Great Sincere Trading Co Ltd v. Swee Hong & Co (A Firm)

HCA000528/1968

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

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ACTION NO.528 OF 1968

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ACTION NO.724 OF 1968

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Coram: Mills-Owens J.

Date of Judgment: 14 November 1968

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JUDGMENT

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1. In each of these cases the application is for summary judgment under O.14.

2. I will deal with O.J.724/68 first, where the plaintiff company sues on a cheque drawn by the defendant firm in its favour. Originally the cheque was dated in May 1967; the date was later altered, by agreement, to October 1967; it was not, in fact, presented for payment until May 1968, and was then dishonoured. The defence is that the cheque was given subject to an express oral condition that it should not be presented for payment until a foreign firm known as 'N.V. Lampong' had put the defendants in funds to meet it. N.V. Lampong came into the matter in the following way: N.V. Lampong was a firm resident and doing business in Indonesia and wished to purchase goods from the plaintiff company. The plaintiff company was not willing to trust to the credit of such a foreign firm, and it was accordingly arranged that the defendants should enter into the contracts with the plaintiff. It is now admitted that the defendants contracted as principals, although initially, I have no doubt, the main defence was that the defendants were merely agents. The cheque in question was drawn in respect of goods supplied by the plaintiff to N.V. Lampong under one such contract. The relevant paragraph of the defence affidavit is as follows :-

3. Mr. Remedios, for the plaintiff, relies, in particular, on the judgment of Bayley B. in the case of Ridout v. Bristow ⁽¹⁾, and the judgment of A.L. Smith L.J. in New London Credit Syndicate Ltd. v. Neale ⁽²⁾; he has referred also to the case of Von Zeigler v. The Superior Furniture Co. Ltd. ⁽³⁾. The defence, he argues, is in effect an attempt to adduce oral evidence to contradict the date for payment expressed in the cheque.          

4. Mr. Zimmern, for the defendants, relies on sec.21(2) (b) of the Bills of Exchange Ordinance (Cap.19) which provides that delivery of a bill may be shown to be conditional (except as against a holder in due course, which does not arise here); the full expression is that the delivery -

"(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;"

5. In Ridout v. Bristow ⁽¹⁾ in p.236, Bayley B. said -

"There are cases which establish, that you cannot give parol evidence inconsistent with the form of the note. You cannot vary, by parol evidence, the nature of the obligation. The authorities go to shew, that parol evidence is inadmissible to vary the time for payment expressed in the note. In Rawson v. Walker(1 Stark 361) a note was payable on demand, and evidence was offered to shew a liability on a contingency only. Lord Ellenborough said, 'I am ready to admit any evidence for the purpose of shewing that the consideration of the note was illegal; but I cannot receive parol evidence inconsistent with the terms of the note'. I am therefore of opinion, that the defendant was not at liberty to give the evidence in question, as it was inconsistent with the terms of the note."

6. In New London Credit Syndicate Ltd. v. Neale⁽²⁾ at pp.489-490, A.L. Smith L.J. said -

"This is an action upon a bill of exchange by indorsees against acceptor, but it really may be treated as if it were an action by the drawers, for it is admitted that the indorsees stand in no better position than the drawers, as they had notice of the facts upon which the defendant relies. I do not disagree with the learned judge upon the conflicting evidence with regard to the conversation that took place between the drawers of the bill and the defendant, that there was an agreement by the former that they would not part with the bill, and would renew it, if the defendant was not in a position to pay it at maturity. The question is whether that evidence was admissible. The bill is a written instrument by which the defendant undertakes to pay £100 at the end of three months. It has been held over and over again, that evidence of a contemporaneous oral agreement is not admissible to vary the effect of such an instrument. If the evidence be to the effect that the document is only delivered as an escrow, or that it is not to take effect as a contract until some condition is fulfilled, it is admissible. But that is not this case. This document was signed and handed over as a bill of exchange, but there was an oral agreement that at maturity it should be renewed, if the defendant required it. In other words, although the written document states that the bill is to be met upon a day certain, the parol evidence is that it is not to be then met. Nothing is more clearly settled than that evidence of such an agreement is not admissible. In Abrey v. Crux⁽⁴⁾ Willes J. stated that to be the law as established by the cases of Hoare v. Graham⁽⁵⁾ and Young v. Austen⁽⁶⁾. It was argued by the defendant's counsel that the law as laid down in those cases is altered by the Bills of Exchange Act, 1882. I do not think that it was intended by that Act to alter the general law of evidence which renders parol evidence inadmissible for the purpose of contradicting the terms of a written document."

Mr. Zimmern relies on a passage in the judgment of Rigby L.J. in the same case, at p.491, where the learned Lord Justice said -

"There are certain cases which may conveniently be called 'escrow' cases where the question is whether the written agreement has ever become an effective agreement, or whether it was only to have effect as an agreement upon some condition being fulfilled which has not been fulfilled."

7. The question is whether the arrangement referred to in para.14 of the defence affidavit, assuming it to be true, affords an arguable issue. It is relevant to observe that the arrangement, as it is expressed in the affidavit, was not for presentation when funds became available; it is expressed as the issue of the cheque subject to the condition that it would be honoured only if Lampong put the defendants in funds before the due date. It is not, therefore, at least in terms, a case where the alleged oral arrangement was for the cheque to operate on a date different, or possibly different, from the due date; in other words, it is not - in terms - an arrangement intended to defer the date of payment, in contradiction of the date expressed in the cheque. Is it a case then of the cheque being delivered as a mere escrow; was it, in the terms of section 21(2) (b), delivered conditionally and not for the purpose of passing the property in it? In my view, it is not such a case. The evidence of the alleged oral arrangement, as I see it, is an attempt to qualify the nature or tenor of the instrument; an attempt to introduce into the unconditional order for payment expressed by the instrument itself, a condition contrary to its terms. It is as if when the cheque was handed over the defendants said: "This is a cheque which is not a cheque unless we are put in funds". The defendants, no doubt, would say their statement should be taken as: "This piece of paper is only to become, or be treated as, a cheque if and when we are put in funds". But whichever way it is put the effect is to contradict the instrument, in the circumstances of the case, and that the defendants cannot be permitted to do on the strength merely of oral evidence. As it stated in Byles on Bills (21st Edn.) at p.110 -

"No mere oral agreement can have any effect at law in controlling the instrument, if contemporaneous with the making of it; for that would be to allow oral evidence to vary the written contract."

If the existence of the written contract has to be conceded, as it must on the giving of a cheque, oral evidence is inadmissible to vary or contradict its terms. It may be said that what the defendants seek to allege is a contemporaneous oral agreement showing that what purported to be a complete contract, the cheque, never came into operative existence (Chalmer's (13 Edn.)p.57). In my view, that is not the proper interpretation to be placed upon the alleged oral arrangement, which, as I see it, sought to qualify the order for payment, to qualify the tenor of the instrument, to operate in defeasance of it, not to suspend the contract embodied in it. It is to be noted that according to the alleged arrangement it was the defendants who were to be placed in funds; it is as if a cheque was given on the terms that it would be honoured if the Bank account of the drawer happened to be in funds sufficient to meet it but otherwise not; that would be in complete contradiction of the instrument. To put it another way, the alleged arrangement for the cheque to be met only if the defendants were put in funds by Lampong in effect introduced a contingency into the unqualified contract created by the cheque. I would refer generally to the cases of Foster v. Jolly⁽⁷⁾ and Abrey v. Crux⁽⁴⁾.

8. Accordingly, in the action O.J. 724/68, I would make an order for judgment for the plaintiff company in the amount claimed with costs.

9. Turning to the action O.J. 528/68, this is a claim on one of the contracts entered into between the plaintiff company as seller and the defendants as buyers. As I have said, it is not disputed that, although the goods were intended for N.V. Lampong in Indonesia, the defendants contracted as principals vis-a-vis the plaintiff. The contract in question is the contract No.66 H.K./310 of the 22nd December 1966. (Ex.A to the affidavit of Han Chin Kwang of the defendant firm dated the 17th May 1968); it was for the supply of '300,000 yards Art. No.2010 Printed Shirting'. It provides for payment "By Irrevocable L/C". The defence, as I understand it, is that this method of payment was not adhered to; the goods were, in fact, shipped to N.V. Lampong from the plaintiff's suppliers in Japan directly to N.V. Lampong in Indonesia without a letter of credit having been opened and, of course, without any other form of payment. The defendants emphasize that they did not play any part in the negotiations of the terms of sale and purchase of the goods, that none of the arrangements for shipment were made by them, and that none of the shipping documents passed through their hands. It is submitted on their behalf that when the plaintiff company authorised shipment from Japan, without a letter of credit having been opened as provided for by the contract, the plaintiff company did so on its own responsibility and cannot now look to the defendants for payment. Obviously, if a letter of credit had been opened the present dispute would probably never have arisen.

10. There have also been exhibited seven other contracts entered into between the parties for the supply of goods to N.V. Lampong, dated between July and December 1966. They showed a variety of methods of payment. In order of date, they provide for payment (1) by full prepayment to the plaintiff; (2) by letter of credit in favour of the plaintiff, or in favour of the defendants and to be transferred by them to the plaintiff; (3) by letter of credit in favour of the plaintiff; (4) by cash; (5) by cash; (6) by letter of credit (simpliciter); (7) by letter of credit or cash cheque. These seven contracts were followed by the contract now sued upon. Also put in evidence were various letters and cables sent by the plaintiff company to N.V. Lampong pressing for a letter of credit to be opened in respect of the contract now sued upon; the plaintiff company says these were sent at the defendants' suggestion, and points out that it is evident that copies of the letters were sent contemporaneously to the defendants.

11. It might well be asked what were the defendants going to get out of the transactions. The defendants suggest that they were to get a 1% commission. The plaintiff company says that the defendants were willing to bind themselves personally because Mr. Kho Sin Bin, the managing partner of N.V. Lampong, is the son of Mr. Kho Swee Teng, a partner of the defendant firm. Neither party denies the assertion of the other. There is no suggestion that it was an express term of the overall arrangements between the defendants and the plaintiff that the plaintiff should supply the goods to N.V. Lampong only upon N.V. Lampong securing payment. The variety of methods of payment provided for by the eight contracts in all would lend no support to any such suggestion. Clearly, also, the defendants were in a position to safeguard themselves by requiring to be put in funds or secured by N.V. Lampong to such extent as they might require before executing any particular contract with the plaintiff.

12. It is apparent, in my view, that the defence as originally framed was that the defendants contracted only as agents, and that it was only upon that position being shown to be untenable that resort was made to the defence now raised, namely that the provision for payment by letter of credit meant by letter of credit to be opened by N.V. Lampong in default of which the defendants are not liable. It may well be the case, in the circumstances, that the contract contemplated a letter of credit to be opened by N.V. Lampong although it does not expressly say so. But the condition for payment by that method was a condition in favour of the plaintiff and could be waived by them, which in fact is what they chose to do; it remains uncertain whether the defendants were parties to the waiver. The defendants must be taken to have been aware that as a matter of law the plaintiff company were entitled to waive the condition and might therefore order shipment without payment having been obtained or secured. The defendants themselves brought about that position. As I have said, it is not suggested that the overall arrangement between the defendants and the plaintiff, whereby the plaintiff company was to supply goods to N.V. Lampong, included a term that the plaintiff must always require such a mode of payment as would secure the defendants against having to meet its liability on any contract. That, indeed, would have rendered unnecessary the arrangement whereby the defendants were to contract personally. What the defendants are saying is not merely was the plaintiff bound to use due diligence to secure the opening of a letter of credit by N.V. Lampong before authorising shipment but that the plaintiff was legally bound to secure such a credit. That appears to be placing on the evidence a construction which it cannot bear; in effect it is reducing the liability of the defendants to that of secondary debtors, mere sureties for payment by N.V. Lampong when as it now has to be admitted the defendants contracted as principals; this is in direct contradiction of the written contract (Ex.A), and represents, in my view quite clearly, an endeavour on the part of the defendants to shift their ground upon it becoming apparent that their original defence that they acted only as agents was unsupportable and must be abandoned.

13. In this action also I would, therefore, order judgment to be entered for the plaintiff company on its claim, with costs.

14th November, 1968.

Representation:

L.J. Remedios of D'Almada Remedios & Co. for common plaintiff.

A. Zimmern instructed by Lo & Lo for common defendant.

(1) (1830) Cr. & J. 231.

(2) (1898) 2 Q.B. 487.

(3) (1962) 3 S.A.L.R. 399.

(2) (1898) 2 Q.B. 487.

(4) (1869) L.R. 5 C.P. 37.

(5) (1811) 3 Camp. 57.

(6) L.R. 4 C.P. 553.

(4) (1869) L.R. 5 C.P. 37.

(7) (1835) L Cr. M. & R. 703.