Malaysia America Finance Corporation (HK) Ltd v. Mercantile Bank Ltd

Case No.HCA 844/1974

Court

High Court CFI

Date10 Feb 1975

Judge—

Case Document

100%Judiciary

HCA000844/1974

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO. 844 OF 1974

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BETWEEN
	MALAYSIA AMERICA FINANCE CORPORATION (H.K.) LIMITED	Plaintiff
	and
	MERCANTILE BANK LIMITED	Defendant

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Coram: Li, J.

Date of Judgment: 10 February 1975

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JUDGMENT

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1. This is an action by the Malaysia America Finance Corporation (H.K.) Ltd. (hereinafter referred to as the plaintiff) against the Mercantile Bank Ltd. (hereinafter referred to as the defendant) for HK$400,000 debited against the plaintiff's account with the defendant. By its statement of claim the plaintiff alleges that the defendant acted without authority in paying out a forged cheque exhibit 5. The plaintiff further alleges that the defendant was negligent in failing to detect the forgery, failing to make inquiry before honouring the cheque of a substantial sum and failing to heed the misdescription of the plaintiff in that cheque. It is also the plaintiff's case that the defendant acted in breach of contract by failing to exercise due care and diligence in the management of the plaintiff's said account. The defence and counterclaim originally filed by the defendant was lengthy and repetitive. In the face of certain agreed evidence, however, some of the contention in the defence has been abandoned in the course of the hearing. Nevertheless, it remains a lengthy document. It is not practical to set out the defence and counterclaim in detail at this stage. Nor is it necessary to refer to the reply and defence to the counterclaim in detail. It is sufficient to say that the plaintiff joins issue with the defendant in practically every allegation in the defence and counterclaim with which I shall deal paragraph by paragraph at a later stage. Perhaps I should observe that in view of my findings of facts in this case some of the allegations in the defence are no longer material. The facts in this case are as follows:

2. For some years the plaintiff had substantial dealings with the defendant's other branches in Malaysia. On or about the 11th of July 1972 the plaintiff opened an account with the defendant with overdraft facilities. In October 1972 the limit of such overdraft facilities afforded to the plaintiff by the defendant was raised to HK$5,000,000 - see document 19 in exhibit 1. At the material time the authorised signatories, for the purpose of drawing a cheque in the plaintiff's said account, were Madam Khoo Siew Kim, the plaintiff's administrative executive, and Mr. Sun Sae Poh, the plaintiff's assistant manager. Since the opening of the said account with the defendant the plaintiff had been withdrawing and paying in substantial sums of money from time to time. In addition, the plaintiff had opened a current account with the Overseas Trust Bank Ltd. in its Head Office as well as no less than six to seven branch offices of the said Overseas Trust Bank Ltd. including its Wanchai Branch (hereinafter referred to as the O.T. Wanchai Branch). The cheque book issued by the defendant to the plaintiff for the purpose of the said account, together with other cheque books issued by the Overseas Trust Bank Ltd. including the O.T. Wanchai Branch and the plaintiff's account books were kept in a safe in the plaintiff's office. It was a combination look safe. Only one Mr. Lee Ing Chee, the plaintiff's secretary, knew the combination. Mr. Sun Sae Poh kept the key. The two together opened the safe every morning and then the cheque books and the account books would be kept in Mr. Sun's desk drawer for use during office hours. At the end of the day's work Madam Khoo would see to that all cheque books and account books were returned to the said safe which would then be locked. Up to early November 1972 Mr. Sun was one of the signatories on practically all the plaintiff's cheques drawn on the defendant. The practice was that Mr. Sun would type out the cheques for Madam Khoo's signature and then Mr. Sun would sign them.

3. On the 6th of November 1972 Mr. Sun did not report to the office and then disappeared. Investigation revealed that on the 1st of November 1972 a cheque No. 677484 (exhibit 5) purported to be signed by Madam Khoo and Sun Sae Poh, the two authorised signatories of the plaintiff, was drawn on the defendant payable to Malaysia America Finance Corporation Ltd. for the sum of HK$400,000. This cheque was collected by the Head Office of the Overseas Trust Bank Ltd. and the sum of HK$400,000 was credited to the plaintiff's current account with the O.T. Wanchai Branch. Further investigation revealed that between the 2nd and 3rd of November 1972 three cheques purported to be signed by Madam Khoo and Sun Sae Poh were drawn on the O.T. Wanchai Branch. The three cheques were exhibit 6, cheque No. 006876 for HK$68,000 dated the 2nd November 1972 and payable to bearer, exhibit 7,006877 for the sum of HK$158,000 dated the 2nd of November 1972 payable to one Li Man Choi, and exhibit 8, cheque No.006878 dated the 3rd of November 1972 for the sum of HK$165,000 also payable to Li Man Choi. The total value of these three cheques was HK$391,000 which nearly depleted the sum of HK$400,000 that had been credited to the plaintiff's account with the O.T. Wanchai Branch on the 1st of November 1972. It should be observed that before the said sum of HK$400,000 was paid in the plaintiff's account with the O.T. Wanchai Branch was in credit of HK$21,243.40 only. The two crossed cheques of exhibit 7 and exhibit 8 were collected by the Dao Hang Bank and credited to the account of Li Man Choi which was opened on the 2nd of November 1972. Between the 3rd of November 1972 and the 6th of November 1972 various sums were withdrawn from the said account of Li Man Choi, leaving a balance of just under HK$4,000. Such account had been inoperative since. Efforts to trace Li Man Choi and Sun Sae Poh had failed. Investigation also revealed that exhibit 5 was one of four cheques extracted from a regular cheque book issued by the defendant together with their counterparts and that exhibit 6, 7 and 8 came out from an extra cheque book issued by the O.T. Wanchai Branch without the knowledge of the plaintiff. When the signatures on exhibit 5, 6, 7 and 8 were compared with the specimen signatures on record kept by the defendant, the O.T. Wanchai Branch and the plaintiff, it was found that those of Sun Sae Poh were genuine but the signatures of Madam Khoo on all the four said cheques were forgeries. It was not possible to determine who was the forger, though it was able to determine that all the signatures of Madam Khoo were forged by one and the same person. The aforesaid are the sum total of the relevant facts as I find them. They are supported by oral and documentary evidence.

4. In addition, I also find as a fact that although the proper name of the plaintiff is Malaysia America Finance Corporation (H.K.) Ltd. and its accounts with the defendant and the O.T. Wanchai Branch were opened in such name yet the plaintiff was loosely known as the Malaysia America Finance Corporation Ltd. In the agreed documents, exhibit 3 and 4, quite a few of the plaintiff's stamps represented the plaintiff's name, as the Malaysia America Finance Corporation Ltd. without the words 'H.K.'. In its correspondence with the defendant the plaintiff described itself by using such stamps as Malaysia America Finance Corporation Ltd. The plaintiff's secretary, Mr. Lee Ing Chee, always understood the plaintiff's name to be such until he was corrected in May 1974 by the Companies Registry of the Hong Kong Government. On the 17th of October 1972 a cheque countersigned by Madam Khoo Siew Kim, drawn on the defendant, and made payable to Malaysia America Finance Corporation Ltd. - see document 13 of exhibit 1 - was negotiated by the plaintiff without any question by either party. Three letters addressed to the defendant and signed by the plaintiff's chairman of the Board and managing director used the stamps bearing the name, 'Malaysia America Finance Corporation Ltd.' see exhibit 1, documents 17, 18 and 19.

5. In view of the aforesaid I am of the opinion that the plaintiff had by conduct represented to the defendant that its name was also known as Malaysia America Finance Corporation Ltd. and that the defendant acted upon on such representation. The plaintiff is estopped from denying that it is also known by such name as contended in paragraph 2B of the defence. Alternatively, the defendant was not negligent in failing to heed the misdescription of the plaintiff's name in the said forged cheque - exhibit 5.

6. Paragraph 4 of the amended statement of claim merely alleges what is set out in documents 8 and 11 of exhibit 1 viz: for the purpose of drawing cheques on the plaintiff's account with the defendant such cheques must be signed by the chairman or two of the authorised signatories. I find as a fact that this was the mandate to the defendant at the material times despite its non admission in paragraph 3 of its defence. In view of the said documents in exhibit 1 paragraph 3 of the defence is no longer a tenable contention. Paragraph 4A of the defence does not dispute that the purported signature of Khoo Siew Kim was forged and that exhibit 5 bored only the genuine signature of Sun Sae Poh. I cannot see how the defendant can argue against the allegation contained in paragraph 5(a) of the statement of claim that the plaintiff did not draw or authorise the drawing of the cheque, exhibit 5.

7. The disappearance of Sun Sae Poh made him highly suspect. But there is no sufficient evidence that he forged the signature of Khoo Siew Kim on exhibit 5 or, indeed, the three other forged cheques drawn on the O.T. Wanchai Branch. On the evidence before me there is nothing to suggest negligence on the part of the plaintiff in employing the said Sun Sae Poh or appointing him as one of the signatories for drawing cheques on the plaintiff's account.

8. Learned counsel for the defendant has not seriously argued that the plaintiff should be estopped from denying that exhibit 5 was signed by Sun Sae Poh and Khoo Siew Kim. I regard this defence as utterly without substance.

9. It is contended in paragraph 4B of the defence that forgery of Khoo Siew Kim's signature was committed by the plaintiff by his servant Sun Sae Poh. This contention may well be considered with the defence raised in paragraph 10B which alleges that the loss or damage to the plaintiff was solely caused or contributed by the fraud and/or breach of contract on the part of the said Sun Sae Poh. It repeats that the said Sun Sae Poh forged the signature of Khoo Siew Kim in exhibit 5, 6, 7 and 8, and fraudulently presented exhibit 6, 7 and 8 to the O.T. Wanchai Branch for payment and obtained such sums drawn by the forged cheques and fraudulently caused the payment of the HK$400,000 by the defendant to the O.T. Wanchai Branch.

10. Paragraph 10B further alleges that the plaintiff was in breach of an implied term of any contract between the plaintiff and the defendant that the plaintiff's servant will act honestly and with reasonable care and skill and that the plaintiff would indemnify the defendant against liability in respect of any fraud on the part of the plaintiff's servants.

11. The law relating to the exact nature of a customer's duty and the limits of the estoppel arising out of the relationship of banker and customer is clearly stated in the book on Estoppel By Representation of Spencer Bower and Turner, 2nd Edition, page 54. It is said that:

"A customer owes no duty to his banker to abstain from appointing any particular manager, secretary, clerk, officer, or servant, to fill in or deal with his cheques and cheque books on his behalf, or to distrust or watch the person so appointed, or to anticipate criminal conduct on his part, or, in the general conduct of his business and affairs, to adopt any particular system, or measures, or course of action, for, however usual proper and wise for his own protection it may be to take such precautions, the banker has no legal right to require them to be taken, or to found an estoppel upon the customer's neglect to take them. Nor, even on the most lax and liberal view of the so-called 'facilitation' theory, can a customer be estopped from setting up as against the banker, that a deposit receipt bearing his indorsement has been stolen, and that he therefore ought not to have been debited by the bank for the amount thereof, on the mere ground that he had not previously handed the receipt, so endorsed, to the person intended by him to receive the money, but had transmitted it in a letter (registered) overseas, and 'sent it upon its long postal voyage, and thereby in a sense may be said to have made it possible for somebody to steal it while it was in transit', a contention which it is not surprising to find judicially described as 'a very fanciful idea', and one which had been 'suggested, rather than argued'".

12. However, the case of Lloyd v. Grace, Smith & Co., 1912 Appeal Cases 716 has been cited in support of the proposition that an employer though innocent is vicariously liable for the fraud of a servant. In that case a firm of solicitors was held responsible for the fraud of his managing clerk who was clothed with the authority to run the firm in conveyancing matters and who fraudulently induced a client to execute documents of sale whereby the said managing clerk was able to appropriate the proceeds of sale for his own benefit.

13. At page 739, Lord Shaw of Dunfermline said:

"The case is in one respect the not infrequent one of a situation in which each of two parties has been betrayed or injured by the fraudulent conduct of a third. I look upon it as a familiar doctrine as well as a safe general rule, and one making for security instead of uncertainty and insecurity in mercantile dealings, that the loss occasioned by the fault of a third person in such circumstances ought to fall upon the one of the two parties who clothed that third person as agent with the authority by which he was enabled to commit the fraud."

14. Later on, he cited Mr. Justice Willes in a case of Barwick v. English Joint Stock Bank L.R.2 Ex.259 saying that:

"But with respect to the question, whether a principal is answerable for the act of his agent in the course of his master's business, and for his master's benefit, no sensible distinction can be drawn between the case of fraud and the case of any other wrong. The general rule is, that the master is answerable for every such wrong of the servant or agent as is committed in the course of the service and for the master's benefit, though no express command or privity of the master be proved."

15. In the Lloyd's case, the cause of the loss was due to the fact that a firm of solicitors clothed the managing clerk with the authority to transact business. There was no duty on the part of the plaintiff in that case, Mrs. Lloyd, to act in accordance with her mandate. She was induced by the fraud of the managing clerk to execute certain documents. The present case is different. The cause for the loss and damage in the present case is due to the defendant acting in breach of contract by honouring a cheque without authority or mandate. Nor is the judgment in Brewer v. Westminster Bank, Ltd., 1952, 2 A.E.R.650 applicable to the present case. The principle to be deduced from that case is that if a forgery committed by one joint account holder of the signature of the other, the latter cannot recover the money from the bank because of their joint right and joint liability. In the present case Madam Khoo and Sun Sae Poh were not joint holders of the account with the defendant. The plaintiff is, on the contrary, not in breach of duty as what McNair J. said at page 656:

"As regards the allegation that the plaintiff was in breach of her duty towards the defendant bank in that she failed to examine the bank statements from time to time, and, in effect, failed to control or supervise her co-executor, no direct authority was cited in support of this allegation though reliance was placed on the decision in Greenwood's case (1932 1 K.B.371), in support of the argument that the decision of Bray, J., in Kepitigalla's case (1909 2 K.B. 1010) that the directors of a company opening an account with a bank did not impliedly agree to take precautions to prevent forgeries on the part of their servants could no longer be supported. In my judgment, there is no inconsistency between the two decisions and the reasons which have led me to reject the implied term relied on also lead me to reject the present contention. I see no reason at all why vis-a-vis the bank one executor should act as watch dog over the other whatever may be the position as between the two executors and their cestuis que trust."

16. There was no sufficient evidence in this case to show that Sun Sae Poh was the forger. The whole action was founded on the breach of contract on the part of the defendant. There is no doubt in my mind that the defendant paid a HK$400,000 on a forged cheque, exhibit 5, without authority and contrary to the mandate. Thus paragraph 4(b), 5 and 10(b) of the defence must of necessity fail. The facts of the present case are fairly distinguishable from those of the Lloyd's and in the Brewer's case.

17. I am of the opinion that the plaintiff cannot be held to be vicariously liable for the act of Sun Sae Poh even if the latter was a party to a fraud on the plaintiff and the defendant.

18. The facts and propositions as detailed in paragraph 9 of the statement of claim are clearly correct. I am surprised that the defendant had seen fit not to admit it in paragraph 8 of the defence.

19. For reasons already given I have found that the defendant was not negligent in failing to discover the misdescription of the plaintiff on the forged cheque, exhibit 5. Having regard to the course of dealings between the plaintiff and the defendant I also do not find that the withdrawal of the HK$400,000 is such a huge sum so as to cause any particular concern on the part of the defendant to warrant further inquiry. The forgery was detected after some detailed comparison and examination by a hand-writing expert, Mr. Edgley. I find that the forgery is sufficiently skilful that no negligence can be imputed to the defendant's official in failing to detect them. If there is any breach of contract it must be founded on the fact that the defendant contrary to mandate honoured a so-called cheque which is a complete nullity. The forgery is not glaring. Banking business will have to come to a standstill if bankers were to be accredited with the duty of a hand-writing expert. Although I find that the defendant has not been negligent yet I am by no means saying that the defendant is not froe from breach of contract or acting without authority and contrary to mandate. It is idle to deny that the plaintiff suffered damage or loss. HK$391,000 had been taken away from the plaintiff account with the O.T. Wanchai Branch after the sum of HK$400,000 was transferred from the plaintiff's account with the defendant to the said account with the O.T. Wanchai Branch. I hope I have sufficiently disposed of the issue raised in paragraphs 7, 9 and 10 of the statement of claim and in paragraphs 7, 8, 9A and 9B of the defence and counterclaim.

20. With reference to paragraph 11 of the statement of claim and paragraph 11 of the defence I do not feel that the plaintiff can found its action on the principle of money had and received. I have found that both of the plaintiff and the defendant had not been negligent and that both were innocent parties in this respect. The HK$400,000 had been paid by the defendant which is not now in a position to recover the same and thus had altered its position.

21. In the case of the London and River Plate Bank, Ltd. v. The Bank of Liverpool, Ltd. and Others, 1896 1 Q.B. 7 Mathew J., at page 10, said:

"It seems to me the principle underlying the decision is this: that if the plaintiff in that case so conducted himself as to lead the holder of the bill to believe that he considered the signature genuine, he could not afterwards withdraw from that position; and no single case has been produced in which, where payment has been made on a forged indorsement to the holder of it in good faith, the money has been recovered back. This case was followed by another case, Smith v. Mercer 6 Taunt 76, where it was said in the course of some of the judgments that, where a banker had paid a forged draft believing that it had been accepted by his customer, he ought to know his customer's signature. The same observations that I have made apply to that case. He may not be able by any amount of care to ascertain whether or not the acceptance was a forgery. That case, therefore, does not establish the principle for which Mr. Bigham contended. The true principle is developed in the clearest possible form in the case of Cocks v. Masterman. 9 B. & C. 902. There was an intermediate case of Wilkinson v. Johnson 3 B. & C. 428, which stands by itself, and which we need not discuss. In Cocks v. Masterman the simple rule was laid down in clear language for the first time that when a bill becomes due and is presented for payment the holder ought to know at once whether the bill is going to be paid or not. If the mistake is discovered at once, it may be the money can be recovered back; but if it be not, and the money is paid in good faith, and is received in good faith, and there is an interval of time in which the position of the holder may be altered, the principle seems to apply that money once paid cannot be recovered back. That rule is obviously, as it seems to me, indispensable for the conduct of business. A holder of a bill cannot possibly fail to have his position affected if there be any interval of time during which he holds the money as his own, or spends it as his own, and if he is subsequently sought to be made responsible to hand it back. It may be that no legal right may be compromised by reason of the payment. For instance, the acceptor may pay the bill and discover on the same day that the bill is a forgery, and so inform the holder of it, so that the holder would have time to give notice of dishonour to the other parties to the bill; but even in such a case it is manifest that the position of a man of business may be most seriously compromised, even by the delay of a day. Now that clear rule is one that ought not to be tampered with."

22. I can find no reason to depart from the principle laid down in that case which received approval of the Court of Appeal, in the case of Morrison v. London County and Westminister Bank, Ltd. in 1914, 3 K.B. 356.

23. In this connection the same principle applies to the defendant's counterclaim in its amended defence and counterclaim. Of the HK$400,000 paid into the plaintiff's account with the O.T. Wanchai Branch, HK$391,000 had been paid out of the plaintiff's said account on the three forged cheques viz: exhibit 6, 7 and 8. The plaintiff had taken action against the O.T. Wanchai Branch and recovered a certain sum which the plaintiff is prepared to bring into account in diminution of his claim against the defendant. To that extent, the plaintiff had also altered his position to his detriment.

24. Acting on the same principle in the London and River Plate Bank, Ltd. case, the defendant's counterclaim in paragraph 14 of the amended defence and counterclaim must fail. Learned Counsel for the defendant drew my attention to the case of National Westminister Bank Ltd. v. Barclays Bank International Ltd. and Another, reported in the Times on the 22nd of July 1974. The ratio of the judgment in that case is merely that "the law should be slow to impose an innocent party who was not negligent an estoppel merely by reason of having dealt with a forged document on the assumption that it was genuine. The mere payment of the forged cheque did not imply any representation on the plaintiff bank's part that it was in fact genuine so as to lay the foundation for an estoppel against them and there was no bar to the bank's right to recover the money as having been paid under mistake of facts." However, the learned judge also qualified his decision on the special facts of that case.

25. In the course of his address counsel for the defendant developed an argument on an equitable principle that where money had been paid by the bank contrary to mandate in discharge of the customer's debt then a customer may not recover money so paid by the bank. My attention is drawn to the case of Liggett (Liverpool), Ltd. v. Barclays Bank, Ltd., 1928 1 K.B. 48 and Jackson v. White and Midland Bank Ltd., 1967 2 Lloyd's List Law Report 68 in which such equitable principle was applied. It is further contended in the present case that the HK$400,000 had been paid by the defendant, if contrary to mandate, into the plaintiff account with the O.T. Wanchai Branch. As such there had been no change in the plaintiff's total liability or financial position. Taking it at its face value such argument appears to be correct. However, it must be observed that in both Liggett case and the Jackson case, the payment made by the bank was in discharge of the customer's legal debt in respect of goods supplied to the customer in a course of the customer's business. The ratio of the judgments was that the customer was not entitled to unjust enrichment for keeping the goods, having the trade debts discharged and at the same time recover the money. The facts in the present case are different. The plaintiff owed no legal debt to the O.T. Wanchai Branch at the material time. Indeed, the payment into the plaintiff's account with the O.T. Wanchai Branch so as to enable a forger to withdraw the money from the said account to the plaintiff's detriment is the gist of the complaint in this action. I am of the opinion that the defendant in this case may not rely on such equitable principle and that the Liggett's case and Jackson's case offered the defendant no assistance. The plaintiff is suing for his actual loss only.

26. I now consider paragraph 10C and paragraph 10D of the defence and counterclaim which is that the plaintiff's loss or damage was solely caused or contributed by the negligence of the O.T. Wanchai Branch in:

	(a)	paying the said HK$400,000 collected from the defendant into the account of a payee other than that described in the cheque, namely, exhibit 5.
	(b)	honouring three forged cheques, exhibit 6, 7 and 8 to the total value of HK$391,000.

It is also alleged that by the defendant that such act on the part of the O.T. Wanchai Branch and a forgery by Sun Sae Poh constitute novus actus interveniens rendering the damages to the plaintiff too remote. On the evidence before me, I can find no negligence on the part of the O.T. Wanchai Branch in paying to the account of a payee other than that described in exhibit 5. I have found as a fact that the plaintiff was also known as the Malaysia America Financial Company Ltd. Besides, this allegation is quite inconsistent with the allegation in paragraph 2B of the defence which contends that the plaintiff was also known as Malaysia America Finance Corporation Ltd. I have also found that there is no sufficient evidence to identify Sun Sae Poh as a forger of any of the said forged cheques. I also find that the O.T. Wanchai Branch has not been negligent in honouring the three forged cheques, exhibit 6, 7 and 8 for the same reason that I found the defendant not negligent in honouring exhibit 5. However, I am of the opinion that the O.T. Wanchai Branch had honoured the said three forged cheques without mandate.

27. The law relating to novus actus interveniens had been fully summarised in paragraphs 466, 467 of 11 Halsbury's Laws of England. On the title of Intervening Cause and Novus Actus it is said that:

	"In considering whether any damage is a remote result of the defendant's conduct, or its natural and probable or direct result, proof of causal connexion between what the defendant has done, or failed to do, and the damage becomes more difficult when a conscious act of human origin has intervened. For this reason (and, it would appear, for this reason only) novus actus interveniens is often considered as a special form of the rule of remoteness, although the mere fact of human intervention does not of itself sever the chain of causation. Other intervening causes of non-human origin, or deriving from the plaintiff's own behaviour, need not be considered in this way. It has been said that to break the chain of causation there must be something ultroneous, unwarrantable, a new cause which disturbs the sequence of events, something either unreasonable, or extraneous, or extrinsic. In all such cases the question for decision upon a review of all the facts is whether the defendant's conduct effectively or proximately caused the damage or whether, as part of previous history, it merely provided the occasion for it.
	Where there is more than one effective cause of the damage a question of apportionment may arise."
	"Thus in tort, and sometimes in contract, it is necessary when determining whether the alleged damage, or any of it, is too remote to consider whether the original cause so far continued to operate that it was the effective or proximate cause of the damage. The operation, of the original cause ceases, and the chain of causation is broken, by the intervention of an act of independent volition unless that intervening act is the kind of act which might reasonably have been anticipated. If the intervening act is the very kind of thing which is likely to happen it will not serve as a defence. While a wrongdoer is not normally responsible for the unreasonable conduct of third persons which follows his own wrongdoing, even an unauthorised or wrongful act of a third person does not break the chain of causation if it might reasonably have been foreseen by the original wrongdoer."

28. Learned counsel for both parties have referred to a fair number of cases illustrating the same principle: The Oropesa, 1943 Probate 32; the Paludina, 1927 A.C. 16; McKew v. Holland & Hannen & Cubitts (Scotland), Ltd. 1969 3 A.E.R. 1621; and Leyland Shipping Co., Ltd. v. Norwich Union Fire Insurance Society, Ltd. 1918 A.C. 352. They merely support the principle summarised in the passages contained in 11 Halsbury Laws of England.

29. Thus the question of remoteness of damage is to be resolved by reviewing all the facts to find whether the defendant's conduct effectively cause the damage or whether as part of previous history it merely provides the occasion for it. Mr. Jackson-Lipkin, learned counsel for the plaintiff, contends that at the time immediately prior to the payment into the plaintiff's account with the O.T. Wanchai Branch such account was only HK$21,243.40 in credit. Had the sum of HK$400,000 not been paid into this account by the defendant, the plaintiff's account with the O.T. Wanchai Branch would not have sufficient fund to honour the three forged cheques, exhibit 6, 7 and 8 totalling HK$391,000. Thus the loss or/and damages flowed naturally and reasonably from the crediting of the plaintiff's account with the O.T. Wanchai Branch. It is true that but for the crediting of the plaintiff account with HK$400,000 the O.T. Wanchai Branch might not be in a position to honour the forged cheques and probably would have referred the cheques to the plaintiff as their purported drawer.

30. However, the lack of funds to meet the forged cheques is only an incidental safeguard against the forgery. The crediting of the plaintiff account did not cause the O.T. Wanchai Branch to honour the cheques without mandate of the plaintiff. Nor did it cause the forgery which was the act of a third person. I cannot credit the defendant with the ability to foresee that if money was credited to the plaintiff's account with the O.T. Wanchai Branch the latter would act without mandate or that the third person would forge cheques to take money out of the said account. Up to the time when the HK$400,000 was paid into the plaintiff's account with the O.T. Wanchai Branch the plaintiff suffered no damage and no loss. The plaintiff suffered damages only when the O.T. Wanchai Branch acted without mandate which was a completely new cause extraneous to the defendant's error. In the words of Lord Wright when he reviewed the facts in the Oropesa:

"If the master and the deceased in the present case had done something which was outside the exigencies of the emergency, whether from miscalculation or from error, the plaintiffs would be debarred from saying that a new cause had not intervened. The question is not whether there was new negligence, but whether there was a new cause. I think that is what Lord Sumner emphasized in The Paludina. To break the chain of causation it must be shown that there is something which I will call ultroneous, something unwarrantable, a new cause which disturbs the sequence of events, something which can be described as either unreasonable or extraneous or extrinsic. I doubt whether the law can be stated more precisely than that."

31. Such words are applicable to the conduct of the O.T. Wanchai Branch in acting without mandate. Applying, with respect, the words of Lord Blanesburgh in the case of the Paludina to the present case it can be said that the question is whether or not the O.T. Wanchai Branch had acted without mandate was at any rate something for which the defendant was in no way responsible except in the sense that the defendant's original fault might have created the occasion. Such words are applicable to the conduct of the officers of O.T. Wanchai Branch. Whether the plaintiff's account was in credit or overdrawn the O.T. Wanchai Branch had the same duty to act according to the plaintiff's mandate in honouring the cheques drawn on the plaintiff's account with the O.T. Wanchai Branch. The plaintiff's loss was caused by an error of the O.T. Wanchai Branch which was unwarrantable and extrinsic. The presence of the HK$400,000 in the plaintiff's account might have provided the occasion for the error committed by the O.T. Wanchai Branch. But the effective and new cause for the loss of the HK$391,000 was due to such an error. For reasons aforesaid I am of the opinion that the defendant succeeds in his defence of novus actus interveniens. Accordingly the plaintiff's claim is dismissed. The defendant's counterclaim is also dismissed. I now will hear the question of costs.

Representation: