SOFT VIEW INTERNATIONAL TECHNOLOGY CO LTD v. DANRIVER, INC AND ANOTHER

HCA 2744/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2744 OF 2006

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J U D G M E N T

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1.  This is an application by Ds to set aside service of the Writ.  The Writ was served on D’s solicitors in Hong Kong under a well-established arrangement whereby such service was treated as effected pursuant to leave granted under O 11 RHC with an express reservation of the right to challenge jurisdiction.

2.  As in every O 11 case, there are broadly 3 issues:

(1)     Whether P has established a good arguable case that the claim falls within one of the sub-rules of O 11 r 1 (1);

(2)     Whether P has demonstrated that there is a serious issue to be tried on the merits; and

(3)     Whether in all the circumstances this is a proper case for service out of jurisdiction.

P’s Pleaded Case

3.  For present purposes, I need not set out the facts in much detail.  They are, in brief, as follows.

4.  P is a Taiwanese company.  It carried on business of a design house for electronic products.  The Chief Executive and MD is Mr Peng.  D1, Danriver Inc (“Danriver”), is a BVI company and part of the 3CEMS Group, a group of companies based in Taiwan carrying on business of manufacturing computers and electronic products.  D2, Mr Fan, was the Vice Chairman of the 3CEMS Group and the appointed representative of Danriver.  Another main player involved is Chinasea, also a Taiwanese company.

5.  According to the Amended SOC, P’s case is that it had entered into an oral tri-partite agreement with Danriver, represented by Mr Fan, and Chinasea for the manufacture and sale of 115,000 units of portable 7” DVD Players.  The arrangement, in essence, was for P to purchase the LCD screens and ICs needed, supply them to Danriver which would manufacture the players at the PRC factories of its subsidiaries in accordance with specifications and designs from P.  The products would be sold to Chinasea, which would on-sell them to a US customer, Audiovox.  P would also have to incur substantial capital investment for the project.

6.  It is alleged that P was induced to enter into this agreement on the basis of fraudulent or reckless or negligent misrepresentations made by Mr Fan in relation to the production expertise of, and intellectual property rights possessed by, the PRC factories.

7.  It is claimed that pursuant to this agreement, P purchased a large quantity of LCDs and ICs, incurred mould tooling charges and invested substantially in manpower and equipment for the production of the players.

8.  It is then claimed that Danriver was unable to produce working samples to the requisite quality standards and did not have the necessary IP licences.  This led Chinasea to terminate the project in March/April 2004.

9.  In order to utilise the already acquired parts, P and Danriver then found another buyer, a Japanese company called View Tech, for 115,000 players, this time of lower quality.  P alleges that Danriver still was unable to produce any satisfactory players and did not have the necessary licences, so View Tech terminated this project too.

10.  P and Danriver then managed to find a third buyer, another Japanese company called Keian.  P’s case is that Danriver again failed to produce any satisfactory players and still did not possess the requisite licences.  It is alleged that 4 inspections had to take place in the PRC factories and a long list of defects was identified.

11.  P then pleads that the representations made by Mr Fan on behalf of Danriver were false and pleads that by reason of the misrepresentations, it had suffered loss and damage in the form of wasted expenditure and capital investment.

Good Arguable Case under O 11 r 1 (1)

12.  P relies on two sub-rules under O 11 r 1(1).

13.  The first is r 1(1)(e):

“the claim is brought in respect of a breach committed within the jurisdiction of a contract made within or out of the jurisdiction, and irrespective of the fact, if such be the case, that the breach was preceded or accompanied by a breach committed out of the jurisdiction that rendered impossible the performance of so much of the contract as ought to have been performed within the jurisdiction”.

14.  The second is r 1(1)(f):

“the claim is founded on a tort and the damage was sustained, or resulted from an act committed, within the jurisdiction.”

15.  In relation to the contract claim, P’s evidence tries to raise a case that it was agreed by the parties to the oral agreement that the manufactured players would be delivered to Hong Kong for final inspection here, before their onward shipment to end buyers. 

16.  P’s difficult is that such a claim is not pleaded in the AmSOC.  The pleaded cause of action is based on misrepresentation, and the loss claimed is for wasted expenditure and capital investment.  It is well settled that the court must look at the pleaded cause of action mentioned in the writ and statement of claim, and that P is not allowed to rely on any cause of action not so pleaded but which he seeks to spell out from the facts pleaded or the evidence filed: see, for example, New Link Consultants v Air China [2005] 2 HKC 260 at §44.

17.  Moreover, in the instant case, the supposed cause of action for breach of contract is based on evidence filed after the present application has been taken out.  This is clearly not permissible.  For that reason also, I will refuse leave to P to re-amend the SOC.

18.  As for the pleaded claim for misrepresentation, there is no evidence to suggest that the alleged misrepresentation was made in HK.  On the contrary, on P’s own evidence, the negotiations took place in Taiwan and in the PRC.  In relation to damage, there is no evidence that the damage was sustained in HK.  Given that P was at all material times a Taiwanese company and the manufacturing process took place in PRC, the likelihood is that the funds were expended either in Taiwan or in the PRC.

19.  In my view, P has failed to make out any good arguable case on either of the sub-rules relied upon.

Discretion

20.  I am also not satisfied that Hong Kong is the forum conveniens for the trial of this action.

21.  What is the most significant feature of the case is that when viewed as a whole, there is very little connection with HK.  The only connection is that the DVD players were supposed to be shipped here before further shipment to the end-customers in the US or Japan, and, on P’s case, to be inspected here.

22.  But, as things turned out, no inspection actually took place, and the transhipment of the bulk shipments never materialised because of the failure of the projects.

23.  Other than that, no event of any significance took place here.  All the material events took place in either Taiwan and PRC (negotiation of the agreement) or the PRC (the manufacturing process and inspection of defects).

24.  Further, none of the parties are Hong Kong entities.  All the main players have significant connections with Taiwan or the PRC but not Hong Kong.  As to witnesses, other than Mr Peng of P, who claims to be a resident here but is also a Taiwanese national, none of the potentially important witnesses are Hong Kong based.  It may be more difficult for the PRC witnesses to go to Taiwan than to HK to give evidence.  But the evidence does not show it is impossible.  There is no difficulty in any witnesses going to the PRC if action is commenced there.  I also note that P has failed to identify precisely who are the material witnesses from the PRC.

25.  As to documents, it seems to me that in a case of this nature, the volume, location or language of the documents are not likely to be of any material significance either way.

26.  P relies on a juridical disadvantage if it has to sue in Taiwan, namely that it has to pay a substantial non-refundable court fee of about NT$3.7m, which is about HK$1m.  That may be a burden but there is no suggestion or evidence to show that P is unable to pay that sum.  What Mr Peng says is that it would be unfair for P to meet that requirement when Danriver has no substantial assets in Taiwan available for enforcement.  I am unable to agree.  There is no reason why P cannot enforce a properly obtained judgment from the Taiwan courts against Ds here.

27.  Overall, I am not satisfied that P has demonstrated that HK is clearly and distinctly the more appropriate forum.  In fact, on the basis of the materials before me, it seems that both the courts of Taiwan and the PRC would be more appropriate to hear this case.

28.  It is unnecessary to deal with the issues on jurisdiction clause canvassed in argument.

29.  Accordingly, the service of the writ must be set aside.  I will hear counsel on the precise orders which I should make.

30.  OIT para 1 and para 8 of amended summons.