JOYCE T. ONGSIP t/a LT ENTERPRISES CO. v. PIMATRONICS LTD

HCA 611/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 611 OF 2010

__________________

BETWEEN
	JOYCE T ONGSIP trading as LT ENTERPRISES Co	Plaintiff
and
	PIMATRONICS LIMITED	Defendant
	(by original action)
AND
BETWEEN
	PIMATRONICS LIMITED	Plaintiff
and
	LEE MAN HOI OCEAN	1st Defendant
	JOYCE T ONGSIP trading as LT ENTERPRISES Co	2nd Defendant
	LIM FUNG PING	3rd Defendant
	(by counterclaim)

__________________

Before: Deputy High Court Judge Wilson Chan in Court

Dates of Hearing: 4, 5 & 8 August 2014

Date of Judgment: 17 September 2014

______________

J U D G M E N T

______________

 

Introduction

1. This was originally the trial of two actions which had been ordered to be tried one immediately after another.  HCA 600/2012 has been settled between the parties.  Hence, this is only the trial of HCA 611/2010.

2. In HCA 611/2010, the plaintiff by original action (“Joyce Ongsip”) has also settled with the defendant by original action (“Pimatronics”) on terms requiring Joyce Ongsip to pay to Pimatronics a total of HK$1,655,000.00.

3. Accordingly, what remains to be determined is only the dispute between Pimatronics and the 1st defendant by counterclaim (“Ocean Lee”) in HCA 611/2010.

The Issues

4. As agreed between the parties on the first day of trial, the issues which require determination in this trial are as follows:

(1) Whether the Representations (as defined in paragraph 17 below) were made by Ocean Lee;

(2) Whether either of the Representations were false;

(3) If so, whether the misrepresentation was made fraudulently; and

(4) If so, what loss flowed from the misrepresentation.

Factual Background

5. GTC Industries Limited (“GTC”) is a BVI company.

6. GTC wholly owns Pimatronics, which is a Hong Kong company.  Pimatronics, in turn, wholly owns “Pimatronics Shenzhen”, a PRC company.

7. GTC, Pimatronics, and Pimatronics Shenzhen are collectively referred to as “the GTC Group”.

8. In these proceedings (ie HCA 611/2010):

(1) Pimatronics was originally sued by Joyce Ongsip.

(2) Pimatronics brought a counterclaim against Ocean Lee, Joyce Ongsip and her husband Dennis Lim.

(3) Dennis Lim acted on behalf of Joyce Ongsip in respect of the subject matter of these proceedings.  Joyce Ongsip traded in the name of LT Enterprises Co (“LT”), a sole proprietorship with a registered address at some residential premises owned by Dennis Lim’s mother.

(4) As mentioned above, Joyce Ongsip and Dennis Lim settled with Pimatronics on terms involving a total payment of HK$1,655,000.00 by them to Pimatronics.

9. GTC is wholly owned by one Kurtis Lam.  Ocean Lee was at all material times a member of GTC Group’s senior management.

10. Kurtis Lam and one KT Yuen went to the same school and were good friends.  In 2004, KT Yuen was working for one Computime Limited (“Computime”) engaged in the manufacturing and trading of electronic goods.

11. Ocean Lee was a subordinate of KT Yuen in Computime.

12. In 2004, KT Yuen persuaded Kurtis Lam to supply funds to set up a new electronic company, to be managed by KT Yuen and his staff.  As a result, GTC, Pimatronics and Pimatronics Shenzhen were set up.

13. Pimatronics signed a Manufacturer Representative Agreement (“the MRA”) with Joyce Ongsip (trading as LT) dated 26 April 2005.

14. There is no dispute that the MRA was actually signed by the parties in October 2005 after Ocean Lee had started employment with the GTC Group in September 2005.  But an oral agreement to the same effect had already been entered into in March or April 2005.

15. Under the MRA, Pimatronics was to pay Joyce Ongsip 10% of the net sales (“the Commission”) by Pimatronics to the customers specified in the MRA.

16. The case of Pimatronics is that in March or April 2005, Ocean Lee represented to Kurtis Lam that a sales agent (which Kurtis Lam subsequently understood to be LT) could assist in persuading and convincing a US manufacturer of backup alarms and warning lights for commercial vehicles called ECCO Electronic Controls Co (“ECCO”) and its UK subsidiary called Vision Alert Automotive Ltd (“Vision Alert”) to place orders of electronic parts and components (such as printed circuit board assemblies) with Pimatronics.

17. According to Pimatronics, Ocean Lee further represented that:

(1)   In order to ensure that ECCO and Vision Alert would place orders with Pimatronics, all its dealings with ECCO and Vision Alert had to be conducted through a recognized sales agent such as LT.

(2)   If Pimatronics were to engage LT as its sales agent, LT would provide advice and assistance to Pimatronics for the purpose of soliciting, continuing and/or developing its business relationships with ECCO and Vision Alert.

The aforesaid two representations are referred to as “the Representations”.

18. Induced by the Representations, Kurtis Lam authorized Ocean Lee to orally agree with LT in terms of the MRA.  Later, the MRA was reduced to writing after Ocean Lee was appointed as General Manager of Pimatronics in September 2005.

19. The Representations were false in that Ocean Lee solicited and conducted the business with ECCO/Vision Alert directly without any involvement of LT, LT was not a sales agent recognized by ECCO/Vision Alert and that the commissions paid to LT were channeled (in whole or in part) to Kevin Pintar, an employee of ECCO/Vision Alert.

20. Pimatronics has paid Commission totaling HK$5,438,288.39 between May 2005 and March 2009.

21. Pimatronics avers that Ocean Lee made and maintained the Representations fraudulently.  Alternatively, he failed to inform Pimatronics the falsity of the Representations in breach of his contractual and/or fiduciary duty.

22. On the other hand, the case of Ocean Lee, briefly stated, is as follows:

(1)   Ocean Lee denies that he has made the Representations.

(2)   Ocean Lee says KT Yuen had signed a similar agreement on behalf of Computime, and that Ocean Lee was just instructed, by KT Yuen, to enter into an oral agreement with LT in the same terms of the agreement in March or April 2005, and then the written agreement in October 2005.

(3)   Ocean Lee essentially contends that the Representations in any event were true.

(4)   He further says that he did not know about the channeling of commission paid to LT.

Credibility of the rival witnesses

23. Both Kurtis Lam and Ocean Lee gave evidence at trial.

24. From my observation of his demeanour, Kurtis Lam is an honest witness.  I agree with Mr Bernard Man, counsel for Pimatronics, that Kurtis Lam answered questions in a straightforward and direct manner.  His unchallenged evidence is that he invested a total of HK$12 million on the strength of his trust of KT Yuen and Ocean Lee.  It transpired that Ocean Lee was not worthy of such trust.

25. Ocean Lee’s attempts to smear Kurtis Lam by suggesting that the claim against Ocean Lee was conjured up to avoid payment of the Commission to LT is obviously and wholly misguided.

(1) The claim by LT against Pimatronics has been settled, on terms that LT would pay a total of HK$1,655,000.00 to Pimatronics.

(2) But the claim against Ocean Lee goes on despite the fact that LT’s claim has been settled.  There is no need to do so if the claim against Ocean Lee is only fabricated to avoid payment to LT.

(3) Further, I agree with Mr Man that it is inherently unlikely that Pimatronics (or Kurtis Lam) would have to fabricate any story to defend a claim which the claimant herself (and her husband) would agree to pay a substantial amount of money to settle. It is obvious that LT’s claim has no merit whatsoever.

26. I also agree that Ocean Lee, on the other hand, is a witness of little credibility.  Hardly any weight can be placed on his evidence on the disputed issues.

27. First, Ocean Lee is a self‑confessed liar.

(1) On the second day of trial, when he was asked questions about an e‑mail which he sent to Kevin Pintar on 16 February 2007, he stated that the various reasons he detailed in this e‑mail were false, and knowingly false.

(2) That was an e‑mail he sent to Kevin Pintar pleading all sorts of stress and pressure from banks, which he cited to account for his demands on ECCO.  Many details were stated in this letter.  But they were all, according to Ocean Lee’s own evidence in court, knowingly false and totally fabricated.

(3) He said he engaged in all this fabrication simply to “evoke sympathy”.  That is unadulterated dishonesty.  But he then denied that it amounted to lying, despite the fact that he deliberately made things up and uttered knowing untruths to achieve his own ends.  This shows that Ocean Lee is clearly a person who has no qualms lying whenever he thought it suited him.

28. Secondly, Ocean Lee is a person who would deceive his own employer for his own purposes.

(1) He originally cited an e‑mail dated 8 August 2005 as an example of how Dennis Lim had helped Pimatronics in the procurement of certain spare parts.

(2) But when this was investigated in cross‑examination, it transpired that it was Ocean Lee who was integral to this scheme.  As can be seen from the e‑mail, he asked Dennis Lim to issue an order “with my [Ocean Lee’s] attention”.

(3) Ocean Lee accepted in court that he had asked Dennis Lim to send the purchase order to him (Ocean Lee) at Computime, as Ocean Lee was (at that time) still in charge of the relevant business of Computime.  Ocean Lee would then procure Computime to sell the parts to Dennis Lim, to pass on to Pimatronics.

(4) I agree with Mr Man that that was plainly dishonest on the part of Ocean Lee.

29. In short, I agree with Mr Man that Ocean Lee is not a person worthy of belief.  His denials of his wrongdoings will have to be assessed in this light.

Whether the Representations had been made by Ocean Lee

30. Ocean Lee denies having made the Representations to Kurtis Lam.

31. Ocean Lee accepts that, when Pimatronics was being set up, he had been asked by KT Yuen to present to Kurtis Lam what clients he was handling in Computime.  He accepted that in this presentation of information, he had told Kurtis Lam that ECCO/Vision Alert was one of his customers, and that business with ECCO/Vision Alert was done through an agent, who charged a commission of 10%.  Ocean Lee also said in cross‑examination that at that time he thought that it was necessary to go through LT if Pimatronics were to do business with ECCO/Vision Alerts.  But he resolutely refused to accept that he had said, or had given an impression, to Kurtis Lam that it was necessary to go through LT.

32. I agree with Mr Man that Ocean Lee’s case is plainly incredible.  It is obvious that he did make the Representations to Kurtis Lam.

33. Ocean Lee accepted that when he was presenting information about his customers to Kurtis Lam, he was presenting them as “potential customers” of Pimatronics.  In answer to a question posed by the court, he further accepted that these customers’ information was presented to Kurtis Lam because there was a possibility of these customers becoming customers of Pimatronics.

34. Obviously he was at least giving an impression that the 10% commission was necessary and had to be paid.  It would be nonsense for him to be presenting all this information to create an impression that the 10% commission was not necessary.

35. In this regard, Kurtis Lam’s case is obviously much more probable.  His evidence is that he noted that the commission was rather high and had asked Ocean Lee whether it was necessary, to which the answer was yes.  It is only natural for the necessity of the commission to have been discussed.  It would be odd if the necessity of a commission as high as 10% was not to have been discussed.  On a balance of probabilities, Ocean Lee must have represented in such discussion that the payment of the 10% commission was necessary, otherwise Kurtis Lam would not have agreed to pay it.

36. On the second Representation, ie that the agent would provide advice and assistance to Pimatronics for the purpose of soliciting, continuing and/or developing its business relationships with ECCO/Vision Alert, it follows from the above that in all likelihood Ocean Lee had made the Representation.

37. On any view, 10% was a substantial percentage which would, in all probability, have been discussed between Kurtis Lam and Ocean Lee.  In all likelihood, it would have been discussed why LT would be able to charge such a 10% commission, and an answer would have been given by Ocean Lee.

38. For the reasons stated above, I find as a fact that Ocean Lee had, in March or April 2005, made the Representations to Kurtis Lam as alleged by Pimatronics.

Whether the Representations were false

39. I agree with Mr Man that the falsity of the Representations is plain.  From the evidence adduced at this trial, it is plainly unnecessary for LT to be interposed between ECCO/Vision Alert and Pimatronics.  This is partly supported by the fact that LT had plainly not done anything meaningful towards the solicitation, continuation or development of the business.  ECCO was not introduced by LT.  It was the other way round: LT was introduced by Kevin Pintar of ECCO.

40. As Mr Man puts it, the best proof of the pudding is the eating.  Ocean Lee said in oral evidence that from 2012 up to now, he (in his present capacity as the Marketing Director of one Adroit Electronics Ltd) has been doing business with ECCO/Vision Alert.  He confirms that he is not doing business through LT, nor any “recognized sales agent”.

41. When asked why he would not need an agent now, but would need an agent then, he first said that that would be because in 2012, ECCO approached him first.  But then he had to agree that in 2003 when ECCO first did business with Computime, it was also ECCO who first approached Computime.

42. Ultimately, the only reason Ocean Lee could provide for why he had to pay a commission of 10% to LT in 2003 but not in 2012 was that it was Kevin Pintar who asked LT to intervene.

43. But, as rightly pointed out by Mr Man, that is precisely the point.  It is clear that the imposition of an agent was not a requirement of ECCO/Vision Alert.  It was only done because Kevin Pintar and Ocean Lee had agreed that an agent should be appointed.

44. This is confirmed by the fact that ECCO did not stop giving business to Pimatronics after it stopped paying commission in September 2009.  Nor did anyone from ECCO urge Pimatronics to pay commission to LT.  Ocean Lee accepted that.  When asked whether he felt that this was strange if LT was indeed a necessary and authorized agent of ECCO, he said he had never thought about it.

45. The fact that ECCO/Vision Alert did not require a sales agent to interpose between them and Pimatronics is amply confirmed by Brian Olsen’s e‑mail on 11 January 2013.  When asked whether LT and Dennis Lim were “at no time an authorized sales agent of Ecco”, Brian Olsen answered “We buy raw PCB’s from LT enterprises. That is all we have ever purchased from LT.”  This is an obvious denial of any “recognized sales agent” relationship between ECCO and LT.

46. Indeed, in an e‑mail dated 5 January 2010, Brian Olsen stated that “the main reason ECCO moved so much business toPimatronics was because of the relationship with Ocean Lee. We trust him.”  Two days later, Brian Olsen wanted an assurance that Ocean Lee was to remain in charge of ECCO’s accounts for a long time.

47. It is obvious that the reason why ECCO dealt with Ocean Lee was because they trusted him, not Dennis Lim nor LT.  When this was put to him, Ocean Lee had to say that Brian Olsen did not mean what he said, and he would not know about the state of affairs in 2005 to 2009 because Brian Olsen had not joined ECCO yet.

48. I agree with Mr Man that this is nonsense.  There is no reason why Brian Olsen would want to deliberately say something untrue.  Nor is there any basis to suggest that he did not know what he was talking about simply because he was not working for ECCO in 2005 to 2009.  As the Vice President of Operations at ECCO, Brian Olsen would obviously have the means to find out, from within ECCO, what ECCO’s position was in 2005 to 2009.

49. That LT was not an “authorized sales agent” of ECCO is also supported by the common ground that Ocean Lee knew Kevin Pintar way before Ocean Lee knew Dennis Lim.  This “sales agent” was not someone who introduced ECCO to Ocean Lee.  ECCO had already decided to do business with Ocean Lee before inserting the agent in between.

(1) Ocean Lee’s evidence is that he had known Kevin Pintar since 1997.

(2) In 2003, Kevin Pintar found Ocean Lee again (when he was then working for Computime) and wanted to do business with him.

(3) It is obvious that Kevin Pintar had already discussed the matter with Ocean Lee before he sent the e‑mail on 10 April 2003, informing Dennis Lim that an agreement would be signed to appoint LT as a “Quasi Manufacturers Representative” and the commission rate would be 10%.

50. In short, from the evidence available at this trial, there is simply no legitimate reason why LT would have to be interposed between Pimatronics and ECCO (except to collect the 10% commission).

51. For the reasons stated above, I find as a fact that the Representations were false.  It was not necessary to interpose LT to do business with ECCO.  Nor had LT ever provided advice and assistance in soliciting, continuing or developing the business with ECCO.

Whether the Representations were made by Ocean Lee fraudulently

52. Again, I agree with Mr Man that the evidence is overwhelming.

53. First, as discussed above, Ocean Lee knew that LT did not introduce ECCO.  Rather, it is the other way round – LT was introduced by Kevin Pintar after he had decided to give the business to Computime/Pimatronics.

54. Also, as discussed above, at all material times, Ocean Lee enjoyed a good working relationship with Kevin Pintar and ECCO.  Indeed, as mentioned above, Brian Olsen had said that the relationship with Ocean Lee was “the main reason ECCO moved so much business toPimatronics”.

55. By 2005, it would have been clear to Ocean Lee that LT had done no useful solicitation or development of business.  He would have known that he could have done anything that LT did himself.  It would also have been clear to him that 10% was a very high commission.  He would have known that LT was not necessary. I agree with Mr Man that, at the very least, Ocean Lee would have been reckless as to whether the Representations were true.

56. Indeed, Ocean Lee himself said, at paragraph 18 of his own witness statement that “. . . I did expressly told Dennis Lim that LT was not expected to assist in any specific way, in particular, in the aspects of technicality and product development, but I insisted that if the need arose in future, LT would be expected to assist in the way as requested”.

57. Clearly, Ocean Lee himself knew that LT was not going to do any solicitation or development work.  Nor did Ocean Lee ever expect it to.

58. It is also clear that Ocean Lee knew that Kevin Pintar had a share in the commission to be paid to LT.  He must have known that the payments to LT were not legitimate commission paid to a genuine sales agent.

59. Indeed, after Pimatronics stopped paying LT any commission in September 2009, Kevin Pintar sent an e‑mail dated 4 September 2009 to Ocean Lee asking him to help LT to recover the commission.

60. At trial, Ocean Lee was asked why Kevin Pintar would help LT to recover the commission.  He could only say he did not know the reason.  I agree with Mr Man that this is plainly untrue.  It is obvious that Kevin Pintar asked after LT’s commission because he had a share – and he asked Ocean Lee for help because Ocean Lee knew about his share all along.

61. Ocean Lee’s involvement and knowledge of the scheme are also demonstrated by his ability to dictate the commission in fact paid to LT. Despite the fact that the MRA stated that the commission should be 10%, Ocean Lee accepted in cross‑examination that:

(1)   Ocean Lee dictated the rate of commission to Dennis Lim.

(2)   Sometimes Dennis Lim would have to ask Ocean Lee how much he could charge.

(3)   Notably, the documentary evidence does not show that Dennis Lim had ever attempted to bargain or negotiate, or “talk back”, to Ocean Lee.

(4)   Ocean Lee, in cross‑examination, asserted that there were oral discussions where Dennis Lim did try to negotiate. But he accepted that none of the e‑mails disclosed showed any of that.

62. It is therefore clear that Ocean Lee was able to dictate to Dennis Lim how much LT could charge by way of commission.  Dennis Lim never even attempted to negotiate and just followed Ocean Lee’s determination.  I agree with Mr Man that this is wholly inconsistent with honest, arms‑length, dealings between a seller and an agent which was authorized by the buyer, and thought to be necessary.

63. For the reasons stated above, I find as a fact that Ocean Lee must have known that what he represented was untrue.  Or at the very least, he was reckless as to whether it was true or not.

What loss flowed from the misrepresentation

64. It is common ground that Pimatronics have paid a total of USD701,714.76 (or HK$5,438,288.39) to LT.

65. On my finding that the Representations had been made, such payments were clearly induced by the Representations.

66. Accordingly, it is clear that the loss caused by Ocean Lee’s wrongdoing would be USD701,714.76.

67. It would also follow that Ocean Lee should pay Pimatronics’ costs against him.

68. I also agree with Mr Man’s submissions that Ocean Lee should also be ordered to pay Pimatronics’ costs against LT.  The claim by LT is the result of Ocean Lee’s wrongdoing.  Ocean Lee should at least be jointly liable (alongside LT if there had been no settlement) for Pimatronics’ costs against LT.  Whether Ocean Lee has a contribution claim against LT (or vice versa) will be a matter between them.

Conclusion and Disposition

69. For the reasons set out above, I hold that Pimatronics has proved its counterclaim against Ocean Lee.

70. Accordingly, I make the following order in favour of Pimatronics against Ocean Lee:

(1)   Ocean Lee do pay Pimatronics the sum of USD701,714.76, together with interest thereon at HSBC prime rate plus 1% from 25 June 2010 (being the date of the counterclaim against Ocean Lee) to judgment, and thereafter at the judgment rate from the date of judgment to the date of payment.

(2)   The costs of Pimatronics’ counterclaim against Ocean Lee, LT and Dennis Lim be paid by Ocean Lee to Pimatronics.  Such costs are to be taxed if not agreed.

(3)   Pimatronics is to give credit to Ocean Lee for the sum of HK$1,655,000.00 received from LT.

71. The above order as to costs is nisi and shall become absolute in the absence of any application within 14 days to vary the same.

	(Wilson Chan)
	Deputy High Court Judge

Mr Bernard Man, instructed by Anthony Siu & Co, for the defendant (by original action) and the plaintiff (by counterclaim)

The 1st defendant (by counterclaim) was not represented and appeared in person

HCA 611/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 611 OF 2010

____________

BETWEEN

	JOYCE T. ONGSIP trading as LT ENTERPRISES CO.	Plaintiff
	and
	PIMATRONICS LIMITED	Defendant
	(by original action)
AND
BETWEEN
	PIMATRONICS LIMITED	Plaintiff
and
	LEE MAN HOI OCEAN	1st Defendant
	JOYCE T. ONGSIP trading as LT ENTERPRISES CO.	2nd Defendant
	(by counterclaim)

____________

Before: Deputy High Court Judge Sakhrani in Chambers

Date of Hearing: 13September 2012

Date of Judgment: 13 September 2012

Date of Reasons for Judgment: 20 September 2012

_____________________________________

REASONS FOR JUDGMENT

_____________________________________

 

1.  By a summons dated 31 March 2012 (“the summons”), the defendant by original action (“the defendant”) applied against the plaintiff by original action (“the plaintiff”) for an order for specific discovery of document as set out in the summons.

2.  The summons came on for hearing before Registrar Lung on 7 June 2012.  After hearing arguments, the Registrar dismissed the summons with costs to the plaintiff which he summarily assessed at $55,000.

3.  By a notice of appeal dated 12 June 2012, the defendant gave notice that it intended to appeal against the order of Registrar Lung.

4.  The appeal came on for hearing before me on 13 September 2012.

5.  After hearing arguments, I dismissed the appeal with costs to the plaintiff such costs to be taxed if not agreed.  I indicated at the time that reasons in writing would be provided.  This I now do.

6.  In his written Reasons for Decision dated 7 June 2012, the Registrar succinctly set out the facts of the pleaded case which I gratefully adopt.  He said:

“The facts

5. Briefly stated, the facts of this case are that the plaintiff has been operating the business of agent for customers and charges commission for the services rendered. By an agreement dated 13 October 2005 (“the agreement”), she was appointed by the defendant as the exclusive agent for solicitation of orders from certain customers (“the customers”) specified in the agreement for certain products manufactured by the defendant, for which she was entitled to charge 10% of the net sales as commission. Pursuant to the agreement, the defendant had paid the commission as agreed between 2005 and September 2008. Between September 2008 and September 2009, the defendant had failed to pay certain quantities of the products, the commission of which amounted to HK$1,100,860.86, hence this action against the defendant.

6. The defendant admitted that he had not paid the said sum.  The reasons for so doing are that before entering into the agreement, a Mr Ocean Lee, who was an employee of a holding company of which the defendant is a 100% shareholder, had represented to the defendant that the plaintiff was the recognized sales agent of the customers and the defendant must place orders through the plaintiff [Defence – 5][1].  However, the defendant subsequently discovered that the representation was false as the customers denied having recognized agent.  The defendant further discovered that part of the commissions paid to the plaintiff was, in fact, paid to a person called Mr Kevin Pintar, a former Materials Manager of one of the customers, who did not have the permission of the customers to accept the commission, contravening section 9(1) of the Prevention of Bribery Ordinance Cap 201 [Defence – 13].  The defendant also says that the plaintiff had rendered no service to him because it was through Mr Ocean Lee’s connection with the customers that the orders were placed with the customers and that the plaintiff had given no other service such as advice on business to the defendant.  The defendant therefore says that the commissions paid to the plaintiff were paid under mistakes and he counterclaim for their return.”

7.  I would add that the customers referred to in the agreement dated 13 October 2005 are ECCO Electronics Controls Co in the United States of America (“ECCO”) and its United Kingdom subsidiary Vision Alert.

8.  Dennis Lim is the husband of the plaintiff who trades as the sole proprietor as LT Enterprises Co.  In his witness statement, Dennis Lim says that he has always been the one responsible for the business and operation of LT Enterprises Co.

9.  The plaintiff also pleads at paragraph 5 of the amended reply and defence to counterclaim that the agreement was entered into orally in about March or April 2005 with immediate effect.  The agreement was evidenced and reduced in writing and was subsequently signed by the parties in October 2005.

10.  The signed written agreement is dated 13 October 2005 and was signed by Ocean Lee, as General Manager, on behalf of the defendant and by Dennis Lim, as Sales and Marketing Manager of the plaintiff.  The company chops of the defendant and the plaintiff respectively were also placed next to the signatures.

11.  In the Schedule to the summons, the defendant sought specific discovery of 3 Categories of documents as set out therein.  However, shortly before the hearing of the appeal, the defendant’s solicitors informed the plaintiff’s solicitors that it would not be seeking discovery of Category 1(b) and Category 3(f) at the hearing of the appeal.  And as regards Category 2(c), the defendant would narrow down its request for discovery.

12.  The specific discovery of documents that the defendant was seeking at the hearing of the appeal was therefore :

“Category 1:

tax returns of [the plaintiff ] for the years of 2005-6 (“the Relevant Period”) together with the original supporting documents making up the tax accounts;

Category 2:

(c) Employer’s returns of Dennis Lim filed by [the plaintiff] for the Relevant Period;

(d) MPF records of Dennis Lim for the Relevant Period;

(e) Contract(s) of employment entered into between Dennis Lim and [the plaintiff] at any time;

Category 3:

(g) All correspondence or emails exchanged between [the plaintiff] (whether through Dennis Lim or not) and any employee of ECCO/Vision Alert in the Relevant Period which may be relevant on any alleged service rendered by [the plaintiff] to [the defendant].”

13.  The applicable legal principles as set out by the Registrar at paragraph 4 of his Reasons for Decision are well settled.

14.  A party seeking an order for discovery must make out a prima facie case that:

(1)  the specified document or class of documents exist;

(2)  the party against whom discovery is sought has or had the documents in his possession, custody or power;

(3)  the documents relate to a matter in question in the action; and

(4)  discovery is necessary either for disposing fairly of the cause or matter or for saving costs.

(per To J at paragraph 11 of his judgment in Tullett Prebon (Hong Kong) Ltd v Chan Yeung Fong Nick & Ors HCA 2197 of 2009, 9 June 2011)

15.  As was held in Deak & Co (Far East) Ltd v NM Rothschild & Sons Ltd & Ors [1981] HKC 78, even if existence, possession etc. and relevancy were established, discovery would only still be granted if it was necessary for fairly disposing of the cause or matter.

16.  It is also useful to bear in mind what Burrell J said in his Decision dated 18 January2002 in Mariner International Hotels Ltd v Atlas Ltd & another (HCA 10714, 10752 and 10821 of 1998).  At paragraph 11, Burrell J said:

“The task of the court will often be to determine when “doing justice to the claim” stops and “fishing” or, to use another analogy “the scatter gun approach” starts.  At that point the onerous nature of the discovery exercise passes from the necessary and permissible to the unnecessary and impermissible”.

17.  The pleadings in an action define the issues to be tried.

18.  I would also refer to what Cheung JA said in Paul’s Model Art Gmbh & Co KG v U.T. Limited & Ors (CACV 139 of 2005; 14 December 2005) at paragraph 25 of his judgment:

“25 The real issue that has been focused at this hearing is whether the documents sought to be disclosed are relevant to the issues in this case between the plaintiff and the 4^th defendant. In this context the issue must be one identified in the pleadings. Sun Yuet Tai Ltd v British American Tobacco Co (HK) Ltd (CACV No 95 of 1999). On the other hand the fact that an issue is raised in the pleadings is not determinative as to whether it relates to a matter. Discovery is not required of documents which relate to irrelevant allegations in pleadings which even if substantiated could not affect the result of the action: Allington Investments Corp & Others v First Pacific Bancshares Holdings Ltd & Another [1995] 2 HKC 139.”

19.  I would also agree with the observations of Deputy Judge Mimmie Chan (as she then was) in Sunny Tadjudin v Bank of America, National Association (HCA 322 of 2008; 22 December 2011) when she said at paragraph 7 of her judgment:

“7. It is also clear that post CJR, the Court should give effect to the underlying objectives of the rules and procedures when it exercises its powers under Order 24 and when it interprets the provisions of Order 24. In deciding whether any document relates to a matter in question in the action, whether any document is or has been in the possession, custody or power of a party, and whether discovery of a document sought is necessary either for disposing fairly of the cause or matter or for saving costs, the Court should always bear in mind the objectives of cost effectiveness, expeditious disposal of cases, proportionality, procedural economy and ensurance of fairness between the parties.”

20.  Mr Peter Ng SC, for the defendant, submitted that the defendant’s cause of action against the plaintiff was based on a breach of fiduciary duty on the part of Ocean Lee, an employee of the defendant and knowing assistance of Ocean Lee’s breach of fiduciary duty and receipt of commissions by the plaintiff. It was his submission that the plaintiff acted as a front to receive commissions from the defendant.

21.  In the course of his submissions, Mr Ng summarized the gist of the defendant’s case as follows:

Ocean Lee was an employee of the defendant under a fiduciary duty to the defendant. He made certain representations to the defendant to induce it to enter into the agreement with the plaintiff.  The plaintiff assisted Ocean Lee to keep collecting commissions as if she were acting as the exclusive sales agent under the agreement but what has been discovered is that the plaintiff did nothing.  The plaintiff assisted Ocean Lee in pretending to be acting as the exclusive sales agent and pretending to be soliciting business from ECCO and Vision Alert when in fact that was not the case.

22.  Despite Mr Ng’s submissions to the contrary, it seems to me that what the defendant is, in fact, alleging (without pleading) is a conspiracy to defraud on the part of Ocean Lee and the plaintiff. If the defendant is relying on a conspiracy, then that must be specifically and distinctly pleaded with full particulars.

23.  Mr Ng in support of the appeal made it plain that he was not relying on any illegality for the purpose of the specific discovery application although that was relied on before the Registrar by another counsel then appearing for the defendant.

24.  In respect of the Category 1 documents sought, namely, the tax returns of the plaintiff for the Relevant period with supporting documents making up the tax accounts, Mr Ng submitted that these would shed light on the issue of the genuineness or otherwise of the plaintiff’s business.

25.  This alleged issue was never part of the issues identified by the defendant’s solicitors in the listing questionnaire filed on 2 February 2012.

26.  Nowhere has it been pleaded by the defendant that the plaintiff’s business was not genuine.  There is no issue raised on the pleadings as to the genuineness or otherwise of the plaintiff’s business.

27.  The discovery sought order Category 1 is simple a fishing exercise in my view. There is no merit in the application for discovery of this Category 1 document.

28.  As regards the Category 2 documents, namely, the employer’s returns, MPF records and employment contract, Mr Ng submitted that these would shed light on the issue of the genuineness or otherwise of Dennis Lim’s employment.

29.  Again, this issue was also never part of the issue identified by the defendant’s solicitors in the said listing questionnaire.

30.  Nowhere has it been pleaded by the defendant that Dennis Lim was not employed by the plaintiff.

31.  The issue of the genuineness or otherwise of Dennis Lim’s employment simply does not arise on the pleadings.

32.  The agreement was signed on 13 October 2005 by Dennis Lim as the Sales and Marketing Manager of the plaintiff.  There is no plea by the defendant that Dennis Lim was not authorized to sign agreements on behalf of the plaintiff or, indeed, that he was not employed by the plaintiff.

33.  I would also observe that although the defendant’s case is that the agreement between the plaintiff and the defendant is “illegal, void and unenforceable” (paragraph 14 amended defence and counterclaim) there is no plea that Dennis Lim was not employed by the plaintiff or that he was not authorized to enter into the agreement with the defendant.  Rather, the defendant relies on certain provisions of the agreement and seeks to refer to the agreement for its full terms and effect at trial (paragraphs 7 and 8 amended defence and counterclaim).

34.  In my view, the application for the Category 2 documents is also a fishing exercise.

35.  The discovery sought under the Category 1 and Category 2 documents is not relevant to the issues in the action.  The discovery sought is also not necessary for fairly disposing of the cause.

36.  As regards the Category 3 documents, it is accepted that these are relevant documents.

37.  Dennis Lim has already confirmed that there are no written contracts as requested.

38.  As regards the other documents under Category 3, all these have already been disclosed and supplied.

39.  Ms So, for the plaintiff, confirmed that all the documents under Category 3 have been disclosed as exhibit LFP-2 to the affirmation of Dennis Lim filed on 7 May 2012  .Mr Ng was content with counsel’s confirmation.

40.  For the above reasons, I dismissed the appeal with costs to the plaintiff to be taxed if not agreed.

(Arjan H Sakhrani) Deputy High Court Judge

Ms. Rita So, instructed by Ernest Li & Co, for Plaintiff by original action and 1^st Defendant and 2^nd Defendant by counterclaim

Mr. Peter Ng SC, instructed by Anthony Siu & Co, for 1^st Defendant by original action and Plaintiff by counterclaim

HCA 611/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.611 OF 2010

________________________

BETWEEN

	JOYCE T. ONGSIP trading as LT ENTERPRISES CO.	Plaintiff
	and
	PIMATRONICS LIMITED (by original action)	Defendant

AND BETWEEN

	PIMATRONICS LIMITED	Plaintiff
	and
	LEE MAN HOI OCEAN	1st Defendant
	JOYCE T. ONGSIP trading as LT ENTERPRISES CO. (by counterclaim)	2nd Defendant

 

Before : Mr Registrar K.W. Lung in Chambers (Open to public)

Date of Hearing : 7 June 2012

Date of Handing Down Reasons for Decision : 7 June 2012

_______________________________

REASONS FOR DECISION

_______________________________

 

The application

1.  The defendant by the original action has taken out this application under Order 24 rules 7(1) and 11(2) of the Rules of the High Court, Cap.4A for specific discovery of the documents set out in the Schedule attached to the summons dated 31 March 2012.

2.  Order 24 rule 7(1) provides:

Subject to rule 8, the Court may at any time, on the application of any party to a cause or matter, make an order requiring any other party to make an affidavit stating whether any document specified or described in the application or any class of document so specified or described is, or has at any time been, in his possession, custody or power, and if not then in his possession, custody or power when he parted with it and what has become of it. (L.N. 157 of 2003 and L.N. 199 of 2003)

Order 24 rule 11(2) provides:

Without prejudice to paragraph (1), but subject to rule 13(1), the Court may, on the application of any party to a cause or matter, order any other party to permit the party applying to inspect any documents in the possession, custody or power of that other party relating to any matter in question in the cause or matter.

3.  The plaintiff opposes this application.

The legal principles

4.  Counsel for the plaintiff Miss So and Counsel for the defendant Mr Chiu agree the legal principles set out in the following authorities are applicable:

a. Tullett Prebon (Hong Kong ) Ltd. v. Chan Yeung Fong Nick & Ors HCA 2197/2009[1], in which it was decided that the applicant had the burden of proving the existence of the documents; plaintiff’s possession of the documents, custody or power of the documents; relevancy and it was necessary for fair disposal of the disputes or for saving costs;

b. The Compagnie Financiere Et Commerciale Du Pacifique v. Peruvian Guano Co (1882) 11 QBD 55 on relevance, which must be “document relates to the matters in question in the action…” The pleadings must, therefore, be the starting point for determination of relevance.

c.  Mariner International Hotels Limited v. Atlas Limited and Another HCA 10714, 10752, 10821/1998 (consolidated)[2], in which the learned Judge, in his analytical approach to the definition of relevance in Peruvian Guano case held that the court should not allow “fishing” exercise for evidence and stop any “scatter gun approach”. This is obviously correct as such approaches contravene the provisions under Order 24 rules 8(1) and 13(1), viz. the principle of fairness and saving of costs.  Mr. Chiu, in his reply skeleton submission points out that in the judgment, Burrell J. had remarked that the approach must not be applied in a too restrictive manner.  Having considered the relevant authorities, Burrell J. came to find: “The task of the court will often be to determine when

‘doing justice to the claim’ stops and ‘fishing’ or, to use another analogy ‘the scatter gun approach’ starts. At that point the onerous nature of the discovery exercise passes from the necessary and permissible to the unnecessary and impermissible.” See paragraph 9.

The facts

5.  Briefly stated, the facts of this case are that the plaintiff has been operating the business of agent for customers and charges commission for the services rendered.  By an agreement dated 13 October 2005 (“the agreement”), she was appointed by the defendant as the exclusive agent for solicitation of orders from certain customers (“the customers”) specified in the agreement for certain products manufactured by the defendant, for which she was entitled to charge 10% of the net sales as commission. Pursuant to the agreement, the defendant had paid the commission as agreed between 2005 and September 2008. Between September 2008 and September 2009, the defendant had failed to pay certain quantities of the products, the commission of which amounted to HK$1,100,860.86, hence this action against the defendant.

6.  The defendant admitted that he had not paid the said sum.  The reasons for so doing are that before entering into the agreement, a Mr. Ocean Lee, who was an employee of a holding company of which the defendant is a 100% shareholder, had represented to the defendant that the plaintiff was the recognized sales agent of the customers and the defendant must place orders through the plaintiff. [Defence – 5][3] However, the defendant subsequently discovered that the representation was false as the customers denied having recognized agent.  The defendant further discovered that part of the commissions paid to the plaintiff was, in fact, paid to a person called Mr. Kevin Pintar, a former Materials Manager of one of the customers, who did not have the permission of the customers to accept the commission, contravening section 9(1) of the Prevention of Bribery Ordinance Cap. 201. [Defence – 13]  The defendant also says that the plaintiff had rendered no service to him because it was through Mr. Ocean Lee’s connection with the customers that the orders were placed with the customers and that the plaintiff had given no other service such as advice on business to the defendant.  The defendant therefore says that the commissions paid to the plaintiff were paid under mistakes and he counterclaims for their return.

The pleadings

7.  I notice that from the pleadings before me, it seems that the defendant has not pleaded conspiracy among the plaintiff, Mr. Ocean Lee and Mr. Kevin Pintar to defraud commission from the defendant.  I have raised this issue with Mr. Chiu in order to clarify the position.  Mr. Chiu has stated clearly that he had deleted the allegation of conspiracy in the original pleadings because he found that there was no evidence to support conspiracy.

8.  I shall now deal with Mr. Chiu’s application for the discovery of the documents.

Category 1 - item (a) and (b) being the tax returns and bank statements 2005-2009 of the plaintiff

9.  The plaintiff opposes the application of disclosure of the documents on the basis that they are not relevant to the issues in dispute. The relationship of the plaintiff and Mr. Ocean Lee and Mr. Kevin Pintar is not the issue for the trial as it has no bearing on the agreement. The documents may start a chain of further discovery of other documents, which will escalate the costs. Miss So refers to Sunny Tadjudin v. Bank of America, National Association HCA322/2008[4], in which the Deputy Judge remarked “…when it interprets the provisions of Order 24……the Court should always bear in mind the objectives of cost effectiveness, expeditious disposal of cases, proportionality, procedural economy and ensurance of fairness between the parties.”See paragraph 7.  This must be right as the law has imposed this obligation on the court under Order 1A rule 2 (1)(a) and (b):

2.     Application by the Court of underlying objectives (O. 1A, r. 2)

(1)   The Court shall seek to give effect to the underlying objectives of these rules when it-

(a) exercises any of its powers (whether under its inherent jurisdiction or given to it by these rules or otherwise); or

(b) interprets any of these rules or a practice direction

10.  In reply to the plaintiff’s dispute that those documents are not relevant to the issues in dispute, Mr. Chiu argues that the documents are relevant for the defendant to build up his case.  He says in paragraph 7 of

his skeleton submissions: “In line with cases involving elements of dishonesty and concealment, the Defendant naturally relies on circumstantial evidence to build up a prima facie case pointing to the antic of the plaintiff, namely shewas not really running a business to provide agency services by procuring orders from the customers” He also says that the documents would shed light on why money went to Mr. Kevin Pintar as he says: “There was no known reason whatsoever why Kevin Pinta(r) should receive any money from the Defendant.” [Skeleton - 8][5]

11.  It is apparent that in the Counterclaim, the defendant has made serious allegation of dishonesty against the plaintiff.  The substance of the defence amounts to conspiracy among the plaintiff, Mr. Ocean Lee and Mr. Kevin Pintar to defraud money from the defendant. Mr. Chiu agrees that the defendant is making allegation of conspiracy in the loose sense.

12.  What Mr. Chiu puts forth to me today in relation to his pleadings as set out in paragraph 7 of his skeleton submission is contrary to the decision of the Court of Appeal in A. D. S.(body corporate) v. Wheelock Marden & Company Limited & Others CACV 24,25, 36, 37 & 104/1994[6] at page 13-14 where the Court of Appeal said:

“…When it comes to a claim in the tort of conspiracy, what the pleader has to do in regard to pleading an overt act or overt acts is this. He has to plead at least one overt act which is the act of all the alleged conspirators or, failing that, a number of overt acts which include at least one act on the part of each conspirator. And the overt act or overt

acts pleaded must be such as to show: (i) that the conspiratorial agreement alleged against the defendants had been entered into by each and every one of them; (ii) that the agreement, and not merely the intention of one person alone, was implemented; and (iii) that such implementation caused the damage complained of.

If the pleader fails to do that, then, depending on whether the failure is in respect of all the defendants or only some or one of them, then either the plea is liable to be struck out altogether or it is liable to be struck out as against some or one of the defendants.”

13.  Mr. Chiu, having agreed that conspiracy has not been pleaded, says that he will rely upon the suspicious circumstances of the relationship among Dennis Lim (an employee of the plaintiff), Ocean Lee and Kevin Pintar, the court should draw an inference that they conspired to defraud the defendant. But this is inconsistent with the decision of the Court of Appeal in Tempra Virginia Pido v. Compass Technology Company Limited & Another CACV 210-217/2009[7]. At paragraph 25 of the judgment, the Court of Appeal said: “In any event, the formulation of a party’s cause of action should clearly and cogently be made in the pleadings. It should not be left to an exercise of drawing inferences.”

14.  Besides, Mr. Chiu has also placed heavy reliance on the illegality issue as pleaded in paragraphs 13 and 14 of the Defence.  He says that the documents under this category will be relevant to this issue. [Skeleton – 9]. In the Defence, he pleaded in paragraph 14: “By reason of the aforesaid matters, the Agreement is illegal, void and unenforceable as against the Defendant.”

15.  Granted that some of the commission money was paid to Mr. Kevin Pintar, who did not have the customers’ permission to accept commission, it is beyond me to understand Mr. Kevin Pintar’s act would have made the agreement between the plaintiff and defendant illegal contract. The agreement, as is not disputed by the parties, is a contract between the plaintiff and the defendant only.

16.  Mr. Chiu in his skeleton submission has told me that the purpose of getting the documents under this category is for the purpose of building up his prima facie case. This amounts to a fishing exercise, which is forbidden by Burrell J. in  Mariner International Hotels Limited v. Atlas Limited and Another HCA 10714, 10752, 10821/1998 (consolidated). For this reason, I disallow the documents under this category.

Category 2 – items (c) (d) and (e), being documents relating to the employment of Dennis Lim by the Plaintiff

17.  Mr. Chiu supports his application for the documents under this category by saying that he did not understand why Dennis Lim, who has signed the agreement on behalf of the plaintiff, had to conduct his business behind the name of his wife. Mr. Chiu suspects that there is something for Dennis Lim to hide. [Skeleton -11]. He says that the emails will enhance the possibility that there was some personal attribute of Dennis Lim (instead of an employee of his wife) that brought him into the “triangular relationship” consisting of Kevin Pintar, Ocean Lee and Dennis Lim himself [Skeleton - 12].  This is another way of saying that there was a conspiracy among the three people to defraud. For the same reasons I have set out for Category 1, I find that this is another exercise of fishing for evidence.  I dismiss the application for this category.

Category 3 – items (f) and (g), documents between the plaintiff and ECCO/Vision Alert

18.  ECCO is one of the customers.  Item (f) is technical as the plaintiff has already said in the Affirmation of Lim Fung Ping dated 7 May 2012 that there was no such document.  Mr. Chiu would like the plaintiff to repeat this in an affirmation made under Order 24 rule 7. There is no prescribed form for an affirmation under Order 24 rule 7.  I consider that the plaintiff’s affirmation has served the purpose for Order 24 rule 7.  It is unnecessary to make another affirmation in order to save costs.

19.  As to (g), Miss So says that those documents have been given to the defendant.  Mr. Chiu, however, submits that the email letters appear to have been edited as there are signs of editing and there are deliberate blanks.  He says that he will not go further if those copies were the print-outs from the computer, which Miss So has kindly confirmed to be the case.  Therefore, it is not necessary for me to make any order for this item.

20.  As to the costs of this application, they should follow the event and be awarded to the plaintiff, with the costs reserved for this application and counsel’s certificate, summarily assessed at $55,000.00 as agreed.

The order

21.  I shall now make an order in terms as follows:

a. The defendant’s summons is dismissed;

b. Costs of the application, including the costs reserved and for the hearing today with certificate for counsel, be to the plaintiff, summarily assessed at $55,000 as agreed, to be paid within 14 days from the date hereof.

 

 

	(K.W. Lung)
	Registrar, High Court

Ms Rita So, instructed by Messrs. Ernest Li & Co., for the Plaintiff (by original action) and the 1^st & 2^nd Defendants (by counterclaim)

Mr Simon Chiu, instructed by Messrs. Anthony Siu & Co., for the Defendant (by original action) and the Plaintiff (by counterclaim)