LAW KWAN WAH t/a LAW KWAN FAT NOODLES FACTORY v. KWOK KWAN CHO

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JUDGMENT

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Fuad, J.A.:

1. This is an appeal from the order of Deputy Judge Barnett dated 4 April this year, dismissing an appeal from an 0.14 judgment entered by Master Hansen. The action was a perfectly straightforward one on two dishonoured cheques, one dated 14 December 1984 for $80,000 and the other dated 28 December for $20,000, Judgment was entered therefore for $100,000.

2. The grounds upon which the Defendant sought leave to defend are set out in his affirmation of 27 February this year. The facts he put forward are somewhat involved and certainly unusual.

3. He stated that as at July 1984, the Plaintiff and he were two of 18 shareholders in a company which ran a restaurant. The company had been incorporated in March 1978.

4. In early September 1984 he and a Mr. Man Yun Yin had orally agreed with other shareholders that they would act as nominees for 14 of the shareholders (of whom the Plaintiff was one) in order to purchase 420,000 shares in the company at a price of $231,000 from 4 shareholders who wanted to get out. As the company was in financial difficulties this would be a fair price for the shares. It was part of the agreement that the 420,000 shares would be allocated to the 14 remaining shareholders in proportion to the shares they already held and that payment for the allotments would be made towards the end of October 1984.

5. It is then said that in order to facilitate the purchase of the shares the Plaintiff had contributed $80,000 by means of a crossed cheque payable to bearer. The cheque was handed to the Defendant in the middle of September 1984. The Plaintiff had assured him that he would take up his proportion of the future allotment of 420,000 shares. Since the shares were to be alloted proportionately and he was the holder of 60,000 shares, he would be receiving an additional 20,000 shares for which he would be liable to pay $11,000.

6. According to the Defendant, the Plaintiff also agreed, should it become necessary, to pay for the allotment of the shares to his father who held 120,000 shares (so that the father would receive an additional 40,000 shares) at a price of $22,000 and to a Mr. Ng Hoc Keung who at that time held 60,000 shares, for which he would receive an additional 20,000 shares at a price of $11,000. The Plaintiff would thus be responsible for the payment of a total of $44,000.

7. The Defendant's affirmation continues by saying that as security for the return of the $80,000 in case the proposed purchase fell through (or the balance due to him), the Plaintiff had asked him to draw a cheque for $80,000 post-dated to 14 December 1984. He therefore gave him a cheque for that sum, post-dated accordingly. This was the first cheque sued upon.

8. That the 420,000 shares would be taken up at a discount value of $231,000 and distributed among the remaining shareholders was confirmed in a resolution dated 24 September 1984, which he exhibited to his affirmation. The Defendant then states that on 24 September the Plaintiff signed an allotment form showing his intention to take up his proportion of the shares, but on the following day he had gone to the company's registered office and retrieved the form.

9. The next event was that in the middle of October 1984 (when the shares were due to be allotted) the Plaintiff, his father and Mr. Ng refused to pay for their allotment and the Plaintiff demanded the return of $80,000 claiming that he had lent the money to him as a personal loan in order to buy the shares on behalf of the other acquiring shareholders. The Plaintiff had said to him that he was not contractually bound to take the shares because the company was then in financial trouble. He, the Defendant, had refused to return $80,000 and had reminded the Plaintiff of his earlier assurances, and the allotment form which he had signed.

10. The Plaintiff had been well aware, said the Defendant, that the company was in financial trouble before he had given him the cheque for $80,000, for he had been a shareholder since 1984, and the company had already begun to run into financial difficulties in about July 1984.

11. The Defendant then speaks of a meeting of the company's ahreholders which took place on 29 October 1984 at which the Plaintiff was present and when it was resolved that due to the company's financial position, business would cease or the 31st October of that year. A petition for winding-up the company was presented during the next month, and in January 1985 the winding-up order was made by the court.

12. The Defendant's affirmation goes on to say that on 17 December 1984 the Plaintiff had gone to see him at a restaurant in the New Territories, and again demanded repayment of $80,000. As the Plaintiff was embarrassing him in public, he had issued a cheque post-dated to 28 December 1984 for $20,000. This was the second cheque sued upon. At the same time he had issued a third cheque post-dated to 20 January 1935 in the sum of $60,000.

13. When he had handed these two cheques to the Plaintiff, he had reminded him that he was still liable for $11,000 being the payment due on his allotment as well as an additional $33,000 being the amount payable for the allotments to his father and to Mr. Ng under his earlier promise. The four transferors had already been paid and the $80,000 had been used for this purpose: the proceeds of the first cheque.

14. I will interpolate here that on 23 March 1985 the Defendant paid the sum of $36,000 into court and the notice stated that this sum was "in full and final satisfaction of the Plaintiff's claim hereinafter taking into account and satisfying the above-named Defendant's cause of action for $44,000 in respect of which he counterclaims."

15. The Plaintiff's affirmation in reply categorically denies all that is said in the Defendant's affirmation save (a) the details of the incorporation of the company, its capital and the original shareholding; (b) the meeting at the end of October 1934 when a resolution was passed that the company would cease to do business and (c) the winding-up petition.

16. About the cheques upon which he sues, the Plaintiff said that he had given a loan to the Defendant, at his request, in late April 1984 of $100,000. It was arranged at the time that a loan would be repaid by two instalments, $80,000 on 14 December 1984 and $20,000 on 28 December and it was for these purposes that the Defendant had given him the two cheques, post-dated to those dates, which had been subsequently dishonoured upon presentation.

17. The learned Judge's reasons are in note form and very short, and I will read them:

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Para. 17 not duress. Accept defendant's affirmation at face value. Sufficiently particular to suggest not a shadowy background. But notwithstanding the possible allotment form, I can see no reason to distinguish Great Sincere. There is no admissible evidence to contradict first cheque. Appeal dismissed with costs. Amount paid into court to be paid out to the plaintiff's solicitors."

18. I mean no disrespect to Mr. Chain's submissions by not proposing to go into them in detail. On reading the affirmation, I cannot see that the evidence, even if every word be accepted, is sufficient to show that there was a condition suspending the operation of the first cheque, and the condition had not been fulfilled so that the instru-ment was in effect a mere escrow. And since the agreement relied upon by the Defendant is not such an agreement, but it is suggested that there was an arrangement in defeasance of the contract evidenced by the cheque, it is plain on authority that any evidence to that effect would be inadmissible.

19. I cannot, speaking for myself, find anything in the affirmation that would amount to an arguable defence on the first cheque of $80,000 which was dishonoured and so I would dismiss the appeal in so far as it relates to summary judgment being entered for the sum of $80,000 but I would make a different order in respect of the second cheque for $20,000.

20. It is not the time for us to go into the merits of the case and it may be that the Defendant will have considerable difficulty in establishing what he says in paragraph 17 of his affirmation regarding the embarrassment that caused him to give the cheque for $20,000 on 17 December, which is the amount remaining from $100,000 for which judgment was originally entered. However, implicit in that paragraph, it seems to me, there is an averment that there was no consideration for that cheque although it was not quite put that way by Mr. Chain on behalf of the Appellant.

21. In these circumstances (and Mr. Peter Cheung has been good enough to indicate to us that he would not oppose conditional leave in respect of that $20,000) I would allow the appeal only to the extent of giving leave to the Appellant/Defendant to defend on condition that he pays $20,000 into court.

Cons, J.A. :

22. I agree with the order proposed by my Lord as to the $80,000 cheque. The defence which I understand is sought to be put forward is that the cheque was a valid cheque when first given but was subsequently discharged by the acquisition of the Plaintiff of a right to demand delivery of the shares said to be in question and a right to demand the balance of $36,000 said to be remaining due to him.

23. From a practical point of view I cannot find such an agreement contained in the affirmation put before the Judge below, nor in particular in paragraph 9 where it is suggested it may be found. From a legal point of view it would in any event be no defence. The case of Hitchings and Coulthurst Company v. Northern Leather Company of America and Doushkess ⁽¹⁾, to which our attention was drawn by Mr. Chain, is an example of how a suggestion which was similar in principle was rejected.

24. As to the $20,000 cheque, the Defendant's affirmation shows, if true, that no consideration was given for it, but the circumstances in which it is said to have been given are to my mind so bizarre that I think a condition for payment into court is warranted.

(1) [1914] 3 K.B. 907

Kempster, J.A.:

25. I agree with the course proposed by my Lords and with the reasons they have respectively given therefor.