Josephine Kong (A Spinster) and Another v. Lee Chiu Sun

HCA001565/1972

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO. 1565 OF 1972

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Coram: Pickering, J. in Court

Date of Judgment: 7th May 1974.

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JUDGMENT

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1. There is no question that in this case the plaintiffs have not the slightest moral claim to the defendant's money. The only question is whether or not they have a legal claim thereto. At first sight I was of the opinion that this case was, as the plaintiffs have claimed, an example of the almost unassailable position of a holder in due course who takes for value and without notice of any fraud or illegality. On further consideration, I am happy to say that that is not the position and that law and morality coincide.

2. The defendant is a 64-year-old businessman who, in April, 1972, was foolish enough to sign two cheques in blank. He gave these cheques to a certain KONG Sau-sang, who was a friend of more than ten years standing and, on the defendant's evidence a "good" friend, and who was the manager of the second plaintiff company's Kowloon office. The purpose of giving the cheques was that Mr. Kong should arrange a tour for the defendant in Japan and another tour for the defendant's wife in Taiwan. According to the evidence of the defendant, Mr. Kong told him that it was not possible to say immediately what would be the cost of those tours, and accordingly the cheques were to be filled in by Mr. Kong when the precise cost was known. Having signed the cheques in blank and given them to Mr. Kong, the defendant heard no more until he received a telephone call from a representative of his bank who informed him that two cheques totalling more than $35,000 had been presented for payment. The representative sought authority to carry out what was a not infrequent practice, that is to say to transfer from the defendant's savings account to current account moneys sufficient to meet cheques which were in excess, at any one time, of the amount standing to current account. The defendant, who had expected the two tours to cost something between two thousand and three thousand dollars each, instructed the bank not to honour the cheques and subsequently received a solicitor's letter demanding payment. These proceedings ensued.

3. These events took place in April, 1972 and some time after that, it became apparent to Lotus Tours, the second plaintiff company, that customers' accounts in their Kowloon office were outstanding to the extent of some three hundred thousand dollars. They made enquiries with Mr. Kong, their manager in Kowloon, who gave them certain reassurances but the outstanding credits swelled to some six hundred thousand dollars, and eventually after an accountant had been sent over from the Hong Kong branch to the Kowloon branch to check the accounts there, and after Mr. Kong had been taxed with the situation, he admitted that he had been defrauding the company and had done so to the extent of more than seven hundred thousand dollars. At that stage he signed a written confession. He has since absconded.

4. Mr. Kong endorsed the two cheques with which we are concerned over to a Miss Josephine Kong, who is the chief accountant of the second plaintiff company and is herself the first plaintiff. He gave them to her for the second plaintiff company and in part satisfaction of his outstanding indebtedness to that company. It was Miss Kong's evidence that she maintains an account in her own name which is, in fact, the account of the second plaintiff company, and her reasons for doing that are to conceal from IATA the fact that certain commissions prohibited by IATA are in practice given to customers by the second plaintiff company. The customers, therefore, give cheques to her in her name, those cheques going to her account, and she, subsequently pays the money over to the second plaintiff company's account.

5. It seems to me that in this case the fallacy of the plaintiffs' approach has been the insistence on the position of Miss Kong as a holder in due course. In the circumstances of the present case, that does not appear to me to be the true test. The true test, as I see it, is one of consideration. When the defendant gave the cheques to Mr. KONG Sau-sang, he did so admittedly because he trusted Mr. Kong as an old friend, but also because Mr. Kong was the manager in Kowloon of the second plaintiff company, a tourist organization. But for that position the blank cheques would never have been handed to Mr. Kong. They were given for the specific purpose that two tours should be arranged and that the cheques should be filled in for the cost of those tours. The cheques, in other words, were given to Mr. Kong physically but in fact and in law they were given to his employers, the second plaintiff company. There was a contract at that stage between the defendant and the second plaintiff company, the obligation on his part being to pay the cost of two tours, and on their part to provide tickets and other facilities for those tours. The tours never materialized. It is the defendant's evidence that neither he nor his wife were ever provided with a tour to Japan or Taiwan, and it is the evidence of Miss Kong on behalf of the second plaintiff company that there is no record in the company of the defendant or his wife ever having undertaken any such tours. There was, therefore, a total failure of consideration and the action is not maintainable. The effect is the same as if there had been a total original absence of consideration. In addition when Mr. Kong endorsed the cheques over to Miss Kong he did so as an employee of the second plaintiff company to another employee of that company for the purposes of the company. The cheques were originally given to the company and throughout remained the property of the company. In those circumstances it is at least doubtful if Miss Kong was ever truly a holder in due course. The result is that the plaintiffs' claim must be dismissed with costs.

Representation:

K. Bokhary (Johnson, Stokes & Master) for plaintiffs

P. Chan (H.M. So & Co.) for defendant.