Luen Tat Merchandise Ltd v. Mr. Christmas Ltd

HCA121/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 121 OF 2011

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BETWEEN

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D E C I S I O N

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1.This is the plaintiff’s application for further and better particulars of the defendant’s Defence and Counterclaim by way of 2 Summons dated 11 September 2012 and 30 August 2013 respectively.

I.  Background

2.The case concerns a dispute in sales of goods.  Under a manufacturing agreement dated 25 May 2009, the plaintiff would manufacture various “Mr. Christmas Products” for, amongst others, the defendant.

3.The plaintiff is claiming for unpaid invoices for various purchase orders dated August and September 2010.

4.The defendant raised a Defence that various “Mr. Christmas Products” were made in an inferior manner and failed to conform with agreed samples:

(a) The agreed extruded drive belts of the Carousal units were wrongly replaced by thin non-extruded belts;

(b) The agreed metal shafts were wrongfully replaced by non-conforming plastic shafts; and

(c) The products failed to meet the life test requirement of 500 hours.

5.The defendant also raised a counterclaim for damages under 3 heads: -

(a) “In breach of the Manufacturing Agreement and the Purchase Orders in that the products…were defective and/or failed to conform with the agreed engineering samples and/or of merchantable quality, the Defendant has suffered damages and loss…being ascertained at the moment, but such loss and damage shall include (but not limited to) the amount of US$186,186.20 representing the defective returns and defective chargebacks from the Defendant’s buyers of the goods…” (paragraph 13 of the Defence and Counterclaim).

(b) There was a batch of goods previously manufactured in 2009 which was also defective and “by a settlement agreement reached between the Plaintiff and the Defendant….documented in an e-mail dated 2 January 2011, the Plaintiff agreed to pay the Defendant a settlement sum of US$70,000 within 2010….In breach of the said settlement agreement, the Plaintiff has failed to settle…leaving an outstanding balance of US$41,983.36” (paragraph 14 of the Defence and Counterclaim).

(c) The plaintiff was late in delivering goods under the defendant’s distribution instructions No. 6277 dated 12 May 2010 and the defendant had sustained “a loss in the amount of US$7,479.36 being additional transporting charges….”(paragraph 15 of the Defence and Counterclaim).

6.The defendant then pleaded “despite repeated demands, the Plaintiff has failed, and still fails, to settle any part of the said outstanding sums pleaded in paragraphs 13 to 15 above” (paragraph 16 of the Defence and Counterclaim).

7.The plaintiff took out a Summons for Request of Further and Better Particulars on 11 September 2012 (“the First Request”).  This was disputed by the defendant.  After a call-over hearing, the substantive argument was fixed for 4 September 2013, that is, this hearing.

8.Notwithstanding the absence of defendant’s answers to the First Request, the plaintiff was able to plead in its Reply and Defence to Counterclaim on 6 February 2013, under paragraph 4 (subject to “pending discovery and / or interrogatories”) that, in summary : -

(a) All goods were manufactured in accordance with agreed specifications and there was no substantive quantity of defective goods,

(b) There was a certain agreed repayment arrangement of the settlement agreement and the Plaintiff had been following it, and

(c) The relevant goods were not delivered late, and even if they were, this was caused by the Defendant’s fault.

9.On 22 August 2013, the defendant provided some answers to the First Request.

10.On 30 August 2013, the plaintiff took out a second Summons for Further and Better Particulars (“the Second Request”) to be returnable on the hearing day of the First Request.

11.The defendant has also provided some answers to the Second Request.

12.Therefore, the current hearing only deals with the remaining unanswered requests, namely, in summary : -

(a) From the First Request: -

With regard to the “repeated demands” stated in paragraph 16 of the Defence and Counterclaim, the plaintiff requested “all date(s) of the Defendant’s demand(s) and the means of each of the demand(s)” in respect of each head of the defendant’s counterclaim.

(b) From the Second Request: -

(i) With regard to alleged defective goods, the plaintiff requested a “breakdown in quantity” of each goods and its variation with regard to each of the 3 defects alleged.

(ii) With regard to the loss and damages “representing the defective returns and defective chargebacks from the Defendant’s buyers”, the plaintiff requested “the name of each of the buyers”, “the time, place, method and under what circumstances each such buyer claimed against the Defendant…”, quantity of each defective product and each variation delivered to each buyer, and a “complete breakdown for the sum of US$186,186.20, including the sum received by each buyer….”

II.  The issues in dispute

13.The plaintiff’s case was that the defendant never complained about the quality or late delivery of the goods until after the plaintiff issued a letter of demand for the outstanding invoices and further, that the defendant did not allow any inspection of the alleged defective goods.

14.As such, the plaintiff suggested that when the defendant pleaded that “repeated demands” were made, it was alleging that the plaintiff has knowledge or notice of the defects or late delivery, thus the plaintiff was relying on Order 18 Rule 12(4) to seek particulars of such facts or notice.

15.The plaintiff suggested that without such particulars as to the dates and means of each alleged “demands”, the plaintiff could not properly respond to such allegation.

16.Ms. Lau, Counsel for the plaintiff, elaborated this point.  She suggested that the timing of the defendant’s complaint and refusal to allow inspection was “dubious”.  Quoting Bokhary JA in Aktieselskabet Dansk Skibsfinansiering v Wheelock Marden & Co. Ltd & Ors  [1994] 2 HKC 264, she argued that the Plaintiff was seeking further particulars to “know what evidence they ought to prepare…”, “limit the generality of the pleadings…”, “limit and define the issues…and as to which discovery is required”, and “tie the hands of the party so he cannot without leave go into any matters not included.”

17.Ms Lau argued that unless the plaintiff knew the particulars of each alleged defect on each product, discovery would be difficult because there would be a need to trawl through a lot of evidence.

18.Ms Lau also argued that the particulars would “tie the hands” of the defendant regarding the alleged “repeated demands” which the plaintiff disputed.

19.I cannot follow Ms Lau’s arguments.

20.Unless the plaintiff was a company which did not keep any records of any communications with its clients, information as to whether and when complaints or demands were received should be clear to it and the plaintiff could plead accordingly.

21.Further, the plaintiff’s case was not that it had never been made aware of the defendant’s complaints. Its case was that the complaints had been raised late and the timing was “dubious”.

22.I cannot see how knowing the dates and means of communication of each complaint would help the plaintiff to know more about the particulars of each alleged defect on each product.

23.The material issue here surely must be the content of the complaint, not how many times the complaint was made, the dates of each complaint or how it was communicated.

24.The content of the defendant’s complaint was clearly stated in its Defence and Counterclaim which I have listed in paragraph 4 above.

25.Each case turns on its facts. In this case, the plaintiff manufactured these goods.  The complaints were that, amongst others, the agreed extruded drive belts were replaced by non-extruded one, and the agreed metal shafts were replaced by plastic ones.

26.I would imagine that the case would have been different if the complaint concerned, say, contaminated foodstuff where bacteria was inadvertently and unknowingly introduced during the manufacturing process.  In such a case, knowledge of the number, dates and geographic locations etc. of the complaints might be important for the investigation.

27.However, this is not a case of “latent defects” or unintended accidental contamination: I cannot imagine that the plaintiff’s assembly workers, having chanced upon some plastic shafts or non-extruded belts lying around on the factory floor, took it upon themselves to (or accidentally and unknowingly) put them on the products.

28.Replacements of specific components of a product during its manufacturing process, if true, would most likely be the result of conscious and intended decisions made further up in the plaintiff’s managerial “chain of command”.

29.As such, the plaintiff must know (or at least in a position to know, assuming that it has a reasonable standard of management), without need for further particulars, whether such decisions were made or not, (and if the decisions were made, when they were made and how many products were affected) and pleaded accordingly.

30.Similarly, the plaintiff must know or in a position to know whether there was an agreed arrangement for repayment in the settlement agreement (and whether this was followed), and also whether there was a delay in delivery in the products as alleged, without the need to know when and how the complaints of these were made by the defendant.

31.As for the Second Request, I cannot understand how knowing the particulars of the exact breakdown of the quantity of defect, names of each buyer and their chargebacks against the defendant is material to the plaintiff’s investigation on whether there were such defects.

32.And if this was the plaintiff’s attempt to somehow “tie down” the defendant’s amount of claim, this was clearly premature and futile since the defendant had already pleaded that “the quantum of loss and damage…is being ascertained at the moment.”

33.Mr Chang, Counsel for the defendant, referred to Order 18 Rule 12 (3B) and HKCP 2013 paragraph 18/12/66 and I agree.

34.There needs to be a line drawn somewhere between the need to dispose the matters fairly between the parties, the need to save costs, and avoid delay in the proceedings.

35.A request for particulars should never be a disguised tactical move to “test” the other side’s pleaded facts by microscopic examination. This is not fair and does not save cost.

36.As discussed before, the ambit of this summons concerns only those unanswered requests in the First and Second Requests.  Given the facts of this case, such requests were not necessary for fair disposal of the matter and could not justify the costs and delay incurred.

III.  Conclusion

37.Accordingly, I would dismiss the plaintiff’s two Summons and grant an Order Nisi for the costs of and occasioned by the two Summons be to the defendant to be taxed if not agreed with certificate for Counsel.

Ms Queenie Lau, instructed by Benny Kong & Yeung, for the plaintiff

Mr Jonathan T Y Chang, instructed by Hampton Winter & Glynn, for the defendant