ENERTEC CO LTD v. GOLD HILL HONG KONG HOLDINGS LTD

HCA 2328/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2328 OF 2012

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J U D G M E N T

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1.  On 13 November 2013, Master Simon Kwang ordered interlocutory judgment be entered in favour of the plaintiff with damages to be assessed, and dismissed the defendant’s summons for security for costs. The basis of the defendant’s summons was that the plaintiff is a South Korean company and is resident outside the jurisdiction.

2.  This is the defendant’s appeal against both decisions of Master Kwang.

3.  I shall deal with the appeal against summary judgment first. 

4.  The plaintiff’s claim against the defendant is for damages for breach of two sale of goods’ contracts dated 6 September and 17 October 2012.  The goods in question were Ferro-Silicon.

5.  The breach complained of related to the quality of the Ferro‑Silicon shipped to the plaintiff.  It is common ground that the 1^st contract contained the following express written terms:

(1) The defendant would supply the plaintiff with 200 metric tons of Ferro-Silicon at the price of US$1,273 per metric ton. 

(2) A minimum of 90% of the Ferro-Silicon was to be in pellet form, with a dimension of between 10 and 50 millimetres, and the whole 200 metric tons were to have a minimum Ferro‑Silicon content of 75%.

(3) Payment was to be by irrevocable letter of credit at sight of the required documents.

(4) Shipment was to be made at the end of September 2012, CIF Busan, South Korea. 

6.  The 1^st contract also contained a clause 1 which in effect, provides that in case the quality and/or quantity of the goods are found to be not in conformity with the first contract and/or the L/C after arrival of the goods at the port of destination, the plaintiff shall lodge a claim with the defendant supported by a survey report issued by a recognised public surveyor (SGS or Alex Stewart) whose result will be final.  The claim for quality and/or quantity discrepancies should be filed by the plaintiff within 50 days after arrival of the goods at the port of destination, and the defendant shall send a reply to the plaintiff within 15 days after receipt of the notification of the claim.  The defendant shall refund the claim amount equivalent to quality and/or quantity discrepancies to the plaintiff by cashiers cheque or TT within 20 days after receipt of original survey and/or claim report.

7.  It is also common ground that the 2^nd contract contained the following express written terms:

(1) The defendant would supply the plaintiff with 300 metric tons of Ferro-Silicon at the price of US$1,240 per metric ton.

(2) A minimum of 90% of the Ferro-Silicon was to be in pellet form, with a dimension of between 10 and 50 millimetres and the whole 300 metric tons were to have a minimum Ferro‑Silicon content of 75%.

(3) Payment was to be by irrevocable letter of credit at sight of the required documents.

(4) Shipment was to be made by the end of October 2012, CIF Busan. 

8.  The 2^nd contract also contained a clause 1 in similar terms as aforesaid. 

9.  Lastly, it is common ground that the defendant has shipped the goods to the plaintiff and obtained full payment of the purchase price by letters of credit. 

10.  On the pleadings, the only two issues are, firstly, whether the defendant has been in breach of the contracts as to the quality of the goods shipped.  The defendant avers that the quality of the 500 metric tons of Ferro‑Silicon was in conformity with the stipulations of the contract. 

11.  Secondly, the defendant avers that the plaintiff should have lodged its claims supported by survey reports within the time limits stated in the contracts.  This, in the present case, the defendant says the plaintiff has failed to do. 

12.  The plaintiff’s application for summary judgment was supported by the 2^nd affirmation of Kim Jee-Hyun. According to Miss Kim, what happened was this.  The 200 metric tons of Ferro‑Silicon relating to the 1^st contract arrived in Busan in about October 2012. The goods were transported to the plaintiff’s warehouse near the port of Busan, and visual inspection was made of the goods in question.  As the goods were packed in one-ton bags, it was impractical to check every bag as it almost impossible to repack the individual bags when the Ferro‑Silicon was required to be delivered to its next destination and/or buyer. 

13.  It is standard practice within the industry to make a visual inspection of the top of each bag, and it was visually confirmed that the top layer of Ferro-Silicon was within contractual guidelines.  The plaintiff had yet to secure a buyer in South Korea for the 200 metric tons and therefore the goods were held in storage. 

14.  The 300 metric tons in relation to the 2^nd contract arrived in Busan on or about 7 November 2012.  As with the first shipment, the goods were transported to the plaintiff’s warehouse near Busan port, visually inspected and stored. 

15.  On or about 15 November 2012, the 300 metric tons of Ferro‑Silicon having been sold to Han Gook Steel Industry, they were transported from the plaintiff’s warehouse to the warehouse of Han Gook Steel Industry. 

16.  Soon after taking delivery of the 300 metric tons, Han Gook Steel Industry informed the plaintiff that upon completely opening the first few bags, the Ferro‑Silicon did not conform to industry and contractual standards, namely, the bags had been packed in a way such that the top of the bags had conforming Ferro-Silicon of 10 to 50 millimetres pellets, while the bottom of the bags had been packed with non‑useable Ferro‑Silicon of less than 10 millimetres powder, and also other unusable materials which were not Ferro-Silicon.

17.  On or about 15 November 2012, Miss Kim immediately attended the plaintiff’s warehouse whereupon opening a few of the bags comprising the 200 metric tons of Ferro-Silicon, she discovered that, similarly, the lower portion of the bags actually contained materials which did not conform with the contractual descriptions.

18.  From about 15 to 21 November 2012, Miss Kim communicated this problem to Mr Ivan Tang.  She called him on numerous occasions, to which Mr Tang replied he would attempt to resolve the problem with the supplier.  Her final contact with Mr Ivan Tang was on or about 21 November 2012 by email.

19.  Both contracts stipulated that any claim had to be lodged within 50 days of the receipt of the goods, together with the survey report by a recognised public surveyor.  As a matter of urgency, a survey was conducted by Daihan Adjustors and Inspection Co. Ltd.  Miss Kim says Daihan is a recognised public surveyor, and the reports are independently produced reports showing the defects in the quality of the goods sold by the defendant to the plaintiff.

20.  Miss Kim also confirmed that SGS or Alex Stewart were not available at the time when time was of the essence in conducting an independent survey.  Daihan is licensed by the Government of South Korea and is regarded as on par in terms of impartiality and quality of their surveying within the industry.

21.  The first of the two survey reports confirms that:

(1) The shipment was in 200 woven bags of one ton of Ferro‑Silicon each.

(2) As per the sizing survey, 47.7% of the first 200 metric tons of Ferro‑Silicon was of a size under the contractual minimum of 10 millimetres.

(3) Approximately 20% of the material over 10 millimetres in size was of a slag type material and not Ferro-Silicon. 

22.  The second survey report confirms that:

(1) The shipment was in 300 woven bags of one ton of Ferro‑Silicon each.

(2) As per the sizing survey, 48.29% of the 300 metric tons of Ferro‑Silicon was of a size under the contractual minimum of 10 millimetres.

 (3) Approximately 20% of the material over 10 millimetres in size was of a slag type material and not Ferro-Silicon.

23.  The affidavit filed in opposition to summary judgment was sworn, not by a director or any representative of the defendant company with personal knowledge of the material facts, but by the defendant’s solicitor, Mr Lai.  There was no explanation in Mr Lai’s affidavit as to why that was so. 

24.  Ms Leung for the defendant submitted that the principal issue in the present case was whether the goods sold to the plaintiff conformed with the contracts specification as to size.

25.  In this regard, Ms Leung submits that the plaintiff’s case on liability rests wholly upon the survey carried out by Daihan on 22 and 23 November 2012, and Daihan’s opinion.  But the opinion expressed in the Daihan report is disputed by the defendant.  Further, the plaintiff has failed to adduce evidence that the Ferro-Silicon examined by Daihan were those shipped by the defendant.  Lastly, Ms Leung criticises the survey reports for lacking in particulars as to the methodology adopted, whether and how samples were taken for sizing survey, who conducted the examination or the qualification of the examiner.

26.  For these reasons, no weight should be attached to the reports, and without the reports the plaintiff’s case is reduced to a bare assertion that the Ferro-Silicon did not conform with the contract specifications.  There is, therefore, a triable issue as to the quality of the goods shipped by the defendant, and summary judgment should not be granted. 

27.  This court is unable to accept Ms Leung’s submission. 

28.  It is well established that in an application for summary judgment, the burden is on the defendant to satisfy the court with respect to the claim, or part of the claim, that there is a triable issue or some other issues to be tried.  As the learned editors of the Hong Kong Civil Procedure 2014 say at paragraph 14/4/4 :

“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. This obligation is to ensure that where a plaintiff raises a plausible and prima facie sustainable case, a defendant can convince the court there exists a triable issue so that leave to defend is given or the application for summary judgment is dismissed: Toy Major Trading Co. Ltd v Plastic Toys Ltd [2007] 3 HKLRD 345. It should also state whether the defence goes to the whole or part of the claim, and in the latter case it should specify the part.

A mere general denial that the defendant is indebted will not suffice.”

29.  The defendant’s stance in this application amounts no more than putting the plaintiff to strict proof without itself adducing any evidence on the quality of the goods in question.  Nothing is said about the source of the Ferro-Silicon shipped to the plaintiff, what steps, if any, the defendant has taken to ensure the quality of the Ferro‑Silicon shipped to the plaintiff corresponded with the contract specifications.

30.  No doubt, in order to obtain payment under the L/C, the defendant has presented two certificates of quality and quantity which, on their face, show that the goods were conforming, but these certificates were issued by the defendant itself and were entirely self-serving.  There is also no evidence that after the plaintiff had discovered and complained about the quality problems with the Ferro‑Silicon, the defendant tried to arrange its own surveyors to inspect the goods in South Korea and come up with its own survey report on the quality of the goods. 

31.  In short, save for criticising the plaintiff’s own evidence and denying there was any quality problem with the Ferro‑Silicon, the defendant has come up with nothing.

32.  In my view, the defendant’s affidavit comes nowhere near the obligation of a defendant in summary judgment proceedings to condescend upon particulars, such as to convince this court that there exists a triable issue as to the quality of the goods so that leave to defend should be given.

33.  Ms Leung, for the defendant, further submits that even if the Ferro‑Silicon was substandard, another triable issue in the present case is the effect of clause 1 of the contracts. 

34.  For ease of reference, I shall set out the relevant part of the exact terms of clause 1 again.  It reads:

“In case the quality and/or quantity are found to be not in conformity with the contract and/or L/C after arrival of the goods at the port of destination, the Buyer shall lodge a claim with the Seller supported by a survey report issued by a recognised public surveyor (SGS or Alex Stewart) and their result will be final.”

35.  Ms Leung submits that from the way clause 1 was drafted, it is clear that the parties’ intention at the time of contract was that, in the event of quality/quantity issue arising, only SGS or Alex Stewart and no other could be appointed to survey the goods. Non-compliance with that clause completely bars the plaintiff’s claim in this case, at least there is a triable issue to that effect.

36.  In support of that submission, Ms Leung cites Benjamin Sale of Goods 8^th Ed at paragraph 13-041, and the judgment of Bingham J (as he then was) in Verheijdens v Joseph [1981] 1 Lloyd’s Rep 102.

37.  In Bingham J’s decision, the contract provided that GAFTA 30 was to be incorporated into the contract of sale of goods, clause 18 of which provided:

“Sampling: Samples, if required, shall be taken at time of discharge in accordance with the appropriate rules of the [GAFTA 71], and shall be the only samples used for the purposes of arbitration.”

38.  The question of law for the decision of the court was whether the parties had agreed that evidence based on the samples which the buyers had taken was inadmissible because the samples were not taken in accordance with the GAFTA procedure. It was held by Bingham J that the parties might, by a binding agreement made between them, effectively agree that evidence of a specified type shall be inadmissible in any subsequent dispute which might arise between them, and the court should be slow to construe a clause as excluding the right of a party to call evidence otherwise admissible unless the language of the contract clearly so required. On the facts of that case, the court held that the answer to the question submitted to the court was to be in the affirmative.

39.  The issue is a question of construction of the two contracts. 

40.  In my view, the wording of clause 1 falls short of clearly excluding the right of the plaintiff to engage another recognised public surveyor to carry out a survey of the goods in case they were found to be not in conformity with the contracts. If that had been the intention of the parties, they could have simply stipulated for survey by SGS or Alex Stewart, instead of survey “by a recognised public surveyor (SGS or Alex Stewart)”.

41.  Alternatively, the parties could have made their intention more clearly by using words to the effect that only SGS or Alex Stewart and no other surveyor could be appointed to survey the goods, and only a survey report by SGS or Alex Stewart would be recognised by the defendant.

42.  A fortiori, if as Ms Leung submits the intention of the parties had been that failing a survey report from SGS or Alex Stewart within 50 days of arrival of the goods, the plaintiff’s claim in relation to the quality of the goods would be completely barred, they could easily have made their intention clear in the contracts. Instead, there was no reference, directly or indirectly, in clause 1 about barring the plaintiff’s claim at all.  It is well established that time-bar clauses like exemption clauses must be construed strictly.  In the present case, clause 1 comes nowhere near a time‑bar clause.

43.  As to the subsidiary points made by Ms Leung that the defendant denies having received the claims notices, or the Daihan reports from the plaintiff until after the commencement of the present proceedings, they are merely bare denials and could not amount to any triable issues.  It is also inherently incredible for the defendant to suggest that the plaintiff took the trouble of preparing the claims notices and commissioning the Daihan report, but did not send them to the defendant.

44.  Lastly, the difficulty of the defendant in this appeal is compounded by the fact that, for reasons unexplained, it chooses not to file an affidavit in opposition by someone with personal knowledge of the material events, whether it be Mr Ivan Tang or otherwise, or at least an affidavit by its director, Mr Cai.  As I said earlier, the affidavit in opposition was sworn by its solicitor.

45.  Although Mr Lai says in paragraph 2 of his affidavit that, “When I refer to information supplied by others, the source of the information is identified”, what he in fact did was simply to identify the defendant as his source of information - see paragraphs 13 and 21 of his affidavit - without identifying the person within the defendant who supplied the information to him.

46.  In these circumstances Mr Kim for the plaintiff submits that the affidavit is defective as it fails to comply with Rules of the High Court Order 41 rule 5(2).

47.  There is force in Mr Kim’s submission.  RHC Order 41 rule 5(2) reads:

“An affidavit sworn for the purpose of being used in interlocutory proceedings may contain statements of information or belief with the sources and grounds thereof.”

48.  In paragraph 41/5/3, the learned editors of Hong Kong Civil Procedure 2014 say this:

“It was held in Leung Kin Fook & Others v Eastern Worldwide Co. Ltd [1991] 1 HKC 55 that Order 41 rule 5(2) should be strictly complied with where objection is likely to be taken, and especially where it is an objection of substance and not a mere technical and frivolous objection… It is of particular importance to ensure strict compliance in affidavits in relation to an application for summary judgment: see Wang King Fong v Fook Hong Chan [1961] HKLR 448.”

49.  Mr Kim also relies on a passage in Hong Kong Civil Procedure 2014 at 14/2/5 which reads:

“Unless there is some very good reason not to do so, affidavits should be made by the parties themselves rather than by their solicitors: see Mutual Luck Investment Ltd v Chiu Yim Man [1999] 3 HKC 399 at 404.”

50.  In Mutual Luck at 404, Keith J explained the reasons for this rule by citing an excerpt from an article in Law Lectures for Practitioners, 1987, pp 234-235 which reads as follows:

“In Hong Kong we require the parties themselves to swear or affirm the matters of fact unless there is some very good reason, such as absence from Hong Kong. The idea behind it is very simple. Both plaintiffs and defendants have been known more often than ought to be the case to put forward stories that are eventually shown to be demonstrably false. When they swear or affirm to those stories they can and will be prosecuted for perjury. Where such stories are put forward through a solicitor or a clerk who swears that he is informed or verily believes the same, the client escapes the sanction of the criminal law and the solicitor acquires (with the court) the reputation of being a fool or a villain or both.”

51.  For all these reasons, this court would dismiss the appeal against the summary judgment. 

52.  I now turn to the defendant’s appeal against the dismissal of its security for costs summons. 

53.  In the present case, the defendant seeks security for costs up to trial in the sum of just over HK$1 million.  At paragraph 26 of her written submissions, Ms Leung refers to paragraph 23/3/3 of Hong Kong Civil Procedure 2014 for the proposition that security for costs will normally be ordered unless the plaintiff can show it has a genuine and strong case.  It seems to this court the position is a fortiori when the plaintiff can show not just a genuine and strong case, but that it is entitled to summary judgment, and it has obtained summary judgment against the defendant. 

54.  I ask Ms Leung about this in court and she very properly accepts that if this court upholds the summary judgment, she cannot justifiably seek security for costs against the plaintiff.

55.  In these circumstances, given this court’s conclusion on the appeal against the summary judgment, the appeal against the dismissal of the security for costs summons also fails.

56.  In conclusion, I would dismiss the defendant’s appeals both against the summary judgment and the dismissal of the security for costs application. 

57.  Costs should follow the event, with certificate for counsel, to be taxed if not agreed within 14 days.