IFS CAPITAL LTD v. CHI TAT ENTERPRISE CO (a firm) AND OTHERS

HCA 1080/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1080 OF 2007

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D E C I S I O N

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1.  This is an application by the defendants to strike out the amended statement of claim on the ground that it discloses no reasonable cause of action and/or it is an abuse of process of the court.  There is a further application by the defendants for security for costs in the event that the amended statement of claim can survive the striking out.

2.  The plaintiff is a company incorporated in Singapore.  The 1st defendant is a partnership operating in Hong Kong.  The 2nd and 3rd defendants are its partners.  The plaintiff has agreed to simplify the title of the defendants so that there will not be any duplication.  I leave it to be dealt with by the plaintiff.

3.  There is another Singaporean company, EC-Asia International Limited (“EC-Asia”) which was a manufacturer and distributor of computer processor chips and other related products. 

4.  The amended statement of claim pleaded that the plaintiff and EC-Asia had entered into a factoring agreement dated 20 June 2003, notice of which had been given to the 1st defendant.  EC-Asia had sold and delivered goods to the 1st defendant between August 2006 and November 2006 on credit terms of 30 days.  The alleged total outstanding price for the goods which has not been paid by the 1st defendant is evidenced in 18 invoices (“the outstanding invoices”) and is at US$5,935,555.  The rights, benefits and interests in the price as evidenced in the outstanding invoices had been assigned by EC-Asia to the plaintiff pursuant to the factoring agreement.  Notice of the assignments had also been given to the 1st defendant by a statement stamped on each of the outstanding invoices asking the 1st defendant to pay the price directly to the plaintiff.  The 1st defendant has on various days between 28 August 2006 and 23 November 2006 confirmed to the plaintiff by email of the receipt of each of the outstanding invoices.  Furthermore, the 2nd defendant, Mr Hung Kin-lam, had on 2 March 2007 confirmed to the representatives of the plaintiff that the 1st defendant would make payment directly to the plaintiff.  However, the 1st defendant failed to make payment and, hence, this claim.

5.  There is also a table annexed to the amended statement of claim stating the invoice number, invoice date, amount, date of assignment of the invoice to the plaintiff, and date of the 1st defendant’s confirmation of receipt for each of the outstanding invoices. 

6.  However, Mr Pirie said that the amended statement of claim was defective and should be struck out.  He launched three grounds. 

7.  First, he said the amounts that the plaintiff had advanced to EC-Asia for each of the outstanding invoices had not been pleaded.  Since the loans had not been pleaded, the attornment to the plaintiff of the goods sold by EC-Asia to the 1st defendant was incomplete.  The arrangement between the plaintiff and EC-Asia was therefore purely executive.  The claim therefore must fail.  He, however, submitted that the omission can be made good by providing an extra column to the table for the sums advanced on the strength of each of the outstanding invoices.

8.  I do not agree with this submission.  The plaintiff’s claim is not based on attornment of goods.  This is not a claim for payment in discharge of a pledge of or charge over goods.  This is a simple claim based on outright purchase of debts by the plaintiff from EC-Asia, the debts being the price for goods sold and delivered by EC-Asia to the 1st defendant on credit terms as evidenced in the outstanding invoices (see paragraphs 7-19 to 7-25 of Salinger On Factoring, 4th edition).

9.  The plaintiff has already pleaded that the debts had been assigned by EC-Asia to it.  EC-Asia thus has no more right in the payment of such price and the plaintiff is the absolute owner of such right.  The issue of attornment therefore does not arise in this claim.  There was also no loan involved in the transaction between the plaintiff and EC-Asia.  Although the assignments of the rights pursuant to the factoring agreement may give the plaintiff more rights than a mere purchaser of the debts, the assignments remain outright assignments and the plaintiff has acquired all the rights in the debts without leaving any right of redemption to EC-Asia.

10.  Though the 1st defendant may ask for particulars of each and every sum paid by the plaintiff to EC-Asia for the outstanding invoices by way of further and better particulars, that is a matter to be dealt with separately and probably after the filing of defence (see Order 18, Rule 12(5) of the Rules of the High Court).  The absence of such particulars is certainly not a ground for striking out the amended statement of claim.

11.  The next ground of attack is the lack of pleading of the goods and the fact that they had been delivered to the 1st defendant.  Mr Pirie submitted that without the goods, there would not be a complete sale of goods action.  There would also be no fixed charge as may be created in terms of the factoring agreement. 

12.  The amended statement of claim has already pleaded that EC-Asia was a manufacturer of computer processor chips and related products and it had sold and delivered goods on credit terms to the 1st defendant.  If the 1st defendant would like to have further and better particulars of the goods comprised in each of the outstanding invoices, it can apply for them in due course.  The lack of such details would not justify the amended statement of claim to be struck out.

13.  Furthermore, there is also no question of any fixed charge in favour of the plaintiff to be created by the delivery of goods.  The claim is based on the outright purchases of the right to payment of the purchase price.  No charge is involved and no right of redemption has been reserved unto EC-Asia. 

14.  The 1st defendant also complained that the plaintiff had only provided it with six sets of delivery documents evidencing the delivery of goods but had refused to provide similar documentation for the other 12 outstanding invoices.  That, however, is a matter of discovery which should be dealt with in future.  This is too early to consider whether the plaintiff has sufficient evidence to prove its claim.

15.  The third attack by Mr Pirie is the lack of registration of the factoring agreement in Singapore pursuant to what is similar or analogous to section 80(2)(e) of our Companies Ordinance, Cap. 32.  He said that the factoring agreement had created a floating charge.  Without registration, the floating charge is void as against the liquidators of EC-Asia.  EC-Asia has in fact been put into liquidation on 18 May 2007.

16.  I would repeat that the arrangements as pleaded are outright purchases of the rights to the payment of the purchase price and no floating charge is involved.  The factoring agreement is governed by the law of Singapore.  Assuming that the Singaporean law of registration of floating charge is the same as or similar to that in Hong Kong, it still does not affect the plaintiff’s claim as pleaded.

17.  I would also mention that the liquidators of EC-Asia had previously demanded payment of the price in the outstanding invoices.  However, the liquidators had later abandoned such claim in favour of the plaintiff.  Nevertheless, this is a red herring, as the summons is not seeking an adjudication of the competing rights of the plaintiff and the liquidators of EC-Asia.  It seeks to strike out the amended statement of claim on the ground of no reasonable cause of action and/or abuse of process of the court.

18.  In the premises, I see no merit in the application to strike out.  It is based on a misunderstanding of the nature of the plaintiff’s claim. 

19.  I now deal with the application for security for costs.  The plaintiff is a Singaporean company.  That alone is not an automatic ground for ordering security.  Miss Cheung submitted that the plaintiff’s claim is strong and the plaintiff is a listed company in Singapore.  She asked for the application for security to be dismissed.

20.  However, in the light of the extra trouble that the 1st defendant may encounter in order to execute a costs order against the plaintiff in Singapore, which may entail the engagement of Singaporean lawyers, some security should be ordered.  I do, however, acknowledge the strength of the plaintiff’s claim, that there is very little that is known about the grounds of the defence and the plaintiff certainly appears to be a company of some substance.

21.  Mr Pirie asks for two-thirds of an estimate of $940,000 or $625,000.  Miss Cheung says that the total estimate should be at only $600,000 as not every step should require the attention of both senior and junior counsel.  I agree with Miss Cheung.  This is not a very complicated action. 

22.  To reflect my acknowledgement of the strength of the plaintiff’s claim, the lack of information on the ground of defence and the plaintiff being a listed company in Singapore, I order the plaintiff to provide security of costs by paying $400,000 into court within the next 28 days or to provide a bank guarantee for the same sum also within 28 days and in terms satisfactory to the registrar.  In the meantime, the action shall be stayed.

(Discussion re costs)

23.  Mr Pirie has very fairly proposed more than one option for me and I think one very fair option is that the winner of each summons will have those costs in any event.  I order that the defendants shall pay the plaintiff the costs of the striking-out summons in any event and the plaintiff shall pay the defendants the costs of the summons for security for costs also in any event.