XCHRX GENERALE BELGIAN BANK v. TSANG CHIU KIT AND ANOTHER

HCA 16544/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 16544 OF 1999

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REASONS FOR DECISION

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1. This is an appeal by the Defendants against the decision of Master Cannon granting summary judgment in favour of the Plaintiff for the sum of $206,000.00, being an amount of a cheque drawn by the Defendants to the order of B. G. Lighting Company Ltd (B. G. Lighting).

2. It is the Plaintiff's case that B. G. Lighting endorsed the said cheque to the Plaintiff on 8 August 1998 and a net proceed of $200,155.76 had been credited to the account of B. G. Lighting. In the circumstances, the Plaintiff claims to be a holder in due course of the cheque in question.

3. It is not disputed that the cheque was dishonoured upon presentation for payment on 10 October 1998 as payment had been countermanded.

4. The said cheque was drawn by the Defendants in favour of B. G. Lighting pursuant to a consignment agreement.

5. The Defendants are not legally represented in this appeal. From the skeleton submissions put forward by the previous Counsel for the Defendants, it is claimed that there had been a total failure of consideration.

6. The Defendants suggest that under the consignment agreement between the Defendants and B. G. Lighting, the Defendants would issue post dated cheque for 60% of the invoice amount of the goods consigned by B. G. Lighting to the Defendants for the Defendants to sell as deposit and security for the consigned goods and that all consigned goods could be returnable and refundable upon the Defendants' request.

7. The cheque in question was issued in respect of a quantity of goods for $343,380.00. Of such quantity of goods, only goods to the total value of $31,500.00 had been sold. The Defendants had separately paid for those goods that had been sold and B. G. Lighting had agreed to return the cheque in question.

8. B. G. Lighting failed to return the cheque although they had collected the unsold goods.

9. Hence the Defendants' suggestion of a total failure of consideration.

10. Apparently after the cheque was dishonoured on 10 October 1998, the Plaintiff returned it to B. G. Lighting which then passed on the cheque to the Defendants on or about 12 October 1998.

11. As the cheque is now in the possession of the Defendants, the Defendants suggest that the Plaintiff could not be holder of the same, let alone holder in due course.

12. The Defendants also recently allege that the Plaintiff had charged back the current account of B. G. Lighting for the value of the said cheque and that there had been payment by B. G. Lighting of significant sums into its account with the Plaintiff.

13. The Plaintiff has filed an affidavit to the effect that the payments were made to cover some of the debt due to the Plaintiff but did not include the liability in connection with the cheque in question.

14. In any event, for the present proceedings, I am not concerned with the liability of B. G. Lighting vis-à-vis the Plaintiff. I am only concerned with the liability of the Defendants on the cheque in question.

15. It is well established that total or partial failure of consideration will render the instrument invalid only as between parties in immediate relationship, but not as between remote parties when the holder is a holder for value.

16. A Chung J states in Sheng Fung Finance Co Ltd v Wayles Textiles Ltd [1998] 1 HKC 242.

"At first, the defendant said that Kaworld had given five cheques for the defendant to settle Kaworld's liability to the defendant. In return the defendant gave Kaworld two cheques to settle its own liability to Kaworld, and one cheque to help Kaworld in its financial difficulties. The three cheques were given on the condition that if Kaworld's cheques were not honoured, Kaworld would not present the defendant's cheques, and by way of implied condition, the cheques were not negotiable. Kaworld's cheques were later dishonoured. Hence Kaworld had no right to negotiate the cheques. Kaworld had disappeared and had committed fraud.

There is no evidence that the Plaintiff was aware of any of these. In any event, the Plaintiff was not bound because it was a holder in due course of the three cheques."

17. The alleged total failure of consideration is not a factor which will undermine the validity of the cheque as between the Plaintiff and the Defendants.

18. The suggestion that the Plaintiff is not a holder of the cheque, with respect is completely misconceived.

19. For reasons that I need not go into, the cheque was returned to B. G. Lighting after it was dishonoured and eventually found its way back to the hands of the Defendants.

20. But the material time was when the cheque was presented for payment.

21. There is no dispute that the cheque was endorsed to the Plaintiff and it was the Plaintiff who presented it for payment.

22. At that time, the Plaintiff was clearly in possession and what had happened to it after the cheque had been dishonoured in my view is completely irrelevant.

23. On the undisputed fact, the Defendants should have returned the cheque to the Plaintiff. The Defendants certainly are not entitled to rely on para 14/4/20 of the Supreme Court Practice to defeat the Plaintiff's accusation because the Plaintiff is not in a position to produce the original of the cheque for inspection.

24. On the facts of the case, the Plaintiff is indeed a holder in due course for value of the cheque in question.

25. The Defendants, in its affidavit make a vague suggestion that the endorsement on the cheque by B. G. Lighting had been cancelled. Such suggestion was made on the following term: "However, I am told by Mr Wong and verily believe that the signature of B. G. Lighting was cancelled by the Plaintiff but Mr Wong refused to say any further as to why it was cancelled by the Plaintiff. In these premises, I doubt if the said signature had been for some reasons (such as upon agreement made between the Plaintiff and B. G. Lighting) cancelled prior to the presentment of the cheque."

26. I do not wish to speculate why the back of the cheque was chopped "cancelled" on the authorised signature of B. G. Lighting. The cheque had been in the possession of the Defendants since mid October 1998 and any speculation would lead to an unavoidable accusation against the Defendants.

27. But the allegation of cancellation of the endorsement remains, up to now a bare allegation with no particulars.

28. In the light of the background, such allegations is simply not believable.

29. I have considered the facts of the case and everything that can be urged on this Court on behalf of the Defendants.

30. As a matter of law, the Defendants have not shown any arguable defence to the Plaintiff's claim. The learned Master came to a correct decision.

31. In the circumstances, this appeal must be dismissed.