HONG KONG PRECISION SCREWS MANUFACTURING LTD. v. UNITED STRENGTH LTD.

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JUDGMENT

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Power, J.A.:

1. This is the judgment of the Court.

2. Hong Kong Precision Screws Manufacturing, the plaintiff, sued United Strength Limited, the defendant, for US$31,046.40, being the price of goods sold and delivered to the defendant in three shipments on the 6th, 19th and 28th of June 1990. The plaintiff applied under Order 14 for Summary Judgment. This application was dismissed by Mayo J. with costs to the defendant.

3. In the Order 14 application the defendant exhibited a copy of the points of defence and counterclaim which it intends to file in the action to the affidavit of Mr. Guido Wenk, one of its directors. In its defence, the defendant admitted that the plaintiff sold and delivered goods to the defendant as set out in the Statement of Claim, but said that it would seek to set off against the sums due, amounts which were the subject of counterclaims.

4. The counterclaims included claims for damages for alleged breaches of three separate contracts for the supply of goods by the plaintiff to the defendant.

5. The first of these, for the supply of 4,800,000 pieces of Hexagon Allen keys and 600,000 sets of hardware kits, was evidenced by purchase order 0009 dated the 11th of January 1990. The second, for the supply of 300,000 chrome-plated ABS handles, was evidenced by purchase order No.0008 dated the 11th January 1990. The third for the supply of 600,000 pieces of chrome-plated washers was also evidenced by purchased order 0008. The defendant's total counterclaims are in excess of US$160,000.

6. The plaintiff's claim arose out of three purchase orders - 0011, 0012 and 0013. All were for boxes of 24 pairs of wallhooks and nails, and in all the agreed price was US$0.66 per box. Purchase Order 0011 and 0012 were for 25,040 boxes and Purchase Order 0013 was for 50,000 boxes. Each purchase Order specified delivery in two lots, the first of which was to be not later than the 5th of May and the second not later than the 25th of June 1990. Each contract contained the following clause:

7. It was not disputed that the deliveries in relation to which the claims were made were partial deliveries which were accepted by the defendant.

8. The only counterclaim by the defendant which specifically referred to these three purchase orders was a claim for US$17,000 being the costing of manufacturing two new moulds at US$8,500 each. The defendant claimed that it had had to purchase these two moulds because of the failure of the plaintiff to deliver to it the two moulds used in the manufacture of the wallhooks and nails to which it was entitled.

9. As set out, the price specified for wallhooks and nails was US$0.66 per box of 24 pairs. It is not possible from the material placed before the court to understand how the parties arrived at this price.

10. By a fax dated January 8th 1990, the plaintiff had offered to the defendant a pair comprising one picture hook and one concrete nail at a price of US$0.0135. This price did not include the packing and transportation cost which amounted to US$0.08. The total cost for a packed box of 24 sets would on these figures have amounted to US$0.404. This offer contained the following additional terms:

On January 19th 1990, four days after this offer expired, the plaintiff sent the defendant a further fax. This offered a unit price of US$0.0155 for each pair. As the packing and transportation costs were the same, the price on these figures for a packed carton of 24 sets would have amounted to US$0.452. This offer was stated to be based on the use of two moulds. It had no validity date. There is, on the evidence, nothing which explains how the price for a packed box of 24 pieces agreed on the 5th February came to be US$0.66. Mr. Ismail, who appeared for the plaintiff, stated during a rgument that this was as a result of further negotiation between the parties, and Mr. Scott, for the defendant, did not dispute this.

11. Mr. Wenk stated in paragraph 4 of his affidavit:

It is difficult to understand why Mr. Wenk refers to the figures US$0.0135 and US$0.0155, as neither appears to bear any relation to the figure finally agreed by the parties.

12. However that may be, we are satisfied that had there be no other relevant material, the matter would have had to have been determined upon the wording of the Purchase Orders. There was, however, a fax from the plaintiff to the defendant dated 1st of August 1990 in which in answer to the defendant's claim for two moulds the plaintiff stated:

This concession by the plaintiff that in the negotiations leading up to the ordering, it was agreed that the defendant would be entitled to one of the moulds was not answered by the defendant.

13. We turn now to the main contention of the defendant which was that he should be given leave to defend because, in the words of Mr. Wenk:

This "established course of dealing" was pleaded in paragraph 9 of the Points of Counterclaim in the following terms:

Mayo J., after argument, held:

Mayo J. was satisfied that the contention of an established course of trading between the parties in which a practice arose of setting off items under different contracts was evidenced by the two faxes to which he referred. The first was from the plaintiff to the defendant dated the 5th of July 1990. In that the plaintiff was stated:

14. In our view, this fax standing alone would do no more than establish that on this particular occasion the plaintiff, having accepted that the amounts of the suggested deduction was appropriate, was prepared to allow the defendant to deduct them from other sums due from the defendant to him. It could not, we are satisfied, be suggested that this single transaction evidenced any established course of conduct.

15. The crucial fax is then the second one dated the 9th of August 1990 from the plaintiff to the defendant. This reads:

                "Re: Your Fax 2302 on Aug.7, 90 on Allen Keys:

16. We are also unable to see how it can be suggested that this fax evidences an established course of dealing under which the defendant was entitled to set off amounts due to the plaintiff against claims for late delivery etc. A reading of the faxes preceding that of August 9th makes it clear that the defendant had unilaterally deducted penalties for non-delivery. The plaintiff in the fax of 9th August acknowledged that those deductions had been mae, but said that this acknowledgement was made "without bearing any responsibility". It was furthermore required that reasonable proof be submitted to it so that it could consider the claims. In our view this document indicates not that there was an agreement that the defendant was entitled to make deductions, but rather that there was no such agreement and that the plaintiff was not consenting to the unilateral acts of the defendant. We are satisfied that these two documents fall considerable short of providing any evidence of an agreed course of conduct.

17. A further hurdle which the defendant faces in this regard is that these faxes which were said to evidence an implied term in a contract entered into in February 1990, did not come into existence until July and August. Given, however, the view we take of the faxes themselves, it is not necessary to address ourselves further to this aspect of the matter. We are satisfied that the judge was wrong to hold that there was evidence of an established course of conduct and that, subject to the matter to which we now turn, the plaintiff was entitled to judgment.

18. It was not argued by Mr. Scott that the defendant should be given leave to defend upon the basis that his counterclaims overall exceeded the amount of the plaintiff's claims. He conceded that the bulk of these claims arose under separate contracts. He did, however, argue that the defendant had a good counterclaim in the action in the sum of US$17,000, the amount paid out to obtain two moulds to replace those which were not given to it by the plaintiff. It was submitted that the plaintiff should be given judgment on its claim less the amount of US$17,000. In this regard, Mr. Ismail submitted that there was nothing in the evidence to establish any right in the defendant to the first of the two moulds. The plaintiff conceded that the defendant was entitled to delivery of the second mould, but submitted that it had a lien over that mould because of the failure to pay for the goods delivered and due to be delivered under the contract.

19. We are satisfied that there are arguable grounds for the contention that the moulds belong to the defendant. We are, however, of the opinion, despite the in genious arguments of Mr. Scott, that, in the circumstances, the moulds are goods over which a lien could be exercised and that, even if the defendant's argument that it owns both moulds is correct, the plaintiff is entitled to a lien over them by reason of the defendant's failure to pay for the goods delivered and to be delivered under the Purchase Orders.

20. The plaintiff was entitled to judgment. However, having considered all of the surrounding circumstances we are satisfied that execution of that judgment should be stayed pending resolution of the defendant's counterclaims. There will be an order nisi to become absolute in 14 days if no application is made that the plaintiff is to have its costs to be taxed both here and below.