The New China Hong Kong Group Ltd (in Liquidation) and Another v. Aig Asian Infrastructure Fund L.P. and Others

HCCL000097/2000

HCCL97/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO.97 OF 2000

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Coram: Deputy High Court Judge Muttrie in Chambers

Date of Hearing: 12 January 2004

Date of Ruling: 21 January 2004

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R U L I N G

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1.The defendants apply for specific discovery of

(1)	All documents evidencing or effecting the transfer of the entire issued share capital of the 2nd plaintiff to Shenyin Wanguo Strategic Investments (HK) Ltd; and
(2)	All documents evidencing antecedent negotiations leading to the transfer of the entire issued share capital of the 2nd plaintiff to Shenyin Wanguo Strategic Investments (HK) Ltd including but not limited to correspondence between Century City Group and Shenyin Wanguo Group and all draft agreements.

2.The summons is expressed as being brought under Order 24, rules 7 and 11 of the Rules of the High Court.

3.This application is made in aid of a summons dated 3 May 2003 by which the defendants apply to have the action dismissed on the grounds that it is an abuse of process of the court and/or for want of jurisdiction. The summons is expressed to be taken out under Order 18, rule 19(1)(d) and Order 25, rule 1 of the Rules of the High Court, and the inherent jurisdiction of the court. It is for hearing on 25 February 2004.

4.The background is complicated, but for the purposes of this ruling it is not necessary to go into it. Suffice it that the 1st plaintiff, through a subsidiary entered into a joint venture agreement with a Mainland corporation to build an expressway in Sichuan Province. Some of the defendants acquired shares in the subsidiary which formed part of the joint venture. Some shares were held by an escrow agent pursuant to an agreement that they, and moneys in the escrow account, be transferred on the happening of certain events. The plaintiffs say that the shares were wrongly transferred to defendants in breach of the escrow agreement. Causes of action are said to accrue to the 1st plaintiff as a party to the escrow agreement and to one New China Hong Kong Highway (Chengdu Mianyang) Ltd ("CM") which is said to be the real beneficial owner of the escrow shares. The 2nd plaintiff claims to bring its action as attorney for the 1st plaintiff and also as assignee of CM.

5.The 2nd plaintiff was at different times owned by the Century City Group and then by Shenyin Wanguo Group. When the action was commenced, it had been transferred back to the former, in order to enable Century City to commence proceedings. The action was commenced by Writ dated 15 November 2000.

6.The plaintiffs applied on 21 December 2000 for a speedy trial of the action. Part of the price which Shenyin Wanguo exacted for the transfer back of the 2nd plaintiff was an indemnity which contained a deadline, involving an option to "put" recovered escrow shares back to Shenying Wanguo but the option was only exercisable on or before 30 June 2001. Therefore the plaintiffs wanted to have the action finished by that date. However, Stone J refused the application.

7.Thereafter the plaintiffs took no steps to pursue the action. This prompted the defendants to issue their summons to dismiss the action. I am told that the defendants will rely on the ground articulated by the House of Lords in Grovit v. Doctor [1997] 1 WLR 640 that it is an abuse of process for a party to commence and continue litigation which it has no intention of bringing to a conclusion. They will not, as I understand it, rely on the grounds considered in Birkett v. James [1978] AC 297 of inordinate and inexcusable delay which gives rise to a substantial risk that it is not possible to have a fair trial of the issues, or is to such as to cause serious prejudice to the defendant.

8.The plaintiffs say that the court has no jurisdiction to order discovery which is solely in aid of an interlocutory application and which bears no relevance to the matters in issue in the cause or matter. Rule 7(3) requires that the applicant state by affidavit his belief that the discovery "relates to one or more of the matters in question in the cause or matter." They rely in particular on Bekhor & Co. Ltd v. Bilton [1981] 1 QB 923 in which the Court of Appeal held that the court had no jurisdiction under the Order to order discovery in support of a Mareva injunction though it did have ancillary jurisdiction to make such order under the relevant statute. They also rely on RHM Foods Ltd v. Bovril Ltd [1982] 1 WLR 661 in which the same principle was followed but distinguished on the facts.

9.The defendants say that the words "cause or matter" cover all stages of an action as it progresses through the courts, and not only the issues to be tried. They rely on Dubai Bank v. Galadari (No 2) [1990] 1 WLR 731 in which Slade LJ so held in the context of an application to produce consequential on a notice given under Order 24, rule 10. This was followed in Hong Kong in the case of Zida Technologies Ltd v. Tiga Technologies Ltd & Ors [2001] 4 HKC 163. The defendants argue that the position must be the same under Rule 7.

10.In Bekhor v. Bilton the Court of Appeal was dealing with an order for discovery in support of a Mareva injunction. The court held that insofar as the order purported to have been made under Order 24, rule 7, the judge did not have the jurisdiction to make it. Counsel referred to passages by all three appellate judges but I will only reproduce here that by Griffiths LJ at page 948G :

"The phrases 'matters in question in the action' and 'matters in question ... in the cause or matter' have for generations been understood to refer to the issues to be decided in the litigation. The present existence and whereabouts of the defendant's wealth are not such an issue; they are relevant only to the defendant's ability to satisfy judgment if the 'matters in question in the action' are resolved in the plaintiffs' favour. I therefore conclude that the judge had no power to order discovery pursuant to the rule of courts and insofar as A. v. C. was founded on such a power it was wrongly decided.

11.This principle was explained by Hunter J in Kanematsu-Gosho (HK) Ltd v. Lee Boon-chean [1986] HKLR 59 at page 62H :

"The same conundrum was presented to the English Court in the context of Mareva injunctions, and was finally settled by the Court of Appeal in A. J. Bekhor v. Bilton [1981] 2 All ER 565 in this way. The rules did not apply to an application for discovery or interrogatories in support of a Mareva injunction because neither relief was sought in respect of issues raised in the action. It was sought in respect of issues raised in the Mareva injunction, and therefore you could not bring yourself within either the discovery or the interrogatories rules. The court concluded that the power to order the interrogatories and discovery in support of the Mareva injunction was to be found in 45 (as it then was) of Judicature Act 1925."

12.The rule is therefore, as I understand it, that the court's jurisdiction under Rule 7 is to order discovery of documents which to one or more of the matters in question in the cause or matter, and this means the main action, rather than any ancillary or interlocutory proceeding.

13.In Dubai Bank, an action to recover moneys alleged to have been fraudulently diverted by defendants, Slade LJ was dealing with an application under Order 24, rule 11 for production of documents referred to an affidavit sworn opposition to an application for an injunction restraining one of the defendants from disposing of a property into which the plaintiff claimed that diverted moneys could be traced. The question was not whether such documents were relevant to matters in question in the action but rather with the effect of Rule 13(1) which, like the same rule in the Hong Kong provided :

"No order for the production of any documents for inspection or to the Court or for the supply of a copy of any document shall be made under any of the foregoing rules unless the Court is of opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs."

14.Slade LJ held that the "fair disposal" of a "cause or matter", involved the fair disposal of all stages of that cause or matter as it progresses through the courts. The relevant part of the judgment in Zida Technologies Ltd was on the same point.

15.I do not think that the decision in Dubai Bank is inconsistent with that in Bekhor, or that its effect is to allow discovery under Rule 7 of documents which relate to matters in issue, not in the main litigation, but in an interlocutory application. It does not deal with discovery as such but with production of documents referred to in "pleadings, affidavits or witness statements served under Order 38, rule 2A, or experts' reports" and in respect of which a notice to produce may be served under Rule 10.

16.In Grovit v. Doctor Lord Woolf said at page 647G :

"To commence and to continue litigation which you have no intention to bring to conclusion can amount to an abuse of process. Where this is the situation the party against whom the proceedings is brought is entitled to apply to have the action struck out and if justice so requires (which will frequently be the case) the courts will dismiss the action. The evidence which was relied upon to establish the abuse of process may be the plaintiff's inactivity. The same evidence will then no doubt be capable of supporting an application to dismiss for want of prosecution. However, if there is an abuse of process, it is not strictly necessary to establish want of prosecution under either of the limbs identified by Lord Diplock in Birkett v. James [1978] A.C. 297. In this case once the conclusion was reached that the reason for the delay was one which involved abusing the process of the court in maintaining proceedings when there was no intention of carrying the case to trial the court was entitled to dismiss the proceedings."

17.The issue in the defendants' summons to dismiss the action is therefore whether the plaintiffs commenced or continued, and are continuing the litigation, having no intention to bring it to a conclusion. The documents of which discovery is sought concern the transfer of shares in the 2nd plaintiff from Century City Group to Shenyin Wanguo Group which, according to the plaintiffs' witness, took place on 18 July 2003. They may be relevant to the issue for consideration in the summons but so far as I can see they have nothing to do with the issues in the action.

18.I have no doubt therefore that insofar as the defendants are seeking discovery under Rule 7, I have no jurisdiction to grant it. However, insofar as they are seeking production under Rule 11 of documents referred to in an affidavit in the interlocutory proceedings, following Dubai Bank and Zida Technologies Ltd I have jurisdiction to grant it.

19.In support of their application to dismiss, the defendants will apparently rely on delay, and delay is not in dispute. Mr Lee, the Chief Executive Officer of Shenyin Wanguo Strategic Investments (HK) Ltd has filed an affirmation in which, briefly put, he explains that the delay was caused in the first instance by the poor financial circumstances of Century City but that Shenyin Wanguo told the defendants in late 2001 that if matters could not be resolved otherwise, Shenyin Wanguo would take over the litigation. For various reasons, including the SARS outbreak, the 2nd defendant only became wholly owned by Shenyin Wanguo on 18 July 2003. Now, according to Mr Lee, Shenyin Wanguo is committed to prosecuting the action at full speed until its conclusion.

20.The defendants served a notice under Rule 10 in respect of the transfer documents although no documents were specifically mentioned in the affirmation. By a second affirmation dated 8 January 2004 Mr Lee has produced copies of a sale and purchase agreement and minutes of a board meeting of the 2nd defendant, both dated 18 July 2003. He says that the copies are produced "with irrelevant parts obliterated"; in fact the documents are so heavily redacted as to be practically meaningless. So at least the more important transfer documents are now before the court if only in redacted form. The plaintiffs argue however that the documents are not produced for their content but to answer a point taken in one of the affirmations filed on behalf of the defendants.

21.The defendants now say that these documents should be produced in their unredacted form. The plaintiffs object to producing them. Their only ground, so far as I can see, is that the redacted parts are irrelevant. As I have indicated, the redaction makes them, and in particular the sale and purchase agreement, practically meaningless. While it is said that irrelevant parts are obliterated references are left in the agreement to various things which might be relevant. In particular there is a definition of "civil action", i.e. this action; but whatever is said about it has been obliterated. Whatever the parties to the transfer agreed about this action must surely be relevant. In any event, once a document is referred to the party against whom it is sought to be used has a right to inspect it and take copies of it. See Dynamic Way International Ltd & Anor v. Ho Kui Chee & Ors [2000] 4 HKC 138 (CA). I will therefore make an order under Rule 11 for the production of the original sale and purchase agreement and the minutes referred to in the 2nd affirmation of Mr Lee for inspection within seven days from the date of the order to be made herein.

22.As to costs, the plaintiffs have succeeded in repelling the application in its primary form as an application under Rule 7. They have failed only in respect of production in unredacted form of the two documents. I order nisi that 80% of the costs of this summons, to be taxed if not agreed, be to the plaintiffs in any event.

Representation:

Mr C.W. Ling, instructed by Messrs Fred Kan & Co.,for the 1st and 2nd Plaintiffs

Mr Paul Shieh, SC, instructed by Messrs Wilkinson & Grist,for the 1st to 9th Defendants