CHU CHIU WAI v. WONG TAT MING t/a WING CHEUNG GARMENT FACTORY

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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JUDGMENT

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1. The Plaintiff in this case sues upon a dishonoured cheque. The facts are unusual. The Plaintiff is a proprietor of a garment factory. In the course of his trade he came to know one Lau Chuen, who was the proprietor of another garment factory. Lau Chuen did some sub-contracting work for the Plaintiff. The Plaintiff has known Lau Chuen for about three years and regards him as an acquaintance. Lau Chuen last did some work for the Plaintiff in 1983, but they subsequently remained in contact.

2. On the evening of 27th August 1984, the Plaintiff received a telephone call from Lau Chuen. At Lau Chuen's request he arranged to meet him at ten o'clock the following morning at a tea house. They met the following morning, that of the 28th August 1984. Lau Chuen told the Plaintiff that the pay days of his factory were the 7th and 22nd of each month and that wages were overdue. His factory workers were dissatisfied and he requested the Plaintiff to lend him some money to pay his workers. He wanted $73,000. The Plaintiff says he did not wish to see Lau Chuen's factory go down but he thought some security necessary and asked if Lau Chuen could give him any cheques which his customers might have provided for goods delivered. Lau Chuen immediately produced a cheque for $73,000 drawn by the Defendant and postdated the 28th October 1984. The Plaintiff recognised the signature as that of the Defendant whom he had previously known. He added that he was as well acquainted with the Defendant as with Lau Chuen. The Defendant had business dealings with him just once, a little over a year ago.

3. However, reverting to the cheque, the Plaintiff says at noon that same day he telephoned the Defendant from the tea house. Lau Chuen was then still with him. He told the Defendant that he had received a cheque from Lau Chuen signed by the Defendant, postdated two months to 28th October, for an amount of $73,000. He asked whether there was any problem over that and says that the Defendant answered that there was none. He says that the Defendant added that Lau Chuen had exchanged cheques with him and that the Defendant had Lau Chuen's cheque as well. The Plaintiff adds that he then told the Defendant if there was no problem over the matter he would keep the cheque, to which he says, the Defendant responded okay.

4. The Plaintiff says he then went back to his own home, which was a considerably distance away, collected $73,000 in cash and returned to the tea house about four o'clock that afternoon and handed it over to Lau Chuen. He says his arrangement with Lau Chuen was that he would bank the cheque on its maturity and get his repayment that way.

5. The next thing that happened, he says, was that on the evening of 16th September he received a telephone call from Lau Chuen asking him to a meeting the following morning, that of the 17th, at a cafe. Lau Chuen said he had something to say. The Plaintiff says he went but did not see Lau Chuen. After waiting for about an hour until eleven o'clock, he paid the bill and walked to Lau Chuen's factory which was not very far away. At the factory he noticed all the workers sitting and a commotion going on. He was told the owner had disappeared. He did not manage to find Lau Chuen that day. He says he telephoned the Defendant that same day and that it was the Defendant's father who answered the call. He says he told the Defendant's father that Lau Chuen had disappeared, that he the Plaintiff, had the cheque, and he asked the Defendant's father to look for Lau Chuen. On the following day, the 18th September, he says he again telephoned the Defendant's father who told him he had not located Lau Chuen. He says he then asked the Defendant's father what he was going to do about the cheque and got no satisfactory response as a result of which he put the matter in the hands of his solicitor. Eventually he presented the cheque and it was dishonoured.

6. He says he unsuccessfully tried to contact Lau Chuen by telephone, that is until the 13th November, the day before the hearing when suddenly the telephone was answered by Lau Chuen. Following that on the same day, the 13th November, Lau Chuen met and went with him to his solicitor's office and had a statement taken by one of the solicitor's clerks. Thereafter Lau Chuen agreed that he would meet the Plaintiff on the morning of the 14th and accompany him to court. However he did not turn up. The Plaintiff says he telephoned Lau Chuen's home and was told by a woman that Lau Chuen had gone to Shum Chun. Lau Chuen has not turned up atthe hearing and the solicitor's clerk gave evidence and confirmed that a person whose identity card showed him to be Lau Chuen made a statement to him which he recorded in writing and then typed out but to which he omitted to obtain Lau Chuen's signature. I shall return later to that statement, which was put in evidence.

7. I now turn to the Defendant. He is a young man of only 24 years, and looks even younger. He manages his father's garment factory, if it can be called that, which consists of a small residential flat and only five workers, comprising the Defendant, his two sisters, and two other female workers. Only the Defendant is authorised to sign factory cheques. Although in charge of the factory the Defendant seems to be out most of the time making deliveries, running errands and so on. Because of that he says he was in the habit of leaving signed blank cheques in the drawer of a desk in the factory office, which was one room of the flat. The arrangement was that if any suppliers or creditors of the factory arrived while he was out, his elder sister would fill in these blank cheques for the amounts due and hand them over.

8. Around the beginning of September 1984 he signed about three blank cheques and left them in a drawer in the office. After some 8 or 10 days, on or about the 18th September 1984 he opened his drawer and discovered that one of the cheques was missing. His sister on enquiry told him that she had not used it. He decided to do nothing as his father would be arriving from China that evening. In fact he was not able to meet his father until the following evening i.e. that of the 19th. As a result of a discussion with his father he reported to the police that evening that the cheque was missing. This was confirmed by a police officer who also testified that he was sure that he moot have explained to the Defendant the difference between a missing cheque and a stolen cheque, which involved different procedures and consequences.

9. On the following evening, that of 20th September, the Defendant says he received a telephone call from the Plaintiff concerning the missing cheque. He had known the Plaintiff before as the Plaintiff was a friend of his father. However he did not know him very well; there had notbeen much contact. He had had just one transaction with the Plaintiff's factory and had in fact dealt with someone else. It was some time in 1983. Referring to the Plaintiff's telephone call he says the Plaintiff told him he had the cheque. The Defendant says that he responded by saying that he had lost the cheque and at that point his father took over the telephone.

10. The Defendant confirms that he knew Lau Chuen. He also was a friend of his father's. He was not well acquainted with him. He denied that Lau Chuen had ever borrowed money or taken cheques from him or indeed had any business dealings with him.

11. As to the cheque in question, he identified it and says that he put his company's chop upon it, signed it and crossed it but did no more.

12. The Defendant's father's evidence was generally consistent with that of the Defendant. That he returned from China on 18th September 1984 is confirmed by his travel document which he produced, and which clearly shows that he left Hong Kong on 6th September 1984 and returned on 18th September 1984.

13. The statement Lau Chuen gave to the Plaintiff's solicitor's clerk is as follows :-

Dated the 13th November, 1985."

14. Now there are several curious features about this case. The first is how the cheque got into Lau Chuen's possession. He would himself be in the best position to explain but for reasons known to himself, but which must cast very grave suspicion upon his statement, he has chosen to absent himself. The Defendant's father does not admit that he was asked for a cheque in Lau Chuen's favour. Paragraph 6 of Lau Chuen's statement suggests that the Plaintiff asked for a cheque from the Defendant prior to Lau Chuen's approach to the Defendant's father. This is inconsistent with the Plaintiff's evidence.

15. It is clear from the cheque itself that it had been incorrectly made out. Opposite 'pay' where the payee's name should have been inserted, there has instead been inserted 'seventy three thousand only'. Opposite 'dollars' where the amount should have been specified, there is nothing. On his own evidence the Plaintiff was concerned about security. Yet under cross-examination he admitted that the cheque was in its present form. When asked whether he noticed anything unusual about it he said he had not. When pressed further whether it was not unusual to have the space for the amount blank he said he did not pay attention to it. He explained that he had no less than $73,000 available at his home because from time to time he bought stock lots of material for his factory. There is some confusion in the statement of Lau Chuen and in the Plaintiff's evidence about whether the cheque was to be merely security for the loan and returned on repayment or whether it was to be cashed when it reached maturity.

16. Although the Plaintiff claimed in his testimony to the court that he was to obtain repayment of his loan to Lau Chuen by presentation of the cheque, his pleadings presented a very different version, which he did not trouble to explain. According to the particulars in his reply, on 28th August 1984, in the morning, Lau Chuen came to see him and asked him if he could lend $73,000; and when he passed that sum to Lau Chuen, the latter handed him the cheque as security for repayment of the said sum two months later on the 28th October 1984.

17. The Plaintiff could not have telephoned the Defendant's father on the 17th September, 1984 as he claims, for the latter was in China. Altogether I was not satisfied with the 1st Plaintiff's evidence. Far from convincing me of its truth, it left me gravely suspicious about the Plaintiff's case. If the Plaintiff's story is true I find it incredible that he did not make additional efforts to trace Lau Chuen, that Lau Chuen should fortuitously appear on the eve of the hearing, provide the Plaintiff with the statement and then conveniently disappear again before he could be cross-examined. I do not believe that the Plaintiff telephoned the Defendant on 28th August or that he was reassured by the Defendant that the cheque was in order and that there was no problem. In rejecting the Plaintiff's evidence on that specific point and generally, I have taken into account some unsatisfactory aspects of the evidence of the Defendant and his father. In particular they must have come to the conclusion that the cheque had probably been stolen when the Plaintiff ultimately revealed to them on the 19th September 1984 that the cheque was in his possession. Yet they did not seem to be unduly concerned about finding out how he had got hold of it. However, it may be that they felt they could not get beyond the Plaintiff's refusal to say and also did not wish to be bothered with a police investigation, particularly as they believed they had safeguarded their own position by countermanding the cheque. On the balance of probabilities I find that the cheque was not delivered to anyone by the Defendant or with his authority, but that it was stolen or lost. Mr Lai for the Plaintiff has sought to rely upon the protection given by the Bills of Exchange Ordinance (Cap. 19) to holders in due course. However not only has the Plaintiff failed to plead that he was a holder in due course, but to the contrary in his pleadings, the Plaintiff actually claims against the Defendant 'as a drawer of a cheque payable to the bearer of which the Plaintiff became the bearer'.

18. Furthermore section 29(1) provides :

19. In my view the cheque was not 'complete and regular on the face of it', having regard to the manner in which it was completed, which I have already described. Furthermore I am not satisfied that the Plaintiff took the bill in good faith. On the contrary, on the probabilities, he must have noticed the irregular way in which the cheque was made out. On his own story he felt the need to obtain reassurance from the Defendant. In my finding he did not take the cheque in good faith.

20. Furthermore, Mr Benjamin Chain for the Defendant submits that an inchoate cheque can only be completed after it is delivered by the signer, and that this is the one exception to the protection otherwise afforded to a holder in due course (not that the Plaintiff is such a holder). He relies upon section 20 of the Bills of Exchange Ordinance which provides as follows:

21. He has also referred me to the relevant passages in Byles 25th Ed. page 34; Holden 3rd Ed. paras. 5-67 and 5-70, and to the cases upon which they rely i.e. Baxendale v. Bennett (1873) 3 QBD 525 CA, and Smith v. Prosser (1907) 2 KBD 735 CA. On the plain wording of those subsections and upon the foregoing authorities, which I see no need to adumbrate, I accept that "such instrument" in section 202) refers to the "blank paper" mentioned in section 20(1) i.e. the blank paper "delivered by the signer in order that it may be converted into a bill", and that an inchoate cheque can only be completed after delivery. In the present case there never was any delivery. Nor was the cheque completed with authority, much less in accordance with such authority.

22. For the foregoing reasons the claim is dismissed and unless Counsel wish to address me upon the matter I propose to order that the costs be to the Defendant.