Spreadup Ltd. v. Wayton Industrial Ltd. and Another

HCA001040/1999

HCA 1039/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1039 OF 1999

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HCA 1040/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1040 OF 1999

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Coram: The Honourable Mr. Justice Yeung in Chambers

Date of Hearing: 28 September 1999

Date of Reasons for Decision: 28 September 1999

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REASONS FOR DECISION

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1. In both actions, the respective Plaintiffs claim against the Defendants, Wayton Industrial Limited and Kun Kiu Chung as drawer and guarantor of dishonoured cheques.

2. The Plaintiff in the HCA 1039/1999 Scheco (Hong Kong) Co. Ltd.'s ("Scheco") claim is for $19,328,517.28 being the balance of five dishonoured cheques for the total sum of just over $22,000,000.00. The Plaintiff in HCA 1040/1999, Spreadup Limited's ("Spreadup") claim is for $1,254,592.32 being the balance of one dishonoured cheque for just over $1,256,000.00.

3. As the issues involved in the two cases are identical they were dealt with at the same time. It is also fair to say that the cases for the two Defendants stand or fall together as the 2nd Defendant's only defence is that the 1st Defendant is not liable for the cheques in question and as the guarantor, he is also not liable.

4. Summary judgments in favour of the Plaintiffs were granted by Master Sweeney. The Defendants seek unconditional leave to defend and hence the present appeal.

5. The Defendants agreed that they are respectively the drawer and guarantor of the cheques in question but they claimed to have good defences to the Plaintiffs' claim.

6. The background of the case as presented by the Plaintiffs can be summarised as follow:- The 1st Defendant trades in metal. The metal suppliers require payments by letters of credit. The 1st Defendant did not have the banking facilities to open the requisite letters of credit and the Plaintiffs would assist the 1st Defendant by opening letters of credit to pay the suppliers.

7. When the Plaintiffs obtained the bills of lading from the suppliers, they would be passed on to the 1st Defendant. In return the 1st Defendant would pay the Plaintiffs a commission as well as reimbursing the Plaintiffs for the amounts paid under the letters of credit and other bank charges hence the issue of the dishonoured cheques in question.

8. The suggestion by the Plaintiffs is that when the 1st Defendant collected the bills of lading from the Plaintiffs, the 1st Defendant was required to issue various cheques, some for the Plaintiffs' commission payable immediately; some post-dated cheques for the amounts paid under the letters of credit, that is the price of the goods; and some for the bank charges and interests.

9. The post-dated cheques in question were all given to the Plaintiffs as payment for the price of goods. There is no dispute that cheques paid for the other purposes had all been honoured.

10. The Defendants, on the other hand, suggested that the Plaintiffs and the 1st Defendant had been trading in metal for over 5 or 6 years together. The metal purchased from the suppliers would be re-sold to customers.

11. It is the defence case that the 1st Defendant only act as the agent of the customers to collect the bills of lading from the Plaintiffs and then issue post-dated cheques in exchange for the bills of lading.

12. The Defendants contend that the parties had agreed that the cheques issued by the 1st Defendant were not supposed to be payment to the Plaintiffs. Instead, the Plaintiffs could be paid by other means, such as telegraphic transfer, or bank transfer, or letters of credit with money ultimately coming from the customers.

13. The suggestion is presumably if no money was coming ultimately from the customers, the Plaintiffs would not be paid.

14. The defence also contends that as the identities of the customers were all known to the Plaintiffs. The 1st Defendant is not liable for the cheques issued in the circumstances as described. The defence further contends that there was an agreement between the Plaintiffs and the Defendants that the cheques were not to be presented for payment.

15. The suggestion that there was an agreement between the Plaintiffs and the 1st Defendant that the cheques were not to be presented for payment is clearly unarguable as conceded by Mr. Lee on behalf of the Defendants. Such allegation is a clear attempt to introduce extrinsic oral evidence to contradict the express term of the cheque, namely payment on its due date, a principle established by a long line of authorities.

16. The defence emphasises on the fact that the Plaintiffs had obtained payments of telegraphic transfer, bank transfer or letters of credit with money ultimately from the customers and in such events, the Plaintiffs would not present the cheques for payment even when they become due.

17. As I have observed in the course of counsel's argument, it makes business sense on the arrangement between the parties that payments from customers in whatever form they took would be utilised to reimburse the Plaintiff for the amount paid to the suppliers, and if the payments by the Plaintiff by means of the letter of credit were fully reimbursed, the cheque payments by the Defendants could be discharged. Such arrangement did not, of course, mean that the 1st Defendant was not liable for the cheques when for one reason or another, the payments made by the Plaintiffs by means of the letters of credit had not been reimbursed.

18. Indeed, if the arrangement between the Plaintiffs and the 1st Defendant was that the cheques issued by the 1st Defendant were not supposed to be payment to the Plaintiffs, what was then the reason for the issue of those cheques by the Defendant? There had been no suggestion put forward by the Defendants.

19. If the Plaintiffs and the 1st Defendant were in the business together, and that the Plaintiffs were just paying the suppliers by letters of credit, why was it necessary for the 1st Defendant to issue the cheques to the Plaintiffs? Why would the 1st Defendant issue the cheques as some sort of acknowledgement by the Plaintiffs in order to procure the release of the bill of lading? Again, the defence did not offer any satisfactory explanation to all these questions.

20. There is no dispute that the 1st Defendant had issued cheques as payments to the Plaintiff for other purposes, and it appears that those cheques were all paid. If the relationship between the Plaintiffs and the 1st Defendant was that as the defence claims to be, why did the 1st Defendant issue those other cheques in favour of the Plaintiffs?

21. The defence strongly relies on the suggestion that various sums had been paid to the Plaintiff Scheco in HCA 1039/1999. Scheco contends that for the second cheque for which partial payment had been made and was accounted for, the other payments were in fact payments for commission, handling charges, bank charges and interests.

22. I have considered the matters put forward by the Defendants. I am driven to the conclusion that the defence case on the arrangement between the parties simply do not fit with the uncontested matter of the case, particularly with the other payments that had been made to the Plaintiffs.

23. There is, of course, the admission by the Defendants that they are liable to the Plaintiffs and that the only reason for the non-payment was their own financial difficulties as evidenced in the 1st Defendant's letter to the Shanghai Chemical Import and Export Corporation and the China National Chemical Import and Export Corporation dated 13th March 1999 and 22nd March 1999 respectively.

24. On the facts before me, I am driven to the conclusion that the allegation put forward by the Defendants are not credible. It is a claim for dishonoured cheques and it is for the Defendants to raise an arguable defence. I am not satisfied that the Defendants had demonstrated an arguable defence to the Plaintiffs' claim at such. In fact, the matters put forward by the Defendants appears to be deliberately vague and imprecise.

25. Having said that, I am, however, concerned with certain undisputed facts that in connection with almost each of the cheques in question, there was a written contract signed between the Plaintiffs or their subsidiary company and the 1st Defendant.

26. In the contract relating to the second cheque in HCA 1039/1999, the contracting parties were in fact Spreadup and the 1st Defendant.

27. The contract relating to the third cheque provided that Scheco was to purchase the metal from a Thai factory and then sub-sell the same to the 1st Defendant.

28. The contract relating to the fourth cheque provided that Scheco and the 1st Defendant were to jointly take part in the negotiation for the quantity and delivery of the goods.

29. The contract relating to the fifth cheque was made between Scheco and the customer, Shatou Free Trade Zone Wiltan Company Limited and it provided that the Scheco and the 1st Defendant were to jointly take part in the negotiation for the quantity and the delivery of the goods in question.

30. The contract relating to the cheque, the subject matter in HCA 1040/1999 provided that Spreadup was to purchase the metal from Sino Chem International Chemical (Hong Kong) Limited and then sub-sell the same to the 1st Defendant.

31. As Mr. Lee on behalf of the Defendants submits, the content of the aforesaid contracts is not consistent with the arrangement between the Plaintiffs and the 1st Defendant as suggested by the Plaintiffs.

32. The Plaintiffs did not dispute that the terms of the contracts accompanied the cheques in question to some extent are not consistent with the conduct that the Plaintiffs in fact performed under the arrangement that they had with the Defendants. The Plaintiffs, however, did not explain in details why that was so.

33. Mr. Ng on behalf of the Plaintiffs suggests that such discrepancies are insignificant as the transactions are essentially deals in which the 1st Defendant engaged the services of the Plaintiffs to open the letters of credit and agreed to repay the Plaintiff the amount of the letters of credit by post-dated cheques. Mr. Ng may well be right in his observation but I am of the view that those matters ought to be properly sorted out and those issues can only properly be sorted out at the trial so as to enable the Court to better apprehend the factual background between the parties to decide if, and to what extent, the Defendants' liability under the cheques in question are.

34. Having said that, I am not persuaded in the light of the background, in particular, the clear admission by the Defendants to be responsible for the amount in question that the Defendants should be given unconditional leave to defend. I am of the view that it is highly unlikely that the Defendants can ever succeed in avoiding liability to the cheques in question and that it is a proper case to grant leave to defend only conditional upon the payment into Court of the full amount claimed by the Plaintiffs.

35. The orders I made in relation to the action are as follows. In HCA 1039/1999, leave is granted to the Defendant to defend this action conditional upon the payment of $20,000,000.00 into Court by the Defendant within 21 days. Such payment if made is to be placed in an interest bearing account pending the outcome of the trial. In HCA 1040/1999, leave is granted to the Defendant to defend the action conditional upon the payment of $1,300,000.00 into Court by the Defendant within 21 days. Such payment if made is also to be placed an interest bearing account pending the outcome of the trial.

36. If the aforesaid conditions are satisfied, the appeal is allowed to the extent as indicated with costs of the hearing below and the costs of this appeal to be in the cause to be taxed if not agreed.

37. If the conditions are not satisfied, the appeal is dismissed with costs to the Plaintiffs to be taxed if not agreed.

Representation:

Mr. Kenneth Ng instructed by Messrs. Philip K.H. Wong, Kennedy Y.H. Wong & Co. for the Plaintiff/Respondent

Mr. T.M. Lee instructed by Messrs. Richards Butler for the Defendants/Appellants