GOLDEN GARDEN MANAGEMENT LTD v. GRAND T G GOLD HOLDINGS LTD

HCA 1685/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1685 OF 2010

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BETWEEN

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D E C I S I O N

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Introduction

1.  This is the appeal by the defendant (“Defendant”) against the decision of Master R Lai made on 6 September 2011 entering summary judgment under Order 14 of the Rules of the High Court in favour of the plaintiff (“Plaintiff”) for the sum of $4,561,499 together with further interest and costs.  The sum represents interest arising from a document which the parties called “Promissory Note B” (“Note”), the principal of which has already been repaid by the Defendant to the Plaintiff.  The true nature of the Note is now in dispute.

The legal principles governing summary judgment

2.  The law applicable to summary judgment is well-known: see Hong Kong Civil Procedure 2011, Vol 1 §§14/4/8, 14/4/9 and 14/4/11 at   p 238-241. 

3.  Very briefly, the court may grant summary judgment for the plaintiff unless the defendant satisfies the court that either:

(1)   there is an issue or question in dispute which ought to be tried; or

(2)   there ought for some other reasons to be a trial of the action.

The burden is on the defendant to satisfy the court that he has a real or bona fide defence.  He has to show what he asserts credible and there is a fair or reasonable probability of the defendant having a real or bona fide defence as a matter of law: see Bhagwandas Kewalram Murjani & Others v Bank of India [1990] 1 HKLR 586 at 588-589.  The test at the summary stage is whether the defendant’s assertions are believable rather than whether they are to be believed: see Ng Shou Chun v Hung Chun San [1994] 1 HKC 155 (CA) per Godfrey JA at 158.  He must condescend upon particulars in his affirmation or affidavit.  Whether the assertions are believable has to be assessed against the background which is undisputed or beyond reasonable dispute.  Leave to defend should be given where the defendant raises any substantial question of fact or law which ought to go to trial or if the court has doubts or suspicion as to the plaintiff’s case: see Billion Silver Development Ltd v All Wide Investments Ltd [2000] 2 HKC 262 at 268C-D.  Also, the court has jurisdiction to grant conditional leave to defend if it is prepared very nearly to give judgment for the plaintiff or where the defence is shadowy.  This summary procedure is not suitable for cases in which there are serious material factual or legal issues in dispute: see Man Earn Ltd v Wing Ting Fong [1996] 1 HKC 225 (CA) per Godfrey JA at 228.

The factual background

4.  The Defendant, formerly known as Espco Technology Holdings Limited, is a company incorporated in the Caymen Islands and listed on The Stock Exchange of Hong Kong as stock code number 8299. 

5.  The Plaintiff is a company incorporated in the British Virgin Islands.  It is wholly and beneficially owned by its director Robin Lee.  Robin Lee is a also director of SSC Mandarin Holdings Limited (“SSC”), the sole shareholder of SSC Mandarin Mining Investment Limited (“MIL”), which in turn holds a controlling interest in TG Mining Asia Limited (“TG Mining”), a mining company in the People’s Republic of China.

6.  The Note in the principal sum of $78,240,000 was drafted by the Defendant’s solicitors in April 2008.  On 30 April 2008, the Defendant issued to the Plaintiff a portion of the Note in respect of a principal sum of $62,592,000 as part of the acquisition price of MIL from its vendor SSC.  The acquisition was in fact a reverse take-over.  After the acquisition, Robin Lee was invited by the former chairman of the Defendant, Chan Hing Yin, to join the Defendant as its vice-chairman, executive director and chief executive officer on 5 June 2008.  Chan Hing Yin has since passed away.

7.  Since the take-over, the Defendant held three fund-raising exercises and Robin Lee caused to be paid to himself a total amount          of $29,600,520 from the proceeds of two of the fund-raising exercises.    On 3 July 2008, Chow Tai Fook Nominee Limited subscribed for 58,000,000 new shares at a subscription price of $0.27 per share (“First Subscription”). The Defendant raised $15,660,000 in subscription proceeds.  On 7 July 2008, the Defendant’s board of directors resolved to transfer the proceeds to TG Mining, which had become an indirect subsidiary of the Defendant as a result of the take-over, expressly for use as general working capital.  On the same day, a sum of $15,659,990 was transferred from the Defendant to the bank account of TG Mining from which Robin Lee withdrew a sum of $15,600,000 purportedly to repay short term director’s loans due to himself.  In a public announcement dated 10 July 2008, Robin Lee in his capacity as the vice-chairman and chief executive officer of the Defendant declared that the board still intended to apply the net proceeds of the First Subscription as general working capital of the group and/or for the development of the Defendant’s new business venture in gold industry.

8.  On 1 September 2008, a group of investors subscribed for 214,256,000 new shares at the subscription price of $0.07 per shares     (“Second Subscription”). The Defendant raised $14,997,880 in subscription proceeds.  On the same day, Robin Lee declared in a public announcement that the Defendant intended to apply the net proceeds of the Second Subscription as general working capital and/or for the development of the Defendant’s new business venture in gold industry and/or any other new investment project which may be identified by the Defendant from time to time.  On 15 September 2008, the Defendant’s board of directors resolved to apply the proceeds as general working capital of the Defendant and its subsidiaries.  However, between 5 and 29 September 2008, Robin Lee caused $14,000,520 to be withdrawn purportedly to repay short term director’s loans due to himself.  Thus, a total sum of $29,600,520 was paid to Robin Lee.

9.  On 7 July 2009, Lee Shing joined the Defendant as a director, who has conduct of this litigation. 

10.  In February 2010, the Defendant redeemed the principal sum of the Note, which was $62,592,000, by issuing shares in the Defendant to the Plaintiff.  However, the interest which accrued as at 24 February 2010 amounting to $4,561,499 remains unpaid. 

11.  On 16 August 2010, Robin Lee left the Defendant. On           24 September 2010, the Plaintiff’s solicitors issued a letter to the  Defendant demanding payment, but to no avail.  On 10 November 2010, the Plaintiff filed a Writ of Summons against the Defendant claiming the outstanding interest and further interest thereon.  On 11 May 2011, the Plaintiff took out an Order 14 summons to apply for summary judgment.  On 6 September 2011, Master R Lai entered summary judgment for the Plaintiff.

The defence and the issue

12.  The crux of the Defendant’s defence is that the Note was not a promissory note.  Mr Manzoni, leading counsel for the Defendant, submits that the Note was given to the Plaintiff as agent for and on behalf of Robin Lee who misappropriated $29,600,520 from the Defendant.  Hence, the Defendant has a legal set-off with respect to a liquidated sum of $29,600,520 against the Plaintiff’s claim, which entitled it to unconditional leave to defend: see Axel Johnson Petroleum AB v MG Mineral Group AG [1992] 1 WLR 270 (CA) at 274E-275B.

13.  Mr Oderberg, leading counsel for the Plaintiff, rightly concedes that if I am satisfied that the Defendant has shown an arguable case that the Note was not a promissory note, it is entitled to unconditional leave to defend.  But if I am not so satisfied, whether the Plaintiff was      an agent for and on behalf of Robin Lee and whether Robin Lee misappropriated funds from the Defendant are irrelevant.  This is because the defence of set-off is not available to a claim under a promissory note unless the promissory note was obtained by fraud or there was a total failure of consideration.  If I am so satisfied, those issues must go to trial and the Defendant is entitled to unconditional leave to defend.  Thus, for the purpose of this appeal, there is only one issue: whether the Defendant has shown that it is arguable that the Note was not a promissory note.  I do not find it necessary to form any views whatever on those other issues.

Whether it is arguable that the Note was not a promissory note

14.  Mr Manzoni submits that the Note was not a promissory note as it fell short of the requirement of section 89(1) of the Bills of Exchange Ordinance, which provides:

“A promissory note is an unconditional promise in writing made by one person to another signed by the maker, engaging to pay, on demand or at a fixed or determinable future time, a sum certain in money to, or to the order of, a specified person or to bearer.”

The thrust of his argument is that the Note was not repayable on demand or at a fixed or determinable future time by reason of the option available to the Defendant to redeem the Note by giving not less than seven days’ notice to the Plaintiff under condition 4.2 of the Terms and Conditions of the Note.

15.  The relevant parts of conditions 1 to 4 of the Terms and Conditions of the Note provide as follows:

“1. PERIOD

Subject as provided herein, the outstanding principal amount of the Promissory Note shall be redeemed subject to and in accordance with the terms and conditions of the Promissory Note on the Maturity Date.

2. INTEREST

2.1 The Promissory Note shall bear interest from the date of issue at the rate of 4% per annum on the outstanding principal amount of the Promissory Note, which subject to provided herein, shall be payable by the Company in arrears quarterly on 31 March, 30 June, 30 September, 31 December of each year.

…

3. PAYMENTS

3.1 Payment of the principal and interest in respect of the Promissory Note shall be made on the due date(s) into such bank account in Hong Kong as the Noteholder may notify the Company in writing from time to time (such notification) to be made not later than five (5) Banking Days prior to the relevant due date). All payments by the Company shall be made in Hong Kong dollars in immediately available funds.

…

3.3 The Company shall not be liable to make any payment in respect of the outstanding principal amount of the Promissory Note unless and until the original of the Certificate (or any replacement thereof issued pursuant to Condition 7) is presented to the Company at its address specified in Condition 8. The Company shall retain the original of the Certificate (or any replacement thereof issued pursuant to Condition 7) upon the redemption thereof.

4. REDEMPTION

4.1 Upon presentation on the Maturity Date of the original of the Certificate to the Company at its address specified in Condition 8, the Promissory Note will be redeemed by the Company at its principal amount outstanding together with the payment of interest accrued thereon in Hong Kong dollars.

4.2 The Company shall have the right to redeem all or any part of the outstanding principal amount of the Promissory Note at any time after the Issue Date until the day prior to the Maturity Date, by giving written notice of not less than seven (7) Banking Days to the Noteholder.

Under the definition section, “Maturity Date” was defined as 30 April 2011.  The address of the Defendant as stated in condition 8 was Rooms 3 & 4, 9/F, Vanta Industrial Centre, 21-33 Tai Lin Pai Road, Kwai Chung.

16.  In support of his argument, Mr Manzoni referred to Williamson v Rider [1962] 3 WLR 119 in which the majority of the English Court of Appeal held that a document providing for repayment of a loan “on or before” 31 December 1956 did not come within the meaning of a promissory note under section 83(1) of the Bills of Exchange Act 1882 which was equivalent to our section 89(1) of the Bills of Exchange Ordinance.  Williamson v Rider was followed by the English Court of Appeal in Claydon & Anor v Bradley & Anor [1987] 1 WLR 521.  Mr Manzoni also fairly drew my attention to the local authority of Chevalier (E&M Contracting) Ltd v Rotegear Development Ltd & Ors [1994] 3 HKC 457, in which Barnett J preferred the dissenting view of Ormerod LJ in Williamson v Rider.  He submits that given the conflicting authorities on this point, the only safe course would be to let the matter go to trial.  He further submits, referring to Barrett v Enfield London Borough Council [1999] 3 All ER 193 at 197-198 per Lord Browne Wilkinson, that where the law is developing summary determination is inappropriate.  In my view, where the legal issue is not a simple one, permitting the matter to proceed to trial for full argument is the preferred course.  However, where, the legal issue is simple, as that involved in the present case, which could be fully argued in a summary proceeding, justice would be better served for the matter to be speedily disposed of by way of summary judgment and any uncertainty in the law to be settled on appeal, if either party entertains any doubt in the correctness of the summary judgment.

17.  By way of initial observation, the issue raised by this appeal   is one of construction of the Note.  It is very largely a matter of first impression whether the Note, particularly in the light of conditions 1 to 4     of the Terms and Conditions, came within the definition of section 89 of the Bills of Exchange Ordinance, that is, whether it was a promise to      pay on demand or at a fixed or determinable future time.  Construction of   a document is the ascertainment of the meaning which the document  would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of making of the document.  It is not the same as interpretation of the meaning of the words used in the document: see Investor’s Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 897 at 912 to 913 per Lord Hoffmann.  While the effect of conditions 1 to 4 of the Note is that the principal sum stated in   the Note was payable on or before 30 April 2011, I doubt if Mr Manzoni   is correct in construing the Note by importing the construction of the  phrase “on or before” from the authorities in which that phrase was actually used in the document to be construed by the court into the Note in which that phrase was not actually used.  But, be that as it may, I now turn to     the authorities relied on by Mr Manzoni before construing the Note.

18.  Williamson v Rider was the first English Court of Appeal authority in which the majority, comprising of Danckwerts and Willmer LJJ, decided that the phrase “on or before” a stipulated date of payment destroyed the fixed time for payment and disqualified a document from being a promissory note.  Danckwerts LJ was referred to an earlier English Court of Appeal decision in Dagger v Shepherd [1946] KB 215, in     which that phrase as used in a notice to quit was construed by Evershed J to mean some fixed date in future.  While not doubting the correctness of   that construction in the context of a notice to quit, Danckwerts LJ refused to adopt that construction in the context of a promissory note.  He preferred the view expressed by the Court of Queen’s Bench in Crouch v Credit Foncier of England Ltd (1873) LR8 QB 374 that an option to redeem at an earlier date was a contingency.  Adopting that construction, Danckwerts LJ held that the phrase “on or before” created a contingency and an uncertainty in the time for payment.  Willmer LJ agreed and relying in addition to Alexander v Thomas (1851) 16 QB 333, adopted a similar construction.  I do not find it necessary to quote the judgments of Danckwerts and Willmer LJJ as their judgments were analysed and explained by Ormerod LJ in his dissenting judgment, to which I now turn.

19.  Basically, Ormerod LJ construed the phrase in the same way as did Evershed J in Dagger v Shepherd, as meaning a fixed date for payment in which the promisor binds himself to pay on that date and if he fails can be sued under the promissory note; but if he chooses to pay earlier, the holder of the note is under an obligation to accept that payment. Ormerod LJ was of the view that that was the ordinary meaning of the phrase and the phrase had the same construction whether used in the context of a notice to quit or a promissory note.  He then examined Crouch v Credit Foncier of England Ltd which Danckwerts LJ heavily relied upon.  In that case, the Court of Queen’s Bench held that a debenture under which a company promised to pay on a certain date “or upon any earlier day upon which this bond shall be entitled to be paid off according to the conditions” and so on created a contingency. He examined the conditions in that case which were not to be found in Dagger v Shepherd or in Williamson v Rider and certainly not in the present case as well.  He agreed with that decision, but on the basis of those conditions, distinguished it from Williamson v Rider.  Ormerod LJ said at 128 to 130:

“… The view taken by Danckwerts L.J. in his judgment was, I think, that he was attracted by the submission made by counsel for the plaintiffs that the words “on or before 31st December 1956” meant that the fixed date for payment was December 31, 1956, and the words “on or before” meant nothing more than that the promisor had an option to pay on some earlier date, if he so wished, but there was no compulsion on him.  He cited the words (and I do not propose to repeat them) of Evershed J. in Dagger v. Shepherd, when he dealt with the phrase which is the phrase in controversy in this case.  It is true, as Danckwerts L.J. has said, that Dagger v. Shepherd is a case dealing with a very different subject-matter.  It was an appeal arising out of a notice to quit. None the less, the words were the same.  The words of Evershed J. purport to do nothing more than to state the views of the court as to the meaning of this particular phrase; and, for my part, I do not hesitate to adopt that meaning and hold the view that the term “on or before” means that there is a fixed date for payment (that is December 31, 1956, in this case), that the promisor binds himself to pay on that date, and if he fails can be sued under his promissory note, but if he chooses to pay - and it is purely a matter for him - at an earlier date than December 31, 1956, then the holder of the bill is under an obligation to accept that payment.  That is the meaning, as I see it, and that is I think the meaning that Evershed J. had in mind in Dagger v. Shepherd. That, indeed, I think, is the construction that appealed to Danckwerts L.J. when he was considering his judgment in this case, but he was influenced by the views expressed by the court in Crouch v. Credit Foncier of England.

There was an option or some alternative mode of payment expressed in the Crouch case in the document in question and it could not be treated as a bill of exchange within the meaning of the Bills of Exchange Act.  It is necessary, I think, to look at the document which was in question in that case, which was issued by a company and was called a debenture, although that, so far as I know, may not matter one way or the other. The question arose, which is irrelevant in this particular connection, whether in the circumstances of that case a limited company could give an effective bill of exchange; but, leaving that question aside, the document said this: “The company hereby promise, subject to the conditions indorsed on this debenture, to pay to the bearer ￡100 on the 1st May, 1872” - then these are the crucial words – “or upon any earlier day upon which this bond shall be entitled to be paid off according to the conditions,” and so on.  The condition was indorsed on the back of the debenture; and a reading of those conditions makes it clear that periodically draws were to be made and the ones whose debentures or bonds were fortunate enough to come up were entitled to have them paid at once and not to wait until May 1, 1872.  It is to be noticed that if the holder of the bond was sufficiently fortunate to hold one the number of which turned up in the draw, then he was entitled to have his money back at a much earlier date than he would have if he were not so fortunate.

It was said, in those circumstances, that the document could not be a bill of exchange because it imported an element of uncertainty about the payment of the money.  It appears to me that there is a very clear distinction between that case and the case we have to consider.  It may be that in the present case the money which is payable on December 31, 1956, may be paid at an earlier date if the promisor chooses to pay it; but he is under no obligation to pay it.  He cannot be sued in respect of it; and, if he chooses to do nothing, nothing can happen until the date fixed for payment, which is December 31.  That appears to me to be entirely different from the circumstances in the Crouch case,where there was a legal obligation on the part of the company to pay the money at an earlier date if the particular condition referred to was fulfilled.  That, to my mind, constitutes an essential difference in principle between the two cases, the case of Crouch¹⁹ and the case which we are considering, and I fail to see in Crouch any authority for the question which is now before this court.”

Ormerod LJ regarded the periodical draws which the company was contractually obliged to make under the debenture an important and distinguishing feature.  Once drawn, the fortunate holder was entitled to immediate payment without having to wait until the fixed date.  That was a contingency.  If that contingency occurred, the fortunate holder was entitled to demand payment and sue the company if the company refused to pay.  There was no such contingency in Dagger v Shepherd or in Williamson v Rider. Ormerod LJ held that in those two cases, it was all a matter for the promisor if he chose to pay at an earlier date.  He could not be sued or compelled to pay for not choosing to pay any earlier.  In my view, that was a valid distinguishing feature which Danckwerts and Willmer LJJ obviously had not considered at all.

20.  Ormerod LJ also had a critical review of Alexander v Thomas relied on by Willmer LJ.  That was a case of a bill of exchange and not promissory note.  In that case the bill was “payable 90 days after sight or when realised”.  The phrase “on or before” was not actually used.  Lord Campbell found that the phrase “when realised” was an archaic expression used 111 years before meaning when the drawee of the bill had funds        to pay.  It must be based on that understanding of the phrase that Lord Campbell held that constituted a contingency which rendered the date of payment uncertain.  Ormerod LJ also agreed with that construction but distinguished Alexander v Thomas on the basis that that phrase created     an uncertainty and a duty on the holder of the bill to watch for the day       of payment in order that the bill could be properly presented, whereas      the phrase “on or before” was unambiguous.  He further distinguished Alexander v Thomas from Williamson v Rider in that it was a case of a    bill of exchange such that the uncertainty may result in the holder of the  bill loosing his rights as a holder in due course and in the drawee being discharged.  Ormerod LJ said at 130:

“Willmer L.J. in the course of his judgment, referred to Alexander v. Thomas (1851) 16 Q.B. 333 and found some authority in the judgment of Lord Campbell.  It is to be borne in mind in the first place that that was a case not of a promissory note but of a bill of exchange and that the terms of the bill were “payable 90 days after sight or when realised.”  I am bound to say that when I read that case I had no idea what the words “or when realised” might mean, but in the course of the argument counsel stated that it was obvious that the meaning of those words was that the bill had to be paid when the drawer of the bill had the money to do it.  That may have been obvious in 1851.  It was certainly not obvious to me in 1962.  The court decided in that case that the document in question was not a promissory note because of the element of uncertainty and that in the circumstances judgment must be arrested.  This was, of course, before the days of the Bills of Exchange Act and these questions then had to be decided according to what was described by Lord Campbell as “the custom of merchants”; but I think it is right to say that substantially the Bills of Exchange Act, 1882 (and indeed the Sale of Goods Act, 1893), is a codification of the principles of the custom of merchants which was the foundation of our law on matters of this kind. Lord Campbell said at 335:

“If we could reject the words ‘or when realised’ as insensible, the bill would, certainly, be unexceptionable. But a reasonable meaning has already been ascribed to them, viz. ‘or when you are in funds for the purpose.’ I do not see why this alternative is to be taken as limited to the term before the expiration of the 90 days rather than after. I should say the meaning is that the bill is to be paid at the end of 90 days if the drawee should be then in funds, if not, that it shall be payable afterwards.”

But then this I think is the part of the judgment to which importance is attached:

“Even, however, if the other is the right meaning, namely, that the bill is payable sooner if the drawee should be sooner in funds, and, if not, at the end of 90 days at all events, I think this would not be a good bill; for the holder would have to watch and ascertain the precise time when the bill should become payable, and, if he failed in doing this and in duly presenting it, the drawer would be discharged.”

Here again is a distinction. In Alexander v. Thomas the document was a bill of exchange and not a promissory note and was expressed to be payable on a certain date “or when realised,” and the construction which appears to be put on those words by common consent was the construction that if the drawer of the bill was in funds, then even if the date for payment had not arrived there was the liability to pay the money under the bill, and that made the date for payment uncertain.  With that I most certainly agree.  But that is not the case here.  The case here is that there is no obligation on the promisor to pay the money until December 31, 1956, although, if he wishes, he may pay it earlier.

The further distinction which we have to consider, I think, is this, that in arriving at the view which he did in that case Lord Campbell was clearly influenced by the fact that as the date of payment might fall on some other day than the day stated in the bill of exchange, there would be a duty on the holder of the bill to watch for the day of payment in order that the bill could be properly presented, as, if it were not and he allowed the time to go by after the bill had fallen due for payment, clearly he would lose his rights as a holder in due course.  That again is not the position here; and, as I see it, there is a valid distinction between that case and the case which we are considering.”

Having distinguished Alexander v Thomas and having regard to the facts of Williamson v Rider, Ormerod LJ came to the view that the phrase “on or before,” created no uncertainty as to the date of payment under the document in issue and reached the conclusion that it was a promissory note within the meaning of section 83 of the Bills of Exchange Act.

21.  Williamson v Rider was followed by the English Court of Appeal in Claydon v Bradley. It appeared from the judgment that the Court of Appeal did so reluctantly as a matter of precedent.  Dillon LJ referred sympathetically to the dissenting judgment of Ormerod LJ and said at 525:

“In the present case the time for payment was bound to arrive; the money was payable on 1 July 1983 if it had not been repaid, at the option of the payer, before. Nonetheless, we are bound by the decision of the majority in Williamson v Rider.”

22.  The majority decision in Williamson v Rider was criticised by Byles on Bills of Exchange and Cheques (28^th Ed) at §2-019 and by Chalmers and Guest on Bills of Exchange, Cheques and Promissory Notes (17^th Ed) at §2-085.  The learned authors submitted that the dissenting view of Ormerod LJ was to be preferred.  Indeed the dissenting judgment of Ormerod LJ has been followed by courts in both Canada and Ireland.

23.  In Hong Kong, Barnett J also preferred the dissenting judgment of Ormerod LJ in Chevalier (E&M Contracting) Ltd v Rotegear Development Ltd & Ors.  In that case, the first defendant failed to make several monthly payments to the plaintiff subcontractor.  The parties then entered into a settlement agreement under which the first defendant would pay the outstanding sum by six instalments.  In addition, the second to   fifth defendants, who were directors of the first defendant, entered into       a guarantee under which they undertook to pay any sum under the settlement agreement should the first defendant default in payment.  The first defendant defaulted under the settlement agreement.  The plaintiffs obtained summary judgment from a master against the fifth defendant under the then Order 14 of the Rules of the Supreme Court.  On appeal before Barnett J, one of the defences relied on by the fifth defendant was    a claim of set-off.  In answer to that defence, the plaintiff argued that       the settlement agreement, being an unconditional promise in writing to   pay on demand or at a fixed or determinable future time a sum certain in money to the order of a specified person or the bearer, was a promissory note, such that the defence of set-off was not available.  In construing the meaning of the phrase “on or before”, Barnett J preferred the dissenting judgment of Ormerod LJ and found that it meant a fixed or determinable future time.  He said at 462:

“Persuasive though decisions of the English Court of Appeal are, I would have no hesitation in following the alternative course. Where words ‘on or before’ are used in a bill or promissory note, I find it difficult to see how it can be said that there is not a fixed or determinable future time. There is a specified date at which, if payment has not been made, the holder can sue the promisor. I have no hesitation in rejecting this limb of Mr. Shieh’s argument. If the matter rested there, I would equally have no hesitation in saying that the agreement constitutes a promissory note.”

However, for other reasons, Barnett J held that the fifth defendant had shown an arguable case that the settlement agreement was not a promissory note and allowed the appeal.  Thus, the above dictum was obiter.

24.  I am not aware of any Hong Kong Court of Appeal decisions on the construction of this phase.  Decisions of the English Court of Appeal are highly persuasive authorities, but are not binding on me.  I shall, of course, take its decisions seriously and shall follow it unless a departure is fully justified on well established legal principles.    

25.  For my part, on a plain reading of the documents in which that phrase appeared in the three authorities referred to above, I find it difficult to give that phrase any meaning other than that ascribed to it by Evershed J in Dagger v Shepherd at 228:

“The use of the phrase ‘on or before’ some fixed date is today by no means uncommon, particularly in covenants or demands for payment of money, and in such a context it cannot, in our judgment, be open to serious doubt that it means, and would be understood to mean, that the convenantor or debtor is under obligation to pay the debt on (but not earlier than) the date fixed but has the option of discharging it at any earlier time selected by him: see per Parker J. in In re Tewkesbury Gas. Co.”

In my view, the meaning which this phrase conveys to a reasonable    reader is that the date of payment is fixed but the covenantor has an option to pay before that day.  The covenantor is free but not obligated to pay or not to pay earlier.  He cannot be compelled to pay earlier or sued for not doing so.  If he chooses to pay, the holder of the bill is obliged to accept payment.  But, it is all a matter of the covenantor’s choice until the fixed date when his obligation to pay crystallises if he has not yet paid.  That   has always been the way the phrase was used and understood by the commercial community and by the ordinary public.  Nowhere in the judgment in Williamson v Rider, did Danckwerts or Willmer LJJ ever     say that the holder of the bill was entitled to present the bill and demand payment on any earlier date which could have created an uncertainty.  If, on established legal principles, the bill holder was so entitled, I would respectively agree with that decision.  The bill holder could only do so on the fixed date.  Any payment made before that date was but a fortuitous event and not a payment which the bill holder could demand or enforce     as of right. This demonstrates clearly that the bill in which such a phrase  is used is payable only on a fixed date in future, though if the covenantor  so chooses, he is entitled to pay earlier.  But that entitlement is besides    the point. If the bill is payable on any earlier date, meaning a legally enforceable obligation to pay earlier, it would become payable on demand and would therefore qualify as a promissory note.  This demonstrates the fallacy of construction adopted by the majority in Williamson v Rider.  The construction given by Evershed J and adopted by Ormerod LJ is the      only reasonable construction that could be given to the phrase whether in the context of a notice to quit or demand for payment.  It creates no uncertainty.  I respectfully agree with that construction.

26.  It is true, as Danckwerts LJ said, that the construction in Dagger v Shepherd arose out of a notice to quit which is a very different subject matter from a promissory note; but the phrases in the two documents are identical.  There is no reason to give the phrase any other meaning if used in a promissory note.  This is particularly so from a genesis point of view because what Evershed J did was to import the meaning of that phrase as used in documents relating to demands for payment of money into a notice to quit.  That phrase could not have lost its ordinary meaning once it was used in a notice to quit.  Why the phrase could not retain its original meaning upon being repatriated to the type of document in which it was originally used is beyond me.  I find myself in respectful disagreement with Danckwerts and Willmer LJJ.

27.  I respectfully agree with the distinctions drawn by Ormerod LJ between Williamson v Rider on the one hand and Crouch v Credit    Foncier of England Ltd and Alexander v Thomas on the other. In Crouch v Credit Foncier of England Ltd, the drawee of the bill of exchange was contractually obliged to make periodical draws.  Once the holder was drawn, the legal obligation to pay arose.  The payment was not made at  will. The fixed date and the obligation to pay were advanced.  Under such circumstances, the promise to pay could not be said to be on a fixed date.  The fact that the holder would be drawn is a contingency which may or may not happen.  This contingency rendered the date of payment uncertain.  In Williamson v Rider, there is only one fixed date of payment.  The fact that the covenantor was free, but not obligated, to pay earlier does not change that fixed date of payment, except that if he had chosen to pay, there would be nothing to pay on the fixed date of payment and the obligation to pay had been discharged. 

28.  The distinction in Alexander v Thomas is even more blatant.  In that case, the phrase “on or before” a fixed date was not used.  The bill was payable on the fixed date or when the drawee was in funds.  That phrase was capable of two constructions as suggested by Lord Campbell.  Firstly, it could mean the bill was payable on the fixed date or sooner if   the drawee was sooner in funds.  As Lord Campbell observed, this would not be a good bill for the holder would have to watch and ascertain the precise time when the bill should become payable, and if he failed in   doing this and in duly presenting it, the drawer would be discharged.  That rendered the date of payment uncertain.  Secondly, the phrase could mean the bill was payable on the fixed date if the drawee should be then in funds, if not, it was payable thereafter when the drawee was in funds.  That date might never arise. That contingency also rendered the date of payment uncertain.  On either construction, the contingency would render the bill bad for uncertainty: see Lord Campbell’s dicta as quoted by Ormerod LJ   in paragraph 20 above.  That was the result of construction of an entirely different phrase.  Another important distinction is that that was a case on bill of exchange to which special rules for the protection of the holder       in due course and the drawer apply.  As Ormerod LJ said, there was no uncertainty about the date of payment in the phrase “on or before”.  The bill was payable on the date fixed. There was no obligation to pay until that date, although, if the covenantor wished, he was entitled to pay it     earlier.  Even if the covenantor wished to pay earlier, if he could not actually effect payment to the holder of the bill, the bill remained payable on the date fixed.  The problem of uncertainty as raised by Lord Campbell in Alexander v Thomas would never arise if the phrase “on or before”     was used.  In my view, Dagger v Shepherd rather than Crouch v Credit Foncier of England Ltd is the relevant authority to refer to for the construction of the phrase “on or before”.

29.  Williamson v Rider was criticised by academics.  It was not followed in Canada and Ireland.  Like Barnett J, I would follow the dissenting judgment of Ormerod LJ in Williamson v Rider in the construction of the phrase “on or before”. 

30.  Turning to the construction of the Note, condition 1 provided that the outstanding principal amount of the Note shall be redeemed, subject to and in accordance with the Terms and Conditions of the Note, on Maturity Date which was defined to be 30 April 2011.  On the face, the Note was payable on a date certain in future.  Condition 4.1 provided for the manner of redemption on the Maturity Date, which was by presenting the original of the Note to the Defendant at its address specified in condition 8.  Condition 4.2 provided that the Defendant shall have the   right to redeem all or any part of the outstanding principal amount of the Note by giving written notice of not less than seven banking days to the Plaintiff.  It is this condition which Mr Manzoni relied on for his    argument that the Note was not payable on a fixed date, but on or before the fixed date.

31.  With respect, there is a world of difference between conditions 4.1 and 4.2 put together and a simple phrase that money is payable on or before a fixed date.  Even if the phrase “on or before the Maturity Date” were actually used in the Note, for reasons as explained above. I would hold that it could only have the meaning ascribed to it by Evershed J         in Dagger v Shepherd, that is, the Note was payable on the Maturity Date and if the Defendant so chose he was entitled pay at an earlier date but   was under no legal obligation to do so.  There was no uncertainty that the date of payment was the Maturity Date. 

32.  On the construction of the Note, condition 4.1 made it clear that the Note was payable at a fixed time in future, ie, the Maturity Date.  Condition 4.2 only gave the Defendant the option to pay earlier by giving not less than seven days’ notice.  It did nothing to improve the Plaintiff’s right under the Note and did not give the Plaintiff any entitlement to be paid earlier.  Nor did it create any obligation on the part of the Defendant  to make earlier payment.  The Defendant could not be compelled to exercise the option under condition 4.2.  It was all a matter for the Defendant if it should choose to pay at an earlier date.  Notwithstanding condition 4.2, the date of payment was fixed.  There was no uncertainty.  This is the construction I would give to the Note.  I conclude that on the true condition of conditions 1 to 4 there was no uncertainly as to the date of payment which was the Maturity Date as defined in the Terms and Conditions of the Note and the Note qualified as a promissory note

33.  Mr Manzoni advances some other arguments which I consider have no bearing on the issue.  He argues that the term due date is distinguishable from the Maturity Date but was not defined in the Note.   He is certainly right.  That term is found in condition 3.1.  It referred to payment of the principal and interest.  Insofar payment of principal was concerned, it must mean presentation on the Maturity Date in accordance with conditions 3 and 4.  Insofar as payment of interest was concerned,   the due dates were stated in condition 2.1 which provided that interest shall be payable in arrears quarterly on 31 March, 30 June, 30 September and        31 December of each year. Nothing really arises out of the definition of due date.

34.  Next, Mr Manzoni argues that the demand for payment of interest was not made in accordance with condition 3 by presenting the Note to the Defendant at its address specified in condition 8, which was    an address at Vanta Industrial Centre in Kwai Chung.  The demand was instead served on the Defendant’s business address at Convention Centre  in Hong Kong.  Again, this departure has no bearing on the Plaintiff’s application for summary judgment.  Condition 8 applied to presentation    of the Note for payment of the outstanding principal amount only, ie, for redemption purpose, and not to demand for payment of interest.  Had the Defendant not been in default, the interest would have been paid to the Plaintiff’s bank account notified under condition 3.1.  As for the Plaintiff’s failure to present the Note for payment of interest, the Note had already been surrendered to the Defendant in accordance with condition 4 upon redemption of the principal amount.  In any event, presentation of the Note was not a requirement for demanding payment of interest.  The Plaintiff’s inability to present the Note and failure in making a demand for payment  of interest at the Defendant’s specified address is neither here nor there.

35.  Accordingly, I conclude that the Note was a valid promissory note within the meaning of section 89(1) of the Bills of Exchange Ordinance.

Conclusion

36.  Having found the Note was a valid promissory note, it must necessarily follow that the defence raised by the Defendant does not constitute arguable defence.  Master R Lai was right in entering summary judgment against the Defendant.  Accordingly, the Defendant’s appeal is dismissed with costs to the Plaintiff with certificate for two counsel.  Such costs are to be taxed, if not agreed.