GEM EXPORTS LTD v. WIN SUN JEWELLERY CO LTD

DCCJ 90/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 90 OF 2012

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JUDGMENT

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1.  The plaintiff sues on a dishonoured cheque; the defence is on total failure of consideration. The only issue for determination is whether the plaintiff has delivered the goods in question to the defendant.

2.  Consideration is presumed for a cheque until the contrary is shown; the burden is on the defendant to rebut such presumption of consideration.  There is no dispute to the above principle. 

Background

3.  Both the plaintiff and the defendant are carrying on the business of diamond trading.

4.  Before the plaintiff was incorporated, the defendant had regular dealings with Tirupati Diamonds (“Tirupati”), a company run by the plaintiff’s shareholder. Since May 2010, the defendant started to purchase diamonds from the plaintiff. Payment for all the transactions with  both Tirupati and the plaintiff was settled without dispute.

5.  Although the usual payment term was 180-day, there had been persistent delay on the part of the defendant in making payment. At the time of the purchase in question, the plaintiff had already through its lawyers made formal demand for the payment then outstanding.

6.  The purchase in question, according to invoice no. 2234 (“the Invoice”) was for some tiny pieces of cut diamond in 2 different sizes (“the Diamonds”) in the total sum of $100,017. Pursuant to the purchase, the defendant on 15 December 2010 issued to the plaintiff a cheque post-dated to 30 November 2011 in the sum of HK$100,000 (“the Cheque”). 

The conflicting versions of event

7.  The account of event given by Sharma Gaurav for the plaintiff (“Sharma”), so far as relevant and significant is as follows.

(a) In the morning of 15 December 2010, Choi Kit Yan, director of the defendant (“Choi”) attended the plaintiff’s office together with another person. After inspection and selection of goods, Choi confirmed the purchase for the Diamonds.

(b) Choi signed on the Invoice to acknowledge receipt of the goods; then she and the other person left the plaintiff’s office with the Diamonds. Sharma was asked to collect a cheque from the defendant’s office on the same day.

(c) Sharma collected the Cheque in the afternoon. He accepted the purchase price be rounded up to HK$100,000 by the defendant. He revised the payment due date on the invoice to 30 November 2011 as requested. Then he gave the white original copy and the pink carbon copy of the Invoice to the defendant.

8.  The account of event given by Choi, so far as relevant and significant is as follows.

(a) Choi did not attend the plaintiff’s office on 15 December 2010. She did not know Sharma and has never met him before.

(b) Due to the defendant’s persistent delay in settling payment, there was a meeting held within 10 days before 15 December 2010 between Choi and Mundra Ashok, shareholder and director of the plaintiff (“Ashok”) to negotiate about the payment terms of future purchases. The defendant was requested to tender post-dated cheques for its future purchases.

(c) The purchase in question was subsequently placed verbally by Choi with Ashok. Choi indicated the approximate quantity required for each size of the Diamonds which was to add up to a total purchase of about HK$100,000.

(d) The plaintiff collected the Cheque on 15 December 2010. Choi signed on the Invoice to confirm the purchase; the purchase price would be adjusted when the actual weight of goods was confirmed.

(e) In accordance with normal practice, the plaintiff should have brought along the goods to the defendant for its merchandiser to inspect and select, and then delivered up the Diamonds. However, the plaintiff never did.

Discussion

9.  Applying the guiding principles in assessing the credibility of witnesses, I have considered the current likelihood or unlikelihood of an event having happened. I have also assessed the reliability and credibility of their evidence against contemporaneous documents.

10.  In reliance of some invoices of previous transactions with Tirupati signed by the defendant, the plaintiff attempted to show an established invoice system that by signing on an invoice, the defendant acknowledged receipt of the goods.

11.  Since the purchase in question involved a mode of payment different from that of the previous dealings, I do not think the alleged invoice system can be implied. Further, on proper construction of the Invoice, acknowledgment of receipt of the Diamonds was not shown.

12.  Based on Sharma’s version, in allowing Choi to take the Diamonds away without tendering a cheque, the plaintiff has not retained any security for payment. Having considered the background against which a post-dated cheque was requested, I rejected the explanation that the plaintiff was willing to do so because of a long-standing relationship of trust. I find it improbable that the plaintiff would have delivered up the Diamonds before the defendant tendered a cheque.

13.  In assessing the credibility of Sharma, it is necessary to also take into account the fact that the account of event originally pleaded by the plaintiff was radically changed to the present version.

(a) By its Reply filed on 27 June 2012, the plaintiff pleaded that the Diamonds were delivered to the defendant’s office with  the Invoice being brought along; the defendant signed on the Invoice and  issued the Cheque.

(b) By his 1^st witness statement filed on 22 January 2015, in complete contradiction to the Reply, Sharma said Choi took the Diamonds away from the plaintiff’s office.

(c) Thereafter, the Reply was substantially amended on 24 June 2015 to correspond with the content of the 1^st witness statement.

(d) It is notedthat the statements of truth to the Reply, the 1^st witness statement and the Amended Reply were all signed by Sharma.

14.  As regards Choi’s evidence, save for one matterwhich requires special attention, her version sits well with the background to the transaction. Her account of event can also explain why the Cheque was for the amount of HK$100,000 instead of HK$100,017.

15.  The said matter of concern is that the defendant had been silent about the non-delivery; no complaint or demand has been made.While the defendant inaction appears to be unusual and unreasonable, such omission has to be examined in the entire factual matrix of the case.

16.  Choi explained that since tiny pieces of cut diamond are commonly available goods, the defendant has made alternative purchase from other suppliers. If the plaintiff subsequently delivered the Diamonds, the defendant wasstill prepared to take the samebecause they are goods frequently required of. For this reason, the defendant only stopped the Cheque one day before it was due for presentation.

17.  I am satisfied that the plaintiff’s non-delivery had not been a real concern to the defendant as long as the Cheque was yet due for presentation. I do not think the omission to complain or demand would render Choi’s evidence incredible or unreliable.

Finding of facts

18.  I find Sharma’s evidence incredible. In so far as his evidence differs from Choi’sregarding the disputed issue of consideration, I accept Choi’s evidence.

19.  I find that the defendant has proved on a balance of probability that there was total failure of consideration. The Plaintiff’s claim failed. 

Conclusion

20.  I order that the plaintiff’s claim be dismissed. 

21.  I make an order nisi that the plaintiff do pay the defendant’s cost of the action, to be taxed if not agreed.

22.  The order nisi shall become absolute unless an application to vary is made within 14 days from today.