BENZER ELECTRONICS MFG., LTD v. DAYS INTERNATIONAL LTD

HCA 1718/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1718 OF 2009

____________

BETWEEN

____________

_______________

J U D G M E N T

_______________

Introduction

1.  This is an appeal from a refusal by Master de Souza to admit into evidence the third affirmation of Nanik Dayaram dated 12 November 2009 on the hearing of the Plaintiff’s application for summary judgment which is to be heard tomorrow.

2.  The Plaintiff has sold to the Defendant 10,600 car CD players and 8,200 on-board DVD players for a total selling price of USD1,307,370 which the Defendant sent to Brazil where they were to be sold through, judging by its name, its associated Brazilian company.

3.  On 30 December 2008, the Plaintiff shipped 5,300 CD players and 4,100 DVD players and presented the Defendant with two invoices, one for USD326,455.50 and another for USD326,842.50. The Defendant has paid the first invoice but not the second. Accordingly, the Plaintiff is suing for payment of USD326,842.50 being the amount of the second invoice.

4.  This claim has been met by the Defendant with a defence that what was sold were defective goods. The case is explained in the 1^st affirmation of Nanik Dayaram which is dated 8September 2009. He has, in the course of a 16-page affirmation, set out the course of dealing between the parties which goes back to 2006, during which time the Defendant has purchased 157,590, to use their generic name, car stereos from the Plaintiff. These are sold under the Hyundai brand name. The parties would adopt the Acceptable Quality Level (“AQL”) standard of inspection for these products which is acknowledged world-wide as a suitable method of reliable inspection. For these purposes, it is sufficient to relate that three inspections were carried out which took place on 8 and 15 July 2008 and a third on 11 September 2008.

5.  Mr Nanik has said that the Defendant’s inspector, and it is right to say that these inspections were carried out by the Defendant, discovered both major and minor defects, notwithstanding which it was prepared to accept the items because the defects found fell within the acceptable range set out in the AQL table [see paragraph 24 of Mr Nanik’s first affirmation].

6.  Whilst these items were all accepted by the Defendant, Mr Nanik says that once they were sold to customers in Brazil the Defendant’s related company in Brazil received 7,210 complaints to their call centre from 1 June 2008 to 3 September 2009 and additional complaints to their Brazilian company’s sales representatives and to department stores which sold these products. Worse still the Brazilian company has been sued in the Brazilian courts. Mr Nanik has produced a list of 44 court cases filed against its Brazilian associate and he has also exhibited in his third affirmation some judgments in which damages have been ordered.

7.  In this first affirmation, Mr Nanik has discussed the various defects complained of which are said to justify non-payment of the invoice and the discussions that the Defendant has had with the Plaintiff’s representatives.

8.  Mr Prakash Bhatia, a director of the Plaintiff, has provided a substantive reply in his second affirmation of 6 October 2009. Without wishing to do Mr Bhatia an injustice by being too brief in my analysis of his affirmation, what he says is that it is not open to the Defendant to now make these complaints. It had these products inspected on its behalf and it should not be allowed to raise these defects as a reason for not paying. In any event, Mr Bhatia doubts the validity of the defects which includes a complaint that the product does not function in the high temperatures of Brazil.

9.  Having seen these substantive and substantial replies from Mr Bhatia, the Defendant, which was continuing to investigate these defects, then sent two samples to be tested by SGS in Hong Kong, it being a well-known Quality Testing Organisation with a world-wide presence. This examination served to confirm the Defendant’s complaints.

10.  Given this outcome, Mr Nanik has prepared two further affirmations, the first of which explains the reasons for the third, substantive affirmation, which purports to provide the most up-to-date position which includes the SGS report and the judgments from the Brazilian courts in respect of claims by consumers, for defective products.

The time-table

11.  It is worth noting that the substantive hearing for the Order 14 summons tomorrow was fixed on 29 September 2009 when three hours were set aside for the argument to be heard.

12.  On 12 November 2009, the Defendant took out its summons to have Mr Nanik’s third affirmation admitted into evidence which Master De Souza heard on 17 November and this appeal is therefore being heard the day before the hearing of the Order 14 summons.

13.  The Plaintiff’s stance is that if the appeal is allowed and I admit Mr Nanik’s affirmation, it has ready an affirmation in reply which it will seek to have admitted by the Master tomorrow. It does not seek an adjournment of tomorrow’s hearing and it will then be up to the Defendant, depending on the content to the affirmation in reply, to decide whether to go on or to ask for an adjournment.

The argument

14.  Mr Campbell, for the Plaintiff, submits that Mr Nanik’s further affirmation simply cannot affect the outcome of the Order 14 summons and therefore, for that reason alone, it should not be admitted.

15.  It seems to me that my approach is to see whether the ground covered in Mr Nanik’s affirmation is reasonably capable of supporting the Defendant’s claim that it has raised one or more triable issues which would require the Master to give it leave to defend. Failure to pass this threshold test by the Defendant must result in my dismissing the appeal.

16.  Mr Alder, on the Defendant’s behalf, has referred to what he says is a cogent body of evidence now impressively compiled in Mr Nanik’s third affirmation which supports a case of breach of contract by the Plaintiff in supplying car stereos which are not of merchantable quality or fit for their purpose, in which circumstances the Defendant is justified in not paying and which also supports a claim for damages against the Plaintiff.

17.  This being the test which I need to apply I have listened to argument which is identical to the argument which will be addressed to the Master on the substantive hearing. The burden on Mr Alder today is not as onerous as on the substantive hearing because it seems to me that the test that I need to apply is to ask the question whether Mr Nanik’s third affirmation is reasonably capable of affecting the outcome of the Order 14 summons rather than having to decide whether it in fact would do so which is a matter for the Master hearing the summons.

18.  My approach is somewhat broader and less strict on the Defendant.

19.  I have decided that this third affirmation is perfectly authentic, in the sense that it purports to condescend to proper particulars and seeks to introduce matters of substance which directly affect the prime issues of quality and fitness for purpose. Whilst late, and this can be reflected in costs by the Master if Mr Alder feels obliged to answer Mr Campbell’s already prepared affirmation in reply to Mr Nanik’s third affirmation, I have had placed before me good reasons why this further evidence was not available earlier.

20.  On any analysis, the material contained in this third affirmation is capable of affecting the outcome of the Order 14 summons, whether it will, is entirely a matter for the Master, and the Defendant should be allowed to deploy it. This is all directly relevant to the issues of quality and fitness. It would be wrong to deprive the Defendant of the opportunity of placing it before the court. The Plaintiff is content to go on tomorrow even if it is admitted because, sensibly in my view, Mr Campbell already has an affirmation in reply which he will seek to have admitted by the Master in the comfortable expectation that he will be allowed to use it.

21.  That would then put the Defendant in the position of perhaps having to ask for an adjournment to consider it and to ask for leave to respond to it with all the usual costs implications.

22.  Be that as it may, I do not think that any of Mr Campbell’s submissions today have demonstrated that the material in Mr Nanik’s third affirmation is of no substance in terms of the relevant issues. This material should properly be before the Master who must decide for himself how it should be weighed on the Order 14 summons.

23.  I give leave for it to be admitted. I suppose I could also now give the Plaintiff leave to reply but I prefer for that to be done by the Master tomorrow, if he considers that is the right thing to do. I think Mr Campbell would be sensible to let Mr Alder see it in draft now.

24.  As to costs, on which I have already heard provisional argument, I will say that these costs and those before the Master should be costs in the Order 14 summons.