CORONATION ELECTRONICS LIMITED v. THAROOMALS (H.K.) LIMITED

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HEADNOTE

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Appeal from master - 0.14 - judgment for part of claim - poor prospect of success as to remainder - conduct of defence - leave to defend balance of claim conditional on full payment in.

1985, No. A4195

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. On 27th August, 1985, the plaintiff obtained summary judgment under Order 14 for S. $2,092,281. 69, the defendant not having appeared to oppose the application.

2. On 12th October, the defendant's application to set aside this judgment was dismissed.

3. The defendant now appeals against the master's decision and asks that the judgment be set aside and that there should be liberty to defend the action.

4. The claim arose out of an agreement in writing dated 18th December, 1984, whereby the plaintiff undertook to open two letters of credit, each in the sum of S. $984,500, in favour of beneficiaries nominated by the defendant. It was a term of this agreement that the defendant should repay S. $1,969,000, being the total of the two letters of credit, plus financing commission, bank charges and interest, by 31st January, 1985. The defendant also agreed to supply to the plaintiff 200 video recorders, at a cost of S. $860 each, by 28th December, 1984.

5. The statement of claim alleges that, save for a payment of S. $50,000 in June, 1985, the defendant has failed to pay the sum claimed, or to supply the video recorders.

6. The defendant has given notice of intention to defend, but no defence has yet been filed.

7. Mr. Bokhary, for the defendant, maintains that there is a triable issue. He points to a running account between the parties, the defendant's version of which shows a balance in favour of the plaintiff of HK$174,900, which was settled on 7th June, 1985. The plaintiff's version, on the other hand, shows that HK$6,263,703, representing the unpaid letter of credit, is still owing by the defendant.

8. The plaintiff does not base its claim on the running account. It maintains that the agreement of 18th December was an entirely separate matter, which fell to be settled not later than 31st January.

9. The first stumbling block faced by the defendant is the failure to attend before the master on the summons for summary judgment.

10. In support of the application to have judgment set aside, the defendant's solicitor, Mr Dissanayake, has sworn an affidavit, in which he says he has never seen the summons and there is no record of it in the incoming mail register. Yet he cannot explain how the documents have been stamped with his firm's chop. He suggests that a possible explanation is that, by mistake, the documents to be served were taken away by the process server, together with the chopped office copies.

11. In reply, the plaintiff's process server, Mr. Lam Sum Kit, has sworn that he handed copies of the summons and affidavit to the receptionist at the office of the defendant's solicitors and obtained her chop on the office copies, which he took away with him and has produced. He adds that he saw the receptionist place the documents served at the corner of her desk. He categorically denies having taken them away as suggested by Mr. Dissanayake.

12. Mr. Bokhary does not suggest that the judgment is irregular, but he submits that his client should not be penalised by an error on the part of his solicitors. He cites a passage from the judgment of Lord Denning in Doyle v. Olby Ltd.⁽¹⁾ which reads:-

"It was submitted by counsel for the defendants that we could not, or, at any rate, ought not, to correct this error. I do not agree. We never allow a client to suffer for the mistake of his counsel if we can possibly help it. We will always seek to rectify it as far as we can. We will correct it whenever we are able to do so without injustice to the other side. Sometimes the error has seri-ously affected the course of the evidence, in which case we can at best order a new trial. But there is nothing of that kind here. The error was made at the end of the case. All the evidence had been taken on the footing that the damages were at large. It was only in the final submission that the error was made. Such an error we can, and will, correct. "

Consequently Mr. Bokhary asks the court to ignore the question of service and look only to see if there is an issue to be tried between the parties.

13. I do not think that is right. Where the judgment is regular, the court has a discretion whether to give leave to defend and may impose terms. One of the factors to be taken into account is the conduct of the party seeking leave. See 0.14/3 - 4/15.

14. Here, on the one hand, we have the uncontradicted evidence of Mr. Lam, who says he followed the usual practice in serving the documents. Against this, the defendant can only offer a possible explanation, which would have amounted to very aberrant behaviour on the part of a process server. There is not even an affidavit from the receptionist responsible for incoming mail in the solicitor's office that day.

15. On the evidence, therefore, the defendant has failed to show that it was just an error on the part of the solicitor's office; the possibility of bad faith cannot be ruled out. This is a matter that must weigh heavily with the court when it comes to exercise its discretion to give leave to defend.

16. Business between the plaintiff and the defendant was conducted, for the most part, in the following manner. The defendant placed a verbal order for the purchase of merchandise for delivery to an associated firm in Singapore. The plaintiff contacted its supplier and paid for the goods, invoicing the defendant for the amount charged by the supplier, plus a sum representing its profit. Interest charges were for the account of the defendant.

17. The supplier notified the plaintiff when the goods were ready for delivery. The plaintiff asked the defendant for its shipping instructions and made the necessary arrangements in the name of the defendant. The goods were then delivered directly to the shipping agent.

18. As stated above, a running account was kept. On 31st December, 1984 - the date on which the two letters of credit in question were issued - there was, according to the plaintiff's version of the account, a balance in favour of the defendant of HK$1,183,326. I should mention that this figure is reached after crediting the plaintiff with payment of HK$3,617,972 in respect of a consignment of trousers delivered to the defendant on 28th December, 1984, but not invoiced until 8th March, 1985.

19. The defendant has produced its own account, which indicates a credit balance at the year end of HK$6,866,149, after deduction of the price of the trousers. This account is accompanied by a letter from a firm of accountants certifying that, according to the books of the defendant, this was the correct balance as at 31st December, 1984 and that there was a nil balance as at 7th June, 1985.

20. Included in the defendant's account is a credit entry of HK$6,793,050, representing the letters of credit that the plaintiff claims remain unpaid.

21. It is the defendant's contention that, although a date for repayment was stipualted in the agreement, this was only a matter of form and it was the intention of the parties that the item be brought to account in the usual fashion, that is to say, by an entry in the running account.

22. The plaintiff relies on the terms of the agreement, which stipulate repayment on 31st January, and on a series of telexes, which, it says, shows that it was always in the contemplation of the parties that this transaction should be treated separately from all the others.

23. Mr. Mahtani, of Intra-World, the associated Singapore company, gave his personal guarantee for the repayment of the entire amount by the due date. It is submitted that this is inconsistent with a set-off on the running account.

24. The agreement provided for payment of 10% deposit before the issue of the letters of credit. The defendant says this require-ment was waived because of the credit balance in the running account.  The plaintiff, however, points to a cheque for HK$602,000, which was made out by the defendant and given to the plaintiff on 19th January, 1985. It is submitted that this represents the deposit, in spite of the fact that it was issued several weeks after the letters of credit. If this is so, it is strong evidence that this was a separate transaction.

25. The exchange rate on 9th January, 1985, according to the defendant's account, was 3.45. By 8th March it was 3.44, according to the plaintiff's account. Taking a rate of 3.44, 10% of S$1,969,000 is HK$677,336. It seems unlikely, therefore, that this was the deposit required under the agreement.

26. The defendant's explanation is that this cheque, which was never presented for payment, was security for delivery of the videos that the defendant was supposed to sell to the plaintiff by 28th December. It allows for a profit of HK$50 on each machine, on top of the purchase price of HK$591,680. The result, rounded up to the nearest HK$1,000 is HK$602,000. Yet I fail to understand why such security should have been necessary. In the event, the market for videos weakened and the deal was called off, the plaintiff agreeing to accept HK$10,000 as compensation for loss of profit. HK$602,000 seems to have been grossly excessive as security for failure to deliver.

27. Moreover, on 27th February, the defendant by telex requested the plaintiff not to present this cheque for 24 hours. If it was anything to do with the videos, it should have been stopped. But, if this deal was to have been part of the running account, there was no need for payment of the full amount, because, according to the defendant, there was a balance in its favour of HK$73,099, after settlement of the letters of credit.

28. The plaintiff relies on a series of telexes between representatives of the parties, the tenor of which is that the plaintiff is chasing the defendant for payment of the sum due by 31st January. The defendant cannot contact Mr. Mahtani, but apologises and accepts responsibility and will pay as soon as possible.

29. These telexes were exchanged between 20th January and 23rd April. They were sent on behalf of the plaintiff by a Mr. Ahuja. Even before the due date, he was referring to 'legal consequences' if the money was not paid. These telexes indicate strongly that it was intended that the money be paid by 31st January and that no variation of the agreement had taken place. If it was to be on the running account, there was no need for such panic. Even according to the plaintiff, the defendant was in credit to the tune of over HK$1 million. According to the defendant, the credit balance was HK$6,866,149. This was sufficient to enable the plaintiff to retire the letters of credit. In these circumstances one would have expected the defendant to have pointed this out in response to Mr. Ahuja's agitated telexes.

30. The defendant, however, submits that a question mark hangs over the conduct of Mr. Ahuja, who has since left the plaintiff's employment and has not sworn an affidavit. It is suggested that he may have been on a frolic of his own. In the first telex he refers to the 'situation being faced by me'.

31. Mr. Mahboobani has sworn, on behalf of the defendant, that Mr. Ahuja suspected Mr. Mahtani was asking for settlement of the running account. It is suggested that this was, in some way, embarrassing for Mr. Ahuja. Mr. Mahboobani goes on to say that they were indeed working on the final account and the telexes indicate that no settlement could be effected until the return to Singapore of Mr. Mahtani.

32. This, on the evidence of the telexes, seems to me unlikely. However, in view of the inconsistences I have mentioned, I cannot be sure that it was not agreed that the letters of credit should be brought into the running account. In particular, if no deposit was paid, bearing in mind the credit balance in the defendant's favour, there must be some doubt that the payment date was to be strictly observed.

33. In these circumstances, it would not be right to shut out the defendant on the basis that the letter of credit transaction must be viewed in isolation.

34. Accordingly, it is necessary to look more closely at the respective running accounts, which are so much at variance, and to enquire to what extent, if any, the defendant may be indebted to the plaintiff.

35. I do not propose to canvass all the facts and figures referred to by counsel. For the purposes of this appeal it is only necessary, in my view, to deal with certain salient matters.

36. I propose to deal first with certain items, concerning which, in my judgment, the evidence is all one way.

37. The plaintiff complains that some entries in its own account, underlined in black, do not appear in the defendant's account; some, underlined in red, have no corresponding credit in the defendant's account; and some, underlined in green, show no corresponding payment by the defendant in the defendant's account.

38. There is an entry for HK$1,850,000, which appears twice in the plaintiff's account - in red - but only once in the defendant's account , as a debit. There is evidence that the defendant gave instructions that this sum be remitted to Intra-World and be debited to the defendant's account. This is in the form of a letter signed by Mr. Mahboobani, on behalf of the defendant, and it is in the clearest possible terms (PHG 8). This letter was exhibited with the affidavit of Mr. Gandhi, dated 4th October, 1985.

39. In reply, Mr. Dissanayake swore that the money was transferred in discharge of an obligation by the plaintiff to Intra-World, with which the plaintiff also kept a running account.

40. However, in Mr. Mahboobani's affidavit of 10th January, 1986, there appears a different explanation. Apparently this was a deposit made by the defendant with the plaintiff. It was transferred to Singapore, at the request of the defendant, in the form of a loan to Mr. Mahtani. To cover himself, Mr. Ahuja dictated the letter from the defendant that authorised the transfer. Thus, it is submitted, this is entirely a matter between the plaintiff and Mr. Mahtani, which is why there is no corresponding entry in the credit column of the defendant's account.

41. Mr. Mills-Owens, for the plaintiff, fairly, points out that, if Mr. Mahboobani is right, the transfer was not in discharge of an obligation by the plaintiff.

42. There is really no answer to this. Mr. Bokhary submits that the defendant was in credit at the end of the year and, if the plaintiff agreed to make the loan, the money was remitted in discharge of an obligation to make the loan.

43. I do not accept this. It is playing with words. If there was any truth in it, Mr. Dissanayake would have mentioned it in his October affidavit, in which he purports to take instructions directly from Mr. Mahtani. The letter is as plain as can be. In the circum-stances, the suggestion that it was dictated by Mr. Ahuja comes too late to carry weight.

44. There is another red entry, for HK$315,600, which again appears only in the defendant's debit column. The defendant says these goods were purchased by Mr. Mahtani, not the defendant. There is no documentary evidence to this effect. The plaintiff has pro-duced an invoice, on which there is a signature on behalf of the defendant confirming it had booked the goods. Payment was received by the plaintiff three weeks later. The first complaint that the defendant had not purchased the goods appears in Mr. Mahboobani's affidavit of 10th January. I do not think there is a triable issue here. It is a matter between the defendant and Mr. Mahtani.

45. The defendant says that one of the reasons why some of the entries in the plaintiff's account do not appear in its own account is that goods were short-shipped. It is conceded that there was no contemporaneous complaint, but Mr. Bokhary points out that the defendant was in credit at the time.

46. In particular, the plaintiff complains about the lack of entries in respect of two transactions involving the sums HK$1,238,498 and HK$306,564, which appear in both columns of the plaintiff's account. The defendant explains that the goods in respect of these two transactions were short-shipped by the plaintiff, and that the sums due from the plaintiff in consequence are HK$1,097,911 and HK$253,199 respectively. These entries appear in the debit column of the defendant's account. The defendant admits that no debit notes were delivered. There are, indeed, no documents exhibited that support the allegation of short-shipment. No claim against the plaintiff was made and the first mention of the matter is in Mr. Mahboobani's affidavit of 9th October.

47. On the other hand, the plaintiff is able to point to contemporaneous documents, which show that the goods were received by the defendant. So far as the smaller sum is concerned, there is a cargo receipt signed by the defendant, in which it is stated that the goods were received in good order and condition. (PHG 21C)

48. As to the larger figure, the invoice in respect of the goods is signed by Mr. Mahboobani, on behalf of the defendant's supplier, Percentum Ltd. (PGH 22B)

49. Again there seems to be no answer to these documents, particularly since there was admittedly no contemporaneous complaint. Mr. Bokhary can only repeat that the defendant was in credit at the time. This is certainly true, but seems to me, with respect, to be irrelevant. The question is whether the defendant received the goods. The evidence here is all one way and I am satisfied that the plaintiff must have credit for the two entries in the defendant's debit column. -

50. There is one matter that does genuinely appear to be in issue and that is the shipment of St. Peter's trousers, credited by the defendant for HK$3,612,840. This appears in the plaintiff's accounts as HK$3,617,972, because a different conversion rate was used.

51. The defendant also says that these goods were never delivered and again raises its protest only at the 11th hour in the January affidavit. But there is a difference. In this case it is able to produce documentation to support its contention.

52. The defendant has produced an invoice for 4,200 dozen pairs of trousers for US$462,000. But the defendant has also produced an import licence for the same consignment, in which the value is given as HK$245,280. The same figure appears on the import declaration form. To add to the confusion, there is a cargo examination report, which states that 60 cartons of the same consignment were examined and found to contain ladies shirts! (ROM 8-10)

53. Mr. Mills-Owens submits that, since the goods arrived in Hong Kong in November, 1984, consigned to the defendant, any question about the goods should have been raised by the end of that year. There is no such correspondence and the plaintiff was credited with the full amount; namely US$462,000. Furthermore the plaintiff's 3% commission was confirmed by Mr. Mahboobani on 31st March, 1985. (PHG 13)

54. Nevertheless, despite the lateness of the objection, I think the documents show that this transaction could stand further enquiry and that the defendant is entitled to query the credit it approved in March.

55. My conclusion is that the plaintiff is entitled to judgment in respect of those items that do not reveal a triable issue, namely:

56. As to the balance of the plaintiff's claim, the defendant will have leave to defend, but it will be on terms. Having regard to the defendant's conduct, in particular the failure to appear in answer to the 0.14 summons, the failure to file a defence and the last-minute objection to the St. Peter's trousers transaction, plus the fact that the defendant appears to have an uphill struggle to succeed, I take the view that it would be proper to require the defendant to bring the whole of the balance of the plaintiff's claim into court, as a condition of leave to defend, in Hong Kong or Singapore currency, at the rate of exchange prevailing on the date of payment in. Alternatively, the defendant may provide security for payment of that sum, to the satisfaction of a master. In default of payment in, or the giving of security, within 21 days, the plaintiff has leave to sign judgment for that sum.

57. The appeal is allowed to that extent accordingly. The costs of this appeal are to be the plaintiff's in any event. Liberty to apply.

(1)    1969 2 AER 119 & 121