Ralf-rudiger Von Behren v. Johnson C.S. Chan
Read the full judgment text of HCA 1077/1971 on BabelCite. This High Court CFI judgment was delivered on 17 December 1971.
1. It would appear that, late in 1970, difficulties arose between the parties concerning the existing state of accounts between them. The full extent of these difficulties involves a story of a very complicated character and it will suffice for the purpose of these proceedings to say that these difficulties appear to have arisen (a), as result of delays upon both sides in discharging certain of the obligations of their business relationship; and (b), because of a dispute which arose between them
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HCA001077/1971 IN THE SUPREME COURT OF HONG KONG ORIGINAL JURISDICTION ACTION NO. 1077 OF 1971 -----------------
----------------- Coram: McMullin J. in Chambers. Date of Judgment: 17 December 1971 ----------------- JUDGMENT ----------------- McMullin J.: The plaintiff in this action is a German merchant whose establishment is in Hamburg and the defendant has been in trade in Hong Kong since the year 1957 under the style of Parkson and Company. For the past three years, since 1969, the plaintiff and the defendant have contracted a considerable and steadily growing volume of business with each other in respect of export by the defendant to the plaintiff in Germany of quantities of garments such as shirts, women's sweaters and the like, financed in the usual way through banking accounts in Hong Kong and Germany. By 1970 the plaintiff had become one of Parkson's largest customers and the volume of business at that time being done annually amounted to some six million Hong Kong dollars. The plaintiff would order the goods which he required and upon receipt of the order Parkson & Company, if such goods were available, would make out an invoice confirming the order and send this to the plaintiff who would pay cash for the goods upon delivery in Germany. 1. It would appear that, late in 1970, difficulties arose between the parties concerning the existing state of accounts between them. The full extent of these difficulties involves a story of a very complicated character and it will suffice for the purpose of these proceedings to say that these difficulties appear to have arisen (a), as result of delays upon both sides in discharging certain of the obligations of their business relationship; and (b), because of a dispute which arose between them concerning the quality of goods being shipped and the prices being charged therefor. 2. The plaintiff's claim is a very simple one. He claims, firstly, under a bill of exchange drawn at Hamburg on the 1st of October, 1970 for the sum of twenty thousand U.S. dollars payable upon the 31st of March 1971; secondly, upon a similar bill for ten thousand dollars dated 20th of October 1970 drawn at Hong Kong and payable on the 31st of March 1971; thirdly, on a similar bill dated the 5th of February 1971 drawn at Hong Kong for U.S.$7,549.16 payable on the 30th of April, 1971. The defendant does not deny that these three bills were drawn by the plaintiff nor does he deny that they were all duly accepted by him. He admits that the bills were all dishonoured upon presentations but he says that in the case of each bill the bank refused payment at his instance and for good reason. So far as the first and third of these bills are concerned it is his defence that no good consideration was given for either of them and further that his acceptance of them was exacted by duress on the part of the plaintiff. As to the second bill, dated the 20th of October, 1970, for ten thousand U.S. dollars, he says that this, though in form an ordinary bill of exchange, was in fact, by agreement with the plaintiff, made out as an item of documentary evidence to show the approximate state of his indebtedness to the plaintiff in the month of October 1970. He says, further, that the plaintiff expressly agreed that this bill would never be presented for payment. 3. In addition to these specific lines of defence Mr. Mills-Owens for the defendant has also asked me to have regard to the fact that the defendant contends, that on a thorough and exact examination of the present state of accounts between the two parties it will be found that the defendant has in any event a counterclaim against the plaintiff far overtopping the plaintiff's claim against the defendant under these bills. Mr. Mills-Owens acknowledges the powerful authority of the decision in James Lamont & Co. Ltd. v. Hyland Ltd. ([1950] 1 K.B. 585) upon which Mr. Ching for the plaintiff relies and he does not dispute that the normal reaction of the court in such a case as the present is that which is succinctly expressed by Roxburgh J. in that case where the learned Judge, having considered the principle involved in earlier cases, says at page 593:-
He points out, however, that the matter still is a question of discretion notwithstanding the rule that, as between the immediate parties to a bill of exchange, the bill is to be treated as being equivalent to cash. In this connection he referred to the unreported case of Carter v. Countess of Warwick a decision ascribed to the Court of Appeal in the commentary upon Rules 3 and 4 or Order 14 at page 129 in the White Book where the learned authors report the effect of the decision in the following rather cryptic note:-
Mr. Ching, on the other hand relies, among other matters, upon a later passage in the same commentary which appears at page 132 where the commentator (above a flourish of fully reported decisions, including the decision in James Lamont & Co. Ltd. v. Hyland Ltd.) delivers a somewhat contradictory verdict in the following terms:
For my own part I own to some doubt as to whether James Lamont & Co. is quite so absolute an authority as it is sometimes represented to be on this matter. In delivering his assessment of the "tenor" of the authorities, Roxburgh J. is careful to point out that although the older authorities on bills of exchange to which he had referred in his judgment indicated that no good defence could be put up if it amounted only to a defence of partial failure of consideration, nevertheless there might, in those cases, have been a good defence if it had been alleged that the goods tendered had not been of the contract description and had been rejected as, in that event, the defence would have amounted to a total failure of consideration which would be a good defence to an action on a bill of exchange. He also noted, while clearly not approving, the decision, in Court v. Sheen ([1891] 7 P.L.R. 556) where the court apparently refused to permit the plaintiff to sign immediate judgment in respect of a dishonoured bill where the defence was partial failure of consideration on the basis of inferior merchandise. More importantly, in respect of our present purposes however, he notes the comments of the judges in the case of Anglo Italian Bank v. Davies ([1878] 38 L.T. 197) a case in which the defendants resisted a claim under certain promissory note on the ground that they had a good defence and a good counterclaim. In that case Thesiger L.J. said:-
With this, however, he contrasts a passage from the leading judgment in that case which was delivered by Jessel M.R. and which, as the learned judge rightly observed, strikes a rather different note. The Master of the Rolls said:-
In later decision Brown, Shipley & Co. Ltd. v. Alicia Hosury, Ltd. ([1966] 1 I Loyds Rep. 668) a later Master of the Rolls (Lord Denning) in approving and following the judgment of Roxburgh J. refers to the Anglo Italian case and appears to leave the door still open at least for the grant of a stay of execution in exceptional circumstances. Whatever may be the present status at law of this kind of defence, in actionsupon bills of exchange or promissory notes I am, however, satisfied that the circumstances disclosed before me are not such as would justify me in saying that grounds of counterclaim have been disclosed of such an exceptional sort and so intricated with the subject matter of the bills of exchange that I could not in justice, and without hearing further from the defendant, enforce the simple contractual liability disclosed upon the face of the three bills. 4. As to the grounds of defence, I will deal firstly with the first and the third bill as the matters alleged in their regard by the defendant are of very similar nature and it is in respect of them that he alleges duress and want of consideration. The plaintiff and the defendant are by no means ad idem concerning the circumstances leading up to the making of these two bills. The facts are complicated and are dealt with somewhat differently by each of them in their lengthy affidavits. As regards the first bill, for U.S. $20,000, the plaintiff's contention is that a quantity of shirts was delivered at Hamburg which proved to be unmerchantable and that this was discovered by him only after he had paid in full for that consignment a sum of about U.S.$161,000. This was early in 1970 and in February of that year he met the defendant in Hong Kong and after discussion the latter, according to the plaintiff, agreed that the shirts had been of unmerchantable quality and might rightly have been rejected by the plaintiff. He agreed to a compromise whereby the plaintiff having sold the shirts for what they would fetch would be reimbursed for the money outlaid upon the unmerchantable goods, firstly, by a cash payment of U.S.$32,632.85; secondly, by allowing discount of 10% of the invoice price of all subsequent goods delivered in that year, and thirdly, by an undertaking to pay the cost of the survey report which had resulted in the condemning of the goods. 5. These arrangements were embodied in a written agreement signed by both parties which appears an Exh. M.J.E.T. 1 to the affidavit of Mr. Thornhill dated 5th of October 1971. Thereafter it would appear that the plaintiff continued to buy further goods from the defendant in the year 1970 but later in that year he had occasion to complain once more. He met the defendant in September 1970 in Hong Kong and after discussion the defendant agreed that he had overcharged the plaintiff in respect of certain goods which had been delivered and agreed to a deduction from the prices shown in certain invoices covering those goods in a total sum of $25,000 of which $5,000 was to be paid at once in cash. In addition, the plaintiff says, the defendant agreed that certain shirts delivered later in the year, and for which the plaintiff had paid a sum of about U.S.$80,000 were defective. It was agreed that a refund in respect of these shirts in the sum of U.S.$25,000 should be made to the plaintiff. Following upon a general mutual examination of the state of accounts on that date (16th September 1970) the plaintiff alleges that the defendant agreed that by the end of 1970 a balance in the region of $20,000 U.S. would be owing to the defendant. He agreed therefore to sign a bill of exchange in that sum. In support of these contentions the plaintiff exhibited a further written agreement between the parties ratifying these arrangements. This written agreement appears as Exh. M.J.E.T.2 to the same affidavit of Mr. Thornhill. 6. As regards the third bill, for $7,549.16 U.S. this, according to the plaintiff, was occasioned by his receipt of substandard goods which had been paid for in full (subject to the 10% discount agreed to by the defendant on the first occasion when the quality of his goods had been complained of). It would appear that, upon this occasion, mutual allegations of indebtedness had passed between the parties and the figure in this third bill was arrived at by the plaintiff after calculating what he considered to be the amount outstanding in his favour at the date of the letter (28th of December 1970) written by the defendant to him claiming that there was a credit balance to the defendant's account in connection with air freight amounting to U.S.$2,035.47. According to the plaintiff upon being presented with this figure and following upon the plaintiff's request that the defendant should make out a bill of exchange to cover it the defendant did so without further demur. 7. So far as the bill of U.S.$20,000 (the first bill) is concerned the defendant does not appear to dispute that the plaintiff complained both of the quality of the goods and of an overcharge in regard to them although he has made no reference in his affidavit to the agreement M.J.E.T.1 or the agreement M.J.E.T.2. The burden of his complaint in respect of these bills is that the plaintiff's conduct was wholly unreasonable and that had he, the defendant, not signed the bill for U.S.$20,000 trading between them would have ceased. The furthest he dares put his allegation of duress in respect of this bill is to say (see para.4(2) of his affidavit dated 12th of June 1971) that:
In sum, his allegation as regards this first bill is that the plaintiff was unjustified in his complaint concerning the goods and that, knowing that the defendant had already suck a great deal of money in the preparation of other goods which were to form the subject matter of further transactions between them, he forced the defendant by a threat of breakdown in their commercial relationship to sign a bill to cover dificiencies in goods already delivered which the defendant did not and does not truly admit to exist and the signing of which bill he alleges a full taking of accounts and a full examination of the evidence will show to have been quite unnecessary and unjustified. 8. It will be evident from what has been already said that the plea of failure of consideration and the plea of duress are, on the facts as the defendant alleges them, two sides of the same coin. During the year 1970 it is claimed that there were several transactions between the two parties involving the shipment of goods from Hong Kong to Germany each transaction being accompanied in the usual way with the usual interchange of documents and instructions to the bankers. It is equally plain that in that period both parties made representations to each other concerning the existing state of their mutual indebtedness at the date of each such representation. I see no reason on the evidence before me to suppose that either party was willfully mis-representing the state of his own mind in making such representations. It may be that the impetus of commercial relationships between them was maintained by what amounted to a threat on the part of the plaintiff that unless the bills were signed no further business would result. The defendant may well have had some genuine reservation as to the state of accounts at the time he signed the bill. But it goes far beyond the reality of that situation to suggest that he did so under any degree of coercion sufficient in law to amount to duress. Mr. Mills-Owens on the question of duress in relation to cheques promissory notes and the like cited to me the following cases:
I have considered these decisions but they do not seem to me to come anywhere near supporting the proposition put forward here viz: that where a merchant is prevailed upon to make an interim settlement by way of a bill of exchange in respect of an account between him and another party and does so to maintain good commercial relations though with some reservations as to whether the amount to be covered by the bill is truly due, or whether it may be overtopped by debts owing to him from the other party, that he may later claim, once he has satisfied himself that his misgivings were justified, that he was the victim of duress. In the first two of these decided cases the instrument was given by the offended party under actual threat of criminal proceedings. The third case concerned a young woman who felt herself compelled by filial affection to underwrite her father's debt by giving a bill of exchange to his creditor after her father had prevailed upon her to do so with a plea that, if she refused to do so, he would become a bankrupt and the family would be rendered homeless. 9. It appears to me that what occurred in respect of this first bill of exchange and even accepting the defendant's account of the matter was a transaction of the sort aptly described in the language of Roxburgh J. (James Lamont & Co. Ltd. v. Hyland Ltd. supra) where, in dealing with the special position of bills of exchange and what matters may be pleaded to defeat them, he says (page 591):-
The latter alternative appears neatly to sum up the situation in the present case. In a brief but helpful commentary upon the topic of duress Lord Jowitt in his dictionary says as follows:-
The words I have underlined express exactly the defendant's true remedy in this case. It may be that upon a final taking of accounts or upon the final disposal of the present action it will be discovered that the state of accounts between the parties at the date when this bill was signed favoured the defendant rather than the plaintiff but no such consideration can avail the defendant at this stage. If a businessman is weak enough or uncertain enough or perhaps merely hopeful enough of future advantage to clothe his promise to pay another with the special solemnity provided by a bill of exchange he must not later complain of the consequences which that solemn form implies at any rate in the absence of outright fraud, misrepresentation, mistake or duress properly so called. 10. The suggestion that no good consideration was given for this bill depends directly on the questionoof duress. If there was no duress and the defendant nevertheless saw fit to give his bill he must pay up upon it. If he decides later that his reason for giving the bill was insubstantial and that he never need have given it, his remedy is to claim back what was supposedly covered by the bill at the time that it was given. If and when he does so his action, no doubt, will rest upon want of good consideration. 11. So far as the third bill is concerned (i.e. the bill of U.S.$10,000) precisely similar considerations apply. The Giving of this bill was, once again, occasioned by complaints made by the plaintiff to the defendant concerning certain goods which were alleged to be defective. This complaint was made in answer to a letter by the defendant to the plaintiff on the 28th of December 1970 claiming a credit balance in his favour in a sum of U.S.$2,036.47 arising from a certain air freight account maintained in Germany by the plaintiff. It is the defendant's contention that this sum should be deducted from the sum of U.S.$30,000 represented by the two bills one for U.S.$20,000 to which I have already referred and the other (which I have referred to as the second bill) for U.S.$10,000. It was following upon this interchange between the parties, and whatever his true feeling may have been in the matter, that the defendant consented to sign a bill at U.S.$7,549.15. The defendant in this regard complains of the high-handed action of the plaintiff in charging interest upon an outstanding debt owed to the plaintiff to offset the plaintiff's indebtedness to his own back in respect of interest paid by him upon his bank overdraft. His entitlement to do so may well be a matter for question upon the trial of the action. For all that, it is clear that the signing of the bill was, in the eyes of the defendant at that time, an acceptable alternative to further exchanges on the matter. What is clear is that I cannot be asked in this forum and upon affidavits only to pronounce upon the true state of the accounts of the parties at any given moment of time during the currency of their business relationship. The question of their overall contractual condition as to debit and credit remains to be tested upon trial but the immediate debt represented by the bill cannot be postponed by reference to that wider question. 12. The position as to the second bill of exchange (the bill for U.S.$10,000) is somewhat different. What the plaintiff says concerning this bill is simply that it represents a price reduction for certain lambs wool sweaters which he had purchased from the defendant and which upon arrival were found to be totally unmerchantable. He says that he then proposed to the defendant that he should sell the defective sweaters at a reduced rate of D.M.4.50 each and that the balance of the purchase price which he had already paid, i.e. U.S.$22,393.70, amounting to a sum of U.S.$16,665 should be repaid by the defendant. This was to be accomplished by the plaintiff placing U.S.$6,665 to the credit of the air-freight account maintained to cover the cost of airfreight of goods sent by air at his request by the defendant thus leaving a balance of U.S.$10,000. According to the plaintiff this balance was covered by the bill of exchange for U.S.$10,000. As against this, however, the defendant maintains that the bill was given by his as the result of an interim taking of accounts between himself and the plaintiff when the latter was in Hong Kong and that at that time, no final balancedcould be struck. He says that the plaintiff prevailed upon him to give the bill "as evidence of the approximate amount due by Parkson to the plaintiff at that time tending the final figure to be settled." (see para.6(a) of the defendant's affidavit of the 12th of June 1971). The defendant purports in this instance to rely upon an unequivocal promise by the plaintiff not to present the bill for payment but to use it for this special purpose only. It is a pity that matters of this sort must be disposed of upon affidavits and I think cross-examination of the defendant upon this point might have been very illuminating. If however the plaintiff is right in saying (see para.6(1) of his affidavit of the 2nd of October 1971) that a letter written to him on the 28th of December 1970 contains a reference to the two bills totalling U.S.$30,000 and suggesting, because of his own reappraisal of the accounts, that a credit of U.S.$2,035.47 is due to him on the air-freight account, (and it is difficult to see what use this letter can be referring to) then the allegation that the bill for U.S.$10,000 was a mere evidentiary device would seem to be demolished by what the defendant himself said. That letter, or at least that part of it which referred to the two bills, appears to be predicated upon the view that, so far from the smaller bill, being a scrap of paper for the assistance of an accountant, it was in truth an earnest of payment. No suggestion is made in that letter that the smaller bill is not to be honoured and all that is said is that the sum of the two bills should be somewhat reduced because of an alleged balance in favour of the defendant in the air-freight account. Apart from this the suggestion that two businessmen would resort to a bill of exchange in order to provide documentary evidence of the provisional and tentative condition of accounts between them seems to me wholly unrealistic. 13. As a result therefore I find that the defendant has not shown any good ground of defence in respect of any one of the three bills and the plaintiff must recover judgment upon them forthwith. A question of interest which is also claimed by the plaintiff in respect of these bills remains to be argued.
Representation: Johnson, Stokes & Master for plaintiff. D.W. Ling & Co. for defendant. |