Civil Procedure — Summary judgment — Dishonoured cheques — Whether alleged agreement believable

Mr. Vincent Lam, instructed by Messrs. Donald Yap, Cheng & Kong, for the Plaintiff.

Mr. Herbert Leung, instructed by Messrs. Kelvin Cheung & Co., for the Defendant.

Master J. Wong


DETERMINATION

Introduction

[1] This is an application by the Plaintiff for summary judgment upon 3 dishonoured cheques.

Background

[2] In September 2007 and March 2008, the Plaintiff made 2 loans to the Defendant who agreed to repay them in or around August 2008. 2 post-dated cheques in the respective sums of $880,000 and $1,280,000 were tendered, but they were later dishonoured.

[3] Then, on 27 October 2008, the Defendant handed to the Plaintiff the 3 subject cheques, particulars of which were:

Cheque No.	Date	$
906913	28/11/2008	880,000.00
906914	28/11/2008	1,280,000.00
906915	28/11/2008	170,647.00	(interest)
		2,330,647.00

[4] They were presented on the due date, but the bank informed the Plaintiff that they were dishonoured again.

[5] On 16 March 2009, the Plaintiff instructed his solicitor to issue a demand letter to the Defendant who also replied through his solicitor in the followings:

" We are instructed that your client, Mr. 陳滿 and our client are two of the former shareholders of Steinbock Original German Sausages Limited (成得寶德國食品有限公司), ("the Company"), which was incorporated on 23^rd January 2008 under the Laws of Hong Kong. Your client holds 10,000 shares while our client holds 21,000 shares out of 100,000 issued shares of the Company. There are written and oral shareholders agreements made between our respective clients, and between the group of Hong Kong shareholders and the group of German shareholders. We are instructed that pursuant to the said agreements, your client agreed to lend money to our client as loans for investment to the company on terms agreed. However, the Company was wound up by the Court pursuant to the Court Order dated 21^st January 2009.

We are instructed that three (3) post-stated cheques were issued by our client in favour of your client as security for repayment of the said loans pending resolution of the shareholders dispute in respect of the Company, and also pending the distribution of assets by the Liquidator of the Company. We are instructed that the three (3) cheques were post-stated 28^th November 2008 and were presented to your client only for security purpose, and were never meant to be banked in for payment. At all material time, your client fully understood and knew that the cheques were only tendered as security and there were not sufficient funds in the bank account for payment out. However, acting to the contrary of the terms of the said agreement, your client presented the cheques without the knowledge and notice of our client. This is in breach of the said agreement.

We are further instructed that at a meeting held between our client and your client on 1^st March 2009, (which meeting was attended by Mr. Tong Wong), it was mutually agreed that our client would sign a promissory note in favour of your client to repay respectively three (3) sums of money (HK$880,000.00, HK$1,280,000 and HK$198,690.00). In consideration of our client agreed to grant indulgency not to demand full payment of the principal, provided that our client shall pay interests at the rate of 7.5% per annum, payable in monthly basis for the period from 2^nd March 2009 to 1^st March 2010. It was expressly and categorically agreed that as long as our client is able, and continues, to pay interests as aforesaid, your client shall withhold all recovering proceedings nor making demand for full payment of the principal. Your client therefore has impliedly agreed not to sue on the said three (3) cheques.

After the meeting, your client through your firm has drafted a promissory note in Chinese for the consideration of our client. Our client then re-sent it to Mr. Tony Wong for confirmation. Mr. Wong then made several amendments on the draft in accordance with the terms agreed by the parties on 1^st March 2009. A copy of the said promissory note (as revised by Mr. Wong) is enclosed for your reference.

In the premises, there is an agreement made between our respective clients thereby during the period from 2^nd March 2009 to 1^st March 2010, our client will have to pay interests to your client (as stipulated on the revised draft promissory note) while your client shall not bank in the 3 cheques nor to sue for payment of the said debts. However, in breach of the said settlement, your firm on behalf of Mr. Chan issued the letter of demand dated 16^th March 2009, purportedly repudiating the settlement agreement…"

[6] The Plaintiff then commenced the present proceedings on 23 April 2009. The Defendant contested the proceedings and filed his Defence. It pleaded the defence of 2 Agreements.

" 3. … The Defendant further avers that the Post-Dated Cheques were merely handed to the Plaintiff on 27^th October 2008 as security to the Loans and interest as accrued from the Loans. At the time when the Defendant handed the Post-Dated Cheques to the Plaintiff it was expressly agreed between the Plaintiff and the Defendant that those Post-Dated Cheques were not to be presented for payment ("1^st Agreement"). In breach of the 1^st Agreement the Plaintiff presented those Post Dated Cheques for payment.

4. …

5. (a)…

(b) During the meeting, a new agreement was reached between the Plaintiff and the Defendant ("2^nd Agreement"), as follows;

(1) The Defendant shall pay, and the Plaintiff shall accept, a sum of HK$2,358,690 (being the aggregate of HK$880,000, HK$1,280,000, and HK$198,690, the latter being the agreed interest in respect of the said HK$880,000 and HK$1,280,000) on 1^st March 2010;

(2) The Defendant shall pay, on quarterly basis, interest accrued on the said HK$2,358,690 at the rate of 7.5%per annum for the period from 1^st March 2009 to 28^th February 2010. Such interest shall be payable on 1^st June 2009, 1^st September 2009, 1^st December 2009 and 1^st March 2010.

(3) The Plaintiff will instruct his solicitors to draft a Chinese promissory note (借據) for the Defendant to sign on 1^st March 2009.

(c) …

(d) …

(e) In the premises, in consideration of the Defendant agreeing to sign a promissory note pursuant to the terms of the 2nd Agreement as aforesaid, the Plaintiff expressly agreed, or alternatively agreed by conduct, to withhold demand for full re-payment of the said sum of HK$2,358,690 owed and due by the Defendant to the Plaintiff, including implicitly the promise to withhold taking out any legal proceedings against the Defendant shall comply with the payment dates of the quarterly interest on the dates stated and agreed by the parties

(f) In the premises, it was further or impliedly agreed between the plaintiff and the Defendant that the plaintiff was only entitled to demand for full re-payment of the said HK$2,358,690 on or after 1^st March 2010, subject to the Defendant’s payment of further interest during the period."

[7] On 27 August 2009, the Plaintiff issued the present application for summary judgment. At the call-over hearing of the matter, Master Levy directed, inter alia, that the same is to be disposed on papers without oral hearing. Parties thereafter prepared their cases accordingly, including skeletons from their respective Counsel. I dealt with the application on 19 October 2009.

Ruling and reasons

[8] Upon consideration of all the evidence authorities and written submissions from the parties, I have decided to grant summary judgment for the Plaintiff. My reasons appear in below.

[9] The legal principle relating to summary judgment are clear. To sum up them for the present purpose, the underlying policy of order 14 application is to prevent the defendant from delaying the plaintiff to obtain judgment in a case where the defendant clearly has no defence. Facing such application, the Court asks 2 questions.

(a) Factually, is what the defendant says believable in light of the undisputed or indisputable circumstances? In so doing, the court is entitled to take into account the commercial reality as well as contemporaneous documents. However, mini-trial on affidavit evidence shall not be embarked. Bare assertion is sufficient and the defendant must condescend upon particulars.

(b) Legally, if what the defendant says is believable, does it amount to an arguable defence in law?

[10] In the context of dishonoured cheque, para. 14/4/19 of HKCP 2004, at p.201 also provides the following useful principle.

"…Bills of exchange are treated as cash and, unless there are exceptional circumstances, where there is an action between the immediate parties to a bill of exchange…. Extrinsic evidence is not admissible to contradict the terms of the contract constituted by the bill of exchange, which is for unconditional payment. The only exception is where the evidence is of a condition precedent to the contract, that is, a condition which prevents the coming into force of the contract contained in the bill of exchange. The local authorities are reviewed in SY. Chan Ltd v. Choy Wai Bor [2001] 3 H.K.L.R.D. 145 …."

[11] With the above principles in mind, the Defence of the 1^st agreement collapses easily. Not only that it is unbelievable as hereinbelow illustrated, the same is against the definition of a bill of exchange, i.e. a cheque.

" A bill of exchange is an unconditional order in writing, addressed by on person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to, or to the order of, a specified person or to bearer."

(Section 3(1) of the Bills of Exchange Ordinance (Cap.19))

Extrinsic evidence is inadmissible as a matter of law. Further or in the alterative, I do not consider that there is any evidence before me or indeed the case of the Defendant that the "1^st Agreement" falls within the exception to the condition precedent as stated in the above extract from HKCP 2009.

[12] On the other hand, I also take view that the Defence of the 2 Agreements is unbelievable in light of the undisputed or indisputable contemporaneous evidence before me.

(a) The Defendant said that the 3 subject cheques were tendered as security pending resolution of the shareholders dispute of the Company and distribution of the assets by liquidator. If that was true, there would be indeed no need to enter into the 2^nd Agreement at all. It is self-contradictory. One only negotiates to settle a debt when he or she is liable to pay the same.

(b) It is not disputed parties did negotiate in February 2009. I also have the benefit of a SMS issued by Mr. Wong to the Plaintiff on 5 February 2009:

" 恭喜發財，新年好！

張生剛來電因事忙叫我轉告你。

1）張生無法在2月10日償還債項

2）建議你接管成得寶公司

3）建議債項分期付款給你

請你考慮一下！盼覆！

Tony"

Such contemporaneous document indeed amounts to an acknowledgment of debt at the material times. Further, item 2 of the same makes the Defendant’s case even worse as, by that time, "得寶公司" has been wound up by the Court, which was known to both the Defendant and Mr. Wong. How could the Plaintiff "take up" the Company in the circumstances?

(c) The Defendant produced a copy of the Chinese promissory note, original and one with handwritten amendments thereon, to show the 2^nd Agreement. However, they could support that there had been negotiation of settlement, but not conclusion of the same.

(d) The "partial" payment of the interest by the Defendant does not improve his case. First, they were not done in accordance with the alleged 2^nd Agreement. Second, they were only paid into the Plaintiff’s account without any reference to either the 2^nd Agreement or to the Plaintiff at all.

(e) Finally, as pointed out by the Plaintiff’s Counsel, the particulars of the 2^nd Agreement are not clear and contradictory.

" 14. The Defendant’s solicitors had issued a letter to the Plaintiff’s solicitors on 23^rd March 2009 ("the Said Letter") [B131-133]. In paragraph 4 of the Said Letter:-

" In consideration of our client agreeing to signing and execution the said promissory note, your client agreed to grant indulgency not to demand full payment of the principal, provided that our client shall pay interests at the rate of 7.5% per annum, payable on monthly basis for the period from 2^nd March 2009 to 1^st March 2010. (emphasis added)"

15. In paragraph 5 of Tony Wong’s Affirmation [A61], it was stated that "the Plaintiff accepted the Defendant’s request to withhold all demands against him…" It is contrary to what the Said Letter mentioned that the Plaintiff only agreed not to demand full payment.

16. However, it was stated in paragraph 5(e) of the Defence that ‘the Plaintiff expressly agreed, or alternatively agreed by conduct, to withhold demand for full repayment of the said sum of HK$2,358,690.00’."

Conclusion

[13] In the end, I therefore grant summary judgment in favour of the Plaintiff for payment of:

(a) the sums of $2,330,647, and

(b) interest thereof at the rate of 8.00% p.a. from 21 April 2009 until today and thereafter at judgment rate until full payment.

Costs

[14] Upon further considering the parties’ written submission on summary assessment of costs, I will further order the Defendant to pay costs of the Plaintiff for the application and proceedings herein in the assessed sum of $49,000.

	$	$
B1		2,000
B2		500
		2,500
C1	10,500
C2	3,500
C3	3500	17,500
D1	10,500
D2	3,500	14,000
E		15,000
		49,000

The Lexis HK research system contains judgments and case analysis covering over 100 years of Hong Kong jurisprudence. Click here to find out more.