LIN HSIEN TSENG v. SO SIN MUI BONNIE

CACV 162/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 162 OF 2002

(ON APPEAL FROM DCCJ 8790 OF 2001)

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J U D G M E N T

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Hon Mayo VP (giving the judgment of the Court):

1. This is an appeal from a judgment of H.H. Judge Li when he allowed an appeal he himself was hearing from a decision of a master.

2. The plaintiff's claim is based upon a dishonoured cheque for $500,000. The Master ordered that summary judgment be entered for the plaintiff.

3. The defendant appealed against this decision and for the reasons given in his judgment the Judge set aside the judgment.

4. There are two issues raised by the defendant. The first is a claim that there was no consideration for the value of the cheque and the second that there was an oral agreement between the parties that the cheque would not be presented for payment unless certain conditions were fulfilled.

5. According to the defendant these were not fulfilled and she countermanded payment on the cheque.

6. As was pointed out by H.H. Judge Li in his judgment there have been a number of apparently conflicting judgments on the question of the extent to which it is possible to orally impose conditions when delivering a cheque to the payee of the cheque.

7. Section 21 of the Bills of Exchange Ordinance Cap. 19 provides:

"21. Delivery

(1) Every contract on a bill, whether it is the drawer's, the acceptor's or an indorser's, is incomplete and revocable, until delivery of the instrument in order to give effect thereto:

Provided that where an acceptance is written on a bill, and the drawee gives notice to or according to the directions of the person entitled to the bill that he has accepted it, the acceptance then becomes complete and irrevocable.

(2) As between immediate parties, and as regards a remote party other than a holder in due course, the delivery-

(a)	in order to be effectual, must be made either by or under the authority of the party drawing, accepting, or indorsing, as the case may be;
(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;

but if the bill is in the hands of a holder in due course, a valid delivery of the bill by all parties prior to him, so as to make them liable to him, is conclusively presumed.

(3) Where a bill is no longer in the possession of a party who has signed it as drawer, acceptor, or indorser, a valid and unconditional delivery by him is presumed until the contrary is proved."

8. It will be appreciated from this that a cheque is a contract on a bill and it is only in limited circumstances permissible to attempt to vary the terms of this written contract by oral testimony.

9. This subject was most helpfully considered by the Court of Appeal in Suen Ho Sun v Kamenar International Ltd [1989] 1 HKC 135. Hunter JA said this at p. 138:

"Before the judge below, two points were taken. Firstly, it was said that there was conditional delivery of this cheque within s 21 of the Ordinance and reliance was particularly placed upon para 28 of the affirmation which I have just read. Secondly, it was said that there was a total failure of consideration.

The judge rejected both those arguments, and in my view, he was quite right to do so. As far as conditional delivery is concerned, I can see nothing in the evidence filed which starts to make out a true case of conditional delivery of a cheque. It is important to bear in mind that this is a limited defence. This appears from Byles on Bills of Exchange (25th Ed) p 373, where the author comments upon the selfsame section which fortunately has the same number in the English Bills of Exchange Act. He says:

'the section allows evidence to be led (other than as against a holder in due course) that there was no delivery by the defendant with the intention of transferring property in the instrument ... or that the delivery was subject to the fulfilment of a condition suspending the operation of the instrument.'

In my judgment, there was no such condition here at all. This cheque was simply delivered as a cheque in part payment of the purchase price, the payment of the 'balance of 30%' of the purchase price, as the deponent described it. What was really sought to be done here was to vary the conditions of payment by oral agreement. The cheque, as it stood, was an unconditional order in writing by the defendants to their bankers to pay the sum named to the plaintiff on or after 4 January. When all these oral conditions are read into it, the effect is quite different. It becomes, first, a conditional order to pay, conditional upon acceptance of the goods by the sub-buyer. Secondly, it is not an order to pay on or after 4 January; it is an order to pay only after such acceptance happens and is communicated. Thirdly, by a second affidavit, it is said to be an unconditional order to pay unless countermanded earlier by this defendant. This really left the document totally worthless in the plaintiff's hands.

That defence was considered and rejected by the trial judge. He referred to the leading authorities: New London Credit Syndicate Ltd v Neale [1898] 2 QB 487, where one finds the principle particularly in the judgment of AL Smith LJ at p 490 and Vaughan Williams LJ at p 491; Hitchings & Coulthurst Co v Northern Leather Co of America [1914] 3 KB 907, a decision of Bailhache J; and thirdly, the Hong Kong decision of Great Sincere Trading Co Ltd v Swee Hong & Co [1968] HKLR 660. All of these cases show that attempts like this to alter the terms of payment are quite inconsistent with the written instrument and are not admissible in evidence."

10. This deals with the problem comprehensively.

11. As we understand the position a defendant who is attempting to make use of section 21 has to establish that what was contemplated by the parties was that it was intended that the "cheque" should be held in escrow by the payee such that the document did not have the qualities of a cheque at all as it had not been delivered.

12. Certainly it is not enough to refer to oral testimony of conditions which have allegedly been imposed before the cheque can be presented for payment.

13. The question which has to be determined in this action is whether the cheque in question was delivered in escrow or whether an attempt was being made to orally attach conditions to the payment of the cheque.

14. The defendant filed two affirmations. In the first she had this to say on the subject:

"3. Paragraph 2 of the Plaintiff's affirmation is admitted to the extent that I drew the cheque, on the 27th March, 2000, posted dated to the 30th April, 2000 subject to the fulfilment of terms and conditions of the oral joint venture agreement, since the Plaintiff has failed to fulfil the terms and conditions of the said agreement, I have informed the Plaintiff that due to his breach of the terms and conditions of said contract I will stop payment. Furthermore, Paragraph 2 of the Plaintiff affirmation is not admitted in respect that the cheque was for the price of Chinese herbal products sold and delivered to me.

4. Paragraph 3 of the Plaintiff s affirmation is not admitted, the Plaintiff was informed in advance that I have a standing order given to the bank to stop payment, due to the Plaintiff's breach of the terms and conditions of the Oral Joint-Venture Agreement.

5. One of the over-riding conditions of the Oral Joint Venture Agreement is that the Plaintiff is to supply the Certificate of Analysis of the Chinese Herbal Medicine to ascertain the Lead; Arsenic and Mercury contents are within the prescribed limits and the Plaintiff is to supply the manufacturer's detail; the batch number; manufactured date and the expiry date to meet the requirements for product description set by competent authorities and to meet product liability claims should they arise. Despite numerous requests for the above information, the Plaintiff has failed to furnish them consequently, I have no other option but to stop payment of the cheque, since I cannot market the product without the said information. Now produced and shown to me as 'SSM-1' being a copy of the description of the product in Chinese."

15. It would appear however that she had second thoughts about this. Shortly before the hearing before the Judge she filed a further affirmation the relevant part of which reads:

"Historical background behind the subject transaction

4. The Plaintiff is a Taiwan Chinese medicine practitioner. He approached me sometime in about the beginning of January, 2000 for his proposed sale of the Chinese herbal medicine ('the goods') to me. He told me if everything goes well, we could have entered into joint venture agreement for sale and purchase of the Chinese medicine. In reply, I said I might consider if I could have them for sale by retails in accordance with relevant rules of law or such other requirement imposed by the Authority concerned. Immediately subsequent to that conversation, the Plaintiff then delivered me the goods to my office and said I could have my time to inspect and make such inquiries for requirements under relevant rules of law.

5. A few days later, the Plaintiff requested me for handing him a post-dated cheque for the sum of HK$500,000.00 just to ensure I would properly store the goods. I agreed but insisted I needed more time for my making inquiries for relevant rules of law and market research on my intended re-sale of the goods by retails. I also said the said cheque should not be presented for payment until after his being confirmed my placing order for purchase of the goods. To which, the Plaintiff unequivocally concurred with my aforesaid proposal. Accordingly, I handed over him a cheque post-dated 30th April, 2000 for the sum of HK$500,000.00 on or about 27th March, 2000, a copy of which is exhibited 'LHT-1' to the Plaintiff's affirmation."

16. To complete the picture the Defence which was filed reads:

"1.	On or about May, 1999, the Plaintiff and the Defendant entered into an oral agreement which both parties agreed on a joint-venture investment in marketing Chinese Herbal Medicine. Terms and conditions of joint-venture regarding the marketing of Chinese herbal medicine in Hong Kong in particular the selling price of the herbal medicine were then agreed by both parties.
2.	The Defendant, on 27th March, 2000 presented a cheque of HK$500,000.00 dated 30th April, 2001 'hereinafter referred to as the said cheque' to the Plaintiff being payable subject to the conditions as agreed by both parties.
3.	The Plaintiff has failed to ascertain the terms and conditions of the Joint-Venture and the selling price of the Chinese herbal medicine. The Plaintiff has failed to clarify the numerous queries which the Defendant raised such as the selling market price of the Chinese herbal medicine before the medicine was launched into the HK markets.
4.	Consequently, the Defendant informed the Plaintiff that the payment of the said cheque would be stopped due to a complete failure of consideration and demanded the Plaintiff to return to the defendant the said cheque.
5.	The Defendant then instructed the bank to stop the payment of the said cheque."

17. It will be appreciated from reading these passages that the defendant has significantly changed her position on this issue.

18. It is apparent from a fair reading of her first affirmation that her defence is being run on the basis that the cheque was intended as payment for the goods supplied albeit subject to the conditions she refers to.

19. On the second affirmation she changes her stance. She attempts to make out a case that the cheque was given to the plaintiff in escrow "just to ensure that I would properly store the goods".

20. No explanation is furnished for this radical change of course. In our view the two versions cannot be reconciled.

21. To conclude this aspect of the matter the Defence sits much more readily with the version affirmed to in the first affirmation.

22. While it is accepted that the Defence has not been affirmed to it is nevertheless the defence which is presently being run and no attempt has been made to seek leave to amend it.

23. In these circumstances the version being advanced in the second affirmation is simply unbelievable and cannot support a contention that the defendant has discharged the burden of establishing that she has an arguable defence.

24. The Judge did not deal with the issue of the alleged failure of consideration on the cheque in his judgment.

25. No notice has been filed by the defendant seeking to uphold the decision of the Judge on this issue and accordingly it is not appropriate for us to deal with it.

26. For the reasons which have been given this appeal is allowed and judgment will enter for the plaintiff. We make an order nisi that the plaintiff is to have his costs both here and below.