XCHRX CHIANG YUAN JULIANA v. AU YEUNG YING

HCA3744/1997

IN THE HIGH COURT OF THE

HONG KONG SEPCIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.A3744 OF 1997

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REASONS FOR DECISION

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1. This is an application by the Defendant Au-Yeung Ying Margaret to set aside a default judgment that had been obtained against her by the Plaintiff Chiang Yuan Juliana ("the Plaintiff"). At the hearing, I set aside this judgment. Short reasons appear below.

2. The Plaintiff's claim against the Defendant arises out of two dishonoured cheques : Cheque No.143718 of the Shanghai Commercial Bank Ltd. dated 30 March 1996 for an amount of $46,000 ("the 1st cheque") and Cheque No.000055 of the Wing Hang Bank Ltd. dated 5 February 1997 for an amount of $80,000 ("the 2nd cheque"). A judgment in default was entered on 6 May 1997. Based on that judgment, the Plaintiff commenced bankruptcy proceedings against the Defendant on 19 June 1997. Those proceedings have been stayed pending the outcome of this application.

3. By way of background, it is sufficient to mention that the Plaintiff and the Defendant were friends. The Defendant is a director and shareholder of a company called Dragonhall Ltd. ("the Company"). The company became the tenant of certain business premises belonging to the Plaintiff under a tenancy agreement which expired on 31 October 1996. The rent payable was $46,000 per month. The Defendant says that she knew nothing of the proceedings against her, nor the default judgment, nor the bankruptcy proceedings until 30 July 1997. Since at least mid-1995, she has spent considerable periods working abroad, particularly in China. She contacted the Plaintiff's assistant Miss Wong immediately upon learning of the bankruptcy proceedings and following the conversation received the Schedule.

4. As to the 1st cheque, the Defendant's evidence is that it was paid to the Plaintiff for the purpose of discharging the rental payable by the Company for March 1996. There is evidence that the Defendant had met rental payments due by the Company as from August 1995 to February 1996 out of her own funds, by way of director's loans to the Company. Whilst the liability is that of the Company's, it would appear that the Defendant felt a sense of moral obligation towards the Plaintiff and therefore made such payments as she was able to on the Company's behalf.

5. It is common ground that this cheque bounced. However, it is also common ground that on 5 August 1996, the March rent was received from the Company. This is borne out by the Schedule dated 30 July from the Plaintiff which was faxed to Dragonhall and the Defendant and the letter dated 17 April 1996 to the Defendant from the Plaintiff. The defence therefore is that the payment by the Company of the March rent discharged the obligation due under the 1st cheque.

6. The Plaintiff's case is that the 1st cheque was intended as additional security in respect of any future arrears by the Company. In her an affirmation on behalf of the Plaintiff, Miss Wong states that it was her understanding that the cheque was to be additional security. However, there does not appear to be any evidence to support that understanding.

7. As noted above, the lease expired at the end of October 1996. The Defendant says that prior to the expiration of the lease, it was orally agreed with the Plaintiff that Ad Asia Far East ("Ad Asia"), a company in which the Defendant was then working, would move into the premises and a new lease would be signed. The new rent negotiated was $40,000. On this basis, the move took place and monies were expended in redecorating the premises but a new lease was never signed. Be that as it may, the premises were not vacated at the end of October 1996 and were occupied thereafter by the Company and/or Ad Asia.

8. On 29 January 1997, the Defendant made a payment of $60,000 by issuing a personal cheque to the Plaintiff. This amount was to set off outstanding rentals although it is to be noted that at all material times, the Defendant was under no personal obligation in respect of arrears of rental whether of the Company or Ad Asia. On 5 February 1997, the Defendant issued the 2nd cheque. It is common ground that whilst the 2nd cheque also bounced, the Defendant made a cash deposit into the Plaintiff's account on 20 February 1997 in the sum of $60,000 which is said to be a partial discharge of the amount of $80,000 due under the 2nd cheque.

9. So far as the Defendant is concerned, the next relevant event was becoming aware on 30 July 1997 of the bankruptcy proceedings instituted by the Plaintiff. She said she was given to understand by the Plaintiff's solicitors that she was liable for all the arrears owed by the Company. This is strenuously disputed. Be that as it may, the Defendant made a payment of $80,000 to the Plaintiff on 7 August 1997. The Defendant's case is whether or not the $60,000 paid in February partially discharged the debt owing under the 2nd cheque, the $80,000 paid in August within a week of learning of the bankruptcy proceedings which were founded on a judgment based on the two dishonoured cheques wholly discharged her obligations under the 2nd cheque. Whilst the Plaintiff acknowledges receipt of the sum, it is said that as there were no specific directions accompanying the payment, it was appropriated towards reducing the Company's liabilities to the Plaintiff.

10. In my judgment, it is simply not credible in the circumstances in which she found herself at the end of July that the Defendant could possibly have made a payment to discharge a third party liability whilst the threat of bankruptcy was still hanging over her own head. Rather, the payment must have been made to extinguish or reduce her own liabilities.

11. The Defendant's case has been largely consistent. As a litigant in person, she may not have had legal niceties in mind when drafting her applications and affidavits. The Plaintiff's evidence on the other hand has been shown to be less than full and frank.

12. In my judgment, the Defendant has a meritorious defence in respect of both cheques.

13. Accordingly, the judgment of 6 May 1997 is set aside with costs.

(Doreen Le Pichon)

Judge of the Court of First Instance
High Court