XCHRX TRIDENT MICROSYSTEMS (FAR EAST) LTD v. ONSPEED TECHNOLOGIES CO. LTD

HCA 523/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.523 OF 2001

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R E A S O N S   F O R    J U D G M E N T

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1. This is an appeal by the defendant from the decision of Master Cannon given on 11 October 2001 where, upon the plaintiff's application for summary judgment under Order 14, she gave to the defendant conditional leave to defend, the condition being that the defendant pays into court within 28 days the amount claimed by the plaintiff in the sum of $4,319,835.89.

2. After hearing the parties in submission, I dismissed the defendant's appeal, affirmed the order given by the learned Master save and except that the time for meeting the condition start to run from the time the appeal was dismissed. I indicated that I would give my reasons in writing later. I do so now.

The plaintiff's claim

3. The plaintiff's claim is for the balance of outstanding payment for goods sold and delivered to the defendant in the amount of HK$4,319,835.39 (or its equivalent US$553,825.11). There is no dispute that the goods, being electronic components parts for computers, have been delivered to and received by the defendant.

4. The plaintiff further relies on a "Settlement Agreement" which was entered into between the parties in February 2000 under which the defendant admits to owing the plaintiff US$1,001,318.73 at that time for goods already delivered to the defendant. Since that Settlement Agreement, the defendant had paid to the plaintiff HK$3,490,450.20 leaving outstanding the amount now claimed by the plaintiff.

5. The Writ (with Statement of Claim attached) was issued by the plaintiff on 2 February 2001.

The Defence

6. A Defence and Counterclaim was filed by the defendant on 2 March. The defence raised therein was that the plaintiff had on many occasions late delivered the goods, the subject matter of the claim, and that many of such goods delivered were defective or of substandard quality. Those pleas were made in the Defence with a complete lack of particulars being given.

7. Secondly it was pleaded that the Settlement Agreement was signed by a former employee of the defendant, one Allen Tse, without the authority of the Board of Directors or the knowledge of the defendant as were the cheques and payment subsequently made. Once again that plea was wholly lacking in particulars.

8. As a result of the plaintiff's delays in making delivery of the goods and the short delivered goods, the defendant had suffered loss and damage by reason of claims and complaints from its customers. The defendant counterclaimed against the plaintiff for such loss and damage. Once again no particulars were given and no quantification of the amount counterclaimed except that it was pleaded in the Counterclaim that such damages were to be assessed.

The application for summary judgment

9. The plaintiff applied for Order 14 judgment by Summons dated 28 May 2001 supported by an affirmation of Lau On Tak Alvin, a director of the plaintiff who dealt with the sale of the plaintiff's goods to the defendant. One of the point made in this affirmation of Lau On Tak Alvin was that the defendant had never complained to the plaintiff of delay in delivery of the goods, short delivered goods or defective goods until it was pleaded in the Defence and Counterclaim. Also that the defendant never attempted to return any such alleged defective or substandard goods to the plaintiff. That affirmation of Lau On Tak Alvin was dated and filed on 29 May 2001.

10. In opposing the plaintiff's application for summary judgment, the defendant filed two affirmations.

11. The first, an affirmation of Po Chi Wah dated 20 June 2001, being the warehouse supervisor of the defendant deposes that over the last few years the defendant has been receiving in its warehouse, electronic component parts from the plaintiff including VGA chips. Some of these goods were found to be defective, unstable, substandard, malfunctioning or dead. Such defective goods started to pile up in the warehouse and that there are now 3,425 pieces of defective/malfunctioning VGA Card and 7,079 pieces of dead chips. This he estimates to be about 3% to 5% of what has been supplied by the plaintiff.

12. The second affirmation sworn by Ms Lam Yuen Man, an Assistant Accountant Manager of the defendant, firstly identifies in paragraph 4 therein two invoices of the plaintiff (Invoices Nos. 501847 and 501870) as being problematic. Particulars are given there as to the amounts of short shipment in respect of each of these two invoices and a nine-month delayed shipment in respect of the former.

13. Paragraph 5 of Ms Lam's affirmation give details of delays and short shipment in respect of eight Purchase Orders stated therein and because of the plaintiff's persistent failure to deliver goods on time, the defendant had to put down the words "A.S.A.P." on the delivery schedule. On occasions the plaintiff was over six months late.

14. In paragraph 7 of the same affirmation Ms Lam states that in her job, she is responsible for issuing cheques of the defendant. Those cheques are usually signed by Allen Tse and Albert Li but Mr Li has no knowledge of the transactions for which the cheques are paid since he does not come into the office and takes no part in its operations. Mr Li normally signs eight to 10 blank cheques to be used by Mr Tse. Those transactions were handled by Mr Tse alone.

Decision

15. The Purchase Orders and delivery of the goods in question all took place in 1998 and 1999. There is not one iota of evidence or even one letter from the defendant to the plaintiff complaining about delayed delivery or short delivery of goods. Neither is there any explanation in any of the affirmations filed by the defendant why that was so.

16. There is no evidence before me of any attempt made by the defendant of returning to the plaintiff the alleged defective goods which according to the defendant has been piling up in its warehouse for the past few years, nor any explanation why such goods have not been returned.

17. At the hearing before me, Mr Leung Jackson-Lipkin who appeared for the defendant attempted to demonstrate to me the short delivery relating to Invoice 50184 by referring me to Exhibit "LYM-1" referred to in the affirmation of Lam Yuen Man, being an Account Receivable Report dated 17 June 2001, a document of the defendant, which on the face of it appears to support the short delivery of the goods referred to in paragraph 5 of her affirmation.

18. However, Mr Vaughan who appeared for the plaintiff drew my attention to another document of the defendant, Exhibit "LYM-3", being a Delivery Summary dated 17 June 2001 which not only showed quite clearly that there was no short delivery, but rather supports the plaintiff's case that the goods were not all delivered at one go but by different installments over a period of time and that a separate and different invoice is issued for the different deliveries. It follows therefore that "LYM-1" the Accounts Receivable Report is an incomplete document where the completeness of the deliveries are concerned.

19. In so far as the lack of authority defence raised is concerned, apart from what is pleaded in the Defence and Counterclaim, there is no evidence put up by the defendant to show that Allen Tse was not authorized by the Board of Directors of the defendant to enter into the Settlement Agreement or to make the subsequent payments to the plaintiff.

20. Quite apart from that, in none of the documents or pleadings of the defendant was it mentioned that Allen Tse was in fact a former director of the defendant. This was only mentioned in one of the later affirmations filed by the plaintiff. At the hearing, I was told by Mr Leung Jackson-Lipkin that the defendant does not dispute that Allen Tse was a former director of the defendant. In the circumstances, the defendant has not even begun to deal with, let alone overcome the difficulty which they face as regards the implied or apparent authority of Allen Tse being a director to bind the defendant by acts which are consistent and are normally expected to be performed by a director vis-à-vis a third party as in signing the Settlement Agreement and making the subsequent payment to the plaintiff. Not only was it conceded by the defendant that Allen Tse was a former director of the defendant, but it was also conceded that Albert Li was also such a former director as well.

21. In all the circumstances of this case, particularly the way in which the defence case had been presented, I share the same feeling as no doubt the learned Master had, that the defence is shadowy and suspicious and that the bona fides of the defendant is seriously called into question.

22. While I accept, as did the learned Master (a matter which the plaintiff did not seek to argue to the contrary at the appeal hearing before me) that there was just barely sufficient material contained in the affidavits filed on behalf of the defendant to show a triable issue, I am left in no doubt that the learned Master was entirely correct in making the order that she did granting only conditional leave to the defendant to defend.

23. As for the condition imposed, I can see no other alternative but that the full amount of the claim should be ordered to be paid in to Court given all the circumstances of this case as has been referred to above.