REXODAN INTERNATIONAL LTD v. GARILOY ENTERPRISES LTD

HCA 442/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 442 OF 2004

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J U D G M E N T

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I.  Introduction

1.  Rexodan claims £225,067.92 from Gariloy for goods sold and delivered between April 2001 and October 2003. 

2.  Gariloy acknowledges that goods have been delivered.  Gariloy also admits that the amount is outstanding.  But Gariloy says that such amount is not due under the invoices pleaded in Rexodan’s Statement of Claim.  Gariloy says that the amount is outstanding under other invoices. 

3.  Gariloy further says that in any event it has no liability to pay the sum now because in August 2000 Rexodan agreed to give Gariloy a credit limit of some £250,000.  The amount claimed is within the credit limit.

4.  Rexodan sought summary judgment for the amount claimed.  The master gave Gariloy unconditional leave to defend.  Rexodan appeals against that decision.

II.  Background

5.  Payment for the goods delivered by Rexodan has been outstanding for a long time.  There is no dispute that Gariloy has been experiencing cashflow difficulties since 2002.  These problems were exacerbated by the SARS crisis in 2003.

6.  Rexodan attempted to accommodate Gariloy’s financial difficulties.  In September 2002 the parties agreed that, on all future deliveries starting from Gariloy’s Order No. 10/2002, Gariloy would pay Rexodan £2,500 in addition to the amount due on the goods to be ordered.

7.  Between October 2002 and September 2003 Gariloy made some 8 orders under the arrangement.  Gariloy paid the additional £2,500 on each order made.  Rexodan had expected Gariloy to place many more orders so as to reduce the outstanding amount due on past deliveries more quickly.  This hope had not materialised.

8.  In September 2003 the arrangement between the parties was revised.  Instead of paying the additional £2,500, Gariloy was to pay an extra £5,000 on future orders.  In December 2003 Gariloy paid £5,000 on its Order 7/2003.

III.  Discussion

9.  I do not see much in Gariloy’s argument of a mismatch between the invoices particularised in Rexodan’s Statement of Claim and the amounts particularised as outstanding in Gariloy’s Defence. 

10.  Rexodan is claiming the total amount outstanding from Gariloy.  Gariloy says that the outstanding amount is £225,067.92 by its reckoning.  Rexodan by its affidavit in support of this application accepts that.  There accordingly can be no triable dispute over the amount outstanding. 

11.  For what it is worth, I note that it seems any discrepancy in the parties’ particulars is merely due to different record systems used by Rexodan and Gariloy.

12.  More substantively, Gariloy claims that it has complied with the terms of its various credit arrangements with Rexodan.  Accordingly, no monies (Gariloy says) are currently due.  I disagree.

13.  Gariloy has an obligation to pay for goods within a reasonable time of delivery by Rexodan.  The fact that Rexodan has agreed to extend credit does not mean that Gariloy has no obligation to pay what is due.  This is regardless of whether Gariloy has or has not breached its credit limit.

14.  If Gariloy’s contention is right, it could postpone payment indefinitely, by ceasing to place any future orders with Rexodan.  That does not make sense commercially and there is no evidence at all that Rexodan expressly agreed to such a surprising arrangement.  Nor do I think that there was ever an implied term with Rexodan along the lines which Gariloy suggests.

15.  The evidence is entirely to the contrary.  All along Rexodan has been pressing Gariloy to settle Rexodan’s bill.  As a gesture of goodwill and in view of their long-term relationship, Rexodan agreed to various arrangements with Gariloy to reduce the amount outstanding over time.  But such accommodation did not affect Gariloy’s legal obligation to pay Rexodan within a reasonable time.

16.  Rexodan agreed to refrain from insisting on its strict rights of payment and to give time to pay the outstanding amount.  As far as I can see, that promise was not supported by consideration moving from Gariloy.  Gariloy suggests that the consideration was Gariloy’s agreement to place further orders with Rexodan.  But there was no obligation on Gariloy to place future orders.  A promise to agree in the future is typically unenforceable and for that reason is normally incapable of amounting to valid consideration.

17.  Rexodan’s offer can at law possibly give rise to a promissory estoppel.  But such estoppel is at best only suspensory of Rexodan’s right to seek immediate payment of the full amount outstanding.  Rexodan can give Gariloy notice of an intention no longer to continue extending credit.

18.  Here Rexodan has given more than ample notice.  It has been extremely patient with Gariloy.  In about February 2004, Rexodan decided that enough was enough.  The long outstanding debt was not being reduced in any significant way.  Thus, for example, Rexodan’s managing director wrote to Gariloy by fax of 6 January 2004 (apparently dated 2003 by mistake) that “perhaps we both have to accept the inevitable” and “I must add that in my whole business career I have never had such battles to get paid from any customer, either in the UK or the rest of the world”.

19.  I do not accept Gariloy’s suggestion that anywhere between 400 and 900 days’ notice was required from issue of the writ on 25 February 2004 before payment could become due.  By any common sense commercial measure that is excessive.

20.  In support of its case, Gariloy cites passages such as the following from Benjamin’s Sale of Goods (6th ed.) (at §§9-060 to 9-063):-

“Credit.  The parties to a contract of sale may expressly or impliedly agree that the buyer is to take possession of goods before payment is made, that is to say, a period of credit is to be allowed.  Where goods are sold on credit, payment is not due until the period of credit has expired.  Before that time, the unpaid seller of goods who is in possession of them is not entitled to refuse delivery of them until payment or tender of the price, unless the buyer becomes insolvent.  But the contract may provide that, in certain events falling short of insolvency, no further credit is to be allowed or that the seller is to be entitled to refuse to deliver the goods unless they are paid for in advance.

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Trading account.  If so agreed between the parties, payment may be made by remittance on a trading account.  The goods will be delivered to the buyer and his account will be debited by the seller to the amount of the price.  At some agreed period of time, e.g. at the end of each month, it is expected that the buyer will send a remittance to the seller to settle the balance outstanding on the account.  It would seem that the ordinary inference from such an arrangement is that credit is extended to the buyer until such a time as payment is required to be made, or, if no time is fixed, within a reasonable time from a demand for payment made by the seller.”

21.  I do not think that the passages relied on assist Gariloy.  Gariloy was plainly under an implied obligation to reduce its outstanding balance, even if within the agreed credit limit, by a reasonable time or at least by a reasonable time from a demand for payment by Rexodan.

22.  Gariloy’s written submission also focused on whether time of payment is of the essence in a commercial contract.  I have not found such argument of much help. 

23.  Whether time of payment is of the essence determines whether a contractual term for payment is a condition.  If the stipulation is a condition, its breach by a buyer is repudiatory and entitles a seller to treat the contract as terminated. 

24.  However, it is not material here to determine whether time of payment is a condition or warranty which entitles an agreement to be treated as at an end.  Rexodan is simply seeking a payment which has been overdue for a considerable time.  Rexodan would be so entitled to seek payment whether the term for payment was a warranty or condition.

IV.  Conclusion

25.  Rexodan’s appeal is allowed.  

26.  There will be final judgment for Rexodan against Gariloy in the sum of £225,067.92.  Interest will run on that amount from 25 February 2004 (date of writ) to date of judgment at 1% over UK prime rate.  Thereafter, interest will run at the judgment rate.

27.  I shall now hear the parties on costs.