XCHRX KAN CHI CHUEN v. NEW HAPPY LTD. AND OTHERS

HCA8958/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.8958 OF 2000

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J U D G M E N T

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1. This is an appeal by the 1st, 2nd and 3rd defendants from an order by the master whereby the master entered summary judgment against all three defendants in respect of the claim made against each of the three defendants for the total amount claimed in the Statement of Claim of $2.15 million.

2. At the hearing before me, elaborate arguments had been advanced by Mr Chua on behalf of the three defendants. Everything that could possibly be said by counsel for the defendants had been said. In fact Mr Chua could be said to have gone beyond the duty and responsibility normally expected from counsel. I find however no merit in any of the submissions made to me.

3. The story of the claim by the plaintiff against the defendants went back a little bit of time. The chronology as set out in Mr Lam's helpful submission shows that the original loan in the sum of $5.5 million was made by the plaintiff to the 1st defendant some time ago way back in 1994. They were guaranteed by the 2nd and 3rd defendants. Some $3 million became outstanding and cheques were given for the repayment.

4. The important event which forms the nucleus and heart of the defence of Mr Chua today is what is said to be the transaction between the 1st defendant and a company by the name of Long Wan International Ltd ("Long Wan"), in which the plaintiff has some interest. It would seem that the 1st defendant has supplied goods and services to Long Wan and that a substantial sum perhaps in the region about $2 million was owing by Long Wan to the 1st defendant. But Long Wan of course is a separate company even though the plaintiff did have a shareholding and directorship interest in Long Wan. It was said by Mr Chua in argument that there was an agreement made in late 1995 or early 1996 ("the 1995 Agreement") whereby certain promises were made to the 1st defendant. The substance of the allegation can be seen at p.47, para.9 of the 1st defendant's affirmation and this is said :-

"But, sometime in late 1995 or early 1996, the Plaintiff informed me that he had 3 other partners in Long Wan but he was in the process of taking over Long Wan and he intended to run Long Wan by himself. The Plaintiff said that once he had taken over Long Wan, he would then set-off the balance of the Loan owed to him by the 1st Defendant against Long Wan's outstanding account with the 1st Defendant."

And it is said in argument by Mr Chua that this important conversation which is of course denied by the plaintiff can be the subject of an alleged arguable set-off agreement or representation so that all defendants can rely upon it and take the benefit of using such as a basis for the defence against the claim brought by the plaintiff.

5. In August 1998, there was a cash payment made to the 1st defendant by the plaintiff side and that is reflected by an accounting table at p.150 of the Bundle (the English translation) which shows that a sum of $659,000 odd representing the 29.58% of the $2.2 million debt of Long Wan should be borne by the plaintiff. This was a document which records the actual payment of some $583,772.15 to the 1st defendant as reflected in the cheque on p.151 of the Bundle. Later, in November 1998, there was apparently an agreement whereby the plaintiff agreed to reduce the debt owing by the defendants by half a million and therefore reducing it from $3 million to $2.5 million.

6. In May 2000, there was a written acknowledgement by the 2nd and 3rd defendants of the debt of $2.5 million. This was followed by a written agreement on 6 June 2000 at pp.101-111 of the Bundle, whereby a package was agreed, namely that there was a rescheduling of the outstanding amount with an immediate payment of $150,000 and with a monthly payment of $100,000, and with a provision that the whole sum of $2.35 million would be payable immediately if there is default in any of the monthly payment and a cheque of $2.35 million written by the 2nd and 3rd defendants was given to support the agreement. Unfortunately, only some of the $100,000 monthly payments had been made with the result that after two payments, one in July 2000 and one in August 2000, there was no subsequent payment leading therefore to the claim that is now made in this action.

7. The plaintiff has two causes of the action against the 2nd and 3rd defendants. The first and the most powerful cause of action is under the cheque. The second cause of action by the plaintiff against the 2nd and 3rd defendants is pursuant to the agreement of June 2000. So far as the claim against the 1st defendant is concerned, of course, there was no cause of action under any cheque because the 1st defendant did not issue a cheque and therefore the cause of action is under the agreement of June 2000.

8. The question that took most of the time at the hearing was whether there was in law any possibility of a defence by the 2nd and 3rd defendants against summary judgment in respect of the cheque cause of action. I think it is reasonably clear, at least to me, and I have not been shown any authority whereby in relation to a claim based on the cheque (which is to be treated as cash), except for fraud, misrepresentation or estoppel could be the basis of a defence. I am not persuaded and I have not been shown any authority to suggest that liability for cheque can be avoided by allegations of misrepresentation or estoppel.

9. The heart of the case raised by Mr Chua really is based on this alleged set-off agreement or representation in 1995. But this was nowhere documented neither contemporaneously or otherwise (other then the affidavit). The 1998 document (at p.150 of the Bundle) whereby there was an actual payment by the movement of cash proved an actual payment by the plaintiff in respect of his share of the Long Wan debt to the 1st defendant. There was no set-off. This document is therefore hardly the kind of set-off alleged in the 1995 Agreement.

10. In my view, having regard to all the surrounding circumstances, although I must warn myself that this is an Order 14, it seems to me that the argument and the submissions made to me based on a case of a set-off agreement or representation in 1995 was not made out. In my view, even on an Order 14, the court is entitled to take a robust view of what had happened, and also to take a robust view of subsequent events. The subsequent events in 1998 and 2000, all suggest to me that the parties regarded the true position of the indebtedness of the defendants to the plaintiff as being in no way affected by the alleged indebtedness of Long Wan to the 1st defendant or by the plaintiff's financial interest in Long Wan. Afterall, the transaction in August 1998 resulted in actual cash movement by the plaintiff's side to the 1st defendant, certainly not a set-off in the sense that Mr Chua was trying to ask the court to accept. Without a finding or acceptance by the court of a valid 1995 Agreement or a set-off promise, there seems to be nothing left for any of the defendants, certainly not the 2nd and 3rd defendants because they would have no basis to defend a cheque action on a 1995 promise or agreement which was rejected nor for the 1st defendant because the same defence was also rejected.

11. There was in the course of the argument a reference to a total failure or partial failure of consideration in relation to a cheque. I think that if you look at what happened in June 2000, what was really agreed was a package and the plaintiff agreed to hold off in consideration of the defendants' various agreements. This is of course after taking into account of the May 2000 Table (p.104-5) signed by the defendants. In the light of the package agreed in June 2000, there seems to me really no scope for either a finding of total lack of consideration or even a partial failure of consideration on a pro tanto basis.

12. It seems to me that notwithstanding all the skillful arguments presented to this court, there is really no basis either in law or on the facts for the court to withhold entering final judgment against all the defendants. I therefore conclude in my judgment that the Master was correct in entering summary judgment. The appeal therefore is dismissed with costs which I propose to now assess by way of gross sum assessment.