HANG SENG BANK LTD v. GAINTEX GARMENT COMPANY LTD

HCA 1789/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1789 OF 2011

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JUDGMENT
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1. This is an action brought by the plaintiff, Hang Seng Bank Ltd (the Bank), against the defendant, Gaintex Garment Company Ltd (Gaintex), for sums allegedly due to the Bank in its capacity as the assignee of debts under a Factoring Agreement entered into with another company, Seven Seas Textiles Industries Ltd (Seven Seas).

2. The writ was issued in October 2011, and a defence was filed by solicitors for Gaintex on 13 December 2011.  The usual interlocutory steps took place and witness statements were filed by both sides.  In January 2014 the defence was amended, and in February 2014, a re‑amended reply was filed.  In due course the matter was set down for trial, however on 17 March 2015, Gaintex’s solicitors sought and obtained leave to cease to act.  Gaintex did not appear on the trial date.

3. A factoring agreement is an equitable assignment of debts.  The Factoring Agreement in this case contains usual provisions:

(a) The ownership of the debts and associated rights (as defined in the Factoring Agreement) shall as regards debts existing at the commencement date, 7 November 2008, vest in the Bank on that date and shall, as regards future debts, vest in the Bank automatically upon coming into existence.

(b) The Bank has the exclusive right to collect and enforce payment of any debt in such manner as it may decide and for such purpose, to institute, conduct, defend or compromise in the name of the Bank on such terms as the Bank thinks fit in any legal proceedings in relation to such debts.

(c) Seven Seas was to undertake to ensure that each invoice issued by it to any customer relating to a debt covers goods which have been actually dispatched contains in such form as the Bank may require a notice of assignment, terms of payment in the customary trade particulars as to description, quality and quantity of the relevant goods (as defined in the Factoring Agreement).

(d) In consideration of the assignment of the debts due to Seven Seas by its customers, the Bank agreed to prepay to Seven Seas 80% of those debts as they came into existence.

4. The benefit to Seven Seas of the Factoring Agreement was that merely upon the issue of an invoice to its customer, and the supply of that invoice to the Bank, Seven Seas would receive immediately 80% of the amount due to it. Seven Seas thereby achieved a cash flow without having to wait for its debts to be paid to it by its customers. 

5. Because there was consideration for the agreement Seven Seas was able to assign to the Bank the future receipts of its business: see Guest on the Law of Assignment, 1^st Edn, 1.1; Re Jones ex parte Nicholls (1883) 22 Ch D 782, Tailby v Official Receiver (1888) 13 App Cas 523 and Wilmot v Alton [1897] 1 QB 17.

6. I am satisfied of the following facts, after formal proof by the Bank.

7. On 7 November 2008, the Bank entered into the Factoring Agreement with Seven Seas by which Seven Seas assigned to the Bank all debts owed to Seven Seas by its customers in respect of goods supplied and/or services rendered as evidenced by invoices issued by Seven Seas.  Gaintex is one of such customers.

8. Although notice is not necessary for the effectiveness of an equitable assignment pursuant to a factoring agreement, by two letters on 28 November 2008, the Bank notified Gaintex that all invoices under the account of Seven Seas had been assigned to the Bank and were payable to the Bank.  The second letter notified Gaintex that should it have any reason for withholding payment or queries relating to its account, Gaintex should contact the Bank, and if the Bank did not hear from Gaintex within 14 calendar days of the issue of the invoice, the Bank was entitled to consider that Gaintex had accepted the invoice, and agreed to make payment to the Bank.  In addition to those two letters, notice of the assignment was placed on each invoice sent by Seven Seas to Gaintex, and on each monthly statement sent to Gaintex.

9. I am satisfied from the evidence contained in the invoices issued by Seven Seas to Gaintex, and supplied to the Bank, and produced in court that as at the date of the issue of the writ, by virtue of the Factoring Agreement, Gaintex was indebted to the Bank in the sum of €117,144.89, and HK$10,750,420.19. Gaintex has made no complaint to the Bank about any of the invoices.

10. There being no defence offered by Gaintex to the claim, judgment will be entered against Gaintex for those sums.

11. There will be judgment in favour of the bank for interest on both sums, at judgment rate from the date of the issue of the writ to the date of payment. 

12. The Bank will have its costs to be paid on a party‑and‑party basis, taxed if not agreed.