BEDAT & CO (HK) LTD v. AKSTROM IMPORTS INC

HCA 1274/2019

[2021] HKCFI 812

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1274 OF 2019

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D E C I S I O N

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1.  On 29 July 2019, the plaintiff obtained ex parte leave from Master Lai to serve the Writ of Summons herein out of the jurisdiction.  On 3 December 2019, the defendant applied to set aside Master Lai’s order to serve out and to stay the proceedings on the ground that the matter should be tried in Canada.  That application was dismissed by Master Connie Lee on 28 September 2020.  This is the defendant’s appeal against Master Connie Lee’s decision.

A.   THE RELEVANT BACKGROUND

2.  The plaintiff is a company incorporated in Hong Kong.  According to the plaintiff, it is engaged in the business of creating, designing, manufacturing, marketing and distributing worldwide luxury watches and related items under the trademark “Bedat & Co” (“the Products”).

3.  The defendant is a company incorporated in Canada engaging in the importing, distributing, selling, servicing and repairing watches in Canada.

4.  By an agreement dated 18 December 2012 (“the Distribution Agreement”), the plaintiff appointed the defendant as the sole and exclusive importer and distributor of the Products within Canada.

5.  The plaintiff’s case is that the defendant is liable to pay to the plaintiff CHF 414,054.21 and US$16,648.75 (collectively “the Outstanding Sum”) in respect of certain watches and watch parts supplied under the Distribution Agreement.  Under clause 16 of the Distribution Agreement, the parties agreed to submit any dispute arising out of or in connection with the Distribution Agreement to the Hong Kong courts.

6.  In its Defence, the defendant amongst other things:

(1)  admits that the parties had entered into the Distribution Agreement;

(2)  alleges that the parties entered into a further agreement on 5 June 2013 (“the 2013 Agreement”) in which it was agreed, amongst other things, that the parties would agree to submit and defer to Quebec courts of law in case of any disputes;

(3)  alleges that after the parties entered into the 2013 Agreement, the parties no longer regarded themselves to be bound by the Distribution Agreement and had been conducting themselves inconsistent with the terms of the Distribution Agreement;

(4)  denies that that it is liable to pay any sum to the plaintiff.

7.  On 29 July 2019, Master Lai granted leave to the plaintiff to issue a concurrent Writ of Summons against the defendant and to serve a copy on the defendant out of the jurisdiction in Canada.  The order was made on an ex parte basis and on the strength of an affirmation filed by Ms Soo Li Yian (“Ms Soo”), the plaintiff’s solicitor.

8.  In this appeal, the defendant seeks to (1) set aside the leave to serve out and the subsequent services of the writ on the grounds of material non-disclosure and (2) stay the proceedings on the ground of forum non conveniens and a jurisdiction agreement. 

B.      MATERIAL NON-DISCLOSURE?

9.  The defendant contends that the plaintiff has failed to disclose the following matters in Ms Soo’s first affirmation at the ex parte stage:

(1)  the sources of the information stated in the affirmation;

(2)  the existence of the 2013 Agreement which contains a jurisdiction clause in favour of the Quebec courts;

(3)  a predominant part of the plaintiff’s claim is for allegedly unreturned consignment watches, parts and straps in the USA;

B1.    The Legal Relevant Principles

10.  In considering whether there has been relevant non-disclosure, the following principles are applicable (Brink’s Mat Ltd v Elcombe [1988] 1 WLR 1350 at 1356F-1357B (Ralph Gibson LJ):

(1)  The duty of the applicant is to make a full and fair disclosure of all the material facts.

(2)  The material facts are those which it is material for the judge to know in dealing with the application as made: materiality is to be decided by the court and not by the assessment of the applicant or his legal advisers.

(3)  The applicant must make proper inquiries before making the application.  The duty of disclosure therefore applies not only to material facts known to the applicant but also to any additional facts which he would have known if he had made such inquiries.

(4)  The extent of the inquiries which will be held to be proper, and therefore necessary, must depend on all the circumstances of the case including (a) the nature of the case which the applicant is making when he makes the application; and (b) the order for which application is made and the probable effect of the order on the defendant; and (c) the degree of legitimate urgency and the time available for the making of inquiries.

B2.    Alleged Failure to Disclose the Sources of Information

11.  The defendant submits that Ms Soo failed to identify any sources of the information in her first affirmation and acted in non-compliance of RHC Order 41, rule 5(2), which states that “[an] affidavit sworn for the purpose of being used in interlocutory proceedings may contain statements of information or belief with the sources and grounds thereof”.

12.  In her 5-page affirmation filed in support of the plaintiff’s ex parte application for leave to serve out, Ms Soo exhibited some documents (including the Distribution Agreement), gave some information regarding the parties, the plaintiff’s claim, the defendant’s location, and stated that she believed the plaintiff has a good cause of action and that it was a proper case for service out.  It is readily apparent that Ms Soo obtained some of the information set out in the affirmation from the documents exhibited.  In relation to certain statements of belief regarding the merits and forum of the plaintiff’s claim and the appropriateness of the service out, it is clear that Ms Soo relied on her own belief as a solicitor. It is not immediately apparent whether there are other statements of information mentioned in the affirmation of which the defendant says Ms Soo has not identified the sources (and the same has not been identified by the defendant).

13.  In Leung Kin Fook v Eastern Worldwide Co Ltd [1991] 1 HKC 55, Power JA at 59D-E stated that strict compliance of Order 41 rule 5(2) should not be overlooked.  Nonetheless, his Lordship at 58H-59B approved what Kay J said in Bidder v Bridges (1884) 26 Ch D 1 that the court is not always bound to take objection of the non-compliance of the rule, but where the objection of substance is taken (meaning that it is not a mere technical and frivolous objection), the court would be acting contrary to its plainest duty if it refused to observe the rule.

14.  In Korea Sonbak Shipping Co v Charter Harvest Shipping Ltd [1994] 1 HKC 494, Keith J at 500 E-F held that Order 41 rule 5(2) was complied with even if the documents which were said to constitute the source of the deponent’s information and belief were not exhibited to the affidavit, provided that, if required to produce the documents, the deponent either did so or provided an explanation for not doing so which the court regarded as acceptable.

15.  In Amadeaus Investment Ltd v Lin Kao Kun [2019] 2 HKLRD 649, DHCJ Keith Yeung SC referred at §29 to what Power JA said in Leung Kin Fook (above), and said at §30 that “whilst O.41 r.5(2) cannot be disregarded systematically, its strict compliance is not always insisted upon in interlocutory applications”.

16.  The courts have repeatedly stressed that Order 41 rule 5(2) is to be observed (rather than ignored), but have applied the rule pragmatically in practice.   In deciding whether to uphold the objection in the non-compliance of the rule, the courts would take into account all the circumstances of the case, including (but not limited to) the substance of the objection.

17.  In order to ascertain the substance of the objection, it is relevant to consider the extent to which the defendant takes issue with the veracity of the statements of information or belief in Ms Soo’s affirmation.  Apart from the matters which the defendant says ought to have been disclosed in Ms Soo’s first affirmation (which will be dealt with below), the defendant has not been able to demonstrate that there is any real substance in its objection on the non-compliance of Order 41, rule 5(2).     

18.  In these circumstances, and even assuming that there has been non-compliance of Order 41 rule 5(2) in Ms Soo’s first affirmation (which the defendant has not specifically identified as mentioned earlier), I reject the defendant’s submission that the plaintiff is guilty of material non-disclosure under this ground.

B3.    Alleged Failure to Disclose the 2013 Agreement

19.  The defendant contends that the plaintiff should have disclosed the 2013 Agreement (and in particular the Quebec jurisdiction clause therein) in Ms Soo’s first affirmation when the plaintiff made the ex parte application for leave to serve out.

20.  The so-called 2013 Agreement (dated 5 June 2013) is evidenced in a half-page document (“the 2013 Note”) signed by both the plaintiff and the defendant:

“It was great meeting.

Further to our discussions, the parties (Akstrom & Bedat) agreed the below points,

· Akstrom’s responsibilities will be to do their best to service current and future Bedat clients.

· Akstrom has no responsibilities (any shape or form) on watches shipped directly or consigned to existing Bedat clients.

· Akstrom will (and did) pay for marketing cost in exchange of credits towards new watch invoices.

· Akstrom should handle repairs in making sure clients are serviced correctly.

· Bedat agrees that all watch parts and warranty related equipment and parts should be at suppliers’ cost (Bedat)

· In case of any disputes all parties agree to submit and defer to Quebec courts of law.”

21.  In its Defence dated 3 December 2019, the defendant pleads, amongst other things, that “[a]fter the parties entered into the 2013 Agreement, the parties no longer regarded themselves as bound by the Distribution Agreement and both parties had been conducting themselves inconsistent with the terms of the Distribution Agreement”.  It appears from the defendant’s pleaded case that it contends that the Distribution Agreement ceased to be binding between the parties after the 2013 Agreement was entered into on 5 June 2013.

22.  The defendant has also filed affirmation evidence to depose what the parties did after 5 June 2013.

23.  On the other hand, the plaintiff fundamentally disputes that the 2012 Agreement was superseded by the 2013 Agreement, and has filed affirmation evidence setting out the provenance of the 2013 Note and what that document related to.  The plaintiff maintains that the defendant is liable under the 2012 Agreement.

24.  In short, there are numerous factual disputes between the parties on the terms of their contractual relationship and the extent of their respective contractual obligations.  It is impossible for this Court to resolve such disputes on affidavit evidence at this stage.  On the materials presently before the Court, I am unable to find either party’s version of fact to be unbelievable.  This was why I indicated at the hearing that I did not find it to be particularly productive for the parties to embark on an analysis to ascertain which version of fact is more believable than the other.

25.  On the defendant’s case, the plaintiff would only have committed material non-disclosures if the Court accepts the defendant’s version of fact.  However, given that I am presently unable to determine which versions of fact to accept or reject, it follows that I cannot say that the plaintiff has breached its duty of making full and frank disclosure in failing to mention the 2013 Agreement and/or the Quebec jurisdiction clause therein in its ex parte application for service out.

26.  For these reasons, I am not persuaded that there was material non-disclosure on the part of the plaintiff to disclose the 2013 Agreement at the ex parte stage.

B4.    Alleged Failure to Disclose the Claim for Consignment Goods in the USA

27.  The defendant has made lengthy submissions to contend that the plaintiff should have disclosed in its ex parte application that a substantial part of its claim is for compensation for some consignment goods that the plaintiff failed to recover from various third-party consignees in the USA, and that such a claim should be governed by the 2013 Agreement (rather than the 2012 Agreement). 

28.  Again, the plaintiff seriously disputes the defendant’s case.

29.  For the same reasons as those given in the previous section, I am not persuaded that the plaintiff is guilty of material non-disclosure in relation to its consignment goods claim.

30.  Accordingly, I reject the defendant’s contentions that the Court should set aside (1) the ex parte leave granted by Master Lai to serve the Writ out of the jurisdiction, and (2) the consequences services of the Writ, on the ground of material non-disclosure.

C.      STAY OF PROCEEDINGS?

31.  The defendant’s case that the Court should stay the present proceedings on the ground of forum non conveniens and the purported Quebec jurisdiction clause is premised on the parties’ contractual relationship being governed exclusively by the 2013 Agreement.  However, as mentioned above, this is not something I can determine at this stage. 

32.  Apart from the Quebec jurisdiction clause in the 2013 Agreement, the defendant has not relied on any other matters to contend why (1) Hong Kong is not the natural or appropriate forum and (2) Quebec is clearly or distinctly more appropriate than Hong Kong (SPH v SA (2014) 17 HKCFAR 364 at §51). 

33.  In these circumstances, I decline to stay the present proceedings whether on the ground of forum non conveniens or pursuant to the purported Quebec jurisdiction clause.

D.      DISPOSITION

34.  The defendant’s appeal is accordingly dismissed.  I make an order nisi that the costs of and occasioned by this appeal should be payable by the defendant to the plaintiff (with a certificate for one counsel), to be taxed if not agreed.

(Eugene Fung SC) Recorder of the High Court