XCHRX CHEVALIER (HK) LTD. v. CHINLUCK LTD.

HCA 12692/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 12692 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 order of Master Lok of 9th July 1998 whereby he gave summary judgment under Order 14 Rules of the High Court to the Plaintiff against the Defendant for the sum claimed in the Statement of Claim.

2. The Defendant filed a Defence and Counterclaim in this action on 24th January 1998. The Defendant denies that the goods were delivered to the Defendant and denies liability to pay. There is also a Counterclaim.

3. The Statement of Claim pleads that the claim is:

"for the sum of US$73,262.00 being the balance of the price of goods sold and delivered and charges for services rendered by the Plaintiff to the Defendant at the Defendant's request and also interest in the said sum of US$73,262.00."

4. It is plain on the evidence that the claim of the Plaintiff is in effect pursuant to contracts entered into between the parties on 31st May 1993. On that day, two contracts were entered into. The first contract was for the sale and purchase of five passenger lifts and the second contract was for the installation of the same at Wei Fang City in Shandong.

5. It is common ground between the parties that the Defendant had paid the Plaintiff the sum of US$659,358.00 under the terms of the first contract, that is 90% of the total price of US$732,620.00. The claim is in respect of the balance 10% i.e. US$73,262.00.

6. The first contract provided for the payment of this sum as follows:

"Third instalment: After the installation and commissioning which shall be according to the standard tested and accepted by the local labour bureau, the Buyer shall forthwith pay the balance of the letter of credit, representing 10% of the total contract price, i.e. US$73,262.00. The Buyer shall receive money on the basis of the letter for the delivery of machinery executed by both parties."

7. The word "Buyer" in the last sentence should, it is common ground between the parties, be the word "Seller".

8. The second contract, as I have said, was for the installation of the very same five sets of lifts. Clause 18 of the second contract is an important clause. This provided as follows:

"The Purchase and the Installation Contract of the lifts form a complete and integral contract and no part thereof is separable."

That, in my view, is a reasonable clause to put into the contract because without installation, the mere delivery of the lifts may not be of much use to the Purchaser.

9. It is, in my view, reasonably arguable that both the first and second contracts are not severable contracts and that both contracts in effect constitute one complete contract between the parties. It is arguable that they must be taken together and that the contractual relationship between the parties is governed by both of the contracts. Indeed that may explain why in the payment terms as regards the third instalment of the sum of US$73,262.00 there is a provision that the Seller should receive the money on the strength of a letter for the delivery of machinery executed by both parties, i.e. both parties to the contract, and why the final payment, namely the third instalment under the first contract, should only be paid after installation. At least, I think that is reasonably arguable.

10. The evidence shows that some time in May 1994 lifts were indeed delivered (but not installed) to the site at the hotel project in Wei Fang City.

11. There seems to have been some problems in respect of the hotel project where these lifts were destined as it was only after three years that the installation was completed. There is no doubt that the installation was not done pursuant to the second contract but was done pursuant to another contract with another party.

12. Mr. Luk of the Plaintiff relied on an oral agreement that he says he reached with Mr. Xu Xeng Li of the Defendant that the second contract be cancelled and that the Defendant would pay the balance of the contract sum to the Plaintiff due under the first contract. But this was denied by the Defendant. This is an issue of fact. In any event at the hearing before Master Lok, this agreement was not relied on and Mr. Shaw confirmed that he does not rely on that oral agreement before me.

13. It is, however, important to note what Mr. Luk says as to why the installation was carried out pursuant to another contract. He says this at para. 8 of his first affirmation which I set out below:

"The installation work for the said elevators should have been done by the Plaintiff pursuant to the second contract. However, due to the transfer of the Defendant's interest in the investment of the subject project from the Defendant to another company, the Defendant has failed to instruct the Plaintiff to proceed with the said installation work despite our repeated requests. There is now produced and shown to me marked "LKC-4" a copy of fax dated 28th August 1997 from the other company Wei Fang Engineering and Construction Contracting Corporation to the Plaintiff notifying the said transfer of interest."

And in para. 9:

"The said elevators were subsequently installed by an associated company of the Plaintiff under another contract with another company known as Wei Fang Tienhe Amenity Centre Hotel Project Office. A copy of the said contract is now produced and shown to me marked "LKC-5"."

14. The fax referred to in para. 8 Exhibit "LKC-4" reveals that there was a decision in the civil judgment of Shandong Provincial Wei Fang Municipal Intermediate People's Court whereby the investment and equity interest of another company, not the Defendant, namely Hong Kong Chinluck (Group) Holdings Company Limited in Wei Fang Tienhe Amenity Centre (including the five Toshiba lifts) have been transferred to Wei Fang Hongli Enterprise to set off against the debt. And it certified that Hong Kong Chinluck (Group) Holdings Company Limited did not have any share in Wei Fang Tienhe Amenity Centre and that all matters regarding the lift installation were entrusted to the Plaintiff by the Project Office of Wei Fang Tienhe Amenity Centre.

15. In the second affirmation of Mr. Luk he accepts that it was Wei Fang Engineering and Construction Contracting Corporation that requested him to install the lifts. He says in para. 4 of the second affirmation that he asked Wei Fang in what capacity they instructed the Plaintiff to install the lifts, and he relied on the fax that I have mentioned, namely Exhibit "LKC-4" in his first affirmation. He says in his second affirmation that he did not note at the time that the name mentioned therein was not in fact the Defendant but he believed that it referred to the Defendant since the fax referred to the lifts. The name mentioned in Exhibit "LKC-4" was not the name of the Defendant. It was another entity. And it is clear on the evidence that has been filed that the installation works were completed pursuant to a new contract that the Plaintiff entered into with another party and not the Defendant.

16. Unless the second contract has been varied or discharged, the Plaintiff was obliged to perform that contract as well and the entire contractual relationship was governed by both contracts as I have said. At least, it is reasonably arguable that that was the position.

17. I am mindful that in Order 14 proceedings where the Defendant shows that he has a fair case for a defence or even a fair probability that he has a bona fide defence, judgment should not be given. Also in this context, in the case of Man Earn Ltd. v. Wing Ting Fong [1996] 1 HKC 225, Godfrey J.A. said this at 228:

"Unless it is obvious that the defence put forward by the Defendant is 'frivolous and practically moonshine Order 14 ought not to be applied': See Codd v. Delap [1905] 92 LT 510 per Lord Lindley at 511."

18. In my judgment, there are clearly triable issues raised and on that basis the Defendant is entitled to unconditional leave to defend. There have been further points made but in view of the fact that I have decided that the Defendant should have unconditional leave to defend and that there will be a trial on this matter, I do not think that it is desirable that I should express my views on the other points.

19. The appeal is, therefore, allowed. The order of Master Lok is set aside and the Defendant is given unconditional leave to defend.