LIAN INDUSTRIAL CO., LTD. v. SAMAD MOHAMMAD SIDDIQUE t/a GAZI TRADE INTERNATIONAL

DCCJ 4871/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4871 OF 2002

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Judgment

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1. The defendant appeals against the order of Master A. Chow dated 2 December 2002 granting judgment for $134,202.70, being part of the plaintiff's claim.

2. The plaintiff's claim is for the price of goods sold and delivered, under two invoices, No. INV02066 dated 26 July 2001 for $134,202.70, and No. INV02253 dated 3 August 2001 for $100,488.18. In addition the plaintiff claims the sum of on a dishonoured cheque drawn by the defendant, and dated 11 August 2001. Judgment was given on this dishonoured cheque. The goods concerned are crystal machine cut chatons, or rhinestones.

3. The defendant filed a defence and counterclaim. In brief he alleges that he placed a first order and a second order with the plaintiff, for which he issued respectively a cheque dated 20 July 2001 for $22,255.00, and a cheque dated 23 July 2001 for $78,818.00, both of which cheques were duly honoured. In early August 2001 and before delivery of the goods ordered, he was persuaded to place a third order. He originally refused to make further purchases until his first orders had been delivered, but on the assurance of the plaintiff's representative that the plaintiff was trustworthy, and the cheque would not be deposited until after the goods involved in all orders were delivered, he ordered goods worth $134,202.70 and drew the cheque, postdated to 11 August 2001, which was subsequently dishonoured. On or about 7 August 2001 in purported performance of the first and second orders, the plaintiff delivered goods, but on inspection the defendant discovered them to be glass beads instead of crystal machine cut chatons. He complained to the plaintiff and demanded a refund of what he had paid. The plaintiff's representative agreed that a mistake had been made, asked him to wait for settlement, and promised to refund the cheque. The plaintiff however did none of these things; nor did it deliver the goods ordered in the third order. The defendant countermanded the cheque. He counterclaims for repayment of the sum of $101,073.00 already paid and for return of the countermanded cheque.

4. By way of reply and defence to the counterclaim the plaintiff pleads that there was a verbal agreement on 20 July 2001 for sale of 46,000 rhinestones which were delivered COD by two separate shipments to the defendant at Yiwu City, China on 22 and 25 July 2001. By a further verbal agreement made on 26 July 2001 the parties agreed the sale and purchase of an order of rhinestones at a total price of $134,202.70, for delivery to the defendant in Yiwu City, China on 29 July 2001 with payment to be made by a cheque post-dated for two weeks. This cheque was dishonoured. By a further verbal agreement on about 1 August 2001 the parties agreed the sale and purchase of another order of rhinestones at a price of $100,488.18, for delivery to the defendant at Yiwu City, China, on 5 August 2001, for which the defendant was to pay by cheque a few days later. The plaintiff says that all the rhinestones were delivered but the defendant failed to settle the amount due under this last order.

5. There is no dispute that the plaintiff first agreed to sell and the defendant to buy crystal rhinestones, size SS6.5, for shipment to Yiwu City, China. The plaintiff issued the following invoices:

6. For these goods the defendant issued one cheque dated 20 July for $22,255.00 and one cheque dated 23 July for $78,818.00. Both cheques were duly honoured.

7. The plaintiff's sales representative, Mr. Leung Kim Ming, Alfred ("Mr. Leung") says that the first lot of rhinestones was all he had in stock and that it was agreed that they should be sent first by express courier, with the balance to follow by air cargo; and this is what happened. He produces a copy air waybill in support. The defendant says that having ordered the first 10,000 gross, he was told by Mr. Leung that it would be difficult for the plaintiff to deliver such a small quantity, and that Mr. Leung asked him to order more.

8. The defendant then ordered a further 23,000 gross of size SS6.5 crystal rhinestones and a quantity of others of different colours and descriptions. The plaintiff issued the following invoice to cover them:

9. The defendant drew the cheque dated 11 August 2001, which was subsequently dishonoured, for this amount.

10. The defendant's evidence on this order is that Mr. Leung persuaded him to make it, some time in early August 2001. At first he refused to place any further orders without first receiving the goods he had already ordered. But Mr. Leung represented to him that the plaintiff was trustworthy and that the cheque would not be deposited in the bank until after the goods involved in all the orders had been delivered. Relying on this representation, the defendant drew the cheque.

11. Mr. Leung denies making any such representation. He says simply that it was agreed that the defendant could have 2 weeks credit provided that he provided the plaintiff with a two-week post-dated cheque. He says that the goods were sent off on 29 July and produces a copy air waybill in support.

12. Mr. Leung says that on 1 August 2001 the defendant placed a further order by telephone for 46,000 gross of crystal rhinestones. The defendant said that his factory was having difficulty on putting the rhinestones on chains, because the shapes of them were irregular. Mr. Leung suggested that the defendant buy smaller stones or take "A-grade" stones, rather than the "B-grade" stones already supplied. The defendant said that he wanted the "B-grade" stones but would take some smaller stones to see if the problem could be fixed. The defendant said that he could not give the plaintiff a cheque, because he was out of Hong Kong, but would let the plaintiff have it when he returned to Hong Kong a few days later. Accordingly the plaintiff agreed to ship the goods. It issued the following invoice:

and the goods were duly dispatched. However, payment for them was never received.

13. The defendant's evidence is that on or about 7 August 2001, in purported performance of what he calls the first and second orders, and the plaintiff the first order, goods were delivered to him at Yiwu City. He found that they were not crystal machine cut chatons, but glass beads. He complained to the plaintiff and demanded that they be taken back, the payments made by his first two cheques be refunded, and that the third cheque for $134,202.70 be returned. Mr. Leung inspected the goods at the defendant's office, confirmed that the plaintiff's workers had made a mistake, assured the defendant that he would arrange proper settlement, and asked the defendant to keep the goods until he sorted out the problem. He also assured the defendant that he would return the third cheque. However, the plaintiff failed or refused to do any of this.

14. In paragraph 2 of his defence the defendant says that paragraphs 1 and 2 of the plaintiff's statement of claim are not admitted and the plaintiff is put to strict proof thereof. Apart from this there are no specific averments concerning the plaintiff's claim for $100,488.18 being the price of goods sold and delivered under invoice no. INV02253 dated 3 August 2001. Nor is there anything touching on this matter in the defendant's affirmation, though, to be fair, it was only made in response to the application for judgment on the dishonoured cheque. At best it can be said that the defendant has made a bare denial. If application had been made in respect of the claim for goods sold and delivered under invoice no. INV02253, it might have been appropriate for the Master to give summary judgment on it; but the application was only in respect of the cheque. This other head of claim was not before the Master, and does not concern us here, though an application could no doubt be made in future.

15. What the defendant says about the cheque is in effect that there was an agreement not to present it until all the goods ordered up to the date of drawing it had been delivered.

16. Section 3 of the Bills of Exchange Ordinance, Cap. 19 defines a bill of exchange in the following terms:-

"(1) A bill of exchange is an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to, or to the order of, a specified person or to bearer.

(2) An instrument which does not comply with these conditions, or which orders any act to be done in addition to the payment of money, is not a bill of exchange."

17. Under section 73 of the Ordinance, a cheque is a bill of exchange drawn on a banker payable on demand. A line of cases, for example, New London Credit Syndicate, Limited v Neale [1898] 2 QB 487, Hitchings and Coulthurst Company v Northern Leather Company of America and Doushkess [1914] 3 KB 907, Great Sincere Trading Co., Ltd. v Swee Hong & Co. [1968] HKLR 660 and Suen Hoi Sun v Kamenar International Limited [1989] 1 HKC 135 demonstrate that attempts to alter the terms of payment are inconsistent with the written instrument and are not inadmissible in evidence.

18. Delivery of a bill may be shown to be conditional. Section 21(2) provides:

(2) As between immediate parties, and as regards a remote party other than a holder in due course, the delivery-

(a) in order to be effectual, must be made either by or under the authority of the party drawing, accepting, or indorsing, as the case may be;

(b) may be shown to have been conditional or for a special purpose only, and not for the purpose of transferring the property in the bill;

but if the bill is in the hands of a holder in due course, a valid delivery of the bill by all parties prior to him, so as to make them liable to him, is conclusively presumed.

19. This matter was considered by the Court of Appeal in Suen Ho Sun v Kamenar International Ltd [1989] 1 HKC 135. Hunter JA said this at p. 138:

"Before the judge below, two points were taken. Firstly, it was said that there was conditional delivery of this cheque within s 21 of the Ordinance and reliance was particularly placed upon para 28 of the affirmation which I have just read. Secondly, it was said that there was a total failure of consideration.

The judge rejected both those arguments, and in my view, he was quite right to do so. As far as conditional delivery is concerned, I can see nothing in the evidence filed which starts to make out a true case of conditional delivery of a cheque. It is important to bear in mind that this is a limited defence. This appears from Byles on Bills of Exchange (25th Ed) p 373, where the author comments upon the selfsame section which fortunately has the same number in the English Bills of Exchange Act. He says:

'the section allows evidence to be led (other than as against a holder in due course) that there was no delivery by the defendant with the intention of transferring property in the instrument ... or that the delivery was subject to the fulfilment of a condition suspending the operation of the instrument.'

In my judgment, there was no such condition here at all. This cheque was simply delivered as a cheque in part payment of the purchase price, the payment of the 'balance of 30%' of the purchase price, as the deponent described it. What was really sought to be done here was to vary the conditions of payment by oral agreement. The cheque, as it stood, was an unconditional order in writing by the defendants to their bankers to pay the sum named to the plaintiff on or after 4 January. When all these oral conditions are read into it, the effect is quite different. It becomes, first, a conditional order to pay, conditional upon acceptance of the goods by the sub-buyer. Secondly, it is not an order to pay on or after 4 January; it is an order to pay only after such acceptance happens and is communicated. Thirdly, by a second affidavit, it is said to be an unconditional order to pay unless countermanded earlier by this defendant. This really left the document totally worthless in the plaintiff's hands.

That defence was considered and rejected by the trial judge. He referred to the leading authorities: New London Credit Syndicate Ltd v Neale [1898] 2 QB 487, where one finds the principle particularly in the judgment of AL Smith LJ at p 490 and Vaughan Williams LJ at p 491; Hitchings & Coulthurst Co v Northern Leather Co of America [1914] 3 KB 907, a decision of Bailhache J; and thirdly, the Hong Kong decision of Great Sincere Trading Co Ltd v Swee Hong & Co [1968] HKLR 660. All of these cases show that attempts like this to alter the terms of payment are quite inconsistent with the written instrument and are not admissible in evidence."

20. Mayo JA in Lin Hsien Tseng v Ho Sin Mui Bonnie, Civil Appeal no. 162 of 2002 cited the above passage with approval.

21. In this case, it seems that the defendant is alleging an agreement to alter the terms of the cheque by oral evidence because he is saying that payment is not to be made on the date of the cheque but only after a condition as to delivery of goods, including goods not related to the cheque, had been fulfilled. It would follow that the defendant's evidence on this point should be regarded as inadmissible.

22. The defendant is also saying that there was a total failure of consideration because the goods for which it was drawn, i.e. those under invoice no. INV02066 were not delivered. He says at paragraph 10 that since the time the defendant placed the 3rd order (i.e. that covered by INV02066) the plaintiff failed to deliver any or any part of the goods in respect of the 3rd order, and the defendant therefore had no choice but to countermand the cheque. However the cheque was drawn for the purchase of the goods, and not for their delivery by a particular date. It is not clear how long delivery would take. Non-delivery by 11 August would not amount to failure of consideration, unless delivery by that date was part of the consideration.

23. The defendant also says that at a meeting, we know not when but necessarily after 7 August, at the office of the defendant, "Mr. Leung assured the defendant of proper settlement of the matter and requested the defendant to withhold the delivered goods until he sorted out the problem. He also assured that he would soon return the 3rd cheque to the defendant."

24. The defendant does not say what was to happen to the goods under invoice no. INV0266. He does not say whether the parties agreed to rescind the contract in respect of them or simply that nothing would be done pending settlement, but either way his evidence is that Mr. Leung agreed to return the cheque rather than present it for payment.

25. While there is a general joinder of issue on the defence, there is unfortunately no evidence in Mr. Leung's second affirmation, made in response to that of the defendant, about this alleged agreement. There is nothing in the evidence to indicate that it could not have happened. It seems to me that there must be a triable issue as to whether or not the parties made a later agreement to return the cheque, whether on rescission of the contract or otherwise.

26. It follows that for this reason the appeal must be allowed. The order of the Master dated 2 December 2002 granting judgment for $134,202.70, being part of the plaintiff's claim is set aside. The costs of this application and before the Master be (nisi) to the defendant in any event.

Remarks: