ANGSTREM ELECTRONICS LTD v. KEYLINK INDUSTRIAL LTD

 DCCJ 2830/2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2830 OF 2007

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REASONS FOR DECISION

Background

1.  This is the Plaintiff's application for summary judgment for the total sum of HK $423,908.65, and interest.  At the end of the hearing, I gave judgment in terms of the Plaintiff's summons issued on 7 September 2007, and indicated that the reasons for my decision would be handed down.  These are my reasons.

Background

2.  The Plaintiff, AEL, seeks payment from the Defendant, KIL, of a sum of HK $236,182.13 as the balance of the price of goods sold and delivered by AEL to KIL, evidenced by invoices and delivery notes issued by AEL to KIL.  The goods were delivered between 17 April 2007 to 6 May 2007.  In addition, AEL seeks payment of a separate sum of HK $187,726.52, as the amount payable under 4 cheques issued by KIL to AEL, all of which were dishonored upon presentation for payment.  It is not in dispute that the cheques are not related to the invoices for which payment of the sum of HK $236,182.12 is sought.  They relate to separate transactions for AEL's sale and supply of goods to KIL.

3.  By way of defence, KIL referred to a long history of events and dealings between various individuals and companies, including one Miss Wong and one Mr. Cheng.  In order to follow in KIL's purported defence, KIL's historical account has to be summarized, as follows.

4.   Miss Wong is one of the directors of AEL.  Mr. Cheng is a shareholder and director of KIL.  Mr. Cheng claims on behalf of KIL that in about 1994, whilst Mr. Cheng was working in a company which was an agent in Hong Kong for electronic components and products, Miss Wong was a shareholder of Sun Kwong Electric (HK) Ltd.  The majority shareholder of Sun Kwong was one Mr. Wong Choi Fung.  Miss Wong told Mr. Cheng in 1994 that Sun Kwong had plans to set up a company known as Guidy to promote electronic components manufactured by a company in Russia.  According to Mr. Cheng, Mr. Wong promised to transfer 5% of the shares of Guidy to Mr. Cheng and to appoint Mr. Cheng as director for Guidy "once the business of Guidy would be satisfactory".  Mr. Cheng referred to this promise made by Mr. Wong as the "1st Promise".  To summarize Mr. Cheng's complaint, he was never offered the shares of Guidy and was not appointed director.

5.  Mr. Cheng claims that on a date not specified in the Defense, and in order to compensate Mr. Cheng for his loss sustained as a result of Mr. Wong's breach of the 1st Promise, Miss Wong promised to support "Mr. Cheng's own business in the future".  Mr. Cheng referred to this promise of Miss Wong as the "2nd Promise".

6.  In about May 2006, Mr. Cheng was offered an opportunity to invest in KIL.  KIL had had business transactions with AEL since about 2005.  Mr. Cheng informed Miss Wong of this opportunity and mentioned that he did not have sufficient capital for the business, and could not secure a stable supply of products.  According to Mr. Cheng and KIL, Miss Wong repeated to Mr. Cheng that "she would fulfill the 2nd Promise", as follows: (1) KIL would become one of the main distributors for AEL;  (2) AEL would supply the goods ordered by KIL with first priority; (3) in order to maintain a smooth and stable cash flow of KIL, KIL could delay settlement with AEL for outstanding invoices and cheques already issued by KIL if there is any purchase order which has not been completed on the part of AEL until the outstanding order (s) is/are completed.  These are the terms on which Miss Wong is alleged to have promised in May 2006, by way of fulfillment of the 2nd Promise, and is referred to as "the Representation" in the Defence.

7.    In essence, KIL claims that in relation to AEL's invoice AI027169, there was a short delivery of the goods agreed to be sold by AEL to KIL, as a result of which KIL had sustained damages.  KIL further claims that under KIL's purchase order No. KL-PO-534/07, there was again short delivery of goods.  KIL therefore claims that as a result of the Representation made by Miss Wong, KIL is entitled to withhold payment of the sums sought by AEL in relation to the other goods sold and delivered by AEL to KIL.

Issues for determination

8.  The principles applicable to applications for summary judgment are clear.  The court has to determine, first, whether what the defendant says is believable; and second, if it is, whether what the defendant says amounts to an arguable defence in law (Schindler Lifts (Hong Kong) Ltd. v.  Ocean Joy Investments Ltd. [2003]1 HKC 438).  The onus is on the defendant to show that there are triable issues, or that it has a real and bona fide defence.

9.  Save for the bare allegation of short delivery of goods under AEL's invoice AI 027169, which is denied by AEL, KIL does not dispute that the sums claimed by AEL are payable.  So far as is ascertainable from the myriad of facts set out in the Defence filed and from the affirmation of Mr. Cheng, the only defence relied upon is the alleged breach of the 1st Promise, and/or the 2nd Promise and/or the Representation.

10.  The 1st Promise was made on an unspecified date by Mr. Wong to Mr. Cheng.  It would appear from the chronology of events pleaded in paragraph 6 of the Defence that the 1st Promise was made in about 1994.  Mr. Wong, who has since died, is not a party in these proceedings.  Even if the claim is not time-barred, I fail to see how any breach of the first Promise can afford a defence to KIL in relation to AEL's claim for the price of goods sold and delivered by AEL to KIL, or to AEL's claim for amounts due under the cheques issued by KIL to AEL.

11.  The 2nd Promise was made, again on an unspecified date, by Miss Wong to Mr. Cheng.  Miss Wong is not a party to these proceedings.  Even if any claim against Miss Wong for her alleged breachof the 2nd Promise is not time-barred, I cannot see how the 2nd Promise is supported by any valid consideration, as it is pleaded that the 2nd Promise was made by Miss Wong to compensate the loss suffered by Mr. Cheng due to the breach of the 1st Promise made by Mr. Wong to Mr. Cheng.  Further, I fail to see how any alleged breach of the 2nd Promise by Miss Wong can afford a defence to KIL against AEL's claim for the price of goods sold and delivered by AEL to KIL, or for the amounts due under the cheques issued by KIL to AEL.

12.  As for the Representation alleged to have been made by Miss Wong, Mr. Cheng and KIL claim that Miss Wong represented that KIL, the company which Mr. Cheng was invited in 2006 to invest in, would be able to "delay settlement" with AEL for outstanding invoices and cheques issued by KIL "if there is any purchase order" not yet completed by AEL, until the outstanding order(s) is/are completed.  According to Mr. Cheng, it was in reliance on the Representation and not otherwise that he became a shareholder of KIL.

13.  Affirmations were filed by Mr. Cheng's former colleagues at Guidy.  They all claimed that they were told by Mr. Cheng in about May 2006 that he would commence his own business, and that Miss Wong had represented to Mr. Cheng that she would support his business.  Some of these affirmants confirmed their understanding that Mr. Cheng's business could delay the settlement of outstanding invoices and cheques issued if there were problems in AEL's supply of products to Mr. Cheng's business.

14.  Considering the Defence and the evidence filed as a whole, I am not satisfied that Mr. Cheng's assertions in relation to the Representation made by Miss Wong are believable.  Even leaving aside the issue of whether the 2nd Promise made by her before and repeated in May 2006 was supported by consideration, the Representation as pleaded is too wide and vague in its alleged terms to be enforceable, or credible.  The representation that KIL or Mr. Cheng's business could delay settlement of invoices issued by AEL, and delay settlement of cheques issued by KIL, if there was any purchase order not yet completed by AEL is: (1) extremely wide in ambit; (2) indefinite in duration of time; and (3) vague as to how it can be enforced. 

15.  AEL denies the existence of the 1st Promise, the 2nd Promise and the Representation.  AEL claims that in any event, KIL already enjoys 45 days credit terms under AELs' invoices, as can be seen from copies of the invoices exhibited by AEL.  AEL further claims that in reality, KIL enjoys more than 45 days credit. 

16.  If KIL and Mr. Cheng are to be believed, Mr. Cheng's business could delay payment under any of AEL's invoice and delay payment of any cheque issued by KIL, irrespective of the amount payable, so long as any order placed with AEL is not completed.  The amount of the outstanding order is irrelevant, and the arrangement applies without restriction in time.  It is unfathomable how such an arrangement can work.  If the transactions between AEL and KIL are ongoing, as KIL and Mr. Cheng appear to suggest, there would always be some order which has not been "completed", so by placing a new order for goods, all amounts due under old orders which have been completed, and for which invoices may have been issued for goods delivered and accepted, would cease to be payable by virtue of the new order placed and uncompleted.  In my judgment, it does not make commercial sense at all, and it defies reality to suggest that any business entity would or could have agreed to the wide terms set out in the Representation, as is claimed by Mr. Cheng and KIL. 

17.  Even if, defying all common sense, Miss Wong had indeed made the Representation, any cause of action for breach or misrepresentation should be vested in Mr. Cheng and against Miss Wong.

18.  I do not accept that what KIL and Mr. Cheng said in relation to the Representation is believable.  In any event,  KIL has failed to establish any arguable defence in law to AEL's claim for the price of the goods sold and delivered, and for the sums due under the cheques issued by KIL to AEL.   I cannot find any triable issues disclosed.  Accordingly, I give judgment in favor of AEL in terms of its summons issued on 7 September 2007, with costs including certificate for counsel.