Toeca National Resources B.V. v. Baron Capital Ltd and Another

HCA 1913/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1913 OF 2009

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BETWEEN

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Before : Hon McWalters J in Chambers (Open to Public)

Date of Hearing : 16 May 2011

Date of Judgment : 31 May 2011

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J U D G M E N T

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Introduction

1.This is an appeal by the plaintiff from a decision of a Master refusing to order discovery of 3 classes of documents that are identified in paragraphs 2, 7 and 8 of a Schedule to a Summons dated 30 November 2010.  The plaintiff also appeals the costs order that was made by the Master on dismissal of the summons.

The Factual Background

2.The factual background is somewhat complex and what follows is only a summary of the events that led to this litigation. 

3.A Mainland businessman by the name of Mr Hung Chen, Richael (Mr Hung) wished to buy a coal mine in Heilongjiang and inject it into a Hong Kong publicly listed company.  He intended to use a company which he owned, by the name of Wealth Gain Global Investment Ltd (Wealth Gain), as the vehicle for the purchase of the coal mine.  He would then sell all his shares in Wealth Gain to the Hong Kong publicly listed company.

4.In July 2007 Mr Hung engaged the 1^st and 2^nd defendants to identify a suitable company and they proposed Kenfair International (Holdings) Ltd which later changed its name to Sino Resources Group Limited (Sino Resources).  In September 2007 Sino Resources agreed to buy the shares of Wealth Gain for HK$700 million.  In order to finance this purchase Sino Resources intended to issue 250 million shares and it engaged the 1^st defendant to find six placees to purchase blocks of these shares.

5.Ultimately in May 2008, the defendants persuaded the plaintiff to subscribe 118 million shares at $0.99/share.  Following the subscription the plaintiff concluded a number of agreements designed to protect its investment by providing it with a number of legal options for buy-back or sale of the subscribed shares.  The first agreement was with Mr Hung.  It was called a Procurement Agreement and under its provisions the plaintiff could require Mr Hung to place any part of the subscribed shares at a minimum placing price of $0.99/share.  Once the Plaintiff exercised this right Mr Hung was obliged to appoint the 1^st defendant as the exclusive placing agent and he had three months from the date of exercise to place the shares.

6.At the same time that the plaintiff entered this Procurement Agreement with Mr Hung, it entered a Placing Agreement with the two defendants.  Under this agreement the 1^st defendant was required to purchase, or procure purchasers of, the 118 million shares once the plaintiff gave notice to it.  The purchase price of the shares had to be not less than $0.99/share and the purchase had to be concluded within one month of the plaintiff giving notice.  Also under this Placing Agreement the 2^nd defendant provided a guarantee to the plaintiff in case of default by the 1^st defendant.

7.All the parties, including Mr Hung then signed an “Agreement to Supplement Procurement Agreement and Placing Agreement” (the Supplemental Agreement).  Under this Supplemental Agreement it was agreed that the Placing Agreement would not take effect unless and until the Procurement Agreement had been terminated.  Once this was done the plaintiff had to serve notice on the 1^st defendant informing it of the termination and requiring consummation of the Placing Agreement by a certain date, which date then became the date from which time would run for the purpose of the Placing Agreement.

8.By these means the plaintiff had legal recourse, should it so desire, against Mr Hung, the 1^st defendant and the 2^nd defendant, to recoup its investment.

9.Wealth Gain did not conclude the acquisition of the coal mine and when this was about to become public knowledge on 24 March 2009 Sino Resources requested a suspension of the trading in its shares on the Main Board of the Hong Kong Stock Exchange.  This suspension continued to 18 May 2009 when trading in Sino Resources’ shares resumed.

10.On 9 April 2009 the plaintiff exercised its option under the Procurement Agreement in respect of all 118 million shares by serving a notice on Mr Hung.  Completion by Mr Hung was required by 9 July 2009 by a payment of $116,820,000.  Mr Hung failed to complete and on 14 July 2009 the plaintiff terminated the Procurement Agreement.  However it was not until 3 August 2009 that the plaintiff gave notice to the defendants of its termination of the Procurement Agreement and required them to purchase or procure the placing of all 118 million shares.  In the intervening period, trading in Sino Resources shares was again suspended (on 28 July and trading has been suspended ever since) and Mr Hung commenced an action seeking a declaration annulling the Procurement Agreement and the other associated agreements.  This action has been ordered to be tried together with the current action which is for specific performance of the Placing agreement or damages in lieu thereof (for the 1^st defendant) and payment by the 2^nd defendant of the amount due under his guarantee.

11.To complete the story, litigation took place between Wealth Gain and the mine seller in Heilongjiang but the Mainland Court found in favour of the mine seller.  The upshot of this Mainland judgment is that Wealth Gain does not own the mine and is not now able to acquire it.  Sino Resources then issued a writ in Hong Kong against Mr Hung seeking rescission of the sale and purchase agreement of $700 million in respect of Wealth Gain’s shares.

The Defence

12.The defendants assert that after agreement in principle was reached with the plaintiff in respect of the share placement, the 2^nd defendant had a dinner meeting with the owner and senior management of the plaintiff at which agreement was reached on, effectively, how the plaintiff was to exercise its rights against the defendants and the extent of their liability under the agreements.  The defendants claim that it was orally agreed that:

(i)   it was only if Mr Hung defaulted that the defendants would be liable and their liability would be limited only to the shortfall arising from Mr Hung’s default;

(ii)   in case of default by Mr Hung the plaintiff would pursue him first; and

(iii)   only after the plaintiff had exhausted his remedy against Mr Hung would he then turn to the defendants who would only be required to cover any shortfall remaining.

13.The defence claims that it was implied by this oral agreement that the plaintiff “should take bona fide and reasonable steps to pursue Hung by legal proceedings and maximise its recoveries first before pursuing the 1^st and 2^nd defendants under their guarantee for the shortfall”.  These oral terms, it is said, constitute a collateral agreement to the other written agreements.

14.There are a number of other heads of defence the most notable of which are as follows:

(i)   In respect of the requirement under the Supplemental Agreement that the plaintiff give notice to the defendants of its termination of the Procurement Agreement, time is of the essence as the price of shares in a listed company are liable to fluctuate greatly over a short period of time.  This means that if the plaintiff wished to rely on the Placing Agreement it had to give notice as soon as practicable.  It did not do so.  As a consequence the Placing Agreement never became effective.

(ii)   Mr Hung failed to appoint the 1^st defendant to place the subscription shares once the plaintiff issued his Exercise Notice under the Procurement Agreement.  The plaintiff was under a duty to enforce Mr Hung’s obligation to appoint the 1^st defendant.  This deprived the 1^st defendant of the opportunity to procure the placing of the subscription shares under the Procurement Agreement.  As a consequence the defendants are discharged from all liability under the Placing Agreement.

The Contested Areas of Discovery

15.As previously mentioned the contested areas of discovery are three paragraphs in a Schedule to the Summons which was before the Master.  These three paragraphs are paragraphs 2, 7 and 8 and they are all drafted as classes of documents.

Paragraphs 2, 7 and 8 of the Schedule

16.The class claims in paragraphs 2, 7 and 8 are drafted in the following way:

“2. All documents containing or relating to correspondence and communications between the Company and the Defendants and/or the Baron Group including (but not limited to) notes, memoranda, records, facsimiles, electronics mail or any document maintained in an electronic storage device concerning:

(1) the Company’s acquisition of the entire share capital of Wealth Gain from Mr Hung;

(2) the disclosure by the 2^nd defendant to the Company that he would be receiving fees and shares from the Company and the Company’s subsequent approval of the same as stated in paragraph 29 of Mr. Wan’s Witness Statement;

(3) the 1^st Defendant’s appointment as the Company’s placing agents in respect of the Placing;

(4) the advice provided by the Defendants to the Company in relation to the Placing;

(5) the Plaintiff’s intended and eventual subscription of 118,000,000 shares of the Company in the Placing;

(6) the Procurement Agreement, the Supplemental Agreement, the Placing Agreement; and

(7) the dispute between Mr. Hung, Wealth Gain and the Mine Seller regarding Wealth Gain’s acquisition of the Coal Mine.

7. All correspondence, internal communications, notes, memoranda, drafts, recording or any document maintained in an electronic storage device created by or exchanged between the Defendants and employees, servants, agents of the Baron Group including (but not limited to) Mr. Hui, Mr. William Majcher (“Mr. Majcher”), Mr. Au Yeung and Mr. Luke Ho (“Mr. Ho”) relating to any of the matters mentioned in paragraphs 1 to 6 above or this action.

8. All the Defendants’ internal working papers, drafts, notes, files, memoranda, recording and any document of such nature maintained in an electronic storage device relating to the matters mentioned in paragraphs 1 to 6 above or this action.”

The Competing Arguments

17.The dispute is essentially one of relevance and involves issues of whether the classes as drafted are too wide; the consequence if they inevitably capture material that is not discoverable, and whether, in these circumstances, a discovery order is necessary under Order 24, rule 8(1).

18.The plaintiff asserts that relevance is to be understood in a broad, not narrow sense and should encompass the background events as set out in the pleadings and the witness statements.  It should not, it argues, be confined to the facts surrounding the specific issues which will fall to be resolved by the judge at trial.

19.The defendant on the other hand argues that even if relevance was to be understood in the broad and general way that is contended by the plaintiff, which it disputes, discovery of these classes of documents is not necessary for the purpose of disposing fairly of the proceedings or for saving costs.

20.The defendant also contends that the way the classes are drafted results inevitably in irrelevant documents being brought within them and from this it necessarily follows that the summons must be dismissed.

The Law

21.I do not intend to canvass all aspects of the law of discovery for what is at issue here are the concept of relevancy and how that concept is applied, the nature of class claims and the decision under Order 24, rule 8(1) as to whether discovery is necessary.

The concept of relevancy

22.The starting point for an analysis of the law relating to what is relevant for discovery purposes is the judgment of Lord Justice Brett in Compagnie Financiere du Pacifique v Peruvian Guano Co. (1882) 11 QBD 55 where he said at page 63:

“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 not – 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 to a train of enquiry which may have either of these two consequences.”

23.This test was adopted by the Hong Kong Court of Appeal in Deak & Co. (Far East) Ltd v N M Rothschild & Sons Ltd [1981] HKC 78 at 81 A-D.  However the very width of the test has attracted concern and has led the UK to adopting a different approach to relevancy in its civil justice reforms; one that has not, however, been followed here in Hong Kong.  In its Interim Report and Consultative Paper Hong Kong’s Civil Justice Reform Working Party quoted the descriptions by Lord Woolf in his Access to Justice, Interim Report of the four classes of materials encompassed by the Peruvian Guano test.  That description is as follows:

“* The parties’ own documents: these are documents which a party relies upon in support of his contentions in the proceedings.

* Adverse documents: these are documents of which a party is aware and which to a material extent adversely affect his own case or support another party’s case.

* The relevant documents: these are documents which are relevant to the issues in the proceedings, but which do not fall into categories 1 or 2 because they do not obviously support or undermine either side’s case. They are part of the “story” or background. The category includes documents which, though relevant, may not be necessary for the fair disposal of the case. It is fair to say that this category produces proportionately the greatest number of documents disclosed and to least effect.

* Train of inquiry documents: these are the documents referred to by Brett LJ in the Peruvian Guano case.”

24.Set out in this way it becomes immediately apparent just how all-encompassing the test has the potential to be.  It is clear that it does include background material and certainly extends well beyond those materials that relate only to the narrow issues that might need to be resolved at trial.  But it must be remembered that the concept or test of relevancy is just the starting point, not the finishing point, and these categories merely provide a framework within which the issues of whether a document or class of document is in fact relevant and if so, whether disclosure is necessary, will ultimately be determined.

Application of the relevancy test

25.Having determined what the test is, in terms of the formulation by Lord Justice Brett, the next question is how to apply it. The difficulties in applying the test arise primarily in respect of Lord Woolf’s last two categories above and in respect of determining what Lord Woolf referred to as “the issues in the proceedings”.  On this matter the comments of Colman J in O Company v M Company [1996] 2 Lloyd’s Law Rep. 347 have been quoted with approval on many occasions by different judges of the High Court.  One such occasion was by Deputy High Court Judge H Wong SC in Chan Hung v Yung Kwong Chung HCA 216 & 217/2004.  He quoted the following passage from the judgment of Colman J at page 350 of the report of the O Company case:

“The “case” of the plaintiffs or the defendants respectively can be defined only by looking at the pleadings.  It must be defined by reference to the plaintiffs’ pleaded claim in its general sense, as distinct from its detailed exposition and by the defendants’ pleaded defence in the sense of its general refutation of the plaintiffs’ claim.  What matters for discovery purposes is the claim and defence to it in the broadest sense and not to the detailed particulars of either claim or defence.”

and then commented on it at paragraph 27 of his judgment:

“With respect, I agree with Colman J.  For the purpose of discovery, the relevance of a document should not be solely tested against the detailed particulars pleaded by the parties.  It is the pleaded case of the parties in the broad sense that one should be concerned with.  A document may be generally relevant to a party’s case as pleaded (many so-called “background documents” are of this nature) although its relevance cannot be specifically pinned to some pleaded particulars.  For discovery purposes, the pleadings have to be looked at broadly.”

I agree with the analysis and comments by the learned Deputy High Court Judge and it is these principles which will guide me in my application of Lord Justice Brett’s discovery test.

26.In another part of this judgment Colman J sought to narrow down Lord Justice Brett’s formulation.  However, for the reasons given by Deputy High Court judge Wong SC at paragraph 29 of his judgment, I do not accept that Colman J’s comment on this issue, which can be found at pages 350-351 of his judgment, represents the law of Hong Kong.

Class claims

27.The risk that the width of the disclosure test may cause oppression is increased when what is sought to be disclosed is not a specific document or item but a class of materials.  To prevent class requests from being oppressive the law has required that the description of the class conform to certain rules.  The first concerns the approach that is to be taken to the drafting of the class in the sense of its correct focus.  In Deak & Co. (Far East) Ltd v N M Rothschild & Sons Ltd [1981] HKC 78 the Court of Appeal said that the correct approach to the drafting of a class is not to focus on a particular issue in the case and relate the class to that issue, but rather to focus on the nature of the materials being sought.  If the class incorrectly focuses on an issue rather than on the nature of the materials sought then it will not form a class for the purpose of Order 24, rule 7 and will not therefore be subject to discovery.

28.It is crucial to ensuring that discovery is not oppressive that the party against whom it is sought knows what he is being asked to discover.  Precision is not achieved only through the use of appropriate language in drafting the description of the class; it can also be achieved by embodying within the class some limitations on its scope.  The more open-ended the description of the class the more likely it is to cause oppression to the party against whom discovery is sought.  A limitation that could be embodied in the drafting might, for example, be temporal, by referring to a particular period of time or be restricted by the occurrence of a particular event.  A case where an order for discovery was refused because notwithstanding that what was sought properly identified a class by its nature, the class was too widely drafted, is Fuji Photo Film Co. Ltd v Carr’s Paper Ltd & ors. [1989] R.P.C. 713.

Is discovery necessary?

29.A court will only make a discovery order if to do so is necessary for disposing fairly of the cause or matter.  It seems to me that the words “ for disposing fairly of the cause or matter” are words which look both to the present and to the future.  They look to the present in that the court is required to consider the impact of the proposed discovery order on the party affected by it, but they also look forward to the future and are aimed at ensuring that the future trial is a fair one to both parties. 

30.In looking to the present impact of a proposed discovery order the judge must take into account the likely degree of inconvenience and cost to which the party against whom discovery is sought would be put if discovery is granted (see Deak & Co. (Far East) Ltd v N M Rothschild [1981] HKC 78 at 83D-E); the likely volume of irrelevant material that might have to be discovered because of the width with which the class is described and whether the discovery process would only lengthen the pre-trial processes for little discernible gain.  If, in the overall circumstances of the case, for any of these reasons, or other reasons, it would be oppressive to the party to be required to make discovery, then the discovery order should not be made.

31.In looking to the future goal of ensuring a fair trial, the focus will be on the role of discovery in equipping each party properly for trial so that they are both in the best possible position to advance their respective cases before the trial judge.  But it will not be just the interests of the parties that the judge will have to consider. Notwithstanding that he is presiding over an adversarial process, the judge cannot ignore the reality that ultimately he is the arbiter of the rights and liabilities of the parties.  Whilst the parties to the action will be focussing on their narrow interests the judge, standing above it all, will be focussed on the wider interest of uncovering the truth so that when he comes to discharging his duty of determining the rights and liabilities of the parties he can be confident he is truly dispensing justice in the case.

32.But that is not the only interest that the judge has in the outcome of the application as part of the just and fair disposal of litigation is the efficient disposal of the litigation.  The efficient disposal of the litigation is a matter which may or may not be of concern to the parties but it must be of concern to the judge.  Excessive delay or excessive cost in achieving justice impinges adversely on the outcome of the litigation process and may prevent the party to whom justice is finally granted from fully enjoying that to which the process had determined he is entitled. Consequently the judge must always be alert to the possibility that, in seeking to advance his case or undermine his opponent’s case, a party is employing the discovery process as a tactical weapon to achieve delay in, or increase the cost of, the litigation.  But being alert to these negative uses to which the discovery process may be put is only one half of the case management coin.  The other half is to pro-actively maximise the case management benefits that the discovery process can provide, such as clarifying and narrowing the issues that will have to be resolved at trial, controlling the length of the trial and minimising the risk of factual surprises arising at trial and thereby causing interruptions to it.

33.Thus in the context of civil litigation the determination of whether discovery is necessary involves a triangulation of interests ‑ the interests of the plaintiff, the interests of the defendant and the interests of the judge.  The judge accommodates all these interests by a balancing exercise in which he firstly takes into account the likely value of the materials to the person seeking discovery.  This is expressed as assessing what information it is reasonable to suppose the documents contain and determining whether such information may, not will, enable the party seeking them to advance its own case or damage that of its opponent.  After making this assessment he then places into the balance the interests of the opposing parties and his own interests as ultimate arbiter of the rights and liabilities of the parties and his case management responsibilities.

34.But the choice does not have to be as stark a one as either acceding to or refusing the application.  In doing justice as between the parties and heeding the need for the efficient disposal of the litigation the judge must be entitled to order a more qualified form of discovery than that which is sought.  Such an approach is consistent with the underlying objectives of the Rules of Court as set out in Order 1A, rule 1.

Summary

35.In summary, when dealing with discovery of class materials, it is necessary first to determine whether what is sought is a properly defined class for the purpose of Order 24, rule 7 so that the court is actually entitled to make an order.  The second step is to determine that what is sought satisfies the relevancy test and finally that a discovery order is necessary “either for disposing fairly of the cause or matter or for saving costs”. (Order 24, rule 8(1))

Discussion

36.The first issue I must decide is whether what is described in paragraphs 2, 7 and 8 can be properly said to be classes for the purposes of Order 24, rule 7.  In this respect the defendants advanced the argument, in support of their complaint that the ambit of the class was too wide, that the plaintiff did not relate his request for discovery to the specific issues which are in dispute.  In so far as this is a complaint at the focus of the paragraphs in describing the class, I reject it as it is directly contrary to what was said by the Court of Appeal in Deak & Co. (Far East) Ltd v N M Rothschild & Sons Ltd [1981] HKC 78.  For example were the plaintiff to describe his class as:

“Any material relating to whether a collateral oral agreement was reached between the parties.”

then his description would have fallen foul of the vice identified by the Court of Appeal in the Deak & Co. case and his description would not have constituted a class for the purpose of Order 24, rule 7.

37.After examining each of the three contested paragraphs, I am satisfied that they are correctly drafted in that they properly describe the materials sought to be disclosed by reference to their nature.

38.It is also argued by the defendants that if what is described by the class is so wide that the class must necessarily contain irrelevant material then what is described is not a valid class.  I do not agree.  An excessively wide class remains a valid class, and even a valid relevant class, notwithstanding that irrelevant material is brought within its ambit.  In my view the fact that the party will be compelled to discover much irrelevant material in addition to relevant material, is something which goes to the third stage operation of whether a discovery order is necessary “either for disposing fairly of the cause or matter or for saving costs”.

39.The second step is for me to consider whether the materials caught by the class are relevant, either because of the nature of the class, or the content of the documents likely to be within the class.  On this issue the defendants argue that relevance should be narrowly confined to the actual issues in dispute.  From a factual point of view what is in dispute comes down essentially to whether there was a collateral oral agreement between the plaintiff and defendants that required the plaintiff to take bona fide and reasonable steps to pursue legal proceedings and maximize its recovery against Mr Hung before requiring the defendants to meet their obligations under the Placing agreement.  This will involve findings of fact as to what the protagonists said to each other on this matter, if anything, in the meetings they had and what they intended by any such statements.  This will be within the context of a highly valuable commercial transaction which hitherto had involved lawyers carefully drafting a number of legal documents whose sole purpose was to record in writing the legal rights and obligations of the various parties to the transaction.  Also part of the context is that the defendants’ involvement was not limited just to finding placees for the Sino Resources shares but extended back in time to advising Mr Hung on the purchase of the coal mine.

40.This context, from the first contact with Mr Hung in February 2007 in respect of the purchase of the coal mine to the final suspension of trading in July 2009, is all set out in detail in the defendants’ 29 page amended defence and in even greater detail in the second defendant’s 54 page witness statement.  In these circumstances and given Lord Justice Brett’s wide definition of relevancy, I cannot see how it can be sensibly said that the classes described in paragraphs 2, 7 and 8 of the Schedule are not themselves relevant or that they would not contain materials whose contents were relevant.

41.On the issue of relevancy it is also contended that the plaintiff has to show that every document within the class must be relevant.  I do not agree.  For a start this would be an impossible task as the plaintiff does not know what documents exist.  Secondly the very nature of a class claim is that relevancy can be determined either by content of the document or by the nature of the class.  Here, without knowing what actually exists relevance can only be determined by the nature of the materials described by the class and I have decided that the descriptions of the nature of the materials in each of the three paragraphs are descriptions of materials which, by their nature, are relevant.

42.I now come to the third and final stage of determining whether a discovery order is necessary “either for disposing fairly of the cause or matter or for saving costs”.  It is really under this head that the defendants voice their objections which are:

(i)   the classes are too widely described and would catch irrelevant documents, for example the coal mine acquisition due diligence documents;

(ii)   the documents would, if relevant, be of only marginal background relevance, and little probative value;

(iii)   discovery of materials in respect of classes drafted so widely would impose an unreasonable level of inconvenience and cost on the defendants.

The width of the classes

43.The plaintiff accepts that the classes are described in a way which would catch the coal mine acquisition due diligence documents and he eschews any desire for access to these documents.  He would be content for them to be excised from the description of the class.  However he contends that in no way invalidates the class or prevents me from upholding his appeal.

44.The defendant’s counsel contends that there may well be many other documents in the class that are irrelevant, but cannot say how many, primarily because he and his solicitors have not examined them.  They have seen a list prepared by their clients but not the documents themselves.  I am told that the volume of materials runs to some 16 box files.  I should say that I find it rather extraordinary that in respect of such a comparatively small volume of materials none of the legal advisers have taken the bother to examine them.  I find it difficult in the circumstances to accord much weight to this hypothetical submission.  Nevertheless, even if the class did contain irrelevant documents, I am not persuaded, that, given the way in which the nature of the materials are described, the class is likely to contain much that would be irrelevant.  As for the coal mine acquisition due diligence exercise documents, they can be excluded from the class by the simple addition of the words “other than those documents relating to the due diligence exercise conducted by the 1^st defendant in respect of the acquisition by Wealth Gain of the coal mine”.

The probative value of the documents within the class

45.I accept that not all the documents within the class will have the same probative value and some may only be “no more than marginally relevant background material to one of the issues in the action”, to use the words of Mummery J in Molnycke A B & anor v Procter & Gamble Ltd & anor (No. 3) [1990] R.P.C. 498 at 505, lines 51-52.  Nevertheless others may be of considerably more value.  Given the context of the case and the factual basis of the defence I am of the view that the likelihood is that there are documents within the classes that could be of significant probative value or could fairly lead to a train of enquiry that would assist the plaintiff in the Peruvian Guano sense.

Oppression

46.As mentioned, the process of identifying the documents that are within the 3 classes has already been completed and there are only 16 box files of documents.  A number of these box files relate to the due diligence exercise and once these are separated out the volume of documents is significantly reduced.  I do not believe that imposing on the defendants the obligation to disclose what remains would be unfairly onerous, unreasonably inconvenient or unduly costly.

47.Balancing the small volume of material and the cost and inconvenience that would result to the defendants in the making of a discovery order I am not satisfied that to do so would be oppressive and I am satisfied that a discovery order is necessary to dispose fairly of the proceedings.

Conclusion

48.I allow the appeal and I order that the defendants make discovery in terms of paragraphs 2 and 3 of the Notice of Appeal except that at the end of each of those paragraphs there appear the following rider:

“other than those documents relating to the due diligence exercise conducted by the 1^st defendant in respect of the acquisition by Wealth Gain Global Investment Ltd of the coal mine.”

49.The defendants accept that if I allow the appeal then the plaintiff should be awarded the costs of the appeal but they submit that if the appeal is allowed on a different basis, for example with the class of documents being narrowed by the court, then the plaintiff should not be awarded its costs below.  I have considered this submission but am unwilling to accede to it.  From the outset the plaintiff accepted that the due diligence documents should be excluded and exhibited a willingness to resolve the issues in dispute.  That willingness was not reciprocated by the defendants who relied on technical legal points, some of which were quite without merit, to frustrate the discovery process.  I therefore order that the defendants pay the plaintiff’s costs of the appeal and below.

Mr Charles Manzoni, instructed by Messrs Jones Day, for the Plaintiff

Mr Wilson Chan, instructed by Messrs Baker & McKenzie, for the 1^st & 2^nd Defendants