Wing Shing Air-flow Co. Ltd. v. Cemac Engineering Co. Ltd.

DCCJ137/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 137 OF 2002

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D E C I S I O N

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1. This is an Order 14 application taken out by the Plaintiff against the Defendant for the sum claimed in the Statement of Claim after deducting a sum of $4,251.08, which is an outstanding sum the Plaintiff admitted was due to the Defendant, and for interest and costs.

2. In order to understand this case, I should first analyse the pleadings - that is, the case of the Plaintiff and the Defendant respectively - in front of me. At the same time while I am going through their cases, I will also refer to the affidavit that has been filed by the parties in support of their respective case.

3. The Plaintiff's case is quite straightforward. What they are saying is they are claiming the sum of HK$275,227, being the outstanding balance of goods sold and delivered by the Plaintiff to the Defendant, and if one reads the defence, paragraph 2 says:

"Subject to the matters pleaded herein below" - in the defence counterclaim - "the Defendant admits the Plaintiff's claim."

4. In fact, this is the starting point of the Plaintiff's argument that they are entitled to judgment because the Defendant has admitted their claims. But surely this short sentence must be read with the preamble which says "Subject to the matters pleaded herein below". So this is not a bare admission; it is some, if I may put it, conditional admission. And as put by Miss Chau, what they are admitting is the amount of the contract price; but at the same time, they are saying that they are entitled to a set-off against that amount and therefore, while they admit the amount, they are not liable to pay. That is, I understand, the Defendant's case.

5. The Defendant goes on to say what is the money or counterclaim that they are entitled to set off against the Plaintiff's claim. As rightly analysed by Ms Lau, it goes under two main categories. The first one is for services rendered. It is stated in the defence and counterclaim that:

"At the material times, the Defendant carried out the business of design, calculation and installation of silencers and other sound-reducing equipment, and in 1999 the Plaintiff intended to extend its business into the same area."

But the Plaintiff does not possess the necessary skill and expertise, so they have to seek the service from the Defendant. Paragraph 11 of the defence stated that:

"It has been agreed between Mr Cheung, on behalf of the Defendant, and Mr Andrew Li and Mr Gary Hui, on behalf of the Plaintiff, that for each assignment of design and calculation undertaken by the Defendant, the Plaintiff would pay to the Defendant a sum equivalent to 10 per cent of the project sum that the Plaintiff would be receiving as the remuneration for the services."

6. If I go to the affirmation of Mr Cheung at page 108, paragraph 9, he repeated the agreement with the two gentlemen, Mr Li and Mr Hui of the Plaintiff, at the material time. And in paragraph 10 he sets out a list of the services that have been rendered. In fact, those particulars have also been set out in paragraph 12 of the defence and counterclaim, and as a result, the Defendant said they are entitled to a service charge of $149,653 from the Plaintiff and they are entitled to have this amount set off from any amount that they are found liable to pay to the Plaintiff.

7. The second head of counterclaim by the Defendant against the Plaintiff is for reimbursement of the price of certain goods that they purchased on behalf of the Plaintiff. It said at paragraph 14 of the defence and counterclaim that:

"The Plaintiff requested the Defendant, since about July 1999, to purchase certain materials. Because of good business relationship between the Defendant and the suppliers" - I believe that means the Defendant managed to get a cheaper price of those material - "the Plaintiff managed to get cheaper price of those material if purchased through the Defendant, so the Defendant would settle the purchase price first with his own supplier and would issue a separate invoice to the Plaintiff, together with a mark-up of 5 per cent of the original price as handling charge."

8. The Defendant is claiming that there was a sum of $239,854.40 which is outstanding. The amount is set out in the invoice No. 3360 and has not been paid by the Plaintiff, so they further contend that this sum of money should be set off from the Plaintiff's claim. As a result, they have a set-off over and exceeding the Plaintiff's claim, and therefore they are saying by reason therefore the Plaintiff should not be entitled to judgment.

9. In the Reply, the Plaintiffs did not challenge that the service has in fact been provided by the Defendant, but what they are really challenging is the Plaintiff is only liable to pay a sum equivalent to 10 per cent of the project sum billed by the Plaintiff to his customer unless and until the relevant invoice was issued.

10. Pausing there, one would immediately notice that there is a dispute on facts. It is not a dispute that there is no such arrangement. It is a dispute as to a very important term of the contract as to how to calculate the remuneration for the Defendant. One would wonder how such an important matter could be determined at Order 14 application.

11. Let us go on with the Reply. Let us take a look as to what the Plaintiff said about the reimbursement for material purchased through the Defendant. And before that, I should add that at paragraph 11 of the defence and counterclaim, the Plaintiff indeed agrees that it is liable to pay the Defendant $4,251.08, which is 10 per cent of the project sum of the projects which had become successful, and those projects have been listed in paragraph 11. It seems that upon their case, they are supporting the Defendant's argument that there is such an arrangement. Surely the Plaintiff is saying that the Defendant is not entitled to set off the whole amount of $149,000 more, but that again, as I just mentioned, is a matter for the trial judge.

12. As to the reimbursement of the goods delivered, the Plaintiff is not denying the arrangement. They are not even denying that they have to pay 5 per cent more. But what they are really saying is that these goods have not been delivered.

13. I should read paragraph 15 first:

"Paragraph 17 to paragraph 20 are denied. The Defendant is put to strict proof thereof."

And paragraph 17 to paragraph 20 of the defence and counterclaim is those paragraphs which deal with this claim for outstanding amount on invoice 3360. So there is no substantive argument against that claim except for a denial. And we have to read paragraph 16 as well, where it says:

"The Plaintiff avers that the Defendant, in response to the Plaintiff's repeated demands for settlement in the sum of HK$275,227 due to the Plaintiff, began to counterclaim against the Plaintiff for the sum of HK$259,854, being the alleged outstanding amount pursuant to invoice 3360. However, the Defendant failed and refused to provide a documentary proof in support."

14. There is no denial, as Miss Chau put it, that they have never received these goods. Clearly, this afternoon, Ms Lau has very ably tried to persuade me that from the document it can be shown that the Defendant is using some old document which has been paid for to make up invoice 3360 and to charge the Plaintiff for the goods sold again. To the contrary, it has been shown to me that there is some discrepancy on the document shown.

15. Now, I am not saying that this point is a good point or bad point, but clearly, when there is a substantial discrepancy on the document produced, this would clearly be a matter that cannot be determined on affidavit. I would be embarking on a mini-trial on paper if I try to determine whose version I were to believe.

16. It is quite clear to me that there have been substantive, factual argument. I do not intend to go through other matters, just to mention that it is quite obvious that the affirmation of Mr Li Chun-kit has stated some evidence which shows that the matter should go for trial, and that is the whole nutshell of the Defendant's case.

17. The Plaintiff's skeleton submission, if I may take it to the highest, the best point, if I may so put it, of Ms Lau is at paragraph 8, when she said:

"When the counterclaim arise over separate and distinct transaction was wholly foreign to the claim, judgment should be for the Plaintiff with costs without a stay."

Now, that is, I think, the best point that she could venture to have today. If all the defence that has been raised is a separate and distinct transaction, then yes, I should give them judgment with a stay and let the Defendant go on with their counterclaim. But surely I can see that if one just reads the defence and counterclaim in the form that this is now in front of me, there is some argument to say that the counterclaim is a distinct matter because this question of a contractual set-off seems not to have been pleaded in the counterclaim, oral arrangement or contract of set-off has been pleaded both in the affirmation of Mr Cheung and in Mr Li Chun-kit, who is a former employer of the Plaintiff. I just read the latter part of paragraph 5 of his affidavit:

"The Plaintiff later extend his business from mere manufacturer to include the design, calculation and insulation of silencers, and paid the Defendant for their services. Under this multi-relationship there were sums owing to each other from time to time. Hence over a certain period of time a representative of the Plaintiff and the Defendant would discuss and work a mutual set-off of their respective outstanding payments. Several such set-offs had taken place in the past."

18. So there is this plea of the business arrangement which surely had a contractual character. Whether that is an enforceable contract must be a matter for a trial judge to determine. So if this is a contractual set-off, now this is something different from just a counterclaim, and if there is a contractual set-off, this is really a matter for a trial judge to determine whether that is or is not such a set-off.

19. So if that is the situation, I think I am in line with the argument of Miss Chau, and I believe this is a case which the Defendant is entitled to unconditionally defend, along with the defence now raised in both their defence and leave to counterclaim as supplemented, if I use that word, by the affirmation of Mr Cheung and Mr Li.

20. So that will be my finding.

(Discussion re costs)

21. I will grant leave to the Defendant to amend the defence and counterclaim within 14 days, and leave to the Plaintiff to amend their Reply and defence to counterclaim within 14 days thereafter. Costs of and occasioned by the amendment be to the Plaintiff in any event to be taxed if not agreed. Costs of the Order 14 be in the cause, except that the costs of today be to the Defendant in any event to be taxed if not agreed, with certificate for counsel.