PO YUEN (TO'S) MACHINE FTY. LTD. v. CHAN SIU KING

CACV 209/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 209 OF 2002

(ON APPEAL FROM DCCJ NO. 13902 OF 2001)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1. This is an appeal from a decision of Deputy District Judge Sham given on 29 January 2002. The application before the judge was for summary judgment in respect of non-payment of a cheque in the sum of $536,241.60. The judge dismissed the application and granted unconditional leave to defend. At the hearing of this appeal, this court allowed the appeal and said that it would give its reasons in writing later, which we now do. Judgment was entered for the plaintiff with costs here and below including costs of a hearing on 4 September before another division of this court.

The facts

2. The defendant was a director of Golden Tech (Asia) Limited ("Golden Tech"). Golden Tech had entered into a contract with the plaintiff for the supply of injection moulding machines. For that purpose Golden Tech had issued a number of postdated cheques. Before the dates of the cheques a petition was presented to wind up Golden Tech. As a result the bank accounts of Golden Tech were frozen. Whether the bank should have frozen the bank accounts upon the presentation of the petition matters not. Following that on 16 July 2001, the defendant gave the plaintiff two cheques both for the sum of $536,241.60. The first was dated 17 July 2001 and the second was dated 18 August 2001. There is no dispute that these two cheques were to cover the amounts that should have been paid under Golden Tech's cheques. The first cheque given by the defendant was duly honoured.

3. On 2 August 2001, hence before the presentation of the second cheque, joint receivers and managers of the company were appointed and it is pleaded that the plaintiff was requested to return the second cheque because the receivers and managers would be in a position to pay the sum of $536,241.60. That request was refused but on 22 August 2001 the receivers and managers offered to pay the amount due by a bank draft subject to various conditions which were set out in their letter. That offer was rejected, the second cheque was presented and dishonoured.

This action

4. Proceedings were commenced on 3 September 2001. The kernel of the pleaded defence is contained in paragraph 6 which reads as follows:

"The conditions which Ms Betty To agreed with the Defendant are:-

(a) Upon clearance of the 1st Cheque, the two postdated cheques issued by the Company to the Plaintiff bearing Nos. 753619 and 753622 must be returned to the Company. When the 2nd Cheque is cleared, the postdated cheques issued by the Company to the Plaintiff bearing Nos. 753620 and 753624 must be returned to the Company.

(b) The 1st Cheque and the 2nd Cheques must also be returned to the Plaintiff if the bank accounts of the Company become operative because it was the Company, but not the Defendant, which was liable to pay the Plaintiff."

5. The defence was supported by an affirmation from the defendant. Apart from confirming the defence, it also contained the following in paragraph 6:

".... It is always my case which was agreed by the Plaintiff that it was the Company which is liable to pay the proceeds of the 2nd Cheque and for that reason, the conditions as stipulated in paragraph 6 of the Defence have been agreed with the Plaintiff in relation to the payment of the 2nd Cheque and such conditions have never been disputed by the Plaintiff, not even in Mr. Yeung's affirmation." (emphasis added)

6. In the court below the judge said at paragraph 7 of his judgment:

"Basically, what the Defendant was saying was that whenever the bank accounts of GT became operative, GT should pay off the debt it owed to the Plaintiff and the Defendant should be relieved of her obligation under the cheque forthwith. Whether or not there were conditions attached to the issuing of the cheque in question, in my view, has a bearing on the liability of the Defendant. If the Defendant could establish this fact, clearly that would afford her a defence." (emphasis added)

On that basis the judge considered that the defendant had a triable defence and based his decision.

7. Unfortunately, the judge's approach failed to appreciate that evidence which seeks to vary or contradict the agreement contained in the bill of exchange, namely the cheque, is inadmissible. Section 3 of the Bills of Exchange Ordinance, Cap. 19 defines a bill of exchange in the following terms:-

"(1) A bill of exchange is 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.

(2) An instrument which does not comply with these conditions, or which orders any act to be done in addition to the payment of money, is not a bill of exchange."

8. Under section 73, a cheque is a bill of exchange drawn on a banker payable on demand. A line of cases, for example, New London Credit Syndicate, Limited v Neale [1898] 2 QB 487, Hitchings and Coulthurst Company v Northern Leather Company of America and Doushkess [1914] 3 KB 907, Great Sincere Trading Co., Ltd. v Swee Hong & Co. [1968] HKLR 660 and Suen Hoi Sun v Kamenar International Limited [1989] 1 HKC 135 demonstrate that attempts to alter the terms of payment are inconsistent with the written instrument and are not inadmissible in evidence.

9. Before this court Mr Ho, on behalf of the defendant, sought to rely on section 21(2)(b) which provides that delivery of a bill:

"(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;"

10. Basing his argument primarily on the condition pleaded in paragraph 6(a) of the defence, Mr Ho sought to argue that the delivery of the second cheque was only a conditional delivery or a delivery in escrow subject to the return of the two postdated cheques which were replaced by the first cheque. Those two postdated cheques of Golden Tech would have to be returned after the first cheque of the defendant was honoured. The argument proceeded that since the obligation to return the two postdated cheques was never complied with, the delivery of the second cheque was never complete.

11. The difficulty which lies in the way of this argument is that that is not what was pleaded nor indeed contained in the evidence filed by the defendant. Moreover, although Mr Ho's instructions during the course of this hearing were apparently that there had been a request for the return of the two Golden Tech cheques, that has not been pleaded nor has any evidence as to such request being given. It may be safely assumed that upon the appointment of the joint receivers and managers they would have been able to operate the bank accounts of the Company, but there is nothing to show that the persons who had signed the cheques originally would be in a position to operate the bank accounts of the companies. The postdated Golden Tech cheques could therefore not have been cashed. Furthermore, no claim could be made upon the basis of the first two Golden Tech postdated cheques because the defendant had given full satisfaction for them.

12. Unfortunately, Mr Ho's attempt to rely upon the decision in the case of Bell v Lord Ingestre (1848) 12 QB 317 is of no assistance. The decision in that case was based entirely upon the fact that the relevant bills of exchange had been given in escrow since, as Patteson J said, it was not intended that the transferees should take any interest in the bills until the old bills had been returned. Coleridge J put the matter on the basis that it was equivalent to a third party being in possession of the new bills for the purpose of handing them over when the old bills were returned.

13. Neither can any assistance be derived from the case of Castrique v Buttigieg [1855] 10 Moore PC 94, 14 ER 427. That case involved the liabilities arising between an endorser and an endorsee.

14. In short, in my view, the defence in this case is bound to fail. The first condition pleaded in paragraph 6 of the defence does not, on a proper reading, indicate any condition relevant either to delivery or payment of the second cheque and hence could not be of any assistance to the defendant. The second condition pleaded in paragraph 6 of the defence pleads a condition in relation to payment. These matters do not constitute matters which could ground a defence.

Hon Le Pichon JA:

15. I agree.