ARTCENTRE PRINTING CO. LTD. v. CHUN KIN CHUEN

HCSA 4/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

SMALL CLAIMS TRIBUNAL APPEAL NO. 4 OF 2000

(On appeal from SCTC No. 21293/99)

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J U D G M E N T

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1. This is an appeal by the claimant against the order of the Deputy Adjudicator made on 13 December 1999, whereby it was ordered that the default judgment entered on 16 August 1999 be set aside on condition that the defendant paid into court the sum of $15,000, being the amount claimed by the claimant, together with costs of $300. At the conclusion of the appeal hearing, I allowed the appeal and reinstated the default judgment with costs to the claimant and gave oral reasons for the same. I now reduce the reasons into writing.

Background

2. In the Small Claims Tribunal, the claimant claims against the defendant the amount of $15,000, being a cheque drawn by the defendant in favour of the claimant dated 31 March 1999, which was dishonoured upon presentation to the bank.

3. The defendant filed a statement of defence on 21 June 1999 stating that the cheque was payment for printing service and alleged that there were errors and omissions in the magazines printed by the claimant and that the defendant had informed the claimant that the cheque should not be presented for payment.

4. At the hearing on 16 August 1999, the defendant was absent when the case was called. Upon the claimant proving its case, judgment was entered for the claimant as claimed together with interest and costs ("the Award"). The defendant then applied under section 32A of the Small Claims Tribunal Ordinance, cap.338 ("the Ordinance") to set aside the Award. The hearing was scheduled for 16 September 1999, but because of a typhoon, it was adjourned to the following day. At the adjourned hearing, the defendant was absent. The Deputy Adjudicator, who seized of the matter for the first time, rightly adjourned the hearing to 28 September 1999. The defendant was again absent at the adjourned hearing, whereupon the Deputy Adjudicator, again rightly, dismissed his setting aside application. The defendant then made a second application under section 32A of the Ordinance to set aside the Award. The application came before the Deputy Adjudicator on 8 November 1999. After hearing arguments, he dismissed the application. On 12 November 1999, the defendant applied under section 27A of the Ordinance for a review of the Deputy Adjudicator's dismissal. The review application was heard on 13 December 1999. After hearing arguments, the Deputy Adjudicator made the order now appealed against. No reasons were given at the time the order was made.

Reasons for Setting Aside the Award on Terms

5. On 14 January 2000, the Deputy Adjudicator gave his written reasons for decision ("the Reasons") in which he stated that the defendant has a defence to the claim, taking into account the defendant's allegation that the magazines printed by the claimant contained errors and omissions. The Deputy Adjudicator also stated that the condition of payment in would duly protect the claimant's position.

6. On 29 February 2000 and shortly before the hearing of the application for leave to appeal, the Deputy Adjudicator gave a Further Reasons for Decision ("the Further Reasons"), which from the opening paragraph, appears to be a response to the grounds of appeal. In the Further Reasons, the Deputy Adjudicator made references to the various witness statements filed by the parties and stated that he had 2 issues in mind when coming to the conclusion that there were merits in the defence. The first is whether the cheque, being posted-dated, was to afford the defendant a credit period for making payment, or whether it was to enable the claimant to meet the defendant's requirements and specifications. The second is whether there had been a change of circumstances after the cheque was issued, namely, whether there was an agreement to reduce the amount such that the cheque should not be presented for payment. The Deputy Adjudicator further stated that the references to loss and damages in the statement of defence could constitute a counterclaim, and he would have dealt with it in the future hearing if more material were available to him. Moreover, the Deputy Adjudicator observed that, since seized of the matter, he had not had any opportunity to discharge his duty to investigate the case so that if the case can be proceeded in the usual way, he could investigate to see whether there are ways for the parties to reach settlement.

Grounds of Appeal

7. In the application for leave to appeal, which pre-dated both the Reasons and the Further Reasons, the claimant raises 2 grounds of appeal. Firstly, it is contended that the allegation of defects in the printed products affords no defence to the claim founded on dishonoured cheque. Secondly, it is said that the condition of payment in is insufficient to justify the setting aside of the Award.

Reasons for Allowing the Appeal

8. The hearing on 13 December 1999 was to deal with the defendant's application for a review of the decision to dismiss his second setting aside application. It is therefore incumbent upon the defendant to show cause as to why the previous dismissal should be reviewed and that the Award should be set aside. As in all cases of setting aside an award or judgment entered in default, the defendant has to give reasons why judgment was allowed to be entered in default, and where the judgment was a regular one, to show that he has a defence which has a real prospect of success.

9. In the first setting aside application, the defendant explained that at the hearing on 16 August 1999, his representative had left the Tribunal before the case was called on because he had to attend a meeting. No other or further reason had been offered in the subsequent applications or hearings to explain the absence. It is plain from the outset that this is hardly a good explanation for the absence, but that is not necessarily fatal. It is also plain that the judgment was a regular one such that the defendant is obliged to show merits in the defence to the claim.

10. The standard that the defendant has to meet when showing merits is a high one. A mere arguable defence is not enough. He has to show a defence that has a real prospect of success. In examining whether there is a meritorious defence, the Deputy Adjudicator could only have regard to materials and issues that were before the Tribunal, but could not speculate on what materials or issues might arise had the case proceeded further.

11. It is trite law that in an action on dishonoured cheque, the defences available are limited. This is because the law treats a cheque as cash so that it is to be honoured unless there are good reasons to the contrary, such as fraud or total failure of consideration. On the defendant's allegation of errors and omissions in the magazines printed by the claimant, it can hardly afford a defence to the claim of dishonoured cheque. This is because the dispute as to the quality of the work rendered or goods supplied is only a dispute that goes to the underlying contract, and not the cheque, which is a contract separate and distinct from the contract to provide the printing services: see China Merchants Container Lines v. Ng Kwok Kit, (unreported) Godfrey J. HCA4652 of 1991. The Deputy Adjudicator had in the Further Reasons sought to stress that the cheque was not merely for printing, but for a package of services. That, with respect, is immaterial because it is evident from the statement of defence that the magazines had been delivered to the defendant, and in turn to his customers, and whatever services the claimant contracted to provide, they would have been provided and accepted. There cannot therefore be any defence based on a total failure of consideration. The errors and omissions alleged may have afforded the defendant a claim for damages in breach of the underlying contract, but that is no answer to the claimant's claim. The defendant has not quantified his alleged loss. It is again settled law that a counterclaim or an unliquidated set-off cannot amount to a defence to an action on dishonoured cheque: Nova (Jersey) Knit v. Kammgarn Spinnerei [1977] 1WLR 713, 732. If the defendant were indeed minded to pursue his claim for damages, it is up to him to maintain another action, or to lodge a counterclaim in the same action and to proceed with it, but without delaying judgment to the claimant.

12. As to the part of the statement of defence alleging that the defendant had informed the claimant that the cheque should not be presented, but should be returned to the defendant in exchange for another cheque, it is unclear whether the defendant's case is that the claimant had agreed to this. Irrespective of whether this was a unilateral request or a mutual agreement, such evidence is just inadmissible. The alleged oral arrangement is purporting to introduce a condition that is clearly contradictory to the unconditional order for payment expressed by the cheque. Such evidence is inadmissible under the parol evidence rule: Great Sincere Trading Co. v. Swee Hong & Co. [1968] HKLR 660. It cannot amount to any change of circumstances that will afford the defendant a defence to the claim, as the Deputy Adjudicator suggested. It is immaterial that the cheque was post-dated. The fact remains that the cheque was an unconditional order for payment and the defendant was obliged to honour payment on the date stated in the cheque. Apart from the parol evidence rule, even if the claimant had agreed to the alleged oral arrangement, the statement of defence had not indicated what consideration had moved from the defendant so as to make such an agreement binding and enforceable.

13. The defendant has therefore failed to show a defence to the claim, let alone a defence that has a real prospect of success. It follows that there is nothing that would require investigation by the Deputy Adjudicator. It is to be noted that the statutory obligation to investigate is not to be exercised in abstract. There has to be some material before the Tribunal before an Adjudicator is called upon to make investigation. A mere desire to have an investigation with the hope that some arguments or points may turn up is not sufficient. That is tantamount to fishing for a defence and that cannot be the function of the Tribunal, notwithstanding that its hearing is inquisitorial in nature. Likewise, it is not the function of a tribunal, after one party has obtained judgment and the other party is applying to set aside that judgment, to investigate to see whether there are ways of reaching settlement.

14. Since the defendant does not have a defence recognized in law, the condition of payment in cannot afford a reason or justification for setting aside the Award.

15. Finally, there is one matter that I need to deal with, albeit briefly. This relates to the Further Reasons given. Counsel for the claimant had asked this Court to ignore it, submitting that it is irregular and unfair that the Deputy Adjudicator should endeavour to perfect or improve on his Reasons. For my part, I have to say that the course adopted by the Deputy Adjudicator is indeed most unusual and inappropriate. It is not at all clear why the Further Reasons was furnished. The reasons given by a tribunal are merely to provide the parties and the appellate court with an understanding of the rationale behind the order or award made. It is not the purpose or the function of the reasons to deal with or tackle the grounds of appeal. The giving of the Further Reasons is therefore unnecessary and inappropriate. It should have been ignored for the purpose of the appeal, but for completeness sake, I have also dealt with it in my reasons for the appeal.

Conclusion

16. For the reasons stated above, the appeal is therefore allowed, and the Award is reinstated. The defendant's representative argued that the defendant should not be made liable for the claimant's costs of the appeal, suggesting that the fault does not lie with the defendant. I cannot agree. The order appealed against came about as a result of the defendant's unsuccessful application for setting aside followed by another application for review. It is not open to the defendant to say that he was doing no more than complying with the order of the Tribunal. The claimant's costs of appeal should therefore be borne by the defendant, to be taxed if not agreed.

17. I also order that the amount of $15,000 paid into the Small Claims Tribunal by the defendant be paid out to the claimant in partial satisfaction of the Award.