Deyi Investment Ltd v. Macjin Info Com Tek., Ltd and Another

CACV 253/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 253 OF 2015

(ON APPEAL FROM HCA No. 587 OF 2014)

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BETWEEN

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REASONS FOR JUDGMENT

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Hon Cheung JA :

I. The appeal

1.1The plaintiff obtained leave from the Master to serve a writ out of jurisdiction on the 2^nd defendant in South Korea.  The 2^nd defendant applied to set aside the Master’s order on service.  The plaintiff also applied to further amend its Re-amended Statement of Claim.  Recorder Lisa Wong SC allowed the 2^nd defendant’s application to set aside the order granting leave to serve outside jurisdiction and refused the plaintiff’s application to amend its pleadings. 

1.2The plaintiff appealed against both decisions.  It also applied to adduce new evidence for the appeal.  We refused the application to adduce new evidence and we dismissed the plaintiff’s appeal at the conclusion of the hearing.  I now give reasons for our decision.

II. The pleaded case

2.1The plaintiff’s pleaded case is that it had entered into a contract with the 1^st defendant to purchase ‘mobile phone displays’ (‘the goods’).  It pleaded that the 1^st defendant entered into the contract ‘for and on behalf of the 2^nd defendant’ and the 1^st defendant agreed to sell the goods ‘for and on behalf of the 2^nd defendant’.  Both defendants are South Korean companies.  The plaintiff pleaded that the 1^st defendant had actual, implied or apparent authority to act for the 2^nd defendant.

2.2The plaintiff further pleaded that while it was ready and willing to perform its part of the contract, the 2^nd defendant was in breach by refusing to deliver the goods under the contract.  The plaintiff suffered damages by way of loss of profit of a sub-sale of the goods.  It claimed damages against both the 1^st and 2^nd defendants.  It claimed against the 2^nd defendant as the principal of the contract.  The claim against the 1^st defendant was in respect of his breach of warranty of authority to enter into the contract on behalf of the 2^nd defendant.

III. Service out of jurisdiction

1)  Based on contract

3.1The plaintiff relied on Order 11, rule 1(1)(d)(iii) and (iv) of the Rules of the High Court to ground its application for service out of jurisdiction on the 2^nd defendant.  In respect of rule 1(1)(d)(iii), the claim is brought in relation to a contract which is by its terms or by implication governed by Hong Kong law.  In respect of rule 1(1)(d)(iv), the claim is brought in respect of a contract which contains a term to the effect that the Hong Kong Court of First Instance shall have jurisdiction to hear and determine any action in respect of it.

3.2The term relied upon by the plaintiff to bring its claim within Order 11, rule 1(1)(d)(iii) and (iv) is as follows :

‘ When there is dispute for the above agreement, it should be resolved in accordance with the principle of mutual trust. However, if there is no satisfactory settlement, it should be resolved in accordance with the rules of the Hong Kong International Court.’

2)  Principle

3.3The Recorder identified the test in respect of service out of jurisdiction :

‘ 15. First, to justify leave to serve out, a plaintiff has to show, inter alia:

(1)  a “good arguable case” that the case falls within one of the gateways provided for in Order 11, rule 1(1), which is a question of “jurisdiction” in the strict sense; and

(2)  a serious issue to be tried.

See Hong Kong Civil Procedure 2016, Volume 1, §§11/1/7 to 11/1/8D.’

3.4This accords with the test authoritatively stated in Seaconsar Ltd v Bank Markazi [1994] 1 AC 438 (HL) where Lord Goff of Chieveley at pages 456H-457A stated that :

‘ …..Accordingly, a judge faced with a question of leave to serve proceedings out of the jurisdiction under Order 11 will in practice have to consider both (1) whether jurisdiction has been sufficiently established, on the criterion of the good arguable case laid down in Korner’s case, under one of the paragraphs of rule (1), and (2) whether there is a serious issue to be tried, so as to enable him to exercise his discretion to grant leave, before he goes on to consider the exercise of that discretion, with particular reference to the issue of forum conveniens.’

3.5The first aspect of this test is what is generally referred to as the jurisdiction issue and the second one is on the merits.  Seaconsar Ltd is a case where there is no argument on the jurisdictional issue.  The arguments are focused on the second aspect of the case, namely, whether there is a serious issue to be tried on the merits of the case.

IV. The judgment below

1) Contract and apparent authority

4.1The plaintiff produced a copy of the contract in question and an uncertified English translation.  On its face, the only parties to the contract identified by it were the 1^st defendant as supplier and the plaintiff as purchaser.  The contract made no mention of the 2^nd defendant at all.

4.2The focus of the discussion below on whether the plaintiff had satisfied the test for service out of jurisdiction was whether there was, in the first place, a contract between the plaintiff and the 2^nd defendant which brought the matter within the ambit of rule 1(1)(d)(iii) and (iv).  This in turn depended on whether the 1^st defendant was an agent for the 2^nd defendant when it entered into the contract with the plaintiff.

4.3The plaintiff conceded before the Recorder that it was relying only on apparent authority of the 1^st defendant to act on behalf of the 2^nd defendant in grounding its claim against the 2^nd defendant.

4.4This concession narrowed the issue before the Recorder to a short point of whether the 2^nd defendant had clothed the 1^st defendant with apparent authority to represent to the plaintiff that it had authority to act on behalf of the 2^nd defendant. The relevant principle in this regard is set out intheCourtofFinalAppealjudgmentofThanakharnKasikorn Thai Chamkat (Mahachon) v. Akai Holdings Ltd (No 2) (2010) 13 HKCFAR 479 which approved Armagas Ltd v Mundogas SA (The Ocean Frost) [1986] AC 717.  Lord Neuberger of Abbotsbury NPJ at paragraph 71 stated :

‘ It is worth adding that…before any representation by the agent could be relied on to assist the contention that he had apparent authority, the court would have to be satisfied that the principal had given the alleged agent apparent authority to make the representation in question.’

4.5The Recorder referred to paragraph 8 of the Re-Amended Statement of Claim which provided the particulars of the 1^st defendant’s authority to act on behalf of the 2^nd defendant during the negotiation of the contract in September 2013.  She observed that all the pleaded representations as to authority came from the personnel of the 1^st defendant. She rightly stated that, although the representation as to the agent’s authority need not be made by the principal himself, it has to be traceable back to the principal or a person with actual authority from the principal to make such representation : Bowstead & Reynolds on Agency, 20^th Ed, paragraph 8-019.

4.6As Lord Neuberger observed in Akai Holdings Ltd at paragraph 70 :

‘I find it very hard indeed to conceive of any circumstances in which an alleged agent, who does not have actual or apparent authority to bind the principal, can nevertheless acquire apparent authority to do so, simply by representing to the third party that he has such authority.’

4.7The Recorder held that the plaintiff was unable to establish any good case that the 2^nd defendant was a contracting party with the plaintiff through the 1^st defendant as its agent for the purpose of seeking service out of jurisdiction.

2) Application to amend

4.8The Recorder then considered whether the proposed amendment can salvage the plaintiff’s case.  The proposed amendment pleaded that during the September 2013 negotiation, the representations came from the personnel of both the 1^st defendant and 2^nd defendant, specifically it pleaded that the representation came from Mr Suh, who was the President of the 1^st defendant and also the ‘Section Head and/or General Manager of the 2^nd defendant’.

4.9Originally the plaintiff only pleaded that Mr Suh was the President of the 1^st defendant without any reference to his capacity with the 2^nd defendant. It also pleaded in paragraph 8(d) that Mr Suh’s name appeared in an internal computer printout (‘the Printout’) of the 2^nd defendant as the Section Head of the 2^nd defendant.  The ‘Printout’ formed an annex to the contract in question.

4.10The Recorder’s observation is that :

‘ 32. Mr Suh was introduced in paragraph 8(a)(ii) just as the President of Macjin [i.e. the 1^st defendant]. The only reference to his being or having been in the employ of LGD [i.e. the 2^nd defendant] is in paragraph 8(d). What is said there is that Mr Suh was mentioned as a Section Head of LGD in the Printout. What is not said is when Mr Suh occupied such position in LGD. More specifically, it is not averred that Mr Suh held that position as at September 2013 when the alleged representations of Macjin’s authority were made to Deyi [i.e. the plaintiff] by him (or by others in his presence). In my view, there is no basis upon which one could deduce that Deyi meant to make such an averment from reading paragraphs 8(c)(iv) and (d) of the Re-amended Statement of Claim.

33.  It follows that Deyi has not properly pleaded a viable claim on the Contract against LGD at the date of the Order granting leave to serve out.’  (emphasis added)

V.  The plaintiff’s appeal

5.The plaintiff’s grounds of appeal can be summarized as follows :

1)  The amendment application should have been dealt with separately from and before the service out of jurisdiction issue.

2)  The Recorder should have allowed the amendment since the test is whether the amendment is made in good faith and for the purpose of determining the real question between the parties.  There is no requirement of a serious issue to be tried, still less of a good arguable case.  The Recorder should have allowed the amendments.

3)  On service out of jurisdiction, a good arguable case had been made out that the matter came within the Order 11, rule 1(1)(d)(iii) gateway, since the contract contained a Hong Kong choice of law clause which also suggested there had been submission to the jurisdiction, bringing the matter within gateway 1(1)(d)(iv).

4)  The Recorder was wrong to engage in an over-detailed scrutiny of the factual merits when considering whether in relation to service out there was a serious issue to be tried.  She was wrong to apply the higher ‘good arguable case’ threshold to the question of whether there was a serious question to be tried.

VI.  My view

1)  Matters considered by the Recorder

6.1Although the Recorder had referred to the proposed amendment in her discussion on the merits of the appeal on service out of jurisdiction, I disagree that this has any impact on the overall soundness of her judgment.  This is because the Recorder had also addressed the merits of the plaintiff’s case separately from the proposed amendment.  Apart from considering the state of the original pleadings which gave no indication that the representation came from the 2^nd defendant, she had also considered other matters which the plaintiff relied upon to support its case on apparent authority.

6.2First, the Printout.  This is what the Recorder said :

‘ 44. The only piece of evidence produced by Deyi that touches upon Mr Suh’s employment with LGD is the Printout. This document embodies 1 flowchart in English and 2 tables, one in English and one partly in English and partly in Korean (mainly the names, job titles and departments of the various LGD personnel involved). These show how Macjin was approved, stage by stage, by LGD back in July and August 2010. In particular, Mr Suh is stated to be the person granting the “1^st Approval”, a stage that began on 26 July 2010 at 2:21:37 pm and ended on 27 July 2010 at 11:16:20 am. Mr Suh’s job title and department were set out in Korean. It transpires from the certified English translation placed before me (which the Master did not have) that Mr Suh was then the General Manager of the “LGDKRA Mobile/OLED Special Business Sales Team” of LGD.’

6.3The Recorder did not attach weight to the Printout.  She held that :

‘ 46. I do not see how the Printout assists Deyi. Other than the dates during which the various stages of LGD’s approval process took place, the Printout itself is undated and mentions no other date. That being the case, the highest that one can put the Printout is that it shows that Mr Suh was in LGD’s employ at least up until July 2010.

47.  While I can see some force in Ms Ismail’s suggestion that the Printout must have been provided to the Deyi representatives as setting out the current, rather than the historical, state of affairs if Deyi’s version of the September 2013 events be true, what we are here concerned with is the question of hard fact as to Mr Suh’s employment status (or lack thereof) with LGD in September 2013.  The impression that the alleged agent Macjin intended or might have intended to give to the third party Deyi by the supply of a record of historical facts in 2010 is neither here nor there.

48.  Before I leave the Printout, I should mention that while maintaining the primary case that Mr Suh provided this document to Deyi as LGD’s employee, Ms Ismail (referring to Bowstead & Reynolds, supra, §8-018) also raises an issue as to whether the provision of the Printout, admittedly a LGD document, by Macjin could amount to a representation of Macjin’s authority by LGD while noting that there is an issue as to whether Macjin was authorised to pass such document to Deyi.  It is unnecessary for me to resolve this issue and I do not propose to do so because, in light of the content of the Printout, I do not see how it could be used to prove Macjin’s authority to enter into contracts binding on LGD or how its mere provision by Macjin to Deyi without more, whether with or without authority, could amount to a representation of such authority.  The Printout bears a heading beginning with the reference number “LKR_107092” followed by Macjin’s name in Korean and then the English words “Registered Customer”. It is clear to me that the documents shows only how Macjin was approved by LGD as a registered customer, not as an agent with authority to enter into contracts binding on LGD.’  (emphasis added)

6.4The 2^nd defendant had produced evidence that Mr Suh’s employment with the 2^nd defendant had ended in August 2012 which was before the negotiation in September of the contract between the 1^st defendant and the plaintiff.  The Recorder held that :

‘ 42. There is before me simply no or no credible positive or direct evidence that contradicts the said “Personal Information Summary” [i.e. Mr Suh’s employment with the 2^nd defendant was terminated in August 2012].’

6.5The plaintiff also relied on a Business Plan dated 1 September 2013 issued by the 1^st defendant. In the ‘Company Profile’ page, the 1^st defendant described itself as being ‘[r]egistered as LG Display agent’ in 2010.  In the ‘Summary of Business’ page, the 1^st defendant described itself as the ‘authorised agent of LG Display’.  The page entitled ‘Product Sales Plan’ specifically mentioned an iPhone 5G 4-inch panel with the model number LH400WS1-D01 manufactured by the 2^nd defendant.

6.6The Recorder held that this document came from the 1^st defendant and not the 2^nd defendant and therefore was caught by the agency law on apparent authority.

6.7The proposed amendment clearly added nothing more to the plaintiff’s case on apparent authority.  As the Recorder observed :

‘ 35. In deciding whether to grant or refuse an application for the amendment of a pleading, the Court is entitled to have regard to the merits of the case if the merits are so readily apparent without prolonged investigation. See Hong Kong Civil Procedure 2016, Volume 1, §20/8/6.

36.  Ms Ismail has taken me through the unusual facts of King’s Quality Ltd v A J Paints Ltd [1997] 3 All ER 267, cited in support by the editors of the Whitebook, with a view to putting this principle in context and cautioning the Court against an overzealous investigation into, and conclusion on, merits. 

37.  I have no difficulty with this as a matter of general principle.  However, in this particular case, one must not lose sight of the background from which the Amendment Application arises and its purpose. Given that the amendment sought is essential for grounding an argument that Deyi’s claim against LGD falls within one of the Order 11, rule 1(1) gateways, to my mind, it should not be allowed unless Deyi can show a good arguable case that Mr Suh was LGD’s Section Head/General Manager in September 2013.  In other words, whether the proposed amendment should be allowed and, if so, whether it would ground leave for service on LGD out of the jurisdiction are not different questions.’

6.8I do not consider that the Recorder’s approach is flawed.

2)  Good arguable case and serious question to be tried

6.9The criticism that the plaintiff levels against the Recorder is what she said about the appropriate test to be adopted :

‘ 16. In the instant case, in view of the nature of the specific Order 11, rule 1(1) gateways prayed in aid by Deyi and of the challenge thereto mounted by LGD, these 2 requirements actually converge into a single burden on Deyi to show, on the higher “good arguable case” threshold, that Macjin did make the Contract as agent for and on behalf of LDG, which would be the case only if Macjin did have authority from LGD to do so.’

6.10The plaintiff argues that in relation to the second aspect of the test, Lord Goff at page 452C had stated the approach as follows :

‘ ….. The problem arises from the fact that the court will consider, on an application to set aside leave so given, affidavit evidence on the part of the defendant, and will take such evidence into account when deciding whether or not to exercise its discretion in favour of the plaintiff. But the court cannot resolve disputed questions of fact on affidavit evidence; and it is consistent with the statement of the law by Lord Davey that if, at the end of the day, there remains a substantial question of fact or law or both, arising on the facts disclosed by the affidavits, which the plaintiff bona fide desires to try, the court, should, as a rule, allow the service of the writ. If this approach is correct, the standard of proof in respect of the cause of action can broadly be stated to be whether, on the affidavit evidence before the court, there is a serious question to be tried.’ (emphasis added)

6.11I do not consider the criticism valid.  Plainly the Recorder had considered what Lord Goff said earlier at pages 454H-455A in Seconsar Ltd on the jurisdictional aspect of the test in relation to contract which, in the first place, has to be sufficiently proved :

‘ ….. I am of the opinion that what has to be sufficiently shown by the plaintiff for the purpose of establishing jurisdiction is, in the case of, for example, sub-paragraph (i), not merelythat, if the contract existed, it was made within the jurisdiction, but that (1) there was a contract, and (2) such contract was made within the jurisdiction. Likewise, under sub-paragraphs (ii), (iii) and (iv), the existence of the relevant contract has to be sufficiently proved. But, once that is done, there arises a separate question as to the merits of the plaintiff’s claim relative to that contract.’ (emphasis added)

6.12On this jurisdictional aspect, the proper test is good arguable case.  In the light of this statement of Lord Goff, the Recorder was concerned with the issue of whether there is sufficient proof of the existence of the contract said to be between the 2^nd defendant and the plaintiff when on the face of it, the contract was only made between the 1^st defendant and the plaintiff.  The Recorder’s approach was supported by other first instance decisions such as Daewoo Hong Kong Ltd v Mana Maritime Inc & Others [1997] HKLRD 1264 at pages 1268-1269; Newocean Petroleum Company Limited v O.W. Bunker China Ltd (unrep.) HCA 384/2015 dated 29 June 2016 at paragraphs 57-58 and Newocean Petroleum Company Limited v Rio Tinto Shipping (Asia) Pte. Ltd (unrep.) HCA 446/2015 dated 15 April 2016 at paragraphs 19-34.  These cases addressed, in relation to the jurisdictional aspect, the existence of contract made, not by the defendant itself, but by a third party and the Courts there applied the good arguable case test.  The plaintiff’s counsel had not in their written submission challenged this line of authorities.

6.13In the same light, the Recorder adopted the same approach when she considered the proposed amendment.

6.14Even if, for the purpose of argument, the question of agency and the apparent authority of the 1^st defendant is an aspect of the merits of the plaintiff’s claim and not jurisdiction, I do not regard the Recorder’s approach had in substance gone over and above of what is required under the threshold of serious issue to be tried.  Based on the state of the pleadings (including the proposed amendment) and material before her, she came to the view that the plaintiff’s case on agency based on apparent authority cannot have expectation of success in substance and reality.  In other words, there really is no issue to be tried which can be called ‘serious’ if the serious issue to be tried test is to be adopted.

VII. Application to adduce new evidence

7.1The plaintiff sought to adduce the following new evidence :

1)  a small and medium business analysis website report printed on 3 September 2015 (‘SMS Report’);

2)  a Korean enterprises data report dated 24 May 2015 (‘KED Report’); and

3)  a Korean law legal opinion dated 29 June 2016 (‘Opinion’) which purports to give opinion on the effect of these reports.

7.2The reports had been provided to the plaintiff since 5 September 2015 which it only sought to adduce as new evidence nearly one year later on 21 July 2016.  The plaintiff has not explained why it took so long to disclose the reports.  In any event, the plaintiff is not even able to fulfill the first requirement of Ladd v. Marshall by failing to explain why the reports could not have been obtained with reasonable diligence at the hearing before the Recorder on 27 August 2015. For this reason alone, the application must be refused.

Hon Kwan JA :

8.I agree with the Reasons for Judgment of Cheung JA.

Hon Barma JA :

9.I agree with the Reasons for Judgment given by Cheung JA.

Mr Andrew Bullett and Ms Yvonne K M Chan, instructed by Wan Yeung Hau & Co., for the plaintiff

Mr Bernard Man SC and Ms Theresa Chow, instructed by Clifford Chance, for the 2^nd defendant