Mega Yield International Holdings Ltd v. Fonfair Co Ltd
Read the full judgment text of HCA 948/2009 on BabelCite. This High Court CFI judgment was delivered on 16 September 2011.
1. The Defendant has taken out 2 applications:
Cited by 18 cases · Cites 2 cases
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HCA948/2009 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 948 OF 2009 -----------------------------
Before: Deputy High Court Judge Au-Yeung in Chambers Date of Hearing: 7 September 2011 Date of Decision: 16 September 2011 ------------------------- DECISION ------------------------- 1.The Defendant has taken out 2 applications:
BACKGROUND 2.The facts have been set out in my judgment dated 12 May 2011 (‘the Judgment”). In summary, the Defendant landlord failed to honour a lease in delivering vacant possession of a site at Yau Tong (“the Property”) to the Plaintiff tenant for use as a concrete batching plant. The Plaintiff claims damages of, amongst others, $7,000,000 for “operational overhead” representing sums paid to staff and workers intended to be deployed at the Property. It also claims for refund of a waiver deposit of about $2,000,000 which it paid to the government through the Defendant regarding use of the Property. 3.There is no dispute that during June 2009 (after the writ was issued), the parties did enter into negotiations for a new tenancy but were not successful. The Defendant then entered into a tenancy agreement with one Good Swift Limited (“GSL”). The Defendant contended, amongst others, that the Plaintiff had failed to take reasonable steps in mitigation, including refusal to accept the Defendant’s offer of a new tenancy. A. THE PRODUCTION SUMMONS A1. Basis of the Application 4.By the Judgment, I ordered the Plaintiff to produce “all written communications, including internal communications, relating to work done by the Plaintiff’s employees (for and on behalf of the Plaintiff) as specified …emanating from and received by Mr John Lam between 20 December 2009 and 15 March 2010. 5.The Plaintiff purportedly produced those documents but obliterated some parts said to contain vital commercial secrets and confidential information (“the contested obliterated parts”). It, however, has no objection to the Defendant’s inspection of unredacted copies to confirm that the contested obliterated parts contained nothing other than as described by the Plaintiff. 6.Notwithstanding withdrawal of its objections with regard to certain documents, the Defendant insists on having unredacted copies of the rest. It contends that the Plaintiff should not be allowed to re-open the argument that this class of documents was irrelevant and might contain information which the Defendant was not entitled to inspect. That argument had been rejected in paragraph 20 of the Judgment which stated that there was no explanation as to what information the Defendant was not entitled to inspect and what the recognized ground for withholding disclosure was. 7.Mr Chua SC submits that unlike privilege, confidentiality has never per se been a ground of objection to discovery or inspection: Hong Kong Civil Procedure 2011, at para 24/5/28. He submits that the objection is disingenuous given that the Plaintiff was willing to let the Defendant inspect the documents and the identities of all the projects concerned had already been disclosed on the present materials. There is also no conceivable reason for the Defendant to leak the information contained in the contested obliterated parts as it was not engaged in the same line of business as the Plaintiff and the Defendant is subject to the implied undertaking not to use disclosed information for any collateral or ulterior purpose without the leave of the Court or the Plaintiff’s consent. A2. Issues 8.The issues are:
A3. Whether the Plaintiff Was Entitled to Obliterate Parts of the Documents 9.The starting point on discovery of parts of a document is relevance. As stated in GE Capital Corporate Finance Group Ltd v. Banks Trust Co & ors [1995] 1 WLR 172.
10.The principle does not just apply to privileged information:
11.G.E. Capital is a case on discovery by list of documents and not under an order for specific discovery. SMSE v. KL (No. 2) [2009] 5 HKLRD 770 concerned discovery under compulsion of subpoena duces tecum. The Court of Appeal held that if a document contained materials which were immaterial and irrelevant, they should be redacted; the burden was on the applicant to show that the redaction had been done wrongly. I do not see why these principles should differ in relation to documents produced under compulsion of a specific discovery order. 12.The contested obliterated parts fell into 3 categories: (a) the price of concrete charged by the Plaintiff to its customer; (b) the names of customers of the Plaintiff and (c) the names of the joint ventures (or contact person) in which the Plaintiff was engaged. 13.Mr Chua SC for the Defendant submits that without them, it would be impossible for the Court to know:
14.Mr Chua SC submits that the Defendant could investigate to see if e.g. the Plaintiff had sold at less than the market price so that any loss arising therefrom should not be chargeable to the Defendant. Similarly, if the projects had not materialized, the questions would be whether the Plaintiff had set the prices unreasonably (say when compared with the market price); and if so, the quantum of profit that the Plaintiff should have but failed to make in mitigation. 15.The purpose of discovery of the class of documents in question was to see what the Plaintiff’s employees had done and whether reasonable steps in mitigation of loss by alternative deployment had been taken (paragraph 24 of the Judgment). I do accept that once such documents are disclosed, they can be used for any issue in the case. Even so, one should remember that this is a claim for loss arising out of breach of a lease, not of a contract for the sale and purchase of goods. I fail to see the relevance of the price of concrete. Mr Chua SC has also failed to show how the market price can be ascertained and how just by comparing 2 sets of prices he could conclude whether there was loss or profit in the Plaintiff’s business. 16.Likewise, I can hardly see how the fact that the Plaintiff entered into a contract with AB as opposed to XY, or that the joint venture was to be operated at Tuen Mun or Tung Chung would have made a difference to the question of whether the Plaintiff had put its otherwise idle employees to remunerative work. What has become of those projects should be revealed in the contents of the documents disclosed and not the obliterated names of customers or joint ventures. 17.The obliterations did not in any way destroy the sense of the rest of a document concerned or made it misleading. There was sufficient information on each of the document to tell the reader what it was. The Defendant has thus failed to discharge the burden of showing that the documents were wrongly redacted. A4. Whether Res Judicata Applied to the Issue of Obliteration 18.Counsel spent a lot of effort in arguing whether res judicata applied to interlocutory matters. It is not necessary to reconcile the different authorities. I adopt a position most favourable to the Defendant, namely, that the principles in the Yat Tung case do apply, so that
19.This principle was explained further in Pocklington Foods Inc v. The Queen in right of Alberta, 123 DLR (4th) 141at page 146 F-H:
20.In Hong Kong, the Court of Appeal has been of the view that rules relating to res judicata in interlocutory matters are less stringent than those generally applicable: Chu Hung Ching v. Chan Kam Ming & ors [2001] 1 HKC 396. 21.It must not be forgotten that res judicata is in truth based on abuse of process: Ngai Few Fung v. Cheng Kwai Hung [2008] 2 HKC 111, per Cheung JA:
22.It is true that at the hearing for specific discovery, the Plaintiff had not seen fit to identify the contested obliterated parts. Nor did it seek leave to seal them up. However, it cannot be an abuse of process on its part to seek to refrain from disclosing what is demonstrated to be irrelevant parts in documents. A5. How the Court Should Exercise Its Discretion 23.Order 24, rule 11A, under which this application is taken out, provides as follows:
24.Hence, even if the Defendant is entitled to inspect any document and has served a notice for the supply of a true copy, the Court still retains a discretion not to order its supply. 25.This discretion should not be exercised in favour of the Defendant because any breach by the Plaintiff of the specific discovery order was academic as having no impact on the conduct of each party’s case. The Production Summons should thus be dismissed. B. THE INTERROGATORIES SUMMONS B1. The Applicable Principles 26.The overriding principle for administering interrogatories is that the interrogatories relate to matters in question between the parties and they are necessary either for disposing fairly of the matter or for saving costs: Order 26, rule 1. 27.The guidelines on relevance and necessity can be found in Det Danske Hedelskabet v. KDM International Plc [1994] 2 Lloyd’s Rep. 534, at 537
28.Interrogatories can be directly or indirectly relevant to the facts in issue:
29.In short, interrogatories which go to support the applicant’s case or to impeach or destroy the opponent’s case are admissible.” Plymouth Mutual Co-op Society v. Traders’ Publishing Association [1906] 1 KB 403. 30.The burden lies on the applicant (in this case, the Defendant) to satisfy the Court why each of the specific interrogatories ought to be withdrawn: Silverlink (HK) Finance Ltd v Zhang Sabine Soi Fan &ors, HCA 2783/1998, unreported, Muttrie DJ, 23 October 2003, at para 44. B2. The Bases for the Plaintiff’s Interrogatories 31.Paragraph 8(14) of the Re-Amended Reply pleaded that the Plaintiff’s insistence on an indemnity and preservation of its rights for the breach of the lease was “reasonable for acceptance by the Defendant if it had the real intention to mitigate the Plaintiff’s loss and damages”. Mr Fung SC framed the issues thus: (1) Whether the Plaintiff acted reasonably in not accepting the Defendant’s proposal to re-lease in June 2009; and (2) whether the Defendant had any real intention to lease the Property to the Plaintiff. 32.The undisputed evidence was that there had been negotiations for a re-lease in June 2009 between the parties, culminating in 2 draft tenancy agreements delivered by the Defendant to the Plaintiff on 26 June. On 30/6/2009, the Plaintiff’s then solicitors informed the Defendant’s that the Plaintiff was willing to take possession of the Property subject to certain conditions. That letter crossed the one from the Defendant’s solicitors by which the Defendant withdrew its offer to re-lease. It was not until almost 5 weeks later, on 3/8/2009, that the Defendant informed the Plaintiff that the Property had been leased out on 30/6/2009 to GSL. GSL was a BVI company incorporated just one week before the date of the tenancy agreement. That tenancy agreement was replaced 2 days later by one dated on 2/7/2009. The terms of the 2 tenancy agreements were the same except that the signatories of the new tenant were different. Save that the request came from the new tenant, the reason for the change has never been explained by the Defendant. The Plaintiff also discovered that the June tenancy agreement was signed by a Mr Chan on behalf of GSL, who carried the same name as a director of 2 Hong Kong concrete companies who were the Plaintiff’s trade competitors. As explained by the Plaintiff’s witness, supply of concrete was a very lucrative business and new entrants like the Plaintiff into such a market were not welcome. B3. The Interrogatories 33.Out of 48 questions asked by the Plaintiff, the first 43 and the 45th are contested. They can be divided into 2 classes.
34.Mr Fung SC submits that whether the steps taken by the Plaintiff were reasonable in mitigation have to be determined by reference to the surrounding circumstances which include:
B4. Some General Analyses 35.As a matter of law, notwithstanding that the “real intention” of the Defendant was questioned in the plaintiff’s pleading, I have not been shown its relevance to the question of mitigation. It was a fact that the Defendant had offered to re-lease the Property to the Plaintiff. It was that offer(s) and not the intention of the Defendant that would be relevant to the Court’s decision on whether or not reasonable steps in mitigation had been taken. I agree with Mr Chua SC that short of alleging that the Defendant never had any intention to honour the offers, the motive of the Defendant could not possibly have any causative effect on the Plaintiff’s loss of the opportunity to enter into a re-lease. 36.As a matter of pleadings, the Plaintiff has not given particulars relating to that intention or the lack of it. The Plaintiff’s witness further said that the 2 leases entered into between the Defendant and GSL “looked more like a sham” to him. Again, the allegation of a “sham” was never raised in the pleadings. 37.Further, the suspicious features pertaining to GSL’s tenancy were, on the Plaintiff’s own case, not even known to it during the June negotiation. I share Mr Chua SC’s query of how these could possibly be relevant to the reasonableness of the Plaintiff’s deliberation process. 38.The Interrogatories bear the indicia of a fishing expedition. On the one hand, the Plaintiff’s witness stated in his witness statement said that he “do[es] not want to speculate what had happened in end June 2009” and “why the [the Defendant] instead leased [the Property] to [GSL] on 30June 2009, giving up the chance of receiving potentially much higher monthly rental and bearing the risk of a law suit by [the Plaintiff] for substantial loss and damages.” On the other, the Plaintiff has not put its case on a basis higher than “suspicious” surrounding circumstances that called into question the Defendant’s real intention. It seems the Plaintiff is trying to see if it can find a case of which he at present knows nothing: Lee Nui Foon v. Ocean Park Corp (No. 2), [1995] 2 HKC 395, at page 400. B5. The GSL Interrogatories 39.Questions 1, 3, 6-10, asked about when the Defendant came to know the existence of GSL, who approached whom first and the Defendant’s knowledge of the background of GSL as a BVI company and the contact person of GSL. In my view, answers to these questions have no bearing on the Defendant’s real intention or any issue. 40.Question 2 asks about when the first draft of the GSL Agreement was sent to the solicitors acting for GSL. How can this be relevant to any issue? 41.Questions 4-5 ask about matters pertaining to negotiation of terms such as demand for collateral guarantee from GSL for payment of rent and credit check on GSL. These go to the commercial wisdom of the Defendant in leasing properties which have no bearing on the issues to be tried. 42.Question 11 asks why the Defendant decided to lease to a new BVI company as opposed to the Plaintiff which was a wholly-owned subsidiary of a listed company, just to receive only $10,000 per month more than what the Plaintiff had agreed to pay the Defendant under the Mega Yield Tenancy agreement “(assuming the royalty payment of HK$5.00/cu.m. at a minimum quality of 10,000 cu.m.)”. This question is at best fit for cross-examination. That apart, it is not permissible to require the Defendant to answer a question based on a hypothesis, the basis of which was unclear and not yet established as reasonable. See Det Danske Hedelskabet v. KDM International Plc [1994] 2 Lloyd’s Rep. 534, at 537, 4th and 5th principles. 43.Questions 12-18 ask whether the Defendant had notified GSL of the present and other litigation, when and how; whether the Defendant sought an indemnity from GSL; if not, why not; when and how the Defendant notified GSL of the restriction in the Mega Yield Tenancy Agreement. Again, the commercial wisdom of the Defendant in extracting favourable terms from its new tenant is not the concern of the trial judge. It is the final terms (not non-existent terms) of the new tenancy agreement that will be relevant to the issue of mitigation. 44.Questions 19-28 ask about the Defendant’s knowledge of the directorship of a company HKCCL which was running the same business as the Plaintiff, the change in GSL’s principal place of business to that of HKCCL and the intention of GSL to use the Property for the production of ready mixed concrete and payment of waiver fees. To my mind, these questions are at best for cross-examination. There was no requirement for the Defendant to know about all these before leasing to a new tenant. If a conspiracy between the Defendant and GSL to injure the Plaintiff is asserted, it is not pleaded. In any event, there is nothing extraordinary for potential tenants engaged in similar trade to be attracted to similar sites. 45.Questions 29-33 ask the Defendant if it was aware that the Property was once or still is occupied by another company, whether the Defendant accepted that it constituted a breach of 2 clauses in the tenancy agreement between the Defendant and GSL, and whether any action has been taken by the Defendant for the breach. These were matters concerning wrongful sub-letting arising after the making of the GSL Tenancy Agreements. There was no plea or evidence to suggest that the Defendant was even aware of the facts said to be in support. How the Defendant did business with its own tenant could not be relevant to the Defendant’s real intention or the issue of mitigation. Asking the Defendant its view of whether certain conduct constituted breach of contract expects an opinion of law not appropriate for interrogatories: Lee Nui Foon v. Ocean Park Corp (No. 2) [1995] 2 HKC 395, at 399, §(6). 46.Questions 34-40 concern the Defendant’s request to GSL to pay the deposit on certain dates and the signing of the July tenancy agreement between the Defendant and GSL. Mr Chua SC submits that the Plaintiff is seeking to make something out of 4 days’ indulgence allowed by the Defendant for GSL’s payment of the rental deposit. Mr Chua SC pointed out that 1/7/2009 was a public holiday, whilst 4/7 and 5/7 were Saturday and Sunday respectively. In any event, even by 6/7/2009, the day when GSL paid the deposit, there was no concrete offer from the Plaintiff to take up the re-lease. The Defendant was not expected to wait forever when GSL was prepared to take up a tenancy on terms comparable to those offered to the Plaintiff. GSL did effect payment of the rental deposit, although a few days late. There was nothing to suggest that GSL has failed to honour any of its obligations. I agree and am of the view that these questions are at best for cross-examination. 47.Questions 41-43 ask whether the Defendant agreed that the Plaintiff was not notified of the signing of the GSL tenancy agreement until 10 August 2009, why the Defendant did not notify the Plaintiff on 30 June or shortly thereafter and when the Defendant delivered vacant possession of the Property to GSL. One can hardly see how these can have any bearing on either party’s case. The Defendant had repeatedly warned the Plaintiff that if the latter did not take up the new lease the Defendant would let to another. The Plaintiff could expect that the Defendant would not leave the site idle. These questions may well be left for cross-examination. B6. The Waiver Deposit Interrogatory 48.The waiver deposit was refunded to the Defendant by the government in January 2011 but released to the Plaintiff in March. Interrogatory 45 asked why the Defendant did not refund to the Plaintiff upon receipt of the deposit from the Treasury or shortly thereafter. 49.It transpired during the submission of Mr Fung SC that the “loss” claimed was really for interest for being kept out of the money. There are statutory provisions governing interest. The only pertinent question to ask is for how long the Plaintiff had been deprived of the money, and for the purpose of this interrogatory, only 2 months were involved. Interrogatory 45, if at all relevant, goes to establish any valid explanation by the Defendant for such deprivation. It is no function of interrogatories to help an opponent to establish its case. This interrogatory is clearly asked “by the way” after raising the GSL interrogatories. It is not necessary nor costs saving to do so. 50.In summary, the interrogatories are not relevant, fishing and are at best to be put in cross-examination. They represent the sort of “deposition-taking exercise” which Ma J (as he then was) warned against in Kao Lee & Yip v. Donald Koo, HCA8847/1993, 23.4.2002, at para 7(6):
51.The interrogatories are also prolix.
52.I therefore order the interrogatories to be withdrawn. EXTENSIONOF TIME FOR INTERLOCUTORY APPLICATIONS 53.The Defendant applies for extension of time for taking out interlocutory applications to 4 weeks after the date of the supply of documents without obliterations to the Defendant. Since I have dismissed the Production Summons, the extension is not necessary. CONCLUSION 54.Both summonses are dismissed. Costs should follow the event. The Plaintiff should have costs of the Production Summons and the Defendant those of the Interrogatories Summons. I apply a notional set-off and order, nisi, that there be no order as to costs overall. 55.I thank counsel for their assistance.
Mr. Daniel Fung SC and Mr Danny Choi, instructed by Messrs Chan & Associates for the Plaintiff Mr. Chua Guan Hock SC and Mr. Harry Liu, instructed by Messrs Ho & Ip for the Defendant | |||||||||||||||||
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