Beijing Trust Investment Corporation of the People's Construction Bank of China and Others v. Ho Ying Cheong and Others

HCA009302/1993

1993, No.A6861

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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AND

1993, No.A9302

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Coram: Hon. Yam, J. in Court

Dates of hearing: 7, 8, 9, 13, 14, 15, 16, 19, 20,22, 23, 28, 29 December 1994 and 6-8 February 1995

Date of delivery of judgment: 13 February 1995

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JUDGMENT

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Yam, J.:

JUDGMENT on -

(1) The 1st Defendant's summons to dismiss the 1st Plaintiff's action on the ground of non-disclosure of documents; and

(2) The Plaintiffs' summonses in both actions to have the two actions dismissed upon their withdrawal of the actions

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Background

1. On 4th January 1995, the 1st Defendant took out a summons for dismissal of the 1st Plaintiff's case in the Qingyuan Action pursuant to O.24, r.16 for breaches of the Orders for Discovery made on 21st July 1994 and 8th September 1994. Before this summons could be heard, on 11th January 1995 when the Court resumed the trial of the two actions, there were two summonses taken out by all Plaintiffs in both actions either to withdraw the two actions altogether or to have the two actions dismissed with judgment to be entered in favour of all three Defendants in both actions.

2. It was at one time thought that the two actions would then in any event come to an end, and apparently, it did not matter whether the two actions were to be dismissed on the Plaintiffs' summonses or on the 1st Defendant's summons. However, I am persuaded by Miss Li Q.C. for the 1st Defendant that the 1st Defendant is entitled to press for the dismissal of the 1st Plaintiff's action on the ground of non-disclosure of documents rather than for the actions to be dismissed by the Plaintiffs' withdrawal of their action.

3. These two actions came before me at the very early interlocutory stage in 1993 when the Plaintiffs were seeking continuation of the ex parte Mareva injunction Orders against the Defendants on the ground of fraud and deceit. On 20th January 1994, I made an order of "Early or Speedy Trial" pursuant to O.29, r.5 in respect of both actions. At the same time I adjourned both motions for the continuation of the ex parte Mareva injunction Orders to the trial. Subsequently, the trial dates have been varied by the Court of Appeal and myself upon appeal and applications by the parties. Eventually the trial commenced at 10:37 hours on 7th December 1994. The withdrawal of the actions by the Plaintiffs in both actions came on the 15th day of the trial when the cross-examination of the 1st Plaintiff's witness Mr Nicholas Lam, a director and shareholder for the 1st Plaintiff in the Qingyuan Action came near to its end.

4. In my view, one cannot say it does not matter how the actions are dismissed. If there is any cause for the 1st Defendant to complain that the 1st Plaintiff has conducted its case so unfairly by way of non-discovery of documents, he is entitled as of right to demand justice to be done in his favour. It is particularly so when the motions for interlocutory injunction has been adjourned to the trial, and it would not be open to the Plaintiffs to say "Now I am not interested to continue on with the action" when the Mareva injunction has already taken effect adversely against the Defendants. In other words, in the wake of focusing the efficiency of the Judiciary in this community, let us not forget that time, and sometimes considerable time, is required in certain matter for the administration of justice for litigants which is the forefront of our consideration instead of disposing cases quickly and rashly without due consideration for justice demanded by them.

5. These two sets of summonses can be better understood by considering how the 1st Plaintiff framed its case in the Re-amended Statement of Claim.

The 1st Plaintiff's Case

6. At the very beginning the 1st Plaintiff alleged that it is the beneficial owner of five U.S. registered patents in respect of the use and application of certain invention for application of three-dimensional technology in photographic processing. It entered into a "Distribution Agreement" on 15th August 1991 with the 2nd Defendant through the 1st Defendant, the director and shareholder thereof, whereby the 2nd Defendant agreed to market and resell in China : (a) Image Tech 3-D 1000 Consumer 3-D Cameras, and (b) Consumer 3-D Printer for the Image Tech 3-D 1000 Cameras (which the 1st Plaintiff labelled them as its "patented products") to be sold and supplied to the 2nd Defendant.

7. Under the Distribution Agreement, the 2nd Defendant would be an independent marketing corporation and would not assign any of its rights thereunder without the consent of the 1st Plaintiff. The 2nd Defendant also agreed to purchase not less than US$500,000 in value of the 1st Plaintiff's patented products in each year.

8. The 1st Plaintiff alleged that the 2nd Defendant was in breach of the Distribution Agreement in that it only purchased US$272,389.09 worth of the 1st Plaintiff's patented products during the first year. Further it had assigned its contractual rights under the Distribution Agreement to the 4th Plaintiff without the consent of the 1st Plaintiff. Furthermore, the 2nd Defendant, by the 1st Defendant, adopted and practised various fraudulent marketing and trade methods as set out in the Statement of Claim causing loss and damage to the 1st Plaintiff's reputation and goodwill.

9. The claims of other Plaintiffs in the two actions have already been set out in my Reasons of Decision on 24th February 1994 in respect of my order of Early or Speedy Trial and I would not repeat them here.

10. The 1st Plaintiff has all along been represented by its director Mr Nicholas Lam Lit-yung. At the interlocutory stage, he has put in a number of affidavits in the inter partes application for continuation of the Mareva injunction. This was done in conjunction with other Plaintiffs and in particular, the 3rd Plaintiff as represented by Mr Yonehana and Mr Tsui Ka Po who was the employee of the 1st Defendant's companies. But he has also worked for Mr Yonehana.

11. In the affidavits of Mr Nicholas Lam, he relied on those allegations in the Statement of Claim. He alleged that the 1st Plaintiff is the agent of one Image Technology International Inc. for Hong Kong and South East Asia countries including China. The founders of this U.S. company are, inter alios, Mr Alan Lo, Mr Sunny Yip, Mr Augustine Wu and Mr Nicholas Lam himself. He also alleged that all of them have executed assignments assigning all the legal and beneficial rights of and under those five said patents to the said Image Technology International Inc. However, the enforcement rights have been assigned to the 1st Plaintiff who has all the rights and entitlements under the said patents to enforce the same. These allegations were made in his 1st affirmation on 28th July 1993. He also alleged that no person other than the 1st Plaintiff has any legal right to use and apply the aforesaid patents in China, Hong Kong and the South East Asian countries. The aforesaid allegations were not admitted by the Defendants and the 1st Plaintiff was put to strict proof thereof.

12. Further, Mr Nicholas Lam alleged that in or about 1990, the 1st Plaintiff sold a quantity of sample 3-D cameras and accessories to the 3rd Plaintiff. At the request of the 3rd Plaintiff, the goods were allowed to be sold under the 3rd Plaintiff's brand name "ACE", a brand name used and adopted by the 3rd Plaintiff for sometime. According to Mr Nicholas Lam, that was the only occasion when the 1st Plaintiff has ever made such concession and since then all the 1st Plaintiff's patented products were sold under the trade name "Image Tech".

13. These allegations were significant in that it was the concerted front of all Plaintiffs that the Defendants had misused the 3rd Plaintiff's stationeries and forged his signature in certain documents given to the 2nd and 4th Plaintiffs in China and the Defendants had also fraudulently and without the consent of the 3rd Plaintiff used the brand name "ACE" for some products shipped to the 2nd and 4th Plaintiffs in China which was actually manufactured by the 1st Plaintiff.

14. In his 4th affirmation made on 13th September 1993, Mr Nicholas Lam again said the 1st Plaintiff is a manufacturer of the 3-D patented cameras and of the 3-D patented photographic enlarger printer/processor. These goods were manufactured in Taiwan, Japan, Hong Kong and China under the licence of the 1st Plaintiff.

15. The 1st Defendant Mr Ho denied these allegations of Mr N. Lam. He said that an arrangement was made between the 3rd Plaintiff and the 1st Plaintiff that equipment and products were to be sold to the PRC market and indeed those to the 4th Plaintiff were to be marketed under the label of "ACE". He said in paragraph 57 of his 1st affirmation that :

"Yonehana would provide labels to the 1st Plaintiff so that equipment manufactured by the 1st Plaintiff would bear the ACE label of the 3rd Plaintiff. The labels would be affixed to the equipment of the 1st Plaintiff before the 1st Plaintiff pack them. When the equipment reached the Defendants, the packed equipment were then boxed and sent to their destination. They are now produced and shown to me marked 'HYC-13', copies of the invoices of the 1st Plaintiff selling goods bearing the ACE label of the 3rd Plaintiff."

16. In reply Mr Nicholas Lam in his 4th affirmation, paragraph 10 said this :

"The exhibit HYC-13 produced by the 1st Defendant were invoices issued by the 1st Plaintiff to the 2nd Defendant showing samples of 3-D cameras and 3-D photographic equipment sold by the 1st Plaintiff to the 2nd Defendant but not to the 3rd Plaintiff. This is clear from the face of the documents. The 1st Defendant is trying to mislead this Honourable Court by saying that the invoices were as records of sale by the 1st Plaintiff to the 3rd Plaintiff. In respect of one of the invoices (92-1-0018) dated 14th January 1992 the 1st Plaintiff sold the balance of the stock of ACE 3-D cameras left behind after satisfying the 3rd Plaintiff's orders for sample cameras in 1990. The purchase price was paid by the 2nd Defendant." (Emphasis supplied)

The Issue of Discovery

17. In my judgment delivered on 6th February 1995 on the 1st Defendant's Notice of Motion for leave to issue a writ of sequestration against the 1st Plaintiff, I have set out those documents which were discovered on 14th and 28th December 1994. I shall not repeat them here. Against the aforesaid background, I will have to consider whether the 1st Plaintiff has failed to comply with my Orders on 21st July 1994 and 8th February 1994 in relation to discovery of specific documents and generally to provide proper discovery. In particular I have to consider whether or not :-

(i) there is a real, substantial or serious risk that a fair trial of the 1st Plaintiff's claims and/or of the action is no longer possible that this Court would be prevented from doing justice between the parties, and/or

(ii) the 1st Plaintiff has deliberately suppress discovery of relevant documents in circumstances amounting to contumacious conduct.

What is Relevant Documents

18. The classical decision in the area of relevance is in The Peruvian Guano's case (1883)11 QBD 55. It has been decided that documents are material to the matters in question in the action within the meaning of the Discovery Order if it is not unreasonable to suppose that they may contain information directly or indirectly enabling the party seeking discovery either to advance its own case or to damage the case of his adversary. Brett L.J. said at p.62 of his judgment that :

"... The party swearing the affidavit is bound to set out all documents in his possession or under his control relating to any matters in question in the action. Then comes this difficulty : What is the meaning of that definition? What are the documents which are documents relating to any matter in question in the action? In Jones v. Monte Video Gas Co. 5 QBD 556 the Court stated its desire to make the rule as to the affidavit of documents as elastic as was possible. And I think that that is the view of the Court both as to the sources from which the information can be derived, and as to the nature of the documents. We desire to make the rule as large as we can with due regard to propriety; and therefore I desire to give as large an interpretation as I can to the words of the rule, 'a document relating to any matter in question in the action.' I think it obvious from the use of these terms that the documents to be produced are not confined to those, which would be evidence either to prove or to disprove any matter in question in the action; and the practice with regard to insurance cases shews, that the Court never thought that the person making the affidavit would satisfy the duty imposed upon him by merely setting out such documents, as would be evidence to support or defeat any issue in the cause.

The doctrine seems to me to go farther than that and to go as far as the principle which I am about to lay down. It seems to me that every document relates to the matters in question in the action, which not only would be evidence upon any issue, but also which, it is reasonable to suppose, contains information which may - not which must - either directly or indirectly enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary. I have put in the words 'either directly or indirectly,' because, as it seems to me, a document can properly be said to contain information which may enable the party requiring the affidavit either to advance his own case or to damage the case 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 consequences : the question upon a summons for a further affidavit is whether the party issuing it can shew, from one of the sources mentioned in Jones v. Monte Video Gas Co. 5 QBD 556, that the party swearing the first affidavit has not set out all the documents falling within the definition which I have mentioned and being in his possession or control.... In order to determine whether certain documents are within that description, it is necessary to consider what are the questions in the action: the Court must look, not only at the statement of claim and the plaintiffs' case, but also at the statement of defence and the defendants' case."

19. What is "relating to any matter in question in the cause or matter" in these actions which have been ordered to be heard at the same time must be viewed against and/or included the following :

(i) The subject matter of the interlocutory applications adjourned to trial and the reason for so adjourning them.

(ii) The matter said to be relevant as argued by Plaintiffs' counsel and as contained in the supporting evidence at the interlocutory hearings.

(iii) The Plaintiffs' case as pleaded in the Qingyuan Action.

The aforesaid three points are of course not exhaustive.

20. The relation to any matter in question must be put into the context of these two actions. Mr Nicholas Lam has put both the Qingyuan Action's case and the Beijing Action's case on the footing that the modus operandi allegedly used to deceive the Qingyuan companies was the same as that used to deceive the Plaintiffs in the Beijing Action. On this basis, he made his 5th affirmation in the Qingyuan Action which dealt exclusively with the alleged fraud practised on the Beijing parties. He made it clear in that affirmation that he was duly authorised by the Board of Directors of the 1st Plaintiff and ITI(USA). At the very beginning Leonard J. was invited to consider the Qingyuan Action when the parties in the Beijing Action applied for the ex parte injunction on the counsel's skeleton argument that "similar fraud practised upon another Chinese corporation in Qingyuan".

21. Even in the Qingyuan Action, all of the matters in the Beijing Action were relied on by the Qingyuan Plaintiffs as can be seen from the Skeleton Arguments of their counsel. Accordingly in my view documents which are not unreasonable to suppose may tend either to advance the case of the Defendants on the motions as well as the actions, or to damage the case of the Plaintiffs on the motions as well as the actions are disclosable by all Plaintiffs including the 1st Plaintiff. Any of the Plaintiffs in the Qingyuan Action have in their possession custody or power documents which are prima facie relevant to the Beijing Action should also be discovered in the Qingyuan Action and vice versa.

22. I shall now deal with the particular documents in question which were not discovered after the aforesaid general observations.

The Orders for Discovery and Documents eventually discovered and not discovered

23. The 1st Plaintiff's 1st list of documents was exhibited to Mr Nicholas Lam's 6th affirmation filed on 26th August 1994. That was made pursuant to the Order of 21st July 1994.

24. Mr Nicholas Lam then made another affirmation on the 14th September 1994 exhibiting a supplemental list of documents. This affirmation was made pursuant to my Order of 8th September 1994. This is the affirmation which I was told at the hearing on the 8th September 1994 by counsel for the 1st Plaintiff, Mr K.M. Chong, that his client could make the affirmation quickly at any time because their answer to the request for specific documents was simply that they had no further documents. This supplemental list of documents did not add anything except that under Part II thereof, they contended that :

(1) The ACE stickers/labels were once in the possession of the Plaintiffs but they are no longer in possession of them; and

(2) Similarly, documents/correspondence which cannot be located by the 1st Plaintiff.

They did not specify what documents/correspondence and what had become of them.

Here I wish to point out that on 8th September 1994 Mr K.M. Chong was already instructed that there was no further documents available for discovery apart from those already disclosed by the 1st Plaintiff. This is somewhat in conflict with what Mr Nicholas Lam told me in the witness box when he said that a search was conducted after the order of the 8th September and before his affirmation was made on the 14th September.

25. Thereafter there was a change of solicitors for the Plaintiffs on 27th September 1994. There were two further supplementary lists of documents, one dated 8th December 1994 and one dated 28th December 1994. In other words, there are four lists of documents altogether on the part of the 1st Plaintiff. Admittedly in the 10th affirmation of Mr Nicholas Lam all those documents now disclosed with the exception of Documents Nos.1-7 in the list of 28th December 1994 have, at all material times, been in the physical possession or custody of the 1st Plaintiff. On the other hand Documents Nos.1-17 were in the power of the 1st Plaintiff which I shall elaborate hereinbelow.

Is the 1st Plaintiff in breach of my Orders of 31st July 1994 and 8th September 1994?

26. I shall now deal with those particular documents eventually discovered.

(i) The four "More Charm" documents listed in the list of 8th September

27. Admittedly they have been all along in the possession of the 1st Plaintiff and admittedly they are relevant to the matter in question. It has been submitted that they are not documents of 1990, but 1991, and therefore did not fall within the Order of 8th September but admittedly they are relevant under the Order of 21st July 1994. In any event, I have already rejected the submission that they do not fall within the Order of 8th September for those reasons as contained in my judgment on the 1st Defendant's application for leave to issue writ of sequestration. I shall not repeat them here.

28. The reason for not disclosing them was not as asserted in the 11th affirmation that they were either not found or not searched for until shortly before the trial, but simply that their relevance was not appreciated until shortly before the trial. Indeed, the second sentence of paragraph 3 thereof implied that they were shown to the 1st Plaintiff's solicitors but the 1st Plaintiff was not advised of their relevance until shortly before trial. In the context of the 1st Plaintiff's allegations, the documents were clearly relevant as they showed the 1st Plaintiff itself was ordering and having delivered by its manufacturer 3-D cameras under the label "ACE" and "Trilogy", contrary to what was stated by Mr Nicholas Lam in his 1st affirmation as aforesaid.

29. It is clear from the dicta in the Peruvian Guano's case that what is relevant cannot depend merely on the need of the party to use of the documents in question. The sale of these cameras under the "ACE" label and the order placed by the 3rd Plaintiff or by it through the 1st or 2nd Defendant and the balance of the stock of ACE cameras are clearly relevant documents. In any event, three of the documents relate to the delivery of the 700 ACE cameras, not just the 60 ACE cameras. Even if the 1st Plaintiff might have, at one stage, misunderstood the order of 8th September 1994 or the quest for further documents as between its manufacturers and itself, this matter was pursued nonetheless by the letter of the 1st Defendant's solicitors dated 19th September 1994 in which it was plainly stated that the 1st Plaintiff should have produced documents between itself and its Taiwanese manufacturer to show the quantity of 3-D cameras with ACE label actually manufactured by the manufacturer (Bundle 8/321). It was this letter which triggered off the solicitors for the 1st Plaintiff to state that any further quest for further documents would be "oppressive". There was no explanation as to how the 1st Plaintiff could have failed to appreciate the obligation to disclose these documents.

30. The 1st Plaintiff further failed to state clearly whether there was any other documents pertaining thereunder: documents such as purchase orders, invoices, payment vouchers, and/or shipping documents, etc. between the Taiwanese manufacturers and itself.

(ii) Documents Nos.1-7 of the List dated 28th December 1994 - "The Patents Documents"

31. As a preliminary point, it is quite apparent that item 3 is part of the same fax transmission, being pages 2-7 of the other document in the same transmission by Mr Allen Lo of ITI(USA) on 15th December 1994 at or about 7:38 p.m. Page 9 thereof was revealed on 16th December 1994 but then the other pages in item 3 had not been revealed until 28th December. No explanation was given as to the delay in full disclosure of the whole transmission. Page 1 of the same transmission has never been discovered at all.

32. In any event, these documents were prima facie in the 1st Plaintiff's power. According to the 1st affirmation of Mr Nicholas Lam, he contended that the rights of the US company had been assigned to the 1st Plaintiff who had the right to enforce the patents. Thus clearly, the 1st Plaintiff had the right to call for all the relevant documents and the documents were therefore in the power of the 1st Plaintiff. Under cross-examination, Mr Nicholas Lam admitted that in this action or at least part of it, the 1st Plaintiff was an agent of the US company and for this reason, the documents were in the power of the 1st Plaintiff. Item 3 is a document to which the 1st Plaintiff is a party so that prima facie the 1st Plaintiff should have had either the document or the power to call for it. It has been said in the White Book at page 436 under paragraph 20/2/3 that :

"3. Documents that are or have been in his power - These include all documents which, though they are not in his possession or custody, he has a right to obtain from the person who has them - e.g. where he is the owner and has not parted with the right to possession.

It follows that the words include also:

4. Documents which are or have been in the possession, custody or power of any agent for him (see Murray v. Walter (1839) Cr. & Ph.114, p.125; Swanston v. Lishman (1881) 45 L.T.360; Mertens v. Haigh ((1863) 3 De G.J. & S.328).

5. Documents which are or have been in his possession, custody or power jointly with or as agent or servant of some other person (see cases cited under 4 above and Taylor v. Rundell (1841) Cr. & Ph.104; Bovill v. Cowan (1870) L.R.5 Ch.495."

33. The 1st Plaintiff denied the relevance of these documents and apparently at the advice of its solicitors. These documents actually tended to disprove the 1st Plaintiff's allegation that it was at all material times the beneficial owner of the US registered patents pleaded at the outset of the Statement of Claim in paragraph 1. Without going into details; these documents show that one of the US patents had been re-examined and cut down in its original scope; one patent was not evidenced by any assignment and therefore not only was the 1st Plaintiff not the patent holder or assignee of the relevant patents. In fact neither was ITI(USA) the patent holder or assignee as all the assignments now disclosed were apparently made on the 2nd August 1993, i.e. after the Mareva injunction was obtained on the 30th July. None of these assignments produced have apparently been registered in U.S. so that for all intents and purposes, the patent holders remained as shown in the original patent documents.

34. In the end, therefore, neither the 1st Plaintiff nor Image Technology International Inc. was the patent owner or assignee of any relevant patents at the time when the Qingyuan proceedings were lodged. Accordingly, ex hypothesis they were not patent owners nor assignees of any relevant patents at the time when the 1st Plaintiff was negotiating with and selling to the 3rd Plaintiff/ Yonehana/the Defendants nor at any time when the Defendants were dealing with the 2nd Plaintiff in the Qingyuan Action and negotiating the setting up of the joint ventures with the 1st and 2nd Plaintiffs in the Beijing Action.

35. Consequently, accordingly to the "Manufacturing and Marketing Agreement" between Image Technology Inc and the 1st Plaintiff dated the 2nd April 1985, all that the 1st Plaintiff had was the exclusive right to market, sell and distribute all 3-D products utilising the technology as defined in "The Licence Agreement" as defined therein. Mr Nicholas Lam, being a signatory to this Agreement for and on behalf of the 1st Plaintiff, must have known from Clause 8 thereof that all the patent rights remained vested in Mr Allen Lo or the original patent holders.

36. Further, it should not be forgotten that the 1st Plaintiff did manage to present a picture at the interlocutory stage of having assets in the form of patents and fruits of research which is now shown not to be true. In paragraph 24 of his 4th affirmation at Bundle 1/112 Mr Nicholas Lam said:

"I would also like to point out that the audited report does not take into account the following assets of the 1st Plaintiff :-

(a) the value of the patents of the 1st Plaintiff;

(b) the value of the fruit of the research works undertaken by me and my colleague which are now currently under patent application;

(c) the business goodwill of the 1st Plaintiff."

37. Paragraphs (a) and (b) turned out to be totally untrue according to the documents now disclosed. This was obviously relevant to the questions of fortification of undertaking as to damages and even to whether an application could be made for security for costs against the 1st Plaintiff. A false picture was therefore given to the Court of a company with "valuable" assets.

38. It is therefore not correct to say these documents on which the 1st Plaintiff has led evidence-in-chief at the trial could have been regarded as irrelevant to matters in question in the action and also in the adjourned motions. It is implicit in part of the 1st, 2nd and 4th Plaintiffs' cases in the Qingyuan Action that the 1st Plaintiff had the right to assign to others to manufacture 3-D products using the 1st Plaintiff's patented technology but none of the Defendants had been so licensed and yet the Defendants made fraudulent representations to the 2nd and 4th Plaintiffs and the Beijing Plaintiffs that the Defendants had the right from the 1st Plaintiff to license others to manufacture the same. When the documents show that the 1st Plaintiff had no such right itself, how could it be said that these documents are irrelevant. In the end, I am of the view that these documents are clearly relevant in the Peruvian Guano's sense. The one who has advised the 1st Plaintiff that these documents are irrelevant might not have been properly informed of the issues involved in the actions and the motions. Further or alternatively, the Peruvian principle was not in the mind of the adviser.

(iii) Documents Nos. 18, 19 and 22 in the List

39. Item 18 at Bundle 10C/849-850 : the second page of this item is the very document which was enclosed with the letter of 19th September 1994 after Mr Nicholas Lam had affirmed in his 7th affirmation that no other correspondence, apart from that already disclosed in the 1st Plaintiff's original list had ever been exchanged between the 2nd Defendant and the 1st Plaintiff in respect of sales of cameras and equipment produced by the 1st Plaintiff with ACE label to the best of his personal knowledge.

40. When this document was shown to him, he affirmed that he had no such document in his possession according to the letter of 1st Plaintiff's solicitors dated 5th October 1994. When it was pointed out that it was not his personal knowledge or personal possession which was relevant (in Defendants' solicitors' letter dated 7th October 1994) followed by a summons to strike out for failing to comply with the Order of 8th September 1994, the 1st Plaintiff's solicitors repeated that the document was not then in the possession of the 1st Plaintiff (by their letter dated 10th October 1994). Finally in Mr Nicholas Lam's 9th affirmation, paragraph 5 thereof, he said that the document was not in the 1st Plaintiff's possession nor were there any other documents in its possession other than those already disclosed.

41. When this document eventually turned up, Mr Nicholas Lam's only explanation in the witness box was that it was not previously disclosed because of his "oversight". I have already decided in the 1st Defendant's application for leave for a writ of sequestration that Mr Nicholas Lam was incredible when he said that he had already made a diligent search before and after his 7th affirmation. It is not disputed that the covering fax and the actual purchase order dated 8th April 1991 are clearly discoverable under my two aforesaid Orders.

42. Item 19 : apparently a copy of this document was handed over to the Commercial Crimes Bureau by the 1st Plaintiff. It is a purchase order for equipment within the ambit of the Marketing Agreement and it shows that the 1st Defendant originally ordered an 8R printer instead of an enlarger which was what was ultimately sold. This has been the subject matter of an extensive cross-examination - see transcript pages 224-227, 368-9, and 380. Again, no explanation has been advanced for not having disclosed this document except "oversight".

43. Item 22 is part of a chain of correspondences between the 1st Plaintiff and 2nd Defendant conducted through Tsui Ka Po in March/April 1991, at a time when Yonehana was apparently also dealing with the 1st Plaintiff whether directly or through Mr Georming Lee. It was signed by Mr Felix Lui, the Administration Manager of the 1st Plaintiff to the 2nd Defendant for the attention of Mr Tsui. The fax referred to "your equipment package" which is the subject matter of cross-examination at transcript pages 176-7, 217-221. The Defendants have disclosed the fax copy they received with the version that it was from Mr Nicholas Lam. The copy now produced by the 1st Plaintiff was corrected by white correction ink covering the words "Mr Nicholas Lam" and replacing by the words "Mr Felix Lui". There is no explanation as to how and when the alteration was made to this document which was apparently made after the fax transmission to the 2nd Defendant. This document is clearly discoverable under the aforesaid two Orders.

(iv) Item 23

44. Item 23 has been dealt with more extensively in my previous Judgment on the writ of sequestration, and I shall not repeat them here. Suffice to say that it is clearly relevant and discoverable and as I have said before, it will tend to support the Defendants' version or adversely affect the 1st Plaintiff's version.

(v) Documents Nos.31-42

45. These documents tended to show that the 1st Plaintiff was deeply involved with the 3rd Plaintiff/Yonehana in respect of the Korean Processors and disprove the 3rd Plaintiff's versions that he was totally in ignorance of the activities between the Defendants and the 1st Plaintiff at a later stage and the dealings between the 2nd and 4th Plaintiffs when his trademark "ACE" and stationeries were used.

46. The relevance of this Korean processor is that the 1st Plaintiff/Yonehana was instrumental in arranging for the intended adaptation of such processors so that they could be suitable for use in the printing of 3-D photo materials. The 1st Plaintiff/Nicholas Lam was involved in this process and the 1st Plaintiff actually advised on the adaptation of these processors. These documents are therefore clearly material to these matters. They tended to show the extent of the 3rd Plaintiff's involvements. The other Plaintiffs in the Qingyuan Action have been pressed, since the withdrawal of the 1st Plaintiff, as to the way they would put their cases and, in particular, whether they still maintained the documents were issued without the 3rd Plaintiff's knowledge or consent on the 3rd Plaintiff's notepaper and that Yonehana's signature was forged. There has been no response on this issue. The documents further tend to disprove Tsui Ka Po's affirmation that "the 2nd Defendant sold processors which they knew could never work". This was fully canvassed in the interlocutory stage when the Defendants applied to discharge the injunction on the ground of, inter alia, material non-disclosure.

Should the 1st Plaintiff's case be dismissed for Non-disclosure of Documents?

47. Mr Tang, for the 1st Plaintiff, relied on the case of Logicrose Ltd. v. Southend United Football Club Ltd., The Times, 5th March 1988. This case was concerned with the allegations of failure to disclose the existence of a crucial document in the possession of the Plaintiffs. In the judgment of Millett J., he said at p.10 :

" That is a very serious allegation indeed. If true, it would deserve the serious consequences for which the Defendants ask, but it must be clearly proved. Despite Mr Nugee's submissions to the contrary on behalf of the Plaintiffs, I am satisfied that it does not have to be proved in accordance with the criminal standard of proof. Deliberate disobedience of a peremptory order for discovery is no doubt a contempt and, if proved in accordance with the criminal standard of proof, may, in theory at least, be visited with a fine or imprisonment. But to debar the offender from all further part in the proceedings and to give judgment against him accordingly is not an appropriate response by the Court to contempt.

It may, however, be an appropriate response to a failure to comply with the rules relating to discovery, even in the absence of a specific order of the Court, and so in the absence of any contempt, not because that conduct is deserving of punishment but because the failure has rendered it impossible to conduct a fair trial and would make any judgment in favour of the offender unsafe.

In my view a litigant is not to be deprived of his right to a proper trial as a penalty for his contempt or his defiance of the Court, but only if his conduct has amounted to an abuse of the process of the Court which would render any further proceedings unsatisfactory and prevent the Court from doing justice. Before the Court takes that serious step, it needs to be satisfied that there is a real risk of this happening."

However, in my view, the authority of Logicrose cannot assist the 1st Plaintiff unless the Court can now be satisfied that the default have now been made good. If the Court is not so satisfied, it follows that there must exist a real or substantial risk that a fair trial of the action would not have been possible and that the 1st Defendant is entitled to have the 1st Plaintiff's claim dismissed even though the 1st Plaintiff is now withdrawing the action altogether.

48. A similar application was made in the case of Landauer Ltd. v. Comins & Co., The Times, 7th August 1991, C.A. This case has been considered by the Court of Appeal in England in light of the burden of proof and the standard of proof in such an application. Lloyd L.J. said at pages 5-6 that :

"I find after due consideration that a fair trial of the issues would not be possible in the absence of the contemporary documents, particularly the management files and the foreign exchange cash books. I believe that cross-examination of the plaintiffs' witnesses would be hampered by absence of such documents in a case where recollection of events seven or eight years ago is in question and where knowledge of the dollar exposure by the plaintiffs is the crux of the case. I am mindful that an order of this nature is rare in the extreme, as lack of higher authority demonstrates. However, a plaintiff who introduces a policy of destruction of documents after commencing an action and pursues it, despite advice from their solicitors to preserve relevant documents, has only himself to blame.

For the reasons, which the judge gave, he struck out the plaintiffs' claim.

There is now an appeal to this court. Mr Tabachnik argues that the judge erred in law by failing to give proper reasons for his decision, by leaving open certain points which were canvassed before him and by reversing the burden of proof. There is, in my opinion, nothing in any of these points.

As to the burden of proof, there were two aspects. The first was on whom lay the burden of proving or disproving knowledge. I have already said that the plaintiffs accept that the burden was on them. I do not understand the judge to have decided otherwise. If he did, he was being too favourable to the plaintiffs. The second aspect was on whom lay the burden of proving that a fair trail was no longer possible. Mr Tabachnik argued that the judge accepted the defendants' submission that where documents have been destroyed, prejudice to the defendant is irremediable and that in those circumstances, unless the court can be satisfied that the documents destroyed would not have affected its finding on any substantial issue, the right course, and the only right course, is to strike out. This, says Mr Tabachnik, is to reverse the burden of proof. It creates a presumption in favour of striking out where documents have been destroyed.

I am not sure that this is the right construction to put upon the defendants' submission in the court below. It may be that the submission means no more that this, that where documents have been deliberately suppressed, it may be relatively easy to draw the inference that they are highly material and that in the absence of those documents justice cannot be done. If that is all that was meant, then I would agree. But whatever the meaning of this submission, the submission was never, as I read the judgment, explicitly adopted by the judge. So I see no reason at all to suppose that the judge reversed the burden of proof. Indeed the context of the last paragraph suggests that he did not.

So if there was no error of law and no error of principle in the judge's approach, the plaintiffs must, if they are to succeed, show that the judge was plainly wrong. Have they succeeded? The argument before us has naturally concentrated on the management files, although there has also been some investigation of the foreign currency cover books which the judge, I suspect, wrongly referred to as the 'foreign exchange cash books'".

49. In application of the principles stated, Lloyd L.J. said at page 8 :-

"In the light of those three considerations, the judge was, in my view, fully entitled to find that there was a serious risk that essential documents may have been destroyed in this case, as a result of which a fair trial of the action is no longer possible, that being the test which he had been invited to apply. He was therefore entitled to hold that the appropriate response was to strike out the plaintiffs' claim. At all events it cannot be said that the judge was plainly wrong in doing so. In reaching that conclusion I assume in the plaintiffs' favour that the destruction of the documents was, as Mr Axford says, merely inadvertent. So on that short ground I would dismiss the appeal.

There was, however, some discussion in argument before us as to what would have been the position if the documents had been destroyed in knowing disregard of the plaintiffs' obligation as to discovery. I find some difficulty in seeing how, if the sole question is whether a fair trial can still be held, the conduct of the plaintiffs in destroying the documents, whether it was merely inadvertent or whether it was in knowing disregard of their obligation as to discovery and therefore more blameworthy, can be fitted into the equation. But the question does not arise in the present case. It will need careful consideration when it does arise.

The Logicrose, The Times, 5 March 1988, Millett J said that it was no part of the function of the court in exercising its discretion under O.24, rule 1 to punish the party in default. In all ordinary cases that must be so. But I can imagine cases of contumacious conduct, such as the deliberate suppression of a document, which might justify the striking out on the analogy of striking out for want of prosecution under Order 25, rule 1(4) even if a fair trial were still possible. I use the word 'contumacious' with the encouragement of my Lord Sir John Megaw, since it expresses the required meaning more accurately than 'contumelious', the word more commonly used and originally, I believe, used by Diplock LJ in this connection. But cases of contumacious conduct in relation to discovery must necessarily be extremely rare.

Further than that I would not be prepared to go in the present case since any guidance which we might give as to the relevance of the plaintiffs' conduct would be obiter. On the facts in this case, and assuming everything in favour of the plaintiffs, that is to say, assuming the destruction of these documents was merely inadvertent, the judge was justified in reaching the conclusion he did and striking out the action. I would therefore dismiss the appeal."

50. This Landauer's case is a clear application of the principles involved when a litigant is contumacious in not making proper discovery of documents. In my view, in the case before me there is nothing like a full and frank explanation of how the documents which are admittedly relevant and all along in the 1st Plaintiff's possession were found and why they were not disclosed earlier pursuant to the Orders. The Court has not been told the extent of the search except that it was clearly triggered by concerns that the 1st Plaintiff had not complied with its obligations as to discovery. Documents which turned up in the mist of Mr Nicholas Lam's cross-examination revealed documents which should have been included under earlier orders for discovery.

51. It is also significant that despite the cross-examination of Mr Nicholas Lam on discovery made by the 1st Plaintiff and files which were kept and searched, there has been no comprehensive account given of what files exist and what files were searched and where the documents now turned up were found. Further, the relevance of the documents were not apparently fully appreciated and, as I have considered hereinbefore, some of the documents are plainly relevant. The Court can have no other alternative but left in no confidence that proper discovery has been given, in particular, that the test of relevance has not been properly understood. In the end, I came to the firm conclusion that it is impossible for the Court to be satisfied that defaults in discovery have now been made good. Accordingly, the authority of Logicrose cannot assist the 1st Plaintiff as the Court cannot be satisfied that the default has been fully purged.

Conclusion

52. I found that the Defendants have satisfied me that the 1st Plaintiff are in breach of the Order of the 21st July 1994 in that it failed to disclosed the following documents :

(i) The documents listed in the Supplementary List of the 1st Plaintiff of 8th December and the Further Supplementary List of 28th December 1994.

(ii) The documents listed in Mr Edmond Lam's affidavit exhibiting EKFL-35 at Bundle 15/39 being documents disclosed by the Defendants but not the counterpart by the 1st Plaintiff.

(iii) The letter from the 1st Plaintiff to CITIC of 30th June 1992 and the one disclosed by the 1st Plaintiff with a copy to the 2nd Defendant was only a tailored or edited version of the original letter.

53. The 1st Plaintiff's breach of my Order of the 8th September 1994 was fully considered in the judgment on the Writ of Sequestration, I shall not repeat them here. It was decided in that judgment that the 1st Defendant failed to prove beyond reasonable doubt the 1st Plaintiff had deliberately suppressed documents for the purpose of contempt of court. Here the standard of proof is not beyond reasonable doubt, but on a balance of probability. From the evidence before me, I am satisfied that it is more probable than not that the 1st Plaintiff has deliberately suppressed documents or that proper and full discovery has not been made by the 1st Plaintiff. The 1st Plaintiff has deliberately not given a full explanation for the default despite being given every opportunity to do so. Further there is ample evidence that the full extent of the obligation to give discovery of all documents relating to the matters in question has not been properly understood and therefore not properly carried out and that a misconceived view of "relevance" has been adopted. Accordingly, there is a real or substantial risk that the trial of the matters which the Court must determine if the trial was to proceed, is not possible as a result of the 1st Plaintiff's failure to make proper discovery and the 1st Plaintiff's claim should therefore be dismissed on the 1st Defendant's summons.

54. It goes without saying that all other Plaintiffs' action in both Actions should also be dismissed on their summonses to withdraw the action.

55. I shall now hear counsel as to the costs of these summonses and the costs of the action.

Representation:

Mr Robert Tang, Q.C. and Miss Margaret Ng, inst'd. by Fok & Johnson, for Plaintiffs

Miss Gladys Li, Q.C. and Miss Priscilla Wong, inst'd. by Chan, Wong & Lam, for Defendants