XCHRX CHAU CHIK YEE v. NEW ARCTIC PROPERTIES LTD. AND ANOTHER

HCA14305/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.14305 OF 1997

--------------

--------------

--------------------

J U D G M E N T

--------------------

1. This is an appeal by the Plaintiff from the decision of Master Poon made on 7th November 1998 giving unconditional leave to the 1st and 2nd Defendants to defend the Plaintiff's claim.

The Plaintiff's Claim

2. The Plaintiff's claim is for payment under two Promissory Notes made jointly and severally by the Defendants and both dated 28th October 1997 and payable to the joint order of Liu Wai Keung and Ng Ching Hung Wilson ("the Payees"). Both Promissory Notes were indorsed and delivered by the Payees to the Plaintiff on 28th November 1997. The maturity dates of these two Promissory Notes are 10th November 1997 ("the 1st Promissory Note") and 8th December 1997 ("the 2nd Promissory Note"). The 1st Promissory Note was for the principal sum of $1,016,828.77 and the 2nd Promissory Note for $5,060,958.90.

3. It is the Plaintiff's case that value has been given for the two Promissory Notes in that they were discounted to the Plaintiff by 20% of their face value.

The Defences raised

4. Basically the Defendants put forward two defences to the Plaintiff's claim : -

(a) There was not proper presentment by the Plaintiff of both Promissory Notes; and

(b) The Plaintiff is not a holder in due course thus the Defendants are entitled to rely on the defence that delivery of both Promissory Notes was made in escrow - i.e. subject to condition which had not been fulfilled.

Presentment

5. Both Promissory Notes expressly state that the Defendants jointly and severally promise to pay to the joint order of the Payees the principal sum "at their address at Home and Home Properties Ltd., 3rd Floor, Cheung Kee Building, Jubilee Street, 84-86 Des Voeux Road, Central, in Hong Kong" ("the Address for Payment") on demand on or after their respective dates of maturity.

6. The pleaded case of the Plaintiff was that neither the Defendants nor any person authorised to pay or refuse payment of the two Promissory Notes were present at the address for payment on 10th November and 8th December 1997, and presentment for payment was dispensed with by virtue of s.46(2)(a) of the Bills of Exchange Ordinance ("the Ordinance").

7. It was also pleaded in the alternative that the Plaintiff duly presented the two Promissory Notes to the Defendants for payment on 10th November, 8th and 22nd December 1997, but the Defendants failed to honour payment.

8. The affidavit evidence from the Plaintiff however does not indicate that anything was done on 10th November or 8th December in respect of presentment of the two Promissory Notes for payment. Indeed it is difficult to see how the Plaintiff could have presented the Promissory Notes, or even one of them, on 10th November 1997 when the Plaintiff's case is that these two Promissory Notes were only indorsed and delivered to the Plaintiff on 28th November 1997.

9. There was affidavit evidence from the Plaintiff that he had been informed by the Payees that the Payees were present at the Address for Payment at all times including 10th November and 8th December 1997 but neither Defendant came to make payment.

10. There was also evidence from the Plaintiff that the Payees had informed him that the Payees had not demanded for payment in respect of the 1st Promissory Note because a Mr Conomos, one of the directors of the 1st Defendant, had requested them to present the 1st Promissory Note together with the 2nd Promissory Note for payment upon the completion of the transaction between the Defendants and the Payees.

11. Reading these two pieces of evidence together, it seems therefore that no presentment was made by the Payees on 10th November (when the Payees were still the holder) of the 1st Promissory Note, nor did the Plaintiff, after he became the holder of the two Promissory Notes on 28th November 1997, present them at the Address for Payment on 8th December 1997.

12. In this respect Mr Yuen submits that there was no presentment of the two Promissory Notes on either 10th November or 8th December because the law contemplates someone physically presenting the promissory notes at the correct address to demand payment. He relies on s.54(2) of the Ordinance (under Part II) which is applicable to promissory notes by virtue of s.95(1). Section 52(4) reads : -

"Where the holder of a bill presents it for payment, he shall exhibit the bill to the person from whom he demands payment. ..."

13. As for the presentment on 22nd December 1997, the evidence from the Plaintiff in relation thereto was that on 22nd December 1997 the Plaintiff instructed his solicitors to give notice of the indorsement of the two Promissory Notes to the Defendants and to demand payment from them. The Plaintiff's solicitors then wrote two letters to each of the two Defendants, both letters dated 22nd December 1997. The first letter (in identical terms to each of the Defendant) informed them that the Plaintiff is now the holder of the two Promissory Notes having been indorsed over to the Plaintiff by the Payees whilst the 2nd letter (again in identical terms to each of the Defendant) gave notice to the Defendants that unless payment is made upon the two Promissory Notes to the Plaintiff within the next three days, legal proceedings would be commenced for recovery of the debt. All four letters were addressed to 8th Floor, Chuang's Tower, 30-32 Connaught Road, Central, Hong Kong ("the Chuang's Tower address") which is different from the Address for Payment.

14. On the following day, a further letter was written to each of the two Defendants again in identical terms enclosing copies of the two Promissory Notes and stating that the original of the Promissory Notes will be returned upon full payment. This letter was also addressed to the Chuang's Tower address in respect of both Defendants.

15. On 27th December 1997, the Plaintiff's solicitors wrote again to each of the two Defendants putting on record that the amounts of the two Promissory Notes are still unpaid and that they have instructions to commence legal proceedings to recover the same.

16. Based on this evidence, the point taken by Mr Yuen for the Defendants is that this evidence does not fulfill the requirements in law for presentment. He seeks reliance on s.93 of the Ordinance which provides as follows : -

"Where a promissory note is in the body of it made payable at a particular place, it must be presented for payment at that place in order to render the maker liable."

The short point here is that whatever else the letters between 22nd to 27th December from the Plaintiff's solicitors to the Defendants may amount to, no presentment of the two Promissory Notes was made at the Address for Payment.

17. This point was also canvassed before the Master at the hearing before him on 7th November 1998. After the Master had ruled against the Plaintiff, and possibly recognizing the strength of this point taken by the Defendants, the Plaintiff was advised by his legal advisers to take certain steps with a view to overcoming this difficulty which he faced. In this respect firstly the Plaintiff's solicitors wrote to the Defendants making an appointment with them to be present at the Address for Payment on 24th November 1998 between 2.30 pm and 4.30 pm for the purpose of presenting the two Promissory Notes. Secondly the Plaintiff, armed with the two Promissory Notes, attended the Address for Payment at the time appointed but failed to find the Defendants there.

18. As a result of these events, the Plaintiff has taken out a Summons dated 14th December 1998 seeking to re-amend his Statement of Claim to include these occurrences as well as a further plea that thereby there has been due presentment of the two Promissory Notes, alternatively that presentment is dispensed with under s.46(2)(a) of the Ordinance.

19. This proposed re-amendment was objected to by the Defendants at the hearing of this appeal (the application to re-amend being set down to be heard at the same time as the appeal itself). However both counsel were agreed that as the proposed re-amendments had a direct bearing on the appeal itself, I should take it on board de bene esse and rule on it together with the appeal.

20. In essence the objection by Mr Yuen to the proposed re-amendment is that it is contrary to principles of practice to allow an amendment which adds a cause of action which has only accrued after the issue of the Writ and that such should not be allowed. On this point he relies on the case of Eshelby v. Federated European Bank Ltd. [1932] 1 KB 254.

21. If such a rule of practice did exist, considerable doubt has been cast on it by the decision in Liff v. Peasley [1980] 1 WLR 781, which has been applied in Hong Kong by Waung J. in Woo Suk King v. Lam Lee Yuet Ha Lilian [1995] 3 HKC 701.

22. Moreover as has been pointed out by Mr Grossman for the Plaintiff that the proposed re-amendment is pleaded "in the further alternative" to the presentment already pleaded and is, in that sense, not a new cause of action to that which has already been pleaded. The cause of action is still upon the two Promissory Notes albeit that the proposed re-amendment seeks to add a further presentment of the two Promissory Notes should it be the case that the earlier presentments pleaded be not valid.

23. Going back to general principles, amendments to pleadings are to ensure that the real disputes between litigants can be determined by the Courts on their merits. Therefore amendments are to be allowed where no prejudice are caused to the other side which cannot be cured by an appropriate order for costs.

24. In the present case I can see no prejudice to the Defendants which cannot be cured by costs. Moreover the proposed re-amendment will enable the dispute between the parties to be looked into on their merits. I therefore propose to allow the re-amendments sought by the Plaintiff. To disallow the proposed re-amendment would simply mean that the Plaintiff has to discontinue the present action and start a new one all over again in order to plead the presentment on 24th November 1998. The same position would then be reached as by allowing the proposed re-amendment except that a vast amount of legal costs, time and expense would have gone down the drain. I can see no advantage to either party in so doing.

25. Having said that, the Plaintiff is not out of the woods yet by reason solely of this re-amendment as the rest of this judgment will show.

Holder in Due Course and Defence of Conditional Delivery

26. In so far as the 1st Promissory Note is concerned the Plaintiff concedes that he is not a holder in due course as it was endorsed to the Plaintiff after its maturity date and s.29 of the Ordinance provides that a holder in due course is a holder "who became the holder of it before it was overdue".

27. As for the 2nd Promissory Note the Plaintiff submits that by s.30(2) of the Ordinance, the Plaintiff is deemed to be a holder in due course unless the Defendants can rebut the presumption.

28. The Defendant on the other hand accepts that the defence that the Promissory Notes were delivered in escrow or that it was subject to conditions which had not been fulfilled is a defence only if it can be shown that the Plaintiff is not a holder in due course of the Promissory Notes, and that the burden is on the Defendants to prove that. In this respect, the Defendants seek reliance on s.29(1) of the Ordinance which reads : -

"A holder in due course is a holder who has taken the bill, complete and regular on the face of it, under the following conditions, namely :

(a) ...

(b) that he took the bill in good faith and for value, and that at the time the bill was negotiated to him he had no notice of any defect in the title of any person who negotiated it."

29. In this connection, the Defendants suggest that the Plaintiff may not have taken these two Promissory Note in good faith because the circumstances concerning the discounting of them over to the Plaintiff by the Payees are extremely suspicious.

30. The Defendants accept that discounting of bills or letters of credit is an every-day occurrence in the commercial world and that it is normally done so that one can get early payment, albeit discounted, instead of having to wait for due date.

31. In the present case it is common ground that the Plaintiff paid $4,862,230 to the Payees for the two Promissory Notes the principal sums of which together totalled $6,077,787.67. This represented exactly a 20% discount.

32. The Defendants say that it is highly suspicious because when these two Promissory Notes were discounted and indorsed to the Plaintiff, the 1st Promissory Note (which was for a principal sum of $1,016,828.77) had already become due, and the 2nd Promissory Note (for a principal sum of $5,060,958.90) was to be due in 10 days time.

33. Moreover, the Defendants say that if the Plaintiff believed that the Payees were so ready to defer presenting the 1st Promissory Note for payment even after it became due at the mere request of Mr Conomos of the Defendants, that suggest that the Payees were not in any great hurry for early payment which makes it even more strange that they should discount both Promissory Notes by 20% instead of waiting a further 10 days.

34. The suggestion by the Defendants is that the Plaintiff may not have been bona fide in having the two Promissory Notes indorsed over to him by the Payee but that it was done in an attempt to straddle the defence that conditions upon which the two Promissory Notes were delivered to the Payees by the Defendants have not been fulfilled. As such this is a matter which goes to the very root of the Defendant's substantive defence.

35. The defence that these two Promissory Notes were delivered in escrow arises in this way. The two Promissory Notes were given by the Defendants to the Payees as payment for the purchase of all the shares held by the Payees in respect of Home and Home Properties Ltd. which carried on the business of real estate agency under the trade name "Home and Home Real Estate" with some 11 branches all over Hong Kong. The Payees were the only shareholders and directors of Home and Home Properties Ltd. For the purpose of purchasing these shares, the Defendants entered into, firstly, a Memorandum of Sale and Purchase dated 25th September 1997 and, secondly, an Agreement for Sale and Purchase of Shares in Home and Home Properties Ltd. with the Payees. The agreed purchase price for all the shares was stated to be $6,000,000.00. However, Clause 3(c) of the Memorandum provided for the vendor to take all reasonable steps to procure the tenancies (in respect of the 11 branches) to continue or be renewed or re-granted to the Defendants irrespective of the change of ownership and irrespective of whether the business is carried out under the same name or other names. It further provided that if the vendor cannot procure the renewal or a transfer of a tenancy on the landlord's consent three months from completion, the purchase price will be reduced by $500,000.00 for each such lease not transferred.

36. It is the Defendants' case that the three months deadline expired on 9th February 1998 and by that time the Payees could only obtain the consent or approval of the landlords in respect of seven of the 11 branches. Accordingly the Defendants say that they are entitled to a reduction of $2 million from the purchase price paid by way of these two Promissory Notes.

37. Accordingly the Defendants submit that because the final balance of the purchase price is subject to such adjustments, the intention of the parties must necessarily be that the Promissory Notes (now sued on) were delivered in escrow and subject to the condition that the Payees fulfill their parts of the obligations under the Memorandum and the Agreement.

Decision

38. I accept Mr Yuen's submission that the circumstances of the negotiation of these two Notes merit closer scrutiny. From all the evidence put before me there are clearly triable issues of facts not only relating to presentment - and that even after the re-amendments - but also in respect of the question whether the Plaintiff took the two Promissory Notes bona fide and which must be decided before a Court could determine whether the Plaintiff is a holder in due course in respect of the two Promissory Notes. Furthermore it goes without saying that evidence will have to be called before a Court can decide whether or not the Promissory Notes were or were not delivered in escrow.

39. Therefore there are clearly triable issues of facts in this case. Accordingly the appeal is dismissed and the Defendants will have unconditional leave to defend.

40. The Plaintiff will have leave to re-amend the Statement of Claim as per the draft annexed to his Summons dated 14th December 1998, service of same be dispensed with. In view of the fact that the Defence has already been filed, I shall give leave to the Defendants to amend the Defence should that be necessary to cater to the matters pleaded by the Plaintiff's re-amendment.

Costs

41. I shall make the following costs order nisi : -

(a) Cost of the appeal from the Master be to the Defendants in any event;

(b) The cost order made by the Master in the O.14 hearing below to stand; and

(c) All costs of and occasioned by the Plaintiff's application for re-amendment of the Amended Statement of Claim be to the Defendants in any event.