XCHRX LOONGFUNG HING YIP (HOLDINGS) LTD v. KAN MING CONSTRUCTION INVESTMENTS LTD

HCA 19328/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 19328 OF 1999

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D E C I S I O N

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1. This is the Defendant's appeal against the order of Master Kwan dated 22 November 2000 whereby she entered summary judgment against the Defendant in the sum claimed in the amended Writ herein.

2. The Plaintiff brings this action based on 2 dishonoured cheques drawn in its favour by the Defendant. The cheques were respectively dated 12 January 1999 and 19 January 1999. The Defendant does not dispute that the cheques were issued by it. The main defence advanced in the Amended Defence and Counterclaim filed on 17 January 2000 (amended on 15 May 2000) is in essence that the cheques were drawn by mistake because the Defendant has in fact overpaid the Plaintiff. The Defendant also (by way of amendment) counterclaims the allegedly overpaid sum of about $7.4m.

3. It appears to be common ground that the 2 cheques were related to 7 joint venture contracts entered into between the Plaintiff and the Defendant. These joint venture contracts were for the development of small village houses for the New Territories residents. A partnership was in effect formed between the Plaintiff and the Defendant regarding the said joint venture contracts and a "running account" of some sort existed between them at one time or another. Because of the lack of evidence, details of the "running account" are unknown at present.

4. The particulars of payment (which can be found in the Amended Defence & Counterclaim) relied upon by the Defendant in this appeal show that total payment of about $21.39 million was made to the Plaintiff from about April 1997 to January 1999. The Defendant contends that the total amount due to the Plaintiff was only about $13.98 million. At the hearing it was mentioned that the total payment from the Defendant to the Plaintiff amounted to about $41 million.

5. The Plaintiff argues firstly that even if the Plaintiff has in fact been overpaid, the Defendant does not have any defence in law to a claim based on the cheques. The Plaintiff submits that whether the 2 cheques were issued in October 1998 (as the Defendant avers) or in January 1999 (as is the Plaintiff's case), the evidence shows that there was some debt (the exact amount of which is now unknown but, according to the Plaintiff, this is irrelevant) due from the Defendant to the Plaintiff. That debt (irrespective of its exact amount) was sufficient consideration in support of the 2 cheques. The fact that that debt was subsequently paid off (or even overpaid) does not give the Defendant a defence. There is no need to go into the details of this argument for the propose of this appeal save to say that I disagree with it and conclude that a defendant has at least a triable defence to a claim based on a cheque for the payment of a debt when that debt has in fact been fully paid (whether at the time of the cheque or subsequently).

6. The Plaintiff's second argument is that the Defendant's case is unbelievable because if the Defendant has in fact overpaid the Plaintiff, there was no proper reason for it to issue the 2 cheques.

7. The Plaintiff submits that matters relevant to credibility include:-

(a) the Defendant has said that the 2 cheques were countermanded but the bank record shows they were dishonoured by reason of insufficient fund in the bank account;

(b) the Defendant has written a number of contemporaneous documents stating in effect that it owed the Plaintiff some money;

(c) belated allegations were made by the Defendant in this action;

(d) further payments were made by the Defendant to the Plaintiff after the date of the 2 cheques.

8. The Defendant's response to point (b) above can be summarized as follows. Because the real property market in Hong Kong suffered a downturn, the Plaintiff's financial position deteriorated. Its bank pressed the Plaintiff for payment of its loans. The Plaintiff's former director, a Mr Wang, asked the Defendant to write a number of letters and to issue the 2 cheques (in short) to give the Plaintiff a better appearance regarding its financial position.

9. I agree with the Plaintiff that the above matters make the Defendant's assertions suspicious. Having said that, the main defence raised herein (as stated earlier) is that the Plaintiff was overpaid. I concluded earlier that it is a triable defence in an action based on a cheque for a defendant to establish that the underlying debt has been fully repaid. It is therefore relevant to consider whether the "running account" between the Plaintiff and the Defendant (arising from the underlying joint venture contracts between them) resulted in overpayment to the Plaintiff. In other words, there is a need for an account to be taken before it can properly be known if the Plaintiff was overpaid.

10. The parties have not produced undisputed (or indisputable) documents to establish the exact state of the "running account". The Plaintiff's reason for this is that the accounting documents are incomplete, that some of the matters were not in writing and some of the documents are unclear as to their meaning. In these circumstances, I consider that there is a "shadowy" aspect to both parties' case and this is therefore a case where unconditional leave to defend should be given: see, for example Goldrein: Commercial Litigation: Pre-emptive Remedies (1997) 3rd ed., p. 396.

11. Defence counsel referred me to a letter dated 22 August 2000 from the Plaintiff's solicitors to the Defendant's solicitors. It shows that the Plaintiff's solicitors knew (and probably have advised the Plaintiff) that it is not unlikely the Defendant would be given leave to defend this action.

12. In these circumstances, despite the Plaintiff's explanation about this letter (which I do not accept), I agree with the Defendant's argument that this application falls within Order 14 rule 7. The correct order should have been for its dismissal.

13. There is no need to deal with the other arguments of the Plaintiff, including whether the cheques were "accommodation" bills.

14. For the above reasons, the appeal is allowed. The Master's order is set aside. The Order 14 application is dismissed.