The Canton Trust & Commercial Bank Ltd v. Ho Pui-shue and Others
Read the full judgment text of HCA 814/1969 on BabelCite. This High Court CFI judgment was delivered on 24 October 1973.
1. The 1st defendant in these proceedings was a client of the plaintiffs, a bank now in liquidation. He was granted over-draft facilities to the extent of $20,000. By an undertaking dated the 23rd November, 1962 he undertook to repay on the 22nd February, 1963 or at any time when called upon to repay all sums due on the general balance together with interest at the rate of 40 cents per $1,000 per day; the 2nd defendant signed as a guarantor.
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HCA000814/1969 IN THE SUPREME COURT OF HONG KONG ORIGINAL JURISDICTION ACTION NO. 814 OF 1969 -----------------
----------------- Coram: Trainor, J. Date of Judgment: 24 October 1973 ----------------- JUDGMENT ----------------- 1. The 1st defendant in these proceedings was a client of the plaintiffs, a bank now in liquidation. He was granted over-draft facilities to the extent of $20,000. By an undertaking dated the 23rd November, 1962 he undertook to repay on the 22nd February, 1963 or at any time when called upon to repay all sums due on the general balance together with interest at the rate of 40 cents per $1,000 per day; the 2nd defendant signed as a guarantor. 2. By a Letter of Guarantee of the same date, the 23rd November, 1962, the 5th and 6th defendants guaranteed the account of the 1st defendant to the extent of $20,000 together with interest at the same rate i.e. 40 cents per $1,000 per day. The wording of the relevant part of the Guarantee is as follows:
3. Some time in February, 1963 the 1st defendant was granted by the plaintiffs a facility to the extent of $17,140 to enable him to pay for goods he intended to import into Hong Kong and the goods in question were hypothecated to the plaintiffs. The plaintiffs handed over the shipping documents of those goods to the 1st and 2nd defendants to enable the goods to be sold, and by a Trust Receipt dated the 23rd February, 1963 the 1st and 2nd defendants undertook to hold the documents or the proceeds of the sale to the extent of $17,140.00 in trust for the plaintiffs and pay the proceeds to the Bank. 4. A rather carelessly printed clause towards the end of the Trust Receipt reads:
This undertaking was signed by the 3rd, 4th and 7th defendants. 5. A winding up order was made with regard to the plaintiffs on the 12th May, 1965, at which time a sum in excess of $44,000 was shown as a debit in the 1st defendant's sole, a current, account. There were repeated applications to the several defendants to pay what was owing to the plaintiffs, the last being by way of letters from the liquidator dated the 1st and 2nd December, 1967, and ultimately a writ was issued on the 5th July, 1969. 6. Judgment in default of appearance was entered against the 1st defendant, and proceedings were discontinued against the 2nd defendant and against the second, third and fourth named 7th defendant. 7. The 4th defendant carries on business under the firm name Ting Yuen Ho which is the 3rd defendant. A separate appearance and defence was entered for each. It was admitted in the defence that the 3rd and the 4th defendants signed the Trust Receipt. It was denied, however, that anything was due and owing to the plaintiffs as the sum of $17,140 had been repaid by the 1st and 2nd defendants to the plaintiffs on the 6th April, 1963. 8. The sole remaining of the 7th defendants also delivered a defence. He too admitted being a party to the Trust Receipt but denied that he owed anything to the plaintiffs as the 1st and 2nd defendants had repaid to the plaintiffs the sum of $17,140 sometime between the 19th March, 1963 and the 27th April, 1963. 9. The 5th and 6th defendants by their defence admitted signing the Letter of Guarantee whereby they guaranteed the repayment of advances made by the plaintiffs to the 1st defendant with interest. They pleaded however that between the 16th December, 1962 and the 8th October, 1963 the 1st and 2nd defendants repaid the $20,000 due by the 1st defendant. They pleaded alternatively that if they have any liability under the Letter of Guarantee it is limited to a total amount of $20,000 including interest. 10. At the hearing Mr. Wei appeared for the plaintiffs, and Mr. Woo appeared for the 3rd and 4th defendants. The 5th and 6th defendants appeared in person and the remaining 7th defendant did not appear. 11. The total amount which the plaintiffs claimed from the 1st defendant was $63,459.09. Not having received it they claim that the 3rd and 4th defendants and the first named of the 7th defendants are liable to them to the extent of $17,140.00 and interest at the rate of 40 cents per $1,000 per day, their responsibility under the Trust Receipt. This, it is alleged, amounted to $24,331 (interest being calculated from 22nd August, 1966 for some reason) on the 5th July, 1969 when the writ was issued. They also claim interest to date of judgment or repayment. 12. The plaintiffs claim the 5th and 6th defendants were indebted to them on the date of the issue of the writ in the sum of $28,800, being the $20,000 due on the Letter of Guarantee and interest of $8,800 (also calculated from the 22nd August, 1966). They also claim interest to date of judgment or repayment. 13. The Trust Receipt and the Letter of Guarantee were formally produced by a Mr. Yip Luen Chow who was formerly a sub-manager in the Head Office of the plaintiff Bank. He was employed by the Bank from the 11th April, 1948 until the time of liquidation and is now employed by the Official Receiver. This witness also produced the Bank's accounts showing that from the 1st January, 1963 the 1st defendant's overdraft was always in excess of $20,000. He also proved the draft for $17,140 on foot of which the Bank paid this amount. He further produced copy letters dated the 22nd August, 1966 to all the defendants now remaining demanding repayment within 15 days. (It was conceded by counsel for the plaintiffs that by reason of these letters interest could only be claimed as from the 6th September i.e. on the expiration of the 15 days mentioned in them.) 14. So far as the proceedings against the 3rd, 4th and 7th defendants are concerned it might perhaps be useful to consider the transaction that gave rise to this claim as reflected in the documents that were exhibited. 15. The 1st defendant bought goods in Bangkok as a result of which the vendors drew a draft on the 1st defendant for $17,140. The plaintiffs accepted this draft which was payable on the 28th March, 1963 and made various bookkeeping entries with regard to it. The 1st defendant hypothecated or pledged the goods to the plaintiff Bank and the Bank released the shipping documents to him. To maintain their rights, which they might have lost by such release, the Bank had the 1st defendant executed on the 23rd February, 1963 what is called a Trust Receipt or sometimes a Letter of Trust. By this Trust Receipt the defendant undertook to land, store and deliver the goods to customers and to receive the proceeds as Trustees and Agents of the Bank. The document continues.
16. Though the document refers to drafts there is only one mentioned in the paragraph headed Particulars of Drafts. 17. On the 28th March, 1963 the Bank paid the draft. 18. The first entry made by the Bank with regard to the transaction was to credit on the 26th February, 1963 an account called the Letter of Credit and Guarantee account with $17,140.00. A corresponding debit entry was made on the same day in another account, the Customers Liabilities under L.C. Account. 19. On the 28th March a credit entry of $17,140 was entered in an account headed the Cashiers Order account. And on the same date a debit entry of that amount was made in the Letter of Credit and Guarantee account which consequently was balanced off. On the 29th March the Bank, having met the draft on the 28th, there is a debit entry of $17,140 in the Cashiers Order account thus balancing that account. 20. The bookkeeping position then was that the Customers Liability account was in debit to the extent of $17,140. 21. On the 4th April a debit entry of $17,140 was made in yet another account, the Sundry Debits account. On the same date a credit entry for that amount was entered in Customers Liability account, being a transfer from the Sundry Debits account, thereby balancing the Customers Liability account. 22. All during this period, and indeed for some time previously, the 1st defendant had a current account and on the 6th April this account was debited with the sum of $17,140. A credit entry of that amount was made on the same day in the Sunday Debits account to balance it off. Thus the sum of $17,140, which appeared in various accounts and was paid out on the 1st defendant's behalf on the 28th March and relates to the goods referred to in the Trust Receipt, now appears in the 1st defendant's overdrawn current account. In other words there was a combination of accounts. 23. An examination of the current account of the 1st defendant shows that from the 28th March no lodgment was made to it until the 8th April when $350 was lodged. Between that date and the 19th July a total of $9,203.33 was lodged. That was the last date of a lodgment credited to the 1st defendant's account. 24. Mr. Woo addressed the court and his address might be summarised as follows: (1) The Trust Receipt of the 26th February referred to a single specific transaction. It contained a guarantee of the fulfillment of the debtor's obligations created by it by three parties other than the debtor and, therefore, must be treated as separate and distinct from the debtor's everyday banking affairs. The transaction should have been kept in an account separate and distinct from the debtor's current account and there was no justification for combining them. If the Bank contemplated combining the accounts, the debtor and the defendants should have been notified. (2) By reason of the undertaking of the debtor to hold the goods or proceeds in trust for the Bank and pay the proceeds from the sale in discharge of the $17,140, which was, in fact, what the defendants guaranteed, any lodgments made by the debtor subsequent to the payment by the Bank should have been credited against the $17,140. 25. Mr. Wei for the plaintiffs maintained that what was laid down in Devaynes v. Noble. Clayton's Case (1816) 1 Mer. 572 at p.608, that the first lodgment is appropriated to the first debit, in the absence of instructions to the contrary, is applicable in the instant case. He maintained that there were no instructions to the Bank by its client as to how the lodgments were to be appropriated and, consequently, the Bank was justified in applying lodgments made to the liquidation of earlier debits. 26. The first point made by Mr. Woo is that the Bank should not have combined the accounts pertaining to the $17,140 with the 1st defendant's current account. This is a moot point, and might well be so, but I think that it cannot help the defendants to any great extent. The real question to be decided is whether or not the lodgments made after the 26th February should have been earmarked by reason of the Trust Receipt to the reduction of that sum. 27. By the Trust Receipt the 1st defendant had undertaken to receive the proceeds of the sale of the goods liberated by the Bank as the Bank's trustee and to keep them separate from his other moneys. He further under took to pay them to the Bank as soon as the goods were realised to be applied to reimbursement of the Bank for the payment of the draft. The 3rd, 4th and 7th defendants undertook to pay to the Bank on demand any money due on the default or non fulfillment of the 1st defendant of his undertaking. In other words they undertook to indemnify the Bank. It might appear from this that an appropriation or a direction to appropriate lodgments might be implied. Indeed, if money were paid into the Bank and no more was indicated than that it represented the sale of the goods, or part of them, then I think the Bank would be bound to appropriate it in reduction of the draft in fulfillment of the 1st defendant's undertaking. 28. The 1st defendant was a merchant who was to be expected to, and in fact he did, lodge moneys with the Bank from time to time. Supposing the Bank had maintained a separate account with regard to the draft and the 1st defendant made general undefined lodgments is the Bank obliged to deem them to be the proceeds of the sale of the goods referred to in the draft and the Trust Receipt and the subject of the undertaking, and that the 1st defendant intended them to be appropriated to scharging his undertaking and that of the other three defendants? I think not; on the contrary. I think the Bank would be perfectly entitled to conclude that it was not so intended, more particularly as the client had an overdraft. I ...(illegible) my opinion the Bank would be entitled to reason that the client would presume that this overdraft would be reduced by the amount of the lodgments, thereby giving him further accommodation with the Bank which would be content to rely on the sale of the goods the subject of the undertaking. The Bank was entitled to assume that when the client was discharging his undertaking he would indicate it. This indication could have been made ba simple endorsement on a lodgment docket e.g. "To Draft L/YL/05 B.R. No. 6/463", the reference number used in the Trust Re ...(illegible) ipt. 29. There is no evidence before me that any indication was ever given to the Bank that any of the various lodgments made after the 26th February were intended to be in discharge of the draft facilities made available by the Bank on that date, that they in any way represented the proceeds of the goods referred to in the Trust Receipt. Indeed, there was the ...(illegible) of Mr. Yip to the contrary. That being so I think it would ...(illegible) of no avail to the 3rd, 4th or 7th defendant were I to hold that the accounts should not have been combined. 30. It is a principle of banking, and too long establish to require any development by me that a client of a bank who has more than one account with it may direct a lodgment to be credited to any account. If he does not do so, and no prior arrangement has been made or there is no indication as to its destination the bank may appropriate it to such account as it wishes, regard being had to normal banking procedure and the usual ...(illegible) with the client's account. Such being the case here the plaintiff Bank was entitled to appropriate the lodgments made by the 1st defendant to his current account. 31. In the circumstances I find that the 1st defendant did not pay into the Bank anything in discharge of his undertaking contained in the Trust Receipt and that the 3rd, 4th and 7th defendants are liable to indemnify the Bank by reason of their undertaking. 32. Mr. Woo has argued that no interest should be payable on he $17,140 as no reference is made to it in the Trust Receipt and therefore the only obligation under it is to indemnify the Bank to the extent of the principal. It is true there is no specific reference but then this document does not purport to set out the financial arrangements between the 1st defendant and the Bank. It is a document with the primary purpose of maintaining the Bank's rights in the goods and obviating any possible future contention that by handing over the title deeds to the goods the Bank had relinquished their claim to them. There is however in the Trust Receipt the undertaking by the 3rd, 4th and 7th defendants
Everyone knows that when banking facilities are granted one has to pay for them and the best known method of paying for banking facilities is interest. I am satisfied that when the 3rd, 4th and 7th defendants signed the undertaking they knew as businessmen that interest was payable by the 1st defendant and that they were guaranteeing it; and if they had any doubts the words I have just quoted "all sums ... in any way connected with the foregoing;" must have dispelled them. 33. I have been told that the plaintiffs are now seeking interest at the rate of 8% only so far as the 3rd, 4th and 7th defendants are concerned (and not at the rate of 40 cents per $1,000 per day as in the statement of claim) from the 6th September, 1966, and not the 22nd August, and I allow interest at that rate and from that date. 34. So far as the 5th and 6th defendants are concerned, I do not consider it necessary to dwell at any length on the case against them. The plaintiffs by their witness and the documents exhibited have established it and indeed the defendants themselves have admitted it in court. I find that there is due to the plaintiffs by them the sum of $20,000 with interest at the rate of 40 cents per $1,000 per day from the 6th of September, 1966 (the date conceded by the plaintiffs as the date from which interest should be calculated and not the 22nd of August as in the statement of claim) until the 5th July, 1969, the period for which interest is claimed. 35. I refer the matter to the Registrar of the Supreme Court that the respective amounts of interest may be ascertained and judgment entered accordingly. 36. The plaintiffs are awarded costs.
Representation: Mr. Robert Wei (P.H. Sin & Co.) for plaintiff Mr. Patrick Woo (W.K. Poon & Co.) for 3rd & 4th defendants 5th & 6th defendants in person 7th defendant absent |