FU TAI INDUSTRIAL LTD. v. DECAPIO INTERNATIONAL INDUSTRIAL LTD.

CACV 151/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 151 OF 2000

(ON APPEAL FROM HCA 19093/1999)

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J U D G M E N T

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Woo JA (giving the judgment of the Court) :

1. This is an appeal by the plaintiff from an order of Yeung J made on 2 May 2000.

2. The plaintiff's claim is against the defendant on two cheques which were dishonoured. The first cheque dated 30 October 1999, is for $42,957.40 and the second cheque, dated 30 November 1999, is for the sum of $100,000. The defendant filed and served a Defence and Counterclaim which does not contain anything in the defence. Under the Counterclaim, the defendant alleges that the two cheques were given by the defendant to the plaintiff pursuant to a contract of sale of shoes. This was agreed to by the plaintiff. The defendant carries on to allege that the goods supplied by the plaintiff were defective in that the eyelets for the shoelaces or the jointed rings enclosing the eyelets were defective. It further alleges that the goods were sent to its client in France who had delivered the goods to retailers. Because of the defects in the goods, the retailers were returning the goods to its client. There are further allegations in the Counterclaim which we shall go into some detail later.

3. The plaintiff took out an Order 14 application and judgment was granted by a master. From the master's decision, the defendant appealed to Yeung J. Yeung J affirmed the judgment, but ordered a stay of execution of the judgment until the determination of the Counterclaim. From this stay, the plaintiff now appeals to this Court.

4. In effect, two grounds of appeal are raised, namely, (1) Yeung J had no discretion to grant the stay; and (2) he had exercised his discretion, if any, wrongly.

5. Order 14, rule 3(2) provides that:

"The Court may by order, and subject to such conditions, if any, as may be just, stay execution of any judgment given against a defendant under this rule until after the trial of any counterclaim made or raised by the defendant in the action."

Obviously, Yeung J had the discretion and power to order a stay of execution, as conferred by Order 14, rule 3(2). The only question is whether he had exercised that discretion properly. In order to succeed on this appeal, the plaintiff needs to satisfy us that the judge had exercised the discretion improperly or against principle.

6. The plaintiff's counsel cites a number of authorities to remind us of the well-established principle that bills of exchange, including cheques, are treated as cash, and unless there is a proper defence on the contract of payment by a cheque, such as a total failure of consideration or the contract being void for fraud, etc, there should be judgment straightaway with no stay of execution.

7. We accept that it is a well-established rule that a cheque is treated as cash and judgment should be given on a claim on a cheque with no stay of execution. However, as mentioned in the authorities, the rule is excepted by "strong grounds", see Newman v Lever (1887) 4 TLR 91, or where "there is some good reason to the contrary", per Lord Denning in Fielding & Platt Ltd v Selim Najjar [1969] 1 WLR 357 at 361. Moreover, it has to be noted that the tests to be applied in staying execution under Order 47, rule 1 are quite different from those applicable to proceedings for summary judgment under Order 14, see 17 Hals, 4th Ed, para 452, n 8 and see Ferdinand Wagner (a firm) v Laubscher Bros & Co (a firm) [1970] 2 QB 313, 319C.

8. In T.C. Trustees Ltd v J.S. Darwen (Successors) Ltd [1969] 2 QB 295, which was followed by this Court, differently constituted, in Sims Trading Co Ltd v Poon Yee Ping Stella trading as Sunshine and Co [1998] HKCU 734, Lord Denning said at p 302E as follows:

"It is true that the courts have an inherent jurisdiction to stay proceedings, but only on grounds which are relevant to a stay. It does not extend to grounds which are properly matters of defence of law or relief in equity, for those must be raised in the action itself."

In that case the plaintiffs' claim against the defendants were on loan notes issued by the defendants. The plaintiffs obtained judgment under Order 14 from a master. The defendants appealed to a judge who dismissed the appeal. The defendants accepted that ruling. They then took out an application for a stay of execution of that judgment. The ground for the stay was that the defendants were entitled to equitable relief from payment on the loan notes. The master hearing the application granted a stay, and on the plaintiffs' appeal, a judge affirmed the stay. The plaintiffs appealed to the Court of Appeal which reversed both the master and the judge. The reason for the Court of Appeal's decision can be found in Lord Denning's judgment at 302D:

"In this very case the defendants, in their affidavit under R.S.C., Ord. 14 did raise a plea for equitable relief. But it was overruled, and judgment given against the defendants. It is not permissible to renew it again on an application for a stay of execution."

9. The circumstances of the present case are very different from those obtained in the T.C. Trustees case. The defendant is a limited company and is not allowed, without leave of the court, to carry on proceedings in the High Court otherwise than by a solicitor (see Order 5, rule 6 of the RHC). The defendant applied for a director, Mr CHOW Ying-bin, to represent it in these proceedings because "the company have lack of resources and loss of business profits for the year, the company could not be represented by solicitors". Leave was accordingly granted by Master Jones on 23 December 1999 to Mr Chow to represent the defendant .

10. Before the plaintiff took out the Order 14 application, the defendant had filed a defence but strangely there is nothing but the formal parts of the action under the word "DEFENCE". It is then followed by "THE DEFENDANT'S COUNTERCLAIM". It is alleged in the Counterclaim that "3. All goods to be returned back to the plaintiff" and the counterclaimed items include "ocean freight charges round-trip" and "loss of sales profits, mark-up 100% on goods value $142,957.40" which sum is exactly the same as the amount of the cheques. These two items of loss were repeated in Mr Chow's affirmation made on 26 January 2000 in opposition to the plaintiff's application for summary judgment. The affirmation deals with the defects in the goods, and in paragraph 5 thereof states that because of the defects and the resulting consequences, "the supplier must be responsible for collecting all the goods". This may be treated as a rejection of the goods and it may be argued that the Defence and Counterclaim and the affirmation have impliedly, if not expressly, given notice to the plaintiff that the goods were rejected. As early as 30 November 1999, the defendant sent a letter of that date to indicate to the plaintiff that it was still trying its best to negotiate for "the return of all goods". In another letter of 3 December 1999, the defendant told the plaintiff that its French customer's claim included expenses for collecting the goods already delivered to retailers and container round-trip charges.

11. Unfortunately, the defendant is not legally represented, and its case, based on the rejection of all the goods and therefore a total failure of consideration for the two cheques, has not been properly pleaded. Of course, the defendant is bound by its own pleadings, legally represented or not, but it has appealed against the judgment granted by the master. The facts disclosed in the documents before the judge, indicating a possible total failure of consideration for the cheques, were sufficient material, which we consider at least to amount to a good reason, for him to exercise his discretion to impose a stay of execution on the claim pending the determination of the Counterclaim. He had the express power to do so under Order 14, rule 3(2). The T.C. Trustees case does not assist the plaintiff. The judge's hearing of the defendant's appeal from the master's decision was a rehearing of the case, and in his view, judgment should be granted but there should also be a stay of execution until the determination of the Counterclaim. The matters raised by the Counterclaim could, therefore, be relied upon as a ground or sufficient reason for the stay, quite unlike a case where an application for a stay of execution is made under Order 47, rule 1 of the RHC after judgment has been accepted by the defendant.

12. In all the circumstances of this case, we are not satisfied that the judge had exercised his discretion incorrectly or against principle. We dismiss the appeal.

13. After hearing the parties, we order that the costs of this appeal, in the sum of $1,000, be to the defendant.