Toyota Tsusho (H.K.) Corporation Ltd v. Chimei Innolux Corporation and Another

HCA 1173/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1173 OF 2011

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DECISION

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Introduction

1.This court handed down a judgement dated 10 February 2017 (“the Judgment”) with a corrigendum after hearing the trial of this action. The plaintiff, Toyota Tsusho (H.K.) Corporation Limited (“Toyota HK”), succeeded in its claim against the second defendant, Kirin Industrial Shares Co. Limited (“Kirin”) whereas is claim against the first defendant, Chimei Innolux Corporation (“CIC”), was dismissed.

2.In the Judgement, this court concluded that Toyota HK was defrauded by Kirin with certain forged documents purportedly issued by CIC to pay to CIC a sum of US$2,499,317.00 (“the Sum”) by way of a letter of credit (“the Subject L/C”). I also concluded that CIC needed not make restitution by reason of its change of position in good faith. Based on these conclusions, this court made a Sanderson order and ordered that the costs of CIC of this action be borne by Kirin on an indemnity basis, to be taxed if not agreed. At the same time, Kirin must also pay Toyota HK its costs of the action on an indemnity basis, to be taxed if not agreed.  This costs order was made on a nisi basis.

3.In the Judgement, this court also expressed a concern about a sum of US$900,000 (“the said sum”) currently in the possession of CIC apparently belonging to Kirin. I invited the parties to make written submissions on the disposition of the said sum.

4.CIC took out a summons dated 24 February 2017 (“the Summons”) to apply for, among other things, a variation of the costs order nisi. Essentially, it asks for a Bullock order to replace the Sanderson order.

5.At the hearing, the parties make submissions on both the costs issue and the disposition of the said sum.

6.I shall refer to the Judgement for the background facts and in this decision, I shall adopt the abbreviations used in the Judgement unless differently defined herein.

Costs issue

7.The parties in principle agree that Kirin, being the fraudster, should bear the indemnity costs of both Toyota HK and CIC with certificate of two counsel. The primary position of CIC is that costs should follow the events and Toyota HK having failed in his claim against CIC, it should pay CIC it costs of the action. Whether Toyota HK can in turn recover such costs from Kirin is not really a matter of concern to CIC.

8.Toyota HK agrees that the Sanderson order is appropriate in the circumstances of the present case.

9.Fok JA (as he then was) in Chong Ngan Seng v China Harbour Engineering, unreported, CACV 54/2012, 25.9.2013 at §§5-7 explained the difference between a Sanderson order and a Bullock order and how the discretion to make such orders should be made in the following terms:

“5. Where a plaintiff sues a number of defendants, the court may order an unsuccessful defendant to pay the costs of a successful defendant. It may do so in one of two ways: either by a Sanderson order whereby the unsuccessful defendant is ordered to pay the costs of the successful defendant directly; or by a Bullock order whereby the plaintiff pays the costs of the successful defendant but is indemnified in respect of that liability by the unsuccessful defendant, thereby indirectly requiring the unsuccessful defendant to pay those costs.

6. In deciding whether to make a Sanderson or Bullock order and, if so, which of the two orders to make, the court is exercising its discretion.

7. It was common ground that, in deciding whether to exercise that discretion, the court looks to see whether it was reasonable in all the circumstances of the case for the plaintiff to join the successful defendant in the action: see Leung Lai-ha and Another v Hon Sau-ling and Another [1993] 1 HKLRD 86, a decision of this court, and see also, as a recent example of the statement of this principle, the judgment of Bharwaney J in Fung Chun Man v Hospital Authority [2012] 1 HKC 531 at §5.”

Reasonableness of the joinder

10.This court in the Judgement observed that due to the forged documents, CIC appeared to be a necessary party and therefore it was reasonable for Toyota HK to sue CIC.

11.Mr Chong, for Toyota HK, submits that the observation of this court is binding on the parties and can only be challenged by way of an appeal. Mr Yu, for CIC, whilst not seriously arguing against the reasonableness of the joinder, disagrees.

12.I am unable to accept Mr Chong’s submission. The observation was clearly made in the course of my consideration of the costs issue without the benefit of the parties’ submissions. It was based on this preliminary observation that this court made the costs order nisi. Thus, in my view, it must be open to the parties to make submissions on this issue for the first time.

13.Mr Yu principally relies on my finding that Toyota HK had a fair share of the blame for its loss. The circumstances relating to the conclusion of the Controversial Contract were suspicious and Toyota HK should have made some investigations before making payment of the Sum.[1]

14.Mr Yu also points out that this court found the controversial documents to be low quality forgeries and their authenticity was not even cogently supported by the expert of Toyota HK[2].

15.Further, as noted by this court, CIC had all along been forthcoming and made frank disclosure to Toyota HK, e.g. first, in the 1352 Email and then during their meeting on 1 March 2011 ever since Toyota HK raised its allegation of fraud against it[3].

16.Notwithstanding the forceful submissions of Mr Yu, I am still of the view that CIC is a necessary party. I accept Mr Chong’s submission that the evidence against CIC cannot be said to be tenuous, speculative or far-fetched: see Fung Chun Man at§5. After all, their primary case against CIC is supported by dubious documents purportedly issued by CIC. It is perfectly understandable that Toyota HK found it necessary to vigourously test the evidence of CIC, and in particular, Fred before it could be convinced that the Controversial Contract and Controversial Invoice were mere forgeries and that CIC and/or Fred played no part whatsoever in the fraud perpetrated on it leading to the loss of the Sum. 

17.In the premises, I am satisfied that it was reasonable for Toyota HK to make a claim albeit unsuccessful against CIC alongside with Kirin. The court’s discretion to impose a Sanderson order or a Bullock order is hence properly engaged.

Sanderson order v Bullock order

18.As to how this court should decide whether a Sanderson order or a Bullock order should be made in the particular circumstances of this case, the following dictum of DHCJ Poon in Standard Chartered Bank Ltd v Li Wai Ping, unreported, HCA10587/2000, 7.6.2011 at §§ 27 and 28 is instructive:

“27. In cases where the unsuccessful defendant is insolvent, the question is how to distribute the hardship arising from his impecuniosity: Bankamerica Finance Ltd, supra, per Lord Brandon at pp. 1011F-1012A; applied in China Everbright Finance Ltd & Anor v Chan Yung & Anor, HCA18300/1999, unreported, 12 December 2006, per Deputy Judge Muttrie at para. 9. On the one hand, if a Bullock Order is made, the successful defendant would recover his own costs but the plaintiff would probably recover neither the judgment debt nor his own costs and further bear the successful defendant’s costs. The hardship all falls on the plaintiff. On the other hand, if a Sanderson Order is made, the successful defendant will not be able to recover his costs although he has won the case.

28. In balancing the hardship, the court must ensure fairness between the parties in the circumstances of the case, a factor which Order 62, rule 5(1)(aa) read together with Order 1A, rule 1 , requires the court to take into account.  In achieving fairness, the parties’ conduct, another factor specified by the rules, is plainly relevant.”    

19.Kirin has never put in an appearance in this proceedings over the years and there is no actual information about its financial condition. Such an indifferent approach towards a substantial monetary claim can only be indicative of its impecuniosity and/or its reluctance to fulfil any legal liabilities. The parties are unaware of any winding up proceedings against Kirin and they agree that this application should be decided on the basis that Kirin will not put up any funds to satisfy any adverse costs orders and the judgement debt owing to Toyota HK.

20.A complication in this case is that CIC now disputes the ownership of the said sum despite Fred’s clear evidence. The said sum should normally suffice to cover the costs of both CIC and Toyota HK. In addition, Toyota HK under the judgement is entitled to recover from Kirin damages for fraud and fraudulent misrepresentation in the like amount of the Sum. The entire said sum, without any deduction, only represents 36% of the amount of damages payable to Toyota HK.

21.Thus, this court has to embark on an exercise of balancing the hardship of the parties and fairness is at the forefront of the mind of this court. This is not an easy case and after much deliberation, I accept Mr Yu’s submission that, in the particular circumstances of the present case, a Bullock order is more appropriate for the following reasons.

22.First, CIC is completely blameless in this matter and I can hardly find any fault with its conduct, both prior to and in the course of the action. It was certainly entitled to rely on the representation of Kirin that Toyota HK in acting as its financier would pay for the Kirin Goods by the Subject L/C and no criticism could be levelled at CIC.

23.The same cannot be said about Toyota HK, however. In addition to the reasons set out in the Judgement, they are certain matters which lead me to the conclusion that Toyota HK should bear the blame too.

24.To start with, Toyota HK arguably misused its banking credit in its application for the Subject L/C in that it did not actually take any part in the trade of the Kirin Goods to CIC. It merely aimed at a profit of US$7,087.00 in issuing the Subject L/C to finance the trade of HKTQ/Shanghai TQ.

25.Toyota HK has not shown that it has made adequate, or any all, investigation with HKTQ/Shanghai TQ through Toyota Shanghai or otherwise before parting with the Subject L/C. Neither of them is made a party to these proceedings though, to say the least, as noted in the Judgment, they played an integral part this dispute.[4] I was somewhat perplexed by the readiness of Toyota HK to allow Rebecca, executive director of both HKTQ/Shanghai TQ, to be excused from attending the trial and having her evidence tested by cross-examination. As a result, this court is not sure about the level of participation of HKTQ/Shanghai TQ in the fraud and in any event they are never parties to which any liability can attach and to which Toyota HK can look for recovery of their costs and damages.

26.On the other hand, Mr Chong says little about the reasons why a Sanderson order is a more appropriate order.

The said sum

27.Having read the written submissions of the parties, I am convinced that I should not make any order touching upon the said sum. The situation may not be straightforward in light of the apparent insolvency of Kirin. Suffice it for me to make a direction that any application relating to the said sum including any application for a garnishee order should be dealt with by this court given my familiarity of the background facts.

Conclusion and order

28.For the reasons given above, I agree that the costs order nisi should be varied and I make the following order:

(1)   Each of Toyota HK and CIC be granted a certificate for two counsel in respect of the trial of this action;

(2)   Any taxation of costs of Toyota HK and CIC of this action including this application absent agreement is on an indemnity basis;

(3)   Toyota HK do pay CIC its costs of this action including this application with certificate for two counsel (relating to the trial only), to be taxed if not agreed.

(4)   Kirin do pay Toyota HK its costs of this action with certificate for two counsel (relating to the trial only) including its costs of this application, to be taxed if not agreed and such costs so paid to CIC pursuant to the preceding paragraph hereof.

29.Insofar as the costs arising from the issue of the said sum is concerned, I have never made any costs order in respect thereof. I believe it is only fair that such costs should be included in the parties’ costs of this action and the liability to pay the same should follow the foregoing costs order.

30.Lastly, I thank Mr Chong and Mr Yu for their very helpful submissions.

Mr KM Chong, instructed by Raymond T.Y. Chan & Victoria Chan & Co. for the plaintiff

Mr Jason Yu, instructed by ONC Lawyers for the 1^st defendant

The 2^nd defendant acting in person did not appear