SHINE NING MODA LTD v. BIBA FASHION TRADING CO LTD

DCCJ272/2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 272 OF 2006

D E C I S I O N

1.  This is an Order 14 application.  The plaintiff sued under the cheque which was dishonoured for reason of “countermanded by drawer”.  The cheque is in the amount of HK$57,493.80, dated 4 January 2006.

2.  The defence is that there are conditions for presentment which the plaintiff has not fulfilled and a total failure of consideration.  The underlying contract of the cheque is a purchase agreement in respect of some fabrics. 

3.  The plaintiff and the defendant had a long term business relationship with each other in manufacturing of ladies wear.  The plaintiff manufactured finished products for the defendant with fabrics sometimes supplied by the plaintiff and sometimes provided by the defendant.  In a particular lot of order there were leftover materials in the hands of the plaintiff and the underlying contract of the cheque in question is the purchase by the defendant of such leftover fabrics from the plaintiff. 

4.  It is the case of the plaintiff that it is the practice between the parties and, in fact, of the trade, that the defendant were to purchase the leftover fabrics; if no further order is received from the defendant, to make use of the fabrics for some other goods.  In fact, we can see some email records from the plaintiff to the defendant treating such an arrangement as something for granted.

5.  The defendant alleged that before the delivery of the cheque to the plaintiff it was agreed orally between the parties that the plaintiff would dye all the fabrics into black colour and send samples to the defendant.  The plaintiff also agreed that they would find other buyers to purchase the fabrics and would provide particulars of such purchase to the defendant for confirmation.  These are the alleged conditions to the presentment of the cheque that the plaintiff has not fulfilled.

6.  In relation to the defence of total failure of consideration, Miss Liu, counsel for the defendant, submitted that the plaintiff has failed to deliver the fabrics to the defendant and has sold part of the fabrics to others without seeking the defendant’s confirmation before the presentment of the cheque and, hence, they would not be able to deliver all the fabrics to the defendant in any event.

7.  The plaintiff is suing upon the dishonoured cheque.  They do not have to prove the existence of the underlying contract of the cheque nor do they have to prove that they have given consideration for the cheque.  The cheque is as good as cash and it is for the defendant to prove their alleged defence.  It is a well accepted principle that extrinsic evidence is not admissible to contradict the terms of the contract constituted by the bill of exchange, which is for unconditional payment.  The only exception is where the evidence is of the condition precedent to the contract, that is, the condition which prevents the coming into force of the contract contained in the bill of exchange.  The above is a quotation from paragraph 14/4/19 of the Hong Kong Civil Procedure 2006.  In Lin Hsien Tseng & So Sin Mui Bonnie [2002] 4 HKC 532, the court drew a distinction between a cheque drawn in escrow and conditions imposed on the presentment, and it was decided that it was insufficient for the latter situation.  There is a difference between condition precedent and condition subsequent and the latter is not sufficient for the purpose of having extrinsic evidence admissible.

8.  In S.Y. Chan Ltd v Choi Wai Bor [2001] 3 HKLRD 145 it was held that extrinsic evidence would only be admissible to show that the delivery of the cheque is conditional or for a special purpose and not a transfer of the property in the cheque. 

9.  The allegations of the defendant in the present case relate not to conditions of delivery but conditions for presentment.  It falls squarely on the principles outlined by the above authorities and I am of the view that such extrinsic evidence cannot be in any way admissible otherwise it would, taking the words of Recorder Kenneth Chan S.C., in S.Y. Chan Ltd citing Chandlers & Guest, “undermine the certainty and finality which ought to attach to each party’s promise on the instrument.”

10.  Miss Liu, at the very end of the hearing, if I may put it this way, referred me to the case China Ever Bright Holdings Co. Ltd  & Anor v Synergy Finance Ltd & Others HCA933 of 2002, seeking to rely on a defence based upon a collateral contract.  However, it is never the case of the defendant that there was a collateral contract in the Defence or anywhere in the evidence filed.  Miss Liu also sought to add a new condition precedent for delivery or implied term to deliver.  With respect, I do not think the defendant can rely on those grounds without having included them in the Defence or in the evidence.

11.  I rule that the oral evidence seeking to prove the alleged conditions, being extrinsic evidence of the cheque, inadmissible. 

12.  As regard the point of total failure of consideration, there is simply no evidence adduced by the defendant that there is an obligation on the part of the plaintiff to deliver or to deliver before a particular date or even a request for delivery. 

13.  In any event, the fabrics sold by the plaintiff were only a small portion of the whole lot and the plaintiff is still able to deliver the remaining portion upon request for delivery.  There is no evidence from the defendant seeking to prove that the fabrics were to be accepted only if they are delivered in a whole lot.  The fact that there is an understanding between parties that the plaintiff were to find buyers for the defendant points to the opposite way instead.

14.  There is also an argument of the defendant that as the plaintiff has issued another debit note and asked for payment, the plaintiff is estopped from presenting the cheque for payment.  With respect, I do not see any estoppel or waiver arising from this.  There is no indication whatsoever from the plaintiff that they were no longer relying on their rights under the cheque. 

15.  In the circumstances, I am of the view that the defendant has failed to make out any plausible or arguable defence to the plaintiff’s claim on the cheque.  However, it is the plaintiff’s case that the defendant is liable only to pay them the amount under the revised debit note.  I will take that into account and award such sum, i.e. HK$41,801.50 to the plaintiff only.  Accordingly, judgment be entered in favour of the plaintiff for the sum of HK$41,801.50 and interest thereon at judgment rate from the date of writ until payment.

(Submissions on costs)

16.  Costs will follow the event.  It is up to the defendant to choose whether to defend the case or to admit the claim.  I see no reason justifying a costs order in favour of the defendant even if the action was taken out at a wrong  venue.  On the other hand, I am of the view that the plaintiff did take out the action at a wrong venue because, taking the plaintiff’s case to the highest, they are only entitled to an amount under $50,000 and this case should not have been taken out at the District Court.  I order that the costs of this action be to the plaintiff, in the Small Claims Tribunal scale, to be taxed if not agreed.