Brightex (Pvt) Ltd v. Hongkong Dragon Xiang Co Ltd

DCCJ 5772/2021

[2023] HKDC 460

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5772 OF 2021

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BETWEEN

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DECISION

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Issues

1.By Summons filed on 29 September 2022, the Plaintiff applied for summary judgment and to strike out the Defendant’s Third-Party Notice dated 12 April 2022 against Hong Kong Amer Trade Co., Limited (“Amer”). The issues before me are:

(1) Whether there is any bona fide defence (in respect of the Plaintiff’s contract claim and restitutionary claim).

(2) Whether the Plaintiff has the requisite standing to strike out the Third-Party Notice.

(3) If the Plaintiff has standing, whether it is a suitable case to strike out the Third-Party Notice.

The claim, the defence, and the amendments

2.The Plaintiff is a Hong Kong company which carried on the business of importing and exporting. Its CEO was Mr Deepak Agrawal. The Defendant, also a Hong Kong company, supplied mobile phones and related electronic products. The Defendant has two associated companies, both named “Jiyishihou Technology Co Ltd” (“JTC”), one incorporated in the PRC and one in Hong Kong. I am not informed as to the nature and details of that association, but apparently the relevant sales staff working for the Defendant were on the payroll of the PRC JTC. Amer was a trader of mobile phones. It is a Hong Kong company controlled by a Madam Chen Ling Ling (“Madam Chen”) who is, however, neither a registered shareholder nor director of Amer.

3.The Plaintiff’s case is that on 8 September 2021, it (acting through Mr Chandra Shekar, “Chandra”) agreed to buy from the Defendant (acting through Mr Chase Liu, “Chase Liu”) 2,000 pieces of Redmi Note 8 at the price of US$246,000 (“Contract”). The Contract was evidenced by invoice number 20210908 dated 8 September 2021 bearing the name and company chop of the Defendant, which was provided by Chase Liu to Chandra (“Invoice”). The Plaintiff paid the full price into the Defendant’s bank account on 9 September 2021, but only received partial delivery of 700 pieces of mobile phones on 20 September 2021, leaving a balance purchase price of US$159,900. The Plaintiff claimed US$159,900 with interests and costs.

4.What appeared to be a simple claim for undelivered goods quickly changed its complexion upon the filing of the Defence dated 14 April 2022. The Defendant denied the Contract (“No Contract Defence”). It pleaded that the Invoice was forged and its contents untrue. The Defendant says that on about 9 September 2021, it (acting through a sale representative, Ms Littley Chan, “Littley”) contracted with Amer (acting through Madam Chen) to sell 1,428 pieces of Redmi Note 8 (the specifications including colour were different from those under the Contract) for the price of US$256,968 (“Amer Contract”). Amer told the Defendant that the phones would be on-sold to third parties including the Plaintiff. The US$246,000 paid by the Plaintiff to the Defendant was procured by Madam Chen to be part payment under the Amer Contract. Amer procured another third party to pay a further US$50,000 to the Defendant on 9 September 2021, leaving a balance on the account of Amer with the Defendant. Amer already took full delivery from the Defendant pursuant to the Amer Contract. The 700 pieces of phones received by the Plaintiff on 20 September 2021 was procured by Madam Chen from another supplier, unrelated to and unknown by the Defendant.

5.On 22 April 2022, the Defendant issued a Third-Party Notice against Amer, seeking indemnification against the Plaintiff’s claim and costs of the action. Amer has not filed any acknowledgment of service.

6.On 6 July 2022, the Plaintiff amended the Statement of Claim to (1) add that the Defendant was entitled to rely on “the actual and/or apparent / ostensible authority” of Chase Liu to enter into the Contract on behalf of the Defendant, and (2) add unjust enrichment as an additional basis of its claim. The unjust factors are “total failure of consideration, failure / absence of basis and/or mistaken payment”.

7.In the Amended Defence dated 2 August 2022, the Defendant denied that Chase Liu had any actual or ostensible authority to act for the Defendant. The unjust factors are denied; change of position is relied on.

8.In the Reply dated 29 September 2022, the Plaintiff denied any knowledge about Amer or the Amer Contract. The Plaintiff says that on 8 September 2021, the Plaintiff had verified with Ms Ponie Zhang (“Ponie”), a sales representative of the Defendant, “whether the Invoice was an invoice issued by the Defendant and whether the bank account details of the Defendant as stated on the Invoice were correct, and Ponie’s answer was in the affirmative.” The Plaintiff also relies on the fact that the Invoice number was stated under the payment details section of the transfer made to the Defendant on 9 September 2021.

Summary judgment - principles

9.The principles regarding summary judgment are summarized in Huang Lidong v Kwong Wing Chung [2023] HKDC 461 [27].

(1) The plaintiff must in the first place demonstrate that the defendant has no defence. The defendant shoulders the burden to satisfy the Court that he has a real or bona fide defence (triable issues) or that there ought for some reason to be a trial. A complete defence need not be shown.

(2) The mere assertion in an affidavit does not ipso facto provide leave to defend. The defendant must condescend to give particulars.

(3) The test is not whether the defendant’s assertions are to be believed, rather, it is whether those assertions are believable. The court will not take the defence on its face value but test it against the evidence disclosed in the affidavit including matters such as contemporaneous documents, whether the alleged defence is inconsistent with the defence previously put forward or whether the defence is only recently raised despite opportunity being given to the defendant to respond earlier. The court will also consider the inherent probability of the defence, without going into a mini trial on paper on complicated factual issues.

Whether the Defendant has a bona fide defence – the contract claim

10.At the heart of the No Contract Defence is whether Chase Liu had any ostensible authority to bind the Defendant with the Contract. It is not in dispute that he had never been an employee or agent of the Defendant; he was an employee of another trader of mobile phones, “LoveMi”, until end of 2021. Counsel for the Plaintiff does not pursue the argument that Liu had actual authority to represent the Defendant.

11.Ostensible authority is essentially a species of estoppel by representation: Akai Holdings Ltd (In Liquidation) v Thanakharn Kasikorn Thai Chamkat (Mahachon) (2010) 13 HKCFAR 479 at [52] (Lord Neuberger NPJ writing the unanimous judgment of the CFA). It comes about where the principal, by words or conduct, has represented that the agent has the requisite authority, and the party dealing with the agent has entered into a contract with him in reliance on the representation: Armagas Ltd. v Mundogas S.A. [1986] AC 717 at 777 (Lord Keith). Unsurprisingly, therefore, it is unlikely that one can establish ostensible authority of an alleged agent by relying on that agent’s own unauthorized statement to clothe himself with authority: Akai (op. cit.) [63] – [71].

12.The gist of the Plaintiff’s case on Chase Liu’s ostensible authority is as follows:

(1) The Defendant held Chase Liu out as its agent because “D had somehow provided a digital version of its invoice with D’s company chop to Amer and allowed Chen and Chase Liu to use it at their own free will” (Plaintiff’s written submissions [22(1), 23(1)]).

(2) Liu was able to immediately produce a copy of the Defendant’s Business Registration certificate to the Plaintiff upon request (Plaintiff’s written submissions [22(2)]).

(3) Ponie, the Defendant’s sales representative, positively confirmed with Chandra over WeChat that the Invoice was “issued by the Defendant and that the bank details were correct” (Plaintiff’s written submissions [22(3), 23(2)]).

(4) When the Plaintiff paid US$246,000 to the Defendant, the payment details reference clearly stated the Invoice number (“PAY FOR IN: 20210908 OUR PAY REF. P36253”). Therefore, the Defendant knew that the payment was made pursuant to that Invoice (Plaintiff’s written submissions [22(4), 23(3)]).

(5) Chase Liu made partial delivery of 700 pieces of mobile phone pursuant to the Contract (Plaintiff’s written submissions [22(5)]).

13.Having considered the materials and arguments before me, in my judgment, the Plaintiff has failed to demonstrate that the Defendant has no defence in the first place; in any event, the Defendant has shown triable issues in respect of the contract claim. 

(1) I do not think any fair reading of the Defendant’s affirmation evidence can give rise to an understanding that the Defendant gave a copy of its digital invoice or Business Registration certificate to Amer, Chen or Liu so that they could forge or misuse them as they pleased. The Defendant says the opposite, that such documents were misused by Chen and Liu without the Defendant’s knowledge or approval.

(2) I have looked at the relevant WeChat messages between Chandra and Ponie on 7 to 9 September 2021 carefully. I am not convinced (without the benefit of cross-examination and full arguments at trial) that they show any unequivocal representation by the Defendant that Chase Liu had authority to act on its behalf. On 7 September 2021, Chandra told Ponie that he was dealing with a company LoveMi, but “he say invoice will come from [the Defendant]”. Ponie responded that she did not understand, and that LoveMi sometimes purchased from the Defendant. She offered to ask her “boss”, but Chandra asked her to “keep it secret”. On 9 September 2021, Chandra shows the Invoice to Ponie in WeChat, said it was a “special deal”, and asked Ponie to check “if this is your company invoice and jiyi bank details”. Ponie gave Chadra the bank details and then responded, “It’s correct”. Chandra again asked her to keep it secret. Ponie explained on affirmation that by “It’s correct” she was only referring to the bank details. I do not think this can be rejected offhand, in particular given how roll-up questions were asked of her in an informal setting. Further, as Ponie offered to ask for confirmation by her boss, one would question whether she herself had the requisite authority to confirm Chase Liu’s authority.

(3) The Defendant explained that it was its practice to accept third party payment (procured by Madam Chen) to settle Amer’s invoices, and Littley was told by Madam Chen that the Plaintiff’s payment of US$246,000 would be used to settle the Amer Contract. Whether or not it was a desirable practice, this explanation is not something that can be rejected on affidavit alone. Coupled with the fact that it was apparently common for mobile phones to be on-sold between various traders, I do not think too much can be made of the reference to a certain invoice number in the remittance record of the US$246,000.

(4) It is clear on the face of the Statement of Claim itself that the “partial delivery” of 700 pieces did not correspond with the specifications of the Contract. This supports the Defendant’s case that the said delivery was procured by Madam Chen from another supplier.

(5) Points (1), (2) and (5) summarized in paragraph 12 above can be quickly disposed of on the further ground that the relevant act or representation came from Liu or Madam Chen, not the Defendant.

Whether the Defendant has a bona fide defence – restitution

14.The Plaintiff argues that, applying the test set out in Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 [67], the Defendant was clearly enriched at the Plaintiff’s expense by the admitted receipt of US$246,000. The enrichment was unjust because the Defendant did not provide any consideration to the Plaintiff (to the extent of the 1,300 pieces mobile phones which were not yet delivered), or that the US$246,000 was mistaken payment. The only issue is whether the Defendant has shown a triable issue in bona fide change of position.

15.On the defence of bona fide change of position, both parties referred me to Zief Incorporated v Tekchandani Ajai Mohan (t/a D’Ziner Collections (Hong Kong) & Ors [2021] 3 HKC 69 [30] – [33], [35] – [39], and Globenet Droid Ltd v Hong Kong Hang Lung Electronic Company (a Firm) [2016] 3 HKLRD 863 [59]. This defence is available to a person whose position had so changed that it would be inequitable to require him to make restitution. There must be a causal link between the receipt of the benefit and the change of position, and the appropriate test of causation was at least the “but for” test.

16.The Plaintiff further relies on Grupo Pacifica Incorporada v Worldwide Marine Product Ltd & Ors HCA 2640/2014 (24 September 2018) [33], [44], [45] on the requirement and meaning of “good faith”. It is a broad concept incapable of exact definition. Much depends on the circumstances in which the defendant changed his position and the extent of his knowledge about how the payment came to be made. Examples of absence of good faith include (a) “a failure to act in a commercially acceptable way”, (b) “sharp practice of a kind that falls short of outright dishonesty”, and (c) “dishonesty”.

17.The Plaintiff argues that the defence of bona fide change of position has no merits, because:

(1) There was no change of position. There is serious doubt whether the Defendant in fact delivered 1,428 pieces of mobile phones to Amer pursuant to the Amer Contract. The Plaintiff relies on various apparent discrepancies between the terms of the Amer Contract and the actual manner that the Amer Contract was said to be performed.

(2) Any change of position was not made in good faith. The argument that the Defendant gave its digital invoice with company chop and Business Registration certificate for Amer’s use was repeated. The Plaintiff also criticized the Plaintiff for not conducting any due diligence upon receipt of payment from third parties. The Plaintiff says that all in all, the Defendant did not act in a commercially acceptable way.

(3) There was no “but for” causation between the receipt of monies from the Plaintiff and release of goods to Amer.

(4) The Defendant produced no evidence to show that the transaction was legally or practically irreversible.

18.I disagree with the Plaintiff, for the following reasons:

(1) The Defendant has produced various records showing delivery to Amer. The discrepancies raised by the Plaintiff cannot be resolved on affidavit alone.

(2) For the reasons stated in paragraph 13(1) above, I do not think the evidence shows that the Defendant provided its digital invoice and Business Registration certificate to Amer, Liu or Chen for them to be used freely. The Defendant’s lack of due diligence on the monies it received and the undesirability of the third-party payment arrangement is a separate matter (and perhaps a better point). Whether or not it amounts to a failure to act in a commercially acceptable way to the extent that the Defendant cannot rely on the defence of change of position, however, is a question which requires nuanced assessment of the facts as a whole, including evidence regarding the parties’ knowledge at the time. I cannot complete that task fairly without a trial.

(3) The WeChat records at least show a triable issue whether the Defendant only released the goods to Amer pursuant to the Amer Contract upon receipt of the US$246,000.

(4) I agree with the Defendant’s submissions that given the lapse of time (over 1.5 years since the delivery under the Amer Contract) it is a least a triable issue whether the Amer Contract is reversible.

19.The Defendant raised a further argument that “restitutionary remedies could not be awarded where their effect would subvert the parties’ agreement in a valid contract and the continued existence of the contract would usually defeat the restitutionary claim where a benefit was transferred pursuant to an obligation”. Reference was made to Credit One Finance Ltd v Yeung Kwok Chi & Ors [2021] 1 HKC 598 [37] – [39] and Hui Tze Ha, the sole executrix of the estate of Lam Yim, Dec’d v Ho Yuet Lin [2021] HKCFI 1901 [37] – [38].

20.I do not think the Defendant’s argument is helpful. The Plaintiff’s alternative claim in mistaken payment is premised on the failure of the primary contract claim, that is, where (a) there would be no contract between the Plaintiff and the Defendant, and (b) it is questionable who was the party contracting with the Plaintiff. Regarding (a), there is no contract to subvert. Regarding (b), recovering mistaken payment from a non-party does not subvert the contract between the Plaintiff and its counterparty (whoever that may be).

The Plaintiff’s application to strike out the Third-Party Notice

21.All is said by the Plaintiff is that if I find the defence to be unbelievable, “the Third Party Notice (which is based on D’s case) ought to be struck out as well”.

22.The Defendant accepts that RDC Ord.16 confers a discretion on the court to regulate third party proceedings, and the court may strike out a third-party notice under O.18, r.19 (although it is not strictly a “pleading”), such discretion may be exercised when it is fair and convenient to do so. Reliance is placed on China Citic Bank International Ltd v Li Yan Hung [2022] HKCFI 354 [14] – [18] (strike out only where it is plain and obvious that the plaintiff’s case has no factual basis, no “solid basis capable of proof”, and is a “myth” with “no substantial foundation”). I am also referred to Super Cruise Ltd v Cosmio Borrelli & Ors [2018] HKCFI 1854 [21] – [30] for the proposition that it is wrong to suggest that the absence of any reasonable cause of action is per se a sufficient reason for a third-party claim to be struck out. The upshot of the Defendant’s argument is that even if its defence is incapable of believe, it still has a viable claim against Amer under the Amer Contract, that being the subject matter of the Third-Party Notice, which ought not be struck out.

23.I am of the view that the Plaintiff has no standing to strike out the Third-Party Notice, and assuming that it has standing, the Plaintiff has failed to show that it is a proper case to strike out the Third-Party Notice (whether or not it succeeds in the summary judgment application).

24.Where a defendant issues and serves a third-party notice on another person who is already a party to the action (Ord. 16, r.8), or who is not (Ord. 16, r.1), the respective parties stand in relation to another as if the defendant had brought a separate action against that other person. The proceedings which thereby arise have or may have, as it were, a life of their own, quite independent of the main action. They create a “lis” between the parties in question which will remain to be disposed of by the court in the event of all the other issues failing away. For example, where the main action is settled. Conversely, third party proceedings may be dismissed for want of prosecution even though the main action is still proceeding. This is summarized in Hong Kong Civil Procedure 2023, Vol. 1, [16/0/2].

25.The lis arising from the Third-Party Notice is between the Defendant and Amer. Nothing is claimed against the Plaintiff; it is not for the Plaintiff to strike out that notice.

26.Even if the Plaintiff obtains summary judgment, the lis arising from the Third-Party Notice remains to be tried by the court. The Plaintiff’s assumption, that the Notice must be struck out if the court finds the defence to the main action to be unbelievable, is incorrect. It is the fact that the Defendant is found liable to the Plaintiff in the main action which is the basis of the Defendant’s claim against Amer in the Third-Party Notice.

27.For the above reasons, the Plaintiff’s application to strike out the Third-Party Notice is dismissed.

Costs order nisi

28.Both parties agreed that I should make a costs order nisi.

29.The strike out application is dismissed, and costs will follow the event. Regarding the summary judgment application, I am of the view that, based on the materials already in the Plaintiff’s own possession at the time of the Summons dated 29 September 2022 including the Plaintiff’s own communication with Chase Liu and the Defendant’s explanation by way of WeChat, the Plaintiff should not have made the application. The usual order in such situation is to dismiss the application for summary judgment and order the Plaintiff to bear the costs of and occasioned by the application. I will however make a reduction of 20% overall, for the reason stated below.

30.A defendant responding to an application for summary judgment must condescend to particulars. However, it does not mean that the parties should go into unnecessary details or produce voluminous materials that are of peripheral relevance. In this case, both parties have filed prolix, argumentative, and repetitive affirmations; a large part of the exhibits are of peripheral relevance. They unnecessarily escalated costs and are not conducive to the effective disposal of the proceedings. As the Plaintiff is the paying party here, I consider it just that the Plaintiff be ordered to pay 80% of the Defendant’s costs of and occasioned by this application.

Disposition

31.I make the following order:

(1) The Plaintiff’s Summons dated 29 September 2022 be dismissed.

(2) There be a costs order nisi that the Plaintiff pay 80% of the Defendant’s costs of and occasioned by the Summons, including all costs reserved, on a party and party basis, to be taxed if not agreed, with certificate for one counsel.

Mr Wong Joseph, instructed by Tang & So, for the plaintiff

Mr Leung Sze Lum, instructed by Chen & Lee Law Office, for the defendant