YU YING MING v. NG WAH HUNG

DCCJ 3141/2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3141 OF 2015

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DECISION

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1.  This is an appeal by the defendant against the decision and order of Master David Cheung given on 6 January 2016, that Judgment be entered for the plaintiff against the defendant and that the defendant do pay HK$200,000 with interest thereon.

Background

Plaintiff’s case

2.  The plaintiff is the registered owner of G/F, 1/F, 2/F and roof of 21A, Tseng Lan Shue, Lot No 270 in DD 226, Sai Kung, New Territories, Hong Kong (the “Property”).

3.  The Property was subject to a tenancy agreement but the landlord stated on the tenancy agreement was not the plaintiff but one Yu Lun Chuen.

4.  There is a provisional agreement for the sale and purchase of the Property dated 28 May 2015 between the plaintiff as vendor and the defendant as the purchaser, whereby it was agreed that the Property be sold at HK$4,300,000 (the “Provisional Agreement”).  The initial deposit is specified to be HK$200,000 and a further deposit is specified to be HK$230,000.

5.  Pursuant to Clause 7 of the Provisional Agreement, the plaintiff is entitled to forfeit the initial deposit should the defendant fail to complete the sale and purchase.

6.  A cheque dated 24 May 2015 for HK$200,000 was given to the plaintiff (the “Cheque”).  The plaintiff presented the Cheque for payment on 29 May 2015 but it was dishonoured.

7.  The plaintiff contends in the statement of claim that the defendant is in breach of Clause 7 of the Provisional Agreement as the Cheque was dishonoured and the initial deposit stipulated in the Provisional Agreement should be forfeited.

Defendant’s case

8.  The defendant only admits the Cheque was issued by him for the intended purchase of the Property.  However, he says that he handed the Cheque over to the estate agent on 24 May 2015 with the express instruction that the Cheque and the Provisional Agreement could only be handed over upon confirmation that the plaintiff had authorized Yu Lun Chuen to enter into the tenancy agreement.

9.  On 28 May 2015, the defendant was told upon enquiry that despite there being no written confirmation on the authority of Yu Lun Cheun to enter into the tenancy agreement, the agent had handed both the Provisional Agreement and the Cheque over to the plaintiff.

10.  The defendant then instructed his bank to stop payment of the Cheque, pending the said written confirmation.  He had requested the agent to obtain the written confirmation and if it was in order, he would issue a replacement cheque.

11.  No further reply was given by the agent and no notice was given by the agent or the plaintiff about the Cheque. There was no communication in relation to the execution of a formal agreement for sale and purchase of the property.

12.  The defendant assumed that the plaintiff had decided not to proceed with the sale and purchase of the property.  The rescission was accepted by the defendant.

Preliminary Issue: leave to appeal out of time

13.  The defendant’s notice of appeal was 15 days late.  He seeks leave to appeal out of time.  He sought to rely on his deteriorating health as an excuse for the delay and claims that he suffered a stroke on 9 February 2016 and was hospitalized for 5 days.

14.  In considering whether to extend time to appeal, the court has to consider all relevant factors, particularly: (a) the length of the delay; (b) the reasons for the delay; (c) the merits of the proposed appeal; and (d) the degree of prejudice to the other party (see Postwell Ltd at p 363 and Menno Leendert Vos v Global Fair Industrial Ltd & Others HCMP 796/2010, Cheung and Kwan JJA (unreported, 21 June 2010) at para 16).

15.  In Postwell Ltd v Cheng Kap Sang [2004] 2 HKLRD 355, 364, DHCJ Wong Yan Lung SC stated that:-

“…… Although I agree with Hartmann J that the absence of an acceptable explanation for the delay does not preclude the court's discretion to extend time, I am of the view that in applications for extension of time to appeal an adverse order or adjudication, as opposed to extension of time to remedy other procedural default, the court should be slow to accede to the application in the absence of an acceptable reason for the delay.”

16.  DHCJ Peter Ng SC (as he then was) in Hady v Bazar [2012] 3HKLRD 29, 41 reminded that in the post Civil Justice Reform era, it is incumbent on the court to give effect to the underlying objectives of the RHC when exercising any of its powers (see Order 1A rules 1 and 2 of the RHC), but the court must always recognise that the primary aim in exercising the powers of the court is to secure the just resolution of disputes in accordance with the substantive rights of the parties (see Order 1A rule 2(2) of the RHC) .

17.  I note that the defendant has failed to put in evidence in support of his ill health and that he was all along legally represented.  The defendant has undertaken to file the evidence within 7 days of the day of the hearing.  Mr Wong for the plaintiff pointed out that even with the evidence, the period of hospitalization shown is after the notice of appeal was filed and in any case it should have been easy for the solicitors to obtain instructions and file a notice of appeal within time. 

18.  However, in view of the fact that:-

(i) the delay of 14 days is not lengthy,

(ii) there is no grave prejudice caused to the plaintiff other than the fact that his entitlement to the hearing and the outcome of the appeal is delayed by two weeks and

(iii) there is no suggestion that the plaintiff disputes the defendant’s ill health generally,

I would grant leave to for the defendant to appeal out of time.

The Law: Order 14

19.  The principles governing an application for summary judgment are trite.  Once the plaintiff satisfies the preliminary requirements of the procedure, the burden is on the defendant to satisfy the court as to why judgment should not be entered against him.  To do so, the defendant must show that there are triable issues or that there ought for some other reason to be a trial of the claim: Hong Kong Civil Procedure 2016 at 14/4/1.

20.  In determining whether there is a triable issue, the approach is twofold.  First, factually, is what the defendant says believable?  Secondly, as a matter of law, even if what it says is believable, does what it says amount to an arguable defence in law?  See, eg, Schindler Lifts Hong Kong Ltd v Ocean Joy Investments Ltd [2003] 1 HKC 438 at §10 per Ma J (as he then was).

21.  On the first question, it is not appropriate to embark on a mini-trial of the action on affidavit evidence.  The court simply asks itself whether what the defendant says is credible.  As Godfrey JA put it in Ng Shou Chun v Hung Chun San [1994] 1 HKC 155 at 158: “The issue is not whether the defendant's assertions are to be believed; it is whether those assertions are believable”.

22.  The court will not take the alleged defence on its face value but test it against the evidence disclosed, including contemporaneous documents, whether the alleged defence is inconsistent with the defence previously put forward or whether the defence is only recently raised despite opportunity being given to the defendant to respond earlier.  The court will also consider the inherent probability of the defence: see Paul Y. Management Ltd v Eternal Unity Development Ltd CACV 16/2008, 12 August 2008 at §19 per Cheung JA.

Preliminary – plaintiff’s pleaded case

23.  From his skeleton and list of authorities, Mr Wong for the plaintiff places his emphasis on the Cheque being dishonoured and cases and legal principles on dishonoured cheques were cited. However, Mr Ng for the defendant challenges that the Statement of Claim was not pleaded on that basis.  Mr Ng says that the plaintiff’s claim is based on the alleged breach by the defendant of the Provisional Agreement by failing to pay the initial deposit. 

24.  Mr Wong says that there is no specific pleading requirement under Order 18 Rule 12 in relation to a dishonoured cheque action.  Mr Wong submits that all the necessary particulars have been pleaded in paragraph 6 of the statement of claim, namely, that the Cheque was dishonoured upon presentation and that the defendant had been given notice of dishonor or that such notice was dispensed with under section 50(2)(c)(v) of the bills of Exchange Ordinance (Cap.19)

25.  I have asked Mr Ng to provide me with authorities on what are the pleading requirements for a dishonoured cheque action and what other elements is missing from the statement of claim.  Mr Ng has not submitted any authority but says that there should be an alternative claim pleaded.

26.  After setting out the particulars of the parties and the Provisional Agreement, the relevant part of the statement of claim reads:-

“6.   The Cheque was dishonoured upon presentation for payment on 29 May 2015 and the cause of the dishonor were “Refer to Drawer” whereof the Defendant had been given due notices of such dishonor of the Cheque.  Alternatively, notice of such dishonor are dispensed with by virtue of Section 50(2)(c)(v) of the Bills of Exchange Ordinance, Cap.19.  Therefore, the Defendant has been in breach of Clause 7 of the PASP and the initial deposit in the sum of HK$200,000 shall be forfeited.

7.   The Plaintiff will refer to the full terms and effect of the PASP at the trial of this action.

8.   By a letter dated 5^th June 2015, the Plaintiff through its solicitors, Messrs. Wong, Fung & Co., demanded the Defendant payment of the forfeited initial deposit in the sum of HK$200,000 mentioned in paragraph 6 hereinabove.

9.   Despite repeated demands and requests and the said letter, the Defendant has failed and/or refused, and is still failing and/or refusing at the date hereof, to settle the said sum of HK$200,000 or any part thereof.

…

AND the Plaintiff claims against the Defendant: -

(a)  The sum of HK$200,000;

(b)  Interest as aforesaid;

(c)  Costs of this action

     …” (emphasis added)

27.  Based on the above pleading and since no authority is submitted on any missing element of a “dishonoured cheque action”, I am of the view that the plaintiff has made a claim based on the Cheque.  Reference was made to a demand of payment of the sum of HK$200,000 mentioned in paragraph 6 hereinabove (ie details of the Cheque being dishonoured). Since paragraph 6 has already spelt out the fact that the Cheque was dishonoured, I do not agree that the plaintiff is precluded from proceeding on the basis of a claim on the dishonoured Cheque.

28.  In any event, regardless of the defendant’s complaint on the statement of claim, Mr Ng proceeded with his submissions to deal with both the plaintiff’s claim under a dishonoured cheque action as well as a claim under breach of the Provisional Agreement.  As such the hearing proceeded on this basis and arguments were heard on both limbs of the plaintiff’s claim. 

Defence

29.  It is up to the defendant to show a triable issue.  Essentially the defendant’s case is that given his oral instructions to his agent (which is to hold the agreement and the Cheque pending the confirmation of the authority of the landlord of the existing lease of the Property), the agent should not have handed over the Provisional Agreement as well as the Cheque to the plaintiff.  As such there is in fact no agreement between the plaintiff and the defendant.

30.  Based on the evidence of the defendant and Mr Ng’s submissions, I understand the defence to be that:-

(i) Delivery of the Cheque was conditional and not for the purpose of transferring the property in the bill. Accordingly the Cheque was not operative nor legally binding as the "agreed condition" was not fulfilled.

(ii) Total failure of consideration.

31.  According to the defendant, the Cheque was handed over to the agent on or about 24 May 2015 and it was orally agreed at the time that the agent would obtain confirmation from the plaintiff on the tenancy agreement before handing over the signed Provisional Agreement and the Cheque.  On that basis, it was submitted that the Cheque itself did not show all the terms of the agreement and oral evidence was admissible to establish all its terms.

32.  These facts are similar to that of Savills (Hong Kong) Ltd v Kit Wang Group (China) Ltd (HCA 1779/2014, unrep, 24 August 2015) where according to the defendant in that case, the cheque was handed over and it was orally agreed at the time that the defendant would settle the invoice only upon full compliance by the plaintiff with the terms of the oral agreement.  On that basis, it was submitted that the cheque itself did not show all the terms of the agreement and oral evidence was admissible to establish all its terms.

33.  To that argument, Deputy Judge LePichon says:-

“30. It is well settled that since contracts of the parties to a bill or note must be in writing, extrinsic evidence is in principle excluded by the operation of the parol evidence rule. To admit extrinsic evidence "would undermine the certainty and finality which ought to attach to each party's promise on the instrument": see Chalmers and Guest on Bills of Exchange and Cheques, 17th Edn, at §2-155.

31. What the defendant is seeking to do is to qualify its absolute undertaking on the cheque by adducing evidence of the alleged contemporaneous oral agreement in defeasance of that undertaking. In such cases, parol evidence is inadmissible: see for example Lam Tai Kwan v Lo Wai Kit [2007] 1 HKLRD367at §§10-11 where the rule and its rationale were considered.”

34.  Mr. Wong for the plaintiff further relies on the Court of Appeal case of Lam Tai Kwan v Lo Wai Kit [2007] 1 HKLRD 367 at §§10-11:-

“It is trite law that a cheque is an unconditional order in writing, addressed by a person to his banker, signed by the person giving it, requiring the banker to whom it is addressed to pay on demand a sum certain in money to or to the order of a specified person, or to bearer. As a written contract, it is subject to the parol evidence rule the effect of which is to bind a party to his contract as written on the instrument. Extrinsic evidence is, in general, inadmissible to prove that the terms of the contract differed from those expressed in writing on the cheque. Thus whilst parol evidence is admissible to prove a contemporaneous oral agreement that the contract was not to become operative except upon the fulfilment of a condition, such evidence if it be evidence in defeasance of a party's liability on the bill is inadmissible. As Mills-Owens.J explained in Great Sincere Trading Co Ltd v Swee Hong & Co [1968] HKLR.660 at p.665:

If the existence of the written contract has to be conceded, as it must on the giving of a cheque, oral evidence is inadmissible to vary or contradict its terms. It may be said that what the defendants seek to allege is a contemporaneous oral agreement showing that what purported to be a complete contract, the cheque, never came into operative existence (Chalmer's (13th.ed.) p.57). In my view, that is not the proper interpretation to be placed upon the alleged oral arrangement, which, as I see it, sought to qualify the order for payment, to qualify the tenor of the instrument, to operate in defeasance of it, not to suspend the contract embodied in it.

Great Sincere Trading Co Ltd v Swee Hong & Co [1968]HKLR660 as well as leading English authorities such as New London Credit Syndicate Ltd v Neale [1898] 2.QB.487 at pp.490, 491 were cited with approval in Suen Ho Sun v Kamenar International Ltd [1989] 1.HKC 135 at p.138H where Hunter.JA unreservedly endorsed the general principle that attempts to rely on a contemporaneous oral agreement to alter the terms of payment "are quite inconsistent with the written instrument and are not admissible in evidence". As noted in Chalmers and Guest on Bills of Exchange, Cheques and Promissory Notes (16th. ed., 2005) (at para.2-155):

Most cases where the parole evidence rule has been applied are cases where a party to a bill or note has sought to qualify his absolute undertaking on the instrument by producing evidence of a contemporaneous oral agreement in defeasance of that undertaking, that is to say, that his liability is to be enforceable against him only in certain contingencies or that it is to be postponed to a time later *372 than that expressed on the face of the instrument. Since the effect of such evidence would be to contradict the terms of the instrument, it is inadmissible.” (emphasis added)

35.  It must be borne in mind that the plaintiff’s cause of action arises both out of the Cheque as well as the Provisional Agreement.  Whilst it may be suggested that evidence concerning the existence of the Provisional Agreement might be admissible, it is a different case where it concerns a cheque.

36.  Mr Ng seeks to distinguish the Lam Tai Kwan case and submits that the comment of Mills-Owen J quoted in the case of Lam Tai Kwan only relates to where the underlying contract is not disputed:

“If the existence of the written contract has to be conceded, as it must on the giving of a cheque, oral evidence is inadmissible to vary or contradict its terms.”

37.  He submits that where the underlying contract is disputed, as is in the present case, oral evidence is admissible as to the circumstances surrounding the presentation of the Cheque. With respect, I do not agree with that reading.  I am of the view that when Mills-Owen J. referred to “the written contract”, he was referring to the bill or Cheque, rather than the underlying contract.  This reading is also consistent with his comments thereafter:

“attempts to rely on a contemporaneous oral agreement to alter the terms of payment "are quite inconsistent with the written instrument and are not admissible in evidence". …

Most cases where the parole evidence rule has been applied are cases where a party to a bill or note has sought to qualify his absolute undertaking on the instrument by producing evidence of a contemporaneous oral agreement in defeasance of that undertaking, that is to say, that his liability is to be enforceable against him only in certain contingencies or that it is to be postponed to a time later than that expressed on the face of the instrument. Since the effect of such evidence would be to contradict the terms of the instrument, it is inadmissible.”

38.  Recorder Yuen SC in Phoneyork Co Ltd v Chesson International (Holdings) Ltd & Another HCA 2192/2007, unreported, 28 May 2012 ruled in favour of the admissibility of extrinsic evidence in defence to a claim based on dishonoured cheque.  However, Phoneyork is an "unusual case".  While the cheque in Phoneyork was given by the defendant upon the signing of an undated sale and purchase agreement, there was a contemporaneous explanatory memorandum dated 29 September 2007 signed by Mr Choi of the third-party the estate agent acting for the defendant and by the secretary of Mr Kai, the defendant's owner who were present to the effect, inter alia, that the cheque was only to be used and valid for the sale of the building identified in the sale and purchase agreement at the asking price and would not be passed to the plaintiff until Mr Kai had had a chance to meet with the plaintiff to discuss the price and if the transaction were not successful after 30 days the cheque was to be returned.  Further, at Mr Kai's request made several days later, his estate agent made an endorsement on the back of the cheque to similar effect.”

39.  Here, there is no such contemporaneous written note as in the case of Phoneyork .  The Provisional Agreement explicitly and specifically provided for the payment of the initial deposit to be HK$200,000.

40.  Mr. Ng draws the distinction between evidence as to the “condition of delivery” of the cheque (which is admissible) as opposed to the “condition of presentation” of the cheque (which is inadmissible).  By this, I understand him to be referring to the distinction drawn in Chalmers and Guest:-

“Instances of where a cheque is considered not to become operative except upon the fulfilment of a condition, include where a cheque was delivered in escrow or where it was delivered conditionally as collateral security, it being agreed that it would become operative only in the event of default.” see Chalmers and Guest on Bills of Exchange, Cheques and Promissory Notes (17th edition) at §2-152.

41.  It has been acknowledged that in practice, it can be difficult to distinguish the two types of situations, ie, where the cheque was not operative until the satisfaction of a condition (in which case oral evidence of the condition is admissible) and where the cheque was delivered operatively but subject to an oral agreement in defeasance of the drawer's liability on the cheque (in which case oral evidence to qualify the terms of the cheque is inadmissible): see Chalmers and Guest at §2-153.

42.  Each case has to be decided on its own facts.  The effect of the defendant’s version of events as set out in the Defence is:-

“7(4) On or about 24^th May 2015, the Defendant met with the Agent. He checked through the PASP completed by the Agent (but with the date left blank) and other documents obtained from the Agent. The Defendant noticed that the name of the vendor in the PASP was “YU YING MING” but the name of the landlord on a stamp certificate on a lease agreement on the Property was “YU LUN CHUEN”. He inquired the Agent, and was informed that the said YU LUN CHUEN was authorized in writing by the owner of the Property to sign the lease agreement. The Defendant, on the advice of the Agent, signed the PASP and left it, together with the Cheque for payment of the initial deposit, with the Agent. He gave the specific instruction that the Agent would need to obtain and check the written authorization of YU LUN CHUEN on or before 28^th May before passing the PASP and the Cheque to the Plainitiff.” (emphasis added)

43.  In the circumstances, I am of the view that on the defendant’s own case, the Cheque was delivered by him to the agent (to be passed to the plaintiff) operatively but subject to the event that the plaintiff has not given authority for YU LUN CHUEN to enter into the tenancy agreement.  As such, the Cheque must be treated as having been delivered to the plaintiff operatively but subject to an oral agreement in defeasance of the drawer’s liability on the Cheque.

44.  I am therefore of the view that the oral evidence provided by the defendant concerning the delivery of the Cheque in his affirmation in support is inadmissible.

45.  It is therefore not necessary for me to go on to consider whether the defendant’s factual case is believable or not.  For completeness and in case I am wrong on the issue of admissibility of extrinsic evidence, I would deal with it below.

Is the defendant’s version believable?

46.  Firstly, I do not find it believable that if there was such an oral agreement and if the agreement were so important to the defendant to the effect that it would change the defendant’s decision on whether he would proceed with the transaction, it would not be embodied in the Provisional Agreement.  This is bearing in mind that much more trivial matters such as the inclusion of electrical appliances have been included in the Provisional Agreement.

47.  Secondly, I fail to understand why the defendant would put his signature to the Provisional Agreement if he were indeed undecided upon seeing the tenancy agreement.  If the tenancy agreement had caused him concern and affected his desire to go ahead with the sale and purchase, he would have refrained from signing on the Provisional Agreement and insisted that clarifications be sought first.  The defendant places great emphasis on the fact that the Cheque was dated 24 May 2015, earlier than the date of the Provisional Agreement.  However, this discrepancy does not change the fact that his signature on the Provisional Agreement as well as the handing over of the Cheque are inconsistent with the alleged hesitation on his part to enter into the Provisional Agreement.

48.  Thirdly, the defendant has said in his affirmation that throughout the dealings concerning the Property, he has never seen and/or contacted the plaintiff.  All along the agent was acting for both the plaintiff and the defendant.  Other than his bare allegation that the agent has assured him that the plaintiff knew that the defendant had not decided whether to purchase the property or not, there is nothing to suggest that the agent’s alleged knowledge of the said condition has been communicated to the plaintiff.  Notably, the defendant has not sought for an affirmation to be made by the agent to support his version of events.  Mr. Ng accepts that the fact that the plaintiff has not filed an affirmation in reply to rebut the matters said in the defendant’s affirmation cannot be deemed to have admitted that the defendant’s version of events is correct or agreed.

49.  In conclusion, had it been necessary for me to decide whether the defendant’s case is believable, I would have found that it is not.

Total failure of consideration

50.  It is not clear from the pleadings, the affirmation or the skeleton filed on behalf of the defendant as to how the defendant wishes to run the argument of total failure of consideration.

51.  Suffice it to say that I do not consider the lack of confirmation from the plaintiff on the authority to be so significant as to have rendered the whole transaction with no value to the defendant.

52.  I do not accept that this argument would raise any triable issue.

Conclusion

53.  I therefore hold that the evidence sought to be introduced by the defendant by way of his affirmation concerning the Cheque is inadmissible and as such, he has not raised any triable issue. Even if such evidence were admissible and admitted, I am of the view that no triable issue has been raised.

54.  The appeal is therefore dismissed.

55.  By reason of the matters aforesaid, I make the following orders:-

(1)   Judgment for the plaintiff against the defendant in the sum of HK$200,000.00.

(2)   Interest on the said sum at 2% per annum from the date of dishonour to the date of judgment and thereafter at judgment rate until full payment.

(3)   Costs of the action be paid by the defendant to the plaintiff with certificate for counsel.

56.  I thank counsel for their assistance.