FLYWORLD GROUP CO LTD v. CRECEEDOR INDUSTRIAL CO LTD

HCA101/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 101 OF 2014

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DECISION

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Introduction

1. This is an application of Flyworld Group Co Ltd (“Flyworld”) for variation of the costs order nisi dated 28 November 2014 (“the Nisi Order”) made by DHCJ Mayo in respect of a striking out application (“the SO Application”) of Creceedor Indusrtrial Co Ltd (“Creceedor”).

2. DHCJ Mayo refused the SO Application and made the Nisi Order that Flyworld has its costs. Now Flyworld applies for costs of and incidental to the application be paid by Creceedor on an indemnity basis.

Flyword’s grounds

3. Mr Ng, for Flyworld, advances two grounds for the present application. First, he submits that the SO Application is vexatious and should never been made at all, in particular given an alleged admission by Creceedor’s counsel (“the Admission”) at the hearing before DHCJ Mayo.

4. The second ground is that Creceedor failed to accept a sanctioned offer made by Flyworld by its solicitors’ letter dated 17 October 2014 (“the Letter”).

5. I shall deal with these two grounds in turn. To understand the first ground, a brief summary of the parties’ contentions is provided as follows.

6. Flyworld is a trading company dealing in commercial commodities. In April 2011, it entered into four contracts to sell to Mediflex Industries Pty Limited (“Mediflex”) certain commodities in Australia. The aggregate amount of purchase price payable to Flyworld was US$240,515.50 (“Mediflex Payment”).

7. On the other hand, in the same month, Flyworld entered into a sale contract with Pizzi S.R.L. Forniture Medico Chirurgiche (“Pizzi”) for some fabrics at the price of US$13,620.00 (“Pizzi Payment”).

8. It transpired that both the Mediflex Payment and the Pizzi Payment were made pursuant to their contracts with Flyworld. However, both Mediflex and Pizzi made such payments by telegraph transfers into the bank account of Creceedor (with Hang Seng Bank Limited), a total stranger to Flyworld.

9. Investigations revealed that an unknown fraudster purportedly on behalf of Flyworld gave Mediflex and Pizzi false instructions on separate occasions to make the Mediflex and Pizzi Payments into the bank account of Creceedor. The unknown fraudster had hacked the emails sent by Mediflex and Pizzi to Flyworld and conned them into making the payments to Creceedor by emails.

10. Mr Ng submits that the claim of Flyworld is founded in unjust enrichment and Flyworld now holds the monies received as a constructive trustee. There are other causes of action pleaded in the statement of claim nevertheless.

11. In the Defence, it is pleaded that Flyworld has no locus standi to sue. The substantive reply of Creceedor to the claim is that it received the Mediflex and Pizzi Payments in the course of its genuine aluminium and building products trade. The said payments were made on behalf of its customer in Nigeria known as Inland Doors (NIG) Ltd.

12. Creceedor took out a summons dated 18 July 2004 for the SO Application. In the summons, the two grounds relied upon were the lack of locus standi objection and the non-disclosure of reasonable cause of action objection.

13. As stated in the Decision, the main ground advocated by Mr Hingorani before DHCJ Mayo was that the Mediflex and Pizzi Payments were not made by Flyworld and hence the enrichment enjoyed by Creceedor was not at the expense of Flyworld. Mr Hingorani further submitted that both Mediflex and Pizzi instead of Flyworld should be made parties to the action.

14. On this issue of locus standi, DHCJ Mayo (§25 of the Decision) accepted Mr Ng’s submission based on §§6-56 and 6-57 of Goff & Jones, The Law of Unjust Enjustment, 8^th Edn and came to the conclusion that it is clear that the plaintiff can elect whether to sue the Creceedor or Mediflex/Pizzi. The challenge of locus standi thus failed.

15. Mr Ng now contends that the SO Application is “inherently bad in law” because it overlooks (i) a whole corpus of case law which clearly establishes unjust enrichment as a cause of action in English common law and (ii) Flyworld has a right of election to sue under either Mediflex and Pizzi or Creceedor on the authority of Official Custodian For Charities and Ors v Mackey and Ors (No.2) [1985] 1 WLR 1308 and Agip (Africa) Ltd v Jackson [1990] Ch 265.

16. It is trite that in an application for variation of the costs order nisi, the substantive decision made in the Decision should not be revisited: Hong Kong Civil Procedure 2015 Vol.1 §42/5B/1.

17. I do not accept that there was such an oversight on the part of Creceedor. It must be clear that a restitutionary claim can be made upon principles of unjust enrichment. The Court of Final Appeal in Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 had a thorough discussion on such principles. Mr Hingorani merely argued without success before the deputy judge that Mediflex and Pizzi rather than Flyworld were entitled to rely on these principles of unjust enrichment.

18. I have read the two paragraphs in Goff & Jones. They deal with a theory of “interceptive subtraction”. Mr Hingorani in his written submission said Creceedor was unaware of the meaning of “interceptive subtraction. The learned editors of Goff & Jones have reviewed some English cases and consider this theory to be supportive of the entitlement of a plaintiff to a right to elect whether to treat the payment by a third party to a defendant to be effective discharge of the third party’s liability to the plaintiff. If the plaintiff makes this election, he should be entitled to sue the defendant without joining the third party.  

19. However, it should be noted that the learned editors at the outset of their discussion of the theory of “interceptive subtractions” (at §6-52) make it clear that it remains a controversial question whether the concept of “interceptive subtraction” has a part to play in the law of unjust enrichment. And when one reads the entire discussion spanning more than the two paragraphs, one would understand that the authorities are indeed equivocal.

20. At the hearing, Mr Ng refers me to Official Custodian v Mackey (No.2) where Nourse J apparently accepted that if there is a contractual obligation on the part of the third party to pay the claimant and the defendant intervened and obtained the payment from the third party intended for the plaintiff, the defendant renders himself accountable to the plaintiff for the amount he has received from the third party. The plaintiff is hence entitled to sue the defendant without joining the third party. It is because the third party no longer has any interest in the subject matter of the suit. This case is actually referred to in the relevant paragraph in Goff & Jones as a footnote.

21. Next, Mr Ng relies on Agip (Africa) Ltd. For the present purposes, I do not find it necessary to go into any detail of that authority. Suffice it for me to point out that it actually dealt with a very different situation. As explained by Millett J, where an agent has paid away his principal’s money in circumstances which give rise to a right of recovery, the principal can either sue the agent or the person to whom he paid the money. The election is available in such principal and agent situations. Here, there is no plea that Mediflex and/or Pizzi paid Creceedor as an agent of Flyworld.

22. For the foregoing reasons, I am not convinced that the theory of  “interceptive subtractions” is so settled that the SO Application was thoroughly bad in law with an oversight of the right of election. I do not think that Creceedor should be penalized by an indemnity costs order by reason of the merits (or the lack of it) of the SO Application.

23. Mr Ng further relies on the Admission. He refers this court to the transcript of the hearing before DHCJ Mayo and makes the point that Mr Hingorani indicated that Creceedor was willing to refund Mediflex and Pizzi the Mediflex and Pizzi Payments. This Mr Ng says is an unqualified admission that Creceedor knew it for a fact that it has wrongfully intercepted payments made by Mediflex and Pizzi to Flyworld.

24. I cannot accept this submission. There was no admission at all. The submission of Mr Hingorani has to be understood in its context. He merely wished to highlight that if Mediflex and Pizzi paid Crecedor under a mistake induced by deception, Creceedor was willing to make the refund to them. Mr Hingorani made no admission to the effect that Creceedor took any part in the deception causing the Mediflex and Pizzi Payments.

25. Merits aside, Mr Ng also relies on the failure of Creceedor to accept a sanctioned offer contained in the Letter. He asks for indemnity costs and enhanced interest under O22 r24(3) of the Rules of the High Court (“RHC”).

26. The Letter was marked “Without Prejudice save as to Costs” and “Sanctioned Offer”. It was pointed out in the Letter that the SO Application was utterly unmeritorious and was bound to fail. Hence, a sanctioned offer was made under O22 of the RHC to the effect that Creceedor should forthwith withdraw the SO Application and pay the costs incurred by Flyworld up to the date of the Letter (“the Offer”). It was further specified that the Offer related to the whole of the claim of Flyworld.

27. A sanctioned offer can be made in an interlocutory application such as a summary judgment application: The Garden Co Ltd v Smart Year Ltd [2009] 5 HKLRD 542.

28. Mr Ng submits that the Offer related to the whole of the claim of Flyworld because Creceedor was seeking to strike out the whole of the claim of Flyworld.

29. I cannot accept this submission. The policy behind O22 is to encourage the parties to take positive settlement seriously: Montrio Ltd v Tse Ping Shun David, unreported, HCA757/2009, 17.2.2012. I believe the reason why O22 r5(3)(a) requires that a sanction offer must state what it relates to (whether it relates to the whole claim or to part of it or to any issue arising from it) is to define clearly the scope of the concession that the offeror is prepared to make in the sanctioned offer. I have some doubt as to whether the Offer can be properly said to relate to the whole claim of Flyworld.

30. In any event, I am not persuaded that Creceedor is held liable for more than the proposals contained in the Offer. In the Offer, Creceedor was demanded to pay Flyworld costs of the SO Application and in the Nisi Order, Flyworld is too entitled to its costs. Despite the increase on the amount of costs now Creceedor is liable to pay, I fail to see how Flyworld does better than it proposed in the Offer. I see no ground to invoke my discretion under O22 r24(3).

31. As a fallback position, Mr Ng urges this court to treat the Letter as a Calderbank letter. I agree that this course is open to me: O62 r5, RHC.

32. Of course the substantive hearing of the SO Application could have been avoided if the Offer had been accepted by Creceedor. It would be a satisfactory outcome. However, I am not persuaded that the Offer was more generous than the result in the Decision. I am also not of the view that the SO Application was wholly unarguable and should never have called for adjudication by the court. In the premises, I do not think it is appropriate to order taxation on a higher scale.

Conclusion and Order

33. I come to the conclusion that my discretion should not be exercised to order indemnity costs in all the circumstances of this matter. There is no valid ground to vary the Nisi Order and the Nisi Order should be made absolute. Therefore, I dismiss the application of Flyworld.

34. Costs should follow the event. I make an order nisi that Creceedor’s costs of and occasioned by this application be borne by Flyworld, to be taxed if not agreed.