ANTWERP DIAMOND BANK N.V. v. GAURANG RAMESH PAYMASTER t/a ROLLING STONE

HCA 2499/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2499 OF 2009

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J U D G M E N T

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1.  This is an appeal by the Defendant against the Decision of Master De Souza dated 30 August 2010 whereby the learned Master gave summary judgment for the Plaintiff in the total sum of US$1,831,830.25 or its Hong Kong dollar equivalent at the time of payment in respect of 3 Bills of Exchange together with interest and costs.

The Plaintiff’s Claim

2.  In paragraph 1 of the Statement of Claim, the Plaintiff has pleaded that it “is and was at all relevant times a bank carrying on its business at 2^nd Floor, Engineering Centre, 9 Mathew Road, Opera House, Mumbai – 400 004, India”.

3.  The Defendant was and is a diamond wholesaler carrying on business in Hong Kong.

4.  The Plaintiff’s claim is based on, inter alia, the following 3 Bills of Exchange drawn by one Minestone, a precious stone supplier in Mumbai, on the Defendant for the supply of diamonds by Minestone to the Defendant, which Bills of Exchange were accepted by the Defendant with the Plaintiff as payee: -

(i)     Bill of Exchange dated 6 August 2008 for the sum of US$453,403.80 and accepted by the Defendant on 4 September 2008 for payment to the Plaintiff on 2 January 2009 (“the 1^st Bill”).

(ii)    Bill of Exchange dated 16 August 2008 for the sum of US$511,908.45 and accepted by the Defendant on 4 September 2008 for payment to the Plaintiff on 2 January 2009 (“the 2^nd Bill”).

(iii)   Bill of Exchange dated 6 September 2008 for the sum of US$866,518.00 and accepted by the Defendant on 5 October 2008 for payment to the Plaintiff on 5 February 2009 (“the 3^rd Bill”).

5.  All 3 Bills of Exchange were dishonoured.

6.  The Statement of Claim also contains a claim for the sum of US$675,812.14 based on other matters, but this has not formed the subject of the application for summary judgment before Master De Souza and is equally not part of the subject of this appeal.

The Defence

7.  In relation to the 3 Bills of Exchange, the main defence of the Defendant are set out in paragraphs 4, 5 and 6 of the Defence filed on 23 February 2010 as follows: -

“4. The Plaintiff is put to strict proof paragraphs 3 to 8 of the Statement of Claim. The Defendant avers as follows:

(a) Upon receipt of the 2,110.92 carats of diamonds in the value of US$453,403.80, the Defendant inspected them and discovered that the diamonds were not in accordance with the description as ordered by the Defendant. By a letter dated 10 August 2008 the Defendant notified the same to Milestone, the supplier of the diamonds.

(b) By a letter dated 12 August 2008, Milestone instructed the Defendant to return the diamonds to Milestone’s Hong Kong representative, Mr Rajesh Modi, of 14D, Hilton Tower, 96 Granville Road, Tsimshatsui, Kowloon, Hong Kong.

(c) Undercover with a letter dated 14 August 2008, the diamonds were duly returned to Milestone’s Hong Kong representative, Mr Rajesh Modi.

(d) Milestone’s Hong Kong representative, Mr Rajesh Modi, confirmed receipt of the diamonds from the Defendant by signing a copy of the letter dated 14 August 2008, to acknowledge receipt for and on behalf of Milestone.

(e) By a letter dated 16 October 2009 from Milestone to State Bank of India, Milestone further confirmed that, inter alia, Milestone had received the diamonds back from the Defendant.

(f) The Defendant had acted in accordance with the instructions and directions of Milestone in returning the diamonds. Milestone is therefore liable to the Plaintiff for the amount of US$453,403.80 claimed by the Plaintiff.

5. The Plaintiff is put to strict proof paragraphs 9 to 14 of the Statement of Claim. The Defendant avers as follows:

(a) Upon receipt of the 472.78 carats of diamonds in the value of US$511,908.45, the Defendant inspected them and discovered that the diamonds were not in accordance with the description as ordered by the Defendant. By a letter dated 19 August 2008, the Defendant notified the same to Milestone, the supplier of the diamonds.

(b) By a letter dated 21 August 2008, Milestone instructed the Defendant to return the diamonds to Milestone’s Hong Kong representative, Mr Rajesh Modi, of 14D, Hilton Tower, 96 Granville Road, Tsimshatsui, Kowloon, Hong Kong.

(c) Undercover with a letter dated 22 August 2008, the diamonds were duly returned to Milestone’s Hong Kong representative, Mr Rajesh Modi.

(d) Milestone’s Hong Kong representative, Mr Rajesh Modi, confirmed receipt of the diamonds from the Defendant by signing a copy of the letter dated 22 August 2009, to acknowledge receipt for and on behalf of Milestone.

(e) By a letter dated 16 October 2009, from Milestone to State Bank of India, Milestone further confirmed that, inter alia, Milestone had received the diamonds back from the Defendant.

(f) The Defendant had acted in accordance with the instructions and directions of Milestone in returning the diamonds. Milestone is therefore liable to the Plaintiff for the amount of US$511,9087.45 claimed by the Plaintiff.

6. The Plaintiff is put to strict proof paragraphs 15 to 20 of the Statement of Claim. The Defendant avers as follows:

(a) Upon receipt of the 2448.68 carats of diamonds in the value of US$866,518, the Defendant cancelled the order for the diamonds as the Defendant’s purchaser had cancelled its order with the Defendant for the same diamonds. By a letter dated 10 September 2008, the Defendant notified the same to Milestone, the supplier of the diamonds.

(b) By a letter dated 12 September 2008, Milestone instructed the Defendant to return the diamonds to Milestone’s Hong Kongrepresentative, Mr Rajesh Modi, of 14D, Hilton Tower, 96 Granville Road, Tsimshatsui, Kowloon, Hong Kong.

(c) Undercover with a letter dated 15 September 2008, the diamonds were duly returned to Milestone’s Hong Kong representative, Mr Rajesh Modi.

(d) Milestone’s Hong Kong representative, Mr Rajesh Modi, confirmed receipt of the diamonds from the Defendant by signing a copy of the letter dated 15 September 2008, to acknowledge receipt for and on behalf of Milestone.

(e) By a letter dated 16 October 2009, from Milestone to State Bank of India, Milestone further confirmed that, inter alia, Milestone had received the diamonds back from the Defendant.

(f)     The Defendant had acted in accordance with the instructions and directions of Milestone in returning the diamonds.  Milestone is therefore liable to the Plaintiff for the amount of US$866,518 claimed by the Plaintiff.”

The Application for Summary Judgment

8.  The Plaintiff issued a Summons for summary judgment in relation to its claim based on the 3 Bills of Exchange on 11 May 2010.

9.  The Plaintiff’s application was supported by two affirmations of Vinod Kumar Sharma (“Mr Sharma”) filed respectively on 11 May and 13 July 2010 in which Mr Sharma deposed to the fact, inter alia, that the Plaintiff had provided full consideration for the 3 Bills of Exchange to Minestone and that the 3 Bills of Exchange had been dishonoured by the Defendant on presentation on their respective due dates.

10.  In defence, the Defendant filed his affirmation on 18 June 2010 deposing to the matters outlined in his Defence as quoted in paragraph 7 above.

11.  In paragraphs 11 and 12 of Mr Sharma’s 1^st affirmation, he says: -

“11. I have been advised by the Plaintiff’s solicitors and verily believe that, where a claim is made on a bill of exchange, the rights and liabilities of the parties do not rest on the transaction underlying the bill; and hence the events relating to the underlying transaction are irrelevant. I have been informed by the Plaintiff’s solicitors that Counsel appearing for the Plaintiff will make full legal submissions on this at the hearing of the Plaintiff’s application for summary judgment.

12.    In any event, I find the Defendant’s Defence incredible in that the Defendant allegedly returned the diamonds to Minestone on or around 14 August 2008, 22 August 2008 and 15 September 2008 respectively.  However, it still accepted the Bills on 4 September 2008, 4 September 2008 and 8 October 2008 respectively. By accepting the Bills, the Defendant must have known that it was liable for their payment.  Conversely, if the Defendant was not liable for the payment, I find it hard to believe that it would have accepted the Bills, especially after the acceptances occurred after the alleged return dates of the diamonds.”

12.  In paragraph 8 of the Defendant’s affirmation, he says: -

“8. With regard to paragraph 12 of the Affirmation of Vinod Kumar Sharma dated 6 May 2010, I was under the mistaken belief that I was still under a legal obligation to accept the Bills even though I had returned the diamonds, but I did genuinely believe that because I had returned the diamonds I would not be liable for payment and after I had returned the diamonds it became a matter for Minestone and the Plaintiff to resolve.”

The Decision of Master De Souza

13.  The Defendant did not appear before Master De Souza.  The learned Master gave his Decision ex tempore as recorded in the transcript of proceedings as follows: -

“COURT The Defendant is not present this morning at the hearing of the summons brought by the plaintiff for summary judgment, i.e., for final judgment in the action against the defendant in respect of three bills of exchange totalling US$1,831,830.25.

The evidence is quite clear. The three bills of exchange were accepted by the defendant on diverse dates which have been covered in the affidavit. And it is plain to me that the plaintiff had given valuable consideration for the three bills of exchange and that the same had been accepted by the defendant.

Accordingly, it would seem to me that the plaintiff has given valuable consideration of the three bills of exchange for value and that he is unconcerned by any flaws or failure in the underlying transactions which clearly did not come to the plaintiff’s attention.

Mr Chain has put in written submissions which, in my view, correctly encapsulate the approach that needs to be adopted in just such a situation. And, having read those submissions, I wholly accept them.

I therefore make an order in terms of the summons and the plaintiff will have final judgment for the amount claimed.

As for interest, again Mr Chain has been very fair in drawing my attention to the case of Lee Yu v Ho Yan Siu, William where prejudgment interest was awarded at 1 per cent over prime. From this it seems that it is rather a rule of thumb which may be adopted in cases of this nature.

I think it is really right that one should follow the same approach and order that interest prejudgment, that is, pre today’s date shall be 1 per cent above prime, and thereafter a judgment rate until full satisfaction of the amount adjudged to be paid under today’s order by the defendant.”

The Appeal

14.  In the course of the hearing of this appeal, I asked the Defendant who was unrepresented as to why he did not appear before the Master.  He first said that it was because he was in the course of sorting out the matter with Minestone.  He then said that it was because he was ill.  Finally, he said that it was because he was in India at that time.  I find such varying explanations given by the Defendant puzzling, to say the least.  Nevertheless, this appeal being in the nature of a rehearing, it is not really necessary for me to come to any view as to the true reason why the Defendant did not appear before the Master.

15.  Insofar as the only defence raised by the Defendant is concerned, that is to say, that the diamonds involved in the underlying transactions between him and Minestone were not in accordance with description and that the same had all been returned to Minestone through its authorised agent, the learned Master is absolutely correct in holding that, since the Plaintiff had given valuable consideration for the 3 Bills of Exchange, it would not be affected by any flaws or failure in the underlying transactions about which it had no notice.

16.  The relevant part of section 27 of the Bills of Exchange Ordinance Cap 19 (“the Ordinance”) reads: -

“27. Value and holder for value

(1) Valuable consideration for a bill may be constituted by –

(a) any consideration sufficient to support a simple contract;

(b) an antecedent debt or liability. Such a debt or liability is deemed valuable consideration whether the bill is payable on demand or at a future time.

(2)     Where value has at any time been given for a bill, the holder is deemed to be a holder for value as regards the acceptor and all parties to the bill who became parties prior to such time.”

17.  The relevant part of section 29 of the Ordinance reads: -

“29. Holder in due course

(1) A holder in due course is a holder who has taken a bill, complete and regular on the face of it, under the following conditions, namely -

(a) that he became the holder of it before it was overdue, and without notice that it had been previously dishonoured, if such was the fact;

(b)     that he took the bill in good faith and for value, and that at the time the bill was negotiated to him he had no notice of any defect in the title of the person who negotiated it.”

18.  Section 54 of the Ordinance reads: -

“54. Liability of acceptor

The acceptor of a bill, by accepting it –

(a) engages that he will pay it according to the tenor of his acceptance;

(b) is precluded from denying to a holder in due course –

(i) the existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the bill;

(ii) in the case of a bill payable to drawer’s order, the then capacity of the drawer to indorse, but not the genuineness or validity of his indorsement;

(iii)    in the case of a bill payable to the order of a third person, the existence of the payee and his then capacity to indorse, but not the genuineness or validity of his indorsement.”

19.  It is clear that in relation to the 3 Bills of Exchange, the Defendant is the acceptor and the Plaintiff the payee holder for value but not a holder in due course because the 3 Bills of Exchange had not been negotiated to it.

20.  The law relating to the question of whether a payee holder for value of a bill of exchange is affected by defects of title or by any personal defences which the acceptor may set up against the drawer is set out in a passage in various editions of Byles On Bills Of Exchange And Cheques which has received judicial approval.  In the case of Bank Lenmi Le-Israel v Coniplan (UK) Ltd (Unreported, Queen’s Bench Division, 31 July 1987) (Lexis Transcript) which has been helpfully referred to me by Mr Chain, Counsel for the Plaintiff, Caulfield J said at pages 8-9 as follows: -

“There is on the point, I think, a lacuna in the Bills of Exchange Act 1882. The Bills of Exchange Act 1882, s 38 dealing with the rights of a holder does not cover the whole field, and section 36(2) and (5) dealing with the negotiation of overdue or dishonoured bills does not help to solve the question as to the rights of a payee holder for value. The subject is fully reviewed in Byles, 25^th Edition, pp 216-219 inclusive. The learned authors conclude, after a review of the relevant cases at common law, at page 219:

“It is thus submitted that where the payee of a bill takes in accordance with the conditions which must be fulfilled by a transferee before he can claim to be a holder in due course under sections 29, he has the same rights vis-à-vis a remote party such as the acceptor and is not liable to be defeated either by defects of title or by any personal defence which the acceptor may set up against the drawer. It is only where, the instrument not being complete and regular on the face of it and, therefore such as to put the taker on inquiry, or where other circumstances are such as to call for inquiry by him, that any defect of title within the meaning of section 27 will defeat him”.

I have not included the whole review of cases referred to by Byles, but I think the law stated by the learned authors in the pages I have mentioned is a correct assessment of the law.  In these bills the payee was a remote party vis-a-vis the acceptor, and is not liable to be defeated by any personal defence which the acceptor may set up against the drawer.  These bills were regular and complete and there is no evidence to suggest that the payees were ever put on inquiry.  Accordingly, the personal defences put forward by the acceptors against the drawers are of no avail against the plaintiffs.”

21.  The passage from Byles appearing above now appears in its 27^th edition (2007) at page 238 para 18-038. Strangely enough, although this edition was published well after the Decision in the Bank Lenmi case, there is no reference in it to that case and to the fact that the said passage has received judicial approval.

22.  At this juncture, I must refer to the identity of the payee in the 3 Bills of Exchange.  In all of them, the payee is specified to be “ANTWERPSE DIAMONDS BANK N.V., Mumbai Branch, Opera House, Mumbai 400 004”.  The name of the Plaintiff is, of course, “ANTWERP DIAMOND BANK N.V.” who is described in the Statement of Claim as a bank company carrying on its business at “2^nd Floor, Engineering Centre, 9 Mathew Road, Opera House, Mumbai – 400 004, India”.  There is thus a slight difference between the two names and the two addresses.

23.  I shall deal with such difference in relation to two questions: -

(i)     whether the 3 Bills of Exchange are “complete and regular” on the face of them in the context of section 29 of the Ordinance and of the question whether the status of the Plaintiff as payee holder for value can be elevated to the equivalent of a holder in due course on the authority of the Bank Lenmi case referred to above;

(ii)    whether the Plaintiff (as opposed to some entity by the name of “ANTWERPSE DIAMONDS BANK N.V.”) is entitled to sue the Defendant on the 3 Bills of Exchange.

24.  Regarding the first question, a case which has some relevance is the case of Arab Bank Ltd v Ross [1952] 2 QB 216 the headnote of which reads as follows: -

“The plaintiff bank, having discounted for value two promissory notes given by the defendant, pursuant to an agreement for the sale and purchase of shares, sued the defendant as holders of the notes in due course.  The notes had been made out in the name of “Fathi and Faysal Nabulsy Company” as payees, but had been indorsed by one of the partners in that firm, “Fathi and Faysal Nabulsy,” the word “company” being omitted: -

Held, that although the indorsement was valid to pass the title in the notes to the bank, the omission of the word “company” was sufficient to give rise to reasonable doubt whether the payees and the indorsers were necessarily the same. Therefore the notes were not complete and regular on the face of them and the bank could not succeed as holders in due course within section 29 of the Bills of Exchange Act, 1882.

Slingsby v. District Bank [1932] 1 K.B. 544 followed.

Held, further, that the bank, having pleaded that they were holders in due course, were entitled, on the principle that the greater included the less, to rely on the more limited claim that they were holders for value, although they had not expressly pleaded it; and that the defendant, having failed to establish any defect in the title of any previous party, was liable on the notes.”

25.  In my judgment, that case can probably be distinguished from the present on the facts in that there it was plain on the face of the promissory notes that the payees had a slightly different name from that of the indorsers whereas in the present case the payee had not indorsed the 3 Bills of Exchange to another indorsee other than the Deutsche Bank AG as its collecting agent under the name of “ANTWERP DIAMOND BANK N.V.”.

26.  In case I am wrong and that the 3 Bills of Exchange are actually not “regular and complete” on their face so that the Plaintiff cannot be elevated to a status equivalent to a holder in due course, I still take the view that the Plaintiff as payee holder for value cannot be affected by the personal defences alleged by the Defendant against Minestone.

27.  It is to be noted that no fraud has been alleged by the Defendant against anyone.  I simply cannot see any irregularity or defect in title in relation to the 3 Bills of Exchange.  Furthermore, I do not know the exact relationship between the Defendant and Minestone or what arrangement has been made between them, but I do find it very strange that the Defendant still accepted the 3 Bills of Exchange respectively well after he had allegedly discovered that the diamonds under each Bill were not in accordance with description and actually returned them to Minestone.  I find the explanation given in paragraph 8 of the Defendant’s affirmation incredible.  Furthermore, in such circumstances, I have serious doubts as to whether the diamonds had actually been returned by the Defendant to Minestone as alleged.

28.  I now deal with the second question set out in paragraph 23 above.

29.  The relevant part of section 7 of the Ordinance reads as follows: -

“7. Certainty required as to payee

(1)     Where a bill is not payable to bearer, the payee must be named or otherwise indicated therein with reasonable certainty.”

30.  In Halsbury’s Laws of Hong Kong Vol 3 (2010 Reissue), it is said at paragraph 55.032 as follows: -

“[55.032] Misdescription of payee If there is an error in the name of the payee, the instrument is nevertheless good and the payee may indorse it with the name in its erroneous form; it is usual but not necessary to add the payee’s correct signature. Where the name is mis-spelt, parol evidence is admissible to show that the plaintiff was intended.”

31.  It is therefore permissible for me to look at extrinsic evidence to see what the true intention of the drawer was.

32.  On the face of the 1^st Bill, reference is made to the consideration therefor as follows: -

“value received and charge the same to the account of Cut & Polished Diamonds as per invoice NO. 184/08-09 dat 14-8-2008 shipped through Securus Airway Bill No 9122/016547 dt. 05‑8‑2008.”

33.  On the face of the 2^nd Bill, reference is made to the consideration therefor as follows: -

“value received and charge the same to the account of Cut & Polished Diamonds as per invoice NO.197/08-09 dt 14-8-2008 shipped through Securus Airway Bill No 9122/01705 dt. 14‑8‑2008.”

34.  On the face of the 3^rd Bill, reference is made to the consideration therefor as follows: -

“value received and charge the same to the account of Cut & Polished Diamonds as per invoice NO.243/08-09 dt 05-09-2008 shipped through Securus Airway Bill No 9122/01789 dt. 05‑09‑2008.”

35.  When one looks at each of the 3 invoices referred to in the 3 Bills of Exchange, each of them contains details of the payee as follows: -

“ANTWERP DIAMOND BANK N.V.

MUMBAI BRANCH, 2^ND FLOOR,

ENGENEERING CENTRE, 9 MATHEW ROAD,

OPERA HOUSE,

MUMBAI. 400 004”

36.  There is therefore no doubt that the Plaintiff was and is the intended payee and is entitled to sue the Defendant.

Conslusion

37.  In all the circumstances, I find that the Defendant has no defence to that part of the Plaintiff’s claim which forms the subject of the Summons for summary judgment.

38.  I therefore dismiss the Defendant's appeal.

39.  I make an order nisi that the Defendant should pay to the Plaintiff the costs of this appeal.