XCHRX DENSITY INDUSTRIAL LTD. v. SKY PLAY CO. LTD.

HCA2302/98

HEADNOTE

Summary judgment under Order 14 RHC on claim for dishonoured cheque. Acceptance of repudiation for contract must be unequivocal. Countermanding a cheque not an unequivocal act but an equivocal act. No arguable defence shown.

HCA2302/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2302 OF 1998

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J U D G M E N T

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1. In this action, the Plaintiff sues the Defendant in respect of goods sold and delivered by the Plaintiff. The claim is for two sums of money: (1) the sum of $247,539.06 and (2) The sum of $600,000.00. In respect of the first sum of $247,539.06 the Defendant issued a cheque drawn on Hang Seng Bank Limited dated 4th December 1997 made payable to the Plaintiff. On presentation for payment of this cheque on 5th December 1997 by the Plaintiff, it was dishonoured as the Defendant had stopped payment.

2. Notice of dishonour was duly given but the Defendant has failed to pay that sum. The Defendant also failed to pay the sum of $600,000.00 and these proceedings were instituted. The Plaintiff issued Order 14 proceedings for summary judgment for the said sum of HK$247,539.06 being the amount due under the dishonoured cheque. That is the application before me.

3. I have earlier today given judgment in a related action, namely Action No. 6203 of 1998 where the Defendant here and one other party applied for interlocutory relief against the Plaintiff here in respect of infringements of copyright in artistic works, namely drawings of certain toys. I have set out the background and the relationship between the parties in that judgment and I shall not repeat the same here.

4. The various disputes between the parties were settled in October 1997 when an agreement in writing was signed on 13th October 1997, ("the Settlement Agreement"). As I have said in my judgment in the other action, the gist of the Settlement Agreement was that the Plaintiff and the Defendant would release each other from all existing claims upon payment of HK$1,031,514.60 by the Defendant to the Plaintiff and the release of moulds and films in the Plaintiff's custody to the Defendant.

5. Clause 7 of the Settlement Agreement provided that if the Plaintiff and the Defendant abided by the terms of the agreement "both parties agree to take no further action in respect of the damage resulted from the disputes happened during the period of co-operation".

6. Clause 2(1) of the Settlement Agreement made it plain that from the date of the agreement, the Plaintiff was "no longer allowed to produce and sell" any of the products without the Defendant's written consent or authorization.

7. On a construction of Clause 7 of the Settlement Agreement, I have already found in the other action that it is arguable that if the Plaintiff did not abide by the terms of the Settlement Agreement then the Plaintiff could be sued for past infringements as well as for future infringements.

8. It is pertinent to set out Clause 5 of the Settlement Agreement:

"Taking into account of the fact that Party B is still in possession of Party A's product and the relevant raw materials which will be sold to Party A according to the result of the examination of them, and after Party B has compiled the detailed list which will be handed over to Party A for verification, Party A will try its best and act optimistically to use the stock and raw materials of Party B for the manufacturing of new products."

Party A referred to therein is the Defendant and Party B is the Plaintiff. That clause is nothing more than an agreement to agree.

9. It is, however, plain that the Plaintiff still had in its possession products which it had manufactured for the Defendant on an OEM basis, that is as an original equipment manufacturer, as well as relevant raw materials which it had purchased for the production of goods to fulfill contracts that the Defendant has earlier entered into with the Plaintiff. Clause 5 recognised this and this cannot be disputed as the parties both signed the Settlement Agreement. As stated at the beginning of the Settlement Agreement, both parties negotiated the terms which were agreed between them from 6:00 p.m. to 8:30 p.m. on 7th October 1997.

10. In accordance with the parties' agreement to agree as set out in Clause 5 of the Settlement Agreement, the Plaintiff compiled a list of finished products and samples and after checking the list and inspecting the goods, the Defendant acknowledged their acceptance of the 2 written confirmations. It is not disputed that the goods set out there were delivered to the Defendant on 3rd November 1997 and the Plaintiff was issued with the cheque in question.

11. Ms. Tam, counsel for the Plaintiff, has amply demonstrated to me by reference to the evidence that the finished products were all produced pursuant to contracts placed by the Defendant with the Plaintiff under the OEM arrangement. The other list was a list of samples produced. It cannot seriously be said that these were infringements or counterfeits as they have been called by Mr. Tanaka in para. 6 of his affirmation affirmed on 1st of May 1998. And the evidence of Mr. Tanaka in this respect is not, in my view, credible. It is plain that Mr. Tanaka in an earlier affirmation in the other action and affirmed on 28th of April 1998 recognised that it was only in October 1997 that the Defendant decided to withhold payment of approximately HK$1,000,000.00 which was due to the Plaintiff and it was in response to that that the Plaintiff refused to carry on with the production of the Defendant's orders. In a later affirmation, Mr. Tanaka confirmed that this occurred on 7th October 1997. Thus, goods were being produced for the Defendant by the Plaintiff right up to about 7th October 1997 and there were, of course, already some finished products in the Plaintiff's possession by the time of the Settlement Agreement. It cannot be said that these were infringements or counterfeit goods.

12. The defence to the cheque claim that is raised is that there was a total failure consideration. It is said that the Plaintiff acted in breach of the Settlement Agreement by selling goods thereafter without the Defendant's authorization or consent and has therefore repudiated the Settlement Agreement as well as the contract for the sale of the finished products made on 30th October 1997.

13. It is trite law that if an innocent party wishes to treat himself as discharged from a contract, he must accept the repudiation. Acceptance of a repudiation must also be clear and unequivocal and unless and until the repudiation is accepted the contract continues in existence.

14. The Defendant did not communicate its decision to terminate to the Plaintiff until 23rd December 1997 at the earliest. This was well after the due date of the cheque. This was by a letter from the solicitors for the Defendant dated 23rd December 1997 which alleged, inter alia, that the Settlement Agreement was void ab initio and hence there was a total failure of consideration for the cheque. The suggestion that the Settlement Agreement was void ab initio was wholly misconceived.

15. Mr. Shipp, counsel for the Defendant, relied on a passage in Chitty on 'Contracts' 27th ed. Vol. 1 at para. 24-011:

"Where there is an anticipatory breach, or the breach of an executory contract, and the innocent party wishes to treat himself as discharged, he must 'accept the repudiation'. This is usually done by communicating the decision to terminate to the party in default, although it may be sufficient to lead evidence of an 'unequivocal overt act which is inconsistent with the subsistence of the contract ......... without any concurrent manifestation of intent directed to the other party'."

16. He submitted that countermanding the cheque before the due date was an unequivocal overt act which was inconsistent with the subsistence of the contract, namely the Settlement Agreement as well as the 30th of October 1997 agreement. The short answer to that is that countermanding the cheque was an equivocal act but it is certainly not an unequivocal act which is inconsistent with the subsistence of the agreement. The Defendant has kept the goods which were delivered by the Plaintiff and has never even attempted to return them to the Plaintiff.

17. The cheque is to be treated as cash and, unless there are some good reasons to the contrary, it has to be hounoured. There is, in my judgment, no arguable defence shown based on a total failure of consideration.

18. I therefore give judgment for the Plaintiff against the Defendant for the sum of HK$247,539.06 on the cheque as claimed together with interest on the sum of HK$247,539.06 from 5th December 1997 to date at 9% per annum and thereafter at judgment rate.

19. Costs of the application and costs of the action in so far as it relates to the claim for $247,539.06 to the Plaintiff.