CAPATEL LTD v. KONG KONG PING, GLADYS t/a EASY TELECOM CO

HCA 3415/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3415 OF 2002

____________

____________

_______________

J U D G M E N T

_______________

1. This is an appeal against the decision of the Master of 11 November 2002 whereby the Master granted the Defendant leave to defend the Plaintiff's claim conditional on the Defendant's payment of $200,000 into court within 28 days of the Order. In fact both the Plaintiff and the Defendant served notice of appeal against the decision. The Plaintiff naturally wanted judgment for the amount claimed and the Defendant wanted unconditional leave to defend.

2. Before me the Defendant sought to adduce further documentary evidence. The evidence related to her financial position as well as other e-mail exchanges between the Defendant and other persons which were relevant to the issue of liability in this case. The Plaintiff did not object to the evidence concerning the financial position of the Defendant but would object to those e-mail exchanges. Before the substantive hearing of the appeal, I ruled that those e-mail exchanges being pages 4, 5, 11 and 12 of the bundle produced by the Defendant were not admissible and I had orally given the reasons for my ruling and I would reduce those reasons in writing now:

(a) The documents concerned should have been in the Defendant's passion for a long time, and certainly they could have been available to her at the time of the hearing before the Master. There was no satisfactory explanation as to why they were not produced and used in the hearing before the Master. The Defendant was legally represented in the Court below. She was unable to confirm to me whether she had given those documents to her solicitors who had made a conscious decision not to exhibit them to her affirmation for use in the hearing in the Court below, or whether for some reasons, she had omitted to draw her solicitors' attention to those documents. It was for the Defendant to make good her application and to give an explanation for her not using them earlier.

(b) The Plaintiff objected to the use of those documents. If I were to grant the Defendant leave to use those documents, then, it would at least mean that there should be an adjournment to enable the Plaintiff to verify their authenticity. In such circumstances, costs would normally be awarded to the Plaintiff to compensate the Plaintiff for the adjournment caused by the late production of the documents. However, the financial position of the Defendant as evidenced by the other documents she wished to produce was such that there was no good prospect that the Plaintiff would be able to actually recover the costs. Hence, it was very likely that the Plaintiff would suffer some real prejudice arising from the exercise of my discretion in the Defendant's favour.

3. This matter arose out of 2 contracts of sales and purchase. In both instances, the Defendant was the seller of the goods under the contracts. The 1st contract was for the sale of mobile phones and the 2nd contract was for the sale of SIM cards. The Plaintiff's case was that the contracts were between the Plaintiff and the Defendant and the Defendant's case appeared to be that at least for the contract for the supply of mobile phones, it was between the Defendant and someone else, and the Plaintiff was merely an agent for the purchaser of those goods. It would appear that the Defendant took a similar stance in relation to the other contract for the sale of the SIM cards.

4. The 1st contract sued upon was for the supply of 2,300 sets of Nokia 3310 mobile phones. The Plaintiff's case was that it was a contract in writing as evidenced by a purchase order No. 207/03 dated 11 July 2002 signed by the Plaintiff. On the face of this document, the goods were described as: "Nokia 3300 1 x handset, 1 x std battery, 1 x 2pin charger 1 x user's guide". The unit price was US$68.94, and US$25,000 was to be paid on the day of the contract and the balance on 12 July 2002. The sale was on cif Zurich terms. The Plaintiff's case was that the goods were duly paid and the goods arrived at Zurich on 19 July 2002 and was released to the Plaintiff's sub-buyer Idris on 22 July 2002. The goods were found to be defective. Idris commissioned a survey firm SGS-Switzerland to inspect the goods and a report was produced by them showing that the goods suffered from quite a lot of defects. After the inspection the phones were shipped back to the Plaintiff in Hong Kong.

5. After the goods were returned to Hong Kong, the Plaintiff's case was that the Defendant requested to inspect the goods and it was agreed that there should be a joint inspection at the Plaintiff's premises in the presence of an independent surveyor. This was done and the goods were so surveyed on 2 August 2002 in Hong Kong by Allied Survey Company Limited who also furnished a report on 8 August 2002 on the condition of the goods. One Mr Hoarau of the Plaintiff claimed that he had demanded the Defendant to take back the goods on 2 August 2002 but the Defendant only sent a representative to the Plaintiff's office to find out how many of the goods could still be used and he did not finish until 10 August 2002. On 13 August 2002, the Plaintiff through a law firm sent a demand letter to the Defendant. There was no substantive reply to the letter.

6. The Plaintiff's pleaded case was that the Defendant was in breach of the implied condition that the goods supplied must be of merchantable quality and that the goods delivered should be reasonably fit for the purpose of being used as mobile phone. It was also contended that there was a term that the goods delivered should be as per samples approved by the Plaintiff on 10 July 2002 and that the Defendant was in breach of this term in that the goods supplied did not conform with the sample approved. The term on merchantability and fitness for the purposes were plainly terms implied by the Sale of Goods Ordinance. However, it is not clear as to how the Plaintiff would say that the term on conformity with the approved sample arises. Certainly it was not an express term stated on the purchase order No. 207/03 pleaded by the Plaintiff.

7. On the part of the Defendant, it was contended that the agreement was reached by negotiations between the Defendant and one Rodolphe Embry of Idris. In the correspondence between the Defendant and Idris, the Defendant appeared to claim that the phone agreed to be sold was "14 days used phone" and this was not denied by Idris or by the Plaintiff. It appears to be the Defendant's case that first the Defendant did not contract with the Plaintiff and hence the Plaintiff could not sue and secondly in view of the description of the goods to be sold, the goods were not defective. In the Defendant's affirmation it appeared that the Defendant would also rely on an exemption clause in her invoice. I am of the view that there is nothing in this point.

8. The Plaintiff's case as evidenced from the affirmation of Rodolphe Embry filed by the Plaintiff was that "14 days return goods" in the mobile phone trade were generally functional and almost brand new and were not to be understood as the same as 2nd hand goods. The Plaintiff's case was that these phones may contain minor defects but they would normally be repaired before they are sold and their market price is generally 10%-15% lower than the brand new goods.

9. There are thus 2 main areas of disputes between the parties, viz. (a) whether the contract of sale was made between the Plaintiff and the Defendant, or between Idris and the Defendant; and (b) whether there was any breach of the terms of the contract. If the Defendant could show a triable issue on either of these issues, the Defendant would be entitled to leave to defend.

10. On the issue of the identity of the parties to the 1st contract, it is important to point out that the Plaintiff's pleaded case is that the contract was evidenced by an order No. 207/03. It is also pleaded that the goods to be sold were "as per the samples approved by the Plaintiff on 10 July 2002". The said order No. 207/03 however, was not signed by the Defendant and did not contain the term that the goods to be sold should be as per the samples approved. The pleading did not contain any facts or circumstances giving rise to an implied term that the goods to be sold must be as per the samples approved. It is thus clear that even on the Plaintiff's case the contract cannot be just a contract made in writing but must be a contract partly in writing, and partly oral and/or by conduct.

11. The Plaintiff's case is that the Plaintiff was incorporated in Hong Kong on 7 September 2001. The Plaintiff's majority shareholder is Idris, which is a Swiss company. According to Mr Hoarau of the Plaintiff, the Defendant is a company belonging to the East Harbour Group. East Harbour Group had had business dealings with Idris for some time before Hoarau was involved.

12. According to Mr Hoarau of the Plaintiff, he personally negotiated the 1st contract with the Defendant on 10 July 2002. It is not denied by the Plaintiff that even on that day, before this 1st contract with the Defendant there were discussions between the Defendant and Rodolphe Embry of Idris on the requirements of the goods. There was also no dispute that the Defendant agreed to give a discount for the goods because the goods under a previous contract was said to be defective. Indeed from the documents produced by the Defendant, it appeared that on 5 July 2002, there was an e-mail sent by Rodolphe Embry to the Defendant saying that:

"as per my e-mail yesterday and our phone conversations this morning - and your agreement - find hereafter the discount you'll give me onto next invoice (purchase 2300 units Nokia 3310)...

11172 USD/2300 units = 4.86 USD

Therefore, the discount onto next deal is 4.86 USD /phone

New selling price is 73.8 - 4.86 = 68.94 USD

please send your new proforma invoice according to these above mentioned changes." (emphasis added)

13. Indeed the Defendant's case was that the 1st contract was made between her and Mr Embry by telephone. In fact she said that in the conversation she told Mr Embry that all the goods were second-hand, therefore there was no guarantee that the goods would not have any defects. To some extent the e-mail from Mr Embry set out above supported her contention, in that the quantity of the goods to be supplied, the type of goods as well as the price, were all set out in the e-mail and this appeared to be the result of the direct negotiation between Mr Embry and the Defendant. Certainly the use of the word "me" in the e-mail strongly suggested that the contract negotiated was to be between the Defendant and Mr Embry or the company represented by Mr Embry, i.e. Idris. On the other hand, although Mr Hoarau claimed in his affidavit that he negotiated with the Defendant for the purchase of the goods on 10 July 2002, he never said what were the things or terms they discussed or negotiated.

14. There was also no dispute between the parties that on 10 July 2002, Mr Hoarau did look at some samples of Nokia 3310 phones. However, there was a dispute between the parties as to his capacity and also on what he had looked at. According to Mr Hoarau, he did so plainly as the employee of the purchaser, in the course of negotiation for the contract. He said that there were only about 10 cartons for him to look at and he just picked up 5 or 6 of them and tested them with SIM cards and he said all of them were working. He said nothing on why his inspection would give rise to any term (whether express or implied) that the sale in this case was to be a sale by sample. Of course it may well be that there were other things said which would justify the plea of the term that it was a sale by sample, but Mr Hoarau did not mention anything of this kind in his affidavit at all. On the other hand, the Defendant's case was that the purpose of Mr Hoarau's inspection was that it was a pre-shipment inspection of the goods by Mr Hoarau as the agent for Idris. The Defendant's case appeared to be that by then the contract had already been made by phone between Idris and the Defendant.

15. The Defendant would of course rely on the fact that in the e-mail sent by Mr Embry on 5 July 2002, Mr Embry asked for proforma invoice. Indeed an invoice was sent by the Defendant to Idris on 8 July 2002. It is interesting to note that in this invoice the goods were described as "Nokia 3310, 14 days, 1 x Battery / 1 x Travel Charger with boxes". Also the term of payment as stated in this invoice was "please settle the full payment by T/T to the following bank accounts ... ". The invoice also contained a remark "Upon acknowledgement; our company will not be held liable for shortage / damages of goods". As I mentioned earlier, I do not think that this remark could give rise to any triable issue or defence.

16. According to the affidavit of Mr Embry filed in reply to the affirmation of the Defendant, he admitted having discussions and negotiations with the Defendant. However according to him, the Defendant did not tell him that the goods were second-hand goods. The Defendant merely told him that the goods were "14 days returned goods". He said that there was a world of difference between that and second-hand goods in that the 14 days returned goods were goods received back from buyers within 14 days of their purchase and that the goods of this type were generally functional and almost brand new and that although some may contain minor defects they would normally be repaired before they were re-sold." It may well be that there was no real difference between Mr Embry and the Defendant as to what was said about the goods being second-hand or 14 days returned goods. Plainly 14 days returned goods were at least a kind of second-hand goods. The fact that in the invoice of 8 July 2002, there were the words "14 days" in the description of the goods would tend to support the recollection of Mr Embry on this point. Mr Embry also said upon receiving the invoice of 8 July 2002, he sent an e-mail to the Defendant on 9 July 2002 as follows:

"Would you please invoice CAPATEL LIMITED for the above mentioned stock instead of IDRIS as stated previously. Payment will be made by CAPATEL LIMITED.

Selling price to CAPATEL is 68.94 USD cif Zurich as per our agreement." (emphasis added).

17. This e-mail gave strong support to the Plaintiff's case that notwithstanding that the prior negotiation on the contract was between Idris and the Defendant, the Defendant must know that the contract of sale was to be entered into between the Defendant and the Plaintiff.

18. It is not clear as to whether the Defendant did receive this e-mail. In her submission before me, she told me that she had not received it. However, although the suggestion that Mr Embry had sent her this e-mail was made in the affidavit in reply to her affirmation she had made no affirmation to deny that such e-mail had been sent or received by her. Mr Embry's affidavit was filed on 1 November 2002 some 10 days before the hearing before the Master. She should have sufficient time to apply for leave to file an affirmation in reply on this rather important point. She was legally represented in the Court below and in the ordinary course of event, I would expect her solicitors to be able to pick up the significance of this e-mail and would take instruction from her. However, her contemporaneous conduct at the material time would strongly support the suggestion that in fact she had not received the e-mail because her conduct subsequent to it was not consistent with her having received the e-mail. First, notwithstanding that the e-mail told her that payment would be made by the Plaintiff, on 11 July 2002 she sent a fax to Idris asking for payment. In this fax, she said:

"Your inspector already checked the goods by (sic) passed. Please prepare to settle the payment. If we receive this payment we will arrange the shipment soon. Please send the remittance slip to us ... "

This fax was dated the same date as the Purchase Order PO207/03 signed and issued by the Plaintiff. Plainly the Defendant treated Mr Hoarau as an inspector sent by Idris and not as a representative from the Plaintiff negotiating a contract with the Defendant. Further, the fax asked for payment from Idris and not from the Plaintiff.

19. There could of course be no dispute that on 11 July 2002 the Plaintiff transferred from its account with the HSBC the sum equivalent to US$25,000 to the Defendant. It may well be the case that by the time of the fax of 11 July 2002, the Defendant was still not aware of the transfer of the money. Hence she was demanding the full amount of the price.

20. On 12 July 2002, the Defendant sent another fax to Idris demanding Idris to settle the balance of the price in the sum of US$133,562 saying that the forwarder had already collected the goods and was waiting for the Defendant's instruction. The fact that the demand was made to Idris would indicate that at least the Defendant did not regard the Plaintiff was the paying party as suggested in Idris' e-mail of 8 July 2002.

21. Furthermore, even though Idris' e-mail asked the Defendant to invoice the Plaintiff, from all the documents put before me it does not appear that the Defendant had ever done so. If indeed the Defendant had actually sent the Plaintiff an invoice, I would have expected that in the various affidavits in reply the Plaintiff would have exhibited the invoice as such invoice would have a very great probative value in showing that the Defendant would regard the Plaintiff as the purchaser with whom the Defendant had entered into the contract. If the Defendant regarded the Plaintiff to be the purchaser at the time, or had received the e-mail from Idris I could not see any reason for the Defendant not issuing an invoice to the Plaintiff.

22. Thus in the circumstances notwithstanding that the Defendant had not sought leave to deny on oath the receipt of the e-mail from Idris I am of the view that it is at least arguable that the e-mail was never sent, or if sent never received. Furthermore, the Defendant's conduct in negotiating and agreeing on, at least the important terms of the contract, such as the quantity and the price with Idris, and subsequently her invoice and demand made to Idris for payment did support the Defendant's case that the contract was made with Idris and not the Plaintiff.

23. Furthermore, when the goods were found by Idris to be defective, there was a series of direct communications between Idris and the Defendant on the defects. Although in the circumstances of this case this may not be conclusive in showing that Idris was in direct contractual relationship with the Defendant, at least this would lend some support to the Defendant's case that in fact Idris was the party with whom she had made the contract of sale.

24. On the other hand, the Plaintiff also heavily relied on (a) the issue of the purchase order No. PO207/03; (b) the payment of the goods by transferring money to the Defendant from the Plaintiff's bank account; (c) the Defendant's acknowledging the receipt of US$25,000 on a copy of the purchase order, (d) the e-mail of 9 July 2002 referred to above from Idris to the Defendant; and (e) the invoice sent by the Plaintiff to Idris said to be for the same goods dated 11 July 2002 as showing that it was clear that the role of Idris was merely that of the Plaintiff's sub-purchaser and that the contract was made between the Defendant and the Plaintiff.

25. I must say that these are good materials to support the Plaintiff's case. However, I am unable to say that in the circumstances they either singly or cumulatively would have the effect of showing that there was no triable issue that the real contracting parties were Idris and the Defendant.

26. While no doubt the Defendant must be in receipt of the purchase order, there was nothing to show that this document was accepted by both the Plaintiff and the Defendant as the contract. The document was never signed by the Defendant. It contained terms which were materially different from what was previously discussed between the Defendant and Idris in that there was nothing in this purchase order to say that the goods were either second-hand or 14 days returned goods. Since the Defendant clearly discussed with Mr Embry that the goods were such kind of second-hand goods, it would be more than surprising that the Defendant would be prepared to contract to sell goods whose description would suggest that they were to be brand new goods.

27. Although in fact the Plaintiff made a payment of US$25,000 on 11 July 2002, the Plaintiff did not make payment of the balance on 12 July 2002 as required in the purchase order. On the face of the purchase order the goods were sold on cif Zurich terms and delivery was to be 11 July 2002. According to Mr Hoarau he gave a cheque for the balance sum to the Defendant on 11 July 2002 and promised the Defendant to transfer the balance sum to the Defendant on 12 July 2002 after arrival and inspection of the goods at Zurich scheduled for 12 July 2002. He also said that he was shown an instruction to a forwarding agent by the Defendant on 11 July 2002. Of course if the contract was really contained in the purchase order, on standard cif terms payment was against the documents and thus there was no right to demand that payment was only to be made upon inspection of the goods after arrival. At any rate it was not realistic that the goods could arrive at Zurich and inspection be completed by 12 July 2002 even though the goods were collected by a freight forwarder on 11 July 2002.

28. On the other hand the Defendant's case was that it was by practice of the trade and was orally agreed that the goods must be fully paid for before they were to be released to Idris. This was entirely consistent with her conduct in demanding the balance payment from Idris on 12 July 2002, notwithstanding that she was given a cheque as security on 11 July 2002 as suggested by Mr Hoarau, and that since no money was paid to her, she banked in the cheque on 19 July 2002 on the day of the arrival of the goods and before the same was released to Idris on 22 July 2002, the next working day. The Defendant's fax of 12 July 2002 and her conduct then before any problem arose would be against Mr Hoarau's suggestion that there was an agreement that the balance of the price was to be paid when the goods arrived at Zurich, and were opened and inspected.

29. At any rate, given the stance of the Defendant that Mr Hoarau was an inspector or agent of Idris, the acceptance of money from the Plaintiff would not be conclusive in showing that the Plaintiff must be the contracting party. There was nothing unusual in payment being effected by an agent or a third party in a contract for sale of goods. In fact the practice of having payment by confirming houses is a very good example.

30. I have already set out my views on the conclusiveness of the e-mail. In relation to the other documentation, such as the invoice issued by the Plaintiff to Idris to indicate their relationship, I noted that the copy invoice produced has 2 rows of fax header on it, indicating that it had been faxed by the Plaintiff twice to Idris. There was no satisfactory explanation given to me for this. Furthermore, on the face of this invoice, it could hardly be said to be conclusive in showing that the Plaintiff sold the goods to Idris before or at the same time as the Plaintiff buying the goods under the contract in dispute from the Defendant. This is because the material terms on description of the goods, and the delivery dates were different. The description of the goods sold by the Plaintiff to Idris according to the copy invoice was "1 x handset, 1 x std battery, 1 x charger, 1 x user's guide - 14 days return". There was thus the difference in the description relating to the charger and further that the goods described in the invoice were expressly stated to be "14 days return". Apart from the description, the date of delivery was also different. The delivery date under the purchase order was "July 11 2002", while those under the invoice was "June 7th". It is of course possible that an invoice could be issued on 11 July 2002 in respect of goods delivered on 7 June 2002. However, plainly this would not be the same goods to be sold under the purchase order. One may well be tempted to think that the delivery date of June 7th stated on the invoice was a typographical error for July 7th. However, such suggestion had never been made. Moreover, if the invoice was indeed a genuine one issued by the Plaintiff to Idris in a back to back transaction, it is difficult to see why the Plaintiff would put down a delivery date different from that provided in the contract between the Plaintiff and the Defendant. On 11 July 2002, plainly the Plaintiff knew that the goods could not have been shipped or delivered on July 6. Thus the production of this copy invoice in fact raised more questions and queries on the Plaintiff's case than it answered.

31. Of course the fact that there was subsequently a demand made by Idris to the Plaintiff for the loss would give some support to the Plaintiff's case. However, again the documents produced by the Plaintiff gave rise to certain queries as to whether there was any genuine transaction and payment made by Idris in relation to this transaction. The relevant document was exhibit DH-9 of the 1st affidavit of Mr Hoarau. Exhibit DH-9 purported to be an invoice from Idris dated 29 August 2002 to the Plaintiff. Although there was no translation for this document it is reasonably clear that the invoice was for the amount of the goods in the sum of EUR174,800, plus the amount of transportation cost in the sum of EUR2,470, and the amount for some report in the sum of EUR480. This invoice did suggest that Idris must have paid the Plaintiff, and indeed the way Mr Hoarau described the invoice, viz. that it was for the loss suffered by Idris, would also support such inference that Indris had paid the Plaintiff. However, in the subsequent affidavit of Mr Embry of 1 November 2002, he said:

"As a result of the rejection of the Goods, Idris did not pay the Plaintiff and has claimed against the Plaintiff for compensation for breach of contract in supplying defective goods. Idris has invoiced Capatel for the losses and exhibit "DH-9" is a copy of the relevant invoice." (emphasis added).

Thus according to Mr Embry, the Plaintiff had never been paid for the goods at all. Of course the invoice "DH-9" suggested to the contrary. If indeed the Plaintiff was in fact paid, the question was when and how was the Plaintiff paid? As the Plaintiff was keen in demonstrating that it was an independent party in a back to back transaction, it was slightly surprising that the Plaintiff's side would only produce the invoice but did not furnish any evidence of the payment made to it for the goods.

32. Thus I am of the view that there is clearly a triable issue on who was the contracting party buying the goods from the Defendant.

33. Since I have come to this view that there was a triable issue on the identity of the contracting party, it is strictly speaking not necessary for me to consider the question of the breach of the contracting terms. However, since the matter had been argued before me, I would like to indicate my view on this point too.

34. On this issue, I am of the view that there must be a triable issue on whether this was a case of sale by sample. However, since the Plaintiff also relied on the implied term of merchantability and fitness for the purpose, the finding of a triable issue on sale by sample would not assist the Defendant.

35. I am of a clear view that the Defendant sold the goods in the course of her business, hence there was no question that the contract contained the implied term that the goods supplied must be of merchantable quality. However, since there was no evidence put before me as to how the negotiations for the contract took place, I would not be able to say that there was such clear evidence that there could be no triable issue that the "buyer" (whether it be the Plaintiff or Idris) had expressly or by implication made known to the Defendant the purpose for which the goods were being bought. Hence, I would not be able to find that there was no triable issue that the contract must contain an implied term that the goods must be fit for any particular purpose.

36. The Sale of Goods Ordinance does not define the meaning of "merchantable". In England section 14(6) of the Sale of Goods Act 1979 (as it applied before the Sale and Supply of Goods Act 1994) provided that:

"Goods of any kind are of merchantable quality within the meaning of subsection (2) above if they are as fit for the purpose or purposes for which goods of that kind are commonly bought as it is reasonable to expect having regard to any description applied to them, the price (if relevant) and all the other relevant circumstances."

[N.B. the section had been amended by the Sale and Supply of Goods Act 1994 which replaced the concept of "satisfactory quality" for "merchantable quality". Hence, the sub-section quoted above no longer appeared in the current version of section 14 of the 1979 Act].

37. In the 4th (1992) edition of Benjamin's Sale of Goods the editor considered that the statutory definition given to the term "merchantable quality" to some extent consolidates and states the result of a body of case law doctrine (see paragraph 11-035). While the previous case law may give a bit of fine tuning to the meaning of the term, I am of the view that this statutory definition is a very handy starting point for considering what is the meaning of merchantable quality in the context of section 16(2) of the Sale of Goods Ordinance in Hong Kong. So far as this case is concerned, the relevant part is the reference to the element of "having regard to the description applied to the goods".

38. As I have pointed out earlier, there was a dispute as to what was the description of the goods to be sold. The Plaintiff's pleaded case suggested that the goods to be sold were new goods. The Defendant's case was that the goods were to be second-hand goods and this may well mean "14 days return goods". If I can come to a clear view that the goods sold were to be as described in the purchase order relied on by the Plaintiff, having regard to the result of the finding of both the SGS surveyor and also Allied Survey Co. Ltd, I have no doubt that the goods supplied were not merchantable, and it would follow that there was no triable issue on whether the Defendant must be in breach of at least the implied term that the goods must be merchantable.

39. However, on the basis that the goods to be sold should be 14 days return goods, I am unable to say that there was definitely no triable issue on the merchantability of the goods. This is because although the defects from whichever point of view were serious, I do not think that there was any clear meaning on "14 days return goods". If this were the only issue in this case, I would have come to the view that there is a triable issue here but the Defendant's case on this issue was shadowy so that I would have to consider whether I ought to grant conditional leave.

40. In the circumstances of this case, I would not grant conditional leave even if I should find that the defence is shadowy because I am satisfied that the financial position of the Defendant is such that the Defendant could not afford to make any payment of the amount claimed or a substantial part thereof into Court. In the circumstances, granting of such conditional leave would in fact mean to give judgment for the Plaintiff (see Wu Cho Mei t/a Mui Far Chung Restaurant v Wang Siau Yu [1994] 1 HKC 188).

41. Finally I would add that even if which is not the case, I am satisfied that there was no triable issue on liability, I am of the view that it would be wrong to grant summary judgment to the Plaintiff on the amount claimed. In view of the close relationship between the Plaintiff and Idris, the fact that Idris appeared to be the party negotiating the price with the Defendant and the unsatisfactory documentation, I am satisfied that there were triable issues or at least some other reason for a trial in relation to the claim for loss of profit by the Plaintiff.

42. In relation to the 2nd contract for the supply of the SIM cards, the Plaintiff's case was that this contract was made orally between the Plaintiff and the Defendant. The Defendant's case was that the contract was made between her and Idris. Although the Plaintiff was able to show an invoice from the Plaintiff to Idris, I am far from being satisfied that there was no triable issue on who was the contracting party. Furthermore, on the question of the defects, the only evidence before me was the perfunctory verification of the statement of claim which contained the statement that the cards were defective because it was impossible to enter 4 different phone numbers in each of the SIM cards. If this was a contract for sale of SIM cards I do not see how this would make the SIM card not merchantable, if it otherwise could be used as a SIM card although it could not be used to house 4 numbers in it. The Plaintiff seemed to rely on the description "SIM Cards (4 in 1)" as indicating that the SIM card must be able to allow 4 numbers to be entered in it. However, since the contract was made orally there was no clear evidence on the exact description of the goods. At any rate, I note that the Plaintiff had not relied on the implied term of that the goods must correspond to its description (of section 15(1) of the Sale of Goods Ordinance), but merely relied on the implied term of merchantability and fitness for the purpose. There was no material before me to indicate that the Plaintiff had expressly or by implication indicated to the Defendant that the goods were bought for housing 4 numbers in one SIM card. In the circumstances, I am not even able to come to a view that there was no triable issue on the existence on such implied term of fitness for the purpose.

43. Hence in relation to the 2nd contract, I am of the view that there were triable issues on both the identity of the contracting party and also on the alleged breach of the terms of the contract.

44. Accordingly I am of the view that the appeal must be allowed. The Defendant should be granted unconditional leave to defend. I will also make an order nisi that the Defendant should have the costs of this appeal. As to the costs before the Master, I would make an order nisi that it be costs in the cause.