TAK LAM HONG LTD v. PERFECT KNITTING FACTORY LTD

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. This is an appeal against an order of Master Jones made on the 6th December 1989 when he set aside the judgment entered on the 8th November 1989 by the plaintiff against the defendant for the sum of $858.085.80 with interest and costs in default of filing a notice of intention to defend on the grounds that the judgment was irregular. The master also gave directions for the filing of a defence and for the future conduct of the action and made an order that the writ of fi. fa. issued by the plaintiff on the 13th November 1989 remain in force provided that the plaintiff filed a notice of appeal against his decision by 4 p.m. on the 11th December 1989.

2. It has been conceded by the defendant that the judgment was not irregular for the writ was properly served while judgment was entered in default after the expiry of the time limit for filing an acknowledgment of service. There were no grounds to support the master's decision that the judgment was in any way irregular. Further, neither party sought to uphold the master's inexplicable decision to allow the writ of fi. fa. to remain in force when there was no longer a judgment to support it pending the filing of a notice of appeal.

3. The plaintiff's claim is for the sum of $858,085.80 being the balance due for the price of yarn sold and delivered by the plaintiff to the defendant and fees for dyeing services in respect of 19 invoices dated between the 16th January 1989 and the 27th July 1989. In the alternative, the plaintiff sues upon two cheques drawn by the defendant in favour of the plaintiff both dated the 25th July 1989 for $234,000 and $468,000 that were dishonoured upon presentation.

4. It is common ground that the parties entered into a written contract on the 4th April 1989 for the sale of 36,000 1bs. of undyed yarn for the sum of $702,000 which was delivered to the defendant in two consignments on the 17th June 1989 and the 27th July 1989. Terms of payment were by 60 days post-dated cheque against each delivery. However the cheques were not handed over by the defendant to the plaintiff until the 25th May 1989.

5. The defendant has put forward complaints of late delivery by the plaintiff which explains the date for cheques being the 25th July 1989 and that the yarn supplied was not colourfast. Although the written contract makes no reference to the yarn being colourfast the defendant contends that there was a subsequent oral agreement made by the plaintiff to this effect. However the plaintiff denies that there was any oral contract and that it was only raised for the first time in the affirmation of Mr Gregory Lau, the defendant's managing director, made on the 30th November 1989. The plaintiff contends that the cheques were not given until the 25th May 1989 because the defendant had informed the plaintiff that it did not have enough cash at the time and requested an extension of time. Delays also arose with regard to delivery due to changes requested by the defendant in the original order as to the dyeing process.

6. The defendant also alleged a total failure of consideration, but admits that it has sold 29,900 sweaters manufactured from the yarn by the plaintiff but claims a loss of US$52,317 whilst a further 15,000 sweaters remain causing a potential future loss of US$111,870.

7. It is the plaintiff's case that the defendant's sales manager Mr Li met the plaintiff's managing director Mr Cheng on the 22nd July 1989 when a proposal was made for the defendant to discharge its indebtedness of over $1 m. to the plaintiff by two letters of credit instead of banking the cheques. One letter of credit for $274,400 was opened in September 1989 in favour of the plaintiff but the second was not issued. The defendant stopped payment of the two cheques on the 6th October 1989 but the cheques were not returned by the plaintiff. At the beginning of October 1989, following a demand by the plaintiff for security from the defendant for its indebtedness, the defendant agreed by an agreement dated the 4th October 1989 to pledge a cutting machine worth approximately $400,000. The contents of the agreement read as follows :-

                "Party A : Perfect Knitting Factory Ltd.

Party B : Tak Lam Hong Ltd

Date: 4/10/89.

 

Mr Lau Wah Cheong on behalf of Party A hereby agrees to pledge the following machine to Party B. If Party A cannot pay to Party B all the indebtedness owed by it to Party B by 3/11/89, Party B shall give a 7 day extension of time to Party A (i.e. until 10/11/89). During this period, if Party A is unable to sell the machine, then Party B is entitled to sell the same. Party A cannot object to the amount of the sales proceeds thereof The sales proceeds after deduction of all the costs and expenses (including insurance costs, transportation costs etc.) shall be applied to reduce part of the indebtedness owed by Party A to Party B. Any question of responsibility relating to the machine shall be borne by Party A. Party B shall not be involved.

 

Party A and Party B agree to the aforesaid arrangement. However this arrangement shall in no way affect the right of Party B to recover from Party A the indebtedness owed to it by Party A."

8. On the 13th October 1989, the defendant handed another cheque to the plaintiff for $250,000 on account of its indebtedness, but payment was stopped on the 29th November 1989. However, the present proceedings do not concern this cheque.

9. Mr Ismail, on behalf of the defendant, contends that the plaintiff acted prematurely in issuing the writ on the 14th October 1989 because the pledge agreement gave the defendant until the 10th November 1989 to pay its indebtedness on the security of the cutting machine whilst the same date applied to the plaintiff's rights that are preserved in the last paragraph of the agreement. Mr Ismail went on to say that the plaintiff had instituted the wrong cause of action for having accepted payment by way of letter of credit in satisfaction of the whole of the defendant's indebtedness, the plaintiff was only entitled to sue for the repudiatory breach of this agreement and is estopped from suing on the two dishonoured cheques.

10. Despite the two complaints, the defendant continued to negotiate a settlement of its indebtedness by means of letter of credit and pledge, but there is no evidence that the plaintiff did not reserve all its right to sue at any time for all the debts due. The pledge itself clearly states that that arrangement would not affect the rights of the plaintiff. There was no merit in the defendant's argument that the plaintiff had instituted the wrong cause of action or that it was in any way premature. The efforts by the defendant to effect a settlement of its indebtedness were wholly inconsistent with the allegations of late delivery and defective goods. No credibility can be attached to this evidence which was totally unsubstantiated.

11. The defendant has not shown any arguable defence to these proceedings. Accordingly, the appeal will be allowed with the result that the judgment obtained on the 8th November 1989 will be restored with costs to the plaintiff including the costs of the proceedings before the master.