Iriver Hong Kong Ltd v. Thakral Corporation (HK) Ltd

CACV 252/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL 

CIVIL APPEAL NO. 252 OF 2007 

(ON APPEAL FROM HCA NO. 2635 OF 2004)

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Before:  Hon Yeung JA, Burrell J and Lam J in Court

Date of Hearing:  17 July 2008

Date of Judgment:  8 August 2008

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J U D G M E N T

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Hon Yeung JA (giving the Judgment of the Court):

Introduction

1.On 20 June 2007, following a trial lasting eight days, Deputy High Court Judge Gill found for the respondent, Thakral Corporation (HK) Ltd (“Thakral”) on liability, and ordered the appellant, iRiver Hong Kong Ltd (“iRiver”) to pay damages of $1,016,030.91, plus interest to Thakral.

2.Apart from $125,413, being agreed outstanding promotion costs, the balance of the damages were agreed damages assessed with reference to the loss of profit on the unsold stock that had been returned to iRiver, but excluding any future loss of profits.

3.There was no dispute as to the numerical aspect of the quantities and the prices of the unsold stock in question, such that the parties were able to agree the amount of the damages.

4.iRiver appealed against the judgment and contended the judge should have not found for Thakral on liability. Alternatively, iRiver contended that even if Thakral were to succeed on liability, it was only entitled to nominal or lesser damages.

5.Thakral filed a Respondent’s Notice by way of cross-appeal, seeking to increase the damages to $2,833,509.09 on the basis that the judge should not have rejected its claim for future loss of profits.

The Disputes

6.iRiver manufactures and supplies electronic devices, particularly MP3 players. In July 2003, iRiver, failing to find another more suitable distributor, appointed Thakral as a distributor of its MP3 players, in place of Jebsen & Co Ltd, initially in the Tsimshatsui area for a trial period and then by a letter dated 4 November 2003, until 31 July 2004 (“the agreement”).

7.Under the agreement, iRiver supplied MP3 players to Thakral and Thakral would on-sell them to retailers at a profit, partly directly but mainly through its subsidiaries, China Express Corporation and China Express Associates (they will hereinafter be collectively referred to as “China Express”).

8.The letter dated 4 November 2003 was in the following terms:

“To whom it may concern

Dear Sir/Madam

Re: Authorised Distributor

This is to certify that Thakral Corportion (HK) Ltd are appointed by iRiver Hong Kong Limited as our authorized Distributor over the full region of HKSAR to carry iRiver brand products until July 31 2004.”

9.A formal letter to the same effect dated 17 November 2003, signed by iRiver’s then CEO, was issued and delivered to Thakral together with a formal Distribution Agreement containing a non-competition clause.

10.Despite repeated discussions, the formal Distribution Agreement was not signed as Thakral found the non-competition clause unacceptable, given that it was already distributing competing MP3 players in the market.

11.In early January 2004, iRiver’s newly appointed sales and marketing manager found Thakral’s refusal to focus 100% on iRiver’s products unacceptable.

12.In early March 2004, iRiver terminated the agreement and recalled all unsold stock, some 2,770 units of MP3 players from Thakral and China Express, and repaid Thakral/China Express their net invoice price.

13.Thakral claimed that iRiver’s termination was wrongful, as, under the agreement contained in and/or evidenced by the notice dated 17 November 2003, Thakral’s appointment would last until 31 July 2004.

14.Thakral sought damages of over $4 million from iRiver, being lost profit on the returned stock and future lost profit on both direct sales and sales via China Express. Thakral also claimed an indemnity against China Express’s damages arising out of iRiver’s wrongful termination, and the recall of the unsold stock.

15.iRiver, on the other hand, denied any formal agreement and claimed that the agreement between the parties was just an “ad hoc” business relationship on a trial basis. iRiver suggested that, under such an “ad hoc” arrangement, it was entitled to terminate the “business arrangement at will, without notice, at any time”.

16.iRiver then alleged that Thakral was in fundamental breach of an express and/or an implied term of the agreement by manufacturing and promoting another brand of MP3 players, known as “Yes”.

17.iRiver argued that under the agreement and/or the Distribution Agreement, it was entitled to repurchase all inventory of products in Thakral’s possession at the net invoice price, and Thakral was not entitled to any damages.

18.Thakral denied the existence of any non-competition term in the agreement. Thakral contended that its promotion and marketing of “Yes” MP3 players in Hong Kong did not constitute a breach of the agreement.

The Judge’s Findings

19.The judge found that by mid-August 2003, when Thakral’s operation became territory-wide and it was asked to submit a marketing plan with sales forecasts, the parties accepted that the initial trial period had concluded successfully despite some unresolved issues.

20.The judge found that iRiver was bound by the agreement appointing Thakral as its distributor until 31 July 2004, and was not entitled to terminate the agreement and to recall the unsold stock in March 2004.

21.Having considered the history of the parties’ relationship and the documents exchanged between them, including e-mail messages and minutes of meetings, the judge rejected iRiver’s case based on a non-competition term.

22.The judge also rejected iRiver’s contention of an implied term, saying that the alleged implied term not to compete was not necessary to give business efficacy to the agreement and that such a term did not represent the obvious, but unexpressed intentions of the parties.

23.The judge pointed out that at the time when the parties entered into the agreement, Thakral was already doing business with others, and that iRiver was entitled to engage other distributors.

24.On the question of quantum, the judge concluded that Thakral was only entitled to the loss that it would have earned on the unsold stock that had been returned to iRiver.

25.The judge rejected Thakral’s claim for future loss, pointing out that it was not iRiver’s exclusive distributor and that iRiver could, for various reasons, have concentrated the sales of its products through other distributors and not relying on Thakral at all.

26.On the other hand, the judge did not distinguish between Thakral’s loss of profit and that of China Express. On this issue, the judge made the following observation in his judgment:

“82.  Mr Wright questioned the entitlement of Thakral to claim for losses  allegedly sustained by China Express. As he put it there was no privity  of contract between iRiver and China Express. China Express has no  claim in law against iRiver.

83.  That strictly speaking is so. But iRiver knew all along that it was dealing with a company in a long-established group of companies; that it would be not unrealistic for Thakral to use one of the companies within the Thankral group in its deals with the end traders. In reality, Thakral could have brought and sold direct, and the margins and profits would have been precisely the same.

84.  As I see it the arrangement with China Express was an internal one and I hold that iRiver does not escape liability on the basis of there being no privity of contract.”

27.Apart from the loss of profit calculated on the basis of the judge’s findings, there was an additional agreed sum of $125,413, being outstanding promotion costs, making up the total damages of $1,016,030.91.

Grounds of Appeal

On Liability

28.Mr John Scott SC, for iRiver, accepts the judge’s findings in relation to the express and/or implied term of non-competition, but argues that the judge was wrong to find an ongoing agreement that bound iRiver until 31 July 2004.

29.Mr Scott SC suggests that at the material time, there was only “an informal arrangement” between the parties, which iRiver was entitled to terminate at any time, and further emphasizes the following matters:

1. The letters dated 4 and 17 November 2003 were issued at Thakral’s request to try it out as an authorised distributor, and for the purpose of comforting retailers, and not on any concluded contract;

2. After the issue of the two letters, the business simply “continued” as before when there was no concluded agreement, and therefore no intention to form any contractual relationship;

3. There was no evidence to show that iRiver was not entitled to terminate the agreement at will or on reasonable notice, and therefore iRiver was entitled to stop supplying Thakral at any time; and

4. The judge was wrong to rely on the two letters, which were the only relevant evidence on the parties’ relationship, as the basis of the agreement in the light of the matters aforesaid.

30.Mr Scott SC argues that when iRiver requested for the return of the unsold stock and offered a refund of the purchase price, Thakral had the right to refuse as it had, under ss 19 and 20 of the Sale of Goods Ordinance, title to the unsold stock.

31.Mr Scott SC submits that Thakral, having elected to resell the unsold stock to iRiver, was bound by the election and therefore had no legal basis for claiming any loss of profit. Mr Scott SC seeks to rely on “accord and satisfaction” to defeat Thakral’s claim.

On Quantum

32.Mr Scott SC points out that Thakral and China Express are separate legal entities.

33.Mr Scott SC argues that irrespective of how Thakral chose to conduct its affairs relating to the distribution of MP3 players from iRiver, Thakral in fact on-sold them to China Express at a small margin, and the loss it suffered was just the small margin and not China Express’s loss of profit on resale to retailers.

34.In the circumstances, Mr Scott SC suggests that even if iRiver were to be liable, its liability was limited to the loss arising out of its direct sales to retailers and to China Express, and not those arsing out of the sales by China Express to other retailers.

The Cross Appeal

35.Mr Paul Shieh SC, on behalf of Thakral, emphasizes that in the light of the judge’s finding of a binding distribution agreement until 31 July 2004, there must be an implied term that iRiver would continue the supply of MP3 players to Thakral, enabling Thakral to make profit by reselling them, either directly or through China Express, to retailers.

36.Mr Shieh SC suggests that iRiver did not raise any issue with the quantities and prices of MP3 players, and therefore the previous pattern was a reasonable yardstick to measure the supply that Tharkral could reasonably have expected from iRiver as the basis for calculating future lost profit.

37.In so far as the judge opined that iRiver, not being bound by any exclusive distribution agreement, could have appointed or favoured other distributors, Mr Shieh SC suggests that the judge was wrong when there was no evidence of any other distributors, actual or prospective that iRiver could have used.

Discussion

38.We are not entirely sure what Mr Scott SC means when he says the arrangement between iRiver and Thakral was an informal one. If it were his suggestion that the “informal arrangement” was such that there was no contractual obligation on either party, Mr Scott SC cannot be right.

39.We are concerned with commercial transactions worth millions of dollars. At trial, it was accepted by both parties, as recorded by the judge, that “they were contractually bound to each other” and the only dispute was “the terms”.

40.The judge had dealt with, meticulously, the circumstances leading to the Thakral’s appointment as a distributor of iRiver’s MP3 players and how their business relationship developed. The judge had examined closely the correspondence between the parties, leading eventually to the issue of the two letters dated 4 and 17 November 2003.

41.The judge did not specify certain matters as finding of facts for the simple reason that those matters were not disputed. But that did not mean that they were not relevant or that the judge had no regard for them.

42.We certainly do not agree with Mr Scott SC’s submission that the two letters dated 4 and 17 November 2003 were the only relevant evidence pertaining to the contractual relationship between the parties.

43.The judge noted that despite the initial intention in July 2003 to appoint Thakral to a limited market and for a trial period, by October 2003, Thakral’s operation had expanded to other parts of Hong Kong and selected chain stores, including Broadway and Fortress, and that Thakral had been invited to submit a marketing plan with sales forecasts.

44.In the meantime, Thakral would of course have had to engage sub-distributors and incur expenses in promoting iRiver’s MP3 players.

45.By November 2003, the parties had business dealings for over four months, and Thakral had expressed concern about its status. It was with that in mind that iRiver issued the two letters dated 4 and 17 November 2003, crystallising Thakral’s status as iRiver’s authorised dealer and the duration of the agreement.

46.The judge found that the trial period had concluded despite some unresolved issues and that iRiver was bound by the agreement to appoint Thakral as its distributor until 31 July 2004.

47.The judge’s finding of facts was supported by evidence; and it was not contrary to documentary or other incontrovertible evidence. (See the judgment of Godfrey JA in Tang Kwok Ming v Daxprofit Scaffording Ltd [1999] 1 HKC 658)

48.We wish to adopt the passage cited by Bokhary PJ in Ting Kwok Keung v TamDick Yuen & Others (2002) 5 HKCFAR 336 from Benmax v Austin Mortor Co Ltd [1995] AC 370 at p 375:

“Apart from cases where appeal is expressly limited to questions of law, an appellant is entitled to appeal against any finding of the trial judge, whether it be a finding of law, a finding of fact or a finding involving both law and fact. But the trial judge has seen and heard the witnesses, whereas the appeal court is denied that advantage and only has before it a written transcript of their evidence. No one would seek to minimize the advantage enjoyed by the trial judge in determining any question whether a witness is or is not trying to tell what he believes to be the truth, and it is only in rare cases that an appellant could be satisfied that the trial judge has reached a wrong decision about the credibility of a witness. But the advantage of seeing and hearing a witness goes beyond that: the trial judge may be led to a conclusion about the reliability of a witness’s memory or his powers of observation by material not available to an appeal court. Evidence may read well in print but may be rightly discounted by the trial judge or, on the other hand, he may rightly attach importance to evidence which reads badly in print. Of course, the weight of the other evidence may be such as to show that the judge must have formed a wrong impression, but an appeal court is and should be slow to reverse any finding which appears to be based on any such consideration.”

49.The fact that the parties were still negotiating on the formal Distribution Agreement did not render the temporary contractual arrangement to be invalid and not binding. It certainly did not mean that the term, which obliged iRiver to appoint Thakral its distributor until 31 July 2004, was unenforceable.

50.Lloyd LJ in Pagnan v Feed Products [1987] 2 Llyod’s Rep 601 at 619, enunciated the following principle:

“As to the law, the principles to be derived from the authorities, some of which I have already mentioned, can be summarised as follows:

(1)   In order to determine whether a contract has been concluded in the course of correspondence, one must first look to the correspondence as a whole (see Hussey v Horne-payne).

(2)   Even if the parties have reached agreement on all the terms of the proposed contract, nevertheless they may intend that the contract shall not become binding until some further condition has been fulfilled. That is the ordinary ‘subject to contract’ case.

(3)   Alternatively, they may intend that the contract shall not become binding until some further term or terms have been agreed;….

(4)   Conversely, the parties may intend to be bound forthwith even though there are further terms still to be agreed or some further formality to be fulfilled (see Love and Steward v Instone per Lord Loreburn at p 476).

(5)   If the parties fail to reach agreement on such further terms, the existing contract is not invalidated unless the failure to reach agreement on such further terms renders the contract as a whole unworkable or void for uncertainty.”

51.On the evidence as a whole, the judge was entitled to find that there was a binding distribution agreement for the duration up to 31 July 2004. There is no valid basis to reverse such a finding.

52.Further, iRiver did not terminate Thakral’s appointment by giving a reasonable notice. iRiver did not simply stop further supply of MP3 players to Thakral. iRiver terminated Thakral’s appointment practically with immediate effect, when it recalled all unsold stock of 2,770 units, and agreed only to repay Thakral/China Express their net invoice price.

53.Mr Scott SC suggests that Thakral could have refused iRiver’s request for the return of the unsold stock and by agreeing to return the unsold stock to iRiver, there was accord and satisfaction, a defence, in our view, that was never pleaded. Neither was the argument run at the trial. The point cannot be properly determined without further investigation into the circumstances and the conducts of the parties when the unsold stock was returned. Hence, it is not a point opened to iRiver (see Flywin v Strong & Associates [2002] 2 HKLRD 485).

54.We have not allowed Mr Scott SC to develop his full argument on the issue in the absence of a proper pleading, but in deference to his written argument, we wish to make the following observation.

55.Mr Scott SC’s suggestion has little regard to the special nature of the agreement between the parties.

56.It was not a simple contract for the outright sale and purchase of MP3 players. It was not disputed that iRiver appointed Thakral a distributor of its MP3 players in Hong Kong.

57.By accepting the appointment, Thakral, for the benefit of both parties, was obliged to do its best to increase iRiver’s market share in Hong Kong and in doing so, would no doubt have to incur significant expenses in promoting iRiver’s products.

58.Indeed, iRiver found it unacceptable that Thakral was unwilling to focus 100% on its products.

59.As the authorized distributor of its products, Thakral would require the technical and other support from iRiver, including perhaps the provision of post-sale services in the form of warranty to buyers, as disclosed in the evidence.

60.The undisputed evidence also suggested that iRiver controlled the minimum prices at which the MP3 players were to be sold and the locations where they could be sold.

61.The upshot was that Thakral could not possibly continue marketing/selling iRiver’s MP3 players without iRiver’s blessing and after its appointment as a distributor was determined.

62.In the circumstances of the case, the suggestion that Thakral could have refused iRiver’s request for the return of the unsold stock is unrealistic.

63.When Thakral delivered the unsold stock to iRiver in March 2004, Thakral was not reselling them to iRiver as suggested by Mr Scott SC, but was returning the unsold items supplied under a distribution agreement upon its termination.

64.We are aware that not every piece of relevant evidence on some of those issues had been presented, but the absence of evidence was partly caused by Thakral’s failure to properly plead its case. Thakral should not be allowed to take advantage of its own failure.

65.We are firmly of the view that, on the facts as found by the judge, iRiver was in breach of the agreement by prematurely terminating Thakral’s appointment as its distributor and by recalling all the unsold stock, and was therefore liable to pay damages to Thakral.

66.iRiver’s appeal on liability fails.

Quantum

67.The judge allowed Thakral’s claim for losses sustained by China Express on the basis that Thakral’s arrangement with China Express was an internal one.

68.We note that it was not Thakral’s case that it was entitled to any damages arising out of the loss of profit to China Express. The suggestion was that Thakral was liable and had in fact agreed to indemnify China Express for any loss suffered by China Express due to the disruption of supply. There was evidence to such an effect before the court and the judge appears to have accepted the same.

69.In its Statement of Claim, under the particulars of loss and damages, Thakral divided its lost profit on return stock into two parts, one from direct sales and one, a modest one if we may add, from sales via China Express.

70.Thakral then made a claim for a further sum representing money payable to China Express under the indemnity.

71.Mr Scott SC is right in pointing out that Thakral and China Express are separate legal entities, and Thakral had no right to claim any loss on behalf of China Express. Mr Scott SC is also right in suggesting that there was no privity of contract between iRiver and China Express, and China Express could have no direct claim against iRiver.

72.However, the judge found, “..iRiver knew all along that it was dealing with a company in a long-established group of companies; that it would be not unrealistic for Thakral to use one of the companies within the Thakral group in its deals with the end traders”, and iRiver was certainly aware of China Express’s presence.

73.The profit margin arising from sales to China Express by Thakral ranging from –1.28% to 2.02% could not be a genuine profit margin as even eRiver’s CEO, Ms Chen, accepted that the appropriate rate should be around 10-15%.

74.It may be worth repeating the oftencited passage from the judgment in Hadley v Baxendale (1854) 9 Ex 341:

“We think the proper rule in such a case as the present is this: where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e. according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time when they made the contract, as the   probable result of the breach of it. Now, if the special circumstances under which the contract was actually made were communicated by the claimants   to the defendants and thus known to both parties, the damages resulting from the breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated. But,  on the other hand, if these special circumstances were wholly unknown to the party breaking the contract, he, at the most, would only be supposed to have  had in his contemplation the amount of injury which would arise generally and in the great multitude of cases not affected by any special circumstances from such a breach of contract. For, had the special circumstances been known, the parties might have specially provided for the breach of contract by  special terms as to the damages in that case; and of this advantage it would be  very unjust to deprive them.”

75.Applying the principle enunciated in Hadley v Baxendale (supra), Thakral would be entitled to recover damages that it was liable to pay to China Express arising out of iRiver’s wrongful termination of the agreement.

76.Thakral had not in fact paid any damages to China Express although it had agreed to do so, and in the light of their relationship, it would be unrealistic to expect China Express to sue Thakral.

77.If there is any dispute or doubt on the amount of damages that China Express was entitled to, it may be more appropriate for the court to make a declaration of indemnity in favour of Thakral.

78.However, iRiver had been given the opportunity to challenge the damages due to China Express. Indeed, there being no dispute as to the numerical aspect relating to the size of the damages, the parties were able to agree on the loss of profit. Hence, this is a case where damages including the indemnity payable by Thakral are quantified. It is opened to the judge to include the sum representing the indemnity in the overall damages awarded to Thakral (see Trans Trust SPRL v Danubian Trading Co [1952] 2 QB 297 at p 307).

79.Through Mr Shieh SC, Thakral offers an undertaking to the court that it will account to China Express its damages recovered from iRiver.

80.In the circumstances, re-opening the issue, at the risk of further legal expenses, which, according to counsel, have already far exceeded the claim, would not have resulted in any material difference to iRiver.

81.The judge’s award is certainly not unfair to iRiver. We therefore refuse to interfere with such an award.

82.iRiver’s appeal on quantum also fails.

Cross Appeal

83.Thakral’s claim for future lost profit was premised on the suggestion that under a distribution agreement, there was an implied term that the distributor would be obliged to promote and market the other side’s goods, and the other side undertook to supply a certain amount of goods to the distributor.

84.Mr Shieh SC argues that iRiver had not challenged the amount of future orders and the price estimated by Thakral on the basis of past pattern, and there being no suggestion of any competing demands of other distributors nor was there any such distributor available, iRiver would have to supply MP3 players to Thakral to enable it to make a profit during the subsistence of the agreement.

85.In the circumstances, Mr Shiek SC submits that the judge was wrong not to have made award to Thakral for future lost profit.

86.The judge’s view that iRiver could have chosen to give priority to orders made by other distributors, actual or prospective, unsupported by evidence was not far-fetched, in a fast moving commercial city such as Hong Kong.

87.The nature of the iRiver’s products and the competitive market could mean that they might not be able to survive very long.

88.In any event, the issue is not what iRiver could or would have done. The issue is not whether there would be new distributors “courting” iRiver or whether iRiver’s product could survive the highly competitive market. All these are highly speculative.

89.What is important is that Thakral sought damages for future lost profit and therefore bore the burden establishing such entitlement.

90.Unless Thakral had pleaded and had established a contractual obligation on the part of iRiver to supply certain definitive quantities and types of MP3 players to Thakral during the remaining term of the agreement, there was no valid basis for any claim for future lost profit.

91.Whilst the agreement would last until 31 July 2004, there was no suggestion in the pleading that iRiver was contractually obliged to supply MP3 players of the quantities and types Thakral wanted.

92.Mr Lulla, when giving evidence on behalf of Thakral, accepted that iRiver had the discretion to decide if, how much and which model of MP3 players to supply.

93.Pressed by this Court, Mr Shieh SC attempted several formulations of an implied term regarding iRiver’s obligation to supply goods during the term of the distributorship. The suggested implied term, put forward by Mr Shieh SC, were not pleaded and were contradicted by the evidence. The issue was not explored at trial such that the parties had not been able to present the relevant evidence. Thakral is not entitled to raise the issue of an implied term at the appeal stage.

94.On the evidence, the judge was right to conclude, as he did, that Thakral had not established its claim for future lost profit.

95.The cross-appeal fails, too.

Conclusion

96.Both the appeal and the cross-appeal are dismissed.

Costs

97.We make an order nisi that iRiver shall bear 70% of Thakral’s

costs of the appeal to be taxed, if not agreed.

Alternative Dispute Resolution

98.Before we leave this case, we wish to observe that this is a typical case where parties should have explored resolution of their disputes by mediation. The total damages are just over $1 million. However, we are told that the total legal costs incurred by the parties, including costs of this appeal, run up to about $4.7 million. Apart from the usual attempts in settlement negotiation conducted by solicitors’ correspondence, the parties have not tried other means of alternative dispute resolution. We have not been told whether the solicitors have given advice to their respective clients on the possibility of resolving the matter through mediation.

99.The mere fact that negotiation between solicitors fails to result in a settlement does not mean that the parties would not benefit from mediation conducted by a skilled mediator. As observed by Brooke LJ in Dunnett v Railtrack [2002] 2 All ER 850 at para. 14, “Skilled mediators are now able to achieve results satisfactory to both parties in many cases which are quite beyond the power of lawyers and courts to achieve…when the parties are brought together on neutral soil with a skilled mediator to help them resolve their differences, it may very well be that the mediator is able to achieve a reslt by which the parties shake hands at the end and feel that they have gone away having settled the dispute on terms with which they are happy to live. A mediator may be able to provide solutions which are beyond the powers of the court to provide.”

100.In Halsey v Milton Keynes General NHS Trust [2004] 1 WLR 3002 at para. 11, Dyson LJ said, “The value and importance of ADR have been established within a remarkably short time. All members of the legal profession who conduct litigation should now routinely consider with their clients whether their disputes are suitable for ADR.”

101.Later in Burchell v Bullard [2005] Build LR 330, Ward LJ said at para. 43, “Halsey has made plain not only the high rate of a successful outcome being achieved by mediation but also its established importance as a track to a just result running parallel with that of the court system. Both have a proper part to play in the administration of justice. The court has given its stamp of approval to mediation and it is now the legal profession which must become fully aware of and acknowledge its value. The profession can no longer with impunity shrug aside reasonable requests to mediate.”

102.In the more recent case of Egan v Motor Services (Bath) [2007] EWCA Cir 1002, Ward LJ made some useful suggestions as regards how a solicitor could proffer advice on mediation to a client effectively.

103.In Hong Kong, mediation as a means to settle disputes has increasingly been recognised. Those who have tried mediation usually find the process constructive even though not all mediations resulted in full settlement. Sometimes parties were able to narrow down their differences during the course of mediation and come up with a full settlement at a later stage. An example can be found in Chun Wo Construction & Engineering Co Ltd v China Win Engineering Ltd, HCCT 37 of 2006, 12 June 2008.

104.We also have a large number of skilled mediators in Hong Kong who are willing to provide mediation services at reasonable costs.

105.Against such background, it is indeed regrettable that the parties in the present case have not had the good sense of trying to resolve their commercial dispute by a much more cost effective means.

106.The Civil Justice Reform shall come into force in 2009. The new Order 1A sets out the underlying objectives of the rules and Order 1B sets out the power of the court in case management. Parties and their lawyers have a duty to assist the court to further the underlying objectives. They will be well advised to have the above comments on ADR in mind in making attempts to resolve their dispute effectively.

Mr Paul Shieh, SC instructed by Messrs DLA Piper Hong Kong for the Respondent.

Mr John Scott, SC and Mr John Wright instructed by Messrs Erving Bretell for the Appellant.