LIU WAI YUNG t/a YICK PO PRINTING PAPER PRODUCTS FACTORY v. WAN CHUNG CHUN YIP CO. LTD.

CACV97/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 97 OF 1998

(ON APPEAL FROM HCA NO. 6310 OF 1997)

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J U D G M E N T

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Chan, CJHC :

1. The Plaintiff's claim against the Defendant is for the sum of $173,550.00 being the outstanding purchase price of goods sold and delivered. Upon the Plaintiff's Order 14 application, the Master gave judgment for the Plaintiff. On appeal, the Judge in Chambers set aside the judgment and granted leave to the Defendant to defend the claim on condition that the Defendant pay into Court the full amount of the claim within 21 days. The Defendant now appeals against the order of the Judge. Since the hearing before the Judge, the Defendant has defaulted in complying with the condition and the Plaintiff has during the meantime entered judgment. The Defendant in its Supplementary Notice of Appeal also asks to set aside the judgment. In its Respondent's Notice, the Plaintiff as an alternative asks for the judgment ordered by the Master to be re-instated.

2. The Plaintiff's claim is, if I may say so, well documented. It is supported by purchase orders, invoice No. 2607 and various delivery notes which are all exhibited in the affirmations placed before the court. In fact, the Defendant does not dispute that there were such purchases from the Plaintiff. The defence is that the purchase price had already been paid by means of a cheque No. 809539 dated 31 January 1997 issued by an associated company of the Defendant, namely Wan Chung Construction Co. Ltd., in the sum of $200,000.00 in favour of the Plaintiff. It is said that the Defendant had in fact overpaid the Plaintiff by $26,450.00. The Plaintiff accepts that it had received such a cheque from the Defendant, but claims that it was payment as settlement for a previous debt owed by another associated company of the Defendant.

3. Since the transaction for the sale of goods in the sum of $173,550.00 odd is admitted, it is for the Defendant to show that it had already paid the Plaintiff. This, in my view, is the main issue in this case. But at the Order 14 stage, the question to be asked is whether the Defendant's allegation that the cheque in question was issued to the Plaintiff in payment of the price is a believable defence. See Ng Shou Chun v. Hung Chun San [1994] 1 HKC 155, CA.

4. The Judge, having considered the materials before her, held that such allegation was shadowy. She gave a number of reasons for coming to that view. She noted, first of all, that there was no documentary evidence saying what the cheque in the sum of $200,000.00 was for. There was no covering letter and no receipt suggesting that it was for the payment of the invoice in question. The Judge also noted that if the cheque was indeed payment for the purchase price, there had been an overpayment. She queried whether this made any commercial sense. She went on to say that the evidence surrounding the payment was also inconsistent. She pointed out that while the financial controller, Mr. Sin of the company which issued the cheque said he was not aware of the overpayment, another staff member, Mr. Fu of the Defendant said it was in anticipation of further orders to be placed with the Plaintiff. I also note that in Ms. Suen's affirmation, she even suggested that the overpayment was made as a result of the Plaintiff's request for a little more cash. As it turned out, the Defendant ceased business, according to the evidence, within a month after such payment and no further order was placed. However, there was no evidence of any claim either before or after it ceased business for the return of the overpayment. Finally, the Judge also noted that the Defendant's allegation that the purchases were the only transactions between the Plaintiff and the Defendant was not correct.

5. A number of affirmations have been filed by both parties. On the part of the Plaintiff, it is sought to explain the purpose of the receipt of the $200,000.00 cheque. It is alleged that the Defendant's associated company was indebted to the Plaintiff for RMB363,343.75 and that there was an agreement to accept $200,000.00 as full and final settlement. On the part of the Defendant, it is sought to show that this was not the case and that the cheque was in fact paid to settle the invoice in question.

6. Counsel for the Defendant submitted before us that as a result of these materials before the court, there were various subsidiary factual issues which needed to be resolved in order to determine the fundamental issue. He submitted that these subsidiary issues included whether the Defendant had merged with its associated company; whether there was a settlement between the Plaintiff and the Defendant and its associated company to settle the previous debt of that associated company; whether the cheque was delivered before its due date; and whether the two letters and acknowledgement exhibited by the Plaintiff were genuine. These, Counsel said, were issues which had to be decided. The Judge, it was submitted, was wrong to conclude that the Defendant's case was shadowy and/or had failed to conclude that the Plaintiff's case was also shadowy.

7. In my view, even accepting which I am reluctant to do that these are subsidiary issues which need to be resolved at this stage, I do not think these are matters which would bring the matter any further for the present purpose. At best, these matters tend to show that the Plaintiff's explanation regarding the receipt of the cheque in question is not completely convincing and that there are weaknesses in its reply to the Defendant's case. On the other hand, these matters equally illustrate the weakness and shadowy nature of the Defendant's case. The fact, in my view, remains that the Defendant having admitted the transaction has the burden of showing that its allegation of having settled the purchase price is believable or not.

8. The Judge had given, in my view, convincing reasons for casting doubt on the Defendant's allegation. At the end of the day, while the Defendant's allegation may not be all that unbelievable, there are grave suspicions in it. The Judge was right to hold that the defence is shadowy. She, however, was well aware of the weaknesses in the Plaintiff's reply, particularly the documents exhibited by the Plaintiff. She dealt with these weaknesses and documents without indulging in what is commonly described as a trial on affirmations. She, in effect although not in so many words, came to the conclusion that while there were weaknesses in the Plaintiff's case, it was not shadowy. I do not think the Judge can be criticised. This case is clearly quite different from the case referred to us by Counsel for the Defendant, Extraktionstechnik v. Oscar (1984) 128 Solicitors' Journal 417.

9. The Judge clearly had the power and discretion to impose conditions when she granted leave to defend. She exercised it and gave reasons for exercising it in the way she did having considered the materials before her. An appellate court is usually slow to interfere with the exercise of a judge's discretion, unless, to quote from Halsbury's Laws of Hong Kong:

"it was based on a misunderstanding of the law or a mistake of law, or in disregard of principle, or on a misunderstanding or misapprehension of the facts or on an erroneous inference drawn from the available facts, or on a failure to take account of or give due weight to relevant matters or the taking into account of irrelevant matters, or that the order would result in injustice, or that the decision is so aberrant that no reasonable judge could have reached it. It is only if and after the Court of Appeal has concluded that the judge's exercise of his discretion must be set aside for good reason that it becomes entitled to exercise an original jurisdiction of its own. The court may also intervene on the ground that the judge failed to exercise his discretion at all."

10. In my view, the learned Judge had been made aware of the points made by both parties. She concluded that the Defendant's case was shadowy and that while the Plaintiff's case had some weaknesses, there could be some explanation for them. In these circumstances, I do not think she has exercised her discretion wrongly. For these reasons, this Court would be slow to interfere with that discretion. I would, therefore, dismiss the appeal.

Nazareth, V.-P. :

11. I agree.

12. In the end Mr Bell's submission comes down to whether the judge failed to have regard to the shadowy nature of the plaintiff's case and if she did not so fail, whether she was plainly wrong in concluding that it was not shadowy. While it is true that the judge did not expressly address the first matter in terms of whether the plaintiff's case was shadowy, she plainly did address the points Mr Bell was concerned with; that is apparent from her judgment. She identified in particular the three documents that were attacked on the defendant's behalf and explained why she attached a certain amount of weight to them. At the end of the day, it is quite clear that she did in fact examine the plaintiff's case. I do not think that examination suffers for not having been done in express terms of whether it was shadowy or not.

13. As to the other aspect of whether she was wrong in concluding that it was not shadowy, I do not think it necessary to say more than that she cannot be said to have been plainly wrong. Accordingly, bearing in mind that the order for conditional leave was made in the exercise of her discretion, there is no ground upon which this Court could properly intervene with that exercise of discretion.

14. Accordingly, I also would dismiss the appeal.

Godfrey, J.A. :

15. The plaintiff's claim here was simple and straightforward, and there are unexplained features of the defendant's case which, in my judgment, justify the judge's decision to impose the condition which she did impose in giving the defendant leave to defend.

16. Mr Bell's best point in his attack on this decision was that there were also unexplained features in the plaintiff's reply to the defendant's case. He said that in those circumstances the right course was for the court to give the defendant unconditional leave to defend. He cited in that connection the case of Extraktionstechnik Gesellschaft Für Anlagenbau MBH v. Oskar (1984) 128 Solicitors' Journal 417.

17. I agree that where there are unsatisfactory features affecting both the claim and defence which are unexplained, it is open to the judge to grant unconditional leave to defend and indeed that is what the judge should do. But I am unable on the facts of this particular case to accept that here the matters in the plaintiff's reply to the defendant's case on which Mr. Bell relies are sufficient to justify us interfering with the judge's undoubted discretion to impose the condition of payment of the full amount of the claim into court which the judge did impose as a term of giving the defendant leave to defend.

18. For these reasons, in addition to those given by my Lords, I, too, would dismiss this appeal.