XCHRX VICTORY MOTORS CENTRE LTD. v. MITSUBISHI CORPORATION AND ANOTHER

HCA5306/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 5306 OF 2000

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J U D G M E N T

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1. The background to this case is that the plaintiff entered into three sale and purchase contracts with the 1st defendant, being the seller of 1,000 jeeps vehicle for re-export to the Mainland between May and July 1998. It is also common ground that, between August 1998 and August 1999, the plaintiff could only take delivery of 170 vehicles from the 1st defendant, leaving 830 vehicles outstanding. It was because the poor market condition in the Mainland in this period of time. The 2nd defendant is a wholly owned Hong Kong subsidiary of the 1st defendant.

2. The plaintiff alleged that, as a result of certain negotiation in respect of the plaintiff's failure to take delivery for the balance of the vehicles, there was a tripartite agreement among the plaintiff, the 1st and 2nd defendants in February and November 1999 to the effect that :-

1. the 2nd defendant would arrange to re-sell for and on behalf of the plaintiff the remaining vehicles at the best market price;

2. the plaintiff would pay compensation for the shortfall up to ￥165,000 per vehicle; and

3. the 2nd defendant shall provide all relevant information to the plaintiff and obtain the plaintiff's prior approval to the re-sale, and shall render an account to the plaintiff afterwards.

Consequently, the plaintiff claimed that the 2nd defendant owed the plaintiff a duty :-

1. to obtain the best market price in the re-sale;

2. to provide the plaintiff with the relevant information;

3. to obtain its approval before each re-sale; and

4. to render an account afterwards.

3. In November 1999, an agreement in Hong Kong readjusted the maximum compensation payable by the plaintiff for each vehicle by increasing it to ￥200,000. Accordingly, the plaintiff alleged that the three written contracts between the plaintiff and the 1st defendant were amended or varied with the additional aforesaid two oral agreements.

4. The 2nd defendant applied to strike out the plaintiff's claim against the 2nd defendant and was successful before the master below on the grounds that :-

1. It was never a contracting party with the plaintiff and the 2nd defendant never undertook any of the alleged duties towards the plaintiff.

2. The 2nd defendant said the plaintiff's claim is plainly groundless and unfounded, and ought to be struck out to prevent the misuse or abuse of the court's process against a party who should never be dragged into the dispute between the plaintiff and the 1st defendant.

5. The first ground of striking out is that there was no reasonable cause of action. In this respect, I agree with Mr Rimsky Yuen, counsel for the plaintiff, that on this ground alone, the court would only consider the pleadings. If on pleadings there is such an agreement as alleged by the plaintiff, it cannot be said there is no reasonable cause of action.

6. However, in respect of the second ground that if the action against the 2nd defendant was frivolous, vexatious and an abuse of process of the court, both parties are entitled to adduce evidence. I think it is common ground between counsel that court should not embark on a mini trial and would not strike out the plaintiff's claim, unless it is a plain and obvious case.

7. In this respect, after reading all the documentary evidence presented by both parties, I am afraid I cannot see any evidence to sustain the allegation that the 2nd defendant was re-selling those vehicles for and on behalf of the plaintiff and the 2nd defendant should be liable to account to it.

8. I accept the submissions of counsel for the 2nd defendant, Mr Jat Sew Tong, that the evidence before the court supported a case contrary to the plaintiff's allegations. The fax message of the 1st defendant to the plaintiff dated 8 March 1999 clearly shows that the 1st defendant, and not the 2nd defendant, would try to sell the remaining vehicles. There is no mention whatsoever about the 2nd defendant being a party to any agreement with the plaintiff at all. Moreover, this fax shows that the agreement, if any, to re-sell the vehicles and payment of compensation of ￥165,000 for each vehicle was reached at a meeting in Hong Kong on 5 March 1999, not in February 1999 as alleged by the plaintiff.

9. The 2nd defendant's letter to the plaintiff dated 31 March 1999 related to the sale of one vehicle only. The evidence is that this sale was done by the 1st defendant in Japan and the compensation was received by the 1st defendant in Tokyo. The letter to the plaintiff dated 15 April 1999 related to the sale of three vehicles. This letter was written on the 2nd defendant's stationary but the context made it very clear that it was from the 1st defendant and it was the 1st defendant which carried out the sale. It directed the plaintiff to remit the compensation to the 1st defendant, which the plaintiff did accordingly.

10. The 2nd defendant's fax to the plaintiff dated 7 May 1999, again related to the sale of two vehicles and the plaintiff was requested to remit the compensation directly to the 1st defendant, which the plaintiff did accordingly. The sale was carried out by the 1st defendant.

11. The letter dated 25 June 1999 again was on the 2nd defendant's letterhead, but this related to the sale of seven vehicles by the 1st defendant, and not by the 2nd defendant. Again, the payment was made directly to the 1st defendant.

12. The 2nd defendant's fax to the plaintiff on 14 July 1999 also unequivocally stated that the sale was done in Japan. The 2nd defendant's further faxes to the plaintiff on 16, 29 July and 21 September 1999, all related to the sale of vehicles by the 1st defendant, and not the 2nd defendant, and the plaintiff paid the 1st defendant directly.

13. Other documents also showed that the sales of other vehicles were carried out by the 1st defendant and the 1st defendant was paid compensation by the plaintiff. The plaintiff was in fact dealing with the 1st defendant alone in the re-sale of some of the vehicles, and the dealings were between the plaintiff and the 1st defendant, and not the 2nd defendant. The contemporaneous documents also showed that, at all material times, the plaintiff and the 1st defendant were the contracting parties who were dealing with each other.

14. In short, the evidence showed that it could not support the plaintiff's allegation that the 2nd defendant had given any undertakings to the plaintiff as alleged by it. The evidence also could not support the allegation that the 2nd defendant was re-selling or assisting in re-selling those vehicles for and on behalf of the plaintiff. It was the 1st defendant's doing with the assistance of the 2nd defendant being its Hong Kong company here to mitigate the losses of the 1st defendant arising out of the plaintiff's breach of taking delivery of the balance of 830 vehicles.

15. The court obviously should not embark on a mini trial, it should only as I have said strike off the plaintiff's case when it is plain and obvious. After referring to those documents as filed by the parties, I have no doubt in my mind that it is a plain and obvious case that the plaintiff has wrongfully dragged in the 2nd defendant. But the ground of all these allegations of oral agreement with the 2nd defendant were totally unsupported by the documentary evidence. In fact they are contrary to the documentary evidence.

16. That being the case, I consider it is an abuse of the process of the court. In particular, it is against the background that, under the three written contracts, the agreements between the plaintiff and the 1st defendant stipulated that the law applicable to the three contracts was Japanese law under Clause 11. There is also an arbitration clause of settlement of dispute in Clause 10. The action against the 2nd defendant, to my mind, was trying to overcome these difficulties. In conclusion, I consider that the master below is right to strike out the case against the 2nd defendant.

17. Accordingly, the appeal is dismissed with costs to the 2nd defendant against the plaintiff, to be taxed if not agreed.