FINE MASTER LTD v. NIPPON CIRCUITS LTD

HCA 919/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 919 OF 2010

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BETWEEN

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D E C I S I O N

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1.  This is Nippon Circuits’ appeal against the decision of the Master to enter summary judgment in favour of Fine Master in these proceedings on 22 February 2011.

2.  Fine Master is a Hong Kong company that supplied electronic goods and value-added services to Nippon (Boluo) Electronics Co Ltd, a company registered in the Mainland.  By virtue of that supply of goods and services, in early 2009, Nippon (Boluo) was indebted to Fine Master, but had not paid the outstanding debts.  Both Nippon (Boluo)and Nippon Circuits are subsidiaries of a holding company, NCP Holdings.

3.  On 9 March 2009, Nippon Circuits signed a letter addressed to Fine Master in the following terms:

“We, Nippon Circuits Ltd, hereby writing to confirm that we are responsible for the settlement of all purchase orders placed by Nippon (Boluo) Electronics Co. Ltd. Please direct all the invoices to our office, address: Room 803-4, 8/F, Wah Wai Centre, 38-40 Au Pui Street, Fotan, Shatin, N.T. for our handling.” (sic)

The letter was signed and was endorsed with the authorised chop of Nippon Circuits.

4.  The Statement of Claim recorded the incorporation of Fine Master and Nippon Circuits.  It described the placing of orders with Fine Master by Nippon (Boluo) and that debit notes sent following the supply of goods were not paid by Nippon (Boluo).  It referred to the letter dated 9 March 2009, described as a “confirmation letter”.  It referred to an agreement reached between Fine Master and Nippon (Boluo) as to the amount due for the goods supplied.  It asserted that pursuant to the confirmation letter Nippon Circuits were liable for the payments and the failure of Nippon Circuits to pay constituted a breach of contract.

5.  The Defence filed asserted that the confirmation letter was not enforceable in law and was not binding on Nippon Circuits as it was issued without consideration.  It asserted that a part payment had been made merely to avoid continual harassment of Nippon Circuits by Fine Master.

6.  In its Reply, Fine Master asserted that Nippon Circuits had signed the confirmation letter at the request of an insurance company which had provided credit insurance to Fine Master.  It asserted that Nippon Circuits and Nippon (Boluo) are subsidiaries of NCP Holdings.  The Reply contained the following statement:

“If (Nippon Circuits) did not offer guarantee and compensation up to the satisfaction of the insurance company who provided insurance services, (Fine Master) absolutely would not carry out any dealing with Nippon (Boluo), and NCP Holdings would not obtain any benefit out of the transactions in concern.” (sic)

7.  The affidavit of the director of Fine Master in support of the application for summary judgment did not contain, as required by O 14 r 2(1) an assertion, as required by O 14 r 2(1) that there is no defence to the action.

8.  Fine Master sought to cure this defect by a subsequent affidavit from the director.  Leave was given by the Master in respect of that affidavit.  That is permissible: see Hong Kong Chinese Bank Ltd v Delon Photo & Hi-Fi Centre Ltd [2000] 3 HKC 71, Hong Kong Civil Procedure 2011, Vol 1 14/2/5.  However, the assertion as to no defence was restricted to liability, and acknowledged that there may be a defence to the action as to the amount of damages. 

9.  At the very least therefore, Nippon Circuits must be entitled to leave to defend as to damages.

10.  The primary point relied upon by Mr Ma, for Nippon Circuits was that the statement of claim failed to plead what constituted the consideration for an alleged contract between Fine Master and Nippon Circuits, by which Nippon Circuits should be responsible for the debts of Nippon (Boluo).  Further, he contended that it was not clear from the statement of claim whether Fine Master contended that Nippon Circuits should have primary responsibility for Nippon (Boluo)’s purchasing orders, or whether Nippon Circuits would be liable merely as a surety.

11.  The law is clear, that where a contract not under seal is relied on, consideration must be plead: see Clarke v Gray (1805) 6 East 564.  The principle was applied in Hong Kong by the Court of Appeal in Li Tin Sang v Poon Bun Chak, CACV 119/2003, unreported, 7 November 2003.

12.  Mr To relied upon the pleading in the Reply set out in paragraph 6 above, as the pleading of consideration.  I am satisfied that I am entitled to look at the whole of the pleadings, and that if the pleading in the reply is sufficient to establish consideration then there may be a basis for summary judgement on liability.

13.  On its face, the confirmation letter is a contract by which Nippon Circuits agreed to accept liability for the obligations of Nippon (Boluo).  As Nippon Circuits are not a party to the arrangement between Fine Master and Nippon (Boluo), any arrangement between Fine Master and Nippon Circuits is necessarily collateral to that between Fine Master and Nippon (Boluo).  The confirmation letter is apparently therefore in the nature of a guarantee: see Chitty on Contracts, Hong Kong Specific Contracts §13-002.

14.  A contract of guarantee must be supported by consideration, and it is important that consideration move from the creditor: Chitty, supra  §13-013.  But it is not necessary that the guarantor derive any benefit from the transaction: see Morley v Boothby (1825) 10 Moo C P 395.  Extrinsic evidence is admissible to prove consideration: see Pao On v Lau Yiu Long [1980] AC 614, applied in Hong Kong in Eternalmin Enterprise Ltd v Tripleday Ltd, unreported HCA 8645/1997 [1999] HKEC 331.

15.  Although the basis upon which Fine Master concedes that there is a defence in respect of the damages is not stated in the affidavit it is plain that the question that arises is to whether the confirmation letter was intended merely to deal with existing debts, or to include future debts, as the sum claimed includes both.  If the confirmation letter was intended merely to deal with existing debts then there is an issue of past consideration: see Chitty, supra, §13-014.

16.  If it is contended that there has been a forbearance on the part of Fine Master to sue Nippon (Boluo).  In respect of past debts, in the request that there should be a forbearance to sue must come from Nippon Circuits: see Chitty, supra, §13-014.

17.  The allegations in the Statement of Claim and the Reply evidence fall far short of establishing, unarguably, that the request for forbearance to sue came from Nippon Circuits.  Rather, the inference arises from the Reply is that the confirmation letter was signed by Nippon Circuits, at the request of the insurance company, as part of an insurance arrangement being put in place by Fine Master.  The question of the consideration for the confirmation letter and at whose request it was given, are live questions for trial.

18.  On the whole of the circumstances this is not a case for summary judgment.  Had the matter being properly pleaded in the first place it might well have been the case for summary judgement, but on the pleadings, and even looking at the affidavit evidence I cannot say that there is no defence to the claim.

19.  I accordingly allow the appeal.  The order for summary judgment made on 22 February 2011 is set aside, and Nippon Circuits will have unconditional leave to defend.

20.  There will be an order nisi that the costs on the appeal will be in the cause.