MEDIA ASIA DISTRIBUTION LTD v. CHINA CULTURE PROGRAM INVESTMENT LTD

HCA1244/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1244 OF 2008

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J U D G M E N T

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1.  This is an appeal by the plaintiff against the order of Master Yu given on 9 December 2008 granting unconditional leave to the defendant to defend the claim by the plaintiff.

2.  The application before the Master was an application for summary judgment by the plaintiff brought under Order 14 of the Rules of the High Court.

3.  The plaintiff’s claim herein against the defendant is brought on the basis of 16 post-dated cheques issued by the defendant in favour of the plaintiff.  However, the application for summary judgment only relates to 8 of those 16 cheques, due to the fact that only those 8 cheques had been dishonoured upon presentation at the time when the Writ was issued.

Background

4.  The plaintiff is a film production company and was the exclusive licensee of a TV drama series named “The Eight Heroes”.

5.  Fu Si Advertising Co. Ltd (“Fu Si”) is a film and TV programme distributor.

6.  The defendant is also a film and TV programme distributor.

7.  Fu Si is run and operated by Au Chi Yan, a director and major shareholder of Fu Si.

8.  The defendant is run and operated by Au Chi Chuen, a director and major shareholder of the defendant.  Au Chi Yan is also a director of the defendant.

9.  Au Chi Chuen is the younger brother of Au Chi Yan.

10.  In February 2005, the plaintiff entered into a written license agreement with Fu Si for it to market “The Eight Heroes”.  Pursuant to the license agreement, Fu Si has to pay license fees to the plaintiff of no less than HK$9,630,000.

11.  In early 2007, the plaintiff was chasing after Fu Si for the license fees owing to it.

12.  By an e-mail dated 27 February 2007, Au Chi Yan (on behalf of Fu Si) made certain proposal to the plaintiff for settling the issue of the outstanding license fees which Fu Si had to pay the plaintiff.

13.  As a result of the proposed settlement in that e-mail, Fu Si on 12 March 2007 handed over to the plaintiff 16 post-dated cheques all of which were drawn by the defendant and made payable to the plaintiff, and all posted to the end of each succeeding calendar month commencing from 31 July 2007 until 31 October 2008.  All the 16 post-dated cheques (except two) were each for an amount of HK$250,000.  The two exception were the cheque post-dated to 31 August 2008 which was for HK$33,650, and the very last cheque, post-dated to 31 October 2008 which was for an amount of HK$119,127.

14.  On the same day, i.e. 12 March 2007, the plaintiff acknowledged receipt of the 16 post-dated cheques in writing.

15.  Some time in late 2007, the defendant requested the plaintiff to withhold presenting the first of the post-dated cheques (i.e. the one dated 31 July 2007) due to the defendant’s financial difficulties.  The defendant further requested to replace that cheque with one for HK$80,000 and to be dated 10 December 2007.  That request of the defendant was acceded to by the plaintiff and the replacement cheque for HK$80,000 dated 10 December 2007 was duly honoured upon presentation.

16.  When the Writ herein was issued on 7 July 2008, 8 of the 16 cheques, being the 8 cheques dated from 30 November 2007 up to 30 June 2008 had been dishonoured upon presentation by the plaintiff at the defendant’s bank.

17.  The reason given by the bank for the dishonour of those 8 cheques was “Refer to Drawer”.

The plaintiff’s claim

18.  The plaintiff’s claim as per its Statement of Claim was put on the basis that the defendant had, expressly or impliedly, assumed liability on behalf of Fu Si by issuing those 16 cheques to the plaintiff.  On that basis, the plaintiff claimed against the defendant for the full amount of HK$3,572,777.

19.  In the alternative, the plaintiff’s claim was for HK$2,000,000 being the amount of the 8 dishonoured cheques.

The defence

20.  The defence raised by the defendant in its Defence filed on 4 August 2008 was to the effect that there was no privity of contract between the plaintiff and the defendant since the license agreement was between the plaintiff and Fu Si, and that the defendant had never assumed liability of Fu Si to the plaintiff for the license fee or for the debt owed by Fu Si to the plaintiff.  The defendant relies on the wording contained in the written acknowledgment of receipt signed by the plaintiff.

21.  In so far as the dishonoured cheques were concerned, it was pleaded by the defendant that since the defendant has not assumed any liability of Fu Si for the debt towards the plaintiff, the defendant was entitled to and did countermand payment of the 8 dishonoured cheques.

22.  Total failure of consideration was not pleaded as a defence by the defendant to the plaintiff’s claim on the dishonoured cheques.

Application for summary judgment

23.  In the Summons issued by the plaintiff for summary judgment and dated 15 October 2008, the plaintiff seeks “partial judgment in the amount of $2,000,000”.

24.  That can only be, and has been understood by all to be, a reference to summary judgment in respect of the 8 dishonoured cheques.

25.  The disputed issue between the parties in so far as the application for summary judgment on the 8 dishonoured cheques are concerned turns on whether there has been a total failure of consideration in respect of those dishonoured cheques.

26.  In this respect, the plaintiff’s argument runs as follows.

27.  Firstly, section 30(1) of the Bills of Exchange Ordinance provides that “Every party whose signature appears on a bill is prima facie deemed to have become a party thereto for value” therefore it is presumed in law that value has been given for the 8 dishonoured cheques until the contrary is shown.

28.  Section 27(1) of the Ordinance further provides that any consideration sufficient to support a simple contract would constitute valuable consideration.

29.  Secondly, the plaintiff contends that consideration has in fact been given by the plaintiff in this case in that the plaintiff has, by the settlement agreement with Fu Si, agreed to accept a lesser amount of the license fees owed to it (not to mention agreeing to take the replacement cheque which was only for HK$80,000 in lieu of the first of the 16 cheques which was for HK$250,000) as well as given time for the 16 post-dated cheques to be paid by monthly instalments and thereby has forborne to sue Fu Si.

30.  In response to that argument of the plaintiff, the defendant, whilst accepting that the consideration, as long as it came from the plaintiff as promisee, need not move to the defendant as promisor, but contends that if such consideration moved to a third party, in this case Fu Si, then in order for it to be good consideration, it has to be at the request of the defendant.  In the present case there was no such request from the defendant.  Accordingly, there was no consideration for the dishonoured cheques in so far as the defendant was concerned.

31.  In reply to the contention put forward by the defendant, the plaintiff submits that forbearance to sue amounting to consideration can either be implied or express.  In the present case, even if there was no express request by the defendant, that should be implied from the conduct of the defendant in issuing the 16 cheques with full knowledge that those 16 cheques were used by Fu Si in exchange for the plaintiff’s forbearance to sue Fu Si.

Decision

32.  There is no dispute that at all material times the plaintiff was pressing Fu Si for payment.

33.  It is also not in dispute that Fu Si had wanted to gain time for itself.

34.  It is also common ground that after Fu Si had handed over to the plaintiff the 16 post-dated cheques drawn by the defendant in favour of the plaintiff, the plaintiff in fact allowed Fu Si time by forbearance to sue Fu Si.

35.  The only matter in dispute between the parties here is whether such forbearance to sue (which constituted the consideration) was made at the request of the defendant.

36.  There is no evidence that any express request was made by the defendant.  However, the law recognizes that such forbearance or a request for it can be implied from the conduct of the promisor (the defendant in this case) even if there was no express request by it.

37.  In paragraphs 6 and 7 of the Affirmation of Au Chi Chuen, the director of the defendant, it is stated by him that in March 2007 he knew that his brother required some cheques urgently in connection with payment negotiations between Fu Si and the plaintiff.  He was told by his brother that Fu Si had to pay some license fees to the plaintiff and had offered the plaintiff a payment schedule for such fees.  The plaintiff’s representative had requested Fu Si to deliver some cheques so that he could persuade the plaintiff’s management to accept the payment schedule. Fu Si did not have a current account and so could not issue any cheques.  His brother asked him to assist.  In view of such request by his brother, the defendant therefore issue the post-dated cheques, the subject matter of the plaintiff’s claim.

38.  In paragraph 8 of the same affirmation, Au Chi Chuen states that the cheques issued by the defendant and provided to Fu Si was on the understanding that the liability to make payment to the plaintiff remained at all times with Fu Si and it continued to say :

“The Defendant issued the Cheques solely for the purpose of facilitating the negotiation between Fu Si and the Plaintiff.”

39.  In my view, with the knowledge which the defendant had of the matter as stated by Au Chi Chuen, and the stated purpose of its issuing the post-dated cheques in question, there can be no clearer admission by the defendant from which it could be implied that the defendant had by its conduct in issuing those post-dated cheques that it had impliedly requested the plaintiff to forbear to sue Fu Si or at least to promise to forbear.

40.  On the facts of this case, the fact that the defendant had made no express request to the plaintiff to forbear to sue as being the consideration for the post-dated cheques issued, does not avail the defendant at all in so far as having any defence goes.

41.  Moreover, even if the defendant in the present case can be said to be an accommodation party under section 28(1) of the Bills of Exchange Ordinance, under sub-section (2) thereof, it will still be liable on the bill to a holder for value.

42.  There being no question but the on the facts the plaintiff must be a holder for value, and which is not disputed by the defendant, it will also be liable to the plaintiff under as an accommodation party.

Conclusion

43.  Accordingly, and for the reasons above, there can be no good defence by the defendant to the plaintiff’s claim in respect of the 8 dishonoured cheques, this appeal will be allowed.

44.  The order of the Master below giving unconditional leave to the defendant to defend is set aside and in place thereof, there will be an order giving summary judgment to the plaintiff for $2,000,000 in respect of the 8 dishonoured cheques.

45.  The plaintiff will have unconditional leave to defend the rest of the claim.

Cost

46.  There will be a cost order nisi that :

(1)  the cost of this appeal be to the plaintiff to be taxed on a party and party basis if not agreed; and

(2)  the cost order made by the Master below be set aside and that the cost of the application and of the hearing before the Master be to the plaintiff to be taxed on a party to party basis if not agreed.