Chiu Chit v. Bank of China (Hong Kong) Ltd
Read the full judgment text of DCCJ 4041/2007 on BabelCite. This District Court judgment.
1. On 4 July 2007 (Wednesday), Miss Chiu Chit ("Chiu") went to the Cheung Sha Wan branch of the Bank of China ("BOC"), to make a remittance of a sum of US$ 25,000 by telegraphic transfer ("Remittance"). She filled out a printed Telegraphic Transfer Application Form on BOC's standard form. On 7 July 2007 (Saturday), she learned that the Remittance had failed to reach the designated beneficiary and account as stated in the Application Form. Chiu claims that as a result of the failure of the Remitt
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DCCJ 4041/2007 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO. 4041 OF 2007 -------------------- BETWEEN
------------------- Coram : Her Honour Judge Mimmie Chan in Court Dates of hearing : 20 - 23 July, 2009 Date of handing down Judgment : 21 August, 2009 ------------------- JUDGMENT ------------------- Background 1.On 4 July 2007 (Wednesday), Miss Chiu Chit ("Chiu") went to the Cheung Sha Wan branch of the Bank of China ("BOC"), to make a remittance of a sum of US$ 25,000 by telegraphic transfer ("Remittance"). She filled out a printed Telegraphic Transfer Application Form on BOC's standard form. On 7 July 2007 (Saturday), she learned that the Remittance had failed to reach the designated beneficiary and account as stated in the Application Form. Chiu claims that as a result of the failure of the Remittance, her share trading account maintained with TD Ameritrade, Inc. ("TDA") in the United States was liquidated or closed out by reason of her failure to meet a margin call issued in respect of her account with TDA, and that she has sustained loss and damage as a result. These proceedings are commenced by Chiu against BOC for recovery of the damages which Chiu said she sustained by reason of BOC 's breach of contract, and /or negligence. 2.BOC denies that it is in breach of the terms of its contract with Chiu in relation to Chiu 's application for the Remittance to be made. BOC accepts that it has a duty to take reasonable care and skill to effect the Remittance, but denies that the failure of the Remittance was due to any negligence on its part. BOC further denies that Chiu had sustained any loss or damage as a result of any negligence or breach of contract on BOC 's part. Issues 3.The trial in July was for deciding the issue of BOC 's liability only. The issues on liability for determination at trial are:
The Application for Remittance 4.It is not in dispute that Chiu maintained a margin account with TDA for trading in securities. On Chiu 's evidence, she had been buying and selling US securities on her margin account with TDA since 2003 or 2005. Chiu holds an MBA degree from the California State University, and had lived in the United States for some time. She also holds a degree in architecture from a University in China. From her evidence, I am satisfied that Chiu has a good and sufficient understanding of English, having conducted her correspondence and dealings with TDA in the English language. This Judgment is accordingly in English. If Chiu has any difficulty in understanding it, she can apply for the Judgment to be translated. 5.It is Chiu 's evidence that on 4 July 2007, she went to BOC to do a telegraphic transfer of US$25,000 from her account with BOC in Hong Kong, with the intention of transferring the said amount into her margin trading account number 870553955 maintained with TDA ("TDA Account"). On her own reckoning, she envisaged that the amount was required in order to keep up with the contractual maintenance requirements for the TDA Account, as specified under the terms and conditions of Chiu 's agreement with TDA. 6.Chiu does not dispute that under the terms of the Client Agreement made between TDA and herself, which governs Chiu's trading on the TDA Account, a 30% maintenance requirement is applicable for most stocks traded on the TDA Account. Under the terms of Chiu 's trading with TDA, the "equity" in Chiu's TDA Account is determined by the market value of her marginable stocks minus the amount lent to her by her brokerage firm for her margin trading. The equity is computed by adding the cash balance in the TDA Account to the market value of her long security positions, and then subtracting the current market value of her short security positions and the margin loan balance. Under Chiu 's Client Agreement with TDA, if the equity in Chiu's TDA Account falls below the maintenance margin requirement, TDA is entitled to sell the securities or other assets in the TDA Account to cover the margin deficiency, and Chiu may be responsible for any shortfall in the TDA Account after such a sale. Chiu does not dispute that TDA is entitled under the Client Agreement to liquidate the securities and other assets in the TDA Account to meet a margin call without giving Chiu prior notice. 7.Under her dealings with TDA, when the market value of the margined securities plus any cash balance of Chiu 's account, less the debit balance of her account, drops below TDA's specified maintenance requirements, a maintenance call will be made by TDA. If a margin call is issued by TDA, Chiu is required to bring her TDA Account to the required maintenance level by depositing cash or stock, closing long or short equity or option positions, or transferring funds or stock from another account. 8.Chiu does not dispute that on 4 July 2007, she had not yet received any margin call from TDA in relation to the TDA Account. She claims that from her own trading, she was aware that an amount of US $25,000 was required in order to meet the maintenance requirements on her TDA Account, and due to the time difference between Hong Kong and USA, she normally would not wait for a margin call to be issued by TDA before making arrangements for transfer of the funds required to meet the maintenance requirements under her agreement with TDA. 9.On 4 July 2007, Chiu obtained from BOC's counter its standard Telegraphic Transfer Application Form ("Application Form"). The Application Form had more than 12 items and boxes for completion. 7 of such items were printed in red on the Application Form, with the remainder in green. At the top of the Application Form, a Note reads:
10.Under the field or item "Currency and Amount to be Remitted匯款之貨幣及金額", which is printed in red, Chiu inserted: "USD 25,000". Under the field "Name of Bene's Bank代收銀行名稱" which is also in red, Chiu inserted: "First National Bank of Omaha". There is no dispute that references in the Application Form to "Bene" mean "beneficiary". 11.Under the field "Name of Bene收款人名稱", which is in red, Chiu put her own name, "Cherry Chiu". Under the following item of "A/C No. of Bene 收款人賬戶", Chiu inserted : "870553955", which is the account number of the TDA Account. 12.There then appeared, in green, fields for insertion of the address and telephone number of the beneficiary, and a field entitled "Message to Bene 給收款人附言", which is also in green. These were left blank by Chiu. 13.The next fields, which all appear in red, were: first, one entitled "Corr Bank Charges borne by 代理行費用由 ", followed by boxes to be ticked, one indicating “Bene收款人承擔”, and one indicating "me/us本人或吾等承擔". This is for the customer to indicate whether the correspondent bank charges for the Remittance are to be paid by the beneficiary, or by the customer applying for the Remittance. Chiu ticked the box indicating "me/us". 14.The second field, which appears in bold print and in red, is entitled "Payment Method (Include amount remitted and incurred charges) 付款方法（包括匯款本金及費用）", and is followed by boxes to be ticked, one indicating "By debiting A/C No._____ with _______請於賬戶（賬號 ）扣除"; one indicating "Your charges貴行費用 : deduct from amount remitted請在匯款本金內扣除"; and one indicating "debit from our A/C No.______ 請在本人或吾等賬戶中扣除". Chiu ticked the box to indicate that the amount remitted and the charges incurred are to be debited to her specified account number with BOC. 15.A controversial green box with the word "other其他" then appears for the client to tick, following the 3 boxes under the bold heading of "Payment Method". Against this box, Chiu inserted the following words:
16.The dispute between the parties focuses on the meaning of these words under the "other" column, and whether BOC was in breach of contract or negligent in failing to give effect to these instructions from Chiu. 17.To put things into context, First National Bank of Omaha ("FNB"), which is the name inserted by Chiu as the “Beneficiary's Bank” in the Application Form, is the bank in the United States with which TDA maintained a bank account. TDA 's bank account with FNB is numbered 16424641, shown in the remarks made in the "other" column. Chiu accepts that she does not in fact have a direct bank account with FNB. Account No. 870553955, stated as the account number of the "Beneficiary" in the Application Form, is in fact Chiu's margin trading account with TDA. 18.The following instructions were given by TDA on its webpage to TDA's clients with regard to wire transfers to be made by clients to fund their accounts with TDA:
19.Chiu does not dispute that the above represents TDA's instructions given to its clients for transfers, although she stated that there were also other format of instructions given by TDA. 20.In fact, when TDA issued a margin call courtesy notification by e-mail to Chiu later on 5 July 2007, advising her to transfer funds into her TDA Account, the instructions to Chiu are consistent with the information given on TDA 's webpage, namely:
Your TD Ameritrade account title and account#" (my emphases) 21.The instructions on TDA's webpage and in TDA's e-mail of 5 July 2007 clearly indicate that the account to be credited at FNB should be TDA's account number 16424641. Although Chiu had referred to “other instructions” given by TDA in relation to the manner of sending funds to the TDA Account (i.e. apart from those contained on TDA 's webpage), I can safely infer that such instructions would not differ from those contained on the webpage and those set out in TDA's standard margin call notification, such as the one sent by e-mail to Chiu on 5 July 2007. Was BOC in breach of the terms of its contract with Chiu in relation to the Remittance? 22.In summary, Chiu maintains that as the Remittance was intended to be transferred ultimately into her TDA Account, she was the "beneficiary" of the Remittance. Chiu therefore maintained that she had correctly named herself as the "beneficiary" in the Application Form. This is notwithstanding the fact that, as Chiu accepts, she does not have any direct bank account with FNB which is named as the beneficiary's bank in the Application Form, and that the account number of the stated beneficiary was given as Chiu 's TDA Account, and not any bank account number of FNB. 23.Clearly, the word "beneficiary" must be read in its proper context. Like "recipient", the party it refers to can be different, depending on which transaction one refers to. In the context of Chiu's dealings on the TDA Account, the Remittance was intended to be transferred into Chiu's account, with Chiu as the beneficiary. However, in the context of the telegraphic transfer effected through the services of BOC, the Remittance was stated by Chiu in the Application Form and intended by her to be directed into an account at FNB. TDA had so instructed its clients like Chiu to send the necessary transfer of funds required for their trading accounts to FNB. TDA's instructions, such as those contained on its webpage and in its standard margin call notification, are that funds are to be sent to FNB, to be credited to TDA account number 16424641. The party to be credited with the funds is clearly the beneficiary of the transfer. 24.Having expressly stated FNB as the name of the "beneficiary's bank" in the Application Form, Chiu must be consistent in the term she has chosen and cannot, in the same Application Form, allege that someone else is or intended to be the "beneficiary". 25.Chiu 's own designation of "Cherry Chiu", i.e. herself, as the "beneficiary" under the field "Name of Beneficiary", and her designation of her own account number with TDA in the field "A/C No. of Beneficiary", are clearly wrong and inconsistent with her own, earlier designation of FNB as the "Beneficiary's Bank" in the first field. In short, the person stated as the Beneficiary in the Application Form completed by Chiu does not have an account with the bank stated to be the Beneficiary's Bank, and to which the telegraphic transfer is directed to be made. By her own default, Chiu had given wrong instructions with regard to the Remittance. 26.If, as Chiu maintained, she was the beneficiary of the Remittance because the sum of US $25,000 was intended to be transferred into her account number 870553955 with TDA, then she should have inserted TDA as the beneficiary's bank. Chiu's evidence is that she did not do this, because TDA is not a bank. On such footing, with FNB being named as the beneficiary's bank, the "beneficiary" must necessarily be the recipient in the transaction or relationship involving FNB, namely, TDA which maintains a bank account with FNB, and not Chiu. 27.BOC would have no means of knowing, on the face of the particulars and instructions given by Chiu on the Application Form, that the beneficiary named in the Application Form does not in fact have an account with the bank named as the beneficiary's bank. On the face of the Application Form, Chiu's application to BOC, and her instructions to BOC, are to make a Remittance of US $25,000 to a named bank, FNB, for a named beneficiary, Chiu, at a named account number (870553955). On the facts and evidence, that was precisely what BOC did. The Remittance failed only because there was no bank account number 870553955 at FNB in the name of Chiu. 28.Having effected the Remittance in accordance with Chiu's express instructions, I fail to see how BOC can be said to be in breach of the contract made between Chiu and BOC in respect of the Remittance. 29.Chiu argues that BOC should have given effect to the instructions she set out under the field "other". In answer to this, BOC claims that all the information required to effect the Remittance in accordance with the contract made between Chiu and BOC can be found in the main parts of the Application Form, in particular those fields printed in red, and that it was not necessary for BOC to refer to the obsolete（"額外"）information contained in the "other" field. According to the evidence of Miss Tam and Mr. Man who gave evidence on behalf of BOC, the particulars given in the "other" field only relate to the method of payment of the charges for the Remittance. By practice, BOC does not refer to the "other" column for purposes of putting the telegraphic transfer into effect. On BOC's case, Chiu had already ticked the boxes to indicate that the charges for the Remittance are to be debited from Chiu 's account number 01292392022747 with BOC. 30.As set out in paragraph 27 above, I accept that on a proper construction of the Application Form, the contract between BOC and Chiu in respect of the Remittance is for BOC to make a telegraphic transfer of US $25,000 to FNB for Chiu at account number 870553955. Counsel for BOC points out that the words in the "other" field are totally inconsistent with, and destroy the effect of the instructions contained in the earlier parts of the Application Form relating to the name of the beneficiary, the name of the beneficiary's bank and the account number of the stated beneficiary. Consequently, Counsel argues that those particulars in the "other" field should be rejected as repugnant to the instructions given in the main parts of the Application Form which prevail, and that they do not form a term of the contract between BOC and Chiu for the Remittance (The Interpretation of Contracts, Sir Jim Lewison, (2007 ed.) paras. 9.08 and 9.09). I accept these submissions. 31.BOC relies on the terms and conditions set out on the reverse of the Application Form, which form part of the contract between Chiu and BOC for the Remittance. BOC further relies on the terms and conditions in the Conditions for Services and the General Information for Retail Banking Services, which Chiu had agreed to be bound by when she opened her bank account with BOC. Of these provisions, clause 1.8 of Part 1 of the Conditions for Services provides that Chiu should ensure that her instructions to the bank are complete and correct, and that if an instruction cannot be carried out, Chiu will still be responsible for the charges and reasonable expenses that may be incurred. Clause 1.10 of Part 1 of the Conditions for Services also provides that if Chiu 's instruction cannot be executed in whole or part, BOC is not required to notify Chiu immediately. 32.In my Judgment, the Remittance failed as a result of the incorrect information given by Chiu in the Application Form, and there is no basis to find that BOC is in breach of any express term of the contract. 33.There is an implied term of the contract between a bank and its customer that the bank will observe reasonable skill and care in and about executing the customer's orders (see Barclays Bank plc v. Quincecare Ltd. and another [1992] 4 All ER 363). Such an implied term is not pleaded in the Re-Amended Statement of Claim, although Chiu has pleaded that BOC was negligent, and BOC has throughout defended negligence as a cause of action. On the facts of this case, nothing on liability turns on the question whether the case is approached as one in contract, or in tort, and I will deal with BOC's negligence generally under the next issue. Did the Remittance fail as a result of any negligence on BOC 's part? 34.I am satisfied that BOC does not owe any general duty of care to explain the Application Form to Chiu, nor to instruct her generally on the correct way to complete the Application Form. An analogy can be drawn from the decision in Fred Lee v. Lam Kwok Keung HCB 22795/2002 12 October 2007, unreported, at paras.31 & 46. 35.Nevertheless, when a bank acts as agent for its customer, it owes to its customer the duty of care of an ordinary prudent bank (para.8-89, Charlesworth & Percy on Negligence; Barclays Bank plc v. Quincecare Ltd, supra, at pages 375-376). When BOC acted on Chiu 's order to transfer money from her account to FNB, BOC was acting as Chiu 's agent. As agent, BOC owes fiduciary duties to Chiu, and as an agent for reward, BOC is also bound to exercise reasonable care and skill in carrying out the instructions of its principal. Whether a bank, as agent in such circumstances, has taken reasonable care depends on the facts of the case, which facts obviously include the characteristics of the customer, the amount involved, the need for a prompt transfer, the presence of any unusual features, and the scope and means available for making reasonable inquiries. 36.I accept on the evidence that Chiu had not informed Miss Tam or anyone of BOC at the material time on 4 July 2007 that the Remittance was required for the purpose of putting the TDA Account in funds to meet margin maintenance requirements, or to avoid or meet a margin call. It is unlikely that Chiu would have so informed Miss Tam. Chiu claims that she had informed Miss Tam that the funds were required in a hurry. Whether I accept Chiu 's evidence in this regard is, in my Judgment, immaterial as it cannot be disputed that BOC can reasonably foresee that if the Remittance fails, Chiu would suffer some damage as a result of the funds not reaching her designated account for whatever reason. 37.It is not disputed that no one on BOC's part had either dealt with the information which Chiu had inserted in the "other" field, or ever questioned Chiu in relation to such information. 38.BOC's evidence is that, as a matter of practice and in accordance with BOC's internal training and instructions, the "other" field deals only with the customer's method of payment of the charges for the telegraphic transfer. Hence, BOC's staff responsible for effecting the telegraphic transfer itself would not need to deal with the information under this field. 39.The evidence of Miss Tam, the employee at the counter who dealt with Chiu, is that to process the Remittance, she would input into the computer (for further action by staff in the remittance department) the information given by the customer in the necessary fields printed in red in the Application Form. She explained that the other information and particulars are only "additional 額外 ", which she would ignore as they were not necessary for her work. She therefore did not notice the information set out in the "other" field of the Application Form completed by Chiu, as she could obtain and had obtained all the information which she required from the rest of the Application Form. 40.Miss Tam 's evidence, that she only required information in the red fields and would only process such information set out in the red fields, cannot be entirely correct. The account number of the beneficiary must obviously be part of the necessary information to be processed and dealt with, and this is set out in a green field in the Application Form. 41.Further, it is not entirely clear from the face of the Application Form that the "other" box and field relate only to "Payment Method". It can reasonably be understood by a reasonable customer to refer to any general or other information to be inserted by the customer relating to the Remittance. BOC's evidence is that if the customer wished to include any general information or message with the Remittance, then such information should be inserted in the field marked "Message to Bene" (which is printed in green). 42.Importantly, despite BOC maintaining that the "other" field only relates to the customer's method of payment of the bank charges, the information inserted by Chiu under this field is clearly not related to the method of payment. It reads :
43.The information inserted by Chiu therefore relates to an account being credited, instead of an account being debited with the remittance charges. Miss Tam, or her superior checking Miss Tam 's work on the day, should have been put on inquiry by virtue of the contradictory instructions contained in the 3 boxes under "Payment Method". A reasonable, prudent banker would have clarified with Chiu what she meant by the instructions in the "other" field: whether they actually relate to payment of the bank charges, whether they should be inserted in the Application Form under the field entitled "Message to Bene", whether they should replace the instructions in the fields entitled "Name of Bene" and "A/C No. of Bene", or whether they should be deleted altogether as being irrelevant to the Remittance. No one of BOC made any attempt to do this. 44.In my Judgment, it is insufficient for BOC to say that Chiu had supplied all the necessary information which BOC required, under the fields printed in red or otherwise, to effect the telegraphic transfer, and that the information contained in the "other" field is superfluous, or unnecessary, or irrelevant. The information was there, on its face inconsistent with the rest of the information contained in the Application Form, and without making inquiries with Chiu as to the precise meaning of the words she had inserted, a reasonable and prudent banker would not be able to conclude that the information was either superfluous, or irrelevant to the Remittance. I accept that BOC does not have the general duty to instruct its customers on how to complete the Application Form. However, having been given unclear information, and having been alerted to the existence of contradictory and possibly incorrect information, BOC came under a duty to make inquiries and to seek clarification from Chiu. 45.Importantly, it would have been easy for Miss Tam to ascertain from Chiu at the counter the meaning of the words in the "other" field, and to clarify what Chiu's intentions are in relation to the instructions contained in the "other" field. It is not a case of a bank being presented with documents under a documentary credit, and having to reconcile the documents with the written instructions contained in the letter of credit, or any unclear information contained therein, without the immediate assistance of the bank customer (thus distinguishing the facts of Midland Bank Ltd. v. Seymour [1955] 2 Lloyd’s Rep. 147 cited by Counsel for BOC). 46.The reply BOC received from New York on 6 July 2007, in response to BOC's telegraphic transfer made on 4 July 2007, was to the following effect :
47.BOC explained that the reference to "possible FFC account" means "possible for further credit" account. 48.The reply BOC received from New York suggests by itself that a reasonable, prudent banker would have realized that the Remittance might have been for an account which may be further credited by FNB with the Remittance. If BOC had made a similar inquiry with Chiu at the counter on 4 July 2007, the Application Form might have been corrected with the inclusion of the information set out in the "other" field in another, appropriate field (be it under “Message to Bene”, or elsewhere), to enable the Remittance to successfully reach or be credited to TDA's account with FNB. 49.I find therefore that BOC had fallen short of the standard of a reasonable prudent bank in relation to its handling of Chiu's Remittance. Was the failure of the Remittance caused or contributed to by Chiu 's negligence? 50.In my Judgment, the failure of the Remittance was substantially and materially caused by Chiu 's own error in naming herself as the beneficiary of the Remittance, when she had designated FNB as the beneficiary's bank to which the Remittance was to be made. She had no bank account with FNB, and the account number 870553955 was not an account maintained with the stated bank to which the Remittance was to be made. That was the primary reason for the failure of the Remittance. 51.BOC 's failure to detect the inconsistencies in the instructions contained in the Application Form and to raise queries with Chiu contributed to the failure of the Remittance. 52.In all the circumstances, I consider that the apportionment of liability between Chiu and BOC in respect of the failure of the Remittance should be 70% and 30% respectively. Did Chiu suffer any damage as a result of BOC's negligence, if any? 53.It is Chiu 's case that because of the failure of the Remittance, the equity in her TDA Account dropped below the maintenance requirement specified by TDA, such that her account was forcibly liquidated by TDA on 5 July 2007, at 15:46 US time, which is equivalent to 6 July 2007 04:46 HK time. She claims that she sustained losses of US $26,129.54 on this closing out alone. 54.BOC claims that Chiu had never made known to BOC the fact that the Remittance was to avoid a margin call in respect of her margin share dealings on the TDA Account. 55.The real issue is whether Chiu 's losses on the TDA Account, allegedly sustained as a result of the enforced liquidation of the TDA Account, are too remote to be recoverable as a result of BOC's negligence. 56.For the purpose of showing that Chiu does not have a cause of action in negligence against BOC, Counsel for BOC argued that Chiu had been trading on margin in relation to her short selling of the AAPL shares which were liquidated on 5 July 2007 (US time). BOC’s expert, Mr. Wong, argues that Chiu did not sustain any damage as a result of the closing out of her short position on AAPL on 5 July 2007, as her equity in the TDA Account remained the same before and after the liquidation. Mr. Wong 's evidence is that the equity (calculated in the manner summarised in paragraph 6 above) is the portion that truly reflects Chiu 's ownership and beneficial interest in the TDA Account. 57.Further, it is argued that since February 2007, Chiu had been making a loss in her investment represented by her short position on the AAPL shares, such that her loss and damage was not caused by the failure of the Remittance, but by her own investment decisions. 58.However, Mr. Wong accepts that as a result of the forced liquidation which took place on 5 July 2007, the hitherto unrealized investment loss on Chiu's account was converted into realized loss. On Chiu's case, she had lost the opportunity of recovering her hitherto unrealized investment loss, or even of making a profit. 59.I accept that as a result of the failure of the Remittance on 4 July 2007, Chiu had sustained some damage over and above the transfer charges which BOC claims were waived and settled by virtue of the Oral Agreement pleaded in paragraphs 4A and 4B of the Re-re-re-Amended Defence. 60.The true extent of the damage actually sustained by Chiu as a result of BOC's negligence and which is reasonably foreseeable, and not too remote, to be recoverable will have to be separately assessed. Whether the reasonable damages include those allegedly suffered by Chiu as a result of her sale of the 30,000 IPIN shares and purchase of 2,000 IGLD shares should be determined at the assessment stage. Conclusion 61.I find that BOC is 30% liable in negligence in respect of the failure of the Remittance which is the subject matter of these proceedings, and further make an order for Chiu's damages to be assessed. 62.I will further make an order nisi that 30% of the costs of the trial on liability will have to be borne by BOC, to be taxed if not agreed. Unless an application is made to vary this order nisi, the order shall become absolute 14 days after this judgment is handed down.
The Plaintiff in person Mr. Manuel Chong, instructed by Messrs. Tsang, Chan & Wong, for the Defendant Plaintiff's two leave applications to Court of Appeal dismissed. Please refer to HCMP2334/2009 and HCMP584/2010 dated 5 July 2010 |
Cases cited in this judgment
Further hearings and rulings under DCCJ 4041/2007