WELLSHIP CO. LTD. v. NGAN CHUNG LEUNG

CACV 174/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 174 OF 2002

(ON APPEAL FROM HCA NO. 3606 OF 2001)

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J U D G M E N T

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Hon Rogers VP:

1. I have had the advantage of reading the judgments of Le Pichon and Yuen JJA in draft and I agree with them.

Hon Le Pichon JA:

2. This appeal is from the order of Deputy Judge Gill granting summary judgment to the plaintiff and allowing its appeal from the order of Master C B Chan whereby unconditional leave to defend had been granted to the defendant on the plaintiff's application for summary judgment.

Background

3. The facts are relatively simple. The plaintiff is a supplier of commodities. The defendant was the majority shareholder and controller of a company called "Majone". The plaintiff started trading with Majone in 1996. At the end of 1997, Majone fell into financial difficulties and was indebted to the plaintiff in the sum of approximately $1.5 million. In November 1998, a meeting was held at Majone's office attended by Mr Tseng and Mr Chung of the plaintiff, the defendant and Miss Lam, the accounts clerk of Majone. At that meeting, the defendant proposed a repayment schedule by way of 8 post-dated cheques drawn by Majone. Each of the cheques contained a composite signature - Majone's chop and the defendant's signature as its authorized signatory. It is common ground that 5 of the post-dated cheques were met but the remaining 3 were dishonoured upon presentation and have not been paid. It is the plaintiff's case that there was an oral guarantee by the defendant that the cheques would be met by the defendant. The plaintiff relied on the fact that the defendant appended his signature to the back of each of those cheques.

4. The defendant denies that he ever gave a personal guarantee. That denial has the support of Miss Lam who was present at the meeting.

The judgment below

5. The essential issue identified by the judge was whether the defendant had given any oral guarantee for the post-dated cheques. The judge considered the explanation given by the defendant as to why his signature appeared at the back of each of the cheques. In his judgment, he set out paragraph 10 of the defendant's first affirmation dated 21 November 2001 which was to the effect that the signatures at the back of the cheques were the specimen signatures of Majone and not his own signature for any personal purpose and that they were intended for the bank's reconfirmation of the specimen signatures of Majone. The judge also referred to Miss Lam's evidence, namely, that the defendant did not give a personal guarantee at the November 1998 meeting. However, he concluded that "the defendant's explanation for signing the cheques does not ring true, for two reasons". These were, first, that the signatures were not marked with the company's chop or other reference to Majone and, second, that a bank would not in the normal course require the signatory to sign at the back of a cheque as a means of providing a specimen signature. He was of the view that the defence was a sham.

6. The judge also considered section 28 of the Bills of Exchange Ordinance, Cap. 19 ("the Ordinance") and concluded that the defendant was liable to the plaintiff as an "accommodation party" to the cheques.

This appeal

7. As the judge recognised, there was a dispute of fact relating to the existence or otherwise of an oral agreement to guarantee Majone's liability. The defendant denied having given such a guarantee. There was nothing inherently incredible or implausible about the defence since the defendant's signatures cannot, of themselves, establish any oral guarantee although they might constitute evidence of such a guarantee.

8. The plaintiff relied on the signatures as evidence of the oral guarantee. When considering the defendant's explanation as to why he had appended his signatures, the judge did not appear to have taken into consideration the second affirmation filed by the defendant where, at paragraph 2, he explained that the 8 cheques had not been signed in front of the plaintiff and it was at the insistence of Mr Tseng and Mr Chung that he signed once again on each of the cheques in front of them which, apparently, according to Mr Chung and Mr Tseng, would serve a dual purpose: to confirm that it was the defendant who signed the cheques and allow the bank to reconfirm the defendant's specimen signature. The omission of any reference to the 2nd affirmation leads to the conclusion that either the judge had overlooked it or he did not consider it relevant but, if the latter, his reasons for so doing are not readily apparent. The further affirmation did offer an explanation as to the circumstances in which the defendant's signatures came to be appended which circumstances involve a dispute of fact.

9. It was submitted that this explanation, if true, should have been raised at the outset and its late appearance (3 months after the defendant's 1st affirmation and only 3 days before the hearing below) made it suspicious. This however goes more to the question whether the defendant is to be believed than whether what he says is unbelievable. Further, there would not appear to be any material inconsistency between the two affirmations: the reference to "specimen signatures of Majone" has to be put in the context that the defendant is Majone's authorized signatory.

10. An explanation that may be found wanting or unsatisfactory in certain respects does not necessarily render the defence "incredible". An unconvincing explanation will undoubtedly have a bearing on the defendant's credibility generally i.e. whether he is to be believed. But that is a matter for trial.

11. There are other factors that militate against the grant of summary judgment. It is to be noted that no evidence has been filed by Mr Tseng of the plaintiff who was present when the oral guarantee was allegedly given. There is also the fact that it is part of the defendant's evidence that after the petition to wind up Majone was presented, he was approached by Mr Tseng and Mr Chung to provide a personal guarantee. If established, it would seriously undermine the plaintiff's case. It is to be noted that the plaintiff did not answer this allegation in its later affirmations. In addition, there are inherent weaknesses in the plaintiff's case. First, a few words could easily have been added before the signatures that would put to rest any doubt as to the existence of the guarantee. That was not done. Second, the claim was not made until some 18 months after the dishonour of the 8th cheque. Third, there was never any reference in pre-litigation correspondence to the alleged oral guarantee.

12. All these matters do raise doubts or suspicion as to the plaintiff's case. In such a situation, the correct course to adopt is to give unconditional leave to defend. See Billion Silver Development Ltd v All Wide Investments Ltd [2000] 2 HKC 262 at 268C-D. That leaves the question of the defendant's liability under section 28. To this I now turn.

13. The defendant submitted that he had a good defence to the claim made under section 28 of the Ordinance. To be liable on a bill as an accommodation party, the defendant must have signed a bill as drawer, acceptor or indorser, without receiving value therefore and for the purpose of lending his name to some other person. The judge found the defendant to be an "indorser". But the "purpose" that has to be established for section 28 to be engaged involves the resolution of the central question - whether or not the defendant was surety. On the facts of this case, it is plain that the plaintiff's claim on the oral guarantee and under section 28 must stand or fall together: section 28 adds nothing to the plaintiff's case.

14. I would allow this appeal and give the defendant unconditional leave to defend. I would also make an order nisi for costs both here and below in favour of the defendant.

Hon Yuen JA:

15. I agree that since there are conflicting disputes of fact as to the reason for the Defendant's signature at the back of the cheques, the judgment must be set aside. The presentation of the Defendant's case is piecemeal but the evidence presented is not so inherently contradictory as to lead to the conclusion that the defence is so shadowy as to warrant conditional leave. I would only add that it is also arguable whether the Defendant could even be regarded as an "indorser" within the meaning of s.28 when he was not a holder of the bill and had not signed it for the purpose of negotiating it.

Hon Rogers VP:

16. There will therefore be an order as proposed in paragraph 14.