XCHRX LEE MAN CHING MANDY t/a BLOSSOM INDUSTRIAL CO. v. CHIU HING

DCCJ16461/2000

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 16461 OF 2000

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Judgment

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This is an application by the Plaintiff under Order 14 r.1 for summary judgment.

2. It is common ground that the Defendant drew and delivered two cheques for the total amount of $340,000 marked payable to the Plaintiff. Both cheques were dishonoured upon presentment. The Defendant has not filed a Defence. However, according to the Defendant's affirmation, the Plaintiff and the Defendant had an oral agreement for transportation of a consignment of the Plaintiff's products - computer motherboards to a place in Mainland China nominated by the Plaintiff. As security for faithful and satisfactory performance, the Defendant drew the two cheques in favour of the Plaintiff. Apparently, due to some problem with customs procedure, the computer motherboards were seized by Mainland authorities and have not yet been delivered to the nominated consignee. The Defendant further alleges by affirmation that after the computer motherboards had been seized, the parties reached a further oral agreement whereby, in consideration of the Defendant paying $30,000 to the Plaintiff and the Defendant making efforts to secure the release of the seized goods, the Plaintiff would not present the said cheques for payment. Affirmations filed on behalf of the Plaintiff deny the agreement not to present the cheques.

3. According to Miss Chan for the Plaintiff, bills of exchange being what they are, the Defendant cannot raise factual issues to deny liability on the cheques. See Prosperity Lamps & Components Limited v. Rotegear Corporation Limited HCA 13203 of 1999, Lui Po Nam and Shunyi Company v. Century Regal Limited HCA 9587 of 1999, Great Sincere Trading Co Ltd v. Swee Hong & Co [1968] HKLR 660 and Neo - Concept Industrial Co Ltd v. Sportex Industrial Ltd [1992] 2 HKC452.

4. In Great Sincere Trading Co. Ltd. v. Swee Hong & Co, Mills - Owen J said at pp 662-665 :-

“Mr. Zimmern, for the defendants, relies on section 21(2)(b) of the Bills of Exchange Ordinance (Cap. 19) with provides that delivery of a bill may be shown to be conditional (except as against a holder in due course, which does not arise here); the full expression is that the delivery ;-

"(b) may be shown to have been conditional or for a special purpose only, and not for the purpose of transferring the property in the bill;"

In Ridout v. Bristow in p.236, Bayley B. said :-

"There are cases which establish, that you cannot give parol evidence inconsistent with the form of the note. You cannot vary, by parol evidence, the nature of the obligation. The authorities go to shew, that parol evidence is inadmissible to vary the time for payment expressed in the note. In Rawson v. Walker (1 Stark 361) a note was payable on demand, and evidence was offered to shew a liability on a contingency only. Lord Ellenborough said, 'I am ready to admit any evidence for the purpose of shewing that the consideration of the note was illegal; but I cannot receive parol evidence inconsistent with the terms of the note'. I am therefore of opinion, that the defendant was not at liberty to give the evidence in question, as it was inconsistent with the terms of the note."

In New London Credit Syndicate Ltd. v. Neale at pp. 489-490, A.L. Smith L.J. said:-

"This is an action upon a bill of exchange by indorsees against acceptor, but it really may be treated as if it were an action by the drawers, for it is admitted that the indorsees stand in no better position than the drawers, as they had notice of the facts upon which the defendant relies. I do not disagree with the learned judge upon the conflicting evidence with regard to the conversation that took place between the drawers of the bill and the defendant, that there was an agreement by the former that they would not part with the bill, and would renew it, if the defendant was not in a position to pay it at maturity. The question is whether that evidence was admissible. The bill is a written instrument by which the defendant undertakes to pay ￡100 at the end of three months. It has been held over and over again, that evidence of a contemporaneous oral agreement is not admissible to vary the effect of such an instrument. If the evidence be to the effect that the document is only delivered as an escrow, or that it is not to take effect as a contract until some condition is fulfilled, it is admissible. But that is not this case. This document was signed and handed over as a bill of exchange, but there was an oral agreement that at maturity it should be renewed, if the defendant required it. In other words, although the written document states that the bill is to be met upon a day certain, the parol evidence is that it is not to be then met. Nothing is more clearly settled than that evidence of such an agreement is not admissible. In Abrey v. Crux Willes J. stated that to be the law as established by the cases of Hoare v. Graham and Young v. Austen. It was argued by the defendant's counsel that the law as laid down in those cases is altered by the Bills of Exchange Act, 1882. I do not think that it was intended by that Act to alter the general law of evidence which renders parol evidence inadmissible for the purpose of contradicting the terms of a written document."

Mr. Zimmern relies on a passage in the judgment of Rigby L.J. in the same case, at p. 491, where the learned Lord Justice said :-

"There are certain cases which may conveniently be called 'escrow' cases where the question is whether the written agreement has even become an effective agreement, or whether it was only to have effect as an agreement upon some condition being fulfilled which has not been fulfilled."

The question is whether the arrangement referred to in para. 14 of the defence affidavit, assuming it to be true, affords an arguable issue. It is relevant to observe that the arrangement, as it is expressed in the affidavit, was not for presentation when funds became available; it is expressed as the issue of the cheque subject to the condition that it would be honoured only if Lampong put the defendants in funds before the due date. It is not, therefore, at least in terms, a case where the alleged oral arrangement was for the cheque to operate on a date different, or possibly different, from the due date; in other words, it is not - in terms - an arrangement intended to defer the date of payment, in contradiction of the date expressed in the cheque. Is it a case then of the cheque being delivered as a mere escrow; was it, in the terms of section 21(2)(b), delivered conditionally and not for the purpose of passing the property in it? In my view, it is not such a case. The evidence of the alleged oral arrangement, as I see it, is an attempt to qualify the nature or tenor of the instrument; an attempt to introduce into the unconditional order for payment expressed by the instrument itself, a condition contrary to its terms. It is as if when the cheque was handed over the defendants said : "This is a cheque which is not a cheque unless we are put in funds". The defendants, no doubt, would say their statement should be taken as : "This piece of paper is only to become, or be treated as, a cheque if and when we are put in funds". But whichever way it is put the effect is to contradict the instrument, in the circumstances of the case, and that the defendants cannot be permitted to do on the strength merely of oral evidence. As it stated in Byles on Bills (21st Edn.) at p.110:-

"No mere oral agreement can have any effect at law in controlling the instrument, if contemporaneous with the making of it; for that would be allow oral evidence to vary the written contract."

If the existence of the written contract has to be conceded, as it must on the giving of a cheque, oral evidence is inadmissible to vary or contradict its terms. It may be said that what the defendants seek to allege is a contemporaneous oral agreement showing that what purported to be a completed contract, the cheque, never came into operative existence (Chalmer's (13 Edn.) p. 57). In my view, that is not the proper interpretation to be placed upon the alleged oral arrangement, which, as I see it, sought to qualify the order for payment, to qualify the tenor of the instrument, to operate in defeasance of it, not to suspend the contract embodied in it. It is to be noted that according to the alleged arrangement it was the defendants who were to be placed in funds; it is as if a cheque was given on the terms that it would be honoured if the Bank account of the drawer happened to be in funds sufficient to meet it but otherwise not; that would be in complete contradiction of the instrument. To put it another way, the alleged arrangement for the cheque to be met only if the defendants were put in funds by Lampong in effect introduced a contingency into the unqualified contract created by the cheque. I would refer generally to the cases of Foster v. Jolly and Abrey v. Crux.

According I would make an order for judgment for the plaintiff company in the amount claimed with costs."

5. I have set out the judgment of Mills-Owen J in extenso to show the full reasoning and historical support for the case of a holder of bills of exchange. Both Cheung J in Prosperity Lamps & Components Limited v. Rotegear Corporation Limited HCA 13203 of 1999 and Sakrani J in Lui Po Nam and Shunyi Company v. Century Regal Limited HCA 9587 of 1999 followed the decision of Mills - Owen J and gave judgment for the holders of bills of exchange.

6. However, in Ken Kee Securities Co. v. Wong Yin Cheong (No. 1) [1973-1976] HKC55, Trainor J observed and held at pp. 60-61 :-

"A cheque is a bill of exchange (s 73(1) Bills of Exchange Ordinance (Cap 19)) and a bill of exchange is defined in s 1 of that Ordinance as 'an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to, or to the order of, a specified person or to bearer'. There is no doubt that the first cheque is a bill of exchange as defined; it fits clearly within the definition.

The second cheque is in the same position. It is true that it was undated but a bill of exchange is not invalid by being undated (s 3(4) ibid) and is payable on demand when no time for payment, eg is undated, is expressed (s 10(1)(b)). Therefore both cheques are valid bills of exchange.

If the appellant's only answer to respondents' claim were that the cheques were not bills of exchange then he must fail. But an essential to a bill of exchange to make it complete is delivery, and although s 21 of the Bills of Exchange Ordinance was not specifically referred to I consider I must take it into contemplation. This section provides :

(1) Every contract on a bill ... is incomplete and revocable, until delivery of the instrument to give effect thereto:

(2) As between the parties ... the delivery - ...

(b) may be shown to have been conditional or for a special purpose only, and not for the purpose of transferring the property in the bill.

As against this there is the further provision in the section.

(3) Where a bill is no longer in the possession of a party who has signed it as a drawer ... a valid and unconditional delivery is presumed until the contrary is proved.

But this is a rebuttable presumption. A bill of exchange may be handed over as an escrow and, unlike a deed, does not necessarily cease to be so by being handed over to the person entitled to the benefit of it, eg the drawee of a cheque.

Whether these cheques were handed over as escrows is a matter of fact and a proper issue to be tried. The importance is this, that if the cheques were handed over in escrow then the cheques were not completed bills of exchange and could not be sued upon as such and the right of the appellant to defend and have his counterclaim dealt with at the same time would arise.

In the case of Morgan & Son Ltd v Martin Johnson & Co Ltd [1949] 1 KB 107 to which I have already referred the Court of Appeal allowed an appeal against a decision of a judge in chambers which gave permission to the plaintiffs to sign judgment for their claim but imposed a stay of execution pending trial of a counterclaim and held that the defendant should have been allowed unconditionally to defend and leave should not have been given to the plaintiffs to sign judgment. In that case the defendant conceded that the amount claimed was due.

I am satisfied that there arises in this case the question of whether or not the delivery of the two cheques was conditional or not. If it was conditional then the cheques were incomplete bill of exchange and could not be sued upon as such and, as I said earlier, this was a proper matter to be tried. On this ground alone I could allow the appeal and grant unconditional leave to defend."

7. In Neo - Concept Industrial Co Ltd v. Sportex Industrial Ltd [1992] 2 HKC 452, Ryan J also observed that where there was a written contemporaneous contract from which the contract evidenced in the bill of exchange emanates, that contract can be considered to see if there is any vitiating factor which deprives the contract, written in the cheque, of its binding character. In the particular case before the learned judge, the contract alleged to be vitiating the bill of exchange was found to have no such effect and hence summary judgment for the holder of the bill of exchange was affirmed. In Plaza Company and others v. Tso Kar Yin [1959] HKLR 390, the Full court (comprising Sir Michael Hogan CJ and Mills - Owens J) held that whilst a bill of exchange (in the form of a promissory note in that case) ostensibly imposed a distinct, separate and personal liability upon the drawers of the bill, facts disclosed in affidavits tending to show that the liability was contingent entitled the drawers to unconditional leave to defend.

8. It is quite clear that there are two distinct lines of authorities, with roots going back in time and to English courts, for diametrically opposite treatment of the issue. In the circumstances, I consider myself at liberty to consider the issue afresh.

9. In my view, the reasoning of Trainor J quoted above is to be preferred. I accept that a bill of exchange is vested with special properties recongnized by law so that no oral or other evidence may be admitted to contradict the terms on the face of it. However, a bill of exchange is complete only when it has been validly delivered. Delivery is a requisite act independent of the written terms. Evidence, written or oral, relating to the quality or validity of the act of delivery is not evidence going to the terms of a written contract and as such cannot possibly contravene the Parole Evidence Rule.

10. More important, section 21(2) of the Bills of Exchange Ordinance Cap. 19 says quite clearly that delivery "may be shown to have been conditional or for a special purpose only, and not for the purpose of transferring the property in the bill." In as much as section 21(3) says that unconditional delivery is presumed, by the same token the presumption can be rebutted by evidence. In view of such express statutory provisions, I cannot see how I or any court can deny the Defendant in this case the opportunity to adduce evidence as to the quality or validity of delivery of the cheques under consideration.

11. Accordingly, the Order 14 summons is dismissed. Since the Defendant is unrepresented, I make no order as to costs on this application.