Stanley Yeung Kai-yung and Another v. Hongkong & Shanghai Banking Corporation

CACV000021/1977

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Coram: Briggs, C.J., Pickering, J.A. & Leonard, J.

Date of Judgment : 26th October, 1977.

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JUDGMENT

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Leonard, J.:

1. The appellants in this appeal were the first and second third parties in the court below while the respondent was the defendant there.

2. The plaintiff in the court below was the administrator in Hong Kong of the Catholic Mission of Macao effectively the Bishop of Macao to whom I will refer hereafter as "the Bishop". The Bishop was the registered holder of inter alia 12,557 shares in the respondent company (to which I will refer hereafter as "the Bank") represented by four certificates. The Bishop held shares in the Bank in addition to the 12,557 shares and the certificates for these were held by the Bank's Securities Department which had in its records a specimen signature of the Bishop. Some time prior to the 3rd May 1973 the four certificates in question were apparently stolen from the Bishop but he remained in ignorance of the theft. In May 1973 the four certificates in question were presented to the Bank by Stanley Yeung Stock Brokers Co. ("the brokers") together with completed share transfer forms. The presentation was made by the brokers under cover of standard forms of letter addressed to the Bank's registrar which stated that the certificates were enclosed "with duly completed transfer deeds attached in favour of Mr. WONG Kwan-man as transferee." This standard form of letter requested the registrar of the Bank to effect the transfer and to send the new certificates to the brokers. The staff of the Bank's registry placed no stock upon the personality of those who submitted requests for transfer whether those requests were made by letter as in this case or in person over the counter. Although the Bank had been supplied with a specimen of the Bishop's signature, when they received the certificates and transfer deeds from the appellants, the staff of the Bank failed to compare the signatures on the transfers with the Bishop's signature on the specimen cards. Had they done so, they would have immediately realised that the Bishop's signature on the transfer was not genuine because the discrepancies between the signatures on the transfers and the genuine signature were immediately obvious to the naked eye and would as the learned trial judge found as a fact have been noticed even by a layman. Neither the Bishop nor WONG Kwan-man was a regular client of the appellants and the appellants had not taken part in any transaction of sale and purchase. They received no consideration from WONG Kwan-man for presenting the scripts to the Bank for registration nor there is any indication on the instruments of transfer themselves (as distinct from the covering letter) that they were acting as brokers in presenting them. On the 2nd June1973 the Bank advised the Bishop that the transfers purporting to be signed by him together with the relative certificates had been lodged for registration and that if the Bank did not hear from him by return it would assume that the transfers were in order. The Bishop did not reply to this letter. Almost immediately after its despatch the Bank informed the appellants that new share certificates in the name of WONG Kwan-man were ready for collection. It would appear that the new certificates were in due course collected by the appellants. The true position became apparent a few months later and eventually the Bishop brought this action to require the Bank to reinstate him on the register and make good the lost dividends, bonus shares etc. which should have been made available to the Bishop between the date of the new registration and the date of the commencement of the action. The Bank defended the action taken by the Bishop but the only defence which it offered was that the signatures of the Bishop to the deeds of transfer were not forged. This was readily disposed of by the Bishop in whose favour an order was made for the relief which he had claimed. The Bank, however, had issued, with leave third party notices against, inter alia, the first and second appellants claiming that the first appellant was the sole proprietor of the brokers at all material times and that the second appellant having become a partner in the brokers on the 21st January 1974 without having given notice pursuant to the provisions of the Fraudulent Transfer of Businesses Ordinance Cap. 49 was liable for the debts and liabilities of the first appellant as at 21st January 1974. This was not disputed before us so that the appeal proceeded on the basis that the appellants were liable for the debts and liabilities of the brokers at relevant times. It was the Bank's case that by presenting the deeds of transfer the brokers had warranted that the signatures on the deeds of transfer were genuine and that the transactions evidenced by the instruments of transfer were of a genuine nature. It was on the basis of this warranty that the Bank sought to be indemnified against the loss occasioned to it by its liability to reinstate the Bishop as the holder of the shares in question. The Bank is a corporation, created by the Hong Kong & Shanghai Bank Ordinance 1866 and continues to be incorporated by the Hong Kong & Shanghai Banking Corporation Ordinance Chapter 70. By section 4 of that Ordinance the regulations of the Bank for the time being in force replace the original deed of settlement. Section 4 also provides that the regulations shall be binding in all respects upon the Bank and upon all persons whatsoever, whether shareholders or not, and shall regulate the rights and liabilities of all the above persons inter se their heirs, executors, administrators, assigns or successors. The regulations claimed to be relevant to this case are regulations 46, 48 53 and 54. Regulation 46 reads as follows :

"The Bank shall keep at its head office or at such other place as the board may approve and at any establishment where a local register of shares is kept records to be called 'registers of transfers' and therein shall respectively be fairly and distinctly entered particulars of every transfer or transmission of any shares on those respective registers. Such records may in the sole discretion of the board be copies of information maintained elsewhere with the sanction of the Board whether by devices for storing and processing of information or otherwise."

Regulation 48 reads:

"The board may in its discretion and without assigning any reason therefor, refuse to register the transfer of any share to any person of whom it does not approve as transferee, or whilst the shareholder making the same is, either alone or jointly with any other person, indebted to the bank on any account whatsoever. The board may also refuse to register any transfer of shares on which the Bank has a lien; and the board shall also be entitled without assigning any specific reason therefor to refuse to register any transfer of shares made to a corporation, sole or aggregate or to a firm or to a limited partnership or to any person, firm or corporation holding shares in trust or otherwise than in his or their own right, whether already a shareholder or not."

Regulation 53 paragraph 1 reads:

"Save as provided in paragraph 2 shares in the Bank shall be transferred by an instrument under hand signed by the transferor and the transferee in the form set out in Appendix II or in any usual or common form which the board may approve."

Regulation 53 paragraph 4 reads:

"Every instrument of transfer shall be left with the Bank or at any other place from time to time designated by the board for registration in that one of the registers in which the shares are entered accompanied by the certificate of the shares to be transferred and such other evidence as the board or the deputed person or persons referred to in regulation 52 may require to prove the title of the transferor or his right to transfer the shares."

Regulation 54 provides:

"Where the instrument of transfer has been so registered the transferee shall be and be deemed a shareholder and shall from the date of such registration be entitled to the same privileges and advantages and ... be subject to the same liabilities in respect of the shares as the shareholder from whom he derived his title."

The form of transfer set out in Appendix II of the rules provided for the following matters : the name and address of the transferor; the consideration; the name and address of the transferee; the number of shares to be transferred and an agreement by the transferee to take the shares subject to the conditions on which they had been held by the transferor; the form requires the signature of the parties but does not provide for their signatures to be witnessed. The forms of transfer which were actually used in this case with which I will deal later were provided by the Bank and required the signatures of the transferor and the transferee to be witnessed and for the witnesses to state their address and calling. The purported signatures of the Bishop and of WONG Kwan-man were purportedly witnessed by a Mr. WONG Man whose address and calling did not appear. The Bank then have a statutory duty to keep the register, a duty which entails registering as shareholders those whom they accept as shareholders under transfers which they may at their discretion accept or refuse. There was no duty to register these transfers made in the name of the Bishop. The Bank had a discretion so to do. It is perhaps unnecessary to note that there can never be a duty on the part of the registrars of a company to register forged transfers but the duty not to do so is owed, not to the public at large nor to a person presenting the forged transfer, but to the person whose interests will be immediately effected by the registration i.e. in this case to the owner whose signature as transferee has been forged.

3. It was the defence of the appellants throughout that at all material times they did not know of the forgery, acted bona fide and were not attesting or otherwise verifying parties to the signature of the Bishop. The appellants sought to contend that the Bank knew or ought to have known from the contents of the deeds of transfer that the signature of the Bishop had not been attested or verified by the brokers, that the Bank kept shareholders' specimen signatures and ought to have checked the signatures appearing on the deeds of transfer against its record and were negligent in failing to make any adequate check or other inquiries. It was the appellants' case also that the Bank could have but did not defend the Bishop's action on the ground that the Bishop was negligent in causing or contributing to the loss by failing to notify the Bank of the theft of the certificates in question and failing to reply to the letter from the Bank by which it notified the Bishop of the intended transfer. The learned trial judge held that in the circumstances of the case a warranty on the part of the brokers was implied by law and that consequently the appellants were bound to indemnify the Bank against any loss it may suffer by reason of compliance with the request of Stanley Yeung Stock Brokers Co. It is against that decision that the appellants now appeal.

4. The grounds of appeal are that the learned trial judge erred in law in holding that a warranty was implied by law that the share transfer forms and the signatures thereon were genuine and that Stanley Yeung Stock Brokers Co. in presenting the same to the Bank for registration of transfer were bound to indemnify the Bank against the loss. The notice of appeal goes on to state:

It was a further ground of appeal that if there was any warranty implied by law at all it only arose where the Bank acted without any default on its own part; that the Bank was at fault on the facts of the case. A further ground of appeal relied on was that the learned judge erred in law in holding that a duty of care on the part of the Bank was a prerequisite in apportioning liability for contributory negligence and that alternatively on the learned judge's findings of facts liability should have been apportioned.

5. The first matter for decision therefore is whether any warranty did arise in the circumstances of this case and if it did the nature of that warranty.

6. Cases in which such warranty or implied contract of indemnity was implied find their first crystallization in Dugdale & Others v. Lovering⁽¹⁾. There the plaintiffs who were in possession of certain trucks claimed by the defendant and by others parted with the trucks to the defendant at the request of the defendant having earlier asked the defendant for an indemnity if they should deliver up the trucks to him. He did not answer them as to the indemnity but required them to deliver up the trucks to him. This they did. They were subsequently sued by the other party for conversion of the trucks. The claim proved well-founded and the plaintiffs were obliged to pay in settlement. They sought to recover the amount of the payment from the defendant upon an implied contract of indemnity. It was held following the doctrine laid down in Betts v. Gibbins⁽²⁾and Toplis v. Grane⁽³⁾ that there was evidence of an implied promise to indemnify. Brett, J. stated the problem succinctly at page 198:

"It is clear from the correspondence that the plaintiffs delivered these trucks to the defendant upon the request of the defendant and it is also clear that they belonged in truth to the Kiveton Park Colliery Company, who have made the plaintiffs answerable for such delivery. Under these circumstances, does there arise an implied promise by the defendant to indemnify the plaintiffs?"

In the course of his judgment he deals with the earlier cases of Adamson v. Jarvis⁽⁴⁾; Humphrys v. Pratt⁽⁵⁾; Betts v. Gibbins⁽²⁾ and Toplis v. Grane⁽³⁾ and examines the correspondence between the parties and goes on to say:

"From these letters I think the jury might well have found that the plaintiffs were justified in believing and did believe that the defendant would indemnify them if they incurred liability. It is not necessary, however, in my opinion, to determine more than that the correspondence did not conclusively shew that the plaintiffs were not relying on an indemnity."

Grove, J. had the following observations to make:

"I do not find that in these cases there is anything to show that the expressions must be limited to the case of agency. I should hesitate to say that in cases of this sort it can be an absolute proposition of law that the party making the request is bound to indemnify. Whether there is such an obligation must greatly depend on the circumstances of each individual case, the effect of which seems to be for the jury to determine. All I wish to be considered as deciding is that in the present case there was reasonable evidence for the jury of an implied contract of indemnity."

In Sheffield Corporation v. Barclay & Others⁽⁶⁾ the facts were remarkably similar to those in the present case save that there was no question of agency. The facts were that a banker in good faith sent to a corporation a transfer of corporation stock which purported to be executed by both of two registered holders in favour of the bankers nominee with a request to the corporation to register the stock in the name of the bankers nominee. The corporation in good faith acted upon this request and granted a fresh certificate to the bankers nominee who transferred the stock to third parties. The third parties were registered as holders. Afterwards it was discovered that the signature of one of the two registered holders of the stock had been forged by the other and the one recovered against the corporation judgment whereby they were compelled to buy equivalent stock and register it in the name of the registered holder whose name had been forged and pay him missing dividends with interest. It was held that the banker was bound to indemnify the corporation against the liability to the victim of the forgery upon an implied contract that the transfer was genuine. The expression "both parties having acted bona fide and without negligence" appears in the headnote. This is not an expression which is used in the judgments. In the course of his judgment the Earl of Halsbury L.C. at page 396 had this to say:

The Earl of Halsbury goes on to approve as a general principle of law that put forward by Mr. Cave in Dugdale v. Lovering⁽¹⁾ in the following terms:

"It is a general principle of law when an act is done by one person at the request of another which act is not in itself manifestly tortious to the knowledge of the person doing it, and such act turns out to be injurious to the rights of a third party, the person doing it is entitled to an indemnity from him who requested that it should be done."

Lord Davey at page 399 put the matter in this way:

"I think that the appellants have a statutory duty to register all valid transfers, and on the demand of the transferee to issue to him a fresh certificate of title to the stock comprised therein. But, of course, it is a breach of their duty and a wrong to the existing holders of stock for the appellants to remove their names and register the stock in the name of the supposed transferee if the latter has, in fact, no title to require the appellants to do so. I am further of opinion that where a person invested with a statutory or common law duty of a ministerial character is called upon to exercise that duty on the request, direction, or demand of another (It does not seem to me to matter which word you use), and without any default on his own part acts in a manner which is apparently legal but is, in fact, illegal and a breach of the duty, and thereby incurs liability to third parties, there is implied by law a contract by the person making the request to keep indemnified the person having the duty against any liability which may result from such exercise of the supposed duty. And it makes no difference that the person making the request is not aware of the invalidity in his title to make the request, or could not with reasonable diligence have discovered it."

This he says is "the broad principle to be deduced from such cases as Humphrys v. Pratt⁽⁵⁾, Betts v. Gibbins⁽²⁾, Toplis v. Grane⁽³⁾ and the other cases which have been cited". At page 401 of his judgment Lord Davey has this to say:

"In some cases it is a question of fact whether the circumstances are such as to raise the implication of a contract for indemnity; but in cases like the one now before your Lordships, when a person is requested to exercise a statutory duty for the benefit of the person making the request, I think that the contract ought to be implied. It matters not to the corporation whether A. or B. is the holder of stock, but to the purchaser who has paid his purchase-money or the banker who has lent money on the security of the stock it is of vital interest. The Court of Appeal distinguished the sheriff's cases on the ground that the request was to execute his duty in a particular manner. In the cases in question that was so. But I think the argument haeret in cortice, and is neither logical nor maintainable. It is difficult to imagine a case where a person should innocently request the sheriff to execute a writ which, though apparently regular, is in fact fictitious or invalid. If such a case be possible it would come within the exact words of Tindal C.J.; and I entertain no doubt that the person presenting the writ would be held liable to indemnify the sheriff. It does not seem to matter at what stage of the transaction the request to do an act which turns out to be outside the officer's duty is made. In the present case, as pointed out by Mr. Bankes, the appellants ran no real risk until they issued the new certificate on the demand of the respondents."

At page 403 having expressly dissented from the views put forward by Lindley, J. (as he then was) in Anglo-American Telegraph Co. v. Spurling⁽⁷⁾ he went on:

True it is that the appellants, following what is now the usual practice, gave notice of the transfer which had been brought in to the persons named as transferors, but they had no duty to do so, and it was done merely for their own protection. Experience in these cases shews, however, that it is a very poor protection."

Finally at page 404 he had this to say :

"Lastly, my Lords, it was said by Romer L.J. that this is not an action on a warranty, and that a warranty and a contract of indemnity are distinct, one important difference being the period from which the Statute of Limitations would run. That, of course, is so, and the appellants admit that if they were suing on the warranty their action would be out of time. But I can see no legal reason why, in circumstances like those of the present case, it should not be held, if necessary, that the true contract to be implied from those circumstances is not only a warranty of the title, but also an agreement to keep the person in the position of the appellants indemnified against any loss resulting to them from the transaction. And I think that justice requires we should so hold. I agree with the Lord Chief Justice that, as between these two innocent parties, the loss should be borne by the respondents who caused the appellants to act upon an instrument which turned out to be invalid."

It is noteworthy that in seeking to distinguish this case Mr. Litton did so upon two grounds : firstly, on the basis that his client the appellant was a mere conduit pipe, a bare agent for the transferee, and secondly on the basis that the bank were in default in that they might, had they bothered to inspect the signature specimen card in their possession relating to the Bishop, have discovered the forgery without difficulty. He emphasised particularly the words used by Lord Davey at page 399 of the report from which I have quoted "without any default" and suggested that in any event the warranty given was not the warranty of the appellants but the warranty of their principal the transferee. It is, in this connection, to be noted that the stock brokers request was for the new certificates to be returned to themselves and not to WONG Kwan-man. New certificates were in due course returned to them and not WONG Kwan-man. The stock brokers must have appeared to the Bank at any rate despite the absence of their chop from the transfer forms to have been acting in the ordinary course of business and in the eyes of the Bank the brokers may have had a very good reason for requesting that the certificates be returned to them rather than to the transferee. The Bank did so and requested the brokers to pay the transfer fees. Apparently the brokers did.

7. Again it is argued that the Bank, because of its regulations and because the transfer although in a form approved by the Bank did not bear the address and calling of the attesting witness, had a discretion to refuse them registration. From this Mr. Litton seeks to suggest that in registering them the Bank was not performing a ministerial duty in doing so. I do not think this follows. The Bank had a ministerial duty to keep the register. In the purported but mistaken exercise of that duty it exercised its discretion at the request of the brokers to register the "transferee" as owner of the shares. In doing so it seems to me to be only logical to regard it acting pursuant to its ministerial and statutory duty.

8. It was the respondent's submission that a broker putting forward shares to a company for transfer is deemed in law to furnish a contract of indemnity, on the basis that the transfers are genuine and if they turn out to be forged liability attaches to the brokers. Mr. Dicks referred to a number of textbooks in which that rule is formulated. The rule is baldly stated in Halsbury 4th Ed. Vol. 7 p.229 paragraph 414 under the heading "Forged Transfers":

"A person who, innocently, and even without negligence, brings about the transfer is bound to indemnify the company against any liability to the owner of the shares who has been displaced by a forged transfer."

The learned authors quote Sheffield Corporation v. Barclay & Others⁽⁶⁾ as authority for this proposition and they also refer to Starkey v. The Bank of England⁽⁸⁾; The Bank of England v. Cutler⁽⁹⁾; Welch v. The Bank of England⁽¹⁰⁾.

9. Palmer 22nd Ed. Vol. 1 at page 406 para. 40-28 states the rule with more particularity in the following terms:

"A person, claiming under a forged transfer, who sends in and procures registration of the transfer and the issue of a fresh certificate is bound, though acting in good faith, to indemnify the company. On the same principle, where a stockbroker, acting innocently under a forged power of attorney from one of two trustees of stock, had induced the Bank of England to transfer the stock, he was held liable to indemnify the Bank of England as having impliedly warranted his authority to the Bank."

The use of the words "claiming under a forged transfer" seem to indicate the learned authors of Palmer were not prepared to go as far as the learned authors of Halsbury. Gore-Browne on Companies has this to say at page 379:

"But estoppel cannot be invoked by a person who has presented for registration a forged transfer in his favour. Indeed such a person may instead be required by the company to reimburse it for any damages that it has been compelled to pay out to a third party under the estoppel principle."

For this Gore-Browne quotes Sheffield Corporation v. Barclay⁽⁶⁾ as authority. The learned author goes on:

"The proposition, just stated, that a company can claim reimbursement for any damages it has had to pay out on a forged transfer from the person who presented the transfer for registration, stems from the wider principle that a person presenting a transfer impliedly warrants that it is genuine and given with due authority. Thus, a broker who deposits a forged transfer in good faith is liable to the company for any loss it may suffer thereby."

For this bold statement Sheffield Corporation v. Barclay⁽⁶⁾ is again quoted as authority. The learned author continues:

"and, if a broker represents, whether in good faith or not, that he has authority to act for the supposed transferor when in fact he has not, he is liable to the company upon an implied warranty that he has authority."

For this Starkey v. The Bank of England⁽⁸⁾ is relied on. The question for decision appears to me however to be whether these three learned authors may be going too far in arguing, (insofar as they do) that a broker acting as a mere agent who puts forward a forged transfer on behalf of his principal is so liable. The use by Palmer of the phrase "claiming under a forged transfer" and the use by Gore-Browne of the words "in his favour" would appear to suggest some limitation on the phrase "the person who presented the transfer for registration". The following passage appears in Halsbury 3rd Ed. Vol. 36 p.520 para. 788:

"Warranty of authority. A broker who represents himself as possessing the authority of his clients warrants the truth of that representation, and is liable in damages to any one who, relying upon the truth of it, acts to his detriment, whether by entering into a contract with the broker or otherwise."

For this proposition Starkey v. The Bank of England⁽⁸⁾and Collen v. Wright⁽¹¹⁾ are quoted as authority. I do not consider that the cases based on warranty of authority are directly relevant to our considerations for in our case the brokers did not warrant that they were acting on the part of the Bishop whose signature was forged. If they warranted that they were acting on behalf of anyone it was on behalf of WONG Kwan-man. Their standard letter reads:

"We beg to enclose herewith the undermentioned certificates for ........... shares in your company with duly completed transfer deeds attached in favour of Mr. WONG Kwan-man and shall be glad if you will kindly effect the transfer and send to us the new certificates when ready."

The certificates number and the name of the holder are inserted in the bottom of this letter. In the normal course of business stock brokers sending transfer documents to a company would send them on behalf of the transferee rather than on behalf of the transferor.

10. There are, then, two lines of authority. The one stemming from such cases as Collen v. Wright⁽¹¹⁾ to the effect that an agent warrants that he has the authority of his principal putting forward a share transfer. Starkey v. The Bank of England⁽⁸⁾ is an example of this. The second line of authority stems from the early "sheriff" cases and runs through Dugdale v. Lovering⁽¹⁾ to culminate in Sheffield v. Barclay⁽⁶⁾ is to the effect that a claimant under a forged transfer that is to say a person who would obtain benefit under the forged transfer if it were not forged, who presents the forged transfer to a company who registered it as a result is bound to indemnify the company. The question then is whether or not the authorities go so far to render liable a broker who presents a forged transfer on behalf of the transferee under a transfer to which the "transferors" signature is forged. Sheffield v. Barclay⁽⁶⁾appears to have been limited to the case of the person who "claimed the benefit under the forged transfer", although there were in fact two respondents, Barclay & Co. Ltd. who forwarded the transfer to the Sheffield Corporation and Barclay who was registered as the new owner. This may be to make a distinction where there was little or no difference. Lord Halsbury ignores any such distinction in saying:

"The bank which lent the money" (for which the stock was to be security) "sent the transfer to the proper officer of the corporation and demanded, as they were entitled to do if the transfer was a genuine one that they should be registered as the holders of the stock."

There was no distinction drawn between the two respondents in the argument and and it was never suggested, as it is here, that the limited company was not a person "claiming under a forged transfer". Is, then, a broker who presents a forged transfer as the appellants did here "a person claiming under a forged transfer" within the rule in Sheffield v. Barclay⁽⁶⁾? To put it another way did the brokers here by sending the forged transfer on behalf of WONG Kwan-man both acting in good faith, warrant not only that they had the authority of WONG Kwan-man but also that the transfer is genuine? Does their warranty go beyond a warranty of their authority to act and amount to a warranty of the authenticity of the document under which the act requested is to be performed? On their facts neither Sheffield v. Barclay⁽⁶⁾ nor Starkey v. The Bank of England⁽⁸⁾ is conclusive. No agent was involved in Sheffield v. Barclay⁽⁶⁾; it was the authority of the agent to act which was questioned in Starkey v. The Bank of England⁽⁸⁾. For in Starkey's Case the broker mistakenly believed himself to be instructed by the stockholder. He was not because the power of attorney in his favour was forged. It was contended by counsel for the respondents that The Bank of England v. Cutler⁽⁹⁾ brings the two lines of authority together. There the Bank of England before registering any transfer of stock required to be satisfied that the person claiming to transfer was the person entitled to the stock. The Bank of England kept a list of stockbrokers whose identification of intending transferors would be accepted by them. They also accepted identifications made by some of their own staff or representatives of private banks. Cutler was one of the recognised stockbrokers. A woman, fraudulently personating another who was a registered holder of stock, secured an instruction to Cutler in the name of the holder of that stock, and instructed him to prepare a transfer. On Cutler's introduction the personator attended and forged the holder's signature at the bank Cutler identifying her as the holder. The stock was subsequently transferred to a purchaser bona fide and for value. The original stockholder claimed to be reinstated. The bank purchased stock of the like amount, transferred it to the original stockholder and sued the defendant for an indemnity. It was held that the proper inference of fact was that Cutler's request to the bank to permit the entry and registration of the forged transfer involved the legal consequence that the defendant contracted to indemnify the plaintiffs against any liability resulting therefrom. On the facts then the Bank of England v. Cutler⁽⁹⁾ is almost on all fours with the present case. Vaughan Williams L.J. dissenting on the question as to whether or not a request to make the teansfer was to be inferred from the broker's introduction had this to say: (at page 221)

"Sheffield Corporation v. Barclay was decided on the ground that the transfer was put forward as a genuine document, and that the corporation was invited by the bank to act upon it as such. Sometimes the obligation to indemnify is implied in cases where the request is made by a person representing that he is an agent for another acting with authority, and it turns out that the alleged agent, who may himself have been deceived by forgery or otherwise, has no such authority. Oliver v. Bank of England is an instance of this class of case. Sometimes the obligation is implied in cases where the person entitled to be indemnified is a person who is called on to perform a ministerial duty, statutory, or common law. Sheffield Corporation v. Barclay and Attorney-General v. Odell are instances of this class. But in every case the ratio decidendi in the same; the warranty or promise of indemnity is based on a request made. It is true that the request need not be expressed in words, and that both the request and the promise of indemnity implied there from may be implied from conduct and circumstances, including the relation of the parties as one of the circumstances - including that is, in the present case that the defendant was one of a class of witnesses whose testimony the Bank of England was willing to accept and consider when satisfying itself as the 'parliamentary bookkeepers of this fund'."

Farwell L.J. at page 232 had this to say:

"Did the defendant make" (a request) "here and represent that he made it on behalf of the true stockholder? He says himself that he was instructed to prepare a transfer and to put a ticket forward. I think the drawing up of this ticket, the taking it to the Bank, the payment of 2s. 6d. to get the transfer expedited and made ready on the same day, the attendance at the Bank with the proposed transferor, and the identification of the forger as the stockholder constitute, when taken together, as distinct a request to permit the transfer to be made in the books as the 'demand to act' under the power of attorney did in the case of Starkey v. Bank of England. He bases his finding on the accumulated facts there stated, and I see no object in discussing what would have been the case if this was an action against a person who had merely appeared to identify a transferor. I express no opinion on the point. But here the appellant is a broker whose ordinary course of business is to put forward transfers and carry them through. He is also on the Bank's list of privileged brokers, and as such knows that his identification will be accepted as sufficient. He puts forward the forger as the real Miss Pearson on the ticket in which he requests the Bank to prepare a transfer. He attends at the Bank on the execution of the transfer and identifies her, and otherwise acts for reward in the manner described by himself in his account as 'attending at the Bank for the purpose of transferring same', and in his book as 'transferring India 3 ½ per Cent. Stock.' He put forward and passed the transfer, using his privileged position to identify her."

At page 235 Kennedy L.J. had this to say:

"We are bound to take the law as it has been laid down by the House of Lords in Starkey v. Bank of England and later in Sheffield Corporation v. Barclay. The application of that law to the present case hangs, I think, in the particular circumstances upon the answer to one question - Is it true as a matter of fact that the defendant 'requested, directed, or demanded of' the plaintiffs (to use the language of Lord Davey) that they should permit the transfer in their books of the India stock which the true owner of that stock had not authorized? Or, to put the same question in a slightly differently form, did the defendant's conduct, as proved, in fact amount to such a request, direction or demand? If the question ought to be answered, as my brother A.T. Lawrence has answered it, in the affirmative, then there is, in the circumstances of the present case, nothing upon which, so far as regards the plaintiffs' claim to indemnity, the defendant can successfully seek to base a defence."

In Welch v. The Bank of England⁽¹⁰⁾ the plaintiff, the victim of her co-trustee's forgery, sought in an action to have her name restored to the register as the holder of certain stocks; as to a number of the transactions she succeeded despite allegations of negligence on her part in that she had received notices of the transfers from the bank and had done nothing about them. As to some of the transactions involved she failed because "she was deemed to have had the control of the money before it passed into the account of her co-trustee". She could not succeed in respect of those transactions the proximate cause of which was her own negligence. It was only where her negligence was not directly connected with the loss and her conduct did not amount to an estoppel or ratification that she was successful. The defendants had brought in five separate parties as third parties alleging the same case against each of them namely that in respect of the particular transaction in which they were respectively concerned each of them individually had presented transfers to the defendants which were forged. The defendants were claiming accordingly that the presentation by a broker or jobber of a forged transfer to the bank imported an implied liability in respect of all costs, charged and expenses which the bank might suffer as a result of acting on their transfer. Harman. J. having quoted from that part of the judgment of Lord Halsbury in Barclay in which he cited the proposition advanced by Mr. Cave in Dugdale v. Lovering⁽¹⁾ which I have quoted earlier went on to say:

"Therefore the bank is entitled to an indemnity against the jobber who requested that they should register the transfer.

Lord Davey said :

These findings and the rulings as to costs which follow them are a clear indication that Harman, J. is of the opinion that both jobbers and brokers presenting forged transfers, however innocently are liable to indemnify even though presenting those transfers in good faith. He was in effect applying the Sheffield Corporation v. Barclay⁽⁶⁾ rule to stockbrokers who acted merely as agents. This is only right. The bank's attitude to a private individual presenting a document of transfer might well differ from its attitude to a stockbroker presenting such a transfer. It would not have done in this case since the learned trial judge found that the staff of the bank's registery placed no stock on the personality on those who submitted requests for transfers. Nevertheless the stockbrokers here cannot, as Mr. Litton so strongly suggested, be regarded as a mere conduit pipe. I don't think a mere messenger would be liable to indemnify but a stockbrokers are professional persons and have a responsibility to those with whom they deal. Again they asked that the new certificates should be issued to them. They got the new certificates. It was not for the bank to know that they had no financial interest. Without their intervention the transfers would not or might not have been effected. As professional men it is to be anticipated that they will as reasonable and prudent brokers not deal with transfers in the manner with which they were dealt here without assuring themselves of their authenticity. Therefore I would hold that in presenting the transfers the brokers gave the implied indemnity the bank claims.

11. I turn then to consider the question whether the action of the bank in accepting the transfers without checking on the specimen signature of the Bishop or in exercising their discretion to accept transfers which did not bear the addresses and calling of the attesting witness disbars them from claiming full relief. I cannot see that it does. They accepted the transfer without further reference to the stockbrokers. Their acceptance did not affect the action of the brokers in presenting the transfers. At the time of the bank's "negligence" the implied contract of indemnity was already in existence with all its terms and before I could hold that the bank's "negligence" was an answer in whole or in part to their claim, I should have to imply a further term in the implied indemnity to the effect that transfers would not be acted upon until the bank had satisfied itself as to the authenticity of the signature of the transferee. Such an implied term has not been argued and would be impossible to argue, for it would be destructive of any implied indemnity. One does not indemnify against loss due to forgery and at the same time require the person indemnified himself to ensure that there has been no forgery. The "negligence" of the bank could not in any way have affected the action of the brokers in presenting the transfer and could not amount to an estoppel. Equally it could not amount to "default" in the sense in which that term was used by Davey, L.J. in Sheffield Corporation v. Barclay⁽⁶⁾. As I see it default there must amount to some form of complicity by a servant of the bank in the fraud and occur before or accompany the presentation of the transfers.

12. A further question for consideration is whether the bank in defending the action taken against it could successfully have argued that the Bishop could not succeed because of his failure to reply to the bank's letter warning of the impending transfer. I think this argument is fully answered by the comments on this point of Lord Esher M.R. in Barton v. London & N.W. Railway Co.⁽¹²⁾ when he said at page 87:

"With regard to the last transfer, of which notice was sent to the plaintiff, it is alleged that having disregarded such notice, she is estopped from saying that the transfer is bad, or if she is not estopped, that, as she is claiming equitable relief, if she misled the defendants by not answering their letter to that extent she is not entitled to such relief. This letter point does not, as it seems to me, arise, because in substance what she is claiming is to have the register made right, which is her legal right as a shareholder; and I cannot think that the circumstances bring the case within any kind of estoppel."

Commenting on this and other authorities in Welch v. Bank of England⁽¹⁰⁾ Harman, J. is quoted as saying:

"The direct cause of the loss was the felonious act by Maude in forging the defendants' name on the transfer and the authorities to the brokers, and it follows from the authorities that the negligence of the plaintiff not being directly connected with the loss is no part of her claim." (sic)

I take it that the last phrase should read "is no bar to her claim". In our case equally the negligence of the Bishop in failing to reply to the warning letters was not directly connected with the loss and was no bar to his claim. It follows that the bank was correct in its decision not to rely on this negligence when defending the action by the Bishop.

13. There is finally to be considered the question whether the carelessness of the bank in failing to compare the forged signatures on the transfers with the Bishop's specimen signature in their possession gives rise to any right in the brokers to have the bank contribute to their loss. The grounds of appeal in this regard read:

Ground 3 appears to me to be in error in that it quotes the learned judge out of context. What in fact he said was:

"The bank argues immediately that the suggestion is technically bad in that the doctrine of contributory negligence is limited to an action in tort whereas their action against the brokers lies in contract. But a question that needs to be dealt with first is whether the bank is under any duty of care to the brokers, for if there be no duty there can be no actionable negligence." (my emphasis) "And that prior question has already been answered by Lord Davey in the Sheffield case where at p.403 he says :

I would read the learned judge here as indicating that there could be no right in the brokers to claim relief in negligence against the bank in a claim based on an implied contract for indemnity unless negligence as distinct from contributory negligence was established. The appellants own pleading on this point is to be found in para. 9 of their defence which reads:

"Further and/or alternatively the defendant kept or ought to have kept records of its shareholders' specimen signatures and ought to have checked the transferor's signatures appearing on the Instrument of Transfer against its records before effecting any transfer. The defendant negligently failed to make any or any adequate check and/or other enquiries and thereby caused or alternatively contributed to the matters complained of."

There is no mention here of contributory negligence. There is no counterclaim based on negligence. The claim is that the loss was caused in whole or in part by the carelessness of the bank. This does not appear to me to provide any answer to the bank's claim.

14. That claim is based on the implied agreement that the broker will indemnify the bank against any loss that may be occasioned to it by compliance with the brokers' request and to give effect to the brokers pleading would involve the inclusion of a proviso in the implied agreement to the effect that the indemnity would be limited if the bank acted carelessly when complying with the precise terms of the request giving rise to the indemnity. This does not make sense.

15. If no such proviso is to be included in the implied agreement then necessarily any claim in respect of carelessness on the part of the bank must be based in negligence rather than in contributory negligence and be by way of counterclaim. As the learned judge has shown negligence could not in any event be established. I consider for these reasons that no question of contribution (which is in any event appropriate only where joint tortfeasors are involved) can arise.

16. I would dismiss this appeal with costs.

Representation:

Mr. Litton, Q.C. & Mr. Denis Chang (Yung, Yu & Yuen) for appellants.

Mr. Dicks (Johnson Stokes & Master) for respondent.

(1) (1875) L.R. 10 C.P. 196.

(2) 2 Ad. & E. 57.

(3) 5 Bing., N.C. 636.

(4) 4 Bing., 66.

(5) (1831) 5 Bli. (N.S.) 154.

(6) (1905) A.C. 392.

(7) 5 Q.B.D. 188.

(8) (1903) A.C. 114.

(9) (1908) 2 K.B. 208.

(10) (1955) Ch. D. 508, at 548.

(11) (1857) 8 E. & B. 647.

(12) 24 Q.B.D. 77.

(10) (1955) 1 Ch. D. 508, 539.