TAN KHAY CHEUN AND ANOTHER v. KO PING SHUN BENSON

HCA 1814/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1814 OF 2014

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REASONS FOR DECISION
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1.  This application by the plaintiff for judgment under Order 14 is well founded.

2.  The claim is essentially based upon a dishonoured cheque, payment of it having been countermanded by the defendant himself.

3.  The factual matrix behind the cheque signed by the defendant in favour of the 2^nd plaintiff is very straightforward even though the defendant has sought to muddy the waters with a mass of irrelevancies.

4.  The 1^st plaintiff granted a bridging loan to Vista Housing (in short) for a housing development in South Korea.  The 1^st plaintiff and the defendant were well‑known to each other.  It is apparent that the defendant was keen to invest in Vista’s project but needed the 1^st plaintiff’s financial involvement. The original idea was that both would invest US$750,000 each but the defendant explained that by virtue of cash‑flow problems he was not able to raise his half of the investment and so the 1^st plaintiff was persuaded by him to advance the full amount of the loan.  The defendant appears to have been well‑versed in the Korean business scene.

5.  There is a somewhat convoluted background to the creation of this loan agreement which does not require detailed consideration or explanation.

6.  The loan agreement is between the 1^st plaintiff and Vista, and shortly thereafter the 2^nd plaintiff, a business owned or controlled by the 1^st plaintiff became the actual lender of the money and there was a replacement agreement to this effect.  There was a short hiatus before the 1^st plaintiff actually transferred the money on 14 February 2014 through his business, the 2^nd plaintiff, to Vista, having waited until he had the defendant’s guarantee in his hands.  This is described as a memorandum confirming his oral guarantee.  The plaintiffs sued only on the written guarantee contained in a memorandum which is a letter from the defendant to the 1^st plaintiff dated 11 February 2014.  The operative sentence is the last:

“… I would like to offer you an additional level of comfort. Should there be any issues [current vernacular for ‘problems’] arise Vista’s effort default in their payment on your investment, I will personally cover any shortfall of your initial investment after all reasonable’s been made to recover the investment from Vista.”

This was e‑mailed (seemingly as a draft) on 11 February 2014 and also a signed copy sent as an attachment to an e‑mail bearing the same date.  I do not need to be concerned with the oral guarantee which is disputed.

7.  There is no dispute about the loan agreement on the guarantee signed by him.  Vista eventually defaulted on its repayment obligations and the 1^st plaintiff called in the defendant’s guarantee.  The defendant was unable to meet his obligations in full but handed over a post‑dated cheque for HK$10.3 million made payable to Beauté (the 2^nd plaintiff) on or about 9 August 2014.

8.  When the 1^st plaintiff presented the cheque on 26 August 2014, shortly after it was dated, it was dishonoured, payment being countermanded by the defendant.  He admits this but puts forward some spurious excuse for his action.  A cheque is an unconditional promise to pay the bearer the amount stated on it.  Dishonouring a cheque is, precisely what it says: payment is stopped, the promise is broken.  The action justifies litigation.  There is no defence.

9.  For all the efforts the defendant has made to construct some defence.  There is no defence.  His explanations are not credible, and even if he were able to lend credence to them they would not constitute a defence.  The contents of the text conversations give the lie to his assertions, which he has made on oath.  The implications of that state of affairs are obvious.

10.  However Mr Kenny Lin, for the defendant, has raised some points of law and some alleged factual uncertainties with which I will deal shortly.

11.  His first contention is in relation to the loan agreement itself.  The original agreement was between the 1^st plaintiff and Vista, ie a personal loan by him to Vista.  It appears to be dated 28 January 2014 when it was e‑mailed to him by the defendant with Vista’s corporate signature attached.

12.  Shortly thereafter the 1^st plaintiff’s business — Beauté— was substituted as the lender.  There is an amended agreement to this effect.

13.  Mr Kenny Lin questions the validity of this substitution.  It may have been an informal substitution or assignment but the fact remains, as we shall see, that the money was advanced by Beauté out of its bank account.  Moreover the defendant’s cheque was made payable to Beauté. There is no substance in the construction that somehow the loan agreement is defective and/or invalid by reason of that change.

14.  His next point in chronological sequence concerns the timing of the advance in relation to the guarantee.  The first application for a telegraphic transfer of the loan of US$1.5 million is dated 11 February 2014 to be processed on the following day (ie 12 February 2014).  It is signed by the 1^st plaintiff. Before finally authorising the transfer to Vista’s bank account in Korea the 1^st plaintiff wanted to be certain that he had a formal guarantee from the defendant in respect of the money to be loaned to Vista.  So he held back the application. 

15.  He received this memorandum of guarantee, as it has been called, by e‑mail (in e‑mail form) at 3:02 pm on 11 February 2014.  It was also sent as an attachment in an e‑mail about an hour or so later on the same day.  It was signed by the defendant on a piece of notepaper of one of the defendant’s businesses.

16.  Upon receipt of this, the 1^st plaintiff, though still, he says, with some misgivings about the risks attached to the loan, made a replacement application on 13 February 2014, in the name this time of his business, Beauté, as the lender; it was processed on the 14 February.  So the memorandum was clearly before the loan was made.  So much for that point.

17.  On the matter of the memorandum other points are taken but what is factually clear is that both the 1^st plaintiff and the defendant were involved in efforts to secure Vista’s repayment of the loan after repayment became due, including making trips to Korea to see the persons concerned.  These were all to no avail.  The defendant then knew he was going to be called upon to honour his promise to “underwrite” the 1^st plaintiff’s losses, whether personally or through his business.  The terminology is unequivocal: “I will personally cover any shortfall of your initial investment.” (my emphasis)

18.  “All reasonable efforts” had been made to recover it from Vista.  The exchange of text messages between the two parties also sets out the position in unarguable terms.

19.  He made out the cheque to Beauté as required. He post‑dated it to allow for funds to come into his account so that it could be met.  The details of how he hoped to get the money and the 1^st plaintiff’s own problems exacerbating his need for funds are irrelevant.  The defendant knew that the amount on the cheque was a part payment of the sum owed by Vista.  The only reason he stopped the cheque, deliberately, was his recognition that he did not have the funds with which to meet it and he knew, feared and expressed the consequences of “bouncing a cheque.”  None of the foregoing affects his liability in respect of the cheque and the plaintiffs.

20.  The final contention by the defendant concerns the decision of the Court of Appeal in Fortune Focus International Ltd v The (Holdings) Co Ltd [1998] 1 HKC 578.  I will deal with that shortly.

21.  This case concerned a set of circumstances wholly different from those in the case before me.

22.  The plaintiff there agreed to sell a property to a company not a party to the action who paid the first deposit but defaulted in paying the second deposit.  A revised agreement then reduced the second deposit to be paid by more than 50%.

23.  That reduced second deposit was paid by cheque by the defendant company which had no relationship with the purchaser save some ill‑defined connexion.  The cheque was countermanded.  The vendor sued the defendant on the cheque.

24.  But there was no antecedent debt owed by the defendant to the plaintiff.  There was no agreement between the parties. Although the facts were unclear it appeared that the defendant claimed to provide the cheque for the personal benefit of one of its directors who had a personal interest in acquiring the property.  The provision of the second deposit was therefore intended to be a vehicle with which to carry through the transaction in that director’s interest.

25.  It was held — this was an appeal against an Order 14 application for summary judgment — that the defence of lack of consideration was the mainstay.  The appeal was allowed.

26.  The case before me could scarcely be more different.  The loan was made for the benefit of the defendant.  His guarantee was unarguably in respect of any default in repayment of that loan.  He wrote out a cheque payable to the 2^nd plaintiff which he then countermanded.  The reasons for his action are clearly set out in the exchanges of text from him.

27.  There was a clear relationship between the receipt of the bill (cheque) and the antecedent debt or liability.  There was no third party involvement.  The 2^nd plaintiff had clearly provided consideration for the defendant’s unconditional promise to pay.  As I have indicated earlier there is no defence.

28.  Accordingly, judgment under Order 14 will be entered for the plaintiffs with costs, to be taxed if not agreed.