SIMBA-TOYS (HONG KONG) LTD v. FULLMORE CORPORATION LTD

HCA 1583/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1583 OF 2008

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REASONS FOR DECISION

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1.  HCA 1583/2008 and HCA 1599/2008 have been ordered to be tried by the same judge.  The defendant in HCA 1583/2008 has taken out a summons for leave to adduce expert evidence at the trial, which the plaintiff opposes on the ground that the expert evidence intended to be produced is irrelevant to the issues for the trial.

2.  In the summons the defendant intends to adduce expert evidence on the following issues:

(1)	the nature and legal status of Fullmore Products (Shenzhen) Limited under PRC law;
(2)	the PRC legal framework in relation to the management of Fullmore Products (Shenzhen) Limited;
(3)	the relationship between Fullmore Corporation Limited and Fullmore Products (Shenzhen) Limited, particularly in relation to whether Fullmore Corporation Limited is liable for the liabilities of Fullmore Products (Shenzhen) Limited.

3.  The plaintiff’s claim against the defendant in this action is for the return of the toys moulds delivered to Fullmore Products (Shenzhen) Limited, which is wholly owned by the defendant, under an agreement made between the plaintiff and the defendant.  The plaintiff subsequently said that the defendant was in breach of the agreement and demanded the return of the moulds delivered to Fullmore Products (Shenzhen) Limited.

4.  The defendant’s defence to this claim is that the moulds were delivered to Fullmore Products (Shenzhen) Limited, not the defendant and the defendant is not in possession of the moulds in question.  Those are the reasons that the defendant is not liable to the plaintiff for the moulds.

5.  I have asked Mr. Yan, the handling solicitor of the defendant’s case whether the defendant has raised the issue that the moulds that the plaintiff delivered to Fullmore Products (Shenzhen) Limited was under another agreement between the plaintiff and Fullmore Products (Shenzhen) Limited.  Mr. Yan says that the defendant does not raise this defence in the Defence.  Mr. Yan has also said that the defendant does not say that the plaintiff had delivered the moulds to Fullmore Products (Shenzhen) Limited by mistake.

6.  On the pleadings and submissions from the solicitors before me today, I accept Mr. Hanusch’s argument that the intended expert evidence is not relevant to the issues in dispute between the parties.  Mr. Hanusch further submits that the plaintiff has never disputed that Fullmore Products (Shenzhen) Limited is a separate legal entity from the defendant, which is not an issue in the pleadings.

7.  The burden is on the defendant to show that the intended expert evidence is relevant to the issues in dispute.  The defendant is unable to show even a prima facie case in support of his application.  I dismiss the summons with costs.  There is another summons for the same application taken out by the defendant for HCA 1599/2008.  For the same reason, I dismiss the summons for HCA 1599/2008 as well.

8.  As to costs of these applications, Mr. Yan has no objection to Mr. Hanusch’s proposal of $1,200.00 for each case, totally $2,400.00 to be paid by the defendant within 14 days from the date hereof.  I so order.

Mr. D. Yan of Messrs. Chong & Partners for Defendant.

Mr. P. Hanusch of Messrs. Deacons for Plaintiff.

HCA 1599/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1599 OF 2008

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DECISION ON COSTS

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1.  On 20 February 2009, I made a decision dismissing:-

(1)     the Plaintiff’s summons dated 13 October 2008 for inspection of the Moulds specified in Appendix A of the Statement of Claim under Order 29 Rule 2 of the Rules of the High Court; and

(2)     the Plaintiff’s summons dated 18 December 2008 for (a) summary judgment under Order 14 of the Rules of the High Court, or (b) judgment on admissions under Order 27 Rule 3 of the Rules of the High Court.

2.  I also made an order that the Defendant was to have the costs of the applications in any event.  The order as to costs was an order nisi.  The Plaintiff has made an application seeking a re-consideration of my decision to dismiss the summary judgment application.  The Plaintiff submits that the appropriate order should be to grant leave to the Defendant to defend, unconditionally or subject to conditions, and that the costs of the application should be costs in the cause, being the usual order where unconditional leave to defend is given.  The Plaintiff has also made an application to vary the costs order nisi in respect of the application for inspection of the Moulds such that the Defendant should pay the costs of the Plaintiff or, in the alternative, there should be no order as to costs.

3.  On the other hand, the Defendant has made an application to vary the costs order nisi such that the Plaintiff should pay the Defendant’s costs in respect of both summonses forthwith and that there should be a gross sum assessment of those costs.

The Plaintiff’s applications

4.  In respect of the costs of the Order 14 application, essentially, the Plaintiff’s application is based on the fact that the ground of my decision to dismiss the summary judgment application, namely, that the Plaintiff has no locus standi to sue, was not a contention relied on by the Defendant (either before the application was issued or at all).  It is also said that this case does not come within Order 14 Rule 7 of the Rules of the High Court.  That rule applies where the case is not within the order or where the plaintiff knew that the defendant relied on a contention which would entitle him to unconditional leave to defend.

5.  I accept that Order 14 Rule 7 of the Rules of the High Court does not apply to the present case.  However, I do not believe that the court has no power to dismiss an Order 14 application where it is plain that the plaintiff has no locus to sue (as I believe it to be the case here).  The fact of the matter is that the Plaintiff has no cause of action against the Defendant in this action.

6.  It is correct that the issue of locus standi was never raised by the Defendant.  However, I consider that, prima facie, the duty was on the Plaintiff to ensure that it had proper standing to sue before it made an application for summary judgment against the Defendant.  In all the circumstances, I am not persuaded that the costs order nisi should be varied as sought by the Plaintiff.

7.  For the same reasons, I do not accept that the Defendant should pay the costs of the Plaintiff or, in the alternative, there should be no order as to costs in respect of the application for inspection of the Moulds.  Irrespective of the point about locus standi, I consider that the Defendant has succeeded on the merits of the inspection application.  Although the Defendant’s defence and affirmations could have been better expressed, I believe that the substance of the Defendant’s position, namely, that it did not have possession of the Moulds at the time of the application, was clear enough.  I see no reason to depart from the usual rule that costs should follow the event.

The Defendant’s application

8.  In respect of the Plaintiff’s summons dated 18 December 2008, the Defendant submits that the Plaintiff should pay the Defendant’s costs forthwith and there should be a lump sum assessment (i) because its application has failed on a preliminary ground, i.e. lack of locus, and it is uncertain or doubtful whether the action would be further prosecuted and there may be delay to the Defendant’s recovery of the costs and (ii) in order to save costs and time on taxation and pre-empt delaying tactics.

9.  In respect of the Plaintiff’s summons dated 13 October 2008, the Defendant submits, in addition, that the application for inspection is inappropriate because the Plaintiff knows where the Moulds are at present, and it is pointless because it is neither party’s case that the Moulds have gone missing or been damaged.  The Defendant refers to paragraph 62/4/6 of Hong Kong Civil Procedure 2009, where the learned editors refer to Frogmore Estates plc v Berger (1089) 139 New L J 1560 and note that interlocutory applications which were inappropriate and required an investigation of the merits should be restricted and made subject, if necessary, to orders for taxation of the costs forthwith.

10.  Although I have dismissed the Plaintiff’s applications, the usual costs order in interlocutory applications, I believe, is still costs in any event (Allied Collection Agencies v Wood [1981] 3 All ER 176; ADS v Wheelock Marden & Co Ltd [1994] 1 HKC 607).  This is so notwithstanding the fact that the court is now more ready to make gross sum costs assessments in appropriate cases.  In simple and standardized applications such as an application for extension of time to file a pleading, it obviously makes good sense to order that the party seeking the court’s indulgence should pay the other side’s costs forthwith and to have those costs fixed at once.  On the other hand, where the application is more complicated, whether to order the losing party to pay costs forthwith and whether to make a gross sum assessment would depend on the circumstances, bearing in mind the rationale behind the usual costs order in interlocutory applications, whether there are reasons why such an order would not be appropriate, and the advantages of a gross sum assessment (namely, avoidance of further time and costs being incurred in a taxation, and the fact that the judge or master hearing the application would have a better feel of the issues and estimate of the work involved).  Ultimately, the matter is one for the exercise of a judicial discretion, and it is difficult to lay down hard and fast rules.

11.  In my view, the question of whether the winning party should have his costs paid forthwith and whether to order gross sum costs assessment are interrelated questions.

12.  In the present case, in respect of the major point about locus standi relied on by the Defendant, had the Defendant taken the point prior to the hearing, it is quite possible that the applications would not have been pursued, or at least not in the way that the proceedings are currently constituted.  As for the suggestion that there may be delay to the Defendant in the recovery of its costs, it is entirely a matter for the Defendant to decide on how to proceed with this action, and it is also up to the Plaintiff to take steps to see that the proper plaintiff is joined.  I should add that I express no view as to whether the current action can be salvaged, and if so how it should be done.  These are not matters before me.  Also, I do not consider the Plaintiff’s application for inspection to be so inappropriate as would justify an order for payment of the Defendant’s costs forthwith.

13.  In all the circumstances, I am not minded to accede to the Defendant’s application.

14.  It follows from the above that the costs order nisi is made absolute.  I make no order as to the costs of the various applications to vary the costs order nisi.

HCA 1599/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1599 OF 2008

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D E C I S I O N

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Applications

1.  There are 3 applications before the court:-

(1) the Plaintiff’s summons dated 13 October 2008 for inspection of the moulds (the “Moulds”) specified in Appendix A of the Statement of Claim under Order 29 Rule 2 of the Rules of the High Court;

(2) the Plaintiff’s summons dated 18 December 2008 for (a) summary judgment under Order 14 of the Rules of the High Court, or (b) judgment on admissions under Order 27 Rule 3 of the Rules of the High Court.

The Plaintiff’s claims

2.  The Plaintiff’s claims against the Defendant are for: (a) delivery up of the Moulds, and (b) damages for unlawful conversion of the Moulds.

3.  The Plaintiff is a company incorporated in Hong Kong.  Although it is not made clear in either the Statement of Claim or the various affidavits filed on behalf of the Plaintiff, it appears that the Plaintiff is an associated company of Simba Toys Fürth GmbH & Co KG (“Simba Germany”), which has authorised the Plaintiff to bring this action on its behalf against the Defendant.

4.  The Plaintiff’s case against the Defendant as pleaded in the Statement of Claim can be summarised as follows:-

(1) Smoby SA (“Smoby France”), a company incorporated under the laws of France, was engaged in the business of manufacture and distribution of toys.

(2) Smoby Hong Kong Ltd (“Smoby HK”) was a subsidiary of Smoby France and used to have toys bearing the “Smoby” and ‘Berchet” brands manufactured by various toys manufacturers in the Asian region and had them sold to Smoby France, other companies in the Smoby group and retail customers.

(3) One of Smoby HK’s toys manufacturers was Technic Star Inc (“Technic”), a company effectively owned and controlled by Charles Kam.

(4) Charles Kam also owns Ever Strong Enterprises (HK) Ltd (“Ever Strong”), a company incorporated in Hong Kong.

(5) On 25 November 2005, Smoby France and Ever Strong entered into a joint venture agreement (“JVA”) which provided for the formation of a joint venture company to hold a wholly foreign owned enterprise in the PRC for the purpose of manufacturing toys for Smoby France or third parties.

(6) The Defendant, a company incorporated in Hong Kong, is the joint venture company formed under the JVA.

(7) Fullmore Products (Shenzhen) Ltd (“Fullmore Products”) is the wholly foreign owned enterprise in the PRC formed on 31 March 2006 pursuant to the JVA.

(8) Fullmore Products owns a factory in the PRC which manufactures toys pursuant to the JVA.

(9) After the formation of the Defendant and Fullmore Products, Smoby France decided that Smoby HK should have most of its toys manufactured by the Defendant instead of by its former toys manufacturers.

(10)   The Moulds belonged to Smoby France, who made them available to the Defendant for the manufacturing of toys.  The Moulds fall into 2 categories: (a) moulds used by former manufacturers (including Technic Star) and transferred to the Defendant or Fullmore Products’ factory (see paragraphs 20 and 22 of Statement of Claim), and (ii) new moulds built by the Defendant for Smoby France.  Some of the Moulds made available to the Defendant concerned toys the production and distribution of which had been discontinued by Smoby HK.  Nevertheless, they were given to the Defendant for storage and to be re-used in the event that the discontinued toys were to be re-launched.

(11)   In 2007, Smoby France and other companies in the Smoby group encountered financial difficulties, in consequence of which two receivers of Smoby France were appointed by a French court in October 2007.

(12)   In March 2008, Simba Germany acquired the Moulds and other assets, including the “Smoby” and “Berchet” brands, from Smoby France.

(13)   On 8 August 2008, the Plaintiff’s solicitors requested the Defendant to release the Moulds to the Plaintiff.

(14)   The Defendant has failed and/or refused to release the Moulds to the Plaintiff, in consequence of which Smoby Toys Hong Limited Ltd (“Smoby Toys HK”), a subsidiary of the Plaintiff, has suffered loss and damage in various ways as pleaded in paragraphs 39, 41 and 42 of the Statement of Claim.

(15)   Simba Germany has authorised the Plaintiff to take legal action against the Defendant in Hong Kong for recovery of the Moulds.

(16)   Smoby Toys HK has authorised the Plaintiff to take legal action against the Defendant in Hong Kong for the recovery of damages.

The Defence

5.  The only positive case put forward in the Defence is that the Defendant has not at any time received, obtained or otherwise possessed the Moulds.

6.  In substance, the Defendant’s case is that it was the contemplation of the parties to the JVA that the manufacturing of the toys would be carried out by Fullmore Products, and that the Moulds were delivered to Fullmore Products’ factory in the PRC for that purpose.  Hence, the Defendant did not, and does not, have possession of the Moulds.  In the Affirmation of Mr Ma For, the Senior Engineering Manager of the Defendant, it is asserted that “the Defendant had not at any time actually received, obtained or in any other way taken possession of any of the moulds …”.

The evidence

7.  The evidence relied on by the Plaintiff to prove that the Defendant has, or at least once had, possession of the Moulds includes (a)   an “Authorization Form For Mold Transfer – Tool Maker to Manufacturing Vendor” dated 26 October 2006, (b) a “Purchasing Order for Toolings” dated 27 September 2007, and (c) an “Original Commercial Invoice” dated 6 November 2007, relating to 5 sets of moulds.

8.  The “Authorization Form For Mold Transfer – Tool Maker to Manufacturing Vendor” was chopped and signed on behalf of the Defendant and shows, apparently, that 2 sets of moulds were transferred from a previous manufacturer in China to a transferee described as:-

“FULLMORE (China factory)

FULLMORE CORPORATION LIMITED

Contact: Marco MA

Tel: 852-2357 5927 (HK Company)”

9.  The “Purchasing Order for Toolings” was issued by Smoby HK to the Defendant and related to 3 other sets of moulds.  The “Original Commercial Invoice”, for the amount of USD14,100, was chopped and signed on behalf of the Defendant and issued to Smoby HK.  It related to the same 3 sets of moulds the subject matters of the “Purchasing Order for Toolings”.

10.  Although the above documents were not produced through any affidavit, no issue was taken on their admissibility by Mr Wong, who appeared on behalf of the Defendant in these applications.  Also, although the documents related to only 5 specific sets of moulds, Mr Wong on behalf of the Defendant accepted that they represented typical arrangements in respect of all 1,094 pieces of the Moulds the subject matters of this action.

11.  From these three documents, Mr Shaw on behalf of the Plaintiff contended that the Defendant once had possession of the moulds in question, and thus the burden shifted to the Defendant to show by evidence that they had parted with possession of the Moulds to Fullmore Products.  Mr Shaw further submitted that the Defendant had failed to adduce evidence, or sufficient evidence, to discharge this burden.

12.  Mr Wong, on behalf of the Defendant, accepted that in respect of the moulds transferred by previous manufacturers, the Defendant would once have possession of them but said that the moulds had since been delivered to Fullmore Products to enable them to manufacture the toys and hence were no longer in the possession of the Defendant.  This position is not entirely consistent with that taken in the Defence or Mr Ma For’s Affirmation.  On the other hand, in respect of the newly built moulds, Mr Wong maintained that they were built by Fullmore Products’ contractors and never came into the possession of the Defendant.  Mr Ma For has also produced some documents which show that 5 new moulds covered by a purchase order placed by Smoby HK with the Defendant were subsequently built by Fullmore Products’ contractors and delivered to Fullmore Products in the PRC.

Discussion

13.  At the hearing of these applications, Mr Shaw on behalf of the Plaintiff confirmed that:-

(1) Simba Germany’s cause of action against the Defendant was for conversion;

(2) Smoby Toys HK had no independent cause of action against the Defendant; and

(3) there was no assignment of any cause of action by Simba Germany to the Plaintiff.

14.  When the question was raised as to whether the Plaintiff had locus to bring this action in its own name without any assignment of the underlying cause of action, Mr Shaw frankly admitted that he could not think of any basis to contend that the Plaintiff was entitled to sue in this manner.

15.  In the aforesaid circumstances, I do not see that it would be proper for the court to enter judgment in the Plaintiff’s favour under Order 14 or Order 27 Rule 3, even if the evidence before the court would otherwise justify giving judgment for the Plaintiff on either basis.  In view of my conclusion that the Plaintiff has no locus to sue, I do not consider it appropriate for me to express any view on the merits of the applications for summary judgment or judgment on admissions.

16.  I think Mr Shaw also accepted that judgment could not properly be entered in the Plaintiff’s favour in these circumstances.  He contended, however, that the position would be different in respect of the application for inspection under Order 29 Rule 2, because the Plaintiff was the agent of Simba Germany, the owner of the Moulds, and there was no reason why an order could not be made to permit the Plaintiff to inspect the Moulds.

17.  The difficulty, however, is that if the Plaintiff has no locus to sue (which I consider to be the case), I do not believe that it is proper for the court to exercise its discretion under Order 29 Rule 2 in the action in favour of the Plaintiff.

18.  In any event, I am not satisfied that there are sufficient grounds put forward to justify an order for inspection in this case.  In the first place, there is in fact no evidence adduced by the Plaintiff to explain why the court should exercise its discretion to order the Defendant to permit the Plaintiff to inspect the Moulds.

19.  Further, I am not satisfied that it has been shown that the Defendant was, at the time of the application, in “possession” of the Moulds.  Mr Wong drew my attention to the fact that under Order 29 Rule 2, a pre-condition for making an order of inspection was that the property in question must be in the “possession” of a party to the cause or matter, and contrasted that with the wider form of words used in Order 24 Rule 2 relating to discovery, namely, “possession, custody and power”.  It has been said that the word “power” in Order 24 means “a presently enforceable legal right to obtain from whoever actually holds the document inspection of it without the need to obtain the consent of anyone else” (Lonrho Ltd v Shell Petroleum Co Ltd [1980] 1 WLR 627 at 635H per Lord Diplock).  Fullmore Products is a 100% subsidiary of the Defendant, but whether the latter has a presently enforceable legal right to obtain the Moulds from the former without the need to obtain the consent of anyone else will depend on the position under the PRC company laws, which was not gone into at the hearing.  In any event, even if the Moulds can be regarded as falling within the “power” of the Defendant, that is not the same as “possession”, which I consider means either physical or legal possession.  As earlier mentioned, I am not satisfied on the evidence adduced that the Defendant has possession of the Moulds.

20.  In the circumstances, I dismiss all 3 applications with costs to the Defendant in any event.  Since I have not heard the parties on the issue of costs, I shall make it an order nisi, with liberty to the Plaintiff to apply to vary the order as to costs within 14 days from the date of handing down of this Decision.

21.  It remains for me to thank the parties’ legal representatives for their clear and succinct submissions to the court.