DORPO INDUSTRIES LTD. v. DARTON LTD.

HCA4397/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.4397 OF 2001

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J U D G M E N T

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1. On 25 February 2002, Master Au Yeung dismissed the plaintiff's application for summary judgment with costs. The plaintiff now appeals against that order and seeks final judgment for $1,546,170.00, or alternatively, an interim payment, with interest and costs.

2. The plaintiff, on 8 October 2001, issued a Writ and Statement of Claim for payment for goods sold and delivered under various invoices in the period from about 16 June to 22 August 2001. The goods and the relevant invoices and amounts were not specified. The defendant, on 6 December 2001, filed a lengthy defence and counterclaim. It identified goods, namely Euro calculators supplied for export to France under seven purchase orders issued by it to the plaintiff between 28 April and 14 July 2001. As the plaintiff's reply shows, these are the goods for payment of which the plaintiff is claiming. The defendant says that a number of the goods were defective, and that it notified the plaintiff of this, and further notified it that those goods were rejected. Further, some of the goods were returned to the plaintiff. The defendant counterclaims for ascertained losses of $233,400.00 in respect of goods covered by two of the identified purchase orders and for further unascertained losses arising from claims pending from its own customers in respect of the defective goods. It further counterclaims in respect of defective goods supplied under a second and a third set of agreements between the parties; the ascertained losses in respect of the second set of agreements amount to $491,239.45, and that in respect of the third set of agreements amount to $58,000.00, but in respect of both it says that there are further claims pending by its own customers. It claims rescission of these agreements, damages to be assessed and consequential loss and loss of profits.

3. The plaintiff applied for summary judgment under Order 14 of the Rules of the High Court. The supporting affirmation referred to the defence but stated a belief that the defence was a sham one, and not supported by credible evidence. When the matter came before the Master for the call-over hearing, she dismissed the application presumably on the basis of what was before her in the pleadings, for there was no evidence from the defendant. The plaintiff argued that this was wrong because "although there were circumstances where it would not be necessary to file an affidavit to satisfy the court that leave to defence should be granted, the practice of the court, save in unusual cases, was to require an affidavit before it could be satisfied"; see Chinakong Manufactory Ltd v. Uniden Hong Kong [1992] 1 HKC 481. This is no doubt right, though for my part I find it difficult to understand why, if a defence is filed which puts forward a triable issue the presence or absence of an affidavit verifying it should make much difference.

4. In any event the deficiency, if deficiency it was, has now been rectified. Shortly before the hearing of this appeal the defendant filed an affirmation by its Export Manager verifying the Defence and Counterclaim and exhibiting correspondence between the parties, and between its own customers and itself. Objection was taken to the late filing of the affirmation which did not permit time for the plaintiff to reply. I accepted the affirmation subject to its being edited so as simply to verify the Defence and Counterclaim.

5. Order 14, rule 3 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. In Ng Shou Chun v. Hung Chun San [1994] 1 HKC 155, Godfrey JA 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."

See also Godfrey JA on the same theme in the leading case of 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."

6. In this case there are no contemporary documents before the court, and no evidence of the defendant's conduct. The main thrust of the plaintiff's argument is that there ought to be. There are only particulars of defective goods under two invoices, but none in respect of goods supplied under the other six. There is nothing to support the allegation that the plaintiff was informed of the defective goods, and insufficient particulars as to when this was done. There is nothing to support the allegation that goods have been returned by customers in France to the defendant and by the defendant to the plaintiff. The defendant has not dealt with the plaintiff's case that the defendant was entitled to inspect the quality of the goods, and only to reject them if defective goods exceeded 3% of those ordered. Further, under section 37 of the Sale of Goods Ordinance, Cap.26, the defendant must be deemed to have accepted the goods because he retained them without intimation rejection within a reasonable time.

7. Overall, the plaintiff says that the nub and crux of the defendant's case consists of unfounded allegations that the goods or some of them were defective and that the defendant informed the plaintiff of this and rejected the goods. In effect, because there is nothing to back them, the defendant's assertions are not believable.

8. It is also argued that those parts of the counterclaim, based on the alleged second and third sets of agreements, arise out of a separate and distinct transaction and are wholly foreign to the plaintiff's claims; therefore judgment should be given for the plaintiff. In any event, there is nothing put forward to set off against the plaintiff's claims under those six invoices, in respect of which no defective goods are specifically alleged. Even if there is a bona fide counterclaim it cannot amount to more than $700,000.00, and the plaintiff should have judgment for the balance.

9. Now it is true that the plaintiff has not put forward any documents. It had the chance to do so long before this hearing. It is also true that while there is much in the Defence and Counterclaim about claims by customers which are yet to be quantified, there has been quite a lot of time available to quantify them, especially since the defendant's commercial requirement was to get the Euro calculators to France in time for them to be sold at or before 1 January 2002 when the new currency became legal tender.

10. It seems to me, however, that the plaintiff's arguments could be directed by any plaintiff against any defendant who says that further particulars will be given later, or further particulars will be given after discovery. A party may not plead evidence and that includes documentary evidence; that is a matter for discovery. I do not see that where a defendant's defence or counterclaim cannot be fully particularised until discovery the plaintiff can automatically apply under Order 14 and try in effect to force the defendant to a mini-trial on affidavit evidence. The proper course is rather to go ahead to discovery and, if necessary, to request further and better particulars.

11. The defence is not a mere denial. It does not appear on the face of it to be a sham. Nor is there anything to suggest that the evidence is not believable. It condescends to the particulars so far as can be done before discovery. It cannot be regarded as "frivolous and practically moonshine". Further the plaintiff before the issue of the summons knew from the Defence and Counterclaim that the defendant was relying upon a contention which would entitle him to unconditional leave to defend. It follows that the Master was right to dismiss the application. The appeal is therefore dismissed with costs nisi of the appeal and below to the defendant.