XCHRX KENDA'S TRADING INTERNATIONAL CO. LTD. v. DC SHOES, INC. AND ANOTHER

HCA9970/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.9970 OF 2000

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D E C I S I O N

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1. The plaintiff is a wholesaler and retailer of fashionable sports shoes and clothing. The 1st defendant is a manufacturer and supplier of shoes and clothing in the United States. The 2nd defendant is a carrier.

2. The plaintiff's case is that since September 1998, the plaintiff had been appointed the sole distributor of the 1st defendant's footwear and apparel in Hong Kong. Over the years, the practice had been for the 1st defendant's factories to arrange for the goods to be shipped to Hong Kong. The 1st defendant would notify the plaintiff of the shipment and the 2nd defendant, as the carrier, would issue advice of arrival to the plaintiff. The plaintiff would then effect payment to the 1st defendant through telegraphic transfer. Upon confirmation of payment, the 1st defendant would instruct the 2nd defendant to release the goods to the plaintiff. Throughout the process, the plaintiff was not supplied with any bill of lading and delivery of goods by the 2nd defendant to the plaintiff was not against presentation of bills of lading.

3. The plaintiff said that in April or May this year, the plaintiff had ordered various quantities of goods from the 1st defendant. Between 4 October and 20 October, the plaintiff had paid a total of US$249,977 to the 1st defendant. According to the plaintiff, the goods had been shipped by the 2nd defendant to Hong Kong, but the 1st defendant refused to deliver them to the plaintiff, alleging that the plaintiff had been in breach of the distributorship agreement. The alleged breach is disputed by the plaintiff.

4. On 13 November 2000, the plaintiff obtained ex parte an injunction restraining the 2nd defendant from "disposing, releasing, parting with possession or otherwise dealing with, save and except for the safe keeping thereof or permitting or allowing the plaintiff by their agent or servants to take possession thereof, goods belonging to the plaintiff" and are "in the 2nd defendant's possession" as per a schedule annexed to the Order ("the ex parte Order"). On 14 November, the former solicitors for the 2nd defendant and the plaintiff appeared before the Duty Judge, who granted the ex parte Order, to seek clarification of the Order. A supplemental order was then made authorizing the plaintiff to collect the goods in the possession of the 2nd defendant and its agents and also restraining the 2nd defendant from restricting, obstructing or preventing the plaintiff from collecting the goods ("the Supplemental Order").

5. The plaintiff issued the inter parte summons on 15 November 2000 seeking to continue the ex parte Order and the Supplemental Order. On 16 November 2000, the 2nd defendant took out an inter parte summons to set aside the Supplemental Order and also claiming interpleader reliefs.

6. At the hearing of both summonses, the plaintiff only sought the continuation of the part of the ex parte Order restraining the 2nd defendant from disposing, releasing, parting with possession or dealing with the goods in the schedule, except for safe keeping thereof. The plaintiff did not proceed with the continuation of the other part of the ex parte Order nor the Supplemental Order. After hearing submissions, I refused the plaintiff's application and adjourned the part of the 2nd defendant's summons seeking interpleader reliefs sine dine with liberty to restore. I now reduce my oral reasons into writing.

The Writ and service of the Writ

7. The Writ was issued on 13 November 2000 shortly after the granting of the ex parte Order. The Endorsement of Claim states that the claim against both defendants is for "damages for breach of contract and/or duty of care and/or conversion and/or negligence in respect of its wrongful detention, disposing, parting with possession and/or dealing with otherwise the lawful authority property of the plaintiff and/or to which the plaintiff was and is entitled to immediate right of possession, the particulars of which are set out in the schedule attached hereto, for delivery up of the said property and damages for its detention and any consequential loss and interest and costs and/or other relief".

8. As part of the ex parte Order, the plaintiff was granted leave to issue a concurrent writ and to effect service of the same on the 1st defendant outside jurisdiction. Despite the order, the concurrent writ has yet to be issued and served on the 1st defendant as at the hearing of the inter parte summons.

9. Notwithstanding that the Writ had not been served on it, the 2nd defendant appeared by counsel at the hearing and made an objection to the continuation of the ex parte Order. Counsel for the 1st defendant, however, indicated at the same time that the 1st defendant reserved its position to challenge the ex parte Order granting leave to serve outside jurisdiction and also the jurisdiction of the Hong Kong court. The 1st defendant's objection to the ex parte Order is on the ground that the plaintiff has been in breach of its undertaking to the Court.

10. In obtaining the ex parte Order, the plaintiff had undertaken to notify the defendants forthwith of the terms of the ex parte Order and to serve upon them as soon as practicable a copy of the supporting affidavit together with a copy of the ex parte Order. The 1st defendant says that the plaintiff has failed to take steps to notify the 1st defendant of the terms of both the ex parte Order and the Supplemental Order and has also failed to serve the Orders and the affidavit on it. The 1st defendant says its solicitors only managed to obtain the papers from the solicitors for the 2nd defendant. By reason of this breach of undertaking by the plaintiff, the 1st defendant contends that the ex parte Order ought to be discharged or ought not be continued.

11. The position in the present case is that it was in the morning of 14 November 2000 that the terms of the injunction order were clarified with the Duty Judge. There is therefore a lapse of two days by the time of the hearing of the inter parte summons on 17 November 2000. In the letter dated 16 November 2000 from the plaintiff's solicitors to the 1st defendant's solicitors, the plaintiff's solicitors had put forward several reasons for the delay in effecting service. One of the matters mentioned is that steps had been taken to identify and engage agent in the United States to effect service. It is true that the plaintiff could have caused copies of the Orders and the affidavit to be faxed to the 1st defendant. The plaintiff's explanation is that as the Duty Judge had refused the initial application to effect service on the 1st defendant by fax, it was thought, quite erroneously as a matter of fact, that the papers should not just be faxed over. But considering that the 1st defendant is a foreign corporation, that there had been ongoing discussions between solicitors for the plaintiff and solicitors for the 1st defendant, and, later on, solicitors for the 2nd defendant on the matter since the making of the ex parte Order and that the time lapse is only two days, I do not consider that there has been a serious breach of undertaking as will justify or necessitate the discharge of the injunction order. The present case is very different from the circumstances in the case of Manor Electronics Ltd and Another v. Dickson and Others [1988] RPC 618 on which the 1st defendant relies : see p.620.

12. The 2nd defendant also objects to the continuation of the ex parte Order, although its summons only seeks to set aside the Supplemental Order. The principal objection of the 2nd defendant is that the plaintiff has failed to make out a good arguable case against it and that the ex parte Order has the effect of preventing the 2nd defendant from meeting its obligations as a carrier to effect delivery of the goods against the presentation of bills of lading.

13. Plainly, there is no contractual relationship between the plaintiff and the 2nd defendant. The plaintiff does not take issue with the proposition that the 2nd defendant as carrier will and should only effect delivery of the goods to the holder(s) of the relevant bill(s) of lading. Without presenting the bill(s) of lading, the plaintiff has no right to compel the 2nd defendant to deliver up the goods to it and when there is also no instruction from the 1st defendant to release the goods to the plaintiff. Clearly, it is the recognition of this that the plaintiff does not seek to continue the Supplemental Order, which is in the nature of a mandatory order compelling the 2nd defendant to deliver up the goods to the plaintiff. Similarly, it must be for the same reason that the plaintiff only seeks the continuation of the ex parte Order in a limited form, omitting from it the part that permits the plaintiff to take delivery of the goods from the 2nd defendant. The pertinent question that remains is what is the plaintiff's cause of action against the 2nd defendant as disclosed by the affidavit in support, which is the only material before the Court. Counsel for the plaintiff suggests that the plaintiff has a claim against the 2nd defendant in bailment on the basis that the contract between the 1st and 2nd defendants was for the benefit of the plaintiff. I am unable to see how that can give rise to a good arguable claim against the 1st defendant on the evidence now before the court. The bulk of the plaintiff's affidavit is on the relationship, arrangement for delivery of goods and disputes between the plaintiff and the 1st defendant. There is very little reference to the role of the 2nd defendant, other than it being the 1st defendant's carrier, and to the relationship between the plaintiff and the 1st defendant. I am unable to see from the affidavit what cause of action the plaintiff may have against the 2nd defendant, let alone a good arguable case on merits. The ex parte Order, even in its limited form, should not be continued, especially when it has the effect of preventing a carrier from discharging its primary obligation to effect delivery to persons who can properly lay claim to the goods and/or to holders of bills of lading. The plaintiff's summons must therefore be dismissed.

14. As to the 2nd defendant's summons, it is not necessary to deal with paragraph 1 which seeks to set aside the Supplemental Order since the plaintiff is not pressing for it. In relation to the other part seeking interpleader reliefs, the plaintiff does not in principle object to it, but raises the concern as to whether all the parties are before the Court, having regard to the fact that it is not clear who is now holding the relevant bills of lading. The 1st defendant makes no submission on this, presumably because of its stated intention to dispute jurisdiction. In my view, the issue of interpleader should only be considered after the 1st defendant has been served with the Writ and the challenge to jurisdiction has been dealt with. In the premises, the part of the 2nd defendant's summons on interpleader reliefs is adjourned sine dine with liberty to restore.

15. On the question of costs, with the discharge of the ex parte Order, the 2nd defendant's costs of the ex parte Order and of the plaintiff's inter parte summons should be borne by the plaintiff. The 2nd defendant asks for costs on an indemnity basis arguing that it is an innocent party in a position analogous to that of a third party served with a Mareva injunction. I do not agree. As counsel for the plaintiff observed, the 2nd defendant has issued an interpleader summons. As such, the 2nd defendant is obliged not to take any step in relation to the goods in its possession which is inconsistent with the position of a party seeking to interplead. To that extent, the 2nd defendant cannot claim to be in the same position as a third party being served with a Mareva injunction order. The costs order should be on the usual party and party basis.

16. As for the posts between the plaintiff and the 1st defendant, counsel for the 1st defendant applies for costs against the plaintiff on the basis that the plaintiff had abandoned a large part of the inter parte summons. In the course of the submissions, it was revealed that the 1st defendant's solicitors had been served with copy of the plaintiff's inter parte summons and it is on that basis that the 1st defendant appeared by counsel at the hearing to oppose the summons. In my mind, there must be reservation as to whether the appearance of the 1st defendant and the stance taken at the hearing are compatible with the 1st defendant stated intention of not submitting to the jurisdiction of the Hong Kong court, notwithstanding that the Writ has yet to be served. That, however, is not a matter before me and I say no more about it. But since the issues of service outside jurisdiction and of the jurisdiction of Hong Kong remain to be resolved, it is, in my view, only proper that the question of costs between the plaintiff and the 1st defendant should be reserved, and I so order.

Conclusion

17. The orders I make are as follows :

(1) The plaintiff's summons filed on 15 November 2000 be dismissed.

(2) Paragraph 2 of the 2nd defendant's summons filed on 16 November 2000 be adjourned sine dine with liberty to restore.

(3) The 2nd defendant's costs of the ex parte Order granted on 13 November 2000 and of the costs of the plaintiff's said summons, including the costs of the hearing on 17 November 2000, be borne by the plaintiff, to be taxed on party and party basis if not agreed.

(4) As between the plaintiff and the 1st defendant, the costs of the said ex parte Order and of the plaintiff's said summons be reserved.