Leighton Contractors (Asia) Ltd v. Tung Wing Steel Co Ltd

HCA006081/1988

1988, No. A6081

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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Coram: Hon. Hooper, J. in Chambers

Date of hearing: 5th July 1989

Date of delivery of judgment: 4th August 1989

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J U D G M E N T

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1. This is an appeal from the order of a master in which he struck out the plaintiff's statement of claim under Order 18 rule 19 of the Rules of the Supreme Court and under the inherent jurisdiction of this court on the grounds that (1) it is frivolous and vexatious; and (2) it is otherwise an abuse of process of this court; and (3) the action by the plaintiff must fail.

2. Paragraph 5 of the statement of claim was also struck out on the above grounds and on the additional ground that it discloses no reasonable clause of action against the defendant.

3. The statement of claim is in the following terms :-

"STATEMENT OF CLAIM

(1) The Plaintiff is a building and civil engineering contractor engaged upon the construction of the Hong Kong City Polytechnic.

(2) By an agreement between the patties (hereinafter the "contract") made in writing and dated 14th May 1987, the Defendant agreed to supply to the Plaintiff 23,000 metric tonnes of steel bars at the prices therein stipulated.

(3) The contract made provision for part deliveries of the steel bars according to the instructions of the Plaintiff and for payment there for 30 days after delivery.

(4) By clause 9 of the contract, the parties agreed that overdue payments would be subject to interest at 2% above the prevailing prime lending rate of the Hongkong & Shanghai Banking Corporation and further agreed :-

'At the discretion of the Sellers [the Defendant], the Agreement is determined upon non-payment of the invoice beyond the stipulated payment period.'

(5) Upon the true construction of Clause 9, the Defendant was put to an election in the event the Plaintiff failed to make payment within 30 days either to levy interest at the rates stipulated therein and continue to perform its obligations under the Contract or to determine the Contract.

(6) Further, there was a term of the Contract to be implied as being necessary to give the same business efficacy that the Defendant would exercise any right to determine the Contract pursuant to Clause 9 within a reasonable time.

(7) The Plaintiff failed to make payments for deliveries of steel in accordance with Clause 9 of the Contract but the Defendant continued to perform its obligations thereunder. A course of dealing was thereby established between the parties such that the Defendant became barred from asserting any right to determine the Contract pursuant to Clause 9 without first giving notice of its intention to rely on the said provision.

(8) Alternatively, the Defendant elected to levy interest on the sums outstanding and to continue with the Contract by

(a) notifying the Plaintiff of its intention to charge interest;

(b) making further deliveries of steel under the Contract.

(9) After May 1987 the market price of steel and steel products increased substantially but the Defendant was obliged nonetheless to adhere to the prices stipulated in the Contract.

(10) By a letter to the Plaintiff dated 20th November 1987, the Defendant without notice purported to determine the Contract pursuant to Clause 9 and thereafter declined to carry out its obligations under the Contract. By reason of the facts and matters described in paragraphs 7 and 8 hereof, the said determination was unlawful and the Defendant thereby repudiated the Contract. As a result, the Plaintiff suffered loss and damage."

4. There then appears particulars of loss and damage showing specified damages of HK$10,518,876.00 and a claim for general damages.

5. This writ was issued on the 5th September 1988 and service was acknowledged by the defendant's solicitors Messrs Szeto & Yeung on the 15th September 1988.

6. On the 12th November 1988 this application was filed by the defendant.

7. In support of it is an affirmation by Mr Francis CHEUNG Nim-Che, the Managing Director of the defendant company, deposing to the facts and setting out the background. Affidavits have been filed on behalf of the plaintiff and it would appear that there is a large area of fact which is not in dispute.

8. The plaintiff, which is a major contractor in Hong Kong, has dealt with the defendant for a number of years. The defendant is a supplier of re-inforced steel bars.

9. It is not disputed that the parties entered into the agreement referred to in the statement of claim, which provided for the sale by the defendant to the plaintiff of 23,000 metric tonnes of re-inforced steel bars on the specifications and prices therein stated.

10. The agreement provided inter alia :-

"Clause 4 Commodities will be supplied by partial deliveries, at Buyers instruction according to construction programme of the aforesaid project, within the delivery period which commences from 13th May 1987 and expires on 1st December 1988.

A prior notice of at least two working days will be made by buyers to sellers before each delivery.

Clause 9 Payment for each delivery is to be effected within 30 days from the date of delivery. Overdue payments are subject to interest at two percent per annum (2% p.a.) above prevailing prime lending rate quoted by The Hongkong and Shanghai Banking Corporation. At the discretion of the Sellers, the Agreement is determined upon non-payment of invoice beyond the stipulated payment period.

Clause 10 This is the only agreement concluded between Buyers and Sellers on the above subject, any amendment or additional terms thereto require written agreement of Sellers.

Sellers are not bound by any alteration written, typed, and/or sealed on this Agreement without Sellers' consent by initialling and sealed in acknowledgement of alteration."

11. During the existence of the contract deliveries were made by the defendant on the instructions of the plaintiff, the last of which took place on the 19th November 1987.

12. A schedule of some of the latest deliveries is set out as an exhibit to the affirmation of Mr Francis Cheung as follows :-

13. The "invoice date" on that schedule represents the actual delivery date and the "due date" represents the last date on which payment had to be made to be within the 30 day limit. This schedule is apparently accepted by the plaintiff.

14. Mr Francis Cheung in his affirmation avers :-

"On 20th November the plaintiff acted in breach of clause 9 of the subject contract in that a total sum of HK$1,655,318.61 (being deliveries made at least 30 days before) were overdue. Despite repeated demands by my company to do so, the plaintiff failed to make payment and on 20th November 1987 my company had no alternative but to issue a letter to the plaintiff terminating the subject agreement in accordance with clause 9. A copy of the said letter is included in exhibit 'FL-4'. As at the date of determination of the subject agreement, namely 20th November 1987, the total value of steel delivered to the plaintiff by my company under the subject agreement for which the plaintiff had not yet paid was about HK$3,929,896.00 (being the HK$1,655,318.61 aforementioned and a further HK$2,274,577.73 worth of steel delivered less than 30 days prior to 26th November 1987."

15. The letter of the 20th November is in the following terms:-

"We write to inform you in view of your failure to make payment of overdue invoices despite our repeated demands and, in accordance with Terms and Conditions No. 9 of the Sales Agreement Ref : SC-870508/EL, we, hereby, terminate the said Sales Agreement immediately effective 20 November 1987."

16. It would appear from the schedule that the figures of Mr Cheung are not accurate and should indicate that the total sum outstanding on 20th November was $1,562,973.41 representing the total in respect of the invoices in Category A less invoice 5694 (paid on 19th November) and that the total sum not yet paid including the price of steel delivered less than 30 days prior to the 20th November should be HK$3,929,896.34.

17. This error would appear to be due to the fact that the defendant in the schedule which it sent to the plaintiff with its letter of termination included invoice 6009. It is to be noted that the latter could riot have been overdue on 20th because the 30 day period would not have expired until at the earliest midnight on 20th November.

18. It is worth mentioning here that Mr Tomsen in his affidavit on behalf of the plaintiff has produced as JCT-1 a computer generated record of particulars of each delivery of steel by the defendant under this contract. He deposes to the fact that he has not conducted a minute comparison, but he believes that the particulars in his printout correspond with those exhibited in defendant's schedule above and that he adopts the latter as an accurate document. However a comparison of the two schedules shows that the plaintiff's printout does not refer to invoices 5509, 5576, 5580, 5636, 6430 and 6602. The reason for these discrepancies might be explained by the fact that some invoices were apparently missing.

19. On the 21st November 1987 the plaintiff by its project manager Mr A.F. Draper sent a fax reference H520/Fax-031/87 to the defendant expressing the plaintiff's concern "regarding the delivery of re-bar" and added :-

"Despite several discussions and assurances from yourselves we are now in a situation where our works are being delayed due to the none availability of requested re-bar.

We have been trying to contact your representative today to explain the delay."

20. It would appear that at this stage the defendant's letter of termination had not yet reached the project manager but when it did, he sent another fax to the defendant on 23rd November stating:-

"RE : REINFORCEMENT DELIVERIES

Further to our fax ref. H570/Fax-031/87 dated 21.11.1987 and several telephone calls to your office this morning, we are unable to discuss the problems regarding the deliveries for the reinforcement for the above Project.

We express our deep concern regarding the comments in your recent letter ref. TW87-1080/MKTG dated 20.11.1987.

Our immediate required delivery is as follows :-

21. We trust this will receive your most urgent attention.

22. Sg. A.F. Draper"

23. It would appear from the defendant's schedule above that by this time three further invoices had remained unpaid "beyond the stipulated payment period", namely invoices 6009, 6084 and 6089.

24. The plaintiff's fax of 23rd November prompted an immediate fax from the defendant reiterating that the agreement had been terminated on 20th November 1989 and .that the defendant was "thereafter not going to supply any more quantity under this contract".

25. On 24th November the plaintiff sent a letter to the defendant alleging a course of conduct between the parties in which the defendant had not asserted any right to terminate "related to payment terms"'. It also informed the defendant that some current invoices were missing. It disputed the defendant's right to "summarily change the basis upon which we have traded" and claimed that the defendant had not given any notice "necessary to establish a right to terminate despite being offered and accepted on the established basis". It indicated that it was nevertheless prepared to treat the defendant's recent actions as indicating an intention to "change your approach for the future".

26. It enclosed cheques "covering all sums due on the basis that you will perform your obligations and forthwith affect the deliveries instructed by us".

27. In the event of the defendant's failing to deliver "the materials due", the plaintiff reserved the right "either to treat your failure as repudiation and claim damages from you or to apply to the court for an order that you perform your obligations".

28. This letter enclosed four cheques which according to the four "remittance advices" sent with them related to invoices 6193, 5898 and 5897 totalling $286,626.39. (Remittance advice No. (11187)), 5730, 5739, 5760, 5839 and 5851 totalling $350,771.58 (remittance advice No. 7605), 5843, 5929, 5930, 6009, 6084, 6089 and 6141 totalling $702,607.24 (Remittance Advice 7606) and 5509, 5576, 5580, 5636 and 5693 totalling $451,673.22 (Remittance Advice No. 7448).

29. It will be observed at this stage that the remittance advices in respect of which the four cheques had been sent do not refer to the following invoices which appear in the defendants schedule as being due by the 24th November 1987 i.e. 5509, 5576, 5580 and 5636 but do refer to invoices which do not appear in defendant's schedule 5730, 5739, 5760, 5843 and 5693.

30. In reply to this letter the defendant sent a long letter dated 30th November 1987 which may be summarised as :-

(1) Denying a course of dealings and stating that the indulgences of the past did not debar the defendant from enforcing its contractual rights "strictly in accordance with the terms of bur contract" and making its position clear it had not done anything to let the plaintiff believe that it "will not enforce our contractual rights".

(2) Stating that it did not think a prior notice or warning was necessary, and that it's right to terminate "is exercisable immediately upon your default of payment beyond the stipulated paymemt period".

(3) Stating that as at 20th November 1987 the plaintiff company was indebted to the defendant for an invoiced amount of HK$1,655,318.61 together with interest thereon. (This is the figure appearing in Mr Cheung's affirmation.)

(4) Referring to Condition No. 10 of the contract.

(5) Reiterating that by the defendant's letter of 20th November 1987 the contract had been terminated and referring again to the 16 invoices referred to in their earlier schedule enclosed in that letter.

(6) Noting that the plaintiff had sent 5 cheques.

(7) Demanding that the plaintiff make full payment in a sum of $1,696,821.59 within 3 days, otherwise the defendant would "have no other alternative but to resort to legal proceedings, against you for the recovery thereof together with interest thereon without further notice"

31. Particulars of the figure of $1,696,821.59 were enclosed showing that it covers the invoices in the upper half of defendant's schedule with the exception of 5596, 5597, 5724, 5694, 5758, which had already been paid on the 19th, 20th November and 24th November.

32. Between the 30th November and the 7th December 5 further invoices were not paid within the 30 day period, namely invoices 6251, 6317, 6339, 6408 and 6430. (These are the 5 invoices in Category C.)

33. On 7th December 1987 the defendant issued a writ in High Court Action No. 8062 of 1987 suing under the contract and claiming arrears in respect of 16 invoices but excluding those which are shown in the schedule to have been paid in November i.e. 5596, 5597, 5724, 5694 and 5758 and now including 5 invoices which all went unpaid beyond the 30 day period after the defendant's letter of termination on 20th November 1987 i.e. invoices 6009, 6084, 6089, 6141 and 6193. These 5 invoices all appear in Category 'B'.

34. The writ claimed "HK$1,697,021.59 being the price of goods sold and delivered in pursuance of the contract and interest thereon at the rate of 2% per annum above the prevailing prime lending rate quoted by the Hongkong and Shanghai Banking Corporation from the respective dates of the invoices to the date of payments".

35. On the same day the plaintiff wrote a letter to the defendant stating again that the plaintiff remained of the view that there was a clear course of dealings between them. It acknowledged that failure by the defendant to assert its right in the past did not mean that the defendant must suffer delayed payment foreover. Accordingly when the defendant felt that it may have reached the limit; it should give the plaintiff notice to that effect to enable the plaintiff to adjust its performance to the defendant's changed requirements. It disputed the relevance of Condition No. 10 and put the defendant on notice that "as a result of your actions, we stand to lose substantial sums : not only additional prices for steel but also the consequential effects on the progress of this major project". It again reserved its right to take proceedings against the defendant either to claim damages for repudiation or to apply to the court for an order that it performs its obligations. On a without prejudice basis it returned the four cheques stating that they were paid without condition.

36. By a letter dated 8th December 1987 Messrs Szeto & Yeung on behalf of the defendant wrote to the plaintiff acknowledging this letter returning the 4 cheques without condition and indicating their understanding that they were in payment of the sum claimed as well as four other invoices (namely Nos. 5693, 5739, 5760 and 5843). No mention is made of invoice No. 5730 for $154,735.32 which-appears in the remittance advices sent earlier.

37. In this letter Messrs Szeyo & Yeung specifically ask the plaintiff to note that in its action the defendant was claiming against the plaintiff.

"Apart from the sum being claimed, also interest thereof as well as costs of this action, which are still outstanding at the time of writing.

If you are unable to settle immediately the outstanding interest payable to our clients, our client may be in a position to treat the matter of costs favourably to your company, perhaps subject to our client's instruction, by entering judgment against your company, or alternatively withdrawing the above action with nominal agreed costs."

38. This was followed by another letter from Messrs Szeto & Yeung dated 10/12-/87 acknowledging that the principal sum being claimed had now been paid, although the outstanding interest still remained unpaid, informing the plaintiff of defendant's instructions to file Notice of Discontinuance, but looking to the plaintiff's settlement of the outstanding interest.

39. Between 10th December 1987 and 21st December 1987 all outstanding invoices in the schedule (i.e. invoices in categories C & D) were paid. All were overdue when paid. However, no deliveries were eves made by defendant after 19th November 1987.

40. Nothing much seems to have happened after the correspondence I have mentioned until 4th May 1988 when Messrs Masons & Marriott on behalf of the plaintiff wrote to Messrs Szeto & Yeung noting discrepancies in the facts between instructions received from their clients and the facts as indicated in previous correspondence emanating from the office of Messrs Szeto & Yeung and seeking further information to see if those discrepancies could be resolved. They informed Messrs Szeto & Yeung that their instructions were that, as opposed to "repeated demands" for payment (as had been stated in the defendant's writ of 7th December 1987) their instructions were that "periodic informal telephone enquires" were made by the defendant to the accounts department of (the plaintiff) during the course of which (the plaintiff's) staff were reminded that interest would be charged on any "overdue" payments and that the defendant subsequently issued invoices therefore in some cases and that on no occasion before the 20th November did the defendant seek to rely or even indicate that it might rely upon the alternative remedy under Clause 9 of the contract, namely determination.

41. This letter evoked a reply from Messrs Szeto & Yeung indicating that they did not think it was appropriate to take instructions, stating their contention that they did not think that any demand for interest on overdue payment should affect their client's right to determine the subject contract which they could do at their discretion.

42. Messrs Mason & Marriott wrote again on 27th May 1988 stating the issues and seeking defendants answers to the questions:-

(i) Whether defendants staff did say interest would be charged on overdue statements.

(ii) Whether defendants at, any time between the 20th November intimated that it would rely on the remedy of determination.

(iii) Whether the defendant still maintains that the facts and matters set out in the Statement of Claim in the High Court Action No. 8062 of 1987 are correct and accurate. and pointing out that it would be unfortunate were the parties to resort to litigation as a result of a misapprehension of the facts giving rise to the dispute.

43. A reply to this letter by Messrs Szeto & Yeung dated 2nd June 1988 failed to provide any information as to defendant's answers to those questions.

44. Mr Tomsen in his affidavit has now deposed to the fact that the defendant elected to demand interest from the plaintiff and thereby abandoned any right to determine the contract pursuant to Clause 9.

45. He also deposed to the fact that he had caused enquiries to be made of the plaintiff's accounts staff who dealt with the defendant before the determination of the contract between the parties "and is advised by Gladys Yeung, a senior accounting clerk" and verily believes "that representatives of the defendant indicated on several occasions that interest would be charged on 'late' payments by the plaintiff".

46. He denied the defendants allegation of improper motive in the timing of the writ, as did Mr Hartley, a partner of Masons & Mariott who has the case and conduct of the proceeding on behalf of the plaintiff.

Does the statement of claim disclose a reasonable cause of action?

47. The answer to this question cannot depend upon the facts revealed in the affirmation and affidavits but on the pleading alone. ORD. 18 & 19 (1)(a).

48. The cause of action is set out in paragraph 10 of the statement of claim and this is based upon the unlawful repudiation of the contract by the defendant by its letter of the 20th November 1987 and by its subsequent failure to make deliveries. It is alleged that the termination was unlawful by reason of the facts and matters described in paragraphs 7 and 8 of the statement of claim. There is no apparent reliance on breach of the implied term pleaded in paragraph 6 and in my view that pleading is therefore superfluous and should be struck out.

The estoppel/waiver argument

49. In paragraph 7 the plaintiff alleges that a course of dealing became established between the parties such that the defendant became barred from asserting any right to determine the contract pursuant to Clause 9 without first giving notice of its intention to rely on the said provision. As can be seen in paragraph 10, paragraph 7 is relied upon as making the termination by the plaintiff of the contract unlawful. So the plaintiff is complaining that because of the previous course of dealings and because the defendant did not first give notice asserting the right to determine pursuant to Clause 9 the termination was unlawful. Although this pleading is not in the clearest terms nor pleaded with any particularity, it is argued by the plaintiff that the course of conduct by the defendants gave rise to estoppel/waiver or a variation of the contract in relation to the dates for payments.

50. Mr Chang for the defendant argues that the plaintiff cannot rely upon any of these matters for the following reasons :-

(1) There can be no variation of the contract unless this is in accordance with Clause 10 and this clearly was not.

(2) Estoppel/waiver is a matter which cannot be relied upon by a plaintiff to support a claim. It is a shield rather than a sword.

(3) The whole basis of an estoppel/waiver is that an unequivocal representation has been made by one party, which representation has been acted upon or relied upon by the other. There, is no pleading in the statment of claim to the effect that the plaintiff was led to believe or place any reliance upon a representation that strict performance of its payment obligations would not be insisted upon.

51. Mr Bell for the plaintiff maintains that the plaintiff should not anticipate a plea by the defendant which relies on Clause 9 and answer in advance e.g. by saying that the defendant is estopped from relying on Clause 9 or has waived it. He maintains that estoppel etc. should rarely appear in a statement of claim in any event, since it does not found a cause of action and is a shield rather than a sword. He maintains that the plaintiff will use estoppel/waiver as a shield in reply to any allegation by the defendant in its defence that Clause 9 entitled it to terminate the contract.

52. In my view, paragraph 7 and paragraph 10, where it relies on paragraph 7, does not disclose a reasonable cause of action.

53. The estoppel/waiver argument was railed in Scandinavian Trading Tanker Co. A.B. v. Flota Petrolera Ecuatoriana [1983]1 Lloyds Rep. 146, but did not succeed there. However the court of appeal left the door open for the same point to be argued on different facts. In that case it was raised as a defence.

54. I respectfully agree with Mr Chang for all, the reasons advanced by him that paragraph 7 should be struck out as well as that part of paragraph 10 which relies on paragraph 7.

The Estoppel by Election Argument

55. So Far as paragraph 8 is concerned I believe the plaintiff is on stronger ground. Here the plaintiff is alleging that the purported termination was unlawful because the defendant elected to levy interest and to continue with the contract by notifying the plaintiff of its intention to charge interest and by making further deliveries of steel under the contract. Estoppel by election may sometimes, or to some extent, support a cause of action. (See Estoppel by Representation by Spencer-Bower and Turner 1st Edition at 316, para. 313.) It is Mr Bell's argument for the plaintiff that the charging of interest on overdue payments and the termination of the contract were two mutually exclusive options which the defendant could elect to take. By electing to charge interest and by making further deliveries of steel under the contract, it would appear that the defendant had made its election clear under the first part of Clause 9 and could not therefore terminate the contract in accordance with the second part of Clause 9. Mr Chang for the defendant argues that on a true construction of Clause 9 these are not mutually exclusive remedies.

56. I have given careful consideration to the submissions of counsel.

57. Clause 9 is not expressed in the clearest terms. It would appear that payments only become overdue if they are not made before or at midnight on the 30th day and only then do they become subject to interest. But the agreement is determined upon non-payment of the invoice beyond the stipulated payment period (at the discretion of the defendant). In other words both occur at the precise moment when the 30 day period expires.

58. It seems to me that Mr Bell is right when he says that the two options are mutually exclusive and that when payment of a particular invoice becomes overdue the seller has to elect which ,option he will take. If he elects to keep the contract alive and enforce the interest provision in respect of that invoice then he cannot subsequently terminate the contract as a result of the non-payment of that invoice beyond the stipulated payment period.

59. I can therefore see no reason why I should strike out the statement of claim under 0.18 r.19 1(a).

60. Should the statement of claim be struck out on the grounds that it is frivolous and vexatious or is otherwise an abuse of the process of the court or because it must fail.

61. The power to strike out for these reasons is provided by Order 18 rule 19 (1)(b) and (d) and also by the inherent jurisdiction of the court. In applying the rule it must be remembered that "it is not the practice in the civil administration of our court to have a preliminary hearing, as it is in crime" per Sellers L.J. in Wenlock and Moloney [1965]1 W.L.R. 1238 at 1242. The Court may determine the matter having regard to the evidence contained in affidavits in support and opposing the application. Indeed all facts may be gone into in the affidavits. The power to strike out should be used only in plain and obvious cases and only where the claim is obviously unsustainable and unarguable. It cannot be exercised by a minute and protracted examination of the documents and facts of the case in order to see whether the plaintiff has a good cause of action. If there is a point of law which requires serious discussion, an objection should be taken on the pleadings and the point set down for argument under Order 33 rule 3. Where an application to strike out pleadings involves a prolonged and serious argument, the court, should, as a rule, decline to proceed with the argument unless it not only harbours doubt about the soundness of the pleadings, but in addition, is satisfied that striking out would obviate the necessity for a trial or substantially reduce the burden of preparing for a trial.

62. The power to strike out under the rule is not mandatory, but permissive and confers a discretionary jurisdiction to be exercised having regard to the quality and all the circumstances relating to the offending plea. The mere fact that the cause of action is weak and not likely to succeed is no ground for striking it out.

63. Although the inherent jurisdiction of this court to strike out pleadings is not limited to cases in which facts are not in dispute, see Lawrence v. Lord Norreys [1890]39 CH.D. 213 or 15 A.C. 210, I do not consider that the circumstances in this case are such that I should exercise my inherent jurisdiction on the basis of the disputed facts. The circumstances in which a court would exercise its inherent jurisdiction where the facts are disputed must in my view be very rare. In Lawrence v. Lord Norreys where this jurisdiction was used to strike out there was an affidavit about which the Court of Appeal said that "it was impossible to conceive anything more shadowy or unsatisfactory". That is not the case here.

64. I do not consider that it can be said that the Estoppel/Election argument must fail, is an abuse of process or is frivolous or vexations. It is at least arguable on the evidence before me that having elected to receive interest on overdue payments and having made a further delivery on 19/11/87 when it knew that those invoices had become overdue on 18/11, the defendant by exercising that election had deprived itself of the right to terminate on 20/11/87, and was not entitled to refuse deliveries subsequently on the basis that the contract no longer existed because of that termination.

65. It appears to me to be arguable that by purporting to terminate the contract on 20th November 1987 when it could not lawfully do so and by refusing to make any further deliveries after that date, the defendant was infact repudiating the contract.

66. There is no precise date shown on the affidavits when it could be said that the plaintiff accepted that repudiation and regarded the contract as at an end, though it is arguable that if it had not done so before, it could certainly be held to have done so by the 5th September when it issued the writ in the present action.

67. It is clear that when one party wrongfully repudiates a contract, the innocent party may elect to keep the contract alive and that as long as that party chooses to keep the contract alive it will remain alive for all purposes. (Fercometal S.A.R.L. v. Mediterranean Shipping Co. S.A. ("The Simona") [l988] 3 W.L.R 200 (H.E. (E))

68. It would appear that at no time had the defendant by exercising a discretion in relation to a particular invoice elected to treat the contract as at an end as a result of any late payments after the purported termination of the 20th November. The defendant's position has always been that the contract was lawfully terminated on 20th November. There has thus been no exercise of the discretion in Clause 9 to terminate after 20th November. The legal position as I see it is that the contract was kept alive even after the 8th December because, the plaintiff had not accepted repudiation and, by the letter of 8th December of Messrs Szeto & Yeung, the defendant was still pursuing its contractual right under the contract to claim interest after that date. That being so the discretion to terminate was not exercised as a result the late payments of the invoices in Category 'C' by 8th December and because of its stance, the defendant did not subsequently seek to exercise its discretion in respect of the late payments of the invoices in Category 'D'. I do not consider that the judgments in Boston Deep Sea Fishing and Ice Company v. Ansell (1888)39 Ch. D. 339 and British and Benningtons Ltd v. North-West Cachar Tea Company Ltd [1923] A.C. 48 71-72 can assist the defendant at all because overdue payments which might have given the defendant the right to terminate had not become overdue at the time when the defendant repudiated the contract and secondly the defendant was still claiming interest in accordance with its previous practice even after the 8th December.

69. In my view it is arguable that the plaintiffs have a reasonable cause of action for damages against the defendants based on breach of contract as a result of wrongful termination and refusal to perform the contract by making the requested deliveries; the exact extent of such damages can only be assessed after a trial; the plaintiff's claim is not frivolous or vexatious, is not an abuse of process and it cannot be said that it must fail.

70. In the circumstance I allow the appeal and refuse the application to strike out, with the exception of paragraphs 6 and 7 and that part of paragraph 10 which relies on paragraph 7

71. I will hear the parties on costs.

Representation:

Mr Adrian Bell instructed by M/S Masons & Marriott for Plaintiff

Mr Denis Chang, Q.C. leading Mr Geoffrey Ma instructed by M/S Szeto & Yeung for Defendant