XCHRX SIR DARLAINE (HK) CO. LTD. v. WOO HOI WING and Another

1994, No. A11883

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. On 1 March 1995, the plaintiff obtained default judgment against the defendants. This was that the defendants pay the plaintiff the sum of $192,400, together with interest at the judgment rate from 25 November 1994, damages to be assessed and costs. It was also declared that the plaintiff was entitled to recover from the defendants such damages for which it may be liable to pay or may reasonably pay to its customer for default in delivery "of the said goods" in so far as such damages result from the "aforesaid default in delivery of the said goods on the part of the defendants."

2. Judgment went by default because the defendants failed to register their change of business address. The first-named defendant now applies to set aside this default judgment. It is not disputed that she makes this application timeously.

3. The statement of claim, from which, presumably, the references in the judgment to "the said goods" and "the aforesaid default" are taken, alleges that, by an agreement in writing dated 6 June 1994 between the plaintiff and the defendants, the defendants agreed to sell and deliver 276 motorcycles to the plaintiff. For reasons that are not clear to me, there were four orders in respect of this agreement. The order forms are all dated 6 June 1994. Orders 3117 and 3118 are identical, and each is in respect of 90 Honda 125 cc motorcycles, model CG125 of 1993, at $5400 each, making a total price of $486,000 for each order. In the case of both orders, payment is to be by 20% deposit, with the balance payable by 3 post-dated cheques, against delivery, and shipment is to be 20 days after receipt of the deposit. The two other orders, numbered 3119 and 3120, are identical with each other. Each is in respect of 48 Honda 125 cc motorcycles, model Spacy 125 of 1993, at $9,000 each, making a total price here of $432,000 in respect of each order. In the case of these orders, the payment terms are the same as orders 3117 and 3118, but delivery is to 24 days after receipt of the deposit. So, the total price payable in respect of all four orders was $1,836,000.

4. It is said that the plaintiff paid to the defendants the sum of $183,600 as a deposit, by way of two cheques dated 6 June 1994. One of these cheques is for the sum of $97,000 and the payee is said to "Cash". The other is in the sum of $86,400 and was payable to "Wang Fat (HK) Motors Trading Company", but this was changed to the name of the second-named defendant. This deposit of $183,600 is only 10% of the whole purchase price, not 20% as agreed.

5. The statement of claim goes on to say that, in breach of the agreement, the defendants failed to deliver the motorcycles, and the plaintiff suffered damages in the sum of $2,440,800.

6. The plaintiff also alleges that "on or about 6 June 1994", the plaintiff sold and delivered one Honda 125 cc motorcycle, model CG125, to the defendants for a price of $13,800. The defendants, it is said, paid only $5,000 of the price, leaving a balance of $8,800.

7. The matter of the deposit in this case is of crucial importance. If the plaintiff did not pay the 20% deposit as agreed, it was not entitled demand delivery (or, at least, nothing is pleaded that might entitle the plaintiff to delivery without payment of the agreed deposit), and the defendants are not in breach of the contract in respect of the particulars as alleged.

8. Mr Tang Shiu Sang, on behalf of the plaintiff, says that the deposit paid was in respect of orders 3117 and 3119 only, and represented 20% of the price. He produces two receipts, which are photocopies of the two cheques mentioned above, and bear the signatures of Mr Yu, the second-named defendant. Both these receipts have typed upon them the word "Receipt" and the words "for and on behalf of Wang Fat (HK) Motors Trading Co". On the receipt displaying the copy of the cheque for $97,200, the following words are typed - "Signed & received the deposit (20%) against P/Contract PC-3117/94.". On the other receipt, the words "Signed and received the deposit (20%) against the P/Contract PC-3119/94." are typed.

9. Mr Tang gives no explanation as to why a deposit was paid only in respect of these two orders. There is also no explanation, in the pleadings or in the evidence, why, when the deposit had been paid in respect of only two orders, it was thought that the defendants were in breach in respect of delivery under the other two orders, and the plaintiff was entitled to damages and an indemnity in respect of all "the said goods", meaning 276 motorcycles.

10. Mr Tang does not say that the typed notes were there when Mr Yu signed the receipts, which, it must have been appreciated by the plaintiff, would give them the only value they have to the plaintiff's case on this point. Mr Yu, the second-named defendant, produced copies of the receipts he says were given in respect of the cheques for $97,000 and $84,600. These are signed by him and are otherwise identical to the copies produced by Mr Tang, save that they do not bear the typed notes. It is clear, therefore, that the typed notes were placed on the receipts after Mr Yu signed them. I am suspicious about this

11. This leads me to be suspicious also about the alleged sale of the motorcycle by the plaintiff to the defendants, Mr Tang does not explain why the plaintiff was purchasing 276 motorcycles from the defendants and, at the same time, selling one identical motorcycle to the defendants for well over twice the price of the others. I should say that the defendants say that the motorcycles they were selling to the plaintiff were used, but the plaintiff maintains that the contract was in respect of new motorcycles. Mr Tang produces a document dated 7 June 1994 saying "It is signed for receipt of one (1) unit of Honda Motorcycles 125 cc, model CG125". It bears the chop of the defendants company, and is said to be signed "for and on behalf of Wang Fat (HK) Motors Trading Co", but the scribble over the chop is indecipherable and bears no resemblance to the usual signature of Mr Yu. Mr Yu denies that the defendants purchased this motorcycle and denies that he gave this receipt.

12. Mr Tang says that the plaintiff paid additional sums of $20,000 and $10,000 in July 1994 in respect of order 3117 because Mr Yu said that the defendant did not have sufficient funds to obtain the motorcycles. It seems odd that the plaintiff should pay these sums to the defendants when, according to Mr Tang, the defendants owed the plaintiff, at that time, $13,800 in respect of the one motorcycle purchased by the defendants.

13. Mr Tang says that, on or about 25 October 1994, Mr Yu gave him two cheques totalling $227,400, but these were dishonoured. Mr Yu agrees with this, saying the payment was to settle the dispute. Mr Li suggests that raises the possible defence of a compromise agreement. I do not accept this. There may have been an accord, but clearly the satisfaction was dependent on the cheques being met.

14. It is clear to me that, even on the plaintiff's own case, the plaintiff is not entitled judgment for damages to be assessed in respect of the failure to deliver 276 motorcycles or to the declaration that it is entitled to damages to indemnify in respect of this non-delivery. There is nothing the pleadings that would justify even a finding that the agreement was severable, and that, upon payment of 20% of some of the purchase price, the plaintiff would be entitled to part delivery of the equivalent number of motorcycles. Even if the deposit was in respect of only two of the orders, no deposit was made in respect of the other two orders so delivery could not be required under them. But, in my view, there is grave doubt that the deposit was in respect of only two of the orders; it seems to me that the defendants' case that there was an under-payment of the whole deposit has merits to which the court should pay heed. It may well be that the plaintiff is entitled to the return of its deposit, and may be entitled to sue on the dishonoured cheques, but the right to this recovery would be on an entirely different cause of action, with different allegations of fact. I was not asked to amend the pleadings or the default judgment in any way by the plaintiff.

15. Regarding the alleged sale of the single motorcycle by the plaintiff to the defendants, in my view, the plaintiff's case is highly suspicious, and is lacking in explanations when explanations are called for. Here again, I believe the defendants' case has merit that deserves closer examination.

16. In the result, the judgment should be set aside, and I order accordingly.

17. As I have said, only the first-named defendant is before me. I was told that the second-named defendant could not afford to be represented. Nevertheless, if the judgment is bad, it cannot stand. It would be absolute nonsense to set aside the judgment against the first-named defendant, but not as against the second-named defendant when they are sued as a partnership and the validity of the default judgment against both the individuals is dependent on precisely the same factors, especially when the defendants' case turns entirely on the evidence of the second-named defendant. Accordingly, I make it clear that the default judgment is set aside as against both defendants.

18. The first-named defendant having succeeded, there seems no reason why she should not have her costs. Accordingly, I make an order nisi that the plaintiff is to pay the first-named defendant's costs, both before me and before the Master, with a certificate for counsel.