IFS CAPITAL LTD v. HUNG KIN LAM AND ANOTHER t/a CHI TAT ENTERPRISE CO (a firm)

HCA 1080/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1080 OF 2007

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HCA 1081/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1081 OF 2007

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BETWEEN

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R U L I N G

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1.  The Defendants in both of these actions are applying for them to be consolidated and to be tried together.  The current situation is that HCA 1081/2007 (“the Tec-Hill action”) is to be tried from 11 to 17 December this year and that HCA 1080/2007 (“the Chi Tat action”) will be tried between 19 and 24 March next year.  I am the trial judge in both actions.  The Plaintiff in these actions, IFS Capital Limited, wishes to leave matters as they are.

2.  There is much in common in these actions.  The Plaintiff is a substantial Singaporean company which provides factoring services. 
EC-Asia International Limited (“EC-Asia”) which is now in the process of liquidation is also a Singapore company manufacturing and distributing computer processor chips and other related items.  In June 2003, the Plaintiff and EC-Asia, whose Chief Executive Officer is a Mr Kelvin Ang, entered into a recourse factoring agreement whereby the Plaintiff would purchase from EC-Asia its credit sales to its customers at a discounted price.  It would therefore pay EC-Asia a percentage of the face value of its invoices upon EC-Asia assigning to it the whole of the debt represented by the invoice which EC-Asia’s debtor would then discharge by paying the Plaintiff directly.

3.  Two of EC-Asia’s customers were the Defendants in each of these actions, they being Hong Kong companies.  The principal of Chi Tat in 1080/2007 is a Mr Hung Kin Lau and Tec-Hill’s principal in 1081/2007 is a Mr Simon Yau.  The Plaintiff’s claim in each action is for the value of outstanding payments on invoices assigned to it by EC-Asia in respect of its purported sales to the Defendant in each of these actions.  In the Chi Tat action the amount is US$5,935,559 and in the Tec-Hill action it is US$6,475,000.

4.  It would appear, on the face of the pleadings and from the witness statements, that EC-Asia was having, for whatever reason, serious cash-flow problems which eventually led to its going into liquidation.  If the prospective evidence of Mr Kelvin Ang is to be believed (he having provided a witness statement to the Defendants) he decided to commit a fraud on the Plaintiff by providing it with invoices, against which they paid his company EC-Asia, which either had no underlying transaction with the Defendants or was supported by the shipment to them of worthless electronic goods which they did not check because they had acted as an innocent conduit for sales by EC-Asia to another Hong Kong company called Landwide Tech Limited (“Landwide”).  The dummy transactions against which the Plaintiff would have paid EC-Asia on the assigned invoices would have resulted in EC-Asia receiving substantial amounts of money from it.  The nature of the factoring agreement between the Plaintiff and EC-Asia is what is known as a recourse agreement which means that the Plaintiff can look to EC-Asia in respect of invoices assigned to it which the debtor to whom the invoice is directed has defaulted with the consequence that the Plaintiff can look to both of the Defendants and to EC-Asia against which it will presumably now have to prove in EC-Asia’s liquidation.

5.  Both Defendants in the actions have raised virtually identical defences including a challenge to the validity of the factoring agreement and therefore the assignments of the invoices now sued on.  They also raise defences such as the lack of any contractual relationship between themselves and EC-Asia in respect of some of the invoiced items.

6.  For the purposes of explaining the basis upon which the application to consolidate is made this, it seems to me, is a sufficient summary of the factual background.

7.  Mr Pirie, who appears in the Chi Tat action, has made the application supported by Mr Law on behalf of Tec-Hill in the other action.  The principal ground is that the two actions have a completely common background which is the fraud practised on the Plaintiff by Mr Kelvin Ang through EC-Asia issuing false invoices or one’s represented by worthless electronic items against which the Plaintiff paid EC-Asia pursuant to the factoring agreement which they had entered into.  Mr Ang has now surrendered himself to the Singapore police and is expected to plead guilty on 5 November next to a series of charges relating to fraudulent transactions to the value of something like US$20 million.  If he is able to he wishes to give evidence on behalf of both of these Defendants.  This, if it can be arranged, would be by video-link or by having his evidence taken on commission in Singapore.  Whether this is going to be possible must await the outcome of his court appearance on 5 November.

8.  A further reflection of the common features which these two actions have is that the Plaintiff intends calling the same three factual witnesses in each case.  It proposes flying them out to Hong Kong in December and again in March.  One of these witnesses (see page 101) is Miss Phyllis Chu whose credibility, according to Mr Pirie, is very much in issue in both actions and therefore her evidence should be heard once on the same occasion at the joint trial of both actions so that it can be assessed in respect of both claims.  It would not be satisfactory for her to be cross-examined on two separate occasions.  The effect of taking that course would be that following the first trial, I as the judge would have had to form a view of her which would then be carried over into the second trial without the Defendant in the second trial having had a chance to test her credibility by cross-examination which would be especially unfortunate if I had formed a favourable view of her in the first trial.  Identical considerations apply to the parties’ experts on Singapore law relating to the validity of the factoring agreement.  Both Defendants have instructed the same expert and the Plaintiff has, of course, instructed the same expert in both actions.  As matters presently stand, and if I may say so, rather surprisingly the experts hold widely differing opinions as to this aspect which I am told is not expected to narrow by very much even after they meet, following my order that they do so, in order to see if there is scope for agreement between them.  What Mr Pirie complains of therefore is that, if there are separate trials, I will reach a conclusion on which expert is correct without having given the Defendant’s counsel in the second trial an opportunity to test the opposing sides expert on his opinions and will merely apply my findings on this aspect from the first trial in the second trial.

9.  Mr Sanjay Sakhrani, for the Plaintiff, resists this application because he says that it will not achieve the real objective of a consolidation which is to save time and costs.  It will be far more efficient to leave these cases listed separately as they are.  The fact that his client will need to fly out his witnesses twice is neither here nor there — they are prepared to do so.  This may be so but I expect that if the Plaintiff succeeded these doubled costs would somehow find themselves visited upon the Defendants when a consolidation resulting in one trial would not do so.  This therefore is something that I ought to bear in mind.

10.  Mr Sakhrani’s best point really is that these sort of applications should be made at the earliest opportunity and not after trial dates have been provided.  Mr Sakhrani submits that the Defendants would have known for very nearly a year, given the state of the pleadings, that there were these common issues and that this application could and should have been made many months earlier.  Mr Pirie says that this is all the Plaintiff’s fault, it knew its case and it should have brought a single action with two Defendants in the action rather than in two separate actions.  For my part, despite Mr Pirie’s protestations and his submission that his client only became aware of the common features between these cases as recently as the 2^nd September, it seems to me that Mr Sakhrani is correct.  Prima facie a Plaintiff is perfectly entitled to sue a Defendant as it sees fit and to proceed separately as in this case.  I am satisfied that Mr Pirie’s client ought to have known that this was a case which might properly be consolidated with its related action as early as the end of last year and his instructing solicitors could have liaised with their counterparts for the other Defendant and could therefore and should have made this application much sooner.  This therefore is a late application which is an important factor for me to have regard to.

11.  Nevertheless, it is not the only factor.  It strikes me that two trials in these circumstances would cause quite needless duplication of resources and expense.  The Plaintiff would have had to fly out all of its witnesses including its expert twice.  The Defendants would have to do the same for their expert.  In addition they would, if he were available, have Mr Ang give evidence on two occasions.

12.  In addition, I am much impressed by the fact that it would be a far better thing and more conducive to a fair trial if Miss Phyllis Chu’s credibility were tested and assessed on the one occasion rather than having the court’s assessment of her in the first of the two trials carried over into the second trial without the opportunity of having that assessment effectively challenged by counsel in the second trial.  Identical considerations apply to the evidence of the parties’ legal experts and of Mr Ang .  It is these factors which have really weighed with me above the rest in a case where there are common features in these two actions.

13.  And so despite its tardiness, which can be reflected in my order for costs, I propose to direct a consolidation and a joint trial of these two actions.  I direct that the two periods allocated in December and March be held.  The case will start in December and go over and be completed in March.  I appreciate that it is never satisfactory to go part heard in this way but a three-month gap is not so substantial as to cause me to change my mind about how to proceed.

14.  I trust the parties can now agree any further directions that remain outstanding and I can make such orders as I am required to as to how Mr Ang gives his evidence or has it taken from him on commission once his fate is known in November.  In any event he will not be required, I would have thought, until March next year.

15.  As to costs about which I have already heard provisional argument, I would have thought that the correct order is one of costs in the cause.  Although the Defendants have succeeded and the Plaintiff has failed, it was entirely proper, given the avoidable lateness of this application, for the Plaintiff to have opposed it.  The Plaintiff should not be penalised for having lost the argument on its merits in these circumstances.  Let whoever wins at the trial have these costs.  Lastly, I will give the parties liberty to apply as to any further directions that may be required in the event that they cannot agree them.