Zebra Industries (Orogenesis Nova) Ltd [Zion] v. Wah Tong Paper Products Group Ltd

HCCT 46/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 46 OF 2011

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Before: Hon Au J in Court

Date of Hearing: 21 March 2012

Date of Judgment: 20 June 2012

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J U D G M E N T

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A. INTRODUCTION

1.This is an appeal against an arbitral award (“the Award”) dated 24 September 2010.  The arbitration relates to a contractual dispute between Zebra Industries (Orogenesis Nova) Ltd (“Zebra”) and Wah Tong Paper Products Group Ltd (“Wah Tong”).

2.To put this appeal and the reliefs sought in proper context, I would first set out below the background leading to the parties’ dispute and the history of related proceedings previously lodged in the High Court.

B.  BACKGROUND

B1.  The contractual dispute

3.Zebra is a company incorporated in Hong Kong. Wah Tong is a printing and packaging manufacturer specializing in paper packaging products.

4.By an agreement dated 31 March 2003 entitled “ZION Preliminary Agreement” (“the Agreement”), Zebra and Wah Tong entered into an agreement for the development, manufacture and promotion of two game products, namely the Galaxion board game and the Psilink card game.  In short, these two game products were designed and developed by Zebra’s sole director Mr Saatori.

5.Clause 5 of the Agreement contains an arbitration clause.  It is also expressly provided in clause 1(a)(i) of the Agreement that Wah Tong had to manufacture 2,000 pieces each of the Galaxion and Psilink.  As will be explained later, one of the main issues in the arbitration was whether Wah Tong was obliged under the Agreement to manufacture the game products beyond these 2,000 pieces.

6.A dispute between the parties arose some time in early 2004.  Zebra alleged that Wah Tong in breach of the Agreement had failed to produce in time samples of the games for it to present at the New York Toy Fair.

7.The relationship between the parties subsequently broke down after this incident.  In April 2004, Zebra started demanding compensation from Wah Tong for its failure to manufacture the samples in time.  

8.On 20 April 2004, Wah Tong’s director wrote to Mr Saatori stating that Wah Tong had decided to “withdraw from this investment”.  Wah Tong also had not manufactured the first 2,000 pieces of the game products. 

9.In July 2004, Zebra commenced its claim against Wah Tong in the High Court under HCA 1551/2004 (“HCA 1551”) for breach of the Agreement and damages.

10.On the application of Wah Tong, on 17 December 2004, Burrell J decided that HCA 1551 should be stayed for arbitration[1]. I would call this Burrell J’s Stay Order.

11.On 3 November 2008, Rogers VP refused Zebra’s application for leave to appeal against Burrell J’s Stay Order out of time[2].

12.On 8 January 2009, Tang VP and Sakhrani J again dismissed Zebra’s application for leave to appeal against Burrell J’s Stay Order[3].

13.The matter then eventually went to arbitration. An arbitrator was appointed on 1 August 2009, and after various interlocutory determinations, the substantive arbitration was held on 15 April 2010.  However, after the hearing, Zebra further put in a statutory declaration (“the SD”) dated 12 August 2010 which contained additional evidence and submissions from Zebra.  The arbitrator made a direction on 1 September 2010 to allow Zebra to rely on the SD.  Wah Tong did not put in any reply to the SD.

14.In the arbitration, Zebra apparently claimed against Wah Tong damages for more than HK$58 million[4] for breach of the Agreement and for misrepresentation.  In particular, Zebra contended, among others, that Wah Tong had a long term contractual obligation under the Agreement to manufacture the game products as the Agreement was a long term joint investment agreement between the parties.

15.On 24 September 2010, the arbitrator issued the Award.  He awarded Zebra damages in the sum of HK$58,000.00 for Wah Tong’s breach of the Agreement in failing to manufacture the first 2,000 pieces of the game products.  The arbitrator rejected, inter alia, Zebra’s claim that Wah Tong was contractually bound to manufacture anything beyond these first 2,000 pieces.  On 28 October 2010, the arbitrator further issued the interest and costs award, whereby he awarded Zebra interest in the amount of HK$34,596.27 and costs. 

16.Zebra later applied to the High Court for leave to appeal the Award out of time under HCA 1551/2004. On 11 March 2011, Saunders J handed down his judgment dismissing the application[5].

17.However, on Zebra’s appeal, the Court of Appeal on 11 October 2011 set aside Saunders J’s said order and granted leave to Zebra to appeal against the Award out of time[6]. Thereafter, Zebra issued the originating summons on 14 October 2011 seeking to appeal against the Award.

18.This is the substantive hearing of the appeal against the Award under the originating summons.

B2.  The Award

19.As mentioned above, in the Award, the arbitrator concluded that:

(1)  Wah Tong was contractually committed to only produce 2,000 pieces each of the game products[7], but not contractually obliged to produce anything beyond this quantity[8].

(2)  For Wah Tong’s breach of the Agreement in failing to produce these 2,000 pieces of the games, Zebra’s damages was assessed to be in the sum of HK$58,000.00.  This was made on the basis that had these quantities been manufactured, they would have been sold at HK$107 (for Galaxion) and HK$27 (for Psilink) each unit, which would have resulted in a profit of HK$58,000.00 based on Zebra’s own case[9]. 

20.However, the arbitrator rejected:

(1)  Zebra’s claims that Wah Tong had a long term contractual obligation to manufacture the games products.  This was rejected as the arbitrator concluded (as mentioned above) that Wah Tong was only contracted to manufacture 2,000 pieces of Galaxion and Psilink but not anything beyond[10].

(2)  Zebra’s claim on misrepresentation.  The misrepresentation alleged by Zebra was that Wah Tong was in fact incapable of carrying out its contractual duties under the Agreement and should not have signed the Agreement in the first place.  This was rejected as the arbitrator concluded that (a) Zebra had failed to set out “the representation relied on”, and/or (b) the claim for misrepresentation was in any event inconsistent with Wah Tong’s representative’s email of 3 December 2002 that “the marketing” of game products would be a diversification of its business.  This was dealt with by the arbitrator at paragraph 57 of the Award as follows:

“57. Misrepresentation. The Claimant [Zebra] alleges ‘the Company [Wah Tong] was incapable of carrying our [sic] its contractual duties and should not have signed the contract in the first place.’ As the Respondent [Wah Tong] observes the Claimant has not set out the representation relied upon. This case also cannot be reconciled with the Respondent’s statement that in Mr Lai’s e-mail of 3 December 2002 that the marketing of game products would be a diversification. I dismiss this complaint.”

(3)  Zebra’s claim that Wah Tong had made no attempt to secure export licences to permit the games (when manufactured) to leave China.  The arbitrator rejected this on the basis that the Agreement made no reference to which party was obliged to obtain and secure these export licences[11]. Further, he also rejected this claim as “it appears that the parties had no difficulty in exporting the samples from China and there is no evidence that any sales of Galaxion were delayed (let alone lost)” caused by any delay which might have arisen because of the need to secure the licences[12].

C.  THIS APPEAL

C1.  The Arbitration Ordinance

21.This appeal is brought under s 23(2) of the old Arbitration Ordinance (Cap 391) (“the AO”)[13]. It provides as follows:

“(2) Subject to subsection (3) and appeal shall lie to the Court on any question of law arising out of an award made on an arbitration agreement; and on the determination of such an appeal the court may by order -

(a) confirm, vary or set aside the award; or

(b) remit the award to the reconsideration of the arbitrator or umpire together with the Court’s opinion on the question of law which was the subject of the appeal;

and where the award is remitted under paragraph (b) the arbitrator or umpire shall, unless the order otherwise directs, make his award within 3 months after the date of the order.”

22.Thus, under this section, an appeal against an arbitral award would only be allowed on a question of law arising out of the award.  Further, on the determination of the appeal, the Court may confirm, vary or set aside the award, or to remit it to the reconsideration of the arbitrator. 

C2.  The grounds of appeal

23.Zebra has advanced a number of grounds in support of the appeal against the Award.  I would deal with each of them as follows.

C2.1   The arbitrator was wrong to have assessed damages at only HK$58,000 for Wah Tong’s breach of the Agreement in relation to the first 2,000 pieces production of Galaxion and Psilink

24.The Court of Appeal under CACV 52/2011 has expressed a view as to why the arbitration might well have committed an error in his conclusion of the damages in relation to the breach concerning the production of the 2,000 pieces of Galaxion and Psilink.  It said as follows at paragraph 2 of its judgment:

“2. Under Order 73, Rule 5(2) the time limit for appeal is 30 days. The plaintiff had delayed by five days. We are, however, concerned with the merits of the appeal. The arbitrator awarded the plaintiff $58,000. The plaintiff had indeed pleaded a claim of $58,000 as loss of profit for the first run of 2,000 pieces of the product. But it had also, after the oral hearing before the arbitrator, submitted [the SD] in which, among other things such as submitting further new evidence, it amended the claim from $58,000 to $268,000 with particulars. By an ‘Order for Directions’ dated 1 September 2010 the arbitrator ordered the plaintiff to have leave to rely on the statutory declaration. The defendant did not lodge any reply to the amended claim. The arbitrator did not address the amended claim in his award. In our view the amount of the amended claim was a matter that needed to be resolved by the arbitrator before he made the award. We considered that the plaintiff has overcome the threshold on the merits in its application for leave to appeal. Considering the short delay of five days leave to appeal out of time should be granted.”

25.Given the Court of Appeal’s above reasons, the question of law that arises in this appeal in relation to this part of the Award can be, as I see it, understood as: was the arbitrator wrong in law to have failed to take into account of Zebra’s amended claim for damages stated in the SD (and the further evidence produced therein) to decide on and assess the quantum of damages for Wah Tong’s breach of the Agreement in failing to produce the first 2,000 pieces of the game products. 

26.In light of the Court of Appeal’s above observations, Mr Chan for Wah Tong in his skeleton now accepts that this part of the Award should be set aside.  

27.In my view, it is fair and right for Mr Chan to so accept.  It is trite that whether a tribunal has failed to take into account of relevant materials in the determination of an issue is a question of law. In relation to this question, it is clear to me that the arbitrator should take into account of Zebra’s amended claim for damages in the SD (and the further evidence produced therein) to decide on and assess the quantum of damages for Wah Tong’s breach of the Agreement in failing to produce the first 2,000 pieces of the game products. 

28.Mr Chan further submits that this issue should be remitted to the arbitrator for reconsideration and it is inappropriate for the Court to vary it itself. 

29.I agree.  This is so as the determination of what is the proper quantum of the damages in light of the amended claim in the SD is dependent on the assessment of the related evidence as whole, including those parts of the relevant evidence that had already been considered by the arbitrator in the arbitration and the new evidence in the SD.  The arbitrator is thus in the best position to do so, and it is therefore most appropriate to remit this part of the Award to him for his reconsideration.

C2.2   The arbitrator was wrong in concluding that under the Agreement, Wah Tong had no obligation to manufacture the game products after the first 2,000 pieces, and Zebra’s damage was limited to the first 2,000 pieces of the game products

30.At paragraph 70 of the Award, the arbitrator said Wah Tong was under no obligation to manufacture the game products beyond the first 2,000 pieces.  Further, the arbitrator said Zebra’s loss was thus limited to its projected profit on the sale of these 2,000 pieces each of the game products.  It is useful to set out how the arbitrator came to these views at paragraphs 60 to 74 of the Award:     

“60. For the reasons set out above I have concluded that the Respondent breached the Agreement by reason of its failure to complete the dummy of the Galaxion board game in time for the New York Toy Fair in 2004 and by subsequently ‘pulling out’ of the Agreement.

61. In his Affirmation of Testimony Mr Saatori states the Claimant’s losses to be HK$3,500,500. This is increased to HK$80,359,875 in the Claimant’s Schedule of Claim. Following the hearing on 15 April 2010 the Claimant submitted a further computation of its loss, on this occasion, claiming HK$59,698,000.

62. I note that the Respondent called no evidence to deal with the Claimant’s damages claim confining its submissions to matters of law and forensic analysis of the evidence presented by the Claimant. I am not persuaded that the Respondent has established that the evidence of the Claimant and in particular that of Mr Saatori is unreliable or that it should be rejected.

63. The Claimant’s computation of loss in the Claimant’s Schedule of Claim is based upon the alleged gross profit over a three year period. This is based upon projected sales of a total of 1,525,000 units of the two products over a six year period. No independent claim for damages is made as a result of the Respondent’s alleged failure to discharge its obligations in respect of the New York Toy Fair.

64. In his e-mail of 14 February 2004 Mr Lai asserts that he is trying to assist the Claimant to get the samples out to test the market. I consider that this does not reflect the full extent of the Respondent’s obligations under the Agreement. I consider that the Respondent accepted an obligation to produce 2,000 pieces of Galaxion and 2,000 pieces of Psilink.

65. The Respondent complains that the basis of computation of loss is too uncertain and speculative to allow an award to be made. Although there will always be uncertainties where a claim is made on the basis of lost sales, in this instance there is evidence that the Galaxion game sold in its earlier form. I am therefore satisfied that had the Respondent produced the 2,000 pieces of Galaxion it was bound to produce these items would have sold.

66. The position regarding the Psilink game is less clear. It has no history of having previously been sold and was less well developed when the Respondent ‘pulled out’. I am however satisfied that the product would have been produced and that it would have sold at least to the extent of the 2,000 pieces which the Respondent undertook to produce.

67. The Claimant has projected sale prices of HK$107 and HK$27 for the products respectively. Although the Respondent did not accept these prices it provided no contrary evidence. Such sales would on the Claimant’s figures have generated a profit of HK$58,000.00. I award this sum to the Claimant in damages.

68. The Claimant’s case is that these sales would have established the saleability of the products and the Claimant contends led to further sales. The Claimant claims damages for repeat and additional sales in the subsequent years.

69. The Respondent contends that the Claimant has failed to show a real or substantive chance that 1,525,000 units of the products could have been sold. However the Respondent also draws attention to the ‘Third level ZION Presentation’ which records that several thousands of Galaxion had been sold.

70. In the light of the history of the development of the products and the difficulties in the relationship with the Respondent I am not persuaded that the Respondent would have continued to manufacture for the Claimant after the initial production had been completed. The Respondent was under no obligation to do so. In these circumstances the Claimant would have found itself bound to source an alternative supplier.

71. In addition, the Respondent makes the point that by now the Claimant had the Galaxion dummy, but that there is no evidence that it was successful in marketing the product after the New York Toy Fair. The little evidence that exists shows that the Creative Group did not wish to take on the distribution rights for Israel following a meeting with Mr Saatori at the Hong Kong Toy Fair.

72. I invited the parties to specifically address me on whether impecuniosity of the Claimant could be relevant to the claim. In reply the Respondent referred me to Chitty on Contracts at 26‑105. I do not find this particularly helpful; as it does not appear address the present situation where a claimant may have been prevented from further developing his business through alternative vendors due to its impecuniosity.

73. Ultimately, the Respondent bargained to provide the specified number of games and it seems to me that the Claimant’s damages for the failure to provide those games would be the correct measure of damage.

74.  For the reasons set out in the foregoing paragraphs of my award I find that the Claimant is entitled to the sum of HK$58,000.00.”

31.Zebra now submits that the arbitrator’s said conclusion is wrong as he had failed to consider the Agreement as a whole, in particular the various provisions under the Agreement concerning the investment relationship between the parties and the long term business plan of the project (“the Investment and Business Plan Clauses”)[14].

32.For example, under the preamble and clauses 1(a) to (j), 2, and 3 of the Agreement:

(1)  Wah Tong is provided to be known as “the Investor”.

(2)  Wah Tong is to be given and vested with 10% shareholding of Zebra for Wah Tong’s obligations to manufacture.

(3)  Wah Tong is to split the profit on a 50/50 basis for the sale of the games product after the first 2,000 pieces.

(4)  There are a number of provisions under the heading of “Business Procedure” in the Agreement which set out the business plan to secure venture capital funds investment in the project and to subsequently list the company on the stock exchange.

(5)  There are also the Venture Capital Clauses (see below) which oblige Zebra/Mr Saatori to seek investment in the project from potential venture capital funds for the eventual listing of Zebra [termed as ZION in the Agreement] on the stock exchange.  They also provide for what Wah Tong would be entitled to do if Zebra fails to obtain such funding.  

33.Zebra contends that when the entire Agreement is read together these clauses, it shows that the Agreement was and was intended to be a joint investment agreement between the parties, providing for a long term business relationship.  As such, Wah Tong thus have, among others, an obligation to manufacture the game products beyond the first 2,000 pieces of the game products.  Alternatively, given the long term business plan as expressly provided in the Agreement, the loss and damage suffered by Zebra for the loss of chance in having the project carried out cannot be limited only to the loss of profit under the sale of the first 2,000 pieces.

34.Given this ground, the question of law that arises on this part of the Award as I see it is: whether the arbitrator was wrong in failing to take into account of the Investment and Business Plan Clauses and the Agreement as a whole to construe Wah Tong’s obligations under the Agreement, or alternatively, if the arbitration had in fact so considered these clauses, whether he had failed to give any or any adequate reasons in the Award to explain why he rejected Zebra’s said construction of the Agreement by reference to these clauses. 

35.It is trite that a contract should be construed as a whole objectively.  However, the arbitrator had not in the Award dealt with any of the Investment and Business Plan Clauses for his construction on Wah Tong’s obligation and his conclusion that Zebra damages was only limited to the loss of profit for the sale of the first 2,000 pieces.  If he has failed to take into account of these provisions and the Agreement as a whole for these purposes, I am of the view that the arbitrator has committed an error of law. If he had in fact considered these provisions, but was of the view that they did not support Zebra’s construction of the nature of the Agreement and Wah Tong’s obligations thereunder, the arbitrator should state so in the Award and give his reasons to explain why, which he has not.

36.For these reasons, I accept Zebra’s submissions and agree that the arbitrator has committed an error of law in reaching this part of the conclusions in the Award. 

37.I again regard it most appropriate to remit this part of the Award for the arbitrator to reconsider (a) the proper construction of Wah Tung’s contractual obligations under the Agreement after taking into account of the Agreement as a whole and the Investment and Business Plan Clauses, together with the relevant factual matrix[15] as found by him, (b) the assessment of Zebra’s damages (including any damages arising from loss of chance) after reconsidering and determining issue (a).

38.The arbitrator is in the best position to reconsider these two questions since they are facts related. 

C2.3   The arbitrator had failed to consider and take into account of Zebra’s case on the venture capital clauses in the Agreement

39.It is Zebra’s case that under the Agreement, it was required to secure a venture capital fund investment for the production and sale of the games, and to further fund the eventual listing of the company. The relevant provisions had been provided under clause 1 (d) to (h) of the Agreement under the heading “BUSINESS PROCEDURE”.  I would call these for convenience the Venture Capital Clauses.

40.Zebra now contends it had been deprived of “an additional of HK$26,223,570” as damages given the Venture Capital Clauses. This is so as (submitted by Zebra) “this figure again comes under Consequential Contract Breach Damages, and was not once even broached by the Arbiter [arbitrator].”  Zebra’s complaint is thus the arbitrator had again failed to consider its claim for damages by reference to the Venture Capital Clauses.  Specifically, Zebra submitted in its written submissions that[16]:

“The [Venture Capital Clauses] that [sic] the breaches caused to fail, are on Pages 4 & 5 of the [Agreement], being Clauses d), e) & g).

Clause g) in particular, quotes US$375,000 as being a ten per cent return for the defendant from the Venture Capital side of the [Agreement].  This in turn means that the Plaintiff Company [Zebra] was contracting to receive US$3,375,000 or HK$26,223,700.00 from Clause g) Page 5 of the breached [Agreement].”

41.Clauses (d) and (g) of the Venture Capital Clauses read as follows:

“d) Furthermore, the Director holds global databases and existing relationships with a larger cross section of Venture Capital Companies worldwide, and is currently in negotiation to secure seed, start-up Venture Capital equal to no less than US$1 million and no more than US$19 million with one South African Venture Capital Company www.hbdyc.com and another two Californian and New York based Venture Capital Companies to finance the entire plan revealed on the CD ROM, in structured stages, plus ongoing negotiations in Hong Kong.

g)  Based on the minimum conservative profit, cash flow returns on the agreed to launch new product range, the Director hereby confirms and pledges in all honesty, that the 10% dividend net profit share from the successful marketing of the Venture Capital agreed launch product range, at the end of a 36 month period from the date of securing the said Venture Capital Investment, should be no less than US$375,000 (gross for the said period). Investment returns will begin immediately from each and every quarterly net profit return figure, from each and every closed, income producing sale for each and every product or service launched by ZION, [except for Galaxion and Psilink as agreed and modified in Clause (1) -a)-(v)] for the entire lifetime of the Company, and will only cease should the Investor decide to sell his shares. This is a fair estimate, based mostly on the success of the Venture Capital Funding Plan partially envisaged in the CD ROM.”

42.As I understand it, Zebra’s arguments on the Venture Capital Clauses run as follows:

(1)  Given the Venture Capital Clauses, the parties under the Agreement knew that Zebra was to secure a venture capital fund investment based on the production and sale of the games.  With the venture capital investment, the company would further proceed to seek a listing on the stock exchange.  This was also the reason why Wah Tong was contented to be given 10% of the shareholding in Zebra as its “fees” in manufacturing the game products.

(2)  Wah Tong’s breach of the Agreement in failing to manufacture the game products had caused the failure of Zebra in securing of the venture capital fund investment (Zebra says it had adduced evidence in the arbitration to show this[17]), as a result of which, the plan to list the company based on the project had also failed.  This should fall within the “consequential loss and damage” suffered by Zebra as a result of Wah Tong’s breach of the Agreement, as such “extra” loss would be within the contemplation of the parties for the reasons set out in subparagraph (1) above (presumably as under the well-known rule of Hadley v Baxendale[18]).

(3)  However, the arbitrator had wholly failed to deal with this limb of damages in the Award.

43.It is clear that the arbitrator has not in the Award referred to or considered the Venture Capital Clauses.

44.In light of Zebra’s above submissions, the question of law that arises is whether the arbitrator was wrong in law in failing to take into account of the Venture Capital Clauses in determining Zebra’s claim for damages.  

45.Mr Chan for Wah Tong submits that Zebra had not submitted its case based on the Venture Capital Clauses in the arbitration, and therefore there is no question that the arbitrator had failed to take them into account. 

46.However, as pointed out by Mr Saatori in this hearing, at various parts of the SD, Zebra had put in repeated references to the Venture Capital Clauses and its case that the negotiations with potential venture funds had halted because of the dispute.  After referring to all these (and others), in the conclusion part of the SD, it was stated that these (amongst others) “proves… the full scope of the real size of the financial compensation being sought in the final arbitration award… by way of damages…”

47.In my view, properly looked at, a claim on damages for breach of the Agreement based on and by reference to the Venture Capital Clauses had been put forward by Zebra in the SD. 

48.As observed by the Court of Appeal under CACV 52/2011 (quoted above), the SD was admitted by the arbitrator under his directions order dated 1 September 2010, and Zebra was entitled to rely on it. 

49.In the circumstances, I think the arbitrator has also committed an error of law in failing to consider and address this part of Zebra’s claim for consequential damages, if any, for the loss of chance in securing a venture capital fund investment and the listing of the company.

50.I would therefore also remit this part of the Award to the arbitrator for his reconsideration. These issues for reconsideration are closely tied with the assessment of the relevant parts of the evidence on the alleged loss of chance, if any, and should best be dealt with by the arbitrator.  In doing so, the arbitrator should take into account of the Venture Capital Clauses to consider and decide this part of Zebra’s claim for consequential damages as mentioned in paragraph 42 above. 

51.Mr Chan for Wah Tong has further submitted that, properly construing clause (g) of the Venture Capital Clauses, Zebra’s claim for damages based o these clauses is bound to fail, and thus the appeal against the Award based on this ground should be dismissed.

52.Given my above observations, I believe the merits of this part of Zebra’s claim are related to the assessment of the relevant evidence and the proper construction of the Venture Capital Clauses together with the Agreement as a whole.  Thus, the question on merits should also be more appropriately dealt with by the arbitrator on remission of the Award for reconsideration.

53.In this respect, I must however emphasise that, in reconsidering this part of the Award after taking into account of the Venture Capital Clauses and the relevant evidence, it is entirely up to the arbitrator to decide whether Zebra has established to his satisfaction its claim for consequential damages both on liability and on quantum. 

C2.4   Failure to award damages for misrepresentation

54.It is common ground that in the arbitration, Zebra also claimed for damages for misrepresentation. 

55.As mentioned above, the arbitration dismissed this head of the claim at paragraph 57 of the Award on the basis that (a) Zebra had failed to set out “the representation relied on”, and/or (b) the claim for misrepresentation is inconsistent with Wah Tong’s representative’s email of 3 December 2002, which stated that “the marketing” of game products would be a diversification from its business.

56.Zebra submits that the “representation” relied on by it was Wah Tong’s representation that it had the necessary competence and ability to carry out the obligations under the Agreement, and the representation was made through its conduct in negotiating and then entering into the Agreement.  Zebra also says its case on “representation” had been sufficiently set out in the documents before the arbitrator, for examples, under point 6 of page 30 of the SD and its Exhibit 7-3.  Thus, Zebra further says (as I understood it), the arbitrator in dismissing the misrepresentation claim on the basis that it had failed to set out “the representation relied on” has made an error of law, in that he must have either entirely misunderstood Zebra’s case or failed to take into account of all these relevant parts of the materials presented before him.     

57.I have looked at these parts of the materials and accept that, properly read, one could reasonably deduce Zebra’s case on the alleged “representation” as summarised above. 

58.On this basis, I accept Zebra’s above submissions that the arbitrator had committed an error of law in concluding that Zebra “has not set out the representation it relied upon”.

59.The arbitrator also dismissed the misrepresentation claim on the basis that the case of misrepresentation cannot be reconciled with Wah Tong’s email (sent by one Mr Lai) which stated that the “marketing” of game products would be a diversification of its business.  Apparently, what the arbitrator meant in this conclusion was that, this email had shown that Wah Tong had expressly informed Zebra that the “marketing” of game products was not part of its usual business and, therefore there could not have been a representation of competence and ability.

60.Zebra says this conclusion is also clearly wrong and represents the arbitrator’s misunderstanding of its case.  This is so as, Zebra further argues, Wah Tong’s obligation under the Agreement was the “manufacturing” of the game products but not “marketing” (which was Zebra’s obligation) of them. Zebra’s case on misrepresentation was Wah Tong’s representation that it had the competence and ability to carry out the “manufacturing” obligation under the Agreement.  Therefore, the said email (making reference to “marketing” but not “manufacturing”) is not on its face inconsistent with the said representation.

61.In my view, it is clear that under the Agreement, Wah Tong’s principal obligation was to manufacture the game products but not marketing them (this is also consistent with the arbitrator’s conclusion on damages which was premised upon Wah Tong’s manufacturing obligation under the Agreement was of the first 2,000 pieces of the game products).  Thus, the said email on its face and without more cannot be said to be inconsistent with Zebra’s case on Wah Tong’s misrepresentation (as stated above).  In the circumstances, the arbitrator has also not set out any or any adequate reasons to explain why the email (in referring to marketing) was viewed as inconsistent with the arbitrator’s obligation of manufacturing under the Agreement.

62.Therefore, the arbitrator has also committed an error of law (for not giving any or any adequate reasons) in its conclusion at paragraph 57 of the Award in dismissing Zebra’s claim for misrepresentation.   

63.For all the above reasons, this part of the Award (ie, Zebra’s claim for damages for misrepresentation) should thus also be remitted back to the arbitrator for reconsideration.  In doing so, he should take into account of (among the other materials that had already been submitted in the arbitration) Zebra’s case as set out in the SD (as mentioned above) on the representation it sought to rely on in support of the claim for misrepresentation.  The arbitrator should also explain, if he maintains the view after reconsideration, why he finds the email dated 3 December 2002 to be inconsistent with Zebra’s case of misrepresentation.

64.Under this ground of appeal, I should also mention this.  In submitting its case on misrepresentation, Zebra has clarified at the hearing that its complaint mounted in the arbitration relating to Wah Tong’s failure to obtain or apply for the relevant export licences is not a separate and independent ground of claim.  It was raised only as one of the “facts” relied on by Zebra to support its claim for misrepresentation. In other words, this “fact” shows that (Zebra contends) Wah Tong was incapable of carrying out its obligations under the Agreement and thus contrary to the “representation” it says Wah Tong had made to induce it into the Agreement.  Zebra thus says that this conclusion at paragraph 58 of the Award further shows that the arbitrator had clearly wrongly understood its case in treating this “complaint” separately.

65.Given my above conclusion on the claim for misrepresentation, and given Zebra’s said clarification, there is no independent relevant appeal against this part of the Award.  I therefore do not think it is necessary for me to deal with this any further. 

C2.5   Zebra’s other applications

66.In the originating summons, Zebra also asks for other various reliefs which effectively ask this court to revisit the outstanding issue of costs and Burrell J’s Stay Order made under HCA 1551.  It has also asked the court to set aside and lift the Burrell J’s Stay Order. 

67.On 9 January 2012, Zebra further sought to make a “Secondary Appeal Application” to ask for “a Final Court Order … to state that [Wah Tong] now owes [Zebra’s costs in the amount of] HK$764,340.00.

68.In my view these applications are unrelated to the appeal against the Award and are outside the scope of the present appeal under the AO.  Further, some of these application also relate to matters which have already been judicially decided and Zebra is effectively seeking to re-open the issues again.  The Court would not and cannot deal with these applications[19].

69.Further, after the hearing of this appeal, on 25 April 2012, Zebra further made an “application by fax” seek also the following orders:    

“A) A Court Order stipulating that wah tong MUST return back to ZION, ALL materials in their possession, as detailed in Points 2) & 3).

B) A Court Order stipulating that wah tong MUST scrub from their computer hard drives ALL Galaxion, Psilink and ALL other ZION New Product Related Materials & return any hard copy printed versions.

C) A Court Order stipulating that wah tong MUST file an Affirmation or Affidavit with the Court Confirming that the above two Court Orders have been FULLY complied with.

D) A Court Order stipulating that wk to & co MUST scrub from their computer hard drives all non-legal materials supplied on the USB Stick by Timothy Hill & return any hard copy printed versions, and likewise file an Affirmation or Affidavit with the Court Confirming that this has indeed been done.

E)  A Court Order stipulating that Timothy Hill MUST scrub from his computer hard drives all non-legal materials supplied on the USB Stick, and return the said USB stick back to ZION & return any hard copy printed versions, and likewise file an Affirmation or Affidavit with the Court Confirming that this has indeed been done.”

70.These again are not applications which come within the proper scope of an appeal against the Award under the AO.  In any event, such applications should be more appropriately dealt with by the arbitrator after reconsidering the Award on remission by this court.

71.I would also not deal with this fax application.

D.  CONCLUSION

72.For the above reasons, Zebra is successful in this appeal, and I would remit the Award to the arbitrator for reconsideration with the court’s opinion on the questions of law as explained above.

73.I would however make it clear that, on remitting the Award to the arbitrator, after he has reconsidered the Award in accordance with the above opinions of this court, it is entirely open to him to reach his conclusions as to whether Zebra has established its claims and the quantum of damages under those questions.  

74.There are no reasons why costs should not follow the event.  I would therefore further make an order nisi that costs of this appeal be to Zebra to be taxed if not agreed.  This order shall be made absolute

14 days from today, unless there is an application by summons to vary it.

Plaintiff, in person, represented by its director, Mr Elijah Saatori

Mr Josiah Chan Chung Ming, instructed by W K To & Co, for the defendant

Please refer to HCMP1604/2012 for the relevant appeal(s) to the Court of Appeal.

Please refer to HCMP1604/2012 for the relevant appeal(s) to the Court of Appeal.