XCHRX V-Eagle Industries Co. Ltd. v. SO OI LIN

DCCJ15497/2000

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 15497 OF 2000

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JUDGMENT

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1. This is a summons under Order 14. The Plaintiff's claim is for $450,378 together with interest for the cost and delivery of yarn to the Defendant's order from 15 October 1999 to 4 January 2000. The amount claimed relates to invoices particularized in paragraph 3 of the Statement of Claim.

2. The Defendant admits the various orders and the invoices. The issue here relates to the proper construction and effect of an agreement in writing dated May 2000 ("the agreement") between the parties as principals and a Mr. Wong Che-sum as guarantor for the Defendant.

3. The agreement is at page 69 of the bundle and is as follows:-

"This agreement is made between Skylight International Trading Company hereinafter called Skylight and V-Eagle Industries Company Limited and Mr. Wong Che-sum (hereinafter called "Mr. Wong").

Details as follows:-

"Skylight agreed to repay the goods proceeds to V-Eagle on the 10th day of each calendar month for an amount not less than $30,000 starting from 10 May 2000. The last repayment should be on 10 July 2001 for $30,378.

V-Eagle agreed to the above repayment arrangement.

Should Skylight fail in complying with the above of arrangement Mr. Wong undertakes to repay to V-Eagle the balance per the schedule.

All parties mentioned above agreed that the above of the arrangement is being the final settlement of all the matters.

Remark: if Skylight is able to collect the goods proceeds from the ultimate buyer i.e. Miles Strong Company Limited earlier than the above period Skylight has to apply the said fund to repay V-Eagle immediately."

4. The Defendant has failed to pay anything under that agreement. Accordingly there are 7 months of arrears being ($30,000 x 7 months) $210,000. The Defendant contends that is the extent of her liability in these proceedings. The Plaintiff's case is that the failure to pay anything over a prolonged period (7 months) amounts to a fundamental breach of the agreement so that the agreement is at an end and that in those circumstances they are now entitled to the whole amount claimed under the writ.

5. Originally, the Plaintiff's were submitting that in the absence of an express default clause to the effect once one instalment became overdue the whole of the outstanding balance became payable the Court should in any event imply such term. Rightly, in my judgment this line of reasoning is no longer being pursued.

6. That then leaves over the single question of whether the failure to pay anything since the agreement was entered into amounts to a fundamental breach which would entitle the Plaintiff's to return to the situation before the agreement was entered into and sue for the whole of the amount now.

7. In order to decide the point it is essential to analyse the purpose of the agreement.

8. By the time that the agreement was signed in early May 2000 (it is not dated but the first payment became due on 10 May so I take it that it became effective as from that date) the Defendant was liable to pay the Plaintiff $430,378 under the invoices listed in the Statement of Claim. Rather than sue for the whole amount then the Plaintiff was prepared to agree the regime of instalment payments created by the agreement with the added benefit of Mr. Wong as guarantor.

9. The agreement created benefits and disadvantages on both sides. For the Plaintiff's it drew the admission from the Defendant that she was liable to pay on the invoices and thereby obviated the risks of litigation. The disadvantage was that the Plaintiff would not be paid in full until 1 July 2001. And it also produced the benefit for the Plaintiff of a guarantor for the Defendant.

10. For the Defendant it provided the benefit of deferring payment until mid-2001 of an obligation which was then due. The disadvantage was that it required the Defendant to make the admission of liability of the debt.

11. This appears to be the proper analysis of the situation.

12. What is the effect of the failure to pay anything? Can it be characterised as a fundamental breach? In the leading House of Lords case of Suisse Atlantique Societe d-Armement Maritime S.A. v. N. V. Rotterdamsche Kolen Centrale (1967) 1 A. C. 361, Lord Reid identified a fundamental breach at p. 397G as follows:-

"One way of looking at the matter would be to ask whether the party in breach has by his breach produced a situation fundamentally different from anything which the parties could as reasonable men have contemplated when the contract ("the agreement") was made. Then one would have to ask not only what had already happened but what also was likely to happen in future. And then the fact that the breach was deliberate might be of great importance".

13. Clearly, this agreement contemplated regular monthly payments. A failure to pay some instalments in timely fashion or at all could not qualify as a fundamental breach as contemplated by Lord Reid. It must be a question of fact and degree. In the case before me nothing has been forthcoming from the Defendant since the agreement was signed seven months ago. Further, as to the future there appears no sign of any further payment. No anticipated payments were suggested by Mr. Lam who appears for the Defendant. In the circumstances should the Plaintiff's be obliged to sue only on the arrears, and wait and see if further amounts are paid in future?

14. I have no doubt that this cannot be so. The Plaintiff's must be entitled to rescind the agreement and return to their original position and sue on the invoices as they have by this writ.

15. Mr. Lam submits that for a valid recession the Defendant should have been given notice. I have no doubt that the issue of these proceedings amounts to the clearest notice that the Plaintiff's no longer considered themselves bound by the agreement. They are amply entitled to adopt that stance by virtue of the failure by the Defendant to pay any instalment.

16. From that finding I must now decide whether the Defendant has a defence to the claim as pleaded on the invoices. Clearly not. The Defendant had failed to take any substantive issue as to the placing of the orders for yarn and the delivery of that yarn to the Defendant's order nor of the validity of the invoices now sued upon.

17. Accordingly, there must be judgment to the Plaintiff's on the claim together with interest thereon at the judgment rate from the date of the writ until payment. Costs will follow the event. This part of the order will be an order nisi in the usual way.