ROSSLYN SERVICES LTD. v. MILIBOW ASSETS LTD. AND OTHERS

HCA 3810/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3810 OF 2000

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J U D G M E N T

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1. This is a sequel to an interlocutory judgment handed down on 27 August 2001. I revert to that judgment for a description of the parties and the history of events which gave rise to this litigation.

2. The matters then dealt with were the joinder of a 2nd defendant by counterclaim, that is WBVI, and amendments to the pleadings in HCA 3810/2000 and amendments to the pleadings in HCA 3994/2000.

3. This judgment deals with nine further applications as follows:

A. Further & Better Particulars

(I) Milibow's application for further and better particulars (FBP) of the amended defence and counterclaim in 3810;

(II) Milibow's application for FBP of the amended statement of claim and of the reply and defence to counterclaim in 3994;

(III) RSL's application for FBP of the amended defence and counterclaim in 3994;

B. Discovery

(IV) Milibow's application for discovery in 3810;

(V) Milibow's application for discovery in 3994;

(VI) DHK's application for discovery in 3810;

(VII) RSL's application for discovery in 3994;

C. Interrogatories

(VIII) Milibow's application in 3810 that interrogatories served without order be withdrawn;

(IX) Milibow's application in 3994 that interrogatories served without order be withdrawn.

4. I propose to deal with these applications in the same order, because they are conveniently categorized.

A. Further and Better Particulars

5. These applications being made under Order 18 rule 12 RHC it is I believe appropriate to restate what at 18/12/1 in the White Book is said to be the effect of the rule:-

" Effect of rule - The requirement to give particulars reflects the overriding principle that the litigation between the parties, and particularly the trial, should be conducted fairly, openly, without surprises and, as far as possible, so as to minimise costs. In Aktieselskabet Dansk Skibsfinansiering v. Wheelock Marsden [1994] 2 H.K.C. 264 Bokhary J.A. (as he then was) said at 269E-270E that the functions of properly particularised pleadings are as follows:

(1) to inform the other side of the nature of the case that they have to meet as distinguished from the mode in which that case is to be proved;

(2) to prevent the other side from being taken by surprise at the trial;

(3) to enable the other side to know with what evidence they ought to be prepared and to prepare for trial;

(4) to limit the generality of the pleadings, the claim and the evidence;

(5) to limit and define the issues to be tried, and as to which discovery is required;

(6) to tie the hands of the party so that he cannot without leave go into any matters not included (although if the opponent omits to ask for particulars, evidence may be given which supports any material allegation in the pleadings).

It is not the function of particulars to take the place of necessary averments in the pleading, nor "to state the material facts omitted ... in order by filling the gaps, to make good an inherently bad pleading" (per Scott L.J. in Pinson v. Lloyds, etc., Bank [1941] 2 K.B. 72 at 75).

The purpose of pleadings is not to play a game at the expense of the litigants but to enable the opposing party to know the case against him. There is a tendency to forget this basic purpose and to seek particulars which are not necessary when in truth each party knows the others' case (Trust Securities Holdings v. Sir Robert McAlpine & Sons Ltd (1994) The Times, December 21, CA)."

6. In the Hong Kong Court of Appeal case Wellfit Investments Limited v. Poly Commence Limited [1995] 3 HKC 56, an appeal against a refusal to amend pleadings which raised substantial issues not having adequate particularity was dismissed.

7. I quote from the headnote:-

"....

(3) Where amendments were made shortly before the trial hearing, it must be incumbent upon the party seeking them to ensure adequate particularity. The constraints of time, and the high risk of disruption of orderly conduct of trials by the courts and of prejudice to the other party must demand strongly that leave be refused. Therefore, there was no error of principle or other good reason for the Court of Appeal to intervene in the exercise of discretion by the judge. Perak Pioneer Ltd v Carrian Holdings Ltd (CA 59/85, unreported) and Re Unisoft Group (No 2) [1994] BCC 766 applied.

per Bokhary JA:

(4) The judge had a duty to hold the scales between the parties before him and also to preserve his court's capacity to serve the general body of court users efficiently. He was acting in discharge of that duty when he avoided the adjournment which the amendments sought would have necessitated. Such an adjournment would have resulted in prejudicial delay and an unwarranted loss of judicial time."

8. With these principles in mind I turn to consider the specific further and better particulars asked for.

I. Milibow's Application for FBP of the Amended Defence and Counterclaim in 3810 (B154)

II. Milibow's Application for FBP of the Amended Statement of Claim and Reply to Counterclaim in 3994 (B176)

III. RSL's Application for FBP of the Amended Defence and Counterclaim in 3994 (B238)

B. Discovery

9. The principles relating to applications for specific discovery can be summarised as follows:

(1) The party seeking specific discovery has to make out a prima facie case that:

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

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

(c) the document or class of documents relates 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.

10. In a contest for discovery it is for the court in the exercise of its discretion to rule whether or not a document or class of documents qualifies under all four heads.

11. I am told the parties have voluntarily disclosed the existence of a number of documents.

12. In the applications against RSL and DHK the main thrust of their opposition is that the documents sought to be discovered are not and have not been in their possession custody or power, by virtue of being documents belonging to other members including the parent of the Dooyang Group. The counter to that is that the Dooyang Corporation and its subsidaries including the parties in this litigation have not in fact operated as separate legal entities but have had common management; as Mr Yu SC for Milibow submitted, the relationship of parent and subsidiary was such that one was the alter ego of the other and it would be wrong to treat them as apart and distinct. Mr Carolan for RSL and DHK argued that it is wrong in fact and in law to lump the members of the Dooyang Group together; wrong to say a subsidiary has possession, custody or power over documents of its parents by virtue of its being wholly owned by it.

13. My view is that whilst it may well be that because of the way an operation is conducted a parent company might be said to have in its possession, custody or power documents of its subsidiary the converse is, whilst not impossible, far less likely to be so. In fact the affidavits filed reveal that there has been discovery of documents that on the face of them are or have been those of the parent. It is a part of Mr Yu's argument that this supports his contention that the Group has been operated as a single entity and the parties should yield up all that is asked for. On the other hand Mr Carolan countered that these were those of the parent's documents copied to the litigants or which in some other way came within their control; the corporate veil was not disturbed.

14. It is of course a matter of fact as to whether a party has had a document or class of documents in its possession, power or control. In the scenario of this litigation I am not prepared to fudge the legal principles which separate the parties before me in litigation from their parent or other of its subsidiaries. Thus I hold that those documents not already discovered that fall into these categories are not discoverable.

15. I turn now to consider the separate applications.

IV & V. Milibow's Applications for Discovery in 3810 and 3994 (B274, 296)

16. Aside from those documents already volunteered the applications are refused save as they refer to documents the party in question has or has had in its custody, possession or power in its own right. I do not propose to itemise the documents or categories of document that are not excluded by this dismissal save to reiterate that the fact that a document that is or has been held by the parent or another subsidiary of the parent does not exempt that document from the dismissal.

17. In case, notwithstanding this ruling, there is disagreement as to how a document shall be categorized there will be liberty to apply.

VI. DHK's Application for Discovery in 3810 (B340)

18. There are listed 12 categories of documents sought.

19. The thrust of Milibow's opposition to discovery is that there is no dispute about payment of fees paid by WBVI (1), bank statements, tax returns and other business related documents have already been disclosed to DHK's agents (2 to 8), communication between Milibow and potential witnesses are privileged (9, 10, 12) and otherwise there has been discovery.

20. In the circumstances I reject all the arguments mounted in opposition to this application. There is to be compliance in respect of all items scheduled.

VII. RSL's Application for Discovery in 3994 (B342)

21. In this application there are nine categories of documents sought to be discovered.

22. Milibow's opposition is that those in 1, 2, 3 & 5 have already been disclosed to RSL's agent; tax assessments for WBVI 1995-2000 (4) are irrelevant and/or do not exist; the remainder in 6, 7 and 8 are privileged.

23. These arguments are all rejected in this case as well; full compliance is ordered.

C. Interrogatories

24. The applications to withdraw are made under Order 26 rule 3 RHC. Under that rule the court may make such order as it thinks fit. In Lee Niu Foon v. Ocean Park Corp (No. 2) [1995] 2 HKC 395 Cheung J (as he then was) spelt out the parameters of permitted interrogatories. It is convenient to go to the headnote:

" (1) The interrogatories must relate to 'a matter in question' between the parties and must be 'necessary' either for disposing fairly of the cause or matter or for saving costs.

(2) The interrogatories must not be fishing, oppressive, prolix or imprecise. An interrogatory will be oppressive if the answer cannot be given without an examination of the respondent's record, with the expenditure of much time and trouble. Parker v Wells (1881) 18 Ch D 477 applied.

(3) The interrogatories must not be questions which went to the evidence the opposing party intended to adduce.

(4) The interrogatories must not be questions which required an answer which was a matter of opinion or for an expert.

(5) The interrogatories must not be questions which went to the facts which would assist in establishing the opposing party's case as opposed to the case of the party seeking to interrogate.

(6) The interrogatories must not be effectively asking for documents of discovery.

(7) If the interrogatories did not comply with the requirement of the rules under O 26, they might not be administered. Even if they did comply with the rules, nevertheless the court retained an overriding discretion as to whether or not to allow them to be administered. Where interrogatories without order were served, the court might order them to be withdrawn.

...."

(the final headnote covers how the judge dealt with the application to withdraw in the case before him.)

25. It is also appropriate to recite the White Book at 26/4/13:

" 4. Interrogatories as to the evidence of the party interrogated will not be allowed - So, interrogatories are not allowed which relate solely to the evidence which the party interrogated intends to adduce (as distinct from the facts which he alleges, Cheang Thye Gan v. Lim A Chen [1921] H.K.L.R. 19; Marriott v. Chamberlain (1886) 17 Q.B.D. 154, CA; Bidder v. Bridges (1885) 29 Ch. D. 29; Re Strachan [1895] 1 Ch. 439 at 445, CA; Knapp v. Harvey [1911] 2 K.B. 725 at 732) nor interrogatories as to the contents of his brief or the names of his witnesses (Knapp v. Harvey [1911] 2 K.B. 725 at 732, CA; Hooton v. Dalby [1907] 2 K.B. 18) nor asking how he intends to conduct (Lever v. Associated Newspapers [1907] 2 K.B. 626, CA) or make out his case (the Shropshire (1922) 38 T.L.R. 667, CA)."

The rationale behind this is that those seeking to interrogate must prove that the interrogatories are necessary for the purpose of disposing fairly of the cause or matter or for saving costs. It is therefore permissible to interrogate as to what the other side's case is but not as to how he is going to prove his case.

26. Mr Yu's primary submission was that the interrogatories sought do not satisfy this requirement; further that some are in the guise of a request for discovery, or to obtain the name of a potential witness.

27. I agree with these submissions as is reflected in the manner in which I come to deal with the applications to withdraw.

VIII. Application by Milibow under 3810 (B323)

28. 1(a)-(b) are disallowed; 1(c) is withdrawn; 1(d)-(h) are disallowed; 1(i) has been ordered through discovery; 2(a)-(b) are disallowed.

IX. Application by Milibow under 3994 (B330)

29. 1(a)-(b) are disallowed; 2(a)-(c) are withdrawn; 3(a)-(g) are disallowed; 3(h) is withdrawn; 4(a)-(e) are withdrawn; 5 is disallowed; 6(a)-(g) are disallowed; 7(a)-(c) are disallowed; 8(a)-(b) are disallowed.

Costs

30. The orders under this head shall be nisi at first instance. Subject to that they are made to reflect the general premise that the party wholly or substantially the victor shall be entitled to costs, which shall be taxed if not agreed. Where applicable, I decline to certify for two counsel.

AI - to DHK

AII - to RSL

AIII - to Milibow

BIV - to DHK

BV - to RSL

BVI - to DHK

BVII - to RSL

CVIII & IX - to Milibow.

Representation:

Mr B Yu leading Mr R Yuen, instructed by Messrs Baker & Mckenzie, for the plaintiff in HCA 3810/2000 and 1st, 3rd, 4th and 5th defendants in HCA 3994/2000

Mr P Carolan, instructed by Messrs David Lo & Partners, for the defendant in HCA 3810/2000 and plaintiff in HCA 3994/2000

HCA 3810/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3810 OF 2000

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J U D G M E N T

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Introduction

1. These are two sets of proceedings scheduled to be tried together on 29 October 2000. But there were as at the date of this hearing a number of outstanding interlocutory applications, including the joinder of a defendant to counterclaim in one, amendments to pleadings and consequential directions in both, applications for further and better particulars, and for discovery, and a challenge to interrogatories. They were consolidated to be heard together, two days being set aside. I shall come to them shortly, after summarising the history.

History

2. Milibow Assets Limited (Milibow) is a subsidiary, indirectly, of Cheung Kong (Holdings) Limited. Rosslyn Services Limited (RSL) and Dooyang Hong Kong Limited (DHK) are subsidiaries, indirectly, of Dooyang Corporation in Korea. Milibow was initially the sole shareholder of Wellko Industrial Limited (WHK). WHK was then and is now the sole shareholder of Dooyang Wellko Shoe Factory Limited (DG Wellko). Wellko Industrial (BVI) Limited (WBVI) was then and is now owned as to 48.125% each by Milibow and RSL. (The remaining 3.75% is owned by a third party investor which plays no part in these proceedings).

3. In 1993 DG Wellko built and fitted out a factory to make sports shoes in Dongguan, PRC. Upon completion it was agreed that WBVI should use the factory and plant for the purpose of making and supplying sports shoes, and to that end WBVI contracted with Nike. The co-shareholders of WBVI governed their relationship in a joint venture agreement executed in May 1993 (the 1993 JVA). At the same time WBVI contracted with Milibow for the use of DG Wellko's factory and plant in a document called the Operation and Management Agreement (the O & M Agreement). The O & M Agreement provided for a fee to be paid by WBVI to Milibow called a rental fee. The O & M Agreement was scheduled to run for a period of five years subject to extension as agreed by the contracting parties. The factory was not, as it turned out, ready for occupation and operation until the following year, and it was subsequently agreed that the rental fee would begin from May 1994.

4. In 1996 Milibow came to sell 50% of its shareholding in WHK to a third party which turned it over to DHK. DHK and Milibow governed their relationship in a joint venture agreement (the 1996 JVA) and a document called the Deed of Adherence, dated respectively June and July 1996. That included, inter alia, DHK's right to half of the rental fee payable by WBVI.

5. Against that background the partners in both the 1993 JVA and 1996 JVA fell out.

6. Milibow claimed default by DHK under the 1996 JVA and default by RSL under the 1993 JVA. It then purported to invoke the respective joint venture agreements and exercise an option to purchase the shares of the defaulting parties in WHK and WBVI respectively at a price to be determined by valuation conducted by the auditor of both companies, Messrs Deloittes Touche Tohmatsu (Deloittes). DHK and RSL deny being in breach giving Milibow the right to purchase their shares and say the valuations carried out by Deloittes are fundamentally flawed.

7. Milibow filed a writ against DHK (action HCA 3810/2000) claiming specific performance of the transfer to it of DHK's shares in WHK at the price fixed by Deloittes. DHK by its existing defence denies Milibow is entitled to the relief it claims. Furthermore, it counterclaims for half of the rental fee due to it but not paid since April 1998 and specific performance of certain of the provisions of the 1996 JVA not performed by Milibow.

8. RSL in turn issued proceedings against Milibow as 1st defendant, WBVI as 2nd defendant and the named 3rd, 4th and 5th defendants, being directors of WBVI appointed to represent Milibow. By that action (HCA 3994/2000) RSL seeks an injunction restraining all defendants from completing the transfer of RSL's shares in WBVI to Milibow and orders invalidating Milibow's claim to be entitled to pursue such transfer. Milibow and the other defendants deny the claim and counterclaim for a declaration that Milibow is entitled to a transfer of RSL's shares in WBVI at a price established by valuation, carried out in compliance with the 1993 JVA.

9. In HCA 3994/2000 RSL sought and was granted an interlocutory injunction, ex parte at first instance. The injunction remains in force. Milibow agreed not to apply for a discharge but upon the basis that the parties would go before the listing judge and ask for an early trial date. They did so, and on 21 February 2001 the trial was fixed to be heard on 29 October 2001, eight days reserved. According to Mr Carolan, representing before me both DHK and RSL, this was on the express understanding with both judge and the opposing side that expert (accountants') reports were still to be exchanged and consequential amendments to the pleadings likely to be applied for. He told me that RSL's report was available in May but the other side's was not until June. The applications to amend the pleadings were made and filed on 29 June and 18 July respectively.

The Applications

10. As it transpired the two days allocated for all outstanding matters proved to be insufficient time. In the event and after consultation it was agreed that I should hear argument on and deal with the two applications for amendment of the pleadings and the joinder with consequential directions. As in any event it was anticipated that the discovery and so on would be likely affected by the outcome of these applications it was agreed that they should be adjourned and fitted into the diary where and if possible before the trial date.

11. Of the two applications, the first is by DHK in which it seeks leave to amend its defence, join WBVI as a 2nd defendant to counterclaim and then expand its counterclaim setting out its cause of action against WBVI. The second is by RSL in which it seeks leave to amend its statement of claim.

The law

12. The grant or refusal of leave to amend pleadings where (as in these cases) leave is required, is a discretionary one. The general principle is that leave to amend should be given where to do so would determine the real questions and controversy between the parties.

13. A convenient statement of the applicable principles is to be found in the House of Lords' decision in Ketteman v Hansel Properties Ltd [1987] 1 AC 189 in the speech of Lord Brandon at 212 F-H:

"First, all such amendments should be made as are necessary to enable the real questions and controversy between the parties to be decided. Secondly, amendments should not be refused solely because they have been made necessary by the honest fault or mistake of the party applying for leave to make them: it is not the function of the court to punish parties for mistakes which they have made in the conduct of their cases by deciding otherwise than in accordance with their rights. Thirdly, however blameworthy (short of bad faith) may have been a party's failure to plead the subject matter of a proposed amendment earlier, and however late the application for leave to make such amendment may have been, the application should, in general, be allowed, provided that allowing it will not prejudice the other party. Fourthly, there is no injustice to the other party if he can be compensated by appropriate orders as to costs."

14. One of the determinative factors is the materiality and relevance of the proposed amendment.

15. It is with these factors in mind that I now come to consider in turn the two applications.

Application for Leave to Re-amend Defence, Join a 2nd Defendant to Counterclaim and Amend Counterclaim (HCA 3810/2000)

16. The primary defence already pleaded by DHK is that DHK was not in breach of the 1996 JVA; but if it was, Milibow's right to exercise the call option had lapsed or expired.

17. The first series of amendments sought was to expand on the particulars; see proposed paragraphs 7(iii) to (vii).

18. They are, summarized:

7(iii) Milibow did not tender the so-called 'prescribed price' when exercising the option;

(iv) a so-called 'pledge agreement' entered into by DHK (being the primary ground of complaint by Milibow) was not enforceable;

(v) the creation of a pledge is not in any event a breach of the 1996 JVA by its terms (clause 10);

(vi) Milibow was itself in breach of the 1996 JVA;

(vii) The auditor of WHK failed to determine the prescribed price as governed by the 1996 JVA.

19. Mr Yuen, representing before me Milibow, opposed the granting of leave to add all these sub-paragraphs.

20. He said:

7(iii) is immaterial. A failure to tender the price would have nothing to do with whether the right had 'lapsed or expired'. That was an obligation which concerned completion;

(iv) provides no particulars as to why the pledge agreement is unenforceable;

(v) arises from a misunderstanding or a mis-reading of clause 10;

(vi) raising allegations of breach by Milibow has no bearing on Milibow's rights to exercise its option;

(vii) deals with an obligation of the auditor not Milibow. Furthermore, the 'prescribed price' is an issue which arises after the exercise of the option.

21. My view stems primarily from the fact that these amendments are to add to the particulars upon which DHK seeks to rely at trial rather them to introduce a new defence. Whether or not they can be sustained at trial will be matters to be considered and decided then. I propose to allow all the amendments.

22. The subsidiary defence of DHK is that the valuation of the shares undertaken by Deloittes was defective. In addition to grounds of conflict of interest and failure to comply with the provisions of the 1996 JVA it now wishes to expand on those grounds; see proposed paragraphs 12(iv), (vi) to (ix).

23. They are, again summarized:

12(iv) Deloittes were not validly appointed auditors, by virtue of there having been no AGM held at the relevant time to make the appointment;

(vi) the valuation was not undertaken timeously;

(vii) the valuation contains errors of principle and is not a fair reflection of the worth of the shares; inter alia Deloittes wrongfully assumed the O & M Agreement had terminated when by conduct of the parties it had not;

(viii) further or alternatively, DHK was denied the right it was due under the 1996 JVA to make representations to Deloittes and otherwise provide information;

(ix) a report upon which Deloittes relied of the worth of the land and buildings was a gross under-value.

24. Of these proposed amendments Mr Yuen said:

first, generally, where, as here, parties by contract agree to appoint a certain person to certify the value of something or other, the parties are bound by the valuation even if he makes a mistake, short of travelling beyond the scope of the contract, or there are questions of fraud or collusion; see Jones v. Sherwood Computer Services PLC [1992] 1 WLR 277. So, whether or not Deloittes is independent is wholly irrelevant.

25. On the proposed sub-paragraphs he said:

12(iv) is erroneous on the primary ground that Deloittes were validly appointed auditors not dependent upon the holding of an AGM and the validity was not at the material time challenged by DHK;

(vi) has no bearing because as long as the valuation was at a specified date, the date upon which it was prepared is irrelevant;

(vii) is denied. But even if there were errors the rule in Jones v. Sherwood applies;

(viii) is erroneous because the 1996 JVA did not entitle the defaulting shareholder to make representation;

(ix) is caught by Jones v. Sherwood.

26. In considering these proposed amendments it is appropriate first to examine Jones v. Sherwood, which is an English Court of Appeal case.

27. The parties had agreed to the sale and purchase of shares in a company at a price to be ascertained by reference to sales achieved by its subsidiary. The agreement provided that if the parties' respective accountants could not agree then the matter was to be referred to independent accountants to determine and report on the amount of sales. These accountants were to act as experts and not arbitrators and their determination was to be "conclusive and binding for all purposes". The plaintiff brought an action claiming, inter alia, that the report of the independent accountants was erroneous and of no effect. The defendant applied to strike out that part of the claim. The judge at first instance dismissed that application but it was overturned on appeal. Suffice, for now, to quote from the headnote:

"Held, allowing the appeal, that, where parties had agreed to be bound by the report of an expert, the report, whether or not it contained reasons for the conclusion in it, could not be challenged in the courts on the ground that mistakes had been made in its preparation unless it could be shown that the expert had departed from the instructions given to him in a material respect; and that, since the third firm of accountants had done precisely what they had been asked to do and there was no question of bad faith, their determination was not subject to challenge by the plaintiffs and the relevant paragraphs of the statement of claim would therefore be struck out (post, pp. 284F-G, 286H-287B, G, 288H, 289E-290A, D-E).

Campbell v. Edwards [1976] 1 W.L.R. 403, C.A. and Baber v. Kenwood Manufacturing Co. Ltd. [1978] 1 Lloyd's Rep. 175. C.A. applied.

Dean v. Prince [1954] Ch. 409, C.A. considered.

Burgess v. Purchase & Sons (Farms) Ltd. [1983] Ch. 216 disapproved."

28. Mr Yuen also claimed support from two Hong Kong cases; I believe only one is pertinent; that is Mayers v. Dlugash [1994] 1 HKC 755.

29. The parties had agreed to dispose of the assets of a company they equally owed by distribution between them, the distribution to be conducted by an independent third party. It was inconclusive as to whether this person was an arbitrator or an expert. The plaintiff sought his removal as if an arbitrator. Kaplan J was asked to rule on his status as a preliminary point. On the facts of the case he found he was an expert. He said at p 757:

"Arbitration is a tried and tested method of dispute resolution where the parties do not wish to litigate their differences before state courts. Expert determination, although having been used for centuries, is perhaps not so widely known. The classic features of expert determination are:

1. The expert makes a final and binding decision.

2. The decision can only be challenged in the most exceptional circumstances such as where the expert answers the wrong question (see Jones v. Sherwood Computer Services Inc [1992] 1 WLR 277, Campbell v. Edwards [1976] 1 WLR 403 and Nikko Hotels (UK) Ltd v. MEPC (1991) 28 EG 86).

3. The expert can be sued for negligence in the absence of an agreed immunity (Arenson v. Gasson Beckman Rutley [1997] AC 405).

4. The expert's determination cannot be enforced as an arbitral award."

30. Mr Carolan countered with another Hong Kong case, Donnett, William Edward v. Cheung Cheung Shiu [1988] 2 HKLR 454.

31. Parties in a sale and purchase of shares in a company were bound by the Articles to a price determined by valuation by the company's auditor. The plaintiff complained that the auditor, albeit honestly, arrived at a figure which was plainly wrong and should be disregarded.

32. McDougall J held on the facts that this was a proper case for the court to interfere, since the auditor had made a number of errors of principle in his valuation; he found for the plaintiff.

33. Mr Carolan also said there was support in a case of the Queensland Courts entitled Cairns Port Authority v. Department of Lands [1994] 1 QAR 663.

34. He handed up part only of the report of the reasons for the decision arrived at. It seems the dispute concerned a rent review based on the finding of a valuer acting as an expert, not an arbitrator.

35. Part of the summary reads:

"Whilst the question of fraud and collusion are reasonably explicable as being reasons for upsetting any valuation, the difficulty presently facing the courts concerns the matter of an error in valuation. This concerns a distinction between "a mistake as to the process of valuation" and "a mistake sufficient for there to be no valuation in accordance with the terms of the contract". In the former case, it is believed that a mistake as to the process of valuation is not reviewable. However, if the valuation proceeded upon a fundamentally erroneous basis, the question arises as to whether this valuation accords with the terms of the contract or lease (Legal and General Life of Australia Ltd v. A. Hudson Pty Ltd [1985] 1 NSWLR 314; Woolworths Ltd v. Merost Pty Ltd (1988) 14 NSWLR 300). Where an obvious error, for example in mathematical calculations, appears on the face of the valuation, it is thought that this would be reviewable for error (Gollin & Co Ltd v. Karenlee Nominees Pty Ltd (1983) 153 CLR 455). This is an obvious case. The real problem is determining what is merely a mistake as to the process of valuation and what is a valuation which has proceeded on a fundamentally erroneous basis, the latter suggesting substantial error. More recently, in the United Kingdom, in Jones v. Sherwood Computer Services plc [1992] 1 WLR 277 the Court of Appeal refused to permit the challenge of an expert's report unless it could be shown that the expert had departed from the instructions given in a material respect which would ultimately affect the result. It was stated by Dillon L.J. (at 284) that the real question was not what may be obtained from the valuation but whether it was possible to say from all the evidence before the Court what the valuer had done and why it was done. The less evidence available, the more difficult to draw conclusions and thus the more difficulty in challenging the ultimate result.

To summarise the position in Queensland, it would appear that there is ample authority for the following propositions:

- A valuation would not be binding if it is not the valuation the parties had agreed to which would only be the case if the valuer had made a serious fundamental error such as the valuation of the wrong area or a totally erroneous interpretation of the lease under which the valuation occurred.

- This principle would hold good both in respect of speaking and non-speaking valuations although in the case of the latter, there would have to be found compelling evidence to sustain the challenge.

- To what extent, subject to the above, a valuation could be set aside for error of law is still an open question as a valuer would be given a deal of latitude in the interpretation of the rental review clause in a lease, or a lease itself when considering any valuation pursuant to that lease.

- It seems tolerably clear that a valuation could not be set aside because of the valuer making an error in judgment which is a risk that the parties would have to take having agreed for an expert to undertake the process and for that expert's opinion to be final in the circumstances.

36. It seems to me, and I so find, that in the absence of clear cut authority by which this court would be bound under the Common Law rules of precedent, the extent to which Deloittes valuation may be impeached should properly be reserved for full argument at the trial.

37. In respect of these proposed amendments new defences are pleaded. But I take the point that they could not have been properly formulated before the exchange of experts' reports, and the proximity to the trial date is the unfortunate consequence of a busy court timetable combining with a speedy date for trial having been asked for and given.

38. I propose to allow all these amendments as well.

39. The remaining amendments asked for by DHK are in its counterclaim. As presently pleaded, DHK's primary claim is against Milibow for its share of the rental fee paid by WBVI to Milibow but not passed on. The proposed amendments derive from its application to join WBVI as 2nd defendant to the counterclaim and pursue a claim from it direct for its share of the rental fee due but not paid.

40. The amendments comprise the addition of proposed paragraphs 19A to U. Paragraphs 19A to J set out the history and the relationships of the various parties as established by the 1993 and 1996 JVA's, the O & M Agreement and the Deed of Adherence. Paragraph 19K states that by conduct WBVI assumed the obligation to pay DHK or at its direction, its share of the rental fee and did so, from June 1996 to March 1998. Paragraph 19N records this figure - something over HK$18 million. Paragraph 19Q states that the O & M Agreement was not and has never been terminated; WBVI continued to be the sole and exclusive operator, and continued to be liable for the rental fee. Paragraph 19U claims it to be indebted to DHK in a sum precisely calculated to 31 March 2001 being something over HK$33 million, accruing thereafter at more than HK$0.9 million per month. The remaining amendments, including a prayer in this sum, are consequential.

41. In support of this part of the application Mr Carolan submitted DHK has in fact a right to join WBVI without leave but is obliged to seek leave in order to present the claim it now wishes to make against it. He said it is proper that there should be joinder, for the counterclaim is part and parcel of the same subject matter. He conceded it is late; however WBVI has had notice of the claim since June and yet has taken no steps to be represented and to oppose. Moreover Milibow as a co-owner has not been caught unawares.

42. Mr Yuen submitted that the application for joinder and added pleadings should be dismissed because they fail to establish an express or implied contract between DHK and WBVI; nor do they particularize why the conduct of the parties amounts to an assumption of liability. He also argued that to allow a very late application, which incorporates the introduction of a new party with the attendant exchange of pleadings and discovery, would inevitably be disruptive and put at risk the parties being ready for trial in October. He invited me to dismiss the application.

43. I have to say that it is this part of the application that concerns me the most, particularly because of the timing relative to the trial date. On the issue of delay, Mr Carolan has been unable to rely on the same grounds as those put forward to support the leave to amend those pleadings already dealt with, namely, that they could not have been properly formulated until the experts' reports had been swapped. And with the introduction of another party and claim and the further pleadings and discovery which may flow from that, Mr Yuen's concern about meeting the deadline for trial is not fanciful.

44. In the end I am disposed to exercise my discretion in favour of granting the application, because there was something to be said for dealing with the applications to amend in one go, and for the following reasons:

(1) the proposed new party and its co-owner Milibow have been on notice since June;

(2) it is already a party in proceedings to be tried at the same time;

(3) the claim against it arises from the same history of events, involving the same personalities;

(4) factually the issues are straight-forward, or at least have that appearance;

(5) there are still more than two months to go before the trial is due to begin; time enough for all preliminary matters to be dealt with, with due diligence exercised.

Leave to Re-amend Claim in HCA 3994/2000

45. RSL seeks to add new paragraphs 5A to G which provide, by way of background, a history of the relationships variously binding Milibow, DHK and WBVI as established by the 1996 JVA and the O & M Agreement. Paragraph 5H alleges that it was agreed that the O & M Agreement would terminate, at the earliest, on 30 April 1999 if not extended. Paragraphs 11A, 12A and 24A reveal the failed attempt by RSL to make representations before Deloittes proceeded to carry out this valuation. Paragraphs 28(iii) to (vi) allege further grounds that the call option exercised unde the 1993 JVA was invalid and 28A that there was no 'event of default' by RSL. Paragraphs 29(vi) to (xx), 29A and 29B provide additional grounds that Deloittes' valuation was defective. Paragraph 40A alleges that RSL was denied the opportunity of commenting on and verifying information set out in Deloittes' report.

46. Mr Yuen submitted that paragraphs 5A to H are irrelevant as there is no claim for any fee under the O & M Agreement. paragraphs 11A, 12 and 24A are immaterial as the 1993 JVA did not provide for such representations. Paragraphs 28(iii) to (vi) make points which are in turn either not in dispute or wholly bad. Paragraph 28A lacks particulars.

47. The remaining amendments go to the validity of Deloittes' valuation to which his objections already voiced under HCA 3810/2000 were repeated.

48. In essence the most significant amendments are those going to the validity of the Deloittes' valuation. Having ruled in favour in HCA 3810/2000 I do the same, for the same reasons, in this. Paragraphs 5A to 5H present no surprises. No other proposed amendment could be said to be irrelevant or immaterial or prejudicial.

49. I grant the application to amend accordingly.

Costs

50. Before reciting the orders I want to make brief reference as to how I propose to deal with these, bearing in mind that the orders will be nisi at first instance. Subject to argument advocating a contrary course, I propose that they will be to Milibow in HCA 3810/2000 and to Milibow and the 3rd, 4th and 5th defendants in HCA 3994/2000, save and except that the costs of and related to the hearing shall, in HCA 3810/2000, be to DHK and, in HCA 3994/2000, be to RSL. I propose this course because I believe what has been described as the usual order where an application to amend is resisted but allowed is appropriate in both cases; see Hong Kong Civil Procedure 2001, 20/8/51.

51. The orders follow next.

Orders

52. As to HCA 3810/2000:

1. leave is granted to the defendant to join Wellko Industrial (BVI) Limited as the 2nd defendant by counterclaim;

2. leave is granted to the defendant to re-amend the Amended Defence and Counterclaim in form as attached to the summons of 29 June 2001 as revised within 2 days of the date of this judgment; (note: for the avoidance of doubt the revised form is at page 123 bundle B with the following amendments, namely, in 7(iv) the words 'failure of' are replaced by the word 'past', the word 'or' (line 3) is deleted and the words 'as a deed' are inserted after the word 'Defendant' (line 4), and in 7(vii), '(v)' is replaced by '(vi)');

3. leave is granted to the plaintiff to make consequential re-amendment to the Amended Reply and Defence to Counterclaim within 14 days thereafter;

4. there will be a mutual exchange of supplementary witness statements to be completed on or by 3 October 2001;

5. all other applications fixed to be heard on 20 August 2001 but not dealt with including those in HCA 3994/2000 are adjourned to be heard together on a date to be fixed before the designated trial judge, two days to be reserved (if possible);

6. there will be a pre-trial review in respect of this matter and HCA 3994/2000 to be dealt with on the same date as that fixed under paragraph 5 herein;

7. costs of and occasioned by this re-amendment of the Amended Defence and Counterclaim save and except the costs of the hearing itself shall be to the plaintiff taxed if not agreed;

8. the costs of the hearing shall be to the defendant taxed if not agreed;

9. the orders for costs in paragraphs 7 and 8 are nisi at first instance.

53. As to HCA 3994/2000:

1. leave is granted to the plaintiff to re-amend the Amended Statement of Claim dated 15 July 2000 as revised within two days of the date of this judgment; (note: for the avoidance of doubt the revised form is at p. 244 bundle B with the following amendment, namely, in 29B the word 'Defendant' (line 6) is replaced by the word 'Plaintiff');

2. leave is granted for the 1st, 3rd, 4th and 5th defendants to re-amend the Amended Defence and Counterclaim dated 22 July 2000 within 14 days thereafter;

3. leave is granted for the plaintiff to amend its Reply and Defence to Counterclaim dated 6 September 2000 within 14 days thereafter;

4. there will be an exchange of witness statements to be completed on or by 3 October 2001;

5. costs of and occasioned by the re-amendment of the Amended Statement of Claim save and except the costs of the hearing itself shall be to the 1st, 3rd, 4th and 5th defendants taxed if not agreed;

6. the costs of the hearing shall be to the plaintiff taxed if not agreed;

7. the orders for costs in paragraphs 5 and 6 are nisi at first instance.

Representation:

Mr R Yuen, instructed by Messrs Baker & Mckenzie, for the plaintiff in HCA 3810/2000 and 1st, 3rd, 4th and 5th defendants in HCA 3994/2000

Mr P Carolan, instructed by Messrs David Lo & Partners, for the defendant in HCA 3810/2000 and plaintiff in HCA 3994/2000

HCA 3994/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3994 OF 2000

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REASONS FOR JUDGMENT

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Introduction

1. This application grew out of the interlocutory injunction proceedings between the parties.

2. The plaintiff and the 1st defendant are the shareholders of the 2nd defendant formed pursuant to a joint venture agreement dated 31 May 1993 ("the Agreement"). The 3rd to 5th defendants are the 1st defendant's nominee directors of the 2nd defendant. On 17 April 2000, the plaintiff obtained an ex parte injunction prohibiting the 1st defendant's forcible acquisition of its shares in the 2nd defendant. On 28 April, Deputy Judge Wong ordered, inter alia, that the plaintiff do have access to all books and records relating to the 2nd defendant and that the plaintiff's evidence in reply to be filed within 28 days after the filing of the defendants'.

3. By a summons dated 19 June 2000, the plaintiff sought:

"(1) to extend the time to file the evidence in reply to 77 days ("the time application");

(2) to vary the order of 28 April so that the plaintiff would have access to the books and records of the 2nd defendant and two of its related companies up to 31 December 1999 ("the variation application"); and

(3) to examine the factory premises of one Donnguan Welko Shoes Factory and to obtain copies of certain documents relating thereto as more particularized in paragraph 3 of the summons ("the disclosure application")."

The Shoe Factory is the business interest under the Agreement. It is managed by the 2nd defendant.

On 9 November 2000, I dismissed the variation and disclosure applications and extended the time to file the reply evidence to 14 days from that date. I also ordered costs to the 1st and 2nd defendants with certificate for senior counsel. These are my reasons.

Variation application

4. Initially, the plaintiff sought to rely on Order 20 rule 11. However, Mr Carolan, counsel for the plaintiff, does not pursue it any further. Presumably, counsel recognizes that the plaintiff cannot possibly invoke the slip rule to vary the order. The variation application is therefore dismissed.

Disclosure application

5. The parties agree that the time application would be very much dependent on the determination of the disclosure application. I will therefore deal with the latter first.

6. At the heart of the parties' contentions for the substantive hearing on the injunction is a report prepared by Deloittes dated 24 March 2000 ("the Deloittes report"). It valued the shares of the plaintiff's shares in the 2nd defendant and was relied on by the 1st defendant in the forcible acquisition. The plaintiff disputes its validity, methodology and the value of the plaintiff's shares it arrived at. The plaintiff complains that despite the order of the Deputy Judge, it has been denied access to the relevant documents and its preparation for the injunction hearing was unduly inhibited. The disclosure application is therefore taken out so that the plaintiff can properly prepare for the injunction proceedings.

7. Mr Carolan submits that, in order to enable the plaintiff's experts to provide a meaningful commentary on the methodology of the Deloittes report and to express a view on its valuation, it is essential to allow them to have access to the documents sought, which are the same materials that Deloittes had considered when preparing its report. He stresses that the plaintiff does not seek the documents for the purpose of "re-auditing" the 2nd defendant. This is a material change in the plaintiff's case. The plaintiff initially wished to re-audit the 2nd defendant and the documents were necessary to enable its experts to complete the re-auditing: see paragraph 11 of the 2nd affidavit of Lee Hai Hung.

8. Mr Carolan further submits that the plaintiff has a contractual right to the documents under Clause 11 of the Agreement and that such a right is justified by section 67 of the BVI International Business Corporation Ordinance ("the BVI Ordinance"). The BVI Ordinance is applicable because the 2nd defendant was incorporated in BVI. Counsel, however, concedes that section 67 itself does not give the plaintiff the right asserted. Further, he relies on the general power of the court to order discovery under its inherent jurisdiction and Order 24. In brief, counsel submits that the court has the power to make the disclosure sought. He also relies on Order 29 rule 7(2).

9. In summary, Mr Bleach, QC, SC, counsel for the 1st and 2nd defendants, submits that:

(1) The BVI Ordinance does not confer the right to those documents and the plaintiff cannot rely on it indirectly.

(2) Clause 11 of the Agreement does not give the plaintiff right to those documents.

(3) The only rule that the plaintiff may be able to rely on is Order 24 is rule 7. But it has failed to comply with the requirements there.

(4) Order 29 rule 7 does not confer the jurisdiction on the court to make the order sought.

I will deal with these points in turn.

BVI Ordinance

10. Section 67(1) of the Ordinance provides that a member of the company incorporated thereunder may, in the furtherance of a purpose reasonably related to the member's interest as a member, request to inspect, inter alia, the books and records kept by the company.

11. There is simply no evidence before me that the documents sought are books and records kept by the 2nd defendant within the meaning of section 67(1). The plaintiff cannot invoke this section. Whether it justifies the plaintiff's contractual right is, in my view, immaterial. What matters is the relevant provisions in the Agreement, to which I now turn.

Contractual right

12. Clause 19(e)(ii) of the Agreement, in essence, provides that for the purpose of the forcible acquisition, the price of the plaintiff's shares, in the absence of agreement, is to be calculated by the 2nd defendant's Auditor, Deloittes.

13. Mr Bleach first submits that the plaintiff is bound by the Deloittes report, unless there is fraud or collusion on the part of Deloittes or it had departed from its instructions in a material respect, of which there is no evidence. In this connection, counsel relies on Jones v. Sherwood Computer Services Plc [1992] 1 WLR 277 and Nikko Hotels v. MEPC [1991] 1 EGLR 103. Since the plaintiff is bound the Deloittes report, it is not entitled to have the documents for the purpose of disputing its validity or re-auditing the 2nd defendant.

14. For the purpose of the present application, which is very limited, I would leave open this important question if the plaintiff is bound by the report. It will certainly emerge later in the course of these proceedings and should be resolved only after fuller debate and mature consideration. More importantly, I do not think I have to resolve it in order to come to a determination on the disclosure application. For even if I were to accept that the plaintiff is not bound, it does not necessarily follow that it is entitled to the documents.

15. The right of the plaintiff, as a member, to the documents of the 2nd defendant is found in clause 11(a)(i) of the Agreement, which provides:

"the Shareholders shall each be entitled to examine the books and accounts to be kept by the Company and to be supplied with all relevant information, including monthly management accounts and operating statistics and such other trading and financial information prepared by the Company in such form as each of the Shareholder may reasonably require to keep each of them properly informed about the Business and generally to protect their common interest."

16. Mr Bleach takes a number of points. First, there is no evidence to suggest that the documents sought are kept or prepared by the 2nd defendant. Secondly, the documents are not sought so as to keep the plaintiff properly informed of the 2nd defendant's business or to protect the common interest of the plaintiff and the 1st defendant in the 2nd defendant. I entirely agree. I therefore hold that clause 11(a)(i) is of no avail to the plaintiff.

17. A further point taken by Mr Carolan is this. Deloittes was not the Auditor within the meaning of the Agreement because the 2nd defendant did not call any annual general meeting in 1999 to make the necessary appointment. Thus the Deloittes report is invalid. This argument does not assist the plaintiff because it can be advanced without the documents.

Juridical basis of the application

18. Although Mr Carolan refers to Order 24, he fails to pinpoint any particular rule that lends support to this application. Mr Bleach submits that the only rule the plaintiff may be able to rely on is rule 7 but it has not complied with the requirements there. I accept this submission. Before the plaintiff can invoke the jurisdiction of the court under any particular rule for discovery, it must first comply with all the pre-requisites. In default, the court will not exercise its jurisdiction to order discovery.

19. I also accept Mr Bleach's submission that Order 29 rule 7 does not assist the plaintiff. The court is there empowered to give directions regarding the further proceedings in the cause where any application is made under the preceding rules. However, it does not give the court the jurisdiction to make the disclosure as sought.

20. For the above reasons, the disclosure application must fail.

Time application

21. Turing to the time application, the original time extension sought had already expired. Mr Carolan informs me that the plaintiff's experts have prepared a draft report. Now that they will not have access to the documents sought, they will finalize the draft soon. In the circumstances, 14 days should be sufficient for the plaintiff to file the evidence in reply.

Costs

22. Costs of the application should follow the events. The parties do not submit otherwise. I therefore order costs be to the 1st and 2nd defendants in any event. Mr Bleach asks for certificate for two counsel, which is opposed. Having taken into account all the circumstances, I will only allow a certificate for senior counsel.