's tenure is now the central issue in dispute. The affidavit in opposition states that the remaining correspondence is unrelated and irrelevant. I am not told why. Given the central issue and Dr Beard's expertise and involvement from an early date, I am not satisfied that production of this correspondence is not necessary.

27. There is to be discovery under this head.

2. The annual accounts for the year (ending March) 2001

28. The plaintiff has disclosed the stadium's accounts for the years ending March 1999 and March 2000 in purported compliance with Master Kwan's order at 3.3.1. It has declined to oblige with last year's on two grounds; they do not exist and, if they did, they would be irrelevant.

29. The affidavit filed in opposition states that once the PUC disappeared from the scene accounts separate and distinctive of the operation of the stadium ceased to exist; income and expenditure came to be dealt with in the general revenue. So there are not, for the period in question, any annual operating or audited or unaudited financial accounts which can be produced. The objection on relevance is supported by the contention that now the allegations of financial under-performance have been deleted there is no need for production of documents going to performance after the termination.

30. The counter argument is that it is a nonsense to suggest that there are no financial records dealing with and limited to income and expenditure of the stadium, which surely would separately exist if only to track its performance and for internal audit requirements. Furthermore, whilst the claim dealing with the 1st defendant's financial performance has been dropped, the matters raised in defence have not and nor have responses to those in the reply. As such the issue is live, and post termination figures, including those the subject of this application, are relevant to the defence case, so that comparisons can be made. As a fall-back, in the event I am satisfied the documents do not exist, I was invited by Mr Hingorani for the defendants to amend the application to call for production of source documents.

31. Startling though the proposition is, I am not prepared to disbelieve testimony that accounting procedures now in place do not distinguish the stadium from other managed establishments, and that there are no separate accounts capable of being produced. No doubt if the need arose somebody could be asked to rewrite separate accounts. But discovery does not provide for production of documents that do not exist. Furthermore, I accept that with financial performance not in issue the accounts for the year ending three years after the termination would not be relevant. My view is not disturbed by the 1st defendant's election to retain in the pleadings reference to its own performance.

32. Nor do I think it appropriate to amend the terms of the application as proposed by Mr Hingorani. To grant the application as amended would invite a potentially huge gathering of material, and the argument of relevancy against this course still holds good.

33. The application for discovery under this head is declined.

3. Documents to identify source of interest earned for the year ending March 1999

34. This request derives from the accounts for the year in question recording a figure under this head of more than $6.8m, as against a total of about $4.4m earned in respect of the four years the 1st defendant was in tenure. Details are needed so that a proper comparison can be made.

35. The opposition goes to the question of relevance. In any event there has been an explanation for the source; following the takeover all funds received on account of the stadium were put into an interest bearing account to maximise interest.

36. My view is that discovery is not warranted; the application under this head is also declined.

4. Event files November 1999 to date

37. It is not in dispute that these files exist. Those for the period September 1998 to December 1999 have been produced, in purported compliance with both of the orders of Master Kwan at 1.3.1 and 3.3.1.

38. The objection raised is that the practice now is:

(a) tentative event schedules are prepared from time to time to record provisional bookings;

(b) they would be updated whenever the events are actually held;

(c) the event schedule will be finalised on 31/3 each year.

The finalised event schedules for 1998/99 and 1999/20 have been disclosed. An updated event schedule for 2000/01 has been produced. These accurately provide particulars of events that have taken place and those that are scheduled. Furthermore, relevance is related to the 'financial performance' issue. Now that has gone so has the need for production of these files.

39. I do not agree. It has been accepted that details of events are relevant to what is now the central issue, namely, the standard of the pitch. I accept that it is important that the defendants have direct evidence going to the sort of and extent of exposure which goes to its condition. I also accept that full and accurate particulars are needed for some of the other claims I have described as subsidiary. The event files under this head up to the date in question have been produced without demur. The defendants should not now be required to rely on the accuracy of unsubstantiated summaries.

40. This application is granted.

The result

41. Insofar as applications 1 and 4 are concerned the appeal is allowed. Insofar as applications 2 and 3 are concerned the appeal is dismissed. Costs, here and below, nisi at first instance, shall follow the event.