LAM KIN v. SUNARTS (HOLDINGS) ENGINEERING LTD

DCCJ3567/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3567 OF 2005

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JUDGMENT

1.  This is an application by the Plaintiff for a summary judgment against the Defendant for a total sum of $195,000 being various cheques drawn by the Defendant in favour of the Plaintiff.

The Plaintiff's Case

2.  On 6 February 2002, the Plaintiff and the Defendant entered into an investment agreement, in which both parties agreed that the Plaintiff was to deposit a sum of $200,000 with the Defendant in consideration of 20% of the shareholdings in the Defendant (“the Investment Agreement”).  Terms of the Investment Agreement provided that the Plaintiff can cancel the agreement and the sum paid should be repaid together with interests calculated at 12% by 4 instalments.  The sum was duly paid by the Plaintiff by 2 instalments on 6 February 2002 and 6 March 2002.  However, the Defendant never transferred any shares to the Plaintiff.

3.  At a meeting in June 2003, the Defendant proposed and the Plaintiff agreed to the sum of $275000 as repayment of the $200,000 together with interests by 16 monthly instalments from 18 August 2003.  The Defendant then issued 16 post-dated cheques of various dates from 18 August 2003 to 18 November 2004 to the Plaintiff.  The Plaintiff denied the existence of any subsequent agreement or condition to be imposed upon the issuance of the cheques.

4.  The first cheque in the sum of $50,000 was honoured but the second cheque of $15,000 bounced on its presentation on 25 October 2003.  Upon enquiries made with the Defendant, the Plaintiff was told that the company was in financial difficulties and no more cheques should be presented for payment.  A sum of $15,000 was paid in cash to cover the sum for the 2^nd cheque.  As a result, the Plaintiff had restrained from presenting the 3^rd to the 9^th cheque (each in the sum of $15,000) for payment till March 2004 and April 2004.  All these cheques were bounced and the Defendant again told the Plaintiff that the company is in financial difficulties and the cheques should not be presented for payment.  So, the 10^th to 14^th cheque each in the sum of $15,000 were not presented for payment.  Another sum of $15,000 was paid to the Plaintiff in December 2004 upon demand.  On 15 April 2005, the 15^th and 16^th cheques, each for the sum of $15,000, were presented for payment but again dishonoured.

The Defendant's Case

5.  For the circumstances of the issuance of the 16 cheques, Mr. Kwong, the General Manager of the Defendant has this to say in paragraph 4 of his affirmation:

“Instead of investing in the Defendant and becoming a shareholder, the Plaintiff agreed to assign various building projects to the Defendant being holder of the building licence and the Defendant shall then sub-contract back to the Plaintiff with a licence fee at 18.5% of the total contract sum….The Defendant would return the said sum of $200,000 plus interest which made a total sum of $275,000 to it, by issuing 16 post-dated cheques to the Plaintiff provided that the said sum would be set off from the Licence Fee to be gained by the Defendant.”

In paragraph 6 of the same affirmation, Mr. Kwong said,

“Based on the trusted relationship between the Plaintiff and the Defendant and in consideration of the Subsequent Agreement and the Representation, the Defendant agreed to cancel the Investment Agreement and issued the 16 cheques as agreed.”

6.  The Defendant's case is that the parties agreed to have the Investment Agreement cancelled and entered into a new agreement (“Subsequent Agreement”).  The cheques were issued provided that the sum to be earned by the Defendant in the Subsequent Agreement, should there be any, were to be set off.  In pursuance to this Subsequent Agreement, the Plaintiff had in fact referred a building job to the Defendant in October 2003 with invoice being issued by the Defendant to the client and the Plaintiff performed the decoration work.  When the Defendant asked the Plaintiff for the licence fee as agreed, the Plaintiff gave no positive reply so Mr. Kwong decided not to honour the cheques issued to the Plaintiff.

7.  In or about April 2004, the parties had another discussion about the outstanding sums due from the Defendant to the Plaintiff.  It was agreed that the Defendant were to pay the Plaintiff $15,000 and the licence fee outstanding would be set off against the outstanding instalment payment to the Plaintiff up to April 2004 (“2^nd Subsequent Agreement”).  In light of this 2^nd Subsequent Agreement, the Defendant then informed the bank to countermand payment of the 3^rd to 16^th cheques issued to the Plaintiff and $15,000 was paid to the Plaintiff in December 2004.  But the Plaintiff subsequently denied the existence of all subsequent agreements.

Principles

8.  In an application for summary judgment, it is for the Defendant to satisfy the court that there is an issue or question in dispute which ought to be tried or that there ought for some reason to be a trial of the claim or part (O.14 r.3 of RDC).  The test is : “is what the defendant says credible?” (Ng Shou Chun v Hung  Chun San [1994] 1 HKC 155).

9.  However it is trite law that assertion must not be taken in isolation.  They must be credible or believable in the light of the evidence placed before the court (Mass International Limited v Hillis Industries Limited [1996] 1 HKC 434.  And mere assertion in an affidavit of a given situation does not, ipso facto, provide leave to defend, since the defendant must satisfy the court that he has a fair or reasonable probability of showing a real or bona fide defence, i.e. that his evidence is reasonably capable of belief (Hong Kong Civil Procedure 2006 Vol .1 at paragraph 14/4/9). 

10.  A cheque, by section 73 of the Bills of Exchange Ordinance, Cap. 19, is a bill of exchange drawn on a banker payable on demand or at some future time.  Section 3 of the Bills of Exchange Ordinance defines a bill of exchange as an unconditional order in writing.  A line of cases demonstrate that attempts to alter the terms of payment are inconsistent with the written instrument and are not admissible in evidence.  To admit extrinsic evidence would undermine the certainty and finality attached to each party's promise on that instrument.  Extrinsic evidence is, in general, inadmissible to prove that the terms of the contract differed from those express in writing on the cheques (SY Chan Ltd v Choy Wai Bor [2001] 3 HKLRD 145). 

Whether oral evidence admissible

11.  It is obvious from the above affirmation evidence of the Defendant that the agreement on conditional delivery of cheques was made orally between the parties.  In effect, the Defendant was seeking to introduce oral evidence to vary the unconditional payment nature of cheques and such evidence is not admissible by the authority of SY Chan Ltd (supra) which was held that oral evidence is inadmissible to contradict a contract expressed in writing on cheque, which is an unconditional order in writing requiring a bank to pay a sum certain to a specified person or to bearer.  It offended the parol evidence rule.

12.  It is not in dispute that the Defendant had agreed to cancel the Investment Agreement and had to repay the investment sum to the Plaintiff.  As a result, the 16 cheques were being issued.  The handing over of the cheques were obviously for the settlement of the investment sum.  The cheques, as it stood, was an unconditional order in writing by the Defendant to their banker to pay the sum named to the Plaintiff on or after the due date on the respective cheques.  With the oral condition read into it, the effect is quite different.  It becomes a conditional order to pay, conditional upon the Plaintiff assigning building projects to the Defendant and for the licence fees to be set off.  It is an order to pay only after such incident happens.

13.  As the cheques in question were delivered operatively for repayment of investment sum paid by the Plaintiff, the purported oral agreement has the effect of qualifying the nature or tenor of the cheques.  I rule the evidence of Mr Kwong on what was said at the time of the issuance of the said cheques inadmissible.

Subsequent Agreements

14.  Even if I am wrong in my ruling on the admissibility of the oral evidence, I found the Defendant's evidence on the existence of the subsequent agreements unbelievable.

15.  It is clear from the affirmation filed by the Defendant that the repayment of the investment sum to the Plaintiff upon cancellation of the Investment Agreement is not in dispute.  It would be an affront to common sense for the Plaintiff to agree to a condition which prevents him from receiving what he's entitled time and again.  There is no explanation from the Defendant as to why the 2^nd cheque dishonoured when the incident causing Mr. Kwong's decision not to honour the cheque only occurred in October 2003.  Nor is there any reasonable explanation as to why the cheques were not countermanded then but waited till 28 April 2004 after the Plaintiff's attempt to cash the 3^rd to 9^th cheques.  Even if there was a 2^nd Subsequent Agreement, according to the Defendant, the terms was to set off against the outstanding instalment payment to the Plaintiff up to April 2004.  But the Defendant had countermanded all the remaining cheques including those beyond April 2004.  Given the fact that the licence fee in issue then was only $59200, it would be implausible for the Plaintiff to have agreed for a total sum of over $100,000 to be set off against it.

Counterclaim

16.  Citing the case of Townearn Industrial Ltd v Golden Holdings Ltd [2003] 1 HKC 186, the Defendant submitted that there is special circumstances in this case to allow the Defendant to proceed with the counterclaim of the licence fee and to set off the amount counterclaimed since there had been on-going business relationship between the parties and the counterclaim related to the same or closely connected subject matter as the claim of the Plaintiff. 

17.  I found the case of Townearn Industrial Ltd can be distinguished from our present case.  The findings in that case is that the plaintiff accepted there were serious defects in some of the goods in the counterclaim and there has been an ongoing business relationship between the parties.  Both of these considerations are lacking in this case.  Moreover, the counterclaim by the Defendant based on the Subsequent Agreement has nothing to do with the subject matter of the claim which was being made by the Plaintiff in this case, i.e  the Investment Agreement.

Conclusion

18.  I do not consider the Defendant has raised any triable issue.  Its version of story is simply unbelievable and self-contradicting.  What the Defendant say is incredible and not reasonably capable of belief.  For the above reason, the Plaintiff should be entitled to judgment against the Defendant.  I therefore give summary judgment in favour of the Plaintiff against the Defendant for the sum of $195,000 with interest thereon at judgment rate from 18 November 2004 until payment.

Costs

19.  There is no reason why costs should not follow the event.  I order that the Defendant do pay the Plaintiff costs of the action, including costs of this application, with certificate for counsel, to be taxed if not agreed.