CHAN KAM CHEUNG v. CHAN CHUEN TAI t/a KWONG TAI GARMENT FACTORY

DCCJ 1708/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION No. 1708 OF 2011

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J U D G M E N T

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Background

1. This is a claim of HK$497,169.82 being the outstanding sum of six cheques (totalling HK$757,169.82) drawn by the Defendant in favour of the Plaintiff after deduction of the partial payment of HK$260,000 by the Defendant.

2. The Plaintiff presented only one out of the six cheques for payment on or about 10^th March 2009 but it was dishonoured for the reason of “Account Closed.”

3. Letter of Demand was issued on 11^th March 2011 by the Plaintiff’s solicitors and this action commenced on 6^th May 2011.

4. The two main defences as pleaded in the Amended Defence are: (i) the six cheques drawn for the purpose of guarantee only; and (ii) the Defendant’s full payment of the sum of the six cheques by depositing into the Plaintiff’s bank account a total of HK$757,170.89 by 21 sums.

The Plaintiff’s Case

5. The Plaintiff has known Mr. Ng (the defence witness) for over 10 years and both of them are garment merchants.  They began doing business in or about 2006/2007 when the Plaintiff started his own business.  Since then the Plaintiff was acting as a middleman to line up garment trading for Mr. Ng by sourcing garment manufacturers/purchasers for Mr. Ng and the Plaintiff would earn commission depending on the quantity of the sales. 

6. Although Mr. Ng has introduced the Defendant to the Plaintiff as his wife and business partner in Kwong Tai Garment Factory, the Plaintiff admitted that he seldom communicated with the Defendant at all material times.

7. From 2006 to 2008, the Plaintiff issued a total of 49 invoices to Mr. Ng / the Defendant in the course of the business dealings with them.  Every time when the Plaintiff succeeded in concluding a contract for Mr. Ng and the Defendant, he would then issue an invoice to them by email.  Mr. Ng / the Defendant would usually settle the invoice by depositing cheques into the Plaintiff’s bank account and informed the Plaintiff about the payment by email with an image file of the relevant deposit slip attached.

8. After the settlement of the invoices at pages 1–26, the subsequent invoices at pages 27–49, issued during the period from 31^st August 2007 to 23^rd January 2008, totalling $757,169.82 remain outstanding.

9. One day in March 2008, the Plaintiff attended the premises at Hang Wai Industrial Centre to demand payment of the above outstanding invoices and met Mr. Ng together with the Defendant. 

10. Mr. Ng expressed that his cash flow was tight then but assured the Plaintiff of repayment by giving the Plaintiff his identity card copy, name card, address, and undated cheques.  Mr. Ng also said that he would inform the Plaintiff by telephone to fill in the dates of the cheques for presentment as soon as he had money for payment.

11. At last, the Defendant drew 6 undated cheques (5 in the sum of HK$125,000 and 1 in the sum of HK$132,169.82) in the name of Kwong Tai Garment Factory and handed them to the Plaintiff at the scene.

12. As there were invoices still outstanding and the Defendant did not call the Plaintiff to present the cheques, the Plaintiff filled in the date of “10^th March 2009” on one cheque (no.906254) and presented it for payment but it was dishonoured for the closure of the account according to the notice of dishonour by HSBC dated 12^th March 2009.  The Plaintiff has never presented the other 5 cheques.

13. Regarding the defence of full payment of all 6 cheques by the 21 payments from 24^th April 2008 to 10^th January 2009 with deposit slips produced by the Defendant, the Plaintiff only admitted the 11^th to 21^st payments totalling $260,000 out of the 21 deposits totalling HK$757,170.89 were made for the partial payment of the outstanding invoices pages 27–49. 

14. The Plaintiff considered the first 10 payments as irrelevant to the subject outstanding invoices at pages 27–49, as those 10 payments had been made before the drawing of the 6 cheques and they were found out to be for repayment of invoices at pages 1–26 instead.

The Defendant’s Case

15. The Defendant denied acquaintance with the Plaintiff and any involvement of the business dealings between the Plaintiff and Mr. Ng save and except for drawing cheques for and on behalf of Mr. Ng upon his request to settle the Plaintiff’s invoices issued to Mr. Ng. 

16. The circumstances leading to drawing the 6 cheques are quite different according to the Defendant.  The Plaintiff came up to meet Mr. Ng and requested for cheques as security for payment or “揸手” (as what the Defendant said in court) and for the purpose of accounting to or comforting his boss, as the size of business dealings had become quite large then.  The Defendant then drew the 6 cheques upon the request of Mr. Ng and handed them to the Plaintiff.  Since the Plaintiff undertook not to present the cheques for payment, all 6 cheques were undated.

17. The Defendant produced records of 21 payments in the sum of HK$757,170.89 to show the full settlement of the 6 cheques totalling HK$757,169.82.  However, when the Defendant was cross-examined about the first 10 payments in fact matched the amounts of some past invoices unrelated to the present claim, the Defendant only replied that she did not know about the invoices issued to Mr. Ng and her role was just issuing cheques upon Mr. Ng’s instructions.

18. When Mr. Ng was cross-examined of the above topic, Mr. Ng suddenly admitted that he has been indebted to the Plaintiff all along and is still indebted to the Plaintiff.

The Issues

19. According to the pleadings and the Statement of Issues in Dispute filed on 28^th December 2012, there are just two issues:

Issue 1 – the purpose of delivery of the 6 cheques in question to the Plaintiff: whether for (a) repayment of the outstanding sum under Invoices at pages 27–49, or (b) providing guarantee by the Defendant to the Plaintiff for repayment of the Invoices at pages 27–49;

Issue 2 – whether the sum under Invoices at pages 27–49 had been fully repaid by the Defendant to the Plaintiff or not.

20. Mr. Yu for the Defendant raised two new issues, namely, “Inadequate Cause of Action” and “Total Failure of Consideration” in his Opening Submissions and made an application for leave to re-amend the Amended Defence which was opposed by the Mr. Sze for the Plaintiff.  Mr. Yu eventually withdrew such application before the first witness was called and confirmed the trial should proceed with the defences as pleaded in the Amended Defence and the issues as agreed by parties in the Statement of Issues in Dispute.

21. As the defence witness Mr. Ng has conceded under cross-examination that there are outstanding invoices, Mr. Yu for the Defendant abandoned the line of argument of the full payment of the invoices at pages 27–49 in his Closing Submissions.

Assessment of the Witnesses

22. The Plaintiff himself has elected to give evidence without calling any other witnesses.  I have considered his evidence carefully having regard to Mr. Yu’s criticism of the Plaintiff’s credibility by the Plaintiff’s failure to recollect certain details such as the period of time from conclusion of the transaction to the delivery of the invoice and lack of knowledge of the products manufactured by King Point Ltd. and other attacks of the Plaintiff.

23. On the other side, the Defendant herself and Mr. Ng gave evidence in court.  The following problems of their evidence are observed.

24. The Defendant said she had never known the Plaintiff in her first witness statement but she then admitted that she in fact knew the Plaintiff many years ago and admitted that she did not tell the whole truth in her witness statement but it was not wholly untrue (“假又假唔晒”) under cross-examination.

25. One of the major defences is full payment of the 6 cheques by the 21 deposits.  When the Defendant was cross-examined on the first 10 deposits for settlement of some past invoices unrelated to the present claim, the Defendant was unable to answer most of the questions and said Mr. Ng should be asked. 

26. When Mr. Ng was confronted with questions of the same topic, Mr. Ng also said he was not familiar with the payments of the invoices and referred to the Defendant for such answers.  After further cross-examination, Mr. Ng eventually admitted that he has owed the Plaintiff all along and there are still outstanding invoices.

27. Mr. Ng’s witness statement is very short with 3 sentences / paragraphs only.  Apart from denying having married the Defendant, Mr. Ng just adopted and confirmed the contents of the two witness statements of the Defendant as truthful statements. 

28. Mr. Ng under cross-examination departed from his or the Defendant’s witness statements in two major areas: that full payments of all the 6 cheques and that the Defendant has never known the Plaintiff; he conceded both are not true.

29. Having considered the evidence and observing the witnesses’ demeanour and the discrepancies, I find that both the Defendant and Mr. Ng are not truthful and reliable witnesses. 

Partial Payment of the 6 Cheques

30. As Mr. Ng has conceded under cross-examination that there are outstanding invoices and the Mr. Yu for the Defendant has abandoned this line of argument of full payment, I find that the first 10 payments made by the Defendant from 7^th May 2007 to 1^st February 2008, all dated before the issue of the 6 cheques in question, are not for settling the cheques or the invoices at pages 27–49 but for invoices 1–26, and the last 11 sums paid after the drawing of the 6 cheques, settled HK$260,000 out of the total amount of the 6 cheques of HK$757,169.82, leaving an outstanding balance of HK$497,169.82.

Purpose of delivery of the 6 cheques

31. If the defence case is true, i.e. the cheques drawn and delivered for comforting the boss of the Plaintiff but not for the purpose of making any payment at all, it does not make sense to draw 6 cheques in one go totalling the exact amount of the outstanding invoices.  Drawing just one cheque suffices for the Defendant to serve such purpose.

32. Besides, the Defendant should not feel “unhappy” as she said in court, when she drew the 6 cheques involving such great sum of money, if the Plaintiff had assured her of the non-presentment of the cheques at all.

33. In view of the total amount of the 6 cheques matching the outstanding amount of the invoices at pages 27–49, the purpose of drawing the cheques apparently correlates with the outstanding invoices. 

34. According to the Plaintiff, Mr. Ng requested for indulgence for repayment due to his financial difficulty and asked the Plaintiff to withhold presenting the cheques until Mr. Ng was ready to pay and called the Plaintiff to present cheques. 

35. The manner of drawing the cheques tallies with the Plaintiff’s version. To issue undated cheques is apparently to give more flexibility and leeway for repayment by instalments.  In any event, the Plaintiff has the authority to fill up the dates as he thinks fit according to s.20(1) of the Bills of Exchange Ordinance (“BoEO”) (Cap.19).

36. On the other hand, the Defendant did make 11 subsequent deposits into the Plaintiff’s bank account rather than depositing the money into her current account and thereafter to inform the Plaintiff to present the cheques for payment.  It is argued that such arrangement supports that the cheques were delivered conditionally, in escrow or as guarantee. 

37. However, it is noted that none of those 11 subsequent payments met the amount of any single cheque.  It appears that the Defendant has never been able to raise enough money to pay any single cheque at such intervals of time.  Apparently, the Defendant has departed from the purpose of drawing the cheques, i.e. payment of the outstanding invoices by the 6 cheques.  Therefore, she instead of depositing money into her current account to pay the cheques, she has chosen to repay as much as possible by depositing smaller sums into the Plaintiff’s account intermittently.

38. Even though the Plaintiff seemed to have agreed withholding the presentment of the cheques and in fact he did withhold presentment for about one year, the mere fact of withholding presentment does not mean that the cheques were delivered in escrow or delivered conditionally or delivered as guarantee in the first place.

39. In light of the above analysis and on balance of probabilities, I accept the Plaintiff’s evidence on the circumstances of drawing and delivery of the cheques, but reject the version of the Defendant and Mr. Ng that the cheques were delivered to the Plaintiff as a form of security and not for payment at all.

40. I do not accept the cheques were delivered conditionally, in escrow or delivered as guarantee either.  I find that the purpose of drawing and delivery of the 6 cheques is for payment of the outstanding invoices at pages 27–49.

Non-presentment of the 5 Cheques

41. Apart from the new issues eventually abandoned that I mentioned in paragraph 20 above, Mr. Yu also raised another two new and unpleaded issues in his Opening & Closing Submissions: i.e. (i) discharge of the Defendant’s liability as the drawer by the non-presentment of the 5 cheques relying on s.45 of BoEO and (ii) shifting the issue of “guarantee” to “conditional delivery” of the cheques (s.21 of BoEO).

42. Mr. Sze for the Plaintiff has engaged in arguing these new issues.

43. As I have dealt with the purpose of delivery of the 6 cheques in paragraphs 31–40 above, I only deal with the non-presentment of the cheques here.

44. Mr. Yu for the Defendant submitted that the Plaintiff’s claim should be limited to the value of the only cheque presented and dishonoured relying on s.45 of the BoEO which provides that,

“Subject to the provisions of this Ordinance, a bill must be duly presented for payment. If it is not so presented, the drawer and indorsers shall be discharged. …”

45. Mr. Sze initially relies on s.47(1) and s.46(2)(a) & (e) of the BoEO to submit that the non-presentment of the 5 cheques should be excused or dispensed with.

46. The s.47(1) of the BoEO provides that:

“A bill is dishonoured by non-payment-

(a) when it is duly presented for payment and payment is refused or cannot be obtained; or

(b) when presentment is excused and the bill is overdue and unpaid”

47. S.46(2)(a) & (e) of the BoEO provide that:

“Presentment for payment is dispensed with -

(a) where, after the exercise of reasonable diligence, presentment, as required by this Ordinance, cannot be effected. The fact that the holder has reason to believe that the bill will, on presentment, be dishonoured does not dispense with the necessity for presentment;

...

(e)  by waiver of presentment, express or implied.”

48. After hearing the closing submissions, I have invited parties to make further written submissions (without oral hearing) on whether the presentment of the 5 cheques could be dispensed with by s.46(2)(c) BoEO, which parties have not addressed when making their closing submissions.

49. Mr. Yu for the Defendant then took issue of the Plaintiff’s pleadings being defective for failing to plead any excuse for or dispensation with the non-presentation of the 5 cheques in his supplemental closing submissions and submitted that the Plaintiff should be disallowed to rely on any of the statutory excuses for non-presentment, otherwise it would cause manifest and grave injustice to the Defendant.

50. I could not agree with Mr. Yu in this regard.  First of all, neither has the Defendant pleaded the defence of non-presentment of the 5 cheques nor does the Statement of Issues in Dispute signed by both parties filed on 28^th December 2012 include such defence.  This defence has never been raised until the Opening Submissions by Mr. Yu. Therefore, the Defendant should not be allowed to rely on the defence of non-presentment in the first place.  As parties have engaged in arguing this issue at the trial, it would be unfair to the Plaintiff if the Defendant is allowed to raise this unpleaded defence but the Plaintiff is debarred from raising any statutory exceptions.

51. In the Supplemental Submission, Mr. Sze for the Plaintiff also relies on s.46(2)(c) of the BoEO to dispense with the presentment of the 5 cheques:

“Presentment for payment is dispensed with-

(a) …

(b) …

(c)  as regards the drawer, where the drawee or acceptor is not bound, as between himself and the drawer, to accept or pay the bill, and the drawer has no reason to believe that the bill would be paid, if presented;”

52. The two conditions for applying s.46(2)(c) are summarised as:

(i)   the drawee bank is not bound to pay the cheque; and

(ii)   the drawer has no reason to believe the cheque will be honoured if presented.

53. Mr. Sze drew my attention to the following illustration of the first condition at para.6-074 of Chalmers & Guest on Bills of Exchange & Cheques (17^th Edition):

“The prime example of the application of para.(c) of subs.(2) is where there are no funds in the account of the drawer of a cheque with the drawee bank and no arrangements made for an overdraft (with the result that the bank is not bound, as between itself and the drawer, to pay the cheque) … ”

54. It is not disputed that the Defendant’s account with the drawee bank was closed when the Plaintiff presented the only cheque.  No doubt there should be no funds in the subject account and no overdraft arrangements after the account had been closed and thereafter the drawee bank would not be bound to pay any cheques drawn by the Defendant.  The first condition is thus satisfied.

55. In Wirth v Austin (1875) LR 10 CP 689, the defendant drew two cheques upon the Huddersfield branch of the Midland Banking Co. payable to H or order, and these were indorsed by H to the claimant.  At the time the cheques were drawn, the defendant had no funds at the Huddersfield branch of the bank and had been notified by the bank that cheques drawn by him would not be paid.  It was held that the claimant needed not prove presentment at the Huddersfield branch or notice of dishonour in order to entitle him to sustain an action against the defendant, the drawer.

56. In Fiorentino Comm. Giuseppe Sr1 v Farnesi & Anor [2005] EWHC 160 Ch; [2005]1 WLR 3718, the defendants, acting on behalf of a company of which they were directors, drew three post-dated cheques payable to the claimants on successive dates. The first cheque was dishonoured on presentment to the drawer’s bank for payment.  The second and third cheques were never presented.  Subsequently, the company was wound up and its bank account was closed. 

57. Regarding the appropriate time for establishing the necessary absence of reasonable belief under s.46(2)(c), the above case held that a payee of a cheque should be able to satisfy the second condition in s.46(2)(c) at any time at which presentment could be made.  Paragraph 47 of the judgment states that,

“As a matter of principle, I consider that section 46(2) is focusing on any time at which presentment could be made. Presentment is, in my judgment, dispensed with if, at that time, any one of paragraphs (a) to (e) is satisfied. The purpose of the provision is, as it states, to dispense with presentment. The purpose of such dispensation is to avoid the need for presentation of a bill when it is not possible for good reason to present it (see paragraphs (a) and (b)) or where the drawer himself does not require it, having waived it (see paragraph (e)) or where it would be pointless to present it because the drawer himself knows that the bill will not be paid if presented (see paragraphs (c) and (d)). If it were correct to focus on some other earlier time, such as the date on which the bill was drawn, there would be curious consequences.”

58. One of the issues in Fiorentino similar to the present case is about the non-presentment of the second and third cheques.  In paragraphs 59 to 61 of the judgment, it was found that on or after the dates of the second and third cheques, the account had only small credit balance insufficient to pay the cheques and then it remained in overdraft until it was closed following the presentation of the winding-up petition.  It was held that there were no grounds on which the drawer could have had reason to believe that the second and third cheques would be met if presented at any time on or after the dates which they respectively bore.  Accordingly, the second condition in s.46(2)(c) was satisfied.

59. In his Supplemental Submissions, Mr. Yu for the Defendant argued that (i) the Plaintiff fails to adduce any evidence at all in proving that the Defendant knows the cheque would be dishonoured by non-payment; (ii) it is unknown as to why, when and by whom the Defendant’s account is closed, as the Plaintiff has adduced no evidence at all; and (iii) the implication that the Defendant has no reason to believe that the cheque would be paid if presented cannot be drawn based on the very limited fact that the first cheque was dishonoured for the said reason. 

60. Unlike the post-dated cheques in the above case, the 6 cheques in the present case are all undated and the Plaintiff subsequently only filled up the date of “10 March 2009” on one of the cheques and presented it which the Plaintiff was entitled to do so.

61. According to the advice of the Plaintiff’s bank dated 12^th March 2009, the cheque was dishonoured for “account closed”. Although there is no evidence as to when exactly the Defendant’s account was closed, it is neither here nor there, as the unchallenged evidence shows that the account has already been closed by the time of the said notice of dishonour.  So long as the Plaintiff was entitled to present the cheques at that time and could  establish the necessary absence of the Defendant’s reasonable belief, it suffices for the Plaintiff to satisfy the second condition in s.46(2)(c).

62. In most cases, bank accounts are closed at the request of the account holders.  If not, the bank should have informed the account holders.  It is inconceivable that the Defendant would have been unaware of the closure of her account in any event.  In the circumstances, the irresistible inference to be drawn is that the Defendant has no reasons to believe that the 6 cheques would be paid if presented after the closure of her account.

63. I accept that it is pointless for the Plaintiff to present the remaining cheques for payment upon knowing the closure of the Defendant’s bank account.  Having considered all the evidence before me and as analysed in the above, I am satisfied that the Plaintiff is entitled to rely on s.46(2)(c) of BoEO to dispense with the presentment of the remaining 5 cheques. 

64. It is therefore not necessary to consider the other grounds of dispensation with non-presentment raised by the Plaintiff’s counsel.

Conclusion

65. I summarise my findings of this case as follows:

66. Issue 1 – the purpose of delivery of the 6 cheques in question to the Plaintiff is for repayment of the outstanding sum under Invoices at pages 27–49.

67. Issue 2 – the sum of HK$497,169.82 under Invoices at pages 27–49 remains outstanding.

68. New Issue 3 – the Plaintiff is entitled to raise the statutory grounds for dispensation with the non-presentment of the 5 cheques in question and the conditions of s.46(2)(c) of BoEO are satisfied to dispense with the presentment of the 5 cheques by the Plaintiff. 

69. For the reasons aforesaid, I find that the Defendant is liable to pay the Plaintiff damages in the sum of HK$497,169.82 being the balance of the 6 dishonoured cheques in question.

Interest

70. Having taken all the circumstances into consideration, I award interest on the damages to the Plaintiff at judgment rate from the date of the Writ until payment.

Costs

71. Since costs shall follow the event, I make an order nisi that the Defendant is to pay the Plaintiff’s costs of this action to be taxed if not agreed with certificate for counsel. This order nisi shall become absolute unless there is application to the otherwise within 14 days after handing down of this Judgment.