RINGIER PRINT (HK) LTD v. SOUTH CHINA MEDIA LTD

HCA2312/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2312 OF 2009

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D E C I S I O N

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1. For over 15 years, the plaintiff had provided printing services for the defendant who is in the business of magazine publications.  Their business relationship came to an end in November 2009 as a result of outstanding and disputed liabilities owed by the defendant to the plaintiff.

2. By this summons the plaintiff seeks summary judgment pursuant to Order 14, Rules of High Court.  There are four separate heads of claim :

(1) $19,185,757.82 for printing done in 2008 and 2009 up to April 2009.

(2)  $493,498.69 for unused paper.

(3)  $504,960 for storage charges.

(4)  $1,064,214.32 for ‘default interest’ on overdue balances.

3. The plaintiff was represented by Ms Winnie Tam, SC and Mr Gary Lam, the defendant by Mr Russell Coleman, SC.  The total sum claimed, about $21 million, is the sum said to be due after a payment by the defendant of approximately $7 million made in late October 2009.  The further cost of work done by the plaintiff since April 2009 up to the termination of their business relationship, which forms no part of this action, is in excess of a further $15 million.  For many years the defendant had enjoyed generous credit arrangements.

4. The defendant does not dispute that printing services were provided neither does it dispute the arithmetic which results in the sums being claimed.  Items (1) and (2) are fully supported by invoices.

5. The major claim is item (1).  The defendant’s response to the Order 14 application is that they have an arguable case that at the end of October 2009 the parties reached a settlement agreement in relation to overdue balances.  If that settlement agreement has not been honoured then the plaintiff should have sued on the settlement agreement and not, as they have done, for work done before the settlement agreement came into existence.  Payment for some of that work was not yet due at the time of the issuance of the writ because of the generous credit arrangements enjoyed by the defendant.

6. Ms Tam submits simply that there was no settlement agreement and the defendant cannot demonstrate a bona fide defence to that end.

7. The success or failure of the Order 14 application for item (1) depends on the issue of the “settlement agreement”.

“Settlement agreement?”

8. It is necessary to recite extracts from a number of email exchanges at the material time.  The plaintiff relies on these exchanges to demonstrate that there was no settlement agreement.  The defendant relies on them, together with some verbal exchanges to establish that the opposite is at least arguable.

9. On 16 October 2009 the plaintiff’s chairman, Mr M. Werfeli, wrote and said “we have to ask you to pay $15 million by 30 October … please provide me with your plans to settle the balance of overdue receivables of $15 million as well.”

10. By email dated 19 October Ms Jessica Ng on behalf of the defendant replied that the overdue balance was $22.3 million and proposed to pay $3 million forthwith and $1.5 million per month for the four months thereafter to “reduce” to overdue amount.  Thus, by the email a total of $9 million by February 2010 was being offered.

11. This offer was rejected on 23 October.  A phone call ensued followed by another offer from Ms Ng on 27 October as follows :

“To recap our earlier telephone conversation, the following is our revised proposed payment schedule :

End of this week — HK$5 million

End of November 2009 — HK$1.5 million

End of December 2009 — HK$1.5 million

End of January 2010 — HK$1.5 million

(Total $9.5 million)

All these payments go towards reduce the overdue amount.  Current billings will be met each month so that there will not be a rebuilding up of the overdue amount.  We can sort out the details of the misalignment of our records once we have agreed on the overall principal of this proposal.

Please understand that we are now a privately owned company and this is our bottom line best effort basis.  I look forward to hearing from you favourably.”

Thus, an extra $0.5 million was offered and the repayment schedule shortened by one month.  

12. Another phone call took place on 28 October.  Mr Albert Lee sent the following email later the same day.

“This is to recap our phone conversation of this morning.  After a long discussion with Martin Werfeli, I managed to convinced him to the following :

1.   SCM will pay us $5 million by this Friday, Oct 30 and stay current with current month’s billing (a 5 week month) which is estimated at $4 million.

You have paid us $1 million, month to date leaving an estimated $3 million.  So total amount to be sent over by this Friday is about $8 million.

2.   SCM will make a proposal by end of next week, November 6^th to settle the balance of the overdues

Please understand that we need to work out a plan to reduce the overdues significantly.  I would be happy to meet with you when you have a proposal to settle the balance of overdues.”

13. It is this email upon which the defence rely to demonstrate an “at least arguable” settlement agreement.

14. I do not agree.

15. It commences “To recap our earlier telephone conversation”.  That phrase was never challenged at the time.  It is reasonable to proceed therefore on the basis that it was an accurate summary of the conversation.

16. It suggests (a) an immediate payment of $8 million and (b) a plan to be proposed for the balance within a week.

17. The defendant’s email reply was that $6 million would be paid forthwith and a further $1 million by 10 November (due to “tight cash flow”) which prompted the following reply from Mr Lee :

“The email from Norman below does not bode well.  You agreed to pay $5 million and stay current with the current month billings.

As I have explained in my earlier email, you are behind in October and you need to pay another $2.5 to $3 million to cover October billings.

An extra $1 million by Oct 30 and another $1 million by November 10 is not what we agreed.  You need to pay a total of $7.5 to 8 million by October 30 not

$6 million.

Please understand that I convinced Martin Werfeli assuming that you will deliver on your end and now it is not happening.

Please call me to discuss this.”

and the next day :

“Thank you for the $5 million cheque and the additional $1 million towards paying October billings.  The billings for October is $3.5 million and the payment month to date is 2 million.

It is $1.5 million short.

As expected Martin Werfeli called to check on the status of payments.  I reported the above and he insisted on the balance of $1.5 million to be paid today or at the latest, by Monday.

My apologies for bearing the bad news but please understand our dilemma.”

18. All this was at a time when the actual overdue balance was in excess of $23 million and the value of work actually completed in excess of $40 million.

19. Finally Mr Werfeli wrote on 7 November :

“When we met on 15 October, I had requested that South China Media pay HK$15 million towards settling the HK$30 million of overdues and a plan to settle the balance.  So far we have received HK$5 million and a payment plan of HK$1.5 million for the next three months and a proposal to stay current with each month’s billing.  Unfortunately, this is not acceptable to us.”

20. The last words of this paragraph “Unfortunately, this is not acceptable to us” simply repeated the plaintiff’s position of 28 October.  The fact that the defendant never fully complied with the requested payment nor the request for a plan of further repayments can only be construed as a failure to reach an agreement.  In my judgment the contemporaneous documents which, in part, “recap” the verbal exchanges, fall short of establishing a bona fide arguable defence.  To submit that there was any (i) acceptance of terms; (ii) consensus; (iii) mutual intention to be bound; or (iv) certainty of terms is untenable.

21. The 28 October email is the highpoint of the defence case of an “agreement” and yet the evidence suggests that by conduct they rejected it.  There was neither any acceptance of nor conduct towards the second critically important requirement to make a proposed plan of repayments for the remaining balance.  As to actual payments, even by 3 November there was a $1.5 million shortfall from the bottom line of the plaintiff’s proposal.  In my judgment the high water mark of Mr Coleman’s submission that it is arguable that a settlement agreement had been reached falls well short of that threshold.  It cannot be construed as any more than an unsuccessful attempt to negotiate a proposal to buy time due to tight cash flow.

Estoppel

22. The defendant also relies on the principle of promissory estoppel.  The argument relies on the same course of events.  In view of the court’s assessment of those events as already recited, it is plain that the defence are unable to establish the pre-requisite of a clear and unambiguous representation to found the estoppel.

Items (2), (3) and (4)

23. Items (2) and (3) may be taken together.  Mr Coleman makes the simple point that as these items were ‘subsumed into the terms of the settlement agreement’ if leave to defend is granted on item (1) it should automatically follow with (2) and (3).

24. The converse also applies.  Moreover, if viewed as separate items, in each case the defence is no more than a bare denial unsupported by affidavit evidence.

25. Item (4) is a separate issue.  The plaintiff relies on an agreement in 2000 which sets out the terms of default interest.  Based on those terms interest has been calculated (item 4) in respect of the items claimed in this action (items 1, 2 and 3).  It does not take account of default interest which may or may not have accrued between 2002 and 2007.  

26. The defendant submits it is not liable to pay any such interest because of an agreement reached in 2002.

27. In 2002 there was a dispute between the parties concerning unpaid default interest which had accrued since 2000.  The sum said to be owing at that time was approximately $1.6 million.

28. The terms (which are relevant to the present issue) to which the parties came in 2002 are as follows :

“3.  You agree to accept a sum of HK$1,000,000 in full and final settlement of your claim for all overdue interest and your claim for printing charges price differential;

…

5.   This agreement will supersede and cancel in all respects all previous agreements undertakings and arrangements between the parties concerning overdue interest.”

29. Mr Coleman submits that paragraph 5 is in clear and unambiguous terms.  He submits that it is at least arguable that the parties agreed to cancel all previous contracts relating to default interest and that after 2002 there was no agreement, therefore no liability.

30. Ms Tam submits that such an interpretation defies both common and commercial sense and that the 2002 agreement should only be construed in relation to the sum which was in dispute at the time.

31. Ms Tam’s submission has some force.  However two additional factors cause me to conclude that the defendant’s position is at least arguable.  Firstly, on the reverse of a standard plaintiff invoice are printed “Terms and Conditions”.  There are 18 in all.  On numerous examples of such invoices included in the bundles of documents 17 of the 18 terms are crossed out by a single manuscript line.  Clause 15 remains in each for what reason is not known (Clause 15 concerns “Illegal Scandalous or Libellous matter”).  The term relating to late payments is clause 7.  It is crossed out.  No explanation has been given for the deletion of all the terms.  There is no evidence of any alternative or replacement terms.

32. Secondly, there is no evidence of any default interest being charged between 2002 and 2007.  It is not conceded by the plaintiff that none has actually been charged.  However there is no evidence one way or the other.

33. These factors combined persuade me that the defendant is entitled to his day in court on this issue.  It is inevitable that the parties will need to re-open negotiations at least in relation to the liabilities which have accrued between April 2009 and September 2009, a sum in excess of $15 million.  It may be that item (4) will be taken into account in such negotiations but, as a matter of law in this application, leave to defend should be granted.

Overview

34. As conceded by Mr Coleman, there are aspects of this case which are somewhat artificial.  To “artificial” I would add the word “curious”.

35. The defendant’s argument is that a settlement agreement was reached.  One should not lose sight of the fact that even it had been the “settlement” was no more than a holding operation by which some “current billings” together with some of the accrued liabilities would have been paid off.  Its purpose would have been to reduce the liability and postpone further payments.  It would not have extinguished any balance due and further sums would still be accruing for work done and work in progress which would in the inevitable fullness of time become due.  As stated in paragraph 21 hereof the negotiations were plainly an unsuccessful holding operation.

36. Had there been a settlement agreement and had the plaintiff sued on it and had the matter gone to trial to determine whether or not the defendant had breached it, none of the other liabilities would have gone away.  Further, regardless of the validity of the settlement agreement, they remain.

37. As to the effect on the defendant’s business, it is common ground that they engaged a new printer.  The publications and circulation of magazines were not disrupted and the cost to the defendant of the new publisher is apparently less than the plaintiff charged.  The only disadvantage to the plaintiff is, not surprisingly, the loss of the generous credit arrangements it enjoyed with the plaintiff.

38. Judgment may be entered in the plaintiff’s favour in respect of items (1), (2) and (3) of the prayer in the Statement of Claim pursuant to Order 14, Rules of High Court together with interest at prime plus 1% from the date of the writ together with a costs order nisi.  Unconditional leave to defend is given in respect of item (4) of the prayer with costs in the cause.