Tang Chi Kin v. Tang Fong Chuen

CACV000010/1947

APPELLATE JURISDICTION

APPEAL No. 10 of 1947.

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(O.J. Action No. 1 of 1946)

Coram: Mr. Justice E.H. Williams and Mr. Justice T.J. Gould.

Date of Judgment: 13 September 1947

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JUDGMENT

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1. This is an Appeal from a judgment of the learned Chief Justice declaring the respondent to be solely entitled to the property known as No.8, St. Stephen's Lane, and granting to the respondent possession and mesne profits.

2. The essential facts of the case were that the respondent was a general in the Chinese Army and the Crown lessee of the house property with which the case is concerned. Amended and substituted by Order of the Full Court lated 20.9.47.

3. At first the appellant acting upon advice paid only half of the purchase price as the purported agent was unable to produce any title deeds and proposed to retain the other half until the return of the respondent from China. However, upon production by the purported agent of a letter purporting to have been written by the respondent approving of the sale and upon guarantees being signed by certain persons, he paid over the remainder of the purchase money. The letter was also a forgery. The appellant entered into possession and during the remainder of the Japanese occupation and thereafter he expended substantial sums in repairs.

4. In December 1945, the respondent first heard of the forgery and in January, 1946, he returned to Hong Kong for the first time since his departure about October, 1941. He remained in Hong Kong only for a few days before returning to China and during those few days he consulted a solicitor and was advised that, as the civil courts had not yet been reinstituted in Hong Kong, there was no effective legal step he could take at that time to regain possession of his property. He left instructions that steps were to be taken as soon as possible, and in fact this action was commenced as No.1 of 1946, as soon as the civil administration was restored in Hong Kong.

5. On the 25th April, 1946, the appellant caused to be sent to the solicitors in the Colony a circular letter of enquiry in the following terms:

" Dear Sirs,

6. Upon receipt of this letter the solicitor for the respondent notified the defendant (on the 26th April, 1946) of the forgeries and of the respondent's intention to bring proceedings to recover the property.

7. It is agreed that this was the first notice given by the respondent to the appellant that the title of the latter was bad; the respondent in evidence said that as he could not take any legal step to enforce his rights and as he had no expectation that the appellant would relingnish the property upon a mere request it never occurred to him to notify the appellant who was a stranger to him.

8. Between January and April, 1946, the appellant claims to have spent a substantial but indeterminate sum on the property and this was conceded by counsel for the respondent for the purpose of the argument. It was held as a fact, however, by the learned Chief Justice upon the evidence that the respondent did not at any time have knowledge that money was being so expended by the appellant.

9. During the period January to April, 1946, by virtue of the provisions of the British Military Administration Proclamation No. 6 as modified by an Order dated the 20th day of December, 1945, the property could not be assigned without a special Order by the Chief Civil Affairs Officer, but it could have been let for a term not exceeding one year or been made the subject of a lien or equitable mortgage with the approval of the Finance Controller. The existence of this Proclamation was mentioned to the respondent by his solicitor in January, 1946.

10. A further fact of some importance was that the appellant had no knowledge that the respondent became aware of the forgery in December, 1945, or returned to the Colony for a few days in January, 1946.

11. Only one ground of appeal was relied upon - namely, that the trial judge was wrong in deciding that the respondent was not estopped from setting up his title to the property by reason of his failure to notify the appellant of the forgery as soon as he became aware of the defect in appellant's title. This allegation though set out in the Pleadings as finally amended was not in fact relied upon by counsel for the appellant at the hearing as he took the view that the learned Chief Justice was bound by the decision in the case of Chan Fui Hing and others v. Fung Kai Sun, O.J. Action No.92 of 1939, decided in the Supreme Court of Hong Kong in December, 1940. This is clearly a mistaken view as every case of alleged estoppel must be decided upon the particular facts. However, the point has been fully argued before this Court and it is expedient that a decision be given upon the merits.

12. The submission for the appellant reduced to simple terms is that if B. has a document bearing the purported signature of A. and if A. knows that fact and further that B. is relying on that document, then it is A.'s duty to inform B. forthwith of his mistake. If the delays and B. is prejudiced an estoppel arises and B. receives the full benefit of the estoppel irrespective of whether the whole or only a part of the loss is due to A.'s failure to disclose. As to the existence of a duty to speak in such circumstances counsel relied on the following passage in volume 13 of Hailsham on page 496: "A duty to speak arises whenever a person knows that another is acting on an erroneous assumption of some authority given or liability undertaken by the former, or is dealing with or acquiring an interest in property in ignorance of his title to it. It is the duty of a man whe knows that another is relying on a document bearing a counterfeit of his signature to give notice of the forgery without delay."

13. The authorities quoted for the second part of this proposition include M'Kenzie v. The British Linen Co. 1881, 6 A.C. 82. Greenwood v. Martin's Bank Ltd. 1933, A.C. 51 and Ogilvie v. West Australian Mortgage and Agency Corporation, 1896, A.C. 257. Ewing (William) & Co. v. Dominion Bank (1904) A.C. 806. These cases are bank cases.

14. Before proceeding to analyze the cases regarding estoppel, it is to be observed that counsel for the appellant, at the conclusion of his case before the Trial judge, had also submitted, as an alternative, that even if the respondent did not know that improvements were being carried out the (defendant) appellant should receive compensation in whole or in part for such work. Objection to this submission was taken by counsel for respondent (plaintiff) on the ground that this had not been pleaded which submission was upheld by the learned trial judge. This point was not taken on appeal and no arguments on it were, therefore, addressed to this Court.

15. Regarding the above-mentioned cases in Halsbury on which appellant relies for estoppel, the facts in Greenwood v. Martin's Bank Ltd. 1933 A.C. 51 were that a husband and wife who had a joint account with the bankers who undertook to honour cheques signed by both customers. That account was afterwards closed and one was opened in the sole name of the husband, the wife having no authority to draw on it. During the currency of both accounts, the wife repeatedly forged the husband's signature to cheques, and drew out money which she applied to her own use. During the currency of the sole account, the husband became aware of the forgeries but, being persuaded by his wife to say nothing about them, he kept silent for eight months. When he finally determined to disclose the forgeries to the bank, the wife committed suicide. In an action by the husband to recover the sums paid out of the sole account on cheques to which his signature had been forged, it was held that the plaintiff owed a duty to the bank to disclose the forgeries when he became aware of them and so enable the defendants to take steps towards recovering the money wrongfully paid on the forged cheques: that through his failure to fulfill this duty they were prevented from bringing an action against the plaintiff and his wife for the tort committed by the wife, until after her death, when any action against the husband abated: therefore the plaintiff was estopped from asserting that the signature to the cheques were forgeries and was not entitled to recover.

16. The essential factors giving rise to estoppel were there enumerated as follows:-

17. Mere silence could only amount to a representation where there was a duty to disclose and such a duty on the part of a customer of a bank to disclose to the bank his knowledge of the forgery in this case was held to exist.

18. This case, clearly differs from the present case in essential features. Firstly, the duty to disclose was a duty arising from the intimate relationship between the customer of a bank and a bank. Green L.J. in the Court of Appeal stated he could not conceive a stronger case for saying there was a duty required of the customer by 'the rules of fair dealing between man and man' to inform the Bank of the existence of the forged cheques when he knew that the Bank were relying on the validity of the forged cheques. The case is no authority for the proposition that a duty to disclose arises in cases where there is no close relationship such as existed here between the customer and the Bank. In the present case, there was no such intimate relationship between appellant and respondent: they were complete strangers to each other. Secondly, in the bank case the omission to speak was intended to induce a course of conduct on the part of the Bank, namely to refrain from taking action. Here the omission to speak was not so intended, for respondent was never aware that appellant was in fact expending any money on the property: his omission to speak was not, therefore, done with the intention that appellant should spend money on the property. Thirdly, the omission to speak on the part of the plaintiff in the Bank case resulted in the loss to the bank but in the present case the loss incurred by the appellant in his expenditure was not, at any rate, initially due to respondent's silence, for appellant had commenced his repairs to the house shortly after the purchase and continued to expend money thereon for a considerable period before respondent ever became aware of the forgery.

19. In the case of Ogilvie v. West Australian Mortgage and Agency Corporation (1896) A.C.257, the customer of the bank was not estopped from complaining of the payment of the forged cheques for the reason that he had kept silence by the request of the accredited agent of the bank. Had he, being in exclusive knowledge of the forgery, withheld that knowledge from the bank until its chances of recovery from the forger had been materially prejudiced, it is clear that he would have been held estopped. In this case again the principle that the customer of a bank owes a duty to the bank to disclose is clearly admitted.

20. The case on which perhaps most reliance can be placed by the appellant is McKenzie v. The British Linen Co. 1881 6 A.C.82. There the respondent company were the holders of a bill accepted by one Fraser, and purporting to have been drawn and indorsed to them by the appellant and another. The appellant's signature, as drawer and indorser, had been forged. The company gave the appellant notice on the 14th July, 1897, that the bill would fall due on the 17th, on which date it was dishonoured. Notice of that dishonour was duly given to the appellant on the next day by the company, followed by threats of proceedings on the 21st, and 25th July. On the 29th the appellant notified the respondents that his signature had been forged. It was not suggested that the company's position had been altered for the worse between the 14th and the 29th July. The House, reversing the Court of Session in Scotland, held that the appellant was in no way estopped.

21. The main ground of the decision was that the respondents had not altered their position to their prejudice by reason of any omission of duty on the part of the appellant: It is clear, however, that Lord Blackburn at pp.100 & 101, held the view that there was no legal duty, as distinct from a moral duty, on the part of the appellant to inform the respondents and, therefore, no such representation, by the omission of it. He expressly stated that he was not prepared to accept the following view of Lord Deas (who had held in the lower Court in favour of the respondents) - a proposition not unlike that put forward by counsel for appellant here:

22. 'In cases of this kind where he has peculiar means of knowledge whether his signature is forged or not, he is not entitled by saying or doing something, or not saying or doing something, to lead his neighbours to think that his signature is genuine to his neighbour's loss.' Lord Blackburn based his decision that there was an estoppal on the principles laid down in Packard v. Sears (6 Adolphus & Ellis p.474) as explained by Baron Parke in Freeman v. Cook 2 Ex.654. The following words of Baron Parke are relevant :-

23. 'And conduct by negligence or omission where there is a duty cast upon a person, by usage of trade or otherwise, to disclose the truth, may often have the same effect' (i.e. may have the effect of creating an estoppel). As for instance, a retiring partner omitting to inform his customers of the fact, in the usual mode, that the continuing partners were no longer authorized to act as his agents, is bound by all the contracts made by them with third parties on the faith of their being so authorized.'

24. As to the cases, therefore, on which appellant relies the duty to disclose as between a customer and the Bank is clearly admitted. Nothing is contained in the cases which would justify a Court in extending the duty to such cases, as the present where no relationship has previously existed. In the Mokenzie case, though the judgment proceeded on a different basis, yet Lord Blackburn was not prepared to accept the wider proposition of Lord Deas that a duty not to keep silence exists in cases where the facts were similar to that case. Lord Blackburn agrees with Baron Parke that the duty must be one existing by usage of trade or otherwise. By the words "or otherwise" it is clear that some limitation must exist. I have, therefore, come to the conclusion that these bank cases are not an authority for the appellant's contention that there was here any legal duty on the respondent to disclose the forgery.

25. Even assuming, however, that there was a legal duty and not merely a moral or social duty on the respondent to disclose the forgery to the appellant, before the appellant can succeed, the other conditions necessary to create a valid estoppel must be present. As has already been pointed out, a necessary ingredient is that the person omitting to speak must do so with the intention of inducing a course of conduct on the part of the other person or with knowledge that the other person was pursuing a certain course of action. In the present case, respondent's omission to inform the appellant was not because he desired appellant to continue with the reconstruction of the property for he was unaware that any such work was being carried out, but because he believed that any protest he made to appellant was unlikely to succeed in persuading appellant to give up the property. Respondent had taken all possible legal action. He had consulted his solicitors who would have issued a writ forthwith had it not happened that at the time the civil courts were not functioning.

26. Counsel for appellant also placed reliance on the case of Ramsden v. Dyson (1866) 1 English & Irish Reports 129, particularly on the following passage from the judgment of Lord Cranworth (p.140).

27. 'If a stranger begins to build on my land supposing it to be his own, and I, perceiving his mistake, abstain from setting him right, and leave him to persevere in his error, a Court of Equity will not allow me afterwards to assert my title to the land on which he has expended money on the supposition that the land was his own. It considers that, when I saw the mistake into which he had fallen, it was my duty to be active and to state my adverse title: and that it would be dishonest in me to remain wilfully passive on such an occasion, in order to profit by the mistake which I might have prevented.'

28. The difference between that case and the present is however quite clear. In that case the landlord is aware of the expenditure and yet refrains from action in order that he may later profit by the mistake. In the present case, there was no knowledge on respondent's part that appellant was expending any money on the property in dispute.

29. I am, therefore, of opinion that the contention of appellant that by reason of respondent's failure to notify him of the forgery during the months January to April, 1946, respondent is estopped from denying his title to the property is unsound in law.

30. The appeal is therefore dismissed and the decision of the learned trial judge upheld, with costs to the respondent.