Bills of Exchange

Cases

 

Walek & Co. K.G. v. Seafield Gentex

O’Higgins C.J.; Henchy J. [1978] IR 167

O’Higgins C.J.
21st July 1978

I have read the judgments about to be delivered in this matter, and I agree with them.
Henchy J.
The plaintiffs have been given judgment in the High Court for £25,586.56 with interest at 15% from the 11th September, 1975. The claim arose on foot of two bills of exchange of which the defendants were acceptors. The bills, which were payable to the plaintiffs and were dishonoured by the defendants, were to be in payment for yarn supplied by the plaintiffs to the second defendants. The defendants’ case is that the yarn supplied under the contract contained a twist which made the cloth woven from it defective in quality and, therefore, of reduced value. This, they say, was a breach of contract. The defendants say that, in an effort to minimise the loss resulting from that breach, they sold, in its undyed state, the cloth woven from the defective yarn at prices which on average were 12p. per metre lower than would have been realized if the yarn supplied had been up to standard. Even after such sales, they assess their loss resulting from the breach of contract at “approximately £21,907.05.”
When the plaintiffs’ claim came before the President of the High Court, counsel for the defendants submitted that there should be a stay of execution so as to enable the defendants to raise, by way of counterclaim, the question of their entitlement to damages for breach of contract. The President refused to accede to that submission and entered judgment for the plaintiffs. The defendants now appeal against that order.
If a stay were to be put on the judgment so as to enable the defendants to put forward, by way of counterclaim, their alleged loss from a breach of contract, it is clear that the counterclaim would be for an unliquidated sum which the defendants’ affidavit puts at “approximately £21,907.05.” If that counterclaim could be pursued in this action (and there is a contention, as yet unresolved, that such a dispute as this under the contract must be litigated by arbitration), it would require, in the absence of agreement, a full investigation of the relevant circumstances before the correct amount of the counterclaim could be ascertained.
Therefore, it is clear that the counterclaim which the defendants wish to put forward in this action is one for an unliquidated amount. I am satisfied that a counterclaim for unliquidated damages under a contract of sale cannot be raised against a claim on a bill of exchange. The text-books and the cases are all of that opinion: see Byles on Bills of Exchange (22nd ed. at p. 236), Chalmers on Bills of Exchange (13th ed. at p. 105), and the cases there mentioned. The most recent authoritative exposition of the law on the point is to be found in the decision of the House of Lords in Nova (Jersey) Knit v.Kammgarn Spinnerei 8 where, at p. 720 of the report, Lord Wilberforce says:
“I take it to be clear law that unliquidated cross-claims cannot be relied upon by way of extinguishing set-off against a claim on a bill of exchange ( Warwick v. Nairn 11 ; James Lamont & Co. Ltd. v.Hyland Ltd. 6 ). As between the immediate parties, a partial failure of consideration may be relied upon as a pro tanto defence, but only when the amount involved is ascertained and liquidated: Warwick v.Nairn 11 ; Agra and Masterman’s Bank v. Leighton 12 ; James Lamont & Co. Ltd. v. Hyland Ltd. 6 ; Brown, Shipley & Co. Ltd. v. Alicia Hosiery Ltd. 7 ”
See also to the same effect the speeches of Viscount Dilhorne at p. 722 of the report, of Lord Salmon at p. 726, of Lord Fraser of Tullybelton (agreeing with Lord Wilberforce), and of Lord Russell of Killowen at p. 732 of the report. An argument that the rule should not be applied in circumstances which I find essentially indistinguishable from those in the present case was
rejected by the Court of Appeal in England in Cebora v. S.I.P. 1 Therefore, I am of the opinion that a stay was correctly refused in the High Court and that this appeal should stand dismissed.

Griffin J.
I agree with the judgment delivered by Mr. Justice Henchy. It is well established that a claim for unliquidated damages under a contract of sale is not a defence to a claim under a bill of exchange accepted by the purchaser nor, unless there are exceptional circumstances, will judgment be delayed or execution stayed by reason of a set-off or counterclaim. The authorities are all the one way. The most recent decision when this matter came before the President was Cebora v. S.I.P. 1 , which he followed. Since then the authority of the decision of the House of Lords in Nova (Jersey) Knit v. Kammgarn Spinnerei 8 , to which Mr. Justice Henchy refers, has been added to that of the Court of Appeal in the Cebora Case1 .
The rule makes good sense. It was sought to show that there were exceptional circumstances in this case, in that the plaintiffs are a foreign company and any claim against them would involve difficulty or hardship in pursuing the counterclaim; but this is not an exceptional circumstance. Bills of exchange are international instruments for the payment of obligations and it is important in the interests of businessmen, whether they be exporters or importers, that the negotiability of such bills be maintained so that they are”equivalent to cash.” As Sir Eric Sachs said so trenchantly in the Cebora Case 1 at p. 278 of the report:
“Any erosion of the certainties of the application by our Courts of the law merchant relating to bills of exchange is likely to work to the detriment of this country, which depends on international trade to a degree that needs no emphasis. For some generations one of those certainties has been that the bona fide holder for value of a bill of exchange is entitled, save in truly exceptional circumstances, on its maturity to have it treated as cash, so that in an action upon it the Court will refuse to regard either as a defence or as grounds for a stay of execution any set-off, legal or equitable, or any counterclaim, whether arising on the particular transaction upon which the bill of exchange came into existence or, a fortiori, arising in any other way.”
Those words apply equally to this country to-day although, by comparison with that of Great Britain, our international trade is of relatively recent origin. Our membership of the European Communities makes it imperative that the importance of the negotiability of bills of exchange and their equivalence to cash should be maintained. I would dismiss this appeal.

Kenny J.
I have had the advantage of reading the judgment prepared by Mr. Justice Henchy and I agree with it. It has been established by a line of cases, beginning in 1806 with Morgan v. Richardson 13 and ending in 1977 with the decision of the House of Lords in Nova (Jersey) Knit v. Kammgarn Spinnerei 8 ,that an unliquidated claim for damages cannot be set off or be the subject of a counterclaim against a claim based upon a negotiable instrument. These authorities also establish that the existence of such an unliquidated claim is not a ground for staying execution on a judgment given on a negotiable instrument, even when it was given in connection with the transaction out of which the counterclaim arises.
This is not a procedural rule or a mere survival from the past: it is based or the reason which was well expressed by Pollock C.B. in Warwick v. Nairn 11 where he said (p. 764) that “the payment by a bill of exchange is to be taken as the payment of so much cash: the defendant ought to satisfy the bill and proceed upon the remedy for the breach of warranty.” This is also expressed by saying that it has always been the policy of the common law that bills of exchange are equivalent to deferred instalments of cash.
There is Irish authority on this matter but unfortunately, the decision has not been reported anywhere. The whole question of whether judgment should be given for a liquidated sum when the defendant has counterclaimed for an unliquidated amount was discussed in Prendergast v. Biddle 10 [No. 36 of 1957] in which the former Supreme Court gave judgment on the 31st July, 1957. In that case the plaintiff sued the defendant for a liquidated sum which she admitted was due; but she counterclaimed for an unliquidated amount in connexion with the sale by the plaintiff of a brood mare in which she claimed an interest. The question at issue was whether judgment should be entered for the plaintiff, or whether the claim and counterclaim should be sent forward for plenary hearing. In the course of his judgment Kingsmill Moore J. said:”. . . it seems to have been established on the balance of authority that, when the claim was for payment on a negotiable instrument, leave should ordinarily be given to mark judgment even though there appeared to be a good counterclaim: Newman v. Lever 4 ; Jackson v. Murphy 14 ; James Lamont & Co. Ltd.v. Hyland Ltd. 6 and the cases therein cited. This practice depends at least partly on the necessity of fostering the use of negotiable instruments as a species of currency: Warwick v. Nairn 11 ; Jackson v. Murphy 14 “.

Parke J.
I agree with the judgment given by Mr. Justice Kenny.