PIRELLI CABLES LTD. v. GOODWAY LTD.

IN THE COURT OF APPEAL

1997, No.99
(Civil)

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J U D G M E N T

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Barnett, J.:

1. The Plaintiff, which is the Respondent to this appeal, has an apparently straightforward claim for goods sold and delivered. Its statement of claim consists of 5 paragraphs running to half a page, supplemented by a schedule of two and a half pages of invoices totalling 1.7 million. That is the sum claimed by the Plaintiff, which it sought to recover by way of the summary procedure under O.14.

2. By its defence the Defendant, which is the Appellant, denied that there was any contractual relationship between it and the Plaintiff and asserted that it did not owe the Plaintiff the sum claimed or any sum at all. The Defendant pleaded that by a contract made on or about 1st August 1993 between it and Pirelli Cavi S.p.A (Cavi) the Defendant was appointed sole agent of Cavi for the distribution of Pirelli cables and accessories in Hong Kong and Macau. Cavi was and is the parent company of various companies within the well known international Pirelli group. The Plaintiff is one of its subsidiaries. Cables and other products would be sourced by Cavi for the Defendant from subsidiaries or associated companies of Cavi. The bulk of subsequent orders placed by the Defendant were with the Plaintiff as agent of Pirelli General plc., both being English companies.

3. The Defendant also advanced a counterclaim and set off. This was to the effect that the agreement between Cavi and the Defendant was entered into by Cavi as agent for the Plaintiff. According to the Defendant the Plaintiff was in breach of that agreement, principally by failure to pay commission in respect of cables and other products supplied direct to customers in Hong Kong. The amount of the counterclaim was 1.8 million, and HK$14.8 million, apart from damages to be assessed. The effect of the counterclaim therefore, if successful, would be to extinguish wholly the amount of the Plaintiff's claim.

4. The Plaintiff's application under Ord.14 was heard by Deputy Judge Woolley. In a reserved decision handed down on 25th April 1997 he said:

"I can therefore come to only one conclusion on the evidence here which is that, although the dealings between the plaintiff and the defendant were conducted under the umbrella of the overall agreement and arrangements between the defendant and Cavi, apparently the parent company of the Pirelli group, orders placed by the defendant with the plaintiff, as with other companies within the group, were separate contracts with those companies under which the defendant was expected to, and did prior to these contracts, make payment to the company with which it had contracted.

This is then, as Mr. Bleach has maintained, a straightforward case of goods sold and delivered. The defendant placed orders with the plaintiff, the plaintiff fulfilled those orders and submitted invoices, and the defendant has failed to pay. I find that there is no arguable defence on the first issue of the capacity of the plaintiff to sue.

As to the counterclaim, the defendant seeks to justify the inclusion of this in the defence by pleading that the agency agreement was made by Cavi as agent for the plaintiff. As Mr. Bleach has pointed out, there is no evidence of this. Indeed, Mr. Wong specifically denies it in his 2nd affidavit where he says, in paragraph 4: "... there was never at any time either during the negotiations or at any time in the course of dealing any suggestion that the Agency Agreement was to be struck with Cables". There is no dispute here that the plaintiff, Cavi, and the other companies in the group are anything other that separate entities. Whether they are wholly-owned subsidiaries, or agents, of other companies in the group is not here a relevant factor. The only evidence in this application is that the agreement on which the defendant seeks to make its counterclaim was with Cavi, and I can find nothing by which the plaintiff as a separate entity could possibly be liable to the defendant under it."

5. The Mr. Wong there referred to is Peter Wong, a director and main deponent on behalf of the Defendant who also played the main role on its behalf.

6. Mr. Ronny Tong S.C. who appeared for the Defendant but who did not represent it below put the matter slightly differently from the way in which it was put before the Deputy Judge. He said that the real issue is whether or not the Plaintiff was a party to the agreement ostensibly made between the Plaintiff and Cavi, an agreement which has been called the Agency Agreement. Although reduced into writing the Agency Agreement was not signed. Mr. Tong argued that, by looking at the evidence of the negotiations leading to the agreement, at the written but unsigned agreement itself and at contemporaneous documents, it is at least arguable that the Plaintiff was a party to this agreement. If it is arguable the Defendant should not be shut out from having its day in court and should be given leave to defend.

7. For my part I cannot see that any of the material relied upon by Mr. Tong even starts to suggest that the Plaintiff was a party to the Agency Agreement. The Defendant's exclusive agency had originally been by way of a written agreement dated 1st January 1993 with Cavi's predecessor. When Cavi took over in 1993 it produced the written agreement to regularise its position. Although that agreement was not signed it formed the basis of the relationship between Cavi and the Defendant thereafter. There were no significant differences between the two agreements.

8. Mr. Wong made two affirmations in which he gave some details of the negotiations which led to the making of the agreement with Cavi's predecessor. He said that discussions were held in Italy and Hong Kong with senior officers of Cavi's predecessor. Representatives of the Plaintiff "were present on one occasion (as a principal supplier)" but the Defendant was negotiating with Cavi's predecessor. Mr. Wong went on that the dealings of the Defendant with the Plaintiff were on the basis that the Plaintiff was a nominated supplier to whom the Defendant had been referred by Cavi. He said there had never been a direct contractual relationship between the Plaintiff and the Defendant but that orders were replaced on the instructions of Cavi which directed the Defendant where to place orders for various types of cables.

9. In his second affirmation, Mr. Wong said that representatives of the Plaintiff were invited to the negotiations for the original agreement because most cable purchased for use in Hong Kong is supplied to British standards so that it was intended that the Plaintiff would be principal supplier. He also said that Cavi's predecessor would arrange supply from other Pirelli companies if necessary. In spite of the Plaintiff's position as principal supplier, Mr. Wong said that there was never any suggestion that the Agency Agreement was to be struck with the Plaintiff. He understood that Cavi would as principal co-ordinate the marketing of cables and would act purely as a middleman.

10. The written but unsigned Agency Agreement identifies the parties as Cavi and the Defendant. There is no suggestion that Cavi was acting for or on behalf of any of its subsidiaries or associated companies. The document then recites, inter alia, that Cavi is to appoint the Defendant, and the Defendant is to act, as Cavi's sole agent. Cavi reserved the right to supply products direct to certain large named utilities in Hong Kong and Macau. The Defendant would then be entitled to an agency commission at an agreed rate and "such commission shall be paid in sales currency by whichever affiliate has supplied the cable to (the Defendant)".

11. The section in the written agreement dealing with Procedure required the Defendant to refer all customer requests for quotations to Cavi and in general enabled Cavi to exercise control over the Defendant's activities. The agreement then provided for the Defendant's commission, which was to be included in the price quoted to customers. The commission was "to be paid by the affiliate making the sale to (the Defendant)".

12. There was provision for termination in the agreement. Upon termination, inter alia, Cavi was to pay to the Defendant "all commission due under this agreement". Finally there was a provision, upon which Mr. Tong placed some reliance, that Cavi warranted and undertook "that the obligations herein contained bind not only itself but all [its] subsidiaries in the world and the term "subsidiary" shall mean any company or firm or business in which any of the shareholders of (Cavi) is a shareholder or proprietor or partner".

13. I am at a loss to see how, on the basis of the negotiation and the written document, the Plaintiff could be said to be a party to the Agency Agreement. The Plaintiff was admittedly represented at part of the negotiations but did not, on the evidence, play any effective role. Indeed, the Defendant's own evidence is that it was not negotiating with the Plaintiff at that stage. It is quite clear to me, as Mr. John Griffiths S.C. for the Plaintiff suggested, that the Plaintiff's role was akin to that of a nominated sub-contractor in a building contract in Hong Kong. The contractor would enter into a separate and distinct contract with the sub-contractor for the supply of materials or services. There would be no suggestion that somehow that sub-contractor would be no more than an agent. Equally, it seems to me that Mr. Griffiths is quite right when he says that the provision for the Defendant's commission to be paid by the affiliate supplying the cable or other product is no more than a mechanism for payment. In the event of non payment, liability reposes in Cavi to whom the Defendant can look for payment in the event that Cavi, pursuant to its warranty under the Agency Agreement, is unable to procure the affiliate to make the payment.

14. The documents relied on by Mr. Tong are of no more help. In December 1996, the Plaintiff issued a "to whom it may concern" document saying that "we terminated the agency agreement with (the Defendant)" and "we appointed" another company as sole distributor for Hong Kong. While the Agency Agreement there referred to might well be the same as the Agency Agreement with which this appeal is concerned, the document is not one which can properly be used in the construction of a contract made some years before. Likewise, the reliance on the statement of claim in another action brought by the Plaintiff against the Defendant in which the Plaintiff pleads that "the Defendant was acting as agent of the Plaintiff" does not carry the matter further.

15. Turning to the question of whether or not the Plaintiff was no more than a collecting agent for Pirelli General plc., Mr. Tong relied essentially upon two separate sets of documents. First, there were documents which he said demonstrated that the Plaintiff was nothing more than a conduit pipe in the supply of the goods. For example, there is a letter dated 2nd August 1995 from Cavi confirming that it has been able to find the Defendant a further source of supply from a French subsidiary or affiliate. Again, a letter from Cavi dated 16th March 1994 informed the Defendant about Cavi's intention to expand business in Hong Kong and the manner in which this would be done. Or again, a letter dated 30th September 1991 from Pirelli General plc. to the Plaintiff confirming the Plaintiff's appointment as agent and requiring inter alia that the Plaintiff maintain a separate bank account for the purpose of paying suppliers and sub-contractors and for the receipt of all money collected on Pirelli General's behalf.

16. These documents are not inconsistent with Cavi's coordinating role. In the face of the overwhelming evidence that the Plaintiff was not acting as agent for Pirelli General, they simply do not raise any case to the contrary. The Defendant, as is not in dispute, placed the bulk of its orders for Pirelli products with the Plaintiff. The Plaintiff issued invoices for and supplied those products. The Defendant paid those invoices. It may well be that the Plaintiff and Pirelli General plc. share a common address and telephone number, as Mr. Tong demonstrated from the documents. But nowhere is there any indication that, as far as transactions between the Plaintiff and Defendant were concerned, the Plaintiff was acting as agent for Pirelli General plc.

17. The other set of documents relied on consist of an exchange of correspondence, before the commencement of this action, between Cavi and the Defendant in which Cavi referred to the sum now claimed by the Plaintiff as being due to Cavi. Absent from this exchange of correspondence, said Mr. Tong, is any letter before action from the Plaintiff itself.

18. It is quite plain that all that Cavi was trying to do was to clarify and resolve the unhappy situation in which Cavi, the Plaintiff and the Defendant had found themselves. While Cavi was certainly seeking payment of the sum said to be due from the Defendant for goods supplied by or through the Plaintiff and making it plain that there would be no further supplies until payment was effected, I have no doubt that had the Defendant decided to make payment, that payment would have been made to the Plaintiff and not to Cavi.

19. In my judgment, the Deputy Judge got it exactly right. I would dismiss this appeal.

Mayo, J.A.:

20. I agree.

Nazareth, V.-P.:

21. I also agree. It would be remarkable in a case of this sort, involving a relationship extending over a considerable period and a coordinating role by Cavi, if there were not some evidence in which the defendant could seek support. However, I am satisfied that it falls well short of raising an arguable case without which the defendant could not succeed.

22. In the result the appeal is dismissed. There will be an order nisi that the plaintiff is to have its costs of the appeal.