XCHRX KING WAH HING LEE LTD. v. PERFECT WAY TECHNOLOGY (CHINA) LTD.

HCA 13096/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 13096 OF 1997

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J U D G M E N T

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1. The Master in the court below on 7th May 1999 gave unconditional leave to the Defendant to defend the sum of HK$24,088.00, but ordered that conditional leave to defend be given to the Defendant upon payment in of the sum of HK$647,027.88. This is an appeal by the Defendant from that conditional leave to defend given by the Master. The Plaintiff, at the hearing of this appeal, seeks a summary judgment of that sum of HK$647,027.88. Much of the ground that had been advanced in the skeleton arguments, in fact, had been refined at the hearing of the appeal so that there is, at the end of the hearing of this appeal, really one issue divides the parties.

2. The supply of the two lots of goods to the Defendant under Invoice No. 95/46 dated 15th December 1995 and under Invoice No. 96/1(R) of 5th March 1996 ("Defendant's Invoices"), totalling a sale price of $1.92m. was the claim made by the Plaintiff against the Defendant. There is uncontroverted evidence that in relation to those goods, some payment had been made. In particular, there was a payment on 15th March 1996 in the sum of HK$257,344.00, a payment on 6th May 1996 in the sum of HK$200,000.00, a payment on 2nd July 1996 in the sum of HK$100,000.00 and various payments from February to August 1997 in Renmibi which translated into Hong Kong Dollars are equivalent of HK$588,750.00.

3. The dispute between the parties is in respect of 3 payments stated in the Amended Defence and Counterclaim (being a payment of 1st February 1996 of HK$200,000.00, another cheque payment of 1st March 1996 in the sum of HK$450,000.00 and another cheque payment of 15th March 1996 of HK$300,000.00) whether these payments had been made by the Defendant to the Plaintiff as payment for these goods under the Defendant's Invoices described earlier.

4. The HK$300,000.00 payment of 15th March 1996 is already the subject that had been taken into account by the Plaintiff in the sum of HK$257,344.00. The balance of the money of HK$300,000.00 is the sum of HK$42,656.00 which is a payment made in relation to an invoice at p. 49 for HK$742,000.00, in respect of which the payment for this was made up of three sums, namely first the HK$250,000.00 at p. 50, second payment of HK$450,000.00 at p. 51 and the third being the balance HK$42,656.00 (a sum from that HK$300,000.00 payment).

5. The real question before the court is whether the payments had been made by the Defendant to the Plaintiff in respect of the two cheques, i.e. HK$200,000.00 cheque and the HK$450,000.00 cheque in February and March 1996 for the Defendant's Invoices.

6. The case of the Defendant is that these 2 payments were made by the Defendant in relation to Defendant's own goods and not as the Plaintiff contends in settlement of the other goods supplied by the Plaintiff to what I will call 2 Mainland entities controlled by the same Mr. Chan who controls the Defendant's company. Much, of course, would depend on what the parties intended at the time of making these payments, namely whether these payments were intended to be in settlement of the Mainland entity companies' invoices or in settlement of the goods supplied to the Defendant company. The history of the matter, shows that the parties looked upon these payments as having been made in settlement not of the Defendant's Invoices but in respect of the Mainland entities' invoices.

7. I start first with a notification fax (at p. 181 of the bundle) dated 14th May 1996 from the Plaintiff to the Defendant Company and Shanghai Perfectway addressed to Mr. Chan. Now, it is quite clear from that document at p. 181 that the Plaintiff regarded the Defendant as owing under the two Defendant's Invoices to the tune of HK$1.39 m. It sets out in the clear terms what has been paid and by implication what have not been paid. So from that document it is clear that the Plaintiff regarded the payments made in February and March of the two cheques, i.e. the HK$200,000.00 and HK$450,000.00, totally HK$650,000.00 as having been made to settle the invoices of the Chinese entities and not to settle the Defendant's Invoices. There is no answer to this Fax from Mr. Chan or his companies to say that is not the case and that HK$650,000.00 ought to have been deducted from the amount of HK$1.3945m. claimed in that Fax.

8. The next stage is that there was a payment on 2nd July 1996 of HK$100,000.00 and this payment is taken into account in the next document of 8th July 1996 at p. 42. P. 42 is a fax from the Plaintiff to Shanghai Perfectway and it says this that "in connection with the purchase price for the sale of CD-Rom in Shanghai and Quangzhou to be delivered in Beijing, the situation of the payment settlement is as follows" and then it set out what had been paid and it described the very sums that had been paid. Then it says in the last sentence this: "Therefore the payment for the delivery in Beijing for Shanghai and Quangzhou is clearly settled." So what this fax does is to clearly acknowledge that no further money is owing by Shanghai Perfectway. This fax addressed to Mr. Chan was not responded in any way by Mr. Chan to say: "Oh, no, no, no, no, all the amounts that had been paid are in respect of payments by the Hong Kong Defendant to the Plaintiff and not to be appropriated as payment in respect of Shanghai Perfectway invoices".

9. The next stage of the development is a Minute of a meeting held on 12th August 1996 which can be found at p. 183 of the bundle. This is a meeting attended by Mr. Chan and the representatives from the Plaintiff. The Minutes indicates that the Defendant, I think, Mr. Chan acknowledged the debt owing by the Defendant to the Plaintiff and made a promise to pay first HK$350,000.00 by the end of August and the balance of HK$1m. odd by the end of September. That document according to Mr. Mak, for the Defendant, is not signed by Mr. Chan. But I have no reason to believe that the terms of the documents are not accurate. It was certainly signed by the other people attending the conference at the meeting. Mr. Lee suggested powerfully to this court that Mr. Chan of the Defendant acknowledged HK$1.3m. owing.

10. The next document that is relevant can be found at p. 60 which is a letter from the Plaintiff to the Defendant addressed to Mr. Chan dated 23rd November 1996 setting out what other sums had been paid in relation to two Defendant's Invoices and in particular saying that the amount owing in relation to those two invoices is HK$1.383m. This document shows a payment under items 7 of 2nd July 1996 of HK$100,000.00. It also shows the earlier payment made on 16th March of HK$257,237.00 odd and the one made on 6th May 1996 of HK$200,000.00. It did not show the 2 alleged payments in February/March 1996 in discharge of Defendant's invoices of HK$200,000.00 and HK$450,000.00. There was no answer again from the Defendant to this important fax. And this is important. If there is any basis for the Defendant's story that the Defendant had paid the Plaintiff the HK$650,000.00 in February/March in settlement of the Defendant's two Invoices, I would expect an immediate response by Mr. Chan to the Plaintiff's fax on p. 60 to say: "I, the Defendant, do not owe the Plaintiff HK$1.38 m. in relation to the Defendant's Invoices because you ought to take into account and give us credit for the HK$650,000.00." That was not said. Therefore, it casts a serious doubt. But put in the context of the Defendant's present defence, can the court conclude it as moonshine? I say yes.

11. The Plaintiff's case is further reinforced by the next document, at p. 69 which is a proposal by the Defendant to pay off the outstanding amount owing under the two Defendant's Invoices. This is dated 20th January 1997. At p. 213 is a translation. It is addressed to the Plaintiff's company. It is signed by Mr. Chan of the Defendant. It says that "in respect of the amount due for the price of goods from my company to Hong Kong King Wah, according to the amount calculated as at 30th June 1996 by Hong Kong King Wah Hing Lee Limited, approximately HK$1.3m. (exact amount to be confirmed by King Wah Hing Lee Limited). Now the company has decided to repay before the Lunar New Year a sum of RMB200,000.00. From March 1997 onwards, each month shall repay a sum of RMB100,000.00 until full settlement. As for the repayment period and interest from 30th June onward, it shall be paid one month according to interest of before final settlement. All such payment for price of goods shall be received by the two Chinese representatives Chu Ching Yee and Cheung Man on behalf of Hong Kong King Wah Hing Lee Limited. A receipt of which shall be given to Perfectway.

Remarks: The aforesaid HK$1.3m. is in Hong Kong Dollars."

12. What this document does is to make clear that the Defendant acknowledges two facts. One, that there was a legitimate claim of HK$1.3m. as of end of June 1996 by the Plaintiff against the Defendant. And that must presuppose that the Defendant was acknowledging that the HK$650,000.00 under the two cheques in February and March were not and had not been made in payment of the Defendants' two Invoices. So that is the first recognition disclosed by p. 213. The second one is the proposal by the Defendant to make repayment for that HK$1.3m. by instalments and the instalments are RMB200,000.00 before the Lunar New Year and then for March 1997 onwards RMB100,000.00 every month. It seems to me that this is a powerful document at p. 69 (or p. 213 the translation) which makes the present argument of Mr. Mak wholly untenable. Whatever might have been the right and wrong of the appropriation in law (and Mr. Mak sought to make much of this aspect of the case), the reality is and has been for some time (of what I could see from the totality of the material before me) that the Defendant had recognised that the payments which had been made in Feb/March 1996 were made in relation to the Chinese entities' goods and not in respect of the Defendant's Invoices. The consistent documentation and attitude of the parties had been throughout that the Defendant recognised its debt to the Plaintiff. The Defendant asked for time, could not keep its promise, asked for more time, could not keep its promise. And that state of affairs had lasted from the middle of 1996 until eventually when the Defendant could not pay the remaining balance, the Plaintiff had to institute the proceedings at the end of 1997. I must interpose here and say that it is not in dispute between the parties that the Defendant from the period of February to August 1997 had made a total payment of something like HK$588,000.00, probably pursuant to the proposal or re-scheduling proposal made at p. 69.

13. The question then is there a viable and credible case made out by the Defendant or is it a case where the story of the Defendant is so incredible, so much moonshine, unsupported by documents that it could not be accepted by the court? I agree with the submissions of Mr. Lee and I cannot accept that there is a bona fide defence made out by the Defendant. The appeal of the Defendant therefore must be dismissed and instead I order that summary judgment be given against the Defendant in the sum of HK$647,027.88 and I therefore vary the order of the Master accordingly.