HKNET CO. LTD. v. WEBFORCE (HK) LTD.

DCCJ1269/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1269 OF 2002

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Judgment

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This is the plaintiff's application for summary judgment under Order 14 (1) of the Rules of the District Court. The plaintiff claims $598,459.06 for services rendered. In the alternative it claims against the defendant as the drawer of three dishonoured cheques totalling $461,733.95.

2. The plaintiff is an internet service provider which supplies leased line services for internet connectivity. At the material times, the plaintiff supplied such services to the defendant and the defendant's unlimited predecessor, Web Force Unlimited who provided the same services to their customers, the end users. From about July 1999 to August 2000, the plaintiff entered into a series of written agreements with Web Force Unlimited and as at 2nd January 2001, that company owed the plaintiff HK$228,976.14. By a letter dated 2nd January 2001, Web Force Unlimited notified the plaintiff that it had changed its name to that of the defendant and also stated that it agreed to undertake all liabilities owed by Web Force Unlimited to the plaintiff under the agreements. The defendant expressly admitted this novation in paragraph 4 of its Defence and Counterclaim.

3. Thereafter, the plaintiff continued to provide leased line services to the defendant. From January 2001 to September 2001, the total amount of outstanding charges owing by the defendant to the plaintiff was, according to the plaintiff HK$380,566.79.

4. There was another agreement dated 18th April 2001 whereby the plaintiff also agreed to provide similar services to the defendant ("the April 2001 agreement"). In August 2001, the defendant purported to terminate the April 2001 agreement. The plaintiff says that as a result of this wrongful repudiation, the defendant owed to the plaintiff the total amount of HK$16,466.13.

5. On 31st August and 29th September 2001, the defendant gave a total of 3 cheques in the total amount of HK$461,733.95 to the plaintiff as partial payment for outstanding charges. The cheques were dishonoured.

6. On 30th November 2001, the plaintiff issued the Writ herein against the defendant in the High Court for HK$626,009.06. On 7th January 2002, the defendant deposited HK$27,550 into the plaintiffs bank account which brought the claim down to HK$598,459.06 and on 25th February 2002, the action was transferred to the District Court.

7. The defendant admits liability for $190,549.05 of the plaintiffs claim of HK$598,459.06 and seeks leave to defend for the balance of HK$407,910.01. It disputes liability for this balance on the basis that the plaintiff issued its invoices after the underlying agreements had been terminated. The defendant asserts that a number of agreements were terminated on some dates which pre-dated the dates of the relevant invoices of the plaintiff. It admits that it is liable under the April 2001 agreement for $4,950 but denies liability for HK$11,516.13 on the ground that the defendant had given effective termination notice to the plaintiff. Its case on the dishonoured cheques is that they were issued to the plaintiff inadvertently and/or by mistake and also under threat of having its other leased lines cut off unless payment was made. It also counterclaims on the basis that it has been deprived of payment from or is subject to counterclaims by its own clients with loss and damage to be assessed.

Charges invoiced and paid after termination of agreements

8. The defendant's accountant Mr. Cheung has produced a list of invoices which he says were billed to the defendant and paid after effective termination of the individual agreements for service. The agreements provided for one month's written notice of termination. He says that some of the notices were sent by fax and others were given and accepted orally. He has produced copies of some fax and e-mail messages which he says support his case.

9. The plaintiff's director Mr. Naito in his third and final affirmation has produced a list showing in respect of all save three of the agreements later termination dates prior to which the various invoices were issued. The list is supported by copies of termination notices all bearing to be signed and chopped by the defendant or by Webforce Unlimited, as well as a list of clients, with dates, headed "Terminate the leased line of HKNet" bearing to come from the defendant and to be signed by its June Chan, a name which appears on various other documents.

10. As to these three agreements not covered by defendant's termination notices or its list of lines terminated the customers are respectively Central Waterfront, Intl. Infotech and Webforce (HK) Ltd. (the defendant). In respect of Central Waterfront, whose service was according to the defendant terminated on 31 October 2000 Mr. Naito produces a computer record showing traffic between April and June 2001. In respect of Infotech, he produces a report from PCCW (the ultimate provider of the line) showing traffic up the day after that given by the plaintiff. In respect of the defendant itself, Mr. Naito produces the plaintiff's own last invoice, which is self-serving but the PCCW report shows the line as "still in force" in March 2002. In fact, this PCCW report generally supports the plaintiff's contentions as to various lines.

11. Mr. Naito also takes issue with two of the specific dates given by the defendant. In respect of Bauhinia Paints Ltd. to which the defendant says service was terminated on 30 November 2000, he produces copies of letters from the defendant to the customer showing that it would stop providing service on 25 August 2001, i.e. the day before the date recorded by the plaintiff for termination. In respect of services to two offices of Media Asia, which the defendant says were both terminated on 31 December 2000, and the plaintiff says were respectively terminated on 13 September 2001 and 27 September 2001 he produces letters from the customer itself showing that its subscription periods for the defendant's services respectively terminated on 12 September 2001 and 30 March 2002.

12. The defendant relies on some minor discrepancies in the dates and such matters as some invoices not having been signed by the defendant. There is also a document from the plaintiff which suggests that on one occasion the plaintiff accepted a verbal termination. However it is obvious that the defendant's contention that it has been invoiced for several hundred thousand dollars for services not rendered by the plaintiff is contradicted by the documents produced by the plaintiff's witness which emanate from the defendant itself. It is also to be noted that although the defendant now says that invoices were issued to it after the relevant agreements had been terminated there is no evidence of any contemporaneous complaint. Further, after a demand had been made for payment by the plaintiff's solicitors, the defendant on 17 October 2001 offered partial settlement by 14 post-dated cheques totalling $461,632.22. Not surprisingly the defendant, having already had cheques dishonoured, would not accept this; but it is difficult now for the plaintiff to say that it owes a $190,549.05 when it was first prepared to pay cheques to a total of $461,733.95, of which more below, and was later prepared to pay cheques to a total of $461,632.22.

The April 2001 agreement

13. As to the April 2001 agreement it is clear from the exhibits that this was valid for one year; it was only otherwise terminable on one month's notice if the plaintiff consented to the termination. The defendant purported to terminate by notice dated 13 August 2001 but the plaintiff says it never consented. There is no evidence that it did. The defendant says that it only owes $4,950.00 but denies the balance by reason of having given effective termination notices but this contention is covered by the plaintiff's documentary evidence mentioned above.

The Cheques

14. The defendant issued three cheques to a total of $461,733.95, two being dated 31 August 2001, respectively for $136,514.20 and $156,150.00, and one dated 29 September 2001 for $169,069.75. The defendant countermanded the two earlier cheques. They were dishonoured on presentment and the plaintiff through solicitors gave notice of dishonour. Mr. Cheung says that the cheques were issued partly by mistake and partly under duress because of the plaintiff's threat of cutting off other leased lines. There does not seem to be any evidence of a specific threat. In any event, Mr. Cheung says that the defendant told the plaintiff that it would withhold payment of the September cheque - though there is no mention of the August cheques - because of discrepancies in the invoices which by then had been discovered. The plaintiff later presented the September cheque and it too was dishonoured.

15. I have to say that I have some difficulty with the idea of duress caused by a supplier demanding payment on the basis that if it is not forthcoming, the service will be terminated, whether there is or is not evidence of a specific threat. Usually, though it is not clear in this case, there will be a contractual provision for suspension or termination, and no doubt that is why we all have to pay our water, gas, electricity and even internet service provider's bills promptly. In any event there is no evidence of payment under protest or subject to a demand for refund if the amount was later found to be incorrect. All that came later.

16. As to the assertion of mistake, there seems to be no evidence as to how the mistake came about and so far as the documentary evidence before me goes, it now appears from those documents emanating from the defendant itself that there can have been no mistake; or certainly no major mistake. Counsel for the defendant points to some small discrepancies but I cannot see that there is anything more than small discrepancies.

The Counterclaim

17. The only document referred to in support of the counterclaim is a counterclaim for $61,600 by one Gennett Ltd., a customer of the defendant, in the defendant's proceedings against it in the Small Claims Tribunal. The complaint of Gennett Ltd. is that it suffered failures of service and lost profit thereby. This dates back to a period between January and June 2000. There is no evidence from the defendant that it ever tried to pass on this complaint to the plaintiff and Mr. Naito says that it did not. There is no evidence of any other complaint by any other customer, which might form the basis of a counterclaim by the defendant in this case.

Order 14 Principles

18. Order 14 places the threshold onus on the defendant to show that there is a triable issue. The Court will test the credibility of an affidavit asserting a triable issue against the conduct of the defendant and contemporary documents. See Murjani v. Bank of India [1990] 1 HKLR 586.

19. In Ng Shou Chun v Hung Chun San [1994] 1 HKC 155 Godfrey J.A. said:

"...I would sound a note of caution about Murjani which has come to be cited in almost every case under O 14 or O 86 to justify the plaintiff in asking the court to embark on a mini trial of the action on affidavit evidence. That is not a proper course for the court to take. It will in future be sufficient for the court to ask itself the simple question: 'Is what the defendant says credible?'. If so, he must have leave to defend, if not, the plaintiff is entitled to summary judgment. The issue is not whether the defendant's assertions are to be believed, it is whether those assertions are believable."

20. Godfrey J.A. also put the matter in a nutshell in Man Earn Limited v Wing Ting Fong [1996] 1 HKC 225:

"Unless it is obvious that the defence put forward by the defendant is 'frivolous and practically moonshine', Order 14 ought not to be applied": see Codd v Delap (1905) 92 LT 510 per Lord Lindley at 511.

21. However, this does not mean that the court must disregard the background. As Bokhary JA put it in Re Safe Rich Industries Limited, Civil Appeal No.81 of 1994, unreported, 3rd November 1994 :-

"The test at the summary stage is indeed as simple as whether the defendant's assertions are believable. But it must be recognised - because failure to recognise it would create a debt-dodgers' charter - that whether the defendant's assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as either undisputed or beyond reasonable dispute."

22. As Yeung J put it more recently in Ng Siu Kei v Chong Mee Mee [1999] 1 HKC 693, the defence must not be "inherently impossible". I would expand that to say that if the defence is inherently impossible, when looked at in the context of so much of the background as either undisputed or beyond reasonable dispute then Order 14 must be granted. If it is not, then the defendant must have leave to defend.

23. In this case it seems entirely clear from the documentary evidence that there is simply no substance in the defendant's assertions that they were charged for services which had been terminated. It is true that there are minor discrepancies in respect of some of the charges. Counsel argues that if some items cause the court to raise its eyebrows, the whole claim should be regarded as tainted and there should be a trial. She relies on the principle enunciated by Ribeiro J in Billion Silver Development Ltd v. All Wide Investments Ltd [2000] 2 HKC 262 that if the Judge doubts or has suspicion as to the plaintiff's case, the correct course for him to adopt is to give unconditional leave to defend so that all matters could be ventilated at the trial.

24. The situation here is not in my view similar to that in the Billion Silver case which was concerned with a "shadowy" defence and a plaintiff's case on which suspicion had been cast; and the issue was whether conditional or unconditional leave should have been allowed at first instance. I do not see that the isolated discrepancies which the defendant can point to in this case in any way indicate that the plaintiff's case is suspicious. The documentary evidence in the plaintiff's favour seems to me overwhelming.

25. In any event there is the matter of the cheques. The defendant issued them, then countermanded them and they were dishonoured. There is nothing to indicate that there was any failure of consideration. There was no duress; the implied threat to terminate a service which is not paid for is not duress. There is no evidence of any agreement not to present them though an attempt has been made to base some kind of implied agreement on the fact that the plaintiff only presented the September cheque well after the defendant had told it that the cheque would be countermanded. Further, there was the offer of 14 other post-dated cheques for almost the same amount. Not surprisingly the plaintiff did not want them; there is no point in taking cheques from one whose cheques have already been dishonoured. But the point is, if the defendant thought it had been wrongly invoiced, and had paid by mistake there was no reason for it to offer these cheques at all.

26. It is clear to me that, taken in the context of the background shown by the documentary evidence and the defendant's own actions in respect of the cheques, its assertions are unbelievable.

27. There will accordingly be judgment in favour of the plaintiff for $598,459.06 with interest at the judgment rate from the date of the Writ until payment and costs (nisi) to be taxed if not agreed with certificate for counsel.