NCT HONG KONG LTD v. SINOCHEM INTERNATIONAL CHEMICALS (HONG KONG) LTD

HCA 1863/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1863 OF 2005

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D E C I S I O N

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Application

1. This is an application for summary judgment by the Plaintiff against the Defendant for, inter alia, the sum of US$6,867,600.00, being return of purchase price paid, together with interest and costs.

Background

2. By a contract dated 18 March 2005, the Plaintiff agreed to purchase and the Defendant agreed to sell 7,760 MT of PVC (“the Goods”) at the price of US$6,867,600.00.  Payment was to be made by letter of credit and the Goods were to be delivered ex Huangpu Bonded Warehouse, Guangzhou, China from 1 April 2005 to 30 June 2005.

3. Payment of the purchase price was subsequently effected through the parties' bankers to the Defendant upon presentation of documents required under the transaction, including a certificate (“the Certificate”) issued by a company stored the Goods for the Defendant, Sinotrans Guangdon Jiuling Transport & Storage Company (廣東中外運久凌儲運公司) (“Sinotrans”).  The Certificate confirmed that the Goods were held at 2 warehouses, namely No. 1 Xingang Road Warehouse and PSA Warehouse (collectively “the Warehouses”).

4. On 14 October 2005, the Plaintiff commenced the present proceedings against the Defendant complaining that there was a total failure of consideration on the part of the Defendant who was said to fail to:

“…'deliver' the Goods to the Plaintiff by 30 June 2005 or at all.  In this respect, notwithstanding what was stated to the contrary in the Invoice, the Delivery Orders and the Sinotrans Certificate:-

(a) the Goods, which were purportedly held by Sinotrans and located at the No. 1 Xingang Road Warehouse and the PSA Warehouse, did not exist.

(b) the No. 1 Xingang Road Warehouse and the PSA Warehouse did not at any point in time have in their custody and hold for the Defendant or Sinotrans any cargo corresponding to the description of the Goods; and

(c) Sinotrans did not at any point in time have custody of or hold any cargo corresponding to the description of the Goods for and on behalf of the Defendant and did not hold own or operate the No. 1 Xingang Road Warehouse or the PSA Warehouse.”  (paragraph 8 of the Statement of Claim filed on 14 October 2005)

The Plaintiff claimed against the Defendant for the return of the purchase price paid, damages to be assessed, interest and costs.

5. The Defendant contested the proceedings.  An Amended Defence was filed on 10 January 2006.  By a summons filed on 18 January 2006, the Plaintiff applied for summary judgment against the Defendant.  The substantive argument of the matter was fixed to be heard by me on 26 May 2006.  Mr. Allan Leung of Messrs. Lovells acted for the Plaintiff and Mr. Peter Ng, S.C. represented for the Defendant.  Having heard from the parties, I reserved my decision to be handed down.  I now do so.

Case of the Plaintiff

6. Mr. Leung told me that the Plaintiff's case was straightforward.  The Defendant simply failed to deliver the Goods.  Investigations of the Plaintiff revealed that Sinotrans had never contracted with the Defendant.  The Goods were not stored in the Warehouses.  Hence, the purported delivery of “empty” documents of title by the Defendant was no delivery at all.  The Goods did not in fact 'exist'.  Accordingly to the authorities of Couturier v Hastie [1843-60] All ER Rep 280 and McRae v Commonwealth Disposals Commission (1951) 84 CLR 377, the Plaintiff was entitled to the recovery of the purchase price.

7. Mr. Leung further persuaded me to ignore the issues raised by the Defendant as they attempted only to confuse this Court.

Case of the Defendant

8. On the other hand, Mr. Ng argued that the application for summary judgment should be dismissed.  In the present case, there were numerous issues of facts and/or issues of mixed law and facts. They made it wholly unsuitable for the disputes to be adjudicated on affidavit evidence.

9. It was the Defence case that the Goods did “exist”.  The Defendant sourced them from Japan, delegated the storage to Sinotrans in the Warehouses, arranged a joint inspection by the relevant parties, passed the documents of title to the Plaintiff.  The Goods were eventually picked up by the sub-buyers who issued cheques to the Plaintiff for payment.  The fact that the cheques were dishonoured should not afford the Plaintiff to sue the Defendant.

The Law

10. Both Mr. Leung and Mr. Ng addressed this Court on the applicable principles under application for summary judgment.  For our purpose, I purport to summarize that the underlying policy of summary procedure is to prevent the defendant from delaying the plaintiff from obtaining judgment in a case in which the defendant clearly has no defence.  Two questions are to be asked by this Court.  First, factually, is what the defendant says believable in light of undisputed or indisputable circumstances?  In this regard, the Court is entitled to have regard to the commercial reality as well as to the contemporaneous documents.  However, mini-trial on affidavit evidence shall not be embarked.  Bare assertion is insufficient and the defendant must condescend upon particulars.  Second, legally, if what the defendant says is believable, does it amount to an arguable defence in law?  After all, the burden lies on the defendant to show triable issue or some other reason to be a trial.

Ruling

11. Applying the above principles to our present case, I am of the view that unconditional leave should be granted to the Defendant to defend for the case.  My reasons appear as follows.

(a) First, upon consideration of all the evidence put by the parties in this application, including the purchase of the Goods, the storage agreements with Sinotrans, the PRC legal opinion issued by Tianyuan Law Firm, the documents of title (including the Certificate), the payment relating to the sub-sale by the Plaintiff (including the payment of US$50,000.00 on 30 June 2005 and the two undated cheques in the respective sums of HK$18,500,925.00 and HK$28,184,727.00), I cannot come to a conclusion that the Defendant's case is unbelievable in the circumstances. If the Defence will eventually accepted by the Court after trial, it certainly amounts to a valid defence in law to the claim.

(b) Second, Mr. Leung tried his best to ask me only to look at the matter by reference to two specific dates:

“It is the Plaintiff's case that as the underlying Goods represented by the Invoice, the Purported Delivery Orders and the Purported Sinotrans Certificate were not in 'existence' whether on 1 April 2005 or 15 April 2005, being the earliest and latest dates of transfer of title and delivery relied on by the Defendant [HB/1/3/20], the mere 'handing-over' of what were essentially 'empty' documents by the Defendant could not be construed as good delivery.  Hence, the Defendant had failed to give due consideration for the monies received under the L/C.” (paragraph 4 of Mr. Leung's skeleton)

I respectively disagree and believe that the existence and/or storage of the Goods remain a fact to be decided by the Court after trial.  Further, if delivery of the Goods were indeed taken by the sub-buyers, it would be manifestly unjust to allow the Plaintiff to recover the purchase price.

(c) Third and finally, though our common law system only requires the Court to be adversarial, and not inquisitorial, I do not consider that summary judgment should be granted when the facts of the case have not been made clear to the Court. Questions including:  Where were and are the Goods?  Who is/are the crooks(s)/victim(s): the Plaintiff, the Defendant, the two mainlanders (Mr. Li Zhiwei (黎志煒) / Mr. Rao Guangxin (饒廣新)) or the sub-buyers? are to be resolved.

Costs and further direction

12. Given that I have granted unconditional leave for the Defendant to defend for the proceedings, I believe that costs of the application, including the costs reserved on 13 February 2006 and Certificate for Counsel (if applicable) on 26 May 2006, should be costs in the cause.  Such order nisi will become absolute after 14 days from today.

13. I further allow the Plaintiff to file and serve its Reply to the Amended Defence within 14 days from today.