KWOK WAI FUNG v. CHINA GAS HOLDINGS LTD

HCA 1964/2014 &
HCA 1965/2014

[2023] HKCFI 83

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NOS. 1964 AND 1965 OF 2014

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(Consolidated pursuant to the Order of Master Hui

dated 25 September 2015)

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D E C I S I O N

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A.  INTRODUCTION

1.  By a notice of appeal of 22^nd April 2022, the Plaintiffs seek to appeal against the order of Master Rita So of 14^th April 2022, whereby she dismissed the Plaintiffs’ application under paragraphs 5 and 6 of their summons filed on 15^th October 2021 seeking discovery of an unredacted version of the board minutes of the Defendant dated 6^th October 2004 (“the Minutes”).

B.  THE BACKGROUND

2.  The Defendant, a company listed on the Main Board of the Stock Exchange in Hong Kong, had a share option scheme.

3.  The Plaintiffs’ case is that they were granted share options pursuant to the scheme adopted by the Defendant’s shareholders on 6^th February 2003 (“the Scheme”). The rules of the Scheme (“the Scheme Rules”) provided, inter alia, as follows.

3.1  The term “Eligible Persons” was defined to mean all directors, any employee, or any employee, partner or director of any business consultant, joint venture partner, financial adviser or legal adviser of or to the Defendant or the Defendant’s group, who, in the absolute opinion of the Defendant’s board of directors or a duly established committee thereof, had contributed to the Defendant or the Defendant’s group (cl.1.01).

3.2  The purpose of the Scheme was to advance the interests of the Defendant and its shareholders by enabling the Defendant to grant options to attract, retain and reward Eligible Persons, to provide to Eligible Persons a performance incentive for continued and improved services with the Defendant and its subsidiaries, and to enhance such persons’ contribution to increase the profits by encouraging capital accumulation and share ownership (cl.1.03).

3.3  There were provisions for the Defendant’s board to offer Scheme options to Eligible Persons, for Eligible Persons to accept such offers, and for Eligible Persons to exercise the options (cll.4.01 to 4.04, 7.03).

4.  The Plaintiffs say that the grant of the share options was made at a board meeting of the Defendant on 6^th October 2004. The minutes of the board meeting (that is, the Minutes) recorded that offer letters were to be issued “to the eligible persons (as per Appendix I) and opened for acceptance by the eligible persons for 28 days from 6 October 2004 and closed on 2 November 2004…”. Appendix I set out the eligible persons to whom share options were to be granted, and their titles. The persons listed at numbers 24 to 30 of Appendix I were the Plaintiffs. The titles given against their names indicated that they occupied positions in certain Beijing or Wuhan companies. The Defendant’s pleaded case is that this was based on a representation made by a Mr Xu, a director of the Defendants who was present at the meeting, that each of the Plaintiffs was an employee of a subsidiary of the Defendant (“Mr Xu’s Representation”). It has subsequently been admitted that the Plaintiffs were not employed by the Defendant’s subsidiaries.

5.  The Plaintiffs’ pleaded claim is that they duly exercised their options by written notices dated 23^rd September 2014, but the Defendant wrongfully refused to allot shares to them. They seek an order for specific performance.

6.  The Defendant’s defence is that the Plaintiffs were not, in fact, Eligible Persons, so that they did not fall within the scope of the Scheme. As the Scheme options were granted on the basis that they would be subject to the Scheme Rules, the Plaintiffs are not entitled to enforce the options.

7.  Disclosure of the Minutes, with Appendix I redacted to cover up the names and posts of persons who were granted options, and the number of options granted to them (other than in the case of the Plaintiffs), was first given on 5^th February 2015. The Plaintiffs asked for an unredacted version of the Minutes but the Defendant declined to provide it on the basis that the redacted information was not relevant to the issues between the parties. The Plaintiffs did not pursue the matter further after March 2015, until their current solicitors’ letter of 8^th October 2021, seeking a copy of the unredacted Minutes once more.

8.  The Defendant maintains its stance that the redacted information is not relevant.

C.  THE LEGAL PRINCIPLES

C1.  General

9.  There was no dispute as to the applicable principles as set out in Hong Kong Civil Procedure 2023 at note 24/7/2:

9.1  On an application for specific discovery under O.24 r.7, the applicant needs to put forward sufficient evidence or a prima facie case that (a) the documents or classes of documents exist which the other party has not disclosed, (b) the documents relate to a matter in issue in the action, and (c) the documents are in the possession, custody or power of the other party.

9.2  Once it is established that these three jurisdictional prerequisites exist, the court has a discretion whether or not to order discovery.

9.3  The court will not make an order unless the discovery sought is necessary either for disposing fairly of the cause or matter, or for saving costs.

9.4  For the purpose of discovery, the pleadings have to be looked at broadly.

C2.  Redaction and relevance

10.  A party is entitled to seal up or cover up parts of a document which he claims to be irrelevant. The test for whether, on discovery, part of a document can be withheld on grounds of irrelevance is simply whether that part is irrelevant. See GE Capital Corporate Finance Group Ltd v Bankers Trust Co Ltd [1995] 1 WLR 172 at 174C, 175G.

11.  The burden lies on an applicant for discovery to show a prima facie case of relevance: see O.24 r.7(3); Jade’s Realm Ltd v Director of Lands, unreported, HCA 1509/2012, 10 June 2014 at [21]. The burden lies on the respondent to satisfy the court that discovery is not necessary for fairly disposing of the cause of matter or for saving costs: O.24 r.8(1).

12.  The oath of the party giving discovery is conclusive, including on the question of relevance, unless the court can be satisfied, not on a conflict of affidavits, but either from the documents produced or from anything in the affidavit made by him, or any admission by him in the pleadings, or necessarily from the circumstances of the case, that the affidavit does not truly state that which it ought to state: GE Capital Corporate Finance Group Ltd at 174D; Wong Kar Gee Mimi v Severn Villa Ltd [2012] 1 HKLRD 887 at [51].

13.  A heavy burden lies on a party who seeks to challenge the veracity of the other party’s oath regarding redaction: Wong Kar Gee Mimi, supra, at [51].

14.  The test as to relevance is not whether the redacted parts are potentially relevant, or whether they might provide material for cross-examination as to credit. The test is whether it is not unreasonable to suppose that the redacted part does contain information which may, either directly or indirectly, advance the applicant’s case or damage the respondent’s case: Wong Kar Gee Mimi at [51].

15.  Whilst Peruvian Guano[1] is the test for relevance, fishing is not allowed: Jade’s Realm Ltd at [21(6)].

15.1  A document is relevant if (i) it is reasonable to suppose that it contains information which may, not must, either directly or indirectly enable the party requiring the same either to advance his own case or to damage the case of his adversary; or (ii) it is a document which may fairly lead the party to a train of inquiry which may have either of these two consequences.

15.2  Fishing arises where what is sought is not evidence but information which may lead to a line of inquiry which would disclose evidence; it is the search for material in the hope of being able to raise allegations of fact, as opposed to the solicitation of evidence to support allegations of fact, which have been raised bona fide with adequate particularisation: C v C, unreported, CACV 410/2005, 28 July 2006, at [8]. It is not the purpose of discovery to give an applicant an opportunity to hunt around the documents in the hope that they will reveal some improprieties on the respondent’s part or will provide more information for him to pursue more enquiries: In the Estate of Ng Chan Wah, unreported, HCAP 5/2003, 5 March 2003 at [16].

C3.  Impeaching credit

16.  Discovery solely for the purpose of impeaching the credit of a party will not be ordered: Hong Kong Civil Procedure 2023, note 24/8/3.

17.  Where collateral transactions with other parties would not be admissible at trial as “similar fact evidence”, documents relating to such transactions would at most be material for cross-examination as to credit, and therefore not be discoverable: GE Capital Corporate Finance Group Ltd at 177B-E, 177H-178C.

D.  WHETHER DISCOVERY SHOULD BE GIVEN

D1.  Whether relevant

18.  The Plaintiffs say that the redacted information is relevant to the following pleaded issues.

18.1  The Plaintiffs have pleaded that they were “Eligible Persons” under the Scheme as they were “business consultants” within the meaning of the Scheme Rules. The Defendant has denied that the Plaintiffs were business consultants, and pleaded that all along, the Board of the Defendant proceeded on the basis that the Plaintiffs were employees of the Defendant’s subsidiaries pursuant to Mr Xu’s Representation; had the Board known that they were not employees, it would not have considered the Plaintiffs to be persons who had “contributed to the Company or the Group” to a sufficient extent so as to justify the grant of the options. The Plaintiffs say that the redacted information will undermine the Defendant’s plea if it shows that other grantees included other consultants or low-ranking employees. “Simply put, if (say) a clerk or driver or secretary was worthy of being granted share options, then so should [the Plaintiffs] whose contribution to [the Defendant] (by way of the Services) is clearly much more unique and valuable.[2]

18.2  The Plaintiffs have pleaded estoppel, waiver, unilateral mistake and common mistake. In answer to all of these, the Defendant relies on the existence of Mr Xu’s Representation, and the Defendant’s lack of knowledge as to the Plaintiff’s true identity. The Plaintiffs say that the redacted information is relevant to whether the Defendant truly believed that the Plaintiffs were employees of the Defendant’s subsidiaries.[3]

19.  I agree with the submissions of Ms Eva Sit SC (leading Mr Joshua Chan) that the redacted information is not relevant to the issues arising in this action.

20.  Insofar as the Plaintiffs seek to rely on the position of other grantees, I would first of all note that there is no positive case pleaded that relies on the same. For example, whilst it was suggested by Mr Jonathan Chang SC (leading Mr Thomas Wong) that it might transpire that the titles given to the other grantees were simply pretexts for the grant of options, there is in fact no plea to such effect. In the circumstances,

20.1  there is no basis to suggest that the position of other grantees would be admissible as similar fact evidence at trial. Accordingly, the redacted information would at most provide material for cross examination as to credit: GE Capital at 175C, 177D, 177H-178B;

20.2  the request is one of fishing. Mr Chang submitted that the mere fact that a request for discovery involved a degree of speculation did not mean that it amounted to fishing, as the question of what information might be contained in documents discoverable under the Peruvian Guano test could also involve a degree of speculation. However, the request for the redacted information seems to me to fall squarely within the meaning of “fishing”, as the information about other grantees is not evidence sought to support any properly pleaded allegation, but rather, information which may lead to a line of inquiry which would disclose evidence.

21.  Insofar as the Plaintiffs say that the redacted information is relevant to the Defendant’s belief as to whether the Plaintiffs were truly employees:

21.1  the Plaintiffs’ currently pleaded primary stance is that they were entitled to enforce the options by virtue of their status as “business consultants” of the Defendant, not as employees of the Defendant’s subsidiaries (which they admit they were not). Therefore, whether or not the Defendant’s Board believed the Plaintiffs to be such employees is not relevant to the main issue between the parties;

21.2  in any event, as the Defendant points out, the Minutes which recorded the grant of the options to the Plaintiffs expressly stated that the Plaintiffs were employees, and it is not suggested that the Minutes are not genuine. There is therefore in fact no issue as to the Defendant’s belief;

21.3  I agree with Ms Sit’s submission that the Defendant’s pleaded response to the Plaintiffs’ pleas of estoppel, waiver, unilateral mistake and common mistake turns not so much on what the Defendant’s actual belief was, but rather, whether Mr Xu made the representation that he did.

22.  Mr Chang relied in particular on paragraph 19 of the Defendant’s Re-Amended Rejoinder, where it was pleaded that the Defendant believed that the Plaintiffs were eligible to be granted the options. However, the context of the plea (as can be seen from the earlier part of the paragraph) is that the belief arose “By virtue of Mr Xu’s misrepresentation”, and hence the real issue between the parties is whether Mr Xu’s Representation was made.

23.  Mr Chang also relied on paragraph 12(3) of the Defendant’s Re-Amended Rejoinder, where it was pleaded that the estoppel (relied on by the Plaintiffs) would wrongly allow the Plaintiffs to obtain the benefit of the options even though they were not “Eligible Persons”, which would be inconsistent with the purpose of the Scheme and unfair to other participants in the Scheme. Mr Chang submitted that without the information about the other grantees, there could be no meaningful discussions as to whether there was such unfairness. However, I agree with Ms Sit that again, the context of the plea (as can be seen from paragraphs 12(1) and 12(2)) is that the Defendant’s belief resulted from the representation made by Mr Xu (as agent of the Plaintiffs or with the Plaintiffs’ knowledge) to the Board that the Plaintiffs were employees, so that there is no unfairness even if the Defendant were to resile from any representation of eligibility. It seems to me that paragraph 12(3) does not seek to raise any positive case of unfairness vis-à-vis other participants in the Scheme, but rather to simply make a general point that departing from any representation of eligibility would not be unjust.

D2.  Whether necessary for disposing fairly of the cause or matter or for saving costs

24.  I further agree that discovery is not necessary for a fair disposal of the cause or matter, or for saving costs.

24.1  Leaving aside for the moment the objections that the Plaintiffs have not pleaded any positive case as to the other grantees, even if those other grantees were on their face less “worthy”, there might be all sorts of reasons why they nevertheless were granted options. It will be remembered that whether or not an option was to be granted was dependent on whether, in the absolute opinion of the Defendant’s board of directors or a duly established committee thereof, the candidate had contributed to the Defendant or the Defendant’s group. I cannot see that the court would be assisted by a comparison of the circumstances of the Plaintiffs with those of other grantees.

24.2  The key points of contention between the parties are whether or not the Plaintiffs are business consultants within the meaning of the Scheme Rules, and if not, whether Plaintiffs’ pleas of the Defendant’s representation as to eligibility, waiver of the Defendant’s right to dispute eligibility, the parties’ common mistake as to eligibility, and the Plaintiffs’ unilateral mistake as to eligibility, should succeed. The true belief of the Defendant as to whether the Plaintiffs were employees of the Defendant’s subsidiaries is at best a very minor issue in relation to all of these issues. As noted above, whilst the Defendant has referred to its “belief” in the pleadings, the real issue is whether or not Mr Xu’s Representation was made (which resulted in the Defendant’s belief), rather than the actual “belief” of the Defendant. The probative value of the redacted information, even if it sheds light on such belief, would not be high.

24.3  If discovery were granted, and the Plaintiffs sought to rely on a comparison of their own circumstances with those of other grantees, this would potentially involve further delay to enable the Plaintiffs to investigate into the circumstances of other grantees, culminating in further rounds of evidence. This, coming on top of the many years of delay in the application (the Plaintiffs having had a copy of the redacted Minutes since February 2015), which Mr Chang fairly and frankly accepts has occurred, seems to me to be an element of prejudice which ought not to be borne by the Defendant.

E.  DISPOSITION

25.  For the above reasons, I dismiss the Plaintiffs’ appeal.

26.  I further make a costs order nisi that the costs of and occasioned by the appeal be paid by the Plaintiffs to the Defendant. I decline to grant certificate for two counsel (but for the avoidance of doubt, certify the matter as fit for counsel).