O.T.B. International Credit Card Ltd v. Au Sai-chak, Michael

CACV000086/1979

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Coram: Roberts, C.J., Cons, J.A. and Yang, J.

Date of Judgment: 25 April 1980

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JUDGMENT

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1. The appellant company was the plaintiff in the court below. It appears to be the credit card affiliate of a well-known bank.

2. Mr. Michael Au, the respondent, had in 1978 held one of their credit cards for some time. At 2.20 p.m. on Sunday the 22nd October of that year he parked his car in the City Hall Car Park. When he returned at 3.30 p.m. he found the car had been broken into. Someone had prized open the door and taken, amongst other things, his credit card with the appellant company.

3. Two more things happened that afternoon. Firstly, the defendant, Mr. Au, telephoned the company. A person at the other end of the telephone took down the details of the loss, recorded them and advised him that he should confirm the loss in writing as soon as possible. Mr. Au did so early on the Monday morning. The other thing that happened that afternoon was that the thief, or someone to whom the thief had passed the card, used it to make several purchases in two departmental stores, to a total of $3,216.09, although the signature on the purchase slips did not resemble the signature of Mr. Au on the back of the card. In due course the company billed Mr. Au for the cost of those purchases. He refused to pay and the company took action in the District Court.

4. When in 1976 Mr. Au first applied to the company for his credit card he filled in and signed an application form. By it he expressly agreed to be bound by the rules of membership which were printed on the back of that form, under the title "Terms and Conditions Governing the Use of OTB Card". One of those terms contains these words:

"In the event of loss or theft of the card, the Holder must immediately notify the Company by registered mail or telegram and until such notification is received by the Company the Holder will remain responsible for all purchases charged through the use of such Card." (the emphasis is our own)

The company sought to rely upon that clause at the trial but the judge took the view that it would be unconscionable to allow the company to do so and therefore dismissed the action.

5. The factors which influenced the judge appear to be firstly the superior bargaining power of the company in being able to impose upon Mr. Au their standard conditions of agreement; secondly the negligence of the departmental stores in not comparing the signature offered with that on the card or requiring some personal identification; and thirdly that Mr. Au wrote to the company on the Monday morning.

6. We express no opinion as to whether or not the departmental stores were guilty of negligence. It is sufficient to say that even if they had been, there is no reason to hold the appellant vicariously liable. There is no evidence to show that the stores were the servants or agents of the appellant. The judge relied on an American case which is not available to us and which has not been mentioned before us in argument. For our part we are aware of no principle in our own law which would make the company liable.

7. In concluding that the clause was unconscionable the judge relied upon two English cases. In Schroeder Music Publishing Co. Ltd. v. Macaulay⁽¹⁾ the plaintiff, a young and unknown song-writer, entered into a very one sided agreement with a music publishing company. It was in the standard form used generally by the company. In effect it gave to the company the full copyright in all the plaintiff's work for the succeeding ten years. In return it gave the plaintiff little or nothing save the hope of royalties if the company should think fit to publish any of his work. The House of Lords, affirming the Court of Appeal, which in turn had upheld the trial judge, ruled that the agreement was void as contrary to public policy. Their Lordships came to their decision by reference to decisions on contracts in restraint of trade. Lord Diplock went further and added some comments upon "standard form contracts" which the judge below took to be of general application. Lord Diplock said, at page 624,

i.e. one in which the terms

"have been dictated by that party whose bargaining power ... enables him to say 'If you want these goods or services at all, these are the only terms on which they are obtainable. Take it or leave it.'"

8. We do not think that Lord Diplock was seeking to extend the principle beyond contracts in restraint of trade or those of a similar nature. We note that although he had just referred to other contracts, e.g. bills of lading and charterparties, he introduced his comment by the conditional "if".

9. If we were to assume, for the purposes of this appeal only, that the principle is more wide reaching, the test for enforceability would be "Was the clause 'reasonably necessary for the protection of the legitimate interests of the promisee and commensurate with the benefits secured to the promisor under the contract' "?: Schroeder at page 623. We are satisfied that it was. The company ought not to be responsible indefinitely for a lost card. Indeed it may well have been lost through the negligence or foolishness of the holder. And for his part the holder obtains considerable benefits from the provision by the company of immediate credit without security.

10. The second case to which the judge referred was Gillespie Brothers & Co. Ltd. v. Roy Bowles Transport Ltd.⁽²⁾. He quoted a dictum from the judgment of Lord Denning, M.R., at page 416:

"It (i.e. the common law) will not allow a party to exempt himself from his liability at common law when it would be quite unconscionable for him to do so".

In that case Lord Denning was proceeding on the basis that reasonableness was the sole criterion in deciding whether an exemption clause should or should not be enforced. Mr. John Cheung, counsel for the appellant, has referred us to comments in a Privy Council case⁽³⁾ which cast doubt upon the correctness of that basis. We note also the remarks of the House of Lords in Photo Production Ltd. v. Securicor Transport Ltd.⁽⁴⁾.

11. If again, we were to assume, for the purposes of this appeal only, that reasonableness is the proper criterion, we are not persuaded that this clause is unreasonable.

12. There is another argument, raised by Mr. Au in his statement of defence and reiterated before us this morning, that when he telephoned the company on that Sunday afternoon:

"I was further assured that since I have reported the theft or loss by telephone immediately I would have no responsibility over the loss of the subject credit card."

He says today, as he said in his evidence, that had it not been for that assurance he would have made some attempt that Sunday afternoon to give written notice to the company. If all that were so, then equity would come to his protection. But the facts found by the judge do not support his argument. Although the judge's findings on this matter could have been more clearly expressed, it is clear from his recital of the facts that he found that no such assurance had been given.

13. Mr. Au, who has appeared for himself in the proceedings both here and below, has put his case skilfully and clearly. Nevertheless he is bound by the terms of his contract.

14. For these reasons we set aside the decision of the judge below and enter judgment for the plaintiff in the sum claimed with interest, under the terms of the agreement, at 1 ½% per month from 1st May 1979 until the date of judgment. The appellant is to have its costs here and below.

(1) (1974) 3 All E.R. 616

(2) (1973) 1 Q.B. 400

(3) Grand Trunk Railway Company of Canada v. Arthur Robinson (1915) A.C. 740 at 747 quoted with approval in Ludditt v. Ginger Coote Airways Ltd. (1947) A.C. 233 at 242

(4) Times Newspaper 19 February 1980