XCHRX PROCEED SHIPPING AGENCY LTD. v. CARWAY INTERNATIONAL LTD.

HCA20677/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.20677 OF 1998

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J U D G M E N T

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1. This is an appeal by the Appellant (Defendant) by way of rehearing against Master Kwan's Order giving the Appellant conditional leave to defend the Respondent's (Plaintiff's) action. Under the order the Appellant was required to pay into Court the sum of $3,840,587.47.

2. By a contract dated 9 December 1996 made between the Appellant and one Geogas Pacific Limited ("Geogas"), the principal of the Respondent in this case. Under the contract the Appellant agreed to buy a quantity of liquefied petroleum gas mixture from the seller. Clause 11 of the contract provides :

" Furthermore, buyer shall on execution of this agreement deliver to seller a post-dated cheque date 2 January, 1997 for HK$6,090,587.42 in favour of seller or its agents Proceed Shipping Agency Limited as a security for the immediate payment on due date under the aforesaid LC."

A cheque drawn by the Appellant Company in the sum of $6,090,587.70 was delivered to the Respondent as agent of Geogas. The goods under the contract was duly delivered. The Respondent presented the cheque for payment in April 1997 and again in May 1997, but the said cheque was returned dishonoured on both occasions. After repeated requests and demands by the Respondent, the Appellant made various part partial payments leaving an outstanding balance of HK$3,840,587.47.

3. The Writ with a Statement of Claim for the unpaid balance was filed on 3 December 1998. The acknowledgement of service was dated 17 December 1998. The Respondent applied for summary judgment and the matter went before Master Kwan on 16 July 1999, who gave conditional leave for the Appellant to defend the Respondent's action.

4. The Appellant is not legally represented in the proceedings before this Court but Mr Wong, a Director of the Appellant Company, was allowed to represent the Appellant with special leave.

5. The Appellant resisted the Respondent's application for summary judgment on five grounds. It is first alleged that there is a total failure of consideration for the cheque. In so far as there has been no dispute by the Defendant that the goods were delivered under the contract, the allegation of total failure of consideration is entirely without basis. As the cheque was given pursuant to paragraph 11 of the contract, the delivery of the cheque by the Appellant to the Respondent relates to the performance of the contract after the date on which the contract came into being. Any allegation of past consideration is untenable.

6. The second allegation by the Appellant was that the cheque in question was obtained by fraud. In a letter dated 15 January 1997 from Geogas to the Appellant, it was mentioned that the Respondent had failed to settle the invoice and effect payment for the goods delivered under the contract. The Appellant was informed that Geogas would present the cheque in question for payment. Since the letter and subsequent to the cheque being dishonoured, several payments were in fact made by the Appellant. There was never any suggestion, whether by way of correspondence or any other form of evidence that the original cheque was obtained by fraud or misrepresentation. I cannot see any substance in the Appellant's contention that the cheque was obtained by fraud.

7. Another point taken by the Appellant was that the cheque was given to the Respondent so as to comfort Geogas when the contract was entered into between the parties. There was an agreement, it was said, between the Respondent and the Appellant that the Respondent would not present the cheque. One needs only refer to the letter of 15 January 1997 again and the lack of response of the Appellant thereon. The Court is faced with a bare assertion by the Appellant which is not supported by any documentary evidence. I am not persuaded that there was such an agreement between the parties.

8. It is also the Appellant's case on appeal that the actual buyer of the goods under the contract was one Shantou Yue Chang Inflammable Gas Industry Company ("Yue Chang") of which the Appellant was acting as its agent. There has been a subsequent agreement, it was contended, that Yue Chang would be responsible for payment of the goods. It is perfectly clear from the contract that the Appellant is the buyer of the goods and there is no reference that it was acting in the capacity as an agent. Regardless to whom the goods were finally delivered, the cheque in question was drawn by the Appellant in favour of the Respondent. As to the alleged subsequent agreement, the Respondent relied on a document dated 28 November 1997 made between Yue Chang and Geogas. The document refers to opening a Letter of Credit by Yue Chang on or before 10 December 1997. Yue Chang, however, failed to carry out its part of the agreement to open the Letter of Credit and this failure was admitted by Mr Wong in his affirmation. In my view, the document does not assist the Appellant's case at all.

9. There is one fresh allegation of the Appellant which has not been before Master Kwan. The Appellant's representative, Mr Wong said he could neither read nor write English and had signed the contract on behalf of the Appellant without a proper understanding of its contents. The conduct of the Appellant suggest however Mr Wong was fully aware of the duties and obligations of the Appellant under the contract. I find it incredible that Mr Wong would commit the Appellant to a 6 million dollar transaction without at least some degree of understanding of the contract. This is at total variance to the Appellant's initial line of defence and strikes me as the Appellant's desperate attempt to bolster up an otherwise incredible line of defence against the Respondent's claim. I find no substance in this allegation.

10. It is trite law that the mere assertion in an affidavit of a particular situation does not, in itself, allow the Court to grant leave to defend. The Appellant must satisfy the Court that it has a fair or reasonable probability of showing a real bona fide defence. The Appellant's case impresses me as inherently incredible and cannot be said that it is a bona fide defence.

11. For all practical purposes, it is undisputed that the goods under the contract were delivered. The Appellant was stated to be the buyer of the goods in the contract and not acting in the capacity of an agent. It is also not in dispute that the cheque was issued pursuant to paragraph 11 of the contract and there were part-payments made by the Appellant under the contract. After the invoice of 31 December 1996 was issued by Geogas to the Appellant, the Appellant did not raise any of the objections which is before the Court today. I am unable to see on what basis did Master Kwan give conditional leave for the Appellant to defend the action.

12. I am driven to the conclusion that the Order for conditional leave to defend must be set aside. I would give judgment to the Respondent (Plaintiff) for the sum claimed with interest together with costs of this appeal and of the hearing before Master Kwan.