DCCJ2507/2014

DCCJ2507/2014

A A B B DCCJ 2507/2014 C C IN THE DISTRICT COURT OF THE D D HONG KONG SPECIAL ADMINISTRATIVE REGION E CIVIL ACTION NO 2507 OF 2014 E F F -------------------- G BETWEEN G 張家港市博雅貿易有限公司 Plaintiff H H and I ASD (HK) LIMITED [業務名稱：祥榮製衣公司] Defendant I J -------------------- J K K Coram: Deputy District Judge Eric Tam in Chambers (Open to public) L Date of Hearing: 30 September 2015 L Date of Judgment: 29 October 2015 M M N -------------------- N JUDGMENT O O -------------------- P P 1. This is an application for summary judgment under Order 14 Q Q rule 1 of the rules of the District Court. R R 2. It is noted that the court should not embark on a mini trial on S S affidavits, on the other hand, has to decide whether the defendant’s T assertions are believable. T U U V V  -2- A A B B C 3. The plaintiff claims the balance of the purchase price for the C goods sold and delivered to the defendant in respect of two batches of D D goods together with loss of tax refund in the sum of US$14,805,41 and E interest in the sum of US$10,340,00. Particulars of the sale of goods are as E follows:- F F G A. The goods delivered to Brazil in October 2013 for the G balance of US$77,940.63 (“the Brazilian Purchase H H Orders”); and I I B. The goods delivered to Peru in January 2014 for the J J balance of US$36,765.30 (“the Peruvian Purchase K Orders”. It is also called the “Subsequent Peruvian K Purchase Orders”). L L M 4. Mr Chain, counsel for the defendant, submitted that:- M N “On the defence of equitable set-off for the Brazilian Purchase N Orders O O (i) Each of the 5 Brazilian purchase orders contains on their face a photograph of a long-sleeve shirt. P P (ii) As explained at paragraphs 7 and 10 of Anil’s Q affirmation, the director of the defendant, these Q photographs were of the original samples provided by the Brazilian Customer to the defendant, which the R defendant forwarded to the plaintiff. Pre-shipment R samples were then produced by the defendant which conformed with these original samples. S S (iii) There is ample documentary evidence (emails from the T Brazilian Customer, professional inspection report) to T show that the shirts that were ultimately delivered under U U V V  -3- A A B the Brazilian Purchase Orders had the Sleeve Length B Defect, in that the sleeves were significantly shorter. C C (iv) In reply, the plaintiff does not seriously dispute that the sleeve lengths were of a shorter length. Rather, what the D plaintiff states is that Cary Chu agreed on behalf of the D defendant for modifications to be made to the sleeve E lengths. However, it is telling that there is not one shred E of documentary evidence which shows that Cary Chu agreed to such a modification. According to the plaintiff, F this was all agreed orally. This oral assertion is F obviously not accepted by the defendant, and obviously both Zhang and Cary Chu will be cross-examined at trial G G on this point. H (v) The court need not make any decision as to the relative H merits of the parties’ respective cases. For present purposes, it suffices to say that at the end of the day there I is every possibility that at trial the court may choose to I disbelieve Zhang and Cary Chu’s evidence in this J regard. J (vi) There is a reasonable explanation set out at paragraph 13 K of Anil’s Affirmation evidencing the defendant’s K consequential loss from the Sleeve Length Defect. L L (vii) As the loss which the defendant is counterclaiming on the Brazilian Purchase Orders arose directly out of the M same orders which the Plaintiff is claiming for M outstanding purchase price, it is clear that the necessary degree of closeness for equitable set-off can be N established on this part of the Defendant’s defence.” N O O 5. For the Brazilian Purchase Orders, I agree with Mr Chain that P there was dispute as to whether the goods were defective. The defendant P provided some e-mails from Customers complaining the quality of the Q Q goods and asked for a discount of US$27,000, which according to the R defendant, was reduced to US$20,000 after negotiation. There was also an R inspection report produced. I am satisfied that summary judgment is not S S appropriate for the Brazilian Purchase Orders. T T U U V V  -4- A A B B 6. For the Peruvian Purchase Orders, I order that leave be C granted on condition that the defendant pays the sum of HK$286,769.34 C (US$36,765.30 x 7.8 = 286,769.34) into the court within 28 days from the D D date hereof. E E The Fraud Exclusion for Summary Judgment Applications F F G 7. The first argument of the defendant to resist the application is G that the court has no jurisdiction to deal with the application. The fraud H H exclusion under O 14 r 1(2)(b) provides that summary judgment is not I available in “an action which includes a claim by the plaintiff based on an I allegation of fraud.” J J K 8. Under paragraph 14/1/1 of the Hong Kong Civil Procedure K 2015, it is stated that “in considering whether an action includes a claim in L L respect of which an underlying allegation constitutes an allegation of fraud, M the court should have regard to the pleadings as a whole: Menford M Electronic Art & Computer Design Co Ltd v Wong Wang Tat Victor N N (unrep., CACV 18/2013, May 14, 2014, (20)”. O O 9. Mr Chain submitted that “the plaintiff in attacking the P P defendant’s defence of set-off had chosen to plead allegations of Q dishonesty and fabrication – it is expressly pleaded that the defendant Q “made up wild allegations” (paragraphs16, 28.5 of the Reply) and that the R R defendant advanced allegations which “bear all hall marks of recent S fabrication” (paragraph 29(i) of the Reply). Such accusations of S fabrication have been repeated at paragraphs 22, 53 of plaintiff’s skeleton T T and at various places in the plaintiff’s affirmations. The fact that the U U V V  -5- A A B B plaintiff has expressly pleaded allegations of dishonesty and fabrication to C attack the defendant’s defence of set-off means that the court has no C jurisdiction to grant summary judgment in the present case due to the fraud D D exclusion under RDC O 14 r 1(2)(b).” E E 10. Mr Yeung, counsel for the plaintiff, submitted that the F F plaintiff never pleaded fraud or dishonesty, and under the rules, fraud G needs to be specifically pleaded. G H H 11. The wordings of paragraph 16 of the Reply are: “the plaintiff I avers that the defendant made up wild allegations in its Defence and I Counterclaim which are totally unfounded and that the plaintiff is entitled J J to have judgment……” Paragraphs 28.5 and 40 just repeat them, in effect. K K 12. Mr Yeung further submitted that the adjective “wild” when L L used to describe an allegation, mean “not carefully planned, not sensible or M accurate”. M N N 13. I agree with Mr Yeung that no fraud and dishonesty was O pleaded. The use of the words “make up wild allegations” and the O wordings in paragraph 29 of the Reply “the allegations of the plaintiff’s P P breach bear all the hall marks of recent fabrication” only mean that the Q allegations should not be believed. The cause of action in this case is Q goods sold and delivered, and the defence is defective goods and setting off. R R The wordings were only used rhetorically to say that such allegations were S unfound and not to be believed. The making of an allegation of deliberate S dishonesty should not be inferred in this case. Not much weight should be T T given to the overzealous comments and emotive language in the 2nd U U V V  -6- A A B B affirmation of Cary Chu. I find that the defendant’s argument on order 14 C rule 1(2) (b) fails. C D D 14. The major issue in dispute for the Peruvian Purchase Orders is E whether there is Composition Defect in the Earlier Peruvian order so as to E enable the defendant to establish an equitable set off to resist the plaintiff’s F F application for summary judgment in respect of the Subsequent Peruvian G Order. G H H 15. The Composition Defect is that according to the purchase I orders, the composition of the goods should be 60 % cotton and 40 % I polyester. It is alleged by the defendant that the goods delivered in the J J Earlier Peruvian Purchase Orders were of 90 + % polyester. It seems there K was no such complaint relating to the Subsequent Peruvian Purchase K Orders as the defendant did not rely on defective goods of the Subsequent L L Peruvian Purchase Orders. M M 16. The chronology for the Peruvian Purchase Orders is as N N follows:- O O 4/9/2013 shipment for the Earlier Peruvian Purchase P P Orders, the price of the Order was US$189,884. Q Q 16/9/2013 plaintiff was fully paid for the Earlier Peruvian R R Purchase Orders S S 30/9/2013 defendant placed the Subsequent Peruvian T T Purchase Orders to the plaintiff U U V V  -7- A A B B 29/11/2013 date of the test report conducted by the Peruvian C Customer showing that the fiber content of the C Earlier Peruvian Purchase Orders was 100% D D polyester E E 10/12/2013 date of the report conducted by the defendant F F showing that fiber contents of the samples G ranged from 91 to 96 % G H H 27/1/2014 shipment of the goods under the Subsequent I Peruvian Purchase Orders I J J 17. According to the payment terms between the defendant and K his customer, payment should be made by “L/C 30 days”. K L L 18. According to paragraph 8 (iii) of the 2 nd affirmation of Cary M Chu, he was told by Anil that the defendant had received the purchase price; M such allegation was not disputed by the defendant. According to paragraph N N 21 (ii) of the affirmation of Anil, the Peruvian Customer demanded for a O full refund of US$189,884, that is the purchase price of the Earlier O Peruvian Purchase Order. Given the mode of payment, it seems that the P P price of the Subsequent Peruvian Purchase Orders was fully paid, there Q was no return of goods, and the Peruvian Customer did not ask for the Q refund of the purchase price in respect of the Subsequent Peruvian R R Purchase Order. S S 19. Mr Chain submitted in paragraph 25 of his submission that:- T T U U V V  -8- A A B B “ On the defence of equitable set-off for the Subsequent Peruvian Purchase Orders (see paragraphs 17-30 of the C Defence):- C (i) The Defendant counterclaims on the Earlier Peruvian D Purchase Order. As explained at paragraphs14-19 of D Anil’s Affirmation, the Earlier Peruvian Purchase Order E is closely connected to the Subsequent Peruvian E Purchase Orders because (1) it was known to the Plaintiff they were for the same (and only) Peruvian F Customer of the Defendant; (2) they were for the exact F same type of product under the exact same brand; (3) they are very close to each other in time as the G G Subsequent Peruvian Purchase Orders were made shortly (less than one month) after delivery was H completed under the Earlier Peruvian Purchase Order. H (ii) It is therefore at least arguable that the necessary degree I I of closeness for equitable set-off can be established for the Defendant’s counterclaim on the Earlier Peruvian J Purchase Order. J (iii) On its face, the Earlier Peruvian Purchase Order K specifies that the composition of the shirts therein should K be 60% polyester and 40% cotton. Indeed, the same L composition was repeated in the Plaintiff’s own invoice L (iv) There is ample documentary evidence (professional M inspection reports) to show that the shirts that were M ultimately delivered under the Earlier Peruvian Purchase Orders had the Composition Defect, in that the N N composition of the shirts was of a cheaper quality of 90%+ polyester.” O O 20. According to paragraph 18 of the Affirmation of Cary Chu, P P the plaintiff’s witness and ex-employee of the defendant, he said that he Q decided not to follow the original description but insisted on using a Q different material, namely 10 % cotton and 90% polyester, to meet the R R culture of the designation port as according to what his boss had told him. S S T T U U V V  -9- A A B B 21. In paragraph 19, he affirmed that he did so because the fabric C was less wrinkled, smoother and less sticky than other samples The choice C was also made to match the requirements set by client. D D E 22. Notwithstanding that Mr Anil in paragraph 21(ii) of his E affirmation alleged that the Peruvian Customer demanded a full refund of F F US$189,884 for the Earlier Peruvian Purchase Order, no document G relating to such demand or complaint has been exhibited, no particulars of G when the Customer made such demand was given. It is anticipated that H H such demand and complaint should be in writing as what the Brazilian I Customer did. I J J 23. The defendant was aware of the Composition Defect in K around November 2013, but such defect was not relayed to the plaintiff at K the material time. The Composition Defect was not disclosed until 9 May L L 2015, despite repeated demand for payment before 9 May 2015. M M 24. Notwithstanding the Composition Defect, the Subsequent N N Peruvian Purchase Order was allowed to ship in January 2014 and the O Peruvian Customer paid the price in full. O P P 25. Fully aware of such Composition Defect in November 2013, Q the defendant signed a guarantee to promise the payment of the price for Q the Subsequent Peruvian Purchase Orders on 28 January 2014. R R S 26. There is no return of goods for both Earlier and Subsequent S Peruvian Purchase Orders despite such allegation of Composition Defect. T T It is difficult to conceive that the Customer could demand for the return of U U V V  - 10 - A A B B the full purchase price of US$189.884 and such request the defendant C “orally acknowledged and recognized”. C D D 27. The incident occurred in around November 2013. It is E suspicious that the defendant arranged a face to face meeting in September E 2015 to discuss the compensation with the Customer. F F G 28. Although there are connections between the Earlier Peruvian G Purchase Order and the Subsequent Peruvian Purchase Order, it is clear H H that they are different transactions. I do not find them to be closely I connected to be able to set up an equitable set-off. I J J 29. It is also noted that the defendant relies on counterclaim for K damages and loss of business. K L L 30. In view of the above, I find the defence shadowy and the case M is almost one in which summary judgment should be ordered. I consider it M is appropriate to order that unless the defendant pays the sum of N N HK$286,769.34 (US$36,765.30 x 7.8 = 286,769.34) into the court within O 28 days from the date hereof, judgment for the sum of US$36,765.30 be O entered against the defendant. P P Q 31. I grant unconditional leave to the defendant to defend the Q Brazilian Purchase Order. R R S S T T U U V V  - 11 - A A B B Costs C C 32. Paragraph 14/7/12 of the Hong Kong Civil Procedure 2015 D D provides that “the order for costs generally corresponds with the condition E imposed, and its operation made depend upon whether or not the condition E is complied with. If the leave is conditional upon the whole debt or F F demand being paid into court, the usual order is that if the condition be not G complied with the costs are the same as upon a judgment for the whole G claim, and if the condition is complied with the costs are the same as upon H H unconditional leave to defend being given. If the leave is conditional upon I part only of the debt or demand being paid into court, the usual order for I costs is the same as upon judgment for part of the claim”. J J K 33. I have heard parties’ submission on costs. Taking into K account that the plaintiff failed in the application relating to the Brazilian L L Purchase Order and at least partly successful relating to the Peruvian M Purchase Order, I order that if the condition is complied with, the costs of M the whole application be in the cause, if not, judgment be entered relating N N to the Peruvian Purchase Order with costs, and costs of this application O relating to the Brazilian Purchase Order be in the cause. O P P Q Q R R ( Eric Tam ) S Deputy District Judge S Mr Yeung Yeuk Chuen, instructed by K P Lam & Co, for the plaintiff T T Mr Christopher Chain, instructed by Haldanes, for the defendant U U V V