LIPERS ENTERPRISE CO LTD v. REALINE TECHNOLOGY LTD

HCA4214/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.4214 OF 2003

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J U D G M E N T

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1. This is an appeal brought by the defendant against the judgment of Master Woolley entered on 23 February 2004, whereby the Master entered final judgment against the defendant for the sum of US$850,000.00 or its Hong Kong dollar equivalent, and interest thereon at the rate of 1% per annum above "the Prime Lending Rate of The Hongkong and Shanghai Banking Corporation Limited" from the date of dishonour of each of the cheques in question to the date of the judgment and costs to the plaintiff. The Learned Master also dismissed an application by the defendant for security for costs made on the ground that the plaintiff was a Taiwanese company with no assets in Hong Kong.

2. Turning first to the appeal against the judgment for the sum of US$850,000.00. That was the sum of three post-dated cheques in US dollars drawn by the defendant in favour of the plaintiff in relation to the purchase of two million pieces of ICs sold by the plaintiff to the defendant in mid-2003. The total of the three cheques was in fact US$864,472.54. The plaintiff originally sued on that sum and by an amendment to the Statement of Claim, they gave credit for (what they said to be) a part payment of US$14,472.54, therefore the sum claimed became US$850,00.00.

3. Two defences are raised by the defendant. First, what I would call the forbearance to sue ground. What is said in relation to that ground is that by an agreement contained in a document headed "CONFIRMATION" dated 3 September 2003 signed by one Mr Watson Ho for and on behalf of the plaintiff, and by Mr Johnny Chan for and on behalf of the defendant, the plaintiff allegedly confirmed that it had received the sum of US$14,472.54, the sum that I have described just now, on 2 July 2003 and that the plaintiff would not take legal proceedings against the defendant on the cheques in question before 31 March 2004. It was also provided in that document that the parties would continue to negotiate the settlement of the dispute on the total sum of US$864,472.54 and endeavour to reach a settlement agreement before 31 March 2004. Finally, that document provided that the defendant would issue a letter to the plaintiff's lawyer to show the progress of the negotiation to the plaintiff's accounting people. I would record here that by a letter dated 15 September 2003 to the plaintiff's solicitor, the defendant agreed to settle the payment claimed by the plaintiff by instalments and set out a schedule for repayment beginning from 31 October to end of March, the total of which would be US$850,000.00. There was nothing in that letter indicating that the defendant was disputing liability, or for that matter disputing the amount that the plaintiff claimed.

4. Be that as it may, it is contended on behalf of the defendant that pursuant to this agreement the plaintiff should not have commenced proceedings on the cheques in question at all before 31 March and this action, having been commenced in November 2003, was in breach of that agreement. The action should therefore, in the words of Mr Chan Chung, counsel for the defendant, be stayed. I understood that he probably meant that the action should not be allowed to proceed because the plaintiff was in breach of that alleged agreement.

5. However, that is not something that I can accept. The agreement was, as I said, an agreement not to sue until 31 March 2004. Even assuming for present purposes that the agreement was binding, all it means was that the plaintiff should not have exercised its right until 1 April 2004 if there was no settlement reached between the parties. There being no settlement reached between the parties, the plaintiff was entitled to claim against the defendant. In terms of the timing, all it would mean is that the plaintiff, having issued a Writ on 1 April 2004, would probably get its judgment on an Order 14 basis on or about 1 June 2004 as the history in this case revealed.

6. In my judgment it would be wrong to drive the plaintiff from this court and force them to start another action. Now that the time given to the defendant has already expired, what I think could be suitably done in those circumstances is simply to vary the judgment of the Learned Master so that the interest on the sum claimed would be 1% above the US dollar prime rate from the date of dishouour to, say, 1 June 2004, and the judgment rate would not kick in until after the date. That would suitably compensate the defendant for any loss of interest caused by what may otherwise be considered a premature action. I do not see any reason why this court should allow the defendant leave to defend the action on the basis that there was an agreement for forbearance to sue until 31 March when, by now, even if such an agreement were established, the plaintiff is definitely entitled to pursue its claim. So I see nothing in the forbearance to sue point.

7. Secondly, it is contended on behalf of the defendant that the cheques in question were delivered in escrow and it relied on section 21(2) of the Bill of Exchange Ordinance, Cap.19. In essence, the case of the defendant as contained in the evidence of Mr Johnny Chan in his first affirmation, paragraphs 12 to 16, was that at the time when the parties were negotiating for the sale of the two million ICs it was allegedly promised on behalf of the plaintiff that the price for these two million pieces of ICs would be higher than normal in order to allow the plaintiff to demonstrate to their accountants and other relevant people that they are in good financial position in order to assist the proposed listing of the plaintiff. In relation to that, it was agreed, so Mr Chan deposed, that the defendant would be compensated by extra profits generated by future contracts for the supply of ICs once the plaintiff became the sole agent of the IC supplier in the future. It was allegedly intended that the defendant would pay for the two million ICs in due course under the proposed arrangement whereby they would get higher profits for these future shipments.

8. It was said by Mr Chan that there were two purposes for issuing those cheques as agreed with Mr Ho of the plaintiff. First, for the purpose to demonstrate to the auditors and accountants of the plaintiff that the plaintiff was doing profitable business and, secondly, it was said that the cheques were delivered as security for the delivery of the two million ICs. Stopping there, the first purpose was the plaintiff's own purpose, namely to show the cheques to outside auditors and accountants for the purpose of its own listing exercise. That had nothing to do with the defendant.

9. In relation to the second purpose, that is, as security for the delivery of ICs, one has to ask : security for what? The answer must be security against non-payment of the ICs. On the basis of the evidence of Mr Johnny Chan, at the highest, what one can say is that the plaintiff might be in breach of a contract or a promise to give the defendant future profitable business so that they could recover the loss and pay for the two million ICs. But there could not be any dispute that the defendant had to pay. The plaintiff's counsel did not dispute that the defendant had to pay for the two million ICs that it had already received.

10. In the circumstances, the defendant not having paid the plaintiff for the two million ICs that it had actually received, I see no reason why the plaintiff should not be entitled to enforce the security and therefore I can see no arguable defence on that basis either. At the highest, what the defendant has would be a counterclaim against the plaintiff for breach of an agreement or promise to supply future profitable contracts. That is not a ground on which summary judgment for a claim on a dishonoured cheque would be refused. I therefore do not see any arguable defence in relation to the plaintiff's claim on the dishonoured cheques.

11. Accordingly, the plaintiff's appeal against the Master's judgment on the Order 14 fails, save that I would vary the Master's judgment to the following extent. In relation to interest rate, I would vary it so that it would read "at the rate of 1% per annum above the US dollar Prime Lending Rate" and delete the reference to The Hongkong and Shanghai Banking Corporation Limited. Further, that the period for which the interest would be payable would be from the date of dishonour of each of the cheques to 1 June 2004, and thereafter at judgment rate.

12. Needless to say therefore that the defendant's appeal against the decision dismissing their application for security for costs would also be dismissed.