Paul’s Model Art Gmbh & Co Kg v. U. T. Ltd and Others

HCA 1501/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1501 OF 2000

BETWEEN

Before : Hon Sakhrani J in Chambers

Date of Hearing : 17 May, 13 and 14 September 2004

Date of Judgment : 30 December 2004

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J U D G M E N T

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The appeals

1.There are two matters before me.  The first is an appeal against the decision of Master Woolley given on 29 January 2004 ordering the 4^th and 5^th defendants to file and serve affidavits stating whether they have or have had at any time in their possession, custody or power any document specified in the Schedule to the plaintiff’s summons dated 15 August 2003 (as amended) (“the Schedule”) and if any of them had or have been but are not now in their possession, custody or power stating when it parted with the same and what has become of the same and that there be inspection of the documents so disclosed.

2.The second matter before me is an appeal against the decision of the Master given on 16 February 2004 ordering that the 4^th and 5^th defendants do pay the plaintiff’s costs of the summons dated 15 August 2003 on an indemnity basis forthwith to be taxed if not agreed.

The background

3.The background facts are that the plaintiff is a German company and carries on business as a manufacturer and seller of high quality die cast scale models of cars and motorbikes.  At all material times the 1^st defendant carried on business as, inter alia, a manufacturer of moulds for the production of die cast models and a manufacturer of die cast models using such moulds.  The 2^nd defendant was the majority shareholder and director of the 1^st defendant. The 3^rd defendant was the minority shareholder and director of the 1^st defendant. 

The Agreement

4.Since 1992 the plaintiff engaged the 1^st defendant to manufacture moulds and die cast models from the said moulds.  

5.By a written agreement dated 28 December 1996 between the plaintiff, the 1^st, 2^nd and 3^rd defendants and other parties (“the Agreement”) the parties thereto were desirous of terminating all previous manufacturing agreements and to formalize their business dealings with each other and to regulate, inter alia, the terms and conditions of all future production and distribution agreements.

6.By cl. 6.8 of the Agreement the 1^st defendant agreed that it would not manufacture, directly or indirectly, products which are in competition with the products of the plaintiff during the continuance of cl. 6.  The plaintiff also agreed not to produce directly or indirectly products which are in competition with the products of the 1^st defendant. 

7.The duration of the provisions of cl. 6 was stated to be 10 years from the date of the Agreement (cl. 6.1)

8.By cl. 6.12 it was provided that unless and until the expiry or early termination of the provisions of cl. 6 the plaintiff or one of its subsidiaries was appointed by the 1^st defendant as :

(i)    the sole and exclusive distributor of the products described in cl. 6.8 (“the U.T. Ltd. products”) in Germany and Belgium; and

(ii)   the sole and exclusive selling agent for the U.T. Ltd. products in the countries set out in Schedule 4 (“the Agency Territories”).

9.By cl. 6.10 the 1^st defendant agreed to avoid selling any of the U.T. Ltd. products or the plaintiff’s products to a purchaser whom the 1^st defendant knows or ought to know may re-sell the products to countries outside those specified in Schedule 3.

10.By cl. 6.13 the 1^st defendant agreed to pay to the plaintiff a sum equal to 5% of the received amounts of the U.T. Ltd. products sold to purchasers in the Agency Territories. 

11.By cl. 6.14 the 1^st defendant agreed that it would avoid selling any of the U.T. Ltd. products to any person whom the 1^st defendant reasonably believes may resell the same in Germany, Belgium and such other countries and territories where the plaintiff is the agent of the U.T. Ltd. products.

12.By cl. 6.15 the 2^nd and 3^rd defendants jointly and severally agreed with the plaintiff that they shall cause and procure that the 1^st defendant complies with all the provisions of cl. 6.

The action

13.The plaintiff initially issued proceedings against the 1^st, 2^nd and 3^rd defendants for damages for breach of the Agreement on the basis that they embarked on a course of conduct to circumvent their contractual obligations to the plaintiff regarding the sole and exclusive distributorship of the U.T. Ltd. products to the plaintiff and the sole and exclusive selling agency rights to the plaintiff for the U.T. Ltd. products in the Agency Territories.

14.As a result of investigations conducted on behalf of the plaintiff, the plaintiff decided to join the 4^th and 5^th defendants in these proceedings.  The amended Writ of Summons and amended Statement of Claim against all the defendants is dated 7 November 2002. 

15.The 4^th defendant is a company incorporated in the British Virgin Islands on 27 March 1998.  It has a place of business at New World Office Building, Room 1034-1035, East Wing, 24 Salisbury Road, Tsim Sha Tsui, Kowloon.  The 5^th defendant is a company incorporated in Hong Kong on 27 November 1998 carrying on business at the same address as the 4^th defendant at New World Office Building.  The 5^th defendant is a subsidiary of the 4^th defendant.

16.There are other Gateway companies which are subsidiaries of the 4^th defendant including Gateway Europe GmbH (“Gateway Europe”) and Gateway U.K. Limited.

17.The plaintiff’s case is set out in its amended statement of claim.  By para. 16 it is pleaded that in breach of the Agreement, since the date of incorporation of the 4^th defendant, namely 27 March 1998, the 1^st, 2^nd and/or 3^rd defendants have, with the assistance of others, embarked on a course of conduct to circumvent their contractual obligations to the plaintiff as provided for in the Agreement, in particular the plaintiff’s sole and exclusive distributorship and selling agency rights.  Particulars are provided under para. 16 as set out in the amended statement of claim.

Unlawful Interference

18.The plaintiff’s claim against the 4^th and 5^th defendants is for an injunction, damages and accounts and inquiries.  The claim against the 4^th and 5^th defendants is based on the tort of unlawful interference.  This is pleaded at para. 17 of the amended statement of claim as follows :

“Unlawful interference by the 4^th and 5^th Defendants

a.   The 4^th Defendant carried on business in Hong Kong out of New World Office Building, Room 1034-1035, East Wing, 24 Salisbury Road, Tsim Sha Tsui, Kowloon.

b.   The 5^th Defendant also carried out business in Hong Kong out of the aforesaid address.

c.   The 4^th Defendant’s business comprises, inter alia,

(i)   the placing of orders with the 1^st Defendant for the manufacture by the Production Facilities and/or other factories of Die Cast Model Cars for the purpose of the 4^th Defendant selling and/or distributing the same in Germany and Belgium to the exclusion of the Plaintiff as pleaded in paragraphs 16(k)(i) and 16(l) aforesaid and in the Agency Countries without the Plaintiff being paid commission thereon as pleaded in paragraphs 16(k)(ii) and 16(1);

(ii)  the sale and/or distribution of the said Die Cast Models to the parties as set out under paragraph 16(m)(ix)-(xxii), to the exclusion of the Plaintiff in Belgium and Germany as pleaded in paragraph 16(k)(i) and without the Plaintiff being paid commission on thereon as pleaded in paragraph 16(k)(ii).

d.    The conduct of the 4^th Defendant as pleaded in paragraphs (c)(i) and (c)(ii) above constitutes an unlawful interference by the 4^th Defendant with the Agreement in particular with, but not limited to, Clauses 6.8, 6.12, 6.13, 6.14, 6.15 and Schedule 2 thereto.

e.    The 4^th Defendant carried out the aforesaid business without

(i)    having been registered under Part XI of the Companies Ordinance; and

(ii)    without having obtained a business registration certificate to carry out such business.

f.    The 5^th Defendant has provided to the 4^th Defendant a “care of ” address at New World Office Building, Room 1034-1035, East Wing, 24 Salisbury Road, Tsim Sha Tsui, Kowloon to carry out the aforesaid business and has thereby unlawfully interfered with the Agreement, in particular but not limited to Clauses 6.8, 6.12, 6.13, 6.14, 6.15 and Schedule 2 thereto.”

19.Para. 17(c) of the amended statement of claim refers to and relies on the matters pleaded in, inter alia, paras. 16(k), (l) and (m) of the amended statement of claim. 

20.Para. 16(k) pleads that the 1^st and/or 2^nd defendant caused and/or procured the production facilities and/or “other factories” to produce die cast models falling within the ambit of U.T. Ltd. products for the purpose of eventual sale and/or distribution of the same :

(i)    in Germany and Belgium to the exclusion of the plaintiff’s rights as sole and exclusive distributor;

(ii)   in the Agency Territories without paying to the plaintiff a sum equal to 5% of any amounts received from the sale or distribution thereof to which the plaintiff was entitled under the Agreement.

21.Para. 16(l) pleads that the 2^nd defendant caused and/or procured :

(i)    the 1^st defendant to sell and/or the 1^st defendant sold to the 4^th defendant; and

(ii)   the 4^th defendant to purchase and/or the 4^th defendant purchased from the 1^st defendant

die cast models for the purpose of the 4^th defendant selling and/or distributing the same to the exclusion of the plaintiff as pleaded in para. 16(k)(i) and without paying to the plaintiff the 5% commission as pleaded in para. 16(k)(ii).

22.Para. 16(m) pleads that the 2^nd defendant further caused and/or procured the 4^th defendant to sell and/or distribute and the 4^th defendant sold and/or distributed the die cast models to the specified customers including two in Germany.

23.The plaintiff’s case is that the conduct of the 4^th and 5^th defendants as pleaded constitute unlawful interference by the 4^th and 5^th defendants with the Agreement resulting in damage to the plaintiff. 

The Schedule to the Summons

24.The Schedule to the summons for discovery is as follows :

“1.  Accounting records in respect of purchases by the 4^th and 5^th Defendants of 1/12^th, 1/18^th and 1/43^rd scale die cast model cars of the description set out in Paragraph 11 of the amended Statement of Claim.

2.     Purchase orders placed by the 4^th & 5^th Defendants with Davidson Limited in respect of 1/12^th, 1/18^th and 1/43^rd scale die cast model cars of the description set out in Paragraph 11 of the Amended Statement of Claim.

3.     Invoices from Davidson Limited issued to the 4^th and/or 5^th Defendants in respect of the sale and supply of 1/12^th, 1/18^th and 1/43^rd scale die cast model cars of the description set out in Paragraph 11 of the Amended Statement of Claim.

4.     Shipping documents, including bills of lading shipping instructions, and customs declarations in relation to the delivery of 1/12^th, 1/18^th and 1/43^rd scale die cast model cars of the description set out in Paragraph 11 of the Amended Statement of Claim, to Germany and Belgium and the countries referred to as the Agency Territories set out in Schedule 4 to the Agreement between the Plaintiff and (inter alia) the 1^st, 2^nd & 3^rd Defendants, referred to in paragraph 9 of the Amended Statement of Claim.

5.     Certificates of Incorporation in respect of the 4^th and 5^th Defendants.

6.     Statutory records of shareholders in the 4^th Defendant.

7.     Records and documents in relation to the beneficial ownership of shares in the 4^th Defendant.

8.     Invoices and receipts for paid invoices issued by those individuals, companies or firms responsible for and in respect of the incorporation of :

(a)    the 4^th Defendant;

(b)    the 5^th Defendant;

(c)    Gateway Europe GmbH

(d)    Gateway U.K. Limited

(Collectively, “the Gateway Companies”).

9.     Invoices and receipts in respect of Annual Company Secretarial fees for each of the Gateway companies.

10.   Share certificates in respect of each of the Gateway Companies.

11.  Correspondence passing between the 1^st, 2^nd and/or 3^rd Defendants and the 4^th and/or 5^th Defendants and/or Mr. Jimmy Afirino Ibrahim/Mr. Jimmy Yee (“Mr. Ibrahim”) on the one part, with those individuals companies or firms responsible for the establishment of the gateway companies.

12.   Correspondence passing between the 1^st, 2^nd and/or 3^rd Defendants on the one part and Mr. Ibrahim and/or the Gateway Companies or any of them on matters touching and concerning licenses to manufacture and production of model cars of the description set out in paragraph 11 of the Amended Statement of Claim.

13.   Correspondence passing between the 1^st, 2^nd and/or 3^rd defendants on the one part and Mr. Ibrahim and/or any of the Gateway Companies or any of them touching sales and shipment of 1/12^th, 1/18^th and 1/43^rd scale die cast model cars of the description set out in Paragraph 11 of the Amended Statement of Claim, to Germany and Belgium and the countries referred to as the Agency Territories set out in Schedule 4 to the Agreement between the Plaintiff and (inter alia) the 1^st, 2^nd & 3^rd Defendants, referred to in paragraph 9 of the Amended Statement of Claim.

14.   Documents appertaining to the alleged secondment of the 1^st Defendant’s staff to work for the 4^th and/or 5^th Defendants as referred to in paragraph 12 of Mr. Ibrahim’s Affirmation filed herein on 17^th April 2001.

15.   Orders placed by the 4^th and/or 5^th Defendants with the 1^st Defendant for the production and sale of 1/12^th, 1/18^th and 1/43^rd scale die cast model cars of the description as set out in Paragraph 11 of the Amended Statement of Claim.

16.   Invoices and receipts issued by the 1^st Defendant and/or Davidson Limited to the 4^th and/or 5^th Defendants in respect of the production and sale of 1/12^th, 1/18^th and 1/43^rd scale die cast model cars of the description as set out in Paragraph 11 of the Amended Statement of Claim and the manufacture of all tooling, dies casts patterns and moulds used by the 1^st Defendant and/or Davidson Limited for such production.

17.  Inter company memoranda, emails, and other correspondence between the Gateway Companies and Mr. Ibrahim including email correspondence emanating from the email address [email protected], Mr. Wayne Gears, Mr. Thomas Schmadalla and Mr. Nigel Gordon Stewart relating to :

(a)    The acquisition of licenses from car manufacturers for the production and sale of 1/12^th, 1/18^th and 1/43^rd scale die cast model cars of the description as set out in Paragraph 11 of the Amended Statement of Claim;

(b)    The production of 1/12^th, 1/18^th and 1/43^rd scale die cast model cars of the description as set out in Paragraph 11 of the Amended Statement of Claim and the manufacture of all tooling, dies casts patterns and moulds used by the 1^st Defendant and/or Davidson Limited for such production.

(c)     The establishment of the Gateway companies.

(d)    The sales, shipment and delivery of 1/12^th, 1/18^th and 1/43^rd scale die cast model cars of the description set out in Paragraph 11 of the Amended Statement of Claim, to Germany and Belgium and the countries referred to as the Agency Territories set out in Schedule 4 to the Agreement between the Plaintiff and (inter alia) the 1^st, 2^nd & 3^rd Defendants, referred to in paragraph 9 of the Amended Statement of Claim.

18.    Employment contracts in relation to the persons appearing under the names “Billy”, Virginia Wilson, James Leigh and Patrick Cheng in the organization chart of the 4^th Defendant exhibited as SPD-4(g) to the Affidavit of Seamus Patrick Donegan filed herein on 9^th March 2001.”

25.The two grounds of objection to providing discovery as sought by the plaintiff are :

(1)     relevancy; and

(2)     failure to show a prima facie case that there exists documents other than those already disclosed by the 4^th and 5^th defendants.

The 5^th defendant

26.I shall deal with the position of the 5^th defendant first.  As regards the 5^th defendant, it was submitted by Mr. Shum that there is no sufficient involvement of the 5^th defendant pleaded in the amended statement of claim.  The only matter alleged against the 5^th defendant is that it provided a “care of ” address at the same New World Office Building address as the 4^th defendant and that the 5^th defendant has thereby committed the tort of unlawful interference.

27.Mr. Hingorani, however, submitted that the evidence showed that the 5^th defendant was more than supplying a “care of ” address.  It was actively accepting orders as evidenced by the letter dated 18 March 1999 from Renaissance Corporation (Thailand) Ltd. to the 5^th defendant and the sales invoice issued by the 5^th defendant to that company. 

28.This evidence does show that the 5^th defendant was involved in conducting business.  However, none of that has been pleaded.  The only allegation made against the 5^th defendant in the pleading is that it provided a “care of ” address.  That is insufficient to found the tort of unlawful interference against the 5^th defendant in my view.  Unless the activities of the 5^th defendant amounting to the tort of unlawful interference are properly pleaded thereby making it relevant to seek discovery against it, I am of the view that the order made against the 5^th defendant should not stand.  It would only be a relevant issue for the plaintiff to explore by the process of discovery if it has made out a case on the pleadings (Sun Yuet Tai Ltd v. British American Tobacco Co. (HK) Ltd. (unreported CACV No. 95 of 1999, Court of Appeal, 4 June 1999; Annabell Kin Yee Lee & others v Lee Wing Kim (May Lee) (unreported) HCAP No 5 of 2003, Chu J, 5 March 2003).  The order made against the 5^th defendant should, in my view, be set aside.

The 4^th defendant

29.There has already been discovery of documents made by the 1^st, 2^nd and 3^rd defendants.  It was submitted that the 4^th defendant has already on a voluntary basis already supplied relevant documents to the 1^st, 2^nd and 3^rd defendants to assist them to comply with their obligations on discovery.  Before the joinder of the 4^th and 5^th defendants, Master M. Yuen made an order on 29 October 2001 ordering the 1^st, 2^nd and 3^rd defendants to make and file an affidavit stating whether they have or have had at any time in their possession, custody or power any document specified in the schedule to that order and if any of them had or have been but are not now in their possession, custody or power stating when it parted with the same and what has become of the same and that there be inspection thereof.  With the benefit of documents voluntarily supplied by the 4^th defendant before it became a party in the action, that order was complied with by affirmation of the 2^nd defendant. 

30.Mr. Shum also submitted that with the voluntary disclosure made by the 4^th defendant to enable the 1^st, 2^nd and 3^rd defendants to comply with the earlier order for discovery made by Master Yuen, no order for discovery should be made against the 4^th defendant. 

31.There is no merit in this submission.  When documents were voluntary supplied by the 4^th defendant to the other defendants so as to enable them to comply with the order for discovery made against them, the 4^th defendant was not a party to the proceedings.  The obligation is on a party to make discovery.  The verification of documents by affidavit was a duty that was personal to a party in an action and cannot be delegated (Clauss v. Pir [1988] Ch 267; Lau Chi Wang & others v. Ip Fook Chuen & another [2003] 1 HKLRD 485).

32.In my view the fact that voluntary disclosure of documents was made by the 4^th defendant before it was a party to the action is no answer to an application for specific discovery against the 4^th and 5^th defendants.

33.The 18 items in the Schedule can conveniently be grouped under 3 categories of documents as Mr. Shum submitted.  Category 1 consists of sales and shipping documents under Items 1, 2, 3, 4, 15 and 16.  Category 2 consists of incorporation and company documents under Items 5, 6, 7, 8, 9, 10, 14 and 18.  Category 3 consists of correspondence under Items 11, 12, 13 and 17.

34.The Master’s order was not drawn up.  I was informed that the Master made an order in terms of the summons except for Items 5, 6 and 7.  The plaintiff did not pursue Item 5 before the Master.  I was also informed that at the hearing before the Master items 6 and 7 were replaced and that an order requiring the disclosure of all documents and/or records held by the 4^th defendant revealing the beneficial and legal ownership of shares in the 4^th defendant since its incorporation was made by the Master.

35.Mr. Shum accepted that sales documents, accounting records, and shipping documents in relation to die cast models purchased from the 1^st defendant are relevant.  These are under Items 1, 4, 13, 15 and 16.  He submitted that these should be restricted to production and sales of 1/18^th scale model cars.  As regards Item 16, he submitted that documents issued to Davidson Ltd. are not relevant and not discoverable.  This was because on the defendants’ case the 1^st defendant manufactured and sold these to the 4^th defendant until the 1^st defendant ceased to manufacture the same for the 4^th defendant by the end of November 2000.  This was when the 1^st defendant’s factory was sold as alleged by the 2^nd defendant at para. 17 of his affirmation filed on 17 April 2001.  It is the defendant’s case also that the 1^st defendant has only manufactured 1/18^th scale model cars for the 4^th defendant.  The 1/12^th scale and the 1/43^rd scale model cars were manufactured by Davidson Ltd. which operates a factory at Dongguan and the defendant’s case is that documents in relation to these two scales are irrelevant and hence not discoverable.

36.The defendants’ case is also that the 4^th defendant and the Gateway companies were set up by Jimmy Ibrahim also known as Jimmy Yee (“Yee”) and not the 2^nd defendant.  It is denied that the 4^th defendant and its subsidiaries were set up and operated to circumvent the contractual obligations of the 1^st, 2^nd and 3^rd defendants under the Agreement.  The defendant’s case is set out in the amended defence and the affirmations of the 2^nd defendant and Yee.

37.The defendants’ case is contradicted by the evidence of Alain Morot-Gaudry (“Morot-Gaudry”) contained in his affidavit filed on 3 September 2001 which supports the plaintiff’s case that the setting up of the 4^th defendant and its subsidiaries including Gateway Europe was done by the 2^nd defendant as the mastermind and that Yee had no involvement in the same.  Indeed the organizational charts and contact lists of key people in the organization sent to Morot-Gaudry and exhibited as part of Exhibit “SPD-4” to the affidavit of Seamus Patrick Donegan of 9 March 2001 does not even feature Yee’s name there.

38.In my view the evidence filed on behalf of the plaintiff supports the plaintiff’s case that the 4^th defendant and its subsidiaries were set up by the 2^nd defendant with a view to circumvent the contractual obligations of the 1^st and 2^nd defendants under the Agreement.  I need only refer to the following paragraphs in the affidavit of Morot-Gaudry :

“22.   I have read Yee’s Affirmation very carefully.  There is no truth to Yee’s claims of being behind Gateway.  The truth is that Gateway was established by Kwan with my help, Ms. Wilson’s help, Ms. Yuen’s help and Schmadalla’s help for the sole purpose of getting around the agreement with the Plaintiff by creating a fake company structure to re-brand the U.T. products (to deprive the Plaintiff of its commission and exclusivity rights in Europe) and to compete head-on with the Plaintiff by producing the same types of products for Gateway.

23.    Complimenting our efforts at creating this structure, I was given the task of persuading American car manufacturers to shift licenses from U.T. to Gateway.  At the same time (May 1998), Nigel Gordon Stewart, based in the U.K. was given the task of persuading the European car manufacturers to shift their licenses to Gateway.  On later trips to these manufacturers, I attended together with Ms. Wilson and Kwan.  The game we played was for Ms. Wilson to pretend to be the head of Gateway and for Kwan to simply be Gateway’s manufacturer.  In reality, nothing could be further from the truth.  Gateway was always Kwan’s company.

24.    After we launched the Autoart and Gate ranges, I noticed that what Kwan had done was to use some U.T. tooling for making U.T. products, to instead produce identical products for Gate.  An example was the Porsche 911.  The only change made was to the cheapest part to produce.  This is the plastic-base-plate underneath the model that resembles the chassis of a car.  Kwan’s factory simply changed this piece to Gate instead of U.T. but it was the same product.  This was then sold in the U.S.A. by my company and in Europe by Schmadalla.  In this way, Kwan avoided to pay commission to the Plaintiff and also to sell directly into Germany and Belgium.

25.    In fact, all matters relating to product lines for U.T., Gate and Autoart were decided by Kwan alone.  There are now produced and shown to me marked exhibit “AM-3” a bundle of emails and attached schedules issued by Kwan in October 1998 setting out his plans for the future U.T., Gate and Autoart Programmes.  There are now shown to me and produced as exhibit marked “AM-3A” true copies of two emails from Kwan and one email from me to Kwan all dated 1^st October 1998 regarding licensing issues regarding a Corvette in which illustrate Kwan’s control over issues of which “company” (i.e. U.T. or Gateway) would produce which car.  It is obvious from these documents that Gateway was not just a customer of U.T., rather it was another Kwan company.  I verily believe that Yee had absolutely nothing to do with the business.  These emails nor any others I received or sent were ever copied to Yee.

Kwan becomes “Billy” and Yuen becomes “James”.

26.   Towards the end of 1998, Kwan became increasingly paranoid about hiding his connection to Gateway.  I understood that he was so concerned because what we were all doing was designed to circumvent the agreement with the Plaintiff.  Accordingly, towards the end 1998, I was advised by Ms. Wilson that from now on U.T. people would use aliases in all emails and other correspondence.  I found this to be bizarre and frankly, a little-childish.  The aliases were as follows :-

Kwan = Billy

Yuen Ling Wan (Accountant at U.T.) = James Leigh

Henry Tsang (Factory Manager of U.T.) = Patrick

Man Tan (Research Engineer at U.T.) = Steve/Joey

27.   Ms. Wilson explained to me that Kwan did not want anything in writing to prove that he was running Gateway.  It was equally important that Yuen Ling Wan should be camouflaged as well.  It will be seen from exhibit “AM-1” that Yuen Ling Wan was listed as Managing Director of Gateway Global Limited (Pacific).  In fact, Ms. Yuen was and always has been a U.T. employee.”

39.The 2^nd defendant has admitted that he did use the alias Billy although no satisfactory explanation has been given for the use of the same.

40.As regards the Davidson Ltd. factory which produced the 1/12^th scale and the 1/43^rd scale model cars for the 4^th defendant, Morot-Gaudy also states that the Davidson Ltd. factory is operated by the 2^nd defendant and that he uses an ex-employee as his front man to give the appearance of disassociation.

41.These are obviously matters in issue between the parties.

42.It seems to me that the documents in relation to not just the 1/18^th scale model cars produced by the 1^st defendant but also the 1/12^th scale and 1/43^rd scale model cars produced by Davidson Ltd. are relevant and discoverable.  I am unable to accept Mr. Shum’s submission that as for items 1, 4, 13, 15, 16, only documents in relation to the 1/18^th scale model cars but not in relation to the 1/12^th scale and the 1/43^rd scale model cars produced by Davidson Ltd. should be discoverable.  

43.I am also unable to accept the submission that the request for discovery is solely for the purpose of impeaching the credit of the 4^th defendant and should be disallowed.  Mr. Shum relied on George Ballantine & Son v. F.E.R. Dixon & Son [1974] 1 WLR 1125.  That case is clearly distinguishable on its facts and provides no assistance to the defendants.

44.As Mr. Hingorani submitted, correctly in my view, under para. 16(k)(i) of the amended statement of claim it is pleaded that the 1^st and/or 2^nd defendant caused and/or procured the Production Facilities and “other factories” to produce the die cast models.  It is also pleaded in para. 16(n) that the 1^st and 2^nd defendants caused and/or procured the Production Facilities and “other factories” to produce the 1/43^rd scale model cars and the 1/12^th scale model cars.  And at para. 16(o) it is pleaded that the 2^nd defendant caused and/or procured the 1^st defendant to sell and the 1^st defendant has sold the 1/43^rd scale and the 1/12^th scale model cars for the purpose of eventual sale and/or distribution of the same by the 4^th defendant in breach of the Agreement. The Davidson Ltd. factory which the defendants allege produced the 1/12^th scale and the 1/43^rd scale model cars would be included in the reference to “other factories” in those paragraphs as well as in para. 17(c) where the tort of unlawful interference against the 4^th defendant is pleaded.  There is in my view an issue raised in respect of which discovery must be made.  It is not, as Mr. Shum alleged, discovery sought solely to impeach the credit of the 4^th defendant.  I accept Mr. Hingorani’s submissions and reject Mr. Shum’s.

45.In my view the documents sought relate to questions in the action and which are clearly relevant. It is reasonable to suppose that they contain information which may enable the plaintiff either to advance his own case or to damage that of the 4^th and 5^th defendants.  If is a document which may fairly lead the plaintiff to a train of inquiry which may have either of these two consequences, they must be disclosed (Compagnie Financière du Pacifique v. Peruvian Guano Co. (1882) 11 QBD 55). 

46.As regards the incorporation and company documents under the replaced Items 6 and 7 as ordered by the Master, it seems to me that the incorporation and company documents are relevant in view of the allegations made.  It is the plaintiff’s case that the 4^th defendant and each of the subsidiaries as pleaded in the amended statement of claim were set up by the 2^nd defendant.  It is the 4^th defendant’s case that these were set up by Jimmy Yee and not the 2^nd defendant.  These are matters in issue between the parties and in my view there must be discovery as sought in respect of the replaced Items 6 and 7 and as ordered by the Master. 

47.There must also be discovery in respect of Items 8, 9 and 10.  I am also of the view that there should also be discovery in respect of Items 1 to 4, 11 to 13, 15 to 17 of the Schedule. 

48.I do not think that an order should be made in respect of Item 14.  Yee has already stated on oath that documents under Item 14 relating to the secondment of the 1^st defendant’s staff to work for the 4^th and 5^th defendant do not exist.  The plaintiff is unable to show a prima facie case that these documents do exist and in my view there should not be an order to make discovery in relation to Item 14.

49.As regards Item 18, it is the plaintiff’s case that the 2^nd defendant caused and/or procured the 4^th defendant and its subsidiaries to be set up as part of the course of conduct complained of. It is the 4^th defendant’s case that only some personnel from the 1^st defendant rendered assistance to the 4^th defendant. The status of “Billy”, Virgina Wilson, James Leigh and Patrick Cheng is a matter in question between the parties and discovery should be made of the documents requested.

50.To conclude, I dismiss the appeal of the 4^th defendant but I vary the order of the Master by removing Item 14 from the Schedule.  The other parts of the order are to remain.

51.As regards the 5^th defendant, its appeal is allowed.  The order made against the 5^th defendant is set aside.

The appeal on costs

52.On 16 February 2004 the Master ordered indemnity costs against the 4^th and 5^th defendants.  The plaintiff did not ask for indemnity costs but asked for costs to be taxed on a common fund basis and to be paid forthwith.  The reason for this is, as Mr. Hingorani submitted, was that there has been deliberate delay and obfuscation on the part of the 4^th and 5^th defendants. 

53.In view of my decision, the order for costs made against the 5^th defendant cannot stand.  The order for costs made by the Master against it is set aside.

54.Having considered the submissions of Counsel, I am not satisfied that this is a proper case to order costs against the 4^th defendant on a common fund basis rather than the usual party and party basis.  The 4^th and 5^th defendants resisted the application for discovery.  The 4^th defendant has failed but the 5^th defendant has succeeded.  I am not satisfied that there are special or unusual features justifying an order for costs to be taxed on a common fund basis. 

55.The Master’s order for costs against the 4^th defendant on an indemnity basis is set aside and is to be replaced by an order that the 4^th defendant do pay the plaintiff its costs of the application such costs to be taxed on a party and party basis and to be paid forthwith.

56.The plaintiff has substantially succeeded against the 4^th defendant on the appeals.  I make an order nisi for the costs of the 4^th defendant’s appeals to be costs to the plaintiff such costs to be taxed on a party and party basis and to be paid by the 4^th defendant forthwith.  I also make an order nisi that the plaintiff do pay the 5^th defendant its costs of the appeals and of the application before the Master such costs also to be taxed on a party and party basis and to be paid forthwith.

Mr. Jeevan Hingorani, instructed by Messrs Barlow Lyde & Gilbert, for the plaintiff

Mr. Edward Shum, instructed by Messrs Pang, Kung & Co., for the 4^th and 5^th defendants

Appeal by the 4th defendant allowed by the Court of Appeal. Please refer to CACV139/2005 dated 14 December 2005