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

HCA001488A/1978

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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Coram: Silke, J. in Court

Date of Judgment: 22 November 1979

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RULING

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1. The plaintiffs are a textile firm. The first defendants are a bank. The second and third defendants are also banks, the fourth defendant is a former employee of the plaintiffs and the fifth defendant is his wife.

2. The action basically concerns the alleged forgery of the signature of the managing director of the plaintiffs by the fourth defendant, and this over a period of time. There are other matters arising as between the parties but I do not intend to delineate on them here.

3. The plaintiffs had a current account with the first defendants and it is said they paid out on the forged cheques.

4. The plaintiffs claim a declaration as against the first defendants that the bank is not entitled to debit the plaintiffs' account with the amount of the forged cheques : payment of the sum of $3,082,214.30 as due and owing to the plaintiffs : interest and costs.

5. On the 13th August 1979 the learned Registrar made certain orders on an application by the first defendants to amend their defence.

6. The first of those orders was that : by consent, but without prejudice to an application by the plaintiffs to strike out paragraph 16 of the first defendants' defence, the first defendants do have leave to amend their defence as shown in red in the draft defence annexed to the first defendants' summons. From that order were excepted the paragraphs 5(A)(2), 5(B)(2), 6(4), 11(A) and 12 as set out in that draft.

7. The second order was that the first defendants do have leave to amend the paragraphs 5(A)(2) and 11(A) as in the red draft.

8. The third : that they do have leave to amend paragraph 5(B)(2) as in the red draft but subject to the reframing of its wording.

9. The fourth : that the first defendants be refused leave to amend the paragraph 6(4) as in the red draft and the paragraph 12 in red with a holograph draft attached.

10. The rest of the orders made do not concern me.

11. What I now have for consideration is an appeal by the first defendants against the refusal of the learned Registrar to allow them amend their paragraphs 6(4) and 12 and a cross-appeal by the plaintiffs against the leave granted to the first defendants to amend by their paragraphs 5(A)(2), 5(B)(2) - reworded - and 11(A).

12. I have had placed before me a document - from here on I shall refer to it as "the document" - setting out in different colours of ink the several types of orders made as to amendments.

13. Red in the document are those by consent but without prejudice : green in the document are those allowed over the plaintiffs' objections and against which leave they now appeal : blue in the document are those refused over the first defendants' objections and against which leave they now appeal.

14. Mr. Oswald Cheung Q.C. who, with Mr. Andrew Li, appear for the first defendants opened by consent. I shall deal with the amendments in the order in which they appear in the document.

15. 5(A)(2). In the course of his argument Mr. Cheung sought further leave to amend that which appears in the document by the deletion of the opening words "If which is not admitted" and starting (2) with the words "as at 8th November 1962 ...."

16. He also asked leave to further amend 5(A)(2)(i) by deleting the words in the 9th line in the document "with a lapse of over 14 years" and the words in the 10th line "is unable to give particulars of these matters but" therefore to start that sentence with the words "The 1st defendant" and to add the words "inter alia" after the word "rely" and before the word "on" in the 11th line in the document.

17. For the purpose of this hearing I shall treat 5(A)(2) as if the further amendments Mr. Cheung asks for were incorporated.

18. It is the argument of Mr. Charles Ching, Q.C. - he appears with Mr. John Swaine, Q.C. and Mr. Robert Tang for the plaintiffs - that even with those amendments the pleading is still bad.

19. I tend to agree with him. Red paragraph 4(A), which is not in dispute, alleges a contract as between the parties and avers that the first defendants "Rules and Regulations for current account" in force in 1962 or those in force from time to time were express terms of that contract.

20. Paragraph 5(A)(1) - an original pleading - sets out clause 13 of these Rules at the material time - November 1977. But the wording therein set out is of an revised Rule 13 made in 1964.

21. The disputed paragraph 5(A)(2) purports to say that if Clause 13 was not as set out in paragraph 5(A)(1) then it should read as set out in paragraph 5(A)(2). The (2) pleading sets out a 1962 rule - and it is in 1962 that the plaintiffs opened their account with the first defendants.

22. In 1964 Clause 13 was, as I have said, a revised one. This pleading is directed to the alternative as to which Clause 13 is binding on the plaintiffs. It is necessary to say this because on the face of paragraph 5(A)(2) the intention is by no means clear.

23. The paragraph goes on to set out four "reasons" for the first defendants' contention : to two of those reasons particulars are given. Reason (iv) is an alternative to reason (i), (ii) and (iii) and reason (iii) is an alternative to reason (i) and (ii).

24. The reasons come close, in places, to pleading evidence.

25. Mr. Cheung criticises the pleading as being ambiguous and embarrassing : that it does not, in effect, rely on the 1962 Clause 13 at all and reference to that is surplusage. And, in any event, the whole pleading should be in a rejoinder not a defence.

26. If the 1st defendants wish, as I think it does, to make the case that a contract existed in 1962 governed by the Rules then existing: that these Rules were altered in 1964, and thereby altered the contract between the parties; but that, if they are wrong, and if the plaintiffs succeed on the point that there cannot be a unilateral alteration of a contract, then the plaintiffs continue to be bound by the 1962 Rules - whatever about the "desirability" of the examination of statements of account or the sending and return of "confirmation slip" - if that is the case they wish to make then they are entitled to do so.

27. But the pleading under consideration does not with any clarity make such a case. It is ambiguous.

28. Whether or not it should be in a rejoinder - and I tend to think it should - is a matter for the pleader.

29. At the least it would raise those issues - whether as a fundamental breach or something else is for the 1st defendants' consideration.

30. I would therefore not allow it to stand in its present state.

31. As to paragraph 5(B)(2).

32. Mr. Ching again contends that this should be in a rejoinder. He styles it as an attempt to knock down a fence never erected. I do not think Mr. Cheung to really contest this but paragraphs 5(A)(2) and 5(B)(2) are basically concerned with the same thing - the Rules governing the contract.

33. On 5(A)(2)(ii) Mr. Ching says there is that which appears to be an allegation of lulling to sleep. He makes reference to Morrison v. London County and Westminister Bank Ltd.⁽¹⁾ though this decision is not a totally discredited one.

34. In its concluding line paragraph 5(B)(2) says that the 1st defendants will rely on "matters pleaded in 5(A) above". If this is so then the two paragraphs will have to be married. Their union has not yet occurred.

35. I would not allow it to stand in its present state or place.

36. As to paragraph 6(4):

37. This is tied up with the whole pleading contained in paragraph 6. Mr. Ching has criticised the entire as being bad in law. He tells me he will seek to strike out the whole. Be that as it may, and Mr. Ching's researches go back as far as "The Miller Newspaper" of 8th May 1890 which, and in succeeding editions, carries reports of Chatterson v. The London and County Bank Limited, the matter turns on what is or is not a duty and whether there can be such things as implied terms.

38. Paragraph 6(4) falls in line with the preceding portions of paragraph 6. They stand or fall together - and what, if any, rules were in force as between the parties is a further issue.

39. I would allow this to stand but without prejudice to any application by the plaintiffs to strike out the whole of paragraph 6. This is not to say that I have ignored Mr. Ching's point as to negligence and when it has bearing on the relationship as between a bank and its customer in their dealings. It is preferable to have the whole matter dealt with at one time. Whether or not this is really something for the trial judge is to be considered.

40. As to paragraph 11(A).

41. It is not absolutely clear, despite section 24 of the Bills of Exchange Ordinance, Cap. 19, that a forgery cannot be ratified.

42. Paget on the Law of Banking 6th Edition at p. 488 has this to say -

"But the true doctrine appears to be confined to this, that public policy forbids a man to extort from another, whose signature has been forged, an undertaking to be responsible as if the signature were genuine, as the price of forebearing criminal proceedings against the forger."

43. The passage which comes under the head: "Adoption or Ratification" goes on "Anyway, it is clear that a man may, by his conduct or silence, be estopped from denying his signature or to be held to have adopted the forged instrument, though as Lord Tomlin said in Greenwood v. Martins Bank Ltd.⁽²⁾ - Adoption, as understood in English Law, requires valuable consideration."

44. Whether or not that consideration can be shown, I know not.

45. It may be suggested, in this context, that a man should be treated as in possession of knowledge which, but for his own negligence, he could not have failed to acquire.

46. But it seems to me that that which is being said in paragraph 11(A) is that the plaintiffs adopted the cheques and ratified, not the signature, but the debit - though Mr. Ching says the last is nonsense. The matter is arguable and it does hark back to other portion of the pleadings.

47. It is in my view a matter for the decision of the trial judge who will also have to decide whether or not negligence exists. I would let it stand.

48. As to paragraph 12.

49. The 1st defendants seek, as I understand them, to aver that the 54 cheques were issued with the authority of the plaintiffs as they were to pay suppliers of the plaintiff. They ask how could these cheques have gone through the plaintiffs' accounts unless they were transactions authorised by the management. In any event they are matters peculiarly within the knowledge of the plaintiffs and there should be discovery.

50. Mr. Ching says this paragraph is in basically as a fishing expedition. The 1st defendants simply want to go through the plaintiffs' books to see if they can make a case from them. That they are really suggesting that the plaintiffs told the 4th defendant to go ahead and forge. I think this last perhaps puts the matter a little high.

51. One of the difficulties in which the 1st defendants find themselves is that they do not admit the signatures were forgeries. They are attempting to put an alternative case.

52. Paragraph 12 of the defence read in the original : "Paragraph 17 of the amended Statement of Claim is not admitted". That paragraph 17 in the statement of claim refers to matters in paragraphs 4, 5 and 7 in the claim and alleges the plaintiffs suffered loss - particulars are given.

53. The paragraph 4 relates the forgery of 54 cheques of the 1st defendants - and others. The paragraph 5 alleges the 1st defendants to have paid those cheques and to have debited them to the plaintiffs' account. The paragraph 7 is an alternative allegation that the 4th/5th defendants converted the cheques to their own use.

54. I think the first half of the blue paragraph 12 to go too far. It is the whole case of the plaintiffs that the cheques were forged by the 4th defendant. They may have been negligent in relation to the drawing of those cheques - that is a matter to be decided. In the light of this I do not see how the 1st defendants can put them "to proof" that they did not authorise "the payments represented thereby".

55. They can, in my view, aver that the payments were authorised. Whether they can prove it or not is another matter and must depend upon the evidence produced.

56. I would not allow to stand the blue words "Further as to" down to the word "alternatively" at the start of that which has been called the second half.

57. I can understand the 1st defendants' desire to aver that the payments on the cheques were authorised - it is really a matter of adopting the forgery. How they are going to go about that I do not know for they do not admit the forgery in the first place and if some such words as: "If which is not admitted the cheques were forgeries" were added before the second half of paragraph 12 then there would again be the allegation that the plaintiffs authorised the forgeries.

58. As I have said, the 1st defendants can aver the authorisation of the payments - perhaps "Whether or not the cheques were forged" - but I think they will have to put their house in order. And this will have to await discovery - if that be possible. I do not see how they can plead before they know what it is that bases their pleading. What if they were asked for particulars?

59. For these reasons I think the second half of paragraph 12 should also go.

60. The net result of all this is that the appeal of the plaintiffs succeeds as to paragraph 5(A)(2) and 5(B)(2). The amendments are disallowed. But this is not to be taken as preventing the 1st defendants from pleading the existence of the 1964 Clause 13 or in the alternative the 1962 Clause 13 and its effect on the contract.

61. They fail as to paragraph 11(A).

62. The 1st defendants' appeal partially succeeds as to paragraph 6(4) - this being left in but without prejudice to the plaintiffs' application to strike out the whole of paragraph 6.

63. They fail as to paragraph 12.

64. I shall hear the parties as to costs.

Representation:

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

Mr. Oswald Cheung, Q.C. and Mr. A. Li (Deacons) for 1st defendant.

(1) [1914] 3 K.B. 356 (C.A.)

(2) [1933] A.C. 51