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DCCJ2847/2011
IN THE DISTRICT COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
CIVIL ACTION NO 2847 OF 2011
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BETWEEN
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佛山市南海公誠華創置製衣有限公司 |
Plaintiff |
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and
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DOUCEUR FASHIONS LIMITED |
1st Defendant |
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SWAMY SUNDER |
2nd Defendant |
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| Before: His Honour Judge Andrew Li |
| Date of Hearing: 16 to 19 July 2013 |
| Date of Judgment: 18 November 2013 |
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JUDGMENT
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1. This is a claim made by the plaintiff against the 2nd defendant under a personal guarantee provided by the 2nd defendant to the plaintiff guaranteeing the payment in respect of goods sold and delivered by the plaintiff to the 1st defendant.
2. The amount of the unpaid balance of the goods stood at US$129,085.76 (HK$1,006,868.93). By abandoning US$881 (HK$6,871.80), the plaintiff brought the claim within the jurisdiction of the District Court.
3. By consent, judgment was entered against the 1st defendant for the net sum of US$128,204.60 (HK$999,997.13) (“the net sum”) with interest thereof together with costs. The 1st defendant went into voluntary liquidation from 18 May 2012 onwards. The liquidator acting on behalf of the 1st defendant consented to having judgment entered against the 1st defendant for the net sum, together with interest and costs thereon on 8 August 2012. However, the net sum remains unpaid by either the 1st defendant or the 2nd defendant to date. Hence, the plaintiff is now claiming against the 2nd defendant under the personal guarantee.
4. The 2nd defendant disputes both the liability and the amount he is liable under the guarantee.
BACKGROUND
5. At all material times, the plaintiff was a clothing manufacturing company incorporated in the People’s Republic of China. Its main business was to supply cotton woven garments to overseas buyers through an import and export company in the Mainland by the name of Foshan Jiayu Import & Export Company Limited. The 1st defendant on the other hand was a company incorporated in Hong Kong in the business of garment trading. The 2nd defendant was a director and the sole beneficial shareholder of the 1st defendant.
6. It is not disputed that for the period between 14 April 2011 and 15 May 2011, the plaintiff supplied and the 1st defendant took delivery of the following five styles of garments (“the Five Styles of Goods”) for one of the 1st defendant’s major customers, namely Benetton Asia Pacific Limited (“Benetton”):-
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Style No |
Date on which
D1 took delivery |
Balance owing to P
(USD) |
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2ADD53170 |
14/4/2011 |
Paid in full |
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(“ADD goods”) |
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2ACK53160 |
14/4/2011 |
Paid in full |
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(“ACK goods”) |
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4LU850051 |
27/4/2011 |
57,771.41 |
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(“LU8 goods”) |
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(Ladies’ Skirt) |
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|
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4EQ557122 |
29/4/2011 |
37,004.92 |
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(“EQ557 goods”) |
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(Girl’s Pant) |
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4EQ5500A2 |
15/5/2011 |
34,309.43 |
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(“EQ550 goods”) |
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(Girl’s Skirt) |
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7. It is also not disputed that on 13 April 2011, the 2nd defendant signed a letter of Guarantee (“the Guarantee”) in favour of the plaintiff, which contained, inter alia, the following terms :-
(1) the 2nd defendant would send to the plaintiff at around 6:00 pm on 13 April 2011 the bank slip/payment advice in the sum of US$89,056.80, being the payment of garments which had been sold and delivered to the 1st defendant by the plaintiff under Style no 4KE955J41 (“J41 goods”);
(2) the 2nd defendant would warrant and confirm to the plaintiff that payments of the Five Styles of Goods would be made 30 days after their respective shipment to the 1st defendant; and
(3) the guarantee would be valid provide that the ADD and ACK goods were handed over to the forwarder immediately (“the condition precedent”).
8. Further, there is no dispute that the defendant had delivered the Five Styles of Goods to the 1st defendant on the respective dates listed in para 6 above. It is also not disputed that the 1st defendant had only paid the plaintiff the ADD and ACK goods before the 1st defendant went into voluntary liquidation.
9. Despite repeatedly requests made by the plaintiff for the payment of the remaining goods, no payment was made either by the 1st defendant or the 2nd defendant. As the 1st defendant has gone into the voluntary liquidation after the writ was issued, the plaintiff now sues under the Guarantee against the 2nd defendant for the net sum together with interest and costs.
The plaintiff’s case
10. The plaintiff’s case is relatively straightforward and can be found in the statement of claim. In essence, the plaintiff is saying that as the Five Styles of Goods had been sold and delivered to the 1st defendant and since the 1st defendant had failed to pay for the balance of those goods (“the unpaid goods”), the 2nd defendant is liable to pay for them under the Guarantee.
11. As much of the plaintiff’s case relies on the construction of the terms of the Guarantee, it will be useful to reproduce the entire content of the Guarantee here:-
“ 担保函
致: 佛山巿南海公诚华创置制制衣有限公司
本人SUNDER SWAMY就本公司DOUCEUR FASHIONS LTD与佛山巿南海公诚华创置制衣有限公司订购的以下各款服装的单价，付款等作以下担保：－
1. 我司已收货的：4KE955J41货款合：USD89,056.80于2011年4月13日汇出给贵司。PAYMENT ADVICE WILL BE SENT AROUND SIX O’CLOCK IN THE EVENING.
2. 本人确认以下各款订单的单价数据：
|
款号 |
款式 |
订单数 |
单价 |
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4LU850051 |
大肚裙 |
8851 |
$7.65 |
|
2ADD53170 |
女童牛仔衫 |
7421 |
$6.50 |
|
6579 |
$7.60 |
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2ACK53160 |
男童牛仔衫 |
9622 |
$6.08 |
|
7378 |
$7.23 |
|
4EQ557122 |
女童长裤 |
6036 |
$6.50 |
|
4EQ5500A2 |
女童短裙 |
6468 |
$5.75 |
3. 本人担保以上各款订单在工厂出货后三十天之内按足货款金额支付给贵司，不以任何理由扣减或拖延货款。
WE CONFIRM PAYMENT WILL BE MADE 30 DAYS AFTER SHIPMENT AND LEGITIMATE DEDUCTION WILL BE MADE FOR ACCESSORIES/FABRIC WHICH DOUCEUR HAS PAID FOR ON YR BEHALF – DEBIT NOTE ARE WITH YOU.
4. THIS GUARATEE IS VALID PROVIDED 2ADD-14,000 PCS/2ACK-17,000 PCS IS HANDED OVER TO FORWARDER IMMEDIATELY.
签名：（Sunder Swamy）
日期：13/4/2011”
12. According to the plaintiff, the effect of the Guarantee is clear. The 2nd defendant is guaranteeing the performance of the 1st defendant under the purchase orders. In the event that the 1st defendant does not pay, under clause 3 of the Guarantee, then the 2nd defendant shall take up the responsibility for payment. In other words, he personally would guarantee that the plaintiff will be paid within 30 days after the Five Styles of Goods are delivered, subject to any legitimate deductions for accessories/fabric which the 1st defendant has paid on the plaintiff’s behalf.
13. Thus, the plaintiff says that unless the 2nd defendant is able to establish one of his defences pleaded in the Amended Defence and Counterclaim, then the 2nd defendant shall be liable to pay the net sum plus interest and costs under the Guarantee.
The 2nd defendant’s case
14. The 2nd defendant has raised 3 specific defence during the trial, namely condition precedent, misrepresentation and set-off, having abandoned the defence of lack of consideration at the beginning of the trial which was pleaded in the Amended Defence and Counterclaim.
15. The 2nd defendant basically says that if the court finds the defence of condition precedent or misrepresentation can be successfully established by him, then the Guarantee is not valid and the 2nd defendant is not liable to pay. Even if the court finds the Guarantee to be valid, then the 2nd defendant says that his liability should be set off by the sums of US$77,000, US$4,446 and US$512.22 pleaded under the Amended Defence and Counterclaim.
DISCUSSION
16. Before I go into the discussion of the specific issues in this case, perhaps it will be useful for me to register my own views on the credibility of the 3 witnesses who had given evidence during the trial. They are Mr Guan Shenghua (關勝華) (“Guan”) on behalf of the plaintiff, the 2nd defendant Mr Swamy Sunder himself and Ms Li Kit Shun (also known as Grabi by her English name) (“Li”) who gave evidence on behalf of the 2nd defendant. In addition, it will also be useful for me to set out the history of the email correspondence on 2 material dates immediately prior to and after the Guarantee was signed ie on 12 & 13 April 2011, as much of the dispute between the parties centred around what was said during those 2 days.
Credibility of witnesses
17. I find Guan to be fundamentally a truthful and straightforward witness. He tried to be helpful when he gave evidence. He answered the questions put to him directly and fairly, without prone to exaggeration. However, his evidence has been hampered by the fact he had no direct knowledge on some of the important matters contained in the emails exchanged between the plaintiff and the 1st defendant. Further, as most of those email correspondence were written in English, which is a language Guan is not converse with, he would not know exactly what had been said. Those emails were written by the plaintiff’s staff responsible for liaising with the 1st defendant at the time, a lady by the name of Michelle Tam (“Michelle”). For important matters, Guan said that he would discuss them with Michelle first before she would send out the emails. For simple matters, Michelle would just send them out herself without consulting Guan. According to Guan, Michelle has left the garment industry a few months after the Guarantee was signed. She could no longer be traced despite enquiries made by him within the trade. He was told that she had left the country and now resides overseas. Under those circumstances, one has to be careful with Guan’s evidence, particularly the part of his evidence which is not supported by any contemporaneous documents like email correspondence.
18. While normally a court can draw adverse inference against a party for not calling a witness who is available to give evidence (see Ma J (as he then was) in Kao Lee & Yip v Koo Hoi Yan & Others [2003] 3 HKLRD 296 at 310 §34), I do not consider that such adverse inference can be drawn against the plaintiff in not calling Michelle in this case as it is clear that she could no longer be traced despite efforts made by Guan.
19. As to the evidence of the 2nd defendant, I must say that I do not find him to be a particularly helpful witness. While I will not go to the extent to say that he is a dishonest or untruthful witness, many aspects of his evidence remain unsatisfactory and unsupported by any contemporaneous evidence like email communications. Obviously, when giving evidence, the 2nd defendant was trying hard to avoid incurring any personal liability under the Guarantee. While this is understandable, this has certainly coloured his evidence. In my view, the 2nd defendant is a very seasoned businessman who knew exactly what would be the effect and legal consequence in signing such a Guarantee. However, he was caught in a dilemma at the time. The dilemma was that on one hand he was desperate for the plaintiff to deliver the ADD and ACK goods (which Benetton was putting great pressure for the 1st defendant to deliver), while on the other hand the plaintiff was very reluctant to release those goods due to the long delay in the 1st defendant in paying for the J41 goods (which had already been delivered before that date). The 2nd defendant was fully aware that unless he executes the Guarantee in accordance with the terms dictated by the plaintiff (even though it was partly qualified and amended by him in English), the plaintiff was not prepared to release the ADD and ACK goods. This case has now involved his own financial interest as the 1st defendant did not pay for part of the delivered goods and had gone into voluntary liquidation. If he is found to be liable under the Guarantee, he will be personally responsible for a very substantial amount of money. Thus, it is understandable why he might wanted to say things during the trial that appear to match his pleaded case. It is also understandable why a lot of his evidence are unsupported by the contemporaneous documents and sometimes even go against the clear contents of some of those documents. Hence, I shall view the 2nd defendant’s evidence with extreme caution and in such light.
20. I also find it difficult to accept the evidence of Li. Although she no longer works for the 1st defendant, she cannot be regarded as a totally independent witness. Not only had she worked as a shipping manager for the 1st defendant for over 20 years before it went into voluntary liquidation, she also enjoyed a close working relationship with the 2nd defendant, having worked for the 1st defendant for such a long period of time. I find her to be a very cautious and guarded witness. She clearly carefully thought through all the questions asked of her, particularly when she was being cross-examined by the plaintiff's counsel. Some of the questions put to her were not answered straight away. She took time to consider the questions before answering them. She was evasive in some of the answers she gave and came up with new matters which had never been mentioned in her witness statements or can be found in the contemporaneous records. She clearly was trying to match her evidence with the documentary evidence, in particular the email correspondence between her and Michelle.
21. Thus, where there are differences between the evidence of Guan on one hand and the 2nd defendant and Li on the other, I would, subject to the contents of the contemporaneous email records and explanations given by the witnesses, prefer the evidence of Guan.
Emails exchanged between the plaintiff and the 1st defendant
22. I think it will be useful at this point to produce some of the relevant emails on those two crucial days ie on 12 and 13 April 2011 to examine the circumstances leading to the signing of the Guarantee and what happened immediately thereafter.
23. It started with an email written by Michelle to Jason on 12 April at 11:48 (which was copied to the 2nd defendant, Li and 2 others at the 1st defendant) where the following have been said:-
“DEAR ALL:
PLS NOTE THAT IF WE STILL CANOT (sic) GET THE BANK SLIP TODAY, WE WILL NOT RELEASE THE GOODS. WE HAVE STOPED (sic) THE INSPECTION AND CUSTOMS DOCUMENTS, ALSO STOP THE TRUCK BOOKING.
WILL PROCEED AFTER RECEIVING YOUR PAYMENT.
THANK YOU.
MICHELLE”
24. In an untimed email (believed to have been written sometime between 11:48 and 12:48) on 12 April, Jason Kitzmiller (“Jason”), a manager at the 1st defendant, wrote to Michelle and stated the following:-
“Dear Michelle,
Please understand that I do not paly (sic) games!
Please note if the goods do not arrive to Hong Kong by tomorrow. They are cancelled.
I have also instructed our bank to stop processing your payment in case we need to claim GNG against a loss of business.
Best Regards,
Jason Kitzmiller”
25. At 12:48 Michelle replied and stated, amongst other things, the following:-
“Pls note that i am really in a very big pressure situation. Could you pls help me to write a personal garantee (sic) paper promising us the payment will be released on which date, to finalize this issue. So that i can show to our accountant to proceeds.
Hope you can help.”
26. Reading from the above emails, this was the first time that the idea of a personal guarantee had come up by the plaintiff.
27. The initial response from the 1st defendant was less than enthusiastic as Jason in his reply (written sometime between 12:48 and 12:56 on the same day) wrote to Michelle and stated the following:-
“Dear Michelle,
We have a contract.
Please make sure the goods are handed over to the forwarder on time.
Best Regards,
Jason Kitzmiller”
28. At 12:56, Li wrote to Michelle and mentioned the following:-
“Dear Michelle,
Due to the goods is top urgent. BAP insist that we have to deliver the goods to HK APC on 13/4 on/before 12:00 noon. Otherwise they will claim you dead freight and cancellation charges. Pls kindly check at yr side and confirm by return.
Best regards
Grabi”
29. I note here that although Benetton had insisted the 1st defendant to deliver the goods to the forwarder by 12:00 noon on 13 April, there was no mention by Li in this email that the 1st defendant had made it a condition that the plaintiff would have to deliver the goods to the forwarder by the same time, otherwise the 2nd defendant would not sign any guarantee or any guarantee that he signs may not be effective.
30. In fact, as the subsequent events unfolded, it becomes clear that no further mention of the alleged deadline was made in the subsequent emails exchanged between the parties.
31. At 14:25 on 12 April, Michelle wrote on behalf of Guan to Jason (which was copied to the 2nd defendant and Li) and stated the following:-
“Dear Jason:
Pls note that we shiped (sic) the last shipment almost one month now, totoally (sic) amount USD 89056.80. Why your company cannot pay according to our payment term: LC AT SIGHT (which should pay as soon as receiving the advice from bank) to our company? Pls remember, we do business with Douceur, not benetton. We have submitted the full set document to your company, you should pay accordingly. (But not any excuse for any other documents for benetton)
Pls note that this is the final advice, we will definitely not deliver any goods until receiving your payment.
thank you
Mr. Guan”
32. Jason’s reply later on that day to Michelle and Guan was as follows:-
“Dear Mr Guan/Michelle,
We are processing your payment as agreed. Please understand that your shipment for KE9 was over two months late shipping, that is why it is taking longer to process your payment. But just like all other shipments, Douceur will honor its bills to GNG.
As for the shipment for ACK and ADD, the customer will cancel the goods if they are not delivered to the forwarder tomorrow. Please note, this will be your liability.
If you do ship the goods, Douceur will pay as agreed. Just like all other shipments.
Best Regards,
Jason Kitzmiller”
33. Sometime later in that same afternoon, the 2nd defendant wrote to Guan and Michelle and stated the following:-
“DEAR MR. KWAN/MICHELLE
I AM WRITING THIS EMAIL TO INFORM YOU THAT WE WILL PROCESS YOUR PAYMENT FOR US$89056.80 BY FRIDAY 15/4/2011
PLEASE ARRANGE TO SHIP THE GOODS TONITE FOR THE ACK AND ADD GOODS
Warm regards
Swamy”
34. The assurance from the 2nd defendant that he would process the payment for the J41 goods by 15 April obviously was not good enough for the plaintiff as Guan replied to the 2nd defendant at 15:36 that:-
“DEAR SWAMY:
PLS NOTE THAT WE HAVE TO RECEIVE THE BANK SLIP, ONLY THEN WE CAN ARRANGE THE SHIPMENT.
THANKS
MR. GUAN”
35. I note here that the demand from the plaintiff at this juncture was for the bank slip only. Nothing concrete was mentioned about the signing of a guarantee to secure the payment for the Five Styles of Goods yet.
36. Then at 16:04, the 2nd defendant wrote to Michelle which was addressed to both her and Guan the following:-
“DEAR MR GUAN/MICHELLE
AS I HAVE MENTIONED IN MY E MAIL I HOPE TO PAY BY FRIDAY LATEST – AND SEND YOU THE SLIP. IF I CAN PAY EARLIER LIKE 2MORROW OR DAY AFTER TOMORROW I SHALL SEND YOU THE SLIP AS SOON AS THE PAYMENT IS MADE. IT IS NOW ENTIRELY UP TO YOU IF YOU WAN TO SHIP THE GOODS OR NOT AND FACE THE CONSEQUENCES OF YOUR DECISION – I AM NOT HERE TO HURT YOU OR NOT PAY YOU. PLEASE TELL MY GUAN TO BELIEVE ME AND HAVE SOME FAITH IN ME – I HAVE NOT LET HIM DOWN
Warm regards
Swamy”
37. Mr Guan’s response to this was swift as at 16:23 he asked Michelle to write and mentioned the following to the 2nd defendant:-
“DEAR SWAMY:
PLS NOTE THAT WE CAN DOING NOTHING UNTIL RECEIVING YOUR BANK SLIP.
THANKS FOR YOUR COOPERATION.
BR
MR. GUAN”
38. Michelle repeated the same thing to Jason in her email written at 16:26 on the same day, which was copied to the 2nd defendant and Li. Again, nothing was mentioned about making delivery of the goods to the forwarder by 12:00 noon the next day as a condition of signing the Guarantee.
39. At 17:19, Li sent a copy of the settlement instructions from the 1st defendant to its bank ie Commonwealth Finance Corp, authorizing payment for the ADD and ACK goods. In the same email, Li had reminded the plaintiff to send the 2 jackets ie the ADD and ACK goods that evening ie on 12 April 2011.
40. At 17:23 Michelle wrote to Jason and stated the following:-
“Dear Jason:
Pls note that if i can get the bank slip form you today, then we will send the good this evening.
and then the fastest we can do is: we will load the goods in HK before 18:00 tomorrow if everything is fine for the customs in shenzhen.
pls understand.
thanks
michelle”
41. There were 2 more emails between Michelle and Jason/Li on 12 April regarding the SN of the shipment but nothing was said about the goods must be delivered to the forwarder by 12:00 noon on 13 April 2011.
42. From the above emails, it is clear that, up to the end of 12 April, the best the plaintiff could offer was to send the goods on 12 April even if the 1st defendant was able to provide it with the bank slip on that day. The plaintiff was adamant that it would not ship the ADD and ACK goods unless the 1st defendant pays for the J41 goods first. However, the earliest time the plaintiff could “load the goods in HK” (ie at the forwarder in Hong Kong) would be “before 18:00 tomorrow if everything is fine for the customs in shenzhen” [emphasis added]. Up to this time, no mention was made regarding the plaintiff having to deliver the goods by a certain deadline, let alone any promise or representation made by Michelle that the goods would be delivered to the forwarder by noon on 13 April.
43. The first email sent on the next day on 13 April was by Raymond Wong (“Raymond”), the quality controller (more commonly known as “QC” in the trade) of the 1st defendant who, at 00:03 sent an internal email to the 2nd defendant, Jason, Li and others at the 1st defendant stating the following matters:-
“Dear all,
Regarding the delivery arrangement for ACK and ADD. Factory has already confirmed to ship out the goods by cargo truck early morning (3:00 am). I have also double-checked their total carton quantity to avoid any mistakes to be happened again.
Rrgds
Raymond Wong
2011”
44. However, the fact that the goods would be shipped out at 3:00 am in the morning as mentioned by Raymond was soon contradicted by an email written in Chinese by Michelle to the 2nd defendant at 09:45 on 13 April which attached the original unedited version of the Guarantee:-
“Dear Swamy:
烦请知悉，昨晚货柜晚上零晨3点多才到厂，所以也无法装货，现在正在装。但我司要收到货款水单货柜才能出厂，如果贵司真的无法及时提供水单的也可以签附件的担保函，请在上面写上您的名字及身份证号，并签名写日期后传真或扫描给我。
我收到此份担保函或水单后才能出货。
谢谢您的合作。
MICHELLE”
45. Roughly translated, the above email basically says that:-
(1) the container truck had only arrived the factory at 3:00 am and therefore the goods could not be loaded;
(2) the goods were being loaded at the time when the email was written;
(3) the plaintiff would only allow the goods to leave the factory upon receipt of the banking slip or if the 2nd defendant could sign the attached letter of guarantee;
(4) the 2nd defendant was asked to sign on the letter of guarantee and put down his name, his identity card no. and the date of signing;
(5) after signing, the 2nd defendant was asked to either fax or scan the copy and return to her;
(6) after she receives the letter of guarantee or the bank slip, then she would arrange the shipment. [emphasis added]
46. At 10:06, Michelle wrote to Jason and informed him the following:-
“Dear Jason:
Pls note that we didnot (sic) load the goods last night as we didnot get the bank slip, so for sure the goods cannot arrive HK today.
We will load the goods to make everything is ready, then wait for your bank slip, or the garantee (sic) letter which I just sent to swamy, if only i can get any of them, and also the price confirmation of LU8, then i will let the container leave our fty. If i can get it before noon time, the goods will arrive HK tomorrow. If not, then will be much later.
I hope you can kindly understand our side as just a factory. If still stop everything our fty will be in trouble, also i think its not good for your company.
hope you can kindly help me to solve it.
thank you
michelle”
47. At 10:39, the 2nd defendant sent the duly signed and amended version of the letter of guarantee to the plaintiff by email to Michelle guaranteeing the payment for the Five Styles of Goods.
48. However, after the 2nd defendant sent the signed copy of the Guarantee to the plaintiff, there seems to be a change of attitude on the part of Michelle and Guan. Instead of asking the 2nd defendant to provide the bank slip or the letter of guarantee, the plaintiff now wanted the 2nd defendant to do both.
49. At 10:44, after an earlier telephone conversation with Jason, Michelle wrote and asked Jason to confirm the following:-
“As our conversation just now, pls confirm the followings:
1. Pls sign the letter then scan to me also send me by courier the originals.
2. If i can receive your letter before 12:00, also i can get your bank slip before 18:00 today, then the goods will arrive HK before 22:00 today if everything is fine for the customs.
Pls kindly note and confirm.
Thanks for your help and cooperation.” [emphasis added]
50. At 10:49, Michelle requested the 2nd defendant to send the original of the Guarantee by courier and the bank slip be sent to her before 18:00 on that day, ie 13 April so that the plaintiff could release the ADD and ACK goods in Hong Kong.
51. The 2nd defendant did not object to such request for both documents as he wrote to Michelle by email at 12:06 that the original of the Guarantee had been sent. No protest had been made by the 2nd defendant as to why both the bank slip and Guarantee were now required by the plaintiff.
52. At 12:13, Li sent to Michelle and a person by the name of Jackily Zhang at the forwarder the booking form for the ACK goods.
53. At 17:21, Michelle wrote to Li to confirm that the truck had already arrived Hong Kong and asked Li to send her the bank slip as soon as possible so that she could arrange loading of the ADD and ACK goods. In other words, up to this point in time, the plaintiff was still refusing to release the ADD and ACK goods to the 1st defendant unless the 1st defendant send them the bank slip/payment advice. This is despite the fact that the 2nd defendant had already signed and sent a copy of the Guarantee to the plaintiff on that day.
54. At 19:02, Michelle wrote to Li (which was copied to the 2nd defendant, Jason and Richard) and informed her of the following:-
“Pls note that as I just confirmed with our forwarder, the HK customs still checking the goods now, so i think the goods may arrive HK warehouse about 21:30
Pls confirm back if we can load the goods today then.”
55. At 19:26, Li sent Michelle a copy of the bank slip/payment advice.
56. At 19:49, Li wrote to Michelle and registered the following complaints:-
“I have no choice and I don’t really understand why you always happen like this. After checked with forwarder, it is too late to catch tonight flight. They request that we have to deliver the cargoes to warehouse early tomorrow morning before 8:00 am (NO MORE DELAY) otherwise we will charge you all penalty. Pls kindly note and inform yr truck driver.”
57. The ADD and ACK goods were eventually loaded for shipment by the forwarder at 14 April 2011 at 14:27 as shown by the forwarder’s shipper’s instruction.
58. It is against the above background as revealed by the email communications that the Guarantee was signed and provided by the 2nd defendant to the plaintiff.
ISSUES TO BE DECIDED BY THE COURT
59. In my view, the following are the issues which need to be decided by the court:-
(i) whether the 2nd defendant is still liable under the Guarantee having provided the bank slip for the J41 goods;
(ii) was the Guarantee void due to the failure on the part of the plaintiff in fulfilling the condition precedent;
(iii) should the Guarantee be rescinded or set aside as having been procured by the plaintiff’s misrepresentation;
(iv) Is the 2nd defendant entitled to any set-off; if so, how much.
FINDINGS OF FACT ON SPECIFIC ISSUES
Whether the 2nd defendant is still liable under the Guarantee after providing the bank slip for the J41 goods
60. On this issue, the 2nd defendant’s case is that judging from the email at 09:45 on 13 April and the negotiations between the parties in the two days preceding that, it is clear that the plaintiff had asked for either the payment for the J41 goods to be made or the 2nd defendant to give a personal guarantee for the Five Styles of Goods but not both. The 2nd defendant says that the plaintiff’s stance turned sharply after the signed copy of the Guarantee had been sent to them by the 2nd defendant at 10:39 on 13 April 2011. Such a change of stance has been repeated in the emails subsequent to the signing of the Guarantee.
61. The plaintiff on the other hand argues that it has always been the plaintiff’s intention throughout March to beginning of April that both the bank slip and a guarantee from the 2nd defendant will have to be provided before the plaintiff would deliver the ADD and ACK goods. He was only making adjustments to allow for the time limits for the bank remittance that the 2nd defendant required more time to furnish. When giving evidence Guan stood firm and confirmed that all along this was the case. He said that the email written by Michelle in Chinese asking for either payment for the J41 goods or providing a guarantee was wrong. When asked what those adjustments were during re-examination, Guan told the court that:-
“Before 13 April we had all along been demanding the opposite party to pay us $89,000 in full for the goods price they have owed us. Secondly, as to the goods to be released and goods to be manufactured later, Swamy (ie D2) should make a personal guarantee. Because all things happened on that day, perhaps I could not remember clearly the chronology of all the incidents. So finally the 2 items were stated in the letter of guarantee, I then accepted it. Because on that day, that is the morning of the 13th day, if I received the bank slip that means he had already remitted the money on the 12th. Because Swamy said that if I had to receive the bank slip in the morning of 13th, he was unable to remit the money on the 12th. So I accepted that it was stated clearly in the letter of guarantee what time the payment should be made and also for the future manufacturing of goods, it was stated clearly in the guarantee.”
62. I accept Guan’s explanations above when he said that there was no change in the plaintiff’s stance. I believe him when he said that the perceived change was only due to the error of Michelle in her expression in making the 2 requirements.
63. In my judgment, for the reasons stated below, it will not make commercial sense for the plaintiff to only ask for either payment of the J41 goods or providing a letter of guarantee at that stage.
64. First, the payments guaranteed by the Guarantee did not cover the J41 goods but only the Five Styles of Goods. The guarantee for the payment of those goods was contained in clause 3 of the Guarantee which is distinct from the 1st defendant’s obligation to pay for the amount owed for the J41 goods (which had already been delivered and accepted by the 1st defendant) under clause 1. By this time, the plaintiff must have been very concerned with the ability or willingness of the 1st defendant in paying for any goods which the plaintiff has yet to deliver as the J41 goods had not been paid for even though it was delivered long before the Guarantee was signed. If the plaintiff accepts either option, that means the plaintiff might be forgoing either the payment of the J41 goods or the guaranteeing of payment for the Five Styles of Goods. It simply does not make commercial sense for them to do so.
65. Second, it must be borne in mind that by the time when the Guarantee was signed on 13 April, the 1st defendant still has not had provided the plaintiff with the bank slip for the J41 goods yet. The 2nd defendant in his evidence said that in order to show their sincerity, they were going to send the bank instructions to the plaintiff in the evening of 12 April and asked them to pack the goods before 12:00 noon. The 2nd defendant said that, once he gave the instructions to the bank, they could not take it back. Thus, the bank instructions would be as good as the bank slip itself. Clearly that was not acceptable to the plaintiff as the plaintiff insisted to have the Guarantee besides requesting the bank slip showing the payment for the J41 goods. As shown in the chain of emails above, the 1st defendant was not able to provide the bank slip to the plaintiff until the evening on 13 April at around 19:26. I accept Guan’s evidence when he said that the inclusion of clause 1 of the Guarantee was a concession on the plaintiff’s part to allow more time for the 1st defendant to arrange the remittance. It was merely his attempt to make adjustments in order to make things work. It was not meant as a substitute for the 2nd defendant’s obligation to personally guarantee for the payment of the Five Styles of Goods under clause 3 of the Guarantee.
66. Third and perhaps more importantly, if the 2nd defendant regarded his obligation was either making payment for the J41 goods or providing guarantee for the Five Styles of Goods under the Guarantee, then one would expect that he would raise this straight away with the plaintiff after the 1st defendant had made payment for the J41 goods. No protest was made at all by the 2nd defendant to the effect that the Guarantee was no longer valid once the bank slip for the J41 goods was provided to the plaintiff. In fact, even after the letter before action was sent to the 2nd defendant by the plaintiff’s solicitors on 17 June 2011, this point was never made by the solicitors who replied on the 2nd defendant’s behalf on 11 July 2011. The 2nd defendant admitted under cross-examination that the first time he put on record that the Guarantee was invalid was when the plaintiff served him notice and sued him as the 2nd defendant in this case.
67. In the aforesaid circumstances, I am of the view that despite the wordings used by Michelle in her various emails, the 2nd defendant was prepared to provide a guarantee for the payment of the Five Styles of Goods besides providing the bank slip/payment advice for the J41 goods at or around 6:00 pm on 13 April 2011. Thus, in my judgment, the 2nd defendant is still liable under the Guarantee unless he is able to successfully establish one of the 3 defences raised.
Condition precedent
68. It is common ground that clause 4 of the Guarantee was a condition precedent of the Guarantee, the breach of which would render the guarantee invalid.
69. The 2nd defendant’s case is that there are two, but not inconsistent, interpretation of clause 4, namely:-
(a) “immediately” means before 12:00 noon on 13 April 2011; or
(b) “immediately” means without further ado/unconditionally.
70. On the other hand, the plaintiff submits that the word “immediately” in clause 4 should be interpreted as “as soon as practicable from the time the 2nd defendant provided the Guarantee”.
71. There is no dispute as to the applicable principle for the construction of contract. The court should take into account the factual circumstances of the contract, so as to ascertain the meaning which a contract would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract: see Investor’s Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896; Jumbo King Ltd v Faithful Properties Ltd & Ors [1999] 4 HKC 707.
72. The 2nd defendant’s case on this issue can be found in para 12 (b) of the Amended Defence and Counterclaim where the 2nd defendant alleges that a representation has been made by Michelle:-
“At around a time between 9:30 am to 10:30 am on 13th April 2011, Ms Michelle Tam (譚) of the plaintiff (“Michelle”) represented to the 2nd Defendant and one Ms. Li Kit Shun (Grabi) of the 1st Defendant over the telephone at the plaintiff's delivery truck containing the said goods had left the plaintiff’s factory at around 6am that day and was already on its way to the 1st Defendant's forwarder in Hong Kong and would reach the said forwarder before 12pm that day was waiting outside the forwarder’s address for delivery to hand the said goods to the forwarder, which goods will only be delivered and released to the forwarder before 12 pm upon receiving the Guarantee from the 2nd defendant immediately, otherwise she would stop the delivery truck (“Representation”).”
73. The 2nd defendant claims that in reliance on and/or induced and/or coerced by the representation, the 2nd defendant signed the Guarantee.
74. As can be seen from the above amendments, before this case came to trial, the 2nd defendant had come up with at least two different versions of the representation. The first version was pleaded under the original Defence and Counterclaim where the 2nd defendant had not mentioned about the 12:00 noon deadline at all. Not only the representation of the location of the truck was different, the alleged deadline of 12 noon on 13 April 2011 was also introduced for the first time. The 2nd defendant’s explanation is that due to the winding up of the 1st defendant, he did not have the email records and had to retrieve them from the service provider. Therefore he was not able to re-construct the events through the emails.
75. I find the 2nd defendant's case on this issue not credible for several reasons.
76. First, I do not consider that the allegation in regard of the representation made by Michelle that the goods would be delivered before 12 noon on 13 April 2011 is believable at all. From the e-mails exchanged between the parties on 12 and 13 April 2011, save from one at 12:56 on 12 April from Li to Michelle mentioning that Benetton had already imposed a deadline at 12:00 noon on 13 April for the delivery of the ADD and ACK goods so as to catch the flight at around midnight on 13 April, there was simply no mention of any deadline at all that the goods must be delivered before noon on 13 April 2011. In my view, the above email from Li to Michelle could hardly be said to have the same effect as the 2nd defendant having imposed the same deadline of 12:00 noon on 13 April on the plaintiff. This matter was not mentioned in either the 2nd defendant or Li’s main witness statements filed for the present proceedings. It was not until Li filed her supplemental witness statement that this matter was mentioned by the 2nd defendant for the first time.
77. Second, I consider that the alleged deadline of 12:00 noon on 13 April was a fabrication made up by the 2nd defendant in order to avoid paying under the Guarantee. Not only this was mentioned for the first time in the Amended Defence and Counterclaim, it was never mentioned in the Guarantee itself. Clause 4 was written in English and was added by the 2nd defendant after receiving the unedited Chinese version from Michelle at 09:45 on 13 April. If a deadline indeed had been imposed by the 1st defendant to demand the goods to be delivered to the forwarder by 12:00 noon on 13 April 2011, then I expect the 2nd defendant, being an experienced and astute businessman, would have specifically stated so in the amended version of the Guarantee. This was not done. When asked why the phrase “handed over to forwarder immediately” was used instead during cross-examination, the 2nd defendant, after a long pause, said that it was due to an omission.
78. I do not accept that. In my view, the alleged deadline of “12 noon by 13 April 2011” is clearly an afterthought. If the parties intended to make such a time as the condition precedent of the Guarantee, I expect that such time would be mentioned as part of the terms of the Guarantee. In my judgment, this was not done for the simple reason that it was never part of the agreement of the parties.
79. Third, by looking at the matter objectively, I do not consider that it would be possible for the plaintiff to deliver the goods to the forwarder by 12:00 noon on 13 April 2011 in any event. Despite Richard’s email at 00:03 on 13 April, by the time when Michelle wrote the email in Chinese to the 2nd defendant at 09:45 attaching the original version of the Guarantee, the 2nd defendant knew well that the ADD and ACK goods were being loaded at the time. By the time when the 2nd defendant sent the signed and amended version of the Guarantee to the plaintiff at 10:39 am, the goods would still have been in the process of loading. As it has been accepted by the parties that it would take around 3 hours to load the goods onto the container truck and another 5 to 6 more hours to transport the goods and get through customs in Shenzhen in order to get to the forwarder in Hong Kong, it would simply be unrealistic, if not impossible, to think that the plaintiff would be able to get the goods to the forwarder by 12:00 noon on 13 April when the 2nd defendant signed the Guarantee.
80. Thus, I have no hesitation to reject the 2nd defendant’s argument that the term “immediately” means before 12:00 noon on 13 April in this case.
81. I also have no hesitation in rejecting the 2nd defendant’s argument that the word “immediately” means “without further ado/unconditionally” for several reasons.
82. First, I am of the opinion that the phrase “without further ado” is too vague a term to carry any specific meaning in the context of our present case. It fails to give a specific time frame to the parties to make it meaningful. It could mean one thing to the plaintiff and another thing to the 2nd defendant at the time.
83. Second, in my view, it also could not mean “unconditionally” as the plaintiff clearly was not going to release the ADD and ACK goods without the plaintiff either providing the bank slip or signing the Guarantee or to do both.
84. Third, from the emails exchanged between the plaintiff and the 1st defendant during those 2 fateful days, it is clear that there were frantic negotiations taking place between the parties. It was a very tense but fluid situation. I think it is fair to say that both sides were not sure when the goods could be loaded. The plaintiff was adamant that they would not load the goods until the payment for the J41 goods was made or after the Guarantee was signed. The 2nd defendant on the other hand was hoping that the plaintiff would deliver the goods as soon as they were ready. What is apparent from the emails is that the container truck did not arrive the factory until 03:00 on 13 April. It is perhaps unrealistic to assume that workers would start to load the goods at that time of the morning. As appears clear from the 10:06 and 10:44 email on 13 April from Michelle to Jason, the plaintiff was not prepared to deliver the goods until they receive the signed copy of the Guarantee. Thus, I do not consider that the word “immediately” in clause 4 of the Guarantee means “without further ado or unconditionally” as at the very least the plaintiff was expecting the 2nd defendant to sign the Guarantee and have it scanned (and returned by email) and the original by courier before it was willing to deliver the goods.
85. In the aforesaid circumstances, I accept the plaintiff’s submission that the word “immediately” in the context of the present case means “as soon as practicable from the time after the 2nd defendant has provided the Guarantee”. To me, that would make perfect business sense as on one hand the plaintiff would be able to secure future payment for the Five Styles of Goods in the form of the signed Guarantee by the 2nd defendant and on the other hand would not be tied down by other extrinsic factors like time it would take the workers to load the container; traffic condition and time it would take the lorry to clear customs in Shenzhen. That also explains why in the email from Michelle to Jason written at 17:23 on 12 April, which was before the Guarantee was signed and sent by the 2nd defendant, she stated that the fastest the plaintiff could do was “to load the goods in Hong Kong before 18:00 on 13 April if everything was fine for the customs in Shenzhen”. [emphasis added]
86. In my judgment, the plaintiff has fulfilled the condition precedent by delivering the ADD and ACK goods as soon as practicable after the 2nd defendant had signed and delivered the Guarantee. As such, I do not consider that there was any breach on the part of the plaintiff insofar as clause 4 of the Guarantee is concerned.
Misrepresentation
87. I agree with the Mr Isaac Chan, the 2nd defendant’s counsel submission that the issue of misrepresentation involves two issues to be decided by the court:
(i) Had Michelle made the representation? This factual issue overlaps with the issue concerning what was the meaning of the word “immediately” under the Guarantee which have already been discussed above;
(ii) If the representation was made, was it reasonable for the 2nd defendant to rely on the same in entering the Guarantee.
88. For reasons discussed above, I do not consider that Michelle had in fact made such a representation as pleaded in the Amended Defence and Counterclaim.
89. Further, even if Michelle had made such a representation, I do not think it was reasonable for the 2nd defendant to rely on it. It is quite clear from all the email contents prior to the 2nd defendant signing of the Guarantee at 10:39 that it was most unlikely that the goods would be able to reach the forwarder by 12:00 noon on that day. Under cross-examination, the 2nd defendant admitted that eventhough the email attaching the letter of guarantee which was sent by Michelle to him at 09:45 was written in Chinese, the contents had been explained to him by Li before he signed the Guarantee. It was suggested to the 2nd defendant that this particular email had made it very clear that at the time when the email was written, the plaintiff was still loading the goods on the container truck and therefore could not have possibly be able to meet the alleged deadline at 12:00 noon and the 2nd defendant should have known about this. Thus, it would be totally unreasonable for the 2nd defendant to rely on such alleged representation of Michelle that the goods would be delivered to the forwarder by 12:00 noon on that day when he knew that the goods were still being loaded at that time.
90. The answer given by the 2nd defendant was not credible as he said that “we are handling 500 styles and 14 customers each season. Everybody has their work. I cannot go round to answer all the emails.” When pressed further, the 2nd defendant admitted that he had just ignored the email as Raymond and Michelle had told him the same thing, namely that Raymond’s email at 00:03 on 13 April was consistent with the representation made by Michelle.
91. In my view, it is most unlikely that the 2nd defendant would have ignored such important matters contained in the same email as the one attaching the letter of guarantee. Further, as an astute businessman, I do not believe that the 2nd defendant would have left out such an important matter in the Guarantee which he had the chance to revise and add in his own wordings.
92. Another reason why I think Michelle had never made such a representation is that Li has never made any mention of this in any of the emails. Under cross-examination, Li confirmed that she has to handle a lot of phone calls and emails each day while working for the 1st defendant. Although she did not keep a log of telephone calls, she would record any important matters said on the telephone in a subsequent email, so that there would be a written record of it. However, there was simply no record of such representation made by Michelle. When asked why she did not record something as important as the representation made by Michelle which the 2nd defendant allegedly relied on to enter the Guarantee, Li just said that “time was very tight on that day, and she had no time to do it, because she had a lot of urgent documents to handle.” Even that might be true, I am of the opinion there is no reason why she could not have made a record of it in an email later when the goods have been shipped and all the frantic activities have died down. In my judgment, the reason why it was never mentioned in any of the emails during those two crucial days simply is due to the fact such representation was never made by Michelle.
93. When the 2nd defendant was asked why did he not complain about the plaintiff’s failure in fulfilling its representation, his answer was that: “(There was) no need for me to do so. We got orders. If every time we went shouting and complaining, we cannot do business. I am gonna be the nice guy.” When being challenged of why he did not make any complaint on the personal guarantee, the 2nd defendant’s answer is that “ I agree I should have said that the guarantee should not be valid. I just accepted the goods without doing it. The problem was over. I was just trying to be the nice guy.”
94. I do not accept those are the true reasons at all. I consider that the reason why no complaint was made either on the alleged representation made by Michelle or the validity of the Guarantee is simply due to the fact that such representation had never been made by Michelle. Even if it was made, owed to the timing of signing of the Guarantee, the 2nd defendant had never relied on the representation.
95. In the circumstances, I am of the view that the 2nd defendant’s defence insofar as it was relying on the alleged misrepresentation must fail.
Set-off
96. The 2nd defendant’s case on the set-off is that even if the court finds the Guarantee was effective and enforceable, the 2nd defendant’s liability as a guarantor was only secondary in nature, ie he would only be liable to the same extent as the 1st defendant would. Mr Chan relies on the following passage in Andrews & Millet, Law of Guarantee, 4th edition para 6-002 to make good his point:
“The most important aspect of the nature of a guarantor’s liability as a secondary liability is that it is co-extensive with the liability of the principal. This means that as a general rule, the surety’s liability is no greater and no less than that of the principal, in terms of amount, time for payment and the conditions under which the principal is liable” (§6-002, Andrews & Millet, Law of Guarantees, 4th ed.) [emphasis added]
97. The 2nd defendant submits that the court needs to assess the set-off between the prices of the goods and those damages that the 1st defendant had suffered as a result of the plaintiff’s defective performance of the contracts with the 1st defendant. The 1st defendant further submits that consent judgment between the 1st defendant and the plaintiff does not bind the 2nd defendant. Therefore, it cannot be used as a basis to deny the 2nd defendant of such a defence. The 2nd defendant can still claim the true extent of the 1st defendant’s liability was the price of the unpaid goods to be set-off against US$77,000 and US$4,958.22.
98. The plaintiff on the other hand says that the 2nd defendant is not entitled to the set-off. Firstly, it says that any right that the 1st defendant might have in setting off the plaintiff’s claim had been merged with the consent judgment entered against the 1st defendant. Further, even if the 2nd defendant is able to rely on the alleged set-off, which the plaintiff claims is an equitable set-off rather than legal set-off, any such set-off is subject to limits.
99. On the first point regarding the plaintiff’s claim had been merged with the consent judgment, Mr Keith Lau, counsel for the plaintiff, refers me to the following passage in Phipson on Evidence (17th ed.) para 43-17:
“Where a suit is brought upon a particular cause of action, judgment in favour of the claimant extinguishes all rights arising from that cause of action: transit in rem judicatam – the claimant’s rights all flow from the judgment in substitution for the rights flowing from the cause of action. For this reason, the merger principle is also sometimes referred to as the doctrine of former recovery. Merger is no less the result of res judicata than the other effects of a judgment, though, as explained above, it is better not to treat the doctrine of merger as a species of estoppels. The doctrine of merger resembles cause of action estoppel in that it will only apply where the cause of action in the second action between the parties (or their privies) is the same.
At common law the doctrine of merger was not applied to a foreign judgment. Section 34 of the Civil Jurisdiction and Judgments Act 1982 was passed to remove this anomaly. This provision, however, does not require courts to apply all the highly technical features of common law doctrine of merger when considering the effect of foreign judgments.
One of the most difficult tasks in applying the doctrine of merger is to determine whether the second action involves the same cause of action as the first. It appears that a less technical approach to this issue has gained ground, an approach which has been encouraged by the necessity to identify causes of action in different legal systems in order to apply s.34 of the Civil Jurisdiction and Judgments Act 1982. In general, a cause of action may be taken to be the minimum facts that a claimant must allege and prove in order to succeed in his claim.”
100. During closing submissions Mr Lau submits that the 2nd defendant’s defence will not even get over the first hurdle in that the 1st defendant has entered into the consent judgment with the plaintiff in respect of the net sum already. He refers me to the following passage in Halsbury Laws of Hong Kong (2nd ed) Volume 10 [90.0930] :
“Where the parties settle or compromise pending proceedings by way of consent judgment or order, … the settlement or compromise constitutes a new and independent agreement between them made for good consideration. Its effects are (1) to put an end to the proceedings, for they are thereby spent and exhausted; (2) to preclude the parties from taking any further steps in the action, except where they have provided for liberty to apply to enforce the agreed terms; and (3) to supersede the original cause of action altogether. A Judgment or order made by consent is binding unless and until it has been set aside in proceedings instituted for that purpose and it acts, moreover, as an estoppel by record…” [emphasis added]
101. The plaintiff submits that although the consent judgment does not bind the 2nd defendant, the claim of set-off is the 1st defendant’s right, which is already spent, because the cause of action has been superseded by the consent judgment. Thus, even if consent judgment could be set aside, in the absence of an assignment of the 1st defendant’s right to the 2nd defendant, the 2nd defendant is not entitled to the alleged set-off.
102. Hence, the plaintiff submits that if the 2nd defendant could not get over this first hurdle, none of the alleged set-ff amount is claimable. Even if the 2nd defendant is entitled to claim a set-off, the plaintiff submits that the US$77,000 is not claimable as the defendants have failed to prove that it was the plaintiff who had caused the delay.
103. The plaintiff further submits that in respect of equitable set-off, as a matter of law, not every cross-claim as alleged by the 1st defendant can be deducted, only those arise out of the same transaction or are closely connected with it that a claimant is entitled to claim such a set-off: see Federal Commerce & Navigation co Ltd v Molena Alpha Inc. [1978] 1 QB 927, 973-5 (per Lord Denning) as endorsed by Cheung J (as he then was) in Pollard Construction Co Ltd v Yung Yat Fan [1999] 3 HKC
104. Hence, the plaintiff submits that, based on the evidence revealed, out of the UD$77,000 alleged discount for the delay shipment made by Benetton, only US$24,682.35 were related to the alleged delivery of the unpaid goods, ie the 3 out of the Five Styles of Goods which have remained unpaid for. The rest of the discount was related to the delay shipment of the J41 goods, which is not related to the subject matter of the present proceedings.
105. However, if, which is denied by the plaintiff, that the 2nd defendant is entitled to claim a set-off, the plaintiff does not dispute the setting off of the 2 debit notes, ie DM-5110 and DM-5108 for a total amount of US$4,958.22 on the basis that Guan has accepted this claim under cross-examination.
106. I agree with Mr Lau that the 2nd defendant’s defence of set-off cannot succeed due to the consent judgment which had been entered against the 1st defendant. I agree that the consent judgment between the plaintiff and the 1st defendant does not bind the 2nd defendant. However, when the 1st defendant made a compromise or settled the claim by way of a consent judgment or order, the settlement or compromise constitute a new and independent agreement between them. One of the effects, as stated by the learned writers of Halsbury Laws of Hong Kong, op. cit. is that it will supersede the original cause of action altogether. Hence, any right to set-off, which belonged to the 1st defendant, has been spent and whatever cause of action the 1st defendant may have it was superseded by the consent judgment. As the 2nd defendant’s liability is no greater or less than that of the principal, in terms of amount, time for payment and conditions under which the principal is liable (see passage from Andrews & Millet on Laws of Guarantee cited above), thus, once the 1st defendant has settled or compromised his claim or rights by way of a consent judgment, in my view, the 2nd defendant cannot have a right greater than that enjoyed by the 1st defendant.
107. If I am wrong on the above, I am of the view that the 2nd defendant is still not entitled to claim a set-off in the sum of US$77,000 against the plaintiff as he has failed to prove that the delay was caused by the plaintiff alone. During the course of the trial, it becomes clear that the delay in the shipment was caused by many factors. One of them being the poor quality of the fabrics supplied by Benetton’s designated supplier to the plaintiff. The 2nd defendant also admitted that the delay was contributed to by different parties, including Benetton. Thus, it is difficult to see why the plaintiff should be held wholly liable for the sum of US$77,000.
108. Further, as shown in the debit note sent by Benetton to the 1st defendant on 24 August 2011, out of the US$77,000 discount they made against the 1st defendant, only US$24,682.35 was related to the unpaid goods. In my view, those related to the J41 goods – which had been delivered and accepted by the 1st defendant – could not be treated as closely related transactions of which the 2nd defendant is entitled to an equitable set-off.
109. For the sums of US$4,958.22 under the 2 debit notes, based on the admission made by Guan during evidence, in the event that I am wrong regarding the 2nd defendant’s right to any set-off, then such amount should be deducted from the net sum.
CONCLUSION
110. In conclusion, in my judgment,
(1) the plaintiff is entitled to judgment for the net sum claimed against the 2nd defendant at HK$999,997.13;
(2) there will be interest on the said sum of HK$999,997.13 at judgment rate from the date of issue of writ to date of judgment and thereafter at judgment rate until payment.
111. Costs should follow the event. There is no reason in my view why the plaintiff should not be entitled to its costs. I shall make an Order Nisi that the 2nd defendant do pay the costs of the action to the plaintiff on a party and party basis, such costs to be taxed if not agreed with certificate for counsel. The Order Nisi will become absolute unless the party apply to vary the same within 14 days.
112. Lastly, I would like to thank counsel on both sides for their very helpful assistance.
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( Andrew S Y Li )
District Judge
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Mr Keith Lau, instructed by Kelvin Cheung & Co, for the plaintiff
Mr Isaac Chan, instructed by Ribeiro Hui, for the 2nd defendant
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