MEI KING MACHINERY ENGINEERING v. PRIZEMART LTD

HCA 283/2023

[2024] HKCFI 2428

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 283 OF 2023

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BETWEEN

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J U D G M E N T

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DHCJ Yuen:

1.  This is an appeal by the defendant against two orders of Master Ebony Ling (Master) given on 8 March 2024 arising out of an application by the plaintiff to re-amend its Reply and Defence to Counterclaim. In view of the parties’ submissions before me, it is necessary to set out the relevant background.

Background

2.1.  The plaintiff is a partnership carrying on the business of machinery engineering. The defendant is a company which operates grocery stores in Hong Kong selling (among other things) beverage powder and snacks.

2.2.  Prior to the events the subject matter of this action, the parties had done some business with each other.

3.1.  In 2018, the defendant wished to develop a line of business in nut products, including nut powder for instant beverages and food.

3.2.  It is common ground that there were discussions between Michael Yip Ming Cheong (Yip), a founding partner of the plaintiff, and Patrick Ng Shin Kau (Ng), a director of the defendant. Patrick Chan Leung Chung (Chan), the general manager of the defendant, says he was also involved, although Mr Yip says Mr Chan did not participate in discussions or negotiations during the formation of the agreement. No formal agreements were signed.

4.1.  Three quotations in Chinese (Quotations) were sent by the plaintiff to the defendant for three production lines (Production Lines), as follows:

Date	Quotation Ref.	Production Line	Price
23.3.2018	MKQ-2109-3/2018	Packaging	$370,000
24.4.2018	MKQ-2113-4/2018	Blending	$780,000
29.4.2018	MKQ-2114-4/2018	Bottling	$1,050,000

4.2.  The Quotations contained the following provisions for payment:

Instalment	Production Line	Time for payment
1st 40% deposit	All lines	On signing of agreement
2nd 40% payment for goods	Packaging	On delivery
	Blending	On completion in Taiwan and before delivery for shipping
	Bottling	On delivery
3rd 20% balance	All lines	After installation and 試車

4.3.  The parties have used different English translations for 試車, the plaintiff using “trial run” and the defendant using “test run”. As the meanings of “trial run” and “test run” are said to be different[1], I will simply use the original Chinese term 試車 in this Judgment.

5.1.  Between 12 May 2018 and 10 July 2018, the defendant made four payments in a total sum of $880,000 to the plaintiff.

5.2.  I shall not set out the disputes between the parties regarding trial/test runs between July 2018 and March 2019 as they are not relevant to the issues on this appeal.

6.1.  Between 30 August 2018 and 8 November 2018, the plaintiff sent three invoices to the defendant for the balance under the Quotations, but these were not paid.

6.2.  In essence, the defendant said the Production Lines were not of merchantable quality and/or reasonably fit for their intended use, and that the 3^rd instalment was only payable after the Production Lines passed testing, and they did not.

Legal proceedings

7.1.  On 10 June 2019, the plaintiff issued a claim in the District Court for the balance of payment.

7.2.  On 19 July 2019, the defendant wrote to the plaintiff stating that it accepted the plaintiff’s repudiatory breach, and terminated the agreement. On 19 August 2019, the defendant filed a Defence and Counterclaim.

7.3.  On 14 October 2019, the plaintiff filed a Reply and Defence to Counterclaim.

7.4.  On 20 April 2021, the plaintiff issued a notice to act in person.

7.5.  On 25 April 2021, the plaintiff filed and served Mr Yip’s witness statement. I shall discuss some of the contents of this witness statement later in this Judgment.

7.6.  On 26 August 2021, the defendant filed and served Mr Chan’s witness statement. Mr Ng did not make a witness statement.

7.7.  Between July 2021 and May 2022, various interlocutory steps were taken in the District Court.

7.8.  On 20 May 2022, the defendant filed an Amended Defence and Counterclaim, revising its counterclaim to approximately $3.9 million. It then applied to have the action transferred to the High Court.

7.9.  On 16 August 2022, DDJ Vaughan ordered the action to be transferred to this court.

8.1.  On 21 March 2023, solicitors came on the record for the plaintiff.

8.2.  On 20 September 2023, the plaintiff applied to file an Amended Statement of Claim (ASOC), This was not opposed by the defendant, who filed its Re-Amended Defence and Counterclaim on 15 November 2023.

4 December 2023 Summons (December Summons)

9.1.  On 4 December 2023, the plaintiff issued a summons for:

- leave to re-amend its Amended Reply and Defence to Counterclaim as per an attached draft;

- costs of and occasioned by such amendments to be paid by the plaintiff to the defendant.

9.2.  This summons was opposed by the defendant, and a date was fixed for hearing before the Master.

5 March 2024 Summons (March Summons)

10.  On 5 March 2024, the plaintiff issued another summons for:

(1) leave to amend the December Summons by substituting a revised version of the draft (I shall refer to this revised version as RAR&DCC); and

(2) “costs of and occasioned by such amendments be paid to the Plaintiff by the Defendant”.

11.  Both Summonses were heard by the Master on 8 March 2024. Both parties were represented by counsel.

The Master’s orders

(1) First 8.3.24 Order

12.1.  The Master first dealt with the March Summons (which she called the “amendment summons”). Mr Adrian T Y Wong counsel for the defendant confirmed that he had no objection to para.(1) thereof, but he opposed para.(2).

12.2.  The Master then asked:

“... So I’ll make an order in terms of paragraph 1 of the amendment summons, and costs of the amendment summons, is there any reason why it should not be in the cause of the December 4 summons?” (Emphasis added).

12.3.  Mr Ian Chau counsel for the plaintiff said No. Mr Wong also said:

“I can’t think of a reason either”.

12.4.  The Master then said[2]:

“Yes, so I’ll make an order that costs of the amendment summons be in the cause of the December 4, 2023 summons”.

12.5.  After hearing arguments on the December Summons including arguments on costs, the Master gave judgment on the costs of that summons, saying[3]:

“Taking that into account and the delay on the plaintiff’s part, in its confirmation to the court thrice that the case was ready to be set down for trial since September 2021, and the fact that the plaintiff is seeking a significant indulgence from this court, given the procedural history, I order that the plaintiff shall bear the defendant’s costs of and occasioned by the summons, including the costs of today’s hearing and the amendment summons, to be taxed if not agreed ... sorry, to be summarily assessed”. (Emphasis added).

12.6.  The sealed order for the March Summons states:

“Costs of and occasioned by the Amendment Summons be in the cause of the Summons dated 4^th December 2023".

Defendant’s appeal against order for costs in First 8.3.24 Order

13.1.  The defendant appeals the order for costs in the First 8.3.24 Order, submitting that the Master ought to have ordered that costs of and occasioned by the March Summons be to the defendant “in any event”, because it was unreasonable for the plaintiff to have asked that the defendant pay its costs.

13.2.  Be that as it may, what is relevant for the purposes of the appeal is not what the plaintiff asked for in the March Summons, but what the Master ordered.

14.1.  As I understand him, Mr Wong’s submissions on appeal are as follows:

(a) in the earlier passage[4] (when the Master said “costs in the cause” of the December Summons) as well as the sealed order, the master did not give the defendant the costs of the March Summons, whereas in

(b) the latter passage[5] (when the Master said “and the amendment summons”), the master did give the defendant the costs of the March Summons.

14.2.  Mr Wong submitted on appeal that the Master should have given the defendant the costs of the March Summons “in any event”[6].

Discussion

15.  In my view, there is no merit in that submission.

16.1.  First, the short point is that if there is any difference between (a) and (b), during the hearing the Master had asked Mr Wong if he could think of any reason why the costs of the March Summons should not be in the cause of the December Summons, and he had replied in the negative. The matter was then not argued further.

16.2.  Although an appeal from a master is by way of rehearing, I do not see how it would be fair to allow the defendant to change its mind on appeal, when its position before the Master meant that the matter was not argued by the other side. This was not a concession of law and the defendant has not suggested any change in circumstances. Since there was no argument, obviously the Master made no decision[7]. If this had been a substantive matter rather than just an order for costs, in the exercise of discretion I would only have permitted the matter to be argued for the first time on appeal on condition of payment of costs below by the defendant. However, as it is only a matter of costs, this course of action is not necessary and there is no good reason for the matter to be argued for the first time now.

17.  Secondly, again if there is any difference between (a) and (b), and the defendant considers that (b) showed that the Master had changed her mind in the defendant’s favour, but this change of mind was not reflected in her sealed order, the defendant could have applied to the Master to amend the sealed order under the slip rule. It did not do so.

18.1.  Thirdly, there may not be any difference between (a) and (b) anyway. This is the meaning of “costs in the cause” as explained in Hong Kong Civil Procedure 2024 Vol.1, §62/1/3:

“(1) ‘Costs in the cause’ means that the costs of those proceedings are to be awarded according to the final award of costs in the action (JT Stratford & Son Ltd v Lindley (No.2) [1969] 3 All ER 1122, 1123, Like Soon Co Ltd v Tsai Kui Kan [1986] HKC 142 (CA)). The party in whose favour an order for costs is made at the conclusion of the cause or matter in which proceedings arise shall be entitled to his costs of the proceedings in respect of which such an order is made”. (Underlining added).

18.2.  Applying that meaning, the sealed order “costs of and occasioned by the Amendment Summons be in the cause of the Summons dated 4^th December 2023" means that the costs of the March Summons are awarded according to the final award of costs in the December Summons. Since the defendant was awarded the costs of the December Summons, similarly it has been awarded the costs of the March Summons.

18.3.  I do not see how the defendant derives any greater benefit from an order that the plaintiff pay the defendant’s costs “in any event” (as per the defendant’s skeleton submissions on appeal) when compared with the sealed order (as understood above).

18.4.  Further, I note that in the Notice of Appeal, the defendant sought an order that the plaintiff do pay the defendant’s costs “forthwith” but in the skeleton submissions on appeal, it has only sought an order for costs “in any event” [§32] which is different[8].

19.1.  Fourthly, at the end of the hearing, the Master undertook a summary assessment of costs. The defendant’s skeleton submissions on appeal states that it is content that its costs of the March Summons be included in the sum summarily assessed by the Master[9].

19.2.  In that case, it must follow that the appeal from the costs order in the First 8.3.24 Order is academic.

20.  For the above reasons, there is no merit in the appeal against the First 8.3.24 Order and it should be dismissed with costs.

(2) Second 8.3.24 Order

21.  The Master gave leave to the plaintiff to file the RAR&DCC (Second 8.3.24 Order).

22.  The defendant’s appeal against that order is limited to §4(2) and §5(2) thereof.

23.  Para. 4 is new. It pleads:

“4. In relation to the [sic] all and each of the Agreements[10], it is averred that:

(1) Around early 2018, before the Agreements were entered into, Mr Patrick Ng (on behalf of the Defendant) requested from Mr Michael Yip (on behalf of the Plaintiff) that the Plaintiff assist in a nuts powder project, i.e. breaking and grinding various types of nut materials and mixing it with other ingredients, in order to make a nut beverage powder and mixture of nut powder for food making. Mr Michael Yip [sic][11] also stated that the Defendant wished to purchase from the Plaintiff machinery for producing nut beverage powder and nut powder for food making; and machinery for packaging nut beverage powder products. The Quotations and/or Agreements were made pursuant to such requests.

(2) In the machinery industry, the meaning of ‘trial run’ (“試車”) is a preliminary operation of the machinery to check the quantity, configuration, and function of the machinery/goods. A trial run (“試車”) is distinct from ‘test run’, which is testing for a final comprehensive verification of the machinery/goods, including for specifications, quality, operating data, and production capacity indicators”.

24.  Para. 5(2) pleads:

“The Plaintiff further says that all the terms of the Sales Contract Agreements were discussed and negotiated between Mr Michael Yip of the Plaintiff and Mr Patrick Ng of the Defendant. It was orally agreed and mutually understood, shortly before the Agreements/Quotations pleaded at paragraph 2 of the [ASOC], between the Plaintiff (Mr Michael Yip representing it) and the Defendant (Mr Patrick Ng representing it), that, among other things, since the Production Lines were newly developed and tailor-made products for the Defendant’s business, the manufacture of the Production Lines could be modified and adjusted to suit the Defendant’s needs after delivery and trial run thereof; the second installments of payments would be payable upon delivery, and the third and final installments would be payable immediately after the trial run; after the trial run there may be modifications and adjustments; and success in a ‘test run’ or final testing was not necessary for second and third installments to be payable; was still at an exploration stage and thus it would take more time than usual for the plaintiff to modify and upgrade the Production Lines in order to meet their respective Production Requirements and the Defendant’s needs”. (Underlining denotes re-amendments).

Defendant’s appeal against leave to file §4(2) and §5(2)

25.  The defendant submits, in gist, that:

- in relation to §4(2), the pleading relating to “machinery industry” is irrelevant to the issue of contractual construction of the term 試車;

- in relation to §5(2), it lacks the requisite particularity for the alleged oral agreement, and there has been delay in advancing it, which causes irreparable prejudice to the defendant, as Mr Ng died in June 2023.

Legal principles on leave to amend

26.  It is well-established that the general principle is that amendments to pleadings should generally be allowed to determine the real dispute between the parties, subject of course to the underlying objectives of the Rules of the High Court set out in Order 1A r.1.

Discussion

27.  It is common ground that the trial judge will have to determine what was meant by 試車 in the Quotations. The Quotations were not drafted by lawyers and there is no written definition of 試車. In construing the meaning of 試車 according to the usual principles for interpretation of contracts[12], the trial judge will have to decide (among other things) the following questions:

(1) Does 試車 have an ordinary meaning[13]?

(2) If so, what is the ordinary meaning in the context[14]?

(3) Is 試車 a technical term[15]?

(4) If so, what is the technical meaning in the context[16]?

(5) Does 試車 have both an ordinary meaning and a technical meaning?

(6) If so, did the parties intend that the technical meaning should displace the ordinary meaning[17]?

Paragraph 4(2) RAR&DCC

28.  This pleads the plaintiff’s case that 試車 is a technical term and its meaning[18]. The meaning of a technical term is a matter of fact: Max Cooper & Sons Pty Ltd v The Council of the City of Sydney[19].

29.  The defendant argues however that 試車 has an ordinary meaning[20], and if there is a technical meaning, the ordinary meaning prevails because the plaintiff has not pleaded that the defendant was conversant with the particular trade[21] or that the plaintiff made the defendant aware of that meaning[22]. Therefore, §4(2) is irrelevant to the issue of contractual construction.

30.1.  In my view, the questions at (1)-(6) above are to be determined by the judge hearing the trial of the action. At this present stage of the proceedings, it is not appropriate for the court to make findings on those questions. Paragraph 4(2) RAR&DCC pleads the plaintiff’s case on questions (3) and (4). It cannot be said at this stage that this case is bound to fail.

30.2.  As for the defendant’s argument that the plaintiff has not pleaded that the defendant was aware of the technical meaning, this issue would only come into play if the trial judge finds, in respect of question (5), that 試車 has both an ordinary and a technical meaning, and so question (6) has to be considered. Again, it is not for me at this stage to make such a finding. If the trial judge finds that 試車 only has a technical meaning, the parties’ subjective understanding of the term is not relevant[23].

Paragraph 5(2) RAR&DCC

31.  The defendant has focused on the words “orally agreed” and criticized the pleading for lack of particularity of the alleged agreement.

32.  However the plaintiff has not pleaded a case of collateral contract on what was allegedly “orally agreed and mutually understood”[24]. In my view, the words “orally agreed” should be read in this light, and not as an allegation of a separate, legally binding agreement, such as to require each constituent fact (eg offer, acceptance, consideration) to be pleaded.

33.  Finally, the defendant says that:

(1) there has been delay;

(2) the delay has caused prejudice in that expert evidence would have to be adduced on the meaning of 試車 in the machinery industry; and

(3) the delay has caused it to suffer irreparable prejudice as Mr Ng died in June 2023.

34.1.  As for (1), it is not quite right for Mr Wong to say the pleadings closed in 2019. There was a substantial amendment of the Defence and Counterclaim in May 2022, then there was an ASOC in September 2023 which the defendant did not oppose. The December Summons was then filed.

34.2.  Mr Chau does not seriously deny that there has been delay, but he submits that there was also delay on the defendant’s part, and in any event the delay was not substantial as no hearing date for a PTR has been fixed. He also submits that there was a period of time when the plaintiff was not legally represented due to financial constraints.

34.3.  In my view, even if lack of legal representation is an excuse for delay (which I doubt as the plaintiff had been legally represented earlier in the proceedings), Mr Yip’s allegation in his affirmation that it was due to financial constraints has not been supported by documentary evidence.

35.  As for (2), any prejudice due to having to adduce expert evidence can be compensated by costs.

36.  As for (3), the more important factor in my view is whether the plaintiff’s delay has caused the defendant to suffer irreparable prejudice. It is unfortunate that Mr Ng died in June 2023 without having made a witness statement. However, it would appear from the exhibited death certificate[25] that his death was not accidental or sudden. And yet the defendant did not ask him to make a witness statement despite the following matters.

37.  First, the defendant’s own original Defence and Counterclaim[26] pleaded that the agreement was made partly orally and partly in writing, so it must have been alive to the need to have witness statements from all persons which the parties alleged were involved in the formation of the agreement.

38.  Secondly, it is clear from the original Reply and Defence to Counterclaim[27] that the plaintiff had all along alleged that it was Mr Ng who had discussed and negotiated the terms on behalf of the defendant.

39.1.  Thirdly, in Mr Yip’s witness statement filed and served more than 2 years before Mr Ng’s death, he referred in detail to Mr Ng’s close involvement, including the following:

- the nut powder project was discussed and researched many times by Mr Ng and himself before the plan was agreed by both sides, and the Quotations were provided [B2.2];

- the Quotation arrangements were discussed directly with and agreed upon by Mr Ng solely [B2.3.6];

- in direct discussions with Mr Ng, both sides understood and agreed (among other things) that [B2.3.7]:

- the Production Lines were tailor-made, and the targets could only be reached after gradual exploration and upgrading [B2.3.7.1];

- corrections and adjustments needed time and a step-by-step approach, and it was not possible to reach the target immediately [B2.3.7.2];

- adjustments and upgrading could only be done after delivery installation and 試車 [B2.3.7.3];

- Mr Ng expressed his agreement and promised to co-ordinate with the procedure and needs of the plaintiff’s work on the Production Lines. Both sides agreed (among other things) that the balance would be paid after installation and 試車, after which there would be continuous adjustment and upgrading work; there was no stipulation that payment of the balance would be held up until successful testing [B2.3.7.4];

- the meaning of 試車 in the payment provisions was preliminary operation of the machinery to check the quantity, configuration, and function of the machinery. If there were problems in the process of trial production, the plaintiff would make corrections and adjustments, until the machinery could be put into production smoothly; 試車 did not include and was not equivalent to 檢測, i.e. a final comprehensive test of the product, including specifications, quality, operating data, and production capacity indicators, being details for a “standard product” in the market, requiring a testing organization’s tests and approval [B3.3.1]

39.2.  Four months after having been served with that witness statement, the defendant only filed the witness statement of Mr Chan[28], in which he said that “Mr Ng was only involved in the early discussion of the Project with Mr Yip and Mr Ng only gave high level comments on the Project generally”[29]. However, there was no witness statement from Mr Ng himself to refute Mr Yip’s allegations, despite the proliferation of references to what he (Mr Ng) had allegedly understood and agreed in the early discussions.

40.  Fourthly, upon the court’s query at the appeal hearing, Mr Wong could not give for the court’s consideration any explanation for the defendant’s failure to obtain a witness statement from Mr Ng.

41.  So while I accept that the defendant would suffer prejudice in that it would not be able to call Mr Ng at the trial, I have to say it has itself to blame for the absence of his input, in view of the plaintiff’s pleadings naming him as early as 2019, and especially in light of the detailed allegations concerning what Mr Ng had understood and agreed, as set out in Mr Yip’s witness statement in 2021, well before Mr Ng’s death.

42.  Quite apart from that, when assessing the credibility of Mr Yip, the trial judge would of course take into account the fact that Mr Ng has died without making a witness statement as part of the circumstances.

43.  For the above reasons, there is also no merit in the appeal against the Second 8.3.24 Order.

Order

44.  Accordingly in the exercise of the court’s discretion, I would dismiss the appeal with costs to be paid to the plaintiff by the defendant. Having considered the statement of costs, I would summarily assess costs at $105,580.