S.A. INTERNATIONAL INC. v. ANG TAI HOI t/a HOI FUNG HONG

HCA1664/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.1664 OF 2002

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REASONS FOR DECISION

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The plaintiff's claim

1. As pleaded in the Statement of Claim (endorsed on the Writ of Summons), the plaintiff claims against the defendant on the basis of outstanding amounts due under various invoices dated between 16 March 2001 and 12 April 2001, totalling US$77,569.65. These invoices are said to contain or evidence contracts whereby the defendant agreed to purchase various quantities of fresh fruit from the plaintiff.

2. The fruit under these invoices were shipped to and received by the defendant. Despite repeated requests and demands, the defendant has not paid the plaintiff under the invoices, save for the sum of US$5,000. The plaintiff's claim is therefore for US$72,569.65.

The present appeal

3. By a summons dated 25 July 2002, the plaintiff applied for summary judgment in the said sum of US$72,569.65 together with interest and costs. The summons was supported by an affirmation of Mr Wen Shyang Wang, the President of the plaintiff. The defendant served an affirmation in response.

4. On 12 August 2002, Mr Registrar C. Chan dismissed the summons with costs. The plaintiff appealed by a notice of appeal dated 22 August 2002.

5. Subsequent to the service of the notice of appeal, the plaintiff has, for the purposes of the appeal, served a second affirmation of Mr Wang. No leave was sought for the use of this affirmation. In Wong Hung Yu Richard v. Wu Ming Fat Simon [2002] 1 HKLRD 555, I referred to the need to obtain leave from the court to use further affidavit evidence on appeal from a master's decision. The court has a discretion whether or not to admit such further evidence. In the present case, however, no objection was taken by Mr Neal Clough (who appears for the defendant) to the use of this further affirmation and I accordingly allowed its use in the present appeal.

6. At the conclusion of submissions from Mr Kevin Hon (for the plaintiff) and Mr Clough, I allowed the appeal, discharged the Registrar's order and substituted an order that leave be given to the defendant to defend the action on condition that the amount of the claim (US$72,569.65) be paid into court within 21 days of my order. Though the notice of appeal did not seek an order for conditional leave, it was clear from Mr Hon's written submissions that this was an order that the plaintiff sought as an alternative to summary judgment. I also ordered that the costs of the appeal and below be the plaintiff's costs in the cause with a certificate for counsel (necessary only for the hearing before the Registrar). I also indicated that I would hand down the Reasons for my Decision at a later date.

Reasons for granting conditional leave

7. The outcome of the present appeal is dependent on an examination of the defendant's assertions.

8. As is evident from the Defence dated 6 June 2002 (before the summons for summary judgment was taken out), the defendant admits that invoices were issued by the plaintiff to it in respect of various consignments of fruit. Although it is denied in the pleading that the fruits were shipped by the plaintiff to it, it is now clear that the defendant admits this in his affirmation.

9. The defendant's position is really as follows :

(1)	From about December 2000, the defendant began placing orders for fruit and vegetables with the plaintiff (which is a US company carrying on the business of exporting fresh fruit from the USA). At first, even though the defendant had on-sold the goods to sub-buyers (who were all overseas), he would settle his account with the plaintiff for the produce delivered irrespective of whether or not his sub-buyers paid him.
(2)	It is said by the defendant that this caused huge losses to him since his overseas sub-buyers often failed or refused to settle their accounts with him.
(3)	As a result, in "early of year 2001" (it is put no more precise than that), the defendant contacted Mr Wang and discussed with him the difficulties he was experiencing. He informed Mr Wang of his decision no longer to supply fruits or vegetables to overseas sub-buyers and accordingly of his decision no longer to purchase fruits and vegetables from the plaintiff. He informed Mr Wang that at least there would be a significant drop in orders. He also told him about the fluctuating quality of the plaintiff's fruit and vegetables.
(4)	The upshot was that Mr Wang then proposed what has been referred to as consignment scheme, said to be a trade practice among importers of fresh fruit and vegetables, whereby the produce would be sold to overseas buyers through the agency of the defendant. In other words, the defendant would become the plaintiff's agent. The way the scheme was to work was that upon notification to the defendant, orally or in writing, of an intended shipment of fruit or vegetables to Hong Kong from the United States, the defendant would then try to look for buyers on the plaintiff's behalf. After this notification to the defendant, the plaintiff would then ship the goods to a designated port, usually Hong Kong, since it was more convenient for the defendant to deliver the fruit and vegetables to any would-be buyers (who were usually located in the PRC). It is noteworthy that the defendant states that shipment would take place after notification, not only after confirmation of a buyer for the goods.
(5)	Upon receipt of the goods in Hong Kong and depending on whether he had managed to source a buyer for the same, the defendant would then arrange for the fruit or vegetables to be delivered to such buyer.
(6)	For the purposes of arranging shipment and the issuance of bills of lading, invoices covering the goods would be issued in the defendant's name.
(7)	Further, it was represented by Mr Wang that in the event the shipped goods were not sold or the buyers defaulted in paying for the same, the defendant would not in any way be liable to the plaintiff for the price. Only if the buyers paid the price would the defendant be liable to pay the plaintiff. Moreover, in the event of a successful sale in the way just described, the defendant would be entitled to a commission which was to be the subject of further negotiation with the plaintiff.
(8)	The defendant agreed to the above arrangement and according to him, this was the true nature of the agreement made with the plaintiff. All this was made orally.

10. The arrangement I have described in the previous paragraph is a summary of what the defendant asserts in his affirmation served in response to the plaintiff's Order 14 summons. Upon analysis, the alleged agreement between the plaintiff and the defendant involved the following :

(1)	The plaintiff would take the risk of a default in payment in relation to the goods delivered.
(2)	It would have to ship goods to Hong Kong (at its own expense) without any guarantee or certainty of any buyer for the same.
(3)	If the goods remained unsold or deteriorated (by nature the goods were extremely perishable), the risk would again be on the plaintiff. Thus, there was also the possibility of valuable cargos being wasted and the plaintiff suffering loss not only in relation to the goods themselves but also in relation to the shipping costs which would in such a situation not be recovered.
(4)	The agreement was made in circumstances where, as far as the defendant was concerned, there had been huge losses caused to him by defaulting buyers. The possibility of default by potential buyers (if any in the first place) in the operation of the alleged agreement must therefore have been ever present.
(5)	Even if any transaction was successful, the plaintiff would still have to face negotiating with the defendant for his commission.

11. The above analysis demonstrates what on its face seems to be an extremely uncommercial arrangement. This, of course, does not necessarily mean it is not true or that the defendant's defence is by reason of this alone, unbelievable. However, in my judgment, where in seeking to resist an application for summary judgment, a defendant relies on what at first sight seems to be an unusual state of affairs contrary to what one might assume to be common sense or common commercial sense, it is incumbent on the court to look further to see whether the defendant's position can be supported by any evidence, circumstantial or otherwise, or by any plausible explanation. The last element is a recognition that sometimes businessmen do take risks and may make agreements that one might otherwise think were unwise.

12. In the present case, I find nothing tangible that supports the defendant's assertions :

(1)	There is no document that has been exhibited by the defendant to support, even circumstantially, his case. I refer here to the absence of any document that even hints at the alleged agreement.
(2)	Not only that, there are no documents or materials to support even peripheral (but relevant) parts of his case, such as his contention that "huge" losses were caused to him by defaulting buyers with the consequence of his having to talk to Mr Wang about their existing agreement. There is no document evidencing the operation of the alleged agreement either. For example, it will be remembered that the plaintiff was to notify the defendant, orally or in writing, of intended shipments to Hong Kong of fruit and vegetables so that the defendant could begin to find potential buyers. No such written notifications have been exhibited by the defendant. Further, no documents evidencing contracts or even communications between the defendant and potential or actual buyers have been shown to me. There are also no documents evidencing any commission payments made to the defendant by the plaintiff.
(3)	The relevant invoices, on which the plaintiff bases its claims in this action, do not hint at the alleged agreement. On the contrary, they all state on their face an obligation on the defendant to make payment thereunder within 30 days.

13. No plausible explanation has been given as to why the plaintiff would wish to enter into an agreement of the nature I have earlier set out. Mr Clough was unable to provide any real explanation other than to suggest that often, by reason of economic circumstances or otherwise, businessmen do enter into risky ventures and make what to laymen appear to be uncommercial decisions. These submissions would have more force if there was some evidence to show, for instance, that the state of the fruit and vegetable market was such that by force of economic circumstances, the plaintiff would be likely to be entering into an arrangement such as that alleged by the defendant.

14. I have already remarked on the lack of documents supporting the defendant's case. This is to be contrasted with the documents that the plaintiff has produced not only to support its case but to undermine the defendant's :

(1)	I have referred to the relevant invoices above. They are entirely consistent with the plaintiff's case.
(2)	Once monies became due under the invoices (according to the plaintiff), constant written reminders were sent to the defendant. These are not consistent with the defendant's version. Not only that, and perhaps more important, there was no response from the defendant along the lines of the position it is now taking. In fact, there were no responses at all.

15. Mr Clough submits that summary judgment is inappropriate in view of what is eminently a triable issue : the credibility of the defendant in asserting the oral arrangement outlined above. To adopt one of the common approaches used by the court in dealing with Order 14 applications : Is what the defendant says credible? The test is not whether he is to be believed (for the hearing of an Order 14 application is not a trial on affidavits) but whether what the defendant says is believable (i.e. capable of belief). See : Ng Shou Chun v. Hung Chun San [1994] 1 HKC 155, at 158 per Godfrey JA. Mr Clough therefore argues that what the defendant has deposed on oath is believable and that the question whether or not he is to be believed (and in terms whether Mr Wang is to be believed in his denial of the oral arrangement) should be left for trial.

16. The Court of Appeal in Re Safe Rich Industries Limited, (unreported), 3 November 1994, CACV 81/1994, applied the Ng Shou Chun test in the context of an application to strike out a winding-up petition (on the basis that the debt founding the petition was disputed). The court asked itself the same question : Was what was asserted by the company in that case believable?

17. In dealing with this test, Bokhary JA (with whose judgment Nazareth VP and Litton JA agreed ) observed at page 4 :

" The test at the summary stage is indeed as simple as whether the defendant's assertions are believable. But it must be recognized - because failure to recognise it would create a debt-dodgers' charter - that whether the defendant's assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as is either undisputed or beyond reasonable dispute."

18. Accordingly, whether or not the defendant's defence is believable, should therefore be put in context and tested against so much of the background that is either undisputed or beyond reasonable dispute. I accept at once that in some cases, the outcome of a trial may depend only on oral evidence. In the present case, however, the defence must be seen against those factors I have referred to in paragraphs 10 to 14 above.

19. In the end, however, I have come to the conclusion that while there is little or no substance in the defence as presented and that it is, to use a common term, "shadowy", leave to defend should be given. That said, I did not regard the defence raised at this stage as having any real substance and was very nearly prepared to give judgment. What saved the day for the defendant was that whatever the shortcomings in his case, he should be permitted to go to trial on the allegations of the oral arrangement arrived at with the plaintiff. In such circumstances, the right order is to give leave to defend but conditional upon payment into court of the sum claimed by the plaintiff. See here : Hong Kong Civil Procedure 2002, Vol.1 at paragraph 14/4/16; Unic Company v. Centus Development Limited [1988] HKC 643.

20. Finally, I should just add this. I have given leave to defend. The matter will therefore have to go to trial and issues of fact and credibility will be for the trial judge to determine. My views on the strengths or weaknesses of either party's case become then quite irrelevant. They are, upon analysis, only my observations based on the state of the evidence before me, albeit important for the purposes of the application before the court. The trial judge is untrammeled by these observations. See here a helpful discussion (though not in the context of an order giving conditional leave) in the judgment of Litton JA in Man Earn Ltd v. Wing Ting Fong [1996] 1 HKC 225, at 229-230.