XCHRX HOLTEK MICROELECTRONICS INC. v. OVERSEAS HERO DEVELOPMENT LTD.

1996, No.A8886

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. This is an appeal from the decision of a Master by which he dismissed the plaintiff's application for summary judgment.

2. The claim is in the sum of $1.8 million being the amount of a cheque dated 30th June 1996 drawn by the defendant and payable to the plaintiff. It is not disputed that the cheque was drawn, was presented for payment upon or after the due date, and was dishonoured in that its payment was countermanded by the defendant company.

3. The Master dismissed the application because the plaintiff was in breach of Ord.32, r.1 in that the affirmations in support of the application were not filed at the same time as the summons.

4. The Statement of Claim was issued on 5th August 1996, the Defence and Counterclaim on 16th October, and the Ord.14 summons on 15th November. The translation of an important agreement drawn originally in Chinese was not ready until 11th December so that the affirmations were only filed on 20th December. The defendant filed its affirmations on 3rd January 1997, and the hearing of the summons was set before the Master on 6th January.

5. The complaint about the breach of the rules was initiated by the Master and not by those acting for the defendant. Thus prompted, according to the evidence before me, the defendant's solicitors asked for the application to be dismissed. The Master dismissed the application with costs to the defendant, expressing that dismissal to be without prejudice to the plaintiff's right to bring fresh Ord.14 proceedings.

6. The matter comes before me de novo, in other words, as a fresh hearing, and I do not take the same view as did the Master. The provisions of Ord.2, r.1 entitle the court to proceed notwithstanding this breach of the rules. No one has been prejudiced by the breach, nor has that ever been suggested. I intimated at a very early stage of this appeal today that that is the view I took, but Mr Leong said if that was so, then the proper course was for me to send the matter back to the Master for a hearing on the merits of the Ord.14 application, for otherwise his client, the defendant, would be deprived of a hearing on the merits before the Master and therefore of an appeal step should the matter there go against the defendant.

7. I do not, with respect, agree. The Master has dismissed the application for summary judgment and, whatever the reason, I am entitled to hear the matter at large. The order has not been drawn up, but that is not fatal. It has been made and is endorsed on the back sheet of the summons.

8. So we go then to the merits of the matter. The fundamental principles are these. It is for the defendant to show that there is a triable issue. So too the defendant must satisfy the court that he has a fair and reasonable probability of showing a real or bona fide defence, that is, that his evidence is reasonably capable of belief. Mere assertions do not ipso facto provide leave to defend. (See Supreme Court Practice 1997, page 159). The court is entitled to, indeed it should, ask whether what the defendant says is credible.

9. I do not need to set out a detailed history of the case. It is common ground that there was an agreement in 1991 by which the plaintiff, a company incorporated in Taiwan and manufacturing electronic products agreed with Mr Hong, now the defendant's general manager, to send to him goods to distribute in the People's Republic of China. In 1993, the defendant company was formed to be used as Mr Hong's corporate vehicle and the agreement between the parties was novated in that way. It is then common ground that the defendant company fell into arrears with the payments due by it to the plaintiff, and that those arrears by February 1996 were in excess of $6 million.

10. It is also common ground that there was drawn and concluded between the parties a written agreement dated 6th February 1996 which deals with those arrears and how they were to be paid. That agreement is at page 59 of the Bundle. Put very simply, the agreement was that the defendant was to pay off the arrears by paying 120% of the price of goods thereafter supplied to the defendant by the plaintiff, the extra 20% to go in abatement of those arrears. The defendant was to issue three post-dated cheques, the first of which, post-dated to 30 June 1996, was the cheque which is the subject of this action by the plaintiff. The sum of $1.8 million was said, on the agreement, to offset the payments outstanding for goods which had been supplied in September 1995. There was then a second cheque, post-dated to 30 September 1996, relating to arrears for goods supplied in October 1995; and a third post-dated to 30 November 1996 relating to arrears for goods supplied in November 1995. The dates of the cheques were specifically described as the "dates for encashment". It was further provided that if the amounts due were paid by the due date through the alternative method supplied, namely the 20% excess payment method, the cheque relating to that period would be returned. In relation to the first payment due, if there was a balance unpaid on 30 June, the balance was to be paid by that date in one lump sum. There is no like provision as to unpaid balance in relation to the September and November deadlines. There is then a provision about an extension of time if the defendant had placed orders but was unable to "honour the cheques" on the due date as a result of other market factors.

11. It seems perfectly clear to me that on the face of the written agreement, the obligation to return the cheque for any particular month only arose if the 20% payment for goods delivered after the agreement was sufficient to offset the arrears or, failing which, the shortfall was met. Now it is admitted that the arrears were not thus met. They were met in part only, namely, as to about $534,000 - this, I should add, being in relation to the payments due by 30th June.

12. It is not suggested by the defendant that there were market factors which made them unable to honour the cheques or any of them, or that any requests for such extensions were made. It is clear to me in the circumstances that on the face of the written agreement the plaintiff was entitled to present the cheque for $1.8 million.

13. But the defendant says that the written agreement does not represent the whole of the agreement between the parties. It says that the February agreement was the culmination of discussions following breaches by the plaintiff of the 1991 agreement, and that the agreement reached in February 1996 was partly in writing and partly oral. The oral terms are said by paragraph 8(3) of the Defence to "have been contained in discussions between Hong and the plaintiff during negotiations held since December 1995." The oral terms are set out at paragraph 9.

14. The defendant says that it was agreed either expressly, or by implication perhaps, that the cheque would not be presented unless the plaintiff fulfilled certain of its obligations and, in any event, without the consent of the defendant. My attention has been drawn by Mr Chow to authority to the effect that evidence of an oral agreement is not permissible to contradict the term of a contemporaneous written agreement, and a cheque being a bill of exchange drawn on a banker requires payment on demand. The evidence of that suggested oral agreement that it would not be presented in the circumstances suggested by the defendant to have been orally agreed is not admissible.

15. In any event, it is, in my judgment, inherently incredible that terms such as those for which the defendant contends were not incorporated in writing, given that the parties went to the trouble of reducing into writing the very question of payment for goods supplied to the defendant by the plaintiff. Not only is there no suggestion by that agreement that the plaintiff has in any way been at fault in the past, but there is no hint in that agreement that any of the conditions for payment are themselves dependent upon fulfillment by the plaintiff of certain obligations. There is nothing whatsoever in the affirmations filed by the defendant to suggest why that should be so.

16. Mr Leong says the fact that there must have been other terms, or may have been other terms, is itself evident from the matters which can be discerned to have been omitted. I cannot agree. In any event, if it be suggested that the parties had in mind some arrangement alternative to the presentment of the cheques if only part payment was made, the defendant has not said what that something in mind was. The defendant, more than anyone else, should be in a position to supply that information.

17. Beyond that, some of the suggested oral terms are in themselves inherently incredible, in particular and vitally in this case, the contention that cheques admittedly delivered as security for debts by the defendant in substantial amounts should "under no circumstances be presented by the plaintiff without the prior consent and approval of the defendant". The essence of the defence's contention is that it did not give its consent and that in any event the plaintiff was in breach of the February agreement.

18. Mr Leong says it is not for us to speculate why the plaintiff might have agreed to such a term which, on its face, was, in my judgment, an empty term of no practical assistance or worth to the plaintiff whatsoever. It might, he says, have been intended as a measure of earnest. If the defendant had this complete veto, regardless of the circumstances, then even as an indication of earnest, it is a futile document.

19. In any event, I once again comment that surely the defendant should know the point of such a gesture, if such a gesture was made. Surely the defendant should depose to the intention behind such an extraordinary arrangement. To that the defendant has not even averred in its affirmation in opposition to this application.

20. It is suggested or implied that on the face of the written agreement, it is evident that the defendant's ability to pay the extra 20% to the extent of meeting the obligations set for the deadline 30th June was dependent upon the plaintiff supplying sufficient goods for it to do so, and there appears to be a contention that insufficient goods were supplied. As to this contended failure, as with almost every other contention in the Defence and in its supporting affirmations, there is not an iota of supporting evidence. It is all in the nature of a bare assertion. There is no schedule of goods expected and not delivered. There is, in relation to the catalogue of breaches alleged, whether in relation to the 1991 agreement or to the 1996 agreement by the defendant, not a single letter or fax or telex produced containing even a hint of complaint. It is said that goods were sent which did not accord with orders. There is no suggestion as to the manner in which the goods sent depart from what was required. It is said that the plaintiff undercut the defendant by selling to others at lower prices. There are no particulars of this either in the Defence or in the affirmations. The defendant is said to have suffered loss and damage. That is not even broadly particularized in the Defence nor in the affirmation in reply.

21. The effect of what I have is a string of bold assertions entirely devoid of evidential meat. In short, the contention as to an agreement conditional upon the plaintiff fulfilling the suggested oral conditions of the agreement does not hold water even for the purpose of an Order 14 application. Thus the defendant fails in its suggestion even at this lowish threshold that there was an agreement not to present the cheques without the agreement of the defendant.

22. Mr Leong prays in aid section 21(2) of the Bills of Exchange Ordinance which provides as follows :

"21. Delivery

(1) .....

(2) As between immediate parties, and as regards a remote party other than a holder in due course, the delivery-

(a) in order to be effectual, must be made either by or under the authority of the party drawing, accepting , or indorsing, as the case may be;

(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;

but if the bill is in the hands of a holder in due course, a valid delivery of the bill by all parties prior to him, so as to make them liable to him, is conclusively presumed.

(3) ..."

23. To the extent that it was agreed that the cheques were not to be presented unless there was default in the primary obligations to which the February agreement referred, I agree that section 21(2) applies. But I agree too that once the defendant was in default of that agreement, the security which hitherto the cheques represented crystallised and there was nothing then conditional about the delivery of the cheque and it had to be met upon demand. I agree with Mr Chow that any suggestion that even at that stage the cheque could not be presented without the consent of the defendant is not only inherently not credible, but is also inconsistent with the nature of the cheque as an unconditional payment upon demand.

24. There has, in my judgment, been shown no credible defence to this claim. The plaintiff is entitled to summary judgment for the amount claimed. Accordingly the order of the Master is set aside and I order that judgment be entered for the plaintiff against the defendant in the sum of $1,800,000. As a general rule, in an action based upon a dishonoured bill of exchange, the plaintiff is entitled to judgment without a stay pending determination of a counterclaim for breach of contract. Accordingly, I shall not order a stay pending determination of the counterclaim in this case.

25. As to consequential matters, I shall order that interest on the judgment sum shall be at the rate of 9.5% p.a. from 2nd July 1996 to the date of judgment, and that the plaintiff should have the costs of this action and the costs of the appeal. As to the costs of the hearing before the Master, I think the appropriate order is that there should be no order as to costs.