XCHRX Guang Dong Wai Long Import & Export Corporation v. Willi Co. Ltd.

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 7256 OF 2001

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J U D G M E N T

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1. This is an application for summary judgment by the Plaintiff against the Defendant for the amount claimed in the Statement of Claim, i.e. US$40,147.42. Alternatively, at least according to the summons, the Plaintiff applies for judgment on admission based on certain correspondence between the parties.

2. In this case, the Plaintiff claims against the Defendant for the sum mentioned, being the total of the unpaid purchase prices of goods sold and delivered by the Plaintiff to the Defendant.

3. The delivery of the goods is not in dispute but according to the Defence filed by the Defendant, the Defendant did not contract with the Plaintiff for the sale and purchase of the goods. According to the Defendant, the goods were purchased directly from a factory in mainland China with whom the Defendant had placed various purchase orders, naming the factory as the supplier of the goods. For forex reason, according to the Defendant's evidence, the factory engaged the Plaintiff to export the goods on its behalf to the Defendant in Hong Kong and by agreement with the Defendant, the factory directed the Defendant to make payment of the purchase prices to the Plaintiff.

4. The purchase prices sued on in this case remain outstanding because subsequent to the delivery of the goods in the present case, the factory went into liquidation and became in the hands of a receiver; and according to the Defendant, the factory owed the Defendant's subsidiary over Renminbi 110,000. Apart from that, there were accessories stored by the Defendant with the factory for the sake of convenience which the factory or its receiver failed to return to the Defendant. So the Defendant refused to make payment, at least until the payment of the outstanding indebtedness to the Defendant's subsidiary and the return of the accessories.

5. In this application the Plaintiff says the Defendant's case is totally unarguable or incredible and asks me to grant summary judgment against the Defendant.

6. The gist of the Plaintiff's counsel's submission is that it is clear from the correspondence, particularly page 30 to page 34 of the Bundle of Exhibits, that the Defendant had admitted that the Plaintiff had exported the goods to the Defendant and that the Defendant had yet to pay the outstanding purchase prices to the Plaintiff.

7. In this sort of situation involving a manufacturer, an exporter and a foreign buyer of goods, there are, in my view, at least three possibilities. One is that the manufacturer simply sold the goods to the exporter who then resold the goods to the foreign buyer. In that case, there would be a direct sale and purchase contract between the foreign buyer and the exporter and if that was the correct analysis of the present case, the Defendant would have no defence to the Plaintiff's claim. All difficulties of set-off would be a matter between the Defendant as the foreign buyer and the manufacturer, the factory in the present case, and that would have nothing to do with the exporter, i.e. the Plaintiff in the present case.

8. The second possibility is that the manufacturer engaged the so-called exporter as an agent simpliciter in exporting the goods to the foreign buyer. In that case, there would be a direct contract between the foreign buyer and the manufacturer and, of course in that case, the exporter would have no locus standi whatsoever to sue the foreign buyer for the outstanding purchase price if there was any.

9. A third possibility would be that the manufacturer engaged the exporter as agent to sell the goods to the foreign buyer. The difference with the second possibility is that in the third possibility the exporter also contracted with personal rights and obligations under this contract of sale of goods between his principal and the foreign buyer. That is possible particularly when one is concerned with the export of goods to a foreign buyer who therefore is dealing with a foreign seller acting through an agent.

10. Under that third possibility, the agent, i.e. the exporter, could sue in his own name the foreign buyer for the outstanding price, but in such a suit it would be a defence to the claim by the agent that money was due and owing by the principal to the buyer which the buyer could make use of to set-off against the outstanding purchase price. The subject matter of set-off would be a matter of agreement between the principal/manufacturer and the foreign buyer and it could, by agreement, include indebtedness of the manufacturer to a subsidiary of the foreign buyer.

11. In the second scenario and the third scenario I have pointed out above, the respective claims by the exporter against the foreign buyer would, and depending on the circumstances, could fail. So in the present case, it all depends on whether the Defendant can arguably put its case within the second scenario or the third scenario I have pointed out above, or put another way, whether the Plaintiff can persuade me that the first possibility is the only possible scenario in the present case. I say this because if the third scenario is the correct analysis, then at least according to the matters and evidence put forward by the Defendant thus far, the amount outstanding and due to the Defendant and/or its subsidiary far exceeds the amount of outstanding purchase price in the present case. (In the second scenario, the Plaintiff's claim would fail.)

12. So far as the correspondence is concerned, I agree with Mr Chong acting for the Plaintiff that the court is entitled to look at the correspondence and if it consists of admissions about contractual relationships or about the terms of the contract, the court is entitled to give such weight to it as it thinks fair and just.

13. On the other hand, the question as to which scenario this case falls within is a question of law based on the primary facts. It is not purely a question of factual admission by any party as such. So to take an extreme case, even if all parties were to agree that this case should fall within scenario one, it would not preclude a court, having looked at all the evidence and surrounding circumstances, including the documents, from concluding that, for example, the case actually falls within scenario two. And in the present case one has the added complication that the transaction by and large took place in mainland China and although thus far no evidence of mainland Chinese law has been put forward (and I am happy to assume that Chinese law is the same as local law for the purpose of this hearing), if I gave leave to defend, then at the trial it would be open to the Defendant to lead evidence as to what actually the PRC law is in this regard and what procedure should be followed when one exports goods in the Mainland. Moreover, in fact, in the evidence put forward by the Defendant, the foreign exchange regulations or procedure in mainland China has already been mentioned, although no elaboration has been given.

14. Mr Chong rightly pointed out to me that if the Defendant was relying on a set-off and thought that it was entitled to a set-off, why was it that there was no set-off actually done? But I am not conducting the trial of this action. I am just here to see whether there is an arguable case or no arguable case.

15. Returning to the correspondence, although there are passages which one can construe as admissions on the part of the Defendant that the Plaintiff may well have been a contracting party with the Defendant and that the Defendant is owing money to the Plaintiff, that would not be conclusive. One would still have to consider all the surrounding circumstances; and in this case, I do have to consider all the documents and the evidence and, in particular, I do have the purchase orders placed directly with the factory by the Defendant to take into account in considering those alleged admissions.

16. Although Mr Chong pointed out that in those purchase orders the factory was called a supplier or manufacturer, whether a court at trial would conclude that the purchase orders were actually given to a seller would still be a debatable point and moreover, Mr Chan (for the Defendant) has pointed out to me the fact that the Plaintiff does not seem to have been the only exporter used by the Defendant in the present case. Other exporters seem to have been used. So in relation to the transactions, the only common factors would seem to be the factory and the Defendant. The exporters could vary. That may or may not have a bearing in determining ultimately whether the present case falls within a particular scenario I have pointed out above.

17. For all these reasons, in my view there is at least an arguable issue as to whether the Plaintiff was only acting as an agent in the transaction or was acting as a principal, and if the Plaintiff was acting as an agent, whether the Plaintiff contracted with personal rights and liabilities under that contract, and if it does, whether there was a sufficient amount of money and assets due and owing to the Defendant (or its subsidiary) which could be used to set-off in part or in total the claim for the outstanding purchase prices.

18. Given the conclusion I have reached, I have refrained from going into the evidence and the issues further, lest it would prejudice the further conduct of the present proceedings. I think I have said enough to indicate why, in my judgment, there is an arguable issue or there are matters arguable which ought to go to trial.

19. For the same reason, I am not minded to grant judgment in favour of the Plaintiff based on the so-called admissions. In my view, the question cannot be decided by admissions in the present case. It has to be decided by an analysis of all the evidence in accordance with legal principles and possibly in accordance with PRC law if it does not accord with local law in this regard.

20. So for all these reasons, I am not minded to grant the application. What I will do is to give the Defendant unconditional leave to defend.

21. I will dismiss the application for judgment based on admission.

(Discussion re directions)

22. Leave to the Plaintiff to file and serve a Reply within 21 days from the date hereof.

23. Parties to file and serve a List of Documents within 14 days after close of pleadings and inspection within 7 days thereafter.

24. Signed witness statements as to fact be filed and served (not exchanged) within 49 days after inspection of documents. Such statements do stand as evidence-in-chief of the makers thereof if called, subject to any further or contrary direction by the trial judge.

(Discussion re amendment of time periods allowed)

25. These are the directions I need to give for the time being. Leave to parties to apply for further directions.

(Discussion re costs)

26. On the question of costs, I have heard the parties' arguments. The matter has to be judged at the time when the application was made. At the time when the application was made, a Defence had been put forward. It did not refer to the purchase orders given by the Defendants to the factory. It merely tried to explain away the invoices issued by the Plaintiff to the Defendant and on the face of the invoices it is difficult to see how the contracting parties were not the Plaintiff and the Defendant.

27. Furthermore, at the time when the application was taken out, the Plaintiff, quite understandably, was relying heavily on the correspondence, page 30 to page 34, in support of their case. I think that was understandable and although they did not succeed today, that was only after much argument.

28. So in the exercise of my discretion, I think the only fair and reasonable order to make which reflects the cause of the application as well as the hearing today is an order that the costs of the application be in the cause. I should add that although I formally dismissed the application for judgment based on admission, no extra argument was put forward this morning in relation to it, nor can I find really any extra argument or costs wasted on this part of the application in the evidence. So although I have dismissed the application for judgment based on admission, that does not affect my exercise of discretion relating to the costs as a whole.

29. So costs of the application be in the cause.

(Discussion re certificate for counsel)

30. As to the question of certificate for counsel, Mr Chan has been handling the case very well and competently but in my view that should not be the test. There must be some area of overlapping, in fact I would have imagined that the area of overlapping would be quite substantial, where both solicitors and counsel are competent to do the same job. So in my view, the question is not whether a solicitor is competent to do the job, rather the question is whether it is unreasonable or totally unnecessary to engage counsel to do the job. So based on that and bearing in mind the arguments and the issues raised in the application and the hearing today, I think in all fairness to Mr Chong, I should grant a certificate for counsel.

31. I do not think parties need me to repeat but perhaps for the record I repeat my orders:

1) Unconditional leave to the Defendant to defend.

Application for judgment based on admission be dismissed.

2) Leave to the Plaintiff to file and serve a reply within 21 days from the date hereof.

3) Parties to file and serve a list of documents within 14 days after close of pleadings and inspection within 7 days thereafter.

4) Signed witness statements as to fact be filed and served by the parties within 49 days after inspection of documents. Such statements do stand as evidence-in-chief of the makers thereof if called, subject to any further or contrary direction by the trial judge.

5) Leave to the parties to apply for further directions.

6) The costs of this application be in the cause.

7) Certificate for counsel.