XCHRX THOMAS LO CONTRACTING LTD. v. WILLIAM STRATHEARN DOCK

HCA10205/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.10205 OF 2000

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J U D G M E N T

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The appeal

1. This is an appeal against the Master's decision who gave judgment for the plaintiff in the sum of $1,455,557 together with interest. The defendant now appeals against the decision.

The facts

2. The plaintiff's claim is based on three cheques drawn by the defendant in its favour. The cheques were dishonoured on presentation. The background of this case is this. The plaintiff is a contractor and had entered into a contract to carry out interior design decoration work of a restaurant for a company called Charlie Luciano's (HK) Limited ("the Company"). The defendant is a director of the Company. The contract sum was about $6 million which was subsequently adjusted. The defendant contends that the plaintiff had delayed in completing the work despite the extended deadline and also the work was defective. The Company needed to instruct other workers to complete the work.

3. I will set out what the defendant said in paras. 11, 12 and 13 of his affidavit :

"11. However, by 16th December 1999 the Plaintiff had again failed to complete the works and it was not until 28th December 1999, after Christmas, that Charlie Luciano's managed to have its soft opening. Unfortunately, this did not come smoothly as many of the works carried out by the Plaintiff were still not completed or were defective or substandard.

12. At this point, Charlie Luciano's was under a lot of pressure. The opening was well behind schedule due to the Plaintiff. It was imperative that Charlie Luciano's started to trade properly. As a comfort to the Plaintiff, in order to have it complete the remaining uncompleted works and to rectify the existing defects on the premises expeditiously, I wrote post-dated personal cheques (the cheques in question) to the Plaintiff. I did not, however, intend to assume any liability on behalf of Charlie Luciano's by making such cheques.

13. Still, the Plaintiff did not complete the works and rectify the defective or substandard works. As a result, Charlie Luciano's had to employ other contractors to complete the works for the Plaintiff. These works include the following:-"

4. The defendant stated that there was no consideration for the cheques and the Company had a defence and counterclaim to the plaintiff on the contract.

5. The contract provided for the payment of the contract sums by instalments. The plaintiff admitted that there was delay of one month in completing the work. This was due to the failure by the Company to pay for the initial payment despite the certification by the designer who was a party to the contract. The plaintiff had stopped work as a result of the non-payment.

6. The initial payment under the contract was subsequently paid, but by 15 December 1999 substantial amount of money was due to the plaintiff under the contract. In a letter dated 15 December 1999 and countersigned by the Company, the Company agreed to pay at least $2,950,000 and make the payment by instalment to the plaintiff. I say "at least" because one of the payment terms is not so clear. Despite this agreement, two of the required sums were not paid by the Company.

7. According to the plaintiff, the project was completed on 28 December 1999. It is not necessary nor appropriate for me to express any view on whether the work was completed or not. What is significant is that by that stage, the Company admitted that it owed substantial sums of money to the plaintiff. In a letter dated 28 December 1999 from the Company to the plaintiff, it was stated that :

"On behalf of the Board of Directors of Charlie Luciano's (HK) Limited ('the Company'), I set out below the proposed settlement for the outstanding balance due to your company.

Thursday	30 December 1999	HK$350,000
Monday	10 January 2000	HK$650,000
Monday	24 January 2000	HK$250,000
Monday	7 February 2000	HK$250,000
Monday	21 February 2000	HK$250,000
Monday	6 March 2000	HK$250,000
Monday	20 March 2000	HK$250,000
Monday	3 April 2000	HK$250,000
Monday	17 April 2000	HK$250,000
Monday	30 April 2000	HK$955,557

As you will note, we hereby undertake and guarantee to pay HK$1,000,000 between now and 10th January 2000 and the balance in instalments of HK$250,000 each two weeks thereafter. We will settle instalments at an earlier date if the financial position of the Company allows.

Post-dated personal cheques issued by the directors will be used to guarantee the above payment schedule. We regret this situation and sincerely thank you for your co-operation."

8. The total amount of money was $3,705,557. The defendant then drew ten cheques for the specified amounts to the plaintiff. The first three cheques to the value of $1,250,000 were later returned by the plaintiff to the Company because the Company had made cash payments of $1,250,000 to the plaintiff. The next four cheques were not presented because according to the plaintiff, their validity period had expired due to the time taken for the negotiation by the parties. The plaintiff is now suing the last three cheques drawn by the defendant.

9. In the light of the letter of 28 December 1999, what the defendant said about issuing the cheques as a comfort to the plaintiff is clearly incredible. The issue, however, is whether there is consideration for the three cheques. Section 27 of the Bills of Exchange Ordinance provides that :

"(1) Valuable consideration for a bill may be constituted by-

(a) any consideration sufficient to support a simple contract;

(b) an antecedent debt or liability. Such a debt or liability is deemed valuable consideration whether the bill is payable on demand or at a future time.

...."

10. As shown in Oliver v. Davis and another [1949] 2 All ER 353, the plaintiff cannot rely on the provision of antecedent debt and liability because the defendant did not own any antecedent debt or liability to the plaintiff when he drew the three cheques. The debt belonged to the Company.

11. As to section 27(1)(a), a consideration sufficient to support a simple contract includes forbearance to sue or a promise to forbear to sue which may be implied or expressed. In Oliver v. Davis, the English Court of Appeal decided that on the facts of the case there was no promise to forbear to sue or actual forbearance. In the present case, substantial sums of money were then due to the plaintiff by the Company. Although in the letter the Company agreed to pay by instalments, by agreeing to take the post-dated cheques of different dates from the defendant, the plaintiff had clearly promised impliedly to forbear from pursuing the claim against the Company. Furthermore, there was actual forbearance by the plaintiff to sue the Company. As Lord Denning observed in Oliver v. Davis:

"There must be consideration before it will be enforced, but the consideration need not arise at the time of the contract. It is sufficient if it arises ex post facto. The real reason why the promise to pay is enforced is because it was intended to be binding, intended to be acted on, and was, in fact, acted on. Then once the promise has been acted on, the act done is itself sufficient consideration for the promise."

12. In respect of the $1,455,557 represented by the three cheques, the plaintiff had changed its position on the faith of the promise by the defendant to pay. Although there were subsequent demands by the plaintiff against the Company, it was the defendant alone who the plaintiff had sued in this case. This is unlike Oliver v. Davis where the plaintiff sued both the original debtor and the drawer of the cheque. In the present case, the only purpose of providing the post-dated cheques by the defendant was for the intention of gaining forbearance. In my view, there clearly was consideration for the three cheques.

13. The other defence based on delay and defects are clearly not defence available in a case based on cheques.

Conclusion

14. Judgment was rightly entered against the defendant and the appeal is dismissed with costs to the plaintiff.