Honour State Ltd v. Gorgeous Textile Co Ltd
Read the full judgment text of CACV 611/2020 on BabelCite. This Court of Appeal judgment was delivered on 29 March 2022 before Cheung JA, G Lam JA, Chow JA.
Civil law – contract – implied contract from conduct – mercantile running account – garment trading – spreadsheet records – account stated – estoppel by representation – set-off – the parties were garment traders who dealt with each other on a running account basis from October 2007 to December 2012, with the plaintiff sourcing garments manufactured in Mainland China for on-sale and the defendant placing purchase orders to meet overseas buyers' orders – the accumulated total of the plaintiff's invoices was HK$59,298,101.12, and the defendant issued nearly 400 debit notes for various charges – the plaintiff claimed approximately HK$3.05 million, later reduced to HK$2,717,915.06, centred on 25 disputed debit notes and a price increase claim – whether the plaintiff had by conduct accepted the disputed debit notes giving rise to an implied contract – whether the plaintiff had accepted D/N 1 in the sum of HK$1,454,207.40 at a meeting in April 2009 – whether the plaintiff was estopped from disputing the defendant's entitlement to set-off – trial judge found the Spreadsheets were not final binding documents but were produced to facilitate the finalisation of the account, and gave judgment for the plaintiff in HK$2,005,663.66 – held, dismissing the appeal, that the court will not imply a contract from conduct lightly and the conduct must be unequivocally referable to the contract contended for – the trial judge's finding that the Spreadsheets were interim documents was not plainly wrong – the defendant failed to establish the alleged April 2009 agreement on D/N 1 given the lack of supporting documents and the implausibility of the plaintiff agreeing to absorb a HK$1.45 million loss without documentation – the estoppel plea as pleaded was confined to the Final Spreadsheets and failed on the basis of the trial judge's findings on the status of the Spreadsheets, and the defendant could not show detrimental reliance since it had set up its own factory and switched suppliers before receiving the Final Spreadsheets – appeal dismissed with costs – application to continue the post-judgment Mareva injunction not entertained.
Legal issues: Implied contract from conduct – acceptance of disputed debit notes · Acceptance of D/N 1 (Style 26102 quality complaint) · Estoppel by representation based on the Spreadsheets
Outcome: Defendant's appeal dismissed with costs.
Cited by 4 cases · Cites 8 cases
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CACV 611/2020 [2022] HKCA 472 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO 611 OF 2020 (ON APPEAL FROM HCA NO 816 OF 2013) ____________
____________ Before: Hon Cheung, G Lam and Chow JJA in Court Date of Hearing: 1 March 2022 Date of Judgment: 29 March 2022 _________________ J U D G M E N T _________________ Hon Cheung JA: 1.I agree with the judgment of G Lam JA. Hon G Lam JA: Background 2.This is the defendant’s appeal from a judgment after trial in the Court of First Instance.[1] The plaintiff and the defendant were garment traders. The defendant obtained purchase orders from overseas buyers and then ordered garments from suppliers to meet such orders. The plaintiff sourced and purchased garments manufactured in Mainland China for on-sale to its customers. 3.The plaintiff and the defendant began to do business with each other in October 2007. Over the course of their trading relationship, which ended in December 2012, the defendant placed a large number of purchase orders with the plaintiff. The accumulated total of the invoices issued by the plaintiff to the defendant for garment sold and delivered amounted to $59,298,101.12, representing 90% of the plaintiff’s business. In the same period of time, the defendant also issued nearly 400 debit notes to the plaintiff to cover various charges which, according to the defendant, included the cost of components or raw materials purchased for the plaintiff, extra delivery cost caused by the plaintiff’s delay in delivery, payment deductions made by the defendant’s customers on account of defects in the goods, sums advanced by the defendant to the plaintiff, and finance charges or interest in relation to such loans. 4.After their relationship broke down, in May 2013 the plaintiff brought the action below for the cumulative outstanding amount on its invoices. The sum claimed was originally approximately $3.05 million. The defendant admitted that the accumulated total of the plaintiff’s invoices was $59,298,101.12, but averred that the bulk of it had been settled, leaving only $89,496.42 outstanding to the plaintiff.[2] (The figure of $89,496.42 was arrived at by taking the credit balance of $341,400.16 in the Final Spreadsheets (as defined below) and deducting from it a number of sums specified in the original defence.[3]) A large number of debit notes were relied upon by the defendant but eventually the parties’ dispute was narrowed down to (i) 25 debit notes issued by the defendant in respect of which the plaintiff says it was not liable (“D/N 1” to “D/N 24” and “D/N 26”), and (ii) the increase in price of four of the plaintiff’s invoices which the defendant says was unjustified (“Item 25”). These disputed sums came to a total of $2,628,418.64. 5.By amendment in March 2017, the plaintiff reduced its claim to $2,717,915.06, being the sum of the admitted amount of $89,496.42 and the total disputed amount of $2,628,418.64. The trial therefore centred around whether the defendant was entitled to make the deductions under the 25 debit notes and whether the plaintiff was entitled to the price increase for the four invoices. 6.It was not in dispute that the parties had since early on dealt with each other on a running account basis. Payments were made by the defendant generally not invoice by invoice but by cheques for lump sums or back to back letters of credit based on letters of credit opened by the defendant’s own customers, or by set-off against debit notes issued by the defendant. In order to keep a record of their running account, spreadsheets were prepared and updated from time to time, at first by the plaintiff, and from 2009 by the defendant (“Spreadsheets”). As their relationship was coming to an end, however, the plaintiff prepared and provided the defendant with three Spreadsheets on 4 and 28 December 2012 and 3 January 2013 respectively. The latter two (“Final Spreadsheets”) included D/N 1 to 24 as credits in favour of the defendant, and showed a final credit balance of $341,400.16 in the plaintiff’s favour. D/N 26 was not referred to in the Spreadsheets at all. 7.The Spreadsheets were relied upon by the defendant at trial as precluding the plaintiff from claiming any amount exceeding the balance stated therein. The plaintiff disagreed, contending that the Spreadsheets only represented the interim ongoing status of the running account, that the entries therein were subject to checking and cross-checking and confirmation by the parties, and that they were not therefore final accounts. The Judgment below 8.In her judgment (“Judgment”), the trial judge, Lisa Wong J, held that the defendant bore the burden of proving the validity or enforceability of the 25 debit notes.[4] She considered that the Spreadsheets did not constitute an admission or acknowledgment precluding the plaintiff’s claim because of the following reasons. First, they were not intended to be final binding documents, but were produced to facilitate the finalisation of the account between the parties. Gary Wong, the plaintiff’s representative, expected the defendant to provide supporting documents for D/N 1 to 24 and, as the judge found, had orally sought such documentary proof from the defendant.[5] Secondly, none of the defendant’s witnesses testified in terms that made out the elements of estoppel arising from the Final Spreadsheets.[6] Thirdly, the defendant itself considered the Final Spreadsheets inaccurate, as its primary case was that it owed only $87,000.82 to the plaintiff.[7] Fourthly, the defendant did not alter its position in reliance on the alleged representation by way of continuing its business relationship with the plaintiff, since the defendant had not placed any further purchase order with the plaintiff after the Final Spreadsheets. In fact, the defendant had set up its own factory and switched to other suppliers were before it received the Final Spreadsheets.[8] 9.There being no binding agreement or acknowledgment on the disputed items, the judge went through them group by group based on the evidence, except D/N 7, 8 and 9 which were withdrawn by the defendant’s representative, Patrick Wong, during his cross-examination. Eventually the judge held that the defendant had established that it could deduct D/N 2 – 6, 19, 21, 22 and 24, but not in relation to D/N 1, 10 – 18, 20, 23 and 26. She held that the plaintiff was not entitled to the increased price in relation to Item 25. As a result, she gave judgment for the plaintiff for the amount of $2,005,663.66, being the claimed amount of $2,717,915.06 less the aggregate amount of the established deductions. 10.The particulars of the debit notes that were not withdrawn but not established may be excerpted from the table in §5 of the Judgment below as follows:
The appeal 11.From this decision the defendant now appeals, contending primarily that it should only be liable for $358,308.14, being the sum of $341,400.16 (the balance in the Final Spreadsheets) and the aggregate amount of the withdrawn D/N 7, 8 and 9. In other words, the defendant asks this Court to hold that it was entitled also to deduct D/N 1, 10 to 18, 20 and 23 which were taken into account in the Spreadsheets, abandoning D/N 26. For its part, the plaintiff has not appealed against the deductions permitted by the judge or the rejection of its claim on Item 25. 12.The main contentions of the defendant on this appeal are that having regard to the Spreadsheets and the parties’ conduct in relation to their mutual account, the judge should have found that the plaintiff had by conduct accepted the debit notes still in dispute and, in particular, D/N 1, and accepted the defendant’s entitlement to rely on them, or alternatively, that the plaintiff was estopped from disputing the defendant’s entitlement to make those deductions. 13.Mr Rex Yam, who appears for the defendant on this appeal but not below, also made a faint attempt to attack the judge’s findings in relation to individual deductions that the defendant had failed to provide adequate evidence to prove its entitlement, but this contention (other than in relation to D/N 1) is in my view not within the scope of the notice of appeal and therefore not open to the defendant. 14.I shall deal with the principal arguments raised with reference to (1) whether the plaintiff had by conduct accepted the debit notes, (2) whether the plaintiff had accepted D/N 1, and (3) whether the plaintiff was estopped from disputing the defendant’s set-off. Whether the plaintiff had by conduct accepted the debit notes 15.Whilst the defendant has repeatedly referred to the plaintiff having “by conduct” “accepted” the debit notes and the defendant’s entitlement to set off the deductions,[9] it is not clear from the defendant’s pleadings and contentions at trial what its case was as a matter of legal analysis, apart from an estoppel by representation. 16.In a mercantile relationship such as that the parties’ here, where there are items of both credit and debit in an account, sometimes the parties may agree that they are to be set off against each other, resulting in a balance only that should be paid. There is in such a case a “real account stated”, giving rise to a cause of action for the balance, without the need to inquire into the correctness of the individual items or the need to prove separate consideration for the promise to pay the balance other than the mutual discharge of the obligations on each side: see e.g. Siqueira v Noronha [1934] AC 332, 337; Wong Nuen Kiu v Zhu Jinfen & another (HCA 2293/2007 & 873/2007, 12 August 2011), §§24-26. The defendant has, however, never run a defence based on a real account stated. This is perhaps not surprising, given that the defendant itself disputed the correctness of the Spreadsheets, as referred to below. On that basis, each debit note, which is in essence the defendant’s assertion of a particular liability on the plaintiff’s part, has to be examined individually. At trial it was for the defendant to prove these cross-claims in order to establish its defence of set-off. 17.The defendant’s loose allegation that the plaintiff had “accepted” certain debit notes was analysed by the judge in terms of an allegation of a contract or contracts by which the plaintiff agreed and became bound to accept the deductions in question. There is no challenge on this appeal against this approach. 18.The particulars of such contracts are nowhere to be found in the defendant’s pleading (except for D/N 1, where an agreement at a meeting in April 2009 was pleaded in the supplementary particulars). In fact the defence did not plead that the plaintiff had “accepted” the debit notes by contract, arising by conduct or otherwise, but only that the plaintiff was estopped from contending that the defendant was liable in a sum exceeding the balance appearing in the Spreadsheets compiled from time to time. Mr Gary Lam, appearing for the plaintiff, has pointed out that neither consideration nor any particulars of conduct constituting acceptance was pleaded. There being no respondent’s notice raising the pleading point, however, I shall deal with the case of contract as the judge had dealt with it. 19.In essence, the defendant had to prove, from the conduct of the parties,[10] an agreement whereby the plaintiff, for consideration, accepted and acknowledged the liability asserted by each of the debit notes in question, giving rise to a binding contract between them. As is established by authorities, the court will not imply a contract from conduct lightly. It is necessary that the conduct relied upon is unequivocally referable to the contract contended for, in the sense that it is consistent only with there being the contract sought to be implied and inconsistent with there being no such contract: Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79, §§38-39, 48; Inspiring Investments Ltd v Chun Hu Hing & another [2020] 2 HKLRD 959, §38. 20.The conduct relied on by the defendant is that in relation to the Spreadsheets. It is said that the parties compiled the Spreadsheets, held meetings from time to time to discuss them, updated the Spreadsheets afterwards, and sent them to the other party for record. D/N 1 – 24 were recorded in the Spreadsheets without qualification and credited to the defendant, and in some cases appropriated towards meeting specific invoices of the plaintiff. In the Final Spreadsheets, which were prepared by the plaintiff, the account showed a nil balance as at 12 June 2012, before it increased to $341,400.16 at the end. 21.But the conduct did not stand alone. The Spreadsheets were also the subject matter of oral evidence. Gary Wong said that at the time the defendant provided incomplete records for its deductions. The Spreadsheets were intended to be a comprehensive compilation of the payment records, invoices, and debit notes, but this did not mean the balance was final and agreed. All the defendant’s purported deductions were included even though not all of them were supported by documents. The Spreadsheets provided a reference point for discussion. As to the Final Spreadsheets, they were sent to the defendant for it to confirm whether they represented its position. Shortly after the Final Spreadsheets, Gary Wong had an unpleasant meeting with Patrick Wong at the defendant’s office, where again Gary Wong asked the defendant to produce the supporting documents, and eventually Patrick Wong asked him to leave. 22.In contrast, Patrick Wong, and Garmen Wong, the defendant’s merchandiser, said that Gary Wong would come to the defendant’s office about every two weeks to discuss their accounts, comparing their records with the Spreadsheets to make sure that all invoices, payments and debit notes were properly accounted for. In case there was any issue about any particular invoice or debit note, they would resolve it at such meeting. The updated Spreadsheets prepared after each such meeting therefore reflected the agreed outstanding balance and state of account between the parties. 23.The judge, having heard their evidence, reached the finding that:
24.Mr Gary Lam’s submission that the defendant is not seeking to appeal against these findings seems to me to be misconceived, for it is plain from the notice of appeal that these conclusions are being squarely challenged. It is well established, however, that this court will not interfere with such factual findings of the trial judge unless they are plainly wrong. If the appellate court is not so satisfied, it should defer to the trial judge’s conclusion even if it is in some doubt as to its correctness: Ting Kwok Keung v Tam Dick Yuen & others (2002) 5 HKCFAR 336, §§41-42. The question on appeal is not whether the appellate judges would themselves have come to a different finding on the available evidence, but whether it was permissible for the trial court to make the findings of fact which it did in the face of the evidence as a whole. While this Court may interfere with a finding which there was no evidence to support, which was based on a misunderstanding of the evidence, or which no reasonable judge could have reached (see China Gold Finance Ltd v CIL Holdings Ltd & others (CACV 11/2015, 27 November 2015), §§17-19), it has to be borne in mind that the trial court is the primary tribunal for the assessment of the evidence and making relevant findings of fact, and that in our litigation system, the trial at first instance is “the main event” and not a “tryout on the road”: Yu Man Fung Alice v Chiau Sing Chi Stephen [2021] HKCA 1456, §§6-8. 25.Relying on Bright Gold Ltd v Mega Well Development Ltd [2020] 4 HKLRD 26 at §§46-48, Mr Yam submits that the judge had failed to take into account or to appreciate the significance and effect of certain evidence. He relies on the evidence that during the course of their trading, the parties had issued numerous invoices and debit notes. Spreadsheets were compiled regularly as “running records” to encapsulate the latest balance. The parties would meet fortnightly to review the Spreadsheets, which would then be updated and sent to the other party for its record. I do not think the judge failed to appreciate this evidence, which was the background to the Spreadsheets. But the Spreadsheets did not themselves contain any term on their own status; they were not signed by the parties or accompanied by written communications indicating that they were treated as settled accounts. The defendant has disclaimed any reliance on a real account stated. The fact that they were discussed and updated does not in itself necessarily mean that everything in them was agreed. 26.It should also be noted that the defendant’s own position at trial was that it was only obliged to pay the plaintiff $89,496.42, not the balance of $341,400.16 appearing in the Final Spreadsheets. The defendant pleaded that the Final Spreadsheets were “not accurate”[11] and contained “errors and discrepancies”[12] and that a number of further deductions needed to be made in favour of the defendant, many of which went back to 2008 and 2009. In addition, one of the debit notes claimed by the defendant, namely D/N 26, was issued in 2009 but did not feature in any of the Spreadsheets at all. 27.Mr Yam submits that before the trading relationship terminated, the plaintiff had not disputed the debit notes recorded in the Spreadsheets. Towards the end, the plaintiff sent an email on 4 December 2012 to the defendant asking for information or documents relating to 7 debit notes, only one of which related to the action (i.e. D/N 23). On 3 January 2013, the plaintiff sent the Final Spreadsheets to the defendant with a handwritten note attached which raised certain queries with regard to 12 specific debit notes, only two of which related to the action (i.e. D/N 11 and 23). It is said that this shows that the plaintiff did not take issue with the earlier debit notes. 28.This is however only one piece of evidence. It has to be looked at in the picture as a whole. Mr Yam has not referred us to the evidence of Gary Wong on these emails but apparently he had testified at trial that those debit notes had been issued only recently and plus he had not had the opportunity to check them before.[13] In fact, the debit notes referred to in the email of 4 December 2012 were all dated between 20 August and 13 November 2012, and the debit notes referred to in the email of 3 January 2013 were all dated between 12 June and 13 November 2012. The fact that when trading had ended and presumably no more “settlement meetings” were being held, Gary Wong scribbled down some queries raised for the first time in relation to those more recent debit notes, is not, in my view, inconsistent with his having during earlier meetings orally sought documentary support in relation to other debit notes. On the contrary, it seems to me telling that the defendant did not respond to the two emails by asking Gary Wong why he made those enquiries given that the debit notes had been included in the Spreadsheets which were reviewed and agreed in the settlement meetings, which would have been the natural response if the updated Spreadsheets were meant to be final and agreed. (There are in the appeal bundles at least two Spreadsheets prepared by the defendant after June 2012, namely one made up to 31 August 2012 and another made up to 23 November 2012.) Instead, on 21 January 2013, Garmen Wong responded to Gary Wong by email attaching various documents including a revised Spreadsheet and stating he would supplement later with information in relation to 2 debit notes: “欠以下資料後補 GTA-12021 GTA-12032”. 29.Mr Yam submits that the plaintiff’s allegation that it had asked the defendant many times orally for clarifications or supporting documents regarding the debit notes was inherently implausible. The plaintiff could have removed any questionable deductions from the Spreadsheets or made some specific annotations on them to record its disagreement or reservation, but did not do so. He submits that the judge failed to appreciate the inherent implausibility of the plaintiff’s version of the facts and that her finding was plainly wrong. 30.Whilst the matters raised by Mr Yam are not entirely without force, there are also matters that weighed in favour of the plaintiff which the judge needed to take into account. Thus it transpired in his cross-examination that Patrick Wong, the defendant’s representative, did not know what D/N 7, 8 and 9 were about and eventually agreed to drop these deductions, despite the fact that they were contained in the Spreadsheets. The defendant had not disclosed any supporting document other than the three debit notes themselves. 31.There are also inherent improbabilities in saying that the plaintiff had accepted D/N 1, a deduction of $1,454,207.40 (which is described in greater detail below) without supporting documents from the defendant showing that the customer had indeed deducted payment. Although this item (which was by far the largest in amount) was included in the Spreadsheets, the judge found that it was implausible that the plaintiff would have unreservedly agreed to absorb a $1.45 million loss without any documentation.[14] Patrick Wong had accepted under cross‑examination that the defendant would not be entitled to impose any deduction on the plaintiff if the defendant itself had not suffered any corresponding loss.[15] 32.Gary Wong gave evidence that he orally sought documentary proof of D/N 1 to 24 from the defendant. I appreciate that there was no demand in writing (other than in relation to D/N 11 and 23), but this has to be looked at in the context where the plaintiff was a one-man operation where Gary Wong had to handle everything including secretarial and accounting work; it was anxious to maintain a harmonious relationship with the defendant which was its predominant client; and it did not appear from the evidence that there was a great deal of other written communication between the parties. The evidence was that there were many other deductions for which the defendant did supply documents and information and which were accepted by the plaintiff. The judge was entitled to think that it was improbable that the plaintiff would have agreed simply to accept any debit notes from the defendant without sight of sufficient proof.[16] 33.Mr Yam also submits that the judge failed to appreciate the significance of an “admission” made by Gary Wong based on the Final Spreadsheets. That set of spreadsheets indicated a nil intermediate balance as at 12 June 2012, after part of a defendant’s debit note (no. GTA 12016, not one of those disputed) was appropriated towards satisfying the previous balance due to the plaintiff. It was the debit and credit entries thereafter that yielded a net final balance of $341,400.16. Mr Yam submits that Gary Wong accepted in cross-examination that, as at 12 June 2012, the parties did not owe each other anything (“冇拖冇欠”). On this basis the defendant seeks as an alternative an order that the defendant need only pay $453,104.91, being the sum of $341,400.16 plus the amount of D/N 7, 8 & 9 and the five disputed debit notes issued after 12 June 2012. 34.I accept that, read in isolation, the passages in question give an impression that Gary Wong agreed that the defendant did not owe the plaintiff anything as at 12 June 2012. It seems to me, however, that they must be read in the context of Gary Wong’s entire evidence in cross-examination. He had in earlier answers repeatedly emphasised that the Final Spreadsheets were a temporary document prepared by him to enable the parties to check the numbers, and did not mean that he had accepted the debit notes included in them. He specifically denied that the final balance was $341,400.16, and said that if offered that amount then by the defendant, he would not have accepted it. Subsequent to the answers relied upon by the defendant, when asked about the individual disputed debit notes (many of which, including in particular D/N 1, pre-dated 12 June 2012), he was adamant that they had not been agreed, and reiterated that they had been included in his Final Spreadsheets to facilitate checking, not to signify his acceptance. 35.Read in context, it seems to me that in the parts of the evidence relied on by the defendant, Gary Wong was simply saying what the Final Spreadsheets showed as a matter of accounting statement. The “admission” was no more than an acknowledgment that according to the Final Spreadsheets, there was nothing owing as at 12 June 2012. But that nil intermediate balance as at 12 June 2012 did not have any more significance than the final balance of $341,400.16 after December 2012. The whole thrust of Gary Wong’s evidence, which he maintained in cross-examination, was that the Final Spreadsheets were not finalised and did not represent the plaintiff’s stance, that the disputed debit notes had not been agreed despite being shown in the Final Spreadsheets though they could be accepted if the defendant produced supporting documents, and that he had repeatedly asked the defendant to provide supporting documents. The questions put to him stopped short of asking whether he agreed that that nil intermediate balance in the Final Spreadsheets was binding, that the plaintiff would have no legal claim against the defendant at that point in time, and that the plaintiff’s ultimate claim was therefore limited to the receivables accruing thereafter subject to any subsequent deductions established by the defendant. Had the defendant wanted Gary Wong in effect to abandon his challenge against all debit notes prior to 12 June 2012 based on his answers on the nil intermediate balance in the Final Spreadsheets, the questioning would need to have been much clearer and more explicit than that. I accept that the judge should have expressly dealt with this particular piece of evidence, especially as it was given some prominence and quoted in full in the defendant’s written closing submissions.[17] But, for the reasons given, the answers relied upon cannot in my view be taken as an unequivocal admission against the plaintiff’s case that the Spreadsheets were interim and not a settled account. 36.Overall, despite Mr Yam’s submissions, I do not consider that the judge’s finding in relation to the status of the Spreadsheets can be said to be plainly wrong. It might have been a close call, and a different trial court could reasonably have come to a different conclusion. But it was rationally open to the judge, on the parties’ opposing evidence and on the competing commercial probabilities, to find that the Spreadsheets were not intended to be final settled accounts and that there was no contract, implied from the parties’ conduct, by which the plaintiff was bound to accept D/N 1 to 24. It must also not be forgotten that this conclusion did not mean that the defendant must fail in its case of set-off based on D/N 1 to 24, but merely that it had to prove them on their merits, something which the defendant eventually managed to do for some of the debit notes but not for others. Whether the plaintiff accepted D/N 1 37.D/N 1 was the only debit note issued by the defendant for alleged defects in the goods in the parties’ entire trading relationship. It related to the sale of Style 26102, a female v-neck jersey, to an overseas and customer called Indipunt. The defendant’s pleaded case[18] was that before it had agreed with Indipunt how much compensation to pay Indipunt, the defendant and the plaintiff decided to resolve the matter between themselves. It was agreed during a meeting in April 2009 that the plaintiff would compensate the defendant in the sum of $1,454,207.40, an amount proposed by Gary Wong, which was roughly 30% of the price for Style 26102. This comprised of the total amount of two of the plaintiff’s invoices (HS2007/15 and HS2008/74) with minor exchange rate adjustments. 38.There was some confusion in the defendant’s case as to who prepared D/N 1. Its pleaded case was that the document was issued and handed to Gary Wong at the meeting, implying that it was prepared by the defendant.[19] Patrick Wong however said in his statement,[20] echoed by Garmen Wong,[21] that D/N 1 was prepared by the plaintiff itself, using its own numbering scheme resulting in the number “DN 08/032”. 39.There was evidence of quality complaints about Style 26102 in the form of emails from Indipunt in January 2009. It was not disputed that the defendant did tell the plaintiff that Indipunt had demanded compensation, and that the defendant in turn demanded compensation from the plaintiff. But Gary Wong denied that there was any agreement as alleged by the defendant. He simply told Patrick Wong that the goods had been produced by a factory supplier under a subcontract, and that the plaintiff had to pass the end customer’s complaint to the factory. He told Patrick Wong that if there was proof that defects existed and $1.45 million had been deducted by Indipunt as a result, the plaintiff would shoulder the responsibility. He asked Patrick Wong for all the documents concerned, including the customer’s complaints, evidence of defects, records of compensation for the customer including bank payment deduction records, so that he could in turn negotiate with the factory. Without such documents, the factory would not agree any deduction. He had repeated his request to the defendant for documentary support to no avail. Gary Wong said he did not prepare D/N 1, and did not propose or determine its amount. Instead, it was the defendant who combined the amounts of two of the plaintiff’s invoices to arrive at the amount of D/N 1. The deduction was temporarily assumed to be justifiable, and thus recorded in the Spreadsheets. He said that $1.45 million was a large amount of money to the plaintiff, a small company, and that he would not have allowed such a significant deduction without having seen a single page of evidence. 40.The judge noted that the defendant accepted that it would not be entitled to impose any deduction on the plaintiff if the defendant itself did not have to bear any deduction made by Indipunt. The defendant admitted that it had received full payment from Indipunt on Style 26012, but asserted that Indipunt had deducted $1.4 million from some other invoices. That assertion was made for the first time by Patrick Wong during his cross-examination. The defendant had been unable, however, to produce a single piece of paper or any information to support that assertion, whether before or after litigation had commenced. 41.Mr Yam points to the fact that in the Spreadsheets, the amount of D/N 1 was appropriated towards meeting two of the plaintiff’s invoices. But this simply describes the accounting treatment. Whether there was a contract binding the plaintiff to accept that those two invoices were set off by D/N 1 depended on the evidence. Mr Yam also relies on the fact that such accounting treatment of D/N 1 had remained in the Spreadsheets for a long time. But the judge found that Gary Wong had asked for supporting documentation from time to time. He might have been willing to leave D/N 1 in the Spreadsheets, presuming that the defendant would eventually provide documentary proof. He might even have been prepared one day to write off the amount if the business prospered. But I do not agree with Mr Yam that the only possible conclusion was that the plaintiff had acknowledged liability in that amount. He has not been able to address the implausibility of the plaintiff agreeing finally to absorb such a large loss, without seeing what deduction was made by the end customer, and with no hope of getting recovery from the plaintiff’s own supplier. 42.On the evidence the judge was entitled not to accept the defendant’s version of what happened in April 2009. The judge’s finding cannot be said to be plainly wrong. It is unnecessary to deal with the question whether there was consideration to support the alleged acknowledgment of D/N 1. Estoppel 43.The defendant pleaded an estoppel in §5B of its re‑amended defence based on “the course of dealings and the fact that the parties hereto conducted their business on the basis of the Settlement Spreadsheets compiled from time to time”, by which the plaintiff was “estopped or precluded from denying that the Defendant was liable to it in a sum greater than that appearing in that Settlement Spreadsheet”. (There is an obvious error in the pleading here: either “denying” should read “asserting”, or “greater than” should read “no greater than”.) It was pleaded in §5C that the defendant “would not have continued its business relationship with the Plaintiff had it known that the Plaintiff would later resile from its position as stated on the relevant Settlement Spreadsheet”. 44.The judge held that, even assuming that the Final Spreadsheets constituted a representation as to the final state of account, the estoppel argument would still fail because of the reasons mentioned in §8 above.[22] 45.Mr Yam submits that the judge was wrong to confine the defence to the Final Spreadsheets only. He submits that from the course of their dealings there was a mutual representation by the parties to each other that they would be bound by the balance stated in the Spreadsheets at the time. In reliance on it the defendant accepted its liability for that balance and continued to place orders with the plaintiff. 46.First, as mentioned above, the judge prefaced her discussion of the estoppel plea with an assumption (stating “Even if, for the sake of argument”) that the Final Spreadsheets constituted a representation as to the final state of account. On the basis of her conclusion regarding the status of the Spreadsheets, this assumption plainly did not materialise. 47.Secondly, the defence as pleaded is not an estoppel precluding the plaintiff from subsequently challenging the debit notes included in the Spreadsheets, but an estoppel precluding the plaintiff from saying that the defendant was liable for an amount exceeding the balance stated. The stated balance however varied from time to time. For example, the Spreadsheets the plaintiff sent to the defendant on 4 December 2012 stated a balance of $792,118.21. While §5B and §5C of the defence refer to the Spreadsheets generally, the effect of the estoppel was pleaded in §7A with specific reference to the Final Spreadsheets, where it was said that “the Plaintiff was estopped from denying that the sum [for] which the Defendant was liable up to 3rd January 2013 was more than $341,400.16”.[23] (Again, there was an obvious mistake here: either “denying” should read “asserting”, or “more than” should read “no more than”.) The only balance relied upon at trial as the upper limit of the defendant’s liability was that stated in the Final Spreadsheets. In light of way the plea was formulated and run, the judge cannot in my view be faulted for focussing on the Final Spreadsheets. 48.For these reasons I would also reject the estoppel point. Conclusion 49.For the reasons above, despite the able submissions of Mr Yam, I would dismiss the defendant’s appeal with costs. 50.Finally, Mr Lam has in his skeleton argument asked this Court to continue a post-judgment Mareva injunction against the defendant first granted by the judge ex parte on 24 November 2021. It is not a matter that arises from the appeal and I would decline to entertain this request or deal with the costs relating to the Mareva injunction. Hon Chow JA: 51.I agree with the judgment of G Lam JA.
Mr Lam Chin Ching Gary, instructed by Messrs. Fu & Cheng, for the Plaintiff (Respondent) Mr Rex Yam, instructed by Messrs. Chak & Associates LLP, for the Defendant (Appellant) [2] The defendant subsequently amended its defence to plead a figure of $87,000.82, but at trial the defendant was content to proceed on the basis of the figure of $89,496.42. [3] See paragraph 7 of the original defence. [4] Judgment, §19. [5] Judgment, §§16-17. [6] Judgment, §58(1). [7] Judgment, §58(2). [8] Judgment, §58(3). [9] See, e.g. the defendant’s notice of appeal, §§2-3. [10] except in the case of D/N 1 where an express oral agreement is alleged. [11] Para 7(b) & (c) of the original defence. [12] Para 7B of the re-amended defence. [13] See para 61 of the plaintiff's written closing submissions at trial. [14] Judgment, §26. [15] Judgment, §22. [16] Judgment, §17. [17] pages 6-8. [18] Supplemental Answers to the Plaintiff's Summons for Further and Better Particulars issued on 30 December 2014. [19] Supplemental Answers to the Plaintiff's Summons for Further and Better Particulars issued on 30 December 2014. [20] Witness statement of Wong Lap [Patrick Wong] aged 22 August 2014, para 30(4). [21] Supplemental witness statement of Wong Garmen dated 27 September 2016, para 4. [22] Judgment, §58(1)-(3). [23] See also the Defendant’s written opening submissions at trial at para 11. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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