XCHRX LEUNG YUE YAN v. YIM TUNG HOI

HCA4641/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4641 OF 2000

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REASONS FOR DECISION

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1. The defendant appeals from the order of Master Jones dated 26 February 2001 granting summary judgment in the sum of $596,000 together with interest.

2. The plaintiff's cause of action is based on the dishonour of three cheques drawn by the defendant in favour of the plaintiff as payee. The cheques, numbered 229005, 229008 and 229007, were all post-dated (19 January 2000, 19 February 2000 and 19 March 2000) and were in the respective amounts of $278,000, $80,000 and $278,000. They were all dishonoured on presentation. There has been a payment of $40,000 by the defendant to the plaintiff, leaving a balance of $596,000, which is the sum claimed in this action.

The issue

3. The defence is that no consideration was provided for the three cheques as required under section 27 of the Bills of Exchange Ordinance, Cap.19. This is the critical issue in the present case.

Background to the issue of the three cheques

4. I take the facts as deposed to by the defendant. The defendant is the shareholder and director of a company called Overseas Fine Development Limited ("OFDL") which was the owner of a property known as the second floor with flat roof of the building erected on Lot No.1690A in Demarcation District No.17, Tai Po, New Territories, Hong Kong ("the property").

5. In or about January 1997, OFDL entered into an agreement with the plaintiff for the sale and purchase of the property. The plaintiff paid a total deposit of $834,000 under this agreement. OFDL failed to complete the sale as a result of which the plaintiff instituted proceedings against the company (this being HCA10568/99), and obtained judgment for the return of the deposit of $834,000. Not having obtained satisfaction of the judgment debt, on 30 October 1999, the plaintiff and OFDL (probably represented by the defendant) had a meeting at the defendant's house to try to resolve the question of the judgment debt. On that day, OFDL and the plaintiff entered into a settlement agreement ("the settlement agreement") whereby in the consideration of the plaintiff withholding commencing winding-up proceedings against the company, OFDL agreed to make a payment to the plaintiff of $914,000 payable in four instalments by post-dated cheques.

Instalment No.	Due date	Amount
1	19 November 1999	$278,000
2	19 January 2000	$278,000
3	19 March 2000	$278,000
4	19 May 2000	$80,000

The other terms of the settlement agreement included the following :-

"3. Upon clearance of all the above four cheques on the maturity dates, Party B [i.e. the Plaintiff] shall discharge the Judgment and shall cancel the Agreement.

4. If any of the above cheques being dishonoured, Party B shall have the right to recover immediately all the remaining outstanding balance together with all losses, interest and extra legal costs incurred thereof."

6. After the settlement agreement had been signed, the plaintiff made a request for the four post-dated cheques. The defendant then informed the plaintiff that OFDL could only issue cheques if they were signed by two directors. There not being two directors available, the plaintiff was told that the cheques could only be given to him at a later stage. According to the defendant, the plaintiff appeared not to be too bothered by this but "he seemed not too pleased that I could not tender the 4 company's cheques to him at that time". The defendant goes on in his affirmation to say the following :-

"As the parties had reached settlement for the payment of the judgment sum, I voluntarily suggested to issue my four personal post-dated cheques to the Plaintiff in order to resolve the matter more smoothly. The Plaintiff duly accepted the same."

7. The first of the four cheques was presented for payment on due date, i.e. 19 November 1999, but it was dishonoured. However, on 29 November 1999, payment was made into the plaintiff's bank account in the sum of $278,000. There is therefore no claim in respect of the dishonour of the first cheque. The other three cheques which are the subject matter of this action were, as I have already said, duly presented and dishonoured and, but for a payment of $40,000 made on 19 February 2000, no further payment has been made by the defendant.

8. The present proceedings were accordingly commenced by writ dated 9 May 2000 for the balance $596,000.

Was there consideration for the three cheques?

9. This is the critical issue I must consider. In law, consideration for a promise may consist of a benefit to the promisor or a detriment to the promisee. In my judgment, both elements exist in the present case although, strictly speaking, the plaintiff only has to satisfy one of these elements.

10. OFDL was obliged under the settlement agreement to provide four post-dated cheques to the plaintiff. It was unable to do so. Instead, the defendant, being a director and shareholder of OFDL, provided these cheques to the plaintiff. From the plaintiff's point of view, but for the defendant providing these cheques, he may well have taken action against OFDL whether under the settlement agreement or by way of enforcing the judgment or by way of winding-up proceedings. On the basis of the judgment alone, the plaintiff could have commenced winding-up proceedings against OFDL. However, under the settlement agreement, the plaintiff undertook not to do so, but if OFDL were in breach of the agreement by not providing the four post-dated cheques as promised, the plaintiff could then have terminated the agreement by accepting the company's repudiation and then commenced winding-up proceedings or claimed for damages for breach of the settlement agreement. It might also have taken action under the judgment which it had obtained.

11. In the second affirmation of the plaintiff, he says this :-

"I must emphasize that had the Defendant not agreed to exchange his four personal post-dated cheques with the four post-dated cheques as stipulated in the settlement agreement, I would have sued the Company at once for the breach of the settlement agreement."

For his part, it will be remembered that the defendant says in his affirmation that he issued the four post-dated cheques to the plaintiff "in order to resolve the matter more smoothly". In the Defence, at paragraph 12, the defendant pleads that he issued the four cheques to the plaintiff "in order to finalise the matter". In my judgment, the issue of the cheques by the defendant was intended to and did have the effect of preventing the plaintiff taking the sort of action referred to above.

12. Mr Herbert Au-Yeung, for the defendant, referred to a potential dispute of fact which he submits ought to be tested at trial. The dispute is that while the plaintiff says that he "insisted" that the defendant provide the four post-dated cheques, the defendant says that it was he who "voluntarily" suggested to the plaintiff that he issue the four cheques. In my view, this dispute of fact is not relevant. What is relevant is the defendant's own evidence to the effect that the reason for the issue of the four cheques was so that matters could be finalised or resolved. In context, this could only mean that the defendant wished to avoid any further trouble or litigation between the plaintiff and OFDL. What has to be borne in mind is that the settlement agreement was obviously intended to represent the conclusion of the disputes between that company and the plaintiff. This was not achieved owing to the failure of the company to provide the four cheques. It was in an attempt to avoid any further difficulties and to conclude the matter once and for all that the defendant issued the four cheques.

13. Mr Au-Yeung also submitted that at the time the cheques were given to the plaintiff, the first instalment under the settlement agreement was not due (19 November 1999). Thus, it was submitted, even if the company could not provide the cheques at the time the settlement agreement was concluded, this would constitute no breach since the agreement did not stipulate a time for the provision of these post-dated cheques. According to him, it was arguable that the cheques could provided to the plaintiff at any time up to the due dates for the four instalments under the settlement agreement. What was effectively being submitted was that, therefore, there could be no forbearance to sue on the plaintiff's part since he would not have succeeded in any claim made against OFDL for failing to provide the cheques. I think the answer to this submission is that forbearance to sue as constituting sufficient consideration to support a contract is not dependent on the success of the hypothetical action. Of course, if the action would be hopeless, this may be an indication that there was no forbearance to sue in the first place. However, this is far from the case at present. The settlement agreement did not only provide for the payment of the sum of $914,000 by instalments. It also provided for such payment by post-dated cheques. I consider it to be at least arguable that the plaintiff was entitled to expect that the company would be obliged to provide these four post-dated cheques forthwith upon the conclusion of the settlement agreement. From a commercial point of view, there is some value in a payee obtaining post-dated cheques as he may be able to discount them ahead of due date. I note that the three cheques, the subject matter of the present action, were fully negotiable.

14. Accordingly, I am not satisfied that any proceedings commenced by the plaintiff against OFDL on the basis of a breach of the settlement agreement would have been hopeless. In any event, I have referred to the other proceedings which the plaintiff in fact refrained from commencing. These comprised winding-up proceedings or proceedings based on the judgment which it had obtained against OFDL. It is significant that the plaintiff has not at any stage since the four cheques were given to him by the defendant, commenced or continued any proceedings against OFDL.

15. In my judgment, it is clear that consideration was provided for the four cheques by the forbearance to sue on the plaintiff's part. Such forbearance to sue as consideration may be express, implied or actual: see Chitty on Contracts, 28th Ed. at paras.3-045 to 3-048.

16. Another aspect of the consideration for the four cheques is that they effectively discharged the company's liability towards the plaintiff under the settlement agreement. I note the fact that at no stage subsequent to the provision of these four cheques by the defendant to the plaintiff did the company ever attempt to substitute cheques of its own. In terms of the liability of the company under the settlement agreement, it is clear that the plaintiff looked to the defendant to meet such liability. As I have said, after receiving the four cheques, the plaintiff did not take any action against OFDL under the settlement agreement or even made a demand under it. The defendant, for his part, must have been of the same view that the four cheques would discharge OFDL's liability, because, according to his evidence, it was his wish to finalise or resolve matters by the issue of the four cheques. This is inconsistent with any stance other than his wish to discharge the company's liabilities once and for all. It should be remembered that the defendant was not a stranger to the proceedings or some remote party totally unconnected to OFDL. He was a shareholder and director of that company. In my judgment, therefore, consideration for the cheques also consisted of the fact that from the plaintiff's point of view, he looked to the defendant for payment instead of OFDL. From the defendant's point of view, if the cheques had been honoured, matters would, as the defendant intended, have been finalised or resolved and OFDL (of which he was a shareholder and director) would have been free from all liability to the plaintiff once and for all.

Conclusion

17. For the reasons I have gone into above, I am of the view there is no defence to the plaintiff's claim and therefore dismiss the present appeal by the defendant with costs, such costs to be taxed if not agreed. It only remains for me to thank counsel for their assistance.