XCHRX TONG NAI KAN v. CHEUNG KING FUNG FRANCIS

HCA8587/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 8587 OF 1998

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J U D G M E N T

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The application

1. This is an application for summary judgment. The plaintiff's claim is in respect of two cheques drawn by the defendant on the China & South Sea Bank. One is dated 2nd May 1998 in the sum of $5 million and the other 1st May 1998 in the sum of $4 million. Both cheques were presented for payment but dishonoured. The claim is for the sum of $6.6 million which represents the sum of $9 million due on the cheques less a sum of $2.4 million since paid under a cashier's order.

2. The proceedings were instituted by writ endorsed with a Statement of Claim dated 26th May 1998, and the Statement of Claim sets out the bare assertions which I have summarized.

The defendant's case

3. The defendant says that he was never indebted to the plaintiff in the sum represented by the cheques or at all and that, although he gave to the plaintiff the two cheques, there was no consideration for them and that he was induced to draw them by a misrepresentation on the part of the plaintiff.

4. The defendant's case is this : he is a director of and shareholder in a company called Fodon Investment Limited ("Fodon") which owns land in Xinhui in Guandong Province. The plaintiff is said to be the beneficial owner of a company called First Link Investment Limited ("First Link"), the directors of which company are and were, at all material times, a Madam Shirley Chow, who is the plaintiff's sister-in-law, and a Mr Cheung Tak Lung. The defendant says that in October 1997 a joint venture agreement was made between Fodon and First Link by which First Link was to inject $10 million to participate in Fodon's development of the land, a development in a project which was to be called "Lake Fantasia". That there was, or was to be, such a development seems clear from the present state of the evidence, and there are brochures to show what that project was to be. First Link's true or real involvement in it however is in dispute. What is not disputed is that there was an agreement signed by Fodon and First Link which, on its face, required an injection of $10 million by First Link in relation to the project.

5. There is adduced in evidence the agreement dated 30th October 1997 which states that First Link is to participate in the project by a cash investment payable to Fodon upon the signing of the agreement; that Fodon guarantees an annual return of not less than 12% and that First Link has the right to rescind the agreement 180 days after the date of the agreement, in which event Fodon "shall forthwith refund within 140 days from the date of such notice ..... the sum of $10 million plus interest calculated at HK$3,300 per day".

6. $10 million was paid by First Link to Fodon by three cheques dated 30th October and they were all in cash.

7. According to the defendant, in late April 1998 the plaintiff informed him that First Link wished to withdraw from the agreement and wanted the $10 million back immediately. But Fodon, it is said, had cashflow problems and the plaintiff was accordingly so informed. The defendant continues that the plaintiff then said that, nonetheless, in order to satisfy First Link's bank in relation to some sort of banking facility, the plaintiff wanted to secure entries in the bank record showing the payment in of $10 million. Accordingly, three cheques were paid into First Link's account, drawn on Fodon, totalling $10 million, but they were all dishonoured as the plaintiff knew they would be.

8. Then, so the story continues, the plaintiff approached the defendant and said that his partners in First Link had lost trust in him because of the joint venture investment, and he wanted to flourish cheques before them to boost his flagging credibility, and that is how the two cheques came to be drawn, though not in the full sum of $10 million because by the time they had come to be drawn, $1 million had already been repaid by way of cashier's order. He represented that he would not present the cheques for payment and he would only use the cheques for show. The defendant asserts that "as a safety measure against the presentment of the ..... cheques ..... I deliberately left blank the dates and payees of the cheque". On 4th May 1997, a cashier's order in the sum of $2.4 million was paid by Fodon to a firm of solicitors at the request of First Link. The suggestion therefore is that the plaintiff completed and presented the two cheques without the defendant's authorization and contrary to the agreement reached.

The plaintiff's case

9. Mr Tong, the plaintiff, in one of three affirmations which he has filed for this O.14 application, contends that the joint venture agreement was a sham. It was the defendant who wanted to borrow $10 million from the plaintiff but the defendant was employed by a statutory body and "it would be inconvenient for him to sign any loan agreement". So this joint venture agreement was produced, represented to be as good as a loan agreement, and the plaintiff's sister-in-law signed it on behalf of First Link. However, the $10 million all came from the plaintiff's bank account. The suggestion that he had to satisfy the shareholders and directors of First Link by the presentation of cheques from the defendant is, he says, nonsense, for the only shareholder of First Link holds the shares on trust for him and there is produced a declaration of trust which on its face supports that contention. The two directors of the company were appointed, he says, by himself to act upon his instructions.

10. The plaintiff contacted the defendant in late April 1998 for repayment of the loan and the plaintiff asked that one cheque should be made out to "cash" and that the name of the payee on the other should be left blank because the plaintiff was contemplating payment with the cheque to a third party. The cashier's order of 4th May was paid when the plaintiff had pressed the defendant for payment after the cheques were dishonoured.

The test

11. Summary judgment is not appropriate where there is a real dispute of fact. The procedure is available, and intended, to prevent a defendant from delaying the plaintiff in obtaining judgment in a case where there is clearly no defence. It is a remedy which ought not to be applied for save in a clear case; where it is obvious that the defence put forward has no foundation in law; or where the factual basis put forward is frivolous and practically moonshine. The question is whether the defence is credible, that is, capable of belief, and not whether it is at this stage to be believed. If the defence asserted is less than probable but more than shadowy, then unconditional leave should be granted; where shadowy, then it may be appropriate to grant conditional leave.

Analysis

12. It is said that the defence is on the facts incredible. It is certainly on its face an improbable story, but that said one is bound to note that the plaintiff asserts that there was drawn a document which purported to represent an investment which was never to take place, and that was because the defendant wanted to avoid any suggestion that he was acquiring a personal loan lest that was thought, no doubt by his employers, to be inappropriate. The plaintiff not only knew that that was the purpose of this document, but he was party to its execution. In other words, on the plaintiff's own case, he is not averse to the preparation of a bogus document, believing that it is to be presented to another to deceive. That is not an aspect which, in my opinion, is to be ignored in an assessment of the issue whether a credible defence is raised. Nor can I ignore the fact that there was in fact executed a document by Fodon and First Link purportedly evidencing an agreement for the investment of $10 million by First Link to Fodon not expressed as a loan, even though it could well be said to bear hallmarks of a disguised loan. It may very well be that when the witnesses have provided their testimony, the plaintiff's version will prove to be the true one, but that is not what I have now to determine.

13. I am not in the circumstances prepared to say that the defendant's version is not capable of belief. So the question which remains is whether the defendant's account raises a triable defence.

14. A cheque is to be treated as cash. It is to be honoured unless there is good reason to the contrary. In this case, the defendant says that there are several good reasons to the contrary.

Consideration

15. The defendant asserts that on his version of events there was no consideration for the cheques. It could not be the antecedent liability represented by the joint venture agreement because the liability was not that of the drawer of the cheque or the promisor, namely, himself. (See Oliver v. Davis [1949] 2 KB 727.) On the facts of the defendant's case, there appears to be merit in that point.

16. So the remaining question is whether there was such consideration for the cheques as would support a simple contract. The defendant says not, and his argument is that consideration could only be contended to be a forbearance by First Link to sue Fodon whereas the two cheques in this case were tendered to the plaintiff and not to First Link, and were tendered by the defendant and not by Fodon. Yet it seems clear that there may be circumstances in which the drawer of a bill or cheque, who is not also the debtor, may tender the bill in the full expectation and intention that by its tender the recipient undertakes to forbear from suing the debtor, at any rate in a case where there is shown to be "some relationship between the receipt of the bill and the antecedent debt or liability". (See Oliver v. Davis [1949] 2 KB 727 at page 735 per Lord Evershed MR.) So "if the promisee forbears to sue a stranger to the bill at the request of the promisor or drawer of the bill, express or implied, that may constitute good consideration for the bill". (See Hasan v. Wilson [1977] 1 Lloyds L.R. 431 per Goff J [as he then was] at page 441.) Consideration may be provided either by an act of forbearance or by a promise of forbearance. The defendant's evidence is that he had requested the plaintiff on behalf of Fodon to secure Fodon more time in which to meet its commitment to First Link and three cheques were tendered but for bank entry purposes only. In that instance, the cheques were drawn by Fodon in favour of First Link. The two cheques which are the subject of this action were drawn a day later, and whilst the defendant does not in terms say that the plaintiff undertook to utilize them to persuade, or seek to persuade, First Link to delay action against Fodon, that - and therefore the provision of consideration for the issue of these two cheques - might well be implicit. It is not however a point which, in my judgment, is to be determined on the affirmations. It is, on the defendant's case, arguable that there was no consideration for the issue of the cheques.

Misrepresentation

17. Mr Li for the plaintiff suggests that it is not open to the defendant to contend that the cheques were delivered upon a condition that the plaintiff would not present them for payment. He points out that the introduction of parol evidence to alter the terms of payment evident on the face of a cheque is not permissible (see, for example, Suen Ho Sun v. Kamenar International Limited [1989] 1 HKC 135). That principle is undoubtedly established but, that said, "parol evidence will always be admitted to show that the contract was vitiated by fraud, illegality, misrepresentation ..... or any other ground which would render a contract voidable or unenforceable at law or in equity" (See Chalmers & Guest on Bills of Exchange, 15th Ed., para.394), and in this case, the defendant alleges that the cheques were obtained upon a misrepresentation as to their intended use and the prevailing circumstances. The cheques were drawn as a result, he says, of a material misrepresentation. That is not the same as an allegation that they might be presented in certain specified circumstances. Unless I could conclude that the allegation of misrepresentation is practically moonshine, then since misrepresentation constitutes a defence, the allegation must in this case drive me to grant leave to defend.

The pleading point

18. There is a remaining limb to the defence which is a pleading point, but it is one of some substance. Paragraphs 2 - 4 of the Statement of Claim run as follows :

"2. The Plaintiff presented the said two cheques for payment but both cheques were dishonoured and returned to the Plaintiff by The China & South Sea Bank Limited on 8th May 1998. The 1st cheque was marked 'Refer to Drawer' and the 2nd cheque was marked 'Payment countermanded by the drawer' on the relevant advice slip relating thereto.

3. The Plaintiff protested to the Defendant that the said two cheques were dishonoured so the Defendant gave the Plaintiff a cashier order in the sum of HK$2,400,000.00 to partly cover the dishonoured cheques.

4. By a letter dated 14th May 1998 the Plaintiff through its solicitors, Kitty So & Tong, gave notice of dishonour to the Defendant and demanded payment of the balance owing under the said two dishonoured cheques amounting to the sum of HK$6,600,000.00."

Section 55(1) of the Bills of Exchange Ordinance provides that :

"(1) The drawer of a bill by drawing it -

(a) engages that, on due presentment, it shall be accepted and paid according to its tenor, and that if it is dishonoured he will compensate the holder or any endorsor who is compelled to pay it, provided that the requisite proceedings on dishonour are duly taken...."

By virtue of section 49(l) of the Ordinance :

"Notice of dishonour in order to be valid and effectual must be given in accordance with the following rules -

.....

(l) The notice may be given as soon as a bill is dishonoured and must be given within a reasonable time thereafter. In the absence of special circumstances notice is not deemed to have been given within a reasonable time unless -

(i) where the person giving and the person to receive notice reside in the same place, the notice is given or sent off in time to reach the latter on the day after the dishonour of the bill;

(ii) where the person giving and the person to receive notice reside in different places, the notice is sent off on the day after the dishonour of the bill, if there is a post that is convenient to hour on that day, and, if there is no such post on that day, then by the next post thereafter."

19. It is common ground that the timing of the notice of dishonour in the present case falls foul of that rule. It is not suggested that there existed any special circumstances which might justify a broadening of the time required in this case.

20. Section 50(2) dispenses with notice of dishonour in circumstances there prescribed :

"Notice of dishonour is dispensed with -

.....

(c) as regards the drawer, in the following cases namely -

....

(4) where the drawee or acceptor is, as between himself and the drawer, under no obligation to accept or pay the bill;

(5) where the drawer has countermanded payment."

21. The argument advanced by Mr Wong on behalf of the defendant is that the Statement of Claim is defective in that it lacks such detail as discloses a cause of action, for there is nothing there pleaded to show that notice of dishonour was unnecessary. He relies on Thong Ko Sine v. Wilkinson & anor. [1988] HKC 56, and on the judgment in Fruhauf v. Grosvenor & Co. (1892) 61 LJQB 717 cited therein.

22. The reasons why the cheques in this case were not met are different in the case of each cheque. In the case of one, the cheque was referred to drawer - in other words, there were insufficient funds; and in the case of the other, the cheque was countermanded by the defendant. Why it was countermanded is not specifically addressed in the affirmations. I gather from argument that the defendant might assert that he countermanded the second cheque (for $4 million) once he discovered that the first had been presented by the plaintiff contrary to the understanding which they had reached. Be that as it may, there can be no doubt that the circumstances provided for by section 50(2)(c)(iv) and (v) apply to these cheques. But the point remains that dispensation by virtue of those sections is not pleaded. Mr Li says that the point is highly technical and he seeks leave to amend the Statement of Claim by the addition of a paragraph which reads as follows :

"4. Further and alternatively,

(a) with respect to the 1st cheque, notice of dishonour is dispensed with in pursuance of section 50(2)(c)(iv) of the Bills of Exchange Ordinance ("BEO") as between The China & South Sea Bank Limited ("the Bank") and the Defendant, the Bank had no obligation to accept or pay the 1st cheque;

(b) with respect to the 2nd cheque, notice of dishonour is dispensed with in pursuance of section 50(2)(c)(v) of BEO as the Defendant had countermanded payment of the 2nd cheque."

23. Mr Wong, in response, asserts that if there is a defect in substance in the Statement of Claim, the application for summary judgment will be dismissed, in support of which proposition he refers to a passage to that effect in the Supreme Court Practice 1999 at 14/1/6. The case cited is Sheba Gold Mining Company v. Trubshawe [1982] 1 QB 674, where on the facts of that case it was said that :

"A statement of claim which demands interest, but shews no legal liability to pay it, is upon general principles defective. Again, all the forms claiming interest mention the specific sum claimed. We think this is as it should be. It is important that a man, who is to be preceded against summarily for judgment, should know exactly how much he has to pay if he wishes to stay the action, and should not be called upon to take the risks of calculation." (Per Lord Coleridge CJ at page 682.)"

There can be no question in the present case, however, but that the defendant knows precisely on what footing, in fact and in law, he is said to be liable for the fate of the two cheques. The facts are spelt out in the Statement of Claim as well as in the affirmations. In exceptional circumstances the court may, at the hearing of the summons, give leave to amend the summons and Statement of Claim. Although in this case no fresh affirmation has been filed to verify the proposed amended Statement of Claim upon which judgment is now sought, the affirmations already filed in fact verify the new matters pleaded. I am prepared in the circumstances to grant the application to amend the Statement of Claim and to abridge time for the service of the amended Statement of Claim on the defendant. There is no prejudice whatsoever occasioned to the defendant by this course. Leave is also necessary to amend the summons to seek summary judgment in respect of the amended Statement of Claim and I grant leave to make that amendment.

Conclusion

24. The pleading point is thus resolved in the plaintiff's favour, but it remains the case, for reasons I have provided, that the defendant shall have leave to defend. I have been exercised by the question whether I should impose conditions for the grant of leave, but I have decided against that course. Less than probable though the defence case may appear, nonetheless I am not prepared "very nearly" to give judgment. Accordingly, I grant the defendant unconditional leave to defend. There will be a costs order nisi for costs of this application to be in the cause.