ECHELLES RIFFAUD S.A. v. THE SECRETARY FOR JUSTICE

HCA 1841/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1841 OF 2011

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D E C I S I O N

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1.  There are four Summonses (two by each party) before this Court: -

(a)   the Plaintiff’s Summons dated 6 February 2015 and Summons dated 24 March 2016 for leave to amend it;

(b)   the Defendant’s Summons dated 4 February 2015 and Summons dated 29 April 2016 for leave to amend it.

2.  There is no dispute over the amendments to the summonses.  There will be an order in terms of the summonses for amendment.  The costs of the amendment summonses should be in the cause.  The discussions below will be based upon the amended summonses for expert evidence accordingly.

THE FACTUAL BACKGROUND

3.  The parties have helpfully submitted the Agreed Brief Facts.  I shall adopt the brief factual background as set out in the defendant’s written submissions as follows[1]:

(a)   This is a breach of contract case concerning supply of fire-fighting equipment.  It involves 3 contracts between the Plaintiff seller and the Government buyer (“the Defendant”), respectively called Contract A, Contract B and Contract C.

(b)   The Plaintiff received full payment under Contract A and part payment under Contract B, and has not completed performance of Contract C.  The hydraulic platforms under Contracts A and B were delivered and accepted, whereas the turntable ladders under Contract C were never supplied.  The Plaintiff sues for damages alleging breach of all the contracts on the part of the Defendant.

(c)   The Defendant terminated Contracts A and B after delivery of the platforms on the ground that they were defective, with some of the defects critical, latent (not discoverable during contractual inspections) and not discovered until the platforms were delivered and put to full operation for firemen training in Hong Kong.  It terminated Contract C on the ground that the Plaintiff did not timely provide the parameters for FAT[2] (a required test) and in any case, the FAT parameters belatedly given were insufficient.  The Defendant counterclaims for the refund and damages arising out of the supply of defective platforms.

(d)   It is common ground between the parties that it is necessary to produce expert opinion on (i) whether the defects of the Contract A and Contract B Platforms alleged by the Defendant exist; and (ii) whether the FAT parameters allegedly given by the Plaintiff are sufficient to enable FAT of the Contract B Platforms to be carried out.

(e)   On 16 May 2013, Master Leong gave the parties leave to call experts at trial.  The outstanding matter is on the expert directions, including what issues the experts should be instructed to give their opinion on (“the expert directions”).

(f)   On 24 November 2015, this Court directed both parties to agree on the expert directions within 28 days, failing which the Summonses issued in February 2015 should be set down for argument.  Pursuant to the direction, the parties attempted to but could not agree on the list of issues for experts, and hence this hearing.

(g)   It should be borne in mind that over a period of over two and a half years, the legal representatives, with counsel and senior counsel involved, are still unable to come to agreed directions for expert evidence.  This must be very rare and exceptional.

4.  There seems to be no dispute on the common ground stated in paragraph 3(d) above.  The real difference between the Plaintiff and the Defendant is the nature of the pleaded case, with which the expert evidence should correspond. Senior Counsel for the Plaintiff and Counsel for the Defendant have helpfully identified the difference for this Court’s consideration.

5.  This Court is presented with two versions, one from the Plaintiff, the other from the Defendant, both with the common ground for the resolution of the disputes in this action.  Therefore, at the end of the discussion, this Court can simply decide which version should be adopted.

6.  The legal principles on the admissibility of expert evidence are trite.  The parties have no dispute over those as set out in:

(a)   Leung Siu v Bank of China (Hong Kong) Ltd (unreported, HCA 1911/2012, 7 March 2014);

(b)   Pak Ko Batteries Factory Ltd v New Leader Battery Industry Ltd (unreported, HCA 1139/2007, 14 January 2014);

(c)   Kam Hing Trading (Hong Kong) Ltd v The People’s Insurance Company of China (Hong Kong) Ltd & Another (unreported, HCA 1062/2008, 27 July 2009);

(d)   China Gold Finance Ltd v CIL Holding Ltd & Others (unreported, HCA 2900/2001, 25 September 2012);

(e)   Faith Bright Development Ltd. v Ng Kwok Kuen [2010] 5 HKLRD 425; and

(f)   Chevalier (Construction) Co Ltd v Tak Cheong Engineering Development Ltd [2011] 2 HKLRD 463.

7.  I shall apply those legal principles to the issues under discussion.

8.  However, as seen from the written submissions of respective parties, the focus of dispute is over whether the Plaintiff should be allowed to put the proposed expert directions to the experts for expert directions whereas the Defendant’s proposed directions for expert evidence is relatively limited in scope as compared to that of the Plaintiff’s.  The live issues of dispute in this hearing will be whether a wider scope of expert directions as proposed by the Plaintiff should be allowed under the present pleadings.  In this connection, guidance should be sought from the following authorities:

(a)   Sinoearn International Ltd v Hyundai-CCECC Joint Venture (a firm) (2013) 16 HKCFAR 632.  At paragraph 30 of the judgment, Ribeiro PJ (with concurrence of other judges) said:

“…  A party must raise all the issues he wishes to raise to be dealt with at the trial.  Parties are not entitled to have issues recently thought up dealt with separately and piecemeal.  The other party is entitled to know from a clear pleading what is the entire case he has to meet so that he can decide whether particulars should be sought; how he should plead in response; what discovery he is entitled to; what evidence he should adduce to meet it; and what points of law should be taken.  Notions like “the entire quantity of the mud dredged from the CT9 project” might be studded with arguable questions as to how such quantity should be ascertained dependent on the evidence. …”

   At paragraph 34, he further said:

“Pleadings are not mere formalities. They impose a necessary discipline and are fundamental to enabling every procedural facet of the adversarial system to operate fairly.”

(b)   Kwok Chin Wing (郭展榮) v 21 Holdings Ltd & Another (2013) 16 HKCFAR 663.  At paragraph 21 of the judgment, the CJ (with concurrence of other judges) said:

“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:- Wing Hang Bank Limited v Crystal Jet International Limited . It is the pleadings that will define the issues in a trial and dictate the course of proceedings both before and at trial. Where witnesses are involved, it will be the pleaded issues that define the scope of the evidence, and not the other way round. In other words, it will not be acceptable for unpleaded issues to be raised out of the evidence which is to be or has been adduced. As the Court of Appeal remarked in Wing Hang Bank Limited v Crystal Jet International Limited[3] :-

‘(2) In a trial, particularly where evidence is given by witnesses, it becomes extremely important that each side knows exactly what are the live issues. Where issues are sought to be introduced that have not been adequately or properly pleaded, amendments must be sought unless the consent of the other party or parties has been obtained. It will simply not do for unpleaded issues to be ‘slipped in’ when evidence is being given in the hope that the other side is not sufficiently alert to object.”’

(c) “It must be reiterated that expert evidence is only called for in specific areas where without such assistance the court is not in a position to properly consider the evidence. To allow opinion evidence (even if it is an opinion from an expert) to be admitted in any other cases is a misuse of expert evidence.” See paragraph 39 of Grand Wayfair Investment Ltd v Chan Yung Kan & Others (unreported, CACV 238/2013, Lam VP, 26 September 2014).

DISCUSSION

9.  In fact, the disputes between the Plaintiff and the Defendant can be resolved quite conveniently by weighing their reasons in support of their assertions, bearing in mind that they have no difference in their objectives set out in paragraph 3(d) above, applying the relevant legal principles above.  From the written submissions, it is quite apparent that the Plaintiff has no objection to the Defendant’s proposed directions for expert evidence except that the Plaintiff considers that it is only fair for the expert directions to include the impugned parts in the experts’ reports.  This will be discussed below.

10.  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, HCA 798/2004, 19 July 2012).

11.  Counsel for the Defendant has succinctly summarized the parties’ pleaded case in his written submissions.[4]

12.  Briefly, the Defendant has pleaded that the Contracts A and B Platforms are not of merchantable quality by reason of their critical and other defects and are not safe nor fit for the purpose of fire-fighting and high level rescue operation by reason of the critical defects, references being made to the clauses and specifications in Contract A and Contract B respectively.  By reason thereof, the Defendant says that the Plaintiff was in breach of Contract A and Contract B.  As such, the Defendant was entitled to and did terminate Contracts A and B in accordance with clauses 3(a) and 8 of the Contracts A and B General Conditions (which are identical).  As to Contract C, the Defendant pleaded that the Plaintiff had been in breach of clause 5(d) of the contract in that the Plaintiff had failed to provide the Defendant with the parameters for the Factory Assessment Test for the turntable ladders.

13.  In its Reply and Defence to Counterclaim, the Plaintiff denies that the Contracts A and B Platforms have the critical and other defects as pleaded and it denies that the critical defects of the Contracts A and B Platforms as pleadedare latent.

14.  It seems that the Plaintiff has no quarrel with the Defendant over the above summary of their pleaded case.  On this basis, I shall proceed to consider the disputed paragraphs of the Plaintiff’s proposed expert directions.

Paragraph 2(1)

15.  The Defendant’s objection to the Plaintiff’s proposed directions over the phrase “relevant published/applicable standard or standards” is on the following reasons:

(a)   This phrase is not pleaded in the pleadings and it is therefore misleading;

(b)   To allow the experts to give such opinions freely will cause unnecessary costs;

(c)    The Defendant has only pleaded and will only rely on the Plaintiff’s failure to deliver goods compliant with those standards, industry norm or specifications that are actually pleaded.

16.  The Plaintiff’s reply to those objections is:

(a)   There is need for an objective standard as a basis for any opinion expressed by the experts (the Plaintiff having set out three examples) ;

(b)   The court cannot sensibly consider the complaints without both an understanding of the factual position (perhaps in part by testing) and an understanding of the terminologies of “normal and industry norm”;

(c)   It is therefore clearly necessary and proper for expert to explain technical terms and for an expert to set out his understanding of the meaning of the technical specification as well as its application.[5]

17.  The Plaintiff has also pointed out that for Contract B, there are specific provisions “Chapter 5.4.1.1 of EN1777:2004” as “Relevant Specifications” for “High risk of overturning”.  That published standard is not referred to in the Contract A Specification.[6]

18.  The Plaintiff has no dispute that the intended phrase of “relevant published/applicable standard or standards” is not pleaded in the pleadings.  The question under consideration is whether the intended phrase will form an issue in this action or is simply a clarification of the pleaded cases of the parties.  If it forms an issue, which the court has to determine at the end of the trial, it falls within the criticism of the Court of Final Appeal in the two cases cited above.

19.  I agree with the Defendant that to allow the expert opinion to include the intended phrase will enlarge the scope of the dispute between the parties.  The Defendant now argues that no such standards were found in the contracts and they are not pleaded in the pleadings.  I consider that it does not only incur more costs for the trial, but also muddles the issues in dispute for the trial judge.  One can imagine if one is to make a search in the web’s searching machines on this phrase, the results may be numerous.  There may be different standards of different countries or locations all over the world, each of which may have published standard or standards.  All of these standards and how they are defined will have to be considered by the experts and included in their reports and the court will have to consider them. This is the kind of situations that the Court of Final Appeal in Kwok Chin Wing’s case said that the Defendant should keep a vigilant eye on and to prevent it from taking place in the trial.

20.  As the issues were raised by the Defendant, it is the Defendant’s pleaded parameter that the Plaintiff should answer.  If the Plaintiff wants to rely upon other issues beyond the scope, the Plaintiff has to plead its case clearly in the pleadings.  The Plaintiff submits that the standard would probably be the European standard as for Contract B, it is for the Plaintiff to identify this issue in the pleadings so that the Plaintiff is allowed to bring it into expert directions.  Those examples as set out in the written submissions do not assist the Plaintiff’s argument on this fundamental principle of pleadings as enunciated by the Court of Final Appeal.

21.  It is true that it is the function of expert evidence and of expert witnesses to provide assistance to the court on matters requiring specialist knowledge or expertise. But the issue of pleadings is for the legal representatives of the parties, monitored by the court under its case management power.  See §8 of Li Xiao Yun & Another v China Gas Holdings Ltd (unrep., HCCL 18/2011, M Chan J, 8 March 2013).  The experts can certainly apply their expertise on the issues which require their expert opinions, including the explanation of the technical terminologies as mentioned by the Plaintiff in paragraph 16(b) above without expanding the scope of the issue for the expert evidence.

22.  The Plaintiff criticizes the Defendant of bringing in the EN1777 standard in the pleadings, but objects the Plaintiff’s proposed standards in the expert directions.  One has to bear in mind that it is the Defendant, who had brought up the expert issue in the pleadings.  The Defendant is allowed to do so under Sinoearn International Ltd.

23.  Based upon the legal principles of the Court of Final Appeal, I accept the Defendant’s argument.

Paragraph 2(2)

24.  I agree with the Defendant that there is no basis for asking the experts to answer the “at large” question of whether the platforms “conform to the Specifications of the Contracts and/or relevant standards” on the same reason that it is for the Defendant to define the parameter of the dispute.  The Plaintiff will simply respond to the Defendant’s pleaded case.

Paragraphs 2(4)(i), 2(5)(i), 2(7), 2(8)(i), 2(9)(i), 2(11)

25.  For the same reasons under paragraph 2 (1), the phrase of “Published/Applicable Standards” should not be included in those paragraphs.

26.  The Defendant agrees to replace the impugned words with “standard pleaded in”.  I shall leave it to the parties.

Paragraphs 2(4)(ii), 2(8)(ii)

27.  The Defendant’s case is that the critical defects of the Contract A Platforms and the Contract B Platforms are latent in the sense of not being discoverable even if and despite that Factory Acceptance Tests and/or Local Commissioning Tests were actually conducted.  The Plaintiff’s formulation using the word “during” in these paragraphs will narrow the scope of the question by focusing attention on only the times when those tests were carried out, and asks whether the critical defects could be discovered (or were discoverable) during the tests.

28.  Again, as said before, it is for the Defendant to define the parameter of the breach of contract for the trial, the Plaintiff cannot limit the Defendant’s scope of dispute by limiting the scope of the issues for expert evidence.  The Plaintiff is at liberty to plead its own case in defence of the Defendant’s case and apply for leave to adduce expert evidence on its own pleaded case.  I can see no reason for the Plaintiff to ask this Court to restrict the Defendant’s right in defining its own issues of dispute by exercising its discretion, which must be exercised in accordance with the guided legal principles laid down by the higher courts.  The fundamental principle for the court to exercise its discretion is fairness as the Court of Final Appeal in Poon Hau Kei v Hsin Chong Construction Co Ltd Taylor Woodrow International Ltd Joint Venture (2004) 7 HKCFAR 148 at §21, citing Bank of America v Chai Yen [1980] 1 WLR 350 at p353 D, Lord Lane, delivering the advice of the Privy Council: " 'the essence of any rule of procedure must be fairness'.  The same is true of any rule of practice." It is simply not fair for the Court to restrict the Defendant’s right of pleading.  I decline to accede to the Plaintiff’s request.

29.  As a conclusion, the Plaintiff’s proposed expert directions are refused.  This Court adopts the Defendant’s proposed expert directions.

COSTS AND ORDER

30.  As to the costs of this application, including the costs reserved and the costs for today (with counsel’s certificate), the Defendant accepts that in the amended summons, it asked for “costs in the cause”.  Now it submits that the costs of today’s hearing should be given to the Defendant because it has been maintaining the stance throughout the negotiation with the Plaintiff for agreeing the expert directions.  The Plaintiff says that the costs should be in the cause.  This Court has dealt with other similar applications in the past.  Some of the applications were taken out because the parties were unable to come to the agreed directions and they asked this Court to make decision on the proper expert directions.  Of course, each party made submissions to this Court for consideration.  At the end of the hearing, there was simply no one winning the argument.  This kind of application was always issued by the parties in their joint application.  This application is somewhat different. Here each party insists upon its own version of the expert directions.  At the end of the argument, this Court has made the decision in favour of the Defendant, a winning party.  As such, the costs should be dealt with in accordance with O62 r3 RHC, which provides that the costs should follow the event, meaning the winning party should have the costs. Although the Defendant has said in the amended summons that the costs should be in the cause, the Court should look at the circumstances of the matter and make its order for the sake of justice and fairness. In the circumstances, I award the costs of the application, including the costs reserved and for today’s hearing to the Defendant; but such costs do not include the costs for the correspondence or negotiation before the hearing today as these should be costs in the cause.  The costs are summarily assessed at $110,000 to be paid by the Plaintiff to the Defendant within 28 days from the date hereof.

31.  The Court shall now make an order in terms as follows:

(a) The Plaintiff’s amended summons for expert directions be dismissed;

(b) The Defendant’s amended summons for expert directions be allowed, subject to the agreed timetable for the compilation of the joint expert report as proposed by the Plaintiff,; with liberty to apply; and

(c) The costs of the amended summons be as per paragraph 30 above.