Blooming Textiles Ltd v. Sun Sang Garment Factory Ltd and Others

HCA001897/1974

IN THE SUPREME COURT OF HONG KONG

(ORIGINAL JURISDICTION)

ACTION NO. 1897 OF 1974

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Coram: Cons J.

Date of Judgment: 5 February 1975

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JUDGMENT

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1. In February and March last year the plaintiff company supplied piece goods to the Sun Sang Garment Factory Limited. Payment was made by three post-dated cheques. At some stage before maturity two of those cheques were exchanged for a third leaving two in the hands of the plaintiff company to be presented in due course. When that was eventually done the cheques were dishonoured.

2. Both cheques are drawn in favour of the plaintiff company upon the Shamshuipo branch of the Overseas Trust Bank, Ltd. They bear similar account numbers and consecutive cheque numbers. Across the head of the cheque in large letters there are the words "Sun Sang Garment Factory Ltd." and these are repeated in smaller letters above the space reserved for the signature. In the space where the amount of the cheque is normally set out in words is machine impressed the amount in figures, preceded by a similar impression of words which may well also be "Sun Sang Garment Factory Ltd." but which is so poorly executed as to be almost illegible. The cheques are signed on their faces simply in the names of Y.W. Cheung and Chow Hin. No additional words appear. Each is also endorsed on the reverse with the single signature of Mr. Chow Hin. This action was brought against the limited company and both signatories but I am only concerned with Mr. Cheung. Judgment in default of appearance has already been entered against the other two.

3. It is I think fair to say at the out-set that if one of those cheques were shown to an ordinary man in the street, not acquainted with the law regarding to bills of exchange, he would probably assume that it was a cheque of the Sun Sang Garment Factory Ltd., to which the holder should look for payment. However, if that man in the street were acquainted with the appropriate law and the cases decided thereon he would be in a dilemma. If he were in England he would know that there are two distinct lines of authority which often, as in the present instance, come into conflict. The first stems from cases such as Leadbitter v. Farrow⁽¹⁾ and Dutton v. Marsh⁽²⁾. These are cases which were decided prior to the Bills of Exchange Act, but that Act only codified the existing law. The view they take is that regardless of who or what else may be liable the person who physically subscribes his name to a cheque is always liable unless he can bring himself within what are now the provisions of section 26(1) of the Bills of Exchange Act, i.e. that the cheque includes words which clearly indicate that he signs as agent or in a representative capacity. The second line of authority is more recent and adopts what is from the signatory's point of view a more lenient approach. It was introduced by the case of Chapman v. Smethurst⁽³⁾ and looks not just to the signature alone but to the bill as a whole to decide who is the drawer. It tends generally in cases such as the present to exclude the possibility that both the company and the signatory are jointly liable.

4. Were that more learned man in the street in Canada he would be faced with a similar position : See Alliston Creamery v. Grosdanoff⁽⁴⁾ as opposed to Etlin Co. Ltd. v. Asselstyne⁽⁵⁾. Were he in Hong Kong he would know that the English disagreement had been reflected here in the District Court, culminating in the year 1968 with two decisions on the one hand and one on the other: Hong Kong Travel Bureau Ltd. v. George Wittsack⁽⁶⁾, Capital Printing Co. Ltd. v. South America Plastic Manufactory Ltd.⁽⁷⁾, and Chan Hong-wing v. Oriental Gloves Co. Ltd.⁽⁸⁾.

5. In the present instance I have had the benefit of two delightfully clear submissions. Mr. Dicks for the plaintiff relies on the strict approach, that Mr. Cheung has not added qualifying words to his signature and is therefore liable as a drawer under section 55 of the Bills of Exchange Ordinance:

He then points out, in my view quite correctly, that sections 33 and 93 of the Companies Ordinance cannot be of any assistance to the defendant. Section 33 merely imposes liability on the company in certain circumstances. It does not remove any other liability which may exist. Its terms are as follows:

"33. A bill of exchange or promissory note shall be deemed to have been made, accepted, or endorsed on behalf of a company if made, accepted, or endorsed in the name of, or by or on behalf or on account of, the company by any person acting under its authority."

Section 93 requires that the name of the company be mentioned in legible characters in certain documents signed by or on behalf of the company, including in particular bills of exchange and cheques. It further provides that any person so signing or authorising the signing of any such document which does not mention the name of the company shall, in addition to criminal liability, be personally liable for the amount of the document if the company itself does not pay. Again, however, the section does not remove any liability that might otherwise attach.

6. For the defendant Mr. Ronald Wong urges the broader view, that from their format the cheques are obviously company cheques and were so taken by the plaintiffs. One of their directors, a Mr. So, who is also responsible for their accounts department, said so in evidence, with the words "these are two cheques written by the Sun Sang Garment Factory in favour of my company". Mr. Wong also seeks to rely on the further evidence of the same witness that he requested Mr. Chow Hin, the second signatory, to sign again on the reverse as a guarantor. The circumstances are therefore somewhat similar to those in the case of Elliott v. Bax-Ironside⁽⁹⁾. In that case the plaintiff undertook certain work for a limited company that had been formed for the express purpose of holding a particular fashion fair. The cost of the work far exceeded the total capital of the company and the plaintiff very wisely stipulated that the bill of exchange to be given on account of the price should be endorsed by the company's directors on the back. The draft bill was sent to the company and was duly accepted and endorsed. The acceptance and the endorsement were both effected by the signatures of two directors, who described themselves as such but added nothing more, and the name of the company. The only difference was that in the acceptance the company's name was placed after the directors' signatures and in the endorsement it was before. It was held both at first instance and unanimously on appeal that the directors were personally liable on the endorsement. The ground relied upon by all of the learned Lords Justices was that if the endorsement was taken as being that of the company alone it added nothing to the bill. Therefore section 26(2) of the Act applied, which says:-

"26. (2) In determining whether a signature on a bill is that of the principal or that of the agent by whose hand it is written, the construction most favourable to the validity of the instrument shall be adopted."

Two of the Lords Justices went further and took into account letters written at the same time from which the reason for the endorsement was apparent, namely that it was an additional guarantee. The third Lord Justice refused to do so, but he drew the same conclusion from the fact that a second endorsement appeared on the document itself.

7. It is suggested that the corollary to that decision is that the directors were not personally liable on the acceptance and that by applying that corollary to the present facts Mr. Cheung is not personally liable on the present cheques. But the difficulty that confronts this suggestion is that that question was never in issue. The directors were not sued upon the acceptance. The first paragraph of the report makes it quite clear that they were sued upon the endorsement. Sargant L.J., in passing, did indeed express a view upon it and commented that the directors would not have been liable upon the acceptance. He appeared to favour the broad approach, but based his decision not upon the format surrounding the signature but upon the fact that the bill was drafted by the plaintiff and addressed to the company, thereby indicating that it was the company and the company alone that was intended to accept it. On the other hand, although in the judgments of Scrutton and Bankes L.JJ. there appear phrases which might be taken as favouring the same view, it is obvious from the initial exposition of the law given by each that they were in principle strongly in favour of the strict approach. In these circumstances I do not think the case is of any assistance to the defence.

8. When this problem first came before me in the Oriental Gloves case I came to the conclusion that the strict approach was the better one. I am still of the same opinion. That approach makes for greater certainty, which to my mind is a desirable feature in a valuable instrument that may well pass through many hands. It may be said that this view looks too much to the form and too little to the substance, that it decides liability upon the presence or absence of a few magic words. I do not agree. The words for and on behalf of", or something similar, are not a meaningless formality. They are words of substance limiting the liability of the person who signs, as integral a part of a bill of exchange as the words expressing the order to pay.

9. In the present instance it is admitted that Mr. Cheung signed the cheques given. There are no words that specifically exclude his liability and judgment must therefore be entered for the plaintiffs with costs.

Representation:

Anthony Dicks (W.K. Poon & Co.) for plaintiff.

Ronald Wong (Woo, Kwan, Lee & Lo) for 2nd defendant.

(1) [1816] 5 M. & S. 345

(2) [1871] Law Rep. 6 Q.B. 361

(3) [1909] 1 K.B. 927

(4) [1962] 34 Dominion Law Reports 189

(5) [1962] 34 Dominion Law Reports 191

(6) [1968] D.C.L.R. 1

(7) [1968] D.C.L.R. 75

(8) [1968] D.C.L.R. 103

(9) [1925] 2 K.B. 301