RILONG GARMENT FACTORY v. AMTEX ASIA LTD

HCA 1676/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1676 OF 2013

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D E C I S I O N

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Introduction

1. This is the defendant’s application for leave to appeal against the master’s order out of time, and for stay of execution of the said order.

    The master’s order dated 14 April 2015:

(a) entered final judgment in the plaintiff’s favour;

(b) struck out the defendant’s counterclaim.

2. The plaintiff’s claim was for about US$205,000 being the outstanding balance of the price of goods sold and delivered to the defendant’s sub-buyers in Brazil.  The defendant denied the claim on the ground that the goods delivered were so defective as to be basically worthless; its counterclaim is grounded on the consequential loss arising out of the non-delivery (such as loss of the immediate sub-sale contracts, and loss of future business).  The sum counterclaimed was about US$9 million.

Background

3. The undisputed background can be summarized as follows.

4. By two documents described as “Sales Contract” (one dated 21 February 2011 and the other dated 22 March 2011), the plaintiff agreed to sell and the defendant agreed to buy denim fabric (“the subject goods”).

5. The subject goods were shipped out from China in May 2011 (earliest) destined for Brazil.

6. The total price of the subject goods was US$362,651.59, of which the defendant has made part payment of US$157,506.54 by September 2013.

7. Correspondence regarding payment of the outstanding balance took place from about September 2011 to July 2013.

8. Not having received payment, the plaintiff commenced this action in September 2013.

9. As stated above, the defendant denies the claim and counterclaims for loss it allegedly suffered for the subject goods’ defects.

This application

10. The legal principles concerning summary judgment and striking out applications are trite:

(1) if the applicant of a summary judgment application is properly constituted (including raising plausible and prima facie sustainable case), he is prima facie entitled to judgment unless the defendant shows cause to the contrary or the application is dismissed: Hong Kong Civil Procedure 2015, Vol 1, para 14/4/1 and 14/4/4;

(2) the defendant’s affidavit in the above application must “condescend upon particulars” and deal specifically with the applicant’s claim, state clearly his defence and the facts relied on to support it: ibid, para 14/4/4;

(3) the defendant in the above application has to satisfy the court he has a “real or bona fide defence”; that is, his assertions are believable by taking those assertions in the context of so much of the background as is either undisputed or beyond reasonable dispute: ibid, para 14/4/9;

(4) a party’s case is only struck out in plain and obvious cases: ibid, para 18/19/4;

(5) in the case of a striking out based on a frivolous or vexatious defence, the object is to stop cases which ought not to be launched — cases which are obviously frivolous or vexatious, or obviously unsustainable: ibid, para 18/19/8;

(6) in the case of striking out of defence based on it being an abuse of the court’s process, the applicant can by extraneous evidence convince the court it is a sham defence: ibid, para 18/19/14.

11. For the reasons given below, I am satisfied that the evidence shows that the plaintiff has been able to show that the defence and counterclaim falls within the legal principles summarized above.

12. As stated above, both the defence and the counterclaim are based on an allegation that the quality of the subject goods was so lacking as to render them to be basically worthless.  Such an allegation is, however, inconsistent with the contemporaneous documents (especially those emanating from, and therefore cannot be disputed by, the defendant).  This will be elaborated below.

13. When considering the inconsistency between the defendant’s case and the said undisputed documents, two matters have to be borne in mind (both being matters mentioned by the defendant during the hearing):

(a)   the defendant’s explanation for some of the said correspondence (where it admitted non-payment of the debt) is that its director and staff had been threatened by the plaintiff starting in January 2012;

(b)   the defendant’s director flew to Brazil to personally inspect the subject goods in February 2012 and confirmed the defects complained of by the sub-buyers.

The defendant clarified at the hearing the plaintiff’s threats were to send people to go to its office to collect the debt (and to send people to sit in its office), it would ask the Mainland factories to black-list the defendant, and it also used abusive or foul language during those occasions.

14. Two of the defendant’s e-mails sent before January 2012 (when there was no threat or complaint of defect yet) said this:

“… I don’t know what to do … I am totally helpless. it has been a very bad year so far for us. hope it improves by end of this year …” (27 September 2011);

“Thanks of your patience. Situation is looking tough right now. I want you to bear with us, a bit longer. maybe, until end of this year” (10 October 2011).

The defendant agreed during the hearing the above intended to ask for the plaintiff’s indulgence regarding payment of the subject goods.

15. After the plaintiff’s alleged threats (since January 2012), on 21 June 2012 the defendant wrote in an e-mail:

“… here is the story … My clients in Panama and Colombia, did not pay us, for over 16 months. ... I can give you the name and contact number of the clients who did not pay us … You can contact them and if you can get the money out of them, you can keep it.

I have already told you that all my money is gone. Finished. I have to buy and sell merchandise again to make profit and start paying people, I owe money … ”.

Incidentally, by then, the defendant ought have already found out if the quality of the subject goods was defective, yet nothing about that was mentioned.

16. A similar e-mail was sent to the plaintiff by the defendant’s staff on 22 November 2012.

17. By 18 May 2013, the defendant wrote:

“… situation has not improved much. Whatever, I had in Panama, got stolen by my ex manager there. Whatever the clients owed me in Colombia, Dom. Republic, Belize, has not been paid to me until today and I am still chasing them.

Everybody knows, textile business in Brazil has come to a standstill due to the wrong policies of the current President of Brazil. Mexico, too has slowed down substantially …

It is not that I have forgotten to pay you or that I am sitting on funds and am not paying you … ”.

18. Apparently the plaintiff engaged solicitors to demand payment from the defendant in May 2013.  In its reply letter dated 30 May 2013, the defendant repeated its financial problem as the reason for not paying the plaintiff.  Nothing was mentioned about the plaintiff’s threat or the defective goods.

19. Finally, on 11 July 2013, the defendant wrote:

(1)   the defendant had good intention to pay the debt and it had never denied it;

(2)   the previous year had been a “complete wash out” (with elaboration on the defendant’s problem in Panama);

(3)   the passing away of the mother of the defendant’s director;

(4)   the world economy had not been supportive of business;

(5)   there were uprisings in Brazil and the whole country had come to a standstill;

(6)   if the plaintiff had friends or families who wanted to buy the goods in Brazil, they could contact the defendant for discussion;

(7)   the defendant could pay the plaintiffs with goods;

(8)   the defendant needed 3 to 5 years to pay and would try to pay the plaintiff US$1,000 each month.

20. In light of the above, I am in entire agreement with the master.  The defendant’s further explanation put forth during the appeal hearing:

(a)   the complaint about the defective quality not having been mentioned in the above correspondence was because it had already done so over the telephone and did not feel the need to record it in writing;

(b)   there was no inspection report regarding the defects because such a practice was not permitted in Brazil (or South America generally),

is nothing more than a lame attempt to explain away the inconsistency.  I have no hesitation to reject it.

Conclusion

21. The delay is relatively minor, even though the defendant’s explanation for it (it is not legally represented and has been confused by the procedural steps) is invalid.

22. However, there is no merit in the defendant’s case, whether from the viewpoint of the summary judgment application or the striking out counterclaim application.

23. This application (including the stay of execution application) is therefore refused.

Other matters

24. The parties’ written submissions also mentioned various other points.  These have not been expressly set out or dealt with above.  This is so only because of the need to balance between the length of the decision and its comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.

Costs order

25. The parties agree to the usual rule that costs should follow the event.  There will accordingly be a costs order that the costs of this application be paid by the defendant to the plaintiff.

26. I consider summary assessment of costs to be appropriate.  The above costs shall thus be so assessed.  For this purpose:

(1)   the plaintiff be at liberty to lodge with court and serve a statement of costs within 7 days from today;

(2)   the defendant be at liberty to lodge with court and serve a statement of objections within 7 days thereafter.