Topbase International Ltd t/a New Kwok Wah Meat Co v. Pacific Crown Enterprises Ltd

LDCS 32001 of 2011

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE APPLICATION NO.32001 OF 2011

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Coram : Deputy Judge KOT, Presiding Officer, Lands Tribunal

Date of Hearing : 24 November 2011 and 5 December 2011

Date of Handing down of Ruling : 19 December 2011

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R U L I N G

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1.The Respondent, by way of summons dated 19 November 2011 (“the Summons”), is asking for an order for specific discovery of document against the Applicant (“the Interlocutory Application”).  The Interlocutory Application involved the discovery of 13 items of document listed on a Schedule attached to the Summons (“the Schedule”).

Background

2.The Applicant is the tenant of the premises situated at Shop A and B on Ground Floor of No. 12 Kimberley Street, Tsimshatsui Kowloon (“the Suit Premises”) whereas the Respondent is the landlord of the Suit Premises as well as the majority owner of the undivided shares of No. 10 and No. 12 of Kimberley Street.

3.The Respondent, being the majority owner, takes out an application for a compulsory sale order for No. 10 and No. 12 of Kimberley Street on 8 September 2011 (LDCS 32000/2011 refers) (“the Main Application”).  The Applicant then takes out this case on 30 September 2011 by way of Form 34 (“Form 34”) asking for compensation to be assessed for the loss and damages it will suffer at the termination of the tenancy upon a compulsory sale order being made (“the Connected Application”). Notice of Opposition is filed by the Respondent on 23 November 2011 upon an agreed extension of time to file the same.

4.At the hearing on 24 November 2011, the Respondent accepted that Item 8-13 on the Schedule should not be dealt with at this stage and such was withdrawn from the Summons.  At the hearing on 5 December 2011, the Respondent indicated its stance of not insisting on Item 6-7 on the Schedule which should be raised by way of further and better particulars and should not be subject for discovery.

5.So, this court is only required to make a ruling on the discovery of Item 1-5 on the Schedule.

Legal Principle

6.It is common ground that the Respondent must establish a prima facie case that :

(a) a specific document or class of documents exists;

(b) the Applicant has or had the documents in its possession, custody or power;

(c) the documents relate to a matter in question in the action; and

(d) discovery is necessary either for disposing fairly of the cause or matter or for saving costs.

And once a prima facie case is made out, the court has a discretion whether or not to order disclosure.

7.The relevancy of Item 1-5 on the Schedule is not challenged by the Applicant.  It is also not in dispute that Item 1-5 are documents in the possession, custody and power of the Applicant.

8.The Applicant’s opposition is premised on the ground that the Interlocutory Application is pre-mature and the discovery of Item 5 is not necessary.

Pre-mature?

9.Mr. Heung for the Applicant submitted that the taking out of the Interlocutory Application is pre-mature in terms of timing in the Main Application and in terms of timing under general discovery practice in civil matters.  It is because the Applicant’s right to sue in the Connected Application is dependent on the outcome of the Main Application.  Only upon the Respondent had succeeded in the Main Application then the Connected Application can be proceeded with.  This contention is supported by Note (b) on page 2 of Form 34 (“Note b on Form 34”) which states “Neither the Applicant nor the Respondent needs to take active steps to set a date for the determination of the compensation”.  Given the fact that the Main Application is still in its early stage of proceedings with result unknown, anything done in the Connected Application may be a waste of legal costs.  Any request for discovery should wait till completion of the Main Application and to be conducted in the usual discovery stage after close of pleadings.  Given the uncertainties faced, discovery at this stage should only be done upon mutual arrangement between the parties.  In any event, the fact that the Respondent takes out the Summons before the Notice of Opposition is being filed, it is pre-mature.

10.Mr. Cheung for the Respondent informed this court that the Main Application had just passed the mediation stage.  But in any event, Section 4(6) of the Land (Compulsory Sale for Redevelopment) Ordinance (“the Ordinance”) empowers the Tribunal, in making order for sale, to make order for compensation to be paid to a tenant for termination of his tenancy.  It is quite likely that the Main Application and the Connected Application should be heard together.  Since Section 4(6) of the Ordinance requires the Applicant to come forward at a very early stage, discovery should not wait till completion of the Main Application.  Without the documents requested, the surveyor instructed by the Respondent is unable to start in the preparation of the valuation report.  As for mutual arrangement, the Respondent had written to the Applicant before the Summons trying to get the Applicant to disclose the documents requested but in vain.

11.Having heard from the parties, I found the Interlocutory Application is not pre-mature.  Even though the Summons was being taken out before the Respondent had filed its Notice of Opposition, at the time of this hearing, the Respondent had already filed the same.  The argument by the Applicant that there should not be discovery before the filing of the defence cannot stand since such argument had been overtaken by subsequent event.  Now that pleadings are closed in this case, the Respondent’s request for discovery cannot be said to be pre-mature.

12.Even though the Applicant’s locus to sue in the Connected Application is dependent upon an order for sale being granted in the Main Application, there is no justification for the two Applications to be heard together.  The two Applications involved different consideration by the Tribunal.  In the Main Application, the Tribunal is concerned about whether the redevelopment is justified, whether reasonable steps had been taken in the acquisition of the undivided share held by the minority owner and the reserve price to be fixed in the sale whereas the Connected Application is about the damages suffered by the tenant on the termination of its tenancy upon an order of sale being granted. Given that different issues and considerations are involved, the two Applications should be heard one after the other, with the Main Application to be disposed of before the Connected Application, in order to avoid the tenant or the minority owner being dragged into trial of issues unrelated to them and to save time and legal costs.  The purpose of having Note b on Form 34 must be to prevent parties in the Connected Application to have the case set down for trial before the Main Application has been disposed of.  Instead, the Tribunal shall have a control over the setting down of the Connected Application to avoid such a scenario.  And the wordings of Section 8(6) of the Ordinance does not connote that the two Applications were to be heard together.  It only empowers the Tribunal to assess the compensation to a tenant where an order for sale is made (my emphasis). 

13.Having said so, I do not agree with Mr. Heung’s submission that this means the preparation for trial of the Connected Application should be deferred till after the Main Application is completed.  Rule 78E of the Lands Tribunal Rules requires the Connected Application to be taken out within 21 days of the affixing of the notice of the Main Application.  The legislation requires the tenant to come forward at the very beginning of the institution of the Main Application.  The only inference must be for the Connected Application to be proceeded at the same time with the Main Application so that once an order for sale is being granted, the Connected Application can then be set down for determination in order not to delay the matter. 

14.This is further supported by the fact that under Section 5(4)(a) of the Ordinance, an order for sale is only valid for a maximum of 6 months.  And Section 8(1)(b)(ii) of the Ordinance stipulated that the tenant is required to deliver up vacant possession of the property to the purchaser at the expiration of 6 months immediately following the date the purchaser becomes the owner.  To allow the Connected Application to proceed only upon an order for sale, the proceedings may take more than 12 months to finish.  The surveyor will not be able to assess the existing condition of the property once vacant possession is delivered up.  The parties may be deprived of the right to have the case disposed of fairly. 

15.Should an order for sale not be granted, the costs spent in the discovery of document may be wasted.  But compared with the benefit of having the Connected Application ready for trial once the order for sale is granted and for the case to be disposed of expediently one after the other, the risk of costs being wasted is well justified.

16.Furthermore, a scheme of mediation has been introduced by Direction issued by the President of the Lands Tribunal and the Direction is applicable to all cases under the Ordinance ( Para. 1 of LDPD : CS No. 1/2011) (“the Direction”).  The Connected Application is an application under the Ordinance and is being caught by the Direction.  In order to facilitate a more effective mediation, discovery of document will definitely assist.  The advantage of having the document available to assist parties in their mediation outweighed the risk of costs being wasted at the end of the day.

Is it Necessary?

17.Mr. Heung, relying on the case of Tullett Prebon (Hong Kong) Limited v Chan Yeung Fong Nick and others (HCA 2197/2009), submitted that “the court shall have regard to the applicable legal principles and make such order as is appropriate bearing in mind the underlying objectives under the Civil Justice Reform to increase the cost effectiveness of any practice and procedure and to promote a sense of reasonable proportionality and procedural economy in the conduct of proceedings.” (at page 5).  And “the three-point test in Wallace Smith Trust is to be applied to discovery of such a document and not merely confidential document.  It is a test for determining the question of necessity and not relevance … The three point test for necessity : litigious advantage, otherwise unavailability and non-oppressiveness”.  Applying such principles, it is submitted that the disclosure of Item 5 is not necessary in the sense that the audited reports are substitute to the document requested and this is a fishing exercise by the Respondent to ask for the primary records. 

18.Mr. Mak denied it is a fishing exercise in requesting for the document in Item 5 and submitted that the documents are required to verify the allegation of a very lucrative business.  The audited report will be prepared but it is uncertain what documents will be provided to the accountant.  And it will take some time for the audited report to be prepared and had to wait long till it is available.

19.Having heard the argument, this court agreed with Mr. Heung that the request under Item 5 is not necessary at this stage.  Item 5 involved the primary documents of account for the preparation of an audited report.  Given the fact that the audited accounts has to be disclosed by the Applicant in order to support their case in the Connected Application, this court failed to see how, by disclosing all the documents under Item 5, the Respondent can gain any litigious advantage.  On the contrary, if the Respondent is trying to prepare the audited accounts from such document in order to verify the allegation of a lucrative business, this will be a duplicate of work and apparently against the underlying objectives of the Civil Justice Reform. 

20.The worry by Mr. Mak about what documents are provided to the accountant in the preparation of the audited report by the Applicant is unjustified.  The accountant responsible for it has its own code of conduct to observe.  No accountant will put his/her own reputation at risk in the preparation of an audited report.  Unless and until there is concrete evidence that the audited report should be subjected to challenge, the request by the Respondent is unnecessary.

Conclusion

21.Having considered the above, this court is satisfied that Item 1-4 on the Schedule are relevant to the issues in this case and should be disclosed.  The request for such disclosure is not pre-mature.  And there is nothing to prevent this Court from exercising the discretion in granting the order for discovery.

Order

22.It is ordered that the Applicant should, within 21 days of this order, produce the document specified in Item 1-4 on the Schedule to the Respondent and allow the Respondent and/or its solicitor to examine or take copies of such document.

Costs

23.Costs order nisi that the Applicant do pay the costs of this application to the Respondent, to be taxed if not agreed on party and party basis at High Court Scale.  Unless any of the parties apply by summons to vary it, the costs order nisi shall be made absolute upon expiry of 14 days.

Mr. Matthew Heung of Messrs Leonard K.L. Heung & Co for the Applicant

Mr. Alan W K Cheung of Messrs Lo & Lo for the Respondent