LAM SHING TUNG v. THE DAIWA BANK LTD.

HCA 8599/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 8599 OF 1999

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J U D G M E N T

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Background

1. In 1990, the Plaintiff, Mr. Lam Shing Tung, (Mr. Lam) opened a current account (the account) with the defendant, The Daiwa Bank Ltd, (the Bank). The account was maintained at the Bank's Tsim Sha Tsui Branch. The operating mandate provided for only Mr. Lam to operate the account. The Bank granted Mr. Lam an overdraft facility secured by a legal charge on his property, Flat G, 15/F, 91 Sai Yee Street, Mongkok (the mortgaged property).

2. On 1 November 1994, $380,000 was transferred from the account to L. E. Garments Ltd's (LEGL) account at the Bank (the 1st transaction). On 2 December 1994, $380,000 was transferred from the account to LEGL's account (the 2nd transaction). On 21 May 1996, $350,000 was transferred from the account to LEGL's account (the 3rd transaction). On 30 July 1996, $450,000 was transferred from the account to Ms. Fion Lam Hin Ching's account also at the Bank (the 4th transaction). These 4 transfers total $1,560,000.

3. Mr. Lam says that he did not authorize these 4 transfers. When he came to know about them, he immediately informed Mr. Joseph Luk, the Branch Manager and asked him to make immediate rectification. Mr. Luk promised Mr. Lam that he would look into the matter, but he never came back to him. Because of the Bank's failure to rectify the 4 Transfers he has suffered loss and damage amounting to $1,560,000, plus interest wrongly debited by the Bank.

4. The Bank says that the 4 transfers were made on Mr. Lam's oral instructions communicated to Mr. Ng Wing Kin, the Assistant Manager at its Tsim Sha Tsui Branch, on the date of each, and before it was made.

5. In the alternative, the Bank say that even if the 4 transfers were not properly authorized, Mr. Lam has waived his rights by failing to notify the Bank in time and in writing, as provided for in the legal charge.

6. As at 5 May 1999, Mr. Lam had failed to repay the Bank his total indebtedness then amounting to $2,553,035.08 and the Bank counterclaims for vacant possession of the mortgaged property, recovery of the debt of $2,553,035.08 and interest on it.

Undisputed Evidence

7. It is not in dispute that LEGL, the beneficiary of the first 3 Transactions, is a company owned and run by Mr. Lam's uncle, Mr. Lam Sie (Lam Sie). The beneficiary of the 4th transaction, Ms. Fion Lam Hin Ching (Fion Lam), is Mr. Lam's cousin and Lam Sie's daughter. Madam Lam Oi Ching (Madam Lam) is Lam Sie's wife and Fion Lam's mother.

8. LEGL was incorporated in 1991. In 1992, Lam Sie became one of its directors and holder of 80% of its shares. Fion Lam became a director and holder of its remaining 20% shares in 1996.

9. Two other companies also featured in the evidence - Apace Ltd and Koonhon Ltd. Apace was incorporated in 1989. In 1989, Madam Lam became one its directors and holder of over 60% of its shares. Fion Lam became one of its directors and 20% shareholder in 1996. Koonhon was incorporated in 1990. Madam Lam holds 80% of its shares and is one of its directors. Fion Lam became one of its directors and holder of the remaining 20% shares in 1996.

10. Since January 1994, LEGL, Apace and Koonhon have had their registered offices at 8/F Alexandra Industrial Building, Sham Shui Po.

11. LEGL, Apace, Koonhon and Lam Sie all held accounts with the Bank at its Tsim Sha Tsui Branch. A table submitted at trial by the Bank, without objection from Mr. Lam, shows that there were many transfers between these accounts and the account both before and after the 4 questioned transactions.

12. Mr. Lam said that all the undisputed transactions shown on that table between the account and Lam Sie's, Apace's, Koonhon's and LEGL's accounts were loans he had made to Lam Sie out of the money in the account. He said he lent money to Lam Sie whenever Lam Sie asked him to do so. He also admitted that many of the payments into the account were repayments of those loans by Lam Sie, made either in his own name, or the names of Apace, LEGL or Koonhon. Mr. Lam said that, on the occasions where he had made loans by way of a cheque, he had left the payee's name on the cheque blank and left it to Lam Sie to fill in the payee's name before paying-in the cheque.

13. Mr. Lam accepted that he had continued to lend money to Lam Sie out of the account even after he became aware of the 4 questioned transactions.

14. Mr. Lam accepted in evidence that:

1. In respect of the 1st, 3rd and 4th transactions, he received from the Bank debit advice and unsigned transfer slips relating to each transaction after it had taken place.

2. He received from the Bank a monthly statement giving details of each of the 4 questioned transactions. These are the monthly statements for November 1994, December 1994, May 1996 & July 1996.

3. He knew from the transfer slips received in respect of the 1st, 3rd & 4th transaction, and in respect of the 2nd transaction from the monthly statement he received, that each of the 4 transactions had occurred and that his account had been debited with them.

15. Both Mr. Lam and the Bank accept that on 17 June 1997 - Mr. Lam is not sure of the date or month - 2 of the Bank's officers met Mr. Lam at a fast-food restaurant near to his café in Mongkok (the 1st meeting). What was said and produced by Mr. Lam to those officers at that meeting is in dispute. The Bank's case is that it also met with Mr. Lam again on 28 April 1998 at Mr. Lam's cafe (the 2nd meeting). Mr. Lam denies that there was a 2nd meeting.

The issues

16. It is common ground there are only 2 issues to be determined in this trial - whether Mr. Lam's case is to be believed and, if it is, whether Mr. Luk's promise to him that he (Mr. Luk) would look into the matter constitutes a promissory estoppel for the Bank not to rely on the clause in the legal charge requiring written notification of errors to be given to them?

The Plaintiff's evidence

17. Mr. Lam was the only witness called in support of his case. He did not call Lam Sie or Fion Lam, although he acknowledged that he was still in contact with Lam Sie and that their relationship remained friendly. No explanation given as to why Lam Sie was not called to say that he did not ask Mr. Lam for permission to borrow those 4 sums from him; or how he effected 4 transfers from another's account to which he was not a signatory; or whether he has repaid Mr. Lam in whole, or part. Mr. Lam claimed that when he questioned Lam Sie about the unauthorised transfers, Lam Sie told him that his banking affairs were complex and he needed an accountant to help him find the entries on his bank statements. Mr. Lam said that he accepted this explanation, which was, he said, repeated to him on several occasions.

18. As far as raising the issue with the Bank was concerned, Mr. Lam said that, apart from speaking to Joseph Luk about each of the 4 transfers, shortly after it had taken place, he had done nothing else; apart from to remind Mr. Luk that he had not dealt with his earlier complaints. He had not written a letter of complaint to the Bank, or sought to raise the issue with a higher-ranking officer in the Bank. He believed that Joseph Luk would look into the matter. He could give no reason, explaining why he had continued his relationship with the Bank after his complaint about the first two transfers - those in November and December 1994 - had not been dealt with.

19. When asked in cross-examination whether a payment into the account by LEGL of $380,000 made on 1 December 1994 was Lam Sie's repayment of the debit of $380,000 under the 1st transaction made on 1 November 1994, Mr. Lam replied that although he had noticed the deposit of $380,000, he did not know why the money had been deposited into his account. He said that he had never asked Lam Sie about it. He went on to say that he has had other experiences of large amounts of money being paid into his account without him knowing their source, and without him making enquiries to ascertain the source.

20. Mr. Lam denied that the many deposits that he admitted paying into the account in quick succession, starting from 25 November 1996, were interest repayments to the Bank. It is however notable that the amounts and the trend of their increase - from $17,000 to $18,000 and then $20,000, correspond closely with the amounts and the gradual increase in interest debited by the Bank over that period. Mr. Lam claimed that he made those deposits at the request of the Bank's staff, who told him that deposits were required as the account had been inactive for a while.

21. Mr. Lam accepted, in cross-examination, that if his allegations were true, the 4 questioned transactions amounted to serious cases of theft or fraud, committed either by officers of the Bank, or by Lam Sie, or both; yet he conceded that he had made no complaint to the police at the time they occurred. He claimed, somewhat vaguely, that his solicitors had made a report on his behalf to the CCB in the weeks before the hearing, which is some 6-8 years after the events. He produced no document, such as a police witness statement, or a police report file number, to substantiate this claim.

The Defendant's evidence

22. The Bank called 3 witnesses Mr. Tam Kwok Cheung, the former Pro-Manager of the Bank's Tsim Sha Tsui Branch, Mr. Ng Wing Kin, the former Assistant Manager of the Bank's Tsim Sha Tsui Branch and Mr. Wong Kai Fun, who is now the Senior Vice-President of Daiwa Overseas Servicing Co Ltd, the Bank's successor company; formerly he was one of the Bank's supervisors with responsibility for the Tsim Sha Tsui Branch. I was told that Mr. Joseph Luk left the Bank's employ of his own accord in May 1997 and cannot be found.

23. Mr. Ng said that he had effected each of the 4 questioned transfers, on Mr. Lam's instructions. He did this to accommodate one of the Bank's customers. He saw little problem in doing so, as the beneficiaries of the transfers were other customers of the Bank and had been the beneficiaries of many undisputed payments from the account. He remembered receiving telephoned instructions from Mr. Lam on each occasion. He could remember this because it was he who had initiated the telephone conversation by 'phoning Mr. Lam to inform him that the Bank had granted his request for a temporary increase in the overdraft limit. On each occasion he had sent Mr. Lam a debit advice note and a transfer slip for his signature. In the course of the 'phone conversations he had asked Mr. Lam to sign and return the transfer slips to the Bank, but Mr. Lam had never done so. He had chased Mr. Lam up when the transfer slips were not returned and Mr. Lam had said he was '...too busy' to attend to them. The need for him to chase for the return of the transfer slips became less important as time passed as Mr. Lam had never complained about the transactions they related to; indeed, Mr. Lam had never complained to him about anything at all.

24. Mr. Ng said that he knew Mr. Lam and had seen him in the Tsim Sha Tsui Branch at least once a year. He was '...a 100% sure' that it was Mr. Lam he had spoken to over the telephone on each occasion and not someone else pretending to be Mr. Lam. This was because he had 'phoned Mr. Lam on each occasion and therefore the chance that someone else was talking to him would be small. Mr. Ng knew both Lam Sie and Fion Lam and knew them to be related to Mr. Lam. He also knew that LEGL was one of Lam Sie's companies.

25. The bank officers who attended the 2 meetings made memoranda of what had been discussed at each and these were produced, without objection, in evidence. No officer who was present at 1st meeting was called to give evidence; I therefore give no weight to the contents of the memorandum of that meeting. However Mr. Tam Kwok Cheung was one of those present at the 2nd meeting. He said that at that meeting Mr. Lam said his indebtedness would be cleared once LEGL had paid him for the money he had lent it out of the account. It was at that meeting that Mr. Lam had complained, for the first time, about irregularities on the account, but referred only to 2 irregularities, the 3rd and 4th transactions. He showed the officers the advice slips and the unsigned transfer slips relating to those 2 transactions. When they asked him why he had not raised his complaint earlier? Mr. Lam replied that he was busy and that '...usually he put the statements aside in his house after (he) received them'. It is Mr. Lam's case that there was only one meeting - the 1st - and that at the meeting he complained about all 4 transactions and produced documents relating to 3 of them.

Evaluation

26. I regret to say that I did not find Mr. Lam's evidence at all convincing.

27. There was no reason why the Bank would make 3 unauthorised debits in favour of Lam Sie's company and one in favour of Fiona Lam's company. However, given the history of the relationship between them, there was every reason why Mr. Lam would request that such transfers be made.

28. In view of the fact that he continued to lend Lam Sie money out of the account - even going to the admitted extent of giving him blank, as to payee, cheques - I find Mr. Lam's claims that he complained to Joseph Luk and did not see any results coming from his complaints unbelievable

29. I find Mr. Lam's claim that the many deposits he made into the account in quick succession, starting from 25 November 1996, were not interest repayments to the Bank and that he only made those deposits at the request of the Bank's staff, unbelievable. I have already commented that the amounts and the trend of their increase correspond closely with the amounts and the gradual increase in interest debited by the Bank over that period. There is no reason for a bank to require a customer to make deposits into an account in order to keep it active. The fact that he made these interest payments shows that Mr. Lam regarded the 4 questioned transactions as proper ones. I have no doubt that he made the payments as a gesture, in the hope that the Bank would give him some indulgence before calling in his overdraft.

30. As equally feeble, is his claim that he had no idea why Lam Sie paid $380,000 into the account on 1 December 1994. Common sense tells anyone that this must have been a repayment of the loan made to Lam Sie out of the account a month earlier, on 1 November.

31. I am also of the view that if Mr. Lam's allegations were true, he would have reported the matter to the police, or the ICAC, at a much earlier date than a few weeks before the hearing of this case.

32. I accept Mr. Tam's evidence as to what passed at the 1st meeting. I can see no reason for a bank officer to collude with others to concoct a false story about this meeting.

33. I am satisfied that Mr. Lam authorized Mr. Ng Wing Kin the Bank's Tsim Sha Tsui Branch's Assistant Manager, to effect the 4 transactions in course of telephone conversations between the 2 of them, and that he never raised any complaint about them until very much later when the Bank were pressing him to clear his overdraft.

34. In relation to the 1st transaction, I accept that in cross-examination Mr. Ng said:

"Q. Well, I repeat my question again. On 1 November 94, did -- can you remember clearly on that day that Joseph Luk did not give you oral instructions to effect this transfer?

A. Well, of course that's not that clear.

Q. That means you are not sure whether Joseph Luk had given you any such oral instruction on that day?

A. That's right."

This passage however must be taken in context and the context is that Mr. Ng is adamant that he received his instructions in respect of the 2nd 3rd and 4th transactions from Mr. Lam and not from Mr. Luk. Further, the concession he appears to make in the above passage followed answers where he had said, in clear terms, that the instruction for the 1st transaction also came from Mr. Lam. It was, of course, Mr. Ng's evidence in chief that the instructions for all 4 transactions came from Mr. Lam.

35. Mr. Lam's case is unworthy of belief. Frankly, it is no more than sham put forward in an attempt to evade the Bank's counterclaim. There is no need for me to consider the 2nd issue.

Decision & orders

36. The Plaintiff's claim is dismissed and the Defendant's counterclaim succeeds. I make an order giving the Defendant vacant possession of the mortgaged property and enter judgment in the Defendant's favour in the sum of $3,375,443.15 being the total indebtedness of the Plaintiff to the Defendant as at 9 September 2002. Interest will be payable on that sum from 10 September to the day of this judgment at the rate agreed between the parties when the Defendant extended overdraft facilities to the Plaintiff. This, I am told, amounts to $526.35 a day. The plaintiff will pay the same rate of interest on the unsatisfied sum from the day of this judgment until payment.

37. The plaintiff is to bear the Defendant's costs of this action. Provisionally, the basis of taxation is to be the party and party basis as provided for in O.62 r.28(2), I will however hear submissions from the Plaintiff as to why I should order some, or all, of the costs to be taxed on the indemnity basis.