FIRMENICH HONG KONG TRADING LTD v. LONG PURSE INTERNATIONAL LTD

HCA 3634/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3634 OF 2002

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REASONS FOR JUDGMENT

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1. On 20 May 2003 Master Au Yeung gave judgment to the plaintiff` against the defendant for the sum of US$268,611.80 together with interest thereon at judgment rate from date of the writ to judgment and thereafter at judgment rate until payment. The master also ordered costs of the action assessed at $140,000.00 to the plaintiff.

2. At the hearing of the defendant's appeal from the said order of the master on 26 September 2003 I allowed the appeal and set aside the master's order. I gave the defendant unconditional leave to defend the action. I indicated at the time that I would give my reasons in writing later. This I now do.

3. The plaintiff's claim against the defendant is for the sum of US$268,611.80 being the outstanding balance of the price of perfumery materials sold and delivered to the defendant at the defendant's request and orders on divers dates between September and October 1997 as pleaded in the amended statement of claim. By its original statement of claim the plaintiff relied on seven invoices issued to the defendant in respect of the goods sold and delivered. By its amendment to the statement of claim the plaintiff removed two invoices from its claim thereby claiming the sums under five invoices.

4. The principles applicable to O 14 applications are well-known and clear. It is useful to bear in mind what Godfrey J. (as he then was) said in Unic Co. v. Centus Development Ltd. [1988] HKC 643 at 647:

“ The power to give summary judgment under Order 14 is intended to apply only to cases where there is no reasonable doubt that the Plaintiff is entitled to judgment and where therefore it is inexpedient to allow the Defendant to defend for mere purposes of delay: see Jones v. Stone [1894] AC 122.

As a general principle, where a Defendant shows that he has a fair case for defence or reasonable grounds for setting up a defence, or even a fair probability that he has a bona fide defence, he ought to have unconditional leave to defend. Leave to defend must be given unless it is clear that there is no real substantial question to be tried, or that there is no dispute as to the facts or law which raises a reasonable doubt that the Plaintiff is entitled to judgment. Order 14 is not intended to shut out a Defendant who can show that there is a triable issue applicable to the claim as a whole from laying his defence before the court, nor to make him liable in such a case to be put on terms of paying into court as a condition of leave to defend."

5. It has also been said that it is not a proper course for the court to embark on a mini-trial of the action on affidavit evidence: see Ng Shou Chun v. Hung Chun San [1994] 1 HKC 155.

6. And Godfrey J.A. in the Court of Appeal in the case of Man Earn Ltd. v. Wing Ting Fong [1996] 1 HKC 225 said at 228:

“ Unless it is obvious that the defence put forward by the Defendant is 'frivolous and practically moonshine, O 14 ought not to be applied': see Codd v Delap [1905] 92 LT 510, per Lord Lindley at 511."

7. There has been affidavit evidence put in on behalf of the plaintiff and the defendant on the application for summary judgment raising factual disputes. Of course, I should not embark on a mini-trial of the action on affidavit evidence.

8. The affirmation of Ms Louisa Tang in support of the O 14 application sets out the plaintiff's case. The plaintiff's parent company in Switzerland is a manufacturer of perfumery materials. The plaintiff is responsible for receiving orders from Hong Kong or Taiwan for the supply of such materials. The plaintiff's case is that it has always been their company policy not to receive direct orders from manufacturers in the Mainland because of foreign currency control in the Mainland and there was a risk of not getting paid in time or at all because of this. Shenzhen Luolan Chemical Manufacturing Co. Ltd. ("Luolan"), a Shenzhen company approached the plaintiff for the supply of perfumery materials and the plaintiff's case is that it made it clear to Luolan that the plaintiff would not do business with PRC companies. Luolan therefore contracted with various companies in Hong Kong including the defendant. The defendant is an associated company of Luolan. The plaintiff's case is that it also made it clear to the defendant when it first approached the plaintiff for the supply of goods that the contracting party would be the defendant and that the liability to pay for the goods rested with the defendant. The defendant denies this and this is a dispute of fact.

9. The plaintiff's case is that since 1995 the defendant began to place orders for perfumery materials with the plaintiff. The defendant would place orders by telephone or by written purchase orders. Upon receiving purchase orders from the defendant the plaintiff would issue written order confirmations containing the particulars of the orders placed. Ms Lan, for the plaintiff, submitted that it was only upon issuance of the plaintiff's order confirmations that the defendant's offer was accepted by the plaintiff thereby forming a contract between the plaintiff and the defendant. The plaintiff's case is that invoices would then be sent to the defendant demanding payment and that for previous transactions payment was always made by the defendant. The plaintiff denies that it contracted with Luolan as alleged in the defence.

10. The first issue raised by the defendant is that the contract that the plaintiff made for the sale of goods was not with the defendant but with Luolan. The defendant's case is that the party contracting with the plaintiff was Luolan and not the defendant. The defendant's alternative case is that any contract that it made with the plaintiff was made on the basis that it was the agent of Luolan as the plaintiff well knew. Payments made by it to the plaintiff under the contracts were made as agent for Luolan.

11. By its amended defence the defendant denied that any of the perfumery materials referred to in the said invoices were sold to the defendant. The defendant further pleaded that the plaintiff contracted with Luolan. There is, however, no plea made in the amended defence that the invoices issued to the defendant by the plaintiff were issued to the defendant as agent of Luolan and that the defendant made payments on behalf of Luolan. Nor is there an alternative plea that any contract between the plaintiff and the defendant was on the basis that the defendant was acting as the agent of Luolan.

12. I agree with Mr Shum, for the defendant, that although it has not been specifically pleaded, the defendant's case has been sufficiently raised in the material before the court. Ms Chan Siu Wah ("Ms Chan") in her affirmation states that the perfumery material, the goods referred to in the invoices pleaded by the plaintiff, were sold not to the defendant but to Luolan. She also asserts that the plaintiff was fully aware and knew that the buyer of the goods under the said invoices was Luolan and not the defendant. She also states that the contractual relationship between the plaintiff and Luolan had all along been acknowledged and accepted by the plaintiff.

13. Although the plaintiff denies that the contracting party was Luolan, I am of the view that a triable issue has been raised. The defendant has produced another set of invoices with the same invoice numbers and amounts as the set of invoices issued to the defendant as pleaded in the amended statement of claim. These have been exhibited as SSWC-2 to the affirmation of Ms Chan. In this second set of invoices it is clearly stated that the goods were "ordered by [Luolan]" and "sold to [Luolan]". Ms Louisa Tang explains at para 15 of her 2nd affirmation that this set of invoices "were arranged at the Defendant's request for their internal and administration convenience." The defendant's case is that the second set of invoices shows that the plaintiff well knew that the contracting party was Luolan and not the defendant. It seems to me that this is a disputed issue of fact which can only be resolved at trial. It is not a matter that can be determined summarily.

14. I would observe also that on the order confirmations relied on by the plaintiff in support of its claim against the defendant it is clearly stated there that the goods were "sold to [Luolan]". Mr Shum referred me to Re Jun Yip Auto Services Ltd [1992] 1 HKC 234 where it was held, inter alia, that the words "to sell" should be given their ordinary commercial meaning namely, to transfer for money. Mr Shum relied on this as providing support that the obligation to pay rested with Luolan. Ms Louisa Tang in para 12 of her 2nd affirmation asserts that the description of "sold to [Luolan]" in the plaintiff's order confirmations and invoices were "for the sole purpose to indicate the end-user only". It seems to me that this is a triable issue.

15. The defendant further relied on the negotiations between the plaintiff and Luolan and the correspondence exhibited as SSWC-4 to Ms Chan's affirmation. These show that the plaintiff was looking to Luolan for payment of the outstanding sums under the subject invoices although these were issued to the defendant. The defendant says that these support its case that the plaintiff well knew that the contracting party was not the defendant but Luolan. It seems to me that this correspondence can also provide support for the defendant's alternative case that any contract that it made with the plaintiff was as agent for Luolan and that it did not incur personal liability to pay for the amounts under the invoices. As an example of what this correspondence shows, I refer to the letter dated August 6 1998 from the plaintiff to General Manager Cai, of Luolan. This appears to have been copied to Ms Chan of the defendant. It states, inter alia, that:

“ To cope with the foreign currency situation of your company, we will accept instalment payments of your company, subject to the condition that the payment for this month shall not be less than 50% of the unpaid balance. The remaining balance shall be fully paid up in mid September. The Audit Department will also audit the accounts of our company. According to your proposal, the payments receivable by us are as follows:"

The letter goes on to particularize Luolan's proposals for payment in respect of the various customer order numbers some of which are for the transactions sued on in this action.

16. The correspondence does show that the plaintiff was looking to and was chasing Luolan directly for payment of the outstanding sums owing to the plaintiff which included the sums sued on. It is not necessary to set out the correspondence in detail. Suffice it to say that it does tend to support the defendant's case that the plaintiff regarded Luolan as the party who was responsible to pay albeit that payments had been made through the defendant.

17. Ms Tang of the plaintiff states in para 19 of her 2nd affirmation as follows :

“ Regarding the negotiations on the outstanding invoices of the Defendant, it is true that certain negotiations were made between the Plaintiff and Luolan. However, the Plaintiff only regarded Luolan as the Defendant's agent in those negotiations. At all material times, the liability to settle the invoices rested with the Defendant but not Luolan. It can be evidenced by the various payments made by the Defendant in 2000 and its cheques in 2001 which were exhibited at "TPF-6" and "TPF-7" in my First Affirmation."

18. As regards the negotiations that the plaintiff conducted with Luolan directly, it seems to me that whether, as the plaintiff contends, the plaintiff regarded Luolan as the agent of the defendant or whether, as the defendant contends, the plaintiff regarded Luolan as the contracting party liable to pay the plaintiff is a matter of disputed fact. This can only be resolved at trial.

19. Also in support of the defence that Luolan was the contracting party liable to pay the plaintiff, Ms Chan in para 14 of her affirmation states that the plaintiff had issued invoices directly to Luolan for storage charges in respect of some of the goods, the subject matter of this action. Although the debit note exhibited as SWWC-3 is for the relatively small sum of HK$10,122, it is clear that the plaintiff issued the debit note to Luolan directly and not to the defendant. The plaintiff was looking to Luolan for payment of expenses for change of documentation and overtime storage charges in relation to some of the goods, the subject matter of this action. Ms Tang in her 2nd affirmation did not provide any explanation as to why the said debit note was issued to Luolan and not to the defendant.

20. It seems to me that on the material before the court the defendant has raised triable issues and that the defendant ought to be given unconditional leave to defend the action. I accept Ms Lan's criticism that the defence as pleaded does not plead that the defendant was acting as agent for Luolan in making payments to the plaintiff or the alternative case that any contract that the defendant made was as agent for Luolan as the plaintiff well knew. I was informed, however, by Mr Shum that the defendant will seek leave to make amendments to the amended defence to plead these matters.

21. The defendant will have to apply to amend the defence to plead its defences specifically. However, on the material before the court, I am of the view that the defendant should be given unconditional leave to defend.

22. As I have held that there are triable issues which ought to be resolved at trial, it is neither necessary nor desirable for me to deal with all the other evidence and submissions of Counsel. These go to the strength or weakness of the respective party's case and are matters that should be ventilated at trial.

23. I therefore allowed the appeal and set aside the master's order and gave the defendant unconditional leave to defend.

24. I have not heard arguments on costs. It seems to me, however, that the costs for the hearing before the master should be costs in the cause and that the costs of the appeal should be costs to the defendant and I make an order nisi to this effect.