IPM PRIVATE LTD v. QUANTUM PACKAGING LTD

DCCJ 2133/2019

[2020] HKDC 465

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2133 OF 2019

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D E C IS I O N

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1.  There are 3 applications before the court:

i)  The plaintiff’s application for Order 14 summary judgment;

ii)  The plaintiff’s application for an interim payment; and

iii)  The defendant’s application for leave to amend the Defence and Counterclaim

Background

2.  Both the plaintiff and the defendant are limited companies incorporated in Hong Kong.

3.  The defendant has been running a printing and packaging business and has contracted with the plaintiff since 2012 to provide general sales and marketing including marketing management service and client development in various regions of the world.

The issues in dispute

4.  In summary, the plaintiff’s case is that the defendant has failed to pay the monthly service fees on 1 February, 1 March, 1 April and 1 May 2018 totally USD80,000 under the contract.

5.  The defendant does not deny this, but alleges that the non-payment was due to a breach of the express terms and condition of the contract by the plaintiff in that the plaintiff has failed to provide any marketing and/or marketing services during this period of time. The defendant raises a counterclaim for loss and damages to be assessed due to the breach of contract.

6.  The plaintiff disputes this line of defence and produced various email correspondence between its director, Mr. James Patrick Kelly (“Kelly”), and the director of the defendant, Mr. Tanate Wongiratitikarn (“Tim”) and others between August 2017 and May 2018, which appeared to show that the real reason for withholding the service fee payment was because Kelly has yet to settle a sum of USD90,000 for an allotment of shares of the defendant.

7.  These were clearly two independent matters: an independent contractor’s service contract with the plaintiff company and a personal shareholder agreement with Kelly. In particular, this appeared to be acknowledged by Tim in an email to Kelly dated 26 May 2018 :-

“I have the same understanding that legally speaking the investment / shareholders issues in QPL (i.e. the defendant) and the provision of service by IPL (i.e. the plaintiff) are separate matters...”

8.  But he then went to state that, since the establishment of the plaintiff was to serve Kelly’s taxation requirement:

“In fact, practically and commercially speaking, I have never regarded IPM as another entity separate from yourself...”

9.  Tim then wrote about the share subscription arrangements and then stated:

“This is the reason why QPL has set aside USD20K per month from IC payment to be made from IC payment to be made to IPM (which we considered as payment to you) and QPL has actually reverted such setting aside amount into its account as payment of your share subscription...”

10.  The plaintiff argued that this clearly showed that the real reason for the withholding of the service fee payment to the plaintiff was that, as stated in this email, Tim was treating Kelly and the plaintiff as the same entity so withholding the service fee was that this would be put into account as payment of Kelly’s outstanding share subscription.

11.  The plaintiff also argued that no dissatisfaction of the plaintiff’s service was ever raised in such correspondence. Indeed, this email (amongst others) also showed that the defendant was proposing to renew the contract with the plaintiff.

12.  During the hearing, much time has been spent on various expense reports which, as the plaintiff argued, showed sales and management activities during the period. And the plaintiff also produced the defendant’s financial statements in an attempt to explain that the decline of revenue was not due to lack of marketing services etc.

13.  On the other hand, the defendant took the court to the contract in question and also various “sales target” emails (as the defendant alleged) from Kelly in support of its argument that such targets were not reached. However, its argument of breach would involve the defendant’s own interpretation of the contractual terms which frankly, on the face of it, were vague and not well drafted.

The legal principles

14.  The principles on Order 14 are trite: the defendant must show that there are triable issues. The defendant has to satisfy the court that he has a “real or bona fide defence”, “a fair probability that a bona fide defence exist”, and the “test…is indeed as simple as whether the defendant’s assertions are believable”. “Order 14 is only for clear cases; this is, cases in which there is no serious material factual dispute…” Leave to defend should be given where the defendant has raised any substantial question of fact which ought to be tried, or to be cross-examined his or her witness on his or her affidavit. (Hong Kong Civil Procedures 2020 P. 316 para 14/4/9.)

15.  Of course, although the court must not embark on a mini-trial on affidavits or complicated factual issues, neither should it take the defence entirely on its face value but has to test it against the evidence disclosed in the affidavit. Cheung JA stated in Paul Y. Management Ltd v Eternal Unity Development Ltd and Others, CACV 16/2008:

“In deciding whether a plaintiff is entitled to summary judgment, the relevant test is whether the defendant has raised credible triable issues. If there are, the matter should go to trial. If not, judgment should be entered against the defendant. In considering whether there are triable issues the court will, of course, not take the alleged defence on its face value but test it against the evidence disclosed in the affidavit including matters such as contemporaneous documents, whether the alleged defence is inconsistent with the defence previously put forward or whether the defence is only recently raised despite opportunity being given to the defendant to respond earlier. The court will also consider the inherent probability of the defence...”

Discussion

16.  I think that the court need not look at the expenses reports or try to interpret the contract etc. To attempt to answer the question of “whether there was a breach of contract” may amount to a mini-trial on affidavits and there is no need to do so in this case.

17.  The real question here boils down to this: given all the evidence disclosed in various affidavits, email correspondence and other documents, has the defendant raised a believable defence that the real reason for withholding payment was due to an alleged breach of contract?

18.  My view is this: in that crucial email dated 26 May 2018, Tim has clearly stated that the reason for withholding payment to the plaintiff was that he was treating the plaintiff and Kelly as one entity, and that the withholding was intended to be a set-off against Kelly’s outstanding share subscription to the defendant.

19.  There is no dispute that such a reason for withholding fee payment is legally untenable.

20.  Crucially, Tim did not raise any complaint of any poor service / performance, nor indeed, any complaint that such failures were so serious that these would amount to a breach of contract.

21.  Of course, it might be possible that there were some explanations why Tim did not raise such in this email (or all the other email correspondence). Perhaps, as one may imagine, this was some sort of “tactical” move for whatever reason.

22.  However, if there was any such explanation, there would have been plenty of opportunity for Tim to raise such in his affirmations. His second affirmation was specially made to deal with the Order 14 application.

23.  In there, he provided all the details of the background contractual relationships between the parties over the years, and then he launched straight into allegations of the plaintiff’s various failures in some details and over some 11 pages.

24.  And yet, when it came to the crucial issue regarding the share subscription set-off, Tim only dealt with it briefly: he claimed the plaintiff was “attempting to convolute the matter” because the service fee for shares “set-off proposal” did not materialise and the shares allotment to Kelly was forfeited eventually.

25.  This is clearly not an explanation: indeed, Tim’s admission that the “set-off proposal” did not materialise was all the more significant because it also begs the same question: why, despite this, the defendant still withheld the service fee without raising any allegations of failures of the plaintiff (which Tim could provide in such details now) in all the contemporaneous email correspondence (e.g. a simple warning of “if you do not improve your service, we will not pay your service fees”)?

26.  It would have been easy for Tim to state in his affidavit something like: “The true reason for withholding the service fees was the plaintiff’s failure to provide reasonable service under the contract and not because of the set-off proposal. However, I purposely did not mention the poor service and instead claimed that the withholding was for the set-off proposal in the 26 May 2018 email because of the following reasons....“

27.  It would have been obvious to any reasonable person that such explanations must be given to give credible support to a “real, bona fide defence”, and yet, given the opportunity, none were provided, which is even more telling given the details that Tim was providing on various other matters in the affirmation.

28.  I can summarise this case as follows: this is a clear and undisputed case of sums of money owed under contract. The only dispute is the reasons why, as raised in the defence if taken on its face value. However, when the defence is tested against contemporaneous documents, it is clear that the position in the defence has only been recently raised and was not consistent with the (legally untenable) position of the defendant stated in the contemporaneous correspondence. The opportunity was there for the defendant to explain such an inconsistency in the affirmation but none was provided.

Conclusion

29.  In the absence of any such explanations, the court must conclude that the defence is not believable.

30.  As for the counterclaim, this is based on the same set of facts / assertions raised in the defence: that is, the allegation of a breach of contract. As this court finds such an allegation not credible, the counterclaim should be dismissed and no set-off be allowed.

31.  As such, the court would allow summary judgment to be entered against the defendant. I note that the plaintiff has abandoned the claim for USD1,944.01 as “business activities expenses” so I hold that the judgment sum payable should be USD92,173.84.

32.  Interest on the judgment sum be at half judgment rate from 1 February 2018 to the date of this decision, and thereafter at judgment rate until the date of payment.

33.  There would be no need for an interim payment and the defendant’s application for leave to amend the Defence and Counterclaim would accordingly be dismissed.

34.  The court would also order that the defendant shall pay the plaintiff’s costs of these applications with certificate for counsel.

35.  The plaintiff has already submitted a summary statement of costs so the defendant shall lodge and serve a list of objections, if any, within 28 days of this decision after which the costs would be assessed summarily on paper.