Man Cheung International Traders Ltd and Another v. Clsa Ltd

DCCJ 6778/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 6778 OF 2002

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BETWEEN

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Coram : Deputy District Judge Anthony Chow in Chambers (open to public)

Date of Hearing : 9^th November 2006

Date of Handing down of Decision : 16^th November 2006

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DECISION

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1.This is an appeal of the Master’s decision dismissing the defendant’s summons for specific discovery under Order 24 r.7, Rules of District Court.

2.Prior to this hearing, the defendant applied to amend the original summons by adding an order to the plaintiff to serve a further and better list of documents under Order 24 r.3.

3.Mr. Westbrook SC, representing the plaintiffs did not object to the amendment and the hearing proceeded on the amended summons.

Background:

4.This is a relatively simple claim by the client of a securities broker for damages in failing to properly execute a sell order at a specified price “or better”.

5.The defence as pleaded are:

(1)	No contractual relationship between the 1st plaintiff and the defendant.
(2)	The defendant did not breach any duty, contractual or otherwise, to the plaintiffs.

6.The defendant seek an order for specific discovery against the plaintiff on 2 categories of documents:

(i)	The opening and operating of the securities trading account with the Defendant on behalf of the 1st plaintiff by the 2nd plaintiff; and
(ii)	The trading of the shares listed with the Australian Stock Exchange and the Nasdaq Exchange by the defendant on the instructions of the 2nd plaintiff on behalf of the 1st plaintiff, including but not limited to trading in the shares in Gemstar-TV Guide Intl Inc, Climax Mining, Woolworths Limited, Aeroflex Inc., Misonix Inc. and Citrix Systems Inc.

The Law:

7.The applicable law as stated in Berkeley Administration Inc v. McCelland [1990] F.S.R. 381 and succinctly summarized by Cheung JA in Paul’s Model Art GMBH & Co KG v UT Ltd & Ors, [2006] 1 HKC, as follows:

“	(1)	There is no jurisdiction to make an order under RSC, O.24, r.7, for the production of documents unless
		(a)	there is sufficient evidence that the documents exist which the other party has not disclosed;
		(b)	the document or documents relate to matters in issue in the action;
		(c)	there is sufficient evidence that the document is in the possession, custody or power of the other party.
	(2)	When it is established that those three prerequisites for jurisdiction do exist, the court has a discretion whether or not to order disclosure.
	(3)	The order must identify with precision the document or documents or categories of document which are required to be disclosed, for otherwise the person making the list may find himself in serious trouble for swearing to a false affidavit, even though doing his best to give an honest disclosure.”

8.The tests are therefore: (1) existence, (2) relevancy and (3) possession, custody and control.

The issues:

9.In paragraph 4 of the Learned Master’s decision, she defined the issues for trial as follows:

“	(1)	whether there was contractual or otherwise relationship between the 1st Plaintiff and the Defendant to render the Defendant liable to the 1st Plaintiff for its loss if any;
	(2)	whether the Defendant was in breach of their contractual duties and/or negligent in performing their duties in relation to selling the shares in question.”

10.Mr. Beresford, counsel for the defendant, in his skeleton argument identified the issues for trial as follows:

“	(1)	Whether P2 opened an account or a sub-account in the name of P1 (ie whether P2 was acting as principal or agent) and whether P1 entered into a contractual relationship with D (Statement of Claim, para. 4 [6/24]; Defence, paras. 4, 5(1), 5(6) [7/30-31]);
	(2)	Whether D owed a duty of care in tort to either or both of P1 and P2 (Statement of Claim, para. 6 [6/25]; Defence, para. 6 [7/32-33]) and, if so, whether it was discharged;
	(3)	What were the terms of D's contract with P2 and, if there was a contract, with P1 (Statement of Claim, para. 5 [6/24]; Defence, para. 5 [7/31-32], whether those terms included a term express or implied that an instruction to sell at a price "or better" had the meaning attributed to it by D or by Ps, and if not incorporated whether there was a practice or technical meaning as contended for by D which was brought to the attention of Ps (Statement of Claim, paras. 7, 13, 15 [6/25-27]; Defence, paras. 7, 8(3),13, 15 [7/33-38].”
I will deal with the 2 categories of documents separately.

Category (i) Documents:

11.Mr. Westbrook, admitted the Master was correct in holding there was sufficient evidence that such document exist and are probably in the plaintiff’s possession, custody and control. The real dispute was with relevance.

12.The defendant’s case was that it never had any contractual relationship with the 1^st plaintiff. In paragraph 2 of the Statement of Claim, the plaintiffs pleaded that the 2^nd plaintiff carried on the relevant share trading with the defendant on behalf of the 1^st plaintiff. The defendant answered with a general denial. Additionally, in paragraph 4(3) of the Statement of Defence, the defendant stated no agreement was ever signed between the 1^st plaintiff and the defendant “…because the 1^st plaintiff was not, and has never been, a client of the Defendant.” Furthermore, in paragraphs 5(1) and 5(6) of the Statement of defence, the defendant stated: “It is denied that the Defendant entered into the alleged or any contract as alleged or at all with the 1^st Plaintiff” and “It is averred that no such customer relationship had or had been established between the Defendant and the 1^st Plaintiff and that the Defendant had and has not otherwise agreed in writing.” 

13.Irrespective of the defendant’s case, Ms. Eleanor Sin Chee Lam stated in paragraph 5(2) of her affidavit in support of the defendant’s application for specific discovery: “It is indisputable – and it is not disputed – that the 1^st Plaintiff instructed the 2^nd Plaintiff to place orders of various different kinds with the Defendant…”. The learned Master rightly interpreted from this passage that the defendant no longer disputed the authority of the 2^nd plaintiff. 

14.In fact Ms. Sin’s affidavit in support had clearly conceded that the 2^nd plaintiff was an agent of the 1^st plaintiff and the Learned Master’s decision could not be faulted in anyway.

15.Mr. Beresford now argues that the real issue is not whether the 2^nd plaintiff had any authority to open and operate the account for the 1^st plaintiff, but whether the 1^st plaintiff authorized the 2^nd plaintiff to operate the account as principal or as agent. This point was however not pleaded by the parties and certainly not relevant to any issue for trial.

16.The only other point relevant to whether the defendant is liable to the 1^st plaintiff was pleaded in paragraph 5(5) of the Statement of Defence, where the defendant averred that one of the expressed, or alternatively implied term, of their agreement was the defendant would not be liable to any other person on whose behalf the 2^nd plaintiff may act, unless there is a separate customer relationship and the defendant had agreed in writing.

17.This is of course a matter that can only be decided by examining the agreements between the 2^nd plaintiff and the defendant. Nothing contained in category (i) documents can remotely be relevant to this issue.

Category (ii) Documents:

18.Ms. Sin in paragraph 5(2) of her affidavit justified the defendant’s request for specific discovery of these documents by stating:

"Documentation passing between the Plaintiffs and attendance notes of conversations between the Plaintiffs in respect of the Trades will serve to show whether the 2nd Plaintiff fully or properly discharged its duties by passing onto the 1st Plaintiff information as to how the Defendant would and did execute an "or better" order such that the 1st Plaintiff would understand the potential consequence of it instructing the 2nd Plaintiff to place an "or better" order with the Defendant, on its behalf."

19.The learned Master held: First, although there might have been documents in relation to instructions on trading of shares exchanged between the 1^st and the 2^nd plaintiff, she was not satisfied that there was any documents that contained explanation of the nature or consequence of different types of orders. Second, whether the 2^nd plaintiff had properly discharged its duties to the 1^st plaintiff was not raised in any of the pleadings and therefore not relevant to the issues for trial.

20.In this hearing, Mr. Beresford raised, for the first time, that if category (ii) documents disclosed the 2^nd plaintiff had explained the nature and consequence of different types of orders to the 1^st plaintiff, it would undermine the 2^nd plaintiff’s case that such a term of practice was never incorporated in the agreement between the defendant and the 2^nd plaintiff.

21.I agree with the Learned Master’s findings that nothing suggest that there exist any documents exchanged between the 1^st and 2^nd plaintiff, where the nature or consequence of different types of order were explained; and whether the 2^nd plaintiff had properly discharged its duty to the 1^st plaintiff is not a matter at issue. 

22.In respect to the new argument raised by Mr. Beresford, whether any terms of practice was incorporated into the agreement between the defendant and the 2^nd plaintiff can only be discovered from communications between the defendant and the 2^nd plaintiff. Nothing relevant can be discovered in documents exchanged between the 2^nd plaintiff and the 1^st plaintiff.

23.Mr. Beresford also stated the existence of other “or better” instructions between the 1^st and 2^nd plaintiffs are relevant to previous course of dealings and the question of whether the defendant’s practice of carrying out “or better” instructions has been incorporated into the contract between the 2^nd plaintiff and the defendant.

24.With respect, the only instructions that may be relevant to whether the defendant’s practice of carrying out “or better” instructions (or any other instructions for that matter) had been incorporated into their contract, can only be those instructions from the 2^nd plaintiff to the defendant. Communications between the 1^st and 2^nd Plaintiff could be relevant to previous course of dealings between the 1^st and 2^nd plaintiffs but they surely cannot be relevant to previous course of dealings between defendant and the 2^nd plaintiff.

25.I do not see any evidence that the category (ii) documents the defendant seeks to discover, i.e. documents from the 2^nd plaintiff explaining the nature or consequence of different types of order, had ever existed. In any event, even if these documents did exist, I also find they are not relevant to the issues at trial.

Order:

26.Appeal is dismissed.

27.Costs to the plaintiffs, with certificate for counsel, to be taxed if not agreed.

Representation:

Mr. Simon Westbrook SC, instructed by Messrs. Robertsons, for the Plaintiffs

Mr. Roger Beresford, instructed by Messrs. Jones Day, for the Defendant