XCHRX GUANGZHOU TEXTILES IMPORT & EXPORT CORPORATION v. BARTHIAN LTD.

1997 HCA No. 8997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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J U D G M E N T

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The Plaintiff's claim

1. In 1996, the Plaintiff supplied various garments to the Defendant. The Defendant claims that many of these garments were delivered later than the time stipulated for delivery. It also claims that when the garments were eventually delivered, (a) many of them were found to be so badly made that they were not of merchantable quality, and (b) many of them did not accord with the descriptions or the samples given to the Plaintiff by the Defendant. It is said that many of the garments were ultimately rejected by the Defendant's own customers, with the result that the Defendant has lost the profits it hoped to make on the re-sale of those garments to its customers.

2. The Plaintiff accepts that many of the garments were not delivered on time. It is unclear whether the Plaintiff accepts that there is any truth in any of the other complaints. However, the Plaintiff's primary case is that it is now immaterial whether those complaints are correct or what the Defendant's losses amount to (whether for the admitted late delivery or for the other defects). That is because, according to the Plaintiff, the parties had compromised their differences, and under that compromise agreement the Defendant had agreed to pay to the Plaintiff the sum of US$95,000.00.

3. That is the background to these proceedings. The Plaintiff is claiming from the Defendant the sum of US$95,000.00 due under the compromise agreement. Alternatively, it claims the sum of US$138,702.08 being the price of the garments. Those claims are in the alternative, because if it is held that there was no compromise of the Plaintiff's claim, the Plaintiff wishes to claim the full price of the garments. However, Mr. Lawrence Ng for the Plaintiff accepts that if the Plaintiff obtains judgment for US$95,000.00, no further sum can be claimed (apart, of course, from interest and costs), because judgment for that sum would be on the footing that the Plaintiff's claim for the price had been compromised.

The summons for summary judgment

4. In due course, the Plaintiff issued a summons for summary judgment under Ord. 14. The master was not prepared to give the Plaintiff summary judgment on what she described as "the so-called US$95,000.00 compromise agreement". Those words suggest that she thought that there was a triable issue as to whether such an agreement had ever been made. However, in relation to the claim for the price, she took the view that there was no defence to the claim for part of the price, namely US$46,354.08. She therefore gave the Plaintiff judgment for that amount, but gave the Defendant unconditional leave to defend the balance of the Plaintiff's claim.

5. The Plaintiff now appeals. It contends that it is entitled to judgment for US$95,000.00 on the compromise agreement. Alternatively, if it is held that summary judgment should not be given for the sum of US$95,000.00, the Plaintiff contends that it should have judgment for the price greater than the sum of US$46,354.08 for which the master gave judgment. For its part, the Defendant cross-appeals, contending that it has a defence even to the sum of US$46,354.08 for which judgment was given.

The Plaintiff's election

6. In his skeleton argument, Mr. Jesse Kwok for the Defendant contended that summary judgment could not be given at all, because the Plaintiff has not elected which of the two alternative claims it is pursuing. I reject that argument. It is open to the Plaintiff to claim the price of the garments if it is held that that claim was never compromised. As I have said, it is accepted by the Plaintiff that if it obtains judgment for the sum of US$95,000.00, it cannot then claim the balance of the price.

The compromise agreement

7. The circumstances in which the compromise agreement is said to have been reached are set out in paras. 12 and 13 of the 1st affirmation of Chen Jin Rong, the Plaintiff's merchandiser who had been handling the agreements to which this action relates. He said that in the course of a telephone conversation he had with Mr. David Sasson, a director of the Defendant, it was

"agreed that the Defendant would pay and the Plaintiff would accept a sum of US$95,000.00 in full and final settlement of the sums due and owing by the Defendant to the Plaintiff for the Goods supplied under the Invoices after discounts and deduction for all claims by the Defendant and compensation to the Defendant for late delivery, rejection of goods or damaged goods. Mr. Sasson also requested that the Plaintiff signed a memorandum to record the Compromise Agreement. I agreed to that suggestion but requested Mr. Sasson to draft the memorandum and fax the same to the Plaintiff for the Plaintiff's consideration.

In due course, the Plaintiff received the draft memorandum which Mr. Sasson had requested. It read:

"We, [the Plaintiff], hereby confirm that we accept the amount of US$95,000.00 to be the final and full settlement of all our outstanding and due invoice amount after setting off all the claims raised from [the Defendant] due to our missing quantity against shipment delivery, rejected goods and damaged pieces plus discount offered..... We, [the Plaintiff], confirm not to make any further claims against [the Defendant] upon receipt [of] the aforesaid amount [of] US$95,000.00 to be the final and full settlement of all our outstanding due balance on account."

This draft memorandum was sent under cover of a fax which included the following passage:

"Please find enclosed the copy of [the] letter of acceptance of which you have to type on your letterhead with company chop and sign and then courier the original signed letter of acceptance by EMS to us. Upon receipt of your original letter of acceptance, we will arrange wire transfer to you."

The Plaintiff then sent to the Defendant a memorandum in the terms of the Defendant's draft which was typed on the Plaintiff's letterheading and signed on behalf of the Plaintiff. In subsequent correspondence, the Defendant used language which suggested that it did not dispute that it owed the Plaintiff US$95,000.00 under the compromise agreement. Thus, in a letter sent to the Plaintiff on 17th June 1997, the Defendant wrote:

"We know that we have outstanding payment to you. However, we are not able to pay you the full amount. If you accept to take US$40,000.00 instead of US$95,000.00, we can wire money to you. Or otherwise you will have nothing as we may close our office soon and get out of the business. You know it is difficult to survive in this garment industry."

8. The only evidence filed by the Defendant is an affirmation made by Mr. Sasson. He does not challenge the circumstances in which the memorandum came to be prepared. What he says is that in the conversations which he had with Mr. Chen, he made it clear that the Defendant would not accept any claim from the Plaintiff until the question of the compensation to be paid to the Defendant's customers had been resolved. However, the real point which he took was that the draft memorandum which he sent to the Plaintiff

"..... was only intended to specify that the Plaintiff could not claim [against] the Defendant on this matter. I did not mean that the Defendant [had] accepted any offer to settle this matter."

He added that it was the Plaintiff who had "unilaterally" agreed to accept the sum of US$95,000.00 in full and final settlement of all outstanding claims at the time.

9. It is not altogether easy to understand what Mr. Sasson is saying, but what it comes to, I think, is that the compromise agreement was not an agreement which imposed an obligation on the Defendant to pay the sum of US$95,000.00 to the Plaintiff. It was simply an agreement in which the Plaintiff was obliged to accept the sum of US$95,000.00 in full and final settlement of its claim. In other words, the Defendant was not obliged to pay the sum of US$95,000.00. If it did not, the Plaintiff would be entitled to pursue its claim for the full price of the garments. But if the Defendant chose to pay the sum of US$95,000.00, the Plaintiff would be obliged to accept it in full and final settlement of its claim. The consideration for that unilateral obligation would be, of course, that the Plaintiff would be relieved of the obligation to prove its claim to the price if the Defendant paid it US$95,000.00.

10. In my view, there is undoubted support for that argument in the language of the memorandum which either Mr. Sasson himself or someone else within the Defendant actually drafted. The language is much more consistent with a unilateral obligation on the Plaintiff to accept the sum of US$95,000.00 in full and final settlement of its claim if the Defendant paid that amount to the Plaintiff rather than with bilateral obligations in which the Defendant was in addition obliged to pay that amount to the Plaintiff. I appreciate that this was an oral agreement, that the status of the memorandum was merely that it evidenced what had been orally agreed, and that Mr. Chen has affirmed that it was agreed, not merely that the Plaintiff would accept the US$95,000.00, but that the Defendant would pay that amount as well. But Mr. Sasson expressly disputed that in para. 12 of his affirmation when he affirmed that the Defendant did not agree to pay US$95,000.00 to the Plaintiff in full and final settlement of the Plaintiff's claim.

11. In summary, therefore, although there is no doubt that a compromise agreement was made, I cannot say that Mr. Sasson's assertion that the compromise agreement imposed only an obligation on the Plaintiff is not believable. In reaching that conclusion, I have not overlooked the Defendant's fax of 10th January 1997 or the Defendant's letter of 17th June 1997. But those documents could be said to be as consistent with the US$95,000.00 being the amount which the Defendant could elect to pay to avoid being sued for the price as they are with the Defendant being under an obligation to pay the US$95,000.00 to the Plaintiff.

The claim for the price

12. The sum of US$46,354.08 for which the master gave judgment was arrived at as follows. The starting point was the price of the garments, i.e. the sum of US$138,702.08 which was the alternative amount claimed by the Plaintiff. From that sum, three sums were deducted:

(i) the sum of US$54,058.00, which the Defendant claimed was the price of those garments which the Plaintiff took back,

(ii) the sum of US$2,290.00, which the Defendant claimed were the profits it had lost as a result of the rejection of some of the garments by a customer in Japan, Eiki Shoji Co. Ltd., and

(iii) the sum of US$36,000.00, which had been rounded down from US$36,929.40, and which the Defendant claimed were the profits it had lost as a result of the rejection of some of the garments by another customer.

13. Mr. Kwok argued that the master should have reduced the Plaintiff's claim for the price in three other respects:

(i) In para. 20 of the Defence and Counterclaim, it is pleaded that, at the time when the sale of the garments to the Defendant was agreed, a discount on the price of the garments was also agreed. That discount was said to amount to US$21,943.58. However, that assertion in the Defence and Counterclaim was not repeated in Mr. Sasson's affirmation, and the contents of the Defence and Counterclaim were not even verified. In addition,

"the defendant's affidavit must 'condescend upon particulars', and should, as far as possible, deal specifically with the plaintiff's claim and affidavit, and state clearly and concisely what the defence is, and what facts are relied on to support it": The Supreme Court Practice 1999, Vol. 1, para. 14/4/5.

No evidence has been filed by the Defendant stating how the sum of US$21,943.58 is calculated. In those circumstances, it cannot be said that there is an issue to be tried as to that assertion.

(ii) In para. 18 of the Defence and Counterclaim, it is pleaded that, as a result of the late delivery and poor quality of the garments, the Defendant "faced claims and legal proceedings" by its customers. That is repeated in Mr. Sasson's affirmation, but no particulars whatever are given. We do not know who the customers are, or how much they are claiming to have lost. Again, without such particulars, it cannot be said that there is an issue to be tried as to that assertion.

(iii) In para. 13 of his affirmation, Mr. Sasson claimed that the Defendant's Korean and Japanese customers refused to place any further orders with the Defendant. Accordingly, it is said that the Defendant has lost the profits which it would have made on those orders. Again, no particulars whatever are given of that assertion. We do not know who the customers are, how frequently they had placed orders with the Defendant in the past, what the volume of the lost orders is likely to be and what profits the Defendant would have made on those orders. Again, without such particulars, it cannot be said that there is an issue to be tried as to that assertion. Indeed, when one looks at the customer to whom the deduction of US$36,929.40 relates, that customer is not even Korean or Japanese.

For these reasons, the Defendant has not satisfied me that there is a triable issue on any of these three contentions.

14. For his part, Mr. Ng argued that the sums deducted by the master were too large in two respects. First, the Defendant's own exhibits showed that the price of the garments which the Plaintiff took back was US$33,556.00, not US$54,058.00. I agree. No evidence was filed by the Defendant stating how the sum of US$54,058.00 was calculated, and Mr. Kwok was unable to tell me how it was calculated. On the other hand, the sum of US$33,556.00 is calculated as set out in para. 22(a) of the Reply and Defence to Counterclaim. It is based on one of the documents in exhibit "SD-3" at p.107 of the appeal bundle. In these circumstances, it cannot be said that there is an issue to be tried on whether the sum of US$33,556.00 should be increased to a greater sum.

15. Secondly, the Defendant's own exhibits are said by Mr. Ng to show that the figure of US$36,929.40 on which the figure for lost profits of US$36,000.00 was based is itself an inflated figure. To take a couple of examples. First, although the Plaintiff's invoices show that 410 garments in style J-8339-ME were supplied to the Defendant, and although the Defendant's claim for loss of profits is based on the fact that 410 garments in that style were rejected by its customers, the documents which the Defendant has produced to support that claim purport to show that 460 garments in that style were supplied by it to its customers. Even then, the Defendant's claim is based on a sale price to its customers of US$18.85 per garment, when its own documents suggest that it sold some of the garments at US$17.40 per garment. Secondly, although the Defendant's claim for loss of profits is based on the fact that 300 garments in style J-8338-KE were rejected by its customers, the documents which it has produced to support that claim show that only 100 documents in that style were rejected by its customers. Similar points can be made about garments in other styles.

16. However, although I have little doubt that the claim for US$36,000.00 lost profits has been inflated, it is, I think, not possible to identify how much it has been inflated by in a summary procedure of the kind contemplated by Ord. 14. Despite some misgivings, although the Defendant's lost profits were clearly not as much as US$36,000.00, I cannot say that there is not a triable issue as to what they in fact were. However, since I think that the claim is overwhelmingly likely to be found to be inflated by at least US$10,000.00, it would, I think, be appropriate for the Defendant to be ordered to pay that sum into court.

Conclusion

17. For these reasons, the Plaintiff's appeal must be allowed, but only to the extent of increasing the sum of US$46,354.08 by the difference between (a) the sum of US$54,058.00 and (b) the sum of US$33,556.00. Thus, there must be substituted for the order made by the master an order that there be summary judgment for the Plaintiff in the sum of US$66,856.08. I shall hear from the parties as to what order I should make as to interest, i.e. the rate of interest and the date from which it should run. The Defendant must have conditional leave to defend that part of the balance of the Plaintiff's claim which relates to lost profits, i.e. US$36,000.00, conditional upon the Defendant paying the sum of US$10,000.00 into court. If the Defendant does not pay that amount into court, the Plaintiff will be entitled to enter judgment for that US$36,000.00 as well, save that the total amount for which the Plaintiff is entitled to enter judgment (as Mr. Ng accepted) may not exceed US$95,000.00, in case at the trial of the action it is found that the Plaintiff's claim was indeed compromised. I shall hear from the parties as to how much time I should give the Defendant to pay the US$10,000.00 into court. The Defendant must have unconditional leave to defend the balance of the Plaintiff's claim. The Defendant's cross-appeal must be dismissed.

18. Finally, I should add that no criticism of the master should be implied into the allowing of this appeal. The correctness of the sum of US$54,058.00 was not questioned in the hearing before her.