Tai Hing Cotton Mill Ltd v. Liu Chong Hing Bank Ltd and Others

HCA001488B/1978

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

ACTION No. 1488 OF 1978

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Coram: Silke, J. in Court

Date of Judgment: 16th April 1980

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JUDGMENT

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1. These are three summonses brought by the plaintiff - a substantial business concern - against the 1st, 2nd and 3rd defendants who are banks.

2. There are also summonses to amend by the 2nd defendant and for discovery by the 1st defendant but of these the first has been adjourned pending the ruling on that which I may call the main summons and the second depends to a large extent upon that ruling. Consideration of the summons to amend is therefore deferred.

3. The plaintiff seeks, as against the 1st defendant Bank, by its amended summons, an order that paragraphs 16 and 16A of the 1st defendant's defence be struck out under the Rules of the Supreme Court O.18 R.19 on the ground that they disclose no reasonable defence.

4. That paragraph 16 reads: -

"Further or alternatively if which is denied the plaintiff has suffered any loss or damage: the same was caused or contributed to by its negligence and/or breaches by the plaintiff of the said contract.

Particulars

The 1st defendant is unable to give further particulars until after discovery and/or interrogatories." And paragraph (16) (A) of that defence reads: -

"Further or alternatively if which is denied the plaintiff had suffered any loss and damage the same was caused or contributed to by the failure to observe the said Rules and Regulations (whether the new or old) and/or failure to observe the duties referred to in paragraphs 6(1), (2) and (3) above on the part of the plaintiff as particularised in paragraph 16 above and under the said contract the plaintiff is liable to indemnify the 1st defendant against its liability to the plaintiff (which is denied) or contribute to it to such extent as to Court thinks fit."

5. The summons as against the 2nd defendant seeks an order that paragraphs 12, 13 and 15 of the 2nd defendant's defence be struck out under O.18 R.19 on the ground that they disclose no reasonable defence.

6. The paragraph 12 reads: -

"Further and/or alternatively the 2nd defendant says that the plaintiff was by reason of the aforesaid matters and/or the matters particularised herein below negligent in failing to detect the said forgery and/or taking steps to prevent the same.

Particulars

7. The paragraphs 13 reads: -

"Further and/or alternatively the 2nd defendant says that the plaintiff is estopped by its aforesaid negligence from seeking a reversal of the relevant debits in the said current account."

8. The paragraph 15 reads: -

"Further and/or alternatively the 2nd defendant says that by reason of the banker customer relationship between the 2nd defendant and the plaintiff there was at all material times a duty in contract or alternatively in tort on the part of the plaintiff to take such care as would reasonably be expected in the circumstances to supervise or check the operation of the said account and/or the books of the plaintiff to prevent or detect any forgery or other unauthorised drawing from the said account. By reason of the matters pleaded in paragraph 11 and/or 10 the plaintiff was in breach of the said duty and has thereby caused or contributed to the 2nd defendants loss and damage. The 2nd defendant is entitled to set off the said loss and damage pleaded in paragraph 14 above against the plaintiff's claim herein insofar as they affect the 2nd defendant or alternatively to such an extent as the Court may assess."

9. The summons as against the 3rd defendant seeks an order that paragraphs 19 and 20 of the 3rd defendant's defence be struck out under O.18 R.19 of the Rules of the Supreme Court on the ground that they disclose no reasonable defence.

10. The paragraph 19 reads: -

11. The paragraph 20 reads:-

"Further or alternatively if which is not admitted the said cheques were forgeries and/or if which is denied the 3rd defendant was or is prima facie under any liability to the plaintiff under the said contract or as alleged in the amended Statement of Claim the 3rd Defendant says that any loss or damage on the part of the plaintiff (which is not admitted) was caused or contributed to by the negligence of the Plaintiff.

Particulars of negligence

12. I have seen fit to set out in extenso the pleadings which it is sought to strike out to show the general trend of the defences of all three defendants and to provide some, at least, of the background to this action as it emerges from those pleadings.

13. For the purposes of this ruling I accept that these were forged cheques - though I note Mr. Litton's bold assertion - he appears, Mr. Bokhary with him, for the 3rd Defendant - that forgery is not admitted on the ground that one cannot forge the signature of a limited company that being a composite signature.

14. Very briefly the history of the matter is the employment by the Plaintiff of a Mr. Leung Wing Ling - the 4th defendant in the action - in its accounts department.

15. There he forged cheques from at least the 30/1/75 to 1978 without detection by the banks involved or, apparently, by the plaintiff.

16. The basic issues are: First is there a contractual duty, in respect of forgeries, as between the plaintiff customer and the defendant Banks so that negligence as a breach of that duty is a good defence to the customers claim against the Banks.

17. Second: can there be such a thing as contractual contributory negligence.

18. I accept Mr. Morritt's submission - he, Mr. Oswald Cheung Q.C. and Mr. Andrew Li with him, appeared for the 1st Defendant - that a striking out under O.18 R.19 is only done in plain and obvious cases, that it is a summary procedure, that a reasonable cause of action means a cause of action with some chance of success, when simply the allegations on the pleadings are considered, and that the answer to a claim will only be struck out if it is clear beyond doubt that it is obviously unsustainable and that the defence is not an arguable one.

19. He makes the point that if I were to think the issues here to be capable of being argued in such an august body as the Privy Council then they should not be struck out.

20. I equally accept Mr. Ching's point - he, Mr. Swaine Q.C. and Mr. Tang with him, appeared for the plaintiff - that the court should not look over its shoulder at a Court of Appeal or the Privy Council - I do not think Mr. Morritt to have been making any such suggestion. As Mr. Ching has said, in respect of O.14 proceedings, however difficult the point may be it is susceptible of a ruling upon in chambers if it is clear and unambiguous.

21. There is generally a relationship of debtor and creditor as between a bank and its customer but a contract: -

"between banker and customer contains special terms and cannot in its entity be expressed in the phrasing of an ordinary indebitatus count." (per Atkin L.J. in Joachimson v. Swiss Bank Corporation⁽¹⁾).

22. And there must be a valid mandate to demand payment. A forged cheque is not a demand says Mr. Ching though I note another phrase Atkin L.J. in Joachimson where he said at p. 127: -

"The customer on his part undertakes to exercise reasonable care in executing his written orders so as not to mislead the bank or to facilitate forgery."

23. This stems from Young v. Grote⁽²⁾ - a case which runs through the argument of both himself and Mr. Morritt and which is constantly referred to in the authorisation cited.

24. This was an 1827 case of a bank customer who delivered to his wife printed cheques signed by himself with blanks left for the sums. The wife was to fill up the blanks.

25. She filled one out in the sum of £50.2 shillings, gave it to her husbands clerk to take to the bank, he altered it to three hundred and fifty pounds 2 shillings and the bank paid.

26. The matter went to arbitration and the arbitrator referred the matter to the Court of Common Pleas where Best C.J. said, at p.766: -

"Undoubtedly a banker who pays a forged cheque is in general bound to pay the amount again to his customer because, in the first instance, he pays without authority."

27. And

"But though the rule be perfectly well established, yet if it be the fault of the customer that the banker pays more than he ought he cannot be called upon to pay again."

28. Having set out the precautions he thought an ordinary business person should take, and which he found were not taken there, he went on: -

"It was by the neglect of these ordinary precautions that Grote & Co. were induced to pay."

29. And finally

"We decide here on the ground that the banker has been misled by want of proper caution on the part of his customer."

30. That was a case of a "raised amount" cheque and not a nullity: and is authority for the proposition that a man could not complain of the consequences of his own default against a person who was misled by that default without any default of his own. And the line was continued in London Joint Stock Bank v. McMillan and Arthur⁽³⁾ - again a "raised amount" case - having gone through first instance and appeal in earlier reports, now reaching the House of Lords. McMillan expressly approved Young v. Grote⁽²⁾.

31. Leorard J. (as he then was) had this to say of McMillan in Asien-Pazifik Merchant Finance Limited v. Shanghai Commercial Bank Ltd.⁽⁴⁾ : -

"I consider it important to remember that in that case a cheque, a valid mandate, was prepared by the customer. The valid mandate was altered. It was not ab initio a nullity but a perfectly valid mandate to pay £2. This was fundamental to every reference to duty in that case."

32. The reference to "ab initio a nullity" stems from section 24 of the Bills of Exchange Ordinance CAP 19 which states, inter alia, that a "forged or unauthorised signature is wholly inoperative."

33. Therefore, when Lord Finlay L.C. says, at p. 789, in McMillan⁽³⁾ : -

"A cheque drawn by a customer is in point of law a mandate to the banker to pay the amount according to the term of the cheque. It is beyond dispute that the customer is bound to exercise reasonable care in drawing the cheque to prevent the banker being misled"

his judgment must be considered in the "raised amount" light and not as referring to a nullity.

34. At page 801 Lord Finlay makes reference to Kepitigalla Rubber Estates v. National Bank of India⁽⁵⁾ a decision upon which Mr. Ching places great reliance.

35. In that decision the headnote reads: -

"It is the duty of a customer of a bank in issuing mandates to the bank to take reasonable care so as not to mislead the bank; but, beyond the care which must be taken in or immediately connected with the transaction itself there is no duty on the part of the customer to take precautions in the general course of carrying on his business to prevent forgeries on the part of his servants."

36. There the Secretary of a company forged the signatures of two of the directors of the company to a number of cheques which purported to have been drawn by the directors on behalf of the company upon the defendants, who were the company's bankers, and the defendants paid the cheques so drawn.

37. The forgeries extended over a period of about two months during which time neither the bank pass book nor the cash book of the company was examined by the directors. In an action by the company against the defendants to recover the amounts so paid it was held that, upon the facts, the company was entitled to recover.

38. Mr. Morritt in a persuasive and attractive argument seeks, basically, to extend Young v. Grote⁽²⁾ to the forged signature or "non mandate" situation. He would have it that the trend of the old cases, including the Kepitigalla and McMillan, is being overtaken by developments in the law and practice of banking so as to bring negligence as a breach of duty within the defences available to a bank where there is effectively no mandate as the result of the customers negligence.

39. Encapsulated his arguments are: -

(1) That a customer owes a duty to a banker to exercise reasonable care in his conduct of banking affairs so that the bank is not presented with a forged cheque purporting to be drawn on his account;

(2) That the duty to take reasonable case arises from the contractual relationship as between customer and banker and also in tort;

(3) That the reasonableness required to perform the duty is that which a person in the position of a customer would take;

(4) That the plaintiffs negligence breaches the chain of causation upon which the plaintiffs claim rests.

(5) That if, in consequence of the breach of duty, the banker pays upon a forged cheque the customer is not entitled to recover the amount from the banker; because the customer is estopped by his own negligence from alleging that the cheque is a forgery: because the Bank has a claim, be it in contract or in tort, for negligence against his customer in the amount of the forged cheque available to him by way of set off as against the claim of the customer against the bank.

(6) Irrespective of any duty that might be owed by the customer to the Bank, contributory negligence by the customer could provide a complete or, at the very least, an arguable defence to the bank.

40. He accepts that the central question is whether or not there is a "duty situation".

41. He does, with respect to him, attempt on the earlier cases to argue from the opposite. He submits that it can be inferred from such cases as Lewes Sanitary Steam Laundry Co. v. Barclay Bevan & Co.⁽⁶⁾, that though they did not refer to such a duty as is alleged here they did not state that no such duty existed. Lewes was a banking case and that particular case, and other analogous cases such as Bank of Ireland v. Trustees of Evans' Charities⁽⁷⁾ and Mayor Constables & Company of Merchants of the Staple of England v. Governor of the Bank of England⁽⁸⁾, lay down that negligence must be in or immediately connected with the transaction itself. And that is their ratio.

42. He goes on that Kepitigalla should be construed with Selangor United Rubber Estates v. Cradock⁽⁹⁾ and with Karak Rubber Co. Ltd. v. Burden⁽¹⁰⁾, which applied Selangor.

43. But Karak was a case where, in the words of Brightman J., at p. 629, the type of problem he had to deal with was: -

"........, whether, despite a primary obligation to pay a cheque on demand, a bank owes to its customer a duty of care which may, in an extreme case, oblige it to question the authority of an authorised signatory."

44. And went on: -

"He (Ungood Thomas J. in Selangor) was not dealing any more than I am dealing with a case where a cheque is presented over the counter or is subject to the exigencies of the town or general clearing timetables nor with anything approaching a normal cheque transaction." (my emphasis)

45. Karak was a case where the authorised signatures were misusing their authority for the purpose of defrauding their principal or otherwise defeating his true intentions.

46. Mr. Morritt is submitting throughout that there is an arguable case so that he should not be struck out in a summary manner - he contends further that the application to strike out is, in reality, an attempt by the plaintiff to avoid discovery.

47. He has cited extensively from Selangor⁽⁹⁾ to attempt to show that from 1968 on the duty of a bank was no longer simply to pay on demand and that there was a wider duty of care as between customer and banker which encompasses a situation such as exists here - where there is no valid mandate. He would import into the contractual relationship an obligation to use reasonable skill and care in what might be termed a normal banking transaction. He would say that it is at least arguable that the customer has a similar obligation.

48. But again with respect to him he has been unable to go further than submitting there must be that collateral duty and I do not think the authorities cited to me to carry him that far. If I have not specifically referred to each and every one of those comprehensive authorities it is from no disrespect to his argument.

49. Mr. Mills-Owen, who with Mr. Faulkner appears for the 2nd defendant bank, referred me to Electrical Development Co. of Ontario v. Attorney General for Ontario and Hydro Electric Power Commission of Ontario⁽¹¹⁾, a Privy Council decision, on the summary setting aside of a writ. The issue in that case being whether or not a provision that no action shall be brought against the Commission without the consent of the Attorney General was ultra vires and the issue in the Privy Council was whether the action could be summarily stopped.

50. Lord Finlay, in the judgment of the Privy Council, said, at page 694: -

"In their Lordships opinion it is impossible to treat the appellant's contentions as to the section in question on this point as merely frivolous. They raise points of importance which ought not to be dealt with in this summary fashion and which demand serious consideration in the ordinary course of law."

51. And again at p. 695: -

"The elaborate argument advanced on behalf of the Attorney General for Ontario has failed to satisfy their Lordships that it is so clear that no declaration can be made against the Attorney General that the action should be summarily stopped as against the Attorney General."

52. Mr. Mills-Owen would rely on the phrase "raise points of importance" and "so clear" so as to illustrate the heavy burden on those who seek to strike out in a summary way.

53. In that case pleadings had still to be delivered, which is not the case here, and the Privy Council felt that, after their delivery, evidence be taken "so far as it may be necessary".

54. Lord Finlay concluded, the merits not having been properly raised before the Privy Council and the court having therefore refused to express any concluded view, at p. 695: -

"........... whatever difficulties there may be in the way the way of the ultimate success of the appellants case, it is not, in the judgment of their Lordships, so clearly bad as to make it right that the appellants should by summary order be prevented from having it tried in ordinary course."

The position here it is submitted is analogous.

55. He would further contend that there are express duties under the contract which are pleaded and are admitted and the trial court will have to consider those express duties and their terms and the consequences to the parties of their non observance. There may now be, he says, duties coexisting in both contract and tort.

56. As to duties generally he cites Greenwood v. March⁽¹²⁾ and Brown v. Western and Brown v. Western Bank⁽¹³⁾ but, with respect to him, Greenwood⁽¹²⁾ was a matter of a joint account in the name of husband and wife where the wife forged, the husband discovered but he did not inform the bank until after her death. The Bank were thus deprived of the right of pursuing an action in respect of the wife's tort - and this is the point upon which Greenwood⁽¹²⁾ turned. Brown⁽¹³⁾ was again a failure to inform the bank of known forgeries. Neither in my view apply to a case of the nature of the one here.

57. Mr. Litton on behalf of the 3rd defendant in his argument referred me to the pleadings and made the point that, as they stand, they are not in such watertight compartments that excision of the paragraphs of the defence as sought here would effectively deal with Mr. Ching's point.

58. He also criticised the particulars given in the Statement of Claim, the lengthy period over which the forgeries took place and their number and submitted that a large company must keep books and full accounts. In this last he seems to be suggesting that the plaintiffs must have known - but this of course is not pleaded as it is rather a chicken and the egg situation - discovery, can you get it? Plead from that which is discovered.

59. He further submitted that it must be remembered this is a limited company and its mandate is one which involves machinery and, through it, delegation. The real question he would suggest is what is neglect in or about the giving and operation of the mandate and this inevitably encompasses the drawing of a cheque.

60. He draws a distinction between this instant case and Kepitigalla⁽⁵⁾ as to the period involved and the number of cheques and seeks to argue that Dorset Yacht⁽¹⁴⁾ extends the concept of tortious negligence beyond that which, at one time, was thought to be a closed concept. Basically that the law has, and is, developing beyond Donoghue v. Stevenson⁽¹⁵⁾. He urges that it is the neglect of the plaintiff that enabled the 4th defendant to pursue his course of forgery.

61. On the contributory negligence issue it is significant, as Leonard J. said in Asien-Pazifik that:-

"There is no reference in Padget on Banking to Donoghue v. Stevenson⁽¹⁵⁾ or Home Office v. Dorset Yacht Co.⁽¹⁴⁾."

Hedley Byrne⁽¹⁶⁾ contains no reference to cheques the signatures of which are forged.

62. Mr. Ching has referred me to the Law Amendment and Reform (Consolidation) Ordinance CAP 23 and it is his submission that this Ordinance, following upon the English Act, simply solidified, in its section 21. that which was the law and did not create any new application of the doctrine of contributory negligence.

63. Mr. Morritt would argue that that the decision in Donoghue v. Stevenson⁽¹⁵⁾ - that is the foreseeability test and, in particular here, that the customer must foresee that his lack of care of his account would lead the bank to pay upon forged cheques - will be applied as of its own force unless there is valid reason for its exclusion. He cites in support the Dorset Yacht⁽¹⁴⁾ - or the "Borstal Boys case".

64. In Midland Bank Trust v. Hett, Stubbs & Kemp⁽¹⁷⁾, where the relationship of solicitor and client was in question, it was held that there was a duty of care imposed upon the solicitors because of that very relationship and that the solicitors were "therefore liable in tort, independently of any liability in contract, for their negligence ........" But this is more on the "neighbour" principle and I am not persuaded, without specific authority, that such tortious liability applies as between customer and banker that being a relationship in contract.

65. I am very conscious that the majority of the authorities cited to me on the central issue here are decisions at trial and contain such references as "in the present case", "on the facts as proved", or, as in the Dorset Yacht⁽¹⁴⁾ :-

"If there is no clear cut precedent the Court may have to reach a decision whether, once the facts and circumstances of a situation are ascertained, it can be said it was a duty situation."

66. I think I should make reference to Lumsden & Co. v. London Trustee Savings Bank⁽¹⁸⁾ which was expressly not followed in Wilton and another v. Commonwealth Trading Bank of Australia; Model Investments Pty. Ltd.⁽¹⁹⁾.

67. In Lumsden, which was a case of an employee fraudulently altering cheques drawn by his employer and paying them into his own account with the Savings Bank, the plaintiff sued the bank in conversion and the Bank asserted the plaintiffs contributory negligence. Counsel for the plaintiff conceded that this was a good defence in law and this concession was accepted by the trial judge.

68. In Wilton⁽¹⁹⁾, Samuels J. said (at p. 653) of the reasoning behind counsels concession:-

"My respectful view they were far from compelling. First it was acknowledged that there was no English authority for the proposition that contributory negligence was a defence at common law; secondly it was indeed recognised that there was a dictum of Lord wright to the contrary in Lloyds Bank Ltd. v. E.B. Saving & Co.⁽²⁰⁾ at p. 229 which counsel sought to explain on a ground which seems to me implausible but thirdly reliance was placed upon the majority view of the New Zealand Court of Appeal in Helson v. McKenzies (Cable Street) Ltd.⁽²¹⁾."

69. He went on to state that, on examination, Helsons ⁽²¹⁾ case did not support the proposition and gave his reasons for that conclusion.

70. In Quinn v. Burch Bros. (Builders)⁽²²⁾ Paull J., considering the Law Reform (Contributory negligence) Act of 1945 - which our Ordinance follows - was prepared to accept that section (1) (1) of the act - in terms similar to our section 21 - could apply to a contractual situation. But he also said he did not understand the expression "a negligent breach of contract", because at p. 379: "in contract, it matters not whether the breach is brought about deliberately or negligently or per incuriam." At p. 380 he had this to say "in order to apply the Act one has to find that there was some term which imported a duty not to be negligent and a breach of that term."

71. In my judgment a customer owes a duty to the banker to take reasonable care in giving a mandate. In Bank of England v. Vagliano⁽²³⁾ Vagliano failed to exercise that duty in that his own acts - accepting the bills as genuine bills when they were not and by the giving of a letter of advice to the Bank that the bills were coming due when no such bills existed - misled the bank, and there was, in effect, a valid mandate.

72. Lord Halsbury at p. 115 said: -

"My Lords, it seems to me impossible to dispute that this was, in fact, a misleading of the bankers. I pass by for the moment the question whose default it was, for the purpose of considering the proposition which has found favour with one of your Lordships, and which I will not dispute, that the carelessness of the customer, or neglect of the customer to take precautions, unconnected with the act itself, cannot be put forward by the banker as justifying his own default. In order to make the cases of the Bank of Ireland v. Trustees of Evans' Charities⁽⁷⁾, and the Mayor, Sc., of Merchants of the Staple of England v. Bank of England⁽⁸⁾, authorities in this case, it would be necessary to assume that the plaintiffs in those cases had by some voluntary act of their own given credit and the appearance of genuineness to the particular powers of attorney which were forged in those cases, and if they had, I very much doubt whether the decision would have been what it was; but no such fact appeared; all the parties whose negligence was relied on had done, was to leave their seal carelessly in the custody of the person who abused his trust. These decisions therefore do not seem to me to touch the case."

73. For the pleadings, with one exception to which I shall refer in a moment, to stand the banks must show the negligence of the customer on the mandate itself. The cheque is the mandate. If there be no mandate, and thus no authority to pay, there can be, in my view, no duty upon the customer in that regard a negligent breach of which would give rise to a good defence to the banks.

74. It may be that there can be an estoppel by conduct or by negligence arising from events subsequent to the nonexistent mandate. That is not for me to say. In essence there cannot, in my judgment, be a breach of a nonexistent duty. None of the authorities cited go so far as to say that a company should take reasonable precautions to prevent its servants forging its signature. (Kepitigalla⁽⁵⁾ at page 1023).

75. Here we are faced with a contractual not a tortious nexus. Mr. Ching accepts, as indeed he must, that there is a duty, outside the narrow confines of contract upon a customer to tell a bank of forgeries of which he knew or ought to have known. But, as he says, this has not been pleaded.

76. To the question is there a duty other than the taking of care in the drawing of the cheque I would say that on the authorities as they now stand there is none. On the question of contributory negligence in the case of a contractual duty I would say that the authorities as they now stand are against.

77. There is no clear cut precedent that a duty situation arises in the circumstances here as between customer and banker but the basic facts of the forgery, as they emerge from the pleadings, are clear. In the event I do not think the defendant banks on the central issue to have raised an arguable case when there is no mandate from the customer and therefore no representation by him to the bank.

78. The authorities do not in my judgment extent tortious negligence to cover a contractual situation - despite Dorset Yacht⁽¹⁴⁾.

79. I have not gone into detail as to the particulars of negligence as alleged by the 1st defendant some of which, with respect, are clearly bad, as once the central issue is decided then the whole pleading goes. I would strike out paragraphs 16 and 16A of the defence of the 1st defendant.

80. I would strike out paragraph 12 of the defence of the 2nd defendant and I would also strike out paragraph 15.

81. I said there was one piece of pleading to which I would refer "in a moment" and it is paragraph 13 in the defence of the 2nd defendant.

82. The difficulty I find myself in is this: estoppel by neglect of duty - that is the customer being estopped from setting up the invalidity of the cheques - is an arguable defence. But the neglect I have in mind is that which may - or may not - emerge from the evidence as to the customer's conduct subsequent.

83. Paragraph 13 as it stands refers to "its (the plaintiffs) aforesaid negligence" which relate; to "failing to detect the forgery and/or taking steps to prevent the same". It goes back to a negligent breach of a duty I have found not to exist.

84. I am somewhat loath to strike this out in its entity but feel I must as it turns itself in on that nonexistent duty.

85. As to paragraph 19 of the defence of the 3rd defendant: this appears to be an attempt to bring in estoppel by the back door so to speak for it relies on that which is contained in paragraph 20 of that defence as particulars of the alleged negligence - and paragraph 20 specifically pleads contributory negligence setting out particulars of it.

86. I think both those pleadings to be bad and they should go.

DISCOVERY

87. I now turn to the Discovery summon of the 1st defendant.

88. Having struck out the pleadings the situation is that the plaintiff agrees to items (1) to (5) in the schedule to the summons limited to the 54 cheques - that would mean an order in terms of the "alternative" stated in each item.

89. The plaintiff joins issue on items 6(ii) and (iii) but concedes on item 6(i).

90. The plaintiff also resists an order in the terms of paragraph (1) of the summons and wishes to be heard on paragraph (3): costs.

91. I shall deal with paragraph (1) of the summons first.

92. I accept Mr. Li's point that on the face of it certain documents have not been disclosed. Mr. Swaine would say that the reason for this is that the plaintiff had first to await the determination of the summons to strike out, and, in any event, an order in the terms of that paragraph would mean general discovery all over again. He referred me to the White Book at p. 418 side note 24/7/1 to 0.24 - as did Mr. Li who emphasised that which appears on p. 419 commencing "The second (and more important) qualification is .........."

93. Mr. Li also submitted that there is a large number of cheques involved and that the trial on the issue of forgery is not merely a matter of cold evidence. Some may be in doubt. He gives as an example that if there is genuine documentation to back up a cheque it may well be a cogent submission that the managing director signed that cheque: or that some of the payments made even on forged cheques may have gone to discharge the indebtedness of the company.

94. To all this the surrounding documents are highly relevant. And on the necessity of discovery he cites George Ballantine & Sons Ltd. v. F.E.R. Dixon & Son Ltd.⁽²⁴⁾ - where in it was held that discovery would not be ordered where the application for discovery was directed solely to credit but distinguished the basis there from that existing here. It is his case that the documents sought here are vital for the purpose of disposing fairly of the action.

95. I confess that I have gone on from paragraph (1) itself to cover some of the arguments that relate to items 6(ii) and (iii) in the schedule.

96. Mr. Swaine says as to items 6(ii) and (iii) that item 6(ii) goes exclusively to paragraph 16 and, if it is gone, then so should this item; that item 6(iii) goes exclusively to negligence and contributory negligence and in any event that which each item seeks in the alternative is far too wide.

97. Generally I view discovery as a necessity here. I think the 1st defendant, so that the position is put beyond doubt, to be entitled in the circumstances which exist to an order in terms of the resisted paragraph (1) of the summons.

98. I view some discovery under items 6(ii) and 6(iii) to be desirable and that the 1st defendant be entitled to it. There would be an order in respect of the alternative portions of those items but with the dates restricted to 1st November 1977 to 1st April 1978 period. Despite Mr. Li's plea for a wider period this is the period directly germane to his defence and I do not think, in the interests of the saving of time at the trial and of saving costs he should, in his present position, go outside that period. That sought for that period is of probative value.

99. In the event there will be an order in terms of paragraph (1) and (2) of the summons: an order in terms of items (1), (2), (3), (4), and (5) of the schedule limited to the 54 cheques in each case: an order in terms of item 6(i) and in terms of items 6(ii) and 6(iii) limited to the alternative sought and to the period 1st November 1977 to the 1st April 1978 in each case.

100. That is the proposed order. I say "proposed" in that if I have left anything undone I should be grateful if counsel were to draw it to my attention.

101. I shall hear the parties as to costs. And that leaves the adjourned summon of the 2nd defendant to amend generally and, in the particular, paragraphs 11A, 12A and 15A.

102. Having heard counsel:

103. Costs of the striking out summons to the plaintiff as against the 1st, 2nd and 3rd defendants certificate for two counsel.

104. Mr. Bokhary's point as to costs against the 3rd defendant noted: matter left to the taxing master.

105. Costs on the Discovery Summons adjourned for argument.

106. The proposed order on the Discovery Summons adjourned for argument.

107. The summons of the 2nd defendant to amend adjourned generally with liberty to restore on two days notice.

Representation:

Mr. Charles Ching Q.C. & Mr. Swaine Q.C. & Mr. R. Tang (Therese Chow & Co.) for plaintiff.

Mr. Morritt Q.C. & Mr. Oswald Cheung Q.C. & Mr. A. Li (Deacons) for 1st defendant

Mr. Mills-Owens Q.C. & Mr. Faulkner (D.W. Ling & Co.) for 2nd defendant.

Mr. Litton Q.C. & Mr. Bokhary (F. Zimmern & Co.) for 3rd defendant.

(1) [1921] 3 K.B. 110 at p. 128

(2) 4 Bingham (253) ⁷⁶⁴

(3) [1918] A.C. 777

(4) H.C. 4403/1978

(5) [1909] 2 K.B. 1010

(6) [1901] 11 Commercial Cases 255

(7) 5 H.L.C. 389

(8) 21 Q.B.D. 160

(9) (No. 3) [1968] 1 W.L.R. 1555

(10) [1972] 1 W.L.R. 602

(11) [1919] A.C. 687

(12) [1933] A.C. 51

(13) [1964] Lloyds Report 187

(14) [1970] A.C. 1004

(15) [1932] A.C. 562

(16) [1964] A.C. 465

(17) [1978] 3 ALL E.R. 571

(18) [1971] 1 LLY. R. 114

(19) [1973] 2 N.S.W.L.R. 644

(20) [1933] A.C. 201 at p. 229

(21) [1950] NZ.L.R. 878

(22) [1966] 2 Q.B. 370

(23) [1891] A.C. 107 (H.L.)