HEALTHY PEACOCK LTD. v. JAN. G. W. BLAAUW AND OTHERS

HCA5646/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.5646 OF 1998

--------------

--------------

-----------------------------------------------------------

REASONS FOR DECISION

-----------------------------------------------------------

The issue before the court

1. By a summons dated 23 November 2001, the plaintiff applied under Order 24, rule 7 for specific discovery of the following classes of documents :

"Records, to include time sheets or documents recording time spent and showing the particulars of the work done by staff/fee-earners of the Defendants and their solicitors, namely, Messrs. Johnson, Stokes and Master, in relation to the receivership as pleaded in Paragraphs 3 to 6 of the Amended Statement of Claim, and/or the rates at which they have charged."

2. Master C.B. Chan dismissed the summons with costs. The plaintiff appealed.

3. At the hearing of the appeal, I allowed the appeal and granted an order in terms of the summons but giving the defendant 35 days within which to comply with the order for discovery. I also made an order granting costs of the appeal and in the court below to the plaintiff in any event, such costs to be taxed if not agreed.

4. The issue before the court is simply whether the defendants should have to provide the specific discovery sought. I begin by identifying the relevant issues in the action, bearing in mind that it is a prerequisite to any application for specific discovery that the applicant demonstrates prima facie relevance and prima facie possession, custody or power of the relevant documents or classes of documents on the part of the other party : see Hong Kong Civil Procedure 2002 at paragraph 24/7/1. The defendants in the present case accept that the classes of documents sought are within their possession, custody or power.

Issues in the action

5. As pleaded in the Amended Statement of Claim :

(1) The action arises out of a mortgage dated 31 January 1996 ("the Mortgage") whereby the plaintiff as mortgagor mortgaged the property known as Albion Place, Nos.12-12A Hau Fook Street, Tsimshatsui, Kowloon ("the Property"), to the Chemical Bank (now The Chase Manhattan Bank) ("the Bank") as mortgagee, to secure monies in respect of general banking facilities made by the said Bank to the plaintiff.

(2) Under clause 8 of the Mortgage, it was provided that if there was default in the payment of the indebtedness secured thereunder or upon the occurrence of an event of default as defined therein, the Bank would have the right to appoint receivers or managers in relation to the Property, with powers to sell or manage the Property.

(3) Where receivers or managers were appointed, such persons would be the agents of the plaintiff : see clause 8.01(xi) of the Mortgage. This is accepted by the defendants.

(4) On 7 April 1997, the defendants were appointed receivers and managers under clause 8 of the Mortgage and thereafter took over the management of the relevant Property.

(5) In late June 1997, the Property was sold for HK$108,000,000 and completion took place in July 1997 whereupon the proceeds of sale were received by the defendants.

(6) The proceeds of sale exceeded the amount of the indebtedness owed to the Bank. There followed a series of correspondence between the plaintiff's solicitors and the defendants' solicitors in relation to the distribution of the balance of the proceeds. The defendants' position was that certain monies had to be retained to deal with various expenses (including legal expenses) and other contingencies of the receivership. The plaintiff's position was that the defendants should have distributed more than they did and provided more information that they did. Over HK$16,000,000 was paid by the defendants to the plaintiff but the plaintiff asserts that this was not enough.

(7) The plaintiff's claim, as summarized in paragraphs 30 and 31 of the Amended Statement of Claim, is essentially that :

(a) The defendants have not paid to the plaintiff the full amount of the monies due to it;

(b) Further or alternatively, they have failed fully and properly to account to the plaintiff in respect of the remuneration claimed or received by them. Included in this latter claim are the documents which the plaintiff seeks by the present summons.

(8) These claims were described by Waung J in a judgment handed down on 7 May 1999 (on appeal from a Master's order striking out a part of the plaintiff's claim) as the Payment Claim and the Accounts Claim. Waung J held that the Payment Claim was sustainable and should not have been struck out.

(9) Of particular importance in the Payment Claim was the level of the plaintiff's remuneration and that of its legal advisors, Messrs Johnson, Stokes and Master.

6. The defendants' position as it pleaded in the defence is that :

(1) the plaintiff has been paid all that it is entitled to under the terms of the Mortgage; and

(2) the defendants have duly rendered fully particularized accounts to the plaintiff in respect of all matters concerning the receivership including remuneration.

Should an order for specific discovery be made?

7. Given the issues as I have set out above, it is clear that the discovery sought in the present case must be relevant. The defendants own defence raises the issue of the extent to which the balance of the sale proceeds has been or should have been paid to the plaintiff. The defendants assert that the plaintiff has been paid all that is due to it; the plaintiff contends the opposite. It is inevitable that the court will, in adjudicating the present dispute, have to examine the remuneration of both the defendants and their solicitors, in order to determine whether the defendants were and are entitled to retain monies from the sale proceeds on account of their fees and disbursements. This will in turn enable the court to arrive at a decision as to whether or not the plaintiff is entitled to be paid more out of the sale proceeds than they have hitherto been paid.

8. Mr Tollan, for the defendants, argues that to order discovery now of these classes of documents would be tantamount to giving the plaintiff relief on the Accounts Claim (as Waung J termed it) before this issue is resolved at trial. This may or may not be so, but these documents are undoubtedly relevant to the Payment Claim, even on the defendants' own case (as I have alluded to above).

9. Accordingly, I am satisfied the plaintiff has demonstrated the relevance (at least on a prima facie basis) of these classes of documents. As I have said, no dispute arises as to prima facie possession, custody or power on the defendants' part of these documents. The basic requirements of RHC Order 24, rule 7 are therefore satisfied. As far as the discretion under Order 24, rule 8 is concerned, I am also satisfied that the discovery sought is necessary for disposing fairly of the case or matter. These documents relate to an important issue (indeed perhaps the most important issue) in the present proceedings and will go a long way to resolving the dispute between the parties.