MAK YUNG NIN v. LI WING YIU SAMUEL

DCCJ 1965/2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1965 OF 2015

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DECISION
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Introduction

1.  This is the plaintiff’s application for summary judgment in respect of six dishonoured cheques in the aggregate sum of $360,000 (“the Cheques” and “the Outstanding Sum” respectively).

2.  There is also an application by the defendant to strike out certain parts of the affidavits filed on behalf of the plaintiff in support of his summary judgment application, on the ground that they refer to settlement negotiations between the parties and are thus inadmissible (“the striking out application”).  The parts objected to comprise:

(a) a letter dated 30 April 2015 sent to the plaintiff’s solicitors by the defendant’s solicitors, as exhibited to the Affidavit of Szeto Yuk Ting dated 21 May 2015 (“the Letter”); and

(b) §17 of the plaintiff’s affirmation dated 13 August 2015.

Factual background

3.  The plaintiff and the defendant were shareholders in two Hong Kong companies operating in the beauty and skincare business since about late 2003 and late 2004 respectively. The companies were referred to as “the Mitsu Companies” in the affidavit evidence.  There appeared to be a third shareholder but there is some dispute on this point. However, nothing in this application seems to turn on this and I shall not make further mention of it.

4.  The plaintiff and the defendant, who then owned 45% and 55%, respectively, of the shares in the Mitsu Companies, entered into a written agreement dated 4 November 2011 (“the Agreement”), under which the plaintiff agreed to sell to the defendant his entire shareholding in the Mitsu Companies.  Following completion, the defendant would own 100% of these two companies.

5.  The sale price was $5,920,000.  An elaborate payment schedule spreading over a period of eight years was set out in the Agreement.  First, the sums of $300,000, $500,000, $400,000, and $400,000 were payable upon the signing of the Agreement, 14 days after signing, on 1 March 2012 and on 1 March 2013, respectively.  There was then scheduled a series of monthly instalments of $60,000 each, payable on the 15^th of each month commencing from 15 January 2012 to 15 December 2015 and a further series of monthly instalments of $30,000 each, payable on the 15^th of each month commencing from 15 January 2016 to 15 December 2019.

6.  The Agreement specifically provided that all the instalment sums (except the first one payable upon signing) should be “paid by way of the Purchaser’s postdated cheques”.

7.  The defendant’s wife signed a guarantee dated 27 October 2011 (“the Guarantee”), under which she guaranteed the defendant’s payment obligations under the Agreement.

8.  It is common ground that shortly after the signing of the Agreement, the plaintiff duly transferred his shareholding to the defendant.   Mr Lawrence Law, counsel for the defendant, confirmed at the hearing that that having been done, there was no further outstanding obligation on the plaintiff’s part under the Agreement (except that there was an undertaking made by the plaintiff not to take up competing trade for one year).  I pause here to note that this is a relevant background fact against which the defendant’s case is to be assessed.

9.  Following and pursuant to the signing of the Agreement, the defendant issued to the plaintiff a total of 99 post-dated cheques.

10.  The plaintiff presented the post-dated cheques for payment one by one as each instalment fell due.  However, from 15 November 2014 onwards and for six consecutive months, the cheques were returned from the bank dishonoured.  These were the Cheques referred to in §1 above and they form the subject-matter of the claim in this action.  By that time, the defendant had effected payment totalling $3,640,000, which is about 60% of the sale price.

11.  On 28 April 2015, the plaintiff’s solicitors wrote to the defendant’s solicitors demanding payment of the Outstanding Sum (“the Demand Letter”).

The plaintiff’s case

12.  The plaintiff’s case is straightforward.  He claims that the defendant is indebted to him for the Outstanding Sum, owing to the dishonour of the Cheques.

13.  The plaintiff further relies on the Letter as the defendant’s admission of such indebtedness.  I shall deal with the Letter in detail below.

The defendant’s case

14.  On the other hand, the defendant has been at pains to point out that the present dispute is by no means a straightforward dishonoured cheque case.  He invites the court to consider the “complicated” factual matrix surrounding the issue of the Cheques, which he set out in two lengthy affirmations in opposition to the summary judgment application.

15.  According to the defendant, there were face-to-face discussions between the plaintiff and the defendant which lasted for about three months prior to the signing of the Agreement.

16.  In the course of the negotiations, the defendant raised a number of concerns.  The important ones included the following.

17.  First, the defendant was of the view that his ability to make the instalment payments over an eight-year period would be dependent on the business of the Mitsu Companies since the revenues generated from that would be the “sole source of income” for his payment.  In the event of a downturn of the business, he would be unable to meet the payment obligations.  He specifically expressed this concern to the plaintiff.

18.  Secondly, his wife would only have a limited income and in the event of his death, she might not be able to discharge her obligations as guarantor.

19.  On the first concern, the defendant’s case is that the parties finally came to a consensus as follows.

20.  First, if there was a short-term unsatisfactory performance of the business in a particular month or months, instalment payments for that month or those months would be split into two.  In other words, the defendant would only need to pay half of the monthly instalment and pay the remaining half when the business improved.

21.  Secondly, the parties came to what is referred to as “the Common Understanding” in the affidavit evidence.  He described it as follows:

“If there was a downturn of business of the Mitsu Companies or the business collapsed, the outstanding cheques would be cancelled and would not be presented …”

22.  Notwithstanding the consensus, neither the split-cheque arrangement nor the Common Understanding was included as an express term in the final draft of the Agreement.  The defendant pointed out the omission to the plaintiff as he considered that the terms were “crucial” to him because he “simply could not afford to make the payments if the businesses of the Mitsu Companies were to slump”. 

23.  The plaintiff’s response was that these matters should be treated as “a matter of mutual trust”.  In the end, the defendant trusted the plaintiff’s representations fully and agreed that the Common Understanding need not be incorporated expressly in the Agreement.

24.  This is to be contrasted with how the defendant’s concern regarding his wife’s liability was explicitly addressed in the Agreement.  There was a special condition which limited the wife’s guarantee obligations in a number of ways if the defendant passed away during the currency of the Agreement.

25.  The defendant further says that the business experienced difficulties since about late 2012 but he “used [his] best endeavours to meet the instalment payments as per the Agreement without triggering the mutual understanding about splitting of the cheques”. 

26.  The business having continued to worsen, in November 2013, the defendant requested the plaintiff to withhold the presentation of the outstanding post-dated cheques in accordance with the Common Understanding.  While he had full confidence that the plaintiff would honour the Common Understanding, the plaintiff reneged on it and insisted on payments and threatened legal proceedings should the defendant cease payment.

27.  The defendant says that in the circumstances he had no choice but to continue to pay.  He also took into account their “previously harmonious and successful partnership”.

28.  Then in about March 2014, the business deteriorated further and the defendant made the same request to the plaintiff but the plaintiff denied the existence of the Common Understanding and ignored his request.  The defendant then continued to honour payment because of “[his] intention to avoid litigating against one another in Court”.

29.  Finally, in late 2014, the business had worsened to such an extent that there were continuing losses and the defendant had to cease putting in funds to honour the remaining post-dated cheques from November 2014 onwards.  In January 2015, the Mitsu Companies went out of business.

30.  It is noteworthy that from late 2012 to late 2014, ie, for almost two years, when the business condition had been continuously deteriorating, the defendant had kept up payments such that the post-dated cheques during that period were all cleared.  That is so despite his claim that the plaintiff had failed to honour the Common Understanding.

31.  The defendant now says that there are triable issues in this action in that the Cheques were paid “in reliance of the Common Understanding” and that the terms of the Common Understanding having been triggered, that would absolve him from his liability to honour the Cheques.

32.  Having set out the parties’ respective cases, I shall first turn to the striking out application.

The striking out application

33.  Although the defendant’s summons in respect of the striking out application refers to RDC Order 24, rule 5 in the marginal note, Mr Law confirmed at the hearing that the application was taken out pursuant to RDC Order 41, rule 6, which provides that the court “may order to be struck out of any affidavit any matter which is scandalous, irrelevant or otherwise oppressive”.

34.  The Letter was sent by the defendant’s solicitors in response to the Demand Letter.

35.  The relevant parts of the Letter read:

“We are instructed by our client that he has every intention to settle the outstanding sum as mentioned in your said letter. However, we are instructed that he is incapable of doing so for the time being, especially when the outstanding sum actually adds up by HK$60,000 a month until the end of this year.

We are instructed by our client to request your client again to consider not to initiate legal proceedings against our client. …

In this regard, we are instructed that our client would seek your client’s re-consideration of accepting the monthly interest for the outstanding sum and the interest rate can be set by your client which the same is affordable by our client.” (emphasis added)

36.  The Letter did not bear any “without prejudice” marking.

37.  Not surprisingly, the plaintiff now relies on the Letter to say that the defendant in fact admitted, upon demand, that he was indebted to the plaintiff for the Cheques as the defendant’s solicitors stated that he had “every intention to settle the outstanding sum”.  It is for that reason that the Letter was exhibited to the plaintiff’s supporting affidavit.

38.  The defendant says that the Letter contains genuine discussion between the parties for the purpose of resolving the present dispute.  Such settlement negotiations are privileged from production and are inadmissible in evidence. On that basis, it does not matter that the Letter was not marked “without prejudice” or any equivalent wording: Chocoladefabriken Lindt &Sprungli AG v Nestle Co Ltd [1978] RPC 287.

39.  In Re Jinro (HK) International Ltd [2002] 4 HKC 90, in considering whether certain evidence disclosed in the affidavits contained without prejudice discussions, Kwan J (as she then was) applied the following principle (at §13):

“For a claim of privilege to succeed, the party claiming it must establish that the communication in question was made “(1) in a bona fide attempt to settle a dispute between the parties, and (2) with the intention that, if negotiations failed, it could not be disclosed without the consent of the parties”. In establishing that there is a bona fide attempt to settle a dispute, the party seeking to assert privilege must show that “at the time the communication was made, a dispute existed between the parties in respect of which legal proceedings had commenced or were contemplated and the communication was made in a genuine attempt to further negotiations to settle that dispute.” (emphasis added)

40.  In that case, it was held (at §14) that at the time of the communication between the petitioners and the company, there did not appear to be any dispute of the petitioners’ claims.  Kwan J said (at §15):

“I am not satisfied on the above evidence that there was an extant dispute at the time the discussions took place and that the discussions were made in a genuine attempt to settle that dispute. There were merely requests for accommodation when there was no challenge to the petitioners’ rights. The without prejudice privilege cannot be invoked in these circumstances.” (emphasis added)

41.  It is clear from the above decision that whenever a party seeks to claim without prejudice privilege, the court should review the relevant materials critically and ascertain whether each of the conditions set out in §39 above is satisfied.  The privilege does not arise merely because there is some discussion or negotiation going on which may have the effect of avoiding the institution of legal proceedings or settling them if already commenced.

42.  In the present case, at the time the Letter was sent, the defendant did not seek to dispute at all his liability to pay the Outstanding Sum.   In fact, he expressed his desire to pay but explained that he was prevented from doing so because of his financial state.  As in Re Jinro, the defendant was asking for accommodation – more time to repay the debt.  Accordingly, I find that there was no existing dispute between the parties at the time of the Letter and hence the without prejudice privilege does not arise in respect of the Letter. 

43.  At the hearing, Mr Law in fact accepted that at that time there was no dispute as to the defendant’s obligation to pay. However, he submitted that there was a dispute as to the amount of the proposed monthly interest payment and the interest rate.  And legal proceedings had been threatened.  Therefore, the Letter amounted to settlement negotiations, the purpose of which was to resolve the dispute.

44.  I do not accept this submission.  The defendant’s indebtedness was not in dispute.  The proposal of paying interest first as an interim solution was made with a view to postponing the repayment of an admitted indebtedness.  While the Letter may be characterised, in a loose sense, as an effort on the defendant’s part to avoid a threatened lawsuit, this by itself does not confer any without prejudice privilege on the Letter.  This was made clear by the decision in Re Jinro.

45.  Accordingly, I dismiss the striking out application and hold that the Letter as well as the related paragraph in the plaintiff’s affirmation are admissible.

Legal principles on summary judgment

46.  The principles applicable to an application for summary judgment are well-settled.  The case being clearly one within the scope of Order 14 and the plaintiff having satisfied the preliminary requirements of the procedure, the burden is on the defendant to satisfy the court why judgment should not be given against him.  To do so, the defendant must show that there are triable issues or that there ought for some other reason to be a trial of the claim: Hong Kong Civil Procedure 2016 at 14/4/1.

47.  In determining whether there is a triable issue, the approach is twofold.  First, factually, is what the defendant says believable?  Secondly, as a matter of law, even if what it says is believable, does what it says amount to an arguable defence in law?  See, eg, Schindler Lifts Hong Kong Ltd v Ocean Joy Investments Ltd [2003] 1 HKC 438 at §10 per Ma J (as he then was).

48.  On the first question, it is not appropriate to embark on a mini-trial of the action on affidavit evidence.  The court simply asks itself whether what the defendant says is credible.  As Godfrey JA put it in Ng Shou Chun v Hung Chun San [1994] 1 HKC 155 at 158: “The issue is not whether the defendant’s assertions are to be believed; it is whether those assertions are believable”.

49.  The court will not take the alleged defence on its face value but test it against the evidence disclosed, including contemporaneous documents, whether the alleged defence is inconsistent with the defence previously put forward or whether the defence is only recently raised despite opportunity being given to the defendant to respond earlier.  The court will also consider the inherent probability of the defence: see Paul Y. Management Ltd v Eternal Unity Development Ltd CACV 16/2008, 12 August 2008 at §19 per Cheung JA.

Legal principles on dishonoured cheques

50.  The rule governing the admissibility of extrinsic evidence in cheques cases and its rationale were considered at length by the Court of Appeal in Lam Tai Kwan v Lo Wai Kit [2007] 1 HKLRD 367 at §§10-11.  Le Pichon JA explained as follows:

“It is trite law that a cheque is an unconditional order in writing, addressed by a person to his banker, signed by the person giving it, requiring the banker to whom it is addressed to pay on demand a sum certain in money to or to the order of a specified person, or to bearer. As a written contract, it is subject to the parol evidence rule the effect of which is to bind a party to his contract as written on the instrument. Extrinsic evidence is, in general, inadmissible to prove that the terms of the contract differed from those expressed in writing on the cheque. Thus whilst parol evidence is admissible to prove a contemporaneous oral agreement that the contract was not to become operative except upon the fulfilment of a condition, such evidence if it be evidence in defeasance of a party’s liability on the bill is inadmissible.” (emphasis added)

51.  Instances of where a cheque is considered not to become operative except upon the fulfilment of a condition, include where a cheque was delivered in escrow or where it was delivered conditionally as collateral security, it being agreed that it would become operative only in the event of default: see Chalmers and Guest on Bills of Exchange, Cheques and Promissory Notes (17^th edition) at §2-152.

52.  It has been acknowledged that in practice, it can be difficult to distinguish the two types of situations, ie, where the cheque was not operative until the satisfaction of a condition (in which case oral evidence of the condition is admissible) and where the cheque was delivered operatively but subject to an oral agreement in defeasance of the drawer’s liability on the cheque (in which case oral evidence to qualify the terms of the cheque is inadmissible): see Chalmers and Guest at §2-153.  It is perhaps convenient to refer to these situations below as the “not operative” situation and the “operative” situation.

53.  Each case has to be decided on its own facts. But it is perhaps not surprising that cases where the drawer of the cheque succeeded in establishing that his case is a “not operative” case rather than an “operative” one would seem to be in the minority.

54.  Mr Chan Hei Ching, counsel for the plaintiff, referred me to two authorities apparently with a view to demonstrating that the defendant has a high hurdle to surmount in resisting the plaintiff’s summary judgment application.  Mr Chan first referred to the recent Court of First Instance decision in Xu Ziming v Ruifeng Petroleum Chemical Holdings Ltd HCA 450/2013, 6 May 2015 in which it was said that in an application for summary judgment in respect of a dishonoured cheque, the general rule is that leave to defend will not be given “unless there are exceptional circumstances” (at §15).  Further, Mr Chan drew the court’s attention to another Court of First Instance decision, Lu Ming Hui v Ho Yu Kuen HCA 472/2009, 26 May 2010, where the judge remarked (at §15) that it is trite that a bill of exchange or a promissory note is to be treated as cash.

55.  While one ought to bear in mind the above statements made generally in the context of dishonoured cheque cases, when the admissibility of extrinsic oral evidence falls to be decided, the relevant (and ultimate) question to ask in each case is what factual scenario the oral evidence purports to prove, ie, into which of the two categories, as identified in §52 above, it falls.

56.  Accordingly, in the present case, the first question which I have to rule on is whether the evidence relating to the alleged Common Understanding is admissible.  And that would be dependent on what this piece of evidence purports to show, namely, whether the Cheques were delivered conditionally or whether the effect of the alleged Common Understanding is to vary or contradict the payment undertaking contained in the Cheques.

Analysis

57.  Having set out the legal principles applicable to summary judgment and dishonoured cheques, it would be clear that I shall have to address three questions in the following order:

(a) Does the evidence which the defendant now seeks to adduce on the Common Understanding fall foul of the parol evidence rule and is therefore rendered inadmissible?

(b) If it is admissible, is it believable?

(c) If it is believable, does it give rise to a viable defence in law?

58.  If the answer to any of the above questions is “No”, summary judgment should be granted.

Is the Common Understanding admissible?

59.  In his written submissions, Mr Law set out two defences.  First, the terms of the parties’ agreement relating to the sale and purchase of the shares in the Mitsu Companies were not wholly contained in the Agreement.  The Common Understanding, agreed orally, was a key term omitted from the written document. The contract was therefore made partly in writing, and partly orally.  Secondly (and alternatively), the Common Understanding and the other omitted terms formed an oral collateral contract between the parties.  Either way, these oral terms can be admitted into evidence as the parol evidence rule do not apply in such instances: see Chitty on Contracts (31^st edition) at §12-097 and §12-103.

60.  In the circumstances, the Cheques, submitted Mr Law, were not intended to pass on to the plaintiff for payment.  The evidence relating to the Common Understanding is thus admissible because it shows that the Cheques “were held in escrow by the payee (plaintiff) such that the documents did not have the qualities of a cheque at all as they had not been delivered”.

61.  The defendant is therefore seeking to establish that the oral evidence in the form of the Common Understanding falls into the first category (ie, the “not operative” category) identified in §52 above.  Mr Law drew support from Phoneyork Company Ltd v Chesson International (Holdings) Ltd HCA 2192/2007, 28 May 2012, a case in which the drawer of a cheque succeeded in defending against the payee’s claim at trial.

62.  I do not accept the defendant’s submission.

63.  It must be borne in mind that in the present action, the plaintiff’s cause of action arises out of the Cheques, not the Agreement.  In considering whether the Common Understanding is admissible, the question is to be answered in relation to the Cheques, rather than the Agreement.

64.  That the Cheques were delivered in escrow is simply not made out on the defendant’s own factual case.  The Agreement explicitly and specifically provided that all instalment payments (except the first payment due on signing) were to be settled by way of the defendant’s post-dated cheques – see §6 above.  All these cheques, including of course the Cheques, were handed over in satisfaction of this obligation.  In the plaintiff’s affirmations, he said:

“At the time of execution and as per the Agreement, I immediately handed over a number of post-dated cheques in purported satisfaction of the Sale Price.”

65.  There is nothing in the affidavit evidence which suggests any escrow arrangement in relation to the post-dated cheques, namely, that they were not to be treated as delivered until the fulfilment of a condition.

66.  On the other hand, the effect of the Common Understanding, as alleged, is that where there was a downturn of the business run by the Mitsu Companies, the remaining post-dated cheques would be “cancelled” and as a result, the defendant would no longer be liable on them.  This is clearly evidence which goes to qualify, if not outright contradict, the undertaking to pay contained in the post-dated cheques.  In the circumstances, on the defendant’s own case, the Cheques must be treated as having been delivered to the plaintiff operatively but subject to the Common Understanding in defeasance of the defendant’s liability on the Cheques.  As such, it is inadmissible.

67.  I do not think that the decision in Phoneyorkis of any assistance to the defendant. The case was decided on its own facts.  The trial judge made it clear in §1 of his judgment that it was “an unusual case”.  There was found to be a contemporaneous written document to the effect that the cheque in question was not to be passed to the plaintiff until a certain event took place.  The case was held to be “plainly distinguishable” by Deputy High Court Judge Le Pichon in Savills (Hong Kong) Ltd v Kit Wang Group (China) Ltd HCA 1779/2014, 24 August 2015 at §§32 to 34.

68.  In any event, Mr Law accepted at the hearing that the facts in the present case are not at all similar to Phoneyork. The case was decided by the application of the general principle to the specific facts there.  The presence of contemporaneous written document supporting a conditional delivery does not feature in the present case. Accordingly, the decision does not advance the defendant’s case.

69.  For the above reasons, the evidence relating to the Common Understanding is not admissible.  In the absence of such evidence, the defendant has failed to raise any triable issue in this action.    Summary judgment ought to be granted to the plaintiff.

70.  It is therefore not necessary for me to go on to consider whether the defendant’s factual case is believable or not.  For completeness, however, I would briefly deal with the “believability” of the defendant’s factual allegations.

Is the Common Understanding believable?

71.  I do not find the defendant’s factual case based on the Common Understanding to be believable at all by reason of the following five grounds.

72.  First, it defies common sense and is inherently improbable that had the parties in fact reached the Common Understanding, the terms would not have been incorporated into the Agreement.

73.  The defendant stresses all along that the Common Understanding was “crucial” to him.  Yet he did not insist on it being included as an express term.  He had raised this with the plaintiff in the drafting process.  The plaintiff said this matter should be treated “as a matter of mutual trust”.  There was no reason given by the plaintiff as to why the Common Understanding should not be reflected in the Agreement.  In the end the defendant simply “trusted” the plaintiff and relied on him to honour it, in the absence of any express term.

74.  This needs to be looked at against the indisputable factual background that the Agreement was clearly prepared in a professional manner, rather than being a home-made document by non-lawyers.  It follows the usual format of a legal document, starting with a recital and a definitions section, followed by the operative clauses, with the standard legal terms and boiler-plates clauses employed throughout. 

75.  There is a dispute at the hearing as to whether the document was drafted by lawyers and whether the defendant received legal advice on the Agreement.  The plaintiff says that the defendant was, relying on the execution clause in which the defendant signed in the presence of a solicitor.  On the other hand, the defendant said the execution clause only showed that the defendant’s signature was witnessed by a solicitor and nothing more.  When asked whether the Agreement was drafted by lawyers and whether the defendant was advised by lawyers then, Mr Law said he had no instructions on these two questions.  One is immediately at a loss as to why the defendant could not confirm one way or the other as he was personally involved in the making of the Agreement.  Be that as it may, even leaving aside the question whether the defendant received legal advice at that time, the fact remains that the Agreement was a document containing elaborate and detailed provisions on, amongst other things, the transfer and payment mechanism.  There is simply no plausible reason as to why the Common Understanding, which had been agreed between the parties (according to the defendant), could not have been included and provided for expressly in the Agreement.

76.  The omission of the Common Understanding is also to be looked at against the undisputed factual background that the other “crucial” concern of the defendant, namely, the limitation of his wife’s guarantee obligations in the event of his death, was explicitly covered in the Agreement.  The terms in this regard were drafted in great detail setting a “Specified Date” of 31 December 2013 and methodically catered for different results depending on whether death took place before or after the Specified Date.

77.  The contrast between the treatment of the Common Understanding and that of the wife’s liability is a stark one. These concerns were both described as “crucial” by the defendant and were raised at the same time.  Yet, the former was omitted from the Agreement and was dealt with by way of “trust” and the latter was specifically covered.

78.  This simply does not make sense.

79.  Secondly, I find that the terms of the Common Understanding were so vague and devoid of commercial sense that any consensus could not have been reached in those terms.

80.  The trigger for the Common Understanding was to be a “downturn” of the business of the Mitsu Companies.  It is a vague expression and is capable of bearing a wide range of meanings.  It would no doubt include the situation where the companies were making a loss.  But it might well encompass the situation where the business was not doing as well as before but was not yet making a loss.  And what if the business picked up again after the “downturn” – would the payment obligation then be revived?

81.  It has to be borne in mind that the parties spent much time negotiating the terms of the sale and yet on a vital term which would have a significant impact on the payment obligations, the parties had left it so vague and uncertain.

82.  Furthermore, I have pointed out in §8 above that one significant feature of the Agreement was that after the completion of the transfer of the shares, the plaintiff effectively owed no further obligations to the defendant (save for the undertaking not to compete for a year).  It was then for the defendant to meet his instalment payments for the eight years to come. If the parties had agreed on the Common Understanding, it would mean that the plaintiff, having at the outset divested of his entire shareholding in the companies, might not be able to get full payment of the sale price and he was vulnerable to the business performance of the companies.  This could potentially mean that if the Mitsu Companies went out of business within a short period of time after the signing of the Agreement and the defendant proceeded to invoke the terms of the Common Understanding, the plaintiff would only be paid a small portion of the sale price and he would have no recourse to the shares which had already been transferred to the defendant.

83.  It may be said that this is not the occasion for the court to evaluate the commercial soundness of the deal struck by the parties and it may well be the case that the plaintiff had simply made a bad deal by agreeing to the Common Understanding.  However, I consider that the court is entitled to look at the terms of the Common Understanding and consider whether it makes sense (whether common sense or commercial wise) in the context of the undisputed and indisputable factual background.  Here, I consider that the terms are inherently improbable, when viewed against the background that, first, the sale price was of a considerable sum, just over $5.9 million; secondly, the plaintiff had built in provisions in the Agreement to ensure that he got paid punctually as per the payment schedule by requiring post-dated cheques to be handed over all in one go upon the signing of the Agreement.  It is inherently improbable that the parties would have reached a consensus in the terms of the Common Understanding.

84.  Thirdly, had the agreement on the splitting of cheques (see §20) and the Common Understanding been in place, it would have been extraordinary that the defendant did not enforce either term until as late as November 2014.  On his own case, the business had been going downhill since late 2012.   There were two prior occasions on which the defendant sought to invoke the Common Understanding, ie, late 2013 and March 2014, but each time the plaintiff refused to honour its terms.  The reaction of the defendant, as alleged, would seem extraordinary. Instead of insisting on his rights under the Common Understanding, he continued unwillingly to meet the monthly instalments of $60,000 each. 

85.  The defendant has repeatedly described in his affirmations his concern on the possibility of a downturn of the business as a “grave” one and his “utmost concern”.  But when this “grave” and “utmost” concern of his materialised and his worst fear confirmed, he did not insist on his rights under the Common Understanding.  He explained in his affirmations, and Mr Law reinforced this point at the hearing, that it was because at that time he did not want to harm his relationship with the plaintiff.  Mr Law said that both parties were police officers – the defendant was a Chief Inspector of Police and the plaintiff his subordinate.  However, this is hardly a convincing explanation for the defendant’s continuous payment for almost one year when as far as he was concerned, the plaintiff was in breach of the Common Understanding.  It cannot possibly be said that if the defendant stopped payment then, it was he who ruined the relationship.  It would be quite the other way round.  It must be borne in mind that the amount at stake was not a small one.

86.  Fourthly, the defendant’s case is a bare allegation, without any contemporaneous documents in support.  The defendant says that there were to and fro negotiations for three months which culminated in the Common Understanding alongside the Agreement.  Yet he is not able to produce any written document to substantiate that. There seems to be no note, letter, email or anything in writing which goes to support his case.  It is also not a case where there was any reason at all (at least the defendant has pointed to none) why the Common Understanding could not have been in writing.

87.  Fifthly, in my view, the Letter, which was sent shortly after the dishonour of the last of the six Cheques, is an admission by the defendant that he was indebted to the plaintiff on the Cheques.  In that letter, there was no mention whatsoever of the Common Understanding.  Had there been one, the defendant would no doubt have referred to it and relied on it as a defence to the plaintiff’s claim. 

88.  In conclusion, had it been necessary for me to decide whether the defendant’s factual case is believable, I would have found that it is not.  (I would say by way of footnote that even if I am wrong on the striking out application and on the basis that the Letter is not admitted into evidence, my conclusion would remain the same.) It is not necessary to proceed to the third question identified in §57 above.

Orders

89.  For the above reasons, I grant summary judgment to the plaintiff for the Outstanding Sum, ie, $360,000. In respect of each of the Cheques, interest will accrue from the date of its presentment as pleaded in §1 of the Statement of Claim until judgment at 1% above HSBC prime rate and thereafter at judgment rate until payment.

90.  I also make an order nisi that the defendant pay the plaintiff’s costs of the striking out application, the summary judgment application (in each case, including any reserved costs) and the action, to be taxed if not agreed, with certificate for counsel.