Bathgate Ltd and Others v. Faber Merlin Ltd

HCMP000505/1976

IN THE SUPREME COURT OF HONG KONG

MISCELLANEOUS PROCEEDINGS NO. 505 OF 1976

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Coram: Cons, J. in Court

Date of Judgment: 17th February, 1977.

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JUDGMENT

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1. These proceedings come before me as a preliminary issue on a matter of construction. The overall circumstances appear to be unusually complicated but the background of the issue may be conveniently, if not strictly accurately, set out thus:

2. A was a shareholder in B Co. Ltd. B Co. Ltd. was involved in extensive litigation. The litigation was settled in the form of a Tomlin order. By a clause in the Tomlin order A "acknowledges and declares" that neither B Co. Ltd. nor its subsidiaries or associated companies "are indebted" to A. At the time that the Tomlin order was made A was holding dividend warrants issued to him by B Co. Ltd. The dividend had been declared some four months before the Tomlin order and made payable about six weeks before. The warrants had then been sent to all the shareholders. A did not present his warrants until about two years later. B Co. Ltd. refused to honour them.

3. The issue I am asked to decide is "whether the words 'are indebted'" in the Tomlin order "did not and could not on a proper construction thereof include the Defendant's liability to the Plaintiffs (a) on, under or in respect of the said Dividend Warrants; (b) for the payment of the Dividends in respect of which the said Dividend Warrants were issued."

4. Counsel for B Co. Ltd. says that the liability on the warrants themselves is included both on the grounds of commonsense and of law. With respect to him commonsense does not to my mind dictate that conclusion. If I give my cheque to my friend I do not expect him to look upon me as his debtor. My cheque is not an acknowledgment of debt. It is an order to my bank to pay money to my friend when he presents it. I may not even owe him money. The cheque may be for something that he has agreed to do for me in the future. I would only become his debtor if and when my bank refused to pay him. There is no debt until the cheque is dishonoured. This too is the answer to the ground in law. The argument is based on the fact that in the old days, when forms of action ruled in the flesh, immediate parties to a bill of exchange could sue in either debt or assumpsit, whereas remoter parties were restricted to assumpsit alone. But the distinction was not important unless the bill were dishonoured. A form of action was not needed until there was a cause of action. In no way could B Co. Ltd. be a debtor on the bills themselves until it refused to pay them.

5. I cannot dispose of the second question with the same confidence. A cheque is usually taken as conditional payment of the debt to which it relates. If it is subsequently dishonoured the debt revives: Byles on Bills of Exchange 23rd Ed. p.126. It has been said that the debt "may be treated as a debt subsisting all along": Cockburn, C.J. in Cohen v. Hale⁽¹⁾. In that case, argues B Co. Ltd., the debt was alive at the time of the Tomlin order and was included in it.

6. A does not agree. He suggests that the presumption of conditional payment is rebutted by certain authorities to which he refers or by the express words of one of the articles of B Co. Ltd. or by both taken together. He maintains that the dividend warrants operated immediately in absolute satisfaction.

7. The article in question is Article 120:

"120. Unless otherwise directed any dividend may be paid by cheque or warrant sent through the post to the registered address of the Member entitled or, in the case of joint holders, to the registered addresses of that one whose name stands first on the register in respect of the joint holding; and every cheque or warrant so sent shall be made payable to the order of the person to whom it is sent."

This is common form. Virtually identical words are given in Table A to the Companies Ordinance and in Palmer's Company Precedents 17th Ed. It is suggested that to construe the sending of the warrants as absolute payment would be inconsistent with other articles of B Co. Ltd. These are Articles 30, 121, and 123, which provide respectively for the usual lien upon shares, the absence of interest on dividends and the power to invest dividends unclaimed after one year. I do not think this is so. The lien would be exercisable before the warrants were sent; the interest excluded is interest that might otherwise be claimed for the period between the declaration of the dividend and its payment; and "dividends unclaimed" would generally be those where the warrants have not been presented, a matter easily ascertainable from a study of the dividend account. I was also referred to s.170(1)(g) of the Companies Ordinance. This provides that on the winding up of a company monies due from the company to a member, including dividends, shall rank behind monies due to an outside creditor. I find little assistance from this section. It only operates on a dividend "due". And that will depend perhaps upon whether the posting of the warrant is payment or not. I would only say in passing that if the warrant is not itself payment it is possible to imagine circumstances where the shareholder who cashes his warrant quickly may obtain an advantage over one who delays.

8. The general rule is that a debtor must seek out his creditor and pay him in cash. The line of authorities upon which A relies is based on the principle that this rule can be varied by the request of the creditor or by agreement:

"in the case of a company the Legislature is recognizing the fact that such cheques, warrants, or orders are in general usage in these cases and are treated in the commercial world as payment of the dividend or interest,".

9. It is true that none of these cases was concerned with a cheque or warrant that was dishonoured. It is also true that the actual decision in each can be explained in a way that is consistent with the cheque or warrant's being conditional rather than absolute payment: in the first three the recipients accepted only the risks that were inherent in the manner of delibery, that is postal risks, not the risk that the cheques once received would not be met: in the last the question for the House was not the fact of payment but rather the time of payment. This is the view that B Co. Ltd. urges me to take now. It is a view which has some attraction. I can see no obvious distinction in principle between a shareholder and a shopkeeper. But it is a view quite inconsistent with the whole tenor of the words used by the various judges, so much so that I am led to think that there must be some commercial desirability in unconditional payment, a desirability which causes articles to be drafted in terms similar to that used by B Co. Ltd., terms incidentally which were recommended to the reader of Palmer's Company Precedents so long ago as at least 1910. I think the true view in the present case is that the sending of the dividend warrants amounted to payment in full satisfaction of the dividend debt.

10. B Co. Ltd. puts forward two further arguments that the warrants could not in the present case amount to full satisfaction. Firstly, it is said that a bill of exchange can never in itself be satisfaction for a debt which is under seal. It is accepted that the company's articles create a specialty debt. Otherwise In re Drogheda Steam Packet Co.⁽⁶⁾ would illustrate this aspect. (Unfortunately that case does not help in any other way because it does not give the exact words of the relevant articles.) For the general proposition counsel relies upon a passage from the judgment of Parke, B. in Sibree v. Tripp⁽⁷⁾:

"But the gift of a thing of uncertain value may be a satisfaction of any sum due on a simple contract. If the contract be by bond or covenant, it can be determined only by something of an equal or higher nature;".

11. The point then before the learned Baron was whether a debt could be satisfied by an agreement to take bills to a lesser amount - in fact a mere 30%. His further comments on the following page and the quotation from Coke upon Littleton indicate that he was more concerned with consideration for the subsequent agreement than satisfaction of the debt as such. In any event I think it may fairly be said that a bill of exchange for the full amount due is "something of an equal ... nature". I do not think the cases of Henderson v. Arthur⁽⁸⁾ or In re J. Defries & Sons Ltd. Eicholz⁽⁹⁾ assist in this respect. They only show that the acceptance of a bill of exchange does not automatically deprive a landlord of a right to restrain for land otherwise due or a creditor of other security that he holds for the debt.

12. Secondly, it is said that the particular warrants in this case do not in fact amount to cheques or warrants sufficient to satisfy Article 120; that they are conditional either because they are orders to pay from a particular fund or because they bear on their face the following words

"This warrant, if not presented for payment within six months, must be returned to the company for verification".

I am not sure what is covered by "verification" but I do not think it is material. The note is not a "condition". At most it is a suggestion that six months is a reasonable time within which to present it. And the words "1973-1974 interim dividend account" beneath the company's name do not constitute an order to pay from a particular fund. They merely indicate the particular account which is to be debited. Section 3(3)(a) of the Bills of Exchange Ordinance covers this situation. I am satisfied that the warrants were cheques; and upon any construction they were warrants.

13. In view of the conclusions I have reached it is not necessary for me to decide whether the subsequent dishonour revives the indebtedness for all purposes as from the date that the warrants were issued. There is ample comment in the authorities that this is so and only one decision to the contrary. That is Felix Hadley & Co. v. Hadley⁽¹⁰⁾. There a man sold his business together with the goodwill, stock-in-trade, and "all book and other debts due to the vendor in connection with the said business ....". On the date of the sale the man was in possession of various cheques and bills of exchange given to him for trade debts due to the business and which he had not then presented. In due course after the sale he did present them and they were met. It was held that the cheques and bills did not pass upon the sale of the business. Unfortunately the authority of the case is weakened by a comment at the end of the judgment that the position would have been otherwise if the cheques and bills had been subsequently dishonoured. It is curious then that the true construction of that written agreement depended perhaps upon the subsequent conduct of persons who were not party to it. In the present instance it could perhaps in like manner have been affected by the deliberate conduct of one of the parties themselves.

14. Be that as it may, for the reasons I have given my answer to the question put is Yes in both respects. Cost's reserved certify two connsel.

Representation:

Jackson-Lipkin, Q.C., and A. Li (Johnson, Stokes & Master) for plaintiffs.

G. Horton (Baker & McKenzie) for defendant.

(1) 3 Q.B.D. 371 at 373

(2) 3 T.L.R. 182

(3) [1910] 2 K.B. 509

(4) [1936] 4 D.L.R. 186

(5) [1938] A.C. 380

(6) [1903] 1 I.R. 513

(7) 15 M. & W. 23 at 33

(8) [1907] 1 K.B. 10

(9) [1909] 2 Ch. 423

(10) [1898] 2 Ch. 681