LUKLIN LTD v. COLLINS INDUSTRIAL CO LTD

Action No. 7061/84

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

____________

___________

JUDGMENT

___________

1. On the 31st December 1984, the Master entered summary judgment in Order 14 proceedings against the defendant in the sum of US$154,388.59, as to US$147,310.59 representing the total due and owing on three dishonoured cheques drawn by the defendant in favour of the plaintiff, and as to the balance of US$7,078.00 being the price of goods sold and delivered to the defendant.

2. This appeal concerns part of the order of the Master with regard to the three cheques.

3. The particulars of those cheques are set out in paragraph 1 of the amended statement of claim as follows:

"PARTICULARS"

Cheque

And paragraph 2 reads:

Mr. Chan, for the defendant, argued the appeal on two points. His first is what he described as the "pleading point". This is two pronged. He says that the statement of claim must be complete and good in itself, and referred to the commentary in the White Book, 1985 at p.131, para. 14/1/4. The second limb of this argument is based on s.48 of the Bills of Exchange Ordinance, Cap. 19, which deals with the notice of dishonour and effect of non-notice, the opening words of which read: "Subject to the provisions of this Ordinance, where a bill has been dishonoured by non-acceptance or by non-payment, notice of dishonour must be given to the drawer ...". Reliance is placed also on s.49(1), that is, "a notice may be given as soon as a bill is dishonoured and must be given within a reasonable time thereafter.....". He referred to the following portion from para. 14/3 - 14/17, at p.134 of the White Book:

"Where notice of dishonour of the bill of exchange is required (e.g., in an action against the drawer) an averment that such notice has been given, or that it has been dispensed with, is a necessary part of a special indorsement. The plaintiff need not allege the fact in his affidavit under O.14 [May v. Chidley (1894) 1 Q.B. 451]."

Similar statements are to be found in ATKIN's Court Forms, 2nd edn., Vol.6 at p.325; and BULLEN AND LEAKE, Precedents of Pleadings, also at p.325.

4. Mr. Chan argued that there is a difference between "giving" a notice, and the defendant "having due notice thereof". Accordingly, he submitted that para. 2 of the amended statement of claim fails to satisfy the requirements of s.48 of the Ordinance, as well as the practice relating to pleadings.

5. His second point is closely linked with the first. It is that these cheques, being foreign bills in terms of s.4 of the Ordinance, must be duly protested in terms of s.51(2), unless protest is dispensed with by any circumstances which would dispense with notice of dishonour. He submitted that as there is nothing to indicate a protest having been noted, the drawer is thereby discharged from any liability.

6. Mr. Chan submitted also that dispensation of notice by virtue of s.50(2) is not relevant at all in this action, because the point was not pleaded.

7. Miss Eu, for the plaintiff, said that the three cheques which were exhibited were returned by the bank with this comment: "Returned unpaid. Reason: Insufficient funds." She submitted that s.50 sets out the situations where the payee or holder does not have to give a notice of dishonour, and she relies on s.50(2)(c)(iv) which reads:

She submitted that as there were insufficient funds in the defendant's account, the bank was under no obligation to honour the cheques; this being a repetition of BYLES on Bills of Exchange, 24th edn. at p.153. In support, she referred to the first paragraph of the telex dated 6^th September, 1984 sent by the defendant and exhibited to the second affirmation of YAN Sun-yiu as "sy-8", which reads:

"We would like to apologise for the delay in payment of outstanding invoices due to our slightly tight cash flow position in the last few months. I would like to work out a repayment schedule with you sometime next week to get this problem out of the way".

8. In the alternative, she submitted that leave should be given to re-amend para. 2 of the amended statement of claim, in terms of a draft which she handed in.

9. The rules as to pleadings on which Mr. Chan relies, that is, the statement of claim being complete and good in itself, are indeed clear. But I think that the comment made by Miss Eu on his submissions is quite apt. She said that Mr. Chan had been extremely careful in not saying that notice of dishonour had to be given but was content with saying that notice of dishonour should be pleaded as either having been given or dispensed with. Revisiting the quotation from para. 14/3 - 14/17 of the White Book upon which Mr. Chan relies for support, it is clear that the averment that such notice had been given, or that it had been dispensed with, is a necessary part of a special indorsement where notice of dishonour of the bill of exchange sued on is required (emphasis added). That poses the first question and it is obvious to me, as indeed it was to Miss Eu, that Mr. Chan had carefully skirted this question.

10. The starting point for such consideration quite obviously is s.50(2)(c)(iv) of the Ordinance. I do not think that Mr. Chan can waive it aside by saying that because it was not pleaded, it is not relevant. Although neither side cited any local authority, I think that it is useful to refer to Nichimen Co. Ltd. (No.2) v Yick Chong (sued as a firm) and Another, (1965) H.K.L.R. 638 where the appellant's claim on cheques dishonoured on presentation and returned "refer to drawer" was dismissed by the trial court inter alia on the ground that the court was not satisfied as to whether notice or notices of dishonour had been given. The statement of claim alleged that both defendants had notice of dishonours. On appeal, s.50(2)(c)(iv) of the Ordinance was relied upon. Giving judgment of the Full Court, SCHOLES, J. said at p.640:

"The point at once arises as to whether, in the circumstances of the case, any notice of dishonour was required to be given, and this court indicated to counsel for the appellant that it only desired to hear him shortly on that point, which was his first argument."

That precisely is the position in this case. The learned judge went on to say (p.640):

"Each of the four bank dishonour slips, one of which is attached to the four cheques, in giving the reason for returning the cheque is marked: "refer to drawer". We therefore think that it is a reasonable inference and clear, there being no evidence to the contrary, that, as between the bank and the defendants, the bank was under no obligation to pay each of the four cheques. Counsel for the appellant submitted inter alia that the expression "refer to drawer" was really an euphemistic way of saying there were no funds belonging to the drawer."

The appeal was allowed; it was held that notice of dishonour was dispensed with under the section in respect of the dishonour of each of the four cheques. The same applies to the instant case, perhaps more so as the reason for non-payment was clearly stated on the face of each of the three cheques as "insufficient funds". The judgment of the Full Court cites some authorities and also various relevant parts from the 21st edition of BYLES on Bills of Exchange, some of which were cited by Miss Eu. I need not repeat them all over again.

11. In the circumstances of this case, I find that in terms of s.50(2)(c)(iv), as between the drawer and the drawee, the bank was under no obligation to pay the four cheques and that notice of dishonour is dispensed with under the section in respect of the dishonour of each of the four cheques. For the same reasons, protest in that respect is also dispensed with.

12. I find that the order of the learned Master is unassailable on the points taken by the defendant in this appeal, which is accordingly dismissed with costs to the plaintiff.