JOINTEX FASHION LTD v. CHOW KEUNG KAN t/a SUCCESS ENTERPRISES CO

HCA 1145/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 1145 OF 2012

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REASONS FOR DECISION

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1.  The plaintiff’s claim against the defendant arose out of the contracts for the manufacture and sale of goods between them. The plaintiff has obtained an ex parte mareva injunction against the defendant; and now applied for its continuation. At the end of the hearing, I granted the order for continuation. As indicated, I now give my reasons.

BACKGROUND

2.  The plaintiff is a company in the business of import and export of garments.  The defendant is the sole proprietor of the business of garment manufacturing in the name of Success Enterprises Co.  The plaintiff started placing orders with the defendant for garments manufactured for export in 2011.

3.  The arrangement was that the plaintiff would place purchaser order with the defendant, who would arrange the manufacturing of the garments required.  The plaintiff would arrange the supply the raw materials.  The garments were manufactured by the defendant’s factories in the Mainland.  The finished garments would be delivered according to instruction.

4.  The plaintiff commenced the present action in July 2012.  The defendant was legally represented.  Pleadings were filed and witness statements exchanged.

The claim

5.  The plaintiff’s claim consists of 2 parts:

(1)   Late delivery and defects in the garments under various purchase orders dated between October 2011 and February 2012 (“the Earlier Orders”); and

(2)   Non-delivery of the garments under other purchase orders dated between March and May 2012 (“the Later Orders”).

6.  In respect of the Earlier Orders, the plaintiff claims damages representing deductions in its sale prices made by the final overseas customers and air freight charges in the total sum of HK$657,185[1]. In respect of the Later Orders, the plaintiff claims for loss of profits, wasted cost of materials and compensation paid to the final customers in the total sum of HK$4,870,093[2]. The total amount claimed is equivalent to HK$5,527,278.

The defence and counterclaim

7.  In respect of the Earlier Orders, the defendant has the following contentions:

(1)   The plaintiff has already accepted the garments delivered after inspection of the quality.

(2)   The delivery was not late; and the dates of delivery specified in the purchase orders were invariably superseded by the parties’ agreement that the defendant had 30 days after the approval of the product specification and the supply of raw materials by the plaintiff.

8.  In respect of the Later Orders, the defendant has the following contentions:

(1)   Some of the garments under these orders have been produced and already delivered to the plaintiff.

(2)   The plaintiff has failed to take delivery of the rest.

(3)   The plaintiff has failed to deliver sufficient raw materials for the defendant’s production.

(4)   Some of these orders have not been agreed upon between the parties.

9.  The defendant also complains that the plaintiff has failed to pay for certain garments already delivered at the price of RMB652,661.40.  Added to that were cost of raw materials sourced by the defendant, storage charges, re-dyeing charges, cost of subcontractors’ labour.  Altogether the defendant counterclaims a total sum of RMB764,572.20.  As far as the garments that the plaintiff has allegedly failed to take delivery of, the defendant also claims mesne profit for the use of his storage space on a daily rate basis.

10.  The contentions were met with the plaintiff’s denial in reply, save that it admitted liability to pay for 2 lots of garments delivered at the invoiced price of RMB152,919.

The mareva injunction

11.  On 20 January 2014, the plaintiff discovered that the defendant has entered into a provisional sale and purchase agreement in respect of the property situated at Tung Chung, Lantau, New Territories (“the Property”).  Seeing that as a risk of dissipation of asset by the defendant, the plaintiff applied ex parte for a mareva injunction against the defendant on 23 January 2014. Tong J, who heard the application, granted the order (“the Injunction”), which was to last until 30 January 2014, the return day.

12.  On the return day, the defendant appeared in person.  Zervos J gave directions for the filing of affidavits; and adjourned the application for argument.  Hence the hearing before me.

RELEVANT PRINCIPLES

13.  Briefly the plaintiff must establish the following for the purpose of its application:

(1)   The plaintiff has a good arguable case, but not that it is likely to win.  Rather it is one that is more than barely capable of serious argument, and yet not necessarily one which the court believes to have a more than 50% chance of success: see Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft mbH & Co KG [1984] 1 All ER 398; Akai Holdings Ltd v Ho Wing On, HCCL 37/2005; 40/2005 (9 February 2009).

(2)   The defendant has assets within the jurisdiction.

(3)   There is a real risk of dissipation of assets or removal of assets from the jurisdiction, which would render the plaintiff’s judgment of no effect: see Ninemia Maritime Corporation (above).  The test is objective: see Lam Sik Ying, administrator for the estate of Lam Tim v Lam Sik Shi & Anor, HCA 4713/2001 (14 January 2011); Grandview Industries Company Limited v Leung Yiu Kei, HCA 1617/2011 (10 September 2012).

(4)   The balance of convenience is in favour of the grant of the injunction.

See also Hong Kong Civil Procedure 2014 (Vol.1) at 29/1/65.

GOOD ARGUABLE CASE

14.  As far as the Earlier Orders are concerned, the plaintiff put forward the following:

(1)   The garments in question had to be delivered urgently; so the parties agreed that for those that were found to be defective and claimed for by the final customer, the plaintiff would be entitled to claim against the defendant for compensation.

(2)   Such contention was backed by the evidence that the manager of the plaintiff would give as per her witness statement as well as contemporaneous email correspondence between the parties in this regard.  Documentary evidence was also disclosed in support of the eventual deduction of prices from the plaintiff by the final customers.

(3)   As to the alleged late deliveries, the plaintiff also relied on the evidence of its manager and the contemporaneous email correspondence between the parties during February and March 2012.

15.  As far as the Later Orders are concerned, the plaintiff’s case is simply that the goods ordered were never delivered.  In response to the defence, the plaintiff put forward the following:

(1)   There was no evidence such as delivery notes or receipts in support of the contention that the defendant has delivered the garments in question.

(2)   No approval by the plaintiff was required for the defendant to deliver the garments manufactured.  In any event, there was no documentary proof of any notification of the readiness of the garments in question for delivery before the plaintiff should be criticised for not taking delivery.

(3)   The raw materials were ordered in quantities as per the defendant’s production of samples.  After the delivery of the raw materials to the defendant, there has been no complaint about insufficient materials or that manufacturing was thus stalled.  There was no documentary evidence showing otherwise.

(4)   Whilst some of the purchase orders had not been signed by the defendant, it was agreed that the orders would be processed in accordance with the usual terms and practice between the parties.  The plaintiff relied on the parties’ contemporaneous email correspondence in support.

16.  Apart from repeating his defence, the defendant did not advance any argument or evidence by way of his affirmation in opposition that served to put the above contentions of the plaintiff away.  This was notwithstanding the lapse of time since the commencement of action.

17.  This was not the venue for determining the above dispute; but the evidence sufficed in demonstrating that the plaintiff had a good arguable case in its claim for the purpose of obtaining the marvea protection.

18.  It would appear that the counterclaim and the claim are inter-related.  Notwithstanding the further and better particulars of the defence and counterclaim, the plaintiff suggested that it was still difficult to compare the items of the claim and those of the counterclaim.  The defendant did not set out to do that either, whether by way of his affirmation in opposition or in court.

19.  What I managed to detect, which counsel has apparently lost sight of, was the 2 items of the counterclaim (items nos 1 and 4, §27) admitted by the plaintiff in its reply (§17(a)).  As mentioned, the 2 items amounted to RMB152,919.  According to the exchange rate adopted by the plaintiff, this would be equivalent to HK$194,531.

20.  The above did not prompt the defendant to seek to apply to discharge the Injunction.  But as the Injunction was obtained on the basis of the total amount claimed, the financial limit must be adjusted downwards, even if the Injunction was continued.

ASSET WITHIN THE JURISDICTION

21.  Apart from the Property, the plaintiff is not aware of any other assets of the defendant in Hong Kong.  Apparently the defendant also indicated that he has a bank account in Hong Kong; but no details were given.  The fact is that he has not complied with the disclosure order in the Injunction whereby he was required to disclose his assets in Hong Kong.

REAL RISK OF DISSIPATION

22.  For the following reasons, I could see a real risk of dissipation:

(1)   The ease of disposal of the proceeds of sale, being cash, was obvious.

(2)   The Property is the only asset of the defendant so far known.  The defendant has so far failed to disclose his other assets.  But investigation by the plaintiff suggested that the defendant might have or have the use of a couple of other properties in the Mainland.  That the defendant might have chosen to dispose of the Property gave rise to a fair concern in the circumstances.

(3)   According to the valuation obtained by the plaintiff from the banks, the Property was being sold at about HK$1 million less than the market price.  The substantial difference, if not explained, would fairly give rise to the concern that the sale was at undervalue.

23.  The defendant did not actually address any of the above matters in his affirmation in opposition.  Objectively, the risk of dissipation was there and the concern not removed.

BALANCE OF CONVENIENCE

24.  What the defendant did in his affirmation, besides deposing to his belief in the merits of his defence and counterclaim, was to explain his difficult financial situation.  However, according to him, it was not the imposition of the Injunction but the plaintiff’s non-payment for the goods allegedly delivered that caused him that.

25.  The main point made by the defendant was that he had to sell the Property to meet the business expenses of his factories in the Mainland.  But the Injunction never sought to prohibit him from meeting his ordinary daily expenses.  For such purpose, the parties might liaise between themselves or, failing that, an application could be made to the court for variation of the terms of the Injunction.  There was at the moment no such application by the defendant.  Nor was there concrete particular or evidence adduced by the defendant in support of the consideration of such need of the defendant.

CONCLUSION

26.  For the above reasons, I continued the Injunction, subject to the amendments made in court, including the financial limit as mentioned, until the final disposal of the action or further order of the court.

OTHERS

27.  During the hearing, the defendant complained about the plaintiff’s registration of the amended writ in this action and the Injunction against the Property in the Land Registry.  I was informed by the plaintiff that they were pending registration.  I was also informed that the plaintiff’s solicitors had communication with those acting for the purchaser of the Property; and undertook to cause the removal of the pending registration to facilitate the completion of sale and purchase.

28.  I do expect that to be sorted out forthwith, as I have grave doubt whether the attempt to register was justified from the outset.

COSTS

29.  As to costs, the plaintiff asked for costs of the application or alternatively such costs be its costs in the cause.  Whilst the defendant failed in resisting the application, there were, as mentioned above, things to be said about the terms of the Injunction per se.  I therefore ordered the costs of the application to be the plaintiff’s costs in the cause.

(Note: The defendant confirmed that interpreter’s assistance during the hearing was not necessary.  Hence the above written in English, though submissions were made in Punti.  In the event that interpreter’s assistance is nevertheless requested for taking these reasons for decision, arrangement could be made for the defendant.)