CRANE WORLD ASIA PTE LTD v. HONTRADE ENGINEERING LTD

HCA 109/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 109 OF 2014

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D E C I S I O N

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Introduction

1.  This is the Defendant’s appeal against Master Chow’s order in respect of the Plaintiff’s summons for taking of an account summarily under Order 43, rule 1 of the Rules of the High Court (“RHC”).  I also directed that the Defendant’s appeal against Master Lai’s order refusing to stay Master Chow’s order pending appeal be heard together before me.

2.  The Plaintiff is a company incorporated in Singapore carrying on the business of provision of tower cranes and spare parts for hire or sale.  The Defendant is a Hong Kong company hiring out tower cranes to construction companies in Hong Kong.  Under the “Rental Agreements” between them, the Plaintiff is to provide tower cranes to the Defendant for the Defendant to hire them out to local contractors.  The Defendant will pay 70% of the rent received from the contractors to the Plaintiff and retain the remaining 30% as its profits and for maintenance of the cranes.

3.  By this action, the Plaintiff claims against the Defendant for, inter alia, outstanding payments under 32 Rental Agreements.  Under clause 17 of the Rental Agreements, the Defendant shall keep proper accounts of all its dealings in relation to the tower cranes and deliver to the Plaintiff any of such records when requested.  One of the reliefs sought by the Plaintiff under the Statement of Claims is an account pursuant to clause 17 for each of the Rental Agreements.

The Plaintiff’s summons

4.  As stated in the summons, the Plaintiff applied for:

“1. an order under RHC Order 43, rule 1 against the Defendant that an account be taken in respect of the Rental Agreements pursuant to clause 17 of each of the Rental Agreements,

2. an order that any amount certified on taking the account to be due to the Plaintiff with compound or simple interest be paid by the Defendant to the Plaintiff forthwith,

3. an order that the Defendant do pay to the Plaintiff such sum as the court shall think fit by way of an interim payment on account of the amount to be found due on the taking of the said account, and

4. an order that the costs of and occasioned by the present applications are to be the Plaintiff’s costs in the cause.”

Order 43, rule 1

5.  Order 43, rule 1 of the RHC provides that:

“(1) Where a writ is indorsed with a claim for an account or a claim which necessarily involves taking an account, the Plaintiff may, at any time after the Defendant has acknowledged service of the writ or after the time limited for acknowledging service, apply for an order under this rule.

(1A) . . .

(2) . . .

(3)     On the hearing of the application, the Court may, unless satisfied that there is some preliminary question to be tried, order that an account be taken and may also order that any amount certified on taking the account to be due to either party be paid to him within a time specified in the order.”

Master Chow’s order

6.  The learned master did not expressly give an order for taking of an account as applied for in the Plaintiff’s summons.  Instead, she ordered that the Defendant is to serve on the Plaintiff with all supporting documentation an account in respect of the tower cranes of the Plaintiff.  The learned master also specified in her order 7 areas which the Defendant should cover in giving the account.

7.  This approach apparently reflects the basis upon which the learned master arrived at her decision in finding in favour of the Plaintiff.  In giving her oral reasons, the learned master said:

“The present case is clearly distinguishable from the Kids World[1]case where the accounts sought as what should be due and owing to the applicant on the basis of the issues having been resolved by the trial judge. In the present case, the Plaintiff is content with an account of what is due and owing to the Plaintiff, according to the Defendant’s case. Having gone through the preliminary issues that the Defendant says have to be first determined before any account can be taken, I have come to the clear view that they do not pose any real obstacles.

Unlike the Hong Kong Century Property Development[2] case, the issues are not about whether the Plaintiff is entitled to an account, they only relate to how the account is to be taken. And with the Plaintiff not objecting to the account being taken on the basis that all the preliminary issues being decided in the Defendant’s favour, they do not prevent an account from being taken.” (Emphasis added)

8.  The learned master also made it clear that she was not adopting the two‑stage approach suggested by counsel but rejected by Reyes J (as he then was) in Kids World. She further explained that:

“The Plaintiff is only asking for an account on the basis of the aforementioned preliminary issues being resolved in favour of the Defendant. Unless the order for the checking of the account is not fully complied with, there is no need to have a second stage for each side to raise its objections to the version of the other side, or for a judge or master to proceed to an inquiry.”

9.  As can be seen by the above reasoning, it was the learned master’s view that the “preliminary issues” as put forward by the Defendant relate only to how the account is to be taken and, since the Plaintiff is now content with the account being taken according to the Defendant’s case, it would not be necessary to deal with the “preliminary issues” before the account is to be taken.

10.  As I understand it, one of the main disputes between the parties in this action is whether there are outstanding payments under the Rental Agreements at all or the amount of which, if any.  The “preliminary issues” referred to by the learned master in her oral reasons include, inter alia, issues like the time when the payments accrue and fall due under the agreements.  They are, in my view, directly relevant to the central dispute.  It is therefore inconceivable that the Plaintiff would be content to allow the account to be taken on the basis that the preliminary issues are to be decided in the Defendant’s favour.  In asking the court to take and certify an account on these bases, it would actually mean that the Plaintiff had conceded the most important part of his case in this action.

11.  Mr Wong, counsel for the Plaintiff, indicated that this is in fact not the position he held.

12.  The Defendant can of course give an account based on its own version and this is usually what a Defendant will do at the beginning of an account taking exercise.  In that case the Plaintiff will then give its version by filing evidence in reply and the court will then decide and certify the final account after an enquiry.  These are all to be done after the court ordered that an account is to be taken.  To justify an order to take account by saying that the Defendant can give an account on its own version is in my view defy of logic.  The effect of which is that an order to take account is given for the purpose of seeing whether it is necessary to take an account.

13.  If there are preliminary issues to be determined first before an account can be meaningfully taken as in the situation in Kids World, the Plaintiff cannot get round the obstacle by simply saying that the Defendant can first give an account based solely on his own version and then he will decide whether to proceed to an enquiry.  To allow this to happen is just to adopt the two‑stage approach rejected by Reyes J in Kids World.

14.  In my judgment, with respect, the reasoning of the learned master cannot stand.

15.  As this is a hearing de novo, I shall consider the Plaintiff’s application afresh.  It is a discretionary matter for the court to decide whether it is appropriate to order a summary procedure for taking an account.

Discussion

16.  It is the Plaintiff’s case that under the Rental Agreements, the Plaintiff is entitled to 70% of the “monthly income” of the Defendant in renting out the Plaintiff’s cranes to contractors as specified in each Rental Agreement.  The Rental Agreements also provide that the full amount of monthly income must be paid to the Plaintiff by TT upon receipt of the Plaintiff’s monthly invoice to the Defendant.

17.  It is pleaded in the Statement of Claims that the Plaintiff’s claim is for the sums of HK$10,295,035.00 and Euro 62,825.58 due under the Rental Agreements as at 14 January 2014, the invoices of which had been sent to the Defendant as per the Rental Agreements.  As stated under the Relief sought by the Plaintiff, the Plaintiff also claims for further sums due under the Rental Agreements and unpaid after 14 January 2014.

18.  Apart from the above claims it is also the Plaintiff’s case that the Defendant is holding the Plaintiff’s monies on trust and the Plaintiff claims for an account of the trust monies. The Plaintiff also seeks an injunction against the Defendant to restrain the Defendant from obstructing the Plaintiff to inspect its cranes.  However, it is common ground that these other claims are not relevant to the Plaintiff’s present application.

19.  It is not the Plaintiff’s case that the Rental Agreements have been repudiated or terminated by any party.  Presumably, invoices should have been issued by the Plaintiff to press the Defendant for further payments.

20.  Although the Plaintiff claims for an account pursuant to clause 17 of the Rental Agreements, as the Plaintiff’s claim effectively based on unpaid invoices, it should not be the Plaintiff’s position that it has to rely on the Defendant’s account to claim for the outstanding payments.

21.  The purpose of the Plaintiff’s application is in my view, more for pinning down the Defendant’s case and if possible, seeking interim payments, rather than a real taking of an account. In fact, Mr Wong did not shy away from this purpose.  Interim payment was expressly asked for in the summons and it was stated in Mr Wong’s written submission that what the Plaintiff is trying to achieve by way of the Order 43 application is to accelerate the process of obtaining payment from the Defendant. In defending Master Chow’s order for an account based on the Defendant’s own version, Mr Wong states clearly that “upon receiving the accounts from the Defendant, the Plaintiff will obviously avail itself with other court procedures to enforce its entitlements”.  Implicit in this statement is that the Plaintiff will consider an application for interim payment based on the Defendant’s version.

22.  With respect, I have much reservation on this approach.  The present application is in the form of an Order 43 application in which an order to take an account is sought.  In substance, as I have explained my views above, it is more akin to an application for specific discovery or interrogatories, for the purpose of an intended application for interim payment.

23.  As Litton JA (“as he then was”) put it succinctly in Ho Lee Man v Wong Wai Kai[3]: “The summary process under O 43 r 1 is not designed as an instrument for specific discovery.”

24.  The Defendant has put forward several defences against the Plaintiff’s claims.  Mr Wong submitted that these defences either do not relate to the account taking exercise or can be dealt with summarily by the court during the account taking exercise.

25.  In relation to some of the defences, with the materials placed before me thus far, I can see the force of Mr Wong’s points.  However, I do not think it is right to give an order for an account to be taken if the purpose of which is mainly to achieve something that can be achieved also by way of specific discovery or interrogatories, or even a summary judgment application.

26.  Besides, if there are issues that need to be resolved before an account can be effectively taken, even if it is possible that the issues can be dealt with by the master or judge summarily at the accounting exercise, I do not think it is right to order an account to be taken without those issues being firstly dealt with.

27.  Reyes J had this to say in giving his Lordship’s judgment in Kids World[4]:

“Order 43 is not appropriate where the parties are engaged in substantial disputes of fact which are fundamental to the manner in which any proposed account is to be taken. Such disputes of fact first need to be resolved by trial. The person conducting the account or inquiry would need guidance on how to resolve such fundamental factual disputes if the account or inquiry is to proceed smoothly. Such guidance could effectively only come after a trial judge has fully heard the parties and decided their fundamental disputes, not before.”

28.  In the present case, it is common ground that the Rental Agreements were made partly orally and partly in writing.  As submitted by Mr Dawes[5], counsel for the Defendant, the allegations of the Defendant in relation to the terms of the oral agreements between the parties cannot be rejected by the court right away.  In particular, whether it was orally agreed between the parties that there was a 90‑day credit terms and HK$10 million cash buffer; and whether the rental payment is only due subsequent to the installation of tower cranes after the issue of “machine load test certificates”. In my view, an account cannot be effectively taken without these factual issues being firstly resolved.  And I cannot say for sure that those issues can be resolved without going for a trial.

29.  This is not an appropriate case to order the taking of an account.  The order of Master Chow is quashed and the Plaintiff’s summons is dismissed.

30.  Counsel agreed that the result of the appeal against Master Lai’s decision should follow the result of the appeal against Master Chow’s order.  Hence, the Defendant’s appeal against Master Lai’s order be also allowed.

31.  I order that costs of the Defendant’s appeals against Master Chow’s and Master Lai’s orders, costs of the Plaintiff’s summons, and costs of the Defendant’s stay application be to the Defendant with certificate of counsel.  This is a costs order nisi which will be made absolute upon the expiry of 14 days from the date of this decision.