SAMP INTERNATIONAL TRADE CO LTD v. DIRECT SOURCE LTD

HCA 858/2018

[2019] HKCFI 844

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 858 OF 2018

____________

____________

__________________________________

REASONS FOR DECISION

__________________________________

1.  This is an appeal against the Decision of Master Kot dated 19 November 2018 granting summary judgment in favour of the plaintiff.

2.  The plaintiff’s claim is for a sum of US$34,516,222.59 being outstanding balance due and owing from the defendant to the plaintiff under a number of invoices issued by the plaintiff to the defendant during the period between October 2015 and March 2016 less the repayments by the defendant to the plaintiff.  The Statement of Claim annexed a schedulesetting out the particulars of the 51 separate purchase orders, corresponding invoices that were outstanding, and the partial repayments made by the defendant.

3.  According to the Statement of Claim, for each purchase order placed by the defendant, the plaintiff had in turn placed a corresponding order with its supplier Nova Sky International Limited (“Nova”) to fulfill the defendant’s purchase order.  It is the plaintiff’s case that each purchaseorder constituted a separate contract between the plaintiff and the defendant. 

4.  Apart from claiming for the outstanding balance due and owing by the defendant under the 51 contracts, the plaintiff also claimed for“Additional Interest” incurred by the plaintiff towards its banks.  The claim is based on an allegation that in the light of their past trading relationship, the defendant knew that:

(1)  the plaintiff was a trader and would source the goods from Nova;

(2)  the plaintiff was required to obtain finance from banks to pay Nova;

(3)  the plaintiff would rely on the defendant’s payments to repay the banks plus interest/charges;

(4)  if the defendant failed to pay on time or at all, the plaintiff would in turn default in repaying its banking facilities; and

(5)  the plaintiff would therefore incur additional interest and charges by its banks (“the Additional Interest”).

5.  By a summons dated 14 June 2018 and issued under Order 14, rule 1 and Order 29, rule 10, the plaintiff sought the following orders against the defendant:

(1)  final judgment in the sum of US$34,516,222.59;

(2)  alternative to (1) above, an order of interim payment in the sum of US$28,103,409.40;

(3)  interest as prayed in the Statement of Claim; and

(4)  costs.

6.  After a contested hearing, the learned Master granted final judgment in favour of the plaintiff in the sum of US$34,516,222.59 (“Judgment Sum”). In relation to interest, the learned Master granted interest on the Judgment Sum at judgment rate from date of Writ until payment.  She also made costs order in favour of the plaintiff.

7.  By a Notice of Appeal dated 29 November 2018, the defendant appeals against the Master’s decision praying inter alia that the said Judgment be set aside and that leave be granted to the defendant to defend.

The plaintiff’s case and evidence

8.  In the 1^st Affirmation of Zhu Li (filed for the plaintiff in support of the summons), Mr Zhu exhibited a bundle of documents.  Thesedocuments included the 51 purchase orders issued by the defendant and the corresponding commercial invoices issued by the plaintiff.  Goods were delivered and the total invoiced amount was US$37,382,352.09.  Each purchase order stated that payment shall be effected by “T/T 80 days after Cargo Received Date or L/C at sight”.

9.  After repeated demands, the defendant had made partial settlement of US$2,866,129.50 between 17 March 2016 and 28 March 2018.  After giving effect to the partial settlement, the outstanding due and payable by the defendant was US$34,516,222.59.  As the defendant was owing to the plaintiff a substantial sum for goods sold and delivered, the plaintiff refused to accept further new purchase orders from the defendant.

10.  Mr Zhu also referred to admissions made by the defendant in the following letters issued by the defendant:

(1)  letter issued around 28 November 2017:

the defendant admitted that the balance (after taking into account a partial repayment of US$20,000 remitted) was US$34,596,222.59;

(2)  letter issued around 29 December 2017:

the defendant admitted that the balance (after taking into account another partial repayment of US$20,000 remitted) was US$34,576,222.59;

(3)  letter issued around 29 January 2018:

the defendant admitted that the balance (after taking into account another partial repayment of US$20,000 remitted) was US$34,556,222.59;

(4)  letter dated 1 March 2018:

the defendant admitted that the balance (after taking into account another partial repayment of US$20,000 remitted) was US$34,536,222.59;

(5)  letter dated 15 March 2018:

the defendant alleged that as a result of the plaintiff stopping to accept further purchase orders from the defendant, it had suffered pecuniary loss of US$6,412,813.19 and was entitled to claim this from the plaintiff.  After deduction of this alleged loss, the defendant stated that the outstanding owing to the plaintiff became US$28,123,409.40.  This constituted anotheradmission that but for the alleged deduction of “pecuniary loss”,the amount due to the plaintiff was US$34,536,222.59; and

(6)  letter dated 29 March 2018:

after taking into account another partial payment of US$20,000, the defendant stated that the outstanding was US$28,103,409.40.  This constituted another admission that but for the alleged deduction of “pecuniary loss”, the amount due to the plaintiff was US$34,516,222.59.

11.  The plaintiff denies that the defendant is entitled to claim any damages against the plaintiff.  The plaintiff was no obliged to receive any new purchase order from the defendant.  The defendant thus has no defence to the plaintiff’s claim for the sum of US$34,516,222.59.  In any event, even on the defendant’s own case, the sum of US$28,103,409.40 has been indisputably due and owing.  Even if the court is not minded to grant judgment in the sum of US$34,516,222.59, the court should at least order interim payment of US$28,103,409.40.

The defendant’s case and evidence

12.  In the affirmation of Mr Chiang filed for the defendant in opposition to the summons, the defendant asserted that both the plaintiff andthe defendant were intermediary companies of a supply chain of plastic bags.  The plaintiff was the immediate up-line of the defendant.  The plaintiff and the defendant began to build a “business relationship” since about eight years ago.

13.  Mr Chiang alleged that the chain of supply continued to run uneventfully until 24 March 2016 when, “for reasons only known to the plaintiff”, transaction suddenly stopped.  He contacted Mr Yang, representative of the plaintiff, by phone and was told that the plaintiff decided to cease all overseas trading business with immediate effect.

14.  Since no prior notice and no reason was given by the plaintiff, this had caused a drastic effect on the existing supply chain.  The defendant was needed to immediately find alternative suppliers, incur additional delivery costs, pay demurrage penalties and to bear increased expenses for expedited productions.

15.  By a letter dated 6 April 2016 from Mr Chiang to Mr Yang, he recapped the conversation with Mr Yang and stated:

“ [the defendant] began the trading of PE plastic bags in 2008 with [the plaintiff] from whom we source PE plastic bags from Malaysia to USA. In the past nine years we both worked together. The business had developed in a manner of consistent growth mutually, healthy, and without problem on payment from us. We are perplexed by this unilateral termination of supply without a hint of signal to us in advance‌…”

“ [the plaintiff] being our unique source of the supply chain of PEplastic bags from Malaysia Bee Lian Plastic Industries BHD, your unilateral termination of this product supply has constituted virtual breach of the contract between [the defendant] and [the plaintiff]. This unreasonable business behaviour is now leading a great loss to our operations and I hereby advise [the plaintiff]that such damage is hugh and that we are calling [the plaintiff] of full responsibility on this loss and damage …”

“ On the payment reminder (dated March 31, 2016) that [the plaintiff] sent to us, [the defendant] confirms that the payable amount stated on this payment reminder is correct. The balancedue to [the plaintiff] as of 31 March 2016 is US$37,106,222.59‌… However, we will defer payment from now on on the groundthat the breach of the contract has materialized to huge damageto us. We are expecting that we will only resume the paymentto [the plaintiff] until both companies can come to a compromiseof solution on the loss that [the defendant] has encountered from the breaching action from [the plaintiff].”

16.  The plaintiff did not make any specific reply to the above letter. Soon thereafter, Mr Yang left the plaintiff’s employment and was replaced by Mr Zhu. 

17.  Mr Chiang said that the immediate down-line of the defendantwas a USA company named IPS Industries Inc (“IPS”).  In his affirmation, Mr Chiang said that “since IPS had 180 days (despite habitual lateness for payment from time to time) to settle payment to the defendant, it was inevitable for IPS to withhold payment for its purchase orders”.  It must be pointed out at this stage that all the purchase orders and commercial invoices between the plaintiff and the defendant stated the payment term tobe “T/T 80 days after Cargo Received Date or L/C at sight” [my emphasis].  In paragraph 12 of Mr Chiang’s affirmation, he first referred to those purchase orders and commercial invoices exhibited by Mr Zhu in his first affirmation. He then purported to “point out” that the payment term was agreed to be “either T/T 90 (subsequently extended to 180 days in or around2012–2013) after cargo received date or L/C at sight”.  I find Mr Chiang’s statement incomprehensible.  Such assertion was wholly contradicted by the express payment term set out consistently in the purchase orders and commercial invoices exhibited by Mr Zhu.  The evidence of Chiang thus meant that the defendant was allowing a longer payment time from its purchaser than that stipulated in the contracts between the plaintiff and the defendant.

18.  Mr Chiang then alleged that the defendant had already sustained a loss of around US$140 million.  Further, and in order to locate alternative suppliers, the defendant also expended significant costs to be quantified.  Mr Chiang then referred to a number of complaint letters from IPS which threatened legal proceedings against the defendant.

19.  In response to the plaintiff’s reliance on the admissions made by the defendant in its various letters aforesaid, Mr Chiang argued that it was a distortion of the whole picture.  He then referred to several letters sent by the defendant to the plaintiff.  In essence, all these letters proceeded on the basis that the plaintiff was blameworthy for its sudden termination of “the mutual business engagement” and that the plaintiff was not working “with sense of business integrity/business morality”.  These letters also criticized the plaintiff for termination of their “business cooperation” unilaterally without reason such that it was a “breach of trust (違反誠信) and business logic (違反商務邏輯)”.  The plaintiff was also criticized for not providing reasons for the termination of its business with the defendant.

20.  In particular, Mr Chiang referred to the letter dated 22 July 2016 which stated in its last page that as of 19 July 2016, the total sum owed by the defendant to the plaintiff was US$35,346,222.59.  Yet in another letter dated 11 April 2017, the defendant stated that in the past 10 years of cooperation, the defendant would only “settle payment in advance (我方只有提前支付) and had never delayed in payment (從未發生拖欠的情況)”.  Similar assertion was made in another letter dated 13 June 2017.  These assertions of hitherto punctual settlement of all sums due were clearly contradictory to the defendant’s admissions of huge sums outstanding and due to the plaintiff.  This can also be seen from the letter dated 22 February 2018 in which the defendant stated: “2016年雙方發生糾紛至今，本公司從未回避有未結貨款之情況”.  This was a clear admission of sums owing from the defendant to the plaintiff.

21.  In a nutshell, the defendant’s defence is that it is entitled to cross-claim the plaintiff for loss and damage sustained by the defendant arising out of the alleged “breach of the plaintiff”.  The defendant argues that the loss and damage sustained by it far exceeds the claim brought by the plaintiff such that it is either not liable to make payment for the 51 purchase orders or is entitled to set off the plaintiff’s claim in its entirety.

The plaintiff’s evidence in reply

22.  In the 2^nd affirmation of Mr Zhu, he reiterated the payment term had all along been agreed at “T/T 80 days after cargo received date”.  He referred to the purchase orders issued by the defendant stipulating the same.  He pointed that the plaintiff’s allegation of credit term of “90 days or 180 days after cargo received date” as untruthful and wholly incredible.

23.  In relation to the allegation of “breach” on the part of the plaintiff, Mr Zhu pointed out that the last purchase order placed by the defendant was on 3 February 2016.  The goods sold under this last purchase order were duly delivered on 16 February 2016 as evidenced by the commercial invoice no: SAMP-DSL-160310-6.  There was thus no “breach” on the part of the plaintiff.

24.  Mr Zhu stated that in light of the substantial sums owed by the defendant, the plaintiff’s board of directors decided to stop accepting new purchase orders from the defendant.  The plaintiff was not obliged to accept new orders.  By a reminder dated 31 March 2016 (receipt thereof was admittedly mentioned in defendant’s letter dated 6 April 2016), the then outstanding sum owed by the defendant to the plaintiff was US$37,106,222.59.  This was expressly admitted in defendant’s letter of 6 April 2016.

25.  In respect of the various letters mentioned in Mr Chiang’s affirmation, Mr Zhu pointed out that the defendant had not been able to explain what contract the plaintiff had breached and how.  Furthermore, the allegation that the defendant had suffered loss and damage far exceeding the plaintiff claim is also unbelievable given the defendant’s own letter dated 15 March 2018 alleging that it suffered loss of US$6,412,813.19.  In any event, the goods in questions are mere general plastic bags.  There are many other suppliers around the world.  The defendant could also have contacted Bee Lian of Malaysia directly, if they had so wished.

The appeal

26.  In this appeal, Counsel for the defendant Mr Wong put forward the defendant’s case in this way: “Effectively, D’s case is that there was a partnership formed with P where P was to maintain a steady supply at a reasonable price” [my emphasis].  Mr Wong submitted that Mr Chiang has not expressed as clearly as he should when he described there being a “business relationship” between the plaintiff and the defendant.  Mr Wonghowever accepted that there is no written contract other than the purchase orders entered into between the parties.

27.  With respect, Mr Wong’s submissions erred in three fundamental respects: (1) there is absolutely no allegation(in the defendant’s affidavit evidence) of a “partnership” existing between the plaintiff and the defendant, let alone suggestion of anylegal obligation to maintain a steady supply at a reasonable price; (2) there is no evidence from Mr Chiang that he had not expressed himself clearly in his earlier affirmation nor had he made any subsequent affirmation asserting that; (3) throughout Mr Chiang’s affirmation, the only “business relationship” between the plaintiff and the defendant disclosed was one of seller and buyer of goods.  Mr Wong referred me to letters between the defendant and the holding company of the plaintiff.  They referred to “commercial cooperation”; “long term business cooperation”; “partner of long term commercial cooperation”; and “important transaction partner”.  Mr Wong submitted that one can arguably infer a partnership relation between the plaintiff and the defendant.  I disagree.  In the proper context of those letters, they suggest no more than an established business relationship between them as buyer and supplier of goods.

28.  In fact, Counsel for the plaintiff Mr Chong rightly pointed outthat prior to the filing of the Appeal Skeleton of the Defendant, it had neverbeen suggested by the defendant that there was a “partnership” relationship between the plaintiff and the defendant.  Not only was this argument not alluded to in Mr Chiang’s affirmation, it did not argue such a case before the learned Master at all.  Mr Chong submitted that there is absolutely no evidential basis for the defendant to now assert for the first time that there was a partnership between the plaintiff and the defendant. 

29.  I agree with Mr Chong. I would further add that the affirmation of Mr Chiang wholly failed to condescend on particulars as to what this newly alleged “partnership” entails.  Furthermore, each of the transactions undertaken between the plaintiff and the defendant arose out of a distinct purchaser order from the defendant.  Each such purchase order was a distinct and separate contract concern a specific purchase and sale of goods.  The contractual obligations between the parties were solely governed by the terms of each the purchase order.  I can see no legal obligation on the part of the plaintiff that it must accept a next order from the defendant or that it must give prior notice to the defendant that its next order might not be accepted.  I agree with Mr Chong that the defendant has wholly failed to discharge the burden of raising a bona fide defence.  In my view, the alleged cross-claim or set off by way of cross-claim is wholly devoid of merits and gave rise to no arguable defence or triable issues.

30.  This appeal is accordingly dismissed with costs to be paid by the defendant to the plaintiff summarily assessed at HK$173,040.00.