XCHRX SHINE PROFIT DEVELOPMENT LTD. v. THOMAS HADDEN

HCA11701/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 11701 OF 1998

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REASONS FOR DECISION

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1. This is an appeal by the plaintiff, Shine Profit Development Limited trading as Ansen Electronics Company, against the order of Master POON, setting aside the order granting leave to the plaintiff to serve the writ on the defendant out of jurisdiction.

2. The defendant, Mr Thomas Hadden, is residing in the United States of America. He is trading as Pentamark and carrying on business in the state of Illinois, the United States of America.

3. The plaintiff claims against the defendant for the price of goods sold and delivered under an agreement, partly oral and partly written, made between the plaintiff and the defendant.

4. It is the plaintiff's case that the defendant had taken delivery of just over 7,000 units of garden lights to the total value of about US$80,000 but had only made a partial payment of about US$29,000 leaving a balance of some US$51,000 which is the subject matter of the claim.

5. The plaintiff contends that the contract between the plaintiff and the defendant was made in Hong Kong and the breach of the contract was also committed within the jurisdiction, hence an application was made for an order for service out of jurisdiction in accordance with Order 11 of the Rules of the High Court.

6. On the other hand, the defendant claims to have a number of counterclaims and/or set-offs against the plaintiff for an amount around the same as or slightly less than the plaintiff's claim.

7. It is the defendant's contention that when the plaintiff applied for the ex parte order for service out of jurisdiction, the plaintiff had failed to make full and frank disclosures in the following matters:

8. Firstly, at the time when the contract was made, the garden lights, the subject matter of the contract, were present in the United States of America, and they had been rejected by another purchaser, Wal-Mart, and returned to a warehouse in Texas.

9. Secondly, the arrangements for the shipping and obtaining of the goods were made between the defendant and the plaintiff's agent in the United States of America, one Randy Hopkins, who delivered the goods to the defendant.

10. Thirdly, the defendant has a number of counterclaims and set off against the plaintiff, and that the witnesses for the defendant all reside in the United States of America.

11. And fourthly, the defendant also points out the fact that he does not travel regularly to Hong Kong, and has not been in Hong Kong since September of 1996.

12. The defendant also suggests that the contract between the plaintiff and the defendant was made in the United States of America and not Hong Kong, and although the failure on the part of the defendant to pay the balance of the purchase price by telegraphic transfer can mean that the breach of the contract was committed in Hong Kong, it does not necessarily follow that Hong Kong courts are the forum conveniens.

13. When the contract was concluded after negotiation over a period of time by instantaneous communication such as telephone or fax, it is perhaps not always easy to determine exactly when the contract was concluded but the failure on the part of the defendant to make payment of the balance of the purchase price by telegraphic transfer to the plaintiff's account at the Standard Chartered Bank in Hong Kong tends to support the suggestion that the alleged breach of the contract was indeed committed in Hong Kong.

14. So far as this part of the dispute is concerned, I'm prepared to rule that the plaintiff has shown a good arguable case that the contract was made in Hong Kong and that the alleged breach was also committed in Hong Kong.

15. Prima facie, the plaintiff has brought itself within the ambit of Order 11 Rule 1(d)(i) and Rule (e) although insofar as the first rule is concerned, Mr Chain, on behalf of the plaintiff, indicates that there may not be the need for him to rely on it. But contrary to his argument, I am concerned with the alleged non-disclosure of material facts.

16. Under Order 11 Rule 1 an application for leave to serve out of jurisdiction is made ex parte on affidavit. In the exercise of its discretion the court should take into consideration the question of forum conveniens.

17. It is now not disputed that at the time when the contract was in fact made between the parties, the subject matter of the contract was stored in a warehouse in Texas, having been earlier rejected by another buyer. It is also not in dispute that the shipping and the delivery of the goods were arranged between the plaintiff and one Randy Hopkins who was at the material time the plaintiff's agent in the United States of America.

18. There is also evidence that, arising out of the transaction in question, the defendant claims to be entitled to be paid certain sums either owed by the plaintiff or incurred on behalf of the plaintiff.

19. The fact that the potential witnesses for the defendant all reside in the United States of America and that the defendant seldom comes to Hong Kong may not be too significant a consideration in deciding whether the order for service out of jurisdiction should be granted. But the fact that the subject matter of the contract was stored in a go-down in the United States of America, and that the contract was performed by a US agent of the plaintiff, in my view, are significant and material.

20. Mr Chain, on behalf of the plaintiff, suggests that the alleged counterclaims are neither a liquidated claim nor a claim which was closely connected with the plaintiff's claim. Hence, so he suggests, the defendant's alleged counterclaims can be pursued separately, and not as a set-off to the plaintiff's claims, which claims can be and should be pursued in the court within the jurisdiction of Hong Kong.

21. I have considered the factual background as put forward by both parties and counsel's submissions in this regard. Some of the items of the alleged counterclaims by the defendant may not be closely connected with the transaction in issue, but there can be no doubt that there were disputed items between them.

22. Further, on the evidence which to some extent is undisputed, some of the counterclaims are indeed related and, in my view, can arguably be put forward as a set-off to the plaintiff's claim. As I have observed earlier, under Order 11, the court has a discretion in allowing a writ to be served out of jurisdiction and in the exercise of that particular discretion, the court must consider the question of forum conveniens. The whereabouts of the goods at the time when the contract was made; the fact that the contract was arranged through an agent in the United States of America; the fact that the defendant may have a valid defence of set-off or counterclaim are certainly material facts on the question of forum conveniens. In an ex parte application, the law requires that the applicant must make a frank and full disclosure of all material facts. In my view, the plaintiff, though not deliberately, has not discharged this particular duty.

23. Mr Chain did not seek to raise very strong argument in that regard but he seeks to argue that, irrespective of such alleged non-disclosure, the court should nevertheless look forward and decide at the inter partes stage, on the materials then before it to decide if the plaintiff has a good arguable case for service out of jurisdiction. He relies on the case of Wo Fung Paper Making Factory Ltd v Sappi Kraft (Pty) Ltd [1988] 2 HKLR 346.

24. He suggests that a deviation from the aforesaid approach would just be a waste of costs and time because the plaintiff would just make a fresh application, even if the initial one has been discharged.

25. I tend to agree with Mr Chain's submission if, on a full and frank disclosure, the court clearly would have exercised the discretion in favour of the plaintiff by granting leave for service out of jurisdiction. Otherwise, as McDougall J in the case of Citibank v Express Ship Management Service [1987] HKLR 1184, observed at page 1191:

"It would be unfortunate if it were to be thought that in laying down the very sensible and necessary principles concerning disclosure of all material facts, the Court have intended to give active encouragement to undeserving defendants to search ingeniously for facts which a Plaintiff may innocently have failed to disclose, in the hope that a judge may consider them to be material and so discharge the original order."

26. In the present case I am not of the view that if full disclosure of material facts had been made by the plaintiff the learned Master would have necessarily exercised the discretion in favour of the plaintiff as she did. Indeed, I have considered the entire background of this case, and I've also taken into consideration some of the undisputed facts and counsel's argument on all the relevant matters. In my view, applying the principle as set out in Spiliada Maritime Corpn. v Cansulex Ltd [1987] AC 460, I am inclined to take the view that the forum conveniens for the dispute between the plaintiff is the courts in the United States and not in Hong Kong.

27. This view may not bind whatever further application that the parties may wish to pursue, but this is certainly a view that is of importance insofar as my position in the present appeal is concerned. I am not persuaded that Master POON's decision in setting aside the ex parte order was wrongly made by reason of the matters that I have indicated earlier. In the circumstances, the appeal against his order must therefore be dismissed.