YUE TAI PLYWOOD & TIMBER CO. LTD. v. FAR EAST WAGNER CONSTRUCTION LTD. AND ANOTHER

HCA 3147/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3147 OF 2000

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REASONS FOR JUDGMENT

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1. This was an appeal against the decision of the Master made on 20 July 2000. The matter came before me on 23 August 2000 on appeal by the Plaintiff. I allowed the appeal with costs to the Plaintiff. I indicated that I would give written reasons in due course. This I now do.

2. The Plaintiff was at all material times a supplier of building material.

3. The 1st Defendant and the 2nd Defendant share the same registered office and the same place of business.

4. Mr Wong Kai Kwong, who made an affirmation in support of the 2nd Defendant before the Master, is involved with both the 1st and 2nd Defendants. He is one of two directors of the 1st Defendant and one of three directors of the 2nd Defendant. He is the holder of one non-voting share in the 1st Defendant, whose controlling shareholders are two companies registered in the British Virgin Islands; he is the majority shareholder of the 2nd Defendant. He is the company secretary of both companies. He applied for the Business Registration for both companies, one in 1988 and the other in 1997.

5. On various dates between September 1997 and April 1998 the Plaintiff sold and delivered a quantity of building material to the 1st Defendant at a price of HK$250,161.80 by 17 invoices, 12 of them issued in 1997 totalling HK$234,905.70.

6. The evidence of Mr Ho for the Plaintiff is that he dealt with the transactions on behalf of the Plaintiff and that, on all matters concerning the transactions he always dealt with Ms Tsang, Ms Chan and Mr Wong Kai Kwong of the Defendants. Further, he says that the Plaintiff treated the 1st and 2nd Defendants as one common entity as did those with whom they dealt at the 1st Defendant in relation to the said transactions. This evidence is not denied or contradicted by the 2nd Defendant.

7. Mr Ho's evidence is that he repeatedly pressed Ms Chan and Mr Wong Kai Kwong aforesaid for payment of the invocied amounts. In January 1999 he was given 3 post-dated cheques drawn by the 2nd Defendant and signed by the said Mr Wong in purported payment of part of the outstanding amount. These are the subject of paragraph 2(a) of the Statement of Claim. The Plaintiff issued receipts in respect of the amounts in the said cheques. This is not denied by the 2nd Defendant.

8. The Plaintiff's evidence is that in early February 1999 prior to the due date of the first cheque Ms Chan on behalf of the Defendants asked Mr Ho not to present any of the cheques for payment due to the 2nd Defendant's cash flow problems. That request was repeated on several further occasions between February and May 1999. This is not denied by the 2nd Defendant.

9. In May 1999 the Plaintiff presented the first cheque dated 15 February 1999 for payment and it was dishonoured. This is agreed by the 2nd Defendant.

10. It is the 2nd Defendant's case that the 1st Defendant requested the 2nd Defendant to issue the 3 post-dated cheques to the Plaintiff and that the 2nd Defendant agreed to do so conditional upon the 1st Defendant putting it in funds for the same. The 1st Defendant failed to do so and as a result the 2nd Defendant countermanded payment. There are no particulars about this arrangement and no evidence as to who agreed these matters on behalf of each Defendant. The Plaintiff says it has no knowledge of these matters.

11. The evidence of the Plaintiff is that there then followed numerous requests by Ms Chan and Mr Wong for the remaining 2 cheques not to be presented due to the 2nd Defendant's cash flow problems. That evidence is not denied by the 2nd Defendant.

12. The Plaintiff's evidence is that Mr Wong then told Mr Ho that 3 fresh cheques would be issued to the Plaintiff in place of the 3 original cheques.

13. Mr Ho went to the Defendants' place of business on 23 June 1999 where Mr Wong gave him the 3 fresh post-dated cheques drawn by the 2nd Defendant and signed by Mr Wong. Mr Ho says that Mr Wong asked for more time to pay due to the 2nd Defendant's cash flow problems. This evidence is not denied by the 2nd Defendant. The cheques are the subject of paragraph 2(c) of the Statement of Claim.

14. The Plaintiff further says on affirmation that whilst Mr Ho was at the Defendants' offices on 23 June 1999 collecting the 3 fresh post-dated cheques, Ms Chan ordered further building materials from him. He delivered the goods and received payment for them. Mr Ho says that if he had not received the 3 fresh cheques, the Plaintiff would not have accepted the subsequent order.

15. Mr Ho says on affirmation that shortly before the first of the 3 fresh post-dated cheques was due on 15 July 1999 Ms Chan asked him not to present the 3 fresh cheques for payment due to the 2nd Defendant's cash flow problems. Several similar requests followed. That evidence is not denied by the 2nd Defendant.

16. The Plaintiff presented the earliest of the 3 fresh cheques for payment in September 1999 and it was dishonoured. That is admitted by the 2nd Defendant.

17. The Plaintiff says on affirmation that thereafter Ms Chan on numerous occasions asked Mr Ho not to present the remaining fresh cheques for payment due to the 2nd Defendant's cash flow problems. That evidence is not denied by the 2nd Defendant.

18. In November 1999 the Plaintiff presented the 2 remaining fresh cheques for payment but they were dishonoured. This is admitted by the 2nd Defendant.

19. Mr Wong says however on affirmation that the 2nd Defendant had no cash flow problems and that the arrangement between the 1st and 2nd Defendants aforesaid was only because a winding-up petition had been issued in respect of the 1st Defendant whereby its bank accounts were immobilized and it could not issue cheques.

20. The 2nd Defendant denies that it is indebted to the Plaintiff for the amount claimed. Its case is set out in the affirmation of Mr Wong Kai Kwong. The reasons are that:

(a) There is no privity of contract between the Plaintiff and the 2nd Defendant; and

(b) There was no consideration for any of the cheques issued by the 2nd Defendant.

21. The matter came before the Master on an Order 14 summons by the Plaintiff. The Master gave unconditional leave to defend and the Plaintiff now appeals that Order.

22. In Order 14 proceedings the Plaintiff must establish a prima facie case. I am satisfied that the Plaintiff did succeed in setting out a prima facie case of dishonoured cheques. The onus was then upon the 2nd Defendant to establish that it has an arguable and credible case to proceed to trial - the threshold onus.

23. The 2nd Defendant relied principally upon Oliver v. Davis 1949 2 KB 727 and Hasan v. Willson 1977 Lloyd's Rep 43 as well as the Hong Kong case of Fortune Focus International Ltd v. The (Holdings) Co. Ltd 1998 1 HKC 578.

24. In support of its claim that there was no contractual relationship between the Plaintiff and the 2nd Defendant, Mr Pong for the respondent emphasized that the orders and receipts were all between the Plaintiff and the 1st Defendant and that the goods were delivered to the 1st Defendant's building site. He stressed that the 1st and 2nd Defendants are separate and distinct entities in law and that there had been no working or contractual link between the Plaintiff and the 2nd Defendant.

25. Mr Ho on affirmation and Mr Sham in his submissions said that the Plaintiff had throughout drawn no distinction between the 1st and 2nd Defendants. Mr Sham also pointed to the various conversations and the meeting with Mr Wong Kai Kwong when Mr Wong had made no distinction between the two Defendants.

26. I am satisfied that, although the 1st and 2nd Defendants are obviously separate and distinct legal entities, there was a deliberate and obvious blurring of the edges in the operation of these transactions. Indeed the 2nd Defendant has taken no steps to deny or contradict the Plaintiff's case that Mr Wong, Ms Chan and others were operating the Defendants as a combined operation.

27. The evidence of Mr Ho that he was repeatedly asked not to present any of the 6 post-dated cheques because of the 2nd Defendant's cash flow problems has not been addressed by Mr Wong save for the bland assertion that the issuance of the cheques was only to assist the 1st Defendant because of the freezing of its bank accounts. Mr Wong fails to deal at all with Mr Ho's evidence that at the meeting on 23 June 1999 it was Mr Wong who gave Mr Ho the 3 fresh post-dated cheques and who specifically asked for more time to meet the payments due to the 2nd Defendant's cash flow problems.

28. Having regard to the evidence I draw the irresistible inference that the 1st and 2nd Defendants are inexorably linked and that it would be unduly artificial to pretend that the two companies and their common directors and shareholders were unaware of each other's business activities.

29. The parties both rely on the same authorities in relation to consideration, namely, Kao Lee & Yip v. Euro Treasure Ltd 1985 HKC 46 and Oliver v. Davis 1949 2 KB 727. Both parties draw the same conclusions from these cases, namely:

(a) Whilst consideration must move from the promisee, it need not move to the promisor. The requirement of consideration may be satisfied if the promisee suffers detriment at the promisor's request even though this confers no corresponding benefit on the promisor.

(b) Forbearance or a promise to forbear, express or implied, on the part of the recipient in regard to a third party's debt is good consideration.

(c) Where a post-dated bill or cheque is given the court may, in the absence of express evidence, readily imply a promise not to press the claim against the debtor, at least until it becomes payable.

30. In the circumstances of this case there is clear evidence from Mr Ho that he was repeatedly asked by Ms Chan and Mr Wong to forbear on time and not to present the cheques because of the 2nd Defendant's cash flow problems. There is no doubt that by accepting post-dated cheques and consenting to delay presentation of the cheques, the Plaintiff suffered detriment. The 2nd Defendant has not denied or contradicted that evidence despite the opportunity to do so.

31. I am therefore satisfied that the requirements of consideration have been satisfied and that the 2nd Defendant has not advanced a credible defence to that.

32. The Plaintiff further relies upon Section 28 of the Bills of Exchange Ordinance and the case of Diamond v. Graham 1968 1 WLR 1061. That case is authority for the proposition that, where value is given for a cheque although no value has passed directly between the drawer and drawee of the cheque, the drawee is a holder for value.

33. Section 28(1) defines an accommodation party as one who draws a bill without receiving value therefor and for the purpose of lending his name to some other person. Section 28(2) makes an accommodation party on a bill liable to a holder for value regardless of whether when the holder took the bill he knew the drawer to be an accommodation party.

34. The 2nd Defendant is clearly an accommodation party pursuant to Section 28(1). As such, it is liable under Section 28(2) in respect of the amount of the cheques drawn by it.

35. The 2nd Defendant has advanced no evidence and no argument in submissions to deal with Section 28 and Diamond v. Graham.

36. In all the circumstances, I am satisfied that the 2nd Defendant has not even begun to meet the threshold onus upon it. This is therefore a proper case for the Plaintiff to have summary judgment against the 2nd Defendant. I so ordered and dealt with costs on the last occasion.