RAJESHKUMAR NARESHCHANDRA KANTILAL t/a K.L. GEMS v. D.R.A. TRADING LTD

HCA 4193/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4193 of 2003

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JUDGEMENT

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1.  This is an appeal by the defendant, (DRA), from the judgement of the Master on (a) the plaintiff's, (K. L. Gems), application for summary judgement under O.14, and (b) DRA.’s application for security for costs.  On the O.14 application DRA was given leave to defend as to part of the amount claimed, conditional upon the payment of the total of US$61,966.16 and HK$161,722.08 into court.  Judgement was entered against DRA for a sum of US$10,354, together with certain sums of interest, and a further sum to be calculated according to a formula set out in the order.  The application for security for costs was dismissed.

2.  There is no dispute as to the calculation of the amount of the judgement.  The issue between the parties is whether DRA should have unconditional leave to defend, and security for costs.  The action relates to the supply by KL Gems of diamonds to DRA.

3.  Mr Yip says that there are four matters upon which a triable issue is raised, and upon which unconditional leave to defend should be given.  They are first, that the goods were supplied under a trade practice or custom of consignment, and that consequently no property has passed in the goods and no liability arises for payment.  Second, that in respect of the three invoices in relation to which conditional leave was given to defend, DRA is a mere agent and is not liable on the contracts.  Third, that certain of the goods were defective and accordingly no liability arises.  Fourth, that there was agreement to take back the allegedly defective goods.

4.  The primary argument made by DRA is as to a trade practice or custom of goods being delivered on consignment.  There are two matters which satisfy me that there can be no basis in this defence.

5.  First, with the exception of one invoice only, the suggestion that the diamonds were delivered by way of consignment is diametrically opposed to the specific terms of the invoices by which they were supplied.  It is well established that collateral contracts, the effect of which is to vary or add to the terms of an existing agreement, must be strictly proved: see Bank of India v Surtani Murlidhar Paramand t/a Ajanta Trading Corp [1994] 1 HKC 7 CA.  It is worth noting that when demand was made of DRA in December 2003, by solicitors letter, there was no suggestion in the reply that the goods had been supplied pursuant to a trade practice or custom of consignment.  Quite to the contrary, through their solicitors, DRA made a series of partial payments without any reservation at all.

6.  It is right that on one occasion the goods were delivered on consignment.  The documentation in relation to that transaction is quite different.  The existence of that transaction serves only to emphasise the correctness of KL Gems’ position.

7.  Mr Yip says that the documents establish that the parties, whilst using apparently plain legal documents, did not conduct themselves in accordance with those documents.  To justify the submission he relies upon what was described as a “consignment invoice” produced by KL Gems.  It is correct that that document is better described, as on its face, as a receipt and bailment.  However it is plain from the terms of the document that it is intended that it should not be a pure bailment, but that in the event that the recipient wishes to acquire and sell on the diamonds he need only inform KL Gems, who will then issue a formal invoice for sale.  In fact the existence of that document again serves only to reinforce KL Gems’ position that the transactions upon which it relies were not consignment transactions but sales.

8.  Mr Yip said that the transactions should be looked at in two stages: first the delivery of the diamonds pursuant to a custom of consignment, later the issue of an invoice, subject to that practice of consignment.  Even if there were two such stages, and there is nothing in the evidence to establish two such stages, the argument falls on its own statement, as there is nothing in the invoice to indicate that its plain terms should not then the govern the situation.  If Mr Yip is right, once invoices issued, any suggestion of consignment would come to an end, and it would follow that DRA is liable to pay the purchase price.

9.  Second, there is simply no evidence of such a trade practice or custom.  The only evidence there is, is that from Mr Gad, a director of DRA.  His bare assertion is not supported in any way by any evidence either from other persons in the trade or a suitably qualified expert.  It is right, as Mr Yip says, that Mr Gad, being in the diamond trade, may be an expert.  But he cannot be an expert in his own cause.  The admission of expert evidence is by way of an exception from the rule that a person may give evidence of facts, but may not give evidence of an opinion.  For a person to be an expert the law is clear.  He must be:

“uninfluenced as to the form or content by the exigencies of the litigation”:

see National Justice Compania Naviera SA v Prudential Assurance Co Ltd, (The Ikranian Reefer) [1993] 2 Lloyds Rep 68 at 81.  Plainly, a party to proceedings can never come within such a definition.

10.  There is no basis at all to give leave to defend based upon a trade practice or custom of delivery by way of consignment.

11.  Next, it is contended that certain of the diamonds were defective.  There is not a single piece of documentary evidence before the court to suggest that, prior to the issue of the writ, there was any complaint by DRA of defective goods.  It is right as Mr Yip says, that there is no requirement in the invoice for a complaint to be in writing.  But in the present case the mere existence of any complaint is seriously open to doubt.  On 5 January 2004, shortly after the issue of the writ, DRA’s solicitors wrote to KL Gems’s solicitors offering to return certain of the diamonds under six of the invoices, including those relating to the alleged substandard diamonds.  There was not the slightest suggestion in that letter that there were any substandard diamonds.  The defence was filed on 14 January 2004.  There was no mention of substandard goods in the defence.  It was not until 12 October 2004, that the issue of substandard diamonds was first raised in an amended defence.

12.  Mr Yip says further that the assertion of defective goods is sufficient to raise a triable issue.  But that submission ignores the requirement that, for there to be a triable issue, the assertion of defective goods must be believable, and not a mere assertion.  There is no expert evidence put before the court giving support to the existence of alleged defects or substandard quality.  There is a bare assertion, not particularised, by Mr Gad of defects and substandard quality.  Again, Mr Gad cannot give expert evidence of defects.  His affidavit is singularly silent as to the precise nature of any defects.

13.  Mr Gad asserts that KL Gems agreed to take back the defective diamonds.  Again this matter was not raised following the demand for payment.  Instead of reminding KL Gems’ solicitors that there was an agreement that the goods would be taken back, DRA’s solicitors offered to give them back.  That is quite inconsistent with an assertion that it had been previously agreed that the goods would be taken back, with a responsibility for collection on KL Gems.

14.  In the complete absence of any corroborating evidence to substantiate an assertion of substandard goods, and in the light of the conduct of DRA being quite inconsistent with such an assertion, this allegation in the defence is properly characterised as moonshine.  I am satisfied that the Master was quite right to reject defences based upon defective goods and an agreement to return goods.

15.  The Master gave conditional leave to defend in relation to three invoices.  There is no cross-appeal against this decision.

16.  In this respect the argument is made for DRA that three of the invoices were not issued to DRA, but to other legal entities, and accordingly DRA should not be liable.  In his affidavits Mr Gad carefully does not say that he did not receive the diamonds referred to in those three invoices.    The contention apparently is that DRA was a mere agent in the transactions and ought not to be liable on the contracts.  Two of the invoices have the chop of the defendant company endorsed as the “buyer” of the goods.  At no stage in any of the affidavits does Mr Gad condescend to particulars of his relationship with the entities named on the invoices. 

17.  Based upon the general principle that the contract of an agent is the contract of the principal, it is often said that an agent is prima facie neither liable upon any agreement into which he enters in a representative capacity nor able to sue on it.  However, as noted in Chitty on Contracts Vol. 2 para 32-082:

“….this formulation can be relied on too much.  It has been pointed out that ‘It is not the law that, if a principal is liable, his agent cannot be.  The true principle of law is that a person is liable for his engagements (as for his torts) even though he is acting for another, unless he can show that by the law of agency he is to be held to have expressly or impliedly negatived his personal liability’.”

See Yeung Kai Yung v Hong Kong & Shanghai Banking Corporation  [1981] AC 787 at 795, per Lord Scarman.

18.  There is nothing in the documents or the conduct of the parties upon which it may properly be said that DRA has negatived any personal liability.  In fact, the documents demonstrate the opposite.  In his affidavit Mr Gad supplied a schedule of previous dealings which he said DRA had with KL Gems.  No suggestion was made that any of those transactions were transactions in which DRA was a mere agent, and not personally liable.  Documents produced by KL Gems establish that three of the transactions in the schedule produced were dealings, apparently on behalf of other parties, but in respect of which payment in full was made by DRA.  If the transactions were agency transactions, one would have expected payment to be made by the principal, and not by DRA.

19.  It may well be that DRA was acting as an agent for other parties in the transactions.  But there is nothing to establish a basis upon which it may be argued that DRA had either expressly or impliedly negatived its personal liability in the transactions.  DRA may well have a claim against its principals in those transactions and is free to pursue that claim if it wishes.  But that is no reason to deny KL Gems payment in the circumstances.  DRA was fortunate to get conditional leave to defend upon payment of the sums due into court.

20.  For these reasons the appeal against the O. 14 judgement is dismissed.  It follows that the appeal against the refusal to grant security for costs must also be dismissed.  DRA must pay K L Gem’s costs on the appeal to be taxed on a party and party basis.