B/2012 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

HIGH COURT ACTION NO 2352 OF 2012

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D E C I S I O N

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THE APPLICATION

1.  This is a third party discovery application taken out by the plaintiff against The Hong Kong Jockey Club (“HKJC”) pursuant to O. 24 rr. 7A, 9 and 11A RHC for documents concerning betting accounts of a number of individuals (some have not been identified).

2.  According to the plaintiff’s Summons, the plaintiff seeks discovery of the following categories of documents:

a. all documents showing details of all betting made by and/or on behalf of the defendant for each race from the 2004 racing season to present (“Category A”);

b. statements and records of all betting accounts of the defendant relating to Category A (“Category B”);

c. statements and records of all betting accounts made by Leung Man Kit for each race from the 2004 racing season to present (“Category C”);

d. statements and records of all other betting accounts relating to betting made on behalf of the defendant (“Category D”).

3.  The parties, viz. the plaintiff, HKJC and the defendant are legally represented.[1]

THE STANCES OF HKJC AND THE DEFENDANT

4.  The crux of HKJC’s submissions is that while HKJC’s starting point is it takes a neutral stance on the plaintiff’s application, it opposes his application in respect of certain categories of documents on the grounds that:-

a. HKJC is simply unable to identify or locate the documents; and

b. the plaintiff is trying to mount a big fishing expedition, and in doing so is asking HKJC to undertake an impossible task, namely, to study millions of its betting transactions to find out if any betting accounts through which the same betting model has been adopted when even the “model” itself cannot be precisely defined.

5.  HKJC asks the Court to dismiss the plaintiff’s application in respect of Categories A, B and D as they now stand.  However, it submits: “If the application for Categories A and B is modified to cover only those records pertaining to the betting account in D’s name as opposed to bets made on behalf of D, HKJC does not object to providing betting records for the past 7 years from the date of the order subject to payment of HKJC’s reasonable fees.”[2]

6.  In respect of Category C, HKJC agrees to provide the documents and says: “As regards Category C, as P has now identified the HKIC number of Leung Man Kit (§33, 11th Stinson), HKJC does not object to providing the betting records of Leung for the past 7 years from the date of the order subject to payment of HKJC’s reasonable fees, provided the HKIC number of Leung is specified in the order.”[3]

7.  The defendant opposes the plaintiff’s applications and submits that the summons should be dismissed.[4]  The defendant has raised the issues of relevance, necessity, proportionality and oppression, which will be discussed below.

8.  Although the present application is against HKJC, the defendant is an interested party in the proceedings.  The Court must therefore take the grounds of objection of the defendant before making its decision. This is important as HKJC has agreed to provide the documents subject to the conditions as stated above.  The fact that HKJC agrees to provide the documents is only one of the factors for this Court to exercise its judicial discretion whether it should make an order for discovery of the documents as requested because such documents will be admissible evidence, which will affect the costs and time of the proceedings between the plaintiff and the defendant.  This Court may, upon a fine balance of all the circumstances in accordance with O.1A RHC and other relevant legal authorities, make its decision irrespective of HKJC’s position.

THE FACTUAL BACKGROUND

9.  Before the discussion on the relevant legal principles for this application, it will be convenient at this point to set out the relevant brief facts apposite to this application.  I shall extract such facts from the plaintiff’s and the defendant’s written submissions since it is apparent that they were unable to have the agreed facts between themselves.  For convenience, since this is the plaintiff’s application, the Court should view the matter from the plaintiff’s perspective, to be supplemented by the defendant’s side of the story as a full picture of the matter. What follow is the plaintiff’s brief fact from Senior Counsel’s written submissions:

“ (1) Since January 2004, P and D had been partners under a business (the “Partnership Business”) established under an agreement dated 27 January 2004 (the “Partnership Agreement”) [B-1/250-252], whereby P and D agreed to work together to establish and operate a horse racing betting operation based on the development and use of a mathematical model for providing accurate probability estimates for Hong Kong horse races, i.e. the Model.

(2) Under Clause 2 of the Partnership Agreement, D was responsible for managing a team (the “Modeling Team”) to provide, develop and maintain the Model. At all material times, D and Leung were part of the Modelling Team. Leung was D’s former student, and it was D who introduced Leung to work for the Partnership. D and the Modeling Team at all material times had sole control of and access to the Model.

(3) Under Clauses 2 and 3 of the Partnership Agreement, P was responsible for managing all aspects of the Partnership Business, including seeking outside investment. P was also responsible for paying all costs incurred. P did not have access to the Model.

(4) Under Clause 15 of the Partnership Agreement, the Model including all of its components and their continuing development, constituted the property of the Partnership Business, and both P and D agreed that they would not deal with, sell or share the Model with others.

(5) Since around the 2008/2009 racing season, the Model had been able to produce accurate estimates and to generate consistent profits for the Partnership Business.

(6) It then came to the attention of P that D had, in clear breach of the Partnership Agreement and D’s obligations as a partner, been making private bets using the Model. It also became apparent that D’s private betting had gone on to a much grander scale around the 2010/2011 racing season. When confronted by P regarding his private bets, D simply replied that “I don’t feel that how much I am betting is for discussion between us”.

(7) By an email dated 27 July 2012 [C/902], D purportedly terminated the Partnership Business, based on the pretext that he was nervous “about our Partnership Business…being considered a business subject to registration (Business registration)”.

(8) Since both P and D had agreed, under the Partnership Agreement, not to deal with, sell or share with others the Model, P proposed that both P and D should each walk away with a working copy of the Model, and requested D to deliver up a copy of the same, which proposal was clearly reasonable and fair in all the circumstances.

(9) However, D repeatedly refused to hand over a copy of the Model and kept the same to himself for his own use. D also came up with all sorts of excuses for not delivering up a copy of the same.

(10) P therefore had no alternative but to institute the instant proceedings by way of Writ dated 21 January 2013 [A/1-28], seeking the delivery up of the Model, amongst other relief.

(11) In his Defence and Counterclaim [A/39-42], D admitted that the Model belonged to the Partnership Business (§9) but denied that he had converted it to his own use and thereby made profits for himself (§13). He also claimed that having terminated the Partnership by written notice, he had thereafter remained willing to deliver up the then current version of the Model in order to facilitate the required winding up of the Partnership Business (§15).”[5]

10.  To supplement the story, I shall also set out parts of the defendant’s version below:

“ (1) The Partnership business was initially unsuccessful. A summary produced by P shows that there were relatively minimal profits from 2004 to 2008 [C/763]. Thereafter, the winnings began to increase and by the 2011/12 racing season the Partnership achieved profits of over HK$26.95 million.

(2) Despite P’s present complaints, P accepts that he was aware of D’s private betting before and throughout the Partnership: see Stinson WS §§30, 58-65 [C/729-742]. In fact, by the penultimate year of the Partnership (i.e. 2010/2011) it was “apparent [to P] that [D’s] private betting was now on a much grander scale, possibly larger than the joint venture betting”: Stinson WS §61 [C/741].

(3) Nevertheless, P did not take any action against D or Cap Leung. There is some evidence of posturing by P, such as in emails dated 17 and 18 September 2011 where P said that D’s private betting was “totally in breach of our agreement” [C/897]. These words are found in an otherwise agreeable email which purpose was to persuade D to put his funds into the betting pool [C/897]. D then replied “I don’t feel that how much I am betting is for discussion between us” [C/898]. If P was truly concerned about D’s private betting, he would have immediately claimed for the past profits or asked for an account. Instead, the Partnership continued as usual for the next 10 months. It was only until 27 July 2012 that D wrote to P to dissolve the Partnership [C/902].

(4) In December 2012, P commenced the present action against D.”[6]

THE RELEVANT LEGAL PROVISIONS AND PRINCIPLES

11.  I shall now set out the relevant legal provisions and principles for this application:

a. Section 42 of the HCO, Cap.4 provides

“(1) On the application, in accordance with rules of court, of a party to any proceedings in which a claim is made, the Court of First Instance shall, in such circumstances as may be specified in the rules, have power to order a person who is not a party to the proceedings and who appears to the Court of First Instance to be likely to have or to have had in his possession, custody or power any documents which are relevant to an issue arising out of that claim- (Amended 3 of 2008 s. 17)

(a) to disclose whether those documents are in his possession, custody or power; and

(b) to produce such of those documents as are in his possession, custody or power to the applicant or, on such conditions as may be specified in the order-

(i) to the applicant's legal advisers;

(ii) to the applicant's legal advisers and any medical or other professional adviser of the applicant; or

(iii) if the applicant has no legal adviser, to any medical or other professional adviser of the applicant.  (Replaced 52 of 1987 s. 34) [cf. 1981 c. 54 s. 34 U.K.]”

b. Under O.24 r.7A, the plaintiff has to state in the supporting affidavit that the document are relevant to the issues in dispute, the identity of the documents, that HKJC are in its possession, custody or power, that no order should be made unless the Court is of opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs. R.8

c. Peruvian Guano test of relevance remains applicable.  See Chan Tam Sze v Hip Hing Construction Co. Ltd, (unrep. HCA 1931/1988, 17 October 1989) per Bokhary J (as he then was) at p.5. However, this test must be viewed in light of the changed legislation and culture under the CJR.  Under O.1A, r.2, the Court must seek to give effect to the underlying objectives of the rules when it exercises any of its powers (whether under its inherent jurisdiction or given to it by these rules or otherwise); or interprets any of the rules or a practice direction, bearing in mind that the primary aim in exercising the powers of the Court is to secure the just resolution of disputes in accordance with the substantive rights of the parties.

d. Failing agreement, the court should exercise its case management power to tailor an appropriate discovery regime for the case at hand, with the residual discretion to define the scope of discovery on the basis of necessity and proportionality as the case requires for justice.  See Recommendation 80 at page 259 of the Final Report & The Incorporated Owners of Kodak House II No 321 Java Road v Kai Shing Management Services Limited (unreported, HCA 711/2011 Registrar Lung 9 October 2012).  See also Hong Kong Civil Procedure 2015 at 24/0/2A.

e. The parties and their legal representatives shall assist the Court to further the underlying objectives of the rules of the High Court.  Order 1A rule 3.

f. Under Order 1A r.1(c) & (d), the Court must, in the exercise of its discretion, “promote a sense of reasonable proportion and procedural economy in the conduct of proceedings” and “ensure fairness between the parties”.

g. In determining whether the documents are necessary, the Court will determine whether they are relevant by reference to the issues in dispute to be found from the pleadings. Full Range Electronics Co. Ltd. v General-Tech Industrial Ltd & Another (unreported, CACV 59/1997 11 June 1997 at page 2).

h. “…It will simply not do for unpleaded issues to be ‘slipped in’ when evidence is being given in the hope that the other side is not sufficiently alert to object.”  Kwok Chin Wing v 21 Holdings Ltd & Another (2013) 16 HKCFAR 663 at §21 per CJ.  On the other side of the coin, evidence should not be allowed where the issues have not been pleaded.

i. The Court must not make oppressive order, the meaning of which depends on the circumstances of the case, such as massive class documents. Deak and Company (Far East) Ltd. v N.M. Rothschild and Sons Limited & Others [1981] HKC 78 per Barker JA at page 5.

j. There is also another caution against forcing the deponent to make false affidavit if the document or class of documents are vague.  (See Paul’s Model Art GMBH & Co. KGvUT Ltd. & Others [2006] 1 HKC238.)

k. It is important to limit the documents to what is necessary for a fair disposal of the disputes between the parties.  Documents that may be relevant but may not be necessary for the fair disposal of the disputes or for saving costs should be disallowed. In this case, the Court of Appeal held that the costs for the documents were disproportionate to the importance of the documents to be discovered.  See Full Range Electronics Co. Ltd. at page 4.

l. The Court’s duty is to make a balance between doing justice to the parties and stop fishing or the scattered-gun approach.  Paragraph 9 of Mariner International Hotels Ltd. v Atlas Ltd. & Another (unreported, HCA 10714/1998, 10752/1998 & 10821/1998 Burrell J. 18 January 2002)

m. The Court has the residuary discretion not to make an order for specific discovery or inspection even though the documents are relevant if it is of the view that to do so will not dispose of the matter fairly or saving costs.  See Deak and Company (Far East) Ltd. at page 5.

12.  Bearing in mind the above legal principles, I shall now consider the plaintiff’s application.

Category A

13.  HKJC raises the objection on the grounds that there will be massive search of the records kept by it. In the affidavit of Tse, it stated:

a. as at December 2014 there were some 2.3 million betting accounts maintained by HKJC;

b. in the 2013/2014 season, there were on average some 7 million bets placed through betting accounts on each race day;

c. HKJC maintains records of betting accounts for 7 years;

d. account holders will generally be provided with betting records for the prior 3 years upon paying a prescribed fee; and

e. records which are older than 3 years will only be provided in special situations or as required by law.

14.  HKJC emphasizes the difficulty in searching for the betting model, which was mentioned in the plaintiff’s written submissions.  See paragraph 12.

15.  HKJC has also raised the objection on the requirement of making search on betting made by and/or on behalf of the defendant.  It has no evidence of who were acting as agents for the defendant.  In plaintiff’s submissions, the plaintiff proposed to use the betting model to search for the defendant’s agents, who should adopt the same betting model as the defendant in the betting.  HKJC submits on affidavit evidence that it does not have the software programme to make the search.  This request, in light of the amount of betting records, is oppressive.  The defendant supports the defendant’s argument on oppression.[7]

16.  However, HKJC agrees to provide only the defendant’s betting records for the past 7 years.

17.  The defendant opposes this category.  He raises no issue on relevance except on the agent, which the defendant argues that the plaintiff has not pleaded any agent betting on behalf of the defendant in its pleadings.[8]  However, he says: “There is no dispute that D had conducted private betting.  Indeed, P was aware that D conducted private betting all along.  However, D’s case is that his private betting only involved a Probit model, whereas the Partnership’s Mathematical Model was a Logit model: 1st Gu Aff §§8-11 [A/128-129].  In the premises, the main issue is whether D used the Mathematical Model for private betting or, on D’s case, the Probit model.”[9]

18.  His main objection is that the plaintiff has failed to show that it is necessary to have 7 years’ betting record to prove its case at trial, the plaintiff having obtained three years’ records already from the defendant.  In the plaintiff’s expert’s opinion (Ziemba), the plaintiff does not require more than three years’ betting records to advance the plaintiff’s case.[10]  The plaintiff, in reply this morning submits in the second written submissions at §15 to say that the plaintiff’s expert has not said that he did not require other betting records.  The plaintiff argues that Dr. Ziemba’s statement was in response to the defendant’s challenge that he was unable to make the analysis of the data available and Dr. Ziemba retorted that he was able to do so.  Although the expert gave the statement under those circumstances, however, Dr. Ziemba had pointed out that given the limited time, he was able to make the comparison between the partnership’s betting model and that of the defendant’s.  The plaintiff is simply unable to challenge his own expert at this stage.  The plaintiff then submits that at trial, the defendant may challenge Dr. Ziemba’s evidence by saying that he had not got all the betting records.  This may be so.  This is for Dr. Ziemba, as the expert who has the confidence to make the statement to answer the cross-examination.  Even if the plaintiff is allowed 7 years’ betting records, this question may still arise if the partnership has been extant for more than 7 years.

19.  The defendant has also raised the issue that although the betting records for 7 years may be relevant and necessary for the assessment of damages, it is trite that in an action between partners, there will be no award for damages and the plaintiff’s only remedy is the taking of the accounts: Yau Wah Hing v YuenKay Ming (unrep, CACV 46/2012, 19 March 2013) per Lam JA at §§62-63, Leung Wing Yiu v Siu King Yuen [2003] 2 HKLRD 21 per DHCJ Lam, as he then was, at 10-13. It is therefore not necessary to obtain 7 years’ record at trial.  If the defendant is found to be liable for breach of contract, an account will be taken, which is prayed for in the relief. It is at that stage the other records of betting may be relevant for the assessment of damages, subject to the court’s view.

20.  It is true that the plaintiff has claimed damages for breach of the Agreement.  He has also claimed an account of all profits made by the defendant from horse race betting using the Mathematical Model on his own account.  See page 34 of the bundle.

21.  It appears quite clear that the issue in dispute will be whether the defendant had use the Mathematical Model to place betting in horse races on his own account.  In view of the above, the plaintiff is unable to demonstrate to this Court that those documents are necessary for a fair trial or for saving costs.  Although HKJC agrees to supply the documents if not for the agents’ documents, its agreement cannot assist the plaintiff because the defendant will be adversely affected by such an order.  In the interest of justice for all parties, the Court should not entertain the plaintiff’s application on this category.

Category B

22.  For the reasons which are applicable to category A, this category should also be refused.

Category C

23.  HKJC now only opposes the documents relating to the agent, it agrees to supply the documents as requested for the past 7 years.

24.  The defendant opposes this category relying on the lack of pleaded issue in the plaintiff’s pleadings.  It is fundamental that relevance of the documents must refer to the pleadings.  Full Range Electronics Co. Ltd..  If the plaintiff pleads such facts in the pleadings, the defendant will be able to obtain further and better particulars from the plaintiff if the facts are unclear and may plead its case in its defence accordingly.

25.  The Court is prohibited from allowing the evidence which does not support the facts as pleaded in the pleadings.  See Kwok Chin Wing case above.  The Court of Final Appeal had criticized the Judge at the first instance allowing the plaintiff to run the argument of parallel issues without proper pleadings, which caused confusion to the trial, the appeal and finally the Court of Final Appeal and procedural unfairness.  The parties must clearly plead all their issues in the pleadings so that each party knows what the issues are and prepare for their cases accordingly.[30] …  Pleadings are not mere formalities, but are disciplines ensuring procedural fairness in the adversarial system. [34] Sinoearn International Ltd v Hyundai-CCECC Joint Venture (a firm) (2013) 16 HKCFAR 632.

26.  The plaintiff has in this morning taken on board this pleading issue by referring to paragraph 7 of the Statement of Claim, in which the plaintiff pleaded that the defendant had used the Mathematical Model to place bets “on his own account”, by which Senior Counsel submits that it should be construed as any other accounts used by the defendant’s agents on the defendant’s behalf. He refers to the mode of practice of the partnership, which provides 4 patterns of making bets.  The defendant’s accounts only frequently made bets on 2 of the 4 patterns. He submits that the plaintiff has the reason to believe that the defendant’s agent(s) must have placed bets on the other 2 patterns.  Hence Mr. Cap Leung was suspected to be the agent as he had accumulated substantial amount of wealth that cannot be explained.  Senior Counsel admits that Mr. Leung or names of other agents or even the expression of agents were not pleaded in the Statement of Claim, however, he submits that it is unnecessary to do so because pleadings only plead the material facts.

27.  It will be helpful to consider what the Court of Final Appeal has said about pleadings in Kwok Chin Wing  case, at paragraph 21 by the CJ:

“21. It should by now really be quite unnecessary to issue yet another reminder on the rationale behind pleadings. The basic objective is fairly and precisely to inform the other party or parties in the litigation of the stance of the pleading party (in other words, that party’s case) so that proper preparation is made possible, and to ensure that time and effort are not expended unnecessarily on other issues:- Wing Hang Bank Limited v Crystal Jet International Limited . It is the pleadings that will define the issues in a trial and dictate the course of proceedings both before and at trial. Where witnesses are involved, it will be the pleaded issues that define the scope of the evidence, and not the other way round. In other words, it will not be acceptable for unpleaded issues to be raised out of the evidence which is to be or has been adduced. As the Court of Appeal remarked in Wing Hang Bank Limited v Crystal Jet International Limited: -

“(2) In a trial, particularly where evidence is given by witnesses, it becomes extremely important that each side knows exactly what are the live issues.  Where issues are sought to be introduced that have not been adequately or properly pleaded, amendments must be sought unless the consent of the other party or parties has been obtained.  It will simply not do for unpleaded issues to be ‘slipped in’ when evidence is being given in the hope that the other side is not sufficiently alert to object.”

28.  If the plaintiff is to make such allegations as in his affidavit about Cap Leung and other witnesses, it is incumbent upon him to plead those factual issues clearly in the pleadings. If those facts are in dispute, they form the issues at trial.

29.  It is therefore obvious from the above authorities that the plaintiff’s application under this category must be refused though HKJC has no objection to it.

Category D

30.  For the same reasons as for category C above, the plaintiff’s application must be dismissed.

Conclusion

31.  The plaintiff’s summons is dismissed.

Costs and order

32.  As to the costs of this application, including the costs for today and reserved in the meantime, the costs should follow the event as between the plaintiff and the defendant (with certificate for two counsel). The plaintiff agrees to pay HKJC’s costs for this application and the hearing today. The costs will be assessed summarily under O.62 r.9A RHC. The assessed costs are: $320,000 to HKJC; and $500,000 for the defendant, to be paid by the plaintiff within 14 days from the date hereof.

33.  I shall make an order in terms as follows:

a. The plaintiff’s summons is dismissed;

b. Costs of the application, including all costs for the application and the hearing today be as per paragraph 32 above.