READY SET GOAL LTD (IN LIQUIDATION) AND ANOTHER v. KAY-EL (HONG KONG) LTD

HCA 223/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 223 OF 2013
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D E C I S I O N

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The application

1. By summons dated 26 May 2014, the plaintiffs apply under O.38, r.36 RHC for leave to adduce expert evidence on the issues set out in Schedule 1 of the summons in terms set out in Schedule 2 of the summons.

2. The defendant opposes this application.

3. The parties are legally represented.[1]

The factual background

4. For the present application, the relevant facts of the matter are these.

5. Mr. Thomas Caswell, a director and shareholder of the 1^st plaintiff, was the inventor of a portable inflatable goal known as the “iGoal”.

6. Between August and November 2006 the 1^st plaintiff and the defendant had orally agreed (“the Agency Agreement”) that the defendant was appointed agent of the 1^st plaintiff for the purposes of, inter alia, identifying potentially suitable manufacturers of the iGoal and ensuring that the manufacturer had suitable quality control and other processes in place, so as to ensure that the iGoals were manufactured satisfactorily.  The defendant would receive a commission of 10% of the value of the orders placed by the 1^st plaintiff.[2]

7. The 1^st plaintiff had purchased 30,000 iGoals under two sales contracts.  The 1^st plaintiff alleged that 60% of the goods under the respective sales contracts were found defective.  The defects of the iGoals under the first sales contract are that the iGoals were poorly assembled and air leaked from the plastic joints at the corners and the handle on the pumps supplied as part of the iGoal were weak or had fractures and they snapped during normal usage.[3]  The defects of the iGoals under the second contract are that there were leakages at the corners by reason of excessive compression in the manufacturing causing the plastic to crack and on certain of the iGoals, the nets were fitted either too tightly or too loosely.[4]

8. The 1^st plaintiff alleged that the defects were caused by breach by the defendant of the Agency Agreement for failing to take reasonable steps to ensure good quality of the iGoals manufactured by the manufacturer and to ensure that the manufacturer had the suitable quality control procedures for good quality in accordance with the 1^st plaintiff’s requirements.[5]

9. Alternatively, the 1^st plaintiff pleaded that it purchased the iGoals from the defendant direct and the defendant had been in breach of the implied terms of merchantable quality for the iGoals under section 16 of the Sale of Goods Ordinance, Cap. 26.[6]

10. The defendant denies liability on the grounds that first, it made no admission to the defects; it was informed that only some of the products had defects; secondly, it was only responsible to cause the manufacturer as chosen by the 1^st plaintiff to manufacture the iGoals, following the directions of the 1^st plaintiff or Mr. Caswell.  Since Mr. Caswell was responsible to test and approve the quality of the iGoals, the defendant is not liable for the defects as identified.[7]

11. The defendant has also pleaded that the 1^st plaintiff and the defendant had, by way of a memorandum of understanding dated 16 May 2009, fully and finally settled their dispute in relation to all the potentially defective iGoals ordered under the two sales contracts.  However, this is disputed by the 1^st plaintiff in its Reply.[8]  The disputes will involve factual findings, which should not be resolved in this hearing.

The relevant legal principles

12. Those legal principles that I had set out in my previous Decision in Leung Siu v Bank of China (Hong Kong) Limited (unreported, HCA1911/2012, 7 March 2014) are applicable in the discussion that follows:

a. Under Order 38 rule 36 of RHC, unless the parties agree, no expert evidence may be adduced at the trial without leave of court.  See Fung Chun Man v Hospital Authority (unreported, HCPI 1113/2006 by Bharwaney J on 24 June 2011);

b. The court is concerned with proper directions for expert evidence in order not to cause delay and waste of expenses.  Faith Bright Development Limited v Ng Kwok Kuen [2010] 5 HKLRD 425 at 430-431;

c. Where the proposed expert evidence is plainly inadmissible or irrelevant, the court will refuse admission of such evidence.  If the court cannot form a clear view on the relevance or the evidence is clearly relevant, it should grant leave for the evidence to be adduced at the trial.  The evidence is relevant if it is helpful to the court in arriving at its decision on one or more of the issues to be resolved.  Wong Hoi Fung v American International Assurance Company (Bermuda) Limited & Shrila Chan [2002] 3 HKLRD 507;

d. However, evidence meeting the test could still be excluded if the court took the view that calling it would not be helpful to the court in resolving any issue in the case justly. Such evidence would not be helpful where the issue to be decided was one of law or was otherwise one on which the court was able to come to a fully informed decision without hearing such evidence.  Barings plc (in liquidation) and another v Coopers & Lybrand (a firm) and others Barings Futures (Singapore) Pte Lye (in liquidation) v Mattar and others [2001] All ER (D) 110 by Evans-Lombe J.

e. When there is a dispute over whether expert evidence should be adduced at trial, the court has to examine the pleadings to determine whether the proposed expert evidence is required in the pleaded case.  Yeung Ga Wai v Lau Ming Shum (unreported, HCA798/2004, 19 July 2012; the burden of establishing relevance is on the applicant, at §7 of Majorette Hong Kong Ltd v Fullmore Corporation Ltd (unreported, HCA1583/2008, 23 June 2010);

f. Expert evidence must be confined to the live issues of dispute between the parties, which must be sought from the pleadings China Gold Finance Limited v CIL Holdings Limited & Ors (unreported, HCA2900/2001, 25 September 2012, at para. 17-18.)

g. It will be helpful to bear in mind the factors of real issues of dispute between the parties; the burden of proof; fair trial and proportionality for the determination of the scope of expert evidence.  See paragraph 10 of Pak Ko Batteries Factory Ltd & Others v New Leader Battery Industry Ltd (unreported, HCA1139/2007, 14 January 2014).

13. Mr. Chan for the defendant further relies on Fung Chun Man v Hospital Authority & Another (unreported, HCPI 1113/2006 by Bharwaney J., 24 June 2011) in which the learned judge said that “the expert evidence must be in a recognized discipline, reasonably required to enable the court to resolve the issues in dispute, and proportionate.”  He also emphasized in deciding whether expert evidence should be allowed, the court “must have regard to other relevant circumstances..… to ensure cost effectiveness and economy, expedition, proportionality, and fairness between the parties….. the court strives to ensure a level playing field with fair access to proper experts for all parties.”[9]

Discussion

14. With the above legal principles in mind, I shall now discuss the plaintiffs’ application.

15. Mr. Chan is of the view that the expert evidence addresses the following issues, viz:

a. First, whether the iGoals supplied under the sales contracts were defective as the plaintiffs have pleaded.

b. Second, (a) what would have constituted reasonable quality control procedures for the production of iGoals and (b) whether those procedures would have identified the alleged defects in the iGoals.[10]

16. Mr. Chan takes the view that for the expert evidence under 15.a above, the 1^st plaintiff’s application should not be allowed on the basis that it would not be cost effective or proportionate to allow parties to spend extra (and considerable) costs on obtaining expert evidence, having regard to the key issues of dispute between the parties.  His arguments run as follows.

17. The question of whether or not the iGoals acquired by the 1^st plaintiff were defective as alleged in the Statement of Claim is a question of fact which could be dealt with adequately by the respective parties’ factual witnesses.  He points out that iGoal was a new invention of Mr. Caswell of the 1^st plaintiff and someone from the manufacturer, who produced the iGoals that are the subject of the plaintiffs’ complaint, would be best placed to assist the court on this factual question by reference to the 1^st plaintiff’s “requirements”.

18. The main issue at trial is unlikely to be whether or not the iGoals in question were defective. Instead, the likely key issue is going to be whether or not the extent of the defendant’s duty owed to the 1^st plaintiff included the duty to underwrite the quality of iGoals manufactured by the 1^st plaintiff’s chosen manufacturer to the satisfaction or in accordance with the 1^st plaintiff’s requirements.  This is particularly so given that (a) the defendant has made no admission to the plaintiffs’ allegation that the iGoals in question were defective and (b) the pleadings indicate there is evidence that appears to suggest it is common ground that some of the iGoals sold under the sales contracts were defective.

19. On the issue whether 60% of the iGoals were defective, the burden of proof lies on the 1^st plaintiff as the defendant has made no admission.  If the defendant’s proposal is adopted by calling a factual witness of the manufacturer to give evidence, this witness’s evidence can only be on the facts of the matter, that is, on the appearance of the products.  He cannot give evidence on the technical aspects in the manufacturing of the products, which will be within the province of an expert.  The 1^stplaintiff has pleaded its case, not only on the basis that the defendant had to ensure the quality and the quality control procedures of the manufacturer in paragraph 5, but also the particulars of the quality control measure as pleaded in paragraph 23(d) of the Statement of Claim.  It has also identified the causes of the defects in the pleadings.  It will be beyond the factual witness’s ability to give evidence on the causes of the defects as identified by the 1^st plaintiff.  Although Mr. Chan submits that the factual witness’s opinion can be admissible evidence under section 58(2) of the Evidence Ordinance, Cap.8, his opinion is only relevant to the facts he perceives, but cannot go to the extent as to whether the force of compression was too excessive, or whether the handle will snap under normal usage.  In the circumstances, I consider that it is reasonable for the 1^st plaintiff to call an expert to give evidence on the issues of whether the iGoals were defective, which are covered by paragraphs 1 and 2 of Schedule 1 of the summons.

20. As to the second group of expert evidence under paragraph 15.b supra, the issue that the defendant is under an obligation to underwrite the quality of the iGoals under the Agency Agreement is in dispute.  It is a question of factual finding by the trial judge.  Of course, if the court finds that the defendant does not have such contractual obligation, the 1^st plaintiff’s proposed expert evidence will not be necessary.  However, unless there is clear evidence that the 1^st plaintiff would not succeed on this factual issue, this Court should proceed on the basis that the 1^st plaintiff has a reasonable chance of success in proving its case at trial.  In such circumstances, I do not support Mr. Chan’s argument that paragraph 3 in Schedule 1 on whether any adequate system of quality control would have involved at least the procedures, processes and test set out in the “Igoal Inspection Operation Sheet” (“the IOS”) as pleaded in paragraph 23 (d) of the Statement of Claim is irrelevant for the fair resolution of the issues in dispute.  The defendant admitted that it would only be responsible to cause the manufacturer as chosen by the 1^st plaintiff to manufacture the iGoals, following the directions of the 1^st plaintiff or Mr. Caswell.  See paragraph 10 supra.  The IOS was provided by the 1^st plaintiff to the defendant as pleaded in paragraph 23 of the Statement of Claim.  The plaintiff has to prove the requirements under the IOS would be effective to control the quality of the iGoal.  The defendant also complains that the scope is too wide.  As I understand it, the plaintiffs’ case is that defects were discovered prior to the IOS.  If the 1^st plaintiff succeeds in proving the defendant’s contractual obligation to underwrite the quality and the quality control system of the manufacturer, the 1^st plaintiff has to prove the quality control system prior to the IOS as well.

21. The above reasons support paragraphs 4 and 5 of Schedule 1.

22. However, I agree with Mr. Chan that paragraph 6 of Schedule 1 is not necessary for the trial of this matter. The implied duty of merchantable quality of goods sold has nothing to do with the quality control procedures for the production of the goods.  The Court will only be concerned with whether the goods are of merchantable quality.  It does not have to investigate into the cause of any failure of merchantable quality.  It may be due to the quality control, or it may be due to other reasons as well.  But this is irrelevant for the trial.

23. I allow the expert evidence as per Schedule 1 of the summons, except paragraph 6 of it.

24. As to Schedule 2 of the summons, the defendant disagrees that expert evidence should be given for the fair resolution of the dispute.  The defendant also confirms that the defendant intends not to give expert evidence at the trial.  In the circumstances, the Court has no power to force it to give expert evidence at the trial as Ribeiro J. (as he then was) held in his Decision in Yee Tung Fibre Glass Manufactory Eng. Co (a firm) v FRP (Hong Kong) Limited (unreported, HCA17840/1998, 17 September 1999 at page 7):

“In Derby & Co. Ltd. v Weldon (No. 9) The Times, November 9 1990 (Dillon, Ralph Gibson and Staughton, L.JJ.), the English Court of Appeal held that in principle, the court had no power to order a party to litigation to disclose expert evidence on an issue on which that party did not intend to adduce evidence at the trial. .. What the Rules now provide for is machinery requiring, as a condition of a party being able to adduce expert evidence at a trial, that it should previously have served on the other party a statement of the substance of such evidence.  The Rules do not override the prima facie privileged status of the document, nor do the Rules (or any inherent jurisdiction) provide the court with power “to call for the bringing into being and disclosure of expert evidence on an issue which the party did not intend to adduce evidence on at the trial.”

25. Under those circumstances, the proper directions should be similar to those that I had given in Amcor Packaging (Asia) Pty Ltd v Li Wei Po (unreported, HCA1351/2009, 9 January 2014) that the 1^st plaintiff be given leave to adduce expert evidence, with liberty to the defendant to respond to it and finally the 1^st plaintiff will have the liberty to reply.  The directions will be as follows:

a. Leave to the plaintiffs to adduce expert evidence as per paragraphs 1-5 of Schedule 1 of the summons; the expert report shall be served on the defendant within 56 days from the date hereof;

b. The defendant be at liberty to serve its expert report in response thereto within 42 days thereafter; and

c. The plaintiffs be at liberty to serve the expert report in reply within 28 days thereafter.

26. As to the costs of this application and the hearing today, the costs should follow the event.  Since the plaintiffs have lost one item in Schedule 1, 90% of the costs for the application and the costs of the hearing today (with a counsel certificate) be to the plaintiffs.  I have noted that Mr. Chan has asked me to reserve the costs to the trial judge.  This should not be the practice because the trial judge should not be bothered with what happen today. Under O.62, r.9A of RHC, the Court has the power to have a summary assessment of the costs, which I now do.  The costs are summarily assessed at $96,000 (being 90% of the assessed costs) to be paid by the defendant to the plaintiffs within 14 days from the date hereof.