Asien-pazifik Merchant Finance Ltd v. Shanghai Commercial Bank Ltd
Read the full judgment text of HCA 4403/1978 on BabelCite. This High Court CFI judgment.
1. This was an appeal from the dismissal by the Registrar of an application for final judgment under Order 14. As such it is by way of rehearing so that I did not have the advantage of seeing the reasons for the Registrar's decision.
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HCA004403/1978
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----------------- Coram: Leonard, J. Date of Judgment: ----------------- JUDGMENT ----------------- 1. This was an appeal from the dismissal by the Registrar of an application for final judgment under Order 14. As such it is by way of rehearing so that I did not have the advantage of seeing the reasons for the Registrar's decision. 2. In the event I allowed the appeal giving reasons orally and promising to amplify these in writing. This I now do. 3. The plaintiff is a deposit taking company and was at all material times a customer of the defendant which carries on the business of bankers at 12, Queen's Road, Central and elsewhere in the Colony. It was agreed between the plaintiff and the defendant that the defendant should make payment on cheques drawn by the plaintiff jointly signed by any one of a number of "A" signatories with any one of a number of 4 "B" signatories. It was the plaintiff's claim that the defendant had made payment on 13 particularized cheques each of which bore the valid signature of a Mr. T.C. Lai (one of the "B" signatories) and the signature of one of the "A" signatories which had in every case been forged by Mr. T.C. Lai and had debited the plaintiff's account with the amounts of the cheques so forged. The plaintiff claimed a declaration that the defendant was not entitled so to debit the plaintiff's account and payment of the total amounts of them as due and owing by the defendant to the plaintiff with interest. 4. I had before me affidavits from each of the "A" signatories to the effect that he had not signed any of the cheques in question and an affidavit verifying the statement of claim as to the agreement between the parties and also evidence that Mr. T.C. Lai had pleaded guilty in the District Court to forgery of 4 of the cheques in question and had requested that his admitted forgery of the 9 remaining cheques should be taken into account by the District Court when determining his sentence. 5. Two affidavits were filed on behalf of the defendant. The first of these averred that the plaintiff was a deposit taking company registered under The Deposit Taking Companies Ordinance and gave the history of the plaintiff's account with the defendant. This account had been opened in 1972 and enjoyed a substantial turnover. Between June 1977 and November 1978 there had been 962 credits of sums over $100,000 and 1395 debits of such sums the debits being transacted mainly by cheques drawn on the account. This affidavit claimed that the relationship between the parties was regulated by the defendant's regulations applicable to current accounts but it was nowhere stated that the plaintiff had ever agreed in writhing or otherwise to be bound by these regulations or indeed that they had been drawn to its attention. The regulations envisage the sending out by the defendant of monthly or more frequent accounts to its customers and provide that the defendant "shall consider the balances correct unless advised by the client to the contrary within 10 days". Statements were sent to the plaintiff at least twice weekly and no objection had been raised by the plaintiff to them until December 1978 (the latest "cheque" being dated in November 1978 and the earliest in January of that year). Mr. T.C. Lai was a very active signatory to the account, his signature frequently appearing on very large genuine cheques including one of over 32 million dollars. Frequently, such large genuine cheques bore the same date as the "disputed" cheques. This affidavit also suggested that the affidavits of 2 of the "A" signatories should be viewed with extreme care and that the drawing of the "disputed" cheques could have been within their knowledge. The only grounds I can find for this allegation and the innuendo implicit in it are that the 2 "A" signatories in question had (one or other of them) been signatories to 676 cheques involving sums of over $100,000 during the period January 1978 - November 1978 and that the disputed cheques had come from the same cheque books. This affidavit also stated that the defendant had sent the "disputed" cheques with one of its officers to an "experienced forensic expert" who at the time the affidavit was sworn (i.e. 22nd December 1978) had not "been able to indicate that any of the signatures on the cheques he had examined (including the disputed cheques) were forged". This strikes me as an evasive averment as the "A" signatories had sworn that they were forged. To say that the expert had not been able to say they were forged is a far cry from saying that the expert had, for example, formed the preliminary view that they were not forged. Furthermore further affidavits might have been filed between the time the matter came before the Registrar and the time it came before me. None from the "experienced forensic expert" has made its appearance. I can only regard the suggestion that there is a possible defence that the 13 cheques were not forged particularly when coupled with the innuendo I have mentioned as insincere. 6. This affidavit goes on to aver that Mr. T.C. Lai had been placed in a position of trust by the plaintiff as a dealer in foreign exchange with authority to deal with the plaintiff assets to an indefinite amount transacting business amounting to as much HK$50 million million a day and suggesting that he was in sole charge of the operation of the account. The affidavit suggests lack of control or supervision by the plaintiff's managers and claims that the plaintiff "owed a duty in this regard to the defendant" and was in breach of that duty. 7. A further affidavit by this deponent emphasized that daily entries were recorded in separate ledgers one for each customer and by these daily entries the books of the defendant are balanced daily. Ledger entries are made by computer and at the same time identical entries made in bank statements of the customer concerned. On these the defendant placed great reliance as they afforded internal control and ensured them against errors and defalcation by their own staff. The affidavit continued :
This foreshadowed the argument advanced by Mr. Litton Q.C. on behalf of the defendant that the plaintiff owed to the defendant a special duty of care. 8. It was common ground that on discovery of the forgeries the plaintiff had instituted proceedings in the nature of tracing operations as a result of which it had obtained judgments for various sums which had come to Mr. T.C. Lai's hands and been dealt with by him as a result of the forgeries and that any sums so recovered must diminish any liability owed by the defendant to the plaintiff. 9. Finally there was an affidavit from a clerk in the firm of the plaintiff's solicitors as to the criminal proceedings against T.C. Lai in respect of the 13 cheques in question and the pleas of guilty and admissions made by him thereat. 10. I must say straight away that I am satisfied that the 13 cheques mentioned in paragraph 3 of the statement of claim were forged. I consider that it follows inevitably that they were not an authority to the defendant to debit the plaintiff's account. Once this is established it is for the defendant to establish that the debits ought to remain. I have examined the defendant's affidavits to see if they show a triable issue on this. A combination of factors is alleged :
In addition to this there has been suggestion that we do not know what happened to the proceeds of the cheques which went to a numbered account in the Chase Manhattan Bank. There is no suggestion however in the affidavit or elsewhere that these did find their way into the possession of the plaintiff and I have no reason for supposing that they did. From these various allegations Mr. Litton seeks to argue that there is a prima facie case for saying that the plaintiff must have been in breach of duty to the defendant. He goes first to MacMillan's Case at first instance(1), on appeal(2) and in the House of Lords(3) to establish the existence of such a duty. 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. Thus in the Court of Appeal at page 458 Scrutton L.J. noted that
Scrutton L.J. goes on to acknowledge the possibility of an estoppel by negleot of duty and to note that the neglect must be in the transaction itself and must be the proximate cause of leading the banker to his belief. Again in the House of Lords Finlay L.C. clearly indicated at page 789 that what was in controversy was whether the forged alterations to an originally valid mandate were a natural and direct consequence of negligence in drawing it. Again after approving Young v. Grote(4) he says at page 793 that the duty owed "is to draw the cheques with reasonable care to prevent forgery and if, owing to neglect of this duty forgery takes place, the customer is liable to the bank for the loss." Mr. Litton argues for a much wider duty - a duty generally to take care in the operation of the account. It seems clear that no such wide duty is recognised in what I call the "Banking Cases". The Kepitigalla Case(5) suggests the contrary so, too, does the National Bank of New Zealand Ltd. v. Walpole & Patterson(6). There the negligence was said to consist of a complete disinterest in the manner in which the current account was operated. That argument was met by approval of the MacMillan Case (1) and the Kepitigalla Case and Richmond J. observed:
Counsel have been most helpful in their reseaches in answer to my enquiry as to whether there was any case in which a bank had relied successfully on a cheque the authorised signature to which was forged as distinct from a cheque which was, as drawn, a valid mandate or authority to debit the customer's account. They have drawn my attention to four: Brown(7); Brewer(8); Vagliano(9) and Greenwood(10). In Vagliano's Case the authorities to pay relied on as justifying debits were written documents in the form of bills of exchange. Forgery of the drawer's signature prevented them from being bills of exchange but Vagliano had given a genuineness to them as against himself by accepting. The signature of the acceptor Vagliano was genuine although obtained by fraud, and the forger was paid by the bank in pursuance of a separate letter of advice signed by Vagliano. There was in other words a valid mandate from him. In Greenwood's Case a joint account in the name of husband and wife requiring the signatures of both was operated on by the wife who forged the signature of her husband. After her husband discovered the forgeries he concealed them from the bank until after her death. By so doing he prevented the bank from bringing an action against him and his wife for her tort. He was estopped from asserting that the signatures were forgeries. That bears no resemblance to the facts before me. Brewer's Case(8) was the subject of an appeal which was settled. Furthermore although not expressly dissented from in Welch v. Bank of England(11) it was not there followed. Harman J. observed:
It is also to be noted that Li J. in M.A.F. Corporation (H.K.) Ltd. v. Mercantile Bank Ltd.(12) observed at page 285 that
The account here is not a joint account; it is the plaintiff's sole account and cheques drawn on it to be valid mandates must bear 2 signatures. If either is forged they are not mandates but nullities. Brown's Case(7) is another where failure to inform the bank of forgeries of which the customer know constituted an estoppel and again has no more application than has Greenwood's Case(10). 11. I turn then to the question whether the facts set out in the defendant's affidavits which I have already outlined can be such as to give rise as Mr. Litton suggests, to a wider duty owed by the plaintiff to the defendant which would entitle the defendant to insist that the debits should remain. I am satisfied that there is no wide "duty situation" created by the relation of banker and customer. Admittedly a customer has a duty to his banker the precise extent of which must depend on the facts but I am satisfied that that is not a duty which arises from what I will call the "neighbour" cases, that is to say, those cases which establish the doctrine of tortious liability arising from special relationships. While I accept from the Midland Bank v. Hett, Stubbs & Kemp(13) that the tortious liability arising from breach of duty to one's neighbour overlies and may extend a contractual liability to him and from MacMillan's Case(1) that a duty of care exists between banker and customer which may depend upon an agreed or established course of dealing between the parties, I am unconvinced that such tortious liability is imposed on the customer of a bank by virtue of their relationship. MacMillan's Case "went solely on one of the twofold aspects of banking the debtor and creditor element and the mandant and mandatory involved in the issue of cheques. The obligation to take care in drawing the cheques re-established in that case was solely the direct outcome of the latter relation by no means confined to banker and customer and having no normal connection with debtor and creditor." (See Paget on Banking 8th Edition p. 71) There is no reference to be found in Paget to such cases as Donoghue v. Stevenson(14) and Home Office v. Dorset Yacht Co.(15). References in that authoritative work to Hedlev Bvrne & Co. Ltd. v. Heller & Partners Ltd. (16) are confined to discussions as to the duty owed by banks to those to whom they make representations, to the liability of banks as bailees and as to the duty owed by the drawer of the cheque to the bank. There is no reference to Hedley Byrne in connection with cheques the signatures of which are forged. It is, of course, obvious that a customer whose signature to a cheque is forged makes no representation to his bank, since he has not addressed himself to the bank. The cases involving duty to use care in statement can have no application. I appreciate that a "duty situation" may arise in many different ways "that precedents do not fix the limits of what may be called duty situations: they illustrate them. If there are no clear-cut precedents the court may have to reach a decision whether once the facts and circumstances of a situation are ascertained, it can be said that it was a 'duty situation'" (per Lord Morris of Borth-y-Gest in Dorset Yacht Co. v. Home Office. Here however there are clear-cut precedents. MacMillan's Case is one such as was recognised by Richmond J. in National Bank v. Walpole & Patterson(6). It seems to me to be right that any argument based on the neighbour principle should fail in such a case as this both as a matter of logic (a nullity should not affect a customer's account) and as a matter of policy because the relationship is fundamentally one of contract and the bank can protect itself by the terms of its contract with its customer. Furthermore without a very great degree of certainty that relationship must cease to be effective. I feel I should also mention that I do not consider that any argument based on the fact that the plaintiff has statutory duties under the Deposit Taking Companies Ordinance or on an analogy with Anns v. Merton(17) can succeed. The statutory duty in that case was entirely different from that involved here. 12. I may say that if I were to hold that there was a duty situation I should hold that no breach would have been shown. Inadvertent employment of a forger has been held not to be negligent as has failure to read a bank statement. Nevertheless I should have granted leave to defend on the basis that, granted the existence of such a duty situation, the investigation afforded by a trial was desirable. In the event, although I have found the argument advanced by Mr. Litton both interesting and attractive and initially very persuasive, I am satisfied that the law is clear and that the plaintiff is entitled to the declaration sought and to an order for payment of the amount due on the account as amended pursuant to the declaration less the amount recovered by the plaintiff. Such amounts to be ascertained by the Registrar in default of agreement. The appeal is therefore allowed with costs here and below. I allow interest at the rate of 8% per annum from the date of the issue of the writ.
Representation: Mr. Jackson-lipkin, Q.C. & Mr. Faulkner (J.S.& M.) for Plaintiff/Appellant Mr. Henry Litton, Q.C. & Mr. R. Wong (Gallant Y.T. Ho & Co.) for Defendant/Respondent (1) (1917) 1 K.B. 365. (2) (1917) 2 K.B. 439. (3) (1918) A.C. 777. (4) 4 Bing. 253. (5) (1909) 2 K.B. 1010 (6) (1975) 2 N.L.R. 1. (7) (1964) Lloyd's law R. 187. (8) (1952) 1 All E.R. 650; and the Times of the 5th of February 1953. (9) (1891) A.C. 107. (10) (1933) A.C. 51. (11) (1955) 1 Ch. 508. (12) (1975) H.K.L.R. 279. (13) (1978) 3 All E.R. 571. (14) (1932) A.C. 562. (15) (1970) A.C. 1004. (16) (1964) A.C. 465. (17) (1977) 2 W.L.R. 1024. |