POLIMA TOYS MANUFACTURING CO LTD v. SUPER ART TOYS CO LTD

HCA 948/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 948 OF 2012

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J U D G M E N T

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Introduction

1.  This is an appeal by the plaintiff against the decision of Master Levy given on 28 June 2013 ordering, among other things, the plaintiff’s statement of claim be struck out and the plaintiff’s summons to amend its statement of claim be dismissed, but giving the plaintiff leave to issue a summons to file and serve a fresh statement of claim (“Striking Out Order”).

2.  The plaintiff (“P”) lodged its Notice of Appeal on 12 July 2013, and had further issued a summons on 26 July 2013 for leave to file and serve a fresh statement of claim (“Leave Summons”) pursuant to the Striking Out Order.  Both these matters were before this court.

3.  The stance of the defendant (“D”) was that P’s appeal should be dismissed with costs.  D agreed to an order in terms to be made in respect of P’s Leave Summons save that the costs thereof should be to D.

Brief Background

4.  P was/is a company incorporated under the laws of Hong Kong and carries on business of manufacturing, processing, trading and exporting toys.

5.  D was/is a company incorporated under the laws of Hong Kong and carries on business of trading of toy products.

6.  P’s case as contained in its statement of claim (“SOC”) was initially a simple and a straightforward one, namely that it had agreed to sell to D certain items of toy products (“Goods”) at an agreed price, to be delivered by P at D’s request, and the agreements between P and D (“Agreements”) were evidenced by 27 invoices (“Invoices”), each of the Invoices evidencing each of the Agreements.  Despite repeated requests and demands, D had failed to pay P in respect of the Invoices and the total sum outstanding was US$1,121,124.60.    

7.  D, however, denied in its defence and counterclaim that it was the party to any agreement/contract with P.  It was D’s case that the Invoices were issued pursuant to purchase orders placed by a PRC company called Jiangsu Chao Chu Arts & Crafts Co Ltd (“JCC”) with P, and that D ordered the Goods from JCC and JCC then in turn bought the Goods from P.  Alternatively, if D were to be found liable to P, D then counterclaimed for, among other things, certain sums and damages caused by P’s delay in supplying the Goods, which D had also alleged to be of defective quality.

8.  Thereafter, in its reply and defence to counterclaim (“RDC”), P pleaded a more complicated case as to what constituted the Agreements between P and D, and P also averred that D represented to P that JCC was the factory of D.

9.  In essence, the key issue was whether D was the contracting party with P as alleged by P.

Procedural History

10.  D filed a request for further and better particulars of the SOC on 30 July 2012 (“1^st Request”).  By a letter dated 27 August 2012, P replied that the answers to the 1^st Request would be included in the RDC to be filed.

11.  Subsequently, an order was made by consent on 30 August 2012 for P to file and serve the RDC by the deadline therein.  The RDC was duly filed by P on 5 September 2012.

12.  Thereafter, on 10 September 2012, D served on P a notice to admit facts[1]. Attached to this notice to admit facts were Chinese documents each titled “purchase agreement” issued by JCC for the purchase of toy products to be supplied by P and each document was signed by P’s representative and JCC’s representative (“Chinese Purchase Orders”).  P was asked to admit that the toy products referred to in the Chinese Purchase Orders were the toy products defined, abbreviated and referred to as “Goods” in the SOC and the RDC.  By its answers, P admitted that the toy products referred to in the Chinese Purchase Orders “might represent” some of the toy products which were defined as the Goods in the SOC and the RDC, but reiterated that the Agreements as pleaded were entered into between P and D, and further stated that each of the Chinese Purchase Orders were endorsed by D’s representative/staff/ agent on behalf of D[2].  As D’s notice to admit facts had omitted some of the Chinese Purchase Orders, D subsequently served a further notice to admit facts, which were similar to their earlier one, and P’s answers were also similar to its answers to the earlier notice.

13.  By a letter dated 28 September 2012, D served a second request for further and better particulars of, among other things, paragraphs 3(e), 3(f) and 6(a) of the RDC (“2^nd Request”)[3], and on 17 October 2012, Master de Souza granted an order by consent in relation to the 2^nd Request.  P subsequently sent the answers to the 2^nd Request by letter dated 1 November 2012 (“1^st Answer”) which were deemed by D to be inadequate.

14.  As a result, D made another request for further and better particulars of the 1^st Answer on 2 November 2012 (“3^rd Request “) and in this letter also threatened to take out a striking out application[4].  On 5 November 2012, P replied to deny the inadequacy of the 1^st Answer but asked for time to comply with D’s 3^rd Request[5].

15.  On 12 November 2012, D issued 2 summonses, one for an order that P do file and serve answers to the 3^rd Request, and the other one under Order 18 rule 9 and rule 12, to among other things, strike out paragraphs 3 and 5 of the SOC and paragraphs 3(e), 3(f) and 6(a) of the RDC.

16.  On 21 November 2012, an order was made by consent that unless P was to provide answers to certain questions in the 2^nd Request by 4 pm on 12 December 2012, D would be at liberty to apply to strike out paragraphs 3 and 5 of the SOC and paragraphs 3(e), 3(f) and 6(a) of the RDC (“Unless Order”).  On the same day, a separate order was also made by for P to provide answers to D’s 3^rd Request.

17.  P delivered to D its answers to the 2^nd Request (“2^nd Answer”) on 12 December 2012[6], and as this was served after the deadline, D took issue with the lateness.  Subsequently, this was resolved by consent, with an order made on 21 January 2013 for extension of time for P to comply with the Unless Order.

18.  It was D’s case that notwithstanding the 2^nd Answer, P still failed to comply with the Unless Order, as the 2^nd Answer was inadequate.  On 8 February 2013, D took out a summons under Order 2 rule 1 and Order 18 rule 12 and rule 19 to strike out paragraphs 3 and 5 of the SOC, and paragraphs 3(e), 3(f) and 6(a) of the RDC for failure to comply with the Unless Order, and further the entire SOC be struck out (“Striking Out Summons”).

19.  D’s Striking Out Summons was fixed for hearing on 4 June 2013 (“1^st Hearing”).  During the 1^st Hearing, Master Levy indicated that she found paragraph 3 of the SOC quite confusing and unsatisfactory, in light of what was subsequently pleaded by P in paragraph 3(e) of the RDC[7].  In the end, P’s then counsel Ms So, upon taking instructions, indicated that P intended to apply to amend the pleading to “tidy up the bits and pieces that were unsatisfactory”[8].  Ms So had further indicated that the only part that P would apply to amend would be paragraph 3 in “tidying up that the actual agreement referred to is not referring to the Invoices but the oral agreement between the parties”[9].  It was in light of such submissions that Master Levy decided to give P a chance to cure the defects in its pleadings, and adjourned the matter part-heard and ordered that P to issue an application to amend the pleadings, if so advised, within 14 days.

20.  Subsequent thereto, P issued a summons on 18 June 2013 (“Amendment Summons”) for leave to amend its SOC as per draft attached (“Draft Amended SOC”). 

21.  D’s Striking Out Summons and P’s Amendment Summons were then heard by Master Levy on 28 June 2013 (“2^nd Hearing”) which resulted in her making the Striking Out Order.  P now appeals against the Striking Out Order.

The 2^nd Request and the 2^nd Answer

22.  Paragraphs 3 and 5 of the SOC were in relation to P’s pleading that each of the 27 Invoices evidenced a separate agreement of the Agreements between P and D for the sale and purchase of the Goods, and that pursuant to the Agreements, P delivered the Goods to D and D chopped and signed on each packing list corresponding to each of the Invoices and to acknowledge receipt of the respective Goods (“Packing Lists”).

23.  In paragraph 3 of the RDC, P further averred as to how the Agreements were entered into between P and D, and after setting out the main terms of the Agreements in paragraph 3(d), P then pleaded in paragraph 3(e) that the Agreements were subsequently evidenced in writing in e-mails, relevant documents giving particulars and details to P including but not limited to tables, and Invoices and Packing Lists issued to D[10]. 

24.  P further pleaded in paragraph 3(f) of the RDC that the detailed particulars of the Goods ordered and to be delivered were subsequently provided by various persons of D named in paragraph 3(f) via various emails, attachments and/or documents, and telephone conversations from about September 2011 to about February 2012[11].

25.  In paragraph 6(a) of the RDC, D averred that D had made some payments directly to P pursuant to the Agreements.

26.  D had in its 2^nd Request asked P to identify the precise document(s) and detail(s), including but not limited to emails, tables, invoices and Packing Lists, and telephone conversation(s) alleged by P in paragraphs 3(e) and/or 3(f) of the RDC.  As for paragraph 6(a), D had asked P to state the amount of the alleged payment, date of each payment and manner in which each payment was made by D.

27.  In the 2^nd Answer, P attached various documents in attachments A to D purported to be answers to the requests in the 2^nd Request in relation to paragraph 3(e) and(f) of RDC.  As for paragraph 6, in relation to “some payments”, P stated that it would make application to amend the RDC in relation to paragraph 6(2), and the questions asked would become obsolete and not applicable.

28.  Mr Lam, on behalf of D, complained that in relation to P’s answers in the 2^nd Answer respect of paragraph 3(e) of the RDC, (i) so far as the attachments A to C, P merely produced a number of emails without explaining at all how they were related to the Agreements; (ii) In the 2^nd Answer, it was stated that the documents evidencing the Agreements “include the following…” and this was ambiguous in that it was unclear whether P would rely on any further documents; (iii) as the further and better particulars were intended to form part and parcel of the pleading, it was plainly wrong for P just to exhibit a bundle of documents as particulars[12].

29.  Mr Lam’s complaints in relation to P’s answers in relation to paragraph 3(f) of the RDC were similar to the above, and further that P had not particularized the telephone conversations alleged in that sub-paragraph.

30.  As for paragraph 6(a), there was no application by P to amend the RDC as stated by P, only the Draft Amended SOC, and also in the new proposed paragraph 3, there were no particulars as requested by D in the 2^nd Requests.

The proposed Draft Amended SOC

31.  The essential amendments P had sought leave for were in relation to paragraph 3 of the SOC, and to add a new paragraph 4 and a new paragraph 7.

32.  The new paragraph 3 pleaded that the Agreements between P and D were entered into in September 2011, partially orally and subsequently evidenced in writing, including (i) an email of 19 September 2011 from Ray Tsang of D and attached with it a table of order list of the Goods ordered by D for P to manufacture (“Tsang’s Email”) and (ii) subsequently the 27 Invoices[13].

33.  The new paragraph 4 pleaded that (i) in Tsang’s Email, D represented to P that D’s merchandiser at JCC could be contacted to follow up the Agreements; (ii) D, including Mr Tse, staff and/or agent of D and staff and/or contact persons of JCC had represented to P that JCC was and is at all material times D’s factory; (iii) it was P’s understanding that, for any involvement of JCC concerning the Agreements, JCC is and was at all material times a factory of D and/or being an agent of D acting for and on behalf of D.[14]

34.  Then the new paragraph 7 set out 35 other invoices which had been settled by D[15].

Discussion and Conclusion

35.  As recognized by P’s Counsel Mr Cheung, the predominant issue here is whether D had struck a contract with P.  Mr Cheung submitted that this would in turn depend on the resolution of the following issues:

(i)   Whether JCC is and was at all material times a factory of D;

(ii)   Whether JCC is and was the agent at all material times acting for and on behalf of D;

(iii)   The relationship between D and JCC, and in relation to this issue, Mr Cheung submitted that it was the bare assertion of D that it had placed purchase orders with JCC without pleading any particulars and further, he asked the court to note that D’s counterclaim was purported to be on behalf of JCC.

36.  As mentioned earlier, P’s initial case in the SOC was a simple one and that P relied solely on each of the Invoices as evidence of each of the Agreements which were entered into between P and D.  P’s case in the RDC clearly had changed course, in that P was then saying that the Agreements were “partly oral and subsequently evidenced in writing”.  The evidence in writing then seemed to be not only the Invoices, but expanded to “emails, relevant documents giving particulars and details to P including but not limited to tables, Invoices and Packing Lists”.

37.  There was no mention by P in the SOC of the Chinese Purchase Orders.  Mr Cheung submitted that the Chinese Purchase Orders were only documents corroborating or substantiating the Agreements between P and D, and that the Chinese Purchase Orders were, at best, “evidence of a matrix of fact to explain the context of the Agreements in broad circumstances”.  Mr Cheung then referred to the well known principles set out by Lord Hoffmann[16] in Investors Compensation Scheme v West Bromwich Building Society (1998) 1 WLR 896 .

38.  The Investors Compensation Scheme case was in relation to the construction of contractual documents.  It is not clear to this court how that case would assist P, since the issue before this court is not on the construction of a contractual document.

39.  The importance of proper pleading has been recently emphasized by Ma CJ in Kwok Chin Wing v 21 Holdings Ltd and another FACV 9/2012, 30/09/13-

“It should by now really be quite unnecessary to issue yet another reminder on the rationale behind pleadings. The basic objective is fairly and precisely to inform the other party or parties in the litigation of the stance of the pleading party (in other words, that party’s case) so that proper preparation is made possible, and to ensure that time and effort are not expended unnecessarily on other issues…It is the pleadings that will define the issues in a trial and dictate the course of proceedings both before and at trial…In other words, it was not be acceptable for unpleaded issues to be raised out of the evidence which is to be or has been adduce…”[17]

40.  Mr Lam SC on behalf of D had also referred to paragraph 18/12/3 of the Hong Kong Civil Procedure 2014, vol 1, where it states, in relation to a contractual claim ,

“The pleading should state the date of the alleged agreement, the names of all parties to it, and whether it was made orally or in writing, in the former case stating by whom it was made and in the latter case identifying the document, and in all cases setting out the relevant terms relied on…”[18]

41.  Mr Lam submitted that P’s pleadings are problematic in two aspects:

(i)   They are lacking in particulars, which led to the Unless Order being made;

(ii)   They infringe Order 18 rule 10 which provides that a party shall not in any pleading make any allegation of fact inconsistent with a previous pleading.

42.  On reading the SOC and the RDC, I agree with Mr Lam’s submissions, that paragraph 3 of the RDC, in particular paragraph 3(e) and 3(f) were problematic.  Paragraph 3 of the RDC was clearly inconsistent with paragraph 3 of the SOC.

43.  Would the new paragraph 3 of the Draft Amended SOC cure the problem?  In my view, not, since there were no particulars of the oral part of the Agreements, and further the new paragraph 3 referred to the Agreements being subsequently evidenced by including but not limited to (i) Tsang’s Email; and (ii) the 27 Invoices.  

44.  Thus, even though the words “including but not limited to” were used, and although the new paragraph 7 referred to other invoices which had been settled by D, so far as evidence of the Agreements, the proposed amendments in the draft amended SOC only set out two or two types of documents, namely Tsang’s Email and 27 Invoices and/or other invoices.

45.  So far as one can see, it was not pleaded in the Draft Amended SOC that the Agreements were evidenced subsequently by the Packing Lists and other documents, such as emails, tables etc as stated in paragraph 3 of the RDC.  In any event, the Draft Amended SOC still lacked particulars of the alleged Agreements between P and D.

46.  By comparison, the fresh statement of claim attached to the P’s Leave Summons sets out in much greater detail the alleged Agreement/s between P and D.

47.  Further, as submitted by Mr Lam, more fundamentally, P’s pleaded case was unsustainable in the light of the indisputable documents and in this respect, Mr Lam relied on the Chinese Purchase Orders.

48.  As mentioned earlier, D had served 2 notices to admit facts, and by its answers, P had stated that the toy products under the Chinese Purchase Orders “might represent” some of the Goods covered by the 27 Invoices.  Although it was not clear what P meant by “might represent”, as pointed out Mr Lam, there was no denial that the Goods were covered by those Chinese Purchase Orders. 

49.  Mr Cheung had submitted that the quantity and delivery date listed in the Chinese Purchase Orders did not correspond with the Invoices.  However, as pointed out by Mr Lam all the Invoices referred to an “order no.” which corresponded to the numberings of the Chinese Purchase Agreements, which was set out by Mr Lam in a table[19].

50.  Mr Lam had referred to the case of Shogun Finance Ltd v Hudson [2004] 1 AC 919 where Lord Walker had said that the court should adopt an objective approach in considering between whom a contract had been concluded[20].  As said in Shogun by Lord Phillips, where there is a written agreement, the identity of the parties must be found in the terms of the documents as a matter of construction[21]. 

51.  Lord Hobhouse, also one of the three majority Lord Justices in the Shogun case, had said that where the parties had been specifically identified in the written agreement, oral or extrinsic evidence was not admissible, except evidence could be adduced of the fact that where the person signing was also acting as the agent of another[22] (emphasis added)

52.  The Chinese Purchase Orders were in fact expressly titled “sale and purchase agreements” in Chinese and were clearly signed by JCC, and P had also admitted signing the Chinese Purchase Orders. D’s name did not seem to appear on any of the Chinese Purchase Orders. Thus, on the face of it, the only parties identified in the Chinese Purchase Orders were P and JCC.  Of course, as Lord Hobhouse had said, it would be possible for evidence to be adduced to show JCC was signing as agent of D.

53.  However, at the 2^nd Hearing, P’s then Counsel clearly informed Master Levy that agency was not P’s pleaded case[23]. 

54.  As pointed out by Mr Lam, the requirements of pleading an agency were set out in the case of UTI (HK) Ltd v South China Garments Co Ltd, DCCJ 4819/2004, 2/10/08[24].  The plaintiff has to make it clear whether it is pleading a case of actual, ostensible or apparent authority, and if apparent authority is relied on, it is essential to plead facts which show a “holding out” by the principal that the agent has the authority to enter into the agreement on its behalf[25]. 

55.  P’s latest stance seemed to be that JCC indeed was/is the agent of D.  Mr Cheung submitted that the principal and agency relationship between D and JCC was “overwhelming”[26].  The evidence which Mr Cheung referred to in his submissions were in fact in support of P’s case that JCC was the factory of D.  However, even if JCC were D’s factory, it was not P’s case in the SOC or the RDC that JCC was signing the Chinese Purchase Orders as agents on behalf of D, nor was it pleaded.

56.  There was no pleading of any agency in the Draft Amended SOC either.  I accept Mr Lam’s submission, that the new paragraph 4 in the Draft Amended SOC did not constitute a proper plea of agency, and there was no plea to the fact that JCC was the agent of D, which now appears in the draft fresh SOC attached to the Leave Summons[27].

57.  Mr Cheung was trying to argue that P’s case as pleaded or as amended per the Draft Amended SOC if allowed was not unsustainable,   that there was no injustice to D if the Amendment Summons were to be allowed as no Case Management Conference had been conducted prior to the Striking Out Summons, and that P should be entitled to a full hearing following a comprehensive discovery and supported by oral evidence. Mr Cheung further complained that to strike out P’s claim at this interlocutory stage would be irreparably prejudicial to P. 

58.  However, as P was given leave to file a fresh SOC, the only prejudice, if any, would seem to be the costs wasted and the delay in having to file and serve a fresh SOC.  There seems no reason at this stage why P should not be entitled to a full trial based on the fresh SOC.

59.  Mr Cheung had referred to the Court of Final Appeal judgment in Poon Hau Kei and Hsin Chong Construction Co Ltd and Taylor Woodrow International Ltd Joint Venture (2004) 7 HKCFAE 148.  This was a case where after a trial the plaintiff was held to succeed on a scenario which he had not advanced and pleaded but one pleaded and advanced by the defendant, and the Court of Final Appeal held that this could be done, provided that the court did so in a fair manner[28].  In short, it seems the plaintiff in that case pleaded Scenario A, the defendant then pleaded Scenario B and the trial judge found for Scenario B.

60.  As I have indicated, the problem here is that on P’s present pleadings, or in the Draft Amended SOC, and P had not advanced or pleaded that JCC was the agent of D and P’s counsel had indicated that it was not its case.  Nor had D.  There was no admission on D’s part that JCC was its agent in entering into the Chinese Purchase Orders, and in fact, on the contrary, it was D’s case that JCC was entering into those contract/s on its own.  I do not think the Poon Hau Kei case would assist P in the present case. 

61.  Mr Cheung also referred this court to the case of Hutchivision Asia Limited and Asia Television Limited, HCA 6757/1992, 8 September 1993 where it was said that although the court had jurisdiction to strike out ATV’s defence as it was bound to fail , this jurisdiction ought to be very sparingly exercised and only in very exceptional cases[29].

62.  Master Levy had said that the present SOC was struck out not because it was a kind of claim which was frivolous, it was not a kind of claim which was abusive, and that she believed that P had mounted and institute the claim in good faith, and that unfortunately it was really the lack of pleading a proper cause of action in the light of the evidence that had been filed which made the SOC in its present form, and even taking into consideration the proposed amendments, unsustainable[30].  I agree with her comments.

63.  Mr Lam had referred the court to the Shogun case and the UTI case at the 1^st Hearing, and P had been given an opportunity at that time to amend its pleadings, and yet notwithstanding such opportunity, the Draft Amended SOC did not “tidy up the bits and pieces that were unsatisfactory”.

64.  It was under the above circumstances that Master Levy made the Striking Out Order.

65.  An appeal from a Master is by way of a re-hearing.  Having heard the parties submissions and considered all the pleadings and affirmations and relevant documents and the circumstances of this case, I agree with the views of Master Levy.

Order

66.  In view of my above conclusions, I dismiss P’s appeal.

67.  There was no objection from D to paragraph 1 of P’s Leave Summons, I therefore make an order in terms thereof.

68.  As to costs, I order P to pay D’s costs of and incidental to the appeal.  As for the Leave Summons, I understand that D seeks costs, but I am of the view that this should be costs in the cause.  This is an order nisi, which shall be final after 21 days.

69.  Lastly, I would like to thank all Counsel for their submissions and assistance to this court.