Hong Kong Precision Screws Manufacturing Ltd. v. United Strength Ltd.

Case No.CACV 85/1991

Court

Court of Appeal

Date15 Aug 1991

Judge—

Case Document

100%Judiciary

CACV000085/1991

IN THE COURT OF APPEAL

1991 No. 85
(Civil)

BETWEEN

	HONG KONG PRECISION SCREWS MANUFACTURING LIMITED	Plaintiff (Appellant)

	AND

	UNITED STRENGTH LIMITED	Defendant (Respondent)

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Coram: Hon. Fuad, V.-P., Power & Macdougall, JJ.A.

Date of Hearing: 23 July 1991

Date of Handing Down Judgment: 15 August 1991

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JUDGMENT

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Power, J.A.:

1. This is the judgment of the Court.

2. Hong Kong Precision Screws Manufacturing, the plaintiff, sued United Strength Limited, the defendant, for US$31,046.40, being the price of goods sold and delivered to the defendant in three shipments on the 6th, 19th and 28th of June 1990. The plaintiff applied under Order 14 for Summary Judgment. This application was dismissed by Mayo J. with costs to the defendant.

3. In the Order 14 application the defendant exhibited a copy of the points of defence and counterclaim which it intends to file in the action to the affidavit of Mr. Guido Wenk, one of its directors. In its defence, the defendant admitted that the plaintiff sold and delivered goods to the defendant as set out in the Statement of Claim, but said that it would seek to set off against the sums due, amounts which were the subject of counterclaims.

4. The counterclaims included claims for damages for alleged breaches of three separate contracts for the supply of goods by the plaintiff to the defendant.

5. The first of these, for the supply of 4,800,000 pieces of Hexagon Allen keys and 600,000 sets of hardware kits, was evidenced by purchase order 0009 dated the 11th of January 1990. The second, for the supply of 300,000 chrome-plated ABS handles, was evidenced by purchase order No.0008 dated the 11th January 1990. The third for the supply of 600,000 pieces of chrome-plated washers was also evidenced by purchased order 0008. The defendant's total counterclaims are in excess of US$160,000.

6. The plaintiff's claim arose out of three purchase orders - 0011, 0012 and 0013. All were for boxes of 24 pairs of wallhooks and nails, and in all the agreed price was US$0.66 per box. Purchase Order 0011 and 0012 were for 25,040 boxes and Purchase Order 0013 was for 50,000 boxes. Each purchase Order specified delivery in two lots, the first of which was to be not later than the 5th of May and the second not later than the 25th of June 1990. Each contract contained the following clause:

	"Remarks : Tooling shall be engraved with "BELONGS
		TO UNITED STRENGTH LTD." no sales of products produced out of this tooling can be made without prior written permission from United Strength Ltd."

7. It was not disputed that the deliveries in relation to which the claims were made were partial deliveries which were accepted by the defendant.

8. The only counterclaim by the defendant which specifically referred to these three purchase orders was a claim for US$17,000 being the costing of manufacturing two new moulds at US$8,500 each. The defendant claimed that it had had to purchase these two moulds because of the failure of the plaintiff to deliver to it the two moulds used in the manufacture of the wallhooks and nails to which it was entitled.

9. As set out, the price specified for wallhooks and nails was US$0.66 per box of 24 pairs. It is not possible from the material placed before the court to understand how the parties arrived at this price.

10. By a fax dated January 8th 1990, the plaintiff had offered to the defendant a pair comprising one picture hook and one concrete nail at a price of US$0.0135. This price did not include the packing and transportation cost which amounted to US$0.08. The total cost for a packed box of 24 sets would on these figures have amounted to US$0.404. This offer contained the following additional terms:

"	3. Mould cost:	We suggest to prepare at least two moulds for this item in order to complete the project within four months. So prices will be advised after have your reply on this.
	4. Validity:	Till January 15, 1990."

On January 19th 1990, four days after this offer expired, the plaintiff sent the defendant a further fax. This offered a unit price of US$0.0155 for each pair. As the packing and transportation costs were the same, the price on these figures for a packed carton of 24 sets would have amounted to US$0.452. This offer was stated to be based on the use of two moulds. It had no validity date. There is, on the evidence, nothing which explains how the price for a packed box of 24 pieces agreed on the 5th February came to be US$0.66. Mr. Ismail, who appeared for the plaintiff, stated during a rgument that this was as a result of further negotiation between the parties, and Mr. Scott, for the defendant, did not dispute this.

11. Mr. Wenk stated in paragraph 4 of his affidavit:

"It shall be noted that each contract stated that the tooling shall be engraved with the words 'BELONGS TO UNITED STRENGTH LTD.' The tooling to be used in making the wallhooks to go into the Fasta boxes would include moulds, and it is therefore respectfully submitted that it must have been the common intention of the parties that the property in the moulds would be with the defendant. Furthermore, the original price quoted by the plaintiff was only US$0.0135 per set based on one mould as compared with the higher operation cost of US$0.0155 per set based on two moulds. Both prices exclude the cost of packing the sets into boxes containing 24 sets in each box."

It is difficult to understand why Mr. Wenk refers to the figures US$0.0135 and US$0.0155, as neither appears to bear any relation to the figure finally agreed by the parties.

12. However that may be, we are satisfied that had there be no other relevant material, the matter would have had to have been determined upon the wording of the Purchase Orders. There was, however, a fax from the plaintiff to the defendant dated 1st of August 1990 in which in answer to the defendant's claim for two moulds the plaintiff stated:

"Please be advised according to discussion during ordering, we only agreed one mould will be returned to you."

This concession by the plaintiff that in the negotiations leading up to the ordering, it was agreed that the defendant would be entitled to one of the moulds was not answered by the defendant.

13. We turn now to the main contention of the defendant which was that he should be given leave to defend because, in the words of Mr. Wenk:

"3.

There was an established course of dealing between the parties whereby the defendant would set off against the invoices issued by the plaintiff any claims which it might have against the plaintiff in respect of late delivery or the defective supply of goods under other contracts."

This "established course of dealing" was pleaded in paragraph 9 of the Points of Counterclaim in the following terms:

"9.

Further it was an implied term of each of the aforesaid contracts, to be implied by reason of a general course of dealing between the parties, that the Defendant was entitled to set off agains tsums due to the Plaintiff under any of the contracts amounts due to the Defendant in respect of claims for late delivery and/or defective workmanship in relation to goods delivered or to be delivered under any of the said contracts."

Mayo J., after argument, held:

	"I accept as I think Mr. Clifford Smith does that on the aughority of the notes at p.153 of the White Book, judgment should enter for the plaintiff if the set off on counterclaims being referred to by the defendants were separate and distinct from the contract under which the plaintiff is claiming.
	However, in the present case Mr. Wenk for the defendants makes reference in his affidavit to the established course of trading between the parties and more particularly to the practice of the parties in setting off items under different contracts. In my view he largely makes good this claim by referring to the faxes at p.81 and 88 of the Bundle. Miss Wee for the plaintiff drew my attention to the fact that these faxes were dated subsequent to the contracts in question.
	What I have to bear in mind is that this is an application under Order 14. All that the defendant needs to do is to establish a triable issue. I believe that the defendant has demonstrated this. I would also mention in passing that I prefer Mr. Smith's arguments concerning the liens over moulds and the position arising thereunder. For the reasons I have given I would dismiss this application. I will hear the parties on costs."

Mayo J. was satisfied that the contention of an established course of trading between the parties in which a practice arose of setting off items under different contracts was evidenced by the two faxes to which he referred. The first was from the plaintiff to the defendant dated the 5th of July 1990. In that the plaintiff was stated:

	"Re your telephone conversation this morning your request of deduction concerning the second lot hardware kit payment:
	Since the first lot payment of hardware kit was still not settled so we suggest to deduct for the first lot as follows:

	First lot hardware Kit	US$22,680.00
	less 175 cartons damaged	US$1,575.00
	less Allen key late shipment	US$3,000.00
	less extra handling charge
	for second lot hardware kit	US$591.00
	Balance of Payment	US$17,514.00
	Please confirm by fax."

14. In our view, this fax standing alone would do no more than establish that on this particular occasion the plaintiff, having accepted that the amounts of the suggested deduction was appropriate, was prepared to allow the defendant to deduct them from other sums due from the defendant to him. It could not, we are satisfied, be suggested that this single transaction evidenced any established course of conduct.

15. The crucial fax is then the second one dated the 9th of August 1990 from the plaintiff to the defendant. This reads:

"Re: Your Fax 2302 on Aug.7, 90 on Allen Keys:

Please to remind the latest shipment date for Allen Key on the month of Sept., 90 should be on or before Sept.1, 90 not Aug. 25, 90. Anyway, for your request of August. 25, 90, we will try to do this and exact shipment date will advise later. Also, please to inform we will deliver goods starting from Sept. 90 to March 1, 90 since the non-delivery charges from April, 90 to July, 90 have already been deducted by you and we regard these 4 months' shipments have been cancelled without bearing any responsibility. Anyway, we still need your submit of a reasonable prove for your claims and at the same time, we need to receive the same evidence for your claim on Aug., 90 before we consider your claim."

16. We are also unable to see how it can be suggested that this fax evidences an established course of dealing under which the defendant was entitled to set off amounts due to the plaintiff against claims for late delivery etc. A reading of the faxes preceding that of August 9th makes it clear that the defendant had unilaterally deducted penalties for non-delivery. The plaintiff in the fax of 9th August acknowledged that those deductions had been mae, but said that this acknowledgement was made "without bearing any responsibility". It was furthermore required that reasonable proof be submitted to it so that it could consider the claims. In our view this document indicates not that there was an agreement that the defendant was entitled to make deductions, but rather that there was no such agreement and that the plaintiff was not consenting to the unilateral acts of the defendant. We are satisfied that these two documents fall considerable short of providing any evidence of an agreed course of conduct.

17. A further hurdle which the defendant faces in this regard is that these faxes which were said to evidence an implied term in a contract entered into in February 1990, did not come into existence until July and August. Given, however, the view we take of the faxes themselves, it is not necessary to address ourselves further to this aspect of the matter. We are satisfied that the judge was wrong to hold that there was evidence of an established course of conduct and that, subject to the matter to which we now turn, the plaintiff was entitled to judgment.

18. It was not argued by Mr. Scott that the defendant should be given leave to defend upon the basis that his counterclaims overall exceeded the amount of the plaintiff's claims. He conceded that the bulk of these claims arose under separate contracts. He did, however, argue that the defendant had a good counterclaim in the action in the sum of US$17,000, the amount paid out to obtain two moulds to replace those which were not given to it by the plaintiff. It was submitted that the plaintiff should be given judgment on its claim less the amount of US$17,000. In this regard, Mr. Ismail submitted that there was nothing in the evidence to establish any right in the defendant to the first of the two moulds. The plaintiff conceded that the defendant was entitled to delivery of the second mould, but submitted that it had a lien over that mould because of the failure to pay for the goods delivered and due to be delivered under the contract.

19. We are satisfied that there are arguable grounds for the contention that the moulds belong to the defendant. We are, however, of the opinion, despite the in genious arguments of Mr. Scott, that, in the circumstances, the moulds are goods over which a lien could be exercised and that, even if the defendant's argument that it owns both moulds is correct, the plaintiff is entitled to a lien over them by reason of the defendant's failure to pay for the goods delivered and to be delivered under the Purchase Orders.

20. The plaintiff was entitled to judgment. However, having considered all of the surrounding circumstances we are satisfied that execution of that judgment should be stayed pending resolution of the defendant's counterclaims. There will be an order nisi to become absolute in 14 days if no application is made that the plaintiff is to have its costs to be taxed both here and below.

Representation:

Mr. A. Ismail (instructed by M/s Lau, Wong & Chan) for the Plaintiff/Appellant.

Mr. John Scott (instructed by M/s Mckenna & Co.) for the Defendant/Respondent.