ITW ASIA (PTE) LTD v. TECHNOFIX LTD

HCA 2742/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2742 OF 2003

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J U D G M E N T

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1. The Plaintiff applies for summary judgment against the Defendant for a sum of US$93,827.50, being the outstanding price of goods sold and delivered by the Plaintiff to the Defendant during the period of 10th January 2003 to 22nd April 2003, with interest and costs. The Defendant does not deny that the goods were so supplied by the Plaintiff and accepted by the Defendant. The Defendant's defence is one of set-off and counterclaim on the ground that the Plaintiff has acted in breach of a distribution agreement, alleged by the Defendant to have been made between the parties in Shanghai on 22nd November 2001 ("Distribution Agreement"). The Defendant claims that the Distribution Agreement was reduced into writing in the form of a written summary dated 22nd November 2001 ("Summary").

2. The Defendant claims that, as evidenced by and recorded in the Summary, the parties agreed, inter alia, that insofar as Hong Kong in the year 2002 was concerned:-

1.	The Defendant would be granted a one year "exclusive distributorship agreement" for the period from lst December 2001 to 31st November 2002, subject to renewal at the end of that period;
2.	The "purchase volume" of the goods by the Defendant was ?900,000;
3.	Payment terms and price were to "remain the same as Spit France (an associated company of the Plaintiff and from which the Defendant had purchased goods before), and the Defendant was to be given a 120-day credit period.

3. The Defendant claims that in May 2002, the Plaintiff had proposed to vary the terms of the Distribution Agreement, and that such variation had been agreed by the Defendant:-

1. All payments were to be made in US dollars;

2. The credit period was reduced from 120 to 90 days; and

3. Shipment of goods from Spit was to be made via the Plaintiff in Singapore.

4. There is no issue between the parties that such variation of the terms of the Distribution Agreement had been agreed and accepted by the Defendant.

5. However, the Defendant claims that in April 2003, the Plaintiff again proposed to vary the terms of the Distribution Agreement by seeking:

1. a 20% increase in the purchase price of Spit products; and

2. all payments to be made by way of letters of credit.

6. The Defendant claims that the Plaintiff's proposed variation of the Distribution Agreement on 8th April 2003 was in breach of the Distribution Agreement, as a result of which the Defendant has suffered loss and damages, and seeks to cross-claim against the Plaintiff for such damages.

7. The test in determining whether a defendant should be given leave to defend is by now well-established. The Defendant must show that there is a real or bona fide defence. The Defendant's allegations must be credible or believable in the light of the evidence placed before the Court. In the words of Bokhary JA in Re Safe Rich Industries Ltd ([1994] H.K.L.Y. 115), the question is "whether the defendant's assertions are believable ... in the context of so much of the background as either undisputed or beyond reasonable doubt".

8. There are certainly issues of fact raised in the evidence filed on behalf of the parties. The Defendant claims that there was a binding agreement made between Mr. Yeo of the Plaintiff and Mr. Neveu of the Defendant when the parties met in Shanghai on 22nd November 2001. The verbal agreement reached was reduced into writing in the form of the Summary exhibited as "PN-1". The Plaintiff denies that there was any concluded Distribution Agreement at all, that the Summary does not support a conclusive legal agreement and that the parties had contemplated that there should be a formal agreement signed. Is what the Defendant says credible or believable?

9. A substantial amount of correspondence and other documents was exhibited to the parties' evidence filed in these O14 proceedings. I remind myself that there should not be a mini-trial on the affidavits. However, having gone through such documents, it appears to me that from the contemporaneous documents and emails exchanged between the parties, both the Plaintiff and the Defendant seem to have acknowledged at the material time from November 2001 until late 2002 that there was some form of "distributorship agreement" in place between them. Although they were still negotiating on some terms, their correspondence and conduct show that both parties had intended to be bound by the distributorship arrangement nevertheless. Just citing one example, in Mr. Yeo's email to Mr. Neveu of 21st February 2002, he referred to the need "to alter the distributorship agreement we have concluded with Technofix earlier".

10. Although the parties by their conduct and correspondence accepted that there was a binding agreement between the Plaintiff and the Defendant, it is pertinent to note that in a letter dated 7th August 2002, when the Plaintiff granted 90 days credit upon the Defendant's application, such credit was only granted up to 30th November 2002, on the basis that such credit would be reviewed "upon the expiry of (the Defendant's) existing agreement". This letter supports that there was an existing agreement between the parties in August 2002, but that the agreement will expire on 30th November 2002.

11. Against this background, I find that the Defendant's assertion of the existence of the Distributorship Agreement to be credible and believable.

12. Even if there is a Distribution Agreement made and concluded between the parties on 22nd November 2001, as alleged by Defendant, there is still the question of whether the Plaintiff had acted in breach of such an agreement. The variations sought by the Plaintiff in May 2002 were admitted by the Defendant to have been agreed to and accepted by it. Any variations proposed in May 2002 therefore cannot constitute a breach of the Distribution Agreement.

13. Mr. Lam for the Plaintiff argues that even if there was a binding Distribution Agreement made in November 2001, there was no breach of such agreement because it is clear from the Summary that the agreement was only for the term of one year from lst December 2001 to 30th November 2002, and was subject to renewal at the end of that period.

14. On the Defendant's case, the alleged breaches by the Plaintiff were as a result of the Plaintiff seeking in April 2003 to increase the price of the goods by 20%, and by seeking payment by letters of credit.

15. Having examined the contemporaneous documents and emails exchanged between the parties, it appears that (consistent with the agreement on the term of the Distribution Agreement being for one year from lst December 2001 to 30th November 2002), the parties commenced correspondence and discussions on the agreement for 2003 in October 2002. On 10th October 2002, Mr. Yeo sent to Mr. Neveu a draft distributorship agreement for 12 months to expire on 30th November 2003, suggesting targeted sales of US$840,000. Other correspondence in September and October 2002 clearly show that Mr. Neveu and Mr. Yeo were still negotiating and discussing the terms of renewal of the arrangement for 2003. On 18th December 2002, Mr. Neveu sent to Mr. Yeo his draft agreement for 2003, for a term to expire on 31st December 2003 with targeted sales of US$500,000. Mr. Yeo reverted on 23rd December 2002 to confirm that they had no objection to have the expiry date set on 31st December 2003, targeted purchase volume to be reduced to US$650,000, but indicating a preference for "LC 120 days term" for payment. There followed correspondence on the LC arrangement, indicating that the Defendant was at least prepared to agree to payment by LC for goods required in the interim.

16. However, in contrast to what happened after 22nd November 2001 and in 2002 when, despite the absence of any formal agreement having been signed, the parties had acted and dealt with each other on the basis of a binding agreement having been reached, on 14th April 2003, Mr. Neveu informed Mr. Michael Davies on the Plaintiff's side that the Defendant no longer had any interest in distributing Spit products in Hong Kong. In the interim between October 2002 and April 2003, Mr. Yeo had been seeking confirmation from Mr. Neveu for a final decision on the distribution arrangement in Hong Kong. On 28th April 2003, Mr. Neveu clearly indicated to Mr. Yeo that a distribution agreement was no longer their subject, that he wished to leave it aside, and raised discussions on "an exit solution". If there was any doubt, on 29th April 2003, Mr. Neveu informed Mr. Yeo that he wished to "stop the distribution of Spit in Hong Kong". Mr. Neveu's emails to Mr. Yeo of 28th April 2003 and 29th April 2003 were copied to Mr. Michael Davies.

17. On the Defendant's own case, the variations of the terms of the Distribution Agreement, consisting of the 20% increase in price and the payment by letters of credit, were made in April 2003. Such "breaches" took place after the expiry of the term of the Distribution Agreement agreed in 2001. There is nothing from what I have seen in the correspondence exhibited which can lend credibility to the Defendant's claim of a breach of the Distribution Agreement. As Mr. Lam has reminded me, the obligation is on the Defendant to satisfy the Court now that there is a triable issue, and "a desire to investigate alleged obscurities and the hope that something will turn up on the investigation" is not sufficient and cannot amount to sufficient reason for refusing to enter judgment for the Plaintiff (Lady Anne Tennant v. Associated Newspapers Group Ltd. [1979] F.S.R. 298).

18. Counsel for the Defendant conceded at the hearing that the PRC law point will not be pursued.

19. For the above reasons, I grant judgment to the Plaintiff in terms of the Plaintiff's Summons. Costs be to the Plaintiff, with certificate for Counsel.