Man Mi Sang and Another v. Man Shek Tong and Others

HCA 881/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 881 OF 2012

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BETWEEN

BETWEEN

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Before: Mr Registrar K.W. Lung in Chambers (Open to the public)

Date of Hearing: 24 October 2014

Date of Decision: 24 October 2014

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D E C I S I O N

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1.There are 2 summonses before the Court:

(1) summons taken out by the 1^st and 2^nd Plaintiffs (by original action) dated 12^th May 2014 against the 1^st and 2^nd defendants (by original action) (“the defendants”) under O.24, r.7 for specific discovery (“the plaintiffs’ summons”) ; and

(2) summons taken out by the defendants and the 3^rd defendant (by counterclaim) (“the Tso”) dated 13^th May 2014 under O. 38, r.36 to adduce a supplemental expert report of Wayne Wong on the rental value of the property in question as at 26^th August 2011 and 1^st January 2012 (“the defendants’ summons”).

2.The two summonses are contested.  The parties are legally represented.[1]

The factual background

3.The plaintiffs are members of Man Wing Shau Tso, also known as Wing Shau Tso or Man Ming Tak Tong or Ming Tak Tong, (“the Tso”), the registered owner of pieces of land in Demarcation District No. 102, San Tin Yuen Long (“the land”). They claimed against the defendants, who are the managers of the Tso for the reasons that in breach of their duties as the managers or trustees of the Tso, they had, by a tenancy agreement dated 1 January 2012 (“the tenancy agreement”), leased the land to the 3^rd and the 4^th defendants at an annual rent of $250,000 for a period of 6 years renewable for another 6 years with an increase of 20% of the annual rent, which they alleged to be an undervalue of the market rent.  They said that the tenancy agreement was only signed by the defendants, without another manager’s signature and it was customary that all managers should sign the tenancy agreement.  They further alleged that a company named Man San Trading Company operated by the 1^st plaintiff had offered to lease the land at annual rent of $1.26 million for 5 years without the right of renewal from the Tso.  The offer was turned down by the defendants.  They therefore say that the defendants are in breach of the trust in that they had not leased out the land at the best market rent at the time, which they were under a duty to do so.

4.The plaintiffs claimed rescission of the tenancy agreement, recovery of the land from the 3^rd and 4^th defendants, damages against the defendants for breach of fiduciary duty and account for the letting of the land from the Tso to the 3^rd and 4^th defendants.[2]

5.The defendants denied the allegation of breach of trust against them.  They admitted having signed the tenancy agreement with the 3^rd and 4^th defendants.  They disputed that the annual rent was gross undervalued.  They denied that it was customary for all managers to sign the tenancy agreement.  They pleaded that at a meeting of the Tso dated [sic] 1 November 2009, it was resolved that two managers of the Tso be authorized to handle the tenancy matters for the Tso.[3]  At the time of signing of the tenancy agreement, there were only two managers, that is, the defendants, who had signed the tenancy agreement.  The third manager Man Kin Sing was not effectively appointed at that time.

6.The defendants admitted that they had received the offer from the 1^st plaintiff for leasing the land.  They said that the land was left vacant for two years before the signing of the tenancy agreement.  They also said that it was after they had received the annual rent and deposit totally $500,000 from the tenants, the offer arrived.  They pleaded that they were unwilling to lease the land to the 1^st plaintiff due to the 1^st plaintiff’s past record of not paying rent on time for another tenancy agreement, the particulars of which were pleaded in paragraph 9(e) of the Amended Defence.

The plaintiffs’ summons

7.The plaintiffs’ summons seeks specific discovery on the following documents and/or classes of documents :-

(a) the minute book recording all meetings of the Tso (the “Minutes Book”);

(b) all accounts and accounting records of the Tso covering the period from January 2009 up to present (the “Accounts”);

(c) all bank passbooks and bank statements of all bank accounts opened for the Tso covering the period from January 2009 up to present (the “Bank Statements”);

(d) all tenancy agreements letting the land of the Tso to others (“the tenancy agreements”) .

The relevant legal principles

8.Under the CJR, the Peruvian Guano test of relevance remains applicable.  But the Final Report of CJR recommended that the practitioners and the court should, if possible, work out a regime by agreement.  See § 478 at page 246 of the Final Report.

9.Failing agreement, the court should exercise its case management power to tailor an appropriate discovery regime for the case at hand, with the residual discretion to define the scope of discovery on the basis of necessity and proportionality as the case requires for justice.  See Recommendation 80 at page 259, adopted in The Incorporated Owners of Kodak House II No 321 Java Road v Kai Shing Management Services Limited (unreported, HCA711/2011 Registrar Lung, 9 October 2012).  See also Hong Kong Civil Procedure 2015 at 24/0/2A.

10.The relevant legal principles for this application under O.24, r.7 of the RHC are succinctly set out by the Court of Appeal in Deak and Company (Far East) Ltd. v N.M. Rothschild and Sons Limited & Others [1981] HKC78 per Barker JA.  At page 3 of the judgment, the Court of Appeal said:

“Thus in order to obtain an order for discovery under Order 24 rule 7 the party seeking it has to make out a prima facie case:

(a) that there is in existence a specified document or class of documents;

(b) that the party against whom the order is sought has or had the document in his possession, custody or power;

(c) that the document or class of document relates to a matter in question in the action; and

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

At page 5 of the judgment, the Court of Appeal said:

‘Moreover, it has to be remembered that, even if existence, possession etc. and relevancy are established, discovery will still only be granted if it is necessary for fairly disposing of the cause or matter: of Lord Wilbeforce in Science Research Council v Nasse (3) at page 1066 where he said:

"The ultimate test in discrimination (as in other proceedings) is whether discovery is necessary for disposing fairly of the proceedings."

And in deciding that question one of the matters which a Court has to bear in mind is whether it would be oppressive to order discovery - that is oppressive on the party required to give it.  What is oppressive must depend upon the particular circumstances of each case.’

11.The above authority has not changed after the CJR.  See Tullett Prebon (Hong Kong ) Ltd. v Chan Yeung Fong Nick & Others (unreported,HCA2197/2009, To J. 9 June 2011 at §§11-12).  Added to the above principles, O.1A, r.1(c) provides that the Court must “promote a sense of reasonable proportion and procedural economy in the conduct of proceedings” and r.2 provides that the Court must give effect to the underlying objectives of the rules when it exercises any of its powers or interprets any of the rules or a practice direction.

12.In determining whether the documents are necessary, the Court will determine whether they are relevant by reference to the issues in dispute to be found from the pleadings.  Full Range Electronics Co. Ltd. v General-Tech Industrial Ltd & Another (unreported, CACV59/1997, 11 June 1997 at page 2).

Discussion on the plaintiffs’ summons

13.In respect of the Minutes Book, the plaintiffs submit that they are necessary for the plaintiffs to advance their case on whether the Tso had passed a resolution on 1 November 2009 authorizing two managers to handle the tenancy matter of the Tso; the general background on the usual practice, convention or constitution of the Tso, relying upon the general principles of Peruvian Guano and stating that they form the background facts as defined in Billion Lead Investment Ltd. v Union Joyce Ltd. & Others (unreported, HCMP2145/2011, M. Chan J. 14 December 2012) §16.

14.I accept that the minutes for the resolution on 1 November 2009 is relevant to the issues in dispute.  It was specifically pleaded by the defendants in their Amended Defence.  The defendants admitted that they had not put it in their list of documents and they have no reason not to disclose the minutes.  On this basis, I order the defendants to disclose the minutes to the plaintiffs.

15.As to the other minutes, I do not accept that they are relevant to the issues in dispute.  The plaintiffs pleaded that it was the customary practice that all managers had to sign the tenancy agreement.  They had not pleaded the legal basis for the customary practice.  They challenge the authority of the defendants signing the tenancy agreement.  If the defendants rely upon the minutes for the resolution on 1 November 2009, it will be incumbent upon the plaintiffs to say that the minutes for that resolution was invalid, stating the reason and the legal basis.  Absent such facts in the pleadings, the other minutes are simply irrelevant, let alone to form the background facts of this matter.

16.However, this morning, upon enquiry by this bench with Mr. Koo, Mr. Koo asked for a short break to retrieve the case of Tang Kam Wah, Tang Ching Fan & Others v Tang Ming Yat (unreported, HCA10141/1998, Chu J. (as she then was) at paragraph 72).  In this case, the Court held that under section 15 of the New Territories Ordinance, Cap. 97, the power of dealing with Tso land, including the granting of a lease, is vested in the manager.  The Court held: “Accordingly in exercising the power to let, the manager being trustees are required to act unanimously:  Lewin on Trust (17^th ed) p.737. This, according to Mr. Koo, is the legal basis on which the plaintiffs say the tenancy should be null and void.  But this was not pleaded in the pleadings.  It appears that the focus of the dispute will become whether the legal proposition as set out in the above authority is correct and if so, the effective appointment of the third manager, Man Kin Sing, whose appointment was on 16 August 2011 and the registration with the New Territories District Office was on 31 August 2011.  The effective date of appointment will be a legal issue for the court.  The tenancy agreement was entered into by the defendants with the tenant allegedly on 26 August 2011 and was dated 1 January 2012.  The main issue of dispute will be the effective date of the tenancy agreement, which will be a matter of a mixture of the facts and the law involved.

17.The question is whether the minutes as requested by the plaintiffs are relevant and necessary for the resolution of the disputes above.

18.On the effective appointment of the third manager, it is very much a legal issue, which does not require the minutes as the fact is not in dispute. On the question of the effective date of the tenancy agreement, although the fact will be in dispute, the fact will be the time between 26 August 2011 and 1 January 2012.  There is no reason for the plaintiffs to require all the minutes of the Tso, which runs over tens of years.  I believe the minutes which I have ordered the defendants to disclose dated 1 November 2011 will throw light on the fact.  There may be further discovery following the minutes.  But this is only speculative.  Since the plaintiffs have not pleaded their case to focus on the above issues, I will not accede to their request for the minutes, at least not for all the minutes of the Tso.  This item is dismissed.

19.As to the Accounts, the plaintiffs submit that they are necessary for determining whether there had been deposit paid by the tenant; the date when the tenancy agreement was signed; whether the land was left vacant for the past two years; whether there was a practice that members of the Tso were not obligated to pay the deposit and whether the 1^st plaintiff was habitually paying the rent late.

20.Viewed from the facts stated above, it is difficult to understand why it is necessary to require the accounts to determine the issue of whether a member is not obligated to pay the rental deposit, which is only one of the reasons stated by the defendants why they had not leased the land to the 1^st plaintiff.  The main reason is that they had already committed to the tenancy agreement when they received the 1^st plaintiff’s offer.  They had also pleaded that the 1^st plaintiff had a record of paying the rent late.  They had set out the particulars in the Amended Defence.  Even if the obligation to pay rental deposit is relevant to the credibility of the defendants as they had also pleaded that members of the Tso did not have to pay the rental deposit, this is only a side issue, which does not merit the costs and time for the parties and the court. It must fail the proportionality test.

21.It is difficult to understand how the Accounts can show the date when the tenancy agreement was signed.  The Accounts can only show when the money was received.

22.The plaintiffs had not pleaded that the defendants had misappropriated the rents of the land for the past two years before the tenancy agreement.  There is simply no basis for them to ask the court to make an enquiry whether the land was left vacant or it was leased out and the defendants had misappropriated the rents themselves.

23.Whether a member had to pay the rental deposit is again a minor point which does not merit the massive discovery of the Accounts.  This is not the main reason for the defendants turning down the 1^st plaintiff’s offer.  Again, this will fail the proportionality test.

24.The defendants had already pleaded the particulars of the 1^st plaintiff’s late payments of rent under another tenancy agreement.  The Accounts do not appear to be necessary.  It also has failed the proportionality test even if it is marginally relevant.

25.The Accounts are unimportant for the resolution of the disputes between the parties and they will not save costs too.  This item is dismissed.

26.As to the Bank Statements, for the same reasons as for the Accounts, this item is dismissed.

27.As to the tenancy agreements, I shall repeat what I have said in paragraph 15 supra.  The issue of misappropriation of the rents in respect of the land was not pleaded in the pleadings.  They are irrelevant to the issues in dispute.  This item is dismissed.

The defendants’ summons

28.There is no dispute that expert evidence will be required for the trial. Expert directions had been given in the Case Management Conference.

29.By the Order dated 4 October 2013, it was ordered:-

(1) leave was granted to the parties to adduce expert evidence on inter alia the Open Market Rent(s) of the Land for open storage use respectively on 26 August 2011 and 1 January 2012;

(2) expert reports shall be exchanged within 3 months from the date of the Order;

(3) there be joint meeting of experts for agreeing or narrowing down the expert issue(s) within 28 days after exchange of expert report.

30.It puzzles me for Mr. Cheung, counsel for the defendants to cite the authorities such as Ip Sau Lin v Hospital Authority [2009] 2 HKC 383; Arfan Muhammad v MPS Engineering Ltd & ors (unrep., HCPI 457/2003, 30 June 2005) Chu J (as she then was) in Wong Hoi Fung v American International Assurance Co (Bermuda) Limited & anor [2002] 4 HKC 225, which are on the subject of whether the expert evidence is relevant to the issues in dispute and should be admissible at trial.

31.The main objection as raised by the plaintiffs is that the defendants’ supplemental expert report is out of time as according to the directions above. They also submit that the expert reports had been exchanged on 28 February 2014.  The defendants have not obtained leave from the Court to adduce further expert evidence.

32.The plaintiffs further complain that the defendants have not given any explanation for the supplemental expert report.  The supplemental expert report gives no opinion on the open market rent(s) of the land for open storage use, but seeks to merely opine that the annual rent of HK$250,000 represents a fair and reasonable rental commensurate with market conditions.  It is not known if the purported opinion is given on the basis that the land is for open storage use.  Mr. Koo has specifically referred me to the Order dated 4 October 2013 at paragraph 8(vi) in which the Court directed that the expert report should contain the open market rent of the land for open storage use respectively on 26 August 2011 and 1 January 2012.  Mr. Cheung for the defendants admits that the proposed expert report does not contain the open market rent of the land.  It only explains that the annual rent of $250,000 was the fair market rent at relevant times.  This is inconsistent with the Court’s directions.  The expert is not allowed to deviate from the Court’s directions without the Court’s leave.  As such, I agree with Mr. Koo that this expert report is not admissible.  The defendants’ application should be dismissed on this ground alone.  They may have to revise their expert report and apply for leave to serve it on the plaintiff at a later stage, subject to the Court’s leave.  If they are unable to have leave of the Court, the defendants may end up with no expert report in support of their case.

33.Finally, Mr. Koo submits that the supplemental expert report contains no declaration by the expert that he has read the code of conduct set out in Appendix D and agrees to be bound by it, as required by O. 38 r. 37C of the RHC.  This issue is now irrelevant as the defendants have failed to adduce a proper expert report as explained above.

34.As to the costs of today’s applications, I consider that, looking at the matter globally, each party should pay the costs of their application to the other and a set-off of the costs will end up that each party should pay their own costs.

35.I shall now make an order as follows:

(1) The plaintiffs’ summons is dismissed, except that the defendants shall disclose the minutes for the meeting on 1 November 2009 authorizing the defendants to sign the tenancy agreement;

(2) The defendants’ summons is dismissed;

(3) The costs will be as per paragraph 34, supra.

(4) As the matter progresses, there will be further amendments to the pleadings, the Case Management Conference scheduled on 29 October 2014 be vacated and adjourned to 10:30 am on 25 February 2015 for the 2^nd Case Management Conference, with the costs be in the cause.

Mr. Ernest Koo, instructed by Christine M. Koo & Ip, for the 1^st and 2^nd plaintiffs (by original action) and the 1^st and 2^nd defendants (by counterclaim)

Mr. Anthony Cheung, instructed by K.M. Cheung & Co., for the 1^st and 2^nd defendants (by original action) and the 3^rd defendant (by counterclaim)

Attendance of Edward Lau, Wong & Lou, for the 3^rd and 4^th defendants and the 1^st and 2^nd plaintiffs (by counterclaim) was excused