Asa Engineering Co Ltd v. Super Link Co Ltd

Case No.CACV 33/1991

Court

Court of Appeal

Date24 Apr 1991

Judge—

Case Document

100%Judiciary

CACV000033/1991

IN THE COURT OF APPEAL	1991, No. 33
	(Civil)

BETWEEN

ASA ENGINEERING COMPANY LIMITED

Plaintiff

AND

SUPER LINK COMPANY LIMITED

Defendant

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Coram: Fuad, V. -P., Penlington, J.A. & Liu, J.

Date of Hearing: 24 April 1991

Date of Judgment: 24 April 1991

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JUDGMENT

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Fuad, V.-P.:

1. The plaintiff, Asa Engineering Co. Ltd. ("Asa") sued the defendant, Super Link Co. Ltd. ("Super Link") in the District Court on two dishonoured cheques, both dated 23rd May 1990 - totalling $92,400. The action was instituted on 30th August 1990 after a solicitors' letter before action was ignored. Super Link filed a Defence with a Counterclaim on 11th September. On 1st October Asa took out a summons under rule 38A of the District Court Civil Procedure (General) Rules applying for the Defence to be struck out upon grounds including that it did not disclose an adequate defence.

2. On 18th January 1991 Judge Henry Wong granted the application and struck out the Defence and Counterclaim and gave judgment in favour of Asa for the amount claimed. He refused a stay of execution. His notes refer to part of paragraph 14/3 - 4/14 of the Supreme Court Practice, on p.154.

3. Super Link now appeals to this Court pursuant to leave granted by Judge Pang. The terms he imposed (that the whole judgment debt be paid into court) have been obeyed.

4. From the pleadings and the affirmations which were before the judge, it appears that the cheques were given in payment for a number of air-conditioners supplied by Asa to Super Link to their order. In respect of each cheque, the bank gave the same written answers for dishonouring them: (a) "Drawn against uncollected funds, please present again: and (b) "Drawer's chop/signature incomplete". It will be seen that the defendant in his Defence avers, quite wrongly, that he countermanded payment of the cheques.

5. In broad summary by its Defence, Super Link avers that :

	(a)	7 units were delivered late; and
	(b)	3 units were not of merchantable quality.

6. Three paragraphs of the defence merit, if that is the word, setting out in full:

	"10. On the condition that if upon the testing of all the said commodities defects were found, the Defendant would countermand any cheques delivered to the Plaintiff and the Plaintiff agreed to the said condition.
	11. Subject to the fulfillment of the said condition for the operation of the cheques, two 30 days post-dated incomplete cheques Nos. 090467 and 090469 were delivered by the Defendant to the Plaintiff in escrow pending the completion of one signatory to authorise the drawing of the said sum on the drawee bank and on condition of pending testing on the said commodities delivered.
	12. On discovery of late delivery of some units of the said commodities, thus delay in testing of the same and the defects found as aforesaid the Defendant countermanded payment of the said cheques and refused to complete the signatory of the said cheques to authorise the drawing of the said sum on the drawee bank."

7. In the Notice of Appeal it is said that the judge should have held that the defence of conditional delivery of the cheques set out in paragraphs 10 and 11 constituted an arguable defence and that the facts pleaded raised an arguable defence under s.21(1) and (2) (b) of the Bills of Exchange Ordinance, Cap. 19. It was also stated that in any event the Counterclaim should not have been struck out as it would "still survive independently even if the defendant's defence was struck out."

8. Mr. K.N. Cheung, who did not appear in the court below, no longer relies on paragraphs 11 and 12 of the Defence which he agrees are unsustainable in so far as averments are made regarding the necessity of more than one signature. He agrees, too, that the evidence does not support the averment of countermanding which is said to have been justified by the pleaded contractual arrangements.

9. In my judgment, on all the material before him, the judge was perfectly right to strike out the Defence and give judgment for Asa. The law is clear - it is only necessary for me to cite from the speech of Lord Russell of Killowen in Nova (Jersey) Knit v. Kammgarn Spinnerei [1977] 1 WLR 713 (H.L.) at p.732:

"This, my Lords, brings me to a consideration of English law in relation to such bills of exchange. It is in my opinion well established that a claim for unliquidated damages under a contract for sale is no defence to a claim under a bill of exchange accepted by the purchaser: nor is it available as a set-off or counterclaim. This is a deep rooted concept of English commercial law. A vendor and purchaser who agree upon payment by acceptance of bills of exchange do so not simply upon the basis that credit is given to the purchaser so that the vendor must in due course sue for the price under the contract of sale. The bill is itself a contract separate from the contract of sale. Its purpose is not merely to serve as a negotiable instrument, it is also to avoid postponement of the purchaser's liability to the vendor himself, a postponement grounded upon some allegation of failure in some respect by the vendor under the underlying contract, unless it be total or quantified partial failure of consideration."

10. It is upon this passage that the learned editors of the Supreme Court Practice based the note in paragraph 14/3 - 4/14 relied upon by the judge, which states, inter alia, that "... 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 ..."when Lord Russell of Killowen referred to a set-off or counterclaim, he meant a defence to the whole or part of the plaintiff's claim or a cross-claim, which would be disposed of in the same action and have the effect of reducing the amount ultimately found to be due to the plaintiff or result in a judgment in the defendant's favour. In other words, in the circumstances dealt with, there must be judgment for the plaintiff for the amount due on the dishonoured cheque with no stay of execution. His Lordship did not mean that a properly pleaded counterclaim cannot be allowed to go forward as if it were a separate action, when a defence has been struck out. This is expressly permitted by RSC 0.15, r.2(3). The learned judge was right in letting the counterclaim stand when he made his original order and should not have allowed himself to be persuaded to change his mind later on review. Mr. Lim, who also did not appear in the court below, had no submissions to make on this point.

11. I would therefore allow the appeal, but only to the extent of restoring the Counterclaim. I would direct that a Defence to the Counterclaim be filed within 14 days from today, and a Reply, if necessary, 14 days after the service of that pleading. I would also make an order permitting the plaintiff to take out of Court the amount paid in by the defendant in compliance with Judge Pang's order of 8th February 1991.

Penlington, J. A.:

12. I agree with the judgment delivered by the learned Vice-President and with the orders he proposes.

Liu, J.:

13. I also agree.

Representation:

Mr. Andrew K.N. Cheung (M/s Chan & Cheng) for the Appellant/Defendant

Mr. E. Lim (M/s Leong, Lam & Co.) for the Respondent/Plaintiff