惠陽市新墟合興製衣廠 v. ELBEX VIDEO (HONG KONG) LTD

HCA 1950/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1950 OF 2012

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DECISION
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1.  This is an appeal against a decision of Master Lo made on 26 August 2014 by which the defendant’s application to strike out the plaintiff’s action was dismissed with costs.

2.  This appeal raises an interesting issue, namely, the jurisdictional basis for the hearing before the learned Master.

Background

3.  The relevant factual background had been succinctly set out in the learned Master’s Reasons for Decision dated 16 September 2014 (“Decision”) at paras 2 to 10.  With gratitude, they are adopted for the present purpose and set out below :

“2. On 18 October 2012, plaintiff commenced the present action against the defendant for breach of an agreement entered between the parties and others.

3. On 24 December 2012, defendant filed the present application seeking to strike out the present action and for costs of the defendant be payable by the solicitors on record representing the purported plaintiff.

4. In support of this application, defendant filed the affirmation of Chan Wai Hing which basically said that the plaintiff (now known as 惠陽市新墟合興製衣廠) had no capacity (訴訟主體資格) under PRC laws to sue in relation to the agreement or any other matter as its business licence had expired on 30 December 2011.

5. He said further that the plaintiff should not be regarded as a legal person in Hong Kong or have any capacity to sue under Hong Kong laws.

6. Defendant relied on the opinion of the Chinese law expert Mr Tan Zongcheng (譚崇成).

7. In opposition, plaintiff filed the affidavit of Lam Kin Fai, son of the legal representative (法定代表人) of the plaintiff.

8. He said the plaintiff is a ‘三來一補’廠房. Plaintiff relied on the opinion of the Chinese law expert Mr Zeng Xuezhi (曾學智) which said that the plaintiff does have the legal capacity to sue as it had never been deregistered.

9. Both parties agree : -

(a) At all material times, plaintiff has been a 三來一補廠.

(b) plaintiff’s business licence expired on 30 December 2011.

(c) plaintiff has not been deregistered.

(d) ‘三來一補廠’ has capacity to sue.

10. Both counsels, Mr A Lai for the plaintiff and Mr T Lo for the defendant agreed that the only issue to be determined by this court is whether plaintiff had capacity to sue at time of commencement of this action.  They both agree that this court should consider the relevant laws of the PRC (Lazard Brothers & Co v Midland Bank Ltd [1933] AC 289).  Each of them invited this court to accept the legal opinion of their respective Chinese law expert.”

4.  It is important to note that the hearing below (“Hearing”) took place pursuant to an Order by consent dated 14 January 2013 (“Order”), which provided as follows :

“UPON THE APPLICATION of the Defendant by way of Summons filed herein on 24^th December 2012

AND UPON HEARING the solicitors for the Defendant and the solicitors for the Plaintiff

BY CONSENT IT IS ORDERED that : -

1. The Plaintiff do file and serve its Affirmation in Opposition within 56 days from the date of this Order;

2. Leave be given to the Defendant for filing expert evidence on laws of the People’s Republic of China relating to the legal existence of the Plaintiff and its locus standi to sue in manner as shown in the legal opinion exhibited to the Affirmation of Chan Wai Hung filed herein;

3. Leave be given to the Plaintiff to file expert evidence by one expert on laws of the People’s Republic of China relating to the legal existence of the Plaintiff and its locus standi to sue by exhibiting the opinion of such expert in the Plaintiff’s Affirmation in Opposition;

4. Parties respective experts in Chinese law do meet within 42 days from the date of filing of the Affirmation in Opposition for the purpose of preparing a joint statement indicating those parts of their evidence on which they are and those on which they are not, in agreement;

5. The joint statement shall include but not limited to the matters as follows:

(a) The issues on which the experts have reached a common opinion and in respect of each such issue what that common opinion is;

(b) The issues on which the experts have failed to reach a common opinion and their competing views on each of such issues; and

(c) The reasons for disagreement between the experts on each such issue.

6. The joint statement by the experts shall be lodged with the Court within 21 days from the date of joint meeting;

7. No further affirmation or expert evidence be filed by either party without leave of the Court;

8. Hearing be adjourned to a date to be fixed with consultation of Counsel’s diary with 1 day reserved;

9. Parties will make available their respective experts for cross-examination at the adjourned hearing or at such other hearing as the Court may direct; and

10. The costs of this application be in the cause of the striking out Summons dated 21^st December 2012.” [1]

5.  Accordingly, the expert witnesses attended the Hearing, which took place on 15 May, 24 and 25 August 2014, and were cross-examined on their evidence.

6.  The only issue in the strike out application was whether the plaintiff had the capacity to sue at the commencement of this action (“Issue”).  It was common ground that the issue turned upon the contested evidence on PRC law.  In the Decision, the learned Master set out the reasons for preferring the evidence of the plaintiff’s expert, Mr Zeng.  It was also found that Mr Zeng was more convincing as a witness compared with the defendant’s expert.  Consequently, the strike out application was dismissed with costs.

Jurisdictional basis for the Hearing

7.  This is the main issue ventilated in this appeal.  At the beginning of the hearing of this appeal, the parties were asked to explain the jurisdictional basis for the Hearing.  This is important because if the Hearing was a trial pursuant to O 36, r 1 then an appeal against the Decision shall lie to the Court of Appeal instead of a judge sitting in chambers – see O 58, r 2(a).  Regrettably, despite the fact that the Order was made by consent of the parties, the jurisdictional basis for the Hearing was admittedly overlooked.

8.  After some debate on the nature of the Hearing, this appeal was adjourned to allow the parties an opportunity to fully consider this jurisdictional issue.  Regrettably, the resumed hearing did not conclude the proceedings due to new authorities submitted by the defendant shortly before the hearing.  After further submissions by the parties, the matter was then further adjourned to allow an opportunity to the plaintiff to address the new authorities and the fresh points based on the same.  This resulted in another round of exchange of written submissions.  After considering the same, this court has decided, as it may pursuant to directions made with the agreement of the parties, to deal with this appeal without further hearing. 

9.  It is common ground between the parties that the Hearing constituted a trial of the Issue.  The dispute can therefore be narrowed down to whether it was a trial pursuant to O 36, r 1.  

10.  The concession that the Hearing was a trial is rightly made.  It is quite clear on the material before the court that there was a trial before the learned Master.  Further, it should be pointed out that the manner in which a challenge to a plaintiff’s standing to commence an action is to be resolved had received careful consideration in the case of Kammy Town Ltd v Super Glory Corporation Ltd, unrep, HCA 3524/03, 14 January 2005.  To begin with, such a challenge must be resolved at the earliest opportunity.  In paras 11 to 14 of that judgment, A Cheung J (as he then was) held as follows :

“11. In short, a point on lack of authority must be taken by a defendant at the earliest opportunity. It should not be raised as a point of defence, for it is not a defence, and for that reason the matter should not be left for determination at trial. Furthermore, given the nature of the point, the matter should not be left to be determined at trial together with the substantive issues between the parties, the determination of which issues at trial would become a total waste of time and resources if the point on lack of authority should be upheld at the end of the day.

12. The procedure to raise the point on lack of authority is an application to strike out the plaintiff’s name under the inherent jurisdiction of the court. Maybe for the sake of convenience, this type of applications is included in the general discussion on striking out applications (of pleadings) under Order 18 rule 19 in Hong Kong Civil Procedure 2004, Vol 1, para 18/19/24.

13. However, unlike an ordinary application to strike out a pleading, the present type of striking out applications inevitably requires a definitive determination by the court seised of the application on the point. In other words, either the action was authorised by the company or it was not. There is no halfway house. The point has to be decided according to the burden and standard of proof – the burden lies with those suing in the name of the plaintiff to prove authorization. Subject to any subsequent ratification (where necessary) of the action by the company, the action will stand or fall depending on the court’s determination of the question of authority.

14. For those reasons, it is not appropriate for a court, seised of the application, to simply say on the affidavit evidence before it that it is not a ‘plain and obvious’ case of a lack of authority, and therefore the application should be dismissed and the action allowed to proceed to trial.  Rather, at the substantive hearing, the court has to see whether the objection raised by the defendant can be summarily disposed of on the affidavit evidence that has been placed before the court for the purpose, and if not, how the objection can be determined and give directions accordingly.”

11.  The court went on to held, in paras 15 and 16, that where the merits are clear the challenge might be dealt with summarily.  Para 18 dealt with the more difficult cases which could not be disposed of in such manner :

“However, where the court is unable to decide the question of authority – which is in essence a question of fact (or maybe a mixed question of fact and law), the court should not dismiss the application (as would have been the case in an ordinary application to strike out a pleading), nor should it try to attempt the impossible by making a finding of fact on affidavit evidence without cross-examination. Instead it should adjourn the hearing and give appropriate directions for the determination of the objection at an adjourned hearing, such as the cross-examination of the deponents of the affidavits/ affirmations that have been filed by the parties in relation to the objection.”

12.  In para 35, the court held that the issue in that case could not be summarily disposed of on affirmation evidence alone and ordered, inter alia, that the strike out application be adjourned for trial.

“For the above reasons, as I said, the Defendant’s objection based on lack of authority cannot be summarily disposed of by this Court on affirmation evidence alone. My hands are not tied by the order made by the learned master below (see below), as this is a de novo hearing. I would therefore order that the appeal be allowed, the order of the master below be set aside, and the application of the Defendant to strike out be adjourned for trial (before any judge) on a date to be fixed, and all further proceedings in the present action that are not pertinent to the determination of the Defendant’s present application be stayed in the meantime with liberty to apply to remove the stay on good grounds being shown.”

13.  Kammy Town Ltd was referred to in para 37 of the Decision.

14.  For completeness, I should say that I do not regard it as critical the fact that the Hearing was conducted in chambers (no doubt open to the public) and without the formality of robing.  The plain fact is that the jurisdictional basis of the Hearing was admittedly overlooked by the parties, and the task for this court is to determine what was that jurisdictional basis.

O 36, r 1 

15.  This rule provides as follows :

“1. Trial before, and inquiry by, master

In any cause or matter other than a criminal proceeding by the Crown, the Court may, with the consent of the parties, order that the cause or matter, or any question or issue of fact arising therein, be tried before a master or that the master do inquire and report thereon and, in the case of inquiry and report, giving consequential directions.”

16.  Mr Lo, who appeared for defendant here and below, disagrees with the proposition that the Hearing was a trial pursuant to O 36, r 1.  He maintains that this appeal is properly brought before a judge sitting in chambers.  On the jurisdictional basis for the Hearing, he relies on 3 possibilities – O 32, r 11, O 14A and, if the Decision was interlocutory in nature, O 32, r 11A.

17.  The reliance on O 14A is yet another new point which was only raised in the defendant’s latest round of written submissions. It has gone outside the permission under the court’s directions for it to file reply submissions. 

18.  Mr Lai, who appeared for the plaintiff here and below, says that a master’s jurisdiction to conduct trial is confined by the RHC, and only O 36, r 1 conferred on the learned Master the necessary jurisdiction to try the Issue.

19.  Whilst it is a condition precedent to a trial by a master that the parties consent to such a trial, this is not an issue here because the Order was indeed made by consent.  There is no dispute by Mr Lo that the parties’ consent to a trial here was not affected by their ignorance of the applicable rule or even a mistake over the applicable rule. 

20.  When the Order is carefully examined.  It is consistent with a set of directions for trial.  In particular, the usual directions for adducing expert evidence were given in paras 2 to 6 of the Order.  It should be noted that in interlocutory proceedings leave of the court is not required for adducing expert evidence : see Hong Kong Civil Procedure 2015, vol 1, p 808. 

21.  I was referred by both sides to a decision of Deputy High Court Judge L Chan (as he then was) in Chiu Yu Fong v Lau Kwong Wing [2011] HKC 295.  In that case, the plaintiff complained that the master had come to a decision after trial when the trial was held without the consent of the parties under O 36, r 1.  The learned Deputy Judge held in para 25 :

“The master had the benefit of reading the affirmations of both sides. He ordered the cross-examination of the deponents under Order 38, rule 2(3). He then heard submissions and resolved the disputes of facts. I think that was certainly a determination of triable issues in a trial.”

22.  The functions of a master were discussed in paras 26 to 31.  In gist, the learned Deputy Judge considered that much of the work carried out by a master concerned the preparation of cases for trial.  The statutory exceptions where substantive rights of the parties are determined by a master were referred to in paras 27, 28, 30 and 31 of Chiu Yu Fong.

23.  It should be pointed out that para 28 of Chiu Yu Fong referred to O 14, r 6(2) as an example where a master had jurisdiction to conduct trials.  It is to be noted, however, that the source of the master’s jurisdiction to conduct trials under that rule is derived from O 36, r 1 : see Hong Kong Civil Procedure 2015, Vol 1, rubic 14/6/3.

24.  According to Chiu Yu Fong the only source of jurisdiction for a master to conduct a trial is therefore O 36, r 1.  I agree. 

25.  I also agree with Mr Lai that (a) the starting point of the present analysis is that the learned Master below did not have jurisdiction to conduct a trial, unless otherwise provided for; and (b) O 36, r 1 provides the only applicable exception in this case.

O 32, r 11 and 11A and O 14A

26.  Next, I shall deal with the defendant’s reliance on O 32, r 11 and 11A and O 14A.  With respect, I find little merits in the arguments.

27.  In respect of O 32, r 11, I agree with Mr Lai that this rule does not confer jurisdiction on a master to conduct trials. Pursuant to this rule, a master is given the power to transact business which may be transacted by a judge in chambers (with exceptions which are not relevant for the present purpose).  This clearly does not confer jurisdiction on a master to conduct a trial because trials are normally conducted by a judge in open court.

28.  As regards O 32, r 11A, the reliance here is equally misconceived because the determination of the learned Master, namely, that the plaintiff had the capacity to sue, was final (as opposed to interlocutory) in nature : see Kammy Town Ltd, para 13 quoted above and Hip Hing Timber Co Ltd v Tang Man Kit & Anr (2004) 7 HKCFAR 212 per Lord Millett NPJ at paras 38 and 43.

29.  Finally, O 14A is concerned with the determination of questions of law or construction of documents.  The Hearing plainly did not involve such an exercise. 

30.  In light of the analysis above, it is unnecessary to determine the interesting issue as to how the court should approach a de novo hearing of an appeal against a master’s decision when viva voce evidence was led below.  I was referred to a decision of Deputy High Court Judge Carlson in Lam Rogerio Sou Fung v Ku Ling Yu John t/a Messrs John Ku & Co [2011] 5 HKC 205.  In short, the learned Deputy Judge approached such an appeal in the same way which the Court of Appeal would have done on an appeal from a first instance judgment after a trial (see para 15 of the decision)[2].

31.  However, the approach adopted by the learned Deputy Judge was agreed by the parties.  With respect, for my part I would have required full argument before adopting this approach because it may be seen that it is inconsistent with a de novo hearing.

Conclusions

32.  For these reasons, I dismiss the Notice of Appeal filed by the defendant on 25 September 2014 on the ground of lack of jurisdiction (see para 7 above). I make an order nisi that the costs of and occasioned by the said Notice be to the plaintiff, to be taxed if not agreed. 

33.  I am grateful to counsel for the assistance rendered to the court.