GALCO INTERNATIONAL TOYS N.V. v. KADER INDUSTRIAL CO. LTD.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

1991, No. A250

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INTERLOCUTORY JUDGMENT

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1. This matter is before me for trial, but, in limine, both parties wish to amend their pleadings.

Application of Amend the Statement of Claim

2. The plaintiff issued a summons on 30 November 1994 under which it seeks leave to re-amend its statement of claim, and that the defendant have leave to re-re-amend its defence, if so advised, within 7 days.

3. The significant amendments sought to be made are -

a) to say that the plaintiff carries on business in the design, development and sale of toys, instead of the manufacture and sale of toys;

b) to allege that certain shipment inspection specifications were written express terms of the written agreements; and

c) in relation to damages alleged to have been suffered, to say that the plaintiff's holding company, instead of the plaintiff, incurred loss of profit, losses, costs and expenses, and that the plaintiff is liable to indemnify the holding company.

4. The only point of substance raised by Mr Griffiths, who appears for the defendant, is in relation to the amendments mentioned in paragraph c) above. He says, in essence, that the allegation that the holding company suffered the damages is entirely new, that the defendant has had no discovery from that company and does not know in what way the plaintiff is liable to indemnify it.

5. I do not believe there is any substantial merit in this argument. The statement of claim as it stands alleges pretty well the same damages suffered, but by the plaintiff instead of its holding company, and also already alleges that the plaintiff is bound to indemnify purchasers from it, including its holding company. In so far as it may be suspected that, as between the plaintiff and its holding company, there was any kind of special basis for the alleged liability to indemnify, or any documents that may be evidence of this which Mr Griffiths has not seen, I am assured by both Mr Mills-Owen and Mr Bleach, who appear for the plaintiff, that this is not so. Mr Bleach says that the only difference between the allegations of damages suffered arising out of sales to other purchasers and those to the holding company is that payment of compensation has been made to those other purchasers, but not to the holding company. Under the existing allegations, the defendant could have expected the plaintiff to attempt to prove the damages and the liabilities to indemnify. The fact that, under the amendments, it would seek to prove the same damages, although suffered by its holding company, and the same liabilities to indemnify seems to me to result in very little change in the way the defendant might have expected the plaintiff to present and seek to establish its case. There is, in my view, no room for suggesting that the plaintiff is presenting anything radically new here, and I cannot see any prejudice to the defendant.

6. Accordingly, I make an order in terms of paragraphs 1, 2 and 3. of the plaintiff's summons of 30 November 1994.

7. As far as the costs occasioned by this application are concerned, I think, at first blush, they should be paid by the plaintiff, and I make an order nisi to this effect.

Application to Amend the Defence

8. The defendant issued a summons dated 6 December 1994 under which it seeks leave to amend the amended defence and counterclaim.

9. The amendments that are sought to be made are, on the face of them, fairly extensive and detailed. It would be convenient, I believe to deal with them on the basis of the objections raised by Mr Mills-Owen.

Too Late

10. The first point made by Mr Mills-Owen is a general one. He says that the plaintiff knew nothing about any intention to seek to amend until Tuesday, 6 December 1994; that is, some days after the trial was due to start on 1 December 1994, and only a few days before the summons was to be heard. The application for leave to amend is, he says, far too late.

11. I accept, of course, that the application is very late. It should have been made much earlier, but the point goes largely to prejudice. If the plaintiff is prejudiced by the amendments - in the context of this case, if it cannot reasonably be expected to be able to present its case properly to meet the allegations made by the late amendments at this time - it may be that an adjournment may be necessary to cure this. Otherwise, I give this aspect little weight. Amendments to pleadings at the start of a trial are very common in this jurisdiction; nothing concentrates the mind of the pleader like a trial a few days away. The trial was due to start on 1 December 1994, but it did not do so. It was moved to my list late in the day, and I was not available until, substantially, 9 December 1994, after I had read into the case and met another commitment. So the application to amend is, in reality, made before the case was opened, not after the trial had commenced in substance.

The Standards

12. The plaintiff alleges in its statement of claim that the dolls manufactured by the defendant for the plaintiff were to comply with certain laws governing health and safety. These are referred to in the pleadings as "the Standards".

13. In its defence as it stands, the defendant says that it is not admitted that the Standards as set out in the plaintiff's statement of claim are true or accurately summarised, and the plaintiff is put to strict proof of them. Further, it says -

a) that no admission is made that the defendant knew that the dolls were to comply with the Standards;

b) that the Standards are so vague and uncertain in respect of bacteriological contamination as to be unenforceable as terms of the contract between the parties; and

c) that they do not provide for bacterial or fungal count requirements.

14. The amendments seek to allege, additionally, that it is denied that -

1) the Standards are addressed at or capable of defining the level of acceptable or unacceptable micro-biological contamination on toys;

2) they were intended to set standards, or constitute regulations, governing levels of acceptable or unacceptable micro-biological contamination in toys; or

3) they are relevant to the plaintiff's case.

15. On this basis Mr Mills-Owen says that the defendant is now seeking to set up a positive case that does not exist in the present defence .

16. It is true that whereas presently the defendant says that it does not admit that the Standards apply to the contracts concerned for the various reasons advanced, it now seeks to say, further, that it is denied that they apply for other reasons. I do not myself see a great difference in these allegations so far as they may embarrass the plaintiff in presenting its case. Clearly, the defendant has already put the status of the Standards as to their relevance firmly in issue. More particularly, anyone reading the existing defence would be put on notice that the plaintiff was required to establish the terms and meaning of the Standards, that they applied to the contracts, and that they were capable of being applied to bacteriological and fungal contamination. Preparatory work to prepare the plaintiff's case to meet these allegations should have been adequate, in my view, to meet the allegations that the Standards do not apply for the fresh reasons advanced.

17. It does appear, as Mr Mills-Owen suggests, that there may be a measure of inconsistency in the defence. Parts of the defence say that the defendant worked according to the plaintiff's specifications, and it seems that these specifications included the Standards, which the defendant says do not apply to the contracts. On the other hand, I do not yet know in detail how the defendant will present its case. It may be, as Mr Griffiths seems to argue, that the defendant's case will be that the Standards do not apply for one reason or another, although the specifications seek to include them. No pleaded case is perfect, and I do not think this point is strong enough to delay the trial because the plaintiff may be embarrassed.

Amendments regarding the Basis of the Contracts

18. An amendment sought by the defendant alleges that since 1986 the parties had contracted with each other "on an O.E.M. basis (Original Equipment Manufacturing) basis, that is according to the Plaintiff's specifications and directions". Other amendments seek to allege that much that was done at the defendant's factory in relation to the manufacture of the dolls was done under the specifications, directions, requirements or instructions of the plaintiff. Specific allegations say things such as -

a) "The Plaintiff . . . would assist the Defendant to manufacture . . . moulds according to the requirements and specifications of the Plaintiff";

b) The plaintiff's staff would be present "supervising or advising" the defendant's staff upon the plaintiff's "manufacturing requirements"; and

c) " . . . the Plaintiff's quality control inspectors would be present in order to ensure that the Plaintiff's manufacturing and quality control specifications were at all times carried out".

19. Mr Mills-Owen argues that these allegations are too general and wholly unparticularised, and allegations such as that the contract was on an O.E.M. basis do not plead what legal consequences, if any, are alleged flow from these assertions.

20. During argument, I put to Mr Mills-Owen that he may be content if it was made clear that the only specification, direction, requirement or instruction relied upon by the defendant was the instruction to use distilled water. He indicated, to the extent that this complaint was concerned, this may be so. In closing his reply, Mr Griffiths did indeed make it clear that this was the case. He said that the only instruction upon which the defendant would rely would be that specifically pleaded; that dealing with using water in testing the dolls. I understand this to be so generally, and specifically in relation to the allegation that any breach occurred due to the defendant's compliance with the plaintiff's express instructions. The same must apply also to the allegation that the manufacture by the defendant was on an O.E.M. basis - that is, according to the Plaintiff's specifications and directions. In other words, the allegation that the contracts were on an O.E.M. basis carries with it no legal consequence other than that which might follow from the fact that the plaintiff instructed the defendant to test the dolls with distilled water and the defendant obeyed this instruction. Mr Griffiths said he would clarify the defendant's pleadings by stating that the defendant relied only upon the water testing allegation in response to a request for further particulars already drafted on behalf of the plaintiff. The plaintiff should do this before the close of play tomorrow.

21. There is nothing really new here. The existing defence makes similar allegations about instructions, requirements etc. such as -

a) ". . . which designs (upon the oral instructions of the Plaintiff) were amended";

b) " . . . during the manufacture of the dolls, the Plaintiff's representatives were present at the factory and gave oral instructions as to that manufacture";

c) "At all material times all specifications for the production of the dolls and working procedures for their manufacture and testing were laid down and approved by the Plaintiff . . ."; and

d) ". . . instructions . . . by which the Plaintiff instructed the Defendant to use distilled water for function testing of the dolls."

22. In response to the plaintiff's request for further particulars in relation to these existing allegations, the defendant said, in one instance, "the particulars sought except those relating to the use of water in the dolls are not relevant or directly relevant to the issues between the parties", and did not supply them. The defendant took its request no further, presumably being content, or, at least, being prepared to tolerate, that situation. It appears that the plaintiff was prepared and able to go to trial on these existing allegations, particularised only as to the water testing. The new averments relating to instructions etc., in the light of what I have said above, have not changed the situation substantially.

Expert Evidence

23. Mr Mills-Owen says that expert evidence will be required to assist me in construing the Standards to determine whether or not they apply to micro-biological contamination. I wondered, when Mr Mills-Owen raised this, why I would need assistance on the aspect of the Standards now sought to be pleaded, but apparently not on the aspects relied upon by the plaintiff or those aspects already pleaded by the defendant. He attempted to explain this. He said that the plaintiff took the view that the existing pleadings called for expert evidence. An application was made to a judge for directions on this point.

24. The direction, amongst others, sought was "A report by an Attorney-at-Law in respect of an Advice on United States Law in particular in relation to the CPSC Regulations be agreed if possible, and that, if not agreed the expert evidence be limited to one witness for each party."

25. The judge dismissed the summons saying, I am told, that it was "vague, unnecessary and improper". There was no appeal against this decision.

26. I am not sure what effect this ruling has. I have some doubt that it has the effect of debarring a party from calling expert evidence, although this seems to be the way the parties have interpreted it. In terms, the direction refused was one calling for an expert's report to be agreed, or for the number of expert witnesses to be limited. Certainly, I accept that it does not dictate to me that I must not hear expert evidence because it is inadmissible; that, as Mr Mills-Owen argues, is a matter for me. In any event, if the parties were right in assuming that the judge was saying that expert evidence was unnecessary, I agree. If I have any particular expertise, it is in the area of statute law, and I do not believe that any difficulty that may arise in construing the Standards would be helped by having the view of another.

27. However, whatever the effect of this ruling, I do not see that the amendments applied for by the defendant make any difference to the situation. The question of the proper construction of the Standards is in issue now, and it will remain so if the amendments are allowed. Nothing in this respect would be changed by the amendments sought to be made.

Conclusion

28. I conclude that the plaintiff will suffer no substantial prejudice by allowing the amendments sought by the defendant at this late stage.

29. Accordingly, I make an order in terms of paragraphs 1, 2, and 3 of the defendant's summons of 6 December 1994.

Adjournment

30. Mr Mills-Owen argues that, if I allow the defendant to make the amendments, I should adjourn the trial to enable the plaintiff to prepare its case to meet the new allegations.

31. I believe that I should allow an adjournment only if it necessary for the ends of justice. Judges have a part to play in seeking to ensure that trials are dispatched expeditiously. This matter is long overdue for trial. I think it must be clear from what I have said earlier that I do not believe that the plaintiff will be seriously embarrassed by the amendments to the defence. I do not believe that the plaintiff requires the opportunity to put its house in order to deal with the amendments. The work done already on behalf of the plaintiff will enable it to deal with the issues raised by the defendant in the amendments. Even if I am wrong in this to some extent, this trial is destined to last a long time; the plaintiff's advisers estimate some 40 working days, and, judging by the progress so far, that may be an underestimate. There will be time for matters to be further investigated by the plaintiff, if necessary, and I believe that our procedure is sufficiently flexible to enable me to ensure that no injustice is done.

Costs

32. As for costs, I will hear counsel if they are not content with an order nisi that the defendant pay all the costs occasioned by the application. On the face of it, I believe this is the just order because I do not think the opposition to the application was unreasonable. There were, on the face of it, extensive amendments, and the basis for the opposition was certainly arguable. Indeed, without Mr Griffiths concession that the only instruction, requirement etc. that is relevant is that relating to the water testing, I would have been reluctant to allow some of the amendments in the broad terms in which they were drafted.