ORIEME ASIA PACIFIC LTD v. MIRON INDUSTRIAL CO LTD

DCCJ 2534/ 2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2534 of 2011

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BETWEEN

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REASONS FOR DECISION

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Ex Parte Application

1.  The Plaintiff applied for an ex parte injunction on the afternoon of 6^th July 2011 for the return of a set of moulds in the possession of the Defendant.  I drew Mr. Lam’s attention, who appeared on behalf of the Plaintiff, to the Lam J.’s Decision in Slik Hong Kong Company Limited v Gerald Merlyn Rhoslyn Evans & Others, unreported, HCA 1424/2005, 25 July 2005 where cases and principles regarding ex parte applications for injunctions were reviewed and discussed. 

2.  The first question the court should ask in dealing with the application is whether there are any exceptional circumstances to justify the applicant to go against the rules of natural justice to apply to court on an ex parte basis.  Lam J. stated and I quote, “If he could not cross that hurdle, the court should not be concerned about the substantive merits of his application”.

3.  Mr. Lam submitted advance notice had been given to the Defendant that an ex parte application would be made on the 6^th July 2011 and the Defendant was asked to appear at the application.  The Defendant’s response through a Mr. Chow Wing Man was that the Plaintiff could do whatever they wanted and the Defendant did not wish to attend the hearing.  However, that is no justification for the Plaintiff to come to Court on an ex parte basis on notice or otherwise when it appears from the evidence that the Plaintiff first asked for the return of the moulds on 29 April 2011 and subsequent thereto, the parties were negotiating for their return.  In short, there was no reason why the Plaintiff had to proceed ex parte rather than inter partes.

4.  Mr. Lam also submitted that the Defendant does not appear to have any defence according to the terms of an agreement (which I shall deal with hereinbelow) and if required, the Plaintiff is willing to make a payment into court to satisfy any cross-claims of the Defendant.

5.  In light of paragraphs 3 and 4 herein, I directed that the Plaintiff issue and serve the Writ of Summons, the Summons under Order 29 rule 1 and the evidence in support of the application on the Defendant in the afternoon of 6 July 2011 with the Summons returnable before me at 2:30 p.m. on the 7 July 2011.  I also directed that an abridgement of time for the service of the Summons be given under Order 3 rule 5.

Background

6.  A Cooperation Agreement was made between the Plaintiff and the Defendant on 7 December 2009 (“the Agreement”) whereby the Defendant would produce the moulds or tooling for the manufacture of a tower fan in consideration of HK$365,500 to be paid in installments set out in Clause 7(a).  The Plaintiff would also place orders for the manufacture of the tower fans in accordance with other terms of the Agreement. 

7.  Clause 2(c) of the Agreement stipulated that:-

“Party A owns the Tooling free and clear of any claims or liens after Party A settled all development cost which is (sic) listed in this agreement to Party B. Party B will mark it as Party A property. Party B will not sell, pledge, encumber, place or allow a lien to be placed on, or exercise ownership rights over Party A’s Tooling…Upon Party A’s request, Party B shall promptly return it to Party A or move the Tooling to other factory if necessary, in as good a condition as when received, reasonable wear and tear and obsolescence excepted.”

8.  Party A is defined as the Plaintiff and Party B as the Defendant in the Agreement.  It appears from the evidence of Mable Lowe, a director of the Plaintiff, all development costs of the Tooling had been paid by the Defendant.

9.  On 29^th April 2011, Mable Lowe sent an email to Chow Wing Man of the Defendant (“Mr. Chow”) requesting the return of the Tooling for various reasons, including, quality problems, price levels and the Tooling is wholly owned by the Plaintiff.  This was followed by a formal demand by the Plaintiff’s solicitors on 3 May 2011.

10.  In response, Mr. Chow on 6 May 2011 stated in an email that “According to the signed agreement, all outstanding development costs will be sent to you after accounting department check.” Mr. Chan did not assert there were any outstanding development costs.  Mr. Chan did not provide particulars until the 9 May 2011 by sending attachments in an email.  He also stated in the email, “After settlement, you can collect the materials and the relevant moulds.”

11.  The attachments to the email of 9 May 2011 are exhibited as “LMPM-13” to the Affirmation of Mable Lowe.  The alleged outstanding development costs consist of the following sums: US$1,252, HK$2,670.87 and ¥75,446.78.  Mable Lowe confirms that these outstanding costs are not development costs of the Tooling.

12.  Negotiations continued and it is apparent from the evidence that the Defendant wanted the Plaintiff to sign a new agreement incorporating new terms and conditions with a company known as Miron Concept Ltd. before agreeing to release the Tooling to which the Plaintiff refused.  The Plaintiff did a company search into the Defendant and Miron Concept Ltd. and discovered that the directors of the Defendant all resigned by 30 August 2010 with no replacement. Miron Concept Ltd. was incorporated on 4 May 2010 and has the same directors as the Defendant. Both companies share the same registered address.  Naturally, this situation unnerved the Plaintiff.

13.  It should be noted that in the emails exchanged between the parties, Mr. Chow was negotiating on behalf of the Defendant despite the fact he resigned as a director.

14.  It was upon these facts that prompted the Plaintiff to seek an order for delivery up of the Tooling and an injunction to restrain the Defendant from dealing with the Tooling other than for the purposes of delivery up to the Plaintiff.  During the hearing, Mr. Lam informed me that the Plaintiff received another email sometime around noon which was well after the papers had been served as directed on the Defendant. Mr. Chow stated, amongst other things, that the Tooling will be auctioned off if the demands of the Defendant were not met by 14 July 2011.

Legal Principles

15.  Mr. Lam in his Supplemental Submission filed before the hearing relied on the case of Music Advance Ltd. & another v The Incorporated Owners of Argyle Centre Phase I HCA2574/2002 (unreported, 20 August 2002) where Ma J. (as he then was) at paragraph 12 reviewed the authorities and stated that one must put into context the phrase “a high degree of assurance” when deciding whether or not to grant mandatory injunctions.  I also note that Deputy High Court Judge Lisa Wong S.C. in Wu Wei v. Liu Yi Ping HCA 1452/2004 (unreported, 30 January 2009) has summarized what the Chief Justice in Music Advance had said which I gratefully adopt.  Deputy High Court Judge Lisa Wong S.C. said at paragraph 80 the following: -

“(1) The difference between the grant of a mandatory interlocutory injunction and a negative interlocutory injunction is not one of principle.

(2) The ultimate question is: what is the course to adopt which involves the least injustice in case of grant or refusal of interlocutory relief, as the case may be, turns out to be wrong.

(3) The balance of convenience test is in reality a balance of the risk of injustice. See also Leisure Data v Bell [1988] FSR 367 (CA) at 375-376; Newport Association Football Club Ltd [1995] 2 All ER 87 at 97a-b and Re Chime Corporation Ltd [2003] HKLRD 905, §13.

(4) The more “assured” the court is on the merits of the applicant’s case, the less will be the risk of injustice.

(5) However, if the circumstances are the that justice requires the grant of the mandatory injunction at an interlocutory stage, then such an injunction should be granted irrespective of whether the court has a “high degree of assurance” as to the merits of the applicant’s case.

(6) Nor does the court lose sight of the practical realities of the situation to which the injunction will apply.”

Strength of Plaintiff’s Case

16.  In this application, Mr. Lam has said that the Defendant had acted in breach of clause 2(c) and committed detinue.  The Plaintiff’s case is straight forward.  The Plaintiff had paid the development costs provided in clause 7(a) and evidence of payment is exhibited as “LMPM-7”.  The Defendant never denied that the development costs had been paid and therefore under clause 2(c), the Defendant cannot claim any lien over the Tooling.  The sums the Defendant is cross claiming are not related to development costs of the Tooling.  This is quite obvious when one looks at the documents sent by the Defendant exhibited as “LMPM-13”.  They relate to sample charges, extra LCL shipment costs and other miscellaneous costs in Renminbi.  Further, the Plaintiff is prepared to pay the sums referred to in paragraph 11 herein as fortification of its cross-undertaking in damages and to secure the release of the Tooling.

17.  In light of the foregoing, I find that the Plaintiff has shown more than a serious question to be tried.  In fact, the Plaintiff has a strong arguable case.

Balance of Convenience

18.  Mr. Lam says the damage the Plaintiff will suffer if the Tooling is not delivered up is threefold because it will take some time before new moulds can be produced:-

1) Loss of use of the Tooling;

2) An order placed by the customer in Germany remains unfulfilled and the customer may seek damages against the Plaintiff; and

3) As long as the Tooling is in the possession of the Defendant, the Plaintiff cannot receive anymore new orders.

19.  I do not think much can be said about point (1).  Insofar as point (2) is concerned, the potential damages are calculable.  The only question is whether the Defendant is good for any damages.  Insofar as point (3) is concerned, the damage likely to be suffered by the Plaintiff if the Tooling is not returned is difficult to quantify.  If a customer cannot place an initial order there can be no repeat orders and one would not know how many repeat orders there will be, if any.

20.  As averted to hereinabove, the Defendant’s directors have all resigned without replacement but Mr. Chow is still negotiating on behalf of the Defendant.  One neither knows of the reason behind the resignations nor the Defendant’s financial affairs.  The Defendant is a company with a paid up capital of $10,000.  There is nothing before me to suggest the Defendant is good for any quantifiable damages.  On the other hand, the Plaintiff is a substantial company with over $4 million in retained earnings and a turnover of over $86 million for the financial year ended 31 December 2010.

21.  I do not see any injustice to the Defendant if the Tooling is returned to the Plaintiff.  The Defendant’s cross-claims are quantified and the Plaintiff has even offered to pay the amount into Court. 

22.  By reason of the foregoing, the risk of injustice in not granting the injunction is far greater to the Plaintiff than the Defendant.  I am of the same view if I am wrong that the Plaintiff has not demonstrated a high degree of assurance that it will succeed at trial but just a serious question to be tried.

Conclusion

23.  In light of the foregoing, I grant an Order for delivery up of the Tooling, preservation of the Tooling pending delivery up to the Plaintiff and Mr. Chow do verify on oath that the Defendant has complied with the Order made.  I have not made an Order for payment of the Defendant’s cross-claims into Court.  The Defendant may make such an application if it chooses to do so.