XCHRX KWONG SAI HUNG AND ANOTHER v. HUI HON SING

HCA 6344/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 6344 OF 1999

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REASONS FOR DECISION

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1. The plaintiffs claim against the defendant for the sum of $528,125.00 being the amount of a cheque drawn by the defendant in favour of the plaintiffs which cheque was dishonoured upon presentation for payment.

2. The plaintiffs obtained summary judgment against the defendant in respect of said dishonoured cheque from Master Susan Kwan on 3 November 1999. The defendant now appeals against the order of Master Kwan.

3. By a Sale and Purchase agreement dated 9 June 1998 (the Sale and Purchase agreement) and made between the plaintiffs and one Modern Emperor Limited, the plaintiffs agreed to sell and Modern Emperor Limited agreed to purchase the property known as the Royal Palms Phase One, House Type P, No. 10 Marin Avenue (the said property), for $8,328,000.00 and completion of the transaction was scheduled to take place on or before 13 August 1998.

4. Modern Emperor Limited paid to the plaintiffs a deposit of $848,000.00 as initial deposit and part payment of the purchase price.

5. By a deed of guarantee dated 24 June 1998, the defendant agreed with the plaintiffs to guarantee the due performance by Modern Emperor Limited of the Sale and Purchase agreement.

6. Modern Emperor Limited was unable to complete the transaction at the scheduled date, the parties agreed to postpone the completion date to 27 August 1998 by a supplemental agreement under which Modern Emperor paid a further deposit of $1 million.

7. The supplemental agreement under Clause 4 thereof further provided the following:

"If the purchaser (Modern Emperor Limited) cannot pay the full amount of the part of balance of the purchase price on the date of the completion, the vendor, (the plaintiffs) agree that the purchaser may pay on 27 August 1998 a sum of $500,000.00 being part of balance of purchase price together with interest thereon at the rate of 11.25% per annum by a post-dated cheque of $528,125.00 payable on 27 February 1999 and the parties hereto shall upon completion sign a Loan Agreement made between the vendor as lender and the purchaser as the borrower in respect of the said sum and interest thereon and the purchaser shall procure Hui Hon Sing, (the defendant) to sign a guarantee on the date hereof to secure the due performance of the purchaser in respect of the said sum."

8. Modern Emperor Limited was unable to pay the full amount of the balance of the purchase price and in accordance with Clause 4 of the supplemental agreement, the defendant drew the dishonoured cheque in question in the sum of $528,125.00 in favour of the plaintiffs.

9. Pursuant to the supplemental agreement, the plaintiffs and Modern Emperor Limited signed a loan agreement in respect of the said sum of $500,000.00 and the defendant also executed a deed of guarantee, (the second guarantee), in favour of the plaintiffs.

10. The defendant alleges that the cheque, being his personal cheque was only given in his capacity as a guarantor under the second guarantee. The defendant contents that his liability under the guarantee was thus secondary and conditional upon the plaintiffs giving the requisite notice of default under the second guarantee. The defendant further suggests there was no consideration for the cheque in question.

11. Mr Chow on behalf of the defendant relies in particular on a letter dated 15 March 1999 from the plaintiffs' solicitors, which letter suggests that the cheque was presented for payment because the borrower, that is Modern Emperor Limited, had failed to make payment.

12. I must state at the outset with respect that the supplemental agreement, particularly Clause 4 is not a very well drafted. It is difficult to understand with any degree of certainty as to the precise meaning and effect of the reference to the Loan Agreement.

13. Despite such observation, what is clear is that under Clause 4 of the supplemental agreement, it was Modern Emperor Limited which had to pay the sum of $528,000.00 odd and not anyone else.

14. The defendant's obligation under the supplemental agreement and the second guarantee was simply to guarantee the due performance of Modern Emperor Limited of the supplemental agreement and the loan agreement. That was the defendant's only obligation under the documents in question. There was no obligation on his part to make any prior payment to the plaintiffs by way of a cheque or otherwise.

15. Indeed, the cheque in question for $528,125.00 was clearly a payment under Clause 4 of the supplemental agreement and the obligation to make such payment rests squarely on Modern Emperor Limited.

16. The cheque was a personal cheque of the defendant. Mr Chung drew the court's attention to the fact that Modern Emperor Limited was just a shelf company with the defendant as a major shareholder and director. This may not be a very important point, although it may explain why the defendant chose to make that payment on behalf of Modern Emperor Limited.

17. But the cheque in question could not be a payment from the defendant in his personal capacity as such. It must be, in my view, a payment by the defendant on behalf of Modern Emperor Limited. My view on this matter is not affected by the letter dated 15 March 1999.

18. Insofar as the defendant's case rests purely on the suggestion that the payment was made by him in his capacity as a guarantor under the second guarantee, the suggestion was contradicted by the contemporaneous records including the very letter which accompanied the payment in question.

19. In my view, the defendant's case is simply not credible. As I have observed earlier under the second guarantee, the defendant had no obligation to make any prior payment by cheque or otherwise.

20. Under the supplemental agreement, all payments made by Modern Emperor Limited, other than the initial deposit under the schedule to the Sale and Purchase agreement, could be retained by the plaintiffs as security for the compensation to be assessed in accordance with Clause 2.02 of the supplemental agreement.

21. Whether the plaintiffs can retain all or part of the payment made by Modern Emperor Limited is a matter to be sorted out between the plaintiffs and Modern Emperor Limited. Whether the defendant himself can obtain reimbursement from Modern Emperor Limited is perhaps a question between themselves as well.

22. The cheque payment in question was clearly a payment made on behalf of Modern Emperor Limited by the defendant under the supplemental agreement in question. The defendant's alternative suggestion is plainly incredible and, in my view, he failed to put forward any arguable defence.

23. Master Kwan was right in ordering summary judgment in favour of the plaintiffs in respect of the dishonoured cheque in question. There is no valid basis upon which the court can interfer with the decision of Master Kwan.

24. In the circumstances, the appeal must be dismissed and I so order.