Tianma Micro Electronics (Hong Kong) Ltd v. Gionee (HK) Communication Equipment Ltd

HCA 297/2018

[2018] HKCFI 2733

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 297 OF 2018

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DECISION

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Introduction

1.By a summons filed on 17 April 2018 (“the Summons”), the Plaintiff (“P”) applied for summary judgment against the Defendant (“D”) under Order 14 of the Rules of the High Court (“RHC”) on the ground that (according to P) D had no defence to P’s claim in the Statement of Claim (“SoC”).

2.I heard the Summons substantively on 6 December 2018, after which I reserved my decision.  I have since decided that (1) D should be granted unconditional leave to defend; (2) costs of the Summons should be in the cause of this action; and (3) there should be Certificate for Counsel for the Summons (“the Decision”).

3.My reasons for the Decision are as set out below.

Background

4.P’s pleaded case was one of “dishonoured cheques”.  It was pleaded that D drew in favour of and delivered to P two cheques, dated 30   &   31   December   2017 respectively, for the total sum of USD 1,775,312.18 (“the Sum”), which were dishonoured upon P’s presentation on 3 January 2018. Relying on various provisions in the Bills of Exchange Ordinance (Cap 19) (“the BEO”), P commenced this action on 2 February 2018.

5.D never filed its Defence, though it had filed 3 affirmations in opposition [A/31] [A/39] [A/45].

Submissions of D

6.In opposition of the Summons, Mr Paul H M Leung, Counsel for D, submitted I should not enter summary judgment against D because by the 2^nd Affirmation of Liu Lirong [A/39 at 42], D showed a prima facie believable defence of “absence, or total failure, of consideration”.  Mr Leung emphasized that the cheques were issued for convenience only, there was no consideration flowing between P and D at all, there was no evidence of any request or promise to forebear to sue from any entity to any entity, nor should any such request or promise be implied in the circumstances of this case.

Submissions of P

7.In answering D’s submissions and in support of the Summons, Mr Justin K W Wang, Counsel for P, submitted D had no real defence since requests and promises to forebear to sue should be inferred from the overall commercial arrangement between the legal entities involved, and I should lift or pierce the corporate veil for this purpose in so far as necessary, citing Yue Tai Plywood & Timber Co Ltd v Far East Wagner Construction Ltd & Another [2001] 2 HKLRD 446, a judgment of Recorder Leong SC dated 19 April 2001.  It was also emphasized by Mr Wang, citing Ko Nga Chun v Companhia de Desenvol Vimento Wui San Limitada & Suen Wai Man (unrep, HCA 277 / 2012, Mimmie Chan J, 31 December 2013), that the law said cheques should be treated as cash and be honoured unless there was a good reason to the contrary, and it was only in exceptional circumstances that a plaintiff should be deprived of a judgment based on a cheque.

My View

8.In gist, whilst I was sympathetic to P’s request for a summary judgment, having considered everything cautiously, I was not satisfied this Court should enter summary judgment against D on the evidence adduced and placed before me in this particular case.

9.I read everything.  The genesis of the cheques was a 7-party Chinese agreement (“the Agreement”), presumably governed by the laws of Mainland China, between 5 entities based in Mainland China, 1 entity based in Taiwan, and 1 entity based in Tortola, British Virgin Islands (“the 7-Entities”).  Neither P nor D was a party to the Agreement.  They were not even mentioned in the Agreement.

10.So why was D issuing cheques to P one may ask. According to D, it was because the 7-Entities had difficulties making and/or receiving payments in USD, by reason of the existence of stringent foreign-exchange control in Mainland China.  D, as a Hong Kong corporation, was “named” as a paying party by the 7-Entities, and P, as a Hong Kong corporation, was “named” as a receiving party by the 7-Entities.  The idea was to get round the foreign-exchange control laws in Mainland China.  Whilst subsequent events showed that P and D must have agreed to participate in this scheme (hence the issuance of the cheques in question), it was entirely unclear on the evidence before me on what terms did D and P agree to act as the payor and payee respectively.

11.There were many possibilities.  D could have agreed to issue and/or deliver the relevant cheques on the explicit or implied understanding that in no circumstances should D be sued [A/35], and that if those cheques were dishonoured the entities entitled to payment (whether it was P or one of the 7-Entities) should be suing the original debtors but not D.  D could also have agreed to issue and/or deliver those cheques on terms which were very different.  The same could be said about the role of P. There were references, in the Affirmation of Cheung Yuk filed by P [A/21 at 24], to supplemental agreements, but P and D were not party to those supplemental agreements.  There were sworn assertions, in the same affirmation [A/21 at 27], that D must have agreed to issue the cheques so that its related corporations would never have to.  But P made those assertions without referring to any specific document or discussion which showed that once D had issued the cheques, D’s related corporations would then be absolved from liability or had their payments delayed or cancelled.  In fact, the documents placed before me seemed to suggest the exact opposite – i.e. that even after D had drawn and delivered the cheques to P, the original debtors would remain fully liable for the debts as if D had never done so.  I was far from satisfied I had been told all relevant facts as to why P and D agreed to join the scheme and the terms of engagement involved.  In my view, neither P nor D appeared to have told this Court the entire arrangement vis-à-vis all entities involved in these transactions in their affidavits.

12.The absence of complete affidavit evidence in this case had in my view distinguished this case from Yue Tai (above). There, the Learned Recorder was able to point to clear affidavit evidence including evidence about oral conversations and meetings which established a “deliberate and obvious blurring of the edges”, enabling the Learned Recorder to conclude summarily on the affidavit evidence before her that the relevant corporate veils should be lifted or pierced.  We had none of that in our present case, save and except some objective evidence of overlapping shareholding and directorship which in my view was neither here nor there. Further, in Yue Tai (above), there was affidavit evidence of explicit requests to forbear to sue.  We did not have that kind of evidence in our present case either.

13.Moreover, as pointed out by Mr Leung, in Yue Tai (above), the Learned Recorder was able to apply Section 28 of the BEO and the case of Diamond v Graham [1968] 1 WLR 1061 primarily because the plaintiff in that case (the drawee of the cheque) did supply goods for the cheque and as such, it was a “holder for value” for the purposes of the law in this area and it did not matter in that scenario that no value passed directly between the drawer and the drawee.  Our case was different, as P was a stranger to the Agreement who paid nothing, supplied nothing and promised nothing for the cheques in question.  There was no clear evidence any other person had given value for the cheques in question either. P could not be said to be a “holder for value” on the evidence before me and Yue Tai (above) did not assist P.

14.Similarly, P prayed in aid of the decision of Mr Registrar K W Lung (as DHCJ K W Lung then was) in Hong Kong Sheen Smile International Investment Limited v Color Bridge Industrial Company Limited (unrep, HCA 1551 / 2013 & HCA 2497 / 2014, 5 December 2016) in support of its case herein.  There, the Learned Registrar said this, in his paragraph 26: -

“… Forbearance to sue on the debt or liability against the third party is sufficient consideration as decided by the Court of Appeal in the Oliver’s case.”

15.That statement must be correct as a matter of law.  However, as pointed out by Mr Leung for D, the main difference in our case was that there was simply no evidence of requests or promises of forbearance to sue, and whilst Mr Leung fairly accepted that this Court could infer facts from the evidence adduced, looking at all of the evidence placed before me I was far from satisfied the evidence was sufficient for me to infer that there must be requests or promises of forbearance to sue in our case.  I simply could not draw such inferences summarily on the evidence adduced.

16.Finally, as to the famous quotation to the effect that it was only in exceptional circumstances that a plaintiff should be deprived of a claim or a judgment based on a cheque, I had accepted that as a correct principle of law but it did not assist.  It begged the question as to whether this case fell within the “exceptional circumstances” contemplated.  The fact that on the evidence placed before me (1) P and D were strangers to each other; (2) neither P nor D would benefit from agreeing to join the payment scheme in the way as they did; (3) neither P nor D would suffer if they did not join the payment scheme in the way as they did; (4) there was no direct evidence of requests or promises of forbearance to sue and the circumstances of the case and the evidence adduced did not give rise to any irresistible inference that they must have existed; and (5) there was insufficient evidence showing a “deliberate and obvious blurring of the edges” enabling me to treat related entities as one for the purposes of the BEO appeared to me to have placed this case into the “exceptional circumstances” category.

17.It would be useful to go back to first principles.  It was never the case that the BEO had done away with the requirement of consideration.  It merely altered the legal position to a limited extent so that in the case of cheques, for example, the issue of consideration had become presumed in law (Section 30), past consideration could be good, and so on and so forth.  Save and except these alterations, the absence of consideration remained a perfectly valid defence to a civil claim based on a cheque.  In Chalmers and Guest on Bills of Exchange, Cheques and Promissory Notes (18^th Ed) at paragraph 4-007, for example, its learned editor, Professor S J Gleeson, referred to the identical position in England and correctly said this: -

“… Absence of consideration, total or partial, is a matter of defence against an immediate party. Thus if A draws a cheque in favour of B and delivers it to B as a gift, B cannot recover from A… Absence of consideration is likewise a good defence against a remote party who is not a holder for value, i.e. where value has not at any time been given for the bill… ”

18.In our present case, D was adamant there was no consideration whatsoever and on the face of the documents produced, D appeared to have an arguable defence based on an “absence of consideration” argument. P asked me to infer from the entirety of the evidence adduced that there must be consideration in the form of forbearance to sue or pay, but was wholly unable to point to anything in the evidence clearly demonstrating that must be the consideration, or that consideration must have existed.  If anything, the documents placed before me seemed to suggest the direct opposite.

19.All in all, having read and considered everything cautiously, I came to the firm view that D had shown an arguable defence (namely, that of an absence of consideration) and should be granted unconditional leave to defend.  I was wholly unable to say, summarily, that D’s argument was either bad in law or not to be believed.  In any case, the affidavit evidence placed before me was such that it left me with a deep sense of unease.  In my view, for this particular case, judgment should only be granted (or the action should only be dismissed) after a full trial so that relevant issues can be clearly defined by pleadings and fully canvassed after discovery and the cross-examination of live witnesses.

Costs

20.D asked for the costs of the Summons forthwith on the ground that (in D’s view) the Summons should never have been taken out.  I gave this option serious thought but decided against it.  In my view, bearing in mind the presumption of consideration in law in relation to cheques, it was not wholly unreasonable for P to attempt summary judgment application in the manner as it did, even though I decided against P in the end.  All things considered, I came to the view that the most appropriate costs order would be costs in the cause of the action and I so order.

21.On the question of Certificate for Counsel, in my judgment it was reasonable, necessary and proper for both P and D to engage Counsel to argue the Summons substantively, as the presentation of the evidence in this matter and the submissions on the law both called for the engagement of skillful advocates.  I granted Certificate for Counsel for the Summons accordingly.

Final Remarks

22.I thank both Counsel for their most able assistance.

Mr Justin K W Wang, instructed by Lam, Lee & Lai, for the Plaintiff

Mr Paul H M Leung, instructed by Li & Partners, for the Defendant