BANK OF CHINA (HK) LTD. v. WU MING FAT SIMON

HCA 590/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 590 OF 2001

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J U D G M E N T

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1. The name of the plaintiff was formerly Kincheng Banking Corporation. By order of Suffiad J. made on 5 October 2001 the name of the plaintiff was changed to Bank of China (HK) Ltd.

2. This is an appeal from the order of Master B. Kwan given on 7 September 2001 giving judgment for the plaintiff against the defendant for the sum of HK$13 million together with interest and costs on an application by the plaintiff for summary judgment under O 14 RHC.

3. On the same day the Master also dismissed the defendant's application for leave to amend the defence and counterclaim but there has been no appeal from that decision. Mr. Kwok, counsel for the defendant, applied before me for leave to file the notice of appeal from that decision out of time. As no sufficient reason was provided to me for the delay I refused the application. Mr. Chua, counsel for the plaintiff, submitted that even on the matters raised in the proposed amended defence and counterclaim ("the proposed pleading") no triable issue was raised and I was invited to consider the same at the hearing of the appeal. I therefore heard arguments from counsel to see if there was a triable issue even on the matters raised in the proposed pleading.

4. The plaintiff's claim against the defendant is on a dishonoured cheque drawn by the defendant in favour of the plaintiff in the sum of HK$13 million ("the cheque"). The plaintiff is a bank.

Background

5. Prior to the events leading to the drawing of the cheque by the defendant in favour of the plaintiff, Benjamin Lau Kwok Wah ("Lau") was a guarantor of debts owing to the plaintiff by companies of which Lau was a director. The said companies indebted to the plaintiff were Unimax Holdings Ltd. and Crown Apex Development Ltd. As at 20 September 2000 the said companies were indebted to the plaintiff in the total sums of HK$55,597,255.21 and US$2,139,054.16. The debts were secured by mortgages in favour of the plaintiff of three properties owned by the said companies and another company of which Lau was also a director namely, Crownton Development Ltd.

6. According to the defendant, he and Lau had family trusts which were beneficially interested in a substantial amount of shares in a listed company namely, Wah Lee Resources Holding Ltd. ("Wah Lee"). Trading in the shares of Wah Lee had been suspended since about May 2000 pending restructuring of the company. By late October 2000 restructuring was almost complete and trading in Wah Lee shares was expected to resume shortly thereafter. The defendant and Lau were anxious that the share price and/or restructuring of Wah Lee should not be adversely affected by any legal action to be initiated by the plaintiff against Lau in respect of the debts owed to the plaintiff. For this reason the defendant was obviously interested to negotiate a deal with the plaintiff which would stave off litigation against Lau.

7. Lau and the defendant had a meeting with the plaintiff's representatives, which included Lam Heung Chiu, on 23 October 2000. At this meeting the defendant executed a deed of guarantee whereby he guaranteed the debts of the debtor in the sum of HK$13 million. The debts were secured by the mortgages but that was only to the extent of the value of the properties which was estimated to be about HK$55 million. That left about the sum of HK$13 million unsecured out of the total indebtedness of about HK$68 million. At the same time the defendant also issued and delivered to the plaintiff the cheque in the sum of HK$13 million. According to the plaintiff the cheque was post dated to 23 December 2000 but according to the defendant he did not put the date on the cheque.

8. Also at the same meeting another cheque for HK$500,000 dated 23 October 2000 drawn by the defendant in favour of the plaintiff was also delivered to the plaintiff. This was for the payment of the initial deposit in respect of the purchase of the three properties which, according to the plaintiff, the defendant agreed to procure the purchase of for the total sum of HK$55 million. According to the plaintiff the date of completion of the purchase was agreed to be 23 December 2000, which was two months from the meeting, and a further deposit of HK$5 million was payable within 14 days from 23 October 2000. It was also agreed that Lau would procure the delivery of 200 million Wah Lee shares to the plaintiff in early November 2000.

9. In early November 2000 Lau did procure the delivery of 200 million shares of Wah Lee to the plaintiff.

10. Thereafter the plaintiff and the defendant agreed to a revision of the agreement. By the revision it was agreed, inter alia, that upon the signing of the sale and purchase agreements in respect of the properties and the receipt by the plaintiff's solicitors of HK$15,430,000, 160 million Wah Lee shares (out of the 200 million which had been delivered to the plaintiff) would be returned to Jiu Feng Investments Ltd. It was also agreed that when the remaining 40 million Wah Lee shares were duly registered in the name of the plaintiff or its nominee the plaintiff would at the cost of the defendant release the deed of guarantee. By letter dated 29 November 2000 from Messrs Liu, Chan and Lam, the defendant's former solicitors, to the plaintiff's solicitors, the defendant's said solicitors agreed that :

"A representative of Jiu Feng Investments Limited ("Jiu Feng") will as soon as practicable attend your office to (sic) for the signing of the transfers of 40,000,000 shares in Wah Lee. Your client shall as soon as practicable proceed to arrange for the said 40,000,000 shares to be registered in the name of your client or its nominee. Within three days after the said shares are duly registered in the name of your client or its nominee, your client is required to release the Deed of Guarantee dated 23rd October 2000 given by Simon Wu Ming Fat." (emphasis supplied).

No mention was made of the cheque.

11. On 27 December 2000 the plaintiff presented the cheque for payment but the same was dishonoured.

12. The evidence also shows that the 40 million Wah Lee shares were never registered in the plaintiff's name. A winding-up petition was presented in Bermuda to wind up Wah Lee and on 16 February 2001 provisional liquidators were appointed. Although the instrument of transfer for the 40 million shares was signed before that, the company had not affixed its company chop onto the instrument of transfer. The contemporaneous note of the plaintiff's solicitors shows that the company chop was only affixed to that document by a representative of Jiu Feng at about 4.30 pm on 16 February 2001 which was a Friday. On Monday 19 February 2001 the plaintiff lodged the instrument of transfer for registration but was informed by the provisional liquidators that the transfer would be void unless the court in Bermuda otherwise ordered. It is plain that the shares were not duly registered in the plaintiff's name.

The application

13. The plaintiff's claim is on the cheque. On an O 14 application the threshold onus is on a defendant to show that there is a triable issue. It is well settled that bills of exchange are treated as cash and in an action between the immediate parties to a bill of exchange, judgment will not be held up by virtue of a counterclaim and execution will not be stayed unless there are exceptional circumstances. (para 14/4/19 Hong Kong White Book 2001)

14. The defendant seeks to raise a number of issues. I shall deal with each of these in turn.

Consideration

15. The defendant's case is that the cheque was given gratuitously and without consideration. Mr. Kwok submitted that the cheque was given by the defendant to fortify the performance of the guarantee i.e. as security for the guarantee and not as security for the debts. That being so, it was submitted that the cheque was given gratuitously and without consideration. In effect, it was submitted that there was a total failure of consideration for the cheque. I am unable to accept these submissions.

16. By s 30(1) of the Bills of Exchange Ordinance Cap 19, value is presumed. And by s 27(1)(a), valuable consideration may be constituted by any consideration sufficient to support a simple contract. The defendant's assertions defy common sense and commercial reality. The defendant was obviously interested in trying to stave off litigation by the plaintiff against Lau. It was accepted by Mr. Kwok that forbearance to sue is sufficient consideration. The defendant was prepared to and did give a guarantee to the plaintiff. At the same time he also gave a cheque to the plaintiff for the same amount of HK$13 million which was the unsecured amount of the debt. A lender is, of course, entitled to obtain different types of security for a debt. Mr. Kwok submitted that there was nothing to connect the cheque with the debt but he ignores the fact that the amount of the cheque is the same amount as the unsecured part of the debt namely, HK$13 million. The contemporaneous notes of the meeting made by the plaintiff's representative clearly show that both the cheque and the deed of guarantee were to secure the sum of HK$13 million which was in fact the unsecured part of the debt. The defendant's assertions are in my view unbelievable. The effect would be that the cheque was not to be treated as cash but only as security for the deed of guarantee. It ignores the commercial reality that the defendant was seeking to stave off litigation against Lau and the plaintiff was seeking further security for the debts which included both the guarantee and the cheque. There is no merit in this issue and no triable issue is shown.

Date of cheque and authority

17. The defendant asserts that the cheque was undated when he delivered it to the plaintiff. He says that the date "23-12-2000" on the cheque is not in his handwriting and was not entered with his consent or upon his instructions. He also suggest that the "12" of the date was altered without his knowledge. It seems to me that the "2" in the "12" of the date on the cheque is in darker print but I am unable to see an alteration.

18. The defendant also says that at the time of handing over the cheque to the plaintiff the parties did not have any particular purchaser in mind for the properties or the completion date of 23 December 2000.

19. The defendant says that on 23 October 2000 there was no completion date agreed and that he was not the one who would procure the purchase of the properties. However, it is indisputable that he also gave the plaintiff another cheque for HK$500,000 drawn by him and dated 23 October 2000 as the initial deposit for the purchase of the properties. Quite clearly the question of the purchase of the properties was discussed and agreed on that day otherwise, why would the defendant issue a cheque to the plaintiff for HK$500,000? There must have been some discussion and agreement on the terms of the sale and purchase of the properties. The date of completion of the sale must have been an essential term and there can hardly be any doubt that this was also discussed and agreed at the same time.

20. The defendant's assertions are bare assertions which are again contradicted by the contemporaneous notes of the meeting made by the plaintiff's representative. These show, inter alia, that a post-dated cheque dated 23 December 2000 was to be issued by the defendant for HK$13 million, and that completion of the sale of the property was to be on 23 December 2000. Also, the defendant himself wrote words on the cheque for HK$500,000 to the effect that it could only be cashed when he and the plaintiff signed the sale and purchase agreements in a solicitor's firm. It was thus acknowledged by the defendant himself that he would be signing the sale and purchase agreements with the plaintiff.

21. No credible explanation is advanced by the defendant as to why he left the date blank on the cheque. Although he disputes that he dated the cheque it seems to me to be incredible that he would have left the date blank on the cheque. The defendant's bare assertions are in my view unbelievable. Quite apart from that, even if the cheque was undated when delivered to the plaintiff it would be payable on demand (s 10(1)(b) of the Ordinance). Also, the person in possession of the cheque has a prima facie authority to fill up the omission of any material particular, in this case, the date, in any way he thinks fit (s 20(1) of the Ordinance). The plaintiff's case is, of course, that the defendant post-dated the cheque to 23 December 2000 but even if the date was left blank that does not assist the defendant. It is for the defendant to show want of authority and he fails to raise a triable issue on this.

Conditional delivery

22. The defendant asserts that the delivery of the cheque was conditional or for a special purpose only and not for the purpose of transferring the property in the cheque thereby raising a defence under s 21 (2) (b) of the Ordinance.

23. It is well settled that a written contract was created on the giving of the unconditional order for payment expressed by a cheque itself and that oral evidence was inadmissible to vary or contradict its terms (Great Sincere Trading Co. Ltd.. v Swee Hong & Co. [1968] HKLR 660; Suen Ho Sun v Kamenar International Ltd. [1989]1 HKC 135; S.Y. Chan Ltd. v Choy Wai Bor [2001] 3 HKLRD 145). Mr. Kwok accepted that this is the law but he submitted that the defendant was seeking by oral evidence to show that the delivery was conditional and not for the purpose of contradicting or varying the unconditional nature of the cheque.

24. Para 14 of the proposed pleading provides particulars as follows:

"The conditions upon which the undated Cheque was delivered was that the Cheque will not take effect and (sic) unless and until the Defendant's liability under the guarantee is ascertained and/or that it will be returned to the Defendant upon the Plaintiff receiving the said 200 million Wah Lee shares, which did happen."

25. It is clear on the evidence that the 200 million Wah Lee shares were received by the plaintiff in early November 2000. However, there is nothing in the contemporaneous letters in November and December 2000 from the defendant's then solicitors asking for the return of the cheque.

26. Mr. Kwok submitted that on the defendant's case the cheque remained at all times an unconditional order for payment but that it was delivered upon certain conditions and accordingly it was delivered in escrow; hence, parol evidence was admissible to show that it was a conditional delivery and not for the purpose of transferring property in the bill. He submitted also that the cheque was given on the condition that the plaintiff had to go after the defendant on the deed of guarantee first and that only in the event of failing to meet the demand under the guarantee would the plaintiff be entitled to present the cheque for payment.

27. I am unable to accept Mr. Kwok's submissions. The cheque was undoubtedly an unconditional order for payment on the face of the cheque itself. With the concession made by Mr. Kwok that it was an unconditional order for payment I fail to see how it can then be suggested that there were nevertheless conditions attached to the delivery of the cheque. The cheque as it stood was an unconditional order in writing by the defendant to his bank to pay the plaintiff the sum of HK$13 million on or after the date of the cheque. The oral evidence is, in my view, an attempt to qualify the nature or tenor of the cheque. It attempts to introduce into the unconditional order for payment expressed by the instrument itself a condition which is contrary to its terms. In my view the oral evidence of the defendant is an attempt to contradict or vary the terms of the unconditional order for payment on the due date. In effect oral evidence is sought to be adduced to show that it was not an unconditional order for payment after all and to show that it would become or was to be treated as cash only after the plaintiff had first gone after the defendant on the guarantee and the defendant had failed to discharge his liability under the guarantee. In my judgment the effect of the oral evidence is clearly an attempt to contradict or vary the unconditional order for payment expressed by the cheque itself and oral evidence is not admissible for this purpose.

28. Quite apart from this, I should mention that when the defendant delivered the other cheque for HK$500,000 to the plaintiff for the initial deposit for the purchase of the properties he himself sought to impose conditions on that cheque itself. He wrote words on the cheque to the effect that the said cheque dated 23 October 2000 could only be cashed when the plaintiff and the defendant had signed the sale and purchase agreements for the sale of the properties in a solicitor's firm. That was flatly rejected by the plaintiff and the words were deleted from that cheque. It is also pertinent to observe that if indeed the delivery of the cheque was conditional the defendant would have written the conditions on the cheque itself as he tried to do with the other cheque for HK$500,000. Quite apart from the fact that the oral evidence is not admissible, the defendant's assertions are also unbelievable. There is no merit in this defence raised and no triable issue is shown.

Collateral contract

29. This is raised in para 16 of the proposed pleading as follows:

"Further or in the alternative, by a collateral agreement between the Plaintiff and the Defendant on 23rd October 2000, the particulars of which are set out in paragraph 14 above, it was agreed (a) that the Cheque will not take effect and (sic) unless and until the Defendant's liability under the guarantee is ascertained and/or that it will be returned to the Defendant upon the Plaintiff receiving the said 200 million Wah Lee Shares, which did happen."

It pleads the same particulars as those provided under the conditional delivery defence raised in the proposed pleading in para 14.

30. This is another attempt by the defendant to get around the parol evidence rule by asserting that there was a collateral contract. In Universal Dockyard Ltd. v Trinity General Insurance Co. Ltd. [1989] 2 HKLR 160 it was held that collateral contracts, the sole effect of which were to vary or add to the terms of the principal contract, had to be strictly proved; and not only the terms of such contracts, but also the existence of an animus contrahendi on the part of all parties had to be shown. In his speech @ 160 Lord Goff set out the well known passage from the speech of Lord Moulton in Heilbut, Symons & Co. v Buckleton [1913]AC 30 @ 47 when he said:

"Such collateral contracts, the sole effect of which is to vary or add to the terms of the principal contract, are therefore viewed with suspicion by the law. They must be proved strictly. Not only the terms of such contracts but the existence of an animus contrahendi on the part of all the parties must be clearly shown. Any laxity on these points would enable parties to escape from the full performance of the obligations of contracts unquestionably entered into by them and more especially would have the effect of lessening the authority of written contracts by making it possible to vary them by suggesting the existence of verbal collateral agreements relating to the same subject-mater."

31. The threshold onus is on the defendant to show a triable issue in O 14 applications. Nazareth J.A. (as he then was) said in Bank of India v Surtani Murlidhar Parmanand t/a Ajanta Trading Corp [1994] 1 HKC 7 @ 11:

"Since the defence rests upon a collateral agreement, the sole effect of which is to vary the settlement deed, the threshold onus is in a sense compounded by the onus to strictly prove such agreement".

32. I agree with Mr. Chua that the alleged defence of collateral contract is unclear and vague. It seeks to contradict the unconditional order of the defendant to its bank to pay the plaintiff the amount of the cheque on due date. It is in my view a feeble attempt to get around the parol evidence rule. I have already said that nowhere in the contemporaneous letters from the defendant's then solicitors to the plaintiff's solicitors in November and December 2000 did the defendant's then solicitors ever suggest to the plaintiff's solicitors that as the 200 million Wah Lee shares had been delivered to the plaintiff in early November the cheque should be returned to the defendant. No mention is made at all of the cheque in the said contemporaneous letters. The defendant's assertions are unbelievable. No triable issue is raised on this defence.

Inequitable

33. It was also suggested that somehow it was inequitable for the bank to present the cheque for payment when the defendant had performed all that he was required to do. It was submitted that the defendant had completed the agreement and the revised agreement and it was inequitable for the plaintiff not to release the deed of guarantee and to return the cheque.

34. The defendant cannot even begin to show that the terms of the revised agreement have been completed. The defendant had clearly agreed through his then solicitors by their letter dated 29 November 2000 addressed to the plaintiff's solicitors that within three days after the 40 million shares were duly registered in the name of the plaintiff, the plaintiff was required to release the deed of guarantee. Quite apart from the fact that no mention was made of the cheque, the evidence shows clearly and indisputably that the 40 million shares were never duly registered in the name of the plaintiff or its nominee because of the petition to wind up and the appointment of the provisional liquidators. I fail to see how it can be said that it was inequitable for the plaintiff to present the cheque for payment. The plaintiff was after all, as it was entitled to do, pursuing its remedy in respect of one of the securities that it held for forbearing to sue in respect of the debts owing to it.

Conclusion

35. In my judgment no triable issue has been shown by the defendant. The Master rightly gave judgment to the plaintiff. The appeal is dismissed. I also make an order nisi that the costs of the appeal shall be costs to the plaintiff to be borne by the defendant such costs to be taxed if not agreed.