XCHRX FORTUNA APPARELS LTD. v. MEGA STYLE LTD. and Another

1995, No.CL173

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

(COMMERCIAL LIST)

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J U D G M E N T

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1. This is an application for summary judgment, and an application in the alternative under Order 27 for judgment on the basis of admissions made by the 1st defendant, in the further alternatives orders for interim payment under Order 29, rules 10 and 11.

The Claim

2. The plaintiff carries on business as a manufacturer of garments. The 1st defendant, against whom this application is directed, is a company incorporated in Hong Kong, and its directors are Mr Teitolman and Mr Kumar.

3. By its Points of Claim dated 11th October 1995, the plaintiff relies upon oral contracts between it and the 1st defendant from June 1992 to April 1993. It is said that the plaintiff agreed to sell to the 1st defendant quantities of garments F.O.B. Dhaka to the total agreed sum of US$283,470 and that the clothes were all shipped in February, March and April 1993 to Canada at the behest of the 1st defendant. Invoices were issued in those months, but the 1st defendant has failed and refused to pay any of the amounts due under them. So the main part of the claim is for the sum of US$283,470. There is a further claim for US$8,103, which the plaintiff says is due as a result of interest and charges which it has incurred as a result of the 1st defendant's alleged breach of contract.

The Defence

4. The 1st defendant has, by its Defence and Counterclaim, dated 3rd November 1995, put forward the following contentions:

(1) It is true that the plaintiff supplied the goods to which the Points of Claim refer, but the goods which the plaintiff manufactured were manufactured with fabrics supplied by the 1st defendant, and that the plaintiff owes to the 1st defendant US$216,961.34 in respect of fabrics thus supplied.

5. The plaintiff in its Reply says that only some goods were made with fabrics supplied by the 1st defendant. It is also now common ground that of that sum, the plaintiff has paid to the 1st defendant US$78,905. The plaintiff says that therefore, it is clear that, on any view, it is owed US$145,413.86. This part of the claim can conveniently be called the invoice balance claim. It is the amount for which summary judgment is sought, and the amount for which judgment is sought under Order 27.

(2) The plaintiff was responsible for delay in the shipment of the goods, and in consequence of the delay, the goods had to be sent by air, and the plaintiff, it is alleged, agreed with the 1st defendant that the plaintiff would pay for the difference between the cost of sea freight and air freight. That extra cost is not identified in the Defence, but it is said to be part of the figure of US$45,000 to which I shall shortly refer. In its Reply and Defence to the 1st defendant's Counterclaim, the plaintiff denies delay and says that there was no such agreement, and that the goods were sent by air at the 1st defendant's express request.

(3) The 1st defendant then contends that the plaintiff further agreed that it would also bear the demurrage and storage charges incurred when the 1st defendant did not accept the goods whilst awaiting the plaintiff's acceptance of the extra freight charges. These charges are not broken down, but they, together with the extra freight, are said to amount to US$45,000. The plaintiff has pleaded, in response, that there was never a discussion about these charges, let alone any agreement about them. This I shall refer to as the storage and demurrage issue.

(4) Then, says the 1st defendant, it has lost the service charges and profit to which it would have been entitled had the goods been shipped in time, and a figure of US$25,000 has been put on that loss. It has been explained to me that the service charges to which the 1st defendant refers is simply another name intended by it to refer to profit. The plaintiff says that this defence is demonstrably bogus, but that if not, then, at the very least, it leaves outstanding on the invoice balance a sum of US$75,413.86 (that is, US$145,413 - [US$45,000 + US$25,000]).

(5) Finally, the 1st defendant contends that it has suffered damage in loss of freight charges and loss of profit from future business. This arises, it says, because its customers in Canada, for whom this whole enterprise was ultimately directed, now refuse to do further business with it. The amount of this loss is not specified in the Defence or in the Counterclaim, but the 1st defendant has since asserted it to be at least US$100,000.

6. All these specific amounts due and the alleged damages are pleaded by way of set-off and counterclaim.

7. We are not concerned for the purpose of this application with the issue between the plaintiff and the 2nd defendant.

The plaintiff's stance

8. In support of its application, the plaintiff relies on the fact that the 1st defendant has made a number of admissions in its pleadings : It admits that there were oral contracts pursuant to which goods were sent and accepted by the 1st defendant, and that invoices were submitted in relation to those goods, and that the plaintiff shipped goods, and that the goods were accepted by the

1st defendant for on sale. The plaintiff says that the 1st defendant has also admitted that payment has not been made and, accordingly, the plaintiff contends, that there is no real dispute about the invoice balance.

9. In so far as the defendant seeks to deplete the invoice balance by its assertion that it was agreed that the plaintiff would pay freight, storage and demurrage charges, that claim, apart from being denied by the plaintiff, is, according to the assertion by the plaintiff in the 1st affidavit filed on its behalf in support of this application, patently suspect because there is no explanation about the calculation of those charges - the suggested total of which is US$45,000; no documentation produced to substantiate the suggestion that such charges were incurred whether in the amount suggested or in any amount; and that it is unlikely in the extreme that charges would come to that round figure, since freight is calculated according to weight; demurrage according to days, hours and minutes spent on demurrage; and storage charges on the volume and the days. The same point is made in relation to the alleged agreement about service charges and profit - there is no explanation as to how those figures are calculated and, again, it is very unlikely that the true figure for such charges, if incurred, or for the loss of profit, if there was any, would be a round figure, such as the US$25,000 suggested by the 1st defendant.

10. The plaintiff continues that as for the counterclaim for loss of freight charges and loss of future profit, no details have been given.

11. Accordingly, the plaintiff seeks summary judgment (as well as judgment under Order 27) for the sum of US$145,413, or in the alternative, at least US$75,413.

12. Then the plaintiff says that were the court to take the view that because of the way the defence is pleaded, it is difficult to be sure what will be due to the plaintiff, the court should nevertheless pronounce judgment in favour of the plaintiff with damages to be assessed, and order the 1st defendant to make an interim payment pursuant to Order 29, rule 11(1)(b) on the ground that the plaintiff has obtained judgment.

13. Alternatively, I am asked to make an order under Order 29, rule 11(1)(c) on the footing that even if summary judgment is not given or is given for the smaller amount after deducting the figure of US$70,000, the court may be satisfied the plaintiff would obtain judgment for substantial damages against the 1st defendant if the action were to proceed to trial. In pursuit of this relief, the plaintiff prays in aid its attack on the bona fides of the Defence, argues that the 1st defendant has made certain admissions as to its liability to pay invoices, and asserts that the claims for extra freight, storage, demurrage, charges and loss of profits and of future business are claims which "could not succeed ... for losses which are too remote and could not have been foreseen by the plaintiff." Beyond that, says the plaintiff, the defendant is bound to be faced with difficulties in proving charges incurred, the reasonableness of permitting the charges to be incurred, and the suggested loss of future business.

The 1st defendant's evidence

14. There has been placed before me a full affidavit by Mr Kumar who resides in Canada and who is one of the two directors of the 1st defendant. The other director is Mr Teitolman. Mr Kumar makes the following points :

(1) Mr Teitolman buys garments on behalf of clients in Canada and the U.S.A. The clients design styles to which copyright attaches. The idea is that the garments are then made in Bangladesh according to those styles with the labels of the buyers. The buyers are in the main wholesalers and chain stores. The 1st defendant was incorporated for the purpose of this trade, that is, to receive and fulfil orders from those buyers.

(2) All the agreements with the plaintiff were made orally and varied orally on many occasions. It is said to be important for the court to hear evidence about those oral variations.

(3) In respect of the orders placed by the 1st defendant with the plaintiff, payment was in each instance to be by letter of credit, and letters of credit were duly opened. Mr Kumar has exhibited to his affidavit a schedule which purports to be a summary of the dates by which, as demonstrated by the terms of the letters of credit, the plaintiff was to ship the goods; of the expiry dates of the letters of credit; of the extensions of time given for shipment of the finished articles; and of the various dates upon which they were in fact shipped by the plaintiff, thus seeking to demonstrate that none of the shipping deadlines was met by the plaintiff, and that the vast majority of the goods were shipped by the plaintiff after expiry of the corresponding letter of credit.

(4) In consequence, buyers who wanted garments for particular seasons, threatened to reject the goods and the goods had to be kept in storage whilst the 1st defendant negotiated with the buyers. Acceptance of goods by the 1st defendant from the plaintiff was also consequentially delayed. Buyers demanded reductions in price and in freight charges. The plaintiff is said to have been fully aware of the problem, and fully aware of the obvious fact that "... the plaintiff would have to bear all the losses, as it was the plaintiff's delay that had caused the problems".

(5) It is then contended that it is normal for goods of this description to be freighted by sea, but that it "... is almost a custom of the trade ..." that where there is delay by the manufacturer, the buyer will insist upon air freight to reduce the delay. In the event, the goods had to be sent by air.

(6) The 1st defendant then asserts that there was an express oral agreement that :

(i) The plaintiff would in the circumstances bear the demurrage and the storage charges;

(ii) The plaintiff would pay the excess freight occasioned by air rather than sea carriage. The figure to be paid in respect of this difference as well as for the cost of demurrage and storage, was expressly put by the parties at US$45,000 when the agreement as to these charges was made; and

(iii) US$25,000 would be paid in respect of loss of profits which befell the 1st defendant as a result of the plaintiff's delay.

15. These agreements, he says, were reached after the shipments were made. The freight and demurrage and storage charges were paid by the end buyers, and the sums deducted from the price;

(iv) The plaintiff would not present letters of credit for encashment, but would wait for payment once the buyers had accepted the goods, and then the sums due would be negotiated;

(v) The plaintiff would in any event pay for the materials sent by the 1st defendant to the plaintiff;

(vi) The plaintiff would pay the loss of profits suffered by the 1st defendant. This I understand to be an item different from the loss of profits occasioned by late delivery of these particular goods; and

(vii) Mr Taher, a director of the plaintiff company and with whom all dealings are said to have been conducted, on the one hand, and, on the other,

Mr Teitolman would meet in Hong Kong to resolve outstanding disputes.

16. Finally, it is said that the 1st defendant has lost the custom of all the buyers, which at US$25,000 a season, exceeds US$100,000 for two years.

The plaintiff's response

17. There is a lengthy affidavit in response by the plaintiff's solicitor, much of it in the form of submissions. Be that as it may, the following responses are advanced :

(1) The suggested agreements (to which I have referred in paragraph (6) of the preceding section) are denied.

(2) There is no need for oral evidence to demonstrate the terms of the contracts and their variations, because the variations are evident from the invoices, shipping documents and letters of credit.

(3) There is no evidence that the contracts with the buyers made time of the essence, or that the buyers were entitled to reject goods for late delivery. In any event if this was a term of those contracts, it was one which was not reasonably foreseeable by the plaintiff.

(4) It is extraordinary that the 1st defendant should send goods by air before ascertaining whether they would be accepted, and before negotiations with the end buyers were concluded; it being common ground that the demurrage and storage charges accrued in Canada and not in Bangladesh.

(5) It was the 1st defendant who was late in sending material to the plaintiff, and not the plaintiff in manufacturing the end product. That is said to be evident from letters of credit and bills of lading. All these, in turn, caused late delivery to Canada of the finished product. Documents show that the time frame set by letters of credit for shipment of the final product were in many instances but a few days after receipt of material from the 1st defendant. It is extremely unlikely, in the circumstances, that the plaintiff would actually manufacture the garments, and then agree to bear the extra cost; or that he would agree to incur the extra cost of demurrage in Canada before knowing whether the end buyer would accept them. It would then have made much more commercial sense to have kept the goods in Bangladesh until determination of any disputes or concerns.

(6) It was the 1st defendant who requested shipment by air.

(7) In so far as the 1st defendant relies on some suggested custom whereby the manufacturer bears the difference between the air and sea freight, such a custom is denied, and in any event is only referred to by the 1st defendant as "almost a custom".

(8) There was indeed a meeting to resolve outstanding issues between the parties. That meeting took place on 1st October 1993. The minutes of that meeting, which minutes were drawn by the 1st defendant, are exhibited to the plaintiff's 2nd affidavit. The meeting was attended by Mr Taher, Mr Teitolman, Mr Kumar and one other. The minutes refer to the unsatisfactory season encountered by the parties "right from delay in import of fabrics to delays in production/shipping and eventual delivery to the clients. The only way to resolve the situation would be to move forward with mutual understanding and co-operation." It is notable that there is reference there to delays both in the supply of the material and also in the production of garments; in other words, on its face, fault by both parties. The result of the agreement evidenced by these minutes is that a balance was said to be owed by the 1st defendant to the plaintiff in the approximate sum of US$65,000. This difference assumed payment by the plaintiff to the 1st defendant in respect of three invoices in the sum of US$78,905, which the plaintiff has since paid. In other words, if this agreement were considered binding, then given these payments by the plaintiff, the 1st defendant would, pursuant to the terms of this agreement, now owe to the plaintiff the sum of US$143,401. However, neither side suggests that a binding agreement was concluded at this meeting, but the plaintiff nevertheless relies on these minutes because there is no reference in them to any agreement by the plaintiff to pay for demurrage, or for storage or for air freight or for loss of profits allegedly suffered by the 1st defendant. Indeed, there is no reference to any such loss, or to any such charges.

Order 14 : the approach

18. There is a temptation, in the face of these contending arguments, and of the examination of fairly lengthy affirmations and of numerous exhibits which is necessary to appreciate the plaintiff's contentions upon this application, to say at the outset that this case and these issues - especially since they are almost all factual issues - are not of the kind for which Order 14 proceedings are designed or appropriate. The extraordinary nature of this summary procedure has most recently been emphasised in Man Earn Limited v. Wing Ting Fong [1996] 1 HKC 226. The procedure should be invoked only where a defendant clearly has no defence, and in particular in

"... cases in which there is no serious material factual dispute and, if a legal issue, then no more than a crisp legal question as well decided summarily as otherwise ... The procedure is entirely inappropriate where the plaintiff's entitlement to recover any sum is the subject of any serious dispute, whether of law or fact. ..... Where there are substantial issues of genuine complexity the parties should prepare for trial ... rather than dissipate their energy and resources on deceptively attractive shortcuts."

(See Crown House Engineering v. Amec Projects Ltd. [1990] 6 Const LJ 141, cited at page 228 of Man Earn Limited.)

19. And so it is said by the defendant in this case that whilst the ambit of the plaintiff's claim, as a self-contained issue, is plain and simple, the defence, which is a set-off, is by no means plain - certainly not factually straightforward, infused as it is with a series of oral agreements and variations.

20. Yet the plaintiff would grasp the reservation or qualification in the same passage of Crown House to which I have referred, which remarks that :

"This is not to say ... that a defendant with no or no more than a partial defence can cheat a plaintiff of his just deserts by producing hefty affidavits and voluminous exhibits to create an illusion of complexity where none exists. Where the point at issue is at heart a short one, the court will recognize the fact and act accordingly no matter how bulky its outer garments."

21. The plaintiff's case is that the defence is a sham, that the sham can be uncovered by an examination of the documents now before the court, and by a consideration of inherent improbabilities which become obvious upon but a moment's consideration, and that the busy or complex scenery which the 1st defendant hauls before the court is but an illusion, and demonstrably so, and an attempt to defeat the plaintiff's rights by delay.

22. Although the summary procedure which is Order 14 is quite evidently intended for the short and obvious point, once it is suggested that an examination of the documents will readily and clearly reveal the defence to be a device, or a phantom, it is, it seems to me, incumbent upon the court to conduct that examination, even if, as in this case, the documentary trawl is not simple, and even though the arguments which are advanced on affidavit and at the hearing are, as they were in this case, not brief - the more so if, on the face of the papers, there is, as in this case, a dearth of documentary support for the Defence case.

23. Ms Sumption, for the plaintiff, relies in this regard on the accepted and established principle :

"... that the mere assertion in an affidavit of a given situation which is to be the basis of a defence does not, ipso facto, provide leave to defend; the court must look at the whole situation and ask itself whether the defendant has satisfied the court that there is a fair or reasonable probability of the defendants having a real or bona fide defence."

per Ackner LJ, as he then was, in Banque de Paris et des Pays-Bas (Suisse) SA v. de Naray [1984] 1 Lloyd's Rep 21, at page 23. She then draws to my attention citations in the judgment of the Court of Appeal in National Westminster Bank plc. v. Daniel and others [1994] 1 All E.R 156, at 159 : first, a passage from the judgment of Bingham LJ (as he then was) in Bhogal v. Punjab National Bank [1988] 2 All E.R 296, at 303 :

"But the correctness of factual assertions such as these cannot be decided on an application for summary judgment unless the assertions are shown to be manifestly false either because of their inherent implausibility or because of their inconsistency with the contemporary documents or other compelling evidence."

And, finally, to the test proposed by Bingham LJ in that case :

"In the present case I ask myself whether it is credible that an oral agreement was made in mid-January of 1985 as alleged by Mr Naidoo in his third affidavit. I have come to the conclusion that it is not."

24. She might also have relied on the approach adopted by the Court of Appeal in Hong Kong in Bhagwandas Kewaleram Murjani and others v. Bank of India [1990] 1 HKLR 586 which was content to follow the dictum of Ackner LJ (as he then was) in Banque de Paris. In the Murjani case, the agreement asserted by the defendant was, as the judge at first instance remarked : "transparently a concoction". That, says the plaintiff, is this case, and is the apt description for the facts advanced by the defendant in this case as the basis for its set-off.

25. In considering the arguments of plaintiff and defendant, I remind myself that the onus is upon the defendant :

"... to satisfy the court with respect to the claim that there is an issue or question in dispute which ought to be tried. It might be described as a threshold onus upon a defendant to show that there is a triable issue in the case. That onus can only be satisfied on the balance of probabilities, and this is the only way in which a court can consider it."

(per Hunter, J.A. in Murjani, at page 589.)

Analysis

26. If there is anything in the contention by the 1st defendant that there was an agreement to pay the various charges arising from delay in production of the goods and that there was consequential loss of business, then these debts and

damages may, if established, probably be set-off against the plaintiff's claim, arising as they would from the same transactions which are the subject of the claim. This is, therefore, not a case properly the subject of an order which would give judgment to the plaintiff, leaving the defendant to pursue its counterclaim.

27. So the question is whether the defendant has established that there is a fair and reasonable probability of the 1st defendant having a real or bona fide defence. I am satisfied that this is not a case for unconditional leave to defend. Such is the quality of the evidence adduced by the 1st defendant and the evidence against which it can be tested, even at this stage, and such are the inherent probabilities and improbabilities, that the only issue that has caused me difficulty is whether this is a case for summary judgment or, on the other hand, is one in which conditional leave to defend should be given on the footing that whilst I cannot say that the matter is too plain for argument, there is nevertheless good ground for thinking that the defence is a sham, and that I am prepared very nearly to give judgment for the plaintiff.

28. I note in this regard the following aspects of the facts presented, and of the defence case, which disclose a picture of inconsistencies and improbabilities :

1. It is now contended by the 1st defendant that there was an agreement by the plaintiff to pay precisely US$45,000 for freight, storage and

demurrage. That is not what was pleaded. In its relevant part, the Points of Defence ran thus :

"5. ......

(4) As a result of the delay .... the Plaintiff agreed .... that [it] would pay for the extra freight charges over and above the costs of sea freight.

(5) Further, the Plaintiff agreed that [it] would also bear the demurrage and storage charges incurred in relation to the Goods, which were originally not accepted until the Plaintiff's agreement to bear the extra freight charges.

......

Counterclaim

......

14. By reason of the matters aforesaid the 1st defendant has suffered loss and damage.

Particulars

Extra freight charges, demurrage and storage charges : US$45,000......."

29. Ms Sumption then pointed out in her 1st affidavit how unlikely it was that the figure for these charges would ever be in round sums. There then followed in Mr Kumar's affidavit, in response to this point, the assertion that there had in fact been agreed between Mr Taher and Mr Teitolman a figure for these charges of exactly US$45,000. One would expect the Defence to have reflected this agreement to pay that very sum.

2. It was common ground at the hearing before me that the demurrage and storage charges which the defendant is claiming relate to charges allegedly accrued by reason of storage and demurrage in Canada, not in Bangladesh. It follows that the 1st defendant's account is that goods were ordered to be sent to Canada after problems arose with buyers, but before they were persuaded to accept the goods. That may be said to be inherently improbable, and it seems most unlikely that the plaintiff would have agreed to bear those charges in such circumstances.

3. The 1st defendant has failed to provide any documentation in support of the assertion that those charges were in fact incurred, or how they were broken down. Whilst it has been asserted that end buyers paid these charges, there is no evidence of such payments, or of any correspondence between 1st defendant and those buyers about those charges.

4. The 1st defendant has failed to produce any evidence, save for the ipse dixit of Mr Kumar, of orders by buyers; of complaints by buyers; of time limits imposed by buyers, whether in respect of original time limits or extended time limits; of negotiations with buyers; or of agreements with buyers to give discounts for late delivery.

5. No date or dates are given for the agreements by which the plaintiff is said to have undertaken to pay for the various charges, and to indemnify the 1st defendant for loss of profit, or for the alleged agreement that the plaintiff would in any event pay for the material supplied by the 1st defendant.

6. There was no suggestion in the Defence and Counterclaim that the plaintiff had agreed to pay to the 1st defendant any sum in relation to loss of profit occasioned by the plaintiff's delay. It was simply pleaded that by reason of the delay the 1st defendant suffered loss and damage; and in the particulars of that loss and damage, that figure was put at US$25,000. In her 1st affidavit, Ms Sumption pointed out that loss of this kind was, again, unlikely to be in round figures. It is, the sceptic might say, not then surprising to find in Mr Kumar's affirmation the contention that that figure too was not a figure of actual loss, but was a figure agreed upon by Mr Taher and Mr Teitolman as the figure which the plaintiff would pay in relation to the loss of profit suffered by the 1st defendant.

7. As for loss of future profit this, in the Defence and Counterclaim, is no more than a bare allegation. The particulars of damage are not particulars at all. They merely constitute one line which repeats the allegation that there is loss of profit arising from future business. In Mr Kumar's affidavit, the figure is put at US$100,000, based on an alleged US$25,000 loss per season for two years.

8. The entire Defence and Counterclaim is predicated on the basis of delay by the plaintiff in furnishing finished goods. So obvious was the fact of delay and the consequential problems with the end buyers that "it was clear to all parties that the plaintiff would ultimately have to bear all the losses as it was the plaintiff's delay that has caused the problems. It is the 1st defendant's position that all terms relating to payment were varied orally by the parties in view of the delay." (see paragraph 8 of Mr Kumar's affidavit) :

(i) The contention that the matter was so clear does not sit at all with the minutes of the October 1993 meeting;

(ii) It is perfectly apparent from the documents which I have seen, namely, the letters of credit for the materials supplied by the 1st defendant, the letters of credit supplied for the goods produced by the plaintiff, and the bills of lading, that it was most unlikely to have been clear to all parties that the plaintiff would have to bear all the losses; for these documents show that the defendant was significantly late in delivering material to the plaintiff. There is a letter of credit opened by the plaintiff in favour of the 1st defendant dated 15th December 1992 in the sum of US$121,176. It relates to material to be sent to the plaintiff by the 1st defendant. It provides for shipment of the material no later than 20th December 1992. The letter of credit is said to be opened against an export letter of credit B-512/92 which was in the sum of US$224,100, opened by the 2nd defendant in favour of the plaintiff, and which was to cover by far the greatest quantity of clothing to be made by the plaintiff. In fact, of the US$283,470 which represents the total amount claimed by the plaintiff, something in the order of US$208,000 is represented by items or goods to be paid for under this export letter of credit. The export letter of credit stipulated that the goods were to be shipped no later than 6th February 1993. So, reading the two letters of credit together, seven weeks was the time in which the goods had to travel by sea to Chittagong from Taiwan, and for the plaintiff to make up and place the goods on ship. The shipment date for the finished product was never extended. It is apparent from the relevant bill of lading that the goods were not in fact shipped by the 1st defendant until 11th January 1993. If one includes the journey, and time for customs clearance, that leaves little time for the manufacture of the products, although there is no evidence before me about voyage duration and the time required for manufacture of the finished product. The plaintiff's evidence is that the goods covered by this letter of credit from the plaintiff did not arrive in Chittagong until 10th February, that is, four days after the date upon which the plaintiff was supposed to have manufactured and shipped the goods on. The delay on the 1st defendant's part in relation to this, the largest of the payments for which the plaintiff now sues, is not touched upon by the 1st defendant in its evidence in this application. Mr Dissanayake, who appeared for the 1st defendant on this application, says that there were clearly delays by the 1st defendant, but that when there were delays the time for shipment was extended. There seems to be some support for this contention, but it is also established, according to the evidence of Mr Kumar himself that in relation to the invoices for the largest amounts, there was no extension. Mr Dissanayake asserts however that it is in any event dangerous to rely on the documents because quite evidently that was discussed and agreed orally.

The plaintiff has produced other evidence of delays by the 1st defendant. One shipment of material due to be shipped by the 1st defendant on 5th December 1992 was not shipped until 10th and 11th January 1993. According to the plaintiff, the material did not reach them until 18th February, and the date by which they had originally been expected to ship the goods to the 1st defendant or to the end buyers, was at the end of December 1993. That date was extended to 25th February 1993. Another shipment was due by the 1st defendant no later than 25th November 1992, but was not shipped until 11th January 1993. The last shipment date by the plaintiff had been stipulated as no later than 31st December, although that date was extended to 25th March, and the plaintiff shipped the goods six days later, on 31st March.

It seems highly unlikely that the plaintiff would, against that background, agree to continue to make up the goods and then agree to bear all losses for delay, to send goods to Canada by air in the hope that the end buyers would take them, and to pay for all loss of profits, and storage and other charges, and that the plaintiff would nevertheless, as is contended, agree to pay the whole of the 1st defendant's invoices for the materials, most of which were sent late, with the result of a net overall loss to the plaintiff.

(iii) There is produced not one letter or fax or minute from the 1st defendant to the plaintiff complaining of delay by the plaintiff.

9. The October 1993 Meeting

30. The item of evidence which has most closely taken me to consider the 1st defendant's case to be incredible are the minutes of the meeting of 1st October 1993.

31. At para.15(v) of Mr Kumar's affidavit, he itemises the various agreements or undertakings given by the plaintiff as a result of the plaintiff's delay. One of those suggested agreements was that "The plaintiff's Mr Taher and the 1st defendant's Mr Teitolman and Mr Kumar will meet in Hong Kong to resolve any outstanding disputes." It is a matter of considerable note that there is no mention in the affidavit that a meeting in fact took place, or of the contents of that meeting.

32. The meeting took place in October 1993. All shipments, according to the 1st defendant's own evidence, were made by end April 1993. Although no timetable of events has been provided by the 1st defendant, the liability of the plaintiff for the delays, and the displeasure of the end buyers, must, well before October 1993, have been apparent to the 1st defendant.

33. The meeting to which the minutes referred was called to "resolve outstanding issues." There is no reference at this meeting, if the minutes are accurate and full, to any agreement by the plaintiff to pay any charges, or any freight or demurrage, or to pay for any loss of profit. The minutes suggest that calculations were made as to who owed what and to whom. There are no figures such as US$45,000 for freight or storage or demurrage even discussed, let alone agreed to be borne by the plaintiff. The result of the meeting was an agreement that the 1st defendant owed money to the plaintiff for the goods, and was indebted to the plaintiff to the tune of US$65,000, assuming no payment was effected by the plaintiff for three of the 1st defendant's invoices totalling US$78,905.

34. I note that these minutes were exhibited to an affidavit of Ms Sumption dated 31st May 1996. The matter came on for hearing before me on 22nd July 1996. One would have thought that so important were the minutes of this meeting that had there been an answer to the inferences which the minutes invite, leave to file further affidavits would have been sought. Nor has any explanation been offered for this evidence which, on its face, directly contradicts the case of the 1st defendant.

Conclusion

35. So the question to which I return is whether the case is too plain for argument. Is the Defence credible? Has the 1st defendant shown that there is a fair and reasonable probability of it having a real or bona fide defence? Is Mr Kumar's account transparently a concoction? The minutes of the October meeting have, I confess, almost driven me to conclude that it is. Yet there are factors which might be said to support, albeit to a limited degree, the defendant's case. It is clear from the minutes of that meeting that the parties were there to resolve outstanding issues between them, and that parts of the unsatisfactory history which the meeting addressed was not just delay in the import of fabrics, but also "delays in production/shipping and eventual delivery to the clients." It is also clear that there were extensions to shipping dates, and that goods were sent by the plaintiff after the expiry of shipping dates, extended or otherwise, and the circumstances are such that there may very well be much that was arranged orally and not reduced to writing. That leaves, then, the minutes of the meeting of October 1993. Whilst on its face it suggests conduct by the 1st defendant that is entirely inconsistent with the defence now put forward, it is not relied upon by the plaintiff as binding, was not referred to in the plaintiff's 1st affidavit, and there is a complete absence of correspondence from either side which places this meeting in any sort of historical context.

36. It has been suggested that there is no evidence that time was of the essence of the contracts between the 1st defendant and end buyer. The point seems to me to be whether time for delivery by the plaintiff was of the essence. Since dates for shipment were set and since the subject matter of the contract was the delivery of garments and swimwear, it is arguable, in my judgment, that time of delivery was of the essence. If there was breach by the plaintiff (and the main thrust of the application is that it is very clear indeed that the allegation of breach is a sham allegation) then I do not think it clear that, as has been suggested, there has been waiver by the 1st defendant of such breach as might have occurred. The fact that a party does not accept a repudiation of an agreement, does not mean that that party accepts or waives a breach of that agreement. In this case, the 1st defendant would have been entitled, so it seems to me, to press the plaintiff for the goods so as to salvage what they could of their contracts and of their relationships with end buyers.

37. In the circumstances which I have described, I do not think that I should shut the defendant out from developing its defence. I cannot say that the complaints about delay which are at the core of this defence, are incredible. And if they are not incredible, then summary judgment should not follow.

38. However, I am satisfied that there is good ground for believing that the defence is a sham. I have very nearly granted summary judgment. There seems to be good ground for believing that the 1st defendant is merely trying to delay payment which it knows to be due. This is an appropriate case, in my judgment, for leave to defend to be conditional on payment by the 1st defendant of the sum which is the subject of this application, namely, US$145,413.

39. I have also before me an application under Order 27 for judgment based on admissions. It follows from my analysis of the defence, which is by way of set-off, and from my conclusions, that judgment under Order 27 would be inappropriate, and I decline to make that order. That application is accordingly dismissed.

Interim Payment

40. The remaining issue is whether that sum should be paid into court, or whether there ought, as the plaintiff contends, be payment to it of this sum, or part of it, as an interim payment under Order 29, rule 11. Since I do not intend to order that judgment be entered for the plaintiff, an order for interim payment under O.29, r.11(1)(b) cannot be made. That leaves only the application under O.29, r.11(1)(c) which enables the making of an order for interim payment where "... the Court is satisfied ... that if the action proceeded to trial, the plaintiff would obtain judgment for substantial damages against the respondent ...".

41. Whilst the making of an interim award is inconsistent with a conclusion that there should be unconditional leave to defend, there is no necessary inconsistency between a grant of conditional leave to defend, on the one hand, and, on the other, satisfaction on the part of the court, which is a precondition to an interim payment order, that the plaintiff would succeed at trial in obtaining judgment against the defendant for a substantial sum (see British and Commonwealth Holdings plc. v. Quadrex Holdings Ltd. [1989] 1 QB 842). The burden upon an applicant for interim payment is at the high end of the balance of probabilities. It is not, however, necessary to "exclude every possibility of failure, because the order for interim payment may be reversed at trial." (See Ricci Burns Ltd. v. Toole [1989] 1 WLR 993). According to Sir Nicolas Browne-Wilkinson V.-C. in British Holdings, supra, at p.866, common sense dictates that the two orders, namely, conditional leave and an order for interim payment may be made :

"There seems to be little merit in ￡5m. being paid into court rather than to B. & C. who, it is accepted, will be able to repay if at the end of the day Quadrex wins the action. The reasoning of Glidewell L.J. in Shanning's case [1989] 1 W.L.R. 981 expressly refers to the case where a defendant has shown a 'genuinely' arguable defence: this leaves open the position with which we are faced where the defence is shadowy and may well not be put forward on genuine grounds. In my judgment, in cases where on the evidence then before it, the court entertains sufficient doubts as to the genuineness of the defence to give only conditional leave to defend, it is possible for a court to be satisfied that the plaintiff will succeed at trial. Although in such a case it does not automatically follow that it is appropriate to make an order for interim payment, if in all the circumstances such payment appears sensible and desirable, in my judgment it can be ordered."

42. However, although it is possible for a court to be satisfied that a plaintiff will succeed at trial even though it has given conditional leave to defend, it will not of course always follow that a finding that the defence is suspect and shadowy will lead the court to conclude that the plaintiff will succeed, remembering as one should that I am required to take into account the set-off (see Shanning International Ltd. v. George Wimpey International Ltd. [1988] 3 All E.R. 475), and that the court is required to determine whether the plaintiff will succeed. I do not think that in this case that that is a conclusion to which I can presently come. If one examines the arguments marshalled by the plaintiff in support of this leg of its application, it depends to a material degree on the contention that the 1st defendant will have great difficulty in proving charges allegedly incurred; and loss of profits; and on the contention that the losses asserted by the 1st defendant are too remote and not reasonably foreseeable by the plaintiff. I do not see how I can say that the 1st defendant will not be able to prove those losses. Nor do I agree that the losses claimed by the 1st defendant are necessarily losses which are too remote and which could not have been foreseen by the plaintiff. Given the fact that the goods in question were garments for chain stores, it is always possible that they were intended for seasonal sales; that is what is alleged by the 1st defendant; and if so, then foreseeability on the part of the plaintiff is not a far fetched concept. So I am not prepared to say at this stage that the plaintiff will succeed.

43. I should however add that even were I prepared to say that despite the grant of conditional leave to defend, I was satisfied that the plaintiff will succeed in obtaining judgment for substantial damages (or for a substantial sum of money apart from damages - see O.29, r.12(c)), I would not have exercised my discretion to make the order for an interim payment. In the passage from Gibbons v. Wall, The Times, 24 February 1988, to which reference is made at p.864 of the judgment in British Holdings, emphasis is placed on the importance of the plaintiff's ability to repay should the trial unexpectedly go against the plaintiff :

". . . the civil burden of proof . . . is a flexible test . . . and it depends upon the nature of that which has to be proved where on the flexible scale of the balance of probabilities one has to pitch the burden. . . . in the context of an application for an interim payment . . . the burden is a high one within that standard if only because litigation of its nature involves no certainties. A plaintiff with what may appear on paper to be a strong case may find it fail at trial. If he does then he will have to repay the whole or to the extent that he fails, part of the interim payment. But . . . the plaintiff may spend it . . . If he does it may be difficult . . . to recover [it]. . . . Clearly the burden resting upon an applicant in these circumstances is towards the top of the flexible scale."

44. In British Holdings, the order was made because it was accepted that the company could readily repay if it lost at trial. There is no evidence before me about the plaintiff's financial standing, or otherwise about its ability to repay (or indeed about the plaintiff's need, although I accept that evidence of hardship is not a condition precedent to an order for interim payment). Indeed, Ms Sumption's own argument against conditional leave, as opposed to interim payment, would rather suggest that an interim payment may be unwise. She put it this way, that if some form of payment were not received by the plaintiff, continuing litigation would almost be crippling. I am not in the circumstances persuaded to make an order for an interim payment, and the applications for such an order are dismissed.

The Order

45. It was not suggested by Mr Dissanayake that the 1st defendant would not be able to find the sum claimed for the purpose of a payment pursuant to an order granting conditional leave. Whilst he had no instructions on the matter, he thought that 30 days would be a sufficient time to allow the 1st defendant to make a payment in, if conditional leave were granted. Accordingly, upon the application for summary judgment, I order that the 1st defendant shall have leave to defend this action conditional upon payment into court within 30 days of this order of the sum of US$145,413.86, with judgment for the plaintiff in that sum with costs, in the event of default of payment in.

46. I shall make an order nisi that the costs of and occasioned by this application be costs in the cause.

47. The parties shall have liberty to apply.