Sims Trading Co. Ltd. v. Poon Yee Ping Stella t/a Sunshine and Co.

1998, Nos. 36 & 56
(Civil)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

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J U D G M E N T

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Rogers, J.A. :

Introduction

1. This is an Appeal from a decision of Waung J. of the 18th December 1997 whereby he refused to set aside a bankruptcy notice and has refused a stay of execution of Judgment. The Writ in this Action was issued on the 8th October 1996. The Claim was in respect of the dishonour of two cheques dated the 26th June and 3rd July 1996 respectively. Mareva injunctions had been granted at the commencement of the Action and that was followed by Order 14 proceedings for summary judgment. The Order 14 application was heard in March and April by Waung J. and judgment was given for the Plaintiff for the sum of HK$ 3,387,072 together with interest and costs.

2. The bankruptcy notice was dated 16th May 1997 and the application for stay of execution and setting aside of the bankruptcy notice came on for hearing before Waung J. on the 18th December 1997.

The Background

3. The history behind the Action was that the Defendant was a trader in beer. She traded under the name Sunshine and Company. Sometime in late 1995 or early 1996 she had approached the Plaintiff, which was part of the Dairy Farm Group, with a view to selling beer to the Plaintiff for distribution in the People's Republic of China. It seems that there was some discussion between the Plaintiff's representatives and the Defendant about the Plaintiff's ability to be able to dispose of large quantities of beer and as a result before the first contract for the sale of 50 containers of beer was made, the Defendant gave the Plaintiff a written assurance that it would assist the Plaintiff to sell the beer if they had difficulties in disposing of the same. Whether there was also an oral guarantee to the like effect and whether the written undertaking was to cover subsequent orders for beer is unnecessary to go into. Suffice it to say that the first order for 50 containers of beer was fulfilled and duly paid for.

4. Subsequent to that however, the Plaintiff placed orders with the Defendant for the supply of two further quantities of 50 containers of beer. These were to be paid for by two Letters of Credit, the first of which would expire on the 20th May 1996 and the second of which would expire in the following month. There was delivery of the first 44 containers of beer which were paid for under the first Letter of Credit. However, the Plaintiff notified the Defendant that, because it was having difficulties in selling on the beer, it did not wish to take delivery of the remaining 56 containers.

5. I should mention that at this stage that it is the Defendant's case that she was induced to sign acknowledgement of receipt of that notification but that she did not intend to indicate her consent to the cancellation of the remaining order. The Defendant also says that the use to which the Plaintiff attempted to put the Defendant's acknowledgement, namely to attempt to induce the Bank to cancel the Letters of Credit, was illegitimate.

6. Very soon afterwards, the Plaintiff notified the Defendant that it wished the Defendant to take back 39 containers of the 44 which had been delivered. There are differences between the parties as to precisely what was agreed between the parties and indeed there is a dispute as to whether one letter was in fact faxed. These are also unnecessary for this Court to go into. The result was that the Defendant agreed to take back the 39 containers and to pay for them by cheque. That cheque was a post-dated cheque dated the 5th June 1996. The Defendant says that there was an agreement that the Plaintiff would continue to take and pay for the remaining 56 containers which had not yet been delivered but which the Defendant was being forced by its own supplier to pay for. This further agreement or "package deal" defence as it has been referred to during these proceedings was the subject of a counterclaim. It was considered by the Judge at the Order 14 stage. To complete the picture, the Defendant was unable to have the original cheque for payment of the 39 containers honoured and issued the two cheques the subject of this Action. Those too were dishonoured. The Judge, as I have said, gave judgement on the claim.

This Application

7. On the application which came before the Judge last December, the Judge said that to a large extent he considered the Defendant's counterclaim as part of the Order 14 proceedings. He considered that the counterclaim was not strong. And he went on to say that even assuming that there was a strong counterclaim, the rules were clear that there should not be a stay of execution on a claim for a cheque. That, of course, follows well established principles that a cheque or Bill of Exchange is treated as the equivalent of cash and that any cross-claim that may arise out of a transaction for which a cheque has been given has to be treated separately.

8. Before us, Mr. Hung for the Defendant argued that the approach of the Judge had been wrong in principle because it is said that the reason the cheques were not honoured was because the Plaintiff prevented the Defendant from obtaining payment under the Letters of Credit. It is said that the Plaintiff was well aware that those were the funds that the Defendant had intended to use to fund the payment of the cheques.

9. I am highly dubious as to whether this constitutes a valid ground for stay of execution under Order 47 of the High Court Rules. As Denning M.R. pointed out in the case of T.C Trustees Ltd. v. J.S. Darwen (Successors) Ltd. [1969] 2 Q.B. 295, grounds which justify a stay of execution are those which are relevant to a stay of the enforcement proceedings. Grounds which are a renewal of arguments which are properly matters of defence are not grounds for a stay. In Vol. 17 of Halsbury's Laws of England, to which our intention has been drawn, various examples of what constitute grounds for stay of execution are given at paragraph 455. For example, if the appeal would be rendered nugatory by reason of the Respondent's poverty or if payment of the judgment debt would destroy the substratum of the Appeal. There is a similar paragraph in Halsbury's Laws of Hong Kong which would appear to be a reproduction of the Halsbsury's Laws of England.

10. However, on a factual basis, the Defendant's argument seems to me to break down. Whereas the Plaintiff attempted, as I have already said, to persuade the issuing Bank to cancel the Letters of Credit on the basis of the Defendant's acknowledgement of the fax indicating the Plaintiff's desire not to take the further 56 containers, the Bank never, it seems, cancelled the Letters of Credit. The last payment under the first Letter of Credit was not paid on the grounds that there was a discrepancy in the documents produced to the Bank and the Defendant never apparently sought to make a claim on the second Letter of Credit. Even if the Plaintiff's refusal to sanction a waiver of the discrepancy in the documents produced was not made with the best of motives, no explanation has been proferred as to why the Defendant did not seek to gain payment under the second Letter of Credit other than the fact that it sought to accommodate the Plaintiff's employees who were putting pressure on the Defendant to comply with their wishes.

11. In this case, there is no fraud alleged against the Plaintiff, at the most it is highhanded conduct or perhaps sharp practice and the Defendant retains her counterclaim if that be valid.

12. In my view, there are no grounds for concluding that the Judge did otherwise than take into account as he said he did the arguments which had been presented on the part of the Defendant. This was a matter of discretion and, in my view, no grounds have been shown for disturbing the exercise of the Judge's discretion.

13. I would therefore dismiss this appeal accordingly.

Godfrey, J.A. :

14. I agree.

15. In Nova (Jersey) Knit Ltd v. Kammgarn Spinnerei GmbH [1977] 1 WLR 713, Lord Salmon, at p.729D, says this :

"A case which in essence turns upon whether a judgment should be stayed pending the trial of a cross-claim turns on discretion and rarely gets beyond the judge in chambers ....."

This is just such a case. The principles are clear but this case shows that they warrant repetition.

16. In an action on a dishonoured cheque, save in exceptional circumstances or upon strong grounds, the defendant will not be allowed to set up a counter-claim for damages for breach of some other contract; and the plaintiff is entitled to judgment for the amount of his claim without a stay of execution. This is so, even if the counter-claim is connected with the contract in respect of which the cheque was given, and even if the action is between the immediate parties to the cheque. A cheque is given and taken in payment as so much cash; it is not to be treated merely as giving the payee a right of action to litigate a counter-claim.

17. In the present case, the judge gave summary judgment for the plaintiff on the two cheques to which Rogers, J.A. has referred. An attempt was made at the hearing to put forward a defence to the action but that attempt failed. There has been no appeal from the judge's decision to give judgment for the plaintiff on these two dishonoured cheques.

18. What is now sought is a stay of execution. Clearly, what has to be shown by the defendant is not something which would have assisted her by way of defence in the action, but something which justifies the stay of execution for which she asks.

19. Apart from the argument that the defendant has a strong counterclaim and that she has suffered and will continue to suffer continued financial and other hardship as a result of her transactions with the plaintiff, nothing has been put before us which justifies any stay of execution. The judge who dealt with the plaintiff's application for summary judgment was, as it happens, the same judge as dealt with the defendant's application below for a stay of execution. The judge was fully apprised of all the facts which might have justified a stay of execution when he considered the plaintiff's application for summary judgment, and when he came later to consider the defendant's application for a stay of execution. He had the benefit of a "strong argument", as he called it, from counsel for the defendant in favour of a stay. Counsel, no doubt, took every point which could possibly be taken on behalf of the defendant, but the judge exercised his discretion against granting a stay.

20. In my judgment, he cannot be faulted for having done so. No ground has been shown on which we can properly be asked to interfere with the judge's exercise of his discretion.

21. Accordingly, I too would dismiss this appeal.

Mortimer, V.-P.:

22. I agree with both judgments which have been delivered. I also would dismiss this appeal.

23. The judge had before him an application for a stay of execution. His reasons for refusing that stay he set out as follows:

"... what is of paramount importance is to bear in mind that this is a summary judgment based on two cheques and the strong merits of the Counterclaim does not give rise to either leave to defend or to stay of execution pending the trial of the Counterclaim. In my judgment on the summary judgment given on the 7th April 1997, I dealt with the defence and also to a large extent with the matter of the Counterclaim. The Counterclaim in my view, is not strong. But even assuming that there is a strong Counterclaim by the Defendant, nevertheless the rules are clear that no stay of execution on a cheque judgment should be given. I have been shown the 3rd and 4th Affidavit of the Defendant and I have heard strong argument from Mr Hung on why I should exercise my discretion because there are exceptional circumstances so as to justify departure from the usual rule. I disagree. I do not see what are the special and exceptional circumstances which should compel the court to depart from the usual rule applicable to cheque case which is to give protection to the Plaintiff and treat cheques as cash."

The appeal is against the exercise of the judge's discretion. There has been nothing demonstrated to show that the judge erred in principle or that he failed to take into account anything which he ought to have taken into account, or took into account anything which he ought not to have taken into account, or that his decision was otherwise so unreasonable that it was plainly wrong. We have heard the same arguments and the same evidence that was put in front of the judge. There is no basis upon which this Court can interfere with the judge's exercise of his discretion.

24. In those circumstances the appeal is dismissed.

The appellant will pay the respondents costs of the appeal and the appellant's own costs will be taxed in accordance with the Legal Aid Regulations.