INTEGRATED CAPITAL (ASIA) LTD v. CHAN TAT CHEE

   HCA 403/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 403 OF 2009

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BETWEEN

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REASONS FOR JUDGMENT

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1.  On 23 September 2009 I dismissed the defendant’s appeal against the decision of Master S Kwang given on 19 August 2009 ordering that summary judgment be entered for the plaintiff against the defendant in the sum of HK$4,000,000 with interest and costs. I also made an order that the defendant do pay the plaintiff the costs of the appeal. I indicated at the time that reasons in writing would be given. This I now do.

2.  The plaintiff’s claim against the defendant is for the sum of HK$4,000,000 being the outstanding balance due under a cheque dated 6 October 2005 for HK$5,000,000 drawn by the defendant on Wing Hang Bank Ltd and made payable to the plaintiff (“the cheque”). The cheque was presented for payment on 6 October 2005 but was dishonoured.

3.  The plaintiff is and was at all material times a company owned and controlled by Yam Tak Cheung (“Yam”) who has been brought in by the defendant as a third party in these proceedings.

4.  The defendant at all material times was the managing director of Abba Entertainment Group Ltd (“Abba”).

5.  On or about 4 January 2005 the plaintiff advanced a loan in the sum of HK$5,000,000 to Abba (“the Abba loan”). This is evidenced by a cheque dated 4 January 2005 drawn by the plaintiff on Citic Ka Wah Bank in favour of Abba in the sum of HK$5,000,000.

6.  The defendant provided security for the repayment of the loan by Abba.

7.  The above facts are undisputed.

8.  There is also no dispute that the defendant provided the cheque to Yam as security for the repayment of the Abba loan. On the plaintiff’s case, the cheque at that time bore the defendant’s signature with the amount of HK$5,000,000 in figures and in words filled in but the name of the payee and the date were left blank. However, on the defendant’s case, save for his signature on the cheque, the cheque was left blank at that time without any amount, date or name of the payee filled in.

9.  On or about 23 July 2005 Yam demanded repayment of the Abba loan.

10.  On the plaintiff’s case, the defendant told him that he was in financial difficulties and that Abba could only repay HK$1,000,000 out of the HK$5,000,000 loan for the moment. He then received a cheque dated 23 July 2005 for the sum of HK$1,000,000 drawn by the defendant on Wing Hang Bank Ltd with the name of the payee in blank. The plaintiff subsequently filled in his name and presented that cheque as part payment of the loan to Abba.

11.  In late September 2005 Yam noticed from the news that the defendant had been arrested by the ICAC and he became concerned about the outstanding balance of $4,000,000 to be repaid to the plaintiff. He therefore caused the cheque to be filled out with the plaintiff’s name as the payee and the date of 6 October 2005 and presented the cheque for payment on 6 October 2005. The cheque was dishonoured.

12.  The defendant accepts that he gave Yam a cheque for HK$1,000,000 drawn on Wing Hang Bank Ltd dated 23 July 2005 as part repayment of the Abba loan. However, on his case, there was a settlement as regards the balance of HK$4,000,000 outstanding on the Abba loan.

13.  At paragraph 21 of his 1^st affirmation the defendant says that he and Yam agreed that in full satisfaction of the Abba loan repayment would be made in the following manner:

“ (a)  The Defendant would issue a cheque in the sum of HK$1,000,000 to a payee to be nominated by [Yam] as part of the repayment of the [Abba loan]; and

(b)  the balance of the repayment in the sum of HK$4,000,000 would be paid by way of set-off by reducing the number of CSCP shares then being held by [Yam] in trust for me the total price of which would be equivalent or roughly equivalent to HK$4,000,000.”

14.  The defendant went on to say at paragraph 22 of his 1^st affirmation that at that time the price of CSCP shares on the stock market ranged between HK$0.69 and HK$0.73 and that it was the common understanding between Yam and the defendant

“ that about 5,800,000 CSCP shares would be set-off and reduced from the account of CSCP shares held by [Yam] in trust for me.”

15.  In the circumstances the defendant says that the repayment of the Abba loan had been fully settled and that there was no valuable consideration given for the cheque at the time of the presentation of the cheque for payment.

16.  It is important to bear in mind that the plaintiff’s claim is on a dishonoured cheque. It is trite that cheques are treated as cash and unless there are some good reasons to the contrary, they are to be honoured. It was only in exceptional circumstances that a court would deprive a plaintiff of judgment on a claim based on a cheque.

17.  In an O.14 application, the onus is on the defendant to show that there is a triable issue and the defendant must condescend to particulars.

18.  The only defence relied on by the defendant to the claim on the cheque is that there was no valuable consideration given for the cheque at the time of the presentation for payment. This is because of what the defendant says was the alleged settlement agreement he made with Yam on 23 July 2005.

19.  Has the defendant shown a triable issue on the defence raised?

20.  There is no dispute that prior to the granting of the loan by the plaintiff to Abba there were previous dealings between Yam and the defendant.

21.  The defendant’s evidence shows that in 2003 he obtained control of a listed company by the name of Central China Enterprises Limited which later changed its name to China Sciences Conservational Power Limited (“CSCP”) from Hon Ming Kong (“Hon”). He says that Hon arranged for the placement of 52% of new shares of CSCP to a company controlled by the defendant and his wife namely, Aimstar Holdings Limited (“Aimstar”) for a consideration of HK$18,000,000.

22.  As he did not have sufficient money to acquire the shares through Aimstar, the defendant was introduced to Yam in or about October 2003 for Aimstar to borrow money from Yam to acquire the shares.

23.  The defendant says that in or about February 2004 Yam advanced 4 loans to Aimstar in the total sum of HK$18,000,000. Pausing here, this is contradicted by the written loan agreement dated 2 October 2003 between Aimstar as borrower, Yam as lender and the defendant and his wife as guarantors produced by Yam as YTC-7 in his 2^nd affirmation which makes it clear that only 1 loan of HK$18,000,000 was granted to Aimstar for a term of 3 months.

24.  The defendant further says that with the provision of the 4 loans by Yam, Aimstar was able to acquire a total of “295,000,000 shares of CSCP by early 2004” (paragraphs 10 and 11 of his 1^st affirmation). This figure of “295,000,000” appears to be a mistake as from the loan documentation it appears that Aimstar would subscribe for an aggregate of 29,500,000 shares of CSCP representing approximately 52% of the issued share capital after capital reorganization, at a total consideration of HK$18,000,000. The share certificate in the name of Aimstar produced in evidence is also for 29,500,000 shares so it appears that the figure of “295,000,000” mentioned in the defendant’s 1^st affirmation was a mistake for 29,500,000 shares.

25.  The defendant then says at paragraph 13 of his 1^st affirmation that in about May 2004 he and Yam

“ entered into a verbal agreement pursuant to which [Yam] would buy and hold about 20,000,000 shares of CSCP in trust for me (the “Trust Agreement”).  At that time, the share price of CSCP was about HK$0.3 per share and the total consideration for 20,000,000 shares was about HK$6,000,000.”

26.  The defendant further says at paragraph 14 that on or about 19 May 2004 Yam accompanied him to borrow money from Kingston Securities Ltd (“Kingston”). The purpose of the borrowing was two-fold:

(1)  to repay Yam his loan to Aimstar; and

(2)  to get further money sufficient for Yam to buy and hold 20,000,000 shares of CSCP in trust for him.

27.  The defendant says that he borrowed the sum of HK$25,000,000 from Kingston for those purposes. After deduction of interest, Kingston issued a cheque for HK$24,250,000 payable to Piston International Limited (“Piston”), a company controlled by Yam. He gave the cheque from Kingston to Yam for the said purposes.

28.  Yam does not dispute receiving the cheque for HK$24,250,000 drawn by Kingston from the defendant but denies that there was ever any agreement with the defendant for Yam to buy and hold 20,000,000 shares of CSCP to be held in trust for the defendant.

29.  Yam says that as his loan to Aimstar was only for 3 months as documented in the loan agreement, Aimstar was required to repay all outstanding principal and interest by 2 January 2004. However, by mid May 2004 his loan to Aimstar had not been repaid. He accompanied the defendant to Kingston to enable Aimstar to borrow funds from Kingston so that he could be repaid. In settlement of the principal sum of HK$18,000,000 and accrued interest owing to him as well as for other transactions unrelated to the Abba loan, he received the cheque for HK$24,250,000 made payable to Piston, which was a company he controlled. Yam denies that he ever entered into any trust agreement to buy and hold 20,000,000 shares of CSCP in trust for the defendant (paragraphs 9 to 13 of Yam’s 2^nd affirmation).

30.  I would observe that the defendant has failed to condescend to particulars of the Trust Agreement. No particulars are given as to how long the alleged trust was to remain in place, when the shares were to be purchased and at what price. Even the exact number of shares to be purchased has not been particularised as the assertion is that the agreement was to hold “about 20,000,000 shares of CSCP”.

31.  I would also observe that nowhere in the defence or in the affirmations of the defendant does he ever assert that in fact 20,000,000 shares of CSCP were ever purchased by or on behalf of Yam. Also, no evidence has been adduced by the defendant to show that 20,000,000 shares of CSCP were ever registered in Yam’s name.

32.  Unless the 20,000,000 shares of CSCP were registered in Yam’s name, the defendant does not, in my view, begin to get his assertion of the Trust Agreement off the ground. As stated at paragraph 1.1(1) Underhill and Hayton’s Law Relating to Trusts and Trustees 17^th Edn. :

“ A trust is an equitable obligation, binding a person (called a trustee) to deal with property (called trust property) owned by him as a separate fund, distinct from his own private property, for the benefit of persons (called beneficiaries or, in old cases, cestuis que trust), of whom he may himself be one, and any one of whom may enforce the obligation.”

33.  It is clear that a trust cannot exist without there being property owned by someone subject to obligations as trustee of the trust (paragraph 1.23 Underhill and Hayton’s Law Relating to Trusts and Trustees).

34.  The defendant had no difficulty in producing a copy of the share certificate for 29,500,000 shares of CSCP in the name of Aimstar but he has not adduced any documentary evidence to show that 20,000,000 shares of CSCP were ever registered in the name of Yam.

35.  The assertion of the Trust Agreement is a bald assertion without the defendant condescending to particulars and without any documentary evidence of the existence of the alleged trust property registered in the name of Yam.

36.  It seems to me that as there is no evidence to show that the alleged trust property of 20,000,000 CSCP shares were ever registered in Yam’s name, the defendant’s bald assertions of the Trust Agreement and the alleged settlement of the repayment of the outstanding HK$4,000,000 of the Abba loan by way of set-off by reducing the shares of CSCP allegedly held by Yam from 20,000,000 shares to 14,200,000 (20,000,000 - 5,800,000) falls away. Since there is no evidence of 20,000,000 CSCP shares ever being registered in Yam’s name, there could not be any shares for the defendant to set-off against the outstanding HK$4,000,000 under the Abba loan.

37.  On the defendant’s case, there would still be 14,200,000 shares of CSCP held by Yam in trust for him. There is, however, no evidence that the defendant has ever requested or demanded the return of these shares from Yam. Quite apart from the fact that no documentary evidence has been adduced to show that these CSCP shares were ever registered in Yam’s name so as to constitute property, the subject of a trust, it is, in my view, inconceivable that the defendant has never requested or demanded the return of the 14,200,000 shares of CSCP if Yam still holds the same on trust for the defendant as alleged.

38.  The defendant’s bald assertions of a trust agreement and the set-off by reducing the number of shares allegedly held in trust for the defendant is, in my view, unbelievable.

39.  In my view, no triable issue has been raised on the only defence of no valuable consideration for the cheque at the time of the presentation for payment.

40.  Although there was evidence of other dealings between Yam and the defendant, none of this is, in my view, relevant to the question of whether or not a triable issue has been shown on the defence raised of no valuable consideration for the cheque at the time of the presentation for payment of the cheque.

41.  Mr Lam, for the defendant, also submitted that, on the defendant’s case, the amount of HK$5,000,000 was not filled in when the cheque was given as security for the Abba loan. In my view, the defendant’s evidence on this is unbelievable. The defendant accepts that he did provide security for the repayment of the HK$5,000,000 loan from Yam to Abba but he asserts that the amount was left in blank. Well knowing that the purpose of giving the cheque was to provide security for the repayment of a loan of HK$5,000,000, it is, in my view, incredible that the defendant, an experienced businessman who was the Chairman and in control of the listed company CSCP, would have given a blank cheque with no amount filled in to Yam who would have been free to fill in whatever amount he wished. His assertion is contrary to common sense and commercial reality. It is unbelievable.

42.  The Abba loan was payable on demand and the plaintiff was entitled to full repayment of the loan on demand on 23 July 2005. When Abba failed to repay the loan in full, the plaintiff had prima facie authority to fill in the blanks in the cheque and to present it for payment (s. 20(1) Bills of Exchange Ordinance Cap. 19).

43.  As is stated at paragraph 2-136 of Chalmers and Guest on Bills of Exchange, Cheques and Promissory Notes 17th Edn. :

“ Since the person in possession of the bill has prima facie authority to complete the bill in any way he thinks fit, the burden of proving want of authority rests upon the person alleging authority to be absent.”

44.  As Mr. Nip, for the plaintiff, correctly submitted, want of authority has neither been pleaded in the defence nor has it been raised in the defendant’s affirmations. No triable issue arises on this.

45.  In my judgment the master was right to grant summary judgment to the plaintiff.

46.  For the above reasons, I dismissed the appeal and made an order that the defendant do pay the plaintiff the costs of the appeal.