KHARMA GREATER CHINA LTD v. KHARMA INTERNATIONAL B.V.

HCA 545/2013

[2018] HKCFI 260

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 545 OF 2013

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D E C I S I O N

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The applications

1.  By summons, the Plaintiff (“P”) and the Defendant (“D”) had applied to the Court for determination on the modes of trial of their disputes pursuant to the provisions under Order 33, rule 4 of the Rules of the High Court:

(1)   In every action begun by writ, the Court shall by order determine the place and mode of the trial. (L.N. 152 of 2008)

(2)   In any such action different questions or issues may be ordered to be tried at different places or by different modes of trial and one or more questions or issues may be ordered to be tried before the others. (emphasis added)

2.  In P’s summons, it proposed that it should be allowed to proceed to trial of its claim without a split trial, to serve supplemental witness statement and to adduce expert evidence on the quantum of damages, with the consequential directions on the preparation of the expert evidence if leave is granted.

3.  D disputes this proposal. Instead it proposed in its summons that for both P’s claim and D’s counterclaim, there should be split trials, separating liability from damages respectively.

4.  The parties are legally represented[1].

The factual background

5.  I shall refer to the factual background of this matter in my previous Decision delivered on 17 March 2017 at §5:

“Pursuant to an Exclusive Distributorship Agreement (the “Agreement”), D appointed P as the exclusive distributor for the sale of Kharma Products[2] in the PRC, Hong Kong, Macau, Cambodia, Vietnam and Laos for a period of 5 years from 1 January 2010[3].

P commenced this action against D for a breach of the Agreement by: -

(a)   wrongfully terminating the Agreement and replaced P as the exclusive distributor in or about early March 2013;[4]

(b)   supplying defective Midigrand Speakers to P[5]; and

(c)   being late in the delivery of Kharma Products and/or simply failing or refusing to supply and/or deliver the same ordered by P[6].

D, on the other hand, alleges that P was in breach of the Agreement by:

(a)   promoting some alleged Inferior Products which were said to be confusingly similar in appearance to Kharma Products and infringing D’s Trade Marks[7];

(b)   manufacturing and/or promoting and/or offering for sale and/or supplying headphones and other products under the brand name of “K-Acoustic”[8]; and

(c)   unreasonably withholding orders to be placed with D[9].

D contends that it was entitled to terminate the Agreement and counterclaims against P for:

(a)   breach of the Agreement[10];

(b)   infringing the use of D’s Trade Marks[11]; and

(c)   passing off[12].”

The general approach

6.  Whether an Order should be made for a split trial is very much a matter of discretion for case management for a fair trial where the Court considers that it is “just and convenient” to do so.  This is clearly set out by the Court of Appeal in Telford Development Limited v. Shui On Construction Co. Ltd. [1990] 2 HKC 110 at 117A-B and 117C-F:

(a)   The general rule is that all the issues in a case are to be tried at one and the same time.  There is power to order that different issues in a case be tried at different times.  But that departure from the general rule is ordered only if it is just and convenient.  And it is of course for the party who seeks such a departure to demonstrate that it is indeed just and convenient.

(b)   The applicant should provide information to estimate with any reasonable degree of accuracy how much time and costs would be saved if the preliminary issues are first determined.

(c)   The Court would take into consideration the duplication of calling witnesses in the preliminary issue trial and the main trial and the delay to the main trial if the preliminary issues were taken to appeal courts.

7.  “just and convenience” are understood to include factors above within the context of the case.  Now under Order 1A, rule 2, the Court shall construe the expression by giving effect to the underlying objectives under O.1A, r.1 RHC.

8.  The rationale for separating preliminary issues from the main trial applies equally to separating liability issue from the assessment of damages issue for this case.

9.  The Court of Appeal has set out the fundamental factors and approach for this Court for the applications.  It will be for D to show “just and convenient” to have a split trial for the claim.

P’s applications

10.  D argues that P’s claim should have a split trial of liability and damages.  D’s reason for opposing P’s applications for leave to serve supplemental witness statement and adduce expert evidence at the trial is based upon its argument that there should be a split trial of liability and damages both for P’s claim and D’s counterclaim.  The expert evidence and the supplemental witness statement are for the assessment of damages of P’s claim.

11.  I shall therefore deal with the parties’ argument on whether P’s claim should proceed without a split trial.  P has no objection to a split trial for D’s counterclaim.

12.  The burden is on D to show why there should be a split trial for P’s claim.

13.  D has raised the following argument in support of a split of P’s claim and the Court’s views are as follows:

(a)   Where there will be a split trial on the counterclaim, if P’s claim proceeds without a split trial, it will create a “divergent approach”, which is a worse situation.

(b)   D proposes that there should be split trials for both the claim and the counterclaim.  It seems to be a self-defeating argument. D’s proposal for split trials for the main claim and the counterclaim may even cause more rounds of discovery.  If both P and D succeed in their respective claim and counterclaim, then there will be discovery for the trial on liability and discovery for P’s assessment of damages and for D’s assessment of damages.  This argument fails in limine.

(c)   This proposal has lost sight of the fact that if P is successful, it cannot obtain a judgment for enforcement immediately after the trial, but has to wait for another trial on the assessment of damages, which will inevitably be a delay of at least 18 months.  The question goes to a fair trial of P’s claim.

(d)   D submits that there will be unfair juridical benefit to P and detriment to it if P obtains the judgment in its assessed claim whereas D would have to wait for the trial of damages in the counterclaim. P may enforce the judgment against it before the trial of damages in the counterclaim. I consider this as a fanciful argument rather than real.  If such situation occurs, it will be open to D to apply to the trial judge to stay enforcement of P’s judgment against it before the determination of its damages in the counterclaim. There is simply no reason that the trial judge, having seized jurisdiction of the matter, will not consider D’s application.

14.  D has failed to put up reasons in support of a split trial for P’s claim.  Further, P submits that there is no clear demarcation between the issues of liability and quantum.  The issues of breach including that pertaining to the supply of defective products as well as the late delivery and/or failure to deliver the outstanding orders e.g. what had been supplied and what had not been supplied, are intertwined with the issues in the area of quantum including that for loss of profits suffered by P.  The witness statements cover both the claim and the counterclaim and the evidence should be assessed at the same time.[13]  D has no countervailing argument on these issues.

15.  In the circumstances, the general approach should be adopted.  That is to say, P’s claim should proceed without a split trial.

16.  It is D’s choice to have a split trial for its counterclaim.  It may, if it is minded of the costs and delay that may ensue in a split trial, proceed its counterclaim without a split trial. It was held in Island Records Ltd v Tring International Plc and Another [1995] 3 All E.R. 444 and adopted by this Court in Tagtrends Asia Ltd and Another v Tagtrends Global Ltd (also known as TT Global) and others (unreported, HCA 1847/2011, 3 February 2017 §§13 – 19) that for its claim on intellectual property with alternative claims, it has the right to make the informed election after determination of the liability.  This is its right of election.  P has now conceded that it will not oppose its application for a split trial.  This Court believes that D must have made its decision with a good intention of saving costs and time for the trial on the one hand, reserving its legal right on the other.  D must take the natural consequences of a split trial itself.

17.  As D has failed its argument in support of a split trial for P’s claim, it has no reason to oppose P’s applications for supplemental witness statements and expert evidence for the assessment of damages.  I shall make an order in terms of P’s summons.

D’s applications

18.  I now come to D’s applications.

19.  For the reasons above, it fails its application for a split trial for P’s claim.  As P has no objection to D’s application for a split trial for the counterclaim, I shall make an order in accordance with its request.

Costs

20.  As to the costs of these applications, I consider that it is appropriate to make a global assessment of the costs for the applications, taking into consideration of the merits of the respective parties’ argument. P has succeeded its applications.  D agrees to pay the costs of the summonses and this hearing.  The costs will be assessed under O.62, r.9A, RHC at $130,000, which includes counsel’s certificate and all the costs reserved for this hearing, to be paid by D to P within 21 days from the date of this Order.

Order

21.  I shall make an order in terms as follows:

(a)   of P’s summons;

(b)   there be a split trial of D’s counterclaim and the others are dismissed;

(c)   costs of the applications be to P as per paragraph 19 above.

Case management directions

22.  The parties have agreed a set of directions for the future conduct of the proceedings as per the paper submitted to this court as amended.  There is a Case Management Conference scheduled at 9:30 am on 19 September 2018 for 30 minutes.  The parties are to file and serve their Listing Questionnaires in accordance with Practice Direction 5.2.  As agreed by the parties, there will be liberty to apply by the parties and the costs of this Case Management Summons hearing of 15 minutes be in the cause.  P shall draw up this order for my approval as amended within 14 days from the date of this Decision.