XCHRX DESCO (HONG KONG) LTD. v. WAH SING JEWELLERY CO. LTD.

HCA19362/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.19362 OF 1999

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J U D G M E N T

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1. On 27 April 2000, the plaintiff successfully applied for summary judgment by Order 14 proceedings. Judgment for $593,570.19 plus interest and costs was entered against the defendant. The defendant had sought unconditional leave to defend before the learned master and now, in this appeal, submits again that unconditional leave to defend be granted.

2. In the Statement of Claim, the plaintiff claims the above sum being the outstanding price of gold and jewellery sold and delivered to the defendant. In paragraph 3 of the Statement of Claim, 43 separate unpaid invoices dated between 24 May 1999 and 13 October 1999 are listed. There is no dispute that the gold items remain in the possession of the defendant and that the invoices have not been paid.

3. Paragraph 6 of the Statement of Claim pleads that the defendant dishonoured three cheques totalling $186,446 which were in part payment of the total sum due. The cheques were dated 30 October, 15 November and 30 November 1999.

4. In short, the affirmations filed on the defendant's behalf make four contentions :

(1) That since about 1992, the plaintiff and the defendant had an oral agreement that the defendant had the right to return unsold items to the plaintiff at the original price at any time.

(2) In November 1998, there was an agreement between the parties that the plaintiff would buy back the defendant's stock and accept repayment of the outstanding debts due to the plaintiff by installments. It was further agreed that the plaintiff would continue to supply goods to the defendant up to a value of 65% of the defendant's honoured cheques to the plaintiff.

(3) In April 1999, the arrangement was amended to goods being supplied up to 80% of the value of the honoured cheques.

(4) In September 1999, Ken Yiu of the plaintiff's company told the defendant that they could countermand their own post-dated cheques if no adequate or suitable goods were supplied.

5. The plaintiff's case is that these contentions are mere assertions which are not believable. Mr Lee, for the plaintiff, refers to contemporaneous documents and correspondence which, he submits, contradicts the defendant's case. It is not necessary for this court to set out a detailed analysis of the documents and assertions. If there is sufficient credible evidence to persuade the court that the defendant's case is not "practically moonshine" (as per Godfrey JA in Man Earn Ltd v. Wing Ting Fong [1996] 1 HKC 228) he should have his day in court.

6. With the exception of the issues relating to the three cheques, my assessment of the competing submissions as to the credibility of the defendant's case is that he may struggle to resist the plaintiff's claim at trial but he should not be prevented from having the opportunity of airing his case. It has weaknesses which Mr Lee has demonstrated but it is not impossible that the picture may look different after the witnesses have been seen and heard.

7. The issues on the cheques, however, are in a different category. Mr Chan, for the defendant submits he should have leave to defend on the cheques on two grounds, both of which I reject.

8. Firstly, he argues that in the prayer to the Statement of Claim no specific reference is made to paragraph 6 in which the case on the cheques is pleaded. The prayer only claims the full sum "referred to in paragraph 3 hereof". He submits therefore that the pleading is deficient and summary judgment on the cheques cannot be granted. This submission must fail. Paragraph 6 claims the value of the cheques as "purported part payment of the said sum of HK$593,570.19 referred to in paragraph 3 above". A claim in relation to paragraph 3 clearly therefore includes paragraph 6. What is more, the prayer also claims "further or other relief".

9. Secondly, he submits that the cheques were delivered conditionally because of the oral arrangement between the parties (assertion (4) above). In my judgment, this assertion does fail the test of whether the defence is credible. The general rule is that cheques are to be treated as cash save in exceptional circumstances. There is no credible evidence of there being any exceptional circumstances. The defendant's own case includes an obvious inconsistency. It is the defence case that he had the right to countermand cheques if unsuitable or inadequate goods were supplied and yet the reason given for dishonouring the cheques is not the lack of suitability of the goods supplied but the refusal of the plaintiff to buy back goods delivered and accepted.

10. The obstacles in the defendant's way in relation to the cheques are insurmountable. Section 22(3) of the Bills of Exchange Ordinance, Cap.19 is but another :

" (3) Where a bill is no longer in the possession of a party who has signed it as drawer, acceptor, or indorser, a valid and unconditional delivery by him is presumed until the contrary is proved."

11. The result of the above is that this appeal will be allowed in part. There will be judgment for the plaintiff on the cheques, namely in the sum of $186,446 plus interest at prime plus 1%. I give leave to defend on the balance of $407,124.19.

12. I must now address the question of whether the leave to defend should be conditional. The court can impose conditions where it regards the defence as "shadowy or unlikely to succeed." Mr Lee's criticism of the defence assertions plainly has merit. It is also a fact of this case that the defendant remains in possession of gold and jewellery which it has not paid for. Clearly they have a substantial value which could be realized, albeit if sold in bulk, it is accepted that the proceeds would be less than the sum claimed. I can only express disappointment that the parties did not find a way to compromise the matter by the application of commercial good sense.

13. Taking an overall view of the defendant's case, leave to defend will be conditional. Firstly, it will be conditional on the defendant satisfying the judgment sum and interest in relation to the three cheques. Secondly, it will be conditional on a further sum of $150,000 being paid into court as security. I am satisfied that this condition will not render the defendant's leave to defend nugatory because he is in possession of the many valuable items for which the plaintiff claims payment.

14. The defendant is given 14 days from the date of this judgment to comply with the two conditions. If the conditions are not complied with the plaintiff may enter judgment in his favour plus interest at prime plus 1% plus costs of the action and the Order 14 proceedings. If the conditions are complied with the costs in relation to the trial of the balance shall be in the cause. This order as to costs is a costs order nisi.