Hong Kong Inter-asiaengineering Ltd v. Yau Luen Metal Works Ltd

DCCJ2098/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2098 OF 2005

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BETWEEN

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Coram : Deputy Judge J. Ko in Chambers

Date of Hearing : 7^th September 2005

Date of Handing Down Decision : 16^th September 2005

DECISION

1.This is the Defendant’s application to strike out the statement of claim in this action pursuant to Order 18, rule 19 of the Rules of the District Court and the inherent jurisdiction of the court on the ground that it is an abuse of the process of the court.

2.The Plaintiff relies on one single cause of action in this case, namely, a claim on 4 dishonoured cheques drawn by the Defendant.

3.It is the Defendant’s contention that the Defendant had already satisfied its liability under those 4 dishonoured cheques by the time of the writ.  Hence, the Plaintiff may not maintain the present action based on those 4 dishonoured cheques and the statement of claim should be struck out.

Background

4.The parties were engaged in 2 projects in Kowloon Bay (hereinafter called the “Kowloon Bay Project”) and Penny’s Bay (hereinafter called “Disneyland Project”) respectively at the material times.  It is common ground that the 2 projects are distinct projects.

5.On 20^th April 2005, the Defendant drew 4 cheques in favour of the Plaintiff.  It is common ground that cheque no. 805533 in the sum of $45,000 was in settlement of the final account for Kowloon Bay Project and cheque nos. 805534, 805535 and 805536 in the total sum of $150,046 were in partial settlement of the amount due by the Defendant to the Plaintiff in Disneyland Project

6.The 4 cheques were dishonoured upon presentment on 21^st April 2005.  On 7^th May 2005, the Plaintiff issued the writ in this action against the Defendant to claim for the total sum of $195,046.

7.It is the Defendant’s case that it has settled its liability under those 4 dishonoured cheques by the following payments:

(a)	$45,000 on 26th April 2005 by means of bank transfer; and
(b)	$150,046 on 30th April 2005 by means of a cheque.

8.The Defendant submits that since its liability under the 4 dishonoured cheques have been fully discharged as at the date of the writ, the Plaintiff is not entitled to claim against the Defendant on the 4 dishonoured cheques in this action.

9.The Plaintiff admits having received the 2 payments from the Defendant.  However, the Plaintiff says that the said payments were made in compliance with the payment obligation imposed by the Plaintiff in its letters dated 22^nd, 25^th and 29^th April 2005 respectively and has been treated by the Plaintiff as partial settlement of the amount due by the Defendant to the Plaintiff in Disneyland Project.

The main issue

10.The main issue in this application is what the said 2 payments made by the Defendant to the Plaintiff were for.  This involves a consideration of the law on appropriation of payments.

The relevant legal principles

11.The relevant legal principles on appropriation of payments have been summarized by the learned editors of Chitty on Contracts, 29^th ed. (2004), para.21-059 and 21-061 as follows:

"Where several separate debts are due from the debtor to the creditor, the debtor may, when making a payment, appropriate the money paid to a particular debt or debts, and if the creditor accepts the payment so appropriated, he must apply it in the manner directed by the debtor; if, however, the debtor makes no appropriation when making the payment, the creditor may do so.  It is essential that an appropriation by the debtor should take the form of a communication, express or implied, to the creditor of the debtor's intention to appropriate the payment to a specified debt (or debts), so that the creditor may know that his rights of appropriation as creditor cannot arise.  It is not essential that the debtor should expressly specify at the time of the payment, which debt or account he intended the payment to be applied to. His intention may be collected from other circumstances showing that he intended at the time of the payment to appropriate it to a specified debt or account"

12.These principles have been accepted by the Court of Appeal in Murdoch Investments Inc. v. Yangtze Coaxial Cable Ltd., CACV 123/2000 as correct.

Discussion

13.It is common ground that the Defendant did not expressly communicated to the Plaintiff what the 2 payments were for.

14.As I have noted above, the Plaintiff’s position is that the 2 payments were made in compliance with the payment obligation imposed by the Plaintiff in the Plaintiff’s letters dated 22^nd, 25^th and 29^th April 2005 respectively.  Is that the case?

15.Mr. Wong, the solicitor representing the Plaintiff, has taken me through the correspondences between the parties to illustrate that there had been a dispute between the parties in relation to Disneyland Project as early as in November 2004 and that the Plaintiff had on various occasions alleged different amounts then owed by the Defendant to the Plaintiff in relation to Disneyland Project.

16.In particular, Mr. Wong draws my attention to the following letters:

(a)	The Plaintiff’s letter dated 22nd April 2005, in which the then outstanding amount in Disneyland Project was impliedly stated to be $513,397 (i.e. $770,474 – $257,077) and the Plaintiff demanded payment.  The Plaintiff further noted that cheque nos. 805534, 805535 and 805536 had been dishonoured and demanded for payment of $150,046.
(b)	The Plaintiff’s letter dated 25th April 2005, in which the then outstanding amount in Disneyland Project was alleged to be $617,097 (inclusive of the $150,046 due by reason of the dishonour of cheque nos. 805534, 805535 and 805536) and the Plaintiff demanded payment.
(c)	The Plaintiff’s letter dated 29th April 2005, in which the then outstanding amount in Disneyland Project was alleged to be $628,133 and the Plaintiff demanded payment in the sum of $220,000 by 30th April 2005.
(d)	The Plaintiff’s letter dated 4th May 2005, in which the then outstanding amount in Disneyland Project was alleged to be $478,133 and the Plaintiff demanded payment.

17.Mr. Wong is quite unable to explain at the hearing the difference in the outstanding amounts alleged in these letters.  There is also no evidence that the Defendant has ever accepted the amounts stated in those letters to be due from the Defendant.

18.Mr. Wong is also unable to illustrate how the 2 payments made by the Defendant can be said to relate to these letters.    In any event, the payment of $45,000 made on 26^th April can certainly not be referable to the demands made subsequently in the Plaintiff’s letter dated 29^th April and 4^th May.

20.The Plaintiff has failed to satisfy me that the 2 payments made by the Defendant were made in compliance with any payment obligation imposed by the Plaintiff in the said letters.

21.I now turn to the Defendant’s contention.  Miss Cheung, counsel for the Defendant, submits that the Defendant’s intention has always been that the 2 payments were made to settle the Defendant’s liability under the 4 dishonoured cheques.  She relies on the fact that:

(a)	the amount of the payment on 26th April 2005 (i.e. $45,000) was identical to the amount stated on cheque no. 805533; and
(b)	the amount of the payment on 30th April 2005 (i.e. $150,046) was identical to the total amount stated on cheque nos. 805534, 805535 and 805536.

22.Miss Cheung therefore submits that the Defendant has impliedly elected to appropriate the payment of $45,000 on 26^th April 2005 to extinguish the Defendant’s liability under cheque no. 805533 and appropriate the payment of $150,046 on 30^th April 2005 to extinguish the Defendant’s liability under cheque nos. 805534, 805535 and 805536.

23.Is the Defendant’s contention acceptable in law?  In other words, can the Defendant impliedly elect to appropriate the 2 payments to settle its liability under the 4 dishonoured cheques by reason of the identical amounts?

24.Similar question came before the Court of Appeal in Murdoch Investments Inc. v. Yangtze Coaxial Cable Ltd., CACV 123/2000.  That was a distraint case.  The relevant facts have been summarized by Keith JA as follows:

“The defendant is the plaintiff's tenant of an office in Tsim Sha Tsui.  The rent was $50,875.00 a month.  It was payable on the first day of each month.  The Defendant did not pay the rent due on 1 March, and on 9 March the Plaintiff applied … for a warrant of distress for that rent ... On 11 March, i.e. two days later, the defendant paid the sum of $68,915.72 to the plaintiff by cheque. That payment is not disputed. What is in dispute is what it was paid to the plaintiff for, bearing in mind that there were a number of different sums which the Defendant owed the Plaintiff at the time.”

25.After quoting the legal principles from Chitty on Contracts stated above, Keith JA continued as follows:

“Prior to the payment of $68,915.72 made by the defendant on 11 March, the defendant had received two demands from the plaintiff.  The first was dated 15 February, and was a demand for $68,915.72 for the rent, management fees, rates and interest due on 1 March.  The second was dated 6 March, and was a demand for a number of debts, some current debts, but others which were at least 30 days, 60 days, 90 days and 120 days old.  The current debts to which the demand related amounted again to $68,915.72, and those current debts must therefore be treated as including the rent due on 1 March.  Accordingly, the defendant's case is that the fact that the amounts were identical shows that it intended its payment on 11 March to be in respect of (a) the demand of 15 February and (b) the demand of 6 March for the current debts, including the rent due on 1 March.”

26.In his judgment, Keith JA said:

“I have no doubt that the cheque was impliedly tendered as payment of the current debts. No other conclusion seems to me to be tenable in view of the fact that the cheque was for the same amount as (a) the demand of 15 February for the sums due on 1 March and (b) the demand on 6 March for current debts, which, as I have said, must be treated as including the rent due on 1 March.”

27.Returning to the present case, I accept Miss Cheung’s submission that the amount of the 2 payments were identical to the amount of the 4 dishonoured cheques.  In the circumstances, I have no doubt that the 2 payments was impliedly made to settle the Defendant’s liability under the 4 dishonoured cheques.

28.At one stage, Mr. Wong submits that the reduction of the outstanding amount from $628,133 alleged in the letter dated 29^th April 2005 to $478,133 alleged in the letter dated 4^th May 2005 is clear evidence that the Plaintiff has elected to appropriate the 2 payments totaling $195,046 to Disneyland Project.

29.To start with, given my above ruling that the Defendant has made an implied election, the Plaintiff’s right of appropriation did not arise at all.  In any event, it is clear that $628,133 (per the letter dated 29^th April 2005) minus $478,133 (per the letter dated 4^th May 2005) equals $150,000 and not $195,046!  Mr. Wong is quite unable to explain the discrepancy in the figures.

30.Lastly, the Plaintiff’s contention that the $45,000 paid by the Defendant on 26^th April 2005 was not in settlement of cheque no. 805533 is clearly contradicted by its own receipt.  According to the Plaintiff’s receipt dated 26^th April 2005, the sum of $45,000 was received in payment of “Kowloon Bay footbridge”.  This is clear evidence that the Plaintiff has in fact appropriated the $45,000 to Kowloon Bay Project (which is in line with the Defendant’s argument) but not Disneyland Project.  Mr. Wong attempts to salvage the situation by submitting at the hearing that the receipt was issued in June 2005 after the parties have concluded a global settlement of all their disputes in both projects and the receipt was backdated to 29^th April 2005!  Mr. Wong’s submission is not supported by the evidence filed by the Plaintiff and should be disregarded.

31.By reason of the above, I find that the Defendant has impliedly elected to appropriate the payment of $45,000 on 26^th April 2005 to extinguish the Defendant’s liability under cheque no. 805533 and to appropriate the payment of $150,046 on 30^th April 2005 to extinguish the Defendant’s liability under cheque nos. 805534, 805535 and 805536.

32.Consequently, as at the date of the writ (i.e. 7^th May 2005), the cause of action based on the 4 dishonoured cheques was extinguished and the Plaintiff may not maintain its claim in this action.

Whether the statement of claim should be struck out?

33.Given my above ruling, should I make an order to strike out the Plaintiff’s statement of claim?

34.In Hutchvision Asia Limited v. Asia Television Limited, HCA 6757/1992, Godfrey J (as he then was) has this to say about the court’s jurisdiction to strike out a defence (in the context of that case) on the ground that it is bound to fail:

“The court does have jurisdiction to take this course, in order to prevent abuse of its procedure.  But it is a jurisdiction which ought to be very sparingly exercised and only in very exceptional cases.  Its exercise is not justified merely because the story told is highly improbable, and one which it is difficult to believe could be proved: see Lawrance v. Lord Norreys (1890) 15 App. Cas.210, per Lord Herschell, at p.219 ... In my judgment, the court will be particularly careful in exercising this very exceptional jurisdiction when the pleading sought to be struck out is a defence, though it will do so if satisfied that the defendant "has not a shadow of defence" : see Reichel v. Magrath (1889) 14 App.Cas. 665, again per Lord Herschell, at p.669. That was a case in which the defendant was seeking to litigate again a question which had already been decided against him in other proceedings by the plaintiff's predecessor in title. The ground of the decision was that to set up the defence, and attempt to prove it, was an abuse of the process of the court.”

35.The above decision of Godfrey J applies mutatis mutandis to applications to strike out pleadings.

36.In my view, this is a case in which I should order the statement of claim to be struck out.  My above analysis is based on either admitted or undisputed facts, including documentary evidence.  The conclusion that the Plaintiff’s claim is bound to fail is simply inevitable.  The fact that the Plaintiff chose to issue the writ to claim on the 4 dishonoured cheques when the Defendant’s liability thereon had already extinguished is an abuse of the court’s process.

37.There is one more matter that I should mention in passing.  Mr. Wong has informed me that according to his instructions the parties have concluded a global settlement in the end of May 2005 settling all their disputes concerning Kowloon Bay Project and Disneyland Project including the Plaintiff’s claim in this action and he has instructions to discontinue this action.  The Plaintiff has written to the Defendant proposing to withdraw its claim in this action by consent with no order as to costs.  The Defendant, whilst not denying the global settlement, maintains that the scope of the global settlement does not cover the claim herein and that the issue of the costs of this action is very much a live issue between the parties.  I need not express any view on this latest dispute in the context of this application and it would indeed be inappropriate for me to do so.  Suffice it for me to say that my above analysis and conclusion is not influenced by the alleged global settlement.

Conclusion and order

38.For the above reasons, I order that the Plaintiff’s statement of claim be struck out under Order 18, rule 19 of the Rules of the District Court and under the inherent jurisdiction of the court on the ground that it is an abuse of the process of the court.

39.Miss Cheung, on a very optimistic note, asks for indemnity costs in the event that a striking out order is made.  She relies on various observations in the Hong Kong Civil Procedure 2004 and submits that an order for indemnity costs is justified by reason of the Plaintiff’s conduct in commencing the present action notwithstanding the 2 payments by the Defendant back in April 2005, which is a clear abuse of the court’s process.

40.I do not think I need to go into the authorities in any great detail.  It is trite law that the normal basis of taxation should be party and party.  An order for taxation on an indemnity basis may be ordered when the circumstances is appropriate.  Although I have ruled in favour of the Defendant in its contention that the Defendant has made an implied appropriation for the 2 payments, that conclusion is only reached after examining the circumstances of this case with the benefit of authorities and submission from both sides.  In my view, this is not an appropriate case to order indemnity costs.  The situation may have been different if there was an express appropriation on the part of the Defendant at the time of payment.

41.I therefore make a costs order nisi pursuant to Order 42, rule 5B(3) of the Rules of the District Court that the costs of the Defendant’s Amended Summons dated 2^nd June 2005 be to the Defendant payable forthwith, to be taxed if not agreed and with certificate of counsel. 

Mr. Joseph K. Wong of Messrs. Or & Company for the Plaintiff.

Miss Janine Cheung instructed by Messrs. Lam and Lai for the Defendant.