WAH CHEONG VINYL LTD. v. CHING MEI INDUSTRIAL CO. LTD.

DCCJ4644/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4644 OF 2002

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JUDGMENT

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1. This is a case of a dishonoured cheque. There is no dispute that the defendant drew a cheque in favour of the plaintiff for $133,875.00 post-dated to 15 July 2002. When the plaintiff presented the cheque on the due date, it was dishonoured by reason of having been countermanded. The plaintiff applies under Order 14 for summary judgment on the cheque.

2. The defendant is a company which trades in, sells and exports bags and similar products. It received orders for making bags, from a Swiss company, Ko-Trade. The plaintiff is a supplier of PVC material. On 3 April 2002, the defendant placed a purchase order with the plaintiff for 7,000 yards of blue material and 900 yards of brown material at a total price of $135,320.00. The material was to the "the same as the last time" and for delivery "as soon as possible (before 16 April)".

3. I pause here to note that these words are translations of Chinese characters written on the order and agreed between counsel, as are the translations of relevant parts of subsequent correspondence between the parties to which I shall refer below. The latter in particular are relied on by the defendant. Certified translations should have been made. Had counsel not been able to agree this matter would have had to be adjourned, with consequent costs considerations. Solicitors would do well to note this for future reference.

4. The material was delivered about the end of April 2002. After some negotiation about the price, the defendant drew a cheque in favour of the plaintiff for $133,875.00 post-dated to 15 July 2002.

5. The defendant went ahead and made up the bags which were shipped to the buyer in Switzerland. The buyer complained about their quality. On 20 June 2002 the defendant passed on the complaints to the plaintiff to the effect that the material was too hard, lacking in elasticity, wrinkled, and having insufficient underlying material, not according to the requirements of the purchase order. The defendant went on to request that all the material substituted and that the plaintiff compensate the defendant for all its losses for "re-doing" the order. It went on to say that if the plaintiff did not act according to our demand, it would deduct the sum of HK$136,398.46 from the plaintiff. It further asked the plaintiff to reply by 22nd June 2002 whether the plaintiff would "re-do" it or not.

6. On 24th June 2002 the plaintiff replied that it was willing to have the materials returned and requested the return of all materials not yet cut. The defendant replied that it had used all the materials delivered for manufacturing the bags which had been delivered to Switzerland. It offered to return the bags to the plaintiff if the plaintiff would bear the transportation charges. The plaintiff then replied that it accept the return of the original materials if the defendant was really dissatisfied with the quality, but that the defendant had already inspected and accepted the materials and cut them for manufacturing of bags. Therefore, it refused the defendant's claim for compensation.

7. The defendant then countermanded its cheque. When the plaintiff presented the cheque on the due date, it was dishonoured.

8. It is trite law that a cheque is as good as cash, and that the only defences which whill succeed in an action on a dishonoured cheque are fraud and total failure of consideration. The defendant argues that by its letter of 20 June 2002 the plaintiff intimated its intention to reject the material. The fact that negotiations came to an end only points to the fact that the defendant unequivocally rejected them. The fact that the materials had been used and incorporated into the bags and exported to Switzerland did not preclude the right of rejection. Such rejection took place before the cheque became due. The defence based on failure of consideration is available to the defendant, who should be given unconditional leave to defend.

9. The plaintiff says quite simply that there is no defence. The defendant did not and could not reject the material, having made it up into handbags. The plaintiff in particular relies on section 37 of the Sale of Goods Ordinance Cap. 26 which provides:

(1) Subject to subsection (2), the buyer is deemed to have accepted the goods-

(a) when he intimates to the seller that he has accepted them; or

(b) when the goods have been delivered to him and he does any act in relation to them which is inconsistent with the ownership of the seller.

10. The plaintiff says that making up the bags is inconsistent with the ownership of the seller. Restitutio in integrum is impossible. There is no total failure of consideration or quantified partial failure of consideration. No doubt the defendant may have a claim for unliquidated damages for breach of warranty, but this does not affect the plaintiff's claim on the cheque. The defendant can institute its own proceedings against the plaintiff. Judgment with stay of execution so as to allow the counterclaim to go ahead is also inappropriate.

11. So far as the question of acceptance goes, it seems to me that the plaintiff must be right. Once the defendant made up the material into bags, it did an act inconsistent with the ownership of the plaintiff. The plaintiff refers to a passage in Benjamin's Sale of Goods 5th edition, at 12-047 concerning the policy behind the words "does any act ... inconsistent with the ownership of the seller". The learned author refers to two possible situations, one of which being the situation where, because of the actions of the buyer, restitutio in integrum is impossible. That is obviously the situation here. If a seller sells rolls of cloth and the buyer cuts them up and makes them into something else then restitutio in integrum is obviously impossible. It does not need expert evidence to tell the court that. The defendant cannot claim to have rejected the goods, even if his cheque had not yet become due. He accepted them by making them up and that is the end of the matter.

12. There is obviously a potential counterclaim here based on the alleged defective quality of the material, though when one looks at the original message from the Swiss buyer it seems that the complaint is that the bags are "crushed, wrinkled, damaged surface and badly packed. Damage is because of wrong folding (not as per my e-mail message of 19.04.02.) It could therefore be that there was nothing wrong with the material, but only with the defendant's packing of the finished bags, but that is not a matter for decision here. In any event, as appears from the Hong Kong Civil Procedure 2002, Vol 1, at 14/4/15:

"In an action on a dishonoured bill of exchange by one of the immediate parties to the bill against the other, a claim for unliquidated damages under a contract for the sale of goods does not afford a defence, nor is it available as a set-off or counterclaim, nor can it afford a ground for a stay of execution."

13. It follows that the only outcome for this application must be summary judgment in the plaintiff's favour. There will therefore be judgment in favour of the plaintiff for $133,875.00 with interest thereon at the Hong Kong Association of Bankers' best lending rate plus 1% from 15 July 2002 until judgment and thereafter at the judgment rate until payment, and the costs of the action including the costs of and incidental to the plaintiff's application, to be taxed if not agreed.