HUNG TAT A. I. GARMENT MACHINERY COMPANY LTD v. HONG KONG MELT BLOWING PRODUCTION COMPANY LTD AND ANOTHER

DCCJ 515/2022

[2024] HKDC 1913

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 515 OF 2022

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REASONS FOR DECISION

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Introduction

1.  On 1 November 2024, the plaintiff issued a Summons (“P’s Summons”) for the following orders:-

1.1.  Leave be granted to the plaintiff to withdraw the Summons filed on 16 October 2024 (“the 16/10/24 Summons”);

1.2.  Leave be granted to the plaintiff to file and serve the Supplemental List of Documents as per the draft enclosed within 14 days; and

1.3.  Leave be granted to the plaintiff to serve the Supplemental Witness Statement of Hung Kwai Chuen as per the draft attached within 14 days.

2.  The 16/10/24 Summons put forward essentially the same application as P’s Summons, save that the plaintiff did not seek leave to file and serve a supplemental list of documents to formally discover the documents referred to in Mr Hung’s draft supplemental statement.

3.  P’s Summons came before me for hearing on 12 November 2024, at the same time as the Pre-Trial Review for the trial scheduled to commence on 10 February 2025 with 5 days reserved. After hearing the parties, I gave an order in terms of paragraph 1 of P’s Summons, but dismissed the rest of it, with reasons to be handed down.

4.  I now set out the reasons for my decision.

Background

5.  There is no dispute that the plaintiff agreed to sell, and the 1^st defendant agreed to buy at HK$450,000.00, certain machinery for production of face masks by a written agreement dated 23 October 2020 (“the Agreement”). There is a dispute as to how many items of machinery were included in the sale price, but this does not concern the correct outcome of P’s Summons.

6.  The written agreement provided that payment of the HK$450,000.00 should be effected in the form of a commission at HK$0.10 per each face mask that the defendants manufactured with the equipment, until the commission reached HK$450,000.00. The commission shall be paid on a semi-monthly basis.

7.  Delivery of the machinery allegedly took place from October to November 2020. It is agreed between the parties that no commission payment was made by the defendants to the plaintiff as at 31 December 2020. Again, there is a dispute as to why this is so: the defendants claim that the machinery was under testing since it was delivered, and only less than 10,000 face masks of the requisite quality were manufactured by then; the plaintiff claims that the defendants were defaulting on the payment despite face masks being manufactured since the end of October 2020.

8.  On 31 December 2020, there was a meeting between Mr Hung Kwai Chuen (“Mr Hung”), together with Mr Raymond Choi for the plaintiff, and Mr Wong Dak Sun (“Mr Wong”), the defendants’ director, at the defendants’ office.

9.  The result of the meeting was a supplemental agreement signed by the plaintiff and the defendants on that day (“the Supplemental Agreement”). It stated, inter alia, that the 1^st defendant would make a lump sum payment of HK$295,000.00 in full and final settlement of its liability under the Agreement, which it did on that day. Parties disagree on how the Supplemental Agreement came about:-

9.1.  The plaintiff says that it only entered into the Supplemental Agreement because of economic duress exerted by the defendants. At the meeting, Mr Hung informed Mr Wong that the plaintiff was short of cash to settle payments to its suppliers and to pay year-end bonus to its staff[1]. On learning the plaintiff’s financial difficulty, Mr Wong stated that the 1^st defendant would only be willing to pay HK$295,000.00 as full and final settlement of its liability towards the plaintiff; the plaintiff would also need to provide a warranty to the defendants for the equipment from 1 November 2020 to 31 April 2021 [sic][2];

9.2.  The defendants say it was Mr Hung who pressed for one-off payment from the 1^st defendant because of the plaintiff’s financial pressure. It was also Mr Hung who suggested the sum of HK$295,000.00. After consideration, Mr Wong eventually agreed that the 1^st defendant shall pay HK$295,000.00 as a one-off payment.

10.  The plaintiff claims that the Supplemental Agreement should have no legal effect as a result of the 1^st defendant’s economic duress. It therefore claims HK$155,000.00 as the outstanding payment on the Agreement, plus other miscellaneous items. The defendants deny that they are liable to pay anything on top of the HK$295,000.00, and counterclaim for the loss occasioned by the substandard performance of the machinery, which again I need not detail for the present purposes.

Late application to adduce witness statement

11.  It is incontrovertible that P’s Summons is a late application, when the trial is due to start in 3 months’ time. The parties must have confirmed that the present case was ready for trial when they persuaded the court to give leave to set it down for trial in January 2024. I cannot see how the fact that the defendants were given Mr Hung’s draft supplemental statement for their consent in early August 2024 could have any bearing on the lateness of the plaintiff’s application.

12.  Mr Ian Chu (appearing for the plaintiff) and Mr Alexsander Wong (appearing for the defendants) both ask me to apply Re Cao Zhong [2021] HKCFI 3143 (Recorder William Wong, SC; 27 October 2021), which followed Parsad v Great Wealthy Engineering Co Ltd [2012] 3 HKLRD 705, for the legal principles on a late application for leave to adduce a witness statement. They also refer to other authorities in which the legal principles were discussed and applied in each instance, but I do not think it useful to set them out exhaustively. In summary, I agree with Mr A Wong that the plaintiff must provide full justification as to why its application should be entertained at a late stage. The reasons for lateness, the provenance and relevance of the evidence sought to be adduced, and the availability of the maker of the statement should be explained. The relevance and probative value of a late witness statement must be weighed against the potential disruption to trial, prejudice to the other parties, and the objectives of the Civil Justice Reform. It goes without saying that each case may arrive at a different conclusion because the surrounding factual circumstances vary from one to another; the consideration should not become a mechanistic exercise.

Application to the facts

13.  Mr Hung’s supplemental statement seeks to adduce evidence on the following aspects:-

13.1.  He refers to the money that remained unpaid on the invoices received from the plaintiff’s suppliers, and the balances of the plaintiff’s bank account to show that the plaintiff was short of cash towards the end of 2020;

13.2.  He claims that the face masks manufactured by the defendants using the equipment sold by the plaintiff all bore a crown label, and exhibits a photo of a face mask as an example. He estimates that the defendants sold 20,000 to 30,000 face masks per day at its 2 shops. On the basis that 40 face masks were manufactured every minute, the daily production rate was 48,000[3];

13.3.  He refers to a video clip allegedly taken on 7 November 2020 at the 1^st defendant’s office, which allegedly show that the 1^st defendant was manufacturing face masks at that time. Mr Wong was also photographed on the same day holding up some face masks. From his observation, Mr Wong was satisfatied with the operation of the equipment sold by the plaintiff. Therefore, he thinks the defendants’ assertion that few face masks were manufactured by 31 December 2020 cannot be believed.

14.  The plaintiff puts forward the following reasons as to why these matters were not alluded to earlier:-

14.1.  Mr Hung’s former secretary, who was in charge of the plaintiff’s financial documents, resigned in March 2022. His current secretary was hired in November 2022, and was not familiar with the plaintiff’s financial documents back in 2020. Therefore, Mr Hung and his secretary had to spend more time in retrieving the documents and to print out the plaintiff’s bank statements;

14.2.  The plaintiff was advised by counsel, after witness statements were exchanged in August 2023, of its ongoing obligation of discovery. Upon counsel’s advice, Mr Hung managed to locate further documents now referred to in his supplemental statement.

15.  I agree with the defendants that the evidence Mr Hung’s supplemental statement now mentions could all have been adduced by the time the parties exchanged their respective witness statement back in August 2023. With respect, the plaintiff’s reasons for lateness are as pathetic as they can be. Time and again, the court sees purported explanations of delay laying blame on change of personnel like what the plaintiff is now doing. Much more often than not, this kind of explanation is rejected for the simple reason that the party itself could have taken the time to go through the matters previously handled by its employees. I cannot see how the plaintiff could be disabled from spending the time to locate all of the relevant documents well in advance of the exchange of witness statements, either on its own or with the help of its legal representatives. This is particularly so when the Statement of Claim, drafted by Mr Chu in February 2022 and before the resignation of Mr Hung’s former secretary, already refers to the plaintiff’s short of cash as the basis for alleging economic duress on the defendants’ part. There is and can be no allegation that the documents were not thought to be relevant or useful, or they were not available to the plaintiff until recently. Further, as submitted by Mr A Wong, Mr Hung’s explanation cannot justify the plaintiff’s inaction from the receipt of counsel’s advice up to the time this action was set down for trial. I see force in the defendants’ point that the plaintiff has not stated the actual time by which the counsel’s advice was obtained after August 2023, when the court previously ordered such advice to be obtained by early September 2023. In my judgment, the plaintiff falls far short of showing that the delay in taking out P’s Summons was justifiable.

16.  In my judgment, the evidence sought to be adduced by Mr Hung’s supplemental statement is not so relevant and probative to the issues at trial that this Court should still grant leave despite the lack of proper explanation for the delay[4]. As I see it:-

16.1.  There is no need for the plaintiff to use the suppliers’ invoices and its banking documents to corroborate the plaintiff’s claim on it being short of cash by the end of 2020. There is no dispute that the plaintiff’s financial plight was made known by Mr Hung to Mr Wong at the meeting on 31 December 2020. The issue rather goes to how the alternative payment terms as stated in the Supplemental Agreement was raised and subsequently agreed. It is also never the plaintiff’s case that Mr Hung actually provided those documents to Mr Wong at the meeting;

16.2.  Without pre-judging the issue, I disagree with the plaintiff that Mr Hung’s supplemental statement is highly relevant to the issue of economic duress. In Times Travel (UK) Ltd v Pakistan International Airlines Corpn [2023] AC 101[5], the UK Supreme Court held that the elements to show economic duress were (i) the making of an illegitimate (albeit lawful) threat by one party; (ii) sufficient causation between the threat and the threatened party entering into the contract or making the non-contractual payment; and (iii) the lack of any reasonable alternative to the threatened party giving in to the threat. Insofar as the plaintiff may want to rely on Mr Hung’s proposed evidence that the plaintiff had HK$4.8 million in unpaid invoices but little cash left by the end of 2020 to prove that there was no alternative for it but to enter the Supplemental Agreement, there is currently no evidence to show that any money to be paid by the 1^st defendant would be the only source of income to meet the plaintiff’s expenses, and it would make a significant difference if such sum was paid by the 1^st defendant before the end of 2020. In my judgment, Mr Hung’s supplemental statement will only add little to the plaintiff’s argument on economic duress;

16.3.  The evidence that the defendants sold 20,000 to 30,000 face masks at its shops every day is a bare assertion without any explanation on the basis and the timing. This equally applies to the statement that the daily rate of production could be 48,000. As such, I do not find the evidence so probative that it should be considered by the trial judge to reach a just resolution of the dispute;

16.4.  I agree with the defendants that the video and Mr Wong’s photo are not highly probative, because one cannot ascertain whether the machinery, seen running for around a minute in the video, was indeed functioning properly. It is also unknown whether the face masks held up by Mr Wong in the photo were confirmed to be of acceptable quality.

17.  I further accept the defendants’ submissions that if the plaintiff is allowed to adduce Mr Hung’s supplemental statement, there is a risk that the trial may be derailed. It is not open to the plaintiff to say that the defendants must be able to come up with a proper reply before the commencement of the trial. For example, since Mr Hung made sweeping estimates as to the sales and the daily rate of production of face masks, the defendants will need to ascertain whether rebuttal evidence, either in the form of documentation or of further witness statements, is now available. One cannot foretell how easy such rebuttal evidence may be prepared.

18.  I also disagree with the plaintiff that there will be no prejudice to the defendants. It is trite that delay in itself is a form of prejudice to the innocent party. I also find it unfair that the defendants are to divert their resources to respond to Mr Hung’s supplemental statement, instead of focusing the same on the preparation of trial.

19.  Based on the above reasons, I came to the conclusion that the plaintiff failed to persuade me that leave ought to be granted to allow it to adduce Mr Hung’s supplemental statement. Its application to file and serve a supplemental list of documents should also fail.

Conclusion

20.  At the Pre-Trial Review, I gave the following orders regarding P’s Summons:-

20.1.  Leave be granted to the plaintiff to withdraw the Summons filed on 16 October 2024;

20.2.  The plaintiff’s application to file and serve the Supplemental List of Documents, and the Supplemental Witness Statement of Hung Kwai Chuen, as per the respective drafts attached to P’s Summons, be refused;

20.3.  Costs of and occasioned by the plaintiff’s Summonses respectively filed on 16 October 2024 and 1 November 2024 be to the defendants in any event, to be taxed if not agreed (with certificate for counsel).