BESTRON ELECTRONICS LIMITED v. AUSTRALUX INDUSTRIAL LIMITED

Courts practice and procedure - summary judgment - appeal from order of Master granting unconditional leave to defend - whether triable issue - 5 issues advanced by defendant - Held: 1. One issue remained between the parties which was not a sham but although triable parts of the defence were at least shadowy; 2. Leave to defend granted conditional upon the defendant paying into Court within 14 days the sum of HK$780,000.

H.C. Action No. 4346 of 1988

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. This is an appeal from an order of Master Chan who on 20th October 1988, after hearing the Plaintiff's Order 14 Summons for summary judgment, granted the defendant unconditional leave to defend.

2. In the action brought by the defendant for certain electrical devices sold and delivered, the plaintiff claims the sum of, first, US$160,191.40 and secondly HK$7,800 together with interest. These sums represent the total of 20 invoices issued over a period commencing on 16th December 1987 down to 20th March 1988.

3. In this appeal the plaintiff asks for final judgment or, in the alternative, that as a condition of any leave to defend, the defendant pay into the court the sum of US$130,496.19. Mr. Tang for the plaintiff, appearing in support of the appeal, extracted from the affidavits six possible triable issues and I will deal with each of these in turn.

4. The first possible triable issue was whether the goods, the subject of the action, were delivered. Mr. Spotts, a director of the defendant, was unable himself to confirm, in his affidavit whether the goods were delivered. But he pointed to invoices totalling US$45,000 not endorsed by the Defendant as having been received. However, this evidence was not based on his own enquiries but on the first affidavit of Mr. Chung to which those invoices were exhibited.

5. After considering Mr. Chung's second affidavit, I am satisfied that credit was not given by Mr. Spotts for the sum of US$37,260. This reduced the balance to US$1,113.60 and HK$7,800. There is no dispute between the parties on these reduced figures. Mr. Chung further Stales that the invoices were delivered with the goods and so also served as delivery orders. Mr. Spotts cannot dispute this evidence. I am satisfied that no triable issue in favour of the defendant arises on the question of delivery.

6. Moving on to the second issue, the Defendant says that the plaintiff acknowledges, that it paid HK$277,992 for moulds in possession of the plaintiff and should be allowed this sum by way of set-off.

7. Mr. Bell reminded me that the right of set-off can be set up by way of defence and not merely as a counterclaim, and referred to the White Book and the annotations to Order 18 rule 17 at page 309. The agrees to redeliver the moulds subject to the defendant paying the sum of US$9,037.40. There was an agreement recorded in draft form on 13th July 1988 which included this term. I accept Mr. Bell's submission that no final agreement was reached and that the draft were certainly not signed.

8. Mr. Bell has also pointed out that the proposed agreement was conditional upon the present action being discontinued. However, subsequently correspondence between the parties, culminating in the defendant's letter of 19th September 1988, is evidence that agreement was reached on the return of the moulds to the defendant subject to the defendant first paying the plaintiff the sum of US$9,037.40. In that latter correspondence the question of testing the moulds was raised. The moulds were always owned by the defendant but were in the plaintiff's possession probably in circumstances which amounted in Mr Tang's description to bailment.

9. I accept Mr. Tang's a submission that any complaint by the defendant on the present quality of the moulds on their return, is susceptible of being otherwise resolved, and that the value of the moulds is not available by way of set-off to the defendant in the sum of HK$277,992 in the present action. I am, therefore, satisfied that no triable issue arises on the second proposition.

10. Turning to the third issue which was concerned with payment by the plaintiff to the defendant of the sum of HK$225,000 which potentially may have been available to the defendant for leave to defend, at the date of Mr. Spotts affidavit, which was sworn on 29th July 1988, by way of set-off. However, that sum had since been paid and so that issue, as was agreed upon between the parties and is no longer disputed, is not available to the defendant on the present appeal.

11. Moving on to the fourth issue, which was largely based on paragraph 16 of Mr. Spotty affidavit and involves a question of contingent liability on the part of the defendant for the sum of HK$469,000 in relation to a claim being made at the date of Mr. Spotts affidavit by a company called Fortune Industries Company. At the date of his affidavit Mr. Spotts thought Fortune might bring an action against the plaintiff and possibly against the defendant. Since the swearing of Mr. Spotts affidavit events have progressed and Fortune have indeed now commenced High Court Action 5753 of 1988 against the plaintiff but not against the defendant. Nor is the defendant otherwise a party in that particular action.

12. At the time of Mr. Spotts affidavit, there was a theoretical possibility, that both the present parties might have been pursued by Fortune Industries. The reality now is that proceedings have only been commenced against the plaintiff. If steps were taken in the future against the defendant, it would still be able to proceed in any event against the plaintiff, if it had a cause of action for indemnity or otherwise against the plaintiff. However, I am satisfied that in view of the position of the present action brought by Fortune Industries these are purely speculative possibilities and certainly do not give rise to a triable issue between the present plaintiff and defendant. I am, therefore, satisfied that no triable issue arises in favour of the defendant on the fourth proposition.

13. The fifth issue, which both Counsel were also concerned with, may be summarised as relating to defective goods. In relation to the delivery of the electrical devices by the plaintiff to the defendant in terms of the contract, I record that there was a relatively long 8 months warranty period. In Mr. Spotts affidavit, he referred in very general terms to the fact that there were 16,000 units subject to potential further claims. The value of the apparently further claims, was assessed by him as amounting to $280,000 which I recognize, if correct, would be about 20% of the contract value of the goods and therefore far exceed the 2% defect provision in the contract between the parties.

14. The evidence directly referred to in the affidavits before me, was of a short shipment of goods, rather than in the more narrow sense, defective goods. The plaintiff in writing on 27th April 1988 agreed to remedy the short shipment at its cost by making up the deficiency. I have also taken into account another letter but earlier in time, namely, dated 19th April 1988, from an American firm which I will refer to as Catalina, which refers to missing backplates.

15. The defendant's affidavit, returning to the body of the affidavit, is again in vague and generalized terms. When I look at the whole of the evidence on the defective goods issue and reminding myself that the onus is upon the defendant to establish a triable issue which would entitle it to leave to defend, it does not satisfy me that a triable issue arises on this ground.

16. Turning to the final of the six issues on which I had submissions from Counsel, it arose on the factual basis that the defendant asserts that it supplied component parts to the value of US$169,025.40 and that the plaintiff has not accounted to it for that sum. I accept that invoices from 22nd September 1987 to May 1988 do represents total equivalent to that sum.

17. The arrangement between the parties until the present dispute, was that the defendant would supply certain component parts to the plaintiff and the plaintiff, in turn, would reduce or discount its sale price to the defendant, by the amount otherwise payable by the plaintiff for those components.

18. There is no dispute between the parties that the plaintiff did receive components of the value of US$169,025.40. The narrow dispute between the parties on this alleged issue, is the credit to he given by way of discount or otherwise. The unit price of the devices was US$12.42 and most of the invoices which have been exhibited to the affidavit before me, do positively show that a lesser unit price was charged by the plaintiff to the defendant. Exhibit CYS9 to Mr. Chung's second affidavit is a schedule which summarises the overall position. In considering the contents of that summary, I accept Mr. Bell's warning that only some of the amounts contained in that summary were supported on affidavit by primary documents.

19. Mr. Bell submits that no credit was given for that total sum and that therefore there is a triable issue between the patties in relation to that sum. Mr. Chung, the plaintiff's director, in his second affidavit, asserts there is documentary evidence to support credit having been given to the defendant for the sum of US$128,587.64. The remaining balance will amount to US$40,437.76. I also accept that the defendant has agreed to give the plaintiff a credit in the sum of US$1,908.55 for. defective components supplied by the defendant to the plaintiff in terms of the arrangement that I have earlier referred to. If credit is allowed for that sum, then on then on the evidence before me, that would reduce the difference between the parties on this issue so far as the documents are concerned, to the sum of US$38,529.21.

20. However, there remains the dispute between the parties on affidavit as to whether even that sum remains due. When I review the whole of the evidence, without necessarily accepting Mr. Spotts affidavit evidence which, of course, at this interlocutory stage it is not, as a matter of law, necessary for me to do in absolute terms, I am satisfied that on the sixth issue the defendant has established that it would not merely have a sham defence. On the other hand, I remain doubtful on at least some aspects of the defence founded on the sixth proposition and certainly I am of the firm view that parts of it are at least shadowy.

21. In my view, the proper exercise of the Court's discretion on this appeal - I pause to observe that while the hearing before me is procedurally in the form of an appeal, It is heard by way of rehearing, so I approach it after giving due respect to the toaster's prior order, as if the matter were coming before me for the first time - is to grant leave to the defendant to defend but upon conditions including a payment into Court.

22. As to the conditions, the plaintiff in the Notice of Appeal in the alternative asks for an order that, in that event, the defendant pay into the Court the sum of US$.130,496.19. Certainly that is an alternative properly open to the Court, having already decided to grant leave subject to and conditional upon a payment into the Court by the defendant. However, taking a broad view of the matter, I propose to order payment in of a lesser sum, and I propose to make the order, for administrative simplicity, in terms of Hong Kong Dollars.

23. I accordingly order that the appeal is upheld and leave is granted to the defendant to defend subject to paying into the Court the sum of HK$780,000 within 14 days. I confirm that the further directions given by the Master on 20th October 1988 are upheld subject to the times limited therein running from today. The plaintiff is entitled to its costs of and occasioned by the appeal; to be taxed if not agreed. There will be a certificate for two Counsel.