XCHRX TECHNICON ENGINEERING LTD. v. E. G. ENGINEERING CO. LTD.

HCA 86/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 86 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 Defendant against an order of Master Jones dated 9th June 2000 whereby summary judgment was entered for the Plaintiff in the sum of HK$426,280.00 together with interest.

2. That sum is in respect of two cheques (each for HK$213,140.00) issued by the Defendant and payable to the Plaintiff which were presented but dishonoured being returned to the Plaintiff marked 'not arranged for'.

3. In am invited to set aside the learned master's order and to give leave to the Defendant to defend the action.

The background leading to the application for summary judgment

4. The Defendant was the main contractor and the Plaintiff was the Electrical and Mechanical sub-contractor of a building project in Sai Kung. That sub-contract was entered into pursuant to a quotation dated 17 July 1997.

5. There is a dispute as to when the sub contracted works were, to all intents and purposes, completed. There is argument, inter alia, as to whether the certificate of practical completion was issued in January or in June 1999 but there is in evidence a financial statement from the quantity surveyor to the project dated 28 January 1999 certifying that 95.34% of the electrical and mechanical works had been completed.

6. By letter dated 8 July 1999 to the Defendant the Plaintiff sought payment of the outstanding balance of the contract sum in the amount of HK$1,752,560.00 and threatened legal action in the event of non-payment.

7. In a letter dated 15 July 1999 to the Plaintiff the Defendant referred to a recent meeting at the Plaintiff's office and set out proposals for payment of the HK$1,752,560.00 claimed by the Plaintiff.

8. The proposal set out in that letter (which was apparently accepted by the Plaintiff) was that HK$900,000.00 would be paid on 17 July by 'at sight cheque' and that the balance of HK$852,560.00 would be met by 4 further cheques, each in the sum of HK$213,140.00, post dated to 30 September and 30 November 1999 and 31 January and 31 March 2000.

9. The first two of those post dated cheques were presented by the Plaintiff on 30 October and 30 November 1999 and they were dishonoured.

10. On 5 January 2000 a writ of summons was issued by the Plaintiff; on 16 February a defence and counterclaim was filed, and on 1 March the Plaintiff issued a summons for Order 14 judgment and filed in support an affirmation by its project director CHAN Sing Kit.

11. On 17 March 2000 the Defendant filed an affirmation by its director LAM Sun Tak.

12. On 21 March the Plaintiff, filed a reply and defence to counterclaim and, on 10 April, filed a 2nd affirmation by CHAN Sing Kit.

13. On 9 June judgment was entered for the Plaintiff.

The Defendant's case

14. I say straightaway that this appears to be a 'moveable feast' both on the pleadings and upon the evidence.

15. In its defence and counterclaim filed on 16 February 2000 the Defendant alleges, inter alia, that the Plaintiff was in breach of contract in that it failed to complete the contract work in time and that such work which it did complete was defective; and that the cheques having been drawn as security against the Plaintiff's undertaking to carry out the uncompleted works and, that the Plaintiff having failed or refused to carry out those works, the consideration for the cheques had totally failed. The Defendant sought a 'set off' of any monies found to be due to the Plaintiff against the sum awarded under the counterclaim.

16. In what is called a 'proposed amended defence and counterclaim' filed in the papers before me, the Defendant now seeks to recite and to rely upon two so called 'supplemental agreements' dated 26 July 1999 and 11 January 2000. In the first of those agreements (which it will be noted was signed only a matter of days after the Defendant's proposals as regards the post dated cheques) it stated, inter alia, that the Plaintiff would use its best endeavours to complete any outstanding works and that a payment would be made directly from the employer of the Defendant to the Plaintiff.

17. In the second of those agreements (which it will be noted is dated more than a month after the second of the two cheques had been dishonoured) there is further provision for direct payment by the employer of the Defendant to the Plaintiff.

18. There is no mention whatsoever in either of these agreements of the post dated cheques, the subject matter of these proceedings.

19. In the course of his argument before me Mr Chung, for the Defendant, appeared to be saying (if I understood him correctly) that there was no mention of the post dated cheques because these supplemental agreements were not drafted by lawyers but by the parties themselves, and that in the event that the Defendant's appeal succeeded and the Defendant be given leave to defend, evidence would be adduced on behalf of the Defendant to the effect that it was the intention of the parties upon entering into these agreements that the cheques would be ignored, they being (as it were) subsumed into the agreements.

20. That of course ignores the fact that, certainly by the time of the 2nd supplemental agreement, the cheques had already been dishonoured and the Plaintiff's summons had already issued.

The Plaintiff's case

21. Before the learned master it was argued on behalf of the Plaintiff that

1) the Plaintiff was entitled to succeed by reason of the bare fact of the presentation and dishonouring of the cheques;

2) the letter from the Defendant dated 15 July 1999 makes no mention whatsoever of those matters pleaded and complained of in the defence and counterclaim or in the affirmation of LAM Sun Tak;

3) the allegations of delay and faulty workmanship have no bearing whatsoever on the claim which relates directly to the dishonoured cheques;

4) in any event such allegations were not made contemporaneously and they run counter to the Defendant's acknowledgement of the indebtedness as set out in its letter of 15 July;

5) there is in reality no defence whatsoever and the counterclaim has the hallmarks of a device to frustrate summary judgment; and

6) the Defendant could not satisfy the court by its very limited and selective affidavit evidence that there was an issue, or question in dispute, which ought to be tried.

22. In a full and helpful argument before me Mr Li, for the Plaintiff, repeated much of what had been argued before the learned master and, in addition, sought to say that there are no exceptional circumstances in this case which could permit leave to be given to the Defendant to defend; that there can in law be no set off in an action on a dishonoured cheque; that there is no believable evidence of a total failure of consideration and that indeed the substance of the purported defence seeks to introduce parol evidence which is inadmissible so that, in consequence, the defence put forward is unsustainable. It would be otiose for me to repeat here, Mr Li's authorities for those basic propositions which are well known.

23. As to the Defendant's apparent present defence (which is to the effect that by virtue of the supplemental agreements the Plaintiff had released the Defendant from its payment obligations which were then to be assumed by the employer) Mr Li says that the terms of the first supplemental agreement were consistent with the Defendant's letter to the Plaintiff dated 15 July 1999, and the effect of the second supplemental agreement was no more than to ensure direct payment to the Plaintiff by the employer for work completed by the Plaintiff up to July 1999 together with agreed variation works, and that that agreement was entered into simply to prevent the Defendant from misappropriating or failing to pay the sub-contract sum due to the Plaintiff.

Conclusion

24. Upon the evidence and upon the arguments before me I have no hesitation whatsoever in concluding that the Defendant on being pressed for money by, and which was due to, the Plaintiff issued a number of post dated cheques to the Plaintiff, two of which were dishonoured - and that is what this case (the facts of which are of striking similarity to the facts which led to Yuen Chak Construction Co. Ltd v. Tak Son Contracts Ltd [1997] 3 HKC) is all about.

25. Having asked myself the question - is what the Defendant says credible? - and in seeking to answer that question "not by taking the Defendant's assertions in isolation but rather by taking them in the context of so much of the background as is either undisputed or beyond reasonable dispute" (per Bokhary JA, as he then was, in Re Safe Rich Industries Ltd (CA 81/94, unreported) [1994] HKLY 183) I conclude that the answer to the question is 'no'.

26. It follows that, in my view, the learned master was correct to give judgment to the Plaintiff. The appeal is accordingly dismissed.

27. I make a costs order nisi in favour of the Plaintiff.