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HCA 1551/2013 & HCA 2497/2014 (Consolidated)

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

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COURT OF FIRST INSTANCE

HIGH COURT ACTION NOS 1551 of 2013 AND 2497 OF 2014

(Consolidated pursuant to the Order of Master Lai dated 16 July 2015)

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_________________________
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BETWEEN
HONG KONG SHEEN SMILE

Plaintiff

INTERNATIONAL INVESTMENT LIMITED

()
and
COLOR BRIDGE INDUSTRIAL

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Defendant

COMPANY LIMITED

()
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Before: Mr Registrar K. W. Lung in Chambers

Date of Hearing: 5 December 2016

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The application

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Date of Decision: 5 December 2016

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DECISION
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This is a consolidated action of two actions HCA 1551/2013

and HCA 2497/2014 pursuant to the courts order dated 16 July 2015.

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The Plaintiff (P) has taken out an application for summary

judgment under O.14 of RHC. The application is contested and the parties
are legally represented.1

The brief facts

The facts of this case are convoluted. I distill the relevant

facts from the affirmation filed on 12 October 2016 of Mr. Chen, a director
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defendant had issued ten post-dated cheques in favour of P as guarantee for

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Mr. Yu is Ps director and sole shareholder.2 The related companies are

called Wahha and Dongguan Wahha respectively.
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Of all the nine post-dated cheques, only the 4 th and the

The 4th post-dated cheque forms the subject matter of HCA 1551/2013, the
9th post-dated cheque, HCA 2497/2014.
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There is no dispute of the above facts.

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The burden is on D to show that there is triable issue.

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Dongguan Wahha and Wahha paying money direct to Mr. Chen and Mr. Yu.

companies related to the Defendant (D). Mr. Chen is Ps director and

10th post-dated cheques were dishonoured, the rest of them were settled by
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of P. Relevant to the present application, the facts of the case are that the
the payment of money due to Ps director and shareholder by two other

1See at the end of this Decision

214 of Ps written submissions

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The defence
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Ds defence is that the 2 dishonoured cheques were supported

by no consideration.3

Ds argument is based on the special factual feature in this

case that P had no contractual relationship with D at all. There was no

detriment moving from P to D in return for the 2 dishonoured cheques.

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there was no valuable consideration as the law requires that an antecedent

As submitted by D, the cheques were issued in relation to an

antecedent debt or liability of a third party (namely, Wahha and Dougguan

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Section 27(1) of Bills of Exchange Ordinance provides:

Valuable consideration for a bill may be constituted byN

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(a)

any consideration sufficient to support a simple contract;

(b)

an antecedent debt or liability. Such a debt or liability is

deemed valuable consideration whether the bill is payable
on demand or at a future time.

D further submits that P has not pleaded consideration in

support of a simple contract in the pleadings.

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Discussion

Wahha) but not of the drawer of the bills (who was the Defendant).

There was also no debt or liability owed by D to P. D further submits that

debt or liability must be that of the drawer of the bills but not a third party.4

32 of written submissions
44 ibid

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In reply to Ds allegation in relation to the pleadings, P replies

that it is not necessary for P to plead consideration in the pleadings. There

is a presumption that valuable consideration has been given for the

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prima facie deemed to have become a party thereto for value.5

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D agrees that there is a presumption of consideration for

issued cheques in law. P has, therefore, established its prima facie case
against D for the dishonoured cheques. The burden is on D to show that

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there is triable issue for trial.

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However, Counsel for D admits that D has already pleaded the

facts leading to the issuance of the nine cheques. See paragraphs 4-9 of the
Defence. Those cheques were issued by D in favour of P pursuant to the
Termination Agreement between Mr. Chen, Mr. Yu on the one part and

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Dongguan Wahha and Wahha on the other part.

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Under paragraph 8(b) of the Defence, D pleaded that the

cheques were delivered to Mr. Chen and Mr. Yu on the understanding

mutually that they would not be presented for payment, but they would
serve as evidence that Dongguan Wahha would have to pay to Yu and

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Chen..
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dishonoured cheques and every party whose signature appears on them is

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However, in Ds written submissions, the argument for this

hearing is simply based upon that there was no valuable consideration in

support of the dishonoured cheques.

I shall therefore consider this

application upon the case argued by Ds counsel as set out in his written

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submissions. See Part A(3)7 of Practice Direction 5.4 Preparation of

5See paragraph 55.081 Halsburys Laws of Hong Kong 2nd edition Vol.5:
Bills of Exchange and Other Negotiable Instruments

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Interlocutory Summones and Appeals to Judge in Chambers for Hearing

and paragraph 18 of the written submissions. D has not applied for leave to
argue based upon the facts pleaded in paragraph 8(b) of the Defence.
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In support of Ds argument that an antecedent debt or liability

must be that of the drawer of the bills but not a third party , D relies heavily

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Counsel for D cites Lord Dennings judgment at 742-743:

Section 27 sub-s.(1)(b) of the Act gives statutory effect to this
rule. But this does not apply to a promise to pay an antecedent
debt or liability of a third person. In such a case in order that the
promise may be enforced there must be shown a consideration
which is sufficient to support a simple contract. This was the
view adopted by Byles J. in his book on Bills, and it is also
adopted in Crofts v. Beale and Crears v. Hunter. If Ayres v.
Moore contains anything to the contrary, I cannot agree with it.
(at 742)

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The above paragraph was a discussion on s.27(1)(b), which

provides that antecedent debt or liability, if relied upon, must be by the

third party. However, it further says that for a promise to pay an antecedent

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there must be shown a consideration which is sufficient to support a simple

contract. The latter scenario applies to the facts of this case. The cheques
were issued to P as a promise to pay the third parties debts (Dongguan

parties, that is to say, the drawer and the drawee of the cheques, not by the
debt or liability of a third party, in order that the promise may be enforced,

on the authority of Oliver v Davis & Another [1949] 2 K.B. 727.

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Wahhas and Wahhas debts). The question therefore turns on whether

there is consideration which is sufficient to support a simple contract.

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Lord Denning had provided the answer in the same paragraph

of his judgment where he said:

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Now as to what is sufficient consideration, an express or implied

agreement by the creditor to forbear from suing the third person
is, of course, good consideration. So also is the simple fact of
forbearance by the creditor, even if it only arises ex post facto,
providing that the promise to pay was given with the intention of
gaining forbearance Wigan v English and Scottish Life Assurance
Association (2), per Parker J.

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Whether there had been a promise of forbearance or actual

forbearance to pay the debt by the third parties is a matter of fact. It is quite
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clear and is not disputed by D that the cheques, including those two
dishonoured ones, were issued by D to P upon the direction of Mr. Chen
and Mr. Yu of P for forbearance to pay by the third parties (Dongguan

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issued by D in favour of P for Mr. Chens and Mr. Yus forbearance of

D also relies upon the judgment of Somervell LJ. In fact, Lord

be issued to guarantee third partys debt or liability provided that there

Crears v. Hunter, in my opinion, makes it clear that when

dealing with a negotiable instrument given in respect of a debt of
a third party, consideration has to be found such as is now
referred to in s.27, sub-s.(1)(a), namely, consideration sufficient
to support a simple contract.

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D has also referred to Evershed M.R.s judgment. However,

in his quoted part of the judgment, it shows that the Master of Rolls did not

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Lord Denning. In the quoted part of the judgment, Lord Somervell said:

Somerville had, in his judgment quoted by P confirmed that a cheque could

existed consideration of a simple contract, the same opinion of

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those cheques had been paid. Only these two cheques were dishonoured.

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Wahha and Wahha) to Mr. Chen and Mr. Yu. In fact, the nine cheques were
payment of the debts owed by Dongguan Wahha and Wahha. Seven of

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support his argument. At 736:

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where the debt or liability is that of a third party you must

find something in the transaction sufficient at the very least to
connect the receipt of the bill with the antecedent debt or liability
and, as I think, to provide some consideration for the cheque in
the form of forbearance or a promise to forbear, express or
implied, on the part of the recipient of the cheque in regard to the
third partys antecedent debt or liability. (at 736)

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Therefore, it becomes clear that P can rely upon s.27(1)(a), ie

consideration for a simple contract for the dishonoured cheques issued by

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D in its favour. The consideration was forbearance of the third parties debt
to Mr. Chen and Mr. Yu, who are Ps director and shareholder respectively.
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D has also referred to the following cases:

(a)

[1998] 1 HKLRD 304;

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(b)

Hansan v Willson [1977] 1 Lloyds Rep. 431; and

(c)

MK International Development Company Limited v The

Housing Bank [1991] WL 837755.

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Fortune Focus International Ltd v The (Holdings) Co Ltd

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All the above cases discussed the operation of section 27(1)(b)

of the Bills of Exchange Act, which is same as our Bills of Exchange

Ordinance, Cap. 19. This subsection only applies to the debt between the

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drawer and recipient of the cheque. However, when a cheque is issued for
third partys debt or liability, there has to be valuable consideration
sufficient to support a simple contract. Forbearance to sue on the debt or

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liability against the third party is sufficient consideration as decided by the

Court of Appeal in the Olivers case.
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Having considered the legal authorities above, I consider that

it is misconceived to say that the two dishonoured cheques in question were

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not supported by valuable consideration and P has no cause of action

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against D on the dishonoured cheques.6

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D has no defence to Ps claim. Summary judgment should

therefore be granted in favour of P. So I now do.

Costs and order

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As to the costs of the action, including all costs reserved, this

application and the hearing today (with a certificate for counsel), as the
parties agree, should be given to P, to be taxed if not agreed.

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I shall make an order in terms as follows:

(b) As to the interest under prayer (3) of the Statement of Claim,

the parties agree that judgment rate should apply and should be
calculated from the dates of the respective Writs of Summons

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(c) Costs as per 29 above.

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(K. W. Lung)
Registrar, High Court

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6See 23 of Ds written submissions

(a) Summary judgment to P as per claimed;

until payment of the judgment sums.

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Mr Matthew Chong, instructed by Charles Chan & Co., for the Plaintiff
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Mr Simon Wong, instructed by Rebecca V. I. Ho & Co., for the Defendant

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