Imptex International Corporation v. Symphone Textiles Ltd

HCA000381/1974

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Coram: Li, J. in Chambers

Date of Judgment: 16 February 1979

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JUDGMENT

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1. This is an appeal by the plaintiff in Action No. 381 of 1974 against the Registrar's decision given on 5th February, 1979 ordering the plaintiff in that action to file an affidavit stating that it has or has at any time had in its possession custody or power of the documents specified in the Schedule annexed to the defendant's summons dated 18th December, 1978. The defendant also appeal against another decision of the same Registrar given on the same day in respect of the plaintiff's Notice for Direction dated 13th January, 1979 ordering the defendant, within 14 days from the date of the said decision, to make and file an affidavit stating that it has or has had at any time had in his possession custody or power the documents specified in the Schedule annexed to the said Notice for Further Directions and under paras. (A) and (B) of the said Schedule the documents containing and or having evidencing sales and contracts of sales concluded by the said defendant in respect of the types of cotton grey filled duck cloth as specified in the said Schedule be limited to the width contracted for with the abovenamed plaintiff. The plaintiff appeals for an order that so much of the Registrar's Order in favour of the defendant in the defendant's summons dated 18th December, 1978 be set aside and that the Registrar's Order of even date in favour of the plaintiff in the plaintiff's Notice for Direction dated 13th January, 1979 be confirmed.

2. The action is one in which the plaintiff claimed for loss of profit and or damages from the defendant for breach of contract. The plaintiff's case is that between October, 1972 and May, 1973 the plaintiff and the defendant entered into a series of contracts whereby the plaintiff agreed to buy and the defendant agreed to sell some cotton cloth. The delivery of such cloth should begin sometime in July, 1973 and continue to 1974. There was only one delivery. By October, November, 1973 it was made clear by the defendant that they would refuse to effect any further delivery unless the purchase price be increased by 80%. As a result the plaintiff had to obtain supply of such cloth from other sources at a much higher price than the contract price to fulfill his obligations to his sub-purchasers. The first line of defence is that there had been no binding contract between the plaintiff and the defendant. The second line of defence, in the alternative, is that there are certain exemption clauses which exempt the defendant from fulfilling his obligations under certain circumstances and entitle the defendant to demand an increase in price for its performance. The third line of defence is that the contracts between the plaintiff and the defendant were tainted with illegality in that the plaintiff agreed to pay an increased price only in consideration of the defendant giving a rebate to the plaintiff so as to enable the plaintiff to save tax payable to the U.S. revenue. Lastly, the defence is that the defendant was not obliged to perform the contract because the plaintiff did not open the letters of credit in time. In his Reply the plaintiff joins issue with the defendant and contends that the rebate had been declared to the U.S. revenue. The plaintiff has furnished Further and Better Particulars to show that out of the eight contracts of sale and purchase between the parties only one shipment had been effected by the defendant, one payment made by the plaintiff and one rebate amounting to US$8,400 paid by the defendant to the plaintiff in respect of that payment. By further discovery of documents the plaintiff was able to show that the defendant failed or refused to ship to the plaintiff some 2.9 million yds. of such cloth which the plaintiff contracted to buy from the defendant and the amount of loss of profit and or damages naming the plaintiff's sub-purchasers to whom the plaintiff had committed to deliver the cloth on sub-sales. Documents have also been disclosed to show that the defendant had paid at the request of the plaintiff rebates to the sum of US$21,210.46 to one International Expeditors Ltd., which, in due course, paid the same to the plaintiff. Such sum represented rebates of US$8,400 payable under one of the series of contracts, subject matter of this action, plus rebates payable in respect of other contracts between the parties which are not subject matter of this action.

3. The defendant, not being satisfied with such disclosure applied to the Registrar for discoveries of certain other documents specified in the Schedule. After hearing counsel for both parties the Registrar made an order for discovery of certain documents named in the Schedule. There are a total of 7 paragraphs in the Schedule. Only paras. 3, 4 and 7 are now in dispute and subject matter of this appeal.

4. In para. 3 the Registrar ordered that the plaintiff should disclose copies of all contracts supplied to it for the subsequent resale in the United States of America of cotton duck goods purchased from or contracted for with Hong Kong and Pakistan suppliers during the period from 5th November, 1973 to 30th June, 1974 including contracts with the defendant herein.

5. In para. 4 the Registrar ordered the plaintiff to disclose

6. By para. 7 the Registrar ordered the plaintiff to disclose

7. The plaintiff appeal against this order on the grounds that the documents required for are irrelevant to the issue as set out in the pleadings, Further, in any event, the accounts, tax returns asked for can cast no light on the issue of illegality raised in the defence. The defendant opposes the plaintiff's appeal on the ground that the document asked for in paras. 3, 4(a) and 4(b) are relevant to show whether the plaintiff had taken steps to mitigate damages and that the accounts asked for in para. 7 are relevant to the issue of illegality. It further cross appeals that other items in the schedule should be included in the Registrar's Order.

8. In its cross appeals the defendant argues that the order should be in the terms of his original application that is:-

9. It is quite apparent that the documents asked for by the defendant in paras. 3, 4(a) and 4(b) of the Schedule are directed to the issue whether the plaintiff took steps to mitigate damages and that the documents asked for in paras. 4(d) to (f) inclusive and para. 7 direct to the issue of illegality. In support of the defendant's application Mr. Crichton,. solicitor for the defendant, filed an affidavit on 18th December, 1978.

10. Para. 6 of the affidavit says:-

"As regards the classes of documents specified in para.3 of the said Schedule I am informed by Mr. Young Han Chien who has dealt with Mr. Rastogi of the Plaintiff since 1970 and who has been in the textile trade for over 20 years that Mr. Rastogi had often indicated to him that his company was able to buy cotton and other cotton piece goods from suppliers other than the Defendant. I verily believe that this is the truth as I have seen in numerous telexes between the plaintiff and the defendant references either to other firms or to the fact that unless the defendant offered goods at a more acceptable price the plaintiff would obtain goods elsewhere. As I verily believe that the plaintiff had previously dealt with suppliers other than the defendant for the cotton yarn and the other cotton piece goods it is quite possible that the plaintiff could have obtained them from the other sources between the 20th August, 1972 up to 31st July, 1974 and may have done so."

11. Para. 7 of his affidavit says:-

"As regards the classes of documents specified in paragraphs 4(a) and (b) of the said Schedule under paragraph 4(a) if which is the case, and I verily believe that as Mr. Young Han Chien has informed me that the Plaintiff was able to purchase cotton duck and other cotton piece goods from suppliers other than the defendant then the plaintiff must have kept and maintained order books relating to such supply in the ordinary course of its business. It also follows that the plaintiff would have invoices and other documents evidencing delivery and these are requested in paragraph 4(b) of the said Schedule.

12. Para. 9 of the said affidavit says:-

"As regards the classes of documents specified in paragraphs 4(d), (e) and (f) of the said Schedule there are two reasons why I verily believe the plaintiff should make available their bank statements, auditor's reports, and all United States Tax Returns for the relevant period. The first reason is that the Defendant has no knowledge of whether the plaintiff has had to pay out any sums of money to any other parties as it has alleged it has, and whether the same has been referred to in the plaintiff's auditor's reports and whether the plaintiff has claimed any alleged payments as losses when making tax returns. The second reason why I believe the defendant should have access to these documents is that the defendant has alleged in para. 45 of its amended defence that the plaintiff has tainted the whole of the sales and purchases in question with illegality, and therefore cannot found any cause of action upon the contract. I have been informed by Mr. Young Han Chien and I verily believe that during 1973 Mr. Rastogi of the plaintiff said to Mr. Young that he would only agree to an increase in the price of the goods provided that he was personally paid a commission, and that the whole purpose of his request was to save him from paying U.S. taxation. The plaintiff in its reply dated 6th May, 1974 and filed herein has not clarified this situation and has either made no admission or made claims in the alternative as regards the payment of the tax. I therefore verily believe that in order to determine this issue the defendant should have access to the documents requested in para. 4(d), (e) and (f) for the relevant period."

13. Para. 12 of the affidavit says as follows:-

"As regards the classes of documents specified in para.7 of the said Schedule the same considerations apply since I am informed by Mr. Young Han Chien and verily believe that Mr. Rastogi of the plaintiff had an arrangement with a company called International Expeditors Ltd., which acted as an agent of the Plaintiff. I am also informed and verily believe that on the 28th September, 1973 the Defendant made a payment in the sum of $21,210.46 to Mr. Rastogi supposedly acting on behalf of the plaintiff, in respect of rebate commission payable to the plaintiff, however the defendant has no knowledge of what became of the payment. A copy of a Company search of International Expeditors Limited is now produced and shown to me marked "GRSC-2".

14. In view of the aforesaid I shall deal with the documents asked for in paras. 3, 4(a) and 4(b) first. Mr. Li, counsel for the plaintiff, contends that these documents are not relevant because the issue that the plaintiff failed to mitigate damages had never been raised in the defence. Mr. Young, counsel for the defendant, frankly admits that the defendant does not know what opportunity the plaintiff has to mitigate damages unless defendant has access to those documents. He enlists in support of his argument that the Further and Better Particulars supplied has shown that only two out of all the plaintiff's subpurchasers contacts went on arbitration. It is a possibility that the plaintiff obtained supply from other sources to fulfil its obligation to its subpurchasers thereby mitigating the damages. However I find that there's no substance in such argument. It is trite law that if the plaintiff had taken successful steps to mitigate damages he's not entitled to claim damages from the defendant. Yet the burden is on the defendant to prove that the plaintiff had already mitigated damages or has failed to take reasonable steps to mitigate damages. In the present case the defendant has never put the plaintiff's failure to mitigate damages in issue. Order 18 rule 8 of the Supreme Court Rules provide that

"8.-(1) A party must in any pleading subsequent to a statement claim plead specifically any matter, for example, performance, release, any relevant statute of limitation, fraud or any fact showing illegality -

15. The defendant in the present action has not raised the issue of failure to mitigate damages on the part of the plaintiff. I cannot see how the defendant is allowed to adduce evidence to prove what he has not alleged. To say that the defendant must examine the documents first before taking steps to plead the issue is putting the cart before the horses. Attention has been drawn to Vol. 13 Halsbury's Law of England para. 38 at page 34. It says:-

"A document relates to the matters in question in the action if it contains information which may - not which must - either directly or indirectly enable the party requiring the discovery either to advance his own case or to damage the case of his adversary, or which may fairly lead to a train of inquiry which may have either of those two consequences. Documents relate to matters in question in the action whether they are capable of being given in evidence or not, so long as they are likely to throw light on the case. The expression "matter in question" means a question or issue in dispute in the action and not the thing about which such dispute arises; thus in an action to recover possession of land it means the plaintiff's alleged title and not the land. A document may be relevant by reason of its character, for example that it is a document of a particular type, or by reason of its contents. Relevance must be tested by the pleadings and particulars and when particulars have been served which limit a particular issue then discovery on that issue is limited to the matter raised in the particulars. Discovery will not be ordered in respect of an irrelevant allegation in the pleadings, which, even if substantiated, could not affect the result of the action nor in respect of an allegation not made in the pleadings or particulars nor will discovery be allowed to enable a party to "fish" for witnesses or for a new case, that is to enable him to frame a new case. Each case must be considered according to the issues raised; but where there are numerous documents of slight relevance and it would be oppressive to produce them all, some limitation may be imposed."

16. Looking at it in this light it is quite clear that the sole object for the discovery of documents in paras. 3, 4(a) and 4(b) is to fish for evidence in order to enable the defendant to find a new line of defence which is very similar to framing a new case. On the defendant's own pleading, at about the same time of the alleged breach of contract i.e., around October/November 1973 the prices of cotton duck cloth rose by about 80%. That was precisely why the defendant demanded an increase in price before he would deliver the cloth to the plaintiff. The plaintiff had furnished Further and Better Particulars in respect of its loss of profit and damages naming the subpurchasers and giving specific particulars of its respective sub-contracts.

17. On the question of mitigation I must refer to para. 1598 of Chitty on Contracts, 24th Edition at page 756. It says:-

"Advantages gained by the plaintiff from wholly independent transactions, as for example, a sum due under an insurance policy, cannot be relied on in mitigation of damage. So where the plaintiff, by another contract with a third party entered into before the defendant's breach of his contract with the plaintiff, has made an arrangement which should or does in fact prevent loss to the plaintiff from the defendant's breach, the defendant cannot rely on that other contract to reduce his damages; it is res inter alios acta, or an extraneous circumstance."

18. Even if the plaintiff had purchased from other suppliers before the date of breach the defendant cannot rely on such contract to mitigate the damage. In the circumstances, I am of the opinion that there is no justification for the defendant to ask for such documents and contracts in order to fish for evidence so as to enable the defendant to find a new line of defence. There is even less justification for the defendant to fish for documentary evidence which dates back to 1971, a date which 2 years and 10 months before the alleged breach of contracts - the subject matter of this action.

19. I now come to the documents set out in paras. 4(d), 4(e), 4(f) and para. 7. In para. 9 of his affidavit Mr. Crichton put forward 2 reasons asking for the discovery of this category of documents. The 1st reason cannot now be relied on because the nature of the plaintiff's claim is, as specified, that only one purchase had been paid. Mr. Young has not argued to the contrary. The other reason is that the documents are relevant to the issue of illegality. Further and Better Particulars had been furnished to show that the sum of US$21,210.46 had been paid to International Expeditors Ltd., a company incorporated in Hong Kong which, in turn, had paid the same to the plaintiff. On the face of it International Expeditors Ltd., received payment on behalf of the plaintiff as the latter's agent at the request and with the consent of the plaintiff. Incidentally, such Further and Better Particulars should have satisfied the doubt expressed in para. 12 of Mr. Crichton's affidavit in which he said:-

"I am also informed and verily believe that on the 28th September, 1973 the Defendant made a payment in the sum of $21,210.46 to Mr.Rastogi supposedly acting on behalf of the plaintiff, in respect of rebate commission payable to the plaintiff, in respect of rebate commission payable to the plaintiff, however the Defendant has no knowledge of what became of the payment."

20. Documents show what happened to that payment. In any event, the payment of commission or rebate to an agent with the full knowledge and consent of the principal is no offence in Hong Kong. In the present case the documents show that payment, indeed, had gone back to the principal. It is doubtful whether this Court has jurisdiction or obligation to enforce the revenue laws of another country. I shall say nothing on the subject. Even if the documents set out in those paragraphs in the Schedule are relevant; they can only be relevant in respect of one sum of money namely the US$8,400 which is a rebate paid in respect of the contracts, - the subject matter of this action. The balance of the US$21,000 odd were paid as rebates in connection with other contracts which are not subject matter of this action. Exhaustive discovery of documents in relation to the payment of US$8,400 had been disclosed. Such documents as profit and loss accounts, auditor's reports etc., disclose only figures in a lump sum. They can cast no light on the allegation of illegality tainting the contracts in issue. So far as they touch upon the contract other than those which are subject matter of the action they are irrelevant. Such an operation can only be described as oppressive. To ask for discovery of the documents as from 1st January, 1971 a date well over 2 years before the alleged request for commission on increased prices was made is unreasonable and frivolous. The learned Registrar is correct in cutting down the period of time for the discovery of such documents. However, I find that he has not gone far enough. In my opinion the plaintiff had given sufficient and exhaustive disclosure once it has given the particulars concerning the US$8,400 rebate. It is not for me to suggest what further action defendant may take from that point so as to obtain what particulars they want. Suffice it to say that the defendant has enough material from that point to pursue the issue of illegality by other process than discovery of documents concerning contracts other than those which are subject matter of this action. For this reason the discovery of documents set out in paras. 4(d), 4(e), 4(f) and para. 7 of the Schedule should not be allowed.

21. Accordingly the appeal of the plaintiff is allowed and the cross appeal of the defendant against the Registrar's decision is dismissed and paras. 3, 4 and 7 should be deleted from the Registrar's Order and set aside.

22. This disposes of the appeal and cross appeal by the plaintiff and the defendant respectively against the Registrar's Order in respect of the defendant's summons dated the 18th December, 1978.

23. I now come to deal with yet another order made by the Registrar made on the application of the plaintiff dated 13th January, 1979. The notice reads:-

"TAKE NOTICE that the above-named Plaintiff intends to apply to the Registrar in Chambers at the Supreme Court of Hong Kong on Wednesday, the 17th day of January 1979 at 9.30 o'clock in the forenoon for the following further directions in this action on the ground that they are necessary for the conduct there of and for the purpose of enabling the Court to determine the real questions in controversy between the parties:-".

24. Para. 1 of the summons merely directs to an amendement to para.5 of the reply. Para. 2 is relevant to the present appeal. It asks for an order that the defendant do within 14 days from the date of such an order make and file an affidavit stating whether it has or has at any time had in its possession custody or power the documents specified in the Schedule hereto and if the said documents or any of them have been but are not now in its possession custody or power stating when it parted with the same and what has become of the same.

25. Para. 3 asks further or in the alternative to (2) an Order that the plaintiff be at liberty to serve on the defendant the interrogatories in writing annexed hereto marked A and that the Defendant do by Young Han Chien its Managing Director within 14 days answer such interrogatories in writing by affidavit.

26. There are 2 paragraphs in Schedule to this summons.

27. There is an alternative, in the Interrogatories as set out in another Schedule as follows:-

The Defendant by Young Han Chien its managing director is required to answer all the interrogatories."

28. The dates for discoveries has been amended as from 5th June, 1973 to 25th February, 1974.

29. I refer to this summons for direction in some detail because, to my surprise, the formal Order that has been filed is not in the file of this action. However, I am assured by learned counsel and by the instructing solicitors to counsel for the plaintiff that the Order was made in terms. The defendant appeals against this Order saying that the Order should be restricted to the documents to the width of the cloth similar to those in the contract between the plaintiff and the defendant and that the time for discovery should be extended from 14 to 28 days. Having heard counsel in this appeal I have come to the conclusion that it is sufficient to restrict the document to the contracts relating to the types of cotton grey filled duck cloth but no restriction should be placed on the width of the cloth. In my opinion, for the purposes of comparison, the type and quality of the cloth irrespective of the width of the cloth has something to do with the price. For this reason reason would confirm the learned Registrar's decision in this summons and dismiss the appeal by the defendant subject to one variation that the time for discovery is extended to 28 days instead of 14.

Representation:

Mr. A. Li (J.S.M.) for Appellant

Mr. C. Young (Philip K.H. Wong) for Respondent