ABLE ENGINEERING CO LTD v. WELMETAL RESOURCES GROUP LTD

HCA 51/2022

[2023] HKCFI 1172

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 51 OF 2022

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DECISION

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Introduction

1.  The seemingly inordinate delay in dealing with this application calls for an explanation. Although the parties’ written submissions were lodged by 15 December 2022, I was not made aware of this outstanding matter until 26 April 2023 due to several changes in judicial clerk since 12 December 2022. Regrettably, that resulted in the matter falling through the cracks, causing the delay.

2.  This is the Plaintiff’s application for an extension of time to file a draft notice of appeal from my Decision rendered on 22 September 2022 on the Plaintiff’s application under RHC O.14 and O.14A for summary judgment against the Defendant on the 3 questions of law set out in its summons dated 22 April 2022 (“Summons”).

3.  The Reasons for the Decision (“Reasons”) were handed down on 26 September 2022 to which reference should be made.

Key dates

4.  The Plaintiff had 28 days from 22 September 2022 to serve a notice of appeal. That period expired on 20 October 2022.

5.  Subsequent to the Decision, the following events occurred:

(a)  Chan Sze Hung (“Chan”), a consultant of the firm of solicitors representing the Plaintiff filed an affirmation (“Chan 1^st”) exhibiting a draft notice of appeal (CSH 3). Although dated 21 October 2022, Chan 1^st (with the summons seeking a 7-day time extension) was only filed on 24 October 2022, being 4 days out of time.

(b)  Later the same day, Chan filed a supplemental affirmation (“Chan 2^nd”) exhibiting a draft notice of appeal (CSH 4) settled by Mr John McDonnell KC, effectively recasting the grounds of appeal.

(c)  On 7 November 2022, Chan filed a further supplemental affirmation (“Chan 3^rd”) exhibiting a further revised draft notice of appeal (CSH 5), 18 days out of time.

6.  If leave is granted to file CSH 5 out of time, it is the Plaintiff’s intention to file the notice of appeal exhibited as CSH 5 for the intended appeal. The grounds of appeal set out in CSH 5 are materially different from those initially set out in CSH 3.

Applicable legal principles

7.  It is common ground that in exercising its discretion to grant or refuse an extension of time to serve a notice of appeal, the court will take into account the length of the delay, the reasons for the delay, the chances of the appeal succeeding if time for appealing is extended, and the degree of prejudice to the other party if the application is granted: per Lam VP (as he then was) in Tang Chai On v Tang Sing Ki [2016] 5 HKLRD 104 at §9.

8.  As regards the merits of the appeal, the following cases offer useful guidance:

(a)  the court will not grant an extension of time for an hopeless appeal to be pursued: Re Adumekwe Roland Ejike[2019] HKCA 702 at §19;

(b)  where the delay is short and there is an acceptable excuse for it an extension of time will not be refused on the basis of the merits of the intended appeal, unless the appeal is hopeless: Ho Yin Fai v Wah Fung Decoration & Insulation Co, HCMP 948/2009, 5 August 2009, §17;

(c)  if the delay was inexcusable (even if insubstantial), the intended appellant must show a real prospect of success on the merits: Ho Yin Fai, §18; Secretary for Justice v Hong Kong & Yaumati Ferry Co Ltd [2001] 1 HKC 125, 129; and

(d)  if an informed assessment of the prospects of success of an appeal can only be made at the hearing equivalent to the hearing of the appeal itself, the overall interests of justice require the would-be appellant’s time to be extended without any further consideration of the merits: Unison Knitwear Limited v Rich Easy Limited [2001] 1 HKLRD 856, 858I-859B citing Tridant Engineering Co Ltd v Mansion Holdings Limited & Another [2001] 1 HKLRD 783, 790F-H.

The delay

9.  Mr Li Pak Hei, counsel for the Plaintiff, submitted that the delay in the present case was short, being one day[1] and the delay is excusable in that

(a)  on 5 October 2022, the Plaintiff’s solicitors sought advice from Mr McDonnell on the merits of an appeal who intimated that he hoped to be able to deal with the matter by “next Sunday”, i.e. 16 October 2022;

(b)  at 8:32 hours (Hong Kong time) on 20 October 2022, the last day for filing a notice of appeal, the Plaintiff’s solicitors sent Mr McDonnell a chaser;

(c)  they received a positive reply[2] (but which did not reach Hong Kong until well after the close of business on 20 October 2022) with the recommendation that as it is “the last date for appealing”, a notice of appeal in accordance with the draft the Plaintiff had provided be filed including an additional ground in the same terms as §8 of the Plaintiff’s statement of claim.

10.  There was no misunderstanding or misinterpretation by either counsel or solicitor of the period available for filing a notice of appeal. In his written submissions, Mr Li Pak Hei, counsel for the Plaintiff, attributed the delay to “Counsel’s belated response”.

11.  That Hong Kong and London are in different time zones is a matter that the Plaintiff’s legal representatives should have taken into consideration in determining when the advice/draft needed to be in hand in order for the filing to be done timeously.

12.  The chaser sent on 20 October 2022 was far too late given the different time zones and could not have enabled timely compliance. It should have been sent much earlier that week.

13.  Even after receipt of Counsel’s reply the same day (admittedly, shortly before midnight), Chan 1^st was not filed the following day, 21 October, with no explanation as to why that could not have been done. It is indicative of a less than conscientious approach to timeous compliance.

14.  So far as the length of delay is concerned, in reality it was a delay of 18 days. As will become apparent, the gravamen of the intended appeal is encapsulated in the final ground of CSH 5 which was not introduced until 7 November 2022.

15.  For those reasons, I do not consider the delay (albeit insubstantial) excusable.

Merits of the intended appeal

16.  §§7-8 of the Amended Statement of Claim raised “waiver” as one of several defences to any exercise by the Plaintiff of its contractual right under clause 12 to terminate the contract.

17.  At the hearing on 22 September 2022, the Plaintiff did not pursue the “waiver” point.

18.  Mr Jiang Zixin, counsel for Defendant, submitted that, in any event, the waiver point has no merit for the following reasons:

(a)  acceptance by a seller of late payments on earlier occasions does not preclude the seller from insisting that time should continue to be of the essence[3]: Chitty on Contracts, 34^th ed at §27-057[4];

(b)  it is incumbent on the Plaintiff to show a clear and unequivocal representation on the Defendant’s part, by words or conduct, that the Defendant will not exercise its strict legal rights to terminate the contract[5]; mere acceptance of the late payments without more is insufficient;

(c)  prior to 27 May 2021, the Plaintiff was repeatedly told that the Defendant may have to terminate the contract if the Plaintiff continued to delay payment which contradicts the Plaintiff’s case of waiver.

19.  §5 of CSH 5 reads:

“5. The Plaintiff did not rely on waiver in support of the Order 14 Summons because it depended on factual issues which could not be determined under Order 14; but the judge was aware of the issue because it was pleaded and in accordance with the ordinary practice and Order 14 she should have left the action to proceed to Trial on the issues which remained outstanding and which were not affected by the reasoning in her Judgment.”

20.  But the Defendant’s submissions were based on such facts as the Plaintiff had pleaded in its waiver defence.

21.  The written submissions[6] of the Defendant at the September hearing made it clear that its case was that the Defendant was entitled to exercise its right under clause 12 to terminate the Contract with immediate effect on 27 May 2021 and sought dismissal of the Action.

22.  It is not apparent why it is said that the Plaintiff’s case on waiver is not susceptible to summary determination based on the matters pleaded.

23.  Given the manner in which the Summons was drafted, had the Plaintiff wished to reserve the issue of waiver for determination at trial, it should not have posed §1 (c) for determination or, at least, without expressly reserving its right at the hearing to raise the waiver issue at trial.

24.  Applying the principles set out in §§7 and 8 (c) above, an extension of time should not be granted unless the Plaintiff has shown a real prospect of success on the merits. In my view, that has not been shown.

Order

25.  As the delay was inexcusable and as the Plaintiff has not shown a real prospect of success on the merits, it follows that the Plaintiff’s application should be dismissed.

26.  Accordingly, the Plaintiff’s application for an extension of time to appeal is dismissed with an order nisi costs in favour of the Defendant with certificate for counsel, such costs to be summarily assessed.

27.  As the Defendant’s statement of costs accompanied its written skeleton, the Plaintiff is directed file its list of objections within 14 days of this Order and the Defendant file any reply within 7 days thereafter. The assessment will take place in Chambers.

Mr Li Pak Hei, instructed by Chan, Lau & Wai, for the Plaintiff

Mr Jiang Zixin, instructed by Henry Yu & Associates, for the Defendant

HCA 51/2022

[2022] HKCFI 2963

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 51 OF 2022

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________________________

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Reasons for Judgment

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1.  This is an application by Able Engineering Company Limited (“the plaintiff”) for summary judgment against Welmetal Resources Group Ltd (“the defendant”) pursuant to RHC Order 14 and Order 14A on 3 questions of law set out in §1 of its summons dated 22 April 2022. At the conclusion of the hearing, this court dismissed (i) §1 (a) and (b) and § 2 of the summons; and (ii) the action, with costs in favour of the defendant, such costs to be summarily assessed. Directions were then given for their assessment in Chambers.

BACKGROUND FACTS

2.  On 17 April 2020, the plaintiff as buyer and the defendant as seller entered into a contract for the sale and purchase of steel bars (“the contract”) for a 2-year period commencing 1 May 2020.

3.  Clause 12 of the Contract is in the following terms:

“Payment for each physical delivery is to be effected within 30 days from the date of delivery.

Without prejudice to the [defendant’s] other remedies, if payments are not received within the stipulated period, the [defendant] shall have the rights to suspend further delivery of Commodities under this Contract and/or terminate this Contract. [The defendant] shall not held any responsible for the suspend delivery of commodities.”

4.  Between 1 May 2020 and 27 May 2021, the plaintiff placed 24 purchase orders with the defendant.

5.  It is common ground that in respect of 14 of the purchase orders, the plaintiff failed to make payment within 30 days from the date of delivery.

6.  In May 2021, the defendant sent the following emails to the plaintiff:

(i)  on 3 May, the defendant requested payment in respect 2 of its deliveries that were overdue;

(ii)  on 7 May, the plaintiff was reminded that payments aggregating in excess of $901,000 were then overdue and that the defendant had the right to suspend delivery of the commodities immediately and/or terminate the contract;

(iii)  on 13 May, the plaintiff was asked to settle the “overdue payment” of over $555,000 “within 5 working days of this email” and if payment was not received by that date, the defendant would have to take action including the termination of the contract; and

(iv)  on 21 May, the plaintiff was asked to settle the overdue payment in excess of $1.4 million “within 3 working days of this email”, reiterating that if payment was not received, the defendant “would have to take action to retrieve the due amount, including but not limited to suspend further delivery of the commodities and/or terminate the contract”.

7.  By 27 May 2021, the overdue payments exceeded $2.9 million. The defendant exercised its right to terminate the contract, informing the plaintiff the same day by email and by letter of its decision, stating that the contract “shall, following the terms contained and agreed therein, be terminated with immediate effect”.

8.  The email was sent early that morning and the letter delivered by courier the same day.

9.  In the afternoon of 27 May, the defendant received a request from the plaintiff to collect a cheque for the overdue payments which the defendant did later that afternoon and deposited it with the bank the following day.

10.  Apart from the delivery made of a purchase order on 31 May, the defendant has refused to further supply steel bars to the plaintiff.

11.  The plaintiff commenced this action on 12 January 2022 and issued the present summons on 22 April 2022.

THIS APPLICATION

12.  By its summons, the plaintiff seeks the determination and/or construction, inter alia, of the following questions of law:

1. (a) Whether Section 12 of the Sale of Goods Ordinance, Cap 26 (“SOGO”) which stipulates that

“Unless a different intention appears from the terms of the contract, stipulations as to time of payment are not deemed to be of the essence of the contract of sale”

applies to the Sales Contract dated 17 April 2020 under Sales Contract No.: RDB-S2004025 (“the Contract”) when there is no provision therein stating that time of payment is of the essence.

(b) Whether the defendant’s emails dated 3 May 2021, 7 May 2021, 13 May 2021 and 21 May 2021 constituted reasonable notices to the plaintiff when it is not mentioned in any of the emails that time of payment is of the essence of such notices.

(c) Whether the defendant was entitled to terminate the Contract with immediate effect on 27 May 2021.

CLAUSE 12 OF THE CONTRACT

13.  Clause 12 of the contract confers on the defendant an express right to terminate the contract in the circumstances set out, namely, a failure by the plaintiff to pay for commodities supplied within 30 days of delivery (“the specified event”).

14.  It is common ground that as at 27 May 2021, the plaintiff was in breach of its payment obligations under the contract. Clause 12 of the contract is an express provision that on its face conferred an express right of termination on the defendant on the occurrence of the specified event.

15.  Ms Christine Yu, counsel for the plaintiff, submitted that the plaintiff is entitled to terminate only if the breaches amounted to a repudiation of its contractual obligations. The thrust of her submissions is that unless punctual payment is a “condition” of the contract, the defendant cannot exercise the right to terminate.

16.  She submitted that clause 12, properly construed, was an innominate or intermediate term. Whether or not the defendant was entitled to terminate the contract would depend on the severity of the breach(es), the length of delay, the amount outstanding, the conduct of the plaintiff et cetera. In other words, the right to terminate only arises if the breach or breaches were repudiatory, amounting to a fundamental breach.

17.  It was drawn to the court’s attention that the contract was for the supply of 15,000 MTS over a two-year period, the commodities to be supplied by partial deliveries within that period. The total value of the commodities was of the order of $49 million and the plaintiff was obligated to make full payment of undrawn quantities on or before 30 April 2022.

18.  Against that background, it was suggested that the breaches that had occurred were relatively minor and were not repudiatory.

19.  Reference was made to the schedule to the statement of claim. The court’s attention was directed to the fact that the invoice date as well as the invoice receipt date would invariably lag behind the delivery date by several days. The point sought to be made appears to be that, as a result, the plaintiff had less than 30 days from the date of delivery to make payment because of the time lag of several days between the date of delivery and the date of receipt of the invoice.

20.  I fail to see the relevance of that submission. The contract is clear: payment is due within 30 days from the date of delivery. It could have provided for payment to be made within 30 days of the date of the invoice or the date of receipt of the invoice but that was not what the parties had agreed.

21.  It was further submitted that on the occurrence of the specified event, the defendant had an option to withhold delivery instead of terminating the contract. The former was less draconian or drastic in its effect and it could not have been the intention of the parties that the defendant could resort to exercising the ‘nuclear option’ of termination when it had the option of withholding deliveries which was also “without prejudice” to the defendant’s “other remedies”. However, there was no elaboration of what those “other remedies” would be had the defendant gone down that route.

22.  The plaintiff placed considerable reliance on Spar Shipping AS v Grand China Logistics (Group) Co Ltd [2017] Bus LR 663 where the English Court of Appeal considered the effect of an identical clause 11 of 3 charter parties. In pertinent part, it reads as follows:

“11. Hire Payment

… Failing the punctual and regular payment of the hire… the owners shall be at liberty to withdraw the vessel from the service of the charterers without prejudice to any claims they the owners may otherwise have…”

23.  The issue before the Court of Appeal is succinctly stated in the judgment of Gross LJ:

“ISSUE I: THE CONDITION ISSUE

[16](A) Introduction: This Issue is concerned with the controversy as to whether the obligation to make punctual payment of hire is or is not a condition in standard form time charterparties (subject of course to any specific express wording not found in the charterparties). A “condition” (see further below) is a term any breach of which is sufficient to entitle the innocent party to terminate the contract—and claim damages for loss of bargain (or, where appropriate, reliance loss, to which further reference need not be made).

[17] If, as Popplewell J held, the obligation in question was not a condition, then GCS's failure to make punctual payments of hire entitled Spar to terminate the charterparties pursuant to the express provisions of the withdrawal clause in clause 11 thereof—so putting to an end to future performance obligations and also to claim the balances due under the charterparties at the date of termination. However, mere breach of this obligation did not entitle Spar to claim damages for loss of bargain. On the judge's reasoning, that entitlement flowed instead from GCS having renounced the charterparties. Conversely, if the obligation in question was a condition, then Spar was not only entitled to terminate the charterparties but also, on this ground alone, to claim damages for loss of bargain.”

24.  The plaintiff focused on the finding, upheld on appeal, that punctual payment of hire was not a condition entitling the innocent party to terminate the contract[1]. Its approach was directed at the question whether a punctual payment provision amounts to a ‘condition’ and entirely overlooks what the Court of Appeal went on to hold, namely, that if the obligation to make punctual payment was not a condition, then failure to make punctual payments entitled the innocent party to terminate the charter parties pursuant to the express provisions of the withdrawal clause in clause 11.

25.  The plaintiff’s submissions disregarded the fact that clause 12 conferred an express right to terminate the contract on the occurrence of the specified event. In my view, there is no discernible difference between the express provisions of the withdrawal clause in Spar Shipping and the express right conferred by clause 12.

26.  It is also clear from Spar Shipping the effect of exercising the express power to terminate puts to an end future performance obligations and also to claim the outstanding balances at the date of termination. It does not entitle the innocent party to claim damages for loss of bargain. Had the obligation been a ‘condition’, apart from its right of termination, the innocent party would be entitled to claim damages for loss of bargain.

27.  In the present case, the defendant does not claim damages and the question whether the obligation to make payment within the stipulated time amounts to a condition is irrelevant and beside the point for present purposes.

28.  Mr Jiang, counsel for the defendant, submitted that, given the Court of Appeal’s holdings at §§17 and 64, Spar Shipping is actually an authority that supports the defendant’s case.

29.  As regards the express provision to terminate contained in clause 12, there are authorities on the subject. Under the rubric “Express provision for determination” in Treitel on The Law of Contract (15^th Ed., 2020) at §18-067, it is clear that a contract may provide for one party to terminate in circumstances that do not amount to a breach or failure to perform and that such provisions can also confer a right to terminate for some specified failure to perform. Its purpose is explained at §18-075:

“[t]he purpose of an express provision for determination is to prevent disputes from arising as to the often difficult question whether the failure in performance is sufficiently serious to justify termination; and they take effect even though there is no substantial failure.”

30.  The English Court of Appeal’s decision in Kason Kek-Gardner Limited v Process Components Ltd [2017] EWCA Civ 2132 is an illustration of its application. The relevant provision before the court was clause 11.2[2] of the contract which was in the following terms:

“11.2 Either party shall be entitled to terminate this Agreement immediately by written notice to the other in the event of:

(a) any material breach by the other party of any of its obligations under this Agreement which, being a breach capable of remedy, is not remedied within 30 days of notice to the party in breach specifying the breach and requiring its remedy. (For this purpose, non-payment of any royalty under clause 5 constitutes a remediable material breach and breach of the confidentiality obligations under clause 10 constitutes a non-remediable material breach);”

31.  The issue was whether any breach of clause 10 which was a non-remediable material breach, triggered the right of termination. Lewison LJ held (at §57) that where the parties have themselves agreed to the circumstances in which the contract may be terminated, the distinction between conditions and innominate terms does not matter. What matters is what the parties have agreed about the circumstances in which the contract may be terminated.

32.  He noted (at §58) that clause 11.2 is not a blanket provision entitling the injured party to terminate on “any” breach of contract. Rather, clauses 10 and 5 are singled out for special treatment and on breach of clause 10, the innocent party was entitled to terminate the license.

33.  On the issue of stipulations as to time, Treitel (at §18-117) states as follows:

“Time 'of the essence' by express agreement. Time will obviously be of the essence if the contract expressly so provides. The contract may provide that the stipulation as to time is a condition and where time is expressed to be 'of the essence' that is itself a form of words which the courts have accepted as sufficient to create a condition. Alternatively, the contract may simply provide that in the event of one party's failure to perform within the stipulated time, the other is to be entitled to terminate, without making the time stipulation into a condition. In such cases, the contract may be terminated on the basis of the express provision, but the innocent party will not have the benefit of the consequences which may flow from terminating for breach of condition.” (Italics supplied)

34.  A similar view is expressed in Chitty on Contracts, 34^th Ed., 2021 (p. 1994):

“§27-029Time made expressly or implicitly ‘of the essence’ Time is of the essence:

(1) Where the parties have expressly stipulated in their contract that the time fixed for performance must be exactly complied with⁷⁹, or that time is to be ‘of the essence’.”

35.  Footnote 79 to the above extract states:

“… The same result follows if the contract provides … that any breach of the clause shall entitle the innocent party to “rescind” or terminate.”

36.  In my view, there is no doubt but that the defendant was entitled to terminate the contract on 27 May 2021.

The questions raised in §1 of the plaintiff’s summons

Questions §1 (a) and (b)

37.  Given that the defendant had the right to terminate the contract when it did, questions §1 (a) and (b) are irrelevant. Accordingly, they fall to be dismissed.

Question §1 (c)

38.  The answer must be in the affirmative.

CONCLUSION

39.  As the contract has been duly terminated by the defendant, this action must be dismissed and I so order.

Ms Christine Yu, instructed by Chan, Lau & Wai, for the plaintiff

Mr Zixin Jiang, instructed by Henry Yu & Associates, for the defendant