XCHRX JINDAL EXPORTS LTD. v. WACO TRADING CO. LTD.

HCA15404/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 15404 OF 1999

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J U D G M E N T

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1. This is an appeal by the plaintiff from an order of Master Lung dated 14 December 1999 whereby Master Lung dismissed an application for summary judgment by the plaintiff. The plaintiff seeks to set aside that order of Master Lung and also seeks an order for summary judgment against the defendant under Order 14.

The background

2. The plaintiff and the defendant entered into a sales contract dated 16 March 1998, under which the plaintiff sold to the defendant 18,000 kg of menthol ("the goods"). The terms of sale of the goods were CIF Hong Kong at US$15 per kg for a total consideration of US$270,000. The payment terms were initially agreed between the parties to be payment against documents on confirmation by the shipping company that the containers with the goods had left Singapore for Hong Kong. The goods were shipped on or about 25 March 1998 and arrived in Hong Kong on 8 April 1998. After the goods had arrived in Hong Kong, on or about 24 April 1998, both parties agreed that the defendant would have an extended 30 days to make payment on documents against acceptance terms. The plaintiff therefore drew a bill of exchange on the same day, namely 24 April 1998, for US$270,000 made payable to the order of the Bank of Punjab Ltd ("BOP"), being the plaintiff's bankers, to mature on 30 May 1998. The bill was then endorsed by BOP to the Overseas Trust Bank ("OTB"), being the defendant's bankers who, on 29 April 1998, presented the bill to the defendant for acceptance. The bill was duly accepted by the defendant on the same day.

3. On or about 12 May 1998, OTB informed BOP that no payment would be made by the defendant under the bill and returned the bill to BOP. The bill was presented and dishonoured on or about 5 June 1998. After dishonour of the bill, the defendant paid to the plaintiff three payments, totalling US$95,000. The plaintiff's claim is for US$175,000 upon the dishonoured bill of exchange.

4. There is no dispute between the parties as to the matters stated in the background above.

The plaintiff's claim

5. For the purpose of the application for summary judgment, the plaintiff relies solely on its cause of action on the dishonoured bill of exchange.

The defence

6. The defence raised by the defendant in this case was that after taking delivery of the goods on 30 April 1998, a number of drums containing the goods were found to be damaged to varying extent. A cargo surveyor, Marinasia Limited, was immediately instructed by the defendant to ascertain the extent of damage to the goods. A survey was carried out on the same day and a survey report completed on 1 May 1998, summarized the extent of the damage to the goods as follows :-

(a) 443 fibre drums were in an external sound condition, random inspection revealed that part of the contents were caked to varying degrees. Although uncertain, it was estimated an overall 20% of the lot might have been affected;

(b) 162 fibre drums wet-stained and contents partly caked; and

(c) 115 fibre drums stained by contents and contents partly caked.

A copy of this survey report was immediately faxed by the defendant to the plaintiff. On 7 May 1998, by its letter of the same day addressed to the plaintiff, the defendant rejected the said goods in the following terms :-

"3) WE WANT TO ADVISE YOU THAT WE CANNOT SELL AND WILL NOT ACCEPT THIS CONSIGNMENT UNDER THE MELTED CONDITION. WE HAVE INFORMED OUR BANK, WHO MUST HAVE INFORMED YOUR BANK ACCORDINGLY, THAT WE MUST RETURN THE WHOLE CONSIGNMENT BACK TO YOU. PLEASE INFORM TO WHICH PORT OF DESTINATION WE SHOULD SHIP THESE TWO CONTAINERS TO YOU AND ALSO LET US KNOW HOW YOU WILL PAY US THE MONEY WE ADVANCED FOR HANDLING THIS SHIPMENT IN HONG KONG."

Discussion then took place between the parties as to how to dispose of the goods and, on 24 June 1998, the plaintiff, by its fax message, informed the defendant as follows :-

"REGARDING OUR TWO CONSIGNMENTS OF MENTHOL CRYSTALS WHICH ARE LYING WITH YOU, WE HAVE ALREADY ADVISED YOU OFFICIALLY TO SORT OUT THE GOOD/BAD ONES. PLEASE BE INFORMED THAT IT IS NEXT TO IMPOSSIBLE TO IMPORT THEM BACK TO INDIA DUE TO VERY STRICT RULES AND REGULATIONS OF INDIAN GOVERNMENT."

Thereafter, the parties came to an arrangement whereby the defendant would assist the plaintiff to do its best to sell off the goods in Hong Kong. After this was done, the defendant then remitted to the plaintiff the amounts for which the goods were sold off, namely the three payments, totalling US$95,000.

7. On these facts as relied on by the defendant, the defence case is simply one of rejection of defective goods, therefore, there was a total failure of consideration for the bill of exchange accepted by the defendant and intended as payment for the goods ultimately rejected by the defendant.

8. Secondly, the defence also relies on the defence of settlement, in that after the rejection of the goods by the defendant, the parties agreed that the bill of exchange was to be regarded as cancelled and in consideration thereof, the defendant then assisted the plaintiff in the disposal of the goods. In this context, the defendant points out that the goods were rejected on 7 May 1998, the bill of exchange matured on 30 May 1998 and was dishonoured on 5 June 1998. However, no action to enforce the bill was taken by the plaintiff until 27 September 1999 (after the goods had been disposed of by the defendant on behalf of the plaintiff). The defendant further relies on the contents of a fax message from the plaintiff to it dated 30 November 1998 which reads as follows :-

"REFERENCE MY LAST TELEPHONIC CONVERSATION WITH YOU, PLEASE BE INFORMED THAT BECAUSE OF LONG SILENCE FROM US TO OUR BANK AND ALSO TO RESERVE BANK OF INDIA, THE RESERVE BANK OF INDIA HAS GIVEN INSTRUCTIONS TO OUR BANK TO TAKE THE OFFICIAL ACTION AGAINST YOUR BANK FOR NON-PAYMENT OF THIS BILL OF THE 2 FCLS.

NOW OUR BANK MIGHT BE TAKING THE OFFICIAL ACTION AGAINST YOUR BANK ANY TIME. THIS IS FOR YOUR INFORMATION ONLY, SO THAT YOU SHOULD NOT FEEL THAT WE ARE TAKING ANY LEGAL ACTION FROM OUR SIDE. THE SITUATION IS BEYOND OUR CONTROL. WE HOPE YOU WILL UNDERSTAND AND APPRECIATE THAT."

The plaintiff's arguments

9. Despite the factual matters which have been put in issue by the defendant as stated above, the plaintiff argues its case for summary judgment on the following footing.

10. Firstly, the plaintiff submits that the defendant's claim for unliquidated damages does not afford any defence, counterclaim or set-off or even a ground for stay of execution. Secondly, the plaintiff submits that there is no arguable case of total failure of consideration because once the plaintiff agreed to give further time for payment, that, in itself, is a sufficient consideration. The plaintiff further submits that even if (which is not admitted) there was any partial failure of consideration that would not be a total failure of consideration and therefore cannot afford a defence. Thirdly, the plaintiff argues that under the law pertaining to bills of exchange and relying on section 29(3) of the Bills of Exchange Ordinance, the plaintiff derives its title under the bill from the holders in due course, namely OTB and/or BOP, and by virtue of section 29(3), the plaintiff, as a holder of the bill, acquired all the rights of that holder in due course.

Decision

11. The primary defence run by the defendant is the rejection of the goods after the goods were found to be damaged and/or defective. That issue alone, coupled with whether or not the defendant was entitled to reject the goods, raises a number of disputed issues of facts. If at the end of the day, depending on how those disputed issues of fact are resolved by the court, the defendant is found to be entitled to reject the goods, there can be a total failure of consideration in this case in so far as the bill of exchange is concerned. Therefore, on that one issue alone, because of the disputed issue of fact, there should, in my view, be unconditional leave to defend.

12. I do not accept the plaintiff's argument that once further time was given for the payment, then there can be no total failure of consideration. The consideration for the payment represented by the bill of exchange was the price of the goods. Once those goods were found to be defective and rejected by the defendant, there is, on the face of it, an arguable case by the defendant of total failure of consideration.

13. As for the argument put forward by the plaintiff in its reliance on section 29(3) of the Bills of Exchange Ordinance, the defendant seeks to counter that argument by relying on the definition of "holder" as it is defined in section 2 of the Bills of Exchange Ordinance. That definition appears not to include a drawer of a bill of exchange which the plaintiff clearly is in this case. That is an issue of disputed law as well as fact.

14. Lastly, a further dispute on facts have been raised by the defendant in this case, namely whether or not there has been a settlement of the case as between the parties in respect of the bill of exchange which consequently led to the defendant selling off the goods on behalf of the plaintiff in Hong Kong.

15. Accordingly, for the reasons given above, there are clearly triable issues of fact in this case which can only be resolved at trial. In my view, the Master was entirely correct in dismissing the plaintiff's application for summary judgment with costs at the time when he made that order on 14 December 1999. The reason for this was that at that time, there was no amendment to the Statement of Claim by which the plaintiff seeks to rely on section 29(3) of the Bills of Exchange Ordinance to say that the plaintiff was entitled to all the rights of a holder. That amendment to the Statement of Claim only came about on 1 February 2000. Without such an amendment, the plaintiff's claim, as it was pleaded then, did not afford the plaintiff (as a drawer of the bill of exchange) any status to bring the claim that it did.

16. For this rehearing before me, although by way of appeal from Master Lung, I must deal with the matter on the basis that those amendments have now been made to the Statement of Claim. For the reasons given above, therefore, I shall order unconditional leave to defend. I would further give the usual directions that the defendant do file and serve a defence within 14 days and leave to the plaintiff to file and serve a reply 14 days thereafter.

Costs order nisi

17. In view of the history of this matter which I have related above, I do not propose to disturb the costs order made by Master Lung. However, in my view, this would be a fit case to depart from the usual rule that costs follow the event in view of what had transpired earlier. I shall therefore make the costs order nisi that the costs of the appeal be costs in the cause.