YEUNG WING YAN v. FONG CHUN KIT

HCA1703/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1703 OF 2013

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J U D G M E N T

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Introduction

1.  In this action, the plaintiff Yeung Wing Yan (“Yeung”) sues on a dishonoured cheque (“the Cheque”) in the sum of HK$1.5 million issued by the defendant Fong Chun Kit (“Fong”). Fong countermanded the Cheque allegedly due to a total failure of consideration and thus it was dishonoured when Yeung presented the same for payment. Yeung’s application for summary judgment by way of summons filed herein on 26 September 2013 (“the Summons”) was granted by the Order of Master J. Wong dated 27 November 2013 (“the Order”).

2.  By the Order, Master J. Wong further dismissed Fong’s application to consolidate this action with another High Court action (HCA 1611 of 2013) (“the Other Action”) and to adduce his 2^nd affirmation dated 25 November 2013.

3.  On 11 December 2013, Fong issued a notice of appeal against the Order. This is the hearing of Fong’s appeal by way of an actual re-hearing of the Summons. For the purpose of this hearing, the transcripts of the proceedings before Master J. Wong are provided to this court.  

4.  In his skeleton submissions, Mr Chan, counsel for Fong, makes submissions on the summary judgment entered by Master J. Wong only. At the hearing, Mr Chan confirms that Fong does not appeal against the dismissal of his application for consolidation and the inclusion of his 2^nd affirmation. Notwithstanding this, Mr Aiken SC, leading counsel for Yeung, accepts that this court should take note of Fong’s objection to the authenticity and validity of two documents, which will be explained below, raised in his 2^nd affirmation.

The background facts

5.   The following facts leading to the issue of the Writ are either common ground or not disputed.

6.  Fong became acquainted with Yeung in or about 2012. Yeung then operated his business in wedding services in Hong Kong under the trade name “Wedding Plus” with some other partners.

7.  Later in the year, Yeung and Fong came up with an idea of carrying on a joint business in wedding services by the use a new business vehicle. On or about 2 July 2012, they entered into an oral agreement that they would set up a new company named Wedding Seasons Limited (“Wedding Seasons”) to take over the business of Wedding Plus.

8.  Hence, Wedding Seasons was incorporated on 9 August 2012 in Hong Kong pursuant to the agreement and its 100 issued shares were allotted in the following manner at the inception. Fong held 45 shares and one Wong Mei Chu (“Madam Wong”) held 10 shares. The remaining 45 shares were held by Yeung’s son, namely, Yeung Ting Hin (“Yeung Junior”). Madam Wong was the former manageress of Wedding Plus and the 10 shares were given to her as a gift. Yeung Junior was a young student holding the 45 shares on behalf of Yeung.

9.  On record, Yeung Junior was one of the directors of Wedding Seasons. He was in fact a nominee of Yeung and Yeung was actually in charge of the business operation of Wedding Seasons.

10.  The business relationship between Yeung and Fong was short-lived. In or about April 2013, they decided to go separate ways. On or about 16 April 2013, they reached an agreement that the entire business of Wedding Seasons should be taken over by Fong and Fong would purchase Yeung’s beneficial interest in the 45 shares in Wedding Seasons registered in the name of Yeung Junior (“the Agreement”). It was agreed that Fong would pay Yeung a sum of HK$3,711,943 (“the Purchase Price”) as consideration.  

11.  Altogether Fong issued to Yeung four cheques including the Cheque to settle the Purchase Price by three instalments. The details of the four cheques are as follows:

Cheque	Issuing Bank/ Cheque Number	Amount (HK$)	Date	Status
Cheque I	HSBC 224878	500,000	19 April 2013	Cashed
The Cheque	HSBC 224879	1,500,000	19 April 2013	Dishonoured on 31 August 2013
Cheque III	HSBC 224880	211,943	30 April 2013	Cashed
Cheque IV	HSBC 224881	1,500,000	31 October 2013	Countermanded in August 2013

12.  Yeung Junior resigned as a director of Wedding Seasons on 16 April 2013 as evidenced by a Form D4 filed with the Companies Registry.

13.  On or about 5 June 2013, Madam Wong transferred her 10 shares to Fong for unknown consideration.

14.  On 5 July 2013, Yeung signed a written resolution of the board meeting of Wedding Seasons purportedly held on the same day (“the Resolution”). By the Resolution, it was allegedly resolved that the two non-operational bank accounts of Wedding Seasons with HSBC be closed and a request of the refund of the balance amount be made.

15.  The Resolution was however signed by Yeung purportedly as a director of Wedding Seasons. It is one of the two documents the authenticity and validity of which are being challenged by Fong as mentioned above.

16.  On 24 July 2013, Fong made a report to the police in respect of the unauthorised closure of the said two bank accounts on the strength of the Resolution appearing to be dubious.  

17.  On 30 August 2013, Fong commenced the Other Action. There, the pleaded case is that under the Agreement, upon payment of Cheque I, Yeung would cause Yeung Junior to transfer all his shares to Fong within a reasonable time from the date of payment, i.e. 19 April 2013[1]. Fong avers that 2 months is a reasonable time. Fong further avers that on or around 19 April 2013, Yeung instructed one Katie Wong to tell him that the Agreement was no longer binding. Coupled with the Resolution and the apparently unauthorised closure of the two bank accounts, Fong avers that Yeung has evinced a clear and unequivocal intention not to be bound by the Agreement and hence Fong is entitled to treat the Agreement as discharged. Fong claims general damages to be assessed for the alleged breach of the Agreement on the part of Yeung.

18.  On 7 September 2013, Yeung instituted the present proceedings to sue on the Cheque. According to Fong, he countermanded Cheque IV in August 2013 long before its due date on 31 October 2013. This action does not concern Cheque IV. Yeung took out the Summons two days after Fong filed his Notice of Intention to Defend on 23 September 2013.

Applicable Legal Principles

19.  The relevant principles relating to an application for summary judgment are well‑known.  The case being clearly one within the scope Order 14, Rules of the High Court and the plaintiff having satisfied the preliminary procedural requirements, the burden is on the defendant to satisfy the court why judgment should not be given against him.  To do so, the defendant must show that he has a bona fide defence and that there are triable issues or that there ought for some other reason to be a trial of the claim.

20.  I should also bear in mind that it is inappropriate to embark on a mini-trial on affidavit evidence. This court need simply ask itself whether what the defendant says is credible.  As Godfrey JA put it in Ng Shou Chun v. Hung Chun San [1994] 1 HKC 155 at 158 : “The issue is not whether the defendant’s assertions are to be believed; it is whether those assertions are believable”.

21.  Mr Aiken reminds this court of the established principles that cheques are treated as cash and are an unconditional order for payment and that valuable consideration is presumed to have been given for a cheque. It is incumbent on the defendant to show the contrary with believable evidence.

Fong’s Purported Defence and Evidence Adduced

22.  Despite a number of factual allegations made with little documentary evidence in support, Fong’s defence boils downs to a single plea of a total failure of consideration. He mainly relies on the simple and unchallenged fact that Yeung Junior is still the registered owner of the 45 shares in Wedding Services allegedly in repudiation of the Agreement.

23.  His affidavit evidence differs from his pleaded case in the Other Action in certain material aspects. He says in his affirmation that under the Agreement, Yeung had to withdraw from the management of Wedding Services and hand over the same to him on 1 May 2013 and that Yeung would cause the 45 shares to be transferred to Fong within 2 months from 19 April 2013. It can be seen that there was an express time frame for Yeung to transfer the shares to Fong and the parties did not just rely on the notion of reasonable time as in the pleaded case in the Other Action.

24.  In his affirmation, Fong also mentioned his meeting with Katie Wong on 30 April 2013. Then she asked Fong to pay Yeung the 3^rd instalment by two split cheques. Fong thus gave her Cheque II and Cheque IV. Fong did not mention about any previous meeting with Katie Wong on 19 April 2013 or any date at all wherein Katie Wong told him on behalf of Yeung that the Agreement would cease to be binding, as pleaded in the Other Action.

25.  Fong further alleges that since he has not been transferred any shares from Yeung Junior, he has tried to contact Yeung by phone and text messages repeatedly to demand the return of his cheques. However, he could not contact Yeung at all and he had no alternative but to commence the Other Action. That was also the reason why he instructed HSBC to countermand the Cheque on 27 August 2013. He produces no documentary evidence of his repeated demands at all.

26.  He further complains that Yeung forged the Resolution to close down the two bank accounts of Wedding Seasons with HSBC. He claims that he could not use the funds in the two accounts to pay various expense of the company. He avers that he is entitled to treat the Agreement as terminated and Yeung was not entitled to the payment by the Cheque on 31 August 2013 for want of consideration.

Yeung’s Evidence

27.  Curiously enough, Yeung says in his evidence that the Purchase Price was not the purchase price of his 45 shares in Wedding Seasons. He says that it only represented his contribution to the renovation expenses of the business premises as shown in the balance sheet of Wedding Seasons as at March 2013. In the balance sheet, it can be seen that the same amount was recorded in the current accounts of Fong under the heading of current liabilities.

28.  Yeung agrees that under the Agreement he has to relinquish all his control and management of Wedding Seasons to Fong. He further produces a Chinese document entitled [欠單] (acknowledgment of debt) dated 30 April 2013 (“the Chinese Document”). In the Chinese Document, Fong agrees that he still owes Yeung a sum of HK$3 million being the balance of payment for all Yeung’s shares in Wedding Seasons and his shareholder’s loan. The details of the Cheque and Cheque IV were given. There was a signature of Fong in the Chinese Document as the debtor.

29.  Fong denies having signed the Chinese Document and claims that the signature was a forgery.

30.  Pursuant to the Agreement, Yeung caused Yeung Junior to resign as director of Wedding Seasons on 16 April 2013. Thereafter, Fong, being the sole director, has been in sole control of Wedding Seasons.

31.  As regards the agreed transfer of shares, Yeung’s evidence is that there was no specified time to perform this obligation but in any event he caused one Miss Cho of Messrs Albert YK Lau & Co, his accountant, to send to Fong all the transfer documents as attachments to an email dated 11 June 2013 (“the Email”).

32.  The Email together with the attachments is exhibited to Yeung’s 2^nd affirmation. The attachments include an instrument of transfer in respect of the 45 shares held by Yeung Junior signed by Yeung on behalf of Yeung Junior as transferor and Fong as transferee, a bought and sold note again signed by Yeung on behalf of Yeung Junior as transferor and Fong as transferee and some other documents all signed by signed by Yeung on behalf of Yeung Junior as transferor or Madam Wong in her own capacity and Fong as transferee. Mr Chan indicates that the authenticity of all the signatures of Fong on such documents is not disputed.

33.  Miss Cho filed an affirmation. She confirms that she handled the transfer documents on behalf of Yeung and sent the Email to Fong. To complete the transfer, between July and September 2013, she repeatedly asked Fong to return to her the required board resolutions, the M&A of Wedding Seasons and signed management accounts so that she could complete the transfer procedure. She says Fong once told her that he was out of town and would revert to her upon his return but thereafter Fong could not be reached again.

34.  Yeung also produces a copy of two text messages sent by him to Fong both dated 11 July 2013 by What’s app (“the Messages”). In the Messages, Yeung condemned Fong for the delay in dealing the transfer document and he questioned why Fong did not seem to be eager to put an end to the whole matter by completion of the transfer procedure. Moreover, Yeung reminded Fong to follow up with his accountants in respect of the transfer documents.

35.  With regard to the closure of the two accounts, Yeung’s explanation is that he had all along been the man behind Wedding Seasons and Yeung Junior was merely his nominee without actual involvement in the business operation of Wedding Seasons. He claims that he was authorised by Yeung Junior to sign the Resolution to close the accounts. Yeung points out that in the Form D2A dated 13 November 2012 filed with the Companies Registry whereby Yeung Junior gave his consent to act as director, Yeung also signed the same on behalf of Yeung Junior.

36.  Yeung explains that he wanted to close the two accounts because of his fear of the mismanagement of Wedding Seasons by Fong. He wanted to avert any possible personal liability. At that time Yeung Junior was, and still is, one of the shareholders of Wedding Seasons.

37.  As shown by the bank statements, the balance of the two accounts only stood at HK$13,105.51. Indeed, by the Messages, Yeung already informed Fong of the closure of the accounts. Yeung further indicated that the balance, after deduction of all the rental charge of the photocopier would be returned to Fong. Yeung asked Fong to contact him for the arrangement. There was nothing untoward about the closure in his mind.

38.  In summary, Yeung’s stance is that he has done all things necessary to complete the transfer and perform his obligations under the Agreement. All the four cheques given to him including the Cheque are supported by consideration. It is Fong who tries to wriggle out of the Agreement.   

Analysis

39.  Given the undisputed fact that Fong countermanded the Cheque and the Cheque was dishonoured upon presentation, it is incumbent on Fong to show his defence by his affidavit evidence condescending on particulars to avoid payment under the Cheque. In his affirmation, Fong identified four triable issues:

a. Was the Agreement orally made by Yeung and Fong?

b. If so, was Yeung the beneficial owner of the 45 shares held by Yeung Junior?

c. Did Yeung repudiate the Agreement through his agent Katie Wong on 30 April 2013?

d. Whether Yeung repudiated the Agreement by failing to give him any interest in Wedding Seasons for over six months after the Agreement was made?

40.  The first two questions are non-issue. With respect to the alleged repudiation through Katie Wong, Mr Chan is sensible enough not to rely on the same. It is inconsistent with his own evidence. According to Fong, Katie Wong asked for the payment of the 3^rd instalment on 30 April 2013 and Fong acceded to the demand. If anything, the parties were affirming the Agreement by performance and there is no sign of repudiation at all.

41.  The major issue remains the allegation of a total failure of consideration. This issue in my view can be resolved on indisputable evidence notwithstanding the credibility issues raised by Mr Chan, principally revolving around the authenticity of Fong’s signature in the Chinese Document and the want of authority of Yeung in his production of the Resolution.

42.  In the first place, Mr Chan rightly accepts that in the present case, the defence of partial failure of consideration to avoid liability under the Cheque is not available to Fong. Here, we are not dealing with an allegation of partial failure in an ascertained and liquid amount.

43.  Thus, Fong has to show a total failure of consideration. On the indisputable contemporaneous documentary evidence before this court, I am not at all convinced that the purported defence is shown.

44.  It cannot be disputed that the major consideration for the Purchase Price partially payable by the Cheque is the transfer of both the legal title to and the beneficial interest of the 45 shares held by Yeung Junior to Fong. Yeung’s averment in his affirmation that the Purchase Price represented his contribution to the renovation expenses of the business premises of Wedding Seasons can only mean that the parties reached an agreement on the quantum of the Purchase Price on that basis.  There is nothing in the evidence of Yeung that he has ever denied his obligation to cause the 45 shares to be transferred to Fong under the Agreement upon receipt of the Purchase Price.

45.  The main plank of Mr Chan’s argument is that up till now the legal title to the 45 shares is still vested in Yeung Junior and has not yet been transferred to Fong. Be that as it may, for the following reasons, it does not mean that there was a total failure of consideration when the Cheque was countermanded in August 2013.

46.  Mr Aiken helpfully refers to me a passage in Pennington on Company Law, 7^th edn., at p.444. It says when a shareholder agrees to sell specifically identified shares which are registered in his name or in the name of a nominee or trustee for him, the equitable ownership of the shares passes immediately to the purchaser. For this proposition, the learned author refers in the footnote to Hawks v McArthur [1951] 1 All ER 22. In that case, on the basis that the purchasers of certain shares had already fully paid the vendor the purchase money, Vaisey J held that the purchasers acquired equitable rights in the shares under sale even though the vendor retained the legal title to such shares.

47.  In the present case, the Purchase Price was settled by the four cheques, which were to be treated as cash. Fong acquired beneficial interest in the 45 shares by paying to Yeung his four cheques. There cannot be a total failure of consideration.

48.  In addition, all the contemporaneous documentary evidence including the Email and the Messages shows that it was Fong who has throughout avoided/delayed the transfer. As observed above, Fong failed to adduce a single piece of document evidence contrary to the contention of Yeung or in support of his allegation.

49.  It can be seen from the transfer documents attached to the Email bearing the signatures of Fong that Yeung intended to transfer the 45 shares to Fong as per the Agreement. There is no suggestion that Miss Cho’s evidence of her follow-up effort to complete the transfer is unreliable. There is no evidence of Fong’s reply to Miss Cho’s requests. Mr Chan proffers an explanation on instructions that since Miss Cho was only Yeung’s personal accountant and did not work for Wedding Seasons, Fong did not find it necessary to revert to her. This is wholly unacceptable.

50.  On the evidence, I am satisfied that Yeung has made all a conscientious effort to cause the 45 shares to be transferred to Fong. Mr Chan points out that the bought and sold note and all other transfer documents were only signed by Yeung on behalf of Yeung Junior and there is a triable issue of his authority. I disagree.

51.  First, it is never the complaint of Fong that those documents must be signed personally by Yeung Junior in order to be effective. Nor did Fong ever ask for documentary proof of his authorisation and Yeung never shows any difficulty in proving his authority.

52.  It should be noted that it is common ground that Yeung Junior is only the nominee of Yeung in respect of the 45 shares. In other words, he is a mere bare trustee. As explained by Cheung JA in Hotung & Anor. v Ho Yuen Ki [2002] 4 HKC 233 at 238, a bare trustee, if required by the beneficiary, must convey the legal title of the subject matter of the trust if called upon to do. Yeung Junior is legally bound to follow the instructions of Yeung in his dealing with the 45 shares. There is not a shred of evidence to suggest that Yeung Junior has ever refused or would refuse to transfer the 45 shares as instructed by Yeung in breach of trust. I do not accept that there is any triable issue of Yeing’s inability to transfer the 45 shares to Fong.

53.  In any event, equity treats what is required to be done as done. The mere fact that the legal formality to transfer the title to the shares to Fong has not yet been completed does not alter the fact that the beneficial interest of those shares has passed to Fong. There cannot be a total failure of consideration as alleged.

54.  Mr Aiken further argues that the relinquishment of the control and management of Wedding Seasons on the part of Yeung amounted to partial consideration for the Purchase Price. Mr Chan does not argue otherwise save that he does not accept factually Yeung handed over such control and management to Fong. In this regard, he relies on the apparent unauthorised closure of the two bank accounts and the fact that Yeung purported to be the director of Wedding Seasons and created the Resolution without Fong’s knowledge and approval.

55.  The undisputed evidence is that Yeung Junior has resigned from the board in April 2013 and thereafter on record Fong is the sole director. The closure of the two bank accounts and Yeung’s claiming to be a director was only an isolated event. Yeung has given an explanation and this court do not find it necessary to express any view on its adequacy in this application, save that it has to be pointed out that the Resolution was made only after Yeung Junior’s resignation. There is no other evidence of Yeung’s involvement of the control and management of Wedding Seasons after the resignation of Yeung Junior. Against this background, I believe I can conclude that factually Yeung has relinquished control and management of Wedding Seasons pursuant to the Agreement despite the one-off incident.

56.  This provides an additional reason why Fong cannot have a bona fide defence of a total failure of consideration.

Other Matters

57.  I am not at all impressed by Fong’s evidence. It is riddled with inconsistencies and contradicted by contemporaneous documents. It is also pertinent to note, as pointed out by Mr Aiken, that there is no evidence that Fong has ever tried to recover the payment of HK$211,943 paid under Cheque I from Yeung. However, as shown above, my conclusion that his purported defence cannot be made out has little to do with his credibility.

58.  On the other hand, I bear in mind the credibility issue raised by Mr Chan regarding the Chinese Document and the Resolution. Fong has failed to adduce any expert evidence to prove the alleged falsity of the signature under complaint after the Chinese Document was produced as evidence in November 2013 in spite of the gravity of his allegation. Mr Chan seeks to show to this court that that signature differs visually from other signatures of Fong. Be that as it may, it is no cogent evidence of falsity of that signature. This court is unable and would not attempt to make a finding of the authenticity of Fong’s signature in the Chinese Document at this stage.

59.  This, however, does not mean that there is a triable issue as to the authenticity of Fong’s signature. The Chinese Document is not relevant to the present action, which is essentially based on a dishonoured cheque. It is common ground that Fong was obliged to pay the Purchase Price under the Agreement with or without the Chinese Document. And even if the signature were a forgery, it would not affect my conclusion of Fong’s failure to show his defence for the reasons given.

60.  The same can be said about the Resolution and the apparently unauthorised closure of the two bank accounts. Fong may or may not make a valid claim against Yeung out of these complaints but they certainly not afford Fong any valid defence in law to defeat Yeung’s present claim on the Cheque.

Conclusion and Costs

61.  In conclusion, I do not regard the evidence of Fong or submissions advanced on his behalf as sufficient to raise a triable issue in respect of Yeung’s straightforward claim on the ground of total failure of consideration.

62.  For the reasons set out above, I dismiss Fong’s appeal against the Order. I make an order nisi that Fong do pay the costs of the appeal to Yeung, to be taxed if not agreed. Lastly, I do not think it is appropriate to certify the engagement of two counsel on the part of Yeung in this not-so-complicated matter.