EUROSTAR (FAST EAST) LTD v. ALBERT TSANG JEWELRY DESIGN LTD

DCCJ  2774 of 2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2774 OF 2005

________________________

________________________

________________________

J U D G M E N T

________________________

1. There are two applications before me:

i)	the Plaintiff’s application for summary judgment against the Defendant by summons dated 15th July 2005; and
ii)	the Plaintiff’s time summons dated 7th November 2005 for time extension to file the 2nd Affirmation of Adtani Salim Allauddin dated 7th November 2005 (2nd affirmation of Mr. Salim).

Time Summons

2. Mr. Gary Chung, counsel for the Defendant did not oppose the time extension application and confirmed that a copy of 2^nd affirmation of Mr. Salim had already been served on the Defendant. Having heard the explanation from Mr. Colin Wong, counsel for the Plaintiff, I granted an order to extend the time for filing of the 2^nd affirmation of Mr. Salim with costs in favour of the Defendant, assessed by gross sum assessment at $550, to be paid forthwith.

Summary Judgment Application

3. It is the Plaintiff’s case that the Defendant was the drawer of 19 cheques of various dates from 5^th November 2004 to 5^th May 2005 each of $50,000 and all in favour of the Plaintiff. Upon presentment of these cheques during the period from 21^st March to 6^th May 2005, all of them totalling $950,000.00 were dishonoured for the same reason: “Payment countermanded by the drawer”.  By the present action, the Plaintiff claims against the Defendant for $950,000, being the amount of the 19 cheques and interest thereon at 8% p.a. from 6^th May 2005, which is the date of presentment of the last of these 19 cheques.

4. The Defendant filed an affidavit of its operation manager, Miss Yau Kin Yan Cecilia (“Cecilia Yau’s affidavit”), and affidavit of its director Mr. Tsang Wai Siu Albert (“Albert Tsang’s affidavit”), both of the same date to oppose the Plaintiff’s application.

5. According to Albert Tsang’s affidavit, the Defendant was a jewelry manufacturer and the Plaintiff was one of its diamonds suppliers. In previous dealings between the parties, diamonds delivered to the Defendant would be subject to a “Receipt & Bailment Note” whereby the Defendant would hold the diamonds as bailee.  After the Defendant had sorted out which diamonds were to be retained and which were to be returned, the Plaintiff would issue invoices to the Defendant for those diamonds retained. It is the Defendant’s case that each invoice is in triplicate and only the original, which is white in colour, bears the invoice number. The other two carbon copies, respectively pink and blue in colour, do not have the invoice number imprinted. The Defendant was only issued with the pink one.

6. In paragraph 6 of the Albert Tsang’s affidavit, he has this to say:

“It is the common trade practice that the payment of diamonds are to be settled by post dated cheques and it is a condition precedent for the supplier to issue the original copy of the invoice (white copy) to the buyer before the supplier could duly present the post dated cheques. This is of utmost importance as the original copy of the invoice is acceptable to banks together with other documents as pledge for loan facilities.  Virtually, in the diamond and jewelry industry, the original copy of the invoice tentamounts [sic] to be one of the title documents of diamonds listed in the invoice and payment would only be made until the original copy of the invoice is delivered.”

7. The Defendant’s case is that the Defendant stopped placing order with the Plaintiff in early 2004. While closing the accounts of the Plaintiff, staff of the Defendant’s accounts department discovered that there was an outstanding balance of HK$2.3 million in the Plaintiff’s ledger. As such 46 post-dated cheques were issued and Mr. Salim of the Plaintiff was requested to collect the same upon production of the original invoices. When collecting the said cheques on 27^th August 2004 at the Defendant’s office, Mr. Salim forgot to bring along with him the said original invoices. However Mr. Salim requested release of the said cheques. Upon instruction of Mr. Albert Tsang, Cecilia Yau released the said 46 cheques to Mr. Salim on condition that the presentment of the cheques was conditional on the delivery of the original invoices to the Defendant. According to Cecilia Yau’s affidavit, Mr. Salim agreed to the condition. He also agreed to come again to finalize the difference between the accounts of the parties. 

8. According to Cecilia Yau, no original invoices were provided as promised. The first of these cheques was honoured upon request of the Plaintiff and waiver of the Defendant. The second cheque was stopped as no invoices were provided. Later, 3 invoices were provided on 18^th October 2004 and a replacement cheque of $50,000 was issued to cover the bounced one.  According to Albert Tsang, he said as the amount of the said 3 invoices amounted to $165,797.16 which was sufficient to cover 3 cheques, he also allowed the 3^rd cheque of $50,000 to be honoured. A few days before the 4^th cheque was due for presentment, the Defendant chased up Mr. Salim for the invoices. As no further invoices were forthcoming, the cheques were stopped.

9. Albert Tsang said that the Defendant took the initiative to relate the importance of invoices to the Plaintiff by instructing Messrs. Leung, Chan & Pang (“LCP”) to issue a letter to the Plaintiff on 7^th December 2004 demanding delivery of the original invoices. Since no reply was received, another letter dated 29^th December 2004 was issued by LCP. It has been stated therein that the sum payable would be set aside and be released after receipt of all the original invoices pursuant to the agreement between the parties. 

10. Mr. Salim of the Plaintiff filed his 2^nd affirmation in addition to his verifying affirmation. He denied the existence of the alleged agreement on conditional delivery. In paragraph 9 of his 2^nd affirmation, he deposed to the fact that the 46 post-dated cheques represented the sum payable in respect of a settlement agreement between the parties regarding various parcels of raw diamonds supplied by the Plaintiff to the Defendant from 9 September 2002 to 3 October 2003. The outstanding amount due and owing according to the Plaintiff’s own ledger, was $2,478,544.5 as at late May 2004.

11. After a telephone conversation with Ms. Cecilia Yau on 26 August 2004 who agreed to settle by post-dated cheques of $100,000 each, Mr. Salim attended the Defendant’s office on the 27August 2004. 46 cheques, each of $50,000, totaling $2,300,000 were given. Mr. Salim initially protested but later accepted the sum but reserving his position on $11,345 which was a sum allegedly less than the debt actually owed. He was asked to sign a written acknowledgement dated 27 August 2004 of the 46 cheques. Since he considered that the acknowledgement did not fully reflect the agreement reached in the meeting, he wrote down the following words before signing the document:

“There is difference of HKD11345.00 between Albert Tsang and Eurostar i.e. Albert Tsang has to pay more 11345.00 HKD according to Eurostar which can be settled after checking both parties ledger.”  

12. Mr. Salim deposed that it is inherently impossible for a supplier to accept as a trade practice that payment for diamond trade be settled by post-dated cheques, given that the recipient of the diamonds could easily default on payment and disappear with the diamonds. Furthermore, although he considered himself quite experienced in the diamond trade, he had never heard of the original invoices being a “title document” otherwise jewelry shop has to supply their customers with the original invoice in order to complete the title.

Grounds of Defence

13. Mr. Gary Chung, counsel for the Defendant raised 2 grounds of defence based on the available facts as follows:

i)	conditional delivery of the cheques – since the conditions for payment has not been met, the Defendant is entitled to countermand the cheques; and
ii)	inadequate consideration.

14. The exact scope of Mr. Chung’s second ground is not clear. He submitted that the Defendant was not advocating a case of no consideration.

Principles

15. In an application for summary judgment, it is for the Defendant to satisfy the court that there is an issue or question in dispute which ought to be tried or that there ought for some other reason to be a trial of the claim or part (O.14 r.3 of RDC). The test is: “is what the defendant says credible?”: see Ng Shou Chun v Hung Chun San [1994] 1 HKC 155, at 158C-H. However, it is trite law that:

i)	assertion must not be taken in isolation. They must be credible or believable in the light of the evidence placed before the Court: see Mass International Limited v Hillis Industries Limited [1996] 1 HKC 434 at 439B-E. Failure to recognize it would create a debt-dodger’s charter, per Bokhary JA (as he then was) in Re Safe Rich Industries Ltd, unreported, CACV81/1994, 3rd November 1994;
ii)	mere assertion in an affidavit of a given situation does not, ipso facto, provide leave to defend, since the defendant must satisfy the court that he has a fair or reasonable probability of showing a real or bona fide defence: see Hong Kong Civil Procedure 2004 vol. 1 at paragraph 14/4/9.
iii)	A cheque, by statutory definition, was a bill of exchange payable on demand or at some future time. To admit extrinsic evidence would undermine the certainty and finality attached to each party’s promise on that instrument. Extrinsic evidence is, in general, inadmissible to prove that the terms of the contract differed from those express in writing on the cheques: SY Chan Ltd v Choy Wai Bor [2001] 3 HKLRD 145 at 149C-G.

Whether oral evidence admissible

16. It is obvious from the above affidavit evidence of the Defendant that the agreement on conditional delivery of cheques was made orally between Cecilia Yau and Mr. Salim. Counsel for the Plaintiff submitted that the Defendant was seeking to introduce oral evidence to vary the unconditional payment nature of a cheque and such evidence is not admissible by the authority of SY Chan Ltd. Mr. Chung argued that this is a case in which oral evidence can be introduced and the authority of SY Chan Ltd is inapplicable.

17. In SY Chan Ltd, it was held by Recorder Kwok that oral evidence is inadmissible to contradict a contract expressed in writing on cheque, which is an unconditional order in writing requiring a bank to pay a sum certain to a specified person or to bearer. It offended the parol evidence rule. However, Mr. Chung relied on the first part of paragraph 380 in Chalmers & Guest on Bills of Exchange, 15^th Edition (1998) in support of his argument. For completeness sake the entire paragraph is repeated as follows:

“The defect in delivery may be established by oral evidence. The parol evidence rule (see infra) does not apply. This is in conformity with the common law which admits oral evidence to show that what purports to be a written contract is no contract at all or to prove an agreement that a written contract is not to come into operation until a certain condition is fulfilled. In practice, however, it may be difficult to distinguish between situations where it is orally agreed that the bill is not to become operative pending the fulfillment of a condition (in which case oral evidence of the conditional delivery will be admitted) and situations where the bill is delivered operatively but subject to an oral agreement in defeasance of a party’s liability on the bill (in which case oral evidence to qualify the terms of the written instrument will normally not be admitted).

18. Mr. Chung sought to distinguish SY Chan Ltd and contended that according to the evidence available, the Defendant’s case fell into the first category analyzed by the learned author of Chalmers and therefore oral evidence is admissible.

19. With respect I disagree. It is the Defendant’s case that the Defendant found out a sum of $2.3 million being outstanding to the Defendant in the Plaintiff’s ledger: see paragraph 3 of Cecilia Yau’s affidavit and paragraph 9 of Albert Yau’s affidavit. As a result 46 cheques were given to the Plaintiff. In the acknowledgement signed by the Plaintiff and exhibited by both parties (Exhibit AT-2 and ASA-3), it is stated as follows:

“To: Eurostar (Far East) Ltd.

Regarding the total outstanding amount of HKD2,300,000, we ready the following cheques for the full settlement of Debit notes DN198, Invoices EFE/L209/200, EFE/L293/200, EFE/L294/200, EFE/L-/200(HK$612037.00) EFE/L-/200(HK$51994.00), EFE/L-/200(HK$53999.00), EFE/L-/200(HK$105,623.00), EFE/L-/200(HK$59804.16), EFE/L-/200 (HK$208185.51).

.

.

[table listing out the number, amount and date of each of the 46 cheques]

.

.

Cheques amount: Say Total Hong Kong Dollars Two million and Three Hundred Thousand Only

Please acknowledge underneath with signature and company chop upon receipt.

Sincerely,

Albert Tsang Jewelry Design Ltd.

Received By

[signed] [chop of the Defendant]

Eurostar (Far East) Ltd.

27-Aug-04

SUBJECT TO REALISATION OF CHEQUES [chop of the Defendant]” (my emphasis).

20. Although there is no evidence on by whom the acknowledgement was prepared, it was printed on a paper with the letterhead of the Defendant and prepared by the Defendant (paragraph 13 of the 2^nd affirmation of Mr. Salim). It is clear from this acknowledgment, the contents of which are not disputed by the Defendant, that the Defendant owed an outstanding sum of $2.3 million to the Plaintiff. The payment of the cheques were obviously for settlement of the outstanding amount referred to in the invoices as well as debit notes. It does not only refer to invoices as contended by the Defendant. If the sale of the diamonds is, as contended by the Defendant, by sale of invoices which are as good as title documents of the diamonds, one will wonder why the Defendant would have in its ledger an outstanding sum recorded because the invoices in question have not been received at all and logically the debt has not yet arisen. The Defendant is only a bailee of those diamonds. There is also no other evidence from the Defendant that the cheques were delivered in escrow.

21. As the cheques in question were delivered operatively for payment of outstanding amount under the ledgers and the purported oral agreement has the effect of qualifying the nature or tenor of the cheques, I rule the evidence of Cecilia Yau and Albert Tsang on what was said at the time of issue of the said cheques inadmissible. The authority of SY Chan Ltd is applicable.

Inadequate consideration

22. Mr. Chung also contended that there was insufficient consideration. Mr. Chung explained what he meant was for instance, if there was a sale involving 100 invoices, the Plaintiff so far could only produce 50 invoices. Mr. Chung argued that the evidence showed that it was a sale by invoices and so far, only 3 original invoices have been provided. However, when he was asked if it was possible to identify the diamonds which were covered by original invoices already rendered, he replied that it was neither necessary nor possible.

23. I do not consider that the Defendant has raised an arguable case of failure of consideration. The story of sale by invoices is simply unbelievable. Firstly, if one cannot identify the diamond to a particular invoice, which is regarded as a title document, the title document loses the quality of being a title document, which should generally be specific in respect of a particular diamond, or a batch of diamonds.

24. Secondly, it is the Defendant’s case that the invoices, which are title documents, are very important to the Defendant. Although there is no evidence as to who prepared the Acknowledgement, the Acknowledgment is obviously for the benefit of the Defendant. It was printed on the letterhead of the Defendant. According to the 2^nd affirmation of Mr. Salim, the Acknowledgement was tabled by Cecilia Yau and requested by the Defendant (this evidence is not challenged by the Defendant). It will be difficult to understand why on one hand, the Defendant saw fit to request the signing of a written Acknowledgement for the cheques, but on the other hand it failed totally to mention at all the alleged subject matter of the sale in the said Acknowledgement. It is interesting to note that the Plaintiff has seen fit to record on this written document his disagreement to the accounts between the parties but the Defendant wrote nothing to record the Plaintiff’s alleged promise on the same occasion.

25. The Defendant also alleged that it was a trade practice that sale is by invoices which are title documents. However, there is no evidence of the experience of Mr. Albert Tsang in the trade. The simple assertion of such trade practice in his evidence is not sufficient. If there is such trade custom and practice, the Defendant should not have been able to sell all the diamonds referred to in the said invoices because of the lacking of title documents and should not reasonably consider itself obliged to pay for something which they have not yet got.

26. As I have already pointed out above, according to the Defendant’s own affidavit evidence and the Acknowledgement, the cheques are clearly for settlement of the outstanding amount referred to in debit notes and invoices. In my judgment, the sale by invoices is hardly believable in the circumstances.

27. Mr. Chung has taken some time to analyze the Receipt and Bailment Note (exhibit AT-1). The gist of his submission is that such receipt expressly said that it itself is not a bill of sale. The property of the diamonds passes to the Defendant only by a bill of sale, and the invoices are bills of sales or their equivalent. I cannot see how this dissection of the bailment receipt can assist the Defendant’s argument that the invoices in question becomes the title documents or there is such trade practice.  The receipt is only as good as what it is. In respect of the cheques the Defendant drawer is prima facie deemed to have become a party thereto for value by virtue of section 30(1) of the Bills of Exchange Ordinance, Cap 19.  This statutory presumption has not been rebutted.

28. The letters from LCP also cannot assist the Defendant. I do not think that taking the initiative to assert something which is unbelievable will make that something believable.

Conclusion and Order

29. I do not consider the Defendant has raised triable issues. Its version of story is simply unbelievable. For the above reasons, the Plaintiff should be entitled to judgment against the Defendant. I therefore give summary judgment in favour of the Plaintiff against the Defendant for the total sum of the 19 cheques, namely $950,000.00, together with interest thereon at 8 % per annum from 6^th May 2005 until payment.

30. There is no reason why costs should not follow the event. I order that the Defendant do pay the Plaintiff costs of the action, including costs of this application, with certificate for counsel, to be taxed if not agreed.