Uti (HK) Ltd v. South China Garments Co Ltd

DCCJ4819/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4819/2004

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BETWEEN

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Coram: Deputy District Judge Frederick HF Chan (Open Court)

Date of hearing: 29^th September 2008

Date of order: 29^th September 2008

Date of handing down the ruling: 2^nd October 2008

RULING

1.The present case was set down before me for trial on 29^th and 30^th September 2008. In the Plaintiff’s detailed written opening dated 25^th September 2008 (“the Written Opening”), Ms. Rachel Lam (counsel for the Plaintiff) described the Plaintiff’s case as “a simple claim concerning a contract” between the Plaintiff and the Defendant.

1.      In outline, the Plaintiff is claiming for the contractual price of the air-freight services it provided to the Defendant in respect of the carriage of some ladies woven pants (“the Ladies Pants”) from Los Angeles, United States of America, back to Hong Kong. The Plaintiff says a sum of HK$233,664.16 was due with interest and the Defendant had failed to settle the said sum.

2.The Defendant, by its Re-Amended Defence dated 9^th May 2008, sought to defend the claim by running, among others, the following defences:

(a)  there was no agreement between the Plaintiff and the Defendant in respect of the return journey by air for the Ladies Pants;

(b) the agreement for the consignment of the Ladies Pants from Los Angeles to Hong Kong was entered into by the Plaintiff and a Hot Kiss Inc. (who was the Defendant’s American buyer vis-à-vis the Ladies Pants);

(c)  the Plaintiff is suing the wrong party.

3.At the heart of the present dispute was a Ms. Michelle Chong who, at the material time, was a merchandiser in the employ of the Defendant. The Plaintiff contends that she made the contract of carriage on the Defendant’s behalf with the Plaintiff. The Defendant retorted by saying that Ms. Michelle Chong did not have the Defendant’s instructions to enter into the alleged agreement to carry the Ladies Pants from Los Angeles back to Hong Kong.

The Plaintiff’s pleadings?

4.With respect, the Plaintiff’s pleadings were woefully sparse on the material facts regarding the purported authority of Ms. Michelle Chong to conclude the carriage contract on the Defendant’s behalf. The Plaintiff’s Statement of Claim dated 13^th September 2004 merely contained this bland paragraph:

“3.      At the Defendant’s request, the Plaintiff arranged for the consignment of 468 cartons of [the Ladies Pants] from Los Angeles … to Hong Kong on the Defendant’s behalf”.

5.On 17^th December 2004, the Plaintiff filed the Answer to the Defendant’s Request for Further and Better Particulars of the Reply dated 24^th November 2004 and said:

“… State who on behalf of the Defendant made the agreement with the Plaintiff

Answer:

Michelle Chong, a merchandiser of the Defendant”.

6.Obviously, the Plaintiff’s pleaded case made no express mention of Ms. Michelle Chong’s purported authority from the Defendant to enter into the carriage contract, whether actual, ostensible or apparent. It was tolerably clear that the Plaintiff’s primary case against the Defendant was that Ms. Michelle Chong was given the actual and express authority to make a contract on the Defendant’s behalf with the Plaintiff. Ms. Lam argued that the Court may draw inferences from the facts of the present case and then determine the issue of actual authority in the Plaintiff’s favor[1].

The Plaintiff’s opening?

7.In the Written Opening, the Plaintiff chose to rely heavily on the well-known English Court of Appeal decision of Freeman & Lockyer v. Buckhurst Park Properties (Mongal) Ltd. [1964] 2 QB 481 (“the Freeman’s Case”) where Diplock LJ. set out the locus classicus statements on the common law of actual, ostensible and apparent authority[2] of a company’s officer to enter into contracts with a third party on behalf of the limited company. Ms. Lam ventured to argue that:

“A company may be bound by the acts of its agent where such person is held out to be his agent, even if such a person did not have the actual authority to so bind it …

Pursuant to the above legal principles: -

… Michelle Chong, as employee and therefore agent of D, had the apparent authority to conclude the said contract on D’s behalf. In such circumstances, D is bound” (my emphasis).

8.By doing so, it seemed to me beyond doubt that the Plaintiff was, so to speak, trying to move the goalposts by alleging that either Ms. Michelle Chong had the actual authority or alternatively she had the apparent or apparent authority from the Defendant to conclude the carriage contract.

The pleading point?

9.As I perceived it, the Written Opening immediately gave rise to a crucial pleading issue:

“Whether the Plaintiff was entitled to raise this new allegation without amending the pleadings?”

10.Plainly, the answer should be a resounding no. When the hearing began before me, I expressed my deep concerns on the parsimoniousness of the Plaintiff’s pleadings on the issue of apparent authority which was looming large. Ms. Lam drew my attention to the witness statement of Mr. Ken Lau (of the Plaintiff) dated 5^th November 2007 where he said:

“25.         I wish to make clear that Michelle has been the person liaising with me and giving instructions on behalf of Defendant. There was no notice that Michelle did not have authority to do so”.

11.On the strength of that paragraph, Ms. Lam forcefully submitted that the Plaintiff had thereby alerted the Defendant that at the trial of the present case, the legal issues of apparent or ostensible authority by the holding out of Ms. Michelle Chong by the Defendant would be ventilated fully and the Court could determine those legal issues and the factual matrix after considering the oral testimonies and the documentary evidence.

12.I respectfully disagreed. The short answer was that the pleadings of the Plaintiff did not refer to any acts of holding out by the Defendant. In this civil trial, it was indispensable to bear in mind the trite principle that pleadings should be the horses and the evidential matrix should be the carts. Only the horses could lead and drive the carts, not the other way round. Generally speaking, a witness statement prepared by a witness should not be a valid substitute of a proper pleading of the party calling that witness.

13.If the Plaintiff were to proceed to trial on the basis of the existing pleadings, then if called upon to do so, I would have ruled that absent an application by the Plaintiff for leave to amend the Statement of Claim so as to insert a proper plea on apparent or ostensible authority, the Plaintiff was simply not entitled to advance a case of “apparent authority” against the Defendant, whether by way of viva voce testimonies, documentary evidence or submissions.

14.I would seek to fortify that conclusion by relying on the following important authorities:

(a)    In Wing Hang Bank Ltd. v. Crystal Jet International Ltd. & Others [2005] 2 HKLRD 795, Mr. Justice Ma (the Chief Judge of the High Court) pithily summarized the functions of a pleading as follows at pp. 799-800:

“(1)     The purpose of pleading is fairly and precisely to inform the other side of the stance of the pleading party so that proper preparation is made possible, and time and effort are not expended unnecessarily on other issues …

(2)        In a trial, particularly where evidence is given by witnesses, it becomes extremely important that each side knows exactly what are the live issues. Where issues are sought to be introduced that have not been adequately or properly pleaded, amendments must be sought unless the consent of the other party or parties has been obtained. It will simply not do for unpleaded issues to be “slipped-in” when evidence is being given in the hope that the other side is not sufficiently alert to object. Much testimony given in the course of a trial may in truth relate to a number of possible aspects or may simply be background information. Obviously, counsel must be astute to object when necessary but the primary responsibility of ensuring that any issue is properly before the Court is on the party seeking to advance that issue. He must do so clearly and not ambiguously, and the usual way of doing so is through the pleadings. Care must be taken to plead issues clearly, and not draft pleadings either vaguely or ambiguously perhaps in the hope that the other side might not readily understand a party’s real case …

8.         Ultimately, a court is to be guided by what is fair and just in the circumstances, not just the party seeking to rely on the unpleaded case but to all parties before it. The Court ought also to bear in mind the following passages at p. 297 para. 18/12/1 of Hong Kong Civil Procedure 2004, Vol. 1:

The purpose of pleadings is not to play a game at the expense of the litigants but to enable the opposing party to know the case against him.

What is set out above as representing acceptable practice will be all the more emphasized when the civil justice reforms in Hong Kong take shape. The object is not to invite prolixity in pleadings but to achieve what has always been the position: to fairly inform the other side and the Court of a party’s case, identifying the issues and the true extent of the dispute between the parties”;

(b)   In Rolled Steel Products (Holdings) Ltd. v. British Steel Corporation [1986] 1 Ch 246 (“the Rolled Steel’s Case”), the directors of the plaintiff company borrowed money from the defendant in the plaintiff’s corporate name and signed guarantees. Repayments were made by the plaintiff to the defendant. The plaintiff company later sued the defendant and sought to recover the sums paid to the defendant. The case was tried before Vinelott J. who allowed the defendant to make an amendment to the defence to include pleas that certain directors of the plaintiff company had the ostensible authority of the company to borrow money from the defendant. On those new pleas, Vinelott J. held the defendant was not liable;

(c)    The plaintiff took the case to the English Court of Appeal and argued, among others, that Vinelott J. erred when he granted leave to the defendant to insert a new plea on ostensible authority when evidence was finished and the parties were making their respective final speeches; the plaintiff’s argument succeeded and the English Court of Appeal set aside the judgment;

(d)   On the pleading point, Lord Justice Slade specifically said at p. 285B-H:

“… in my opinion, the judge was right in holding that the rule in Turquand’s case … is not a mere plea of law, which does not have to be pleaded. The plea asserting “entitlement to rely etc.” is a plea of mixed fact and law … it is at very least incumbent on the defendants, if they wished to take the point, to plead in the alternative that, even if (which they denied) the resolution of 22 January1969 had not been duly passed, they did not know of this irregularity and were entitled to rely on it as one which had been duly passed. This would have been a conventional plea by way of confession and avoidance, which would have put the plaintiff’s legal advisers on notice that they had to adduce evidence, if they could, to show actual or constructive knowledge of the relevant facts on the part of Colvilles and British Steel Corporation or their legal advisers and to explore these matters, as far as possible, in cross-examination of the defendant’s witnesses”;

(e)    In a short yet trenchant judgment, Lord Justice Lawton concurred and aptly observed at p. 309F-310C:

“From the way they were raised by counsel and dealt with by the trial judge I was left with the impression that neither the judge nor defending counsel appreciated as fully as they should have done the need for precision and expedition when dealing with pleading points. My recent experience in this court shows that some counsel and judges are not giving pleadings the attention which they should. Pleadings are formal documents which have to be prepared at the beginning of the litigation. They are essential for the fair trial of an action and the saving of time at trial. The saving of time keeps down the costs of litigation. A plaintiff is entitled to know what defence he has to meet and a defendant what claims are being made against him. If the parties do not know, unnecessary evidence may be got together and led or even worse, necessary evidence may not be led. Pleadings regulate what questions may be asked of witnesses in cross-examination. When counsel raises an objection to a question or a line of questioning … the trial judge should rule at once. He should not regard the objection as a critical commentary on what the other side is doing. If the judge does not rule, counsel should ask him to do so. If a line of questioning is stopped because it does not relate to an issue on the pleadings, counsel should at once consider whether his pleadings should be amended. If he decides that they should, he should forthwith apply for an amendment and should specify precisely what he wants and the judge should at once give a ruling on the application … Judicial insistence on precision in pleading should not take the courts back to the days when the successful taking of pleadings sometimes resulted in a denial of justice. The judge’s powers of adjourning and ordering the payment of costs thrown away should stop this happening”;

(f)     In Yip Lai Fong v. Sin Tung Hng [2004] 3 HKC 153, our Court of Appeal applied the principles governing proper pleadings on ostensible authority laid down in the Rolled Steel’s Case and in giving the unanimous judgment of the Court of Appeal, Mr. Justice Lam said pertinently at p. 159:

“… It is for the respondents to raise the plea and then the petitioners could, if necessary, respond thereto by way of evidence in reply. To raise the plea, the respondents should also set out the factual matrix relied upon by them to argue how the second respondent had held out to the fourth respondent that the first respondent had apparent authority to enter into the sale on its behalf. After all, the rationale of the Turquand rule is apparent or ostensible authority, see Freeman & Lockyer v. Buckhurst Park Properties (Mongal) Ltd. [1964] 2 QB 481 at 505-506. It therefore behoves a party relying on the rule to identify the material facts in respect of the holding out. For this reason, it is not sufficient for Mr. Leong to refer to his skeleton submissions on 20^th March as notice of the fourth respondent’s case [on the Turquand rule]”;

(g)    In Freeman’s Case which was cited by Ms. Lam, the plaintiff (a firm of surveyors) sued the defendant for £291 6s. as its professional fees in respect of work done and alleged that a Mr. Kapoor (who was a director of the defendant) had agreed to engage the plaintiff on the defendant’s behalf; the plaintiff’s claim was tried in the Westminster County Court and allowed by Judge Herbert; the defendant appealed; in dismissing the appeal, Lord Justice Willmer said at p. 489:

“The real question to be determined is whether the judge was right in finding that Kapoor had ostensible authority to engage the plaintiffs. This is partly a question of fact and partly of law”;

(h)    In Armagas Ltd. v. Mundogas SA [1986] AC 717 (“the Armagas’ Case”), the plaintiff purchased the ship “Ocean Frost” from the defendant and agreed to lease the ship back to the defendant for a 3-year charter; the defendant reneged on the charter and the plaintiff sued the defendant; the defendant argued that the alleged person who entered into the 3-year charter (a Mr. Magelssen) did not have the actual or apparent authority to do so; the case was tried by Staughton J. (as he was then) who held however that the defendant was liable on a basis which was not pleaded by the plaintiff;

(i)      the defendant’s appeal was allowed by the English Court of Appeal; the plaintiff’s appeal to the House of Lords also failed; on appeal, Mr. Justice Staughton came under heavy criticisms on the pleading point, Lord Justice Robert Goff (as he then was) said at p. 730C:

“There was no reliance upon any ostensible authority of Mr. Magelssen to notify approval by top management of a transaction which was known to be outside his actual authority. That approach appears to have had its origin in certain remarks which fell from the judge himself, in the course of counsel’s final speeches before him …”;

(j)     In the House of Lords, Lord Keith said at p. 777F-G:

“[Staughton J.] took the view that by appointing to be vice-president (transportation) and chartering manager Mundogas represented that he had authority to convey such approval. This conclusion appears to have originated in an idea which the judge himself had in the course of the trial. Armagas had not pleaded any such representation …”;

(k)   The loud and clear message from the Armagas’ Case was that when dealing with the difficult issues of apparent or ostensible authority of a company’s officer, the Court should be astute to make findings and rulings which fully accord with the pleadings advanced by the respective parties;

(l)      The above case law all spoke in one voice on the crucial importance of pleadings when it comes to the issue of apparent or ostensible authority of an agent of a company.

15.Mutatis mutandis, it was abundantly clear that the Plaintiff’s pleadings as they stood were defective and could not possibly be interpreted to embrace an allegation of ostensible or apparent authority on the part of Ms. Michelle Chong to enter into the agreement of carriage of goods by air on the Defendant’s behalf. Any argument to the contrary was without substance.

16.Indeed, following the Armagas’s Case, the Court would not be able to give a judgment on that issue if the case of ostensible or apparent authority together with the supporting material facts were not properly pleaded by the Plaintiff.

17.Mr. Chang for the Defendant argued that the Plaintiff’s pleadings did require amendment to include the pleas of apparent or ostensible authority. He emphatically burnished the point that the Plaintiff bears the burden of proof to prove that Ms. Michelle Chong had the authority (actual, ostensible or apparent) to give the alleged instructions to the Plaintiff for the return journey of the Ladies Pants to Hong Kong. He submitted that such a plea would be one of mixed fact and law and must be pleaded.

18.At the hearing before me on 29^th September 2008, I invited Ms. Lam (counsel for the Plaintiff) to reflect upon the above legal principles and indicated to her in no uncertain terms that the Plaintiff’s pleadings as constituted did not permit an alternative plea of apparent or ostensible authority vis-à-vis Ms. Michelle Chong. Upon Ms. Lam’s request, the Court adjourned for a short duration to enable her to take instructions from the Plaintiff on how to proceed with the case.

The amendment application?

19.Subsequently, the Plaintiff back-pedaled and formally applied for leave from the Court to amend the Statement of Claim. Ms. Lam helpfully submitted a written draft Amended Statement of Claim (“the Amendment Application”). In essence, the Plaintiff sought the Court’s leave to amend its case to include a plea that when concluding the carriage contract for the transportation of the Ladies Pants back to Hong Kong, Ms. Michelle Chong had the apparent or ostensible authority of the Defendant to enter into that particular contract on about 13^th September 2003.

20.The Defendant objected to the Amendment Application. In opposing the application to amend the Statement of Claim, Mr. Chang argued that the Plaintiff should have provided more particulars on the new allegations of ostensible or apparent authority. Advisedly, he accepted that if necessary, the Defendant could make requests for further and better particulars of the new pleas from the Plaintiff. Mr. Chang also accepted that provided the material facts supporting the new plea of ostensible or apparent authority were pleaded, leave to amend should then be granted by the Court.

21.Regarding the well-established principles governing the Amendment Application, I needed to go no further than to the succinct summary provided by the learned editors of Hong Kong Civil Procedure 2008, Volume 1:

“It is a guiding principle of cardinal importance on the question of amendment that, generally speaking, all such amendments ought to be made “for the purpose of determining the real question in controversy between the parties to any proceedings or of correcting any defect or error in any proceedings” (paragraph 20/8/6, p. 378) …

As a general rule, however late the amendment is sought to be made, it should be allowed if it will not do the opponent some injury or prejudice him in some way that cannot be compensated for by costs or otherwise (paragraph 20/8/10, p. 382) …

Where leave to amend a pleading is granted close to the date of trial, the court may in its discretion adjourn the date of the trial, so as to enable the opposite party to meet the new case or to allow for further particulars, discovery of documents and so on arising from the amendment (paragraph 20/8/10, p. 382) ...

Where the amendment asked for is a substantial one, such that the plaintiff could not succeed without it, he will in a proper case be only allowed to amend at the trial on payment of all costs incurred up to that date, and any costs thrown away by reason of the amendment (paragraph 20/8/12, p. 383)”.

22.In the circumstances of the present case, I considered that it was both fair and just to allow the Amendment Application. As I have indicated to both counsel at the hearing, the new plea on ostensible or apparent authority must be pleaded in the Plaintiff’s Statement of Claim and to deny the Amendment Application would be to deprive the Plaintiff the right to advance its case against the Defendant, namely, as far as the Plaintiff was concerned, the Defendant had clothed Ms. Michelle Chong with the necessary instructions and authority to conclude the carriage of goods contract to transport the Ladies Pants back to Hong Kong. This plea on ostensible or apparent authority would undoubtedly form the cornerstone of the Plaintiff’s case against the Defendant at trial.

23.I was also of the firm view that the Amendment Application, if allowed, would not prejudice the Defendant’s case and a costs order in respect of the Amendment Application and the costs thrown away in respect the present 2-day trial in the Defendant’s favor would sufficiently compensate the Defendant.

24.Both parties further agreed that the new plea on ostensible or apparent authority would throw a completely different complexion to the factual matrix of the instant case, they were not ready to proceed with the present 2-day trial and they jointly applied for an adjournment of the trial for new dates to be fixed.

Costs?

25.On costs, Ms. Lam conceded the costs of and incidental to the Amendment Application to the Defendant but said such costs should only be taxed and paid in any event. On the costs thrown away by the inevitable adjournment of the present trial, Ms. Lam submitted that the appropriate costs order should either be costs in the cause or no order as to costs. She articulated that the Defendant had not, on its own volition, taken issue with the pleadings of the Plaintiff and instead the Defendant had earlier indicated that the trial could have proceeded. Rather, the pleading point was ventilated at the instigation of the Court.

26.Mr. Chang asked for the costs of and incidental to the Amendment Application and costs thrown away should be paid by the Plaintiff forthwith, to be taxed if not agreed and with a certificate for counsel. He also provided a list of suggested directions for the Court to consider should the Court adjourn the present case for trial on another day. He emphasized that the Plaintiff could have proceeded to trial on the plea of actual authority alone and when the Plaintiff asked for the Court’s indulgence to tidy up its house, the Plaintiff should pay for the costs of and incidental to the Amendment Application and the costs thrown away to the Defendant. What, he rhetorically asked, did the Defendant do wrong to warrant the Court depriving its entitlement to costs immediately?

27.Whilst Mr. Chang agreed that the pleading issue was not unearthed by the Defendant, he maintained that the Plaintiff should shoulder the blame when the 2-day trial hearing was derailed because of the Amendment Application. The Defendant’s submissions on costs were all valid and I accepted them.

28.In my view, costs issues are always in the discretion of the Court and should be exercised after considering the particular circumstances of a case. Under the Amendment Application, the Plaintiff had obtained indulgences from the Court to put its house in order which resulted in the inevitable adjournment of the present 2-day trial.

29.There was no denying that the Plaintiff could have proceeded to trial on the strength of actual authority alone. But should the Plaintiff opted for that course of action, the risks that, on the basis of the materials placed before the Court on 29^th September 2008, the Court might conclude that Ms. Michelle Chong had no actual authority to enter into the carriage contract could not be under-estimated. The Plaintiff did need to pick up the new plea of the ostensible or apparent authority as the second string to its bow.

30.After taking all the circumstances into account and looking at the matters most carefully in the round, I would hold that (a) the costs of and incidental to the Amendment Application and (b) the costs thrown away by the adjournment of the trial should be paid by the Plaintiff to the Defendant forthwith, to be taxed if not agreed, with certificate for counsel.

Orders?

31.Therefore, on 29^th September 2008, I ordered that:

(a)  The Plaintiff be granted leave to amend the Statement of Claim as per the draft Amended Statement of Claim dated 29^th September 2008[3] within the next 7 days;

(b) Within 14 days of (a), the Defendant shall file and serve a Re-Re- Amended Defence;

(c)  Within 7 days of (b), if necessary and so advised, the Plaintiff shall file and serve an Amended Reply;

(d) Within 7 days after (c), there shall be mutual discovery of any new documents and inspection of the said documents within 7 days there-from;

(e)  Upon the conclusion of the filing and service of the new pleadings as provided above and within 28 days of (d), the Plaintiff and the Defendant shall (if so advised and when necessary) file, serve and exchange any additional witness statement(s);

(f)   no further witness statement from either the Plaintiff or the Defendant shall be allowed to be filed, served or exchanged without the Court’s leave;

(g)  The trial of the action herein be adjourned sine dine with liberty to restore so as to fix new dates for a trial in the Fixture List of the District Court before a bilingual judge with 4 days be reserved and that such trial dates be fixed in consultation with counsel’s diaries;

(h)  Costs of and incidental to the leave to amend the Statement of Claim and the costs thrown away by the adjournment of the 2-day trial on 29^th and 30^th September 2008, be paid by the Plaintiff to the Defendant forthwith, to be taxed if not agreed, with a certificate for counsel.

32.I believe that the above dealt with all the matters for the time being and I would express my gratitude to both Ms. Lam and Mr. Chang for their respective submissions.

Representations:

Ms. Rachel Y. K. Lam, instructed by Messrs. DLA Piper Hong Kong for the Plaintiff;

Mr. Jonathan T. Y. Chang, instructed by Messrs. Hampton, Winter & Glynn for the Defendant.

[1]In the English Court of Appeal decision of AHJ Wood & Co. Ltd. v. George Glossop & Co. Ltd. & Another (unreported, 7^th February 1987, Lexis Transcript) where Sir John Donaldson MR and Brown-Wilkinson LJ. (as both of them then were) endorsed the view that whether a Mr. Beverley (a manager of the defendant’s retails shop) had the actual authority of the defendant to place orders for goods would be either a matter of direct evidence or inferences to be drawn from the facts of that case.

[2]In Freeman’s case, Lord Justice Diplock (as he was then) famously said at pp. 505-506 that:

“… four conditions which must be fulfilled to entitle a contractor to enforce against a company a contract entered into on behalf of the company by an agent who had no actual authority to do so. It must be shown:

(1)    that a representation that the agent had authority to enter on behalf of the company into a contract of the kind sought to be enforced was made to the contractor;

(2)    that such a representation was made by a person or persons who had “actual” authority to manage the business of the company either generally or in respect of those matters to which the contract relates;

(3)    that he (the contractor) was induced by such representation to enter into the contract, that is, that he in fact relied upon it; and

(4)    that under its memorandum or articles of association the company was not deprived of the capacity either to enter into a contract of the kind sought to be enforced or to delegate authority to enter into a contract of that kind to the agent”.

[3]with some minor amendments which were agreed to by the parties.