Chung Wai Chemical Ltd v. Hing Lun Plastic Factory Ltd
Read the full judgment text of DCCJ 620/2006 on BabelCite. This District Court judgment.
1. The plaintiff took out an Order 14 summons to claim outstanding payment from the defendant as well as an Order 18 Rule 19 summons to strike out the defendant's counterclaim.
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DCCJ 620/ 2006 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO. 620 OF 2006 -------------------- BETWEEN
-------------------- Coram: Deputy Judge E. Yip in Chambers Date of Hearing: 19th July 2006 Date of Handing Down Judgment: 26th July 2006
__________________________ REASONS FOR DECISION __________________________ The 2 present summonses 1.The plaintiff took out an Order 14 summons to claim outstanding payment from the defendant as well as an Order 18 Rule 19 summons to strike out the defendant's counterclaim. 2.When I refer to, say, p. 3 of the bundle of pleadings, I will refer to it as “[A3]”. When I refer to, say, p. 8 of the bundle of exhibits, I will refer to it as “[B8]”. The plaintiffs' claim 3.On 18 June 2005, the defendant ordered 1 package of Danflex TPE 2345 plastic raw materials (“the Goods”) from the plaintiff as a sample for testing. 4.On 7 July 2005, the defendant placed an order, and on 8 July 2005, and the plaintiff accepted the order, for such quantities of the Goods as follows:
5.On 29 July 2005, the defendant collected a batch of 280 packages of the Goods from the plaintiff. 6.On 1 August 2005, the defendant collected a batch of 100 packages of the Goods from the plaintiff. 7.On about 6 September 2005, upon the defendant's request, the plaintiff agreed to accept the return of 280 packages of the Goods. The defendant eventually returned 266 packages of the Goods in the sum of $149,538.02. 8.Despite the plaintiff's repeated demands, the defendant failed to pay the outstanding sum of $64,087.72 (being $213,625.74 less $149,538.02). 9.On 13 January 2006, the plaintiff's solicitors demanded payment from the defendant. 10.On 19 January 2006, the defendant denied any liability to pay. 11.On 8 February 2006, the plaintiff's solicitors filed a Writ of Summons to claim payment and interest (stipulated in the contract at 3%). 12.On 7 March 2006, the defendant's solicitors filed a Defence and Counterclaim. The defendant's defence and counterclaim 13.I will only refer to the matters in dispute or matters not set out in the plaintiff's case hereinabove. 14.On 7 and 8 July 2005, when the defendant placed the order, and the plaintiff accepted the order, for such quantities of the Goods as follows: 1st Order: 129 packages 2nd Order: 380 packages The plaintiff had orally warranted that all the Goods to be delivered to the defendant would be of the same quality as the sample supplied. 15.On 4 August 2005, the defendant complained of serious quality defects with the Goods and their non-compliance with the sample to the plaintiff. The defendant told the plaintiff that the defendant had processed some of the Goods with chemicals. The plaintiff did not regard it the proper way to process the Goods. 16.On 5 August 2005 onwards, despite the knowledge that the defendant had not properly processed part of the Goods, the plaintiff still tried to supply a replacement of the Goods but the replacement was not acceptable to the defendant. 17.At the end of August 2005, the plaintiff eventually managed to supply a replacement of the Goods that was acceptable to the defendant. As a result, out of the 380 packages (in the sum of $213,625.74), the defendant agreed to take up and pay for 114 packages (in the sum of $64,087.72) and to return 266 packages (in the sum of $149,538.02). The plaintiff agreed to this reduction of quantity. 18.The defendant spent transportation cost (in the sum of $11,200.00) in returning the 266 packages from the defendant's factory in Mainland China to the plaintiff in Hong Kong. The defendant counterclaimed the plaintiff such transportation cost. The defendant also paid for airfreight charges (in the sum of $50,798.20) due to delay in production of its customers' products. The total sum was $61,998.20 (being $11,000.00 plus $50,798.20). 19.In early October 2005, Mr. So and Ms. Chan of the plaintiff agreed to settle the dispute by a set-off of the sum of $61,998.20 against any outstanding balance due to the plaintiff (“Settlement”). 20.There was a term in the contract [B8, cl. 4] between the plaintiff and the defendant to the effect that if the defendant wanted to reject the Goods, the defendant had to put forward a test report issued by recognized authorities within 7 days of delivery of the Goods. The defendant contends that:
21.The plaintiff refused to carry out the Settlement. The defendant counterclaimed the sum of $61,998.20. The plaintiff's defence to the defendant's counterclaim 22.The plaintiff denies having ever warranted that all the Goods to be delivered to the defendant would be of the same quality as the sample supplied. 23.The plaintiff denies any knowledge that the defendant would use the Goods in Mainland China because the entire transaction was conducted in Hong Kong. Even if the plaintiff had to pay for any transportation cost, the plaintiff denies any liability to pay the part of the defendant's transportation outside Hong Kong. 24.The plaintiff alleges that the Goods had no quality defects. The defendants had improperly processed the Goods with chemicals. The plaintiff had no duty to exchange the Goods although the plaintiff did so only to help the defendant. The plaintiff denies any liability for the defendant's transportation cost and other loss. 25.The plaintiff denies having reached any settlement with the defendant. The legal principles
26.The defendant must show that there are triable issues and has to satisfy the court that he has a real or bona fide defence. If the defendant makes an allegation, it must be credible or believable in the light of the evidence placed before the court [Hong Kong Civil Procedure para 14/4/9].
27.In the present case, the plaintiff applies to strike out the defendant's counterclaim on the grounds that:
28.A proceeding is “frivolous” when it is not capable of reasoned argument, without foundation or where it cannot possibly succeed. A proceeding is “vexatious” when it is oppressive and/or lacks bona fides. In exercising a judicial discretion to determine whether the proceedings are “vexatious”, the court may admit affidavit evidence [Hong Kong Civil Procedure 2006 para 18/19/8]. 29.The object of the ground on the “abuse of the process of the court” is to prevent the improper use of its machinery, … where the pleading is a sham or entirely without substance; …, summarily prevent its machinery from being used as a means of vexation and oppression in the process of litigation [Hong Kong Civil Procedure para 18/19/10]. This Court's findings
30.It was a term in the contract[B8 cl. 4] that if the defendant wanted to reject the Goods, the defendant had to put forward a test report issued by recognized authorities within 7 days of delivery of the Goods. I agree with the defendant's contention that the plaintiff's conduct suggested that this 7-day deadline was waived when the plaintiff engaged in getting a replacement of the Goods out of time and without any rider. 31.On the assumption that the plaintiff had given the warranty that the Goods would comply with the sample, it suffices for the defendant to show either that there was a quality defect or that the Goods did not comply with the sample. Lee Kam Ho of the defendant put forward [A63] its “internal test reports” [B74-77] (“Internal Reports”) as proof in these aspects. The defendant is relying heavily on these Internal Reports in its defence. There is nothing to suggest that they were expert reports. If the plaintiff had then forthwith demanded for payment, that would have been displaced the defence. 32.The events, however, went further and took an about-turn. The defendant does not deny [Defence para 6 A27-28] that the plaintiff had repeatedly requested for a report from recognized authorities as stipulated in the contract [Chan Shun King's Affirmation A79-80 para 9, 10]. The defendant had failed to provide any such report. I would expect the plaintiff to know at that time whether the defendant's complaint was ill-founded or not. The fact that the plaintiff engaged in exchanging and cancellation a portion of the Goods must, arguably, be an indicator that the plaintiff also knew that the complaint was not altogether ill-founded. The plaintiff's counsel submits that it was possibly a measure to foster better customer relationship. I disagree with this submission because the exchange, and the cancellation, of such a large quantity (being 70% of the original quantity: $149,538.02 out of $213,625.74) must be beyond such a measure. 33.I find the defendant's complaint of quality and non-compliance capable of belief. This is the crux of the plaintiff's case. The plaintiff should not have summary judgment.
34.As far as the defendant's complaints of quality and non-compliance are concerned, one cannot say at the present juncture that it was frivolous, vexatious, or an abuse of the process of the court. The defendant's pleadings should not be struck out. The conclusion 35.The plaintiff fails in both summonses. The usual rule is for costs to follow the events. I make an order nisi for costs to the defendant. This order will be made absolute after 14 days from today. Dated this 26 July 2006
Mr. P. Cheung instructed by Messrs. Raymond Chu & Co. for Plaintiff. Mr. D. Chan of Messrs. Lau, Wong & Chan for Defendant. |