株式会社日源商事 v. CRAZYEGG LTD

HCA 1381/2018

[2019] HKCFI 2526

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1381 OF 2018

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J U D G M E N T

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A. INTRODUCTION

1.  In this action the plaintiff claims a total of:

(1)  Japanese Yen (“JPY”) 18,481,800 in respect of unpaid fees said to be due under seven separate contracts entered into between the plaintiff and the defendant. All of the contracts are in materially the same terms.

(2)  JPY 12,214,400 in respect of loss and damage due to breaches by the defendant of the seven contracts, which breaches are said to amount to a repudiation of the contracts which the plaintiff accepted on 23 May 2018.

2.  In the pleadings these claims are cumulative, and both are pursued, although in submissions Mr Tang, counsel for the plaintiff, told the court that he considered them to be alternative claims, and that if the plaintiff recovered the contract price it would not claim any additional damages.

3.  The plaintiff has made an application for summary judgment under Order 14 of the Rules of the High Court in respect of six of the seven contracts. It does not seek summary judgment in respect of the seventh contract because it accepts that there are factual disputes concerning an alleged novation of that contract which will have to go to trial.

4.  It seeks judgment in the sum of JPY 17,136,800, or damages to be assessed, together with an order that the defendant do forthwith return various listed items to the plaintiff. In the alternative it seeks an interim payment in the same amount together with interest. The sum of JPY 17,136,800 represents all monthly fees due under the six contracts in question, but only up to the date of the purported termination of the contracts on 23 May 2018. It takes account of the deposits paid, and reduces the claims to reflect a “return” of the deposits under each contract.

5.  The position relating to contracts in respect of which judgment is sought have been summarised in a table annexed to the plaintiff’s skeleton, which is agreed, subject to certain corrections, and save that the defendant does not agree with the amounts said to be outstanding, although it agrees that if the plaintiff’s case is correct on the terms of the contract, then the table accurately reflects the outstanding amounts (up to 23 May 2018). The relevant parts of the table, corrected, is as follows:

Contract	Term (months, days)	Unit	Monthly fee per unit (JPY)	Expiry date	1st default in payment	Service suspended	Outstanding (JPY, in million)
22-02-2016	26m	100	3500	30 April 2018	1 January 2018	1 February 2018	0.756
03-03-2016	26m	120	3500	30 April 2018	1 January 2018	1 February 2018	1.3608
16-03-2016	26m	100	3500	30 April 2018	25 December 2017	1 February 2018	1.512
11-05-2016	27m	200	3500	31 July 2018	25 December 2017	1 February 2018	3.78
10-10-2016	23m 12d	400	3300	30 September 2018	25 December 2017	1 February 2018	7.128
15-02-2017	24m 11d	200 (reduced from 400)	3000	28 February 2019	25 December 2017	1 February 2018	2.6

B.  BACKGROUND

6.  The plaintiff is a telecommunications network provider in Japan. It entered into the seven contracts with the defendant for the provision of what are known as Portable Wi-Fi, or Wi-Fi eggs. Those devices are palm sized devices which, when they have a SIM card inserted with a current subscription, can operate as a Wi-Fi hotspot such that users connect a smart phone to the pocket Wi-Fi and thereafter can connect to the Internet.

7.  The defendant is in the business of offering these devices, with SIM cards based out of different jurisdictions, to travellers from Hong Kong who wish to have Wi-Fi for their travels in those foreign countries. The contracts generally provide for the loan, by the plaintiff to the defendant, of a certain number of pocket Wi-Fi devices and SIM cards, together with network services, for a fixed period of variously between 23 and 27 months. The defendant pays a fixed fee for the loan of the devices and SIM cards and the provision of network services, to be paid in instalments.

8.  There are the following relevant terms of the contracts (save that the dates and the amounts vary for each contract):

(1)  By Clause 1:

“ Target Period: 2017/02/01 – 2017/03/31

Target Condition: 400 New Devices

Contract Period:    25 months (2017/02/18 – 2019/02/28)”

(2)  By Clause 2:

“ 1. Fees: Device Price 0 Yen + New Processing Fee 0 Yen + Network fee 3000 * 1 Month.

2. Fee payment method (fee per device)

(a) Upon signing of contract, payment of deposit 3000 * 1 month + 1000 = 4000 (Note: Party B [the plaintiff] will deliver goods to Party A [the defendant] upon confirmation of receipt of payment)

(b) Subsequent payment on 25^th February 2017 of 1355 * 1 month = 1355

(c) Subsequent payment on 25^th March 2017 of 3000 * 1 Month = 3000 … and so forth.

…”

(3)  By Clause 3:

“ 3. Under this Agreement, Party B shall not accept the contract termination procedure and the fees paid are non-refundable.

4. In the case where subsequent network fees are not paid in the stipulated time, Party B shall suspend the use of network cards. Where payment of network fee is subsequently resumed, a reopening processing fee of 5000 shall be payable.

5.   Party A shall return to Party B the Wi-Fi devices and the SIM cards embedded therein upon the end of this Agreement.”

9.  The defendant has not made any payment since 25 December 2017 for four contracts, and no payment since 1 January 2018 for another two of the contracts (as identified in paragraph 5 above). On 1 February 2018 the plaintiff suspended the network services for all six contracts, but did not terminate those contracts or otherwise refuse to perform them. The plaintiff contends that it was entitled to suspend the service pursuant to clause 3.4 of the contracts (which is identical in all of the contracts).

10.  The plaintiff made various demands for payment of the outstanding instalments but no payment was made and on 23 May 2018, which was after the expiry of three out of the six contracts, the plaintiff accepted what it said was the defendant’s repudiation of all of the contracts, thereby bringing them all to an end.

C.  THE POSITION OF THE PARTIES

11.  The essence of the defendant’s defence is:

(1)  that the defendant should not be liable for the fees for any period after suspension of the services on 1 February 2018.

(2)  Clauses 3.3 and 3.4 of the contracts allow it to stop paying, and the only remedy available to the plaintiff is to suspend the network services. Thus it says that the contracts do not contain any absolute right to payment. The defendant has a free choice when to pay the monthly fees, and if it pays, then the network services have to be provided, subject only to the re-connection charge of JPY 5,000 being paid if a re-connection is required.

(3)  Consequently, the plaintiff had no right to terminate any of the contracts. On 3 July 2018 the defendant asked the plaintiff to resume services but the plaintiff refused and hence breached the three outstanding contracts thus entitling the defendant to counterclaim. However, no damages are claimed other than the deposits which have been paid under the contracts.

(4)  That there should, in any event, be a set-off in respect of the deposits which have been paid.

12.  The defendant accepts that it owes some money to the plaintiff. It accepts it owes the monthly instalments up to 1 February 2018, which was the date from which the plaintiff suspended all network services. That amounts to JPY 4,687,200. However the defendant contends that it is entitled to set off from that sum the amount of JPY 1,520,000 which is the deposit amount which has been paid under the various contracts. Thus, the defendant accepts that it owes a total of JPY 3,167,200.

13.  The essence of the defence is therefore a dispute between the parties as to whether the defendant is entitled to stop paying the monthly instalments. In its evidence it contends that this is because there are times when there is limited cyclical travel to the relevant destination and, effectively, it is unable to rent out the devices to travellers. It says that this was the intended purpose of the contracts, and in particular clause 3.4. At the very least it says that this is an arguable defence, would require factual evidence as to the intention of the parties at the time of entering into the contracts, and hence it should go to trial.

14.  I note that this contractual right to suspend payment has not been pleaded in any detail in the defence. The basis of the pleaded defence is that no service has been provided since 1 February 2018, and the plaintiff is not entitled to charge for services which it has not provided. Hence the defendant says that the plaintiff cannot charge any sums since 1 February 2018. That is a different defence, which focuses on the ability of the plaintiff to charge, rather than on the right of the defendant to stop paying.

15.  In response the plaintiff contends that there is no provision within the contracts by which the defendant can stop paying. It says that the contracts are fixed term contracts with a fixed fee, albeit one that is calculated by reference to monthly payments. The provisions of clause 3.4 are simply there as an additional remedy in the event of late payment of the monthly fee. Late payment entitles it to suspend the network services, and there is an administrative, or “reopening processing” fee of JPY 5,000 in the event that the services are to be resumed. That acts as an additional incentive to the defendant to pay on time, but it does not create a contractual right vested in the defendant to suspend payment, and does not amount to an exclusive remedy which would exclude all other common law remedies in the event of non-payment.

16.  In the pleadings the plaintiff suggests that there is an implied term which requires full payment of all outstanding instalments before reconnection can occur. However, the plaintiff disclaims any reliance upon that implied term for the purposes of this Order 14 application.

D.  ANALYSIS

17.  I do not agree with the defendant that the proper construction of the contracts is something which needs to go to trial. Whilst I accept that factual matrix evidence may be admissible in order to ascertain the intention of the parties, and this court should refrain from undertaking a mini trial on affidavits, in my view the contracts are clear on their express terms, and the intention of the parties has been made clear by those express terms.

18.  The terms which I have quoted above make it clear that the contracts are for a fixed term with fees being paid, on a fixed monthly cycle, for each month during the term. The only component of the fee which has a monetary value above zero is a “Network fee” (see clause 2.1), but it is clear that the fee as a whole is intended to include the cost of, and remuneration for, all elements of the plaintiff’s obligations, including the provision of the devices, the SIM cards and the network services. There is no doubt that the devices and SIM cards have been provided and remain provided irrespective of the provision of network services.

19.  Clause 3.3 of the contracts also makes it clear that Party B [the plaintiff] shall “not accept the contract termination procedure …”. In my view this is a clear expression that each contract is for a fixed term (with the term for each contract being identified in clause 1 under the heading “Contract Period”) and that there is no basis upon which the defendant can bring its obligations under the contract to an end during the period of the contract. That provision would be inconsistent with a construction of the contract which would allow the defendant to suspend, indefinitely on the defendant’s case, its primary obligation under the contract, namely payment. The clear intention of that provision is that, irrespective of what happens, the defendant is to perform its obligations under the contract in accordance with its terms.

20.  There is no provision in the contract which entitles the defendant to suspend payment. To the contrary clause 2.2 of the contract identifies precisely the dates and amounts that the defendant needs to pay. To allow the defendant to avoid the express obligations of that clause would require clear and express terms which simply do not exist.

21.  Clause 3.4 does not assist the defendant either. It does not permit non-payment, but rather is dealing with a situation when payment is made late (“… not paid in the stipulated time …”). What it provides is an ability in the plaintiff to discontinue the provision of network services in the event of late payment. Absent express provision to that effect the plaintiff would not be entitled to stop the provision of network services due to late payment, because the contract would not expressly link the obligation on the plaintiff to provide the services to performance of the obligation on the defendant to pay. Thus clause 3.4 makes the obligation to provide network services conditional upon timely payment. That in itself supports the proposition that the defendant has no entitlement to suspend payment.

22.  The payment of the “reopening processing fee” does not assist either. That is simply an administrative charge to reflect the burden placed upon the plaintiff to disconnect and then reconnect the network services it is obliged to provide. At its highest, the charge could be classed as a penalty (and thus unenforceable) but there is no suggestion that this is the case and in any event I would be extremely surprised if the charge was to fall foul of the rule against penalties. However there is nothing in the contract which indicates that the charge is an exclusive remedy for non-payment as the defendant suggests. It is trite that exclusion of common law rights requires clear wording in a contract and there is no such clear wording in these contracts.

23.  Indeed on the clear wording of the contract the suspension of network services does not alter the obligation to pay at all. The fees payable represent the cost of all services provided by the plaintiff to the defendant, including the provision of the devices and SIM cards. That provision continues even during the suspension of network services. Thus, contrary to the pleaded defence, the defendant remains obliged to pay the monthly fees despite the (legitimate) suspension of network services. The suspension would be legitimate if the fees are not paid within the stipulated time and there is no suggestion in this case that the suspension was wrongly effected. The remedy for a suspension of network services lies in the hands of the defendant itself, by payment of the “reopening processing fee”.

24.  I have no doubt that the defence is an afterthought put up in an attempt to justify the non-payment of the monthly charges. In my view it is not a defence which should go to trial. The plaintiff is entitled to summary judgment for the outstanding monthly payments claimed on the six contracts (limited to 23 May 2018).

25.  Notwithstanding the above, it is clear that the plaintiff has brought three of the six contracts to an end before their natural expiry. It has done so because it says that the defendant has repudiated the contracts (ie evinced an intention not to be bound by the terms of them) which the plaintiff has accepted.

26.  It seems to me that the question of whether the non-performance of a payment obligation evinces an intention not to be bound by the contract is ultimately a question of fact. That is particularly so in the context of this contract, which identifies the possibility of late payment and provides some remedy for that late payment (although as I have stated not an exclusive remedy). Thus, I would doubt that a payment which was, for example, one day late would amount to a repudiation. However, I suspect that a point in time would come where late payment (which at some stage would probably become classed as non-payment) could amount to a repudiation of the contract which was capable of acceptance.

27.  In my view a determination of that point is not suitable to be undertaken on a summary judgment application. Therefore whilst I accept that the plaintiff is entitled to payment of the fees up to the date of termination of the contracts, I make no finding as to whether it was entitled to accept a purported repudiation. If the termination of the contract is a necessary element of any claim by the plaintiff for damages, or is challenged by the defendant for any purposes then the validity of the termination will have to go to trial.

28.  As to the defence of set off in relation to the deposits, I am satisfied that the amounts now claimed do reflect the deposits, and that therefore the defence does not alter the conclusions that I have reached above.

29.  I am also very conscious of the decision of Anthony Chan J in Skillsoft Asia Pacific Pty Ltd v Ambow Education Holding Ltd (No 2) [2016] 1 HKLRD 1052 at [10] and [11] in which he warned against making summary judgment applications for part of a case but leaving other parts of the case to go to trial.

30.  The plaintiff rightly points out that Skillsoft was rather different on its facts in that the plaintiff had already applied the summary judgment under the agreement but had failed. It then applied for summary judgment again but this time in respect of different obligations under the agreement. The difficulty was that the second summary judgment application depended upon whether the agreement had been duly terminated and that had to go to trial in any event. Therefore the plaintiff suggests that the warning of the judge in that case is of no particular relevance to the facts of this case.

31.  Whilst accepting the differences, I do nonetheless heed the warnings which that case has given. The seventh of the seven contracts sued upon in the Statement of Claim is in identical terms and is going to have to go to trial because the parties both accept that it should do so. However, it will have to go to trial on a different issue, namely the factual issue of novation, and I do not think that this should necessarily prevent a summary judgment application in a clear case on the other contracts.

32.  I am also conscious that any questions of repudiation will have to go to trial. However, those questions are distinct issues. I am satisfied that pursuant to the underlying objectives, including dealing with cases expeditiously, proportionality, procedural economy and active case management it is appropriate in the circumstances of this case to proceed in the way that I have despite the sensible warnings given by Anthony Chan J.

E.  THE RETURN OF THE EQUIPMENT

33.  As well as accepting certain amounts as due, the defendant also accepts that it must return the equipment which has been lent to it under the contracts. The following equipment is agreed to be outstanding:

(1)  220 SIM cards, more specifically defined under paras 3(b) and 6(b) of the Statement of Claim.

(2)  55 units of pocket Wi-Fi Softbank 304 HW and 55 SIM cards, more specifically defined under paras 12(b), 15(b) and 18(b) of the Statement of Claim; and

(3)  17 units of pocket Wi-Fi Softbank 305 ZT and 17 SIM cards, more specifically defined under para 21(b) of the Statement of Claim.

34.  The claim for return of the equipment is stated to be a claim for specific performance of clause 3.5 of the contracts, and hence the application for summary judgment in this respect is made under Order 86 of the Rules of the High Court. The defendant accepts that judgment should be given in respect of this.

35.  The plaintiff suggests that I ought to make an order to the effect that if the equipment is not returned, damages or equivalent ought to be paid in accordance with clauses 3.6 and/or 3.7 of the contracts. I decline to do so. I shall simply make an order for the return of the equipment, and if it is not returned for any reason the parties will either have to agree the remedy (which may be in accordance with those clauses) or return to court as appropriate. However, I hope that the latter course will not be necessary.

F.  COSTS

36.  As to costs, I am conscious that I have given judgment only in respect of part of the claim. The normal order in such circumstances is that the costs of the application would be in the cause of the remainder of the action. However, in this case, it is not at all clear to me that there will be any further steps in this action, given that Mr Tang has indicated that his claim based on the repudiation is made in the alternative, and that the defendant does not counterclaim for damages (other than the deposits) arising from what it alleges is a wrongful repudiation.

37.  Consequently, in my view the appropriate order for costs is that the defendant should pay the plaintiff’s costs of the application in any event, to be taxed and paid forthwith. I therefore make a costs order nisi in those terms. It will become absolute unless either party makes a written application within 14 days to vary that order nisi.

38.  In such event the replying party is to reply within 7 days of the application being made, with a right of reply 7 days thereafter. The application will be dealt with on paper.

G.  DISPOSITION

39.  The plaintiff is entitled to summary judgment for a sum of JPY 17,136,800 and for specific performance of clause 3.5 of the contracts requiring return of the equipment identified in paragraph 33 above.

40.  Any matters remaining in the action will proceed to trial.

41.  I leave it to the parties to draw up the order to reflect this Judgment. In the event of any disagreement as to the terms, I will resolve them on paper.