XCHRX KAI FAT ENGINEERING LTD. v. EAST SEA (HOLDINGS) LTD.

1995, No. A3079

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 against the order of Master Woolley whereby judgment under Order 14 rule 3 was entered for the Plaintiffs in the sum of $800,000.00 represented by three dishonoured cheques.

2. The Plaintiffs' case is that it was given three undated cheques respectively in the sums of $400,000.00, $200,000.00 and $200,000.00 in about March 1994 which it subsequently dated the 16th June 1994 and presented. They were all drawn on the China & South Sea Bank Ltd. and signed on behalf of the Defendants. The Plaintiffs allege that pursuant to a written contract of the 24th March 1993, they carried out work as the Defendants' subcontractor at the Today's World Recreation Club. The contract was to be completed by the end of June 1993. By February 1994 $2.63 million was still owing to the Plaintiffs. On the 9th February 1994, it received a cheque for $400,000.00 from the Defendants on account of this indebtedness. It was dishonoured on presentation. It was returned and replaced by another cheque from the Defendants but in the name of another company for 385,000.00 RMB on the 6th April 1994. This cheque was honoured. Pressure for payment of the balance due produced the three undated cheques which, the Plaintiffs contend the Defendants said could be presented in two months' time. In fact, they were presented, according to the Plaintiffs' time scale after three months.

3. There is a dispute as to when these cheques passed from the Defendants to the Plaintiffs, but that is of negligible importance though certainly the sequence of the cheques themselves supports the Plaintiffs' version rather than the Defendants. The signatory to all four dishonoured cheques was the same.

4. The Defendants agree that the Plaintiffs were at all material times their subcontractor. However, they contend that there was an oral contract between the Plaintiffs and the Club itself in December 1993 for work and materials to the total sum of $800,000.00 with the contract to be completed by the end of June 1994, and payment to be made by three stage payments. Payment, however, was to be made by the Defendants. The three undated cheques were handed over to the Plaintiffs in January 1994, apparently subject to an oral agreement that they would not be dated or presented until the Defendants gave notice that each cheque could be presented having received confirmation that the various stages of the contract work had been concluded. Even at this stage, I find this contention incredible. Further, since the Defendants contend that the Plaintiffs in April 1994 requested payment of $400,000.00, when they were already in possession of the three undated cheques, one of which was for $400,000.00, and asked for that sum to be paid in Renminbe, their version is even stranger. It is not suggested that the Defendants asked for the return of the undated cheque for $400,000.00. On the face of it, according to the Defendants' account, the Plaintiffs were thus potentially in possession of $400,000.00 more than the contract price.

5. There was already, according to the Defendants, a dispute in respect of the written contract of the 24th March 1993. If that is the case, it is inconceivable that the Defendants would have handed over three undated cheques totalling $800,000.00 in January or March 1994, not to mention the equivalent of $400,000.00 in the form of 385,000 RMB. No proceedings have been commenced, despite some hint at the possibility in December 1994.

6. The Defendants' contentions are not credible. It has been argued that I should admit the evidence on affidavit of an oral agreement as to the circumstances governing the presentation of these cheques. Such evidence, if admitted, can only be intended "to operate in defeasance of the unconditional contract evidenced in the cheque". (see Neo-Concept Industrial Co. Ltd. v. Sportex Industrial Ltd. and also Brema Holdings Ltd. v. de Roth (The Times, 22nd February 1994) and Banque de Paris v. de Naray [1984] 1 Lloyds' Reports 23.

7. The evidence should not be admitted. It constitutes an attempt to introduce into the unconditional order for payment a condition contrary to its terms.

8. These were three unconditional orders in writing for payment. I find that there is nothing in the affirmations, despite the considerable efforts of Mr. Kenneth Chan which raises a credible argument that there has been any failure of consideration. This appeal is accordingly dismissed with costs.