Mass International Limited v. Hillis Industries Limited & Other

CACV000192/1995

IN THE SUPREME COURT OF HONG KONG

COURT OF APPEAL

CIVIL APPEAL N0. 192 OF 1995

_______________

(On Appeal from High Court Action No.A8432 of 1994)

_______________

_______________

Coram: Bokhary JA, Keith and P. Chan, JJ

Date of hearing: 28 November 1995

Date of handing down judgment: 12 December 1995

________________

J U D G M E N T

________________

P. Chan, J. (giving the judgment of the Court) :

1. On 3rd August 1995, upon the 2nd defendant's application for summary judgment against the plaintiff on his counterclaim, Master O'Donnell dismissed it with costs to the plaintiff in any event. On 22nd August 1995, upon the appeal by the 2nd defendant, Sears J. gave unconditional leave to the plaintiff to defend. The 2nd defendant now appeals against that decision and seeks summary judgment against the plaintiff.

The disputes between the parties

2. The plaintiff is a manufacturer of garments. The 1st defendant is a supplier of quotas for the export of garments from the People's Republic of China to the USA. The 2nd defendant is one of two shareholder/directors of the 1st defendant. He is also the sole proprietor of Wah Lung Clothes Making Co. which is a supplier of garments and accessories.

3. By two agreements, the plaintiff purchased certain quantities of quotas from the 1st defendant. In its Statement of Claim, the plaintiff claims against the 1st defendant for damages alleging that the 1st defendant was in breach of the two agreements by supplying counterfeit quotas. The plaintiff also alleges that the 2nd defendant was a guarantor of the two agreements and must be liable as well. There is a further claim against the 2nd defendant for damages for failure to deliver certain quantities of goods under a contract of sale of garments.

4. In his Defence, the 2nd defendant denies that he had acted as a guarantor, that the quotas were counterfeits and that the 1st defendant was in breach of contract and alleges that in any event the 1st defendant had paid compensation to the plaintiff in discharge of its liability. The 2nd defendant also counterclaims against the plaintiff for breach of certain contracts for the sale of garments and accessories. This claim is the subject matter of the Order 14 application.

5. The 2nd defendant's claim relates to a number of contracts. Under the first contract (which was referred to as the Garment Contract), there are three items of claim against the plaintiff, namely, $284,790.80 being the price of 1,700 pieces of garment which the plaintiff had failed to pay; $320,814.00 being loss and damage suffered by the 2nd defendant as a result of the repudiation of contract by the plaintiff in respect of another 3,100 pieces of garment; and $222,606.25 being the cost of materials which the plaintiff had agreed to pay but had failed to do so. In respect of two other contracts (which were referred to as the 4th and 5th Contracts), there are 2 items of claim, namely, $113,020.80 being the price for 976 pieces of garment which the plaintiff had failed to pay; and $420,888 (US$53,960) being loss and damage suffered by the 2nd defendant as a result of the plaintiff's failure to return 2,698 pieces of garment. In respect of the 3rd contract (which was referred to as the 6th Contract), there are two items of claim, namely, $256,625.15 being the cost of materials which the plaintiff had agreed to pay for having cancelled a part of the order but had failed to do so; and $10,153.20 being the unpaid price for goods delivered by the 2nd defendant to the plaintiff. In respect of one last contract (which was referred to as the 7th Contract), there is one item of claim, i.e $6,536 being the cost of accessories which the plaintiff had agreed to pay but had failed to do so.

6. The plaintiff's defence to the 2nd defendant's claim is this. It had purchased certain quantities of quotas from the 1st defendant but some of them were counterfeit. As a result of this, the plaintiff had some of its goods seized by the U.S. Authority and had suffered a great loss in the region of over $5 million. It is alleged that the 2nd defendant, as a guarantor in respect of the two agreements for the sale of quotas, should also be liable. It is the plaintiff's case that there was an expressed oral agreement between a Mr Wan for the plaintiff and the 2nd defendant some time in July that the plaintiff could set-off the compensation and refund which the 1st defendant had to pay as a result of the supply of counterfeit quotas against the price of garments sold and delivered by the 2nd defendant to the plaintiff. There was a running account between the plaintiff and the 2nd defendant in respect of the garment transactions. It showed that two sums of money had been deducted in this running balance.

7. In respect of the first item of claim under the Garment Contract, the plaintiff says this was to be set off against the compensation and refund payable by the 1st defendant. With regard to the second item of claim under that contract, the plaintiff alleges that because of the expressed oral agreement to set-off, the plaintiff wanted to take delivery of the 3,100 pieces of garment and deduct the price from the compensation and refund which were payable. But the 2nd defendant's solicitors had wrongfully taken that as a repudiation of contract. It was, the plaintiff's alleges, the 2nd defendant who was in breach of contract. As to the third item of claim under that contract, the plaintiff says that there was an agreement to cancel the order for 2,200 pieces of garment and that the plaintiff was to pay for the materials and accessories which were to be delivered. However, the 2nd defendant had failed to do so. The plaintiff was therefore not liable for this item. In respect of the 4th and 5th Contract, the plaintiff admits the first item of claim but relies on the oral agreement to set off and says that this amount had already been credited to the 2nd defendant. In respect of the second item of claim under these two contracts, the plaintiff alleges that it had held the 2,698 pieces of garment as security for the 2nd defendant's agreement to set off. As to the two items of claim under the 6th Contract, the plaintiff admits them but says that they had already been credited to the 2nd defendant. The item of claim under the 7th Contract, similarly the plaintiff admits but alleges that it had already been credited to the 2nd defendant.

The main issues in dispute

8. In his judgment, the learned Judge took the view that the plaintiff's allegation that there was an expressed oral agreement to set off between the 2nd defendant and the plaintiff was not credible. However, he said that since there was a guarantee which was given by the 2nd defendant against the liability of the 1st defendant and having regard to the case of Axel Johnson Petroleum v. A.G. Mineral Group [1992] 1 WLR 270, there was a general right of set-off and unconditional leave to defence should be given to the plaintiff.

9. The learned Judge also found that it was difficult to ascertain with precision whether there was any figure which was not in dispute. He said that even if he was to find that there was a figure in dispute, he thought that it would be a classic case where a court would exercise its discretion to stay pending the hearing of the trial.

10. In this appeal, counsel for the 2nd defendant argues that the learned judge was wrong to hold there was a general right to set off. The plaintiff issued a Notice of Motion applying for leave to file a Respondent's Notice out of time. The Respondent's Notice seeks to support the learned Judge's decision on the ground that the plaintiff's defence based on a general right of set-off as agreed between the plaintiff and the 2nd defendant was credible. While counsel for the 2nd defendant raised a formal objection to the application for leave, no strong argument was put forth. It is clear from counsel's skeleton submission that he was indeed prepared for this argument. There is no prejudice to him by the late filing of the Respondent's Notice. Leave was accordingly granted to the plaintiff to file it out of time and to argue on this point.

11. It seems therefore that there are two main issues in dispute between the parties. First, whether there was an oral agreement to set off generally, and second, whether there could be a defence of equitable set-off.

12. It is appropriate to be reminded of the principles applicable to an Order 14 application. They are well-known and in fact not disputed by the parties. The plaintiff (a defendant to the 2nd defendant's counterclaim) must show that there are triable issues. He has to satisfy the court that he has a "real or bona fide defence" (see Ackner L.J. in Banque de Paris et tes pays-bas (Suisse) S.A. v. Costa de Naray [1984] 1 Lloyd's Rep.21 at 23). If he makes an allegation, it must be credible or believable in the light of the evidence placed before the court. As Bokhary JA said in Re Safe Rich Industries Limited, Civil Appeal No.81 of 1994, unreported, 3rd November 1994 :-

"The test at the summary stage is indeed as simple as whether the defendant's assertions are believable. But it must be recognised - because failure to recognise it would creat a debt-dodgers' charter - that whether the defendant's assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as either undisputed or beyond reasonable dispute."

13. On the other hand, it must also be borne in mind that for an application like the present, the Court must not embark on a mini trial on affidavits.

The alleged oral agreement to set off

14. Counsel for the appellant argued that since the learned Judge had made a finding that the defence of an expressed oral agreement to set off was not credible, the appellate court should be very slow to interfere with such finding. He relied on the case of European Asia Bank v. Punjab & Sind Bank (No.2) [1983]1 WLR 642. In any event, he submitted that the evidence before the court clearly showed that such a defence was indeed incredible. He referred in particular, to the letter written in Chinese by Mr Wan of the plaintiff on 9th August 1994 to the 2nd defendant which he said was inconsistent with the existence of an alleged expressed oral agreement to set off. He also pointed to the lack of response by the plaintiff to the letters written by the 2nd defendant's solicitors on the 8th and 9th August 1994 and any reference to the alleged agreement in the Statement of Claim. On the other hand, counsel for the plaintiff submitted that from the evidence before the Court, there was sufficient material to support the allegation that there was an oral agreement to set off. He relied on the fact that the 2nd defendant was the controlling figure of the 1st defendant, that there was a running account between the plaintiff and the 2nd defendant, that the 2nd defendant had guaranteed the quota agreements, that it was not really denied that there were counterfeit quotas and that compensation was indeed payable by the 1st defendant. He also relied on the previous instances of set-off admitted by the 2nd defendant and the acknowledgement by the 1st defendant of a particular set-off.

15. One of the bases for the plaintiff's allegation that there was an expressed oral agreement to set off was that the 2nd defendant had given a guarantee in relation to the agreements between the plaintiff and the 1st defendant for the sale of quotas. The documents exhibited clearly show that the 2nd defendant had signed not only as one of the two directors of the 1st defendant, but also signed as a guarantor. The learned Judge seemed to say in his judgment that there was a guarantee. We think he was clearly right but it is not necessary to make a definite finding at this stage. Suffice it to say that there is clearly a triable issue as to whether there was in fact a guarantee given by the 2nd defendant and the extent he had guaranteed the performance by the 1st defendant of its obligations under the agreements for the sale of quotas.

16. In paragraph 2B of his Defence, the 2nd defendant pleads that he "did not agree to guarantee the due performance by the 1st defendant of its obligations and duties under the 1st agreement." Paragraph 3B is in similar terms. It can be noted at once that these are very guarded statements. They do not say that there was no guarantee given by the 2nd defendant. They do not say that the guarantee was not enforceable. There is also nothing in the first two affirmations of the 2nd defendant touching upon the guarantee. It is only in the 3rd affirmation that he admitted that he had signed the guarantee but only after the agreements for the sale of quotas had already been concluded and hence it was not enforceable, and that even if it was, he merely guaranteed "the punctual delivery of quotas by the 1st defendant". This is clearly not the same as the case pleaded in the Defence. Looking at the guarantee, we cannot find anything to this effect. There does not seem to be any restriction in the guarantee as to the extent of the 2nd defendant's liability. We are therefore not free from doubt that the 2nd defendant is genuine in his denial of liability as a guarantor.

17. It is important to note that the other director did not act as a guarantor (although he also signed on behalf of the 1st defendant), only the 2nd defendant did. In other words, the plaintiff relied more on him to ensure the due performance by the 1st defendant of its obligations and duties under the quota agreements and it is quite arguable that if there was any breach of these agreements by the 1st defendant, the plaintiff naturally looked to the 2nd defendant for any loss and damage which it might suffer.

18. It is clear from the evidence that there were counterfeit quotas supplied by the 1st defendant to the plaintiff. This was denied in the Defence of the 2nd defendant. However, looking at the evidence filed before the Court, it seems that this was not a very seriously disputed fact. It is, therefore, not entirely incredible, and we would say perfectly credible, that the 2nd defendant, upon being pressed by the plaintiff to honour the guarantee, had orally agreed to set off the compensation and refund due by the 1st defendant to the plaintiff against the price of garments due from the plaintiff to the 2nd defendant. However, the fact that there can be a reason for agreeing to such a set-off is not sufficient to establish that there was an agreement to a general set-off. One must look at the other evidence.

19. There was a letter dated 11th July 1994 from the 1st defendant addressed to the plaintiff, apparently sending over payment in the form of a cashier order. It referred to a sum of $230,000 being "Deducted from our director Mr Kwan Yiu Kwan (the 2nd defendant) O/B of Wah Lung Clothes Making Co., garments payment". This is clearly an acknowledgement by the 1st defendant that the plaintiff could deduct $230,000 from its payment due to the 2nd defendant for garments which had been sold and delivered and treat it as payment by the 1st defendant to the plaintiff. This was confirmed by the 2nd defendant who admitted in his 2nd affirmation that he had agreed with the plaintiff to a set-off in respect of two amounts which were stated in the running account between the plaintiff and the 2nd defendant as "Amount deducted from Hillis (the 1st defendant) quota refund (1)" in the sum of $256,425 and "Amount deducted from Hillis (the 1st defendant) quota refund (2)" in the sum of $230,000.

20. What the 2nd defendant was saying was that although he had agreed to a set-off for two specific sums, there was no agreement to set off generally. There is no evidence as to why the 2nd defendant had agreed to these two specific set-offs. He only said in paragraph 6 of his 2nd affirmation that these were done "specifically at the request of the plaintiff when I demanded the plaintiff to repay the amount due to the 2nd defendant." There is no further detail regarding the circumstances as to how these two set-offs came about. It is also not clear why he acceded to the plaintiff's request. The position is therefore this: the plaintiff says the 2nd defendant agreed to a general set-off but the 2nd defendant says he only agreed to do so twice. The question is : is the plaintiff's allegation totally incredible or is there a triable issue ?

21. The 2nd defendant argued in his affirmations that this defence of a general set-off agreement was not credible because it was not supported by documentary proof. That, of course, is neither here nor there because it was alleged that it was an oral agreement. The second reason given by the 2nd defendant for saying that this was not credible was that he was only a shareholder of the 1st defendant and would not have agreed to the set-off. However, this is clearly inconsistent with what he did on two occasions with the specific set-offs which he had admitted. The other reason given was that in a letter dated 9th August 1994 written by the plaintiff to the 2nd defendant, the plaintiff did not refer to any oral agreement. Counsel argued that the terms of the letter was inconsistent with the existence of such an agreement and that if there was, it would have been stated clearly. He also pointed out that, in response, the 2nd defendant's solicitors treated the plaintiff's letter as a repudiation of the contract for the sale of garments. Yet, there is no reply to that from the plaintiff. The plaintiff's Statement of Claim did not refer to any alleged oral agreement.

22. In our view, the lack of a response by the plaintiff to the letters written by the 2nd defendant's solicitors on the 8th August and 9th August is not fatal. At that stage, the plaintiff was contemplating legal proceedings and it might not find it necessary to reply to those letters. In fact, the writ was issued on 23rd August which was only two weeks after the plaintiff received the letters. The lack of any reference in the Statement of Claim is not conclusive either. It was a claim by the plaintiff for loss and damage arising out of a breach of the agreements for the sale of quotas. It was to be a claim and not as a defence.

23. The matter which causes us concern is the letter dated 9th August 1994 from the plaintiff to the 2nd defendant. It referred to the counterfeit quotas and the loss which the plaintiff had suffered thereby. It then went on to say that since early June, there had been a claim against the 1st defendant but that after two months, the problem was still not resolved and that as a guarantor and director of the 1st defendant, the 2nd defendant should be responsible. The letter further suggested as an ultimate solution that the price of garments in the sum of $51,000 would be used as deduction for the compensation to be paid by the 1st defendant. It then also referred to other supplies for which the plaintiff had no intention of paying.

24. We must say that the tone of this letter does not indicate any oral agreement between the plaintiff and the 2nd defendant. It is doubtful that had there been such an oral agreement to have a general set-off, the letter would have been written in such a way. However, we notice in paragraph 3 of that letter the following important sentence :-

"... but your company (the 2nd defendant) and Hillis (the 1st defendant) have again violated the compensation agreement in respect of the Mainland quota deal."

That does not seem to be a reference to the agreement for the sale of quotas. It suggests that first, there was a "compensation agreement" between the three parties and secondly, there was "again" a violation of it by the 1st and 2nd defendant. It is also interesting to note that the 2nd defendant's solicitors did not deal with the allegations contained in the plaintiff's letter dated 9th August 1995.

25. The learned Judge in dealing with this part of the case had this to say :-

"I do not find that a credible defence. It seems to run contrary to the running account which I have examined, which is in Wah Lung's name. There is no mention of the 1st defendant there. In my judgment it is not credible. (See the words of Lloyd L.J. in the Standard Chartered Bank's case, reaffirmed by the Court of Appeal here in Ng Siu-chun (Sic) v. Hung Chun-sang [1993] 182 Civil Appeal at p.4."

26. With respect, we do not agree that this defence runs contrary to the running account simply because there was no mention of the 1st defendant there. It was meant to be a running account between the plaintiff and the 2nd defendant as admitted by the 2nd defendant. It was not meant to be a running account with the 2nd as well as the 1st defendant and so it is not surprising that there was no mention of the 1st defendant. As a matter of fact, the running account shows that there was at least an agreement on two specific set-offs. This alone cannot be evidence in support of an oral agreement to set off generally. But it certainly does not run contrary to the defence put up by the plaintiff.

27. This is not a case where there was a mere allegation of an oral agreement. If it had been so, we would have no hesitation in saying that that is not sufficient to raise a defence. This is a case where the plaintiff has undoubtedly shown a case for a claim for loss and damage arising out of the supply of counterfeit quotas which is not seriously disputed by the 2nd defendant. There is also a strong claim on the guarantee which was specifically signed only by the 2nd defendant. Then there is the admission by the 2nd defendant of two sums which had been used as set-off and this is supported by a letter from the 1st defendant. It is also not disputed that there was a running account between the plaintiff and the 2nd defendant and in the running account, the two sums of money used to set-off the price of garments are stated. While the letter dated 9th August 1994 casts doubt on the existence of such an oral agreement to have a general set-off, we cannot say that this defence is totally unbelievable. It might be that at the end of the day, having heard all the evidence and arguments, the trial judge might come to the conclusion that this allegation is not to be believed. But that is not the test for an Order 14 application. As Godfrey JA said in the case of Ng Shou Chun v. Hung Chun San, 26th January 1994 (unreported) at p.4 :-

"The issue is not whether the defendant's assertions are to be believed: it is whether those assertions are believable."

28. To rule out the defence at this stage because it has some weaknesses and would not be believed by the trial judge is casting too heavy a burden on the plaintiff (as a defendant to the counterclaim) facing an Order 14 application. With respect to the learned Judge, we cannot agree that the defence of an agreement to set off generally is incredible in the light of the materials placed before the Court. This is clearly a triable issue. On this ground, we would agree that there should be an unconditional leave to the plaintiff to defend the counterclaim. So the plaintiff succeeds on its Respondent's Notice.

29. This, in our view, disposes of the appeal. But out of respect to both counsel, we should perhaps also deal with their arguments on the second main issue in this case.

The equitable set-off

30. In respect of this issue, the learned Judge dealt with it as follows :-

"However, there is a guarantee which was given by the 2nd defendant against the liability of the 1st defendant. Mr Mok submits that the claim by the plaintiff albeit in damages, is quantifiable. I accept that position. I also have had regard to Axel Johnson Petroleum v. A.G. Mineral Group [1992]1 WLR 270. In my judgment there is a general right of set-off here, and unconditional leave to defence should be given on that point."

31. It is not clear whether the learned judge had relied on the case of Axel Johnson to say that there was a "general right of set off". Nor is it clear whether he had a legal or equitable right of set-off in mind in the present case. As we said, the existence and extent of the guarantees are clearly triable issues. The claim by the plaintiff against the 1st defendant for breach of the agreements for the sale of quotas is a claim for unliquidated damages although it was said that the plaintiff had lost over $5 million. So is the plaintiff's claim against the 2nd defendant on the guarantee. While it may be quantifiable, it is still an unliquidated claim. It is accepted by counsel for the plaintiff that he is not relying on a legal set-off. That must be correct. We do not think he can. "A claim under a guarantee ... cannot be set off until the amount of the liability in respect of which the guarantee was given has been established." (per Leggatt L.J. in the Axel Johnson case at p.272 H) So, if there was no expressed oral agreement for a general set-off, the plaintiff's claim against the 2nd defendant under the guarantee can at best be relied on as an equitable set-off.

32. The law on set-off is never clear cut or satisfactory. Leggatt L.J. in the Axel Johnson case made the following comment at p.274 H :

"... the state of the law is unsatisfactory that allows a set-off at law of debts which are liquidated, even if unconnected, and in equity of debts which are connected, even if unliquidated, but not a set-off of debts which are both unliquidated and unconnected."

Staughton L.J. in the same case had this to say :

"Legal set-off is available if both claims are for liquidated sums. Thus, if a plaintiff has a claim for unliquidated damages, the defendant cannot at law seek to set-off a liquidated claim. I can see no sense in that today. This rule was mitigated by the Court of Chancery through the doctrine of equitable set-off which is available in broad terms if there is a sufficient degree of connection between the two transactions, whether or not either or both claims are unliquidated."

33. If it is arguable that there is sufficient connection between the two transactions to invoke the defence of equitable set-off, the Court should give unconditional leave to defend on an Order 14 application. On the other hand, if it is clear that there is no sufficient connection, such a defence cannot be raised and summary judgment should follow even though it may constitute a valid counterclaim. The Court will then consider whether there should be a stay of execution pending the trial of the counterclaim. " The degree of connection between the claim and counterclaim, the strength of the counterclaim and the ability of the (plaintiff) to satisfy any judgment on the counterclaim are some of the considerations which the Court may take account of in the exercise of its discretion whether or not to order a stay". See Supreme Court Practice, 1995 Vol 1, at para. 14/3-4/13 which summarises the position as follows :-

"An analysis of the authorities as to what orders should be made where the defendant raises a set-off or counterclaim shows that there are four different classes or groups of such orders, namely :-

(a) Where the defendant can show an arguable set-off, whether equitable or otherwise, he is entitled to leave to defend to the extent of a set-off and the court has no discretion;

(b) Where the defendant sets up a bona fide counterclaim arising out of the same subject matter as the action and connected with the grounds of defence, the order should not be for judgment on a claim, subject to a stay pending trial of the counterclaim, but should be for unconditional leave to defend, even if the defendant admits the whole or part of the claim;

(c) Where there is no defence to the claim but a plausible counterclaim of not less that the claim it set up, judgment should be for the plaintiff on the claim with costs, stayed until trial of the counterclaim;

(d) Where the counterclaim arises out of a separate and distinct transaction or is wholly foreign to the claim, judgment should be for the plaintiff with costs without a stay; the lack of parity between classes (b), (c) & (d) give the court freedom to response to the perceived justice of the individual case."

34. The guarantee relied on by the plaintiff was given in connection with the agreements for the sale of quotas from the 1st defendant to the plaintiff. The 2nd defendant's claim is based on his agreement for the sale of garments to the plaintiff. The former is a claim for unliquidated damages. The latter is partly for unpaid price for goods sold and delivered (i.e a liquidated debt) and partly for damages for breach and /or repudiation of contract (i.e. unliquidated damages). We do not think there is sufficient connection between the two transactions. If, contrary to our view, there is no expressed oral agreement for a general set-off, we do not think the plaintiff can raise equitable set-off as a defence. Nor can it be said that the plaintiff's claim and the 2nd defendant's counterclaim arise from the same subject matter. Hence, the plaintiff does not fall within category (a) or (b) as summarised in the Supreme Court Practice. However, it does appear that the plaintiff's claim on the guarantee is a plausible claim against the 1st defendant and hence the 2nd defendant and that it exceeds the 2nd defendant's counterclaim (i.e. category (c)). From the materials placed before the Court, we also take the view that this is a case where justice demands that if there were to be a summary judgment against the plaintiff, the Court would exercise its discretion and grant a stay of execution pending the trial of its claim.

35. We should also say that of the 8 items specified in the 2nd defendant's counterclaim, 4 items require specific mention. As to the 1st item, i.e., the unpaid price for the 1700 pieces of garment, the 2nd defendant accepted that it can be used to set off the compensation payable by the 1st defendant to the plaintiff. As to the 2nd item, i.e., 3100 pieces of garment to be delivered to the plaintiff, if there was no express oral agreement on a general set-off, it was the plaintiff which was in repudiation of contract and was liable to damages. As to the 3rd item, i.e., the payment for the accessories and materials as a result of the cancellation of an order, the plaintiff alleges that it did not pay the 2nd defendant because they were never delivered. We think this has to be resolved. Another item is the price for the 2698 pieces of garment withheld by the plaintiff. If there was no express oral agreement to have a general set-off, the allegation that they were held as a security should also fail and the plaintiff must pay for them. In view of these items, it would seem that if judgment were to be given to the 2nd defendant, it can only be for damages to be assessed.

Conclusion

36. We have earlier come to the conclusion that there is clearly a triable issue on the existence of a general oral agreement to set off the compensation and refund payable by the 1st defendant to the plaintiff against the price of garments due by the plaintiff to the 2nd defendant. That being the case, the appeal must be dismissed.

37. Since the decision of the learned Judge is upheld on the ground set out in the Respondent's Notice but the plaintiff fails on the ground relied on by the 2nd defendant, we think it is proper that there should be no order as to costs in this appeal and that the order for costs in the court below do stand. We make an order nisi to this effect.

Representation:

Mr Lawrence Ng, inst'd by M/s Sit, Fung Kwong & Shum, for 2nd Defendant/Appellant

Mr Alan Leong, inst'd by M/s K.B. Chau & Co, for Plaintiff/Respondent