DADRA INC v. CHAN CHOI HAR IVY

HCA 1756/2019

[2022] HKCFI 568

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1756 OF 2019

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JUDGMENT

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Introduction

1.  Upon the Plaintiff’s application by summons dated 1 December 2020 pursuant to RHC O 14 r 1 (“Summons”), Master K W Wong entered final judgment in favour of the Plaintiff on 31 March 2021 in the sum of HK$90 million together with interest and costs (“Judgment”). 

2.  There is before this court the Defendant’s appeal by Notice of Appeal filed herein on 14 April 2021 (“Appeal”) seeking to set aside the Judgment and for an Order dismissing the Summons alternatively for unconditional leave to defend the Action. 

3.  In this Action, the Plaintiff’s claim is for the sum of HK$90 million being the amount of a cheque no. 736858 dated 3 November 2017 (“Cheque”) drawn by the Defendant in favour of the Plaintiff.  The Cheque was presented for payment on or around 27 March 2018 but was dishonoured and returned unpaid with the remark “Refer to drawer”.

The Applicable Principles

4.  It is trite law that in a RHC O 14 application, the defendant bears the burden of satisfying the Court, in respect of the claim or part of the claim, that there is an issue or question in dispute which ought to be tried or that there ought for some other reason to be a trial of that claim or part.  If the defendant fails to do so, the court may give judgment for the plaintiff.

5.  In Re Safe Rich Industries Ltd unrep, CACV 81 of 1994, 3 November 1994 at [13], Bokhary JA (as he then was) observed that:

“ The test at the summary stage is indeed as simple as whether the defendant’s assertions are believable. But it must be recognized — because failure to recognize it would create a debt‑dodger’s charter — that whether the defendant’s assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as is either undisputed or beyond reasonable dispute.”

6.  Similarly, in Paul Y Management Ltd v Eternal Unity Development Ltd & Ors unrep, CACV 16 of 2008, 12 August 2008, at [19] Cheung JA observed:

“ … In considering whether there are triable issues the Court will, of course, not take the alleged defence on its face value but test it against the evidence disclosed in the affidavit including matters such as contemporaneous documents, whether the alleged defence is inconsistent with the defence previously put forward or whether the defence is only recently raised despite opportunity being given to the defendant to respond earlier. The Court will also consider the inherent probability of the defence. …”

7.  Section 3 of the Bills of Exchange Ordinance, Cap 19 (“BOE”) 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.

…

(4) A bill is not invalid by reason -

(a) that it is not dated; …”.

8.  Under section 73 of BOE, a cheque is a bill of exchange drawn on a banker payable on demand. 

9.  In Po Yuen (To’s) Machine FTY Ltd v Chan Siu King unrep, CACV 209 of 2002, 19 November 2002 at [7] and [8], Rogers VP observed that:

“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 [sic] in evidence.” (emphasis added)

10.  Similar observations were made by Rogers VP in Lam Tai Kwan v Lo Wai Kit [2007] 1 HKLRD 367 at [10]. 

11.   In SY Chan Ltd v Choy Wai Bor [2001] 3 HKLRD 145 at [8] to [9], Recorder Kwok SC observed that:

“Action on a dishonoured cheque and the parol evidence rule

8. It has been said time and again that bills of exchange are treated as cash, Hong Kong Civil Procedure 2001, paragraph 14/4/19. In view of the formal nature of negotiable instruments, to admit extrinsic evidence would undermine the certainty and finality which ought to attach to each party’s promise on the instrument, Chalmers and Guest on Bills of Exchange, Cheques and Promissory Notes, 15^th edition, paragraph 385.

9. A cheque is an unconditional order in writing, drawn and signed by the drawer, requiring the banker to pay on demand a sum certain in money to, or to the order of, a specified person or to bearer, sections 3 and 73 of the Bills of Exchange Ordinance, Cap. 19. The drawer of a cheque, by drawing it, engages that, on due presentment, it shall be paid according to its tenor, and that if it is dishonoured he will compensate the holder, provided that the requisite proceedings on dishonour are duly taken, section 55(1)(a). Extrinsic evidence is, in general, inadmissible to prove that the terms of the contract differed from those expressed in writing on the cheque, Chalmers, paragraph 384.” (emphasis added)

12.  In SY Chan Ltd v Choy Wai Bor, the defendant’s case was that he issued the undated subject cheque to the plaintiff so that the plaintiff could show it to his wife and that he never expected it to be presented at all.  The learned Recorder held that what the defendant was attempting to do was to contradict by oral evidence his written engagement that, on due presentment, the cheque would be paid according to its tenor ie unconditionally and on demand, and that was not permissible.

Deliberation

13.  The Plaintiff’s case is straightforward and fully supported by contemporaneous documents.

14.  Mr Chan Ping Che (“Chan”) is the sole director and shareholder of the Plaintiff.  In his first affirmation dated 26 November 2020 (“Chan 1”), he described the Defendant as an experienced and successful business agent who had been his business acquaintance for many years.

15.  In or about early July 2009, the Defendant and a Ms Keung Wai Fun (“Keung”)approached Chan for a loan of HK$80 million (“Loan”).  Chan agreed and the Plaintiff issued a cheque dated 9 July 2009 in the sum of HK$80 million made payable to the Defendant and Keung (“80 million cheque”).  Both the Defendant and Keung signed an acknowledgement of receipt of the cheque (“Acknowledgment”).

16.  The Loan was secured by a promissory note dated 9 July 2009 (“PN”) signed by the Defendant and Keung.  Under the PN, both the Defendant and Keung promised to repay the sum of HK$80 million on or before 8 February 2010 (“Repayment Date”) for value received.  Until full repayment, the principal sum shall be subject to an additional sum of HK$10 million payable in arrears on the Repayment Date.  The Defendant and Keung failed to repay the HK$80 million or the HK$10 million on the Repayment Date. 

17.  Thereafter, the Defendant and Keung requested the Plaintiff for a total of 8 extensions to the Repayment Date.  The extensions were agreed by Chan on behalf of the Plaintiff.  Each extension of the Repayment Date was secured by a post-dated cheque payable to the Plaintiff in the sum of HK$90 million issued by the Defendant and Keung, and for the last 3 extensions issued by the Defendant alone. 

18.  In about early May 2017, the Defendant was still in financial difficulties and proposed to replace the 7th post-dated cheque with a new one.  Chan agreed.  The Defendant then issued the Cheque payable to the Plaintiff which was already dated 3 November 2017 for the 8th and last extension of the Repayment Date.  It was dishonoured when presented for payment on 28 March 2018.

19.  The Plaintiff’s case is supported by contemporaneous documents including inter alia the 80 million cheque, the Acknowledgment, the PN, the 8 post-dated cheques referred to above, as well as a written Assignment of Proceeds dated 9 July 2009 executed by the Defendant, Keung and the Plaintiff.  The Assignment of Proceeds expressly referred to the PN and the Loan and described Keung and the Defendant as borrowers and the Plaintiff as lender at recital A thereof. 

20.  The Defendant’s case was first pleaded in her 2-page Defence filed herein on 21 October 2019 as follows:

“2. In or about late 2017, merely out of goodwill and gratitude to the Plaintiff and acting in good faith, the Defendant voluntarily and gratuitously acceded to the Plaintiff’s oral request to compensate the Plaintiff for the estimated losses arising from the Plaintiff’s payment of the share of the land premium on behalf of the Defendant in connection with certain land development in 珠海市西湖首期工業小區, precise amount to be assessed upon the relevant Chinese government authority approving the change of the land use and demanding payment of land premium in writing.

3. The Defendant also agreed to draw an undated ‘cheque’ (‘the Cheque’) in favour of the Plaintiff and passed it to the Plaintiff in escrow, for the sole purpose of giving comfort to the Plaintiff that the Defendant would honour her commitment for the compensation as pleaded in Paragraph 2, against the mutual agreement that the Cheque shall be returned to the Defendant upon the relevant Chinese government refusing or failing to approve the change of the land use.

4. It has subsequently come to the knowledge of the Defendant that the Plaintiff has failed all the administrate appeals against the Chinese government’s decision of not approving the change of the land use and has wilfully withheld or suppressed such information from the Defendant.

5. Without prejudice to the rights of the Defendant to rely on further or other particulars and arguments:-

(a) There has been no delivery. The Cheque was passed to the Plaintiff for the sole purpose of giving comfort to the Plaintiff that the Defendant would compensate the Plaintiff as pleaded in Paragraph 2. The Plaintiff and the Defendant intended that the undated ‘Cheque’ to be held in escrow by the Plaintiff such that the document did not in fact have the qualities of a cheque.

(b) Further and/or alternatively, there has been no absolute or unconditional delivery.

(c) In any event, the Cheque was undated, and has not been filled up with the Defendant’s permission or authority within a reasonable time as provided in s.20(2) of the Bills of Exchange Ordinance (Cap. 19).

(d) Still further, presentment has not been made within a reasonable time as provided in s.45 of the Bills of Exchange Ordinance (Cap. 19).” (emphasis added).

21.  The Defendant did not deny having issued the Cheque in favour of the Plaintiff as such.  Rather, her contention was that the sole purpose of issuing the Cheque was merely to give comfort to the Plaintiff that the Defendant would honour her voluntary and gratuitous commitment regarding the payment of compensation for the Plaintiff’s estimated losses in relation to certain land development in Zhuhai. 

22.  It can be seen that the Defendant had completely failed to condescend upon particulars of her case. 

23.  There was no explanation as to what the land development in Zhuhai was about, the roles of the Plaintiff and the Defendant, if any, in relation to the development, under what circumstances did the Plaintiff make payment of the share of land premium on behalf of the Defendant and on what terms, what estimated losses the Plaintiff had suffered or expected to suffer as a result of the payment, whether or not the Plaintiff was entitled to request for compensation from the Defendant and if not, why not, if the Plaintiff was not so entitled, why did the Defendant voluntarily and gratuitously accede to the Plaintiff’s request for compensation, why would the Plaintiff agree to return to the Defendant the Cheque given to it for comfort before the Defendant had actually compensated it for its estimated losses, and what exactly was the comfort to the Plaintiff if it had already agreed to return the Cheque to the Defendant when the Cheque was issued to it. 

24.  The matters raised in the Defence are merely bare assertions by the Defendant.  They were full of gaps and raised more questions than answered them.  In this court’s view, the matters so raised are so inherently improbable that they can hardly raise a triable issue for the purpose of resisting the Plaintiff’s Order 14 application or supporting this Appeal.

25.  Moreover, the Defendant’s case as pleaded is that the Cheque was merely issued for the sole purpose of giving comfort to the Plaintiff and should be returned to her if certain events occurred or rather did not occur.  As this court sees it, what the Defendant is really saying is that the Cheque was not to be presented for payment according to its tenor at all ie unconditional and on demand.  This is made even clearer by paragraph 5 of the Defence at which the Defendant made another bare assertion that the Cheque did not even have the qualities of a cheque.  If the Cheque did not have the qualities of a cheque, obviously it was not intended to be presented for payment. 

26.  It seems to this court that, like the defendant in SY Chan Ltd v Choy Wai Bor, what the Defendant is trying to plead in the Defence is a blatant attempt to contradict the agreement contained in the Cheque in a way which would render the issue of the Cheque to the Plaintiff meaningless: cf Atom Xquare Limited v Arist Home Limited & Anor unrep, HCA 1511 of 2017, 9 October 2019, Coleman J at [29].  In these circumstances, even if the Defence were actually supported by evidence from the Defendant, which it was not, this court would have no hesitation in ruling such evidence inadmissible. 

27.  The Defendant’s case has since then changed. 

28.  On 26 February 2021, the Defendant filed her 1st affirmation in opposition to the Plaintiff’s Order 14 application (“Defendant 1”).  Instead of supporting the case raised in her Defence, the Defendant has put forward a very different case as follows. 

29.  As far as the Loan, the 80 million cheque and the PN are concerned, the Defendant’s response is this.

30.  In around 2009, there was an opportunity to acquire the land use rights of two pieces of land (“Land Use Rights”) in Zhuhai.  The Defendant, Chan and Keung thought the two pieces of land had great development potential and agreed to acquire the Land Use Rights (“Agreement”). According to the Agreement, Chan would contribute HK$80 million whereas Keung and the Defendant would each contribute HK$30 million.  For the sake of convenience, Chan’s HK$80 million would first be transferred to Keung and the Defendant who would transfer the same as well as their respective contributions to acquire the Land Use Rights.

31.  Solely as security for Chan’s HK$80 million, Keung and the Defendant agreed to execute a promissory note in favour of Chan for the HK$80 million together with interest in the sum of HK$10 million.  Once the HK$80 million were used to acquire the Land Use Rights, there would be no debt under the promissory note. 

32.  Thereafter, on or about 9 July 2009, Chan caused the Plaintiff to pay HK$80 million into the joint account of Keung and the Defendant by cheque ie the 80 million cheque.  On the same day, Keung and the Defendant executed a promissory note for HK$80 million with a repayment date of 8 February 2010, being the estimated time necessary for acquiring the Land Use Rights.  Presumably, the Defendant was referred to the PN.  As the PN was executed solely to give security to Chan that his HK$80 million would be (and have subsequently been) duly transferred into the PRC for the acquisition of the Land Use Rights, there was no loan or debt as alleged.  Hence, there was no repayment by 8 February 2010.

33.  As far as the Cheque is concerned, the Defendant’s explanation is this. 

34.  In or around mid-2013, Chan was experiencing losses in his own business and became increasingly frustrated with the delayed acquisition of the Land Use Rights which he deemed to be a failure.  Towards late 2013, Chan proposed to Keung and the Defendant to buy out his share under the Agreement, to which proposal they agreed to pay HK$90 million.  For reasons unexplained, Chan[1] kept requesting Keung and the Defendant to issue new cheques to extend their acquisition of his share.  Out of trust for Chan, Keung and the Defendant agreed to accede to the request and “issued various cheques”.  Although the Defendant has not stated very clearly what those “various cheques” were, it can reasonably be inferred from paragraphs 26 to 28 of Defendant 1 that the last cheque issued by the Defendant to the Plaintiff under this arrangement was the Cheque in question:

“26. The Administrative Judgment [dated 31 August 2017] completely dashed my hopes of acquiring the Land Use Rights. As it became apparent that it was no longer possible to proceed with the acquisition, I informed Mr. Chan that I would not pay him the HK$90 million.

27. To my utter surprise, on 28 March 2018, Mr. Chan caused the last cheque issued by me to him dated 3 November 2017 (the “Last Cheque”) to be deposited for payment without my knowledge.

28. On the same day, HSBC informed me that the Last Cheque was deposited for payment.  I was completely taken by surprise, and immediately informed HSBC to stop payment of the Last Cheque.”

35.  Pausing here, this court would make a number of observations to demonstrate the deficiencies and inherent improbabilities of the Defendant’s case. 

36.  First, the Defendant’s denial of the Loan and her explanation of the PN as merely security to Chan for his HK$80 million fly in the face of the contemporaneous documents adduced by the Plaintiff.  If there were no Loan, the PN would not have contained a repayment date.  Further, if there were no Loan, the Assignment of Proceeds dated 9 July 2009 would not have referred to the Loan and the PN and described Keung and the Defendant as borrowers and the Plaintiff as lender.

37.  Second, the Defendant’s case summarised above is completely unsupported by documents.  In particular, since the parties were said to have agreed on the acquisition of the Land Use Rights worth HK$140 million^[2] and then on the acquisition of Chan’s share for HK$90 million, one would have expected seasoned business people like Chan and the Defendant to have reduced their agreements into writing.

38.  Third, what the Defendant has affirmed in Defendant 1 is very different from what she had pleaded in the Defence.  Take the Cheque as an example.  There was no suggestion that it was undated when issued to the Plaintiff, which is contrary to what was pleaded in the Defence. The only explanation for the discrepancy provided in the Defendant’s 2nd affirmation is that the Defence was prepared by her while acting in person and that she was not legally trained.  Legally trained or not, the Defendant should have been able to set out her factual case accurately in her Defence.  Instead, she put forward one set of factual case in her Defence only to be replaced by another set of factual case in her affirmation evidence. 

39.  Fourth, since Chan was said to be experiencing losses in his own business in mid-2013 and deemed the acquisition of the Land Use Rights a failure, it stands to reason that he would have wished Keung and the Defendant to complete the acquisition of his share sooner rather than later so that he could collect his HK$90 million.  Instead, according to the Defendant, Chan kept requesting Keung and the Defendant to extend their acquisition of his share by issuing new cheques to him for no apparent reason.

40.  Fifth, there is no explanation in Defendant 1 as to the full circumstances under which the last cheque ie the Cheque was issued by the Defendant and delivered to the Plaintiff.  In particular, there is no suggestion as to what condition, if any, was agreed upon by the Plaintiff as to when it was or was not permitted to present the Cheque for payment.  The closest to some sort of “explanation” as to why the Defendant says she is not liable on the Cheque is paragraph 26 in Defendant 1 quoted above.  But it is really a non sequitur to say because it was no longer possible to proceed with the acquisition of the Land Use Rights, even if true, the Defendant was entitled to renege on the agreement to acquire Chan’s share and refused to pay him.

41.  In short, the Defendant’s case is simply not believable.  Having considered the Defence and the Defendant’s affirmation evidence, this court is not satisfied that she has raised any triable issues for the purpose of resisting the Plaintiff’s Order 14 application or supporting this Appeal.

Disposition and costs order nisi

42.  The Appeal is hereby dismissed. 

43.  There be an Order nisi that costs of the Appeal be to the Plaintiff to be summarily assessed on paper and paid by the Defendant forthwith, certificate for counsel.  The Plaintiff is directed to submit its statement of costs within 7 days and the Defendant is directed to submit her comment on the statement of costs, if any, within 7 days thereafter.