LUK WAI HO v. FANG YU

DCCJ 4744/2019

[2021] HKDC 1345

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4744 OF 2019

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DECISION

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INTRODUCTION

1.  This is the hearing of an appeal by the plaintiff against the order of Master Jocelyn Leung dated 21 July 2021 (i) dismissing the plaintiff’s summary judgment application dated 12 March 2021 issued pursuant to O14 r1 of the Rules of the District Court, Cap 336H for HK$1,000,000 in final judgment together with interest and costs against the defendant (ii) giving unconditional leave to defend to the defendant and (iii) awarding costs to the defendant summarily assessed at HK$60,000.

BACKGROUND

2.  The following background facts are undisputed or incontrovertible.

3.  The plaintiff was a conveyancing clerk working in a firm of solicitors when he first met the defendant in around late January or early February 2019.

4.  The defendant needed to borrow funds.  The plaintiff referred the defendant to a lender, Great Wall Mortgage Company Limited (“Great Wall”), and had prepared all the necessary documentation.  The defendant successfully obtained a loan from Great Wall.

5.  Between February and March 2019, the defendant had on multiple occasions requested the plaintiff to lend her money.

6.  The plaintiff and the defendant signed on a debt acknowledgment memorandum (“IOU”) dated 7 March 2019 which states that the defendant now borrowed HK$690,000 from the plaintiff and promised to repay the said sum on 8 March 2019.

7.  The defendant issued a cheque dated 14 March 2019 for HK$1,000,000 drawn on her Standard Chartered Bank account in favour of the plaintiff (“Cheque”).

8.  On 26 August 2019, the plaintiff presented the Cheque for payment.

9.  On 27 August 2019, the Cheque was returned by Standard Chartered Bank to the plaintiff with the remark “Refer to Drawer”.

10.  The plaintiff therefore instituted these proceedings against the defendant to sue on the dishonoured Cheque for HK$1,000,000.

11.  The defendant’s case as pleaded in the Amended Defence is essentially as follows:-

(a)  The plaintiff lent money to the defendant on several occasions since February 2019.

(b)  The Cheque was not delivered to the plaintiff for the purpose of transferring the property in the Cheque but as an assurance that the defendant would not flee without repaying the previous loans that she had borrowed from him and to demonstrate her sincerity in continuing the borrowing and lending relationship (“Special Purpose”), which constituted a special purpose under s21(2)(b) of the Bills of Exchange Ordinance, Cap 19 (“BOEO”).

(c)  Further or in the alternative, even if the Cheque was delivered for payment, the loans the plaintiff lent to the defendant amounted only to HK$420,000 and the plaintiff is not entitled to the HK$1,000,000 stipulated on the Cheque for partial failure of consideration.

(d)  In any event, the loans lent by the plaintiff to the defendant were subject to an interest rate of 100% of the principal amount and therefore exceeded an effective rate of 60% pa, thus constituting an offence under s24 of the Money Lenders Ordinance, Cap 163 (“MLO”).  The consideration for the Cheque is accordingly illegal and irrecoverable.

RELEVANT LEGAL PRINCIPLES

Summary Judgment and Appeal Against a Master’s Decision

12.  The principles governing an application for summary judgment are well-settled and need not be fully rehearsed below.  I would only mention the following:-

(a)  The burden on the defendant in a summary judgment application is to show a credible defence and that he/she must condescend to give particulars of the defence.  However, this does not mean that once the plaintiff invokes the application and irrespective of the strength of his/her case, the defendant bears all the burden of showing that there are triable issues in the case. This is because the starting point is that summary judgment should only be invoked when there is no defence to the claim.  The plaintiff must in the first place demonstrate that the defendant has indeed no defence.  This requirement must be kept in proper perspective when assessment is made of the strength of the application; otherwise there is a danger that the attention will be focused solely on what the defendant has said without consideration at the same time of the basic premise of the plaintiff’s claim or its inherent strength and weakness (see Ju Yan Di Emperory Genesisy v Yau Wai Han [2015] 1 HKLRD 822 at §14 per Cheung JA).

(b)  In determining whether there is a bona fide defence, the court must not embark on a mini trial on affidavits (Hong Kong Civil Procedure 2022, Vol 1, §14/4/9).

(c)  The issue is not whether the defendant’s assertions are to be believed; it is whether those assertions are believable (Hong Kong Civil Procedure 2022, Vol 1, §14/4/9A).

13.  An appeal from a master’s decision to a judge in chambers is dealt with by way of an actual rehearing of the application which led to the order under appeal, and the judge treats the matter as though it came before him/her for the first time: see Hong Kong Civil Procedure 2022, Vol 1 §58/1/2.

Statutory Defence under s21(2)(b) of the BOEO

14.  Section 21 of BOEO provides, inter alia, as follows:-

“(1) Every contract on a bill, whether it is the drawer’s, the acceptor’s or an indorser’s, is incomplete and revocable, until delivery of the instrument in order to give effect thereto: …

(2) As between immediate parties, and as regards a remote party other than a holder in due course, the delivery—

…

(b) may be shown to have been conditional or for a special purpose only, and not for the purpose of transferring the property in the bill …”.

15.  In Xie Shili v Cheung Wai Keung [2018] HKCFI 2431, DHCJ Dawes SC (as he then was) dismissed a summary judgment application on a dishonoured cheque and granted unconditional leave to defend.  In that case, one of the defences relied on was that the cheque in question was delivered to the plaintiff in escrow intended as a gesture of goodwill, which was a “special purpose” under s21(2) of the BOEO and was therefore never intended to transfer property to the plaintiff.  The learned Deputy Judge discussed the principles governing the defence under s21(2)(b) of the BOEO at §§11-12 as follows:-

“11. For the purposes of section 21(b), extrinsic evidence (including oral evidence) may be adduced to show that a cheque is not intended to have the effect of transferring property from the drawer to the drawee: Chalmers and Guest on Bills of Exchange, Cheques and Promissory Notes (17^th Ed; 2009) at §§2-152–2-153.

12. Such evidence might be particularly probative where the parties put forward two completely different versions of events leading to the drawing and delivery of the cheque: see, for example, Lee Man Fai v Lee Yu Leung [2018] HKCFI 1429 per Deputy Judge Simon Leung at §§15–18.”

16.  Further, allegations that a cheque is merely intended to show the sincerity of the drawer is not uncommon and the idea that the provision of a cheque is only a symbolic gesture is not inherently inconceivable.  It all depends on the underlying circumstances.  See Xie Shili at §§17 and 19 per DHCJ Dawes SC.

Partial Failure of Consideration and Illegal Consideration Due to Excessive Interest Rate

17.  Although consideration is presumed under s30(1) of the BOEO, once the issue of consideration has been expressly put in dispute by the defendant, the plaintiff must demonstrate that he/she has lent such sum to the defendant (Ju Yan Di Emperory Genesisy at §15 per Cheung JA).

18.  Partial failure of consideration is a pro tanto defence available only when the amount involved is ascertained and liquidated: Suen Ho Sun v Kamenar International Ltd [1989] 1 HKC 135 at 139G-140E per Hunter JA.

19.  No agreement for the repayment of any loan or for the payment of interest on any loan and no security given in respect of any such agreement or loan will be enforceable in any case in which the effective rate of interest exceeds 60% pa: s24 of the MLO.

DISCUSSION

Purpose of the Cheque

20.  The defendant’s case on the purpose of the Cheque as supported by her affirmation is essentially as follows:-

(a)  The plaintiff started to lend money to the defendant in early February 2019 at an interest rate of 100% of the principal amount of the loan.

(b)  Someday in March 2019, the defendant met the plaintiff to borrow HK$20,000 from him.  The plaintiff mentioned that as the defendant had not repaid the previous loans, before he was willing to advance further loans, he needed some assurance from the defendant that she would not flee without repaying the previous loans and he wanted her to show sincerity in continuing the borrowing and lending relationship with him.  The plaintiff requested a cheque for HK$1,000,000 from her.

(c)  The defendant told the plaintiff that she did not have HK$1,000,000.

(d)  The plaintiff assured the defendant that he would not bank in the cheque which would only serve the Special Purpose.  Upon such assurance by the plaintiff, the defendant issued the Cheque to the plaintiff on 14 March 2019.

(e)  After the issuance of the Cheque, the plaintiff continued to lend money to the defendant until July 2019.

(f)  From February to July 2019, the total amount of the loans lent by the plaintiff to the defendant came to HK$420,000.  Throughout this period, the plaintiff never asked the defendant to repay him, nor had the plaintiff presented the Cheque for payment.

21.  I agree with Ms Abigail Liu, counsel for the defendant, that the defendant’s case is believable and not frivolous or practically moonshine for the following reasons.

22.  First, it is undisputed that since the date of issuance of the Cheque in March 2019, the plaintiff did not present the Cheque for payment until 26 August 2019 (despite contending as part of his case that the Cheque was issued as repayment of the HK$690,000 owing by the defendant to him with the balance of HK$310,000 constituting a token of gratitude from her).  This lends support to the defendant’s case that the plaintiff had assured the defendant that he would not bank in the Cheque which was delivered only for the Special Purpose and not for payment.  Indeed, on the plaintiff’s own evidence, his relationship with the defendant deteriorated rapidly after July 2019 when he declined to lend further monies to the defendant.  It is quite possible that the plaintiff therefore went back on his earlier assurance and disregarded the Special Purpose and presented the Cheque for payment in August 2019.

23.  Second, it is not inherently improbable for the defendant to give the Cheque to the plaintiff for the Special Purpose.

(a)  As stressed by the court in Xie Shili, the idea that the provision of a cheque is only a symbolic gesture is not inherently improbable and each case turns on its own facts.

(b)  It is undisputed that the lending and borrowing relationship between the plaintiff and the defendant began in February 2019.  According to the plaintiff, he had lent over HK$100,000 to the defendant by the end of February 2019.  This is corroborated by the WhatsApp message between the plaintiff and the defendant on 12 February 2019.  I do not understand the plaintiff to be suggesting that the defendant had ever repaid any of the loans owed to him prior to March 2019.  It is therefore quite possible that the plaintiff would like to obtain some sort of assurance from the defendant before he was willing to continue the lender/borrower relationship.

(c)  Given that the defendant was heavily indebted in February 2019 and the plaintiff was aware of this fact, it is not improbable for the defendant to have issued the Cheque even though she did not have sufficient funds in her bank account in order to comply with the plaintiff’s request and to obtain further loans from him.

(d)  The plaintiff contends that the defendant’s defence is unbelievable as it is against common sense that the plaintiff would accept the Cheque as “assurance” knowing that the defendant did not have sufficient funds to clear the Cheque.  However, the assurance (as alleged by the defendant) was not so much that the plaintiff would have his loans to the defendant repaid by the Cheque but that she would not flee without making repayments.  I cannot rule out at this stage the possibility that in the parties’ eyes, the idea of the plaintiff presenting the Cheque which could not be cleared might have an effect on deterring the defendant from fleeing.

24.  Third, Mr Ray Kwan, counsel for the plaintiff, relied on the following voice message which the defendant sent to the plaintiff on 11 March 2019 (“Voice Message”) in challenging the defendant’s assertion that the Cheque was never meant to be presented for payment:-

“…銀行啱啱打電話黎話，錢到左，但係呢就唔攞得住，佢哋要跟一跟，因為銀碼太大呀睇下係唔係黑錢…啊…話冇意外嘅話，晏晝4:00左右會入到…”

25.  Mr Kwan submits that the Voice Message was clearly meant to assure the plaintiff that the defendant would soon have sufficient funds to honour the Cheque.  This in turn shows that the defendant intended the Cheque to be presented for payment.

26.  I do not accept Mr Kwan’s submission.

(a)  The Cheque is dated 14 March 2019 and it is the defendant’s case that she issued it on that date.  The Voice Message did not refer to the Cheque at all.  Whilst it is the plaintiff’s case that the Cheque was issued by the defendant on 7 March 2019 but post-dated to 14 March 2019, this is a matter which hinges on the credibility of the parties and can only be resolved at trial.

(b)  Neither of the 2 affirmations filed by the plaintiff for his summary judgment application confirms any understanding that the defendant by the Voice Message was assuring him that she would soon have sufficient funds to honour the Cheque.  On the contrary, the plaintiff’s own evidence is that the tenor of the Voice Message was that the defendant again needed money and wanted to borrow HK$30,000 from him.

27.  Fourth, the fact that the amount of the Cheque does not tally with the principal loan amounted stated on the IOU is supportive of the defendant’s contention that the Cheque was issued for the Special Purpose rather than for payment.  If the Cheque was meant for repayment of the HK$690,000 owing to the plaintiff, it is not clear to me why the defendant would not simply write a cheque for that amount to the plaintiff.

28.  Fifth, Mr Kwan submits that if there had been any understanding amongst the parties that the Cheque was not intended to be presented for payment, it would be against common sense that the defendant did not even confront the plaintiff after he presented the Cheque for payment.  However, whether the defendant confronted the plaintiff is a matter which neither side has raised or deposed to in their affirmations filed for the purpose of the summary judgment application.  I therefore do not think that it is open to Mr Kwan to level such a criticism against the defendant’s case in this regard.

29.  Finally, Mr Kwan criticises the defendant for the lack of contemporaneous documentation to support her case.  Whilst the existence or not of contemporaneous documentation is a relevant consideration that I take into account, the lack of such documentation does not per se render a defendant’s defence frivolous or moonshine.  I need to consider all the surrounding factual circumstances in the present case, including the affirmations filed by both parties and the documents so far produced by the plaintiff.  Having done so, and for the reasons mentioned above, I am satisfied that the defendant’s version of events is at least believable.

30.  Further, in arriving at my decision on this appeal brought by the plaintiff, I have also taken into account certain suspicious features surrounding the plaintiff’s case.

31.  First, the plaintiff’s case is that the defendant drew the Cheque to repay the debt owed to him as stipulated in the IOU.  Given that the IOU stipulated a deadline of repayment of 8 March 2019, that the plaintiff on his own evidence knew that the defendant was heavily indebted to several financial institutions since February 2019 and that the defendant by the Voice Message in March 2019 had purportedly indicated to the plaintiff that she would soon have sufficient funds to honour the Cheque, there is no good reason why the plaintiff would wait until 26 August 2019 before presenting the Cheque for payment.  The plaintiff has glaringly not explained the reason for this delay in his affirmation evidence.

32.  Second, according to the plaintiff, the Cheque was issued to repay the loan stipulated in the IOU and the Cheque was post-dated to 14 March 2019 because the defendant promised in the meeting on 7 March 2019 (being the date on which the IOU was allegedly signed) to repay the loan in 7 days.  However, the date of loan repayment was stated to be 8 March 2019 in the IOU, instead of 14 March 2019, being 7 days from 7 March 2019.  If the Cheque was, as the plaintiff contends, drawn together with the execution of the IOU in order to repay the debt of HK$690,000 and that the defendant had promised to repay the debt within 7 days, it is difficult to understand why the date of repayment was expressed to be 8 March 2019 instead of 14 March 2019.

33.  Third, if the Cheque was issued at the same time with the execution of the IOU and was used to discharge the defendant’s payment obligation under the IOU, it is surprising that the IOU made no reference to the Cheque at all.

34.  Fourth, if the loan amount was HK$690,000 as stipulated in the IOU, there is no good reason why the defendant did not simply write a cheque for that sum but instead issued the Cheque for HK$1,000,000.  As to the plaintiff’s explanation that the remaining HK$310,000 constituted a token of gratitude from the defendant, such an explanation is unsatisfactory in a number of respects:-

(a)  The plaintiff has given inconsistent accounts of the nature of the HK$310,000.  In his 1^st affirmation, the plaintiff said that the Cheque was given to him by the defendant “in discharge of her liability for monies I lent to her during her difficult times since February 2019 (a total of HK$690,000) and interest thereon.  The balance of HK$310,000 was as a token to express [her] gratitude for my help.”  This suggests that the subject matter of the plaintiff’s help was his lending of monies to the defendant during her difficult times.  However, in his 2^nd affirmation, the plaintiff said that the HK$310,000 was paid by the defendant “out of her free will” for the purpose of “報答”, which he took as a token to express her gratitude for his help in getting a loan from Great Wall.

(b)  Given that the defendant was heavily indebted at the time, it seems to defy common sense that she would pay such a large sum of HK$310,000 “out of her free will” just to thank the plaintiff.

(c)  In the WhatsApp messages exchanged between the plaintiff and the defendant between January and March 2019 as disclosed by the plaintiff in his affirmation, there is not a shred of evidence which refers to the HK$310,000 sum or that the defendant was willing to pay the plaintiff money as a token of gratitude for his help.

(d)  It is the plaintiff’s evidence that interest was chargeable on the HK$690,000 loan.  If that is correct, then the plaintiff’s further evidence that the “balance of HK$310,000” under the Cheque was a token of gratitude must be incorrect as the three sums would add up to more than HK$1,000,000.

35.  Fifth, the reliability/accuracy of the IOU (upon which the plaintiff heavily relies in this summary judgment application) is doubtful in a number of respects and it will have to be further examined at trial.  For example:-

(a)  It is common ground that the plaintiff started to advance loans to the defendant since February 2019.  However, the IOU states that the defendant “now borrows” HK$690,000 from the plaintiff.

(b)  The defendant’s evidence is that the execution of the IOU was prompted by the plaintiff and that she dictated what he said on paper and later signed on this IOU.  The defendant’s explanation is not incapable of being believed given that she was in need of loans from the plaintiff.

(c)  The IOU stated that the HK$690,000 was advanced by the plaintiff to the defendant on 7 March 2019 but that the repayment date for the whole sum was scheduled to be one day later, ie 8 March 2019.  It is quite possible that this repayment date was not meant to be strictly enforced given that the one day repayment term in the circumstances seems unrealistic.

(d)  The IOU does not mention the HK$310,000 sum, whether as a token of gratitude or otherwise.

(e)  The IOU does not mention the charging of any interest on the HK$690,000 loan.  This is to be contrasted with the plaintiff’s evidence that interest was chargeable on such a loan.

36.  In light of the above, I am of the view that the purpose of the defendant providing the Cheque to the plaintiff is clearly a matter which can only be resolved at trial.

Partial Failure of Consideration

37.  As an alternative to the special purpose defence under s21(2)(b) of the BOEO discussed above, the defendant contends that the Cheque is not fully supported by consideration since she had only borrowed HK$420,000.

38.  As mentioned in §18 above, partial failure of consideration is a pro tanto defence and is only available when the amount involved is ascertained and liquidated.

39.  As matters presently stand, the defendant is only able to confirm that the total amount she borrowed between February and July 2019 amounted to HK$420,000.  She is unable to provide to this court an ascertained amount of the loans owing to the plaintiff as at the time of issuance of the Cheque in March 2019.

40.  In the circumstances, the partial failure of consideration defence is not available to the defendant at present.

Illegal Consideration Due to Excessive Interest Rate

41.  According to the defendant, the plaintiff told her that the interest rate chargeable on the loans to her would be 100% of the principal amount of those loans.  The defendant contends, as a fallback argument, that the effective interest rate on the loan might exceed the statutory restriction of 60% pa in contravention of the MLO and that therefore the consideration for the Cheque is illegal and irrecoverable.

42.  However, as Ms Liu accepted during this appeal hearing, whether the interest rate for the loans exceeds 60% pa would depend on the borrowing period.  Yet, on the defendant’s own evidence, the plaintiff did not “lay down any deadline of repayment”.  Given the uncertainty over the exact borrowing period, it is not clear whether the applicable interest rate would exceed 60% pa.  For present purposes, I am not prepared to accede to the defendant’s fallback contention in this regard.

THE PLAINTIFF’S ALTERNATIVE CLAIM

43.  Mr Kwan contends that in the event that I am not minded to enter judgment for the full sum of HK$1,000,000 in favour of his client, I should nevertheless enter judgment against the defendant for HK$690,000 as the Cheque was clearly intended to repay the loan owing to the plaintiff for the amount of HK$690,000.

44.  I have no hesitation in rejecting such an alternative claim by the plaintiff for the following reasons:-

(a)  Such an alternative claim was not prayed for in the O14 summons and was never pursued in the proceedings below before Master Leung.  The notice of appeal filed by the plaintiff for the purpose of these proceedings also never sought partial judgment for HK$690,000.

(b)  More fundamentally, the plaintiff’s pleaded case as disclosed in his Statement of Claim (“SOC”) has always been one based on the dishonoured Cheque and for the sum of HK$1,000,000 being the amount stated thereon.  The plaintiff has never pleaded an alternative claim based on the alleged debt of HK$690,000.  The SOC does not even refer to the IOU, upon which the plaintiff heavily relies at this hearing to support his contention of an outstanding loan due from the defendant for HK$690,000.

(c)  Mr Kwan drew my attention to the decision of Melrose Clothing Company Ltd v China Garment (Far East) Limited (unrep, HCA 6760, 27 December 2000) as an example where the court has entered judgment for part of the sum claimed in a dishonoured cheque.  However, I do not think that this authority assists the plaintiff much, since it is unclear from the judgment itself whether an alternative case had been pleaded in those proceedings.

(d)  Given the doubts over the reliability/accuracy of the IOU as mentioned in §35 above, I am of the view that the exact amount of the loan taken out by the defendant from the plaintiff (whether it be HK$690,000 or some other amount) is a heavily disputed matter which can only be resolved at trial.

DISPOSITION

45.  For the reasons mentioned above, I am of the view that the defendant has demonstrated an arguable and believable defence under s21(2)(b) BOEO and that the purpose of the Cheque is a matter which should be resolved at trial.

46.  In the circumstances, I dismiss the plaintiff’s appeal against Master Leung’s order dated 21 July 2021.

47.  I also make an order nisi that the costs of this appeal (including the hearing on 6 October 2021) be paid by the plaintiff to the defendant, such costs to be taxed if not agreed.  The costs order nisi shall become absolute 14 days after the date of handing down of this decision.

48.  I thank Mr Kwan and Ms Liu for their assistance.