Ma Chiu Chong and Others v. The Chase Manhattan Bank, N.A. and Another

HCA006551/1990

1990 No. A6551

IN THE SUPREME COURT OF HONG KONG HIGH COURT

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BETWEEN

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Coram: The Honourable Mr. Justice Kaplan in Court

Date of hearing: 20 & 21 July 1992

Date of handing down judgment: 6 August 1992

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J U D G M E N T

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1. Filial loyalty is a much prized virtue in many societies but none more so than Chinese society. It is therefore distressing to record that this case concerns the theft by a son of $2m of his parent's retirement nest egg. The mother who is a 2nd plaintiff, and has survived her husband, must sympathize with the words from King Lear.

"How sharper than a serpent's tooth it is to have a thankless child."

2. This case raises, yet again, the difficult question as to which of two innocent parties should suffer for the fraud of another. The complication in the case arises, because the admitted fraudster is the son and brother of the Plaintiffs, and was also at all material times employed as a Vice-President of the 1st Defendant's bank at their Wanchai branch.

3. The 2nd Defendant is a son of Ma Chiu Chong, deceased, and his wife, the 2nd Plaintiff. Mr. Ma died and his executors (his wife and son Desmond) are the 1st Plaintiffs. Desmond is the 3rd Plaintiff.

4. In 1988, the 2nd Defendant suggested to his father, who was then almost 80 and retired, that he would help him in his employment with the 1st Plaintiff if his father were to deposit some Hong Kong dollars at the branch in which he worked. I am prepared to accept that one of Mr. Ma's motivations in acceding to this request was to assist his son and also to benefit from a slightly better interest rate.

5. On or about 1st June 1988, Mr. Ma drew a cheque for HK$2m on his Hong Kong Bank Account in favour of himself and his wife. He gave the 2nd Defendant this cheque for the purpose of putting it on time deposit with the 1st Defendant. Both parents signed specimen signature cards which the 2nd Defendant presented to them for signature. Mr. Ma made it clear to his son that this account was to be in the joint names of himself and his wife and could only be operated by them. Interest accruing to this account was to be paid to Mr. Ma's Hong Kong Bank Savings account.

6. I am satisfied that as at the date of the commencement of this deposit, Mr. Ma made it clear to his son and thus to the 1st Defendant, whose employee he was, that the account could only be operated by the signatures, of either himself or his wife.

7. A little later there was a family discussion and it was agreed that the deposit would be placed into the names of Mr. and Mrs. Ma and also the 3rd Plaintiff and the 2nd Defendant, their sons. This was done in view of Mr. Ma's poor health and the fact that the family thought that a deposit also in the name of both sons might assist their future emigration plans. In agreeing to add both sons as joint account holders. I am satisfied that Mr. Ma instructed the 2nd Defendant that the account could only be operated in one of the following ways:

(a)      Upon the signature of either Mr. or Mrs. Ma.

(b)      Upon the joint signatures of Mr. Ma and either of their sons.

(c)      Upon the joint signatures of Mrs. Ma and either of her sons.

8. I am quite satisfied that Mr. Ma made it clear to the 2nd Defendant that this account was not to be operated solely by the sons. Although Mr. Ma has since died I have had the benefit of an affidavit sworn by him to which he exhibits his statement to the police in relation to this matter. I am quite satisfied that the statement and affidavit contain truthful and accurate accounts of this unfortunate matter.

9. Following his instruction to place the deposit into the names of the parents and two sons, the 2nd Defendant then prepared a Joint Account Agreement and Declaration dated purportedly the 4th July 1988 which purported to give authority to the bank to release funds on the signature of any one of the four account holders. The 2nd Defendant who was called by the 1st Defendant told me on oath, and I accept, that he forged his parent's signatures on this document. The mother confirmed to me that she did not sign this document. Although there was originally thought to be a problem about 3rd Plaintiff's signature on the document, it is clear, on the evidence, that he did sign it but I am satisfied that he paid little attention to its detail and trusted his brother who wasafter all a senior employee of the 1st Defendant and had' done nothing to Desmond's knowledge that would in any way put him on notice that he was acting fraudulently.

10. The 2nd Defendant then took this Joint Account Agreement back to the bank and had it verified against signature cards which he had placed on the bank's records.

11. To cut a long and most distasteful story short, the 2nd Defendant appears to have got into financial trouble on the currency futures market and he systematically defrauded about 10 customers of the bank of some $14m. As things went from bad to worse he resorted to his parents nest egg and stole the whole $2m from them, the precise details of which are not relevant. He was arrested and pleaded guilty to a number of charges but he was not charged in relation to his parent's funds. He was sentenced to a period of 4 years imprisonment which he is still serving. I am happy to be able to record that none. of the other customers involved have suffered any continuing loss.

12. The Plaintiffs' claim against the 1st Defendant is for the return of their $2m with interest. The 1st Defendant denies liability but if they are held liable to the Plaintiffs, they seek an indemnity against the 2nd Defendant who does not contest their right to an indemnity in those circumstances.

13. Mr. Spicer who appeared for the bank faced his task extremely realistically. He agreed that had not the 2nd Defendant been the son of both Plaintiffs, there would be little he could have said in favour of the bank's unfortunate position. However, he contended that there was a personal involvement in this case and that I should have regard to the fact that the money was deposited with the 1st Defendant to assist the 2nd Defendant and to achieve a better rate of interest. He submitted that in the light of these facts and the evidence I have heard, I should conclude that that the 2nd Defendant was the agent of the Plaintiffs and must have been expressly authorised by them to operate this account.

14. I cannot agree with this submission. The prime motive of Mr. Ma in opening the account was to find a safe haven for part of his retirement fund with the advantage of a higher rate of interest thanks to his son's.position with the bank. That this might assist his son, I am sure, would have influenced Mr. Ma, but he must have been satisfied with the bank's reputation and I am far from satisfied that he would have done the same had the son been working for a financial institution with a lesser reputation than the lstDefendant.

15. The simple fact of the matter is that the parents never authorised the 2nd Defendant to withdraw monies from this account and he was only able to do this by forging his parents' signatures. At all times he was acting as an employee of the 1st Defendants and he was able to perpetrate this offensive fraud by reason of his having access to the bank's documentation which would not otherwise be available to the general public.

16. In addition, I am satisfied that he used his senior position with the bank to ensure that his fraudulent plans were carried out.

17. Mr. Spicer attempted to argue that in relation to the 3rd Plaintiff's case he clearly gave authority to the 2nd Defendant to withdraw monies from the joint account because he signed the Joint Account Agreement. The answer to that submission is that the 3rd Plaintiff had no authority himself to give that authority to the 1st and/or 2nd Defendant. At all times Mr. Ma laid down the condition that his sons could not sign without one of the parents' signature and there is no suggestion that he ever changed that intention. In those circumstances, even if the 3rd Plaintiff did sign this agreement, as I am satisfied he did, he was not empowered to authorise his brother to withdraw this sum. Authority for the parents was always lacking. The bank have not relied on any estoppel and the case has been argued solely on the question of authority. Unfortunately for the bank the 2nd Defendant misused his position with the bank at a time when he was clearly acting as an employee of the bank. He misused the trust placed in him both by his family and his employer.

18. At some stage during part of Mr. Spicer's examination-in-chief of the 2nd Defendant, he asked him various questions about the plea in mitigation which had been made on his behalf when he pleaded guilty to these various offences. It seemed to me that a suggestion was being made that the 2nd Defendant had incurred considerable expense in discharging medical bills on behalf of his father and that in some unspecified way this had something to do with the subsequent conduct of the 2nd Defendant. I wish to record that the 2nd Defendant did not accept that he paid a considerable sum on behalf of his father by way of medical bills and that it appears that mitigation might have been somewhat overstated. In any event,'Mr. Spicer made no mention of this aspect of the case in his brief but helpful closing submission.

19. I must also recall that neither counsel referred me to any authorities and both were content to rest their cases on whether or not the 2nd Defendant had been authorised by the Plaintiffs to withdraw monies on his own pursuant to the forged Joint Account Agreement and Declaration.

20. In my judgment, the bank were never authorised to pay out monies on the signature solely of the 2nd Defendant. The bank are in a most unfortunate position. I wish to make it clear that there has never been any suggestion that anybody else within the bank's organization had anything to do with this frightful business and that sole responsibility for these events rests fairly and squarely with the 2nd Defendant. I have given very careful consideration to the most unfortunate position in which the bank finds itself but I cannot find any reason in law why they should not be responsible for the acts of their servant who systematically stole money from their customers.

21. In the circumstances, therefore, there will be judgment for the Plaintiffs against the 1st Defendant in the sum of $2m. So far as interest is concerned, I note Mr. Spicer's point that the Plaintiff has called no evidence on the question of interest and I propose to deal with the matter on the basis that had all gone well, this deposit would have remained with the bank and would have earned such interest as deposits of that sum would from time to time earn. That matter can be sorted out by reference to the 1st Defendant's record of interest paid on sums of this amount. I do not propose to order interest on the basis of the rate which the bank would charge borrowers as it seems to me that the Plaintiffs would have remained in the position of depositors. I would hope that the interest calculation could be agreed without me having to specify the precise dates when the different sums were withdrawn. If there is any difficulty, the matter can be restored to me for a ruling.

22. I propose to make a costs order nisi in favour of the Plaintiffs against the 1st Defendant.

23. The 1st Defendants are clearly entitled to a full indemnity against the claim, interest and costs as against the 2nd Defendant and I so order.

Representation:

Mr. Benjamin Chain instructed by Woo, Kwan, Lee & Lo for Plaintiffs

Mr. Rupert Spicer instructed by Robert W.H. Wang & Co. for 1st Defendant.

2nd Defendant in person.