UNIC COMPANY (a firm) v. CENTUS DEVELOPMENT LIMITED

1988 No. A4887

IN THE HIGH COURT OF HONG KONG

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HEADNOTE

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A buyer claimed from the seller the return of the price paid by the buyer for goods sold and delivered by the seller. The goods were of a different quality from those contracted for and the delivery was short. The seller's defence was that the contract was tainted with illegality, the object being, to the knowledge of both buyer and seller, to smuggle the goods illegally into Taiwan. On the buyer's application for summary judgment under Order 14, the Master gave leave to defend, but only on condition that the whole sum claimed be paid into Court. The seller appealed.

1988 No. A4887

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. This is an appeal from a decision of Master Jones on the Plaintiff's application in this action for summary judgment under Order 14. On 7th November 1978 the Master gave leave to the Defendant to defend the action on condition that the Defendant paid into Court within 21 days the sum of US$103,500.00, the total amount of the Plaintiff's claim.

2. The Plaintiff ("the buyer") contracted to purchase cigarettes from the Defendant ("the seller"). The buyer's interest was in purchasing 450 cases of Marlboro cigarettes, but 422 cases of West Brand cigarettes. There can be no doubt that this was not a proper performance of the sellers obligation under the contract of sale; but the seller was not personally to blame. The seller obtained the goods from a supplier in England for the purposes of this sale to the buyer in Hong Kong; the seller here was only a middle-man.

3. However the buyer has paid for the goods and in the circumstances I have mentioned he wants his money back. The seller's claim to have been let down by his English supplier affords the seller no defence whatever. But the seller does claim to have a different defence. The seller says, in answer to the buyer's claim for the return of his money, that the money was paid by the buyer to the seller under a contract tainted with illegality. The seller says that the object of the transaction was to smuggle the cigarettes into Taiwan; and he says that both the seller and the buyer were well aware that this was so.

4. In these circumstances, says the seller, the contract was void and unenforceable. It had for its object a purpose which was illegal and contrary to public policy, that is to say, the supply of the goods to Taiwan in breach (as the seller claims) of Taiwanese law.

5. The seller's evidence included an affidavit made by one, Mr. William Wong, who seems to have been the prime mover in the business in the seller's side. Mr. Wong says in evidence :-

"The Defendant was a complete outsider to the tobacco business and prior to this transaction was engaged mainly in the mushroom business. Sometime towards the end of 1987, I was approached by one Mr. Johnson Ko who enquired whether I would be interested in supplying cigarettes to the Plaintiff. He explained to me that his firm was in the business of smuggling tobacco and alcoholic drinks to various parts of Mainland China and Taiwan. From my general knowledge, I know that there were about ten odd persons who were engaging in the business of chartering ships which carried the said commodities to Mainland China and Taiwan and the goods will be smuggled into the country to avoid paying duty. I am aware that this practice is a crime punishable by imprisonment both in Taiwan and Mainland China. The discussion took place at the Holiday Inn Coffee Shop. I did not make any promise on that occasion. Some time in the beginning of 1988 and shortly before the contract was made, I had the telephone conversation with Mr. Johnson Ko and he further persuaded me that he needed the Defendant in order to avoid any obvious exposure. He said that he needed someone who was not on the trade and that the ordered quantity should not be too large. Finally, I decided to accept this suggestion and as a result the contract was made. This was the first time that the Defendant became involved in this business."

6. Mr. Wong further gave evidence on affidavit about the events which occurred after the container was opened and the failure to supply the correct brand of cigarettes was discovered. Mr. Wong said this :-

"After the opening of the container concerned when the cigarettes was discovered to be of West brand, Mr. Ko and I had the discussion in his office where he showed me a fax message from Taiwan protesting against the non-delivery or non-availability of 450 cases of Marlboro cigarettes and urging the Plaintiff to purchase from whatever source available for earliest possible delivery to Taiwan."

Mr. Johnson Ko, the prime mover in the business on the buyer's side, denies all this. He claims that the transaction was a perfectly straightforward one for the supply of the correct quantity of the correct brand of cigarettes to Hong Kong; and that there is no substance in the story related by Mr. William Wong about the illegal purpose of the whole transaction.

7. Before the Master, the buyer did not suggest there was no triable issue. The buyer accepted that the seller would be entitled at a trial (if there were to be a trial) to raise the illegality point but claimed that there was no issue on the facts which could give rise to the illegality point at all.

8. The buyer says that a further contract for the sub-sale of the cigarettes, on the face of it not illegal, can be proved; but accepted that this could not be prayed in aid in his favour on the Order 14 proceedings. In fact, there is some evidence to suggest that there was a genuine contract relating to the cigarettes which did not involve Taiwan at all, let alone any contravention of Taiwanese law. Evidence of this contract is contained in a sale confirmation dated 16th March 1987. The buyer puts this forward as a genuine transaction relating to the cigarettes the subject matter of this action. The seller denies that he had anything to do with this transaction, and indeed questions whether it is genuine. I do not rest my decision in any way or in any part on this suggested contract.

9. The seller's real point appears to be this. He says the buyer has hung on to the goods; and the seller says this conduct must be treated as an acceptance by the buyer of the goods, so that the only remedy that the buyer may have is a remedy in damages. I do not have the material before me properly to consider and I do not propose to decide this point.

10. So far as the illegality point is concerned, there does appear to be a question to be determined. There are cases where the parties have agreed or may have agreed to deal with goods which they both know have already been smuggled out of a foreign country, or where the seller knows that the buyer intends to use the goods for an illegal purpose or to smuggle them into a foreign country. Such cases were said by Lord Reid in Regazzoni v.K.C Sethia (1944) Ltd. [1958] AC 301, at pp. 323, 324 to be cases which may "raise difficult questions" on which he did " not wish to express any opinion". In the same case, Lord Somervell of Harrow (having earlier posed the question : "Will our courts enforce a contract if its performance involves a breach of foreign criminal or public law") at p.331 said this :

"In conclusion I would like to say a word as to the scope of the word "involves" in my statement of the question raised in the present appeal. One has at one end of the scale a contract which on its face necessitates a breach of the foreign law: a contract to deliver prohibited goods in the territory. At the other end one may have a contract of sale legal on its face at a normal market price, the vendor suspecting or knowing that the buyer intends to use the goods for an illegal purpose in a foreign country."

He refers to earlier cases and continues :

"If the question is one of illegality under our law the contract is unenforceable if the defendant knew that the goods or money or other consideration were to be used for a purpose immoral or illegal under our law. "

                (One of the earlier cases to which Lord Somervell had referred is the well-known case of Foster v. Driscoll, [1929] 1 KB 470 in which the majority of the Court of Appeal found that the evidence established a joint enterprise to import whisky into the United States at a date when such importation was illegal under United States Law.)

11. In answer to all this it is said that we have here a straightforward case in which the buyer wants his money back and in which the buyer does not need to rely on any sort of illegal contract simply to show that he is entitled to the return of his money when the wrong quantity of the wrong cigarettes have been supplied to him under his contract for delivery of those goods to Hong Kong.

12. I remind myself that I am not being asked to try this action. This is an appeal from the decision of a Master giving conditional leave to defend on the buyer's application under Order 14. The only issue that I have to decide is whether in fact he should have given unconditional leave to defend; and the appeal has turned on that ground only. The principles appear to be worth re-stating, which is why, although I have delivered this judgment in Chambers, I have decided to release it for publication.

13. The power to give summary judgment under Order 14 is intended to apply only to cases whether there is no reasonable doubt that the plaintiff is entitled to judgment and where therefore it is inexpedient to allow the defendant to defend for mere purposes of delay : see Jones v. Stone [1894] AC 122.

14. As a general principle, where a defendant shows that he has a fair case for defence or reasonable grounds for setting up a defence, or even a fair probability that he has a bona fide defence, he ought to have unconditional leave to defend. Leave to defend must be given unless it is clear that there it no real substantial question to be tried, or that there is no dispute as to the facts or law which raises a reasonable doubt that the plaintiff is entitled to judgment. Order 14 is not intended to shut out a defendant who can show there is a triable issue applicable to the claim as a whole from laying his defence before the Court, nor to make him liable in such a case to be put on terms of paying into Court as a condition of leave to defend. It does sometimes seem that these simple and well settled principles are too often ignored in Hong Kong by plaintiffs and their solicitors and advisers, and much time and money is wasted as a result. It will often be quicker and cheaper simply to get on with the case and bring the action on for trial in accordance with the timetable, and the time limits, provided by the Rules of the Supreme Court.

15. Nevertheless, it is appropriate, in some cases, to give leave to defend only upon condition of making a payment into Court. A good example of this is the sort of case in which there is good ground for believing that the defence advanced is a sham defence, the sort of case (as it is sometimes said) in which the Master is prepared very nearly to give judgment for the plaintiff. Put another way, leave to defend, conditional on the full amount paid being paid into Court, may be ordered where there is little or no substance in the defence, or the case is almost one in which summary judgment should be ordered. And where the defence can be described as more than shadowy but less than probable conditional leave to defend may be given : see Rafidain Bank v. Agom Universal Sugar Trading Co., reported only in "The Times'' newspaper, 23rd December 1986.

16. But if there is no sign of bad faith, or anything to show that the defence raised is a sham, nor anything suspicious about the defendant's case, leave to defend should not be made conditional. Further, leave to defend should not be made conditional where on the evidence as to the financial circumstances of the defendant, it is plain, or even probable, that to give the defendant leave to defend only upon condition that he pays the whole sum into Court would be tantamount to refusing him leave to defend at all. An attempt has been made in the present case to rely on this; but I am not satisfied by the seller's evidence that the condition imposed by the Master is one which, if left to stand, would make impossible for the seller to defend the case. On this one point, I am against the seller.

17. However, on the rest of the case, I am satisfied that this is a case in which the seller ought not to be summarily driven from the seat of judgment. The seller ought to be allowed to go to trial on level pegging with the buyer. In these circumstances, I propose to allow the appeal; vary the order of the Master; and give the seller unconditional leave to defend the action.