Best Top International Ltd. v. Allan Paul Smith & John Gareth Powell t/a Orbit 22 (Pacific)

DCCJ10895/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 10895 OF 2001

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J U D G M E N T

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1. These are Order 14 proceedings. The Plaintiffs' sue the Defendants in respect of the sale by the Plaintiffs to the Defendants of 50,000 PS2 retail bags which, I believe, are used to carry computer game equipment manufactured by the Sony Corporation.

2. The total purchase price was US$285,500 FOB Hong Kong, for delivery to the Defendants' consignee at Rotterdam. The contract provided for 20 per cent of the price to be paid to the Plaintiffs as deposit with the balance to be paid by the Defendants to the Plaintiffs within five days of receipt of the fax copy shipping and banking documents. Shipment was to be effected through M & R Forwarding (Hong Kong) Limited and the goods were not to be released to the Defendants' consignee unless and until full payment had been made to the Plaintiffs by the Defendants.

3. The bags were duly shipped to Rotterdam but through an oversight and without the knowledge or consent of the Plaintiffs, they were released to the consignee at Rotterdam before payment was made to the Plaintiffs. As a result, there was an outstanding balance of US$92,885 owing to the Plaintiffs which the Defendants have failed to pay.

4. In order to mitigate their losses, the Plaintiffs sold the remaining part of the consignment which had not been released for US$30,370, leaving over a balance of US$62,514.64 owing, for which amount the Plaintiffs now seek summary judgment.

5. These perfectly straightforward facts are admitted by the Defendants. Nevertheless, they allege that they have a perfectly good defence to this amount. The substance of their case is pleaded in the defence which starts at page 6 of the Bundle. It has been prepared by solicitors on their behalf, but they are now unrepresented before me, notwithstanding which they have presented their case with great clarity and in detail.

6. In circumstances where it is admitted by them that the full amount of the claim is unpaid, the burden lies on them to demonstrate that they have "a real and bona fide defence", per Ackner LJ (as he then was) in Banque de Paris et de Pay Bas (Suisse) SA v Costa de Naray [1984] 1 Lloyd's Rep 21:

"Where the defendants make an allegation, it must be credible or believable in the light of the evidence placed before the court."

7. Bokhary JA (as he then was) in Re Safe Rich Industries Limited [1994] HKLY 115, put the matter in this way:

"The test at the summary stage is indeed as simple as whether the defendant's assertions are believable but it must be recognised, because failure to recognise it would create a debt dodger's charter, that whether the defendant's assertions are believable is a question to be answered not by taking those assertions in isolation, but rather by taking them in the context of so much of the background as is either undisputed or beyond reasonable dispute."

8. Lord Linley MR in Codd v. Delap [1905] 92 LT 510 at 511, has nevertheless cautioned that:

"Unless it is obvious that the defence put forward by the defendant is frivolous and practically moonshine, Order 14 ought not be applied."

9. More recently, Bingham LJ (as he then was) observed that Order 14 is for clear cases.

"That is cases in which there is no serious material factual dispute. The procedure is entirely inappropriate where the Plaintiff's entitlement to recover any sum is the subject of any serious dispute, whether of law or fact".

10. It is also important in the context of this case in particular, although it is of general application in Order 14, that the mere assertion in an affidavit of a given situation does not ipso facto provide leave to defend, since the defendant

"must satisfy the court that he has a fair or reasonable probability of showing a real bona fide defence" (per Ackner LJ) supra.

11. The English Court of Appeal has laid down a definitive ruling that if the evidence of the defendants is so incredible in any material respect, it cannot be said that there is a fair or reasonable probability that the defendant has a real or bona fide defence and judgment will be given to the plaintiff (see National Westminster Bank v Daniel [1993] 1 WLR 1453. In this regard, Mortimer JA in the Hong Kong Court of Appeal in Manciple v Char On-man [1995] 3 HKC 459 at 466, observed that there is a difficulty because the court cannot resolve issues of fact on affidavits.

12. However, there are some cases in which the defendant's own case, although apparently it raises issues which if found in his favour would provide him with a defence, are so incredible or so contradicted by contemporaneous documents or circumstances, that it becomes clear that his defence is a sham.

13. Two tests are appropriate, namely, is what the defendant says credible, and is there a fair or reasonable probability of the defendant having a real or bona fide defence? Where an issue of fact is raised, the first question must be answered in the affirmative before considering the second.

14. It seems to me, therefore, that the principles that I must apply are both well settled and clear. I must now attend to the detail of the Defendants' evidence which comes from the affidavit of Mr Smith and which starts at page 48 of the Bundle.

15. The affidavit speaks for itself and I have, of course, had close regard to it and read its exhibits, as I have to all the affidavit evidence filed in this case. In order that I might demonstrate my reasoning in this matter, a summary of what Mr Smith has to say will suffice. At paragraph 5 he says that Mr Bering (Hsieh Bow Rong), who is a director of the Plaintiff, approached him and Mr Powell, the other defendant, in October 2000 with a proposal to establish a trading company together and he requested that he and Mr Powell (the Defendants) should invest in the joint venture. The Defendants made it clear that they did not have the financial resources to make an investment.

16. From Exhibit APS1, page 55, which is a letter from the Plaintiffs written on Mr Bering's behalf by his assistant, it is perfectly clear that negotiations to set up such a joint venture were seriously underway. This is dated 14 November 2000. Mr Bering required further detailed explanations about various aspects of the proposed new company. So much is perfectly plain from the letter.

17. The next material step which occurred on 24 November, was the agreement for the sale of the 50,000 bags for US$285,500, which has given rise to this action.

18. The next step - and this is crucial for the defence - occurred on 15 December 2000 (see paragraph 7). This evidence bears repetition here:

"By an oral agreement made on or about 15 December 2000, Mr Bering, also known as Hsieh Bob Rong, acting on behalf of the Plaintiff, agreed with the Defendants and/or represented to them that;

(i) Best Top International Limited would provide an interest-free loan of US$100,000 to each of the Defendants in order that the Defendants' existing partnership could be dissolved and a new company formed immediately. These loans were to be used to wind-up the Defendants' existing debts, including those arising out of the non-payment by the Planet 21 Group of Companies on orders placed with the Defendants;

(ii) Any surplus funds from these loans along with any of the outstanding revenue subsequently received from the Planet 21 Group of Companies would then be invested in a new company, Orbit 22 (Pacific) Limited. This was to be set up jointly with Mr Baring of the Plaintiff.

(iii) The outstanding amount of these loans to the Defendants would be repaid out of the profits of the new company.

As the agreement was oral, the Defendants will also rely upon oral witness evidence as to fact from Miss Pat and Miss Summer, both of whom attended the above meetings.

There is now produced and shown to me, marked APS2, a copy of the facts dated 22 November 2000 from Best Top International Limited to Orbit 22 (Pacific) evidencing that the meetings took place and indicating that the agreement reached was as set out above.

Further, the Defendants will call upon the Plaintiff to provide its business records and documents to evidence that the meetings took place and the contents of those meetings, as set about above."

19. As appears in paragraph 7(3), particular reliance is placed on APS2 to show that the meetings took place and as indicating that the agreement reached was as contended for by the Defendants. APS2 is at page 57. Given its fundamental importance, I should also set it out here. Whilst the English used by the writer could be improved on, its meaning is clear, as I shall demonstrate in a moment. It is as follows:-

"22 November 2000

Dear Paul,

Re: The new company estimate of running cost

Mr Bering think this estimate is to be underestimate. After we are saw this office running, we think if wants to build up our business for good profit, then the relativity for the office expense must be increase so that we are conservative to estimate this figure maybe around HK$280,000 per month. That is reasonable. For example, telecommunication, IDD, telephone and fax should be mainly expense per month. Travel: overseas travel and China travel? Sample: fabric and accessories and cost of sample? This all expenses must be heavy. Then are you to agree this standpoint? And otherwise you haven't to mention the main point for this new company, that is "capital investment" and any operation proposal to provided to Mr Bering. Because Mr Bering ultimately wants to know is this, so I suggestion that you provide yours company "Orbit 22 (Pacific)" normal information to him. The request information is every month income, expense and profit, turnover per year, last year financial statement. Then from this, Mr Bering can be compare if he's investment of this project. In future it's to run can be achieve to successful so hope you can provide as above requestion information to us.

Many thanks

Best Regards

Pat."

20. I am afraid that this letter simply cannot support the view that there was any agreement of the sort now contended for by the defendants, nor of the sort advanced in paragraph 7 of the affidavit, which I have just read out. It is clear from APS2 that Mr Bering, whilst still interested in coming to some joint business arrangement with the Defendants, was far from committed to it in any final way where there were still a number of important matters to be resolved.

21. What is plain is that the basis for these discussions was a full proposal in writing prepared by the Defendants. It is Exhibit AP6, page 65 (and Mr Bering has also produced it as HBR4, page 80, to his affirmation of 23 October 2001), Mr Bering says that it was the Defendants who approached him with this business plan and not the other way round, as the Defendants allege. The Defendants say that the business plan came as part of a fax dated 12 December 2000, page 72, and they hope to demonstrate that these meetings had been going on for some time and were serious.

22. I am bound to say, on the basis of the affidavits, that I prefer Mr Bering's account that the business plan came first in or about November 2000, and that it came from the Defendants. And what is also abundantly clear on all the evidence, is that the proposed joint business venture never came to fruition. As late as 12 December 2000 (see page 72), Mr Bering was still asking highly pertinent questions about the proposals that were being put forward by the Defendants.

23. What then happened, on the evidence, is that any interest that Mr Bering may have had waned in early 2001 once it became clear that the consignment of bags had been released to the Defendants' consignee before the Plaintiffs had been paid.

24. The correspondence then amply demonstrates that far from acting in pursuance of any agreement of the sort contended for by the Defendants, the Plaintiffs were intent on seeing that they were paid for the bags. The evidence only admits of one conclusion which is that whilst there were serious and well-intentioned discussions between the parties as to a joint venture, the sale of these bags was a quite separate matter. This sale was agreed on on 24 November 2000. At that stage, the hoped for joint venture discussions had barely got off the ground.

25. I simply cannot discover, beyond Mr Smith's bare assertions to this effect, any agreement of the sort that he has attempted to establish. All the contemporaneous documents are firmly against that view, as are the inherent probabilities. Mr Bering would simply not have been interested in allowing a US$200,000 interest-free loan to be made and to be repaid out of the hoped for profits of a new company which was still in the early stages of discussion and negotiation.

26. This, I am afraid, really is one of those cases where the Defendants' defence is simply not credible. Whilst it may well be that the Defendants have allowed themselves to be convinced that they had an agreement, the facts are completely against them.

27. There is simply no defence of this claim and there must therefore be judgment to the Plaintiffs in the sum of US$62,514.64, together with interest thereon, and I would have thought that the appropriate way to deal with interest is to say that there should be interest at half the judgment rate from the date of the writ until judgment, that is to say until today, and thereafter at the judgment rate until payment.

28. Costs to the Plaintiffs to be taxed if not agreed on a party and party basis.