D. HEUNG & ASSOCIATES, ARCHITECTS & ENGINEERS LTD. v. ETERNAL UNITY PROPERTIES LTD.

DCCJ21299/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 21299 OF 2001

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Judgment

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1. The Plaintiff claims against the Defendant on a dishonoured cheque, the amount of the cheque is HK$270,270.27. The cheque is dated 16th October 2000 and the Plaintiff presented the cheque for payment on 28th November 2000. It is not disputed by the Defendant that they have issued the cheque in favour of the Plaintiff and that the cheque has been dishonoured. However, the Defendant claims that they are not liable to pay the cheque.

Undisputed Facts

2. It is helpful to state some background as to how the cheque was issued to the Plaintiff. These are basically not disputed. The Defendant was a developer of a residential development project in Beijing. The Plaintiff was appointed as the consultant to the project. The Plaintiff and the Defendant entered into a consultancy contract on 12th August 1997. The said contract was subsequently modified by a supplemental contract. The work to be done was re-scheduled and a timetable was set out in clause 3 of the supplemental contract. Clause 4 of the contract provides for payment. The following clauses are important:-

4.4. According to the arrangement in [clause] 3.4, [the Defendant] shall pay RMB 250,000 after [the Plaintiff] submits all the construction drawings and structure calculation data of the building on July 31st 2000.

4.5 According to the arrangement in [clause] 3.5, [the Defendant] shall pay RMB 300,000 after [the Plaintiff] submits all the construction drawings and document required for applying for construction certificate on August 20th 2000.

4.6 [The Defendant] shall pay RMB 400,000 after all the construction drawings and documents have been reviewed and approved by governmental authorities and construction certificate has been obtained.

3. Now I am moving into the area of dispute.

The Case of the Defendant

4. According to Mr. Lee Mang Lai Alexander ("Mr. Lee") of the Defendant who filed an affidavit on 11th January 2002, after entering the supplemental contract, one Mr. To of the Plaintiff had a conversation with him. Mr. To admitted to Mr. Lee that the Plaintiff is in financial difficulty. Mr. Lee had also been informed by the sub-consultant that they were not paid the Plaintiff. Mr. Lee then agreed to make available to the Plaintiff two post-dated cheques payable according to clauses 4.4 and 4.5 of the supplemental contract. These cheques were to be paid as soon as the work had been completed. It was agreed orally (referred to in the affidavit of Mr. Lee as a "supplemental contract") between Mr. To and Mr. Lee that the Plaintiff would not cash in the cheque before he had fulfilled his contractual duties. Mr. Lee said it was because of this assurance by Mr. To that he made available to the Plaintiff these two cheques. The second cheque is the subject matter of this action.

5. According to Mr. Lee these 2 cheques were attached to a letter dated 22nd September 2000, "AL-3". This letter also records an agreement that the completion day for work under clause 3.5 was extended to 30th September 2000.

6. In the same letter, there is no record of the said oral agreement or understanding between Mr. Lee and Mr. To. However, it did mention that the Defendant would pay according to clauses 4.4 and 4.5 of the supplemental contract. The Plaintiff agreed to supply the amended and completed working plans and other drawings on or before 30th September 2002.

7. In his affidavit, Mr. Lee said the Plaintiff had fulfilled its duty under clause 3.4 and the first cheque was paid accordingly. However, the Plaintiff has never delivered the documents as stipulated in clause 3.5 of the supplemental agreement to the Defendant despite repetitive oral and written warning made to the Plaintiff. He produced a letter of warning dated 11th October 2000, "AL-4". It mentioned in this letter that until 10th October the Defendant had not received all the relevant drawings. And the Plaintiff had not submitted about 80% of the construction drawings for the clubs.

8. Pausing here, it appears that the Plaintiff did in fact submit plans to the Defendant and not as Mr. Lee stated in the body of his affirmation that the Plaintiff has never delivered the documents. Counsel for the Defendant explained that it may be matter of drafting and Mr. Lee meant the Plaintiff had not submitted all the drawings as required and as complained in the said letter. The Defendant cannot submit part of the drawings for approval and by providing part of the drawings is not in compliance of clause 3.5. Mr. Lee does not so explain the position in his affidavit and I was not shown any authority on the procedure for submission of drawings to the relevant authority in Beijing.

9. Mr. Lee goes on to say in paragraph 11 of his affidavit that, "Although the Defendant was willing to extend the time of delivery, the plaintiff was nevertheless unable or unwilling to deliver the said plans and documents." Again, this is different from Counsel's submission. I do not accept the "liberal" interpretation adopted by Counsel.

10. Mr. Lee goes on to say in paragraph 12 of his affidavit that "Due to inter-alia the failure of the Plaintiff to deliver the document as required under clause 3.5 of the supplemental contract, as well as the breakdown in the confidence between the parties, the Plaintiff was terminated by the Defendant." Both counsel agreed he meant the contract between the Plaintiff and the Defendant was terminated. He then produced a letter dated 18th January 2001 "AL-6" as a letter of termination.

11. Having read the whole letter, "AL-6" does not read termination of contract at all. I raise this with counsel for the Defendant and he agreed. Not only that, in the Chinese version, which is the original of the letter, the final sentence of the first paragraph talk about arrangement of account and finalization of statement matters. It is unfortunate that the meaning was not fully reflected in the translation. Therefore, for fairness to defence counsel, I particularly brought up this point with him at his submission. He raised no objection to my understanding of the Chinese wordings.

12. Reading this letter again, I found that it is not a letter of termination. There is no mention of outstanding plans any more. It informed the Plaintiff to submit some computer discs with plans and drawing for account settlement. The second paragraph of the letter goes on to say regarding the work after the construction design period, the Plaintiff was to wait for the Defendant's instructions. I fail to see how this could be described as a letter of termination.

13. Mr. Lee continued with his affirmation to say that by 18th January 2001, the Defendant was extremely late as he had already engaged other contractor to start to work on the super-structure that was supposed to start on 15th November 2000. It proceeded to say that there is total failure consideration for the cheque and therefore they are not liable to pay.

The Case of the Plaintiff

14. Mr. To Siu Hung of the Plaintiff filed his affirmation in reply on 28th January 2002. He is the same Mr. To referred to in the affidavit of Mr. Lee.

15. In respect of these cheques, he denied that there was any oral agreement that the Plaintiff would not cash the said cheques on their respective due date. He said the Plaintiff requested the Defendant to provide the said cheques simply to secure the payment of the Plaintiff's professional fees. The Defendant had repeatedly failed to make payment of the Plaintiff's professional fees.

16. He also said that the Plaintiff had fulfilled its obligation under clauses 3.4 and 3.5 of the supplemental contract. The Defendant had obtained building consent permit and commenced work.

My Finding

17. It is a known legal principal that cheques were to be treated as cash and should be honoured unless there was some good reason to the contrary. The fact that the Defendant might have a counterclaim arising of the same transaction formed no sort of defence to an action on a bill of exchange. It is trite law that the two defences that will succeed in an action on a dishonoured cheque are fraud and a total failure of consideration. (Yuen Chak Construction Company Limited v. Tak Son Contractors Limited HCA. No. 12996 of 1996).

18. The first defence raised by the Defendant is on misrepresentation.

19. Paragraphs 8 and 9 of the draft defence stated that the Defendant relied on the misrepresentation by Mr. To that the Plaintiff would not cash in the cheques before it had fulfilled the contractual obligation under clauses 3.4 and 3.5. While this is termed as a misrepresentation, Mr. Lee in fact used the words "supplemental contract" in his affirmation to describe this arrangement. Looking at the background I analysed above, clearly, this is a case of collateral arrangement between the Plaintiff and the Defendant. There is no misrepresentation as such. As submitted by the Plaintiff, the wording was so chosen to fit into the legal defence. But I am not looking at the words used, I look at the true nature of the arrangement. I found that Mr. Lee did not claim misrepresentation but only an arrangement that the cheque is not to be presented until the happening of some event.

20. It has been well established principal that parol evidence rule would prevent the Defendant from including any collateral arrangement to vary the terms of the cheque. The leading case is Sy Chan Limited v. Choy Wai Bor [2001] 4 HKC 285. It is stated there that extrinsic evidence was inadmissible to prove that the terms of payment differed from those expressed in writing on the cheque. Recorder Kwok SC reviewed a line of authority and confirmed that this is still the position regarding dishonoured cheque in Hong Kong.

21. Counsel for the Defendant tried to persuade me to follow some decision made in the United Kingdom after they have changed their Civil Practice Rules. It is a known fact that the new Rules have substantially changed not only the wordings but also the spirit behind civil litigation. It is dangerous to follow such authority. There is no merit on the claim for misrepresentation.

22. The second defence is a total failure of consideration. It is not disputed that the cheque in issue is payable pursuant to clause 4.5 of the supplemental contract. Counsel for the Defendant submitted that the Plaintiff has failed to perform according to this clause and is therefore not entitled to payment under the contract. To consider this ground of the defence, I have to look into the details of the affirmation of Mr. Lee and the document produced therein again.

23. As I have analyzed earlier on, the affirmation of Mr. Lee seems to suggest that none of the plans had been submitted. It is conceded by the Defendant's counsel that this is not the case. Further, according to the memo/letter sent by the Defendant to the Plaintiff, it is clear that plans have been submitted by the Plaintiff to the Defendant.

24. As I have also commented earlier on, while the Defendant said it had terminated the contractual relationship with the Plaintiff, the so-called letter of termination is not a letter of termination at all. Quoting the words of the counsel for the Plaintiff, it appears that he is choosing those words deliberately to show that the defence falls within the legal concept of total failure of consideration.

25. Having considered the affirmation of Mr. Lee, I found that he is unreliable and I pay little weight on his affidavit.

26. I appreciate that if there is material in front of me to argue whether there is a total failure of consideration, then I should allow the case to go to trial. I am not to conduct a mini trial. I am only to consider if the Defendant has raised an arguable case. As Bokhary J.A.(as he then was) said in Re Safe Rich Industries Ltd [1994]H.K.L.Y.115

The test at the summary stage is indeed as simple as whether the defendant's assertions are believable. But it must be recognized - because failure to recognize it would create a debt-dodger's charter - that whether the defendant's assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as either undisputed or beyond reasonable dispute.

27. With that in my mind, I consider whether the Defendant raised a believable assertion of a total failure of consideration. In support of his argument, counsel for the Defendant submitted the case of John Maclean and Sons Electrical (Dingwal) Limited v. Maharban International Company CACV 202/1993. It is stated that "the law is well settled. The rule, certainly as between immediate parties, is that Bills of Exchange are to be treated as cash. The fact that there are cross-claims by the Defendant does not afford him a defence to an action on the bill of exchange. However, where a Bill of Exchange is given on the sale of goods and a consideration has wholly failed, then, as between the immediate parties to the bill, there is defence to which the court will give effect".

28. In the said case, the Defendant rejected the goods in issue, and the triable issue turns on whether the Defendant is entitled so to reject the goods. In our present situation, which is a contract for service, the service has been rendered. According to the correspondence disclosed, it is beyond reasonable dispute that the drawings has been submitted to the Defendant and, subject to modification requested, they are in fact accepted by the Defendant. And from the series of correspondence, when we come to 18th January 2001, the matter of submission of drawings to the Defendant appears to be well settled and the Defendant requested the Plaintiff to submit the supporting computer disk for arranging account payment.

29. The consideration for the cheque has not been rejected. The Defendant does not begin to have a case of total failure of consideration. The work done as at all the material time is accepted. I fully agree with counsel of the Defendant that the plans if incomplete or defective could be valueless to the Defendant. But that is not even do stated in the affidavit of Mr. Lee that the plans and drawings are useless to them. Had they, as in the said case rejected all these plans, then they would have an arguable case to say the least of total failure of consideration.

30. It is obviously a case when they accepted the drawing and demanded the outstanding from the Plaintiff. It appears that at the highest, there is a cross-claim of damages. That is not a defence to the claim on the cheque.

31. With the above analysis, I am of the view that the Defendant did not establish an arguable defence to the claim on the cheque in accordance with the established principal. It is appropriate case for order 14 judgment. Counsel for the Defendant submitted that I should consider giving them conditional leave to defend.

32. It is well-established principal that the offer of payment into court of the full amount is not a matter that the court should take into consideration for giving conditional leave to defence. Since I found that it is not a defence to the claim on the cheque at all, I see no justification to grant conditional leave to the Defendant either.

33. Finally, the Defendant complained that there is delay in taking out the order 14 action. Surely, the Plaintiff only took out the action about 1 year after the cheque has been dishonoured. However, there is no delay in taking out the order 14 summons. The delay in taking out the action is not going to affect my decision one way or the other.

34. In conclusion, I grant judgment to the Plaintiff for the sum of $270,270.27 with interest thereon at 8.14% per annum from 16th October 2000 to today and thereafter at judgment rate until payment. There be an order nisi on cost in favour of the Plaintiff with certificate for counsel, such order nisi to be made absolute within 14 days from today.