XCHRX TEXWOOD INTERNATIONAL LIMITED v. PEARLBOND LIMITED

1995, A7050

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. On 23 November 1995, judgment under Order 14 was entered against the defendant in the sum of $386,966, with costs. The defendant now appeals against this decision, saying that judgment should be entered in the sum of $62,390 only, with leave to defend as to the balance.

2. The amount in respect of which judgment was granted was claimed on the basis of a dishonoured cheque. This cheque was drawn by the defendant in favour of the plaintiff, given to the plaintiff on 24 March 1994 and dated 23 June 1994. When the plaintiff presented the cheque for payment on 3 November 1994, payment on it had been "stopped" by the defendant. The cheque was given in payment of an invoice issued by the plaintiff dated 9 March 1994 claiming an amount of $386,966.

3. In an affirmation by Mr Yan Lop Ke Eddis dated 1 September 1995 on behalf of the defendant, it is said that there were problems regarding the supply of certain goods, but these did not concern the goods in respect of which the invoice of 3 November 1994 was issued and the cheque given. Mr Yan says that, during the time of these problems ". . . the Defendant did not withhold payments to the Plaintiff as the Defendant had business turnover of $4,000,000 to $5,000,000 per month at that time. The agreement between the Plaintiff and the Defendant at that time was that a set-off against subsequent sale would be allowed by the Plaintiff." Mr Yan, immediately after telling of these problems, which were during a period up to November 1993, says that "At this point the Defendant felt that it was time to deal with the question of set-off and I subsequently agreed with Mr Kent Kan, the Sales Manager of the Plaintiff that our post-dated cheque No. 446878 for $386,966 . . . should not be presented by the Plaintiff for payment until the question of set-off is resolved between the Plaintiff and the Defendant. The Defendant therefore instructed its bank to stop payment of the said cheque . . ." The bank letter confirming the stop payment is dated 21 June 1994.

4. The defendant produces a memo from the defendant to the plaintiff dated 20 June 1994. This says - "We have obtained an estimate of HK$324576.00 from the customers in relation to the rejected goods. You are fully responsible for settling this amount. Please read this and settle the above-mentioned amount as soon as possible."

5. In response, the plaintiff says that there was no such agreement with Mr Kent Kan as alleged by Mr Yan; in fact, Mr Kan was not working for the plaintiff at the time of the alleged agreement. It is said that the plaintiff only presented the cheque for payment on 3 November 1994 because the plaintiff was prepared to consider alleged defects in other goods supplied, but nothing came of this.

6. The plaintiff's solicitors wrote to the defendant demanding payment on 6 March 1995, but the defendant did not answer this, and raised the allegation of the agreement to withhold presentation of the cheque only in these proceedings.

7. The plaintiff produces a fax dated 1 September 1994. This is by the plaintiff to the defendant. It says - "Since you have held payment on the post-dated cheque on the last container due to claim on zipper problem raised by your buyer, we had previously requested you to return the whole lot of goods to us but so far no feedback from you. We hereby repeat our request for return goods or otherwise we are demanding immediate settlement of the held payment."

8. After the plaintiff's response, the defendant filed further evidence. This was in the form of an affirmation by Ms Pamela Lee, who obtained the information contained in it from Mr Yan, who was in France at the time. Mr Yan has since confirmed that what Ms Lee said is true and correct.

9. The defendant says that the invoice dated 9 March 1994 and the cheque, are not payable "for the reasons already explained by Mr Yan." But the reasons then given are different from the reasons "already explained". It is said that, shortly after 10 December 1993, Mr Kan confirmed to Mr Yan that payments due from the plaintiff to the defendant "could be set-off from other payments due from the Defendant to the Plaintiff". Mr Yan, through Ms Lee, then deposes to the agreement that is the crux of the matter. This is what is said - "After the debit note for the equivalent sum of HK$324,576 was sent to the Plaintiff, [This was, apparently, on 17 June 1994.] Mr Yan gave instructions to the Defendant's bank to stop payment of this cheque for HK$386,965. (sic) He then telephoned Mr Alex To of the Plaintiff and told him that Mr Kan had agreed that payment could be withheld by the Defendant to set off compensation arising from [disputed claims]. After hearing from Mr Yan, Mr To agreed to allow the cheque to be withheld and the Plaintiff would not present the same for payment until a set off of claims between the parties had been done." There is then a reference to Mr Yan's earlier assertion that Mr Kan had agreed that the cheque should not be presented. Ms Lee says, on behalf of Mr Yan, that "Mr Yan has made a mistake in referring to Mr Kan on this agreement to withhold the cheque. The agreement of set off was initially made with Mr Kan at the end of 1993. It was repeated and renewed when Mr Yan talked to Mr Alex To of the Plaintiff shortly before 24 June 1994 when the cheque was about to mature. The fact that the cheque was not presented for payment upon its maturity reflected the existence of the agreement."

10. The defendant's evidence of the alleged agreement is most unsatisfactory. The defendant's first story is that the agreement was with Mr Kan, and, as a result of the agreement, the defendant stopped payment of the cheque. When it was pointed out to the defendant that Mr Kan was not working for the plaintiff at the relevant time, the defendant's story changes. The agreement was not with Mr Kan, but with Mr To. The cheque was not stopped as a result of this agreement, but Mr Yan stopped payment, and then spoke to Mr To. The discussion with Mr To was also more involved than that said originally to have taken place with Mr Kan. Mr Yan says he told Mr To that Mr Kan had agreed that payment could be withheld, but Mr Yan does not give any specific details at all of this alleged agreement with Mr Kan. Mr Yan does not give any explanation for this change in his evidence, other than that he made "a mistake".

11. Mr Chan concedes, as he must, that the defendant's case is not satisfactory, but he says that it is supported by the plaintiff's evidence. He points to the fax dated 1 September 1994. This undoubtedly shows that the plaintiff knew that the defendant was withholding payment of the cheque, but it does not support the allegation that there was an agreement that the defendant should do so. Mr Chan also argues that the fact that the plaintiff did not present the cheque until 3 November 1994, and did not commence action until July 1995, supports the allegation that there was an agreement not to present the cheque until there was a set-off of claims by the defendant. The plaintiff explains this delay by saying that it was prepared to consider the alleged defects in goods supplied if these were returned to Hong Kong, but the defendant did not return them. This is supported by the terms of the fax dated 1 September 1994.

12. I do not think that the defendant has produced any credible evidence that it has an arguable defence to the plaintiff's claim on the cheque based on the alleged agreement. But even if I were to accept that there was an arguable case that the alleged agreement was entered into, this does not assist the defendant. The agreement alleged is that the plaintiff, through Mr To, promised not exercise its rights under the cheque until "set off of claims between the parties had been done", but one looks in vain for an reciprocal promise or other consideration given by the defendant. Mr Chan suggests that the consideration given by the defendant was to "throw the disputed claim into the melting pot", but the disputed claim was the disputed claim, and the defendant gave the plaintiff nothing by saying that the disputed claim had to be set-off before the plaintiff could obtain payment under the cheque. I conclude that there was no consideration for any promise given by the plaintiff that it would pursue its rights under the cheque, and the promise, if given, is not enforceable.

13. In the result, the defendant's appeal is dismissed.

14. It seems that the plaintiff is entitled to its costs, and I make an order nisi accordingly. I grant a certificate for counsel.