Wayfoong Credit Ltd v. Remoco (HK) Ltd
Read the full judgment text of HCA 662/1983 on BabelCite. This High Court CFI judgment.
1. The plaintiff, who claims to be a holder in due course sued the defendant as drawer on two dishonoured cheques with a combined face value of $225,000. 0.14 proceedings seeking summary judgment for the full face value of the cheques resulted in the Master granting uncon-ditional leave to the defendant to defend together with costs to the defendant. Against that decision of the Master, the plaintiff now appeals.
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HCA000662/1983
Commercial Law - Cheque - "Account Payee only" - Bearer Cheque - Indorsement in blank - Transferability. ============== The drawer of a bearer cheque crossed "Account Payee only" and indorsed in blank by the original payee has no defence as against a holder in due course that the cheque was not transferable by the original payee.
IN THE SUPREME COURT OF HONG KONG HIGH COURT ____ BETWEEN
____ Coram: Hon. Rhind, J. Date: 23rd June, 1983. __________ JUDGMENT __________ 1. The plaintiff, who claims to be a holder in due course sued the defendant as drawer on two dishonoured cheques with a combined face value of $225,000. 0.14 proceedings seeking summary judgment for the full face value of the cheques resulted in the Master granting uncon-ditional leave to the defendant to defend together with costs to the defendant. Against that decision of the Master, the plaintiff now appeals. 2. Affidavit material before the court disclosed the cheques had the following history. 3. A company called Superflex Electronics Ltd. ("Superflex") had agreed to sell a Rolls Royce car to the defendant for $225,000. It was. a condition of that contract of sale that physical delivery of the car and transfer of the registration into the defendant's name were to be completed on or before 15th November 1982. 4. For reasons unexplained, Superflex has never delivered the car, nor transferred the registration to the defendant. However, the defendant had already paid the price of $225,000 as long ago as 11th August 1982. It did so by means of two post dated cheques it issued to Superflex on that date. One, which was for $118,000, was post dated to the 18th November 1982; the other, for $107,000, was post dated to 23rd November 1982. They are the two cheques on which the plaintiff now sues. 5. Printed on one line of each cheque are the words "PAY TO", followed by a gap where the name of the payee is to be inserted, and the line finishes off with the printed words "OR BEARER". The name of Superflex was inserted by the defendant as payee on both cheques, so on each cheque there was a line which read -
6. By means of a chop, the defendant had stamped the front of the cheque with a crossing, inside which were the words "A/C PAYEE ONLY". 7. Having got those post dated cheques from the defendant, Superflex discounted them with the plaintiff which is a well-known finance company, and which has been providing Superflex with credit facilities since March 1981. 8. On handing the cheques over to the plaintiff, Superflex had indorsed them in blank on the back. 9. There are various other indorsements on the cheques, but none of any materiality. 10. When the plaintiff presented the cheques for payment on due date, they were dishonoured by the defendant. 11. Such were the facts. 12. I will now deal with the various defences the defendant has sought to raise. Conditionality 13. By paragraph 3 of its Defence, the defendant has described the cheques as "conditional cheques". 14. To describe a cheque as "conditional" is a contradiction in terms since a cheque is merely a species of bill of exchange, which is defined by section 3(1) of the Bills of Exchange Ordinance ("the Ordinance") as "........ an unconditional order in writing ......". 15. On the material before me, I am prepared to accept that as between the defendant and Superflex a condition had been agreed that the cheques were not to be cashed until the Rolls Royce had been handed over to the defendant and the transfer of registration completed. 16. However, there is not a shred of evidence that the plaintiff had any inkling of that private arrangement between the defendant and Superflex. The underlying transaction between the defendant and Superflex was of no concern to the plaintiff. 17. On the defendant's behalf, queries have been raised on whether the plaintiff was a holder in due course. I will comment on those queries in a moment, but, meanwhile, will state my conclusion to the effect that undoubtedly the plaintiff was a holder in due course. 18. As a holder in due course, the plaintiff, by virtue of section 38(b) of the Ordinance, holds the cheques
19. Thus, although any unfulfilled condition attaching to the cheques might have precluded Superflex from suing the defendant on them, the plaintiff's entitlement to sue the defendant suffers from no similar impediment. Fraud 20. I will set out the paragraphs of the Defence which culminate in the defendant accusing Superflex of fraud.
21. A cardinal rule of pleading is that fraud must be pleaded with the utmost particularity, (see 0.18 r.12). 22. What the defendant alleges against Superflex is equally consistent with a non-fraudulent breach of contract as with fraud. 23. Never before have I seen such an inadequately particularised plea of fraud. I hasten to add it was not drafted by counsel. Any court would unhesitatingly strike out that allegation of fraud. 24. As the Defence does not even constitute a proper allegation of fraud against Superflex, no ground work laid for contending that the plaintiff's taking of the cheques was tainted with knowledge of fraud. 25. Accusing anyone of fraud or other improper conduct is an extremely serious matter. This is an area where Bar ethics require counsel scrupulously to refrain from the temptation of trying to make bricks without straw. 26. While not going so far as actually accusing the plaintiff of taking he cheques with notice of fraud, counsel for the defendant suggested, nonetheless, that the plaintiff might at least have had knowledge (or deliberately closed its mind to the obvious) at the time of taking the cheques that Superflex had acted in breach of faith, with the result that the plaintiff would not be a holder in due course because of absence of good faith. 27. To my mind, that was a reckless submission which should never have been made. I could not detect anything on the material before the court pointing even vaguely to any want of faith. on the plaintiff's part. 28. Counsel for the defendant seemed to think that the very fact that Superflex had discounted cheques for comparatively large amounts was itself suspicious, and should have prompted the plaintiff to make inquiries of the defendant as drawer, particularly since the cheques were crossed "Account Payee Only". There was supposed to be further ground for suspicion in that Superflex already owed the plaintiff money. 29. None of the matters mentioned by counsel for the Defence gave rise to the slightest suspicion, in my opinion, and I do not see anything even remotely untoward in the conduct of the plaintiff which strikes me as having acted in a perfectly conventional way in discounting these cheques. 30. The plaintiff's good faith remaining wholly intact, it is clear that the plaintiff holds these cheques free from equities and the defendant remains liable on them, no matter what problems have arisen in the relationship between the defendant and Superflex. Transferability 31. This is the only point which is even vaguely arguable in the present case. 32. According to the defendant, the words "Account Payee Only" on a cheque amount to words within section 8(l) of the Ordinance "prohibiting transfer or indicating an intention that it should not be transferable", with the result that Superflex was not entitled to negotiate the cheques to the plaintiff. 33. That argument has been rejected by the courts of first instance in Hong Kong on two occasions. Firstly, Huggins J. (as he then was) in Asiatic European Corp. Ltd. v. Overseas Trust Bank Ltd.(1) at page 15 stated -
34. Cons J. (as he then was) reached the same conclusion in Edward Wong Finance Co. Ltd. v. Infinity Industrial Co. Ltd.(2) where he adopted "The generally accepted view ....... that the words 'A/C Payee Only' are not sufficient to invoke this subsection" (i.e. subsection 8(1) of the Ordinance. 35. A similar conclusion has been reached by the South African Appellate Division in Standard Bank of South Africa v. Sham Magazine Centre.(3) 36. The defendant sought to distinguish Edward Wong Finance Co. Ltd. v. Infinity Industrial Co. Ltd. by pointing out how, in that case, the claimant was described as suing as a holder for value, whereas the plaintiff in the present case sues as a holder in due course. 37. For a start, I think the claimant in the Edward Wong Finance case probably was a holder in due course, and, through looseness of terminology, was described merely as a holder for value. Moreover, far from weakening the plaintiff's case, the fact that the plaintiff is a holder in due course rather than a more holder for value positively enhances the plaintiff's position. Every holder in due course must be a holder for value, although the converse is not true. (see sections 27and 29 of the Ordinance). The greater inevitably includes the less. 38. Other points of difference between the present case and Edward Wong Finance were that in the present case the cheques bore the words "OR BEARER" and were indorsed by Superflex in blank. 39. Those features, if anything, served to enhance the negotia-bility of the cheques. 40. As provided by section 8(2) and (3) of the Ordinance –
41. Having the words "OR BEARER" and an indorsement in blank on a cheque is obviously anything but a hindrance to negotiability. 42. That the instruction "Account Payee Only" can be validly given on bearer as well as on order cheques without affecting negotia-bility is made clear by Professor R.M. Goode's new work "Commercial law" at pages 487 and 488. 43. Another line of attack which the defendant sought to develop was that the indorsements and notations on the cheques meant that they were not "complete and regular on the face" within the meaning of section 29(1) of the Ordinance, thus bringing about a situation where the plaintiff failed to qualify as a holder in due course. Beyond a bold assertion, the defendant adduced no authority in support of this proposition which I rejected on the strength of the counter proposition they were complete and regular on the face. 44. What I regarded as the defendant's sole argument with even a scintilla of merit was that the effect of the words "Account Payee Only" have not been tested beyond the first instance level in Hong Kong, nor have they been considered judicially in England yet, as far as I am aware. 45. Certainly the words "Account Payee" have been tested in the courts in England. The Court of Appeal in National Bank v. Silke (4) held that those words did not affect negotiability and amounted to nothing more than a direction to the collecting bank to ensure that it applies the proceeds of the cheque for the account of the named payee only, or to an account authorised by the named payee. 46. In other words, the presence of those words places the collecting banker under a duty of exercising care to ensure that the customer whose account is credited is really the payee, or authorised by the payee. 47. The sole apparent support for the view that "Account Payee Only" restricts negotiability is to be found in the following rather enigmatic passage from Paget’s Law of Banking 9th Edition at page 212- "Account payee only
48. That passage in the 9th Edition is seen to be of not so much assistance to the plaintiff when considered in the light of what Paget had to say in the 8th Edition at pages 259 and 260 - "Account payee only
49. That passage has to be read in conjunction with what Paget has to say at page 256 of the 8th Edition - "Account Payee
50. It is clear that the weight of authority is overwhelmingly in favour of the view that the crossing "Account Payee Only" does not affect negotiability, and that it is no more than a warning to the collecting banker to ensure that he collects for the correct payee. 51. Despite the absence of authority from the higher courts, I consider that the prospects of the defendant ever succeeding on its contention that "Account Payee Only" restricts transferability are so dim as to male the point, to all practical intents and purposes, unarguable. 52. I therefore hold that the Master was wrong to have granted the defendant leave to defend. 53. The appeal is allowed by setting aside the Master's decision, and ordering that judgment be entered for the plaintiff in the sum of $225,000. 54. I will hear the parties on interest and costs.
Representation: Mr. B. Chain (J.S.M.) for plaintiff Mr. A. Ismail (W. S. Lo & Co.) for defendant (1) (1967) H.K.L.R. 1 (2) (1977) H. C. A. 3469 (3) (1977)(1) S.A. 484 (A .D.) (4) (1891) 1 Q.B. 435 (5) (1922) A. C. 1 (6) (1927) 2 K.B. 297 2 Corn Cas 369 C.A. at 383 | |||||||||||||||||||||||||||||||||||||||||||||