THONG KO SINE v. ANTHONY GEORGE WILKINSON AND ANOTHER

1988 No.30

(Civil)

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H E A D N O T E

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BANKING - DISHONOURED CHEQUE - NOTICE OF DISHONOUR - PLEADING FACTS DISPENSING WITH NOTICE OF DISHONOUR - S.49(m) AND S.50(2)(c)(iv) OF BILLS OF EXCHANGE ORDINANCE, CAP. 19.

Where a payee sues on a dishonoured cheque, the statement of claim must contain either an allegation that due notice of dishonour was given to the defendant, with particulars of when, how and by whom such notice was given, or else it must contain a statement of facts making it unnecessary for notice of dishonour to be relied on.

1988 No. 30

(Civil)

IN THE COURT OF APPEAL

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J U D G M E N T

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Rhind J.

1. This appeal raises the issue of what the payee of a cheque dishonoured for lack of funds needs to plead when suing the drawer of that cheque.

2. It is well established law that when a payee sues on a dishonoured cheque, the statement of claim must contain either an allegation that due notice of dishonour was given to the defendant, stating the date when, the manner in which, and the person by whom such notice was given, or else it must contain a statement of the facts relied on dispensing with such notice under section 50(2) of the Bills of Exchange Ordinance, ("the Ordinance"), Cap. 19, which reads:-

"(2) Notice of dishonour is dispensed with -

(a) Where, after the exercise of reasonable diligence, notice, as required by this ordinance, cannot be given to or does not reach the drawer or indorser sought to be charged;

(b) by waiver, express or implied. Notice of dishonour may be waived before the time of giving notice has arrived or after the omission to give due notice:

(c) as regards the drawer, in the following cases, namely

(i) where drawer and drawee are the same person:

(ii) where the drawee is a fictitious person or a person not having capacity to contract;

(iii) where the drawer is the person to whom the bill is presented for payment;

(iv) where the drawee or acceptor is, as between himself and the drawer, under no obligation to accept or pay the bill;

(v) where the drawer has countermanded payment;

(d) as regards the indorser, in the following cases, namely-

(i) Where the drawee is a fictitious person or a person not having capacity to contract, and the indorser was aware of the fact at the time he indorsed the bill;

(ii) where the indorser is the person to when the bill is presented for payment;

(iii) Where the bill was accepted or made for his accommodation"

    The best known authority for the proposition stated in my second paragraph is Fruhauf v. Grosvenor and Company⁽¹⁾, where, at page 713, Lord Coleridge, C.J. stated:-

"The general view, no doubt, is that it is undesirable to give effect to hard and  fast technicalities; but here the principle which has guided the Master is the right one.  It is that if the machinery of a writ specially indorsed is put in motion, the statement of claim indorsed must set forth a full and complete statement. Here the statement maintained in the indorsement of the writ is not complete without an allegation of notice of dishonour, or of facts dispensing with it.''

Although Lord Coleridge happened to be dealing with what used to be known as a specially indorsed writ in that case, there is no reason why his observations should not apply with equal force to the situation now before the court where the proceedings were by way of writ with the statement of claim indorsed on it. Other authority to the same effect can be found in Bullen and Leake, (12th Edn.), pages 43 and 325; the 1988 Supreme Court Practice (the "Whitebook") 14/3 - 4/17, 18/7/5, 18/7/11 and 18/12/25. The point is also covered by Byles on Bills of Exchange (25th Edn.) at page 353.

3. The facts relevant to the present appeal are extremely simple. Mr Wilkinson, the 1st defendant, owed Mr Thong, the plaintiff, the sum of US$32,000.  Mr Thong and For Wilkinson agreed that the US$32,000 should be treated as the equivalent of HK$250,000, and that Mr Wilkinson should pay Mr Thong by two post-dated cheques of HK$125,000 each. Pursuant to that arrangement, Mr Wilkinson caused two cheques drawn or his account with the Bank of Canton to be sent to Mr Thong on the 18th June 1987. One of the cheques was postdated to the 18th July 1987 and the other to the 1st August 1987. After Mr Thong's bank attempted to collect on those two cheques on their due dates, they were both returned to Mr Thong by his bank, with an accompanying note from the Bank of Canton, saying "Refer to drawer".

4. In attempting to collect on those two cheques, Mr Thong's bank was acting in the role of the "agent" contemplated by section 49(m) of the Ordinance, whilst Mr Thong was the "principal". There is no suggestion that Mr Thong's bank gave notice of dishonour to Mr Wilkinson. I now set out section 49(m):-

"49. Notice of dishonour, in order to be valid and effectual, must be given in accordance with the following rules-

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(m) where a bill when dishonoured is in the hands of an agent, he may either himself give notice to the parties liable on the bill or he may give notice to his principal if he gives notice to his principal, he must do so within the same time as if he were the holder, and the principal, upon receipt of such notice, has himself the same time for giving notice as if the agent had been an independent holder;"

    As everyone knows, "Refer to draw" is a euphemism meaning that there are insufficient funds in the drawer's account; and that the cheque is being rejected for that reason. Authority on the meaning of "Refer to draw" can be found in Jayson v. Midland Bank Limited⁽²⁾.

5. After the cheques had been returned to Mr Thong unpaid, he then commenced the present action  against Mr Wilkinson, (as well as against another defendant who is not involved in the present appeal). The material parts that need to be set out from the statement of claim are the following:-

"6. The said cheques were duly presented for payment on their respective dates but were returned dishonoured, due notice of such dishonour having been given by the plaintiff to the 1st defendant.

7. Despite further and repeated demands from the plaintiff, the defendants have failed and/or refused to pay up the said sum of US$32,000 or at all.

8. Alternatively, the plaintiff claims against the lst defendant as the drawer of two cheques drawn on the head office of the Bank of Canton Limited payable to the plaintiff. The said cheques were duly presented or the dates indicated below and were dishonoured. Although notice of such dishonour was given to the 1st defendant, Mr Wilkinson, he did not pay the said cheques.

Mr Thong then took out order 19 proceedings for summary judgment against Mr Wilkinson in respect of the two cheques in the affidavit that Mr Thong made in support of 0.14, he said, at paragraph 9 :-

"Due notice of such dishonour has been given by me to Mr Wilkinson but despite further and repeated demands from me, Mr Wilkinson has failed and/or refused to pay the said two cheques or at all."

6. Mr Wilkinson filed an affidavit in reply to that. By his paragraph 2, he denied ever having received notice of dishonour, whether oral or written, from or on behalf of Mr Thong, in respect of the two cheques.

7. When the matter came: before the Easter on the 13th January, 1988; the point about the adequacy of the notice of dishonour does not seem to have been dealt with at all, and the learned Master decided the case in Mr Thong's favour solely on the basis that this was a situation where section 50(2)(c)(iv) of the ordinance excused any notice of dishonour being served. What section 50(2)(c)(iv) means in plain English is that if the bank on which the cheque is drawn has not been put in funds and no arrangements have been made for a sufficient overdraft, then the bank is not obliged to pay on the cheque; and it is not necessary for any payee wanting to sue on the cheque to give notice of dishonour. Mr Wilkinson then appealed to the Judge in Chambers against the learned Master's decision.

8. In an affidavit filed by Mr Wilkinson in relation to whether he should be granted a stay of execution of the Master's order, he pointed out that no circumstances had been pleaded in Mr Thong's statement of claim which would in law excuse notice of dishonour. Mr Wilkinson was saying, in effect, that if you look at the statement of claim, you will not find any reference in it as to why the two cheques were dishonoured.

9. The appeal from the Master's decision was heard by Mayo, J. who, like the Master, regarded it as unnecessary to consider the point about absence of notice of dishonour, and dealt with the case on the basis that this was a situation where no notice of dishonour was required. He referred explicitly to section 50(2)(c)(iv) of the Ordinance and said that that covered the position. From material which was in the affidavits before him; the learned judge pointed out that the cheques had been returned "Refer to draw", and that, on the available evidence, there were insufficient funds in Mr Wilkinson's account. Because he thought that on the merits, Mr Wilkinson had no arguable case, he dismissed the appeal, and confirmed the judgment of the Master below.

10. On the present appeal from the judge's decision, counsel for Mr Wilkinson takes as one of his points that the statement of claim was defective because Mr Thong had failed to plead the circumstances whereby notice of dishonour of Mr Wilkinson's cheques was excused, waived or dispensed with. There are also two other grounds of appeal which basically cover the same ground, namely, that the learned Judge misdirected himself in law by failing to hold that the statement of claim was defective by reason of the plaintiff's failure to plead the facts which brought him within section 50(2)(c)(iv) of the Ordinance.

11. At the hearing today, Counsel for Mr Thong has sought to persuade this court that notice of dishonour was duly given, and he contended that it was sufficient for Mr Thong 1n his affidavit in support of summary judgment just to state that notice of dishonour had been given to Mr Wilkinson without giving any particulars as to when, how, and by whom that notice of dishonour had been given. The authorities already cited show, quite clearly, in my view, that for a pleading about notice of dishonour to be effective, it must give particulars, and if those particulars are not given in the statement of claim, then they should at least be given in the affidavit in support of the plaintiff's statement of claim, In the situation before us; there are no particulars in the statement of claim, and no particulars in Mr Thong's affidavit. On the other hand, there is an assertion on oath by Mr Wilkinson in his affidavit in reply to the 0.14 proceedings to the effect that he has never received any notice of dishonour. In those circumstances, the court is bound to find, on the material before it, that Mr Thong has failed to establish that notice of dishonour was duly served.

12. The other basis on which Mr Thong has sought judgment has been that notice of dishonour was unnecessary because there are facts on which he can rely to show that notice of dishonour was unnecessary. Unfortunately, while those facts appear clearly enough in various affidavits that have been filed, those facts are not embodied in the statement of claim. The statement of claim baldly states that the cheques, when presented for payment, were returned dishonoured. The pleading does not go into any detail as to why they were dishonoured in those circumstances, Mr Thong finds himself in exactly the same position as the plaintiff in Fruhauf v. Grosvenor and Company⁽¹⁾ Mr Thong has a defective pleading Which lacks the necessary detail to amount to a cause of action.

13. It would have been a simple enough matter to amend this pleading before reaching the Court of Appeal: all that needed to be done was to add words to the effect that the cheques were dishonoured for lack of funds in Mr Wilkinson's bank account.

14. I find myself utterly unenthusiastic at having to decide this appeal on a technicality such as this - a pure pleading point - and would have preferred, if possible, to decide the matter on the merits in the way the learned Judge and Master did below. However, 1 think the law is quite clear that a line has to be drawn somewhere in relation to defective and inadequate pleadings in this case, the law has clearly drawn the line at the point where failure to plead the material facts of why a cheque was dishonoured will result in judgment being withheld from a plaintiff.

15. In view of the foregoing, I have to allow the appeal from the learned judge below.

Fuad, V.-P.

16. I share My Lord's dismay at having to allow this appeal on such a technical ground, but I agree that it must be allowed for the reasons that he has given.

(1) (1892) 61 L.J.Q.B. 717

(2) [1968] 1 LI. L.R. 409