Ba Finance (Hong Kong) Ltd v. Allen Chan King Chiu t/a Adaiken Gems

HCA009424/1983

BETWEEN

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Coram: Hon Liu J.

Date of hearing: 8 March 1984

Date of Delivery of Judgment: 8 March 1984

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JUDGMENT

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1. This is a claim by the plaintiff as holder in due course against the defendant, Mr. Chan King Chiu, Allen on two dishonoured cheques. The defendant has admitted to be the drawer of both cheques which were produced in these proceedings as "P5" and "P9".

2. In substance what is being disputed by the defendant is that by reason of the financial difficulty of the payee/endorser, the state of the defendant's bank account and suspicion said to have arisen from photostat copies of two respective Promissory Notes "P12" and "P13" together with the almost identical signatures appearing thereon, the plaintiff should have inquired into the alleged defect in title of the payee/endorser.

3. The plaintiff is and has, at all material times, been conducting business of a finance company. At the material time, one of its businesses was cheque discounting. The Assistant Manager of the plaintiff was called, and she testified as to the standard procedure whereby application for cheque discounting was processed and approved by the plaintiff. Essentially, it was as follows : The applicant would have to come with the original post-dated cheque in his favour and an original copy schedule duly signed by himself listing out the cheque or cheques proposed to be discounted together with a photostat copy of a Promissory Note signed by the drawer for each cheque.

4. The Assistant Manager of the plaintiff further explained to the court that for the particular discounting-cheque transactions in this action, the credit standing of the defendant was duly checked presumably through the informal liaison between the Director of her company and the Hang Seng Bank with whom the defendant had an account.

5. On the 21st January last year, Tong's Finance Limited, presented the requisite document a cheque in its favour dated the 19th April 1983 duly endorsed over to the plaintiff, a schedule "P4" listing out that particular cheque "P5" and four other cheques which are not part of the subject matters in this claim as well as, for this cheque "P5", a photostat copy of a Promissory Note "P12" purportedly signed by the defendant. On these documents, Tong's Finance Limited was duly paid by the plaintiff.

6. On a further occasion which fell on the 23rd February 1983, in its capacity of payee Tong's Finance Limited came with another cheque "P9",duly endorsed over to the plaintiff, a schedule therefor "P8" and a photostat copy Promissory Note "P13". On this occasion, the plaintiff also discounted the cheque as it did on the previous occasions.

7. Both cheques were postdated about three months. When "P5" fell due on the 19th April last year, it was duly presented to the Hang Seng Bank, but it was dishonoured on the same day. One of the reasons given for such dishonour was "drawn against uncleared effects, please present again". That clearly indicated that the bank was, as between itself and the defendant as drawer, under no obligation to pay the amount on "P5". There was a further reason given for the dishonour of this cheque which was chopped on its face "Account Payee Only". That appears to have been deleted by a signature of the defendant without his company chop. It was not suggested during the course of these proceedings that an endorsement in terms of ''Account Payee Only" would have the effect of prohibiting the transfer of the cheque to the plaintiff. In effect, with or without this endorsement, the negotiability of this cheque was by no means affected. Thus its attempted deletion would sorve no purpose. The endorsement over to the plaintiff was not challenged to be invalid. If indeed such had amounted to an irregularity on the face of the cheque, it could not have been material. The first reason given by the Hang Seng Bank Limited for the rejection of "P5" dispensed with any notice of dishonour. Nothing, in fact, turns on the attempted deletion or the aspect of notice of dishonour.

8. Next, I come to the other cheque exhibit "P9". When its due date arrived on the 23rd May last year, it was duly presented for clearance. On the same day, it was dishonoured. The reason given by the Hang Seng Bank Limited was "Referred to drawer" which, needless to say, also dispensed with service of a notice of dishonour.

9. The two signatures on the photostat copies Promissory Notes, exhibits "P12" and "P13",each as one of the usual requisite documents for cheque discounting by the plaintiff, do bear a remarkable resemblance. The allegation of the defendant was that on these two documents a piece of the defendant's chop and his signature cut out from another document was put for photostating without his knowledge or consent. The defendant also complained that the identical signatures should have raised enough suspicion to put the plaintiff on notice of irregularity for seeking further enquiries . Irrepective the alleged suspicion arising from the identical signatures on the photostat documents exhibit "P12" and "P13", the defendant further complained that on any reasonable enquiry conducted by the plaintiff, the financial predicament of Tong's Finance Limited and the state of his own account with the Hang Seng Bank could have exposed the alleged position that in each case, there was a defect in title.

10. The defendant no longer pursues the allegation that these cheques were stolen by Tong's Finance Limited from Tong's Gems and Minerals Company Limited. The defendant, Mr. Chan, informed the court that both limited companies were, at the material time, under the same control of Mr. Tong.  These cheques were, so maintained the defendant, though intended to be for Tong's Gems and Minerals Company Limited, for some reason drawn in favour of Tong's Finance Limited at the request of Mr. Tong.

11. These cheques were drawn in favour of Tong's Finance Limited. The issue and negotiation of these cheques "P5" and "P9" were, therefore, unaffected by any fraud, duress, force, fear or illegality. In any case, good value was given by the plaintiff for each of them. It is inconceivable that there was any defect in the title of any of them. After all, the defendant had allegedly given "P5", "P9" and "D3" in exchange of the cheques "D1" and "D2" from Tong's Gems Minerals Co. Ltd. The defendant presented "D1" and ''D2" both a day before the due dates of "P5" and "P9" respectively. According to the defendant, he was returned by a staff of Mr. Tong "D3" in the sum of $5,600.

12. The defendant claimed that these cheques "P5" and "P9" were given to Mr. Tong for business purposes. He presented "D1" and "D2" for payment. There was hardly any justification, even on the defendant's allegations, for him to believe that Hr. Tong would not have used his cheques "P5" and "P9". There was no or no serious suggestion that Mr. Tong was, in any way, subject to any restriction against normal use of the cheques "P5" and "P9" in question. There could be no question of any defect in title. Each of these cheques was also complete and regular on its face, Even if there had been any defect in title in the person of the payee/ endorser, the plaintiff's processing of the documents presented by Tong's Finance Limited cannot be said to have imputed any notice of defect, particularly when the photostat copy documents "P12" and "P13" were respectively presented to the plaintiff on different occasions. If there had, indeed, been any negligence on the part of the plaintiff in the handling of any of the usual documents involved in the cheque discounting transactions, such negligence would not have been sufficient to impute notice of such alleged defect.

13. It was not suggested by the defendant that the plaintiff as a finance company in these cheque discounting transactions owed, in each case, a duty of care to the defendant as admitted drawer of the cheques "P8" and "P9" in any kind of special relationship.

14. The plaintiff has succeeded in establishing his position as a holder in due course in respect to each of the cheques "P5'' and "P9". There is nothing raised by the defendant in the course of these proceedings, which has, in any way, affected the plaintiffs position or shifted the burden.

15. Insofar as factual conflicts particularly that on the conversation as between the defendant and the Assistant Manager of the plaintiff, I prefer the evidence of Mrs. Au, PW1, but these factual conflicts seem to be no real significant.

16. Consequently, I am virtually driven to grant judgment in favour of the plaintiff against the defendant, as I now do, in the sum of $650,000. I further order the defendant to pay to the plaintiff interest thereon at 10% per annum as to $380,000 thereof from the 19th April 1983 and as to the balance of $270,000 thereof from the 23rd May 1983 until judgment i.e. today. Interests after judgment is being regulated by law. I need make no further order. I further order costs against the defendant in favour of the plaintiff in this action.

Representation:

Mr. Walter Lau instructed by M/S. Ng & Yung for the Plaintiff.

Allen Chau King Chiu trading as ADAIKEN GEMS, Defendant in person.