XCHRX HENG HING METAL FACTORY LTD. v. UNIONWEST LTD.

HCA 9328/00

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 9328 OF 2000

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J U D G M E N T

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1. The plaintiff's claim against the defendant is for the total sum of $845,881.50 being the total price for goods sold and delivered. The plaintiff's claim is based on the total of 15 invoices issued to the defendant as pleaded in the statement of claim making up the said total sum. At the hearing of the O.14 application for summary judgment before Master Au Yeung on 9 April 2001 she ordered that judgment be entered for the plaintiff for the amounts of 14 of the 15 invoices sued upon. Judgment was entered for the total sum of $772,319.96. Unconditional leave to defend the claim under invoice no. HH0640/00 for the sum of $73,561.54 was given. This is an appeal against the Master's order.

2. The principles governing O.14 application are well settled and it is not necessary to repeat the same here. It is, of course, for the defendant to satisfy the court that there is an issue or question in dispute which ought to be tried. The burden is on the defendant.

3. The defences raised are :

1. that the goods supplied under the 15 invoices were defective;

2. that there is a defence of set-off and a counterclaim for unliquidated damages for loss of profit that the defendant suffered in the sub-sale of the goods to its sub-buyers;

3. the defendant also wishes to amend its defence and counterclaim to allege that the plaintiff is liable to the defendant for unliquidated damages in respect of its liability to customers for the defective goods. According to the draft amended defence and counterclaim the only particulars given related to one customer only, Western Hardware Company;

4. that there is a defence of set-off and counterclaim for a liquidated sum for repayment of loans and interest in respect of amounts advanced by the defendant to the plaintiff and which has not been repaid. The liquidated sum is $384,909.72.

4. The difference between the defence of legal set-off and equitable set-off is succinctly set out in the judgment of Leggatt L.J. in Axel Johnson Petroleum A.B. v. M.G. Mineral Group A.G. [1992] 1 W.L.R. at p.270-274 H :

"....... the state of the law is unsatisfactory that allows a set-off at law of debts which are liquidated, even if unconnected, and in equity of debts which are connected, even if unliquidated, but not a set-off of debts which are both unliquidated and unconnected."

5. Legal set-off is available as a defence even where it is unconnected with the plaintiff's claim provided it is a liquidated claim. Equitable set-off, however, is only available where a cross-claim is for a sum of money which is so closely connected with the claim that it goes to impeach the plaintiff's title to be paid and raises an equity in the defendant, making it unfair that he should pay the plaintiff without deduction. There must, however, be a sufficiently close connection between the claim and the cross-claim (para. 430 Vol. 42 Halsbury's Laws of England 4th Edn. Reissue 1999).

6. The first defence raised is one of defects in the goods supplied. However, on the material before the court, there is no admissible evidence to show that defective goods were supplied by the plaintiff under the 15 invoices. I have already ruled that paras. 11 and 16 of the affirmation of Yeung Sik Hay are inadmissible. There is only a bare assertion in the defence and counterclaim that the goods were defective and by the defendant's answer dated 24 November 2000, the further and better particulars supplied as to defects relate only to one of the 15 invoices, namely invoice HH0640/00. The defendant has failed to condescend upon particulars by its affidavit evidence. Even the particulars supplied in the defendant's answer dated 24 November 2000 are, as Ms Wong has submitted, wholly inadequate. It is impossible to discern what quantities of goods supplied under the said invoice were alleged to be defective or what the size of the cross-claim by the sub-buyer is or might be. In any event, on the evidence produced by the plaintiff, the particular sub-purchaser of the goods under the said invoice HH0640/00 was Canaropa (1954) Inc. of Canada. Although the defendant has by its said answer dated 24 November 2000 asserted that the defendant's customers had not paid the price of the goods, the documentary evidence clearly shows that Canaropa (1954) Inc. had on 8 June 2000 paid the defendant for the goods supplied under the said invoice. I accept Ms Wong's submission that the assertion in the pleading that the goods under the said invoice were defective and that the defendant has not received payment from its customers is unbelievable. Ms Wong also asks for judgment for the plaintiff in respect of the amount of the said invoice. I am of the view that the defendant has failed to raise a triable issue that the goods were defective.

7. The second defence raised also depends on raising a triable issue that the goods were defective which the defendant has failed to do. No triable issue has been shown.

8. The third defence raised is in respect of the defendant's cross-claim for unliquidated damages in respect of its liabilities to its customers. This the defendant wishes to raise by amendment but, as I have said, the only particulars given relate to one customer only, Western Hardware Company. It is common ground that none of the goods supplied under the 15 invoices claimed by the plaintiff were supplied to that particular customer. I fail to see the close connection between this cross-claim and the plaintiff's claim to entitle the defendant to raise an equitable set-off as a defence. The defendant has, in my view, failed to raise a triable issue on the third defence.

9. The fourth defence is in respect of the liquidated sum of $384,909.72. The defence is by way of legal set-off and counterclaim and as such the cross-claim does not have to be connected with the plaintiff's claim. The counterclaim for the liquidated amount relates to a loan made by the defendant to the plaintiff by two separate amounts of $200,000 and $50,000 made in March 1993 and April 1995. This was repayable on demand with interest. The principal amounts have been repaid but interest has not and is outstanding. The defendant claims that outstanding interest in the amount of $284,909.72 accrued up to 10 February 2000. The defendant also claims that a further sum of $100,000 was lent to the plaintiff which was interest free and repayable on demand. Despite demand this has not been paid. Hence the counterclaim for the liquidated sum of $384,909.72. This counterclaim is supported by the evidence of Kwok Wai Yee who was a director of the plaintiff at all material times. The plaintiff denies the claim for interest. The plaintiff also denies that the $100,000 that it received from the defendant was a loan. It alleges that this was paid for the production of toolings which have been returned to the defendant. These are issues of fact. At this stage, it is not a proper course to conduct a mini-trial of these issues on affidavit evidence alone. These issues of fact should be resolved at trial.

10. I am satisfied that a triable issue has been raised as to the defence of legal set-off in respect of the liquidated sum of $384,909.72 and there should be unconditional leave to defend granted to the defendant for this sum.

11. The order I make then is that the appeal is allowed. I vary the order of Master Au Yeung as follows :

1. there will be judgment for the plaintiff for the sum of $460,971.78; and

2. there will be unconditional leave to the defendant to defend the action as to the balance of the sum of $384,909.72