WONG'S KONG KING HK LTD. v. POLYWARE CO. (A FIRM)

1990 No. A1339

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. This is a curious little imbroglio. The Plaintiffs issued a writ on 27th February 1990, claiming HK$1,007,760 on 10 dishonoured cheques dated between 23rd December 1989 and 25th January 1990. They pleaded that the cheques were dishonoured on presentation and relied on two letters, one dated the 23rd January 1990 and the other dated 22nd February 1990 as notices of dishonour. There is no dispute but that these cheques were given in respect of goods sold and delivered, in respect of which there is, and as far as I know never has been, any dispute.

2. On 24th March 1990, the Plaintiffs issued an Order 14 summons supported by a formal affirmation of Lisa Tong. On 10th April 1990, Mr. Cheung filed the first affirmation on behalf of the Defendants. This was answered by an affirmation of Mr. Ho of the Plaintiffs on the 19th April 1990. Mr. Cheung returned to the fray on 7th May 1990, and Mr. Ho completed the evidence with an affirmation dated 15th May 1990.

3. The Order 14 summons came before Master Woolley on 19th May 1990 when he gave judgment for the Plaintiffs in the sum claimed with interest and costs. From this order the Defendants now appeal.

4. Before the Master, the Defendants contended that they should have leave to defend on the basis of the material contained in the various affidavits. I will return to those matters later.

5. Before me, Mr. Yuen (who did not appear below) took two technical points not taken below nor adverted to in any affidavit.

6. Firstly, he said that the statement of claim was defective, because it did not plead the date of presentation of each of the cheques. Allied to this point was the argument that notice of dishonour had not been given soon enough. It is perfectly true to say that it is not possible on the face of the statement of claim to ascertain the date of presentation of each cheque nor do the affidavits assist in any way.

7. However, more fundamental objection was taken in his second point. He said that if the Plaintiffs wished to rely upon the exception to the giving of notice of dishonour, because in this case payment to the cheques was stopped by the Defendants' themselves, then they had to plead this specifically and they had not done so and thus their pleading was defective, and I should not give judgment upon a defective claim.

8. At first blush, the last proposition seemed somewhat startling, bearing in mind that the Defendants knew they had stopped payment because of the dispute upon which they seek to base their leave to defend. However, there is a clear decision of the Hong Kong Court of Appeal binding upon me to the effect that if a Plaintiff wishes to allege, that notice of dishonour is not required, then this must be specifically pleaded.

9. In Thong Ko Sine v. Wilkinson and Acworth (C.A. 30 of 1988) a two-men Court of Appeal consisting of Fuad V.P. and Rhind J. on very similar facts stated on page 1:

"It is well-established law that when a payee sues on a dishonoured cheque, the statement of claim must contain either an allegation that due notice of dishonour was given to the Defendant, stating the date when, the manner in which and the person by whom such notice was given or else it must contain a statement of the facts relied on dispensing with such notice under Section 50(2) of the Bills of Exchange Ordinance."

10. The Court of Appeal founded this decision on a well-known passage of Lord Coleridge C.J. in the Fruhauf v. Grosvenor [1892] 61 L.J. Q.B. 717, where he said:

"The general view, no doubt, is that it is undesirable to give effect to hard and fast technicalities; but here the principle which has guided the Master is the right one. It is that if the machinery of a writ specially indorsed is put in motion, the statement of claim indorsed must set forth a full and complete statement. Here, the statement maintained in the indorsement of the writ is not complete without an allegation of notice of dishonour, or of facts dispensing with it."

11. As the Court of Appeal further pointed out, reference to the need to plead these matters can be found in Bullen and Leake, the Annual Practice and Byles on bills of exchange.

12. So it follows that if the Plaintiffs wish to rely upon the exceptions to the notice of dishonour provision, their pleading is defective for that purpose. This is not an attractive point as the Defendants know perfectly well why the cheque was not met, and that is the very reason for not requiring notice of dishonour. As Rhind J. put it in the case above cited:

"It would have been a simple enough matter to amend this pleading before reaching the Court of Appeal: all that needed to be done was to add words to the effect that the cheques were dishonoured for lack of funds in Mr. Wilkinson's bank account. I found myself utterly unentnusiastic at having to decide dispute on a technicality such as this - a pure pleading point - and would have preferred, if possible, to decide the matter on the merits in the way the learned Judge and Master did below. However, I think the law is quite clear that a line has to be drawn somewhere in relation to defective and inadequate pleadings. In this case, the law has clearly drawn the line at the point where failure to plead the material facts of why a cheque was dishonoured, will result in judgment being withheld from a Plaintiff."

13. Fuad, V.P. shared the same dismay at having to allow the appeal on such technical grounds.

14. Whilst Mr. Hui attempted valiantly to circumvent this technical defect he was not able to satisfy me that he could do so. He recognized this by applying for leave to amend his statement of claim by alleging in the following terms:

"4A.     "Further or in the alternative, the Plaintiff avers that the notice of dishonour in relation to the said cheques were dispensed with pursuant to Section 50(2) (c) (v) of the Bills of Exchange Ordinance, Cap. 19 Laws of Hong Kong since all of the said cheques were marked 'payment stopped'".

15. Mr. Yuen opposed the application. I allowed it on the basis that the Plaintiffs undertook to file an amended pleading by the close of business on 31st July 1990 which I later extended to 29th August 1990. The Defendants will have to pay the costs of and occasioned by that amendment. I asked Mr. Yuen whether he wanted an adjournment of the hearing but quite realistically and properly, he said it would serve no useful purpose. I offered him an opportunity to file further evidence, but again realistically and properly, he accepted that no evidence he could file, could gainsay the fact that each cheque (all of which were exhibited) was marked "payment stopped" on the instructions of the Defendants. I, therefore, continued to hear the appeal on its merits because the amendment cured the defect upon which Mr. Yuen founded his objection.

16. Before passing to the merits, I should like to take this opportunity of reminding pleaders of the necessity of pleading the date of presentation of the cheque which was dishonoured, because without that the court cannot judge whether the notice of dishonour was given "as soon as the bill is dishonoured or within a reasonable time thereafter". Further, if notice of dishonour is not required, then the facts justifying such a plea must be pleaded or else there will be a defect in the statement of claim.

17. I now turn to consider whether the Defendants have satisfied me that there is a fair or reasonable probability of the Defendants having a real or bona fide defence to this action on 10 dishonoured cheques.

18. The Defendants admitted that they issued the 10 cheques which were 15 days post-dated, issued on receipt of goods ordered. The last cheque was issued on 10th January 1990 payable on 25th January 1990.

19. The Defendants then contended that on the 11th January 1990, the Plaintiffs placed an order with the Defendants for the purchase of 18,000 pieces of computer controller cards for a total price of US$270,000. Mr. Cheung exhibits a fax which he says evidences this order. The fax is from the Plaintiffs dated 11th January 1990. One of the items ordered is A.D. 102, and under delivery it is stated that 850 pieces of A.D. 102 shall be delivered on or before 12th January 1990.

20. As to payment, it was agreed that the first US$129,000 was to be used to offset the amount due to the Plaintiffs by the Defendants. US$129,000 is the precise equivalent of the sum total of the 10 cheques sued upon, namely HK$1,007,760 (at an exchange rate to 7.6121).

21. On January 11th, the Defendants sent their sales confirmation which in relation to A.D. 102 referred to delivery of 850 pieces before January 23rd 1990. Further, 4,150 pieces of A.D. 102 were to be delivered on or before February 16th. Further, either 1,500 or 1,150 sets of A.D. 102V were to be delivered on or before 23rd January 1990. This document further provided that a letter of credit for US$140,000 had to reach the Defendants by 16th February 1990.

22. This document then went on to record that in consideration of the deduction of US$129,000, the Plaintiffs were to agree not to present the 10 cheques, the subject matter of this action.

23. Now it is clear that the terms for delivery did not marry up in these two documents, one coming from the Plaintiffs and the other for the Defendants. Then there is a fax from the Defendants dated the January 15th which referred to a meeting held in the Plaintiffs' offices on January 12th. This fax states:

"As refer to our meeting in your office on January 12th 1990 in your office (sic). Both Wong's and Polyware agreed that the sales terms, namely first 8,614 pieces ..... should be ready before L.C. to Polyware issued by Wong's ...... We hope that offical sales confirmation will be released within to-day."

24. In fact the sales confirmation was never signed by the Plaintiffs. The Plaintiffs contend that the Defendants response to this order constituted a counter offer and that the Defendants were so informed. Mr. Cheung contends that new delivery schedules were discussed on the phone between Mr. Lau of the Defendants and Mr. Ho of the Plaintiffs, and were agreed.

25. After the fax with the Defendants dated January 15th 1990 there is no other document exhibited. The first notice of dishonour was by solicitors' letter dated 23rd January 1990. No reply was apparently received. The second letter of dishonour was dated 22nd February 1990. No reply was apparently received. The writ was issued on 27th February 1990. I find it incredible that the Defendants did not write back to the Plaintiffs' solicitors as soon as they got the first notice of dishonour saying what they now seek to say. What they now seek to say is that there was a binding contract and that they can thus keep US$129,000 which was in the fact a down payment, deposit or part payment in respect of this new contract. The Defendants further contend that in some unspecified way, the Plaintiffs have waived their right to rely on the cheques or were, in some other unspecified way, estopped from so doing.

26. The Defendants have exhibited a draft defence and counterclaim which pleads that upon the conclusion of the new contract, the Defendants were no longer indebted to the Plaintiffs and that the cheques should never have been presented for payment. The Defendants' counterclaim for specific performance, which is of course unsustainable, but also for damage of breach of contract and the return of the cheques. However, no particulars of loss or damage are pleaded.

27. What it all boils down to in my judgment is this. The Defendants seek to be able to avoid paying the Hong Kong dollar equivalent of US$129,000, on the grounds that the Plaintiffs did not take delivery of the items allegedly agreed to be purchased. That means they are contending that they can hold on to 48% of the total purchase price and are not obliged now to deliver any goods.

28. In my judgment the Defendants have the greatest difficulty in proving any contract at all. The documents to which I have referred just do not add up, and the total silence from the Defendants after the 15th January 1990, after the first notice of dishonour, after the second notice of dishonour and after the writ (until 11th April 1990) is in my judgment wholly indicative of there being no such agreement as contended for by the Defendants. Even if I was satisfied that the contract had been made out, I would not be able to conclude that by the contractual arrangements contended for the Plaintiffs had in some way abandoned their rights to the US$129,000 due in respect of a completely different contract. At the highest the Defendants would be entitled to damages for breach of contract. This I would expect to be their loss of profit, if any on this transaction. The Defendants have not condescended to any particulars of their loss and I do not see now it can be anything like 48% of the contract price. I find that the Defendants' case is incredible by reason of its inconsistency with the documents.

29. I therefore agree with Master Woolley that the Defendants have not established any triable issue or put differently, they have railed to meet the test laid down by the Court of Appeal in Murjani v. Bank of India [1990] 1 HKLR at p. 589 per Hunter J.A. approving Ackner L. J. in Banque De Paris v. De Naray [1984] 1 L.R. 21.

30. The appeal is, therefore, dismissed. I have heard counsel on costs. Mr. Hui seeks for the costs of the action. Mr. Yuen says that even if the appeal is dismissed, nevertheless, because of the late amendment, the Defendants should at least have the costs of the Order 14 summons. Had this been one of those cases where, if the amendment had been made earlier, the appeal would not have been necessary, because the Defendants would have consented to judgment once the irregularity had been cured, I could see the merit of his submission. However, the Defendants would have still maintained the appeal on the alleged merits of this dispute, and I thus can see no reason why the Plaintiffs should not get their costs. The pleading point was highly technical and was cured without any prejudice whatsoever to the Defendants. I do not see why the Plaintiffs should not have their costs, and I so order. Naturally, any cost of and occasioned by the amendment will not lay at the Defendants' door as I have already so ordered.