XCHRX HOUSTON MACHINERY CO. LTD. v. LUK CHUNG SHING

HCA 20995/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 20995 OF 1998

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J U D G M E N T

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1. This is an appeal from the Order of Master B Kwan made on 30 December 1999 whereby she gave summary judgment to the Plaintiff against the Defendant on the Plaintiff's application.

2. The Plaintiff's claims as set out in the Amended Statement of Claim are:

(a)	for the sum of $250,000 being the amount of the dishonoured cheque drawn by the Defendant in favour of the Plaintiff, and
(b)	for the sum of $802,310 under a Deed of Guarantee executed by the Defendant on or about 29 October 1996.

It was only in respect of the claim for $250,000 that the Plaintiff sought summary judgment.

3. It is common ground that on 9 February 1994, the Plaintiff lent $250,000 to Bermian Ltd ("Bermian") and that the Defendant gave his personal cheque for the sum of $250,000 made payable to the Plaintiff namely, the cheque sued on, as security for the loan to Bermian. The Plaintiff alleges that Bermian failed to repay the sum of $250,000 and the Defendant's personal cheque was presented for payment on 19 November 1998, some 4 years 9 months later, but was dishonoured.

4. One of the defences raised is that there was no valid and effectual notice of dishonour of the cheque given by the Plaintiff to the Defendant. As a result of this, it is said that the Defendant's liability is discharged because there has been no notice of dishonour. The Plaintiff, however, says that notice of dishonour is dispensed with because the Defendant's bank account was closed at the time of presentment of the cheque for payment.

5. Section 50(2)(c)(iv) of the Bills of Exchange Ordinance (Cap. 19) is relied on. This provides that where the drawee is under no obligation to pay the bill, notice of dishonour is dispensed with. In this case, it is said that the drawee bank was under no obligation to pay the proceeds of the cheque as the account had already been closed. I accept Mr Packwood's submission on this point. This point does not, in my view, raise a triable issue.

6. The main defence raised, however, is that the liability of the Defendant has been discharged. The Defendant has affirmed that he drew the cheque and issued it to the Plaintiff pursuant to a current accounts arrangement between the Plaintiff and Bermian to support each other financially in terms of cash flow. The Plaintiff does not deny that there was a current accounts arrangement between the Plaintiff and Bermian. The Defendant has also affirmed that it was the understanding of the parties that the Plaintiff would hold his personal cheque as security until the cheque of an identical amount could be issued by Bermian. That was done on 18 February 1994 and Bermian's cheque in the sum of $250,000 was delivered by the Defendant to Ms Ruby Man of the Plaintiff on or about 18 February 1994. It was the understanding of the parties that once Bermian's cheque was issued, the Defendant's personal cheque should be returned to him. However, the Defendant forgot to ask for the return of his personal cheque when handing over Bermian's cheque to Ms Ruby Man and the same was not returned to him.

7. It does not appear that Bermian's cheque for $250,000 made payable to the Plaintiff, a copy of which has been produced in evidence, was ever presented for payment. The Defendant says that this was because subsequent to the issuance of Bermian's cheque, Bermian in fact repaid a total of $210,000 to the Plaintiff towards the $250,000 loan.

8. The evidence of the Defendant is supported by Li Fai Wan, the accountant of Bermian. In her affirmation, she confirmed that on 18 February 1994, she, on behalf of Bermian, issued a cheque in favour of the Plaintiff to repay the $250,000 lent to Bermian. She further affirmed that the parties had come to an agreement not to present Bermian's cheque for payment but Bermian would continue to make repayments to the Plaintiff to settle the $250,000. The deponent said that three payments totalling $210,000 were made to the Plaintiff by Bermian towards payment of the $250,000 loan, namely, (1) on 18 October 1995, a cheque for $100,000, (2) on 8 January 1998, a cash deposit of $60,000, (3) on 23 July 1998, a cheque for $50,000. The deponent also affirmed that the payments were made and intended by Bermian to repay the $250,000 loan granted by the Plaintiff.

9. The accounting documents of Bermian were also produced. The bank voucher produced in respect of the cheque for $100,000 shows that the cheque was received by Ms Ruby Man of the Plaintiff. The deponent said that Ms Man signed the bank voucher acknowledging such receipt. The bank voucher clearly stated that $100,000 was for partial payment for the loan of $250,000. That is the only purpose stated for the $100,000 and not any other purpose.

10. The principles governing Order 14 applications are well known and settled. It is useful to bear in mind what Godfrey J (as he then was) said in Unic Co. v. Centus Development Ltd [1988] HKC 643 at 647:

"The power to give summary judgment under Order 14 is intended to apply only to cases where there is no reasonable doubt that the Plaintiff is entitled to judgment and where therefore it is inexpedient to allow the Defendant to defend for mere purposes of delay: see Jones v. Stone [1894] AC 122.

As a general principle, where a Defendant shows that he has a fair case for defence or reasonable grounds for setting up a defence, or even a fair probability that he has a bona fide defence, he ought to have unconditional leave to defend. Leave to defend must be given unless it is clear that there is no real substantial question to be tried, or that there is no dispute as to the facts or law which raises a reasonable doubt that the Plaintiff is entitled to judgment. Order 14 was not intended to shut out a Defendant who can show that there is a triable issue applicable to the claim as a whole from laying his defence before the Court, nor make him liable in such a case to be put on terms of paying into court as a condition leave to defend."

11. It has also been said that it is not a proper course for the court to embark at this stage on a mini-trial of the action on affidavit evidence. It is sufficient for the court to ask itself whether the Defendant's assertions are believable (Ng Shou Chun v. Hung Chun San [1994] 1 HKC 155). And it was also helpfully said by Godfrey JA in the Court of Appeal in the case of Man Earn Ltd v. Wing Ting Fong [1996] 1 HKC 225 at 228:

"Unless it is obvious that the defence put forward by the Defendant is 'frivolous and practically moonshine, Order 14 ought not to be applied': see Codd v. Delap [1905] 92 LT 510, per Lord Lindley at 511."

12. In my judgment, the Defendant's assertions are believable. The Defendant's assertions are supported by Li Fai Wan who has also produced documentary evidence in support. I should, of course, mention that the Master did not have the benefit of the additional evidence which has been placed before me.

13. I am satisfied that issues of fact have been raised which must be resolved at trial. I should, of course, not embark on a mini-trial of the action. I am satisfied that there is a triable issue raised as to whether the Defendant's liability has been discharged.

14. As I have held that there is a triable issue and that the matter has to be resolved at trial, I do not think that it is desirable that I should express a view on the relative strength or weakness on the other defences raised and on the submissions that have been made. The Defendant is entitled to unconditional leave to defend.

15. I allow the appeal and set aside the Order of Master B Kwan and give unconditional leave to the Defendant to defend the action.