PROSPERFIELD VENTURES LTD v. TRIPOLE TRADING LTD

HCA5370/1993

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. HCA 5370 OF 1993

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HCCL98/1995

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. HCCL 98 OF 1995

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BETWEEN

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D E C I S I O N

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1.  This is an application for further and better discovery or specific discovery for the purpose of assessment of damages or account of profits and for the plaintiff’s election for one of the two alternative reliefs.  It is made against the 1st, 2nd and 4th defendants in HCA5370/1993 (“the first action”) and the 1st, 2nd and 5th defendants in HCCL98/1995 (“the second action”) pursuant to judgments entered against them.  These defendants have also issued a summons two days ago on 2 November 2005 seeking to stay the assessment of damages or account of profits pending the outcome of their appeals to the Court of Final Appeal.  The appeal will be heard on 7 December 2005.

Chronology

2.  These two actions were instituted in 1993 and 1995 by one Mr James Peng for the plaintiffs.  The subject matter was what used to be slightly over 50 per cent of the shares of one Shenzhen Champaign Industrial Corporation (“SCIC”), a company listed in the Shenzhen Stock Exchange.  The company is now called Shenzhen Fountain Corporation (“SFC”). 

3.  On 13 October 1993, Mr Peng was arrested in a hotel room in Macau and was taken across the border at Zhuhai.  He was remanded in custody by the Shenzhen authorities until October 1995 when he was convicted of certain alleged dishonest acts.  He was then sentenced to 18 years’ imprisonment.  He was released in November 1999. 

4.  These two actions then moved forward.  The trial started on 31 March 2003 before Deputy High Court Judge Carlson.  There were a number of adjournments.  The trial took 22 days.  The learned deputy judge gave judgment on 27 January 2004 against these defendants.  The judgments were, among other things, for damages to be assessed or account of profit, as the plaintiffs may elect.

5.  On 30 January 2004, the deputy judge gave further directions pursuant to Order 37, Rule 1 that there be mutual discovery within 63 days, inspection within 28 days thereafter, and expert reports be limited to two for each side.  The deputy judge also required the plaintiffs to elect on the alternative remedies after the close of discovery.  The deputy judge, however, withheld some remedies on jurisdictional grounds.

6.  The plaintiff in the second action, Panco Industrial Holdings Limited (“Panco”), thought that it was entitled to the withheld remedies.  It lodged a notice of appeal on 11 February 2004.  The defendants herein lodged a respondent’s notice by way of cross-appeal and a separate notice of appeal on 18 February 2004. 

7.  The plaintiffs and the defendants then filed their list of documents on 2 April 2004 for assessment of damages or account of profits.

8.  The Court of Appeal on 3 December 2004 allowed Panco’s appeal and dismissed the defendants’ cross-appeal and separate appeal.  The Court of Appeal also required the 5th defendant in the second action, China Projects Limited (“China Projects”), to transfer to Panco 34,411,500 shares in SFC.  Of these shares, 17,258,894 shares were only required to be transferred after the completion of assessment of damages or account of profits.  The Court of Appeal further ordered inquiries into China Projects’ current shareholding of SFC, the amount of such shares less the 34,411,500 shares which were derived from breach of fiduciary duties by Ding Peng and Zheng Lie Lie against Panco, and what money had been paid by China Projects for the 17,258,894 shares.

9.  On 8 February 2005, the defendants were granted leave to appeal to the Court of Final Appeal.  On 18 March 2005, the defendants filed a summons seeking to stay the execution of the first instance judgment in respect of payment of tax costs.  There was no application at that time to stay the assessment of damages or account of profit. 

10.  The defendants also filed their Case for the appeal to the CFA on 22 March 2005, and the plaintiffs had 35 days to file their Case in reply.

11.  The application for stay of the payment of costs was dismissed by the Court of Appeal on 23 March 2005 and some $12 million of costs were then paid.

12.  The plaintiffs then filed their Case in reply with the Court of Final Appeal on 13 May 2005. 

13.  On 2 June 2005, the plaintiffs’ solicitors wrote to the defendants’ solicitors and sought further and better discovery.  The defendants’ solicitors replied on 8 June 2005 that that was not the appropriate stage to proceed with assessment of damages in view of the pending appeal to the CFA.

14.  On 12 July 2005, the plaintiffs filed this application for further and better discovery.  Directions were given by consent on 18 July 2005 and the defendants had to file their affidavit in opposition by 8 August.  This was not done.  The evidence was only filed on 23 August after an extension of 14 days was given. 

15.  On 6 September 2005, the plaintiffs’ solicitors told the defendants’ solicitors that if the defendants were seeking a stay of the assessment, they should issue a formal application.  The defendants’ solicitors did not take the hint until two days ago. 

16.  On 9 September, the parties proceeded to fix the date for argument of this summons and were given today’s date.

17.  The hearing of the appeal at the CFA will commence on 7 December 2005.

18.  The reason for my setting out the chronology in some detail above is because of the defendants’ argument that the plaintiffs had delayed the process of assessment. 

19.  Mr Wong for the defendants referred me to Shaw v Holland [1992] CH 305 at 313 where Lord Alverstone MR said:

“

The general rule, I think, should be that the proceedings under a judgment should not be stayed pending an appeal unless on special grounds.  Of course, there are many cases in which the expense involved in inquiries might be so great, and the uncertainty as to the necessity of prosecuting them so great, that it would be desirable to stay the prosecution of the inquiries pending an appeal.”

20.  Mr Wong also referred me to J Lucas (Batteries) Limited & Anor v Gaedor Limited & Ors [1978] FSR 159 at 161 to 163 and Bhimji & Ors v Chatwani & Ors by the Court of Appeal in England, unreported, 29 January 1993.  Whilst I must express my gratitude to counsel’s assistance, different cases present different facts and individual decisions on peculiar facts may not offer much assistance.

Grounds for stay

21.  Mr Wong has two points on the application to stay, namely, the documents requested for are numerous in number and the stay being sought is a short one.  He is prepared to undertake that if the Court of Final Appeal’s judgment should be against the defendants, the defendants would provide discovery within 28 days from the delivery of the judgment. 

Delay

22.  There is of course the further point of delay by the plaintiffs.  I deal with delay first.  After judgment was given by the deputy judge, the plaintiffs lodged the appeal in time.  The parties then filed and served their list of documents for the assessment.  The plaintiffs did not proceed further with the discovery or assessment until after the Court of Appeal has given its judgment. 

23.  Mr Chow said that the plaintiffs were appealing against the scope of the remedies and they were waiting for the Court of Appeal’s decision before moving ahead.  Mr Wong, however, responded by saying that the plaintiffs could have proceeded with the assessment pursuant to the first instance judgment and then enlarge the scope subsequently if the Court of Appeal should be with them.  Mr Wong has a point here. 

24.  Nevertheless, I can well understand the plaintiffs’ position that if they should fail in the Court of Appeal, then there might not be much point in proceeding with the assessment which is an expensive exercise.  However, once the Court of Appeal was emphatically in their favour, the worry of wastage would be reduced and the plaintiffs could take a more bullish view and choose to go full speed ahead with the assessment.

25.  Save the period pending the appeal to the Court of Appeal, I think the chronology above shows that there was no undue delay on the part of the plaintiffs in proceeding with the assessment of damages.  I do not think the plaintiffs have delayed the process of assessment.

Large number of documents to be disclosed

26.  On the point about the large number of documents being sought in this application for discovery and hence a huge amount of money would have to be incurred, I accept the plaintiffs’ argument that there is no evidence on how much is expected to be incurred.  But the nine categories of documents sought in the summons can certainly throw some light on the scale of the work to be undertaken. 

27.  I think it may require a few clerks and secretaries to go over the filing cabinets for a few days to a week or even two weeks to locate the necessary documents.  Another week or two would then be required by the solicitors to go through the documents and to decide which should be produced or whether more should be produced.  It is possible that some documents may require the attention of junior counsel, but that should not be too many.  Finally, there would be the need for the preparation of the list and the affidavit.

28.  All this work may take four to five weeks, but I do not think that the amount of costs would be so substantial that it can amount to special circumstances. 

29.  There is no need to consult any expert or to travel to different places to gather materials.  I do not think the scope of discovery in this case can amount to special circumstances.  In any event, it is not anticipated that more would have to be done apart from discovery pending the delivery of the CFA’s judgment.

Only a short period of stay

30.  On the ground that it was a short stay of two to three months only, if the defendants should have asked for the stay in last February after leave had been given for them to appeal to the CFA, they could not have said that it was a short stay.  If they can make this point now, that means the more they delay the application for stay, the stronger would be their application.  I am afraid this is against logic and I cannot accept it. 

31.  Furthermore, the application for further and better discovery was sought initially on 2 June this year.  The defendants had no substantive ground to oppose it, but they did not accede to it; hence, the need for the plaintiffs to apply and for the application to be dealt with at a time so close to the CFA appeal. 

32.  If I accept this point, I would be encouraging unmeritorious oppositions as it is the unmeritorious opposition that has produced this narrow time gap. 

33.  I therefore do not accept this short time gap from now to 7 December as a justification for stay.  I dismiss the application for stay.

Summons for discovery

34.  There is no real opposition on the merits.  Mr Wong raised the time issue but I think the description of the documents has already built in timeframes for discovery. 

35.  The second point is on paragraphs (g) and (h) in category 9 of the schedule of documents.  Mr Wong said that there was no basis for discovery of documents in these two sub-categories.  I do not agree.  These documents were for tracing of the ill-gotten gains.  I therefore make an order in terms of the plaintiffs’ summons except that I would allow 35 days for compliance.

36.  I also make an order nisi that these defendants do pay the plaintiffs the costs of these two applications in any event.