HCA2022/2005 SINOCARD TECHNOLOGY LTD v. LEE CHI KEUNG AND OTHERS - LawHero
HCA2022/2005
高等法院（民事訴訟）Deputy High Court Judge Gill19/5/2008
HCA2022/2005
由此
A A
B B
HCA 2022/2005
C IN THE HIGH COURT OF THE C
HONG KONG SPECIAL ADMINISTRATIVE REGION
D D
COURT OF FIRST INSTANCE
E ACTION NO. 2022 OF 2005 E
____________
F BETWEEN F
G SINOCARD TECHNOLOGY LIMITED Plaintiff G
and
H H
LEE CHI KEUNG also known as 1st Defendant
I LEE CHI KEUNG CHRIS I
E-PILOT GROUP LIMITED 2nd Defendant
J J
rd
ORIENTAL POWER TECHNOLOGY LIMITED 3 Defendant
K K
KWAN KWOK LAM 4th Defendant
L CHEUNG WAI YUEN also known as 5th Defendant L
CHEUNG WAI YEUN STANLEY
M
____________ M
N Before: Deputy High Court Judge Gill in Chambers N
Date of Hearing: 7 May 2008
O O
Date of Ruling: 20 May 2008
P P
__________
Q RU LI NG Q
__________
R R
S S
1. This is an appeal by rehearing against the decision of a Master
T to order discovery of particular documents on applications made by the T
U U
V V
由此
A
-2- A
B
plaintiff. The defence challenged the applications upon the grounds of B
relevance and maintains that stance on appeal.
C C
D History D
E
2. The plaintiff (Sinocard) and 3rd defendant (OPT) are Hong E
Kong registered and based companies. Up to about 1 December 2003 (the
F F
material date) both companies were engaged in the manufacture of the
G product known as “smart card” and products related, in competition with G
each other and others operating in the same field. With a view to
H H
improving market share and minimising the adverse effects of competing
I with each other, those in control of the two companies explored the I
prospects of a joint enterprise; the result was a merger of their respective
J J
businesses as from the material date.
K K
3. But this did not last. Some 17 months later, on 19 July 2005,
L L
the companies ceased to operate together. What led to the dispute that is
M the basis of this action is that neither can agree on the nature of the M
commercial relationship that lasted for the 17 months they worked together.
N N
O 4. Sinocard claims that what had been achieved in the lead up to O
the material date was an agreement made partly in writing and partly orally
P P
and evidenced by conduct that there be a joint enterprise, which it refers to
Q as the Joint Venture. Q
R R
5. From the material date Sinocard ceased to operate in its own
S right and transferred its business, including orders, staff and plant to OPT, S
in consideration for a substantial interest in the shareholding of OPT. It
T T
claims that OPT failed to perform this agreement, and on 19 July 2005
U U
V V
由此
A
-3- A
B
brought the relationship to an end when it sacked the staff formerly B
working for Sinocard and joined forces with another company altogether.
C C
D
6. Following the parting of the ways, Sinocard claimed a breach D
of the Joint Venture agreement and by this action sues for specific
E E
performance, a declaration that it owns beneficially one third of the
F shareholding of OPT, damages in addition or in lieu and consequential F
orders.
G G
H 7. Particularly pertinent to this appeal is that if Sinocard is not H
successful in establishing there was a Joint Venture agreement, in the
I I
alternative it claims that OPT is a constructive trustee of Sinocard’s assets
J transferred to OPT, and sues for compensation for OPT’s unjust enrichment. J
K K
8. To complete the picture Sinocard joined OPT’s parent
L company as second defendant (E-Pilot) and those who owned and L
controlled E-Pilot and thus OPT, being the 1st, 4th and 5th defendants
M M
(Messrs Chris Lee, K L Kwan and Stanley Cheung).
N N
9. The defence as pleaded by all five defendants is that the parties
O O
had not at or before the material date or thereafter advanced to the stage
P where there was a Joint Venture agreement or other form of agreement P
binding the parties to a joint enterprise. There were discussions, during
Q Q
which merger prospects were considered, but they did not lead to a positive
R outcome. What happened from the material date was that by agreement R
OPT took on staff and equipment and fulfilled orders of Sinocard, for
S S
appropriate consideration. They referred to this as the Interim
T Arrangement, which persisted until 19 July 2005. They deny any liability T
owed Sinocard. U
U
V V
由此
A
-4- A
B
The Discovery Applications B
10. In the post-pleading period those representing Sinocard filed
C C
two summonses under O.24 rr. 3 and 7 RHC in December 2006 and June
D 2007, for further and better lists of documents as set out in attached D
schedules with verifying affidavits.
E E
F 11. These are the applications the subject of the appeal. F
G G
12. By the time they came before the Master many of the queries
H had been resolved or withdrawn. Those that remained dealt with six sets of H
documents. As the Master granted the application in respect of all six, and
I I
as this appeal concerns all six, it is convenient to reproduce his order which
J J
he made on 4 January 2008, and I now do so:
K “IT IS ORDERED THAT :- K
1. the Defendants do within 14 days from the date hereof file
L and serve a further and better list of documents as follows and L
to be verified by affidavit :-
M M
(a) Sales ledgers of Oriental Power Technology Limited
(‘OPT’) for the period from June 2002 to 30 November
N 2003; sales ledgers of Power Oriental Engineering N
Limited (‘POE’) and 銳凱科技 (深圳) 有限公司 (‘POE
Shenzhen’) for the period from June 2002 to 31
O O
December 2005;
(b) Sales ledgers or records of OPT’s Shenzhen Factory for P
P
the period from June 2002 to 30 November 2003;
Q (c) Annual examination record (including audit report and Q
accounts) of OPT’s Shenzhen Factory covering the
period from June 2002 to December 2002;
R R
(d) Sales ledgers of Pioneer Oriental International Limited
(‘POI’) for the period from 1 June 2002 to 31 December S
S
2005; and
T (e) Purchase orders and purchase ledgers of POI for the T
period from 1 June 2002 to 31 December 2005.
U U
V V
由此
A
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(f) Audited financial statements for POI for the years ended
B B
31 December 2002, 31 December 2003, 31 December
2004, and 31 December 2005”
C C
D
13. By way of explanation; it is not in issue that POE is, in effect, D
a sister company of OPT, with the same founders including the defendants
E E
in person. It makes the machinery that is capable of recognizing and
F
reading smart cards. F
G G
14. POE Shenzhen is a mirror company of POE, founded in the
H PRC for the purpose of trading in the PRC. OPT’s Shenzhen Factory is a H
separate entity, trading separately, maintaining its own ledgers and records.
I I
J 15. At the material time POI was a subsidiary of POE. POE J
Shenzhen was a subsidiary of POI.
K K
L 16. The first three sets of documents are those outstanding from L
Sinocard’s first summons in time; the remaining three are those from the
M M
second.
N N
17. On 23 January 2008 on application by the defence, a Master
O O
stayed execution pending the determination of this the appeal.
P P
Q
The Legal Principles Q
18. These are I believe not in issue, but it is as well briefly to
R R
summarize what a court in a contest such as this must pay heed to when
S faced with an application for specific discovery. S
T T
U U
V V
由此
A
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B
19. In this respect I begin by quoting from the judgment of Chu J B
in the unreported case in Re the Estate of Ng Chan Wah, Deceased
C C
HCAP 5/2003 at para.8:
D “8. The relevant principles underlying an Order 24, rule 7 D
application are set out by Mustill LJ in Berkeley Administration
Inc. & Others v. McCelland & Others [1990] FSR 381 at 382-3.
E E
The relevant part of the judgment reads:
F
‘ (1) There is no jurisdiction to make an order F
under R.S.C., Order 24, rule 7, for the production of
documents unless (a) there is sufficient evidence that
G the documents exist which the other party has not G
disclosed; (b) the document or documents relate to
matters in issue in the action; (c) there is sufficient
H H
evidence that the document is in the possession,
custody or power of the other party.
I I
(2) When it is established that those three
prerequisites for jurisdiction do exist, the court has a
J discretion whether or not to order disclosure. J
(3) The order must identify with precision the
K K
document or documents or categories of document
which are required to be disclosed, for otherwise the
L person making the list may find himself in serious L
trouble for swearing to a false affidavit, even though
doing his best to give an honest disclosure.
M M
(4) It has been suggested that the court should
approach the appeal on the basis that this is a matter N
N
of discretion, and that the appellate court should not
ordinarily interfere with that discretion in the absence
O of misdirection or some other factor which, according O
to familiar principles, would justify it in taking such a
course. This is right as regards the exercise of that
P P
discretion which arises once the conditions for the
existence of jurisdiction have been satisfied. But on
Q the question whether they have been satisfied and Q
whether the order is in the appropriate form, we are
not concerned with discretion at all, and they are
R reviewable without inhibition by the appellate court. R
(5) It is not an answer to an assertion that S
S
documents falling within a particular category are
disclosable that no such documents are in the other
T party’s possession or power, although if this T
information has already been conveyed on oath in the
course of the proceedings this would furnish a reason
U U
V V
由此
A
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why, in the exercise of the court’s discretion, it might
B B
well not make an empty order.”
C C
And she went on to say at para.16:
D “… It is not the purpose of discovery to give the plaintiffs an D
opportunity to hunt around the documents in the hope that they
will reveal some improprieties on the defendants’ part or will
E provide information for them to pursue more enquiries.” E
F F
20. Documents sought to be disclosed are relevant to an issue of
G the case if the issue is raised in the pleadings; see Paul’s Model Art Gmbh G
& Co. KG v UT Ltd & Ors [2006] 1 HKC 238, CA; per Cheung JA at p.247.
H H
I 21. I quote also from Burrell J’s judgment in Mariner I
International Hotels Ltd v Atlas Ltd (unreported) HCA 10714/1998 from
J J
para.8:
K K
“8. This court shares the views expressed by Stone J in
Vashdev Essardas Mahbubani t/a Vashi’s Export Co. v. Motis
L Exports Ltd and others (unreported) in 1997: L
‘As no doubt will become known by commercial
M practitioners, my attitude, as Judge presently in M
charge of the Commercial List, is that in general
N
discovery is a good thing, and that in cases of doubt I N
am more likely to lean in favour of discovery than
against it. In this connection I am reminded of one of
O the broad principles of the common law as expressed O
by Lord Justice Bingham (as he then was) in the case
of Ventouris v. Mountain [1991] 1 WLR 607 at 611H,
P P
where the learned Lord Justice observed as follows:
Q ‘Our system of civil procedure is founded on Q
the rule that the interests of justice are best
served if parties to litigation are obliged to
R disclose and produce for the other party’s R
inspection all documents in their possession,
custody or power relating to the issues in the S
S
action. This is not of course a necessary rule
but it is firmly established here. It is not
T however an absolute rule, as exceptions such T
as legal professional privilege and public
interest immunity demonstrate. Nonetheless,
U U
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disclosure being generally regarded as
B B
beneficial, any exception has to be justified
as serving the public interest which gives
C rise to the exception …’’ C
9. It should not be thought however that this represents a
D charter for opening the flood gates on discovery. If doing justice D
is an onerous task then so be it. The task of the court will often
be to determine when ‘doing justice to the claim’ stops and E
E
‘fishing’ or, to use another analogy ‘the scatter gun approach’
starts. At that point the onerous nature of the discovery exercise
F passes from the necessary and permissible to the unnecessary and F
impermissible.
G 10. With the above general principles in mind the rules require G
that in respect of each item sought :
H H
(a) there must be sufficient evidence that the document exists;
I (b) the document must relate to matters in issue; and I
(c) there is sufficient evidence that the document is in the
J possession, custody or power of the other party. J
If these conditions are satisfied the court retains a discretion
K K
whether or not to order disclosure.”
L L
22. Finally, a famous quote from the Compagnie Financière et
M M
Commerciale du Pacifique v Peruvian Guano Co. [1882] 11 QBD 55CA:
N “… the documents to be produced are not confined to those, N
which would be evidence either to prove or to disprove any
matter in question in the action … It seems to me that every
O document relates to the matters in question in the action, which O
not only would be evidence upon any issue, but also which, it is
reasonable to suppose, contains information which may – not P
P
which must – either directly or indirectly enable the party
requiring the affidavit either to advance his own case or to
Q damage the case of his adversary … a document can properly be Q
said to contain information which may enable the party requiring
the affidavit either to advance his own case or to damage the case
R R
of his adversary, if it is a document which may fairly lead him to
a train of inquiry, which may have either of these two
S consequences …” S
T T
U U
V V
由此
A
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B
The Opposition B
23. The resistance mounted by the defence to discovery is based
C C
on relevance. The documents sought do not relate to matters in issue in the
D action. Thus the discretion of the court is not engaged. D
E E
24. What are relevant are the financial and commercial activities
F of OPT during the 17 months or so that the parties were working together. F
If it is found that OPT must compensate for unjust enrichment then its
G G
records and accounts for this period will necessarily provide the means
H whereby this can be calculated. This much has been conceded, and OPT’s H
accounts, records, sales ledgers and so on have been disclosed.
I I
J J
25. What is not relevant are those records for any period of time
that precedes the material date or post-dates the date in July 2005 when the K
K
relationship came to an end.
L L
26. What also is not relevant are the records of the associated M
M
companies POE, POE Shenzhen and POI. There are no claims against any
N N
of these entities. They are not parties. There is no connection established
O
in the evidence binding them to OPT and Sinocard’s claim. O
P P
The Case for Discovery
Q Q
27. Those accounts so far disclosed reveal that there are
R connections between OPT and the associated companies referred to in the R
orders the Master made. For example, POE Shenzhen was used to sell in
S S
the PRC, the OPT Shenzhen Factory having no licence to sell there. And
T POI also played a role in purchasing OPT’s products. T
U U
V V
由此
A
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B
28. Support for the need for the accounts and other records to be B
examined comes from a report by Horace Man Kit Ho, a chartered
C C
accountant commissioned by Sinocard for the purpose of calculating what
D
financial advantage was achieved for OPT as a result of the contribution of D
machinery, workforce and orders made by Sinocard. With benefit of
E E
access to the audited financial statements of OPT and the Shenzhen Factory
F for the year ending December 2005, he noted that sales approaching F
$2 million and in excess of $10 million were made “to a related company”
G G
and to the “ultimate holding company”. The related company he surmised
H was either POE or POI, and the holding company E-Pilot. OPT, he H
reported, might well have benefited from onward sales with profits
I I
generated by the related companies. For this reason, those companies’
J records bear examination. J
K K
29. As for the need for disclosure of accounts and records pre-
L dating the material date and post-dating the termination date by a number L
of months; Mr Ho’s report reveals that his view is that to assess the
M M
quantum of profit enhancement during the period the warring parties were
N operating together, a comparison has to be made with figures achieved N
before and after that time. For that comparison to be meaningful, he
O O
believes that would require inspection of records and accounts for the
P period June 2002 to December 2005. P
Q Q
Discussion
R R
30. The resistance to this course is to repeat the assertion that the
S so-called related companies’ records would not assist. It was averred: S
T OPT did make sales to POI (not POE), but this was after Sinocard T
ceased being involved with OPT. They were not made with Sinocard
U U
V V
由此
A
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B
machines, they were not sold to Sinocard’s customers and there was B
no Sinocard input into their making;
C C
POE Shenzhen has not and does not profit from the sale of OPT
D D
products in the PRC. Its profits are derived from business not
E connected with OPT; E
F The transaction that excited Mr Ho in OPT’s accounts to F
December 2005 had nothing to do with POE. POE’s link with OPT
G G
concerns the sharing of management fees, which are transparently
H evident from OPT’s accounts. There was one transaction with POE H
back in 2003, but that was well before the so-called “period of co-
I I
operation”.
J J
31. In putting forward the proposition that accounting records pre
K K
the material date must be inspected for comparison to be made, Mr Ho does
L not explain how the comparison process would work. There are too many L
variables for the approach to be meaningful, such as sales to one of OPT’s
M M
existing customers increasing during the period of co-operation.
N N
32. Mr Hudson representing all the defendants before the Master
O O
and then me submitted that the so-called related companies are not litigants
P and that no claim has been made against them. Further, that evidence P
adduced by the defence has demonstrated that those transactions targeted as
Q Q
prospectively involving one or other of the related companies turned out to
R be red herrings and not relevant to the dispute. R
S S
T T
U U
V V
由此
A
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B
Determination B
33. In my view Sinocard has done enough to show that the records
C C
of these companies may have a bearing on the accounting calculations
D necessarily to be made to determine compensation for unjust enrichment, if D
liability comes to be established under this head.
E E
F 34. The fact that they are associated companies carries its own F
implications. That there are transactions with them following the material
G G
date and prior to cessation of the period of co-operation strengthens these
H implications. H
I I
35. There has been evidence to refute relevance, that the
J J
transactions identified are unconnected. Perhaps so, but these are
assertions, and in my view Sinocard should have the opportunity to test the K
K
truth and adequacy of these assertions.
L L
36. Further, there is a logic in the proposition that comparisons M
M
with pre-and post-activity will or may be useful. Of course there will be
N N
variables but these are capable of analysis and allowance being made for
O
them. O
P P
37. For these reasons I am satisfied that the documents sought
Q may (not must) either directly or indirectly enable Sinocard to advance its Q
own case or to damage the case of the defendants, and that they are thus
R R
related for the purpose of satisfying the jurisdictional requirement of rule 7
S of order 24. S
T T
38. In exercise of my discretion I order their discovery.
U U
V V
由此
A
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B
The Result B
39. The appeal is dismissed. Costs of the appeal, nisi, are to
C C
Sinocard in any event.
D D
E E
F F
G G
(D M B Gill)
Deputy High Court Judge
H H
I Messrs A Mak and S Ng, instructed by Messrs Chan & Associates, for the I
Plaintiff
J J
st th
Mr R Hudson, of Messrs Deacons, for the 1 to 5 Defendants
K K
L L
M M
N N
O O
P P
Q Q
R R
S S
T T
U U
V V
SINOCARD TECHNOLOGY LTD v. LEE CHI KEUNG AND OTHERS
由此
A A
B B
HCA 2022/2005
C IN THE HIGH COURT OF THE C
HONG KONG SPECIAL ADMINISTRATIVE REGION
D D
COURT OF FIRST INSTANCE
E ACTION NO. 2022 OF 2005 E
____________
F BETWEEN F
G SINOCARD TECHNOLOGY LIMITED Plaintiff G
and
H H
LEE CHI KEUNG also known as 1st Defendant
I LEE CHI KEUNG CHRIS I
E-PILOT GROUP LIMITED 2nd Defendant
J J
rd
ORIENTAL POWER TECHNOLOGY LIMITED 3 Defendant
K K
KWAN KWOK LAM 4th Defendant
L CHEUNG WAI YUEN also known as 5th Defendant L
CHEUNG WAI YEUN STANLEY
M
____________ M
N Before: Deputy High Court Judge Gill in Chambers N
Date of Hearing: 7 May 2008
O O
Date of Ruling: 20 May 2008
P P
__________
Q RU LI NG Q
__________
R R
S S
1. This is an appeal by rehearing against the decision of a Master
T to order discovery of particular documents on applications made by the T
U U
V V
由此
A
-2- A
B
plaintiff. The defence challenged the applications upon the grounds of B
relevance and maintains that stance on appeal.
C C
D History D
E
2. The plaintiff (Sinocard) and 3rd defendant (OPT) are Hong E
Kong registered and based companies. Up to about 1 December 2003 (the
F F
material date) both companies were engaged in the manufacture of the
G product known as “smart card” and products related, in competition with G
each other and others operating in the same field. With a view to
H H
improving market share and minimising the adverse effects of competing
I with each other, those in control of the two companies explored the I
prospects of a joint enterprise; the result was a merger of their respective
J J
businesses as from the material date.
K K
3. But this did not last. Some 17 months later, on 19 July 2005,
L L
the companies ceased to operate together. What led to the dispute that is
M the basis of this action is that neither can agree on the nature of the M
commercial relationship that lasted for the 17 months they worked together.
N N
O 4. Sinocard claims that what had been achieved in the lead up to O
the material date was an agreement made partly in writing and partly orally
P P
and evidenced by conduct that there be a joint enterprise, which it refers to
Q as the Joint Venture. Q
R R
5. From the material date Sinocard ceased to operate in its own
S right and transferred its business, including orders, staff and plant to OPT, S
in consideration for a substantial interest in the shareholding of OPT. It
T T
claims that OPT failed to perform this agreement, and on 19 July 2005
U U
V V
由此
A
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B
brought the relationship to an end when it sacked the staff formerly B
working for Sinocard and joined forces with another company altogether.
C C
D
6. Following the parting of the ways, Sinocard claimed a breach D
of the Joint Venture agreement and by this action sues for specific
E E
performance, a declaration that it owns beneficially one third of the
F shareholding of OPT, damages in addition or in lieu and consequential F
orders.
G G
H 7. Particularly pertinent to this appeal is that if Sinocard is not H
successful in establishing there was a Joint Venture agreement, in the
I I
alternative it claims that OPT is a constructive trustee of Sinocard’s assets
J transferred to OPT, and sues for compensation for OPT’s unjust enrichment. J
K K
8. To complete the picture Sinocard joined OPT’s parent
L company as second defendant (E-Pilot) and those who owned and L
controlled E-Pilot and thus OPT, being the 1st, 4th and 5th defendants
M M
(Messrs Chris Lee, K L Kwan and Stanley Cheung).
N N
9. The defence as pleaded by all five defendants is that the parties
O O
had not at or before the material date or thereafter advanced to the stage
P where there was a Joint Venture agreement or other form of agreement P
binding the parties to a joint enterprise. There were discussions, during
Q Q
which merger prospects were considered, but they did not lead to a positive
R outcome. What happened from the material date was that by agreement R
OPT took on staff and equipment and fulfilled orders of Sinocard, for
S S
appropriate consideration. They referred to this as the Interim
T Arrangement, which persisted until 19 July 2005. They deny any liability T
owed Sinocard. U
U
V V
由此
A
-4- A
B
The Discovery Applications B
10. In the post-pleading period those representing Sinocard filed
C C
two summonses under O.24 rr. 3 and 7 RHC in December 2006 and June
D 2007, for further and better lists of documents as set out in attached D
schedules with verifying affidavits.
E E
F 11. These are the applications the subject of the appeal. F
G G
12. By the time they came before the Master many of the queries
H had been resolved or withdrawn. Those that remained dealt with six sets of H
documents. As the Master granted the application in respect of all six, and
I I
as this appeal concerns all six, it is convenient to reproduce his order which
J J
he made on 4 January 2008, and I now do so:
K “IT IS ORDERED THAT :- K
1. the Defendants do within 14 days from the date hereof file
L and serve a further and better list of documents as follows and L
to be verified by affidavit :-
M M
(a) Sales ledgers of Oriental Power Technology Limited
(‘OPT’) for the period from June 2002 to 30 November
N 2003; sales ledgers of Power Oriental Engineering N
Limited (‘POE’) and 銳凱科技 (深圳) 有限公司 (‘POE
Shenzhen’) for the period from June 2002 to 31
O O
December 2005;
(b) Sales ledgers or records of OPT’s Shenzhen Factory for P
P
the period from June 2002 to 30 November 2003;
Q (c) Annual examination record (including audit report and Q
accounts) of OPT’s Shenzhen Factory covering the
period from June 2002 to December 2002;
R R
(d) Sales ledgers of Pioneer Oriental International Limited
(‘POI’) for the period from 1 June 2002 to 31 December S
S
2005; and
T (e) Purchase orders and purchase ledgers of POI for the T
period from 1 June 2002 to 31 December 2005.
U U
V V
由此
A
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(f) Audited financial statements for POI for the years ended
B B
31 December 2002, 31 December 2003, 31 December
2004, and 31 December 2005”
C C
D
13. By way of explanation; it is not in issue that POE is, in effect, D
a sister company of OPT, with the same founders including the defendants
E E
in person. It makes the machinery that is capable of recognizing and
F
reading smart cards. F
G G
14. POE Shenzhen is a mirror company of POE, founded in the
H PRC for the purpose of trading in the PRC. OPT’s Shenzhen Factory is a H
separate entity, trading separately, maintaining its own ledgers and records.
I I
J 15. At the material time POI was a subsidiary of POE. POE J
Shenzhen was a subsidiary of POI.
K K
L 16. The first three sets of documents are those outstanding from L
Sinocard’s first summons in time; the remaining three are those from the
M M
second.
N N
17. On 23 January 2008 on application by the defence, a Master
O O
stayed execution pending the determination of this the appeal.
P P
Q
The Legal Principles Q
18. These are I believe not in issue, but it is as well briefly to
R R
summarize what a court in a contest such as this must pay heed to when
S faced with an application for specific discovery. S
T T
U U
V V
由此
A
-6- A
B
19. In this respect I begin by quoting from the judgment of Chu J B
in the unreported case in Re the Estate of Ng Chan Wah, Deceased
C C
HCAP 5/2003 at para.8:
D “8. The relevant principles underlying an Order 24, rule 7 D
application are set out by Mustill LJ in Berkeley Administration
Inc. & Others v. McCelland & Others [1990] FSR 381 at 382-3.
E E
The relevant part of the judgment reads:
F
‘ (1) There is no jurisdiction to make an order F
under R.S.C., Order 24, rule 7, for the production of
documents unless (a) there is sufficient evidence that
G the documents exist which the other party has not G
disclosed; (b) the document or documents relate to
matters in issue in the action; (c) there is sufficient
H H
evidence that the document is in the possession,
custody or power of the other party.
I I
(2) When it is established that those three
prerequisites for jurisdiction do exist, the court has a
J discretion whether or not to order disclosure. J
(3) The order must identify with precision the
K K
document or documents or categories of document
which are required to be disclosed, for otherwise the
L person making the list may find himself in serious L
trouble for swearing to a false affidavit, even though
doing his best to give an honest disclosure.
M M
(4) It has been suggested that the court should
approach the appeal on the basis that this is a matter N
N
of discretion, and that the appellate court should not
ordinarily interfere with that discretion in the absence
O of misdirection or some other factor which, according O
to familiar principles, would justify it in taking such a
course. This is right as regards the exercise of that
P P
discretion which arises once the conditions for the
existence of jurisdiction have been satisfied. But on
Q the question whether they have been satisfied and Q
whether the order is in the appropriate form, we are
not concerned with discretion at all, and they are
R reviewable without inhibition by the appellate court. R
(5) It is not an answer to an assertion that S
S
documents falling within a particular category are
disclosable that no such documents are in the other
T party’s possession or power, although if this T
information has already been conveyed on oath in the
course of the proceedings this would furnish a reason
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why, in the exercise of the court’s discretion, it might
B B
well not make an empty order.”
C C
And she went on to say at para.16:
D “… It is not the purpose of discovery to give the plaintiffs an D
opportunity to hunt around the documents in the hope that they
will reveal some improprieties on the defendants’ part or will
E provide information for them to pursue more enquiries.” E
F F
20. Documents sought to be disclosed are relevant to an issue of
G the case if the issue is raised in the pleadings; see Paul’s Model Art Gmbh G
& Co. KG v UT Ltd & Ors [2006] 1 HKC 238, CA; per Cheung JA at p.247.
H H
I 21. I quote also from Burrell J’s judgment in Mariner I
International Hotels Ltd v Atlas Ltd (unreported) HCA 10714/1998 from
J J
para.8:
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“8. This court shares the views expressed by Stone J in
Vashdev Essardas Mahbubani t/a Vashi’s Export Co. v. Motis
L Exports Ltd and others (unreported) in 1997: L
‘As no doubt will become known by commercial
M practitioners, my attitude, as Judge presently in M
charge of the Commercial List, is that in general
N
discovery is a good thing, and that in cases of doubt I N
am more likely to lean in favour of discovery than
against it. In this connection I am reminded of one of
O the broad principles of the common law as expressed O
by Lord Justice Bingham (as he then was) in the case
of Ventouris v. Mountain [1991] 1 WLR 607 at 611H,
P P
where the learned Lord Justice observed as follows:
Q ‘Our system of civil procedure is founded on Q
the rule that the interests of justice are best
served if parties to litigation are obliged to
R disclose and produce for the other party’s R
inspection all documents in their possession,
custody or power relating to the issues in the S
S
action. This is not of course a necessary rule
but it is firmly established here. It is not
T however an absolute rule, as exceptions such T
as legal professional privilege and public
interest immunity demonstrate. Nonetheless,
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disclosure being generally regarded as
B B
beneficial, any exception has to be justified
as serving the public interest which gives
C rise to the exception …’’ C
9. It should not be thought however that this represents a
D charter for opening the flood gates on discovery. If doing justice D
is an onerous task then so be it. The task of the court will often
be to determine when ‘doing justice to the claim’ stops and E
E
‘fishing’ or, to use another analogy ‘the scatter gun approach’
starts. At that point the onerous nature of the discovery exercise
F passes from the necessary and permissible to the unnecessary and F
impermissible.
G 10. With the above general principles in mind the rules require G
that in respect of each item sought :
H H
(a) there must be sufficient evidence that the document exists;
I (b) the document must relate to matters in issue; and I
(c) there is sufficient evidence that the document is in the
J possession, custody or power of the other party. J
If these conditions are satisfied the court retains a discretion
K K
whether or not to order disclosure.”
L L
22. Finally, a famous quote from the Compagnie Financière et
M M
Commerciale du Pacifique v Peruvian Guano Co. [1882] 11 QBD 55CA:
N “… the documents to be produced are not confined to those, N
which would be evidence either to prove or to disprove any
matter in question in the action … It seems to me that every
O document relates to the matters in question in the action, which O
not only would be evidence upon any issue, but also which, it is
reasonable to suppose, contains information which may – not P
P
which must – either directly or indirectly enable the party
requiring the affidavit either to advance his own case or to
Q damage the case of his adversary … a document can properly be Q
said to contain information which may enable the party requiring
the affidavit either to advance his own case or to damage the case
R R
of his adversary, if it is a document which may fairly lead him to
a train of inquiry, which may have either of these two
S consequences …” S
T T
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B
The Opposition B
23. The resistance mounted by the defence to discovery is based
C C
on relevance. The documents sought do not relate to matters in issue in the
D action. Thus the discretion of the court is not engaged. D
E E
24. What are relevant are the financial and commercial activities
F of OPT during the 17 months or so that the parties were working together. F
If it is found that OPT must compensate for unjust enrichment then its
G G
records and accounts for this period will necessarily provide the means
H whereby this can be calculated. This much has been conceded, and OPT’s H
accounts, records, sales ledgers and so on have been disclosed.
I I
J J
25. What is not relevant are those records for any period of time
that precedes the material date or post-dates the date in July 2005 when the K
K
relationship came to an end.
L L
26. What also is not relevant are the records of the associated M
M
companies POE, POE Shenzhen and POI. There are no claims against any
N N
of these entities. They are not parties. There is no connection established
O
in the evidence binding them to OPT and Sinocard’s claim. O
P P
The Case for Discovery
Q Q
27. Those accounts so far disclosed reveal that there are
R connections between OPT and the associated companies referred to in the R
orders the Master made. For example, POE Shenzhen was used to sell in
S S
the PRC, the OPT Shenzhen Factory having no licence to sell there. And
T POI also played a role in purchasing OPT’s products. T
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B
28. Support for the need for the accounts and other records to be B
examined comes from a report by Horace Man Kit Ho, a chartered
C C
accountant commissioned by Sinocard for the purpose of calculating what
D
financial advantage was achieved for OPT as a result of the contribution of D
machinery, workforce and orders made by Sinocard. With benefit of
E E
access to the audited financial statements of OPT and the Shenzhen Factory
F for the year ending December 2005, he noted that sales approaching F
$2 million and in excess of $10 million were made “to a related company”
G G
and to the “ultimate holding company”. The related company he surmised
H was either POE or POI, and the holding company E-Pilot. OPT, he H
reported, might well have benefited from onward sales with profits
I I
generated by the related companies. For this reason, those companies’
J records bear examination. J
K K
29. As for the need for disclosure of accounts and records pre-
L dating the material date and post-dating the termination date by a number L
of months; Mr Ho’s report reveals that his view is that to assess the
M M
quantum of profit enhancement during the period the warring parties were
N operating together, a comparison has to be made with figures achieved N
before and after that time. For that comparison to be meaningful, he
O O
believes that would require inspection of records and accounts for the
P period June 2002 to December 2005. P
Q Q
Discussion
R R
30. The resistance to this course is to repeat the assertion that the
S so-called related companies’ records would not assist. It was averred: S
T OPT did make sales to POI (not POE), but this was after Sinocard T
ceased being involved with OPT. They were not made with Sinocard
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B
machines, they were not sold to Sinocard’s customers and there was B
no Sinocard input into their making;
C C
POE Shenzhen has not and does not profit from the sale of OPT
D D
products in the PRC. Its profits are derived from business not
E connected with OPT; E
F The transaction that excited Mr Ho in OPT’s accounts to F
December 2005 had nothing to do with POE. POE’s link with OPT
G G
concerns the sharing of management fees, which are transparently
H evident from OPT’s accounts. There was one transaction with POE H
back in 2003, but that was well before the so-called “period of co-
I I
operation”.
J J
31. In putting forward the proposition that accounting records pre
K K
the material date must be inspected for comparison to be made, Mr Ho does
L not explain how the comparison process would work. There are too many L
variables for the approach to be meaningful, such as sales to one of OPT’s
M M
existing customers increasing during the period of co-operation.
N N
32. Mr Hudson representing all the defendants before the Master
O O
and then me submitted that the so-called related companies are not litigants
P and that no claim has been made against them. Further, that evidence P
adduced by the defence has demonstrated that those transactions targeted as
Q Q
prospectively involving one or other of the related companies turned out to
R be red herrings and not relevant to the dispute. R
S S
T T
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B
Determination B
33. In my view Sinocard has done enough to show that the records
C C
of these companies may have a bearing on the accounting calculations
D necessarily to be made to determine compensation for unjust enrichment, if D
liability comes to be established under this head.
E E
F 34. The fact that they are associated companies carries its own F
implications. That there are transactions with them following the material
G G
date and prior to cessation of the period of co-operation strengthens these
H implications. H
I I
35. There has been evidence to refute relevance, that the
J J
transactions identified are unconnected. Perhaps so, but these are
assertions, and in my view Sinocard should have the opportunity to test the K
K
truth and adequacy of these assertions.
L L
36. Further, there is a logic in the proposition that comparisons M
M
with pre-and post-activity will or may be useful. Of course there will be
N N
variables but these are capable of analysis and allowance being made for
O
them. O
P P
37. For these reasons I am satisfied that the documents sought
Q may (not must) either directly or indirectly enable Sinocard to advance its Q
own case or to damage the case of the defendants, and that they are thus
R R
related for the purpose of satisfying the jurisdictional requirement of rule 7
S of order 24. S
T T
38. In exercise of my discretion I order their discovery.
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B
The Result B
39. The appeal is dismissed. Costs of the appeal, nisi, are to
C C
Sinocard in any event.
D D
E E
F F
G G
(D M B Gill)
Deputy High Court Judge
H H
I Messrs A Mak and S Ng, instructed by Messrs Chan & Associates, for the I
Plaintiff
J J
st th
Mr R Hudson, of Messrs Deacons, for the 1 to 5 Defendants
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N N
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S S
T T
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