CAPETRONIC COMPUTER SALES LTD v. VIEWSONIC CORPORATION

HCA2088/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.2088 OF 2002

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D E C I S I O N

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1. By an order dated 18 June 2002 Master Ho gave leave to the plaintiff, Capetronic Computer Sales Limited ("Capetronic"), to serve a writ on the defendant, Viewsonic Corporation ("Viewsonic"), in California. By this summons Viewsonic seeks a stay of proceedings (under the Arbitration Ordinance, Cap.341) or an order setting aside the leave to serve in California (granted under Order 11, rule(1)(1)(e)).

2. By a separate summons dated 28 June 2003, Viewsonic applied for leave to file the 4th affidavit of Mr W.J.G. Barber dated 27 June 2003. A previous order that there be no further affirmations without the leave of the court having been made. The summons was opposed. It therefore became a preliminary issue upon which both parties made submissions. Before moving on to the main issues in Viewsonic's summons dated 17 September 2002, I ruled that both Mr Barber's 4th affidavit (for Viewsonic) and Mr Leung Ping Chui's 2nd affirmation (for Capetronic) dated 3 July 2003, may be admitted but for a limited purpose only, namely, as evidence that separate proceedings between the parties commenced in California, had been stayed for arbitration by the U.S. court.

BACKGROUND

3. The plaintiff is a Hong Kong company which sells Original Equipment Manufacturing computer products ("OEM"). The defendant is a U.S. company which sells, inter alia, computer monitors. The Statement of Claim pleads that the defendant originally owed the plaintiff US$2,896,965 for computer monitors sold and delivered to them. The claim is for US$297,201 being the balance still due after an alleged settlement reached in March 2001. The relationship between the parties had been formalized, in June 1997, by a document known as the 'OEM' agreement.

4. However, underlying the defendant's application to this court is their contention that considerable uncertainty exists about the corporate structure of which the plaintiff is a part.

5. The plaintiff is Capetronic Computer Sales Limited (a Hong Kong company). The party to the OEM agreement is Capetronic Computer Products Holdings Limited. Further, the defendant submits that there is evidence that the party to the settlement agreement was Capetronic International (Thailand) Public Company Limited ("CITL") and the plaintiff in the U.S. proceedings (which have been stayed) is Capetronic Computers U.S.A. (H.K.) Inc. The defendant submits that the plaintiff in these Hong Kong proceedings was not a party to the OEM agreement. The defendant also submits that the settlement agreement, which provides the background for the claim for US$297,201, was not between the plaintiff and the defendant but between CITL and the defendant.

6. For the purposes of these applications further attempts to unravel the corporate structure of which the plaintiff is a part are unnecessary. What is necessary is to examine the grounds upon which the defendant makes its two applications : first, to set aside the leave to serve the writ in California and second, the application for a stay which is based on the fact that an arbitration clause exists in the OEM agreement. Mr David Stokes, for the defendant, dealt with the two issues in this order, which I consider to be the logical order, even though the summons puts them the other way around.

Setting aside leave to serve in California

7. The summons relies on a single ground for setting aside, namely a failure to disclose material facts.

Legal principles

8. These were summarized by Ralph Gibson LJ in Brink's Mat Ltd v. Elcombe [1988] 1 WLR at page 1356. The following are relevant to this application :

" In considering whether there has been relevant non-disclosure and what consequence the court should attach to any failure to comply with the duty to make full and frank disclosure, the principles relevant to the issues in these appeals appear to me to include the following. (1) The duty of the applicant is to make 'a full and fair disclosure of all the material facts:' ...

(2) The material facts are those which it is material for the judge to know in dealing with the application as made: materiality is to be decided by the court and not by the assessment of the applicant or his legal advisers: ...

(3) The applicant must make proper inquiries before making the application. ... The duty of disclosure therefore applies not only to material facts known to the applicant but also to any additional facts which he would have known if he had made such inquiries.

(4) The extent of the inquiries which will be held to be proper, and therefore necessary, must depend on all the circumstances of the case including (a) the nature of the case which the applicant is making when he makes the application; and (b) the order for which application is made and the probable effect of the order on the defendant: ...

(5) Whether the fact not disclosed is of sufficient materiality to justify or require immediate discharge of the order without examination of the merits depends on the importance of the fact to the issues which were to be decided by the judge on the application."

9. These are stringent principles for obvious reasons. An affidavit in support of an ex parte order must be both "full" and "fair". In particular, in Knauf U.K. GmbH v. British Gypsum Ltd [2002] 1 WLR at page 925 the point was made that if there is a possibility that a foreign jurisdiction may prevail over the dispute in question, such possibility must be brought to the court's attention :

"It seems to us that when a court is being asked to make an exceptional order, designed to affect ... foreign parties, it is absolutely necessary to bring to the court's attention the possible existence of an exclusive jurisdiction clause in favour of a foreign jurisdiction. Nothing else would vindicate that 'heavy duty of candour and care' which is required ... There is a dispute about where the litigation should take place. There is an exclusive jurisdiction clause which points towards Germany. There is a valid dispute as to its applicability. In such circumstances the English Court should not be asked to act as it were blindfolded. In our judgment this is one of those cases where, unless the 'golden rule' is to fall into disrespect, a failure to disclose should be met by the sanction of the court."

DEFENDANT'S SUBMISSIONS

10. Mr Stokes makes the following complaints about the plaintiff's ex parte application.

11. Whilst the plaintiff's affirmation in support of the ex parte order refers to a settlement arising out of a meeting between certain parties on 6 March 2001, it does not refer to the terms of the settlement according to the defendant's letter of 19 March 2001. Had that letter been exhibited it would have revealed the following. Firstly, that the defendant had written to Capetronic International Public Co., and not the plaintiff, as the other party to the settlement agreement. Secondly, that it was addressed to Mr Adrian Ma, an employee of CITL. Thirdly, that the settlement agreement was not an amendment of the OEM agreement (there had been no reference to the OEM agreement in the affirmation). Fourthly, that the OEM agreement remained in "full force and effect" and fifthly, that the OEM agreement contained a valid and binding arbitration clause.

12. It was not pointed out to the master that the settlement agreement meeting had taken place in California. The location of the meeting and the arbitration clause give rise to clear forum issues which would be relevant to whether or not it would be appropriate to grant leave to serve a Hong Kong writ on a foreign party.

13. Significant correspondence between the parties was not exhibited to the affirmation in support. On 15 March 2001 a draft written settlement agreement was sent by an employee of CITL to Mr Adrian Ma for discussion prior to sending it to the defendant. It serves to enforce both the confusion arising from the various Capetronic companies and the fact that the alleged settlement was in fact a complex arrangement and not, as is contended by the affirmation in support, a straightforward case of this defendant being indebted to this plaintiff for goods sold and delivered. Mr Stokes referred to more correspondence which, if disclosed, would have further demonstrated the complexity of both the agreement and the issues in dispute. The combined effect of which, he submits, shows that the master could not have had a sufficiently full picture. Based on the picture he was given it was not surprising that leave was given. Had he been given the full picture it is arguable, so Mr Stokes contends, that he would not have given leave, or he would have called for more information or he would have directed an inter partes hearing.

14. In short, it is contended that the disclosures actually made failed to reveal the different Capetronic parties which would have illustrated the issues in dispute following the settlement agreement. Further, the disclosures made had the effect of dressing up what is, in fact, a complex and confusing issue, as a simple one involving just two parties and one debt. It failed also to reveal the issue between the parties as to the most convenient forum for this action, which is apparent from correspondence. At trial, the defendant would argue that Californian law applies. It is a fact also that all the defendant's witnesses are in California and most of the plaintiffs' witnesses are not in Hong Kong. Finally, the "other action" (relating to spare parts) is already under way in California. If the parties do not agree as to the proper forum for the claim the plaintiff, in its ex parte application, should "clearly" show that "the forum in which the case can be suitably tried for the interests of all the parties and for the ends of justice" was Hong Kong (per Kempster JA in R. Leslie Deak v. Deak Perera [1991] 1 HKLR at 559).

THE PLAINTIFF'S SUBMISSIONS

15. Mr Rimsky Yuen SC, for the plaintiff, submitted that, as pleaded, the plaintiff's case is indeed a simple debt recovery between these two parties and, accordingly, the matters complained off which were not disclosed are not relevant to this action and are thus not material.

16. He pointed out that the plaintiff was not suing on the settlement agreement. The limited relevance of the settlement agreement was to show that the plaintiff authorized the reduction of the debt owed to it by the defendant in the sum of over US$1.5 million which related to a claim involving computer spare parts (referred to in the correspondence as the "warranty claim") between the defendant and CITL (which is the subject of the California action). What remained due to the plaintiff from the defendant after the settlement agreement was just under US$1.3 million of which the defendant has paid US$1 million. The plaintiff is now suing for the balance and relies on the original purchase orders and invoices as evidence of the contract for the sale and supply of the monitors which are the subject matter of the claim.

17. The submission was simply and skilfully advanced.

18. In short he submitted that the plaintiff was not a party to the OEM agreement so why disclose it? The 19 March letter was not signed by the plaintiff and only concerned a dispute over the spare parts and not the monitors which were the subject of the debt in question so it was not material. And, if the defendant had a valid counterclaim in relation to those spare parts it was against CITL and not this plaintiff therefore, again, it was not material.

19. Whilst there is some force in Mr Yuen's submissions, I think they fall foul of, inter alia, Ralph Gibson LJ's second principle in the Brink's Mat case, namely that materiality is to be decided by the court and not by the plaintiff's lawyers.

20. Whilst, it is understandably tempting to keep this matter simple, I fear the truth is that it is not. Master Ho did not get a full and fair picture.

21. It has been a difficult issue but I have come to the conclusion that the learned Master should have been made aware of the defendant's view of the settlement agreement (as per their letter of 19 March), the other Capetronic entities, the other action relating to spare parts and the forum non conveniens issue, as well as the fact that OEM agreement itself contains an arbitration clause. I do not have to be satisfied that the learned Master would have made a different order, it is sufficient that he may have.

THE WAY FORWARD

22. For the reasons given, I am acceding to the defendant's summons, as requested in paragraph 2, which is in the alternative to paragraph 1 (the stay application).

23. It is now open to me to consider the matters which were not disclosed before the Master, which have been disclosed before this court, and if appropriate re-grant the leave to serve out of the jurisdiction, there having been, now, full disclosure. Support for such a course can be found in the Hong Kong Civil Procedure, at page 484 where Mareva injunctions are discussed :

" Where there has been non-disclosure of material facts at the ex parte application for a Mareva injunction, but full disclosure is made at the hearing inter partes, the court has a discretion to continue the ex parte injunction or to discharge it and immediately regrant substantially the same injunction if, had full disclosure been made at the ex parte application, the injunction could properly have been granted (Lloyds Bowmaker Ltd v. Brittania Arrow Holdings Plc. [1988] 1 W.L.R. 1337; [1988] 3 All E.R. 178 at 1343 and 183, per Glidewell L.J.). The discretion is to be exercised sparingly (Brink's Mat Ltd v. Elcombe, above, at 1358 and 194, per Balcombe L.J.)."

24. Principles of case management and a desire to save time and costs must also be considered. One scenario is that the whole of this argument will simply start again and follow the same route again albeit with further disclosure. Such an outcome should be avoided, if possible.

25. After some deliberation, I have decided that I should not re-grant the leave, for the following reasons :

(i) The passage in the White Book (above) concerns Mareva injunctions. There is a logical and obvious need to keep the injunction in place in such cases. Even so, it should only be exercised "sparingly".

(ii) If the plaintiff elects to re-apply for leave with full and fair disclosure, it is open to them to apply ex parte on notice or inter partes before the Master. This would be a better procedure and would avoid a possible re-hearing in this court.

(iii) The justice of this case may require it to be heard in California. To re-grant the leave would therefore defeat that end result which could be the most just outcome.

(iv) If the outcome is that all matters are dealt with in California, the risk of inconsistent findings is minimised and there will be some saving of costs.

(v) I do not think that the non-disclosure was deliberate but I do think the application was made in a somewhat cavalier fashion. The result was that the court below was only given a blinkered view of a much wider picture.

THE STAY APPLICATION

26. As I have decided in the defendant's favour on the alternative basis of this summons, I do not think it is necessary to make a final decision on their stay application. The way forward is to let the matter take its course on the footing that the leave to serve out of the jurisdiction has been set aside.

27. It may be helpful, however, if I briefly state what my decision would have been had it been the only application before me.

28. Based on the evidence and arguments advanced I would have dismissed it. The only arbitration clause relied on by the defendant is in the OEM agreement. The plaintiff in these proceedings was not a party to that contract. Mr Stokes' attempt to bring the arbitration clause into the contract between this plaintiff and this defendant was unconvincing. Moreover, the settlement agreement contains no arbitration clause either. More importantly, the debt which the plaintiff claims is evidenced by purchase orders and invoices, which, as submitted by Mr Yuen, form the basis of a contract, independent of the OEM, which again has no arbitration clause.

29. My remarks on the stay application should be reflected in the court's final costs order.

30. In conclusion, the order of Master Ho given ex parte on 18 June 2002 is set aside. I make a costs order nisi that the plaintiff do pay two-thirds of the defendant's costs of and occasioned by their summons dated 17 September 2002, in any event.