Man Sun Finance (International) Corporatjon Ltd v. Wong Kwan Man

HCA000535/1981

Dishonoured cheque - parol evidence of agreement contemperaneous with delivery that cheque not to be presented inadmissible - evidence showing no consideration admissible.

BETWEEN

Coram: Barnes, J.

Date: 5 February 1982

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JUDGMENT

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1. Friday 31 October 1980 was a "dream day" on the Stock Exchange for those investors who happened to be friends of Mr. LEUNG Tai Wah, a "broker" employed by the plaintiff. The plaintiff was a deposit taking company advancing credit to customers for the purpose of buying shares. Mr. LEUNG had "information from a reliable source'', which he believed, that Jardine Matheson was to be the subject of a take-over bid. "Jardines" would therefore on Mr. LEUNG's view "go to $45 within a week". Jardines could be bought that Friday for $35 per share. So, an investor who bought 100,000 that Friday and sold them for $45 the following Friday would make $1 million within a week. Mr. LEUNG did not keep this information to himself but imparted it to his friends. As a friend of Mr. LEUNG one could be introduced to Mr. FOO Sau Chun, a director of the plaintiff, and if Mr. FOO approved, automatically become a customer of the plaintiff. That meant being able to place an order to buy shares immediately on credit. Both the defendant and his paramour were friends of Mr. LEUNG and one of them that Friday set out on the road to make a million in a week by instructing the plaintiff to buy on his or her behalf 100,000 Jardines shares. The plaintiff executed the order, the purchase price being $3,653,953.00. No arrangements for completion of the purchase were ever made to the satisfaction of the plaintiff.

2. On the following Monday the shares, instead of showing the anticipated surge towards $45 began to slip back from Friday's $35 quotation. They never recovered and the plaintiff sold them on 17 December 1980. The sale realised $2,094,546.80.

3. The plaintiff, in its pleadings and at the commencement of the hearing, claimed that it was the defendant who bought the shares. The defendant throughout has insisted that it was Madam WAT Yim Kui, his "common law wife", who bought them. At the conclusion of the evidence the plaintiff no longer sought to say that it was the defendant who purchased them. Instead, the plaintiff now relies solely on the other leg of its claim. That is a claim for the amount of a dishonoured cheque.

4. It is common ground on the pleadings that the cheque in question was drawn by the defendant, that the payee of it was the plaintiff, that it was dated 26 November 1980 and that the amount was $1.3 million. The plaintiff alleged that it was delivered on or about 26 November 1980 but the defendant alleged that it was a post-dated cheque delivered some weeks earlier than the date it bore. The parties do agree, however, that it was presented to the bank on which it was drawn on 17 December 1980, that it was dishonoured on presentation and that the reason given for dishonour was "payment stopped".

5. At the trial the defendant sought to adduce evidence with a view to establishing (1) that there was an oral agreement between the parties made contemporaneously with delivery of the cheque that it would not be presented by the plaintiff for payment and (2) that there was no value given for it. Leading counsel for the plaintiff objected that the evidence sought to be so led under (1) above was inadmissible. It was, however, agreed between counsel for both parties that I should take the evidence first and rule upon the issue after hearing their submissions on admissibility. Those submissions were made during counsels' final addresses and I now give my ruling.

6. It is a general rule that evidence of a parol agreement contradicting a term of a contemporaneous written agreement is inadmissible. A cheque is, by statutory definition ⁽¹⁾, a bill of exchange payable on demand or at some future time. The defendant seeks to adduce evidence that there was an oral agreement that the cheque was not to be payable at all. He, therefore, seeks to prove an oral agreement denying the existence of an essential characteristic of the instrument he admits by his pleading to be a cheque. He is not allowed to do that. But he can adduce evidence to show that there was no consideration for the cheque. ⁽²⁾ I rule, therefore, that the evidence led for the purpose of showing that the cheque was not payable is not admissible but the evidence led for the purpose of showing that there was no consideration for it is admissible.

7. The defendant gave evidence himself and called three witnesses. The plaintiff did not call any witnesses. The defendant's evidence standing alone was of no assistance to his case as his credibility was completely destroyed in cross-examination.

8. I found Madam Wat Yim Kui to be a credible witness when giving evidence about the purchase of the "Jardines" shares and about her reluctance to enter into a written agreement with the plaintiff.

9. The evidence of Mr. Chung Shiu Wa, a friend of the defendant, was suspect in that he appeared to be motivated more by a desire to help a friend than concern for the truth.

10. Mr. Leung Tai Wah, however, came to the witness box with conflicting loyalties. On the one hand he had been the defendant's friend of long standing while on the other, he was an employee of the plaintiff. Leading counsel for the plaintiff submitted that I should be hesitant in accepting evidence given by Leung because he appeared at times to be too ready with answers favourable to the defendant's case. That was a possible explanation for the way in which he did answer some questions in cross-examination. But another explanation, and the explanation which I think is the more likely as I reflect on the evidence and the impression that Leung created as a witness of truth, is that he was totally unable to accept the version of events suggested in cross-examination. Leung was still employed by the plaintiff at the time he gave evidence. If self-interest or loyalty had influenced him in deciding which version to support irrespective of the truth, the likelihood is that he would have supported the plaintiff's suggested version.

11. The plaintiff knew from an affirmation by Leung filed on 13 February 1981 that Leung was "willing and prepared to attend trial of this action and testify" in support of a material part of the defendant's version of the circumstances under which the cheque was drawn and delivered. If what Leung then said he would testify to was not true, the plaintiff had, in that affirmation, convincing evidence that it was employing a treacherous person to introduce customers to whom the plaintiff should give credit. It is hardly likely that the plaintiff would have continued to employ him in those circumstances.

12. The plaintiff's conduct in continuing to employ him redounds to its credit as a civilised employer but it is not consistent with a belief that Leung was threatening to tell a lie. If what Leung said was a lie, or was not the whole truth, there was a director of the company present at the time of the incident who could have testified to contradict the lie or complete the story if it did not contain the whole truth. That director, Mr. FOO Sau Chun, never took a step towards the witness box but remained a faceless figure throughout the hearing. There are, therefore, substantial grounds for believing that LEUNG was telling the truth and that my instinctive acceptance of him as a reliable witness was not the result of my being gulled by a pleasant, personable and plausible witness. I accept LEUNG's evidence.

13. The facts as I find them are as follows. On 30 October 1980 the defendant and the plaintiff began their relationship when the defendant, through LUNG Tai Wah, requested the plaintiff to buy on his behalf a quantity of shares "on a Margin basis". The plaintiff executed the order, the purchase price being $3,510,381.60. Later that day Leung called on the defendant, obtained his signature on a printed form headed "Memorandum of Deposit" used by the plaintiff when entering into margin trading agreements with its customers and took delivery of a cheque drawn by the defendant in favour of the plaintiff in the sum of $100,000. The cheque was the deposit required from the defendant in connection with the purchase the plaintiff had already made on his behalf.

14. On 31 October 1980 the defendant, on learning that the price of his shares had increased, gave orders to the plaintiff through Leung to sell them. That order was executed in the morning of that day, the sale realising $3,595,298.00. The plaintiff's "security charge in respect of the transactions was $1,250.00. After the sale the defendant was, therefore, in credit with the plaintiff in the sum of $84,916.40.

15. In the afternoon of 31 October 1980 the defendant, together with Madam Wat and their infant son, went with Leung and other friends of the defendant to the plaintiff's offices. There Madam Wat, through Leung, ordered 100,000 Jardine shares. Leung's immediate superior in connection with his employment by the plaintiff was FOO Sau Chun, a director of the plaintiff. Leung consulted with FOO about Madam Wat's request and was told by FOO that the purchase could not be made in one lot. As a result it took about half an hour for the order to be executed but it was executed and the shares were bought by the plaintiff on her behalf for $3,653,953.00. Leung then obtained Madam Wat's signature on a Bought Note to confirm the transaction. That document was a printed form used by the stockbroking firm Fook Tai but FOO Sau Chun was the sole proprietor of Fook Tai concurrently with his directorship of the plaintiff. Fook Tai, on the evidence, was the stockbroking firm used by the plaintiff when buying and selling on behalf of its customers. The bought note signed by Madam Wat was retained by Fook Tai. When Leung asked her to enter into a written agreement by signing the "Memorandum of Deposit" form, she declined saying she would deal with the matter the following day. She did tell Leung that she would either pay 30% of the purchase price and obtain financial assistance from the plaintiff for the balance or pay the whole purchase price outright when the time for completion of the sale arrived. The defendant was not present when Madam Wat placed her order but he was told about her purchase after her order had been executed.

16. The shares bought on Wat's behalf by the plaintiff had to be paid for by the plaintiff on the next business day. The next business day was Monday 3 November 1980. Madam Wat, not having made any arrangements for payment, Leung tried to contact her. He tried by telephone first and then, having failed to make contact over a period of two or three days; he, together with an accountant employed by the plaintiff went, on Foo's instructions, to call upon her at the home where she and the defendant cohabited. At this meeting she was asked to pay the full price of the shares and was not offered any alternative method of payment. She did not pay but said she would go to the plaintiff's office in a day or two to see the position". When Wat failed to attend, Foo questioned Leung as to how he became acquainted with her and Leung told him that he met her through the defendant. Foo then instructed Leung to contact the defendant "to see what could be done" about completing the transaction. When Leung contacted the defendant the latter told him flatly that it was none of his (that is, the defendant's) business, that Leung would have to look for Wat. At this time the price of the shares had receded somewhat from the purchase price. Lung requested the defendant to go to Foo's office to see him. The defendant later called on FOO. Present at his interview with him were Leung and CHUNG Shiu a. Foo expressed concern at the fact that Madam Wat had not paid for her shares and said that the delay was not acceptable to the company and then said to the defendant "Will you pay on her behalf? Would you be able to help her out?'' The defendant replied: "You better chase after her". Foo then asked the defendant ''for permission to put the transaction into [the defendant's] account". The defendant replied: "No. You better chase after her because I want to have my money back. I don't have that much money". Foo then asked the defendant to help Wat out "otherwise [Foo] would be in difficulty in explaining to the meeting". At the time Jardine's shares had decreased in value by about $5 per share. Foo said a cheque was needed "to jump a temporary hurdle". The defendant said he had no cheque form with him. He did, however, draw the subject cheque one or two days later during a subsequent meeting with Foo at which Leung and Chung were also present.

17. It was the practice of the plaintiff to call a meeting, presumably of its board of directors, to decide what it should do whenever it had bought shares on behalf of someone who failed to make satisfactory arrangements for payment. Here the plaintiff was faced with the situation that Madam Wat had obviously lost all interest in the shares and was refusing to honour her obligation to pay for them. (The plaintiff, in final submissions, relied on an answer given by Leung in cross-examination to suggest that Madam Wat wanted the shares to be held on her behalf by the plaintiff. I do not accept that. The answer is consistent with an attitude that she had lost all interest and that is consistent with the plaintiff's attitude at the time, an attitude I will now mention). The plaintiff, by this time, had decided not to look to her for payment and had actually altered some of its records to make it appear that the defendant had himself placed the order for the shares and debited the transaction to his account. If the defendant had accepted this arrangement, the plaintiff's problem would have been solved. But he did not accept it and the plaintiff was left with the problem of what to do about the shares. The plaintiff was undoubtedly convinced that it had no prospect of obtaining payment from Wat. I say "undoubtedly" because otherwise it would not have acted, through Foo, to try to persuade the defendant to accept the shares and would not, having failed to do that, have gone to the lengths it did go in order to make it appear that the defendant had himself purchased the shares. An example of that determination is the outrageously false allegation by the plaintiff in its reply that the defendant "orally placed the order with Foo". The plaintiff was concerned, not with giving any indulgence to Madam Wat in return for the cheque, nor considering whether to take it in satisfaction of her debt. The plaintiff had decided to abandon any claim against Wat before asking the defendant for the cheque. Having altered the records to give the appearance that the defendant was the purchaser the plaintiff needed a cheque for some unexplained administrative reason. The cheque was unconnected with Madam Wat because she had been expunged from the plaintiff's records in connection with the transaction.

18. I infer that the cheque was drawn by the defendant to help Foo and the plaintiff "jump some temporary hurdle" and that that meant to solve some unexplained administrative difficulty facing the plaintiff.

19. By section 30 of the Bills of Exchange Ordinance there is a prima facie presumption that the defendant received "value" for the cheque. "Value" is defined in section 2 as "valuable consideration" which, by section 27, may be constituted by (a) any consideration sufficient to support a simple contract, or (b) an antecedent debt or liability. It has been held ⁽³⁾, however, that an antecedent debt or liability will constitute valuable consideration under (b) only where it is the debt or liability of the drawer himself and not where it is the debt or liability of a third person. Here, the cheque was not drawn in order to discharge any debt or liability on the part of the defendant so there was no consideration under that paragraph.

20. The consideration sufficient to support a simple contract must "consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility, given, suffered, or undertaken by the other".⁽⁴⁾

21. On the evidence nothing accrued to the defendant by drawing the cheque. Does the evidence show that there was no forbearance, etc., given, etc., by the plaintiff.

22. The defendant said the cheque was post-dated. "A subsisting debt due from a third person is a good consideration for a cheque, at least if the instrument is payable at a future day, for then it amounts to an agreement to give time to the original debtor, and that indulgence to him is a consideration to the maker".⁽⁵⁾ The plaintiff does not aver that the cheque was post-dated. Hence, even if the defendant's evidence is accurate, and even if the plaintiff still had in mind enforcing its rights against Madam Wat, the post-dating could not have been referable to any indulgence granted by the plaintiff.

23. The plaintiff submitted that there was material in the pleadings and the evidence supporting the prima facie presumption that the plaintiff had given value for the cheque. Leung, for instance, did at one stage in his cross-examination say that Foo asked the defendant "to lend a cheque to settle account". The answer to that is, however, already set out above. But, even if I had not formed the view of the facts above set out, I would not accept that submission. Earlier in his evidence in cross-examination Leung made it clear that Foo was asking the defendant to lend a cheque to enable "someone to advance an explanation". Leung's evidence taken as a whole could not support the suggestion that the cheque was given in reality by way of a loan to Wat.

24. The cheque was not taken in satisfaction of Madam Wat's debt; it was not at the defendant's request that credit was given to her originally; there was no forbearance given, no detriment or loss suffered by the plaintiff and no responsibility undertaken by the plaintiff which stood on the other side of the defendant's promise contained in the cheque. On the evidence the cheque was drawn because it was required by the plaintiff for some unexplained administrative reason. I find that the presumption has been rebutted and that there was no consideration given for the cheque. The plaintiff's action therefore fails.

25. As it is agreed that the defendant must succeed on his counterclaim for $184,916.40 in any event, I give judgment in favour of the defendant on both the claim and the counterclaim.

(1)    Section 3(1) Bills of Exchange Ordinance.

(2)    Foster v. Jolly, per Parke, B., (1835), 1 Cr. M. & R.703, 149 E.R. 1263.

(3)    Oliver v. Davis, [1949] 2 K.P. 727.

(4)    Currie v. Miser, (1875) L.R. 10 Ex. 153

(5)    Byles on Bills of Exchange, 24th edn., p.210.

Representation:

Mr. Martin Lee, Q.C. with Mr. k. kwok instructed by Messrs. David Tong & Co. for the plaintiff.

Mr. Raymond Leung instructed by Messrs. Hoosen & Co. for the defendant.