SIMS TRADING CO LTD v. POON YEE PING STELLA t/a SUNSHINE AND CO

-----------------

-----------------

JUDGMENT

-----------------

1. This is an application by the Plaintiff for summary judgment against the Defendant. There is no dispute as to the proper drawing by the Defendant of two cheques dated 26th June 1996 and 3rd July 1996, each in the sum of $1,693,536.00 nor is there any dispute that they were dishonoured. At the hearing, the only substantial issue sought to be put forward by Mr. Timon Shum for the Defendant was a defence of what is said to be a partial failure of consideration. A secondary submission was also made that the court should order a trial for "some other reasons".

2. The Plaintiff is a subsidiary of the well known Dairy Farm International Group which carried on the business inter alia of exporting goods to China. The Defendant was a trader in beer including Pabst Blue Ribbon Beer ("Pabst Beer"). In early 1996, the Defendant approached the Plaintiff, offering to sell Pabst Beer to the Plaintiff. To induce the Plaintiff to try out an initial purchase of Pabst Beer, the Defendant offered to take back from the Plaintiff any Pabst Beer which the Plaintiff or its Chinese customer was unable to sell. A letter of undertaking dated 26th January 1996 ("Return Warranty") to such above effect was given by the Defendant to the Plaintiff. On the basis of such Return Warranty, the Plaintiff placed an order with the Defendant for 50 containers of Pabst. Beer ("1st Shipment"). The price for this 1st Shipment was duly paid and there was no problem with this 1st Shipment.

3. In early March 1996, the parties discussed possible further orders of Pabst Beer and two new quotations dated 12th March 1996 in respect of a total of 100 containers were sent to the Plaintiff. Some 6 Orders were then placed by the Plaintiff with the Defendant covering a 2nd Shipment totally 50 containers and a 3rd Shipment totally another 50 containers. Two Letters of Credit each covering the 2nd and 3rd Shipment were opened in favour of the Defendant. Some 44 containers out of the 2nd Shipment were then delivered and the appropriate amount of some $3,821,312.00 was drawn under the 2nd Letter of Credit and this meant that some 6 containers under the 2nd Shipment and 50 containers under the 3rd Shipment remained to be delivered to the Plaintiff. This was in mid April 1996. Problems then arose because on the 6th of May 1996, the Plaintiff sent a Fax dated 6th May 1996 to the Defendant cancelling the 56 containers still outstanding and to be delivered. By another Fax dated 9th May 1996, the Plaintiff notified the Defendant that due to the difficulties of Plaintiff's customer in selling the Pabst Beer, the Plaintiff had to return 39 containers to the Defendant. The case of the Plaintiff is that the Defendant was personally informed of the 56 containers cancellation and the return of the 39 containers prior to the sending of the Fax of 6th and 9th May 1996 and it was upon her agreement to the cancellation and return that these two Faxes were sent. This evidence of the Plaintiff was not accepted by the Defendant. But there is no dispute in the Affidavit evidence that these two Faxes were received by the Defendant.

4. By its Fax dated 13th May 1996, the Defendant agreed to accept the return of the 39 containers subject to the terms and conditions to be negotiated. On the 14th and/or 15th May 1996, the Plaintiff and the Defendant agreed that in exchange for the delivery orders in respect of the 39 returned containers, the Defendant would give to the Plaintiff a cheque post-dated to 5th June 1996 in the amount of $3,387,072.00 as representing the refund of the purchase price of the 39 Containers. It was further agreed that the Plaintiff would not be responsible for the demurrage, overtime or other related charges relating to the 39 returned containers. The aforesaid agreements were evidenced in a document dated 15th May 1996 signed by both parties. On the 15th May 1996, at a meeting between Kenneth Kwok and Edwin Lee for the Plaintiff on the one hand and the Defendant on the other hand, the Defendant's cheque post-dated to 5th June 1996 for the amount of $3,387,072.00 ("Defendant's 1st Cheque") was given to the Plaintiff and in exchange the Defendant was given by the Plaintiff the delivery order for the 39 containers.

5. The Defendant obtained possession of the 39 containers but the Plaintiff did not obtain payment under the Defendant's 1st Cheque. What happened is that on the 4th June 1996, the eve before the due day for payment of the Defendant's 1st Cheque, the Defendant sent a Fax dated 4th June 1996 to the Plaintiff requesting the Plaintiff to withhold presenting the Defendant's 1st Cheque for 4 weeks as the Defendant was in a difficult financial position due to the return of the 39 containers and the Plaintiff refusal to take the 56 containers. The Plaintiff replied the next day by its Fax dated 5th June 1996 suggesting that half of the amount of the Defendant's 1st Cheque be paid immediately and the other half of the amount be paid by a cheque dated 19th June 1996. On that day (5th June 1996) the Plaintiff presented the Defendant's 1st Cheque for payment but that Cheque was dishonoured. By letter dated 6th June 1996, the Defendant counter-proposed to the Plaintiff that the $3,387,072.00 be paid by 2 post-dated cheques dated 26th June 1996 and 3rd July 1996, each in half of the outstanding amount owing. It would seem that this proposal was accepted by the Plaintiff and one cheque dated 26th June 1996 in the sum of $1,693,536.00 ("Defendant's 2nd Cheque") and another cheque dated 3rd July 1996 in the same sum of $1,693,536.00 ("Defendant's 3rd Cheque") were given to the Plaintiff. By Fax dated 24th June 1996 but probably only sent on 25th June (see date chop on page 97 of the Bundle) 1 day before the due date of the Defendant's 2nd Cheque, the Defendant said that it was still unable to pay and asked the Plaintiff to give the Defendant another month. The Defendant's 2nd Cheque and Defendant's 3rd Cheque were both dishonoured upon presentation on the respective due dates. On the 6th July 1996, there was a meeting between the Plaintiff's people and the Defendant during which the Defendant promised that the outstanding total sum of $3,387,072.00 would be settled by the Defendant before the 15th July or in any event not later than 20th July 1996. No payment was made by the Defendant and there were further promises made by the Defendant to pay which promises were not kept and this went on until the end of September 1996. Eventually the Plaintiff commenced proceedings in October 1996.

6. The Plaintiff's in this Action is on the Defendant's 2nd and 3rd Cheques. At this hearing for Summary Judgment, Mr. Chan for the Plaintiff rightly emphasised the fact that the Court and the business community have always regarded cheques as cash, which explained why in law there is very limited scope for a genuine defence to be raised against claims made on cheques. Recognising the difficulties which he had to overcome, Mr. Shun valiantly attempted to present some sort of a viable defence. I think Mr. Chan correctly summarised the two main issues put before the Court by the parties, namely:-

The "package deal" defence allegation can be summarised, at best, as consisting of an assertion that there was an agreement between the Plaintiff and the Defendant that in return for the Defendant taking back the 39 containers and giving to the Plaintiff the Defendant's 1st Cheque, the Plaintiff agreed to accept delivery of the 56 containers. Is that "package deal" defence believable.

7. Mr. Chan in his able submissions and as summarised in his Reply Skeleton Argument suggested that the "package deal" is an assertion not capable of belief. I agree. Apart from there being no proper Affidavit evidence on this wholly unparticularised agreement, the allegation is extremely confusing and unclear. It seems to me that the Defendant by her own conduct had clearly shown that there was no such agreement in terms of the "package deal" or "Varied Agreement". In the Fax dated 4th June 1996, being the very first of the series of faxes from the Defendant to the Plaintiff asking for more time indulgence to effect payment of the amount of $3,387,072.00, the Defendant not only made no mention of the alleged agreement of the Plaintiff to accept delivery of the 56 containers but made it clear that he had an obligation to pay the amount of the Defendant's 1st Cheque. On the 4th June 1996, it was clear that Plaintiff were not taking delivery of the 56 containers and that therefore if the "package deal" agreement had been made, then it was the Plaintiff which had reneged on that "package deal" agreement. But rather than complaining to the Plaintiff and justified to the Plaintiff that the Defendant was thereby released from any obligation to make payment under the Defendant's 1st Cheque, the Defendant in her Fax dated 4th June 1996 was seeking the indulgence of the Plaintiff for more time to effect a payment which the Defendant admitted was due to the Plaintiff. This pattern of the Defendant, admitting by her own conduct that the $3.3 million odd was due and seeking again and again for further time indulgence from the Plaintiff, continued in the subsequent correspondence until the end of September 1996. It even went as far as the Defendant giving to the Plaintiff two new post dated cheques (Defendant's 2nd and 3rd Cheques) which must had been given on the basis that the Defendant acknowledged that she was obliged to make the $3.3 million payment and not on the basis that the Defendant had no obligation to pay because the Plaintiff had broken the promise or agreement in May 1996, made before or at the time of the Defendant's 1st Cheque that the Plaintiff would take delivery and accept the 56 containers in exchange for the giving of the Defendant's 1st Cheque. The other conduct of the Defendant in not negotiating the two Letters of Credit or in sitting idle on the discrepancies waiver document relating to the 15 containers are merely further confirmation that there is really no substance in the Defendant's "package deal" allegation and that such allegation is not capable of belief or in otherwords all "moonshine". In coming to my conclusion, I have not overlooked the fact that the Defendant relied on a Fax dated 17th May 1996 from the Defendant to the Plaintiff (which the Plaintiff challenged as not having been sent by the Defendant). It is first to be noted that the so called Fax of 17th May 1996 did not refer to the giving of the Defendant's 1st Cheque as being based on the "package deal". Secondly it seems to me that if this Fax of 17th May 1996 was in fact sent to the Plaintiff, then the whole of the subsequent correspondence would simply take a very different course which again confirmed to me that this Fax is not something which can be relied upon or which should lead the Court to a different conclusion. It follows from what I had said that in my view, factually no bona fide defence had been properly raised by the Defendant.

8. Strictly speaking, it is not necessary for me to consider the second question, namely whether the "package deal" allegation legally gives rise to a valid defence of partial failure of consideration. But as the matter had been argued before me and my decision might have to be reviewed by the Court of Appeal, I will also briefly indicate what I find on the legal question.

9. I agree with Mr. Chan that the Defendant falls on the first hurdle on this legal issue because there is no nexus between the two Cheques sued on and the "package deal". It is important to note that the Plaintiff is not suing on the Defendant's 1st Cheque on which there was said by the Defendant the "package deal" consideration. There was no sufficient connection or nexus between the "package deal" and the Defendant's 2nd and 3rd Cheque sued on.

10. But the far more formidable ground on the legal issue against the defence of partial failure of consideration is that this is not a case of a pro tanto defence where the amount involved is ascertained and liquidated. Whatever may be the difficulty or uncertainty of the law on partial failure of consideration as might be gleaned by a study of the Nova judgment of the House of Lords and the Kamenar judgment of our Hong Kong Court of Appeal, it seems to me reasonably clear that in order for this defence of partial failure of consideration to succeed, the amount sought to be deduced from the cheque amount must be liquidated and ascertainable as a matter of "definite computation". It must not be damages. Therefore in the examples which were discussed in the course of the argument, cases such as delivery of only 12 empty containers out of 39 containers or the 30% agreed discount as in the Kamenar judgment or the 750 pieces of useless goods in the Sun & Sun judgment might possibly qualify as pro tanto defence of being immediately ascertainable without dispute or investigation, whereas the sort of damages claimed here by the Defendant is really in the nature of a counterclaim or separate action for damages and does not fall within the limited and restricted exception to the "cheque-as-cash" rule. It is to be observed that the total sum sought to be raised by the Defendant as defence to the two Cheques sued on, is made up of various disputed amounts all in the nature of consequential losses arising out of the alleged breach of contract by the Plaintiff in failing to accept delivery of the 56 containers. For me, it is a pure case of damages and not a situation of pro tanto defence arising out of liquidated demand or ascertained amount which can be legitimately deducted from the cheque amount and arising out of the cheque. We have in this Action, a claim based on one Cheque dated 26th June 1996 in the sum of $1,693,536.00, namely the Defendant's 2nd Cheque and another cheque dated 3rd July 1996 in the same amount, namely the Defendant's 3rd Cheque. Each Cheque stands alone and for me there is no pro tanto deduction from each cheque a definite amount which could be said to arise from that particular cheque as being a partial failure of consideration. On law therefore, the case of the Defendant even if there is a believable "package deal" allegation, would still not give rise to a valid defence of partial failure of consideration.

11. Mr. Shum asked the Court to say that there are special circumstances which fall within the admittedly rare situations of "other reasons" for granting unconditional leave to defend. As I have indicated to Mr. Shun in very clear terms during the argument, nothing which he had advanced or which he had relied on, suggest to me that this is a case where the Court should grant unconditional leave on the ground of some other reasons for trial.

12. There must be judgment for the Plaintiff in the full amount of the claim together with interest thereon at 2% above prime from the 3rd of July 1996 until Judgment. The Defendant must also pay to the Plaintiff the costs of the Action including the costs of this Summary Judgment application.