ULTRA POWER E & M ENGINEERING CO LTD v. HAR ENGINEERING LTD

DCCJ 2773 of 2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2773 OF 2006

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D E C I S I O N

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1.  Part of the Plaintiff’s claims in this action was for the sum of $102,740.00, being the amount of a dishonoured cheque. An application for summary judgment under Order 14 was taken out by the Plaintiff for the mount on this dishonoured cheque together with interest and cost.

2.  The writ of summons claimed for the cost of work done and services rendered. In a nutshell, the payment of these amounts by the Defendant to the Plaintiff was to be effected at different stages, viz. 40% of the contract price of $910,000.00 as initial payment, 40% progress payment on installation of certain items under the contract, 15% on the final completion of the work, and the remaining 5% upon expiry of defects liability period which is in this case, 12 months after the date of completion of the work.

3.  On the first 40% payment ($364,000.00), the Plaintiff paid the Defendant a cheque for $351,000.00. A sum of $13,000  that was disputed between the parties for employees compensation insurance, was withheld by the Defendant. The second payment of 40%  was paid by the Defendant to the Plaintiff in full. The remaining 15% and 5% retention money for defect liability were invoiced by the Plaintiff to the Defendant.

4.  The Plaintiff issued 6 invoices to the Defendant as particularized in Par. 10 of the Statement of claim and the Defendant sent by way of facsimile transmission an  “invoice information” dated 7^th. April 2006 to the Plaintiff (Page 086 of Plaintiff Bundle of documents –Bundle B). The invoice information referred to the 6 invoices issued by the Defendant. On Invoice No. 051086, the Plaintiff wrote“批晒20% $102,000不扣 Retention. On Invoice 051087, the Defendant wrote down “批$40,000”. On invoice 051088, the Defendant wrote down “批晒 $640”. On the 4^th invoice, the Defendant wrote “批晒 $4600”.  On invoice 051090, the Defendant wrote  “吾批”. On the 6^th Invoice, the Defendant wrote “批$12,000”.

5.  The first invoice was the amount of money relating to the 5% retention money for defect liability that the Defendant could pay the Plaintiff 12 months after completion date. The Plaintiff had asked the Defendant to release the money before the expiry of the 12 months period. The other invoices were partly for variation work, the amounts of which were to be agreed between the Plaintiff and the Defendant.

6.  The amount of the dishonoured cheque was the total sum of the monies that the Defendant had approved on the Plaintiff’s 6 invoices.

7.  A cheque for $102,740.00 was issued by the Defendant and delivered to the Plaintiff. The delivery was done by Ms. Hung, an accounts clerk of the Defendant, to the Plaintiff when the Plaintiff went to collect payment in person.

8.  On the back of the cheque, the Defendant had written down the 5 invoice numbers together with the amounts that the Defendant had approved. The cheque and the indorsement by the Defendant on the back of the cheque had been shown to the court as exhibited in the Plaintiff Bundle of Documents on pages 2 & 3 (Bundle B).

9.  The Defendant stopped payment and the cheque was dishonoured.

10.  The Plaintiff is now asking for summary judgment on the amount of the dishonoured cheque.

11.  The Defendant opposed this application for reason that there was a total failure of consideration. The Defendant also contended that they had a counterclaim for $106,500 being (1) $13,000, a sum that appeared not to have been paid by the Defendant to the Plaintiff at all. This appeared to be the $13,000  employees compensation insurance money that the Defendant had withheld from the 40% initial payment; (2) a sum of $30,0000 which also appeared to have been excluded and a corresponding amount been deducted in the course of negotiation when the contract price of $910,000 was agreed for the work (Par 41 of Mr. Lam Tze King ‘s Affirmation in page 73 of the Plaintiff Bundle A); (3) $45,500 that appeared to be part of the approved amount under the 1^st invoice; and (4) a sum of $18,000 being amounts spent on further repairs after the Plaintiff had completed the work. No receipt or document had been shown to verify this last item.

12.  In an action for dishonoured cheque, save for exceptional circumstances or upon strong grounds, the defendant will not be allowed to set up a set-off or counterclaim or damages for breach of some other contract or the commission of a tort, and the Plaintiff is entitled to judgment for the amount of his claim without a stay of execution. (Hong Kong Civil Proceudres 2006 Para. 14/4/15, Bills of Excahnge Ordinance, Cap. 19 section 21)

13.  Dishonoured cheques were to be treated as the equivalent of cash and should be honoured unless there was good reason to the contrary. The Defendant should honour the cheque issued pursuant to the agreement between the parties. The fact that the Defendant had a probable counterclaim was not good reason to resile from the agreement as the Defendant might or might not make the counterclaim good. (Yuen Chak Construction Co. Ltd.  v.  Tak Son Contractors (1997) 3 HKC 294)

14.  The law is well settled. Bill of exchange or cheque is treated as cash and certainly as between immediate parties, the fact that there is a counterclaim by the Defendant does not afford him a defence to the action on the bill of exchange. (John Maclean & Sons Electrical (Dingwall) Limited  v.  Mehar International Co. CACV 202 193)  The second argument of the Defendant that it had a probable counterclaim will not be a good ground to oppose the Plaintiff application for Summary judgment under Order 14.

15.  As for the first ground of the Defendant that there had been a total failure of consideration, the Defendant was saying that the cheque was given to the Plaintiff in final settlement of all accounts with the Plaintiff for all air conditioning works and all additional works done, and because the Plaintiff had refused to sign the final settlement agreement, there had been a total failure of consideration.

16.  The Defendant is not normally permitted to adduce extrinsic evidence to contradict the essential characteristic of a cheque, viz the cheque itself was cash and must be honoured upon presentation for payment. However to show a total failure of consideration, the courts have permitted the Defence to adduce evidence to show that there had been no consideration for the cheque. For this reason, I would first look  into what the Defendant alleged to be a total failure of consideration. If there is good ground for this argument, I would allow extrinsic evidence to be adduced,  and go on to consider if there had been total failure of consideration on the part of the Plaintiff.

17.  In the Affirmation of Ng Kwok Chun, a director of the Defendant filed on 6^th. July 2006, in Par. 24 (page 32 of Bundle A), “…………He (Mr. Lam of the Plaintiff) told me that he was short of cash. He wanted me to release the progress payment and the retention money earlier. Out of my mercy and without checking the actual works done, I initially agreed to help him out although I knew I was not contractually bound to do so.”

18.  In Par. 25,  “……on 6^th April 2006, together with Ivan Ng, we worked out the assessment for the variation works. We also faxed the assessment to the Plaintiff for his information”. (This is the facsimile transmission referred to by the Plaintiff in Par 4 above. (Plaintiff Bundle B on page 086) )

19.  In Par. 26, the Defendant had this to say, “Upon receipt of the said fax, the Plaintiff called my office and asked for payment. I then instructed my accounts clerk to prepare voucher including the final account and the cheque for the said sum of  $102,740. I also wrote at the bottom of the payment voucher that “The parties agree the sum of HK$102,740 will be the final account of the above project (Air conditioning works for Tai Tong Holiday Camp) which includes all additional works, Ultra Power’s claim and entitlement under the Agreement. Upon receipt of the above said sum, all amounts due under the Agreement will be fully settled”.

20.  In Par. 28, the Defendant went on to say, “When I signed the cheque, I told my accounts clerk, Ms. Hung, to inform the Plaintiff to collect the cheque and sign the final account.” And in Par. 29, the Defendant had this to say, “On 12^th. April 2006, Ms. Hung told me and I verily believe that the Plaintiff came up to my office on 11^th April 2006, took the cheque and left without signing the final account although she did try to stop him but in vain”. And in Par. 30, the Defendant said, “Seeing that the consideration of my earlier payment was totally failed, I then instructed my bank to stop payment. I also prepared a letter and faxed it to the Plaintiff on 13^th April 2006 setting out our position.”

21.  The Defendant’s accounts clerk, Ms. Hung, had not filed an affirmation with this court. Mr. Edward Poon, Counsel for the Defendant, told this court that Ms. Hung had acted stupidly by not asking the Plaintiff to sign the Final Agreement first before giving the cheque to the Plaintiff.

22.  From the Defendant’s own affirmation, it was evident that the Plaintiff asked for payment including the 5% retention money and the Defendant agreed even though the defect liability period of 12 months after work completion had not expired, and the Defendant and his colleague, Ivan Ng, then made assessment and approved the Plaintiff invoices, and then faxed the Invoice Information signifying approval/disapproval/ revision of the Plaintiff’s invoices to the Plaintiff. The Plaintiff then rang up and asked for payment. The Defendant then arranged for payment and told Ms. Hung to inform the Plaintiff to come up to collect the cheque. At no time were there any discussion made on the final settlement issue between the Plaintiff and the Defendant. The Defendant unilaterally intended and prepared a final settlement agreement and instructed Ms Hung to get the Plaintiff to sign it when the Plaintiff came to collect payment. The Plaintiff came and Ms. Hung delivered the cheque to him. The Plaintiff did not sign the final agreement and left with the cheque.

23.  Part of the cheque was payment for the 5% defect liability money that was not yet due. The Plaintiff asked for early payment and the Defendant obliged. The Defendant had simply waived its right to pay at a later date.  I cannot see how this amounts to failure of consideration on the Plaintiff’s part when the payment was for work done. Neither could I see how the Defendant could argue that the cheque was delivered in escrow pending the signing of the final agreement. There was simply no agreement to sign a final agreement. The Plaintiff sent their invoices, the Defendant approved the invoices or the part of the invoices they were willing to pay, the Plaintiff asked for payment on the approved invoices and the Defendant agreed to make payment to the Plaintiff. In the circumstances, the cheque was paid to the Plaintiff for the work done.

24.  This was not a case of a total failure of consideration at all. For this reason, the Defendant will not be permitted to adduce extrinsic evidence to show what was otherwise represented on the cheque itself, i.e. the cheque meant cash and would be paid upon presentation for payment. Strong evidence were presented to the court to show the parties intention. On the back of the cheque, the Defendant had clearly indorsed the number of the invoices and the amounts to show what the cheque was for, it was for the payment of those invoices. The Defendant had also faxed the approved invoices back to the Plaintiff. It had clearly demonstrated that the Defendant had intended to pay those invoices.

25.  The Plaintiff must succeed in this application for summary judgment on the dishonoured cheque. I therefore give judgment in favour of the Plaintiff in the sum of $102,740, being the amount of the dishonoured cheque, together with interest at judgment rate from the date of writ, i.e. 7^th June 2006, to the date of judgment, and also at judgment rate from the date of judgment to the date of full payment. I also order there be an Order Nisi to be made absolute in 14 days that the Defendant is to pay cost of this application to the Plaintiff, to be taxed if not agreed.