CHAN SIN YEE v. CHAN SAU SHAN

DCCJ 3271/2019

[2021] HKDC 31

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3271 OF 2019

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D E C I S I O N

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Introduction

1.  This is the plaintiff’s appeal from the Master’s Order dated 5 October 2020 refusing her application for summary judgment.  The plaintiff’s claim is in respect of a dishonoured cheque for the sum of HK$2,000,000 drawn by the defendant. The Master dismissed the plaintiff’s application for summary judgment with costs and granted unconditional leave to defend.  The appeal is brought by Notice of Appeal dated 19 October 2020 and comes before me on a de novo hearing.

The facts

2.  The key facts are straightforward.  They are either agreed by the parties or can be gleaned from the contemporaneous records.

3.  In 2017, the defendant was the “Vice President - Business Development” of Multi Course Investment Limited (“三業投資有限公司”) (“MCI”).  MCI offered a “fixed interest deposits” plan to its clients. In gist, a client who joined this plan would deposit the principal (the investment sum) in MCI’s bank account for a fixed term, in return for fixed monthly interest.  At the choice of the client, the interest would either be deposited by MCI to the client’s designated account monthly, or by way of post-dated cheques (falling due on the specific dates when interest payment would be due).  The principal would be returned to the client after the maturity date by way of a post-dated cheque (falling due on the maturity date).  The post-dated cheque(s) would be delivered to the client at the time when a written contract was signed in respect of the investment.

4.  From April to December 2017, the plaintiff signed four agreements with MCI which contained identical material terms (with necessary adaptations regarding the dates and amounts of principal, etc.)  It is not disputed that they were all signed by the defendant on behalf of MCI.  The agreements were written in Chinese and entitled “委託投資協議”. The fixed monthly interest was 2%.  Clause 3 of the agreements provided that within 7 days after the maturity date, MCI shall return the principal to the plaintiff:-

“… 在委託有效期完結後，[MCI] 必須在7天內，將甲方 [i.e., the Plaintiff] 所提供的投資資金退還甲方，并必須清付所有應付收益。”

5.  The plaintiff chose to have the interest deposited to her bank account every month.  When each of the agreement was signed, a post-dated cheque (in the amount of the principal) was drawn by the defendant on his personal cheque account maintained with the Public Bank (HK) Ltd. (“Personal Account”) in the plaintiff’s favour.  The plaintiff was told by the defendant to present the cheques after the maturity dates so that the principals would be returned to her.

Date of agreement	Maturity date	Principal (HK$)	Post-dated cheques drawn by the Defendant in favour of the Plaintiff
25 April 2017	25 April 2018	100,000	No. 014359 (25 April 2018)
25 July 2017	25 April 2018	400,000	No. 112590 (25 April 2018)
5 December 2017	5 December 2018	500,000	No. 333314 (5 December 2018)
15 December 2017	15 December 2018	500,000	No. 333318 (15 December 2018)

6.  By 15 December 2017, the plaintiff had in total invested HK$1.5 million with MCI.  On 4 February 2018, the plaintiff messaged the defendant indicating her wish to invest a further HK$500,000.  The plaintiff also requested that the payment dates of the interest under all five agreements be unified.  This is consistent with the defendant’s account, who said that the plaintiff requested to “consolidate” her agreements with MCI.  

7.  The defendant met the plaintiff on 10 February 2018 where a fifth written agreement between the plaintiff and MCI was signed (“the Last Agreement”).  The principal stated in the Last Agreement was HK$2,000,000, with a maturity date on 10 February 2019.  The fixed monthly interest was also 2%.  The material provision in Clause 3 was the same as the four previous agreements.  The Last Agreement was likewise signed by the defendant on behalf of MCI.  Upon signing the Last Agreement, the defendant issued a cheque No. 338807 (post-dated to 10 February 2019) from his Personal Account in the sum of HK$2,000,000 in the plaintiff’s favour (“the Cheque”).  He “hand-delivered the Cheque to the Plaintiff for and on behalf of or on account of the Company for the purpose of return of principal by the Company” (para. 23 of the defendant’s affirmation). 

8.  Although not stated expressly in the Last Agreement, the parties clarified during the oral hearing and agreed that the last four agreements were subsumed into, or replaced by, the Last Agreement (with an additional principal of HK$500,000).  The Cheque also replaced the previous four cheques drawn by the defendant which were never presented for payment.

9.  The defendant explained on affidavit that he opened his Personal Account as instructed by Mr Lai Chun Kwong (“Lai”), the sole director and shareholder of MCI.  “Other employees” of MCI were said to be subject to the same instruction and these personal accounts were used by MCI “for the purpose of running the Company’s investment business continuously”. The defendant says that MCI would deposit funds into its staff’s personal accounts for the payment of the fixed interests or return of the principals to MCI’s clients.  The defendant says further that Lai assured him that:-

“… despite cheques were issued by me from my account(s) to the Company’s customers, I would not be personally liable for the payment or honour of such amount as stated on such cheques because as the customers’ investment products contracts are entered into between the customers and the Company; I am not a party thereto and am simply an employee of the Company; I receive no right, interest, profit, or benefit accruing to either party under such contracts, nor I would suffer any detriment, loss nor has any responsibility or liability under such contracts. If the Company is unable to return the principal and/or interest to the customers, I personally would not be responsible nor has any obligation to make such payments to the customers; the customers would have to chase the Company and it would be matters concerning the Company. more importantly, the funds standing in credit in such cheque account are not my personal money but they are the Company’s monies.” [sic.] (para. 16 of the defendant’s affirmation)

10.  It is clear from the defendant’s affirmation (and confirmed by his Counsel during the hearing) that Lai’s assurance, assuming that it was in fact made by Lai to the defendant, was never communicated to the plaintiff.

11.  On 30 November 2018, the plaintiff received an SMS from the defendant that Lai had made off with the monies of MCI’s clients.  Police reports were made, Lai and several MCI employees (not the defendant) were arrested, but Lai is still at large.

12.  On 21 May 2019, the plaintiff presented the Cheque, which was dishonoured. It is not disputed that notice of dishonour of the Cheque was dispensed with pursuant to s 50(2)(c)(iv) of the Bills of Exchange Ordinance (Cap. 19) (“BOEO”).

13.  By Writ of Summons dated 25 June 2019, the plaintiff claims the sum of HK$2,000,000 against the defendant with interest and costs.  Defence and Counterclaim was filed on 8 November 2019.  Reply and Defence to Counterclaim was filed on 9 December 2019.

The fraud exception

14.  Counsel for the defendant argues that the Court has no jurisdiction to give summary judgment because the fraud exception is engaged.

15.  Pursuant to RDC Ord 14, r 1(2)(b), Ord 14, r 1 does not apply to “an action which includes a claim by the plaintiff based on an allegation of fraud”.

16.  The ambit and application of the fraud exception has been explained in two Court of Appeal decisions, Pacific Electric Wire & Cable Co Ltd v Harmutty Ltd [2009] 3 HKLRD 94, [19] and [23] per Rogers VP, and Zimmer Sweden AB v KPN Hong Kong Ltd & Anor (No.2) [2016] 1 HKLRD 1016, [18] per Yuen JA.  Of particular relevance to the present case are the following principles:-

(1)  What was excluded was an action in which there was a claim based on an allegation of fraud as distinct from a claim for fraud.

(2)  The Court should determine whether the fraud exception applies at the time when the application for summary judgment is heard.  Therefore, the Court should examine all relevant materials existing at the time of the hearing, including pleadings subsequent to the statement of claim and the affidavits.

(3)  Having regard to all the relevant materials, the question to be asked by the Court is “does this action include a claim for which an allegation of fraud would have to be made by the plaintiff in order to establish or maintain that claim?”  If the answer is affirmative, the fraud exception is engaged and the Court has no jurisdiction to hear the summary judgment application even if the plaintiff seeks to hive off that claim from another claim (e.g., for dishonoured cheque) for which summary judgment would have been available.

(4)  In considering whether an allegation of fraud would have to be made to establish or maintain a claim, one must look at the substance, and not the mere form, of the plaintiff’s case.

(5)  The Court must consider whether the factual constituents of fraud are relied upon in order to establish or maintain a claim.  A claim may originally be established without the plaintiff having to make an allegation of fraud, but due to the nature of the defence, the plaintiff may have to allege fraud in rebuttal.

(6)  The Court adopts a wide or liberal meaning as to what is an allegation of fraud for the purpose of the fraud exception.  The fraud exception would be engaged where what is alleged is an intentional or reckless dishonest act (or omission) done with the purpose of deceiving.

17.  The defendant argues that although the claim is based on the dishonoured Cheque, he put forth a defence that the Cheque was not supported by consideration and it was issued for and on behalf of MCI.  In order to “properly respond” to the defence, “it entails P’s confirmation of having not received her investment returns from MCI by reason of a possible fraud practiced by MCI on her” (para 16 of the defendant’s submissions).  On this basis, it is argued that the fraud exception is engaged.

18.  I disagree.  It is not disputed that MCI did not return the HK$2 million principal to the plaintiff (such that the plaintiff is not unjustly enriched if her claim based on the Cheque succeeds).  The plaintiff’s argument in rebuttal to the defence of want of consideration is that she in fact provided valuable consideration for the Cheque.  No allegation of fraud is required for that purpose.  The so-called “possible fraud practiced by MCI on her”, though may be of relevance as a matter of background, is not a necessary element to her claim. 

19.  Put another way, in deciding whether or not the plaintiff succeeds in overcoming the defence of total failure of consideration, it matters not whether MCI was fraudulent.  It also does not matter whether the defendant was entirely honest or somehow implicated in any fraud practiced by MCI.

20.  For these reasons, I conclude that the fraud exception is not engaged in this case.

Applicable principles

21.  The parties agree on the applicable principles.  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.  See: Tong Nai Kan v Cheung King Fung Francis [2005] 2 HKC 249 at [11] (an application for summary judgment in a claim on a dishonoured cheque).

22.  The following principles in relation to actions on a dishonoured cheque are well settled.

(1)  A cheque is an unconditional order in writing, drawn and signed by the drawer, requiring the banker to pay on demand or at a fixed or determinable future time a sum certain in money to, or to the order of, a specified person or to bearer: BOEO ss 3 and 73.  

(2)  The drawer of a cheque, by drawing it, engages that, on due presentation, it shall be paid according to its tenor, and that if it is dishonoured he will compensate the holder, provided that the requisite proceedings on dishonour are duly taken: BOEO s 55(1)(a).

(3)  Every party whose signature appears on a bill is prima facie deemed to have become a party thereto for value: BOEO s 30(1).  It is therefore unnecessary for the person who seeks to enforce a cheque against a party liable to him on the instrument to plead that the engagement of that party constituted by his signature of the instrument was given for consideration.

(4)  Valuable consideration for a bill may be constituted by any consideration sufficient to support a simple contract or an antecedent debt or liability.  Such a debt or liability is deemed valuable consideration whether the bill is payable on demand or at a future time: BOEO s 27(1).

(5)  The defences available include total failure of consideration and (as between immediate parties) partial failure of consideration provided the partial failure is an ascertained and liquidated amount: Suen Ho Sun v Kamenar International Ltd [1989] 1 HKC 135, 139-140.

(6)  It has been said time and again that bills of exchange are treated as cash.  In view of the formal nature of negotiable instruments, to admit extrinsic evidence would undermine the certainty and finality which ought to attach to each party’s promise on the instrument: SY Chan Ltd v Choy Wai Bor [2001] 3 HKLRD 145, [8].

(7)  In contrast to an alleged oral agreement purporting to affect the operation of a bill of exchange, the court is more ready to take account of a written agreement executed contemporaneously with a bill: Neo-Concept Industrial Co Ltd v Sportex Industrial Ltd [1992] 2 HKC 452 at 457I, Ryan J:-

“There was not in those authorities a written contemporaneous contract as there is in this case. Where there is such a document from which the contract evidenced in the bill emanates, it can be considered to see if there is any vitiating factor which deprives the contract written in the cheque of its binding character.”

The defence of total failure of consideration

23.  Although numerous arguments were raised in the Defence including those based on BOEO s 26 and s 26A, the only defence pursued by the defendant in his written submissions was total failure of consideration.

24.  The gravamen of this defence is that the defendant was never a party to the Last Agreement and received no benefit under it, hence the plaintiff provided no consideration for the Cheque he drew from his Personal Account. The defendant relies heavily on Tong Nai Kan v Cheung King Fung Francis [2005] 2 HKC 249 and Sincere Securities Limited v Li Mou Tong CACV 2177/2001 (14 June 2002) where applications for summary judgment based on dishonoured cheques were dismissed. 

25.  The plaintiff’s case is that pursuant to s.30(1) of the BOEO, consideration is presumed until the contrary is proved.  She provided sufficient consideration for the Cheque by agreeing to enter into the Last Agreement and accepting the Cheque as payment for the return of the principal thereunder. She relies on the fundamental principle that consideration must move from the promisee (the plaintiff) but not necessarily to the promisor (the defendant).

26.  I am not persuaded by the defendant’s argument.  The plaintiff plainly provided valuable consideration for the Cheque by, at the very least, accepting the Cheque as full performance of MCI’s obligation under Clause 3 of the Last Agreement.  The very purpose of the Cheque (referred to in numerous occasions by the defendant in his affirmation) was to repay the principal to the plaintiff. Counsel for the defendant also accepted that once the principal was returned to the plaintiff upon the Cheque being honoured, the performance of the Last Agreement would come to an end.

27.  Sincere Securities Limited v Li Mou Tong CACV 2177/2001 (14 June 2002) concerns facts very different from the present case.  There, an employee (D) of a stock broking company (P) introduced a client to the company.  The client defaulted, causing loss to the company, and the employee drew cheques to the company covering the loss.  The company’s case was that the employee drew the cheques because he was obliged to indemnify the company under his employment contract or “trade practice”.  There were disputes as to whether the indemnity or trade practice existed (indeed it was not even clear whether any written term of employment existed, see para. 19 of that Judgment), and the employee claimed that he wrote the cheques as a result of threats made by the company’s representatives.  In this case, the key facts are not in dispute.  The defendant has in evidence admitted that he delivered the Cheque to the plaintiff so as to return the principal to her upon maturity of the Last Agreement.

28.  In Tong Nai Kan v Cheung King Fung Francis [2005] 2 HKC 249, the plaintiff’s company (First Link) made a loan to the defendant’s company (Fodon).  The defendant’s case is that as Fodon could not repay the loan on time, he (at the plaintiff’s request) wrote personal cheques for the purpose of showing to the plaintiff’s business partners only, and upon the plaintiff’s oral undertaking that the cheques would not be presented.  The cheques were presented by the plaintiff and dishonoured.  The defendant raised the defence that there was no consideration for the cheques, and misrepresentation.  One can readily see the material distinction of that case, where the cheques had no relationship with the underlying loan (save and except a plausible argument based on forbearance to sue as discussed in para. 16 of that Judgment).  In this case, the delivery of the Cheque was for the admitted purpose of discharging MCI’s obligation under Clause 3 of the Last Agreement.

29.  It was emphasized by the defendant’s Counsel during oral submissions that there is no forbearance to sue because the plaintiff never “elected” that she will not sue MCI.  Obviously, if the plaintiff recovers in full against the defendant, she cannot have double recovery against MCI.  However, this is irrelevant to the analysis of whether the plaintiff provided sufficient consideration for the Cheque.  Whether or not the defendant has any claim against MCI or Lai is also an irrelevant question.

30.  It is argued on behalf of the defendant that the parties did not treat the Cheque as cash because (i) it was post-dated, and (ii) the four previous cheques were not presented.  This argument is bound to fail because the post-dating does not alter the fact that the Cheque is an unconditional order in writing by the defendant to his bankers to pay the specified sum to the plaintiff on the specified date.  The four previous cheques ceased to be material because they were replaced by the Cheque, as a result of the plaintiff’s request to “consolidate” her investments.

31.  During oral submissions, a defence of conditional delivery was alluded to.  The gist of the argument was that a “condition” was attached to the delivery of the Cheque, namely the defendant would not be liable to honour it unless MCI paid him first.  Towards the end of oral submissions, the condition was said to be one of “condition subsequent”. I reject this argument because (1) it is not pleaded; (2) it is contradicted by the defendant’s own affirmation (for example, paras. 19, 23) that the Cheque was delivered for the purpose of payment of the principal without mentioning any condition; and (3) it is contradicted by the defendant’s confirmation that the alleged assurance of Lai was not communicated to the plaintiff. 

32.  For completeness, I am of the view that the pleaded defence based on BOEO s 26 and s 26A (which was not pursued in argument) is bound to fail because those sections are plainly inapplicable.  In particular, the defendant did not sign the Cheque with any written indication that he signed for or on behalf of a principal or in a representative character.

Disposition

33.  For the reasons stated above, I allow the appeal.  Neither party addressed me on the question of interest, thus I will make an order nisi in that regard.

34.  I make the following order:-

(1)  The plaintiff’s appeal be allowed.

(2)  There be final judgment to the plaintiff on the Cheque in the sum of HK$2,000,000.

(3)  On a nisi basis, there be interest from 21 May 2019 to the date of judgment and thereafter until the date of payment at judgment rate.

(4)  There be an order nisi that the defendant pay the plaintiff’s costs, including all costs reserved, to be taxed if not agreed.

35.  What remains is the Counterclaim.  It is in essence a repetition of the Defence with the additional averment that the plaintiff was not entitled to present the Cheque or presented the Cheque wrongfully.  Given that summary judgment is granted, the parties should endeavor to dispose of the Counterclaim in a costs-efficient manner.

36.  I thank counsel for their assistance.