LUI PAK LIM t/a PAK MING ENGINEERING CO v. NEW ACTION ENGINEERING HONG KONG LTD

DCCJ 542/2022

[2023] HKDC 1058

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 542 OF 2022

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DECISION

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1.  This is the defendant’s appeal against the Order of Master Doris Li dated 15 March 2023 granting summary judgment in favor of the plaintiff in the sum of HK$145,000 on the basis of a dishonored cheque. The present appeal is brought by a Notice of Appeal to Judge in Chambers dated 29 March 2023 and comes before me as a de novo hearing of the plaintiff’s summons for summary judgment dated 11 November 2022.

The Background

2.  The defendant was at all material times a contractor in a construction project at Hilton Plaza in Shatin (“the Project”). A Mr Law Sai Bor (羅世波) (“Mr Law”) was the defendant’s sole director and shareholder and the person who dealt with the plaintiff. The plaintiff was a sole proprietorship where Mr Lui Pak Lim (雷伯廉) (“Mr Lui”) traded as Pak Ming Engineering Co (伯明工程公司). The plaintiff was the defendant’s electrical sub-contractor in the Project and engaged to carried out various works (“the Subcontract Works”).

3.  On about 25 May 2019, the plaintiff sent a quotation of the Subcontract Works to the plaintiff. The quotation was in the sum of HK$471,160.

4.  On various dates since May 2019, the plaintiff sent various invoices to the defendant seeking payments from the defendant in respect of the Subcontract Works. In total, 5 invoices were sent:-

(1)  On 3 July 2019 for the sum of HK$25,000;

(2)  On 2 September 2019 for the HK$30,000;

(3)  On 2 November 2019 for the sum of HK$65,000;

(4)  On 15 January 2020 for the sum of HK$210,000; and

(5)  On 17 June 2020 for the sum of HK$198,160 (“the Final Invoice”).

5.  There is also no dispute that various sums were paid by the defendant to the plaintiff largely in accordance with the first four invoices as follows:-

(1)  HK$25,000 on 15 July 2019;

(2)  HK$30,000 on 5 September 2019;

(3)  HK$65,000 between 30 November and 27 December 2019; and

(4)  HK$160,000 between 22 and 24 January 2020 (leaving a balance of HK$50,000 to be included in the Final Invoice dated 15 January 2020).

6.  Except for the first invoice, the other invoices contained an additional item for work done on 15 and 16 August 2019 for “更改C座L3各喉線位人工及材料” in the sum of HK$7,000.

7.  The Final Invoice was issued in the sum of HK$198,160, taking into account that an outstanding sum of HK$50,000 was carried over from the previous invoice.

8.  According to the evidence of Mr Law, the Subcontract Works were completed in around February 2020. The evidence of 許杏仁 (“Mr Hui”), a former employee of the plaintiff who made an affirmation for the defendant, is that the Subcontract Works were fully completed by June 2020. Thus, on 18 September 2020, Mr Law and Mr Lui met to discuss the amount of final payment to be made by the plaintiff to the defendant (“the September Meeting”). At the end of the September Meeting, the defendant issued a cheque in the sum of HK$145,000 (“the Cheque”) to the plaintiff.

9.  In the morning of 21 September 2020, prior to the presentation of the Cheque by the plaintiff, the defendant informed its bank to stop the payment of the Cheque. The Cheque was thus countermanded by the defendant.

10.  On 21 September and 1 December 2020, the plaintiff twice presented the Cheque for payment and were dishonored each time.

11.  On 17 November 2021, the plaintiff’s solicitors issued a demand letter for the sum of HK$145,000. In the absence of a response from the defendant, the plaintiff commenced the present proceedings against the defendant on 10 February 2022.

The Plaintiff’s Claim

12.  The plaintiff’s claim is a straightforward one, based on the Cheque that was dishonored. According to the plaintiff, the Cheque was issued as final settlement for the Subcontract Works carried out by the plaintiff after a discussion in the September Meeting.

The Defendant’s Defences

13.  The defendant raised two defences to the claim in dishonored cheque as follows:-

(1)  The negotiation of the Cheque was affected by fraud; and

(2)  Even if the Cheque was not affected by fraud, the defendant paid a sum of HK$100,000 on 5 November 2020, which discharged or set off (at least partially) the debt under the Cheque.

14.  It is necessary for this court to determine whether the defences advanced by the plaintiff is a good answer to the defendant’s application for summary judgment based on a dishonored cheque.

Applicable Principles

15.  The applicable principles are trite and were not the subject of dispute between the parties at the hearing. Summary judgment is not appropriate where there is a real dispute of fact. The procedure is available and intended to prevent a defendant from delaying a plaintiff in obtaining judgment in a case where there is clearly no defence. It is a remedy which ought not to be applied for save in a clear case, where, for example, it is obvious that the defence put forward has no foundation in law, or where the factual basis put forward is frivolous and practically moonshine. The question is whether the defence is credible; that is, capable of belief, and not whether it is at this stage to be believed.

16.  In respect of a bill of exchange:-

(1)  The mere assertion by the defendant of fraud or illegality affecting the bill is not in itself enough to entitle him to leave to defendant, but equally if the defendant sets out facts supporting a case of fraud or illegality affecting the bill, the mere assertion by the plaintiff that he took the bill in good faith and for value will not in itself deprive the defendant of his entitlement to leave to defend; and

(2)  Where a defendant gives prima facie proof that the negotiation of the bill was affected by fraud, an affidavit by the plaintiff in reply swearing that he is the holder for value is not sufficient to deprive the defendant the right to unconditional leave to defend.

See: Hong Kong Civil Procedure 2023, §14/4/19; Chalmers and Guest on Bills of Exchange and Cheques (18^th Edition), §4-082.

17.  In assessing the defendant’s evidence, the court is not to suspend its critical faculty and will not, of course, take the alleged defence on its face value but test it against the evidence disclosed, including matters such as contemporaneous documents and the inherent probability of the defence: Hong Kong Civil Procedure 2023, §14/4/9A.

The Cheque was affected by fraud

18.  The defendant’s factual assertions that are said to give rise to fraud during the negotiation of the Cheque are as follows:-

(1)  On about 14 August 2020, the plaintiff conducted works on air-conditioning units to remedy defects caused by the plaintiff during the Subcontract Works (“the Remedial Works”);

(2)  The Remedial Works led to a breakdown of the air-conditioning system and damage to the relevant air-conditioning units on 15 August 2020;

(3)  As a result, the defendant had to remedy the problem at its own costs, including paying Daikin Air conditioner (Hong Kong) Limited (“Daikin”), the air-conditioner supplier, for costs of repairing the damaged air-conditioning units.

(4)  On 24 August 2020, Daikin issued to Mr Law a quotation in the sum of HK$4,730 (“Daikin’s 24 Aug Quotation”).

(5)  During the September Meeting, Mr Law orally asked Mr Lui to deduct various sums he rejected from the quotation of the Subcontract Works, and specifically told Mr Lui to deduct the sum of HK$4,730 as stated on Daikin’s 24 Aug Quotation. Mr Lui agreed to this. Mr Law left it to Mr Lui to compute the final sum payable and was informed by Mr Lui that the final payment should be in the sum of HK$145,000.

(6)  On 19 September 2020, when Mr Law checked the figures, he discovered that Mr Lui did not deduct the sum of HK$4,730.

(7)  Mr Law immediately called Mr Lui to complain about the matter. In response, Mr Lui admitted that he did not make such deduction because Mr Lui did not think that the plaintiff should be held responsible.

(8)  On this basis, Mr Law stopped the payment of the Cheque since he would not have issued the Cheque but for the fraudulent misrepresentation by Mr Lui.

19.  On the evidence before the court, I am not satisfied that the defendant had given prima facie proof that the negotiation of the Cheque was affected by the fraud now alleged by the defendant. On the contrary, all of the factual allegations underpinning the defence in fraud are bare assertions and at times contrary to the contemporaneous documentary evidence. The allegations are also, in my view, highly improbable.

The Remedial Works

20.  On the evidence, the Subcontract Works were fully completed by June 2020, and there is no evidence that any Remedial Works were carried out by the defendant on 14 August 2020, other than the bare allegation of Mr Law. In the Defence, the defendant pleaded that the Remedial Works were required because the plaintiff had installed electricity switches of the air-conditioning system at the wrong position. However, in the affirmations of Mr Law and Mr Hui, this was not mentioned at all.

21.  Further, the defendant pleaded in the Defence that on 15 August 2020, the defendant had immediately notified the plaintiff and Mr Hui of the problem and asked the plaintiff to follow up the matter, but the plaintiff refused arguing that the breakdown of the air-conditioning system was not the plaintiff’s fault. In the affirmations filed by Mr Law, he did not refer to the plaintiff’s denial of liability on 15 August 2020. Instead, he said the plaintiff had denied liability on 19 September 2020 when he allegedly confronted Mr Lui as to why Mr Lui did not deduct the sum of HK$4,730 from the final payment amount.

22.  Likewise, Mr Hui in his affirmation did not depose to any Remedial Works having been carried out by the plaintiff at all. Mr Hui did not depose to him and/or the plaintiff being informed about the problem on 15 August 2020, nor any refusal by him and/or the plaintiff to follow up the matter.

23.  It is also not disputed that no additional fee was charged by the plaintiff for any work done after the completion of the Subcontract Works. The invoices did not show any Remedial Works having been conducted on 14 August 2020.

The Daikin’s 24 Aug Quotation

24.  The Daikin’s 24 Aug Quotation was pleaded in the Defence and referred to in Mr Law’s affirmation as “a claim against the Defendant by [Daikin]”. However, this is clearly not the nature of the Daikin 24 Aug Quotation. It is clear from the correspondence between Daikin and Mr Law that the Daikin 24 Aug Quotation (and the subsequent quotations from Daikin) was a quotation for repairing damaged components, not as a claim against the defendant. In any event, there are no evidence that begin to suggest that such problem was due to the fault of the plaintiff.

25.  There is also no evidence that the Daikin 24 Aug Quotation was sent to the plaintiff prior to the September Meeting. Instead, Mr Law stated in his affirmation that: “但即使這些損失金額還未有定案，我還是打算先向原告人支付工程尾數。”

26.  This, in my view, is quite incredible. According to the defendant’s case, the plaintiff had already denied responsibility on 15 August 2020, and hence the plaintiff refused to follow up the matter. It is inherently improbable that, if the defendant insisted that the plaintiff should be liable, the defendant did not send the invoice in advance to the plaintiff prior to the discussion regarding the final payment.

The September Meeting

27.  I am also of the view that the defendant’s averments regarding the September Meeting are incredible and inherently improbable.

28.  First, if the plaintiff had firmly refuted its liability to problems giving rise to Daikin’s 24 Aug Quotation, it is inherently improbable that Mr Lui would simply accept deduction of the corresponding amount without protest at the September Meeting.

29.  Second, Mr Law said that during the September Meeting, he informed the plaintiff what items to deduct from his memories. There were 31 items on the plaintiff’s quotation in which 7 items were deducted. One of the items involved 92 ceiling lights for which 12 were deducted. It is inherently improbable that the exercise was done purely from memory.

30.  In Mr Lui’s affirmation, he deposed to the fact that the parties had examined the plaintiff’s quotation and the deductions were marked by Mr Law on the quotation with yellow highlights. The highlighted quotation was exhibited in his affirmation. Mr Law did not in his affirmation in opposition deny that he had highlighted the deducted items on the quotation. In any event, it is utterly improbable that a contractor such as the defendant would issue a cheque without checking whether the sum was correct.

31.  Third, the defendant had in fact, prior to the September Meeting, received a further quotation from Daikin on 31 August 2020 in the sum of HK$1,770 (“Daikin’s Further Quotation”). If it is indeed true that the defendant intends to hold the plaintiff liable, it is inherently improbable that the defendant had not included the Daikin’s Further Quotation as an item for deduction at the September Meeting.

32.  Fourth, the defendant’s case is that its loss has not yet been fully quantified as at the September Meeting because further remedial work was ongoing and would take months to complete. According to the defendant, its final loss would exceed the sum of HK$4,730 stated on Daikin’s 24 Aug Quotation. Mr Law did not inform Mr Lui that the plaintiff should repay a part of the sum to the defendant in the future, nor suggested retaining part of the sum for this purpose at all.

33.  Fifth, quite surprisingly, Mr Law stated that since 21 September 2020 he found Mr Lui to be a dishonest person. This, he said, was the reason he did not speak to Mr Lui any further in respect of the final payment. I find this explanation to be entirely incredible and inherently improbable. Mr Law’s intention, as deposed to by him, was that he was willing to make an overpayment to the plaintiff despite anticipating that there will be further losses to the defendant that have not been quantified. This being his intention, it is quite incredible that because of a sum of HK$4,730 (in comparison to the overall project price of about HK$471,160) that defendant would stop payment of the entire sum of HK$145,000, and thereafter refrained from negotiating the payment of the final payment.

34.  In my view, the entire allegation that there has been a fraudulent misrepresentation remains a bare assertion, unsupported by any evidence and is inherently improbable. The defendant has not, in my view, shown prima facie proof that the negotiation of the Cheque was tainted by fraud.

Attack on the Plaintiff’s case

35.  Mr Timothy Lam, counsel for the defendant, also urged me to consider the alleged deficiency in the plaintiff’s case, citing the dicta of Cheung JA in Ju Yan Di Emperor Gensisy v Yau Wai Han [2015] 1 HKLRD 822, at §14:-

“It is well established that the burden on the defendant in a summary judgment application is to show that he has a credible defence. However, this does not mean that once the plaintiff invokes the application and irrespective of the strength of his case, the defendant bears all the burden of showing that there are triable issues in the case. This is because the starting point in a summary judgment application is that it should only be invoked when there is no defence to the claim. This means that the plaintiff must in the first place demonstrate that the defendant has indeed no defence. This requirement is further recognised in the procedural rules which mandate the plaintiff to state his belief in the verifying affidavit that there is no defence to the claim. This requirement must be kept in proper perspective when assessment is made of the strength of the application, otherwise there is a danger that the attention will be focused solely on what the defendant has said without consideration at the same time of the basic premise of the plaintiff’s claim or its inherent strength and weakness.”

36.  Despite the plaintiff’s claim being a straightforward claim based on a dishonored cheque, Mr Lam submitted that there are at least 4 aspects of the plaintiff’s case which are unsatisfactory.

37.  First, Mr Lam submitted that the plaintiff has a good record of making payments to the defendant and the plaintiff is completely unable to proffer any plausible reason as to why Mr Law would, contrary to his good payment history, stop the payment of the Cheque. I do not accept that the plaintiff has the burden of coming up with an explanation as to why the defendant countermanded the Cheque. It cannot be a weakness of the plaintiff’s case if the plaintiff has no such explanation. In fact, according to the plaintiff, there is no good reason why the defendant had countermanded the Cheque.

38.  Second, Mr Lam submitted that Mr Lui had not in his evidence addressed whether the plaintiff was presented with the Daikin’s 24 Aug Quotation before the September Meeting. As referred to above, Mr Law’s evidence did not say that the Daikin’s 24 Aug Quotation was passed to the plaintiff before the September Meeting, and hence the lack of response from Mr Lui in this regard is hardly surprising.

39.  Third, Mr Lam also submitted that Mr Lui’s evidence did not depose to whether the issue about the wrong installation of the electricity works was mentioned at any point during and/or before the September Meeting. However, Mr Lui had stated his account of what happened during the September Meeting and how the sum of HK$145,000 was arrived at. Quite clearly, Mr Lui’s evidence was that the matter was not discussed at the September Meeting.

40.  Fourth, Mr Lam further submitted that Mr Lui’s evidence was silent as to whether Mr Law called him after the issuance of the Cheque to complain about the plaintiff’s computation and representation of the amount payable to the plaintiff. This, again, is not a fair criticism of Mr Lui’s evidence. Mr Lui has stated that he had contacted Mr Law and there was no complaint from Mr Law about the computation, although Mr Law did not clearly inform Mr Lui when the payment would be made.

41.  In any event, I do not accept that any alleged deficiencies or weakness in the plaintiff’s case affected the straightforward nature of the plaintiff’s claim based on the Cheque. The burden remains squarely on the defendant in showing prima facie proof that the negotiation of the Cheque was affected by fraud. By reasons stated above, the defendant has, in my view, failed in this regard.

The payment of HK$100,000

42.  Apart from the defence based on fraud, the defendant also relied on the partial defence that it had paid a sum of HK$100,000 on 5 November 2020 to the plaintiff in partial satisfaction of the debt embodied in the Cheque.

43.  The defendant’s case is that on about 4 November 2020, Mr Hui (who was at the time the employee of the plaintiff), approached Mr Law and complained to Mr Law that the plaintiff had failed to pay salaries to the workers involved in the Project. Mr Hui told Mr Law that he had been asked by the plaintiff to collect payment for the Subcontract Works from the defendant directly so that the money could be used for settling the salaries of the workers. Although Mr Law was still aggrieved by the alleged fraudulent misrepresentation made by the plaintiff, he felt sympathetic towards the workers and therefore agreed to issue a cheque of HK$100,000 to Mr Hui, who received the sum as agent of the plaintiff, as part-payment of the debt embodied in the Cheque.

44.  The defendant adduced as evidence the cheque stub with Mr Hui’s name written on it, and its bank statement showing that the relevant cheque had been cashed. Despite having the cooperation of Mr Hui, copy of that cheque or evidence of the cheque having been banked into Mr Hui’s bank account had not been adduced.

45.  I also note that Mr Hui in his evidence had not given any particulars as to the alleged sums owing to the workers at all, nor was there any evidence that Mr Hui had made payments to the workers as alleged.

46.  Surprisingly and quite incredibly, Mr Law did not check with Mr Lui whether Mr Hui was authorized to receive payment from the defendant before he issued the said cheque to Mr Hui.

47.  Mr Lui denied knowing about the payment to Mr Hui and maintained that he was not authorized to receive any such payment on behalf of the plaintiff. On 22 April 2022, Mr Lui sent a WhatsApp message to Mr Hui inquiring about the HK$100,000 payment, which message stated that Mr Lui only found out about this from the solicitors of the defendant, consistent with discovering the allegation in the Defence filed on 19 April 2022.

48.  It is clear that the allegation of the defendant that Mr Hui had received a payment of HK$100,000 on behalf of the plaintiff remains a bare allegation.

49.  What is utterly incredible, in my view, is that despite the payment that was allegedly made by the defendant, Mr Law did not even inform the Mr Lui that such a payment had in fact been made. It is quite improbable that Mr Law would not even tell Mr Lui that he had settled a sum of HK$100,000 towards the final payment of the Project.

50.  On 30 March 2022, the defendant’s solicitors wrote a letter to the plaintiff specifically to inform the plaintiff that the defendant “has a real and bona fide defence to the Plaintiff’s claim for the dishonoured cheque” and urged the plaintiff “to refrain from taking out any application for summary judgment”. That being the purpose of the letter, the letter was completely silent on the alleged payment of HK$100,000 made to Mr Hui.

51.  In the circumstances, taking into account all of the matters referred to above, I am not satisfied that the alleged defence based on a payment of HK$100,000 to Mr Hui, who received the same for and on behalf of the plaintiff, is credible.

Disposition

52.  For the reasons stated above, I am not satisfied that the defendant has a credible defence to the plaintiff’s claim. I too come to the same view as the learned Master and, accordingly, dismiss the defendant’s appeal.

53.  I make the following order:-

(1)  The defendant’s appeal be dismissed.

(2)  There be an order nisi that the defendant pay the plaintiff’s costs of the appeal to be taxed if not agreed.