XCHRX WELLSHIP CO. LTD. v. NGAN CHUNG LEUNG

HCA 3606/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3606 OF 2001

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J U D G M E N T

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1. This is an appeal from a Master's decision in which, following the hearing of an application for summary judgment made by the plaintiff under Order 14 rule 1 RHC, she ordered that the defendant be given unconditional leave to defend.

2. The history may be shortly stated. The plaintiff is a merchant. The defendant was at the material time the majority shareholder and controller of a company called for short "Majone". During the course of a commercial relationship Majone purchased commodities from the plaintiff. At the material time it was indebted to the plaintiff for about $1.5 million which amount it could not, for the meantime, pay. Representatives of the plaintiff and the defendant negotiated a settlement. A deal was struck the terms of which are disputed. The defendant caused Majone to write and deliver to the plaintiff eight post-dated cheques spread over a period of eight months totalling the amount due. The defendant's case is that that was the settlement. It is the plaintiff's case that a further essential term was that the defendant promised to guarantee the due performance by Majone, making himself personally liable should Majone default. To this end he signed his name on the back of each cheque.

3. The first five cheques were met. Thereafter there was default and that default continues. Majone was insolvent and is now in the process of being wound up. The plaintiff having given notice of default to the defendant then looked to him to recover the balance, a sum of about $820,000, under his obligation of personal liability. When the defendant refused to acknowledge his indebtedness the plaintiff issued a writ. The defendant filed a defence. By summons of 8 November 2001 the plaintiff filed its Order 14 rule 1 summons. The matter came before Master C B Chan on 7 January 2002. She had before her affidavits from one Chung Sit Lau, described as a manager of the plaintiff, from the defendant and from one Lam Woon Loy, accounts clerk of Majone. It is her order giving unconditional leave to the defendant to defend that the plaintiff now appeals.

4. It is trite law that the procedure under Order 14 RHC may be invoked where the defendant has no defence and there are no triable issues allowing a plaintiff speedy judgment without the expense and delay of a trial. If the plaintiff's application is properly constituted he is prima facie entitled to judgment unless the defendant can show that he does have a defence or there are triable issues.

5. As Mortimer JA said in Manciple Limited v Chas On Man [1995] 3 HKC 459 at p. 466 :-

"There is a difficulty because the court cannot resolve issues of fact on affidavits. However, there are some cases in which the defendant's own case, although apparently it raises issues which, if found in his favour, would provide him with a defence, are so incredible or so contradicted by contemporaneous documents or circumstances that it becomes clear that his defence is a sham."

It has been said two tests are appropriate, namely "Is what the defendant says credible?" and, if the answer is yes, "Is there a fair or reasonable probability of the defendant having a real or bona fide defence?"

6. With these principles in mind I turn to the evidence.

7. The essential issue is whether or not the defendant agreed to guarantee Majone's liability under the cheques. Mr Chung averred that it was he, the defendant, who proposed Majone's repayment schedule and that he would personally guarantee Majone's performance. When those terms were agreed the defendant added his signature to the back of each cheque as a personal endorsement. The defendant denied that the issue of a personal guarantee was even raised, let alone that he gave one. He stated: 'As a managing director of Majone it would not make any sense that I would give my personal guarantee for payments of Majone's debts at the time.' As to the reason for putting his signature on the back of each cheque he stated:-

"I signed those cheques as the authorized person of Majone, not in my own capacity. The signatures at the back of those cheques were the specimen signatures of Majone, not signatures of my own for any personal purpose. My signatures at the back of those cheques were intended for bank's reconfirmation of the specimen signatures of Majone only. It is untrue for the Plaintiff to say that the signatures at the back of those cheques were to signify and confirm my personal guarantee. Should there be any personal guarantee of payments given by me, the Plaintiff would have requested me to reduce that personal guarantee in writing. At least, there would be no difficulties for the Plaintiff to request me to put some words of guarantee before my signatures. The only reason why there were no such words of guarantee was that I did not give any personal guarantee for payments as alleged by the Plaintiff."

8. Miss Lam's evidence was that she accompanied the defendant to the meeting when the arrangement to hand over the post-dated cheques was made. The defendant did not give a personal guarantee.

9. Thus there is a defence. But is it a credible one?

10. The defendant's explanation for signing the cheques does not ring true, for two reasons. The first is that the signatures in each case were his, not marked with a company chop or other reference to Majone. The second is the more significant. A bank would not in the normal course require the signatory to sign the back of a cheque as a means of providing a specimen. What would be the point? In the usual way it already would have its customer's specimen signatures on file. In effect to sign a cheque twice would be a waste of time; the defendant's reasons for doing so are nonsense.

11. So why do so? Was it to back the cheques, rendering him liable personally for their value?

12. Mrs Chan for the plaintiff invites me to answer that question 'Yes', by invoking the terms of section 28 of the Bills of Exchange Ordinance (BEO) Cap 19 which states as follows:-

"28. Accommodation party

(1) An accommodation party to a bill is a person who has signed a bill as drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person.

(2) An accommodation party is liable on the bill to a holder for value; and it is immaterial whether, when such holder took the bill, he knew such party to be an accommodation party or not."

13. Of course under the BEO a bill is a bill of exchange; further, all cheques are bills of exchange.

14. Did the defendant sign the cheques as indorser, without receiving value, for the purpose of lending his name to some other person? Is he thus an accommodation party and liable to the holder for value?

15. The undisputed circumstances giving rise to the issue of the post-dated cheques were that Majone was in financial difficulties and could not, at least in the meantime, pay. The defendant was, for Majone, buying time; it was, far from "not making any sense" as he put it, a rational and logical course for him to back his company and thereby encourage the settlement he was looking for. I have already found the explanation he gave for appending his signatures was a fabrication. It seems to me and I so find that his endorsement for which he was not rewarded was for no other purpose than to lend his name to Majone. He is thus an accommodation party and liable to the plaintiff. I make that finding in the face of his direct denial that he agreed to guarantee payment and that that denial is supported by Majone's employee.

16. The defendant, as I am satisfied, has no defence and there are no triable issues. As a result I allow the appeal and give judgment to the plaintiff in the amount claimed with interest at 1% above prime from the date of the writ to judgment and thereafter at the judgment rate. Costs are to the plaintiff taxed if not agreed. (The order as to costs is nisi at fist instance).