KINNEX INTERNATIONAL LTD v. KINGPIN TRADING LTD

DCCJ 1546/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1546 OF 2012

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DECISION

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1.  This is the plaintiff’s application for leave to appeal against the judgment dated 3 July 2015 (“the Judgment”) and for a stay of execution of the orders made therein.

2.  The background of this case is set out in paragraphs 3 – 6 of the Judgment, of which I shall not repeat.

3.  Counsel for the plaintiff raises 4 grounds of appeal in the draft Notice of Appeal.  I shall deal with each ground in turn.

Ground 1

4.  Counsel for the plaintiff submitted I should have allowed the plaintiff’s alternative case as pleaded in paragraph 20B of the Re-Amended Statement of Claim.

5.  Paragraph 20B states the following:-

“Alternatively, if it is found that the Plaintiff’s purported acceptance of the Defendant’s repudiation of the Agreement was wrongful (as pleaded in paragraphs 20(b) and 31(b) of the Amended Defence and Counterclaim), the Agreement is still subsisting. The Plaintiff is entitled to 45% of the total sales revenue of the Goods, 55% of the production costs of the Goods, 55% of the total other disbursements (as particularized in Paragraph 20) above and 45% of the unsold Goods or the proceeds of sale thereof (as pleaded in Paragraph 20A above) which are due and owing by the Defendant but have remained unpaid.”

6.  The main dispute between the parties in this case was over the terms of the Agreement.  Though the ratio of the profits distribution is not disputed, how the distributable profits are to be calculated, what expenses should be deducted and how the distributable profits should be paid out were strongly contested between the parties during trial.  

7.  The plaintiff’s pleaded alternative case is based on its own understanding of the terms of the Agreement.  Hence it is for the plaintiff to prove the terms of the Agreement are as pleaded in the Re-Amended Statement of Claim before the plaintiff’s alternative case is made out.

8.  In the Judgment, I have set out my reasons for finding against the plaintiff and why I have accepted the defendant’s version of events. I found the following:-

(1) The plaintiff was obliged to provide receipts, vouchers or other supporting documents before it could charge the expenses to the New Company or claim reimbursement (see paragraphs 11 – 18 of the Judgment).

(2) The defendant was not obliged to settle the 6 Purchase Orders within 30 days of issuance (see paragraphs 19 – 32 of the Judgment).

(3) The plaintiff breached the Agreement by demanding payment for the whole sum of the 6 Purchase Orders without making any apportionment (see paragraphs 52 – 54 of the Judgment).

9.  By reason of the findings set out in the Judgment, the plaintiff failed to prove it was entitled to the distribution of profits as pleaded in the Re-Amended Statement of Claim. Hence the plaintiff failed to prove its pleaded alternative case. The plaintiff cannot be said to be the “real winner” of the case, or a “winner” of the case in any respect.

10.  I therefore fail to see any reasonable prospect of success in this draft ground of appeal.

Ground 2

11.  As stated at paragraph 20-039 Snell’s Equity, 33^rd Ed, the object of taking an account is “to determine as accurately as possible the true measure of profit or benefit obtained.”

12.  The remedy of account of profits is not only limited to cases of partnership.  It is also applicable in cases where there has been a breach of contract: see paragraphs 20-045 and 20-047 Snell’s Equity, 33^rd Ed. Hence the ordering of an account of profits does not require a finding there was a partnership between the parties.

13.  The undisputed facts of the case are listed in paragraph 3 of the Judgment.  In particular, the plaintiff does not dispute the following:-

(1) The parties agreed to cooperate and distribute profits on a 55:45 ratio.

(2) The profits have yet to be distributed.

14.  As stated in the Judgment, the real issue between the parties is how the distributable profits should be calculated.

15.  I found the parties agreed to distribute the profits on an Open Book Arrangement.  Hence the appropriate sums to be awarded to the parties can only be ascertained after an account of profits is taken.  I was of the view I should order an account of profits so that the proper sum to be distributed could be assessed according to the terms of the Agreement as determined in the Judgment. I therefore granted the relief sought in the Re-Re-Amended Defence and Counterclaim.

16.  As stated at paragraph 18 of the Judgment, I found the plaintiff was obliged to “provide receipts, vouchers, or other supporting documents before it could charge the expenses to the New Company or claim reimbursement.”  It is on this basis the plaintiff is equally obligated to account for the profits by providing valid supporting documents to calculate the net profit to be distributed between the parties.

17.  I therefore fail to see any reasonable prospect of success in this draft ground of appeal.

Ground 3

18.  For reasons I have stated in the Judgment, I found the defendant did not breach the terms of the Agreement.  Hence the grounds upon which the plaintiff accepted the defendant’s purported repudiation have not been made out.  In other words, the purported acceptance was wrongful.

19.  In respect of the submission that the plaintiff did not breach any terms of the Agreement, I disagree.  As set out in paragraph 18 of the Judgment, I found the parties agreed to cooperate on an Open Book Arrangement.  Hence, as a term of the Agreement, the plaintiff was obliged to provide receipts, vouchers and other supporting documents to the defendant before reimbursements could be claimed.  The plaintiff’s demand for settlement of the 6 Purchase Orders is contrary to the agreed distribution ratio of 55:45 and the plaintiff’s obligation to provide vouchers and other supporting documents pursuant to the Open Book Arrangement.  Furthermore, I found the plaintiff’s demand to be a breach of the Financing Arrangement as the plaintiff did not deduct its own costs for performing its duties.  See paragraphs 29, 52 – 54 of the Judgment.

20.  I therefore fail to see any reasonable prospect of success in this draft ground of appeal.

Ground 4

21.  Counsel for the plaintiff submitted there was no legal right established, determined, or protected by the counterclaim and therefore the court should not have awarded nominal damages. Counsel further submitted since the plaintiff is the “real winner” of the case, the counterclaim should not have been allowed to succeed.

22.  As cited by defence counsel, paragraphs 12-002 and 12-003 of McGregor on Damages, 19^th Ed, states the following:-

(1) At paragraph 12-002: “Technically the law requires not damage by an injuria or wrong upon which to base a judgment for the claimant, and therefore an injuria, although without loss or damage, would entitle the claimant to a judgement.”

(2) At paragraph 12-003: “It is sometimes said that the law presumes or implies damage in every breach of contract or in every tortuous invasion of a legal right, and that this, therefore, would justify an award of nominal damages in such cases without proof of actual loss.”

23.  It is apparent from the Judgment that I had to define the terms of the Agreement and determine which party was in breach of the terms of the Agreement.  I found the plaintiff was wrong in its acceptance of the defendant’s purported repudiation.  I also found the plaintiff to be in breach of the terms of the Agreement. I therefore disagree there was no legal right determined or protected by the defendant’s counterclaim.

24.  I fail to see any reasonable prospect of success in this draft ground of appeal.

Stay of execution

25.  By reason of the matters set out above, I do not find there to be reasonable prospects of success on the grounds of appeal set out in the draft Notice of Appeal.  I see no reason why a stay of execution should be granted.

26.  I dismiss the whole of the plaintiff’s summons dated 31 July 2015.

Costs

27.  Costs shall follow the event. I make a costs order nisi that the plaintiff do pay the defendant’s costs of the summons dated 31 July 2015, to be taxed if not agreed, with certificate for Counsel.  Unless any party applies to vary the costs order within 14 days hereof, the costs order shall become an order absolute.