Hong Kong Industrial & Commercial Bank Ltd v. Foo Wai Yu t/a Chung Fook Trading Co
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IN THE SUPREME COURT OF HONG KONG ORIGINAL JURISDICTION ACTION NO. 1439 OF 1969 ----------------- BETWEEN
--------------------------- IN BANKRUPTCY NO.21 OF 1971 ---------------------------
--------------------------- Coram : Li J in Court Date: 5 May 1972 ------------------------ J U D G M E N T ------------------------ 1. In this case there are two separate applications by the Foo Wai Yu (hereinafter referred to as the “applicant”). One is an application by way of summons pursuant to Order 45 Rule 11 for a stay of execution of judgment. The other is an application by motion in Court to set aside a bankruptcy notice pursuant to the provisions of the Bankruptcy Ordinance. Since the parties and the transaction relied on in both applications are the same I direct that both applications be heard in Court so as to avoid duplicity of record and to save costs. 2. The facts before me are as follows:- 3. In July 1969 the applicant purchased 500 units of motor cycles from the Honda Motor Company Ltd to be shipped from Japan to Indonesia. In order to finance the transaction he applied to the Hong Kong Industrial and Commercial Bank (hereinafter referred to as “the Bank”) to open letters of credit in favour of the Honda Motor Company Ltd in Japan. The motor cycles were carried to Indonesia by a ship owned by Dampskibsselskabet (hereinafter referred to as the “Respondents”) under two bills of ladings issue by the Respondents. The Respondents were instructed that the motor cycles were to be delivered only against the surrender of the original bills of ladings. Contrary to such instructions the Respondents’ agent in Indonesia released the motor cycles to certain persons without the surrender of the original bills. 4. On the 19/11/69 the Bank sued the applicant in O.J. Action No. 1439 of 1969 on the letter of credit and obtained judgment against the applicant for the sum of $503,949.47 on the 17/1/70. The applicant paid to the Banker $110,000 leaving a balance of $393,949.47 outstanding. 5. In the meanwhile the Bank also sued the Respondents in O.J. Action No. 467 of 1970 for breach of contract for releasing the motor cycles contrary to express instructions. The Respondents issued a 3rd party notice claiming indemnity from the applicant on the ground that the release of the motor cycles was at the request and on the guarantee by the applicant. A defence to the 3rd party claim was filed by the applicant in September 1970. 6. On the 31/5/71 the Bank settled Action No. 467 of 1970 with the Respondents. The terms of the said settlement were that the Respondents pay to the Bank the sum of $315,242.53; in consideration the Bank assigns to the Respondents the balance of the judgment debt in Action No. 1439 of 1969 viz: $393,949.47, deliver up to the Respondents the aforesaid Bills of Lading and discharges the Respondents from all liabilities in respect of Action No. 467 of 1970. The applicant was not informed of the terms of the settlement. The terms of settlement were recorded on the 28/7/71 and filed in Court on the 19/8/71. However the 3rd party proceedings in Action No. 467 of 1970 are still continuing and pending. In September 1971 Action No. 467 of 1970 was set down for hearing before me. This action had to be adjourned because of a number of amendments to the pleadings which were required by the Respondents. Up till then the terms of settlement between the Bank and the Respondents were not disclosed to the applicant. 7. On the 20/10/71 the Respondents obtained leave to issue execution against the applicant for the judgment debt in Action No. 1439 of 1969 on an ex parte application. On the 30/11/71 the Respondent made a request for the issue of a Bankruptcy notice which was served on the applicant on the 3/1/72. On the 5/1/72 the applicant filed an affidavit in support of his application to set aside the said notice. On the 25/2/72 the applicants filed a further affidavit in support of his application for a stay of execution on the judgment debt in Action O.J. No. 1439 of 1969. 8. In the course of the hearing Mr. Cheung for the applicant, objected to the validity of the Bankruptcy Notice. Leave was granted to the Respondents to amend the said Bankruptcy. Notice without prejudice to the applicant’s application for a stay of execution. 9. Having read the relevant papers and heard counsel for both parties I am satisfied that although the Bank is a consignee of the motor cycles cited in the original bills of lading in Action No. 467 of 1970. The Bank is nothing more than a pledgee of the said motor cycles which the seller (viz: the Honda Motor Co. Ltd) pledged on behalf of the buyer, the applicant. Once reimbursed the Bank has a duty to release the goods pledged to the pledgor (the Applicant) (in this case, by surrendering the original bills of ladings). This will enable the applicant to sue the Respondent on the bills of ladings or, by way of sub-rogation to continue Action No. 467 of 1970 against the Respondent. To this action the Respondent has no other defence than that the delivery was effected at the request and on the guarantee of the applicant who denies ever having made such request and/or given such guarantee. This is evident in the pleadings of the Third Party proceedings in Action No. 467 Of 1970. In my opinion there is certainly a triable issue between the Respondents and the applicant. 10. By its unilateral action the Bank has defeated the applicant’s right of action and title to the goods. I cannot accept Mr. Mills-Owens’ contention that it was the Hague Rules and not the Bank which defeated the applicant’s right of action since the said settlement was reached in May 1971 which was more than 1 year after the right of action accrued. Here the Bank had already obtained judgment against the applicant in Action No. 1439 of 1969. Had the Bank been content to enforce its judgment and turn over the original bills of ladings to the applicant there might have been a change of the roles between the applicant and the Respondents. In any event the applicant would have the opportunity to continue Action No. 467 of 1970 by subrogation and such action would not be affected by the Hague Rules. The case will be heard on its merits. 11. Having regard to the facts in these two actions it is obvious that the Bank is in a most happy position. It has availed itself of all the remedies open as it is entitled to do so. This reminds me of the comparison between a banker and a turtle. A banker moves with extreme caution as does a turtle. The difference lies in that a turtle occasionally has to stick its neck out but a banker never does. As it is the Bank has, in effect, assisted the Respondent to obtain judgment without trial. By this manoeuvre the Respondents is trying to obtain satisfaction by jockeying themselves into the right position. 12. The application for a stay of execution is made under the provisions of O.45 R.11 which provides:-
13. Mr. Mills-Owens’ principal objection to this application is that a letter of credit is a bill of exchange. As such the nature of the judgment in Action No. 1439 of 1969 must be considered separately from the surrounding transactions except in special circumstances. It is to be noted that this proposition of the law is applicable when the Court has to consider whether the Defendant should be given leave to defend the action. This is not so in this application. Where the Defendant sets up a plausible counter-claim for an amount not less than the Plaintiff’s claim the order should be for judgment for the Plaintiff on the claim with a stay of execution until the trial of the counter-claim: Shepherd & Co. v. Wilkinson and Javis(1). In my opinion the same principle should apply to a set off which is the case at present. 14. It is said that the applicant, by his own delay in satisfying the judgment debt, had impaired his title to the goods. Further it is too late in the day to apply for a stay of execution. First of all there is nothing in 0.45 R.11 imposing a limit of time for the application. The applicant had satisfied in part the judgment debt. He was never informed of the terms of the settlement between the Bank and the Respondents. 15. Even the fact that there was a settlement had not been disclosed until the pleadings were amended last October. In other words the applicant was never given any warning and was lulled to the understanding that he would have a chance to defend the action on the merits. I am of opinion that the applicant is not to be blamed for such delay. 16. My attention is drawn to the case of Ferdinand Wagner v. Laubscher Bros & Co.(2). In that case it was held that a foreign judgment, once registered would be given the same force as if it were an English judgment and the fact that there was a cross action between the same parties in England was no reason to grant a stay. In his judgment Lord Denning M.R. said:-
17. The approach in that case is clearly not applicable to the present application. There the same issue between the same parties had been tried and determined by a German Court on the merits. The issue between the applicant and the Respondent has never been tried on its merits by any court any where. 18. In view of the foregoing I am of opinion that it is only just and equitable to exercise my discretion in granting a stay pending the trial of the Third Party Proceedings in Action No. 467 of 1970. 19. In view of the reasons for which I granted a stay of execution it is logical to order that the Bankruptcy Notice be set aside, otherwise the effect of the stay will be completely nullified. That, however, is not all. It is contended that para 11 of the applicant’s affidavit has not set out a liquidated sum as his counter-claim, set off or cross-demand. However such particulars are easily ascertainable from all the affidavits (including the Respondents’) and the pleadings filed. But the Respondents’ main contention is that at the time the Bankruptcy Notice was issued the applicant had lost his right of action on the goods because of the Hague Rules and because of the settlement between the Bank and the Respondents. So far as the Hague Rules are concerned the Bank instituted proceedings within time viz: Action No. 467 of 1970. Had that action been continued it could have been pursued to a successful conclusion in favour of the Bank. This is evident in the Respondents’ own pleadings in the Third Party Notice in the said action. 20. Had there been no settlement between the Bank and the Respondent the applicant would be in a position to step into the Bank’s shoes and pursue the action to an advantageous end. The Bank might have two causes of action. But it could not recover twice over. As a buyer of the motor cycles and a contracting party with the Bank I am of opinion that the applicant is entitled to insist that the Bank continues the action subject to an indemnity. He is entitled to be informed of the terms of the settlement. The Bank is only a pledgee of the motor cycles through the nomination of the applicant. On the pleadings it is alleged that at the material time the applicant authorized the motor cycles to be put into the possession of the Respondents who delivered them to a person holding the original bills of ladings. As such the applicant has a cross-demand, at least, in equity against the Respondents through his agents or the Bank. In re A Bankruptcy Notice (1934) Ch. 431 it was decided that the applicant must have a set off etc at the time of the application. But in the case of Hanak v. Green(3) the history of a set off and cross-demand was thoroughly examined and it was held that a cross-demand included any equitable remedy. The case of Morgan & Son Ltd. v. Martin Johnson & Co. Ltd.(4) cited in the judgment of Morris L.J. (at page 20) are similar to the present case. The only difference is that in Morgan’s case the vehicle lost was placed directly in the possession of the Plaintiff by the Defendant and the motor cycles in the present case were placed in possession of the Plaintiff by an agent of the applicant - the Honda Co. It is wrong in equity to allow the Respondents to obtain absolution from liability not on the merits of the case but by under the counter dealings with the Bank. I shall say no more lest I prejudge the issue. All I say is that it is not equitable for the Bank to ignore its duty as a pledgee by taking sides. Nor is it equitable for the Respondents to obtain satisfaction without trial of the issue. Allowing for the normal course of events the applicant would have an equitable cross action against the Respondents. Had he been informed of the events he would have an option. Under the circumstances I am of the opinion that the Notice of Bankruptcy should be set aside with costs to the applicant.
Mills-Owens (Johnson, Stokes & Master) for creditor in Bankruptcy 21/71 O.V. Cheung, Q.C., W. Chan (P.C. Woo & Co.) for Debtor in Bankruptcy 21/71 and Defendant in O.J. 1439/69. (1) 1889 6 T.L.R. 13. (2) 1970 2 W.L.R. 1019 (3) 1958 2 Q.B. 9 |
Further hearings and rulings under HCA 1439/1969