XCHRX MULTI-ASIA INTERNATIONAL HOLDINGS LTD. v. LAWRENCE CHAN DIGITAL LTD.

HCA5241/99 & HCA11164/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NOS. 5241 AND 11164 OF 1999

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REASONS FOR JUDGMENT

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1. This is an appeal by the Defendant against the order of Master Ho given on 6th July 1999, ordering that final judgment in HCA5241/99 be entered against the Defendant for the sum of HK$140,000 together with interest and costs as claimed in the Statement of Claim. There is also before me an application for summary judgment by the Plaintiff in HCA11164/99. The Plaintiff's claims in both these cases arise out of the dishonour of five post-dated cheques given by the Defendant to the Plaintiff. The first two cheques form the subject matter of HCA5241/99 and the latter three cheques form the subject matter of HCA11164/99. All five cheques relate to the same transaction and the same defence is raised by the Defendant in respect of both actions. The two actions are now consolidated and can therefore be dealt with together because the same issues adopt in both cases.

2. Having heard the parties, I have dismissed the appeal in HCA5241/99 and at the same time, I have ordered summary judgment against the Defendant in HCA11164/99. I now give my reasons.

Background

3. It is common ground that the Plaintiff was engaged by the Defendant to provide consultancy and management service to the Defendant from April 1998 to November 1998, effectively to manage the Defendant's franchising business of digital photographing. This consultancy service was terminated some time in November 1998. As a result of this termination, there was some dispute between the parties as to the payment of the consultancy fee which had previously been agreed at $70,000 per month. This dispute was resolved by a Settlement Agreement in writing entered into between the Plaintiff and the Defendant on 2nd December 1998. Under that Settlement Agreement, the Defendant agreed to pay to the Plaintiff a total consultancy fee of $525,000 for the services provided by the Plaintiff between April and November 1998. This sum was to be paid by seven monthly instalments commencing from 1st December 1998 until 1st June 1998. In the circumstances, seven post-dated cheques each dated the 1st day of each succeeding month from 1st December to 1st June 1999 was given by the Defendant to the Plaintiff. The first two of these post-dated cheques were honoured by the Defendant. Payment for the remaining five post-dated cheques, the subject matter of these two actions, were countermanded by the Defendant. The Plaintiff's claim in both actions are upon these five dishonoured cheques.

The defence

4. The defence raised by the Defendant was that the Settlement Agreement entered into between the parties on 2nd December 1998, was entered into by the Defendant upon certain representations of the Plaintiff which turned out to be untrue and were made by the Plaintiff fraudulently. It was upon such fraudulent misrepresentation, therefore, that the Defendant was induced to agree to paying the Plaintiff $525,000 with these seven post-dated cheques. In the circumstances, the Defendant says that there was total failure of consideration in respect of these post-dated cheques, and that the Defendant is entitled to rescind the settlement agreement and to claim for loss and damages because of the misrepresentation. The Defendant has also counterclaimed for the amount of the first two cheques which had been honoured.

5. The representation relied on by the Defendant in its defence are as follows :-

(a) the Plaintiff would disclose, within a reasonable time after 2nd December 1998, all the information concerning the financial position and the affairs of the franchising business for the Defendant to take over management of the same.

(b) the Plaintiff had acted loyally and faithfully to the Defendant in the Defendant's business and would continue to act in such a way as not to injure the interest of the Defendant's business.

(c) the Plaintiff had acted prudently in the financial management of the Defendant's business so as to avoid accumulation of trade debts and loss of profits; and

(d) the Plaintiff had used its best endeavours to promote and extend the franchising business and to canvass new franchisees and hence create new sources of income for the Defendant.

6. It is the Defendant's case that the above representations were found to be untrue, in that :-

(a) The Plaintiff failed to disclose to the Defendant, before the signing of the settlement agreement, several material facts in respect of the said franchising business which entailed grave financial consequences to the Defendant.

(b) The Plaintiff had failed to disclose to the Defendant that the Plaintiff had, without proper authority from the Defendant, agreed as the agent for the Defendant with three franchisees for the repurchase by the Defendant from these three franchisees the equipment sold to them.

(c) The Plaintiff had failed to manage the finances of the Defendant and the said franchising business prudently, or to discharge its duties efficiently, resulting in a substantial amount of trade debts accumulating and damaging the good will of the Defendant's business.

(d) The Plaintiff had failed to make any, or any sufficient efforts to promote and extend the said franchising business and to canvass new franchisees.

(e) The Plaintiff had acted in a way injuries to the Defendant's business by making false statements among the franchisees of the Defendant to the effect that the Defendant was in dire financial condition and inducing a particular franchisee of the Defendant to act in breach of the contract by unilaterally terminating its franchise agreement with the Defendant.

Decision

7. Firstly, total failure of consideration can be a defence to a claim upon dishonoured cheques as between immediate parties. However, nowhere in the defence or in the affirmation of Wong Ping Lau filed on behalf of the Defendant has it ever been disputed that the Plaintiff had provided consultancy and management services to the Defendant between April and November 1998. Indeed it is admitted by the Defendant that the Plaintiff had provided such consultancy or management services, albeit such service was poor or was not up to standard. In the circumstances, I am of the view that there is here no total failure of consideration.

8. Secondly, whilst accepting that fraud can also be a possible defence to a claim upon dishonoured cheques, where such a defence is relied upon, it is upon the defendant to furnish full and proper particulars of the fraud relied upon. That is not the case here. Much of the defence relied upon by the Defendant cries out for particulars both in the Defence as well as in the Affirmation of Wong Ping Lau and is vague to the extreme. As for instance, the allegation by the Defendant that the Plaintiff had failed to disclose material facts in respect of the franchising business entailing adverse financial consequences to the Defendant, there is no particulars whatsoever given as to what material facts have not been disclosed and also no particulars as to what adverse financial consequences have resulted.

9. In all cases where a defendant wishes to contest an application under O.14 for summary judgment, it is always incumbent upon the defendant to condescend to particulars of his defence in his affirmation. This is particularly so where misrepresentation and fraud are relied on by way of defences, bare allegations of misrepresentation and fraud usually would not suffice for the Court to grant leave to defend.

10. All that has been shown here by the Defendant is that the Defendant may have a cross-claim for unliquidated damages if the allegations by the Defendant can be substantiated by evidence. The fact that the Defendant has a cross-claim for unliquidated damages for breach of either the consultancy service agreement or even for the Settlement Agreement, cannot, of itself, prevent the Plaintiff from obtaining judgment on these five dishonoured cheques.

11. Bills of exchange have always been treated as cash by the Court and unless there are exceptional circumstances, where in an action between immediate parties to a bill of exchange, judgment will not be held up by virtue of a counterclaim by the defendant and execution will not be stayed. In the words of Lord Wilberforce in Nova Knit Ltd. v. Kammgarn [1977] 2 All ER 463 at 469 :

"I take it to be clear law that unliquidated cross-claims cannot be relied on by way of extinguishing set-off against a claim on a bill of exchange. As between the immediate parties, a partial failure of consideration may be relied on as a pro tonto defence, but only when the amount involved is ascertained and liquidated. The amount claimed here in respect of the machines is certainly neither ascertained nor liquidated, and the claim in respect of mismanagement is one for a wholly unrelated tort, so that there would seem to be no basis for denying the appellant's claim that, as regards the bills there is no dispute."

12. In James Lamont & Co. Ltd. v. Highland Ltd. [1950] 1 KB 585, in his judgment at p.591, Roxburgh J. said :

"In such cases ... a rule more favourable to the plaintiff has in general prevailed, the court treating the execution of a bill of exchange either as analogous to a payment of cash, or as amounting to an independent contract within the wider contract in pursuance of which it was executed and not dependent as regards its enforcement of due performance of the latter."

13. Roxburgh J. then went on to cite the case of Glennie v. Imri (1839) 3 Y & C 436 where the plaintiff sued on a bill of exchange given for goods sold and delivered, the defendant's defence being that he had been fraudulently deceived in his contract, the goods delivered being inferior both in quality and quantity to what he had ordered. Roxburgh J. then said of the case of Glennie v. Imri :

"A court of law would say you must pay the bill first and then bring an action for the fraud; and apparently where a bill of exchange was concerned, equity in this matter followed the law."

14. For these reasons, the appeal in HCA5241/99 is wholly without merits. For the same reason, I have come to the conclusion that the Plaintiff should be entitled to judgment in HCA11164/99.

15. Needless to say this decision does not prevent the Defendant from pursuing his counterclaim.

16. Since costs have already been dealt with by me when making the order, there is no need for me to repeat it here.