ORBITEL MOBILE COMMUNICATIONS LTD. v. TECHNO FACTOR (SYSTEM COMMUNICATIONS) LTD. AND ANOTHER

1996, No. CL-292

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

COMMERCIAL LIST

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J U D G M E N T

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1. By summons dated 10th February 1997 the Plaintiff seeks summary judgment against the Defendants in this action. An underestimation of the time required for argument together with diary difficulties regrettably led to this case being heard in two parts, with some intervening delay; accordingly Mr. Shaw, who appeared for the Plaintiff, requested that I reserve judgment in order to remind myself in detail of the submissions that he made on the first day of the hearing. I have now had the advantage of so doing.

2. The Plaintiff is an English company. It sues the Defendants, two Hongkong-based companies, for breach of a written Agreement dated 9th February 1995, whereby the Plaintiff was to sell and the Defendants were to buy 1,300 telepoint base stations for a total price of ￡2,010,619.00. What happened was that the 1st Defendant duly purchased 500 such base stations only, and paid the Plaintiff therefor the sum of ￡1,020,775.80. The Plaintiff claims breach of contract arising from the failure to purchase the balance of 800, and pleads loss and damage in the sum of ￡442,073.00, the bulk of which is for wasted expenditure on materials, presumably for those telepoint base stations not yet manufactured. I note in passing that loss of profit is also claimed in addition to wasted expenditure, albeit it is not clear how the head of loss and damage can include both; perhaps in the circumstances this does not much matter, since the present application for summary judgment is for judgment with damages to be assessed. The claim against the 2nd Defendant arises by reason also of the alleged warranty, by the 2nd Defendant, of the contractual performance of the 1st Defendant.

3. There is no dispute as to the existence of the Agreement of 9th February 1995. What essentially divides the parties, however, is the allegation by the Defendants that the Agreement as pleaded was varied by subsequent agreement between the parties. Mr. Shaw on behalf of the Plaintiff put his case in three ways at the outset of this hearing: first, that there was no variation; second, if which is denied there was a variation, such was not enforceable by reason of an absence of consideration; and third, if which is further denied there was an enforceable variation, then the Defendants were nevertheless in breach of such contract as varied.

4. Let me dispose of this last contention immediately. I agree with Mr. Chain, who appears on behalf of both Defendants, that in the terms of this application the Plaintiff is bound by its pleadings, and in an application for summary judgment the Plaintiff cannot succeed upon such an alternative and unpleaded basis; in this connection Mr. Chain drew my attention to dicta in Civil Appeal No. 16 of 1987, Ha Wai v. Sanyei Corporation Hong Kong Limited, in which Cons V.-P., in delivering the judgment of the Court, noted as follows:

"The third ground of appeal is in substance that, the judge having rejected the variations suggested by both parties, the original contract remained standing and judgment ought to have been given accordingly. As a commentary in law that ground of appeal seems undoubtedly correct. But it is based on a situation that just did not exist. Each of us on this Bench has observed during the course of argument this morning that the Plaintiff's claim was based, and based solely, upon the contract as varied. There was no alternative claim for judgment on the original contract." (emphasis added)

5. Those observations were made in the context of an appeal against a final judgment after trial; they must, therefore, apply a fortiori in an Order 14 application.

6. In real terms, therefore, this case as ultimately argued revolved around the variation issue. Mr. Shaw relied upon the terms of the original contract, as pleaded; Mr. Chain said no, that there had been a true variation, and the existence and precise terms of that variation, together with the consequential issue of whether there had been compliance therewith, was patently a matter for trial, and was not susceptible to an application for summary judgment.

7. What therefore was the variation alleged by the Defendants? This is outlined in paragraphs 4, 5 and 6 of the Defence, which was filed in this case on 7th December 1996. At paragraph 4 the Defendants aver "that the Agreement was varied on or about 13th May 1996 during a meeting held at the 1st Defendant's office which was attended by, inter alia, D.J.B. Parsons of the Plaintiff" and, at paragraph 5, that "during the meeting, it was agreed that the remaining 800 pieces of two-line telepoint base stations could be off-set with other products and the Plaintiff would assist the 1st Defendant to identify 'sellable' products from its product lines". Paragraph 6 of the pleading further avers that "the agreement to vary the Agreement was evidenced in writing by the minutes of meeting which was signed and agreed by Mr. Parsons on behalf of the Plaintiff". Thereafter, paragraphs 10 and 11 plead that "since 13th May 1996, the 1st Defendant has on divers occasions requested the Plaintiff to identify "sellable" products from its product lines but the Plaintiff has up to date failed to do so" and that the 1st Defendant "remains ready willing and able to perform the Agreement as varied by purchasing other products from the Plaintiff".

8. Mr. Chain submits that the truth of this pleading is properly deposed to in the affidavit of one Dr. Luk Leung Ping sworn on behalf of the 1st and 2nd Defendants in opposition to this application (at paragraph 2 thereof), and that there was simply no evidence from the Plaintiff to deny the existence of such a variation. Further, said Mr. Chain, not only was the Plaintiff silent on the point, but that there was clear evidence on the papers as to the existence of the variation. Mr. Chain was here referring to the Minutes of the meeting dated 13th May 1996 between representatives of the Plaintiff and of the Defendants, paragraph 2 of which reads:

"It was agreed that the remaining 800 CT 2 base stations order can be off-set with other Orbitel or other products. And Orbitel will assist Techno Factor to identify 'sellable' products from their product lines. ..."

9. It is the Defendants' case, therefore, that there was a true variation of the original contract, the consideration for which was provided by the mutual release of the original contractual obligations. The Defendants go on to allege that consequent upon such variation the Plaintiff had in fact not assisted the Defendants to identify 'sellable' products for the Defendants to purchase, and in this regard rely upon the particulars provided in January 1997 of paragraph 10 of the pleading, together with affidavit evidence on the topic of the same Dr. Luk, who states (at paragraph 12):

"I confirm that after the meeting [on 13th May 1996] Ms. Ann Chiang had on divers occasions requested me (then still representing the Plaintiff) to identify "sellable" products, and I had many telephone conversations with Mr. Parsons and other staff of the Plaintiff to discuss this matter. It was quite apparent that apart from 905GSM handsets, the Plaintiff was unable to identify any other readily sellable products for the China market. ..."

10. Given that the only pleaded basis upon which summary judgment is now sought by Mr. Shaw is on the basis of the breach of the original contract, there is perhaps no need to dwell further on the issue of whether or not 'sellable' products were offered to the Defendants for purchase, a matter of fact which is in any event disputed. Mr. Chain pithily summed up the situation at the end of the argument when he suggested that the sole task of the Court in this application, when all the arguments were taken into account, is to decide whether the Defendants' allegation that there had been a true variation to the contract was so incredible that such an allegation must go 'out of the window', so to speak.

11. Mr. Shaw left the Court in no doubt of his view that this indeed should be the Defendants' fate. He opened this application by boldly characterising the Defendants' case as "moonshine", and he did not retreat from that position. He submitted forcefully that it was manifestly clear on the papers that no new varied contract had come into existence; he latterly accepted, I think, Mr. Chain's characterisation of the Plaintiff's case (which version, of course, Mr. Chain did not accept) to the effect that all that had occurred in terms of the purported "variation" was that the original contract between the parties had remained in place, but that the Plaintiff had merely offered the Defendants the option of an alternative mode of performance of that contract. It was common ground, Mr. Shaw submitted, that no such performance had taken place, and that therefore his client was entitled to revert to and invoke the terms of the original contract, as pleaded; further, that there was no credible triable defence shown in light of the contemporary correspondence between the parties, wherein it was absolutely clear that in fact the Plaintiff had made a number of attempts to identify "sellable" products for the Defendants' consideration.

12. I was also referred by Mr. Shaw to the Court of Appeal decision in Mass International Ltd. v. Hillis Industries Ltd. and another [1996] 1 HKC 434 at 439, where Patrick Chan J. (as he then was) noted as follows:

"It is appropriate to be reminded of the principles applicable to an O 14 application. They are well-known and in fact not disputed by the parties. The plaintiff (a defendant to the second defendant's counterclaim) must show that there are triable issues. He has to satisfy the court that he has a 'real or bona fide defence' (see Ackner LJ in Banque de Paris et tes pays-bas (Suisse) SA v Costa de Naray [1984] 1 Lloyd's Rep 21 at 23). If he makes an allegation, it must be credible or believable in the light of the evidence placed before the court. As Bokhary JA said in Re Safe Rich Industries Ltd (CA 81/94, unreported):

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 recognize 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 either undisputed or beyond reasonable dispute.

On the other hand, it must also be borne in mind that for an application like the present, the court must not embark on a mini trial on affidavits."

13. Mr. Shaw says that the Defendants are indeed an example of the 'debt-dodgers' to which Bokhary J.A. there referred. He invites me to compare the credibility of the deposed assertions on affidavit against the background of the correspondence attached to that affidavit. He says that the Plaintiff's allegations have not been refuted or answered in that correspondence. In short, he says that the Defendants have failed the Murjani test, if I may call it that. He further says that the Minutes of the meeting of the 13th May 1996 cannot be gainsaid; they have been signed by all parties involved. He invited me to put a legal construction upon the words used in those Minutes, and asserted that there was no necessity for such a construction to be the subject of any affirmation. In short, the case was plain and obvious, and he asked for judgment.

14. Mr. Chain begs to differ. His unequivocal stance was that the Plaintiff has failed to deal with the issue raised regarding the assertion of a variation of the original contract; and that in terms both of the evidence filed on its behalf and in argument the Plaintiff has done no more than to invite the Court to form a judgment upon the correspondence and upon the Minutes of the meeting of 13th May 1996, and to favour the same at the expense of the evidence and the pleaded case as filed by the Defendants. And this, said Mr. Chain, against a background where it is clearly accepted that the CT2 telepoint base station was, to adopt Mr. Shaw's phrase, "sunset technology" which clearly was being left behind in the marketplace.

15. The short point, said Mr. Chain, was that the Plaintiff asserted that the original contract remained in place, whilst accepting the existence of an option (never taken up, for contested reasons) as to its alternative performance; to the contrary, the Defendants' case was of a subsequent binding variation to the original Agreement, whereby the parties had agreed to be released from their respective contractual obligations thereunder. It followed that the Plaintiff on its case could no longer require the purchase, and the Defendants could no longer require delivery, of the remaining CT2 base stations, although the Defendants remained ready willing and able to purchase substitute "sellable" products. And unless on the evidence the case was clearly unarguable (Mr. Chain asserting, correctly, that Murjani was a very different type of case) it was plainly inappropriate to try the case on the documents; accordingly the Plaintiff's invitation in this regard should be rejected.

16. I am minded to agree. I do not consider that the Defendant's case can be stigmatised, in Murjani terms, as hitting the 'incredibility benchmark', and after a review of the papers and the arguments put before me, in my judgment there is a triable issue in terms of the variation alleged, and whether in fact there has been a breach of such contract, as varied. The Defendants may or may not lose at trial; I know not. But that is not to the point. The existence or otherwise of a triable issue is the only exercise with which I am presently dealing. In the exercise of my discretion I am not prepared to summarily determine this case, as Mr. Shaw has invited me to do, and I unhesitatingly decline to embark upon a mini-trial on the affidavits, far less on the collateral documentation, whether such be the Minutes of the meeting of 13th May 1996, or the correspondence between the parties.

17. With respect, it seems to me that the observations of the Court of Appeal in Man Earn Ltd. v. Wing Ting Fong, Civil Appeal No. 94 of 1995, (Hon. Litton V.-P., Godfrey and Ching JJ.A.) are of particular relevance in this case; in Man Earn their Lordships reviewed the principles behind and the utility of the summary judgment procedure, Godfrey J.A. commenting as follows:

"I would express the hope that those practitioners, of whom there are too many, who appear to be prepared to advise every client with what seems to be a good case to invoke this extraordinary procedure, without reflecting on the fact that, if the attempt fails, the result will be to keep the plaintiff out of the judgment to which he may well be entitled for far longer than would have been the case if they had concentrated, instead, on bringing the matter to trial, will in future think twice before giving such advice. ..."

18. The present application for summary judgment is refused. The Defendants are to have unconditional leave to defend this action. I make an order nisi that the costs of and occasioned by this application are to be in the cause. If so required, I will hear submissions as to costs and, absent agreement, upon appropriate consequential directions for the further conduct of this case.