CHOW HOW YEEN MARGARET AND OTHERS v. WEX PHARMACEUTICALS INC. AND ANOTHER

HCA 537/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 537 OF 2013

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BETWEEN

CHOW HOW YEEN MARGARET 1st Plaintiff
GAO CHENG (XIE LI) COMPANY LIMITED 2nd Plaintiff
MUSCULAR INVESTMENT COMPANY LIMITED 3rd Plaintiff

and

WEX PHARMACEUTICALS INC. 1st Defendant
WEX MEDICAL LIMITED 2nd Defendant

and

FRANK HAY KONG SHUM 1st Third Party
GRACE WAI LAN LEONG 2nd Third Party

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Before: Hon Au-Yeung J in Court

Date of Hearing: 27 September 2016
Date of Decision: 28 September 2016

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D E C I S I O N

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The application

1. Shortly after each of the two third parties (Grace and Shum, respectively) has filed a witness statement, the defendants withdrewthe third party proceedings against them.

2. The plaintiffs now seek discovery of “documents, agreements, correspondence or communications” which led to Grace and Shum agreeing to become defence witnesses and/or discontinuance of the third party proceedings againstthem.

Procedural history

3. The third party notice dated 12 February 2014 (subsequently amended) was served on Grace in about 2014. She made a witness statementfor the defendants in December 2014. Proceedings were discontinued against her a month later.

4. In respect of Shum, attempts have been made to effect service out of jurisdiction on him. It was not until March 2016 that he wasserved with the third party notice. By the time of the pre-trial review on 13 June 2016, his witness statement was still in draftform. The third party proceedings against him were discontinued on 28 June 2016 and his witness statement was served on the plaintiffson 5 July 2016.

5. By a letter dated 15 September 2016, the defendants’ solicitors informed the plaintiffs’ solicitors that the terms of discontinuanceof the third party proceedings were that:

(i) Grace and Shum would be compensated for their legal costs incurred therein in return for their undertaking to cooperate as witnessesfor the defendants.

(ii) In giving their evidence, the only payments they are entitled to are reimbursement of travel and in the case of Shum, accommodationcosts when attending trial.

6. At the hearing, Mr Carolan, counsel for the defendants, also confirmed that the written agreements between the defendants and Grace/Shumhave set out all the terms of the agreement(s) to cooperate as witnesses.

7. The plaintiffs are still concerned to know what, if any, were the consequences of Grace and Shum not cooperating or not attendingtrial.

8. The defendants refused to provide the discovery. They claimed that the discovery was covered by litigation privilege and is confidential. Disclosure was also not necessary. The defendants are only willing to disclose the agreements for the sight of the court but notof the plaintiffs. Mr Carolan described this application as a fishing expedition.

Legal principles

9. Discovery solely for the purpose of impeaching the credit of witnesses is generally not permitted as it does not relate to a matterin question: Hong Kong Civil Procedure 2016, Vol 1, §24/8/2.

10. However, payment of a not insubstantial sum to a non-expert witness is a matter that the trial judge should be aware of before hewas to make findings on the credibility of the witnesses. This may or may not affect his assessment but clearly it was a relevantfactor to be considered by him. A solicitor who is faced with a request by a non-expert witness to be reimbursed for the loss ofincome for attendance in court must inform him that the reimbursement is subject to the approval of the court and must disclose thisfact to the court before the witness gives evidence. Kwan Yim Kwan Peggy v Namkung Promotions (Worldwide) Ltd [2007] 3 HKC 314, Cheung JA, at §§10 and 12.

11. Mr Remedios, counsel for the plaintiffs, relies on a case of the US District Court of New York for the proposition that where thediscontinuance of any action is used as a means of securing witnesses’ testimony, the matter should be brought to the attentionof the court: State v Solvent Chemical Company, Inc 166 FRD 284, pages 5-7. The rationale behind appears to be directed at maintaining the integrity of the adversarial process.

12. The New York authority is not binding on this court, especially since this court has not been informed about its system of discovery.

Application of the legal principles

13. The present discovery fell within the principle of discovery for the purpose of impeaching credit. However, Peggy Kwan has laid down an exception to this principle.

14. I am of the view that the test for discovery is not whether a witness has been paid any money or whether the amount was substantial. The pertinent question to ask is whether any benefit was promised or given to him to secure his cooperation as a witness or whetherany sanction would be imposed if he breaches his promise to give evidence. The rationale is to maintain the integrity of the litigationprocess, so as to ensure that witnesses do give evidence truthfully and voluntarily without fear of retaliation by the party whocalled him.

15. In the present case, the cause of action is based on fraudulent misrepresentation by the defendants, of which Shum was the main protagoniston their side. He was the President, CEO and director of D1 until 2005 and was removed as a director in January 2006. He was alsothe chairman and director of D2 until December 2005. Grace was his assistant and employee of D2 until her employment was terminatedin 2006. If the matters alleged against him were established, the defendants may be liable.

16. The defendants had no knowledge as to whether or not the fraudulent misrepresentation was made and in any event had not authorizedthe same. The matters happened over 10 years ago. It would be fair to say that without the evidence of Grace and Shum, the defendants(with it new management since Shum left) may have an uphill fight. Grace and Shum were not nominal third parties. Damages may berecovered against them. They had a stake in seeing that the defendants would not lose in this case.

17. Discontinuance of proceedings in exchange for cooperation as witnesses is in itself a benefit in kind to the witnesses, in termsof their being spared from potential civil liability for contribution and indemnity, and costs of litigation.

18. There was payment of money in the form of reimbursement of legal costs incurred and accommodation or travel expenses in this case,the amount of which is unknown. What conditions or undertakings were imposed by the defendants on the witnesses are also unknown. All of these may affect the integrity of the litigation process. All of these are, in turn, relevant to the assessment of the credibilityof Grace and Shum by the trial judge.

19. There is no litigation privilege as the agreements between the defendants and the witnesses would not be communication for the purposeof seeking legal advice or communication made in contemplation of litigation. In any case, the privilege would have been lost sincethe defendants have referred to the contents of the agreements.

20. I am of the view that the defendants should make discovery as sought.

21. In terms of scope of discovery, the use of the word “documents” in the plaintiffs’ request is too vague and would have beencovered by other classes of documents in the same request. That word can be removed. As for “communications”, I specify thatto be “communications that are recorded in audio record or written form”.

22. I reserve the question of costs till the end of the trial.

(Queeny Au-Yeung)
Judge of the Court of First Instance
High Court

Mr Leo Remedios and Ms Yvonne Ngai, instructed by Chan, Lau & Wai, for the plaintiffs

Mr Paul J Carolan, instructed by Baker & McKenzie, for the defendants