MIGHTFORT ENGINEERING (HK) LTD v. CHESTER CONSTRUCTION CO LTD

DCCJ1904/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1904 OF 2005

J U D G M E N T

1.  This is an application by the Plaintiff for summary judgment against the Defendant in the sum of $135,976 being an amount claimed under a dishonoured cheque.

The Plaintiff’s case

2.  The Defendant was a contractor of Tim Lee Construction Company Limited for the major refurbishment work in San Hui Playground, Tuen Mun Heung Sze Wui Road, Tuen Mun, New Territories.  According to the Plaintiff’s case, the Plaintiff supplied building materials to the Defendant for the said project, and the Defendant issued the cheque in issue, which was dated 15 March 2005, to the Plaintiff to settle two of the Plaintiff’s invoices both dated 5 January 2005.  As the cheque was dishonoured upon presentation for payment, the Plaintiff brought the present action against the Defendant to claim for the amount under the dishonoured cheque.

The Defendant’s case

3.  According to the Defendant, it had made two contracts with the Plaintiff for the supply of building materials for the said project: one for the supply of steel pergolas which was made on or about 23 October 2004, and the other one for the supply of stainless steel products which was made on or about 4 November 2004.  For the contract of steel pergolas, the Defendant complains of late delivery and poor workmanship of the goods in issue, and the Defendant has suffered loss as a result of the Plaintiff’s breach of the contract for the supply of the steel pergolas.  Further, the Defendant also claims that the Plaintiff has failed to deliver the mill certificates for the goods under both contracts.

4.  On or about 7 February 2005, the Plaintiff and the Defendant agreed to finalise the accounts under both contracts.  After some discussion, the parties agreed that the sum payable under both contracts were as follows:  $131,216.46 for the contract of steel pergolas, and $4,760 for the contract of stainless steel products.  The Defendant therefore issued a cheque to the Plaintiff to settle the sums agreed under the finalised accounts (“the First Cheque”), but  subject to the following conditions:

(1) the Plaintiff was to provide the mill certificates for the goods within 14 days; and

(2) the Plaintiff was to indemnify and to pay to the Defendant late delivery costs, if so charged by the main contractor of the project.

5.  The Plaintiff failed to deliver the mill certificates for the goods on 21 February 2005, and so the parties met again on 24 February 2005.  In that meeting, the parties agreed to vary the earlier agreement by extending both the deadline for providing the mill certificates and the payment date to 15 March 2005.  Consequentially, the Defendant issued a Second Cheque in the same amount to the Plaintiff, which is the subject matter of the present action (“the Second Cheque”), to replace the First Cheque.

6.  It is the Defendant’s case that the Second Cheque was issued subject to the same conditions as those of the First Cheque, save that the date for the delivery of the mill certificates be extended to 15 March 2005.  As the Plaintiff failed to supply the mill certificates and to indemnify the Defendant for a sum of $200,000 charged by the main contractor for the late delivery of the said pergolas, the Defendant claims that it was not liable to pay for the sum under the Second Cheque.  The Defendant, however, admits that it has received the mill certificates some time in August 2005.

Conditional Delivery of the cheque and the Parol Evidence Rule

7.  The Defendant’s case is disputed by the Plaintiff.  However, for the reasons given in the following paragraphs, it is not necessary for me to resolve the factual differences between the parties. 

8.  For the dishonoured cheque, the Defendant is relying on the defence of conditional delivery under section 21(2)(b) of the Bills of Exchange Ordinance, Cap.19.  Mr Tony Li, counsel for the Defendant, seeks to rely on the case of Ken Kee Securities Co. v Wong Ying Cheong (No.1) [1973 - 1976] HKC 55, and argues that the delivery of the Second Cheque was not complete in the present case.  The Second Cheque was handed over as escrow, and as such issue is a question of fact which needs to be tried, summary judgment should not be granted at this stage. 

9.  However, the defence of conditional delivery is a limited one.  Usually the drawer of a cheque will seek to adduce oral evidence to show that the cheque was issued subject to certain conditions, and there is a long line of local authorities which establish that the drawer is not entitled to do so by reason of the parol evidence rule.  It has been repeatedly emphasised by the courts that a cheque is to be treated as cash.  The cheque is an unconditional order in writing requiring the drawer’s bank to pay on demand, and oral evidence should therefore not be admissible to vary or contradict its terms (see Great Sincere Trading Co. Ltd. v Swee Hong & Co. [1968] HKLR 660; Suen Ho Sun v Kamenar International Ltd. [1989] 1 HKC 135; Lui Po Nam t/a Shunyi Company v Century Regal Ltd., unreported,HCA No. 9587 of 1999 (decision of Sakhrani J. on 28 December 1999; Prosperity Lamps & Components Ltd. v Rotegear Corporation Ltd. [2000] 2 HKC 638; S.Y. Chan Ltd. v Choy Wai Bor [2001] 3 HKLRD 145; Great Treasure International Ltd v Mimasu (HK) Co. Ltd., unreported, DCCJ No. 16767 of 2001 (decision of Deputy Judge A. Kwok on 22 January 2002); Lian Industrial Co. Ltd. v Samad Mohammad Siddique t/a Gazi Trade International, unreported, DCCJ No. 487 of 2002 (decision of Muttrie D.J. on 7 March 2003); cf. the view of  Z.E. Li D.J. in Lee Man Ching Mandy t/a Blossom Industrial Company v Chiu Hing, unreported, DCCJ No. 16461 of 2000 (decision on 22 February 2001), which became obiter after the judgment on appeal, unreported, CACV No. 515 of 2001 (decision of the Court of Appeal on 24 May 2001)).

10.  In the case of S.Y. Chan Limited, ibid, Mr Recorder Kwok SC has doubted whether Ken Kee is still good law after the cases mentioned above.  In my judgment, in order not to undermine the certainty and finality which ought to attach to the promise of the drawer of a cheque, the principle set out in Ken Kee should no longer be good law.  Hence, any attempt by the drawer of a cheque to adduce oral evidence to contradict the written terms in the cheque is bound to fail.  Indeed, after studying these cases, such proposition is no longer challenged by Mr Li.

11.  However, with a view to get round the parol evidence rule, Mr Li submits that there is written evidence to support that the Second Cheque was issued subject to conditions.  In the 2 Subcontractors’ Statements of Final Account dated 7 February 2005 (“the Statements”), it was stated that the First Cheque was issued subject to the two conditions mentioned in paragraph 4 above.  The Plaintiff disputes the Statements, but for the purpose of this Order 14 application, I am prepared to accept the Defendant’s allegation as the truth.

12.  Despite that, I do not find that the Statements can benefit the Defendant’s case.  It is the Defendant’s own case that the payment term under the finalised account agreement had been changed in the meeting held subsequently on 24 February 2005, and the Second Cheque was then issued pursuant to the new agreement made in such meeting.  In such circumstances, the Statements, at most, only contain evidence which varied the terms of the First Cheque.  They do not contain evidence which varied the term under the Second Cheque, which is a separate agreement forming the subject matter of this action.  Obviously, the parties were free to discuss the payment term when they met again on 24 February 2005, and the former conditions might not be applicable for the issuance of the Second Cheque.  Hence, in order to establish the alleged conditions, the Defendant needs to adduce oral evidence as to the agreement made on 24 February 2005, which is not permissible under the parol evidence rule.  If the Defendant is only left with the Statements made in respect of the First Cheque, it is not sufficient to vary the terms of the unconditional order contained in the Second Cheque.  The Defendant’s defence is, therefore, bound to fail.

13.  Indeed, the alleged conditions for the issuance of the Second Cheque are not the same as those for the First Cheque.  Under the First Cheque, the Plaintiff was given 14 days to hand over the mill certificates.  For the Second Cheque, the deadline was more than 14 days.  Hence, the alleged conditions for the Second Cheque were only agreed orally in the meeting on 24 February 2005.  Without oral evidence as to the contents of the discussion in that meeting, which the Defendant is not permitted to adduce under the parol evidence rule, the Defendant is not able to establish the conditions for the issuance of the Second Cheque.

14.  The Defendant also has a counterclaim for damages arising from the late delivery and poor workmanship of the steel pergolas.  However, it is trite law that such kind of counterclaim would not provide the Defendant with a defence to a claim based on dishonoured cheque.  Hence, even if the Defendant’s factual allegations were to be believed, the Defendant is not able to establish an arguable defence to the Plaintiff’s claim, and I therefore grant summary judgment in favour of the Plaintiff.