Honey Bee Electronic International Ltd v. Goldenlucky Co Ltd

DCCJ 5125/2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5125 OF 2003

--------------------

BETWEEN

--------------------

Coram :  Deputy District Judge W.C. Li in Chambers (Open to Public)

Date of Hearing :  23 August 2006

Date of Handing Down Decision :  28 August 2006

_________________

D E C I S I O N

__________________

1.The Plaintiff took out this summons to seek leave to re-amend its Statement of Claim.  The Defendant opposed this summons.

2.This action began in August 2003 and in November 2005, the Defendant applied for pre-trial review and notice under Order 34, Rule 4 of the District Court Rules (“DCR”) was served on the Plaintiff.  The Plaintiff failed to file the Notice of Response.  The Defendant in January 17^th 2006 applied to dismiss the Plaintiff’s action under Order 34, Rule 5 DCR.  The Plaintiff then took out a summons to amend its Statement of Claim on 25 January 2006.  Both applications were heard before H.H. Judge Chow in chambers on 31 March 2006.  The Defendant’s application to dismiss the Plaintiff’s claim was dismissed.  H.H. Judge Chow also disallowed the Plaintiff’s proposed amendment to the Statement of Claim to plead in the alternative (proposed amendment was mainly in Para. 17 of the Amended Statement of Claim) that the contract between the Plaintiff and the Defendant as relating to the second machine in question was void for illegality and that its enforcement for any alleged forfeiture was contrary to public policy. The Plaintiff’s reason was that the contract was rendered void or illegal in the People’s Republic of China (“PRC”) jurisdiction because the second machine in China was not “goods for further process (來料加工)”, and it was illegal for the Defendant to sell it to the Plaintiff, and this was pretended to be a lawful transaction but in fact it was illegal or against public policy in PRC jurisdiction.  The learned Judge found against the Plaintiff in that the Plaintiff had not pleaded PRC law in the proposed amended Statement of Claim and the Plaintiff had failed to demonstrate how the agreement was rendered illegal and/or against public policy in the PRC jurisdiction, and how PRC law was relevant in the present action.

3.An Order was made by Master T. Chan in Chambers on 6 June 2006 upon application by Defendant’s Solicitors for Pre-trial Review and upon the Plaintiff Solicitors application by way of Notice of Response that the Plaintiff’s present application to re-amend its Statement of Claim be adjourned for argument.  This is the present matter before me. It was also ordered (inter alia) that the Plaintiff do file the application to re-amend its Amended Statement of Claim and affirmation in support within 14 days of the date thereof, and the Defendant do file its affirmation in opposition within 14 days thereafter, and the Plaintiff to file its affirmation in reply, if any within 7 days.  The Plaintiff filed this application to re-amend its Statement of Claim on 12 June 2006.  No affirmation was filed by the Plaintiff in support of this application.

4.The Plaintiff’s case was that they were entitled to amend its Statement of Claim at any stage of the proceedings, and the amendment is a matter of right to correct any error or mistake made, and the object of the court is to decide the rights of the parties and not to punish a party for any mistake made.  The Plaintiff said H.H. Judge Chow’s Order refusing the Plaintiff’s application to amend its Statement of Claim on 12 April 2006 was because no PRC law was pleaded in the proposed Amended Statement of Claim.  The Plaintiff in its proposed re-Amended Statement of Claim aimed to deal with this defect to provide details of the rules of PRC laws that had been involved in the proposed sale of the second machine, and to explain the relevance of pleading the PRC law concerning the transaction’s alleged illegality and/or its being contrary to public policy.

5.Para. 17 of the re-Amended Statement of Claim now reads as follows:

“In the further and/or in the alternative, it is averred that the agreement, at least to the extent concerning the Second Machine is void for illegality, and that its enforcement is contrary to public policy, in that, the purported sale and/or delivery of and concerning the Second Machine as identified and described by the Defendant in the relevant Chinese Custom Import Manifest No. 010259974 and the purported transport and packing documents was and amounted to a fraud to the government of the HKSAR and that of the PRC as the Defendant by the aforesaid documents induced the relevant authorities of both the HKSAR government and that of the PRC to believe that the second machine was equipment, spare part or material imported for further process來料加工 which does not attract custom duties under and by virtue of Rule 57 of the Foreign Enterprise Law Practice Rules of the PRC中華人民共和國外資企業法實施细則(“the Practice Rules”) whereas the Second Machine so purportedly sold or delivered in fact and in its true nature were not anything for further process but imported goods from a foreign capital enterprise外資企業 which does attract custom duties and can not be used for sale pursuant to Rule 50 of the Practice Rules.

Particulars of Illegality

(a) The purported sale and export of the Second Machine by the Defendant as smuggling conduct, criminal in nature, to the Plaintiff under the Agreement is prohibited and illegal by Rule 154 of the Criminal Law of the PRC.

(b) The contract under which the smuggling conduct and infringing goods are involved is null and void and of no effect and by virtue of Rule 54 of the Contract Law of the PRC.

(c) In the premises, the Agreement concerning the Second Machine was and is, null and void and of no effect, and was and is illegal and unenforceable against the Plaintiff.”

6.To support its contention that illegal contracts were not enforceable and void for illegality, the Plaintiff cited a number of cases in its argument, notabley, ShenZhen Development Bank Co. Ltd. v. New Century International (Holdings) Limited, and China Everbright Holdings Co, Ltd. HCA 2976/2001 and Ralli Brothers v. Compania Naviera Sota Aznar (1920) 2 KB 287.  Par. 20/8.6 of the Hong Kong Civil Procedure was also cited to show that the general principle is to grant leave to amend the pleadings where it is to correct any defect or error.

7.The Defendant opposed the application on 3 grounds, (1) that the application was mala fide and the proposed re-amendment was an attempt to delay the trial and/or raise a sham defence; (2) that the Plaintiff had not filed any evidence in support of the proposed amendment relating to PRC laws.  The PRC law is a matter of foreign evidence and must be proved with admissible evidence.  It is trite law that foreign law must be pleaded with particulars and proved as a fact by expert evidence (Dicey & Morris. The Conflict of Laws, Volume 1 (13^th Edition, 2000), Rule 18 pp. 221-227 and Ascherberg, Hopwood & Crew Ltd. v. CASA Musicale Sonzogno Di. Pietro Ostali S.N.C. & Others (1971) 1 W.L.R. 1128).  It was also contended that expert evidence must also contain legal analysis even for Order 14 applications or else no weight would be attached to it.  (Full Wisdom Holdings & Ors. v. Traffic Stream Infrastructure & Ors. CACV 266/2003. Ct. App.); and (3) that the application for leave to amend is granted as a matter of indulgence and not as of right.  The Plaintiff had not explained why they sought to amend the Statement of Claim at such a late stage, and despite leave having been granted by Master T. Chan for the Plaintiff to file an affirmation in support of its application to re-amend its Statement of Claim on 6 June 2006, the Plaintiff had not filed any affirmation to explain why they had sought to amend at this late stage.  The Defendant also contended that the test for amendment is whether the Plaintiff had made out an arguable case on the PRC law (Bonny Ace Limited v. Elanby Nominees Limited CACV 285/2000 at page 4).  If the amendment is not maintainable in law, the amendment should not be allowed. (Man Fu Wan v. Tam Wah Hung HCA 1418/2002 at page 13 C-E).

8.The contract in question was made between two Hong Kong companies.  It was executed in Hong Kong, and the selling and the delivery of the used machines were to be in Hong Kong.  The used machines were kept at the Defendant’s factory in the PRC awaiting the Plaintiff to obtain the necessary clearance documentation from the relevant authority so that the Defendant could deliver the used machines to the Plaintiff in Hong Kong.  The Plaintiff had not pleaded that there was any agreement or conspiracy to defraud the governments of the PRC or the HKSAR.  Indeed this was not the Plaintiff’s case.  Nor was it that the Plaintiff was asked to do or take part in any fraud or misrepresentation.  The Plaintiff’s case was that the machines in question were imported into the PRC as a foreign enterprise capital asset.  No PRC law had been pleaded to show that it was unlawful to move these machines out of the PRC to Hong Kong, and no PRC law had been pleaded to show that after these machines had left the PRC, that it was unlawful to sell them in Hong Kong.  As I understood it, the Plaintiff had already taken delivery of the first and third machines through the same process.  They now want to contend that the Defendant is cheating the PRC government in transporting the second machine out of the PRC into Hong Kong as a machine for further process來料加工 and in so doing, the Defendant would have evaded custom duty.  The particulars of the relevant PRC law here must be pleaded and proved as a fact by expert evidence.  To my mind, making bare assertions or simply quoting some section numbers of foreign law without stating the particulars of the relevant foreign law involved would not suffice.  In the case cited to me by both the Plaintiff and the Defendant, Ralli Brothers v. Compania Naviera Sotay Aznar (1920) 2 KB 287, the Court of Appeal in that case applied the following principle of law set out in the second edition of Conflict of Laws by Professor Dicey at page 553, “A contract (whether lawful by its proper law or not) is, in general, invalid in so far as the performance of it is unlawful by the law of the country where the contract is to be performed.” Scrutton LJ said at page 304, “…where a contract requires an act to be done in a foreign country, it is in the absence of very special circumstances, an implied term of the continuing validity of such a provision that the act to be done in the foreign country shall not be illegal by the law of that country”.  The performance of the contract between the Plaintiff and the Defendant here is in Hong Kong and not in the PRC, and the Plaintiff is not required to perform any act in any foreign jurisdiction.  I fail to see the Plaintiff’s argument as to how an alleged illegality in the PRC is relevant to the contract in Hong Kong between the Plaintiff and the Defendant, and how the Defendant’s alleged mischief in the PRC would render the contract between the Plaintiff and the Defendant to be void and unenforceable for illegality of contract and/or to be contrary to public policy.  The authorities submitted by the Plaintiff were not on this point and did not help to support the Plaintiff’s contention.  The Plaintiff appeared to say that the machines were smuggled goods.  The Plaintiff’s pleadings were in no way clear as to what they meant by smuggling.  No PRC law had been pleaded to show that this amounted to smuggling.  The machines transported into Hong Kong did not appear to have been smuggled into Hong Kong.  So, I presume the Plaintiff was saying the machines were smuggled out of the PRC.  The preparation of proper documentation to export the machines out of the PRC did not appear to support this smuggling contention either.  I thought they were saying the machines should bear the description that these machines were imports into the PRC by a foreign owned enterprise, and should not be described as machines for further process來料加工 when moved out of the PRC.  As far as the contract between the Plaintiff and the Defendant in Hong Kong for the sale and purchase of the machine is concerned, I cannot see any illegality in itself or any nexus to the alleged mischief in the PRC.  In the case of Foster v Driscoll (1929) 1 KB 470 at p. 521, Sankey LJ said, “To sum up, in my view an English contract should and will be held invalid on account of illegality if the real object and intention of the parties necessitates them joining in an endeavour to perform in a foreign and friendly country some act which is illegal by the law of such country notwithstanding the fact that there may be, in certain event, alternative modes or places of performing, which permit the contract to be performed legally.”  This did not appear to be the Plaintiff’s case in the re-amendment sought that there was any object or intention of the parties in a joint endeavour to perform an illegal act in the PRC.  In my view, the Plaintiff had not established an arguable case that the common intention of the parties was to perform the contract in the PRC and/or do any act in the PRC that contravenes PRC law.  On the facts of this case, the transaction in question had no connection with PRC law.  The re-amendment sought by the Plaintiff had merely quoted certain sections of the Practice Rules (Foreign Enterprise Law Practice Rules of the PRC中國人民共和國外資企業法實施细則) and concluded that this amounted to smuggling.  It was not even clear that these Practice Rules were laws or otherwise.  No affirmation or evidence had been filed to support this contention.  PRC law is foreign law in Hong Kong and must be pleaded and usually proved with expert evidence that provides legal analysis for reference.  The proper approach is for the Plaintiff to file expert evidence on the law of the PRC and the Defendant to do likewise, and as usually occurred where the two experts contradict each other, the issues of foreign laws are regarded as issues of facts in Hong Kong courts.  The re-amended statement of claim did not appear to be much different in substance to the amended statement of claim that had been disallowed by my learned brother, H.H. Judge Chow.  Although it did mention some sections of the said Practice Rules, no PRC laws were properly pleaded or particularized to show precisely how the illegality arose in Hong Kong.  It appeared rather superficial when it did not plead the particulars of foreign law that the Plaintiff was seeking to prove in the trial.  Furthermore, it did not show the nexus between the alleged mischief of the Defendant in the PRC to the legality of the contract between the Plaintiff and the Defendant in Hong Kong.  My conclusion is that it still failed to show how the contract between the Plaintiff and the Defendant was rendered illegal and/or against public policy in Hong Kong, and how and why PRC law is relevant in the present case.  I would therefore disallow the Plaintiff’s application for re-amendment.

9.The Defendant’s contention that the Plaintiff’s application to re-amend was mala fide must not be taken lightly.  It did appear that the application to amend and now to re-amend the statement of claim was done at a rather late stage especially when taking into account the fact that the action was taken out by the Plaintiff in 2003 and their claim was based on a sale of goods that did not fit the description in the contract and that the goods were not of merchantable quality.  The amendment to allege an illegality, especially when the Plaintiff had taken delivery of the first and third machines, appeared to be rather odd.  I take the view that the Plaintiff had not pleaded foreign law in the proper manner to be proved as facts, and had not filed any evidence or affidavit in support of their contention that the alleged act of the Defendant was illegal in the PRC and that the illegality was relevant to the performance of the contract in Hong Kong.  The Plaintiff had not filed any affidavit in support of their application to re-amend their statement of claim at this late stage, hence no explanation had been given why there had been delay to proceed to trial promptly.  Without addressing this issue and the Plaintiff after having two bites at the cherry, I would say the whole exercise by the Plaintiff to apply for this re-amendment did appear to be an act of filibustering.  The Plaintiff having failed to amend and re-amend should proceed on with the case without further delay.

10.The application for leave to re-amend seeks the indulgence of this court.  The Plaintiff is entitled as of right to seek the leave of this court. Leave would normally be granted for good cause.  However where no good cause has been shown, as in this application, the court would exercise its discretion to refuse the Plaintiff’s application.  Having refused the Plaintiff leave to re-amend its Statement of Claim, I do not think it is necessary for me to address the Defendant’s 3^rd ground of opposition that leave should only be granted as of indulgence and not as of right.

11.The plaintiff’s application for leave to re-amend its statement of claim is refused.  I would therefore dismiss the Plaintiff summons and there be an Order Nisi to be made absolute in 14 days time that the Plaintiff is to pay costs of the Plaintiff’s application to the Defendant, to be taxed if not agreed, with certificate for counsel.

Mr. Roland Lau, instructed by Messrs. Kong & Chang, for the Plaintiff.

Mr. Kenneth Wong, instructed by Messrs. Yung, Yu, Yuen & Co. for the Defendant.