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Ryder Industries Ltd (Formerly Saitek Ltd) v Chan Shui Woo

Judgment Cited authorities 22 Cited in Precedent Map Related
Vincent
Judgment Date16 December 2015
Year2015
Citation(2015) 18 HKCFAR 544
Judgement NumberFACV12/2015
Subject MatterFinal Appeal (Civil)
CourtCourt of Final Appeal (Hong Kong)
FACV13/2015 RYDER INDUSTRIES LTD (FORMERLY SAITEK LTD) v. TIMELY ELECTRONICS CO LTD

FACV Nos 12 & 13 of 2015

FACV No. 12 of 2015

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 12 OF 2015 (CIVIL)

(ON APPEAL FROM CACV NO. 164 OF 2013)

_____________________

Between :

RYDER INDUSTRIES LIMITED
(formerly SAITEK LIMITED)		 Plaintiff/
Respondent
- and -
CHAN SHUI WOO Defendant/
Appellant

_____________________

FACV No. 13 of 2015

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 13 OF 2015 (CIVIL)

(ON APPEAL FROM CACV NO. 165 OF 2013)

Between :

RYDER INDUSTRIES LIMITED
(formerly SAITEK LIMITED) 		Plaintiff/
Respondent
- and -
TIMELY ELECTRONICS COMPANY LIMITED Defendant/
Appellant

_____________________

Before : Chief Justice Ma, Mr Justice Ribeiro PJ, Mr Justice Tang PJ, Mr Justice Chan NPJ and Lord Collins of Mapesbury NPJ
Date of Hearing and Judgment: 17 November 2015
Date of Reasons for Judgment : 16 December 2015

_____________________

REASONS FOR JUDGMENT

_____________________

Chief Justice Ma:

1. For the reasons contained in the judgment of Lord Collins of Mapesbury NPJ, I agree that these appeals should be dismissed. Like Lord Collins, I believe that the outcome can be determined by reference to applicable conflict of laws principles (for we are here concerned with a foreign illegality). It is not necessary to discuss the matter in the context of a domestic illegality. As Lord Collins points out, the lower courts determined the case on the basis of the principle contained in Tinsley v Milligan [1994] 1 AC 340 and also applied the proportionality test contained in ParkingEye Ltd v Somerfield Stores Ltd [2013] QB 840. Since the decisions of the lower courts, there have been important developments in the law in this area and reference is made below to the decisions of the UK Supreme Court in Hounga v Allen [2014] 1 WLR 2889, Les Laboratoires Servier v Apotex Inc[2015] AC 430 and Bilta (UK) Ltd v Nazir (No 2) [2015] 2 WLR 1168. It is not necessary, as I have said, to discuss illegality in the domestic context and I would accordingly leave open any detailed discussion of the applicable principles for a case in which the point arises. I would like, however, to make this point. Both the lower courts applied a proportionality test, this being the test advocated by both parties based on their reading of ParkingEye. I am not in favour of applying this test as the applicable test for illegality since it appears to suggest that some kind of judicial discretion to be exercised. It seems to me that the question of illegality must be based on firmer principle and policy, although I accept that the facts in any given case will inevitably differ. However, as I have indicated, it is not necessary to go into this aspect in the present appeals.

Mr Justice Ribeiro PJ:

2. I agree with the judgment of Lord Collins of Mapesbury NPJ and the observations made by the Chief Justice.

Mr Justice Tang PJ:

3. I agree with the judgment of Lord Collins of Mapesbury NPJ and the observations made by the Chief Justice.

Mr Justice Chan NPJ:

4. I agree with the judgment of Lord Collins of Mapesbury NPJ and the observations made by the Chief Justice.

Lord Collins of Mapesbury NPJ:

I Introduction

5. These appeals from the judgment of the Court of Appeal arise out of two consolidated actions by Ryder Industries Limited, formerly known as Saitek Limited (“Saitek”) against Timely Electronics Company Limited (“Timely”), both of which are Hong Kong companies, and against Mr Chan Shui Woo (“Mr Chan”), the majority shareholder and director of Timely, as guarantor. At the conclusion of the hearing the Court indicated that the appeals would be dismissed for reasons to be given later.

6. The claims are for about HK$6.5 million claimed to be due under a series of agreements between 2005 and 2007 in connection with a form of joint venture for the manufacture of mobile phones in China. Saitek was to make available factory facilities and part of the equipment necessary for the manufacture of the phones, and Timely was to introduce customers, provide also a part of the machinery to enable the manufacturing to take place, as well as provide management and supervision in the manufacturing process.

7. Mr Recorder Anthony Houghton SC (“the judge”) gave judgment[1] for Saitek, and an appeal to the Court of Appeal was dismissed.[2]

8. The appeals raise the question of the enforceability in Hong Kong of a contract governed by Hong Kong law when it has been performed in the PRC partly in breach of PRC law. The relevant contracts are the agreements referred to in paragraph 6 above. It was accepted by the parties that Mr Chan’s liability as guarantor stood or fell with the validity of the agreements.

II The background: Co-operation Agreement and Supplemental Agreements

9. In 2002 Saitek established an operating division doing business in China through a “Commission Processing Enterprise” (CPE) in conjunction with a local authority in Shenzhen, under the name Saitek Baoan Shanghe Saitek Electronics and Plastics Factory (“Saitek CPE”). Saitek also established in the PRC a Wholly Foreign Owned Enterprise (“Saitek WFOE”).

10. Timely also had an associated wholly-owned company incorporated in the PRC which is a Wholly Foreign Owed Enterprise (“Timely WFOE”), and which operated a factory at Kung Ming Property Development Main Company, Baoan, Shenzhen (“the Kung Ming Factory”).

11. Saitek CPE had substantial spare capacity at its factory. In 2005 a former employee of Saitek introduced Timely to Saitek, with a view to the introduction by Timely of customers seeking a manufacturing facility for mobile phones in China at Saitek CPE. Saitek CPE did not have all of the equipment necessary to carry out the manufacturing function and was not willing to invest in the purchase of the remaining necessary equipment. What was envisaged was that Timely would supply, in addition to customers, the machinery not then available to Saitek CPE to enable the manufacturing to take place, and Timely would also provide management and supervision of the manufacturing process.

12. These discussions resulted in a written memorandum of understanding and, subsequently, in a written agreement (headed Agreement of Co-operation between Saitek and Timely) between Saitek and Timely in late October 2005. It was common ground that the agreement is governed by Hong Kong law.

13. The agreement recorded that Saitek and Timely had a mutual interest in the manufacturing of mobile phones and that Saitek would provide resources to support the manufacturing process in return for a share of revenue. Saitek was to be responsible for customs declarations and for logistics/freight costs of importing the components from Hong Kong to Saitek CPE’s factory, and the freight costs to export the finished goods to Hong Kong. Timely was to be responsible for the transportation costs between the Saitek CPE and Timely factories, and for payment collection from customers. Timely was to pay Saitek a monthly rental for the premises, and a monthly depreciation charge for the equipment, and also utility charges and staff wages. Saitek was to account for a share of the revenue received from customers.

14. The parties operated a periodic mutual account, which by mid-2006 was considerably in favour of Saitek, and the sums due had been accruing and unpaid for some time.

15. As a result, in September 2006 Saitek and Timely entered into a first supplementary agreement, which provided that Timely would pay all overdue debts to Saitek before September 2007, and would pay interest on overdue balances, at 1% above base lending rate. A second supplementary agreement was made in March 2007, under which Timely and Saitek agreed (inter alia) that the net outstanding payable to February 2007 was HK$5,615,394.97, and that Timely would pay the debts before December 31, 2007. Mr Chan personally guaranteed that all outstanding debts would be paid by then.

16. When proceedings were commenced by Saitek, Timely and Mr Chan resisted payment on the ground that enforcement of the agreements was barred as a result of acts of performance of the co-operation agreement which were illegal under PRC law.

17. The judge found that two of the four alleged illegalities had occurred, but that they did not affect the enforceability of the contracts, and his decision was affirmed by the Court of Appeal. Timely and Mr Chan now appeal to this Court.

III Alleged illegalities under PRC law

18. Four illegalities were alleged. The first was that the arrangement was designed to evade PRC law, which provided that Timely, a foreign company for these purposes, could only lawfully carry on an independent business through a mainland body. The judge rejected the allegation on the basis that, although the agreement envisaged the payment of something akin to rent by Timely to Saitek in respect of the factory premises for use by Timely, it had not created a lease of these premises; it did not envisage Timely operating a separate or independent business under the agreement, which was a co-operation agreement.

19. The second allegation related to the fact that semi-finished processed goods were transported from the Saitek CPE premises to the Kung Ming Factory of Timely WFOE for testing before being returned to the Saitek CPE premises. Under the applicable law, materials (such as those used for processing the goods under the agreement between Timely...

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