XCHRX TAIWAN VIA VERSAND LTD. v. COMMODORE ELECTRONICS LTD.

1993, No. A6231

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H E A D N O T E

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TAIWANESE COMPANY AS PLAINTIFF - WHETHER IT HAS CAPACITY TO SUE OR BE SUED IN HONG KONG - FOREIGN CORPORATIONS ORDINANCE COMING INTO FORCE ON 29TH OCTOBER 1993 - RETROSPECTIVE EFFECT - COMMON LAW POSITION REFLECTED IN DICTA OF HOUSE OF LORDS AND COURT OF APPEAL DECISIONS (CARL ZEISS STIFTUNG V. RAYNE & KEELER LTD (NO.2) [1967] 1 AC 853; HESPERSIDES HOTELS V. AEGEAN HOLIDAYS LTD, [1978] 1 QB 205; GUR V. TRUST BANK OF AFRICA, [1987] 1 QB 599) PREFERRED

1993, No. A6231

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. This is an appeal by the plaintiff against the decision of the Master upon an application under Order 14 and Order 14A granting inter alia unconditional leave to the defendant to defend and leave to the defendant to argue the point of law pleaded in Paragraph 1 of the Defence; namely, whether a Taiwanese company can sue in Hong Kong.

2. The plaintiff is a limited company incorporated in Taiwan. In this action, it claims against the defendant for the balance of price for goods sold and delivered in the sum of US$195,490. It had agreed to sell 25,000 units of data cassettes to the defendant. All the goods had admittedly been delivered to the defendant but the outstanding balance of the price had remained unpaid. The plaintiff applied for summary judgment and being aware of the challenge to its locus standi to sue in the Hong Kong courts, also filed an application under O.14A for a determination of this point of law. The defendant resisted these applications and relied on two defences : first, as a matter of law, the plaintiff had no locus to sue in Hong Kong and second, on the facts, the defendant had a valid and bona fide set-off against the plaintiff's claim.

3. Before the learned Master, the arguments on the locus point were based wholly on the Common Law position. Counsel for the plaintiff argued before the learned Master and maintained before me that although there was no direct authority on this point, there were very strong obiter dicta from the House of Lords and Court of Appeal decisions in England supporting his contention that the plaintiff could sue in Hong Kong. Mr Bradley representing the defendant went through these decisions in a very succinct written submission and argued that the point was left open by these English courts. Counsel for the defendant further submitted before me that this must be a serious point of law to be tried and that it was not appropriate to give summary judgment or to determine it at this interlocutory stage.

4. As I understand it, the argument against the plaintiff having locus is this. The Taiwanese government is not recognised by the British and Hong Kong governments. And so the laws of Taiwan are also not recognised. It follows that companies incorporated under the laws of Taiwan may not be recognised either. That being the case, the plaintiff has no capacity to sue in the Hong Kong courts.

5. Before me, counsel for the plaintiff referred me to the recently enacted Foreign Corporations Ordinance which he said had set the matter beyond argument. That Ordinance, passed on 29th October 1993, was not referred to the learned Master by the parties probably because no one was then aware of it. Counsel for the plaintiff submitted that s.2(1) of that Ordinance had the effect of giving the plaintiff the locus standi to sue even if it could be argued that at Common Law, it did not have such locus. He further argued that s.2(3) had retrospective effect so that the plaintiff's present proceeding instituted on 13th July 1993 was valid. Counsel for the defendant argued that the Ordinance did not apply because there was no evidence that the laws of Taiwan were applied by a settled court system. He further submitted that s.2(3) could not assist the plaintiff because the proceeding was a nullity and this could not be cured by O.2, r.1. He referred me to a number of authorities on this point.

6. Section 2(1) and (3) of the Foreign Corporations Ordinance are in these terms :-

"2. Recognition of corporate status of certain foreign corporations

(1) If at any time-

(a) a question arises as to whether a body, which purports to have or which appears to have lost corporate status under the laws of a territory outside Hong Kong which is not at that time a recognized State, should or should not be regarded as having legal personality as a body corporate under the law of Hong Kong; and

(b) it appears that the laws of that territory are at that time applied by a settled court system in that territory,

that question and any other material question relating to the body shall be determined (and account shall be taken of those laws) as if that territory were a recongized State.

.....

(3) Any registration or other thing done at a time before the coming into operation of this section shall be regarded as valid if it would have been valid at that time, had subsections (1) and (2) been in operation."

7. I accept that there is no evidence as to what the laws of Taiwan are and whether they are applied there by a settled court system. However, I agree with counsel for the plaintiff that this is a matter of which I can have judicial notice. Although there is no formal recognition of Taiwan as a State of Government, there has been a lot of communication between Hong Kong and Taiwan. There are direct flights between these two places. Citizens from these two places travel to and fro. They do business with each other. People in Hong Kong invest in Taiwan and vice versa. In other words, notwithstanding the non- recognition, the private affairs of individuals in Hong Kong and Taiwan have always been conducted on that basis. I think no one can dispute that there are some form of government and systems including a court system in Taiwan as there are in the USA, Canada and some other countries. Although the Hong Kong government does not recognise such forms of government and systems, I do not think anyone can close his eyes to them. On the contrary, ordinary citizens in Hong Kong conduct their affairs on the basis that there are such government and systems although they are not formally recognised by the Hong Kong government. The purpose of the Ordinance is precisely to give effect to the realities of life. In my view, the lack of formal evidence on the laws of Taiwan and a settled court system there is not fatal. I think that the plaintiff falls within the ambit of s.2(1).

8. Section 2(3) has the effect of treating anything done before the commencement of the Ordinance on 29th October 1993 as valid as if the Ordinance was in operation at the time when the thing was done. I think the intention of this subsection is quite clear. It is meant to have retrospective effect and give validity to things which were done prior to that date. The issue of a writ can be regarded as a thing done under the subsection. In my view, it is covered by s.2(3) and the writ is not a nullity.

9. I therefore hold that the plaintiff has the locus standi to sue in Hong Kong. In the circumstances, the first defence cannot succeed. It is not necessary for me to make any determination on the Common Law situation. If I were asked to rule on it, I would be inclined to accept and adopt the strong dicta of the House of Lords and Court of Appeal in England (see Carl Zeiss Stiftung v. Rayne & Keeler Ltd (No.2) [1967] 1 AC 853, Hespersides Hotels v. Aegean Holidays Ltd [1978] 1 QB 205 and GUR v. Trust Bank of Africa [1987] 1 QB 599). First, the citizens of the two places have conducted their private affairs on the basis that there is a form of government and a system in Taiwan. I do not think they should be adversely affected by the lack of formal recognition of Taiwan as a state. As Sir John Donaldson MR said in GUR v. Trust Bank of Africa (at p.622):

"it is one thing to treat a state or government as being 'without the law' but quite another to treat the inhabitants of its territories as 'outlaws who cannot effectively ... purchase goods on credit or undertake countless day to day activities having legal consequences.'"

Second, it would be unfair to allow a Hong Kong citizen who has entered into a business transaction with full knowledge of this political loophole to escape liability under the transaction on this ground. Third, if a Taiwan individual can come to Hong Kong and take civil action and if a Taiwanese partnership consisting of several individuals can also do so, I can see no good reason why a Taiwanese company cannot do the same.

10. In view of my ruling on this point, I do not think I need to deal with the O.14A application.

11. As to the second defence, the plaintiff argued that the defendant had failed to raise a triable issue. The defendant alleged that the plaintiff's goods were defective and the last delivery was also late. These breaches had resulted in loss and damage to the defendant which was entitled to have a valid set-off.

12. It is not disputed there was a contract for the sale of 25,000 units of data cassettes and that they had been delivered to the defendant. The plaintiff had supported its claim by the relevant invoices and packing lists. In fact, it does not seem to have been denied that the defendant had not paid the balance of the price in the sum of US$195,490. In opposition to the O.14 application, Mr Bradley swore an affidavit exhibiting a draft defence and deposed to the allegations as related to him by his clients. The affidavit alleged that 7,960 units were defective and had to be repaired, costing HK$450,000 and that 1,643 units were also defective and under repair and the costs of doing that would be about HK$93,000. He added that there were some other goods being returned from customers and that another 1,900 units were delivered late. Shortly before the O.14 hearing before the learned Master, the defendant's solicitors replied to the plaintiff's solicitors purporting to give particulars of its allegations and supplying copies of the documents supporting the repairs which were alleged to have been carried out to the defective goods. That letter was apparently referred to the learned Master and relied on by the parties. Notwithstanding the plaintiff's objection, I think the court is entitled to look at the letter and the documents in dealing with an O.14 application, those being relevant matters for the decision of the court. In the defence which has been filed since the hearing before the learned Master, the defendant alleged that the 1,642 units could not be repaired and therefore there was a further loss to the defendant of $100,000 as repair costs and $145,000 as the costs of these goods. No particulars however were given as to any loss/damage in respect of the late delivery. Furthermore, there was no detail regarding the allegation of the "continuing return of defective goods from customers".

13. Counsel for the plaintiff argued that there was no supporting evidence adduced by the defendant to support its set-off. The documents produced by the defendant were in German only. Also the goods referred to in these documents might not refer to the goods sold by the plaintiff to the defendant. He also complained that the defendant had not condescended into particulars. Counsel further submitted that these allegations were inconsistent with the defendant's previous attitude. Counsel for the defendant submitted that the letter and documents were placed before the court and could be and were indeed relied on. These contained a particularised set-off which was not a sham. He added that all these in fact showed that the defendant's defence was bona fide. As to the lack of translation of the German documents, he said that it was not until recently that the defendant came to know these documents were not included in the Appeal Bundle. This could be remedied by an undertaking to file the certified translation.

14. I do not think I should be bothered with the translation. The documents in any event did not contain too many German words. They referred to various figures which tend to support the defendant's allegations that there were defective goods which were repaired. I also do not agree there were no particulars given by the defendant to substantiate its allegations.

15. As to the merits of the defendant's allegations, I think there is some strength in the submission made by counsel for the plaintiff. The goods were delivered to the defendant by instalments starting from early April. The documents produced by the defendant referred to repairs done in late April. It follows that any defect in the goods would have been known to the defendant since April. Yet there is no evidence that the defendant had lodged any complaint about the quality of the goods. There is also an allegation that a solicitor of the plaintiff's solicitors had spoken to a staff of the defendant who did not deny any liability to pay or raise any complaints about the goods. There is no denial of this conversation in the defendant's affidavit. I am aware that this allegation is strictly hearsay and I have to be more careful with it. There was also the letter of demand from the plaintiff's solicitors dated 6th July 1993 and yet there was no reply to it let alone a complaint. It is also not clear whether the documents related to the goods sold to the defendant. I notice that the defendant, although a company in Hong Kong, did not ask any of its staff to make any affirmation. All these factors have made me feel very suspicious about the defendant's defence of set-off. In any event, at the present moment, the set-off amounts only to HK$450,000 + $245,000, i.e. $695,000. There are still no particulars regarding the loss due to late delivery although the goods were delivered in June. I do not think the allegation of the continuing return of defective goods can be supported and no particulars have been given so far. Yet I do not think the defendant's allegation of defective goods can be ignored since these documents, if they are genuine and relate to the plaintiff's goods, do tend to support it. Much as I am tempted to give full judgment for the plaintiff; I do not think in the circumstances, I can say the defendant's allegation is totally unarguable or mala fide.

16. For the above reasons, I would allow the appeal. I shall give judgment for the plaintiff for part of the claim and give unconditional leave to defend as to the amount of HK$695,000.