WING HANG BANK LTD. v. GOLDEN HIGH HOLDINGS LTD.

HCA 4660 /2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4660 OF 2001

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REASONS FOR DECISION

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The Claim

1. By an Order 14 summons dated 16 November 2001, the Plaintiff sought final judgment against the Defendant. Master K Y Chan granted judgment against the Defendant on the hearing of that summons. This is an appeal from Master K Y Chan's decision.

2. The Plaintiff is a bank. It claimed to be a holder in due course of a post-dated cheque ("the Cheque") drawn by the Defendant in favour of the Third Party. The Plaintiff claimed that it became a holder of the Cheque after the Plaintiff discounted the Cheque at the Third Party's request.

3. The Defendant denied liability on three main grounds:-

(a) The Third Party had a defective title to the Cheque;

(b) There was no evidence that negotiation took place before the due date of the Cheque; and

(c) The Plaintiff was not a holder in due course in that it had notice of the Third Party's defective title.

The Hearing

4. At the hearing, I dismissed the Defendant's appeal and affirmed the Master's decision. I now give reasons.

5. The Defendant relied on section 29(2) of the Bills of Exchange Ordinance, Cap. 19 ("the Ordinance") and claimed that the Third Party negotiated the Cheque "in breach of faith or in such circumstances as amount to a fraud". It was said that by an oral agreement, the Third Party by one of its directors, one Mr Albert Oung ("Albert") had promised the Defendant that the Cheque would not be transferred.

6. In support of this contention, the Defendant relied on a passage in an affirmation of its director, one Mr Miu Chung Kin George ("George"). The passage was in these terms:-

"Albert suggested to me that whether the Defendant could issue a cheque to [the Third Party] then (sic) he could through some special arrangement cash the cheque."

George initially rejected the suggestion but later agreed to issue the Cheque in order to help the Third Party out of its financial difficulties when he was promised that the Third Party would pay in sufficient funds "to enable [the Third Party] could (sic) lawfully cash the cheque and the Defendant would not have any liability or responsibility on this matter at all."

7. In my view, accepting what George was saying on oath, that was not evidence that the Cheque should not be negotiated at all. Quite the contrary, it was a clear indication that Albert was to negotiate the Cheque for cash before its due date. How else could he "cash the cheque"? It simply made no sense not to "cash the cheque" until the Third Party had sufficient money to enable the Cheque to be cleared.

8. What was said was plainly a promise by Albert to put the Defendant in funds, or in effect, to repay the Defendant the loan represented by the Cheque before its due date. That was not a promise that the Third Party could not deal with the Cheque. How could the Third Party benefit from holding a post-dated cheque if it could not deal with it until it had funds to enable it to be cleared? With respect, the suggestion from the Defendant that somehow, the Third Party could not deal with the Cheque just did not make sense and flied in the face of the arrangement as narrated by George.

9. Furthermore, the Defendant's case is also plainly inconsistent with two facts. First, on the 31 August 2001, three days after the due date, the Defendant wrote to the Third Party in these terms:-

"Due to all the account balance had been settled between [the Plaintiff] and [the Third Party], we inform you that we will countermand payment of [the Cheque]. And (sic) return [the Cheque] to us as soon as possible."

There was no mention of any promise not to deal with the Cheque although on George's own admission he already knew that the Cheque had been banked.

10. Secondly, there was no reply to the Plaintiff's demand letter before action. There was simply no document to support the Defendant's assertions.

11. I cannot see how on this evidence, even if I am to accept in total what George was saying, can it be said that there is a triable issue as to whether the Third Party's title in the Cheque was defective.

Negotiation Before Due Date

12. Before the hearing, the Plaintiff sought leave to put in a further affirmation which conclusively showed the Cheque was negotiated on 16 August, 2001, some two weeks before the due date. The Defendant initially objected to the further affirmation but later conceded that it was not in anyway prejudiced by the late filing of this further affirmation nor did it wish to seek an adjournment.

13. In my view, even without the late affirmation, there is sufficient documentary evidence to show that the Cheque was discounted by one of Albert's fellow directors on the 16 August, 2001.

14. Mr Simon Chan, Counsel for the Defendant, rightly conceded that on the evidence, he could not maintain the point that negotiation might have taken place after the due date.

Whether Plaintiff Holder

15. Even if the Third Party's title in the Cheque was defective, it did not necessarily follow that the Plaintiff's title was bad if the latter had no notice of that defect: see sections 29(1) and 38 of the Ordinance.

16. In this respect, the burden is on the Defendant to show notice: see section 30 of the Ordinance. Furthermore, good faith is presumed, where negotiation is in fact done honestly, whether it is done negligently or not: see section 96 of the Ordinance.

17. The only evidence that Mr Chan can point to in support of this line of defence is a passage in George's affirmation where he deposed that he had a conversation with Albert in a café in Admiralty in November 2001 where Albert told him that:-

(a) Mr Yuen Kwun Ki Anthony ("Yuen"), an accountant of the Third Party, had told the Plaintiff that the Third Party did not have sufficient fund to repay its loan to the Plaintiff;

(b) Yuen told the Plaintiff that the Cheque might be returned unpaid on its due date because "there was a special dealing" between the Third Party and the Plaintiff;

(c) Yuen discounted the cheque in favour of the Plaintiff without knowledge and consent (and presumably authority) of Albert;

(d) Upon discovery of the discount, Albert requested the return of the Cheque but was refused by the Plaintiff;

(e) Yuen was then dismissed by the Third Party as he was not authorized to discount the Cheque to the Plaintiff.

18. It will be seen at once that even if all that is true, there is no evidence that the Plaintiff knew the Third Party had negotiated the Cheque in breach of faith or in fraud of the Defendant. At best, it was evidence that the Cheque might not be honoured and that Yuen did not have the necessary authority to discount the Cheque. There is, of course, no suggestion that the Plaintiff knew of the lack of authority on the part of Yuen.

19. In fact, there is evidence from Yuen denying all these allegations. There is also documentary evidence to show that it was not Yuen who discounted the Cheque but a fellow director of Albert, who was one of the three authorised signatories of the Third Party.

20. In my judgment, what Albert said was simply not credible. Plainly, he had wanted to "cash the cheque". That was the only reason why the Third Party and the Defendant agreed on this special arrangement in the first place. It simply made no sense for him to obtain the Cheque and then placed it with Yuen on the basis that Yuen was not supposed to deal with it.

21. In any event, as I have already pointed out, even if what Albert said to George was true, the evidence still fell far short of imputing notice of defect of title on the Plaintiff.

22. For these reasons, I cannot see any triable issue being raised. The appeal must be dismissed with costs.