WIN HOME ENTERPRISES LTD v. ACME PLAN INTERNATIONAL LTD

HCA 849/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 849 OF 2003

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J U D G M E N T

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1. This is an appeal against a decision of Master Au-Yeung granting summary judgment to the Plaintiff pursuant to RHC Order 14.

2. The Defendant is the drawer of the following two cheques in favour of the Plaintiff both of which were dishonoured upon presentation for payment.

3. The Plaintiff issued the Writ on 6 March 2003 and issued the Order 14 Summons on 25 March 2003. The matter came before the Master on 24 June 2003 who entered final judgment against the Defendant. Notice of appeal was entered on 8 July 2003 and the appeal came before me on 21 August 2003.

4. The factual background surrounding the events leading to these proceedings are as follows:

(a) The Defendant agreed to supply goods to its US customer, Thomas Pacconi Classics Inc., by a series of purchase orders numbered 304113, 304115, 304122, 306150, 306151 and 306647.

(b) The Defendant purchased parts to fulfill its said US orders from inter alia the Plaintiff. It seems to be common ground that only the goods under orders 304113 and 304115, referred to above, were to be sourced from the Plaintiff.

(c) The parties are in dispute as to whether the Plaintiff supplied the goods late resulting in the Defendant being unable to meet its contractual obligations to its US customer.

(d) It appears to be undisputed that the Defendant failed to comply with the delivery dates to its US customer and the US customer has now instituted proceedings in the United States arising out of the breach. The action, which was commenced on 2 June 2003, is still in progress.

(e) The Plaintiff says that it complied in a full and timely manner with all the terms of its agreements with the Defendant, and that any delays to the Defendant's delivery to its US customer were caused by suppliers other than the Plaintiff.

(f) The Defendant says that the Plaintiff is either wholly or partly responsible for its inability to meet the terms of its obligations to its US customer.

(g) There appears to be no issue that the Defendant issued a series of 12 cheques to the Plaintiff in respect of their contractual relationship, of which only the 2 the subject of the action were dishonoured, and that one of those cheques (issued on 14 November 2002) was amongst those honoured.

5. The Defendant claims to have a triable defence to the action on the basis that the dishonoured cheques were issued subject to a collateral term and that payment was only to be conditional upon delivery of goods within a stipulated time that was not met. Further, the Defendant says that the cheques were issued under economic duress, namely threats by the Plaintiff to defer delivery unless the cheques were issued, and threats of claims for damages by the US buyer. In addition, the Defendant asserts that payment to the Plaintiff is conditional upon its success in the aforesaid action brought against it by its US buyer for breach i.e. the cheques will be honoured only if the US proceedings against the Defendant fail.

6. A cheque is an unconditional order in writing requiring the drawer's bank to pay on demand, or at a determinable future date, a specific sum to the drawee - ss. 3 and 73(1) Bills of Exchange Ordinance (Cap. 19).

7. In this case, the 2 cheques in question were post-dated at the time of delivery but this does not affect their validity. They were issued as part of a series of cheques, issued both before and after the subject cheques in the course of ongoing commercial activities between the parties.

8. The Defendant seeks to introduce oral evidence to show that the delivery was conditional or for a special purpose and not for the purpose of transferring the property in the bill. It relies upon s. 21(2)(b) of the Ordinance i.e. the parol evidence rule.

9. In Chalmers & Guest on Bills of Exchange, Cheques and Promissory Notes (15th Edn.) at para. 380 it is put thus: -

"The defect in delivery may be established by oral evidence. The parol evidence rule does not apply. This is in conformity with the common law which admits oral evidence to show that what purports to be a written contract is no contract at all or to prove an agreement that a written contract is not to come into operation until a certain condition is fulfilled. In practice, however, it may be difficult to distinguish between situations where it is orally agreed that the bill is not to become operative pending the fulfilment of a condition (in which case oral evidence of the conditional delivery will be admitted) and situations where the bill is delivered operatively but subject to an oral agreement in defeasance of a party's liability on the bill (in which case oral evidence to qualify the terms of the written instrument will normally not be admitted."

The position is then further clarified at para. 385 in the following way:-

"....... since the contracts of the parties to a bill or note must be in writing, oral evidence is in principle excluded by the operation of the rule, even as between immediate parties to the instrument. There is, perhaps, less injustice in this than at first sight appears. In view of the formal nature of negotiable instruments, it is arguable that to admit such evidence would undermine the certainty and finality which ought to attach to each party's promise on the instrument."

Finally, at para. 386:-

"Most cases where the parol evidence rule has been applied are cases where a party to a bill or note has sought to qualify his absolute undertaking on the instrument by adducing evidence of a contemporaneous oral agreement in defeasance of that undertaking, that is to say, that his liability is to be enforceable against him only in certain contingencies or that it is to be postponed to a time later than that expressed on the face of the instrument. Since the effect of such evidence would be to contradict the terms of the written instrument, it is inadmissible."

10. The dispute between the parties relates to the terms of the underlying contract between them. As such it cannot be relevant to a claim on the cheques since they are separate and distinct contracts. The effect of any oral agreement would be to render the cheques meaningless since they were not to take effect unless and until the Defendant receives full payment from the third party. Oral evidence is not admissible to contradict the terms of the written instruments. Prosperity Lamps & Components Ltd v Rotegear Corp. Ltd [2000] HKC 638 and Great Sincere Trading Co. Ltd v Swee Hong & Co. [1968] HKLR 660.

11. The issue of the 2 cheques in question are recognized and accepted as part payment for goods delivered by the Plaintiff and accepted by the Defendant. Their place in the transaction between the parties is evident from the Schedule annexed to the Second Affirmation of Chang Po Wen filed on 11 June 2003. The cheques were unconditional orders in writing by the Plaintiff to its bankers to pay the amounts of the 2 cheques to the Plaintiff on or after the due dates. The Defendant seeks to vary the conditions of payment by oral conditions, namely that they were conditional orders to pay and that payment was conditional upon the outcome of litigation commenced months after the due date of the cheques. This would render the instruments worthless in the Plaintiff's hands. This oral evidence to alter the terms contrary to the terms of the written instruments is inadmissible. S Y Chan Limited v Choy Wai Bor HCA 1731/2000 (unreported).

12. I am satisfied that there is no triable issue and that the Judgment was properly entered by the Master. The appeal is therefore dismissed.

13. I make an order nisi on costs that the Defendant do pay the Plaintiff the costs of this Appeal. The costs Order of the Master below shall stand.