HONOUR FINANCE COMPANY LIMITED v. CHAN YAN PAK

1988, No. A2990

IN THE HIGH COURT OF JUSTICE

HONG KONG

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DECISION

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1. This is an appeal from a decision of the learned Master. At the conclusion of the submission by counsel for the appellant/plaintiff, it is, I find, quite unnecessary to call upon counsel for the defendant.

2. It would only cloud the issue if I were to repeat the factual particulars in the instant appeal. For to-day's purpose, a bare outline would suffice.

3. The plaintiff is the assignee of a debt. The alleged debt against the defendant arose in a transaction. In that transaction, the claim of the plaintiff's assignor against the defendant is for $X. The $X debt was assigned to the plaintiff; hence the plaintiff sues the defendant under that assignment.

4. Arising out of the same transaction, the defendant claims damages against the plaintiff's assignor in excess of $X, say $X plus $Y. These alleged damages are said to have been sustained before notice of assignment was given to the defendant. Under section 9 of the Law Amendment and Reform (Consolidation) Ordinance, Cap. 23 (equivalent to section 26(6) of the Supreme Court of Judicature Act, 1873 as codified by the Law of Property Act, 1925 in its section 136), the defendant enjoys the same equities against the plaintiff as assignee of the $X debt ⁽¹⁾. The defendant has a right in set-off and in counterclaim against the assignor. He enjoys the same equities against the assignee, but only for meeting the assigned debt to the extent of $X and no more.

5. When the plaintiff, as assignee, claims against the defendant for $X, the defendant seeks to set off as against that a sum equivalent to $X out of his own claim ($X plus $Y) against the plaintiff's assignor. In addition, the defendant raises a counterclaim on the sum representing $X and $Y but "to the extent not exceeding the amount of the plaintiff's claim" in the action.

6. In Lawrence v. Hayes ⁽²⁾, a counterclaim and a set-off were both made against the assignee. As the defendant in that action had obtained a judgment against the assignor, it was there contended on behalf of the plaintiff/assignee that the defendant's right had merged in the judgment and could no longer found a set-off or counterclaim against the plaintiff/assignee. Despite the judgment against the assignor and the merger of his right against the assignor with the judgment, the defendant in Lawrence v. Hayes ⁽²⁾ was held to be entitled to set off and counterclaim against the plaintiff/assignee.

7. In Young v. Kitchin ⁽³⁾ what was decided is not that the defendant could raise no counterclaim but that the defendant could not so counterclaim against the plaintiff/assignee as to over-top the assignee's claim under the assignment against him. It was argued on behalf of the plaintiff in Young v. Kitchin ⁽³⁾, as can be seen at pages 128 and 129, that the result of the counterclaim raised in that action

".....would be that the plaintiff would not only lose his right to the debt, but have to pay damages for a liability incurred not by him but by the assignor".

"...... the defendant has no claim to recover anything against the plaintiff; he only meets the plaintiff's claim by a counter-claim of damages arising out of the same contract, and this ought to appear upon his defence and counterclaim. "

8. Thus, the ratio in Young v. Kitchin ⁽³⁾ is that the defendant's counterclaim should not be pleaded and prosecuted as an independent cross claim over-topping the assigned debt but as one merely for meeting the as assignee's claim against him under the assignment. Evidently, same as any assignee the plaintiff derived his title from the assignment, and he has no right or obligation beyond the four corners of the assignment under which he now sues. If he should fail in his claim under #he assignment, naturally, he cannot be made liable to any cross claim, independent of the assignment, against the assignor. The equities of the defendant as debtor are tied to the claim against him under the assignment.

9. Neither of these two cases seeks to restrict the exercise of the defendant's equities to one of the remedies in set-off or counterclaim. As a matter of fact the contrary is demonstrated; both remedies were run.

10. Mr Lim, as I understand him, argues that one cannot set off and counterclaim at the same time : if permitted, so counsel maintains, one would have had his remedy twice over. Counterclaim and set-off may be raised in the same action. See para. 1665, p.912 Chitty on Contracts, 25th Ed. For good reasons, they are constantly pleaded in respect of any one claim. Under section 9 of the Law Amendment And Reform (Consolidation) Ordinance, a set-off is exclusively founded on "all equities which would have been entitled to priority over the right of the assignee". It could be a sad day, if a party invoking such "equities" could have himself unjustly enriched. Moreover, the defendant's "equities" under section 9 are statutorily confined to meeting the plaintiff's claim under the assignment.

11. I must confess that such proposition of Mr Lim is novel in the extreme. I have never heard it raised before. The contended effect runs counter to the fundamental concept that in a set-off and counterclaim, a defendant seeks merely to protect his interest in one claim and not to duplicate or inflate it.

12. There is no substance in counsel's submission. The learned Master is clearly right in dismissing the plaintiff's summons to strike out the defendant's amended Counterclaim. The appeal must therefore be dismissed with costs.

(Submissions on costs made.)

13. Counsel for the defendant invites the court to order costs on the basis of solicitor and client, such costs to be taxed and paid forthwith to defendant by the plaintiff. Counsel for the plaintiff refers to the order of the learned Master, Master Perrior, ordering costs of the application to strike out the costs in the defendant's cause. Counsel for the plaintiff maintains that this is a matter which would not warrant a punitive order and that coats should he reserved as costs in the cause.

14. The principle is well settled and seems to be one beyond argument. But counsel for the plaintiff sounded sincere and maintained to the very last that there was a point to be made. Well settled principles are sometimes successfully digressed from. A good illustration is found in the case which I read yesterday when the House of Lords in Fercometal SARL v. Mediterranean Shipping Co. S.A. (The Simona)⁽⁴⁾ overturned an assumption for over 80 years since Braithwatte v. Foreign Hardwood Co., if my recollection is correct, as regards an innocent party's obligation when he declines to accept an anticipatory breach. I am impressed by the sincerity with which the point, though obviously untenable, was sought to be ventilated at no great expense. I find no real justification for making any departure from the usual order for costs on an unsuccessful appeal. I am not prepared, therefore, in view of what I have said, to accede to the invitation of counsel for the defendant. The appeal therefore stands dismissed with costs for the defendant.

(1) (1873) 3 The Law Reports Statutes p. 320 and 27 Halsbury's Statutes, 3rd ed. p.547.

(2) [1927]2 K.B. 111

(2) [1927] 2 K.B. 111

(3) (1878) 3 Ex. D. 127.

(4) Times Law Reports, 17th June 1988.