XCHRX TRUEBELL PLC v. LEUNG FAI MAN t/a TRUEBELL MARKETING CO.

HCA1242/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1242 OF 1997

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J U D G M E N T

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1. This is an appeal from the decision of Master Jones given on 3rd November 1998 whereby the Master ordered summary judgment be entered for the Plaintiff against the Defendant in the sum of US$72,219.34 with interest at judgment rate from the date of issue of the writ of summons to the date of judgment and costs. The Defendant now appeals against this decision of Master Jones, seeking to rescind the order of Master Jones and in place thereof for an order that the Plaintiff's application for summary judgment be dismissed, alternatively, the Defendant be given unconditional leave to defend against the Plaintiff's claim in these proceedings.

2. The Plaintiff's claim against the Defendant is based on the Defendant having entered into a sales contract with Dongguan Native Produce Import & Export Company of Guangdong ("Dongguan"), a company in the People's Republic of China for the sale of fireworks by Dongguan to the Defendant (the Plaintiff being the ultimate purchaser of the fireworks). Pursuant to that contract, Dongguan delivered a quantity of fireworks to the Defendant for a total purchase price of US$243,672.52. Of that purchase price, the Defendant had paid to Dongguan a total sum of US$171,453.18, that left an unpaid balance of US$72,219.34. Upon the Plaintiff paying Dongguan the outstanding balance of US$72,219.34, Dongguan, by an assignment in writing dated 17th January 1997, assigned all its rights and interests in that debt to the Plaintiff. In that assignment which was prepared by local solicitors and executed under seal, Dongguan had acknowledged receipt of the sum of US$72,219.34 from the Plaintiff. By a Notice of Assignment dated 17th January 1997 and served by the Plaintiff's solicitors upon the Defendant on 22nd January 1997, the Plaintiff gave notice to the Defendant of the said assignment and further demanded the Defendant for repayment of the said sum of US$72,219.34. Despite such demand, the Defendant has failed to pay the Plaintiff the said sum demanded or any part thereof. The Plaintiff now claims against the Defendant for the sum of US$72,219.34.

The Defence

3. A number of defences have been raised by the Defendant in this case and in opposition to the application for summary judgment. Firstly, it was contended by the Defendant that there was no or no sufficient consideration for the assignment. The Assignment was in writing and executed under seal. In the contents of the Assignment Dongguan has clearly acknowledged receipt of the sum of US$72,219.34 from the Plaintiff. Accordingly, I see no merits in this defence raised.

4. Secondly, the defence of maintenance and champerty was also relied upon by the Plaintiff. Champerty is defined as the maintenance of an action in consideration of a promise to give the maintainer a share in the proceeds or subject matter of the action. Here in the present case, there can be no clearer evidence than from the Assignment itself that it is the assignment of a debt. There is no question of a share of the proceeds of the action. Once again I can see no merits in this defence.

5. Thirdly, it was argued by the Defendant that the proper law to govern the assignablity of bad debt by Dongguan to the Plaintiff is Chinese law Dongguan being a Chinese company. In this connection, I was referred to Article 91 of the Civil Law of the People's Republic of China which reads :

"If one party to a contract assigns in full or in part its rights and obligations under the contract to a third party it must obtain the agreement of the other party to the contract and may not seek to make a profit. Any contract which according to the law had to be approved by the State must be re-approved by the original approving body except when otherwise stipulated by law or the provisions of the contract."

I was also referred to Article 26 of the Foreign Economic Contract Law which reads :

"When a party intends to assign all or a part of its commercial rights and obligations to a third party consent should be obtained from the other party."

6. The argument put forward by Mr Chu on behalf of the Defendant is that if Chinese law applies, then the consent of the Defendant ought to have been obtained before Dongguan was in a position to assign its debt to the Plaintiff. Since no such consent had been obtained from the Defendant before the assignment, that assignment is therefore invalid by Chinese law. When one is dealing with the proper law to be applied, a distinction need to be drawn between the validity of the assignment which would be governed by the law of the Assignment itself, and the assignability of the debt which would be governed by the proper law of the debt. In the present case, the validity of the assignment is governed by Hong Kong law because in the Assignment itself, it is provided that this deed shall be governed by and construed in accordance with Hong Kong law under Clause 5(1) thereof. In so far as the assignability of the debt is concerned, that is to be governed by the proper law of the debt, which, prima facie, is Hong Kong law since debt was owed in Hong Kong by a Hong Kong company, namely, the Defendant, and was assigned in Hong Kong by deed prepared by local solicitors.

7. In this respect, although I was referred to the Articles above by Mr Chu, I was never informed by him of the basis upon which he says Chinese law should apply in so far as the assignability of the debt is concerned apart from Dongguan being a Chinese company. In the case of Orienmet Minerals Company Ltd. v. Winner Desire Ltd. [1998] HKCU 342, Cheung J. had this to say at p.344 :

"However, the prerequisite for the Defendant obtaining leave to defend must be that there is credible evidence showing that the regulations is the governing regulation and that the agreement belonged to the category of contracts in which payment should be made in foreign currency and not in Reminbi as prohibited by Article 39."

In that passage Cheung J. was referring to Article 39 of the Regulations on the Foreign Exchange Control of the People's Republic of China. Applying those words of Cheung J. to the present case, it is for the Defendant to show credible evidence as to the basis upon which Chinese law, namely, Article 91 and Article 36, were to apply to the present case. That has not been shown here. Moreover, even if Articles 91 and 36 applied, we are here dealing with the assignment of a debt and not the assignment of contractual rights as provided for in those two Articles. For these reasons, I cannot accept the argument advanced by Mr Chu that there is a triable issue as to the validity of the assignment because Chinese law applies.

8. I now turn to the defence of set-off raised by the Defendant as contained in the Defence and Counterclaim which is based on the premise that the agreement from which the debt flowed had been repudiated by Dongguan. The particulars given of such repudiation is that Dongguan :

(a) failed to a manufacture the products pursuant to the instructions of the Defendant;

(b) failed to produce the labels and instructions of the firework in Finnish language;

(c) failed to rectify the same despite repeated demands by the Defendant;

(d) failed to deliver the items in time; and

(e) failed to deliver the fireworks product in good and merchantable quality.

9. It has further been pleaded that because of that repudiation, the Defendant is now being held liable by the Plaintiff for the cost and expenses for disposing of such fireworks products in Finland. In this connection, there is clear evidence put before me by the Plaintiff that the Plaintiff have fully paid the Defendant for the quantity of fireworks purchased from Dongguan. Even if the Defendant's allegations are true, that Dongguan has repudiated the agreement, the Defendant would only suffer loss if the Plaintiff decides to take legal action against the Defendant for such repudiation by Dongguan. In the light of what has happened, namely, that the Plaintiff have, for full consideration, been assigned the debt by Dongguan which debt was owed to Dongguan by the Defendant, the Plaintiff must, in these circumstances, be estopped from pursuing any legal claim against the Defendant for the alleged repudiation by Dongguan of that agreement. Accordingly, I cannot see how this defence would avail the Defendant in this matter.

10. The Defendant has further counterclaimed against the Plaintiff for breach of the sole and exclusive agency contract which it says it had with the Plaintiff, alternatively, the unlawful dismissal of the Defendant as the sole and exclusive purchasing agent of the Plaintiff in Hong Kong. Furthermore, it has also been alleged by the Defendant that the Plaintiff was collaborating with Dongguan to unlawfully terminate the annual supply contract between the Plaintiff and the Defendant for 1996. In this respect, I have been referred to a letter dated 15th January 1996 from the Defendant to the Plaintiff which contains the following :

"Truebell Plc Group of Companies and Truebell Hong Kong should always be linking together as the same team towards customers and suppliers externally and the actual relationship between us should be customer and supplier internally."

And also

"So in future I agree no more commission to be reserved to Truebell Hong Kong on any transactions not concerned us. One thing I must make it very clear is that for those suppliers yourside intend to work direct without going through Truebell Hong Kong, yourside should not bother us to arrange anything on your behalf including sending samples, arranging price tag or labels etc."

These words from the Defendant do not support its claim that there was a sole and exclusive agency contract between the Plaintiff and the Defendant. On the contrary, it suggested that since 15th January 1996, there could not have been any sole and exclusive agency contract between the parties.

11. In all the circumstances of this case, I am therefore unable to see any triable issue or any valid Defences open to the Defendant in so far as the Plaintiff's claim is concerned. Accordingly, the appeal is dismissed and there will be judgment for the Plaintiff on the Plaintiff's claim with cost. It goes without saying that the Defendant may proceed with its counterclaim in the normal course.

12. There will be the usual costs order nisi that the costs of the appeal be to the Plaintiff.