GALLIUM ELECTRONICS LTD v. BRIDISCO (HONG KONG) LTD AND ANOTHER

DCCJ6485/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 6485 OF 2005

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D E C I S I O N

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1.  The applicant applies for leave to join in this action under Order 15 rule 6(1) and (2) of the Rules of the District Court as a defendant.  The plaintiff applies under Order 14 for a judgment against the defendant.  Mr Sit, counsel for the plaintiff, agrees that should the court grant leave to the applicant to join this action, the applicant will not proceed against the applicant under Order 14.  This is my decision on the application for joinder.

2.  The plaintiff’s action against the defendant is made under a cheque which the defendant failed to honour in the sum of HK$789,275.76. 

Background

3.  It is the applicant’s case that the defendant was incorporated in Hong Kong for the administrative convenience of its parent company in the UK, the applicant, Bridisco Limited in the UK.  The defendant is maintained by and 99.9% of its shares are owned by the UK parent company, the applicant.  It is, further, the applicant’s case that all the contracts and agreements with the suppliers were concluded and signed by the authorised personnel of the parent company in the UK, including the contracts for the supply of tea-makers by the plaintiff. 

4.  The applicant’s application is supported by the affirmation of Mr Graham who is a director of the defendant.  It disclosed that the plaintiff had supplied 9,883 pieces of the tea-making machines which are defective to the UK parent company, the applicant.  These were fully paid for but they were shipped back to Hong Kong for re-working by the plaintiff.  Meanwhile, there was a second order for 5,000 additional pieces for the tea-makers which had failed a quality inspection test.  Consequently, the letters of credit issued for the second order expired.  These 5,000 pieces were re-worked and prepared for re-shipment to the applicant in the UK.  At this time, the parties began to negotiate over the payment for the 5,000 pieces.  It was the payment for the 5,000 pieces which forms the basis of the Plaintiff’s claim for the cheque was dishonoured.

5.  It is not disputed that the parties were negotiating the payment for this second order in May 2005.  The issue in dispute is whether the payment for this 180 days’ post-dated cheque was meant to be cashed for payment of the 5,000 pieces in the second order or whether it was to be replaced by a cash cheque upon completion of the re-working on the 9,883 pieces under the first order.  The negotiations in fact were made between the UK company and the plaintiff, the plaintiff being represented by its managing director, Mr Fung, with the defendant acting as an agent for the applicant, the UK parent company.  It is clear that all of the defendant’s instructions came from the UK parent company.  The emails exhibited clearly supported this and confirmed in Mr Graham’s affirmation of 29 August 2006.

6.  Mr Sit, counsel for the plaintiff, submitted that the plaintiff’s action is purely a dishonoured cheque matter.  Besides, there is an action in the UK, now in the discovery stage, that the applicant had taken out against the plaintiff and Mr Fung for a much larger sum and for breaches of various tooling agreements, manufacturing agreements and purchase conditions.

7.  Mr Fung, in his affirmation of 25 September 2006, denied the post-dated cheque of 180 days was issued in escrow and was a conditional one.  Mr Sit submitted it was merely an option suggested by Mr Fung.  Both Mr Fung’s and Mr Graham’s affirmations referred to the email of 31 May 2005 where Mr Fung confirmed the following: “You will issue a 180 days’ post-dated cheque for our 5K pieces tea shipment but this post-dated cheque will be changed to a cashing cheque when 9,000 pieces of re-works are finished”.

8.  Clearly, this is an issue to be tried by the trial judge, whether the post-dated cheque was meant to be payment for 5,000 pieces without conditions attached.  If there was a condition attached to its payment, the court would have to consider if the condition had been fulfilled.

The criteria for joinder under Order 15 rule 6

9.  There are two limbs to Order 15 rule 6 for joinder of an additional defendant.  Rule 6(2)(b)(i) entitles a person’s presence before the court to ensure all matters in dispute be effectually and completely determined and adjudicated upon.  The second limb under Order 15 rule 6(2)(b)(ii) entitles a person, “between whom any party to the cause or matter there may exist question or issue arising out of or relating to or connected with any relief or remedy claimed and cause or matter which, in the opinion of the court, it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter”.  The second limb clearly confers a wider scope for the party to be joined.

10.  Mr Thomson, counsel for the applicant and the defendant submits that the applicant satisfies the requirements under both limbs on the basis that the UK company is the party which contracted with the plaintiff.  It will also have to “foot the bill” if the plaintiff is successful in this action and it is a party involved in the “conditional or escrow” delivery of the cheque to the plaintiff; that the joinder is necessary for the applicant to claim a set-off against the plaintiff in the English action.  The condition for payment had not been fulfilled, and if the plaintiff should succeed in the action against the defendant, the applicant would be left with an empty judgment if it should succeed in the UK action.

11.  This court is not concerned with the success or failure of the applicant in the UK action.  It may succeed or it may not.  Should it succeed against the plaintiff and Mr Fung in the UK action, it may be able to execute on the plaintiff or it may not.  That is not an issue to be decided here.  This court is concerned mainly with whether the applicant is entitled to be joined under Order 15 rule 6. 

12.  In the case referred to me by both Mr Thomson and Mr Sit, the judgment of Deputy Judge Cheung, as he then was, in Man Whi Chung v Man Ping Nam [2003] 1 HKC 549, where Judge Cheung referred to the judgments in the case of Gurtner v Circuit [1968] 2 QB 587 and the Hong Kong Court of Appeal case in Wong Chun Loong Tony v Ada Ltd [1991] 1 HKC 86 at page 555 of Judge Cheung’s judgment in Man Whi Chung paragraph 16 he said:

“	16.	The construction and application of limb (i) reached its high water mark in the well known English Court of Appeal case of Gurtner v Circuit [1968] 2 QB 587, in which the Motor Insurers’ Bureau successfully applied to be joined as 2nd defendant to a road traffic claim made by an injured pedestrian against a motorist who had since the accident emigrated and could no longer be traced, Lord Denning MR said (at p. 595 D-F):
		‘	it seems to me that when two parties are in dispute in an action at law, and the determination of that dispute will directly affect a third person in his legal rights or in his pocket, in that he will be bound to foot the bill, then the court in its discretion may allow him to be added as a party on such terms as it thinks fit.  By so doing, the court achieves the object of the rule.  It enables all matters in dispute to be ‘effectually and completely determined and adjudicated upon’ between all those directly concerned in the outcome.’
	17.	Diplock LJ (as he then was) delivered a concurring judgment, emphasising the peculiar nature of the intervener’s interest in the proceedings ... The learned judge said (at pages 602G-603A and 603C-E):
		‘	Clearly the rules of natural justice require that a person who is to be bound by a judgment in an action brought against another party and directly liable to the plaintiff upon the judgment should be entitled to be heard in the proceedings in which the judgment is sought to be obtained.  A matter in dispute is not, in my view, effectually and completely adjudicated upon unless the rules of natural justice are observed and all those who will be liable to satisfy the judgment are given an opportunity to be heard.’”

At paragraph 21 of Cheung J’s judgment, at page 556, he said:

“	As regards the alternative basis for joinder set out in O.15 r 6(2)(b)(ii) (limb (ii)), which confers on the court a wider jurisdiction to allow joinder, the correct interpretation of this limb has been set out in a passage from Kerr LJ’s judgment in Sanders Lead Co Inc v Entores Metal Brokers Ltd [1984] 1 WLR 452, 460 D-H, as was accepted by the local Court of Appeal in Wong Chun Loong Tony v Ada Ltd [1991] 1 HKC 86, at p. 94D-I:
	‘	In my view, the rule requires some interest in the would-be intervener which is in some way directly related to the subject matter of the action.  A mere commercial interest in its outcome, divorced from the subject matter of the action is not enough.  It may well be impossible, and would in any event be undesirable, to attempt to categorise the situation in which the interest of the would-be interveners are sufficient to satisfy the requirements of the rule.  The authorities show that the existence of a cause of action between the intervener and one of the parties is not a necessary prerequisite for this purpose.  But they also go no further than to show that there must be some direct interest in the subject matter, such as an alleged infringement of a patent, trademark or copyright with which the intervener is concerned ... Another illustration is provided by cases where the intervener can show that he will in some way be compelled to ‘foot the bill’, depending on the outcome of the action: see Gurtner v Circuit, though I bear in mind that the wording of RSC O.15 r. 6(2) was then much narrower than it is now.’”

13.  In my view, the UK parent company clearly has more than an interest in the outcome of this action.  It has a more than a ‘foot-the-bill’ position for it has an ongoing litigation with the plaintiff in the UK which, in part, covers the disputed 9,883 defective tea-makers.  It may be true that the UK action may resolve even the first order of the 9,883 tea-makers but from what I can see in the UK particulars of claim, it is not directly on the first order only but a much more complicated coverage of numerous contracts.

14.  Looking at the present dispute, I accept the applicant is directly affected in the plaintiff’s claim in that the defendant is merely acting as its Hong Kong agent and the contracts entered were between the plaintiff and the applicant, it is the applicant’s interests which would be affected and thus on the first and second order involving the applicant, even though evidence may be coming from Mr Graham, the Hong Kong director of the defendant.

15.  For the aforesaid reasons I grant the applicant’s application giving leave to the applicant to join as the 2nd defendant in this action.

(Submissions on costs)

16.  So far as the costs of the application to join by the defendants are concerned, the costs of the application be costs in the cause.  The costs of today’s hearing be to the applicant’s with certificate for counsel.

17.  So far as the Order 14 costs are concerned, I can see there has been no argument on the Order 14 so there should not be any costs today so far as the argument is concerned but the costs of the application itself in the summons, I would order that the costs of the Order 14 summons be in the cause.

(Further submissions on costs)

18.  The order of costs of the Order 14 summons be in the cause remain the same, I make one further order, that the Order 14 preparation and costs of today’s hearing be to the applicant, taxable forthwith, with certificate for counsel.