XCHRX DAIICHI KOSHO (H.K.) LTD. v. LING KAM WAH

HCA 8371/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 8371 OF 1999

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J U D G M E N T

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The appeal

1. The Plaintiff recovered, by way of summary judgment, the sum of $120,000, being the amount of a cheque drawn by the Defendant. The Defendant now appeals against that decision.

The Defence

2. The defence raised is that the Defendant had carried out decoration work for the Plaintiff. The sum of $314,582 was still owing by the Plaintiff to the Defendant. On 8th March 1999, Mr Chan of the Defendant entered into an agreement with Mr Wong, who was the agent of the Plaintiff, for the payment of this sum. During the negotiation, Mr Wong was worried about making full payment to the Defendant in case any defects to the work would surface later. In order to pacify the Plaintiff's worry and to get payment from the Plaintiff, the Defendant agreed to issue a cheque with the date and payee blank. The sum of $120,000 was written by the Defendant. It was agreed that the Plaintiff would pay the sum due to the Defendant on the date of the receipt of the cheque. The Defendant stated that :

"It was further agreed between the Plaintiff and the Defendant that if there were defects discovered for the additional works after the Plaintiff had settled the full amount of the invoice, the Plaintiff could insert the date and the payee in the same cheque and said cheque as compensation for the defects. The said cheque was then issued and given to the Plaintiff only on the condition that the Plaintiff would pay the outstanding balance."

The cheque was given by Mr Chan to the Plaintiff on 9th March 1999. However, the Plaintiff only gave Mr Chan a sum of $157,291, leaving the balance of $157,291 unpaid.

The proceedings

3. The Defendant in this action commenced a High Court action on 26th April 1999 to recover this sum of $157,291. The Plaintiff in this action filed a Defence and Counterclaim. The Plaintiff then commenced the present action on the cheque.

The Plaintiff's reply

4. The Plaintiff's reply to the Defendant's contention is the same as those set out in the Defence and Counterclaim in the other High Court action, namely, on 15th March 1999, the parties had reached an agreement that in order to compensate the Plaintiff for the loss and damages as a result of the Defendant's delay in completing the decoration work and also his defective work, the Defendant agreed to pay $420,000 as damages to the Plaintiff. The sum was to be paid in the following manner :

1. $176,018 being the balance payment of the amount due to the Defendant was waived by the Defendant. This sum included the $157,291.

2. $120,000 was to be paid by the Defendant on or before 22nd March 1999.

3. $123,982 was to be paid by the Defendant on or before 31st March 1999.

The Defendant paid $120,000 by way of a cheque which was dishonoured. The Plaintiff counterclaimed $176,018 and two other sums representing payment to the sub-contractor in the other High Court action.

Two matters

5. There are two matters that can be dealt with immediately. First, the Plaintiff obviously can pursue the claim on the cheque in the other High Court action. The fact that it did not do so but choose to start a new action does not affect the validity or otherwise cast doubt on the present claim. Second, the Plaintiff obviously had made a mistake in claiming for the sum that had been waived. This is admitted by Mr Stephen Fong, the Plaintiff's Counsel. However, the fact that a claim was wrongly made does not, again, affect the validity or credibility of the present action. After all, as far as the facts are concerned, the Plaintiff is relying on the same facts in both actions.

The test in Order 14

6. The test in Order 14 applications is whether the defence is credible, if yes, the Defendant is entitled to defend. If not, the Plaintiff is entitled to judgment : Ng Shou Chun v. Hung Chun San [1994] 1 HKC 155.

Defence not credible

7. In my view, the Defendant's case on the so-called agreement is simply not credible. On 8th March, it was, according to the Defendant, the Plaintiff who owed $314,582 to the Defendant, and yet the Defendant was willing to give a cheque of $120,000 which is almost half of the sum owing by the Plaintiff. The Defendant did not disclose whether at that time the Plaintiff had already quantified the defective work, yet the Defendant was prepared to specify $120,000 and drew a cheque of this sum to the Plaintiff. This is not how commercial transactions are carried out in real life. If the Defendant was prepared to allow the Plaintiff to withhold the $120,000, the simplest way is for the Plaintiff to make the payment less $120,000.

8. Further, if the cheque was intended to be given in exchange for the whole payment by the Plaintiff, then one would not expect the Defendant to accept the part-payment in the first place. After all, if the cheque was given in order to receive full payment from the Plaintiff, why not demand the return of the cheque? It was certainly not raised by the Defendant that he had no choice but to accept the part-payment.

The Plaintiff's version

9. On the other hand, the agreement relied on by the Plaintiff accords with what had happened in this case. Having paid $157,291 on 9th March 1999, the parties reached a settlement on how the balance was to be dealt with. The balance was to be waived and further damages were to be paid by the Defendant. The cheque that was drawn by the Defendant fits naturally into the scheme of things.

10. The Defendant argued that if the $120,000 was to be paid on 22nd March, then why left the date and payee on the cheque blank? I do not see how this would affect the case. The cheque was clearly intended for the Plaintiff. The cheque was presented on 22nd March, the very date specified in the agreement. The Plaintiff clearly had authority under the Bills of Exchange Ordinance, Cap.19 to fill in the blanks.

11. It is said by the Defendant : why did the Plaintiff pay half the sum six days before the settlement agreement? This does not assist the Defendant at all. It is precisely that the Plaintiff had made half payment that one would expect to find the settlement agreement later on.

Authority of Mr Chan

12. It is said that Mr Chan had no authority to enter into the settlement agreement. He left the employ of the Defendant on 17th or 18th March 1999. The Defendant certainly had not in his affirmation stated that Mr Chan did not have the authority. What is more important is that this is the very same Mr Chan who, according to the Defendant, had agreed with the Plaintiff on how the sum due to the Defendant was to be paid. This Mr Chan had in fact signed on a written agreement recording the terms of the settlement agreement. In the light of this written document, the Defendant seeks to rely on an oral term to contradict the terms of the written document.

Claim on a cheque between immediate parties

13. Mr Au, Counsel for the Defendant, had relied on other points. It is not necessary for me to deal with them one by one. The allegation of the report of bribery to the ICAC is clearly irrelevant and is not relied on by him. The burglary of the Defendant's premises is another matter that is clearly irrelevant.

14. One has to bear in mind that this is an action on a cheque between immediate parties. A cheque should be treated as cash and has to be honoured unless there is a good reason to the contrary. What the Defendant is trying to do in this case is to adduce oral evidence to contradict a written agreement as founded by the cheque. This is clearly inadmissible : Great Sincere Trading Co. v. Swee Hong & Co. [1968] HKLR 660 and Neo-Concept Industrial Co. Ltd. v. Sportex Industrial Ltd. [1992] HKC 452.

15. Mr Au attempted to overcome this by saying that the parol evidence rule does not apply where the challenge is on the very existence of the contract itself : Chalmers & Guest on Bills of Exchange, 15th Ed., paras.378 - 381. It is clear that the authors recognised the difficulties in practice to distinguish two situations. Quite apart from the incredible nature of the defence, it is clear that the oral term, if allowed to be used, would render the cheque to be something totally different than what it purports to be, namely, an unqualified order for payment.

16. The other case relied upon by Mr Au, namely Chu Kam Lun v. Yap Lisa Susanto [1999] 3 HKC 378 does not assist him at all because obviously the central issue in that case was on the irregular judgment and not on the merits of the defence. What the Court of Appeal said on the merits clearly was by way of observation only.

Appeal dismissed

17. In the circumstances, in my view, the Plaintiff is entitled to judgment and the appeal is dismissed.