MOK CHI YUEN AND ANOTHER v. LEE SAU LING ANGEL AND ANOTHER

D E C I S I O N

1.  The plaintiff claims against the defendants under a dishonoured cheque in the sum of $158,031.08.  The defendants oppose the application, raising the defence of:

(1)  conditional delivery of the cheques;

(2) economic duress; and

(3) total failure of consideration.

2.  The law on payment by cheque is quite clear.  As relied by Mr Fung, counsel for the plaintiff, in the judgment of Stone J in Yuen Chak Construction Company Limited v Tat Son Contractors Limited [1997] 3 HKC 294 at page 298 G to I where he referred to Lord Denning’s well-known words in Fielding & Platt v Selim Najjar [1969] 1 ELR 357 to 361 that the bill of exchange or promissory note is to be treated as cash and is to be honoured unless there is some good reason to the contrary.

3.  The defendants’ ground of objection is “there is good reason the contrary” in Lord Denning’s well-known words.  The defendants’ reason for refusing to honour the post-dated cheque was that, it was a conditional payment after confirming the quality and quantity of the raw materials returned by the plaintiff to the defendants’ company, SCA.  The defendants are minority shareholders and directors of SCA.  The defendants issued the said personal cheque because the plaintiff demanded a personal cheque payment and the plaintiff had refused to accept a company cheque from SCA.

4.  The defendants claimed the raw materials returned to SCA’s Indonesia factory were damaged and there were insufficient quantity.  Therefore, the cheque was dishonoured.  The conditional payment is evidenced by the SCA’s letter dated 26 August 2002 on page 74 of the bundle which clearly stated that the payment to be subject to checking of the goods.

5.  The defendants further claimed that the defendants were under economic duress because the plaintiff had refused to ship back to SCA the raw materials which belonged to SCA if the payments were not settled.  If the raw materials were not returned, the defendants claimed SCA would suffer great economic loss.

6.  I find the background to the defendants’ case based on the material in the bundle and the affidavits to be devoid of merits.  First of all, the raw materials belonged to SCA.  They are not the personal chattels of the defendants.  Technically, it is SCA’s defence.

7.  Secondly, the payments under the two post-dated cheques were for a previous order of goods processed by the plaintiff for SCA.  Therefore, whether there was a total failure for consideration should come from a finding of whether the goods processed by the plaintiff under the previous order were of inferior quality. 

8.  My interpretation of the defendants’ defence is, in layman’s terms, the plaintiff was holding the defendants or SCA to ransom, and the defendants being minority shareholders were affected, and the plaintiff refused to return raw materials unprocessed belonging to SCA unless the defendants issued a personal cheque to pay for the work done under a previous invoice. 

9.  The defendants claimed that the SCA had refused to pay for the previous invoice because the work done by the plaintiff was defective in quality.  I am told by Mr Kwok the plaintiff is suing SCA in the Small Claims Tribunal for payment under this previous contract and SCA is counterclaiming against the plaintiff for $220,000.  Mr Kwok informs me that his instructing solicitor is giving an undertaking to court that they represent SCA in the matter and will file a counterclaim in the Small Claims Tribunal and apply for the claim to be transferred to the District Court, and they undertake to apply for a consolidation of this case with the SCA claim.

10.  The third of the defendants’ defence is: total failure of consideration.  I am satisfied that the defendants personally owed no debt to the plaintiff.  The plaintiff admitted it would only accept a personal cheque and therefore the cheque for payment of SCA’s debt was issued by the defendants on SCA’s behalf.  On that basis, there was no consideration from the defendants for the payment personally.  So far as SCA is concerned, this payment also failed because the condition was not fulfilled in that the raw materials were damaged and the previous order of goods were defective.  Whether these allegations are true depends on the outcome of the trial of the claim between the plaintiff and SCA.

11.  Based on the background of this case, which is mingled with the plaintiff’s claim against SCA in the Small Claims Tribunal, the proper course is for the two actions to be consolidated.  I am satisfied that there is clear factual dispute disclosed in the defence although the consideration for payment may have come from SCA, the defendants personally did not owe the plaintiff any money.  The defendants would have to rely on the total failure of consideration for the payment by SCA and the defendants are SCA’s minority shareholders.

12.  I am satisfied they have raised sufficient grounds to defend the plaintiff’s claim.  Therefore, I grant unconditional leave to the defendants to defend on the defendants’ undertaking that the Small Claims Tribunal claim and the counterclaim will be transferred to the District Court to be consolidated with this case for trial.

(Discussion re costs)

13.  I will grant costs for the summons, but the costs of today will be costs in the cause, with certificate of counsel.

(Further discussion re costs)

14.  So I give the plaintiff costs for the application, the summons, but the argument, today’s costs will be costs in the cause.