POLICYD S.A. DE C.V. v. KWAN KIM HUNG t/a KING TAI CO

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.11225 OF 1997

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JUDGMENT

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1. On 4^th March 1998, Registrar Betts heard the Plaintiff's Order 14 application and ordered final judgment in the action to be entered against the Defendant for the amount of US$73,216.00, together with interest on the said amount at the judgment rate from 1^st August 1997 to the date of payment, and the costs of the application to the Plaintiff, to be taxed if not agreed.

2. By a Notice of Appeal dated 7^th March 1998, the Defendant appeals against the Order of the learned Registrar, and asks that the decision of 4^th March be set aside, that the Defendant be granted unconditional leave to defend the action, and that the costs of the Plaintiff's Order 14 Summons filed on 5^th December 1997 be to the Defendant with certificate for Counsel, and that the costs of this appeal be to the Defendant in any event.

3. This, then, is the judgment upon that appeal.

4. The background facts are in relatively short compass. As outlined by Mr Chua in his excellent skeleton submission, on 30^th July 1996 the Plaintiff, a Mexican company, contracted to sell to the Defendant 83.2 metric tonnes of a PVC paste resin at US$88 per metric tonne, amounting to a total consideration of US$73,216. The goods were shipped and the bill of lading issued on 8^th September 1996. Payment was due to the Plaintiff from the Defendant on 8^th December 1996, three months after the issue the bill of lading. However, no payment was received, and in these proceedings the Plaintiff claims for the purchase price.

5. I add at this stage that there were discussions between the parties, and correspondence between July 1997 to October 1997 between the Plaintiff's solicitors and the Defendant relating to the payment of the contract sum of US$73,216. In the event, these discussions came to nothing, although negotiations for payment were apparently quite advanced, and were concerned with the question of the mechanics of payment, when eventually the writ was issued on 23^rd October 1997.

6. The basis of the Defendant's contention on this appeal, which I remind myself is in the form of a re-hearing, is that it has a valid defence and counterclaim. Let me deal first with the substance of that alleged defence and counterclaim before coming on to the more thorny issue of the evidence relating to the parties' settlement discussions.

7. Mr Ho, who appears on behalf of the Defendant Appellant, puts his case this way. He says, first, that the resin that was sold by the Plaintiff to the Defendant, but which of course the Defendant has yet to pay for, has caused very considerable problems. What has happened apparently is this. The resin has been on-sold to the Defendant's customer, one Gingell Die-Casting Mty Ltd., who in turn had a customer, Creata Promotions Hongkong Limited. To cut a long story short, the "Bathtime" plastic dogs, which had been made using the resin which had been purchased from the Plaintiff, turned out to have undesirable black spots, causing the end-user, Creata, to reject them. They were, I suppose it is fair to say, spotty dogs. I understand further that substitute plastic dogs were made by Gingell and were shipped to Creata by air to make up for the time lost.

8. I also understand, and am told on affidavit, that Gingell, as it is alleged it was entitled to do, claimed against the Defendant, King Tai, in the total sum of HK$697,236.02. Quick mathematics reveals that this sum is substantially in excess of the Hong Kong dollar equivalent to the Plaintiff's claim, which is HK$566,691.84. Mr Ho relies on an exhibited fax letter dated 20^th December 1996 from Gingell which purports to give a breakdown of the figure claimed by Gingell against the Defendant, The Defendant's evidence is that this sum was not actually paid in cash terms to Gingell, but that since the Defendant had a running account with Gingell, Gingell was simply permitted to offset the said sum of $697,236.02 within that running account in satisfaction of Gingell's claim. The end result of this, says Mr Ho, is that since the deficient goods had their origin in what is said to be the defective resin, which has caused his client loss and damage in the manner outlined, this provides his client with a complete defence by way of set-off.

9. He has another string to his bow, although it is a lesser point. He says that there were two late shipments unrelated to the shipments the subject of this claim by the Plaintiff, the result of which was that the Plaintiff had to ship different goods to the Defendant as a substitute, cumulating in the loss of some US$31,500. In this instance however, Mr Ho, I think, accepts that this alleged loss could, at best, constitute no more than a counterclaim by way of set-off rather than a complete defence.

10. In his attractive address in response, Mr Chua attacks the lack of particulars underpinning these allegations as to defective goods and late delivery, and further complains of the absence of any contemporaneous complaint. He also draws my attention to the absence of any reference thereto in the correspondence that was exchanged between those instructing him and Mr Kwan of the Defendant, wherein the issue of settlement had been discussed. There is a dispute between the parties as to whether this correspondence, which I apprehend commenced by a letter of 21^st July 1997 from Messrs Lui & Carey to Mr Kwan Kim Hung, is or is not 'without prejudice'. What seems to have happened is that a settlement proposal was made to the Plaintiff by the Defendant via a Mr Joe Kwan of the Plaintiff's agent in Hong Kong, one Cheung On Trading Company. Thereafter, I understand that the discussion was carried on by Mr Kwan with Messrs Lui & Carey until, as he says on affidavit, he had to go away and the discussions "were continued by my employee Yip" when he was away. Mr Kwan maintains on affidavit - Mr Chua again attacks this as a recent invention - that all negotiations were conducted on the basis that the Plaintiff would agree to give credit for the late and defective goods. Indeed, Mr Kwan says, on affidavit, that he did not wish to waste time and money on arguments as to who was right and who was wrong, and that the discussions in question were made purely out of a sense of commercial reality. It is noteworthy that the documents that had been placed before me, and which I have perused in their entirety, appear to concentrate solely on the mechanics of payment, namely, how many instalments were to be paid and so forth, the negotiations eventually foundering on the issue of post-dated cheques, and that there is no mention therein of the matters now deposed to by Mr Kwan.

11. I confess, however, that I am less than comfortable with attributing to this one-sided correspondence the conclusive admissions was attributed by the Plaintiff to the Defendant. Although Mr Chua makes the fair point that if he disagreed with anything in this documentation, it was always open to Mr Kwan to contradict it, nevertheless, as Mr Ho points out, the correspondence in question is one-sided and, he asserts, essentially self-serving. However, it seems to me, having read this correspondence and it having been solemnly exhibited to an affidavit, that it is a bit late in the day to start talking about admissibility. I realise that I am not a jury and can exclude it, but I should have thought that if there was anything in the admissibility point, there would have been an earlier motion to get it removed from the affidavit. In any event, rather than tangle with the strongly disputed legal classification of this material, suffice it to say that I am minded to give its one-sided nature the weight I think it deserves and, at this stage and for these purposes, simply place this correspondence into the broad factual mix along with everything else.

12. Which brings me, I suppose, to the central question: was the learned Registrar right to give judgment in the way that he did? Certainly I can see how and why he chose to do so, and I may say that had I been sitting at first instance, instead of on appeal, I, too, might have been very nearly prepared to give judgment for the Plaintiff, if not to go the whole hog, so to speak. It seems to me that it is a matter of feel and of evaluating the evidence, such as it is, which has been placed before the Court by the Defendant who, as Mr Chua correctly points out, bears the onus of demonstrating triable issues. All of which is a rather long-hand way of saying that, at bottom, I do not agree with the Registrar, although, if I may respectfully say so, such disagreement is not by much.

13. I think that in the circumstances the correct and just course in this case, bearing in mind all that Mr Ho had said on behalf of his client, and indeed all that Mr Chua had said in support of the judgment, and after reviewing the evidence, is to give conditional leave to defend. In my judgment, the appropriate order is that the Defendant should have leave to defend this case conditional upon the payment into Court of the sum of US$73,216.00. In short, I have, on this material, almost been persuaded to uphold the judgment, but not quite.

Order

14. Accordingly, my order on this appeal is that the decision of the learned Registrar is to be set aside, and that the Defendant is to have leave to defend these proceedings conditional upon paying the full sum claimed, namely, US$73,216.00, into Court. I will now hear Counsel upon matters consequential to this decision.

[Submissions from Counsel]

15. I have now had the advantage of hearing from Counsel on matters consequential to my order that the Defendant should have conditional leave to defend. Two issues are relevant.

Payment In

16. The first is the period within which the Defendant is to pay this sum of money into Court. Mr Chua suggested 14 days and Mr Ho, sensibly I think, asked for longer, particularly since I understand that some of his client's assets have been charged under Charging Orders nisi. I think that it is proper in the circumstances that Mr Ho's client should have 28 days to pay this sum of money into Court, the same to be held in an interest bearing account. I further order that in the absence of such payment into Court within the time limit, and subject to any interim application that may be made, that the judgment below is to stand, and, I think it must follow, that the appeal herein also will stand dismissed.

Costs

17. I turn now to the question of costs. It seems to me appropriate in the circumstances, and both Counsel agree, that the sensible thing to do is to make clear my orders in the alternative scenarios that may occur. On the basis that Mr Ho's client, the Defendant herein, complies with the order as to payment into Court as a condition of defending, in my view the appropriate costs orders are as follows:-

Charging Orders

18. It has been drawn to my attention that there has also been restored before me this afternoon the return date of two Charging Orders which were obtained by the Plaintiff against the Defendant before Master Jones, and which are both dated 20^th April 1998. As I understand it, the Defendant this afternoon also appears to show cause why these two Charging Orders should not be made absolute, although for obvious reasons this element of the case was stood down to await the determination of the Defendant's appeal. I will hear Counsel further upon this consequential matter.

[Further submissions from Counsel]

19. It must follow that if Mr Ho's client, the Defendant, complies with the condition I have ordered, the Charging Orders, which are themselves predicated on the existence of a judgment, must be discharged. Indeed, I think Mr Chua, with his customary fairness, accepts that proposition. However, Mr Chua finds himself in difficulties because, of course, at this stage he is not sure whether in fact the condition will be complied with, and he submits that he does not wish the Charging Orders nisi which are currently in place to be uplifted if indeed it transpires that the condition be not met by the Defendant.

20. Mr Ho, for his part, is in a similar Catch-22 situation. He says it may be -- and I emphasise that he has no present instructions on the point -- that his client will need the properties which are the subject of at least one of the charges to be freed from the charge in order for his client to raise the very sum of money which is the subject of the condition which needs to be met as a condition of leave to defend the action. It seems to me that perhaps this difficulty may be more apparent than real, because all that will happen, and no doubt any financial institution will be so apprised, will be that a Charging Order on properties presently standing in favour of the Plaintiff will be replaced by a similar type of order in favour of a financial institution for a like sum, save and except that in this case of course, the sum would be directed not towards satisfying the Plaintiff's judgment, but would be used for the purpose of payment into Court.

21. Be that as it may. I think that probably the best thing to do, in this rather unusual factual situation, is to leave the Charging Orders as they are pro tem, and to adjourn the application to show cause to a date to be fixed in consultation with the diaries of Counsel. Of course, it may be that the solicitors on the respective sides can agree an appropriate way of resolving this matter. Alternatively, it may be, as Mr Ho suggests, that the Defendant can raise the funds required to be paid into Court without reference to the properties the subject of the Charging Orders, in which case, if such funds are independently paid into Court, it must follow (and I would expect those instructing Mr Chua to consent to this) that the Charging Orders would go by consent. But that is to get ahead of myself. I accede to the suggestion of both Counsel that the restoration of the Charging Orders and, in particular, the requirement of the Defendant to show cause why they should not be made absolute, should be adjourned to a date to be fixed. I think also that it is safe at this stage, and if and in so far as any additional costs have been expended (which I doubt), to order that the costs of and occasioned by the restoration of this particular matter should be reserved.

22. That I think concludes matters for this afternoon. It remains only to thank both Counsel for their most helpful submissions.