XCHRX CONCORD OIL (HONG KONG) LTD. v. KING WAY INVESTMENT CO. LTD.

HCA 10948/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 10948 OF 1999

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J U D G M E N T

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1. This is an appeal by the Defendant against the order of Master Cheung given on 7th October 1999 on an Order 14 application. The Master ordered that:

(1) judgment be entered for the Plaintiff for HK$695,363.91 being part of the claim and interest thereon;

(2) the Defendant do have leave to defend the action to the extent of HK$778,385.00; and

(3) there be no order as to costs.

2. The Plaintiff's claim is for industrial diesel oil ("the goods") sold and delivered to the Defendant as particularised in the Statement of Claim. The total claim is in the sum of $1,473,748.91 in respect of invoices all issued in May 1999. There is no issue between the parties that the goods were indeed supplied by the Plaintiff to the Defendant and invoices amounting to the total sum of $1,473,748.91 as claimed were rendered to the Defendant. However, the Defendant claims that it has a defence of set off and counterclaim against the Plaintiff and says that it ought to be given unconditional leave to defend the whole of the claim rather than only a part of the claim as was ordered by the Master.

3. The Plaintiff is the owner of two barges namely, Gulf No. 11 and Gulf No. 16. The evidence shows that there have been business transactions between the parties for a number of years. By a Licence and Supply Agreement dated 1st June 1996, the Plaintiff granted a licence to the Defendant to operate and use the barge Gulf No. 11 from 1st June 1996 to 31st May 1999. It was under the agreement that the Plaintiff was obliged to supply the goods to the Defendant. The barge was used by the Defendant to effect delivery of the goods supplied by the Plaintiff which were on sold by the Defendant to its customers.

4. The evidence also shows that in March 1999 the parties wished to renew the 1996 agreement and a fresh Licence and Supply Agreement was entered into in March 1999 for the renewal of the licence to the Defendant to operate Gulf No. 11 and for the supply of the goods. This was to commence from the 1st June 1999 until 31st May 2002.

5. It is the Defendant's case that as the Defendant's business was expanding, a further Licence and Supply Agreement was entered into in about April 1999 whereby the Plaintiff granted the Defendant a licence to operate the other barge Gulf No. 16. This was also to commence from the 1st June 1999 until 31st May 2002.

6. The evidence shows that the Certificate of Inspection and Declaration of Fitness in respect of Gulf No. 11 expired in April 1999 and until such documents were renewed, the Defendant was not in a position to use Gulf No. 11 for the supply of the goods to its own customers. It is alleged that there was an implied term that the Plaintiff should endeavour to facilitate the Defendant in renewing the said documents upon expiry. That, in my view, is arguable. The Plaintiff, it is alleged, failed to facilitate the inspection of Gulf No. 11 by the authorities which would have led to a renewal of the said documents.

7. As far as Gulf No. 16 is concerned, it is alleged that by 1st June 1999 the Defendant was unable to effect delivery of the goods using that vessel because Gulf No. 16 had not been given to the Defendant by the Plaintiff. The Defendant asserts, therefore, that the Plaintiff is in breach of the Licence and Supply Agreements whereby it has suffered loss and damages.

8. It is clear that where a defendant sets up a bona fide counterclaim arising out of the same subject matter of the action and connected with the grounds of defence, the order should not be for judgment on the claim subject to a stay of execution pending trial of the counterclaim but should be for unconditional leave to defend, even if the defendant admits the whole or part of the claim.

9. Here it has been asserted by the Defendant that the Plaintiff knew all along that the Defendant required the barges for the purpose of delivering the goods to the customers of the Defendant. The counterclaim is for damages for breach of the Licence and Supply Agreements and the claim is made up as follows:

(1) refund of licence fee of HK$45,000.00 and HK$243,000.00;

(2) wasted staff salaries and expenses totalling HK$490,385.00; and

(3) loss of profits estimated in the region of in excess of $200,000.00 per month.

10. Items (1) and (2) together total HK$778,385.00. Obviously, the Master was of the view that in so far as items (1) and (2) were concerned, the Defendant had raised a triable issue as to a defence of set off and counterclaim. That explains, in my view, why she gave the Defendant unconditional leave to defend as to the sum of HK$778,385.00. The Plaintiff has not challenged that part of the Master's order.

11. Recently, by the 2nd affirmation of Ho Chi Yung on behalf of the Defendant which was filed on 27th October 1999, the Defendant has, in my view, condescended to particulars of its claim for loss of profit. These support the submission, in my view, that the loss of profits could well exceed $200,000.00 per month in respect of the breaches by the Plaintiff of the Licence and Supply Agreements in respect of both Gulf No. 11 and Gulf No. 16 as alleged by the Defendant. Needless to say, the particulars contained in the 2nd affirmation were not available before the Master.

12. In my judgment, the Defendant's assertions are believable. The Defendant has raised triable issues giving rise to a defence of set off and counterclaim which arguably would exceed the value of the Plaintiff's claim. The claim and counterclaim are, in my view, so closely connected that it would be wrong that the Plaintiff should receive judgment for the claim of the goods sold without taking into account the Defendant's counterclaim for damages for the Plaintiff's alleged breaches of the Licence and Supply Agreements.

13. In my judgment, the Defendant should be granted unconditional leave to defend as to the whole claim and the appeal is allowed.