MASTERPIECE CO v. BEAUTY FASHION (HK) LTD

1989, No. A1029

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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D E C I S I O N

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1. The dispute between the plaintiff and the defendant could not be simpler. The plaintiff sues on five cheques dishonoured in the sense that the cheques were countermanded. The defence version is that these five cheques had been replaced by eleven. It is the defendant's allegation that the goods for which the five cheques were issued were defective in size and fungal growth and that the defendant was willing to forbear to sue on the defects in return for an agreement from the plaintiff to re-adjust the size and to supply leather treatment oilment for the fungal growth. As part of the arrangement, cheques for payment of these goods were to be substituted by eleven cheques of later dates. So in effect, the defendant would have the advantage of a postponed payment on account of these defects. The dates of these five cheques ranged from September 1988 through to January 1989. The alleged substituted eleven cheques were later in time, from February to March 1989. The agreement culminating in cheque-substitution is said to have been reached orally on the 17th January 1989 by one Mrs. Chan on behalf of the defendant.

2. Mr Wong for the defendant submitted that the master came to a wrong decision by granting conditional leave to defend. The master ordered the defendant to pay into the court the full value on the five dishonoured cheques sued upon by the plaintiff. The defendant feels dissatisfied with the decision and now seeks to test it on appeal.

3. Before I deal with the various submissions of Mr Wong, it would be a matter of interest to note that in essence the plaintiff claims to be entitled to some $317,145 on these five cheques and $113,610 on another four cheques in two separate transactions. The other four cheques for $113,610 were paid on presentment and do not form part of this action. The defendant's case is : the four cheques, upon which the plaintiff had obtained payment, came from the eleven cheques in the alleged oral agreement. This assertion the plaintiff denies. The plaintiff denies having ever received anything more the four cheques for $113,610 but for a different sale. In another words, the plaintiff maintains that it was not given and has never had the other seven cheques. Therefore wherever the truth lies, the plaintiff can never bring any action upon the alleged seven cheques to the tune of some $200,000. In monetary terms, the plaintiff claims $317,145 and $113,610 in two transactions, and the defendant accepts liability of $317,145 only in the former transaction but on later cheques. On the defendant's admission, after settling $113,610, it is still indebted to the plaintiff over $200,000. But the defendant's stance is that this $200,000 odd was satisfied by the other seven cheques which the plaintiff claims it never had. The seven cheques allegedly replaced part of five cheques in this action. The plaintiff is adamant that none of these five cheques had been replaced or otherwise substituted. Confining to part of the five cheques matching in value to the seven cheques, the latter allegedly substituting for the former, on either the plaintiff's or the defendant's version more than $200,000 remains due and unpaid. There is hardly any real need for resolving these conflicting versions despite the defendant's challenge to the plaintiff's claim as being made on the "wrong" cheques. The "right" cheques would never be sued upon as, so the plaintiff maintains, they were never received, and it is admittedly part of the defendant's liability in the very same transaction.

4. What seems to be truly at issue is whether the plaintiff's cause of action is well founded on the five cheques. But in practical monetary terms, payment of the over $200,000 should not be, in any event, withheld. Should the plaintiff succeed, its full claim including the balance over this $200,000 odd would be awarded, and if the plaintiff failed the defendant must nevertheless pay the same $200,000 odd whoever is correct on these seven cheques from which the plaintiff has implicitly barred themselves. It is difficult to appreciate why the defendant should so violently object to the whole of master's order for a payment in of $317,415 whilst it is holding rover $200,000 admittedly due to the plaintiff. Payment of this over $200,000 by the defendant to the plaintiff was canvassed during these proceedings. One would have wished to be able to focus on only the realistic balance over this $200,000 odd, but Mr Wong, counsel for the defendant, has chosen to contest the entire order on principle, the plaintiff's cause of action on the five allegedly substituted cheques and liability for costs. However impractical I find the situation to be, it must be accepted that I should not and could not hold it against the defendant or to its prejudice.

5. It cannot be denied that the defences of failure of consideration for (paragraph l of the Defence and paragraph 10 of the Counterclaim) and postponed payment of (paragraph 4 of the Defence) the said five cheques could not be supported. But the case of the defendant is that these five cheques were cancelled by substitution in the said oral agreement on the 17th January. For the defendant, it is submitted that the material facts are pleaded and well set out in the various affirmations. It is complained that there was no warrant for the master to grant conditional leave against a background wholly without suspicious or unusual circumstances.

6. In addition, Mr Wong takes a technicial point, namely the plaintiff was not at the material time a holder of the first of these five cheques. By pre-arrangement, the plaintiff sent the first of these five cheques back to the defendant for payment in cash. It is contended on behalf of the defendant that on the alleged oral agreement it had a right to retain this returned cheque thus effectively depriving the plaintiff of possession to sue as a holder under the Bills of Exchange Ordinance. This technical defence has not ever been raised in the Defence and Counterclaim; nor is the defendant's alleged right to retain the returned cheque pleaded.

7. Counsel refers to Emmett v: Tottenham, 8 Ex 884. It is true that the plaintiff is no longer in physical possession of the cheque. The cheque was given to the defendant for cash. Paragraph 6 of Madam Yeung's affirmation filed on the 26th July is a bare denial of the defendant's alleged agreement to pay cash against the return of that particular cheque. The fact deposed to on behalf of the plaintiff as to why the first cheque was returned is not specifically denied. An allegation of the cheque having been returned for cash is not necessarily dependent on whether or not the defendant had promised to pay cash. Returning to Emmett v. Tottenham, supra. on agreeing to sue on a bill as a holder, the plaintiff there was merely given a copy. In this case, the plaintiff parted with possession conditionally upon payment in cash. The cheque so returned was not paid. The defendant is arguably the agent or constructive trustee of the plaintiff, even when this technical point can now be raised without being pleaded in the Defence and Counterclaim. When the plaintiff could legitimately claim to be in constructive possession, its claim on this first cheque could not be said to be incontestably bad; hence at this juncture plaintiff could not be shut out from its judgment seat.

8. Further, Mr Wong for the defendant submits that the plaintiff's computation of interest on the four of the allegedly replaced eleven cheques is insupportable. The amount on the four cheques has been explained by the plaintiff as being inclusive of $4,460 interest (i.e. $109,150 + $4,460 = $113,610). Mr Wong explains that on his calculation of a 136 days' delay at 11% interest, the correct amount should he $4.474. A difference of $14 thus represents the discrepancy said to have arisen from the case of the plaintiff. But the plaintiff's case is not founded on any calculation. The case of the plaintiff is that interest of $4,460 was a sum agreed to by the defendant, whatever calculations had been made. I can find no real substance in this part of counsel's submissions.

9. Mr Wong further argues that in fact the plaintiff was the culprit in delivering defective goods and delay was caused by the remedial measures undertaken. Therefore, delay would not have likely provided any ground for the plaintiff to claim interest for late payment. But even in the version of the defendant, delay was caused by the goods having to be retreated by the plaintiff. There was no compelling reason, in an overall settlement without clear admission of liability, for the plaintiff to refrain from demanding some interest. This is obviously speculation, but it would serve to illustrate that the question of delay could carry more than one implication.

10. Returning to the case of the plaintiff, it sues on five cheques which it held, one arguably by operation of law. It held four other cheques allegedly for another transaction. The oral agreement on the 17th January between the plaintiff and the defendant was said to have been entered into, through one Mrs Chan on behalf of the defendant. Cheques were given allegedly, all eleven of them, on the 19th January 1989 against a receipt signed by a messenger sent by the plaintiff company. The receipt refers to eleven cheques replacing the five sued upon by the plaintiff in this action.

11. The plaintiff's explanation is that the messenger sent over signed the document without being fully aware of its contents. That explanation may be said to have aroused little suspicion, but nevertheless it was an oversight committed by a member, though a messenger of the company.

12. As for the defendant, it did not seek the return of all the cheques before the passing over of allegedly eleven cheques. That was an oversight. The receipt was signed on the 19th January where the eleven cheques were allegedly handed over. The defendant had since taken no steps to recover all the cheques until the plaintiff's solicitors wrote on the 31st January 1989 demanding payment. No evidence has been filed as to why the defendant did not ask for the other cheques when the first was returned allegedly for cash. The failure or dislatoriness on the part of the defendant to recover all these cheques said to have been replaced for almost two weeks was yet another oversight.

13. Mr Chan allegedly entered into the oral agreement on the 17th January with the plaintiff. Mrs Chan has herself made no affirmation. Madam Yeung, a director of the defendant, raises factual allegations of her own knowledge or knowledge gleaned from the documents in the possession of the defendant. Mr Ho, counsel for the plaintiff, takes exception to the use of these affirmations of Madam Yeung who, at no time, disclosed the source of information and belief relating to the crucial agreement of the 17th January.

14. The defendant, through its solicitors, claimed that as they understood from the police, the plaintiff had led the police to believe that it had lost seven of the eleven cheques. There is no explanation as to why this information from the police which will destroy the plaintiff's case has not been followed up.

15. The plaintiff complained that since the defendant did not reject the goods, there was hardly any need for the defendant to replace the five cheques by eleven. If time had been granted, it would have sufficed for the parties to agree merely to withhold presentment of the cheques. Now that the master has decided, the defendant offers a belated and quite unhelpful answer that "initially the defendant intended to reject the goods".

16. Much play was made of the lack of particulars as to the alleged size errors or fungal growth; nor has the defendant specified its loss. But I agree with Mr Wong that these are not critical omissions.

17. Four out of the alleged eleven cheques were represented for payment. There seems to be little logic as to why the plaintiff, if it be dishonest, should misconduct itself only in part and not all alleged eleven cheques. This is again a matter of some speculation, and I do not place any reliance on it. I have commented on the police information as to the plaintiff's alleged inconsistent statement of loss of the disputed seven cheques.

18. The Counterclaim based on total failure of consideration is now conceded to be insupportable.

19. The defendant has mounted dubious legal defences and a hopeless Counterclaim. It failed to seek a similtaneous return of all the cheques against the alleged release of the eleven. The oral agreement raised has not been verified and Mrs Chan has not come forward to give her version. There is no explanation as to why no steps have been taken on the alleged police information of the plaintiff's claim of loss of the seven cheques. On the overall picture, the conduct of the defendant company as well as the mode of presenting its case is suspicious. Its defence, in the light of all the matters earlier referred to, is shadowy. There is every justification for the master to make the order as he did.

20. The appeal be therefore dismissed with costs to the plaintiff to be paid by the defendant. The order of the master do stand affirmed.