EASTERN DEVELOPMENT LTD v. NEW CALLWAY EXPRESS LTD

DCCJ 1849/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1849 OF 2013

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DECISION

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1.  This is an Order 14 application arising out of the issuance of a dishonoured cheque.

2.  The issue I am asked to decide upon is whether the defendant has an arguable defence based on (1) duress; and (2) total failure of consideration.

Background

3.  The plaintiff’s claim in this action is for the sum of HK$114,740.30 being the amount of a cheque dated 14 March 2013 drawn by the defendant in favour of the plaintiff (“the Cheque”).  When the Cheque was presented for payment on 15 March 2013, it was stopped by the defendant and returned marked “payment countermanded by drawer”.

4.  The defendant’s case is that it was induced into signing of the Cheque and an associated agreement in the form of a guarantee (“the Agreement”) by duress, namely, that the plaintiff would not release the goods belonged to the defendant’s customer unless the defendant signed the Agreement and provided the post-dated Cheque.

5.  The plaintiff is a limited company in the shipping business.  It is not disputed that a PRC shipping company called 「莆田華海船務有限公司」 (“the PRC Shipping Company”) has instructed the plaintiff to carry goods to the Mainland and the goods were subsequently detained by the Shenzhen Customs due to some omissions in the custom procedures. 

6.  It is also not disputed that the PRC Shipping Company and its representative one Mr Chan Bid Lung (陳必龍) (“Chan”) has incurred debts in the sum of HK$114,740.30 to the plaintiff and failed to repay the plaintiff the same (“the Outstanding Debts”).  As a result, the plaintiff refused to release the Bill of Lading to the PRC Shipping Company.    

7.  On 1 March 2013, Mr Huang Qing Hai (“Huang”), a director and shareholder of the defendant, signed the Agreement to act as a guarantor for Chan and provided the Cheque which was post-dated to 14 March 2014.

8.  The following is an English translation of the terms of the Agreement:-

“(i) The debts of Mr Chan Bid Lung of the [PRC Shipping Company] are as follow:

1. Principal loan incurred on 23^rd August 2012, up to 26^th February 2013, for a period of 6 months, principal loan with interest (3%) in the sum of RMB60,000.00 + RMB10,800.00 = RMB70,800.00.

2. Loan incurred for refueling “Golden Mountain 666” on 14^th July 2012 in the sum of RMB12,000.00.Total principal loan and interest in the sum of RMB82,800.00.

3. Deducted the share of the total loss: RMB32,000.00 * 2 = RMB6,400.00.

(ii) Actual payable debt: RMB76,400.00 (Seventy Six Thousand and Four Hundred Renmenbi), converted to Hong Kong dollars (1:0.8) in the sum of HKD95,500.00 (Ninety Five Thousand and Five Hundred Hong Kong Dollars).

(iii) In addition: this occasion we would act as agents for “Golden Mountain 666” to repay the sum of HKD19,240.30.

(iv) Total outstanding debt in the sum of HKD114,740.30 (One Hundred and Fourteen Thousand Seven Hundred Forty Hong Kong Dollars and Thirty Cents)

(v) New Callway Express Limited and its legal person Mr. Huang Qing Hai hereby declares that they will act as guarantor for Mr. Chan Bid Lung and shall provide a cheque as security for the incurred debt.

(vi) If Mr. Chan Bid Lung fails to pay his debt in the sum of HKD114,740.30 to Eastern Development Limited within 10 days from the 4^th of March 2013, the above stated amount of money would then be deducted from the guarantee cheque by Eastern Development Limited.

(vii) At the same time the guarantor company shall bear the related legal responsibilities.”

9.  The receipt issued by the plaintiff contained the following wordings:-

“Now received from New Callway Express Limited on behalf of Mr. Chan Bid Lung for the indebtedness of HKD114,740.30.

Cheque Number: 520877, deadline 10 days, after 10 days Eastern Development Limited can debit the cheque at the bank.”

10.  After receiving the Agreement and the Cheque from the defendant, the plaintiff released the Bill of Lading to the PRC Shipping Company on 4 March 2014.  As a result, the PRC Shipping Company was able to deliver the goods to the defendant’s customer.

11.  On 14 March 2014, the manager of the plaintiff presented the Cheque to the bank for payment but was subsequently notified by the bank that the Cheque had been countermanded by the defendant.

12.  The plaintiff is now seeking summary judgment against the defendant under Order 14 of the Rules of the District Court for the amount due under the Cheque.

The plaintiff’s case

13.  The plaintiff’s case is simply that both the Cheque and the Agreement had been freely provided by the defendant to the plaintiff to settle the overdue charges owed by the defendant to the plaintiff.  It further alleged that the plaintiff has signed a receipt acknowledging the receipt of the Cheque from the defendant which was “used to pay the debts on behalf of Chan with a time limit of 10 days” (“the Receipt”).  The plaintiff claims that there was no defence to the plaintiff’s claim which is based on a dishonoured cheque.

The defendant’s case

14.  The defendant’s case is set out in Huang’s affirmation filed on 14 July 2014, which, despite the Order made by Registrar Lui in giving leave to the plaintiff to reply thereto within 21 days, was never replied to or challenged by way of evidence on the part of the plaintiff. 

15.  In short, the defendant’s case is as follows.

16.  The defendant used different shipping companies or agents to ship its clients’ goods to different destinations in the Mainland.  The PRC Shipping Company is one of the agents used by the defendant.  Under existing rules, a shipping company in the Mainland is not permitted to carry goods directly from Hong Kong to the Mainland and the shipment must be carried by a Hong Kong company such as the plaintiff.  The PRC Shipping Company will usually instruct the plaintiff to carry the defendant’s goods to the Mainland.  Upon the arrival of such goods in the Mainland, the plaintiff will release the Bill of Lading to the PRC Shipping Company, after which the PRC Shipping Company will obtain clearance from the customs and take possession of the goods for onward delivery to the defendant’s customers.  As such, there is no direct contractual relationship between the plaintiff and the defendant.  The plaintiff was merely carrying the defendant clients’ goods as the agent of the PRC Shipping Company.

17.  In the present case, in or about November 2012, a customer of the defendant instructed the defendant to deliver goods with a total alleged value of over HK$4 million from Hong Kong to the Mainland.  The defendant undertook to deliver the goods within 3 months upon receipt of the goods.

18.  On 25 November 2012, the defendant instructed the PRC Shipping Company to deliver the goods from Hong Kong to the Mainland.

19.  Due to some hiccups in the clearance procedures, the goods were detained by the Shenzhen Customs.  It was not until January 2013 that the goods were cleared.  As a result, the goods only arrived at the port of Xiu Yu in Putian in Fujian on or about 2 February 2013.  Upon the arrival of the goods at Xiu Yu, Huang repeatedly urged Chan of the PRC Shipping Company to arrange custom clearance and to deliver the goods to the customer of the defendant as soon as possible.  However, Chan gave various excuses and kept delaying the delivery. 

20.  It was not until after Chinese New Year that Huang was informed by Chan that the plaintiff had refused to release the goods to the PRC Shipping Company because he had some monetary disputes with the plaintiff.  In particular, the plaintiff refused to release the Bill of Lading of the goods to the PRC Shipping Company.

21.  At the same time, the defendant was facing great pressure from its customer to deliver the goods.  It was repeatedly threatened by its customer that it would terminate the contract and would sue the defendant for breach of contract and recover damages on the goods which was valued at over HK$4 million.  

22.  Against the above background, Huang claims that the defendant had no choice but to try to understand what the dispute between Chan and the plaintiff was about.  The defendant also tried to contact the plaintiff directly in order to arrange for the release of the goods in late February 2013.  Huang found out that Chan had personally owed a Mr Wong of the plaintiff some money and the plaintiff threatened that it would not release the Bill of Lading to the PRC Shipping Company unless he were to pay off the debts.  Huang also talked to a Ms Wendy Lai Yin-Mei of the plaintiff (“Lai”) on 8 to 10 separate occasions and repeatedly told the plaintiff that the defendant was not involved in any way in the dispute between Chan and the plaintiff.  Huang allegedly told Lai that if the Bill of Lading was not released to the PRC Shipping Company, the defendant would suffer great loss as they were not able to deliver the goods to its customer. 

23.  Huang further claims, which again was not contradicted by the plaintiff, that Lai acting on behalf of the plaintiff had repeatedly informed Huang that unless the defendant signed a guarantee agreement and at the same time provide a post-dated cheque in the amount of HK$114,740.30 representing the debts owed by Chan, the plaintiff would withhold the Bill of Lading and not release the same to the PRC Shipping Company for delivery to the defendant’s customer. Huang says that it was only by reason by such “illegitimate pressure” by Lai acting on behalf of the plaintiff that the defendant had no choice but to enter the Agreement and to tender the Cheque to the plaintiff.  The above is partly confirmed by the plaintiff in its skeleton submission when it says that it was only after receiving the Agreement and the Cheque from the defendant that the plaintiff was willing to release the Bill of Lading to the PRC Shipping Company on 4 March 2013 to enable it to deliver the goods to the defendant’s customer.

24.  What is also not challenged by the plaintiff is the claim that it was Lai who had drafted the terms of the Agreement and printed them under the letterhead of the defendant (the letterhead was requested by Lai to be sent to the plaintiff as recorded in the QQ messages) and was then sent back to the defendant for Huang to sign.  I accept the defendant’s submission that the contents of the Agreement itself shows the alleged debts were all unrelated to the defendant.  This is contrary to Lai’s assertion in her affirmation that the debts were freight charges owed by the PRC Shipping Company.  A closer examination of the Agreement actually reveals that they were personal debts of Chan owed to the plaintiff.  

25.  Another piece of the defendant’s evidence which is not challenged by the plaintiff is that the Cheque was meant to give some assurance to the plaintiff that Chan would liaise with Lai of the plaintiff as to how he would repay the outstanding debts.  According to Huang, Lai agreed to give 10 days starting from 4 March 2013 for Chan to liaise with her for the repayment of the debts. This is partly confirmed by the QQ messages disclosed by the defendant and partly confirmed by the wordings of the receipt.  However, before the expiry of the 10 day period on 14 March 2013, Lai was unwilling to talk to Chan about his repayment plans despite Chan’s repeated efforts to locate her. 

Duress

26.  It is trite that in deciding whether a plaintiff is entitled to summary judgment, the relevant test is whether the defendant has raised credible triable issues.  If there are, the matter should go to trial.  If not, judgment should be entered against the defendant.  What the court should not do is to conduct a mini-trial on complicated issues: see Paul Y Management Limited v Eternal Unity Development Ltd & Another CACV 15/2008 (Hon Cheung JA, Lam and A Cheung JJ, 12 August 2008) per Cheung JA. 

27.  It has also been said that unless it is obvious that the defence is “frivolous and practically moonshine”, Order 14 ought not to be applied: see Godfrey JA in Man Earn Ltd v Wing Ting Fong [1996] 1 HKC 225 citing Lord Lindley in Codd v Delap (1905) 92 LT 510.

28.  It is now accepted that a threat to seize or detain goods wrongfully may amount to duress: see Chitty on Contracts, 31 Ed, Ch 7 para [7-013].  It is also accepted that economic duress involving a party’s use of illegitimate commercial pressure to induce contractual relations is a vitiating factor which is capable of having the contract set aside Chitty on Contracts, 31 Ed, Ch.7 para [7-015].   

29.  In Best Day International Ltd v Super Glory Corp Ltd [2008] HKEC 295 (DCCJ 2892 of 2007; HH Judge David Lok), it has been accepted that economic duress is a defence available to a claim for dishonoured cheque.  I agree with the learned judge’s observation that the court should be cautious in dealing with a claim for dishonoured cheque as it has been repeatedly emphasisied by the court that a cheque is to be treated as cash and the defences available to this sort of claim are rather limited.  Further, allegation of duress can be made by way of bare allegation but the court should scrutinize such kind of defence in a careful manner. 

30.  In this case, I find there is a triable issue based on the defence of duress.  First, in my view, there is no good reason why the defendant should provide the Cheque to the plaintiff when there was no direct contractual relationship between them.  The plaintiff has merely made a bare assertion that the defendant had voluntarily agreed to repay the debts owed by Chan and the PRC Shipping Company but with no explanation as to the background and reasons why the Agreement and Cheque were signed by the defendant in the first place. Second, the QQ messages record clearly shows that the terms of the Agreement were dictated by the plaintiff and the plaintiff demanded the defendant to use the latter’s letterhead to print out the Agreement.  Third, the Agreement itself only mentioned about the debts of Chan of the PRC Shipping Company owed to the plaintiff and nothing of any debts or liability owed by the defendant to the plaintiff.  Fourth, the timing of signing of the Agreement and the provision of the Cheque tally with the defendant’s case that it was signed under duress when the plaintiff failed to release the Bill of Lading to the PRC Shipping Company for clearing.  Fifth, the QQ messages also confirmed that Lai was trying to avoid the defendant after receiving the Cheque.

31.  Perhaps the strongest point in favour of the defendant’s case is the silence on the part of the plaintiff.  After the defendant has filed the affirmation on 14 July 2014 raising the defence of duress and total failure of consideration, the plaintiff has simply failed to respond.  In my view, should the plaintiff not agree with any of what Huang said in his affirmation, it would have plenty of time and opportunity to put the record straight.  As said, the Registrar has specifically provided the plaintiff with the opportunity to file an affirmation in reply after the defendant filed its affirmation. However, the plaintiff has failed to do so and no reason was given by the plaintiff’s solicitor during the hearing of why the defendant’s case was not challenged or contradicted.

32.  It is to be noted that the plaintiff claims that it has refused to release the Bill of Lading to the PRC Shipping Company because the “Bill of Lading is a document of title to protect the plaintiff from unpaid clients.” However, what is not challenged by the plaintiff is the fact that the defendant was never a customer or client of the plaintiff and there was no direct contractual relationship between them.

33.  Lai in her affirmation to support the present application allegedly stated that Huang had “offered voluntarily to settle the overdue freight charged owed by the [PRC Shipping Company] to the Plaintiff by tendering the Subject Cheque to the Plaintiff”.  However, Lai has failed to explain why the defendant needed to do that when there was no contractual relationship between them.  

34.  Based on the above, I accept that there is at least an arguable case on the part of the defendant to say that the Agreement was signed and the Cheque was provided due to the economic duress exerted by the plaintiff.

Total failure of consideration

35.  I am also of the view that there is an arguable defence for the defendant to say that the plaintiff has not provided any consideration to the Cheque provided under the Agreement.  I accept Ms Chao’s submission that, in releasing the Bill of Lading to the PRC Shipping Company (as an alleged consideration for the defendant in execution the Agreement and tendering the Cheque), the plaintiff was doing no more than it was legally and contractually required to do as the shipping company engaged by the agent of the defendant. I agree that there was no good consideration provided by the plaintiff by merely releasing the Bill of Lading as it was legally bound to do: see Stilk v Myrick (1809) 2 Camp 317.

Conclusion

36.  Given the above circumstances, I am of the view that unconditional leave should be given to the defendant to defend.  Therefore, the plaintiff’s summons for summary judgment is hereby dismissed with costs with certificate for counsel.

37.  On the issue of costs, I find that, at the time of issuing the present application, the plaintiff knew all along the exact circumstances and background of why the Agreement was signed and the Cheque was given by the defendant.  I further find that the plaintiff knew the defence the defendant was going to rely on when making the present application.  That in my view explains why it has failed to make any reply to the contentions made by the defendant in Huang’s affirmation.  Under such circumstances, I am of the view that a fair and just order on costs would be for the plaintiff to pay the defendant’s costs forthwith: see Order 14 rule 7 of the Rules of the District Court.

38.  I therefore direct that the defendant’s solicitors to submit the statement of costs in relation to the present application within 7 days from the date of this decision and the plaintiff’s solicitors to submit any statement of objection within 7 days thereafter for the court’s summary assessment.