FASTWAY TECHNOLOGY LTD v. ASIABOND CO LTD

DCCJ 3442/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3442 OF 2011

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BETWEEN

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JUDGMENT

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Introduction

1.  After judgment on admission was entered against the defendant on the full amount of the claim of US27,716.04, the issues for determination at trial are the plaintiff’s entitlement to pre-judgment interest (and also when the pre-judgment interest should start to accrue) and the costs of the action.

Background

2.  The plaintiff was an assignee of the debts pursuant to a written assignment dated 31 December 2009[1] (“The Assignment”).  The defendant was the debtor under the Assignment.  It must be noted that the total amount of the two subject invoices mentioned in the assignment was US$39,074.  Prior to this action, out of this US$39,074, the amount of US$11,124 was found to have been paid.  The remaining balance of US$27,950 was the subject matter of this action.  When the plaintiff commenced the present action on about 5 September 2011, it relied on the Assignment and pleaded the greater amount of US$27,950.   However, it turned out that the correct amount should be US$27,716.04 and that is why the judgment on admission was entered on that sum of US$27,716.04 after the plaintiff’s amendment of the statement of claim on 2 March 2012 to reflect the correct amount.  By consent, judgment on admission was entered on the said sum on 18 May 2012.  The master further directed that the remaining issues on interest and costs be adjourned to a case management summons hearing and the matter was subsequently set down for trial. 

Defendant’s position

3.  Regarding the issue of interest, the defendant has these contentions through its director, Ms Lee Ka Ying (“Ms Lee”):-

(a) She deposed that the defendant issued a cheque no 039604 dated 20 October 2009[2] to the assignor for payment of the said debt of US$27,716.04 well in advance before the Assignment (“the Cheque”).  It was delivered to the assignor on about 22 October 2009 through the assignor’s then solicitors.  For unknown reason, the Cheque was presented for payment in June 2010, more than 6 months after the delivery.  The relevant bank sought indemnity from the defendant for the late presentation but the defendant refused for fear of uncertain liability.  As a result, the relevant bank issued notice dated 28 July 2010 to the person who presented the Cheque to the effect that the drawer refused to give consent.[3]

(b) The defendant was given notice of the assignment of debts on 11 February 2011 (“the Notice”)[4] when the plaintiff instructed its solicitors to send the letter before action.  Upon receiving the copy of the Notice, the defendant had doubts on the validity of the Notice and the Assignment because (i) the amount of debt stated therein is excessive; (ii) the company seal is not apparent; (iii) the assignor still chased the defendant for the debts and presented the Cheque for payment after the Assignment, bearing in mind the Cheque is issued to the assignor as payee.

(c) The defendant is ready and willing to pay but the question is to whom payment should be made, the above confusion led to the question as to whether payment to the plaintiff as the assignee is a valid discharge of its liability owed to the assignor.  As such, by way of a letter dated 15 November 2011[5], the defendant’s solicitors requested the plaintiff to provide a letter from the assignor confirming the validity of the assignment.  

4.  The defendant’s solicitors submitted that the plaintiff should therefore be disallowed the pre-judgment interest before 16 March 2012, because it was only until 16 March 2012 did the plaintiff and the assignor agree to indemnify the defendant for payment made pursuant to the assignment and confirmed the validity of the assignment.

5.  The defendant further submitted that the Notice and the Assignment was not valid as at 31 December 2009 because the said debt did not exist at that time.  The Notice of assignment given to a debtor was given to the defendant on 11 February 2011.  It was defective for want of correct amount; the assignor still chased the defendant for the debts after the assignment; the debt was settled before the date of the assignment.

6.  Regarding the issue of costs, the defendant suggested that there be no order as to costs by relying on a without prejudice letter dated 15 November 2011. 

Plaintiff’s position

7.  The plaintiff is acting in person and is represented by Mr Richard Michael Rund (“Mr Rund”).  He is the director of a USA’s company known as Shake Awake Products LLC (“Shake”).  Shake is the director of the plaintiff. 

8.  Mr Rund testified that the Cheque was presented for payment on 9 December 2009, not in June 2010 as alleged by Ms Lee of the defendant.  Mr Rund produced a copy of the deposit voucher to support his assertion.[6] He understood that there was delay for the US bank to process the Cheque because the Cheque was drawn on a Hong Kong bank but presented in the USA, hence that should take a  longer period to process.  Therefore, he said that the Cheque was not presented for more than 6 months and the defendant should have given consent or indemnity to the bank to clear the Cheque when asked in June 2010.   

9.  The gist of the plaintiff’s position is that he “owned” both the assignor and assignee.  For the sake of operational need, because the assignor was then at the brink of cessation of business, it was necessary to assign account receivables to the assignee.  However, the defendant made use of every opportunity to deny the debts or put the plaintiff to prove and challenged the validity of the assignment and the authority of Mr Rund on behalf of the assignor and the assignee.  He believed that the defendant was adopting the delaying tactics.  

Issue

10.  The ultimate questions are whether the plaintiff is entitled to the pre-judgment interest under section 49 of the District Court Ordinance (DCO). Section 49(1) provides that:-

“The Court may include simple interest, at the rate the Court thinks fit in a judgment for a debt or damages, on the debt or damages or on payment made before judgment, for the period between the date when the cause of action arose and – (a) for a sum paid before judgment, the date of payment; and (b) for the sum for which judgment is given, the date of the judgment.”

11.  It seems to me that under section 49 of DCO, a plaintiff is prima facie entitled to interest from the date of the cause of action arose until the date of the judgment (pre-judgment interest) and thereafter at judgment rate until full payment under section 50 of DCO (post judgment interest).  Both parties accept that it is a matter of discretion as to whether the court shall award different interest rate and for a different period, eg for a shorter period between the date of the writ until the date of the judgment.  One of the weighing factors is the conduct of parties. 

12.  The subsidiary questions are (i) whether it is reasonable for the defendant to refuse to give consent or indemnity to the relevant bank to honour the Cheque in or about June 2010, because if it is considered to be reasonable for the defendant to refuse to give the same, next question is the contentions on the validity of the Notice and the Assignment.  However, if it is considered to be unreasonable, then the defendant’s conduct may have some bearing on the exercise of the discretion; (ii) whether the defendant’s contentions on the validity of the assignment of debts are accepted.

Discussions

13.  So much about their own assertions and grudges as reflected in the respective witness statements and affirmations, most of the vented feelings are not material to the questions of interest entitlement and costs.  Further, it seems to me that there is no substantial dispute on the material fact on the issue of interest save and except whether the Cheque was presented more than 6 months after its delivery.    

14.  Nonetheless, as a matter of procedural justice, I need to deal with the matter in this sequence.  My view is that I should have adjudicated and given judgment on the issue of interest before hearing any party who may seek to argue on costs and to produce any “without prejudice letter”.  Although I have read the said letters (the disclosure of without prejudice material by the represented defendant without objection by the unrepresented plaintiff), that will not influence my adjudication on the issue of interest: Tsui Wai Kam v Wang Fung Machinery Engineering Ltd unrep DCEC 530/2009 dated 27 October 2010:-

“It is the duty of both judge and counsel to observe this rule, but if, by inadvertence or otherwise, it is broken, it is a matter for the trial judge to determine what shall be done. If he thinks it proper, or necessary, for the due administration of justice, he may refuse to hear the action further, and direct it to be heard by another tribunal. But if he is satisfied that no injustice will be done he may allow the cause to proceed; this course, if taken, in itself afford no ground for appeal (Millensted v Grosvenor House (Park Lane) Ltd [1937] 1 KB 717 CA). See too Re an Action for Negligence (1992) C No. 3063), the Times, March 5, 1993; [1993] TLR 117 where during the course of a trial a journal revealed not only the fact of payment in but also the amount thereof. The court held it was open to the judge to continue the hearing if he could put such knowledge to one side for the purpose of making his decision at the end of the trial.”

15.  I therefore reserve the question of cost after the determination of the issue on interest.

16.  As the case was treated by the master as if there is a live dispute on liability, witness statements and affirmations were prepared for the full trial. 

17.  Each party called one witness.  Mr Rund and Ms Lee gave evidence for the plaintiff and the defendant respectively.  They gave evidence as per their cases set out above.

18.  The defendant submitted that Mr Rund was incredible, inter alia that when he testified that the Assignment was prepared by his then solicitors.  But there is no reference to any law firm in the document. The document is also lacking some features such as printed names and capacities of the persons signing, no attestation, no apparent company seal and it was only expressed to be sealed. The document falls short of quality of one prepared by a law firm. 

19.  It seems to me that the above observations are neither here or there.  The features in the Assignment seem to be undisputed.  It does not matter whether it was prepared by a lawyer or not.  It remains a question of the validity of the Notice of assignment and the Assignment.  After all, the material factual dispute is whether the Cheque was presented 6 months after the delivery, that caused the defendant, rightly or wrongly, to refuse to give consent or indemnity to the relevant bank to honour the Cheque.  In my views, Mr Rund’s testimony on the material factual dispute was supported by contemporaneous document which remains unchallenged, in particular the Cheque was presented on 9 December 2009, within 2 months after its delivery.  In contrast, the defendant’s belief of “the cheque presented after 6 months” and the defendant’s submission of “cheque countermanded” was against contemporaneous advices issued by the relevant bank[7]. In essence, I found that Mr Rund was credible although he often said that he did not care about the law.  I also found that Ms Lee is an honest witness but she was unreliable because some of her beliefs were based on legal advice on the question of validity (that turned out to be contentious) and her belief without contemporaneous documents in support.

20.  It follows that the defendant should have given consent or indemnity when the relevant bank wished to honour the Cheque upon the defendant’s confirmation. I must say that through no fault on the part of the assignor or assignee or the defendant, the Cheque was not cleared.  From the factual matrix, it might be due to the lack of efficiency of the bank in the USA, which is further complicated by the loss of the original copy as alleged by the said bank.  Be that as it may, according to the defendant, the bank’s request for indemnity was made in about June 2010.  The Notice of assignment was only given to the defendant on 11 February 2011.  That means before the defendant came to the notice of Assignment, the defendant was under the duty to repay the said debts to the assignor.    It is unreasonable for the defendant to refuse to give consent or indemnity to the relevant bank to honour the Cheque in the light of the circumstances.  If the defendant fears of uncertain liability, it should have asked the bank why and what was wrong and assessed the risk of giving consent or indemnity, the risk of which was likely to be minimal, if not fanciful.  Had the defendant given consent or indemnity, the Cheque would have been honoured and credited into the assignor’s account.  It was then becoming unnecessary to resort to litigation like this.

21.  Regarding the validity of the Notice of assignment, it seems to me that the defendant treated the validity of the Notice of assignment and the Assignment as one issue.  Be that as it may, the defendant knew or ought to have known that plaintiff’s present claim hinges upon the Assignment and subsequent Notice of assignment given to the defendant as the debtor.  By agreeing to have judgment on admission be entered without qualification (if the admission is qualified or ambiguous, the master would not have entered judgment on admission), the defendant should be treated to have accepted the plaintiff’s case, including right to sue as the assignee and the validity of both the Assignment and the subsequent notice.  The defendant should be estopped from challenging their validity. 

22.  Had I been wrong on this, when challenged the validity of the Assignment and/or the Notice, the defendant seemed to rely on the authorities of the 19^th century Couturier v Hastie [1856] 5 HL Cas 673 and the obiter of Harrison v Burke [1956] 1 WLR 419.  It seems to me that those authorities have to be considered in the light of section 9 of Law Amended and Reform (Consolidation) Ordinance, Cap 23 (“LARGO”) and the more recent authorities as summarized in the Chitty on Contracts. 

23.  For example, regarding the absence of the seal in “wax form” or “sticker form”, the absence of the descriptions of signatories and the company seals, those irregularities, in my views, may not invalidate the assignment.  It has been held that where a person executed a deed stating that it has been signed sealed and delivered, but did not in fact seal it, and another person relied on the deed to his detriment, the person executing the deed was estopped from denying that it was sealed: Man Kwok Lam v Keung Yeuk Chun & Another HCMP No 4067 of 1997.  As such, if the defendant as a debtor relied on the said deed of assignment to pay the assignee, both the assignee and assignor were estopped from denying that it was sealed and executed.  At least, the assignor could not resile from the document.       

24.  Secondly, section 9 of LARGO does not require the assignment be executed by way of a deed, the requirements of section 9 are quite informal compared with the circumstances in the 19^th century and early 20^th century.  It provides that:-

“Any absolute assignment, by writing under the hand of the assignor (not purporting to be by way of charge only), of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action, shall be and be deemed to have been effectual in law (subject to all equities which would have been entitled to priority over the right of the assignee if this section, section 11 of this Ordinance and sections 25 and 49 of the Conveyancing and Property Ordinance (Cap 219) had not been enacted) to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same, without the concurrence of the assignor:

Provided that if the debtor, trustee or other person liable in respect of such debt or chose in action has had notice that such assignment is disputed by the assignor or any one claiming under him or of any other opposing or conflicting claims to such debt or chose in action, he shall be entitled to call upon the several person making claim thereto to interplead concerning the same, or he may pay the same into the court under and in conformity with the provisions of any Ordinance relating to trustees.”

25.  My views are that focus should be put on section 9 of LARGO.  The defendant submitted that it has been held in Harrison v Burke that the wrong date of an assignment would invalidate an assignment, and by way of obiter, an incorrect amount should also invalidate the Assignment. 

26.  However, it seems that the statement of law in the Chitty on Contracts shows a different trend after the case of Harrison v Burke:-

“Para 19-016: “The notice is apparently invalid if it purports to identify the assignment by giving its date and that date is a wrong date (footnote contains Harrison v Burke [1956] 1 WLR 419), though there is nothing in the section which requires an assignment to be dated at all, and it has been held that a notice is valid though it wrongly states that another notice has already been given (cases reported in 1969 and 1976 were cited).”

27.  Nonetheless, this case does not concern a wrong date of assignment.  The case of Harrison is distinguishable.  In my views, I do not agree that an incorrect amount stated in the assignment would invalidate the assignment, at least section 9 of LARGO did not say so.  It seems to me that section 9 provides a simpler mechanism on the legal effect of an assignment, that is there will be a good discharge of liability of the debt if (i) the assignment is in writing; (ii) express notice in writing was given to the debtor; (iii) in case of having different claimants, debtor may call upon the claimants to interplead.   The essence of an assignment tends to provide the locus standi to the assignee to sue on the details of the debts concerned.  It is always open to a debtor to challenge the underlying debts with evidence.  In the present case, the defendant knew or ought to have known that the Cheque was not cleared as at June 2010, though attempt was made by the defendant to pay as early as on about 22 October 2009.  As I have said, the defendant should not have unreasonably refused to give consent/indemnity when it was subsequently asked by the bank.

28.  By reason of the matters aforesaid, it seems to me that the attacks on the validity of the assignment were misconceived.  I am also of the view that the defendant or its solicitors, when they challenged the validity of the Notice and the Assignment, seems to have magnified the difficulties which were in reality immaterial or non-existent.  I am of the view that the irregularities therein caused the defendant to have over worried by treating the minimal risk or fanciful risk as if a real risk in giving the consent or indemnity.    

29.  In a nutshell, the plaintiff should be entitled to pre-judgment interest from the date of cause of action until the date of judgment on admission is entered.  It was 8% per annum at that time.  The date of cause of action should be the expired period of the plaintiff’s pre-action letter ie 7 days from 11 February 2011, which is acceptable by the plaintiff.

30.  I also make the costs order nisi to the effect that the defendant shall pay the costs of the action and costs and occasioned by the parties in respect of the issue of interest.  Unless any of the parties seek to vary the said costs order nisi by way of summons, the costs order nisi shall become absolute after the expiration of 14 days from the date of this order.