LIU CHONG HING BANK LTD v. WONG KAM SHAN STEVEN AND ANOTHER

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.4293 OF 1998

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JUDGMENT

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1. This is an appeal by the 2nd named of the Defendants from an order of the Master granting summary judgment against him in the sum of $1,300,000.00 plus interest.

2. The claim of the Plaintiff in this action is for the sum of $1,300,000.00 which was paid by the Plaintiff to the Defendants' firm Steven Wong, Yau & Co. being a firm of solicitors, which the Plaintiff had engaged to act as its solicitors in relation to a mortgage the Plaintiff had granted to its customer. There was an instruction letter of the 12th February 1998 by the Plaintiff bank to the Defendants' firm instructing the Defendants' firm to prepare the mortgage and to advance and pay the mortgagee $1,3000,000.00 upon execution of the charge. There was a letter dated 18th February 1998 from the solicitors firm, the Defendants accepting the instructions and requesting the $1,300,000.00 mortgage sum be credited to the Defendants firm's bank account with the Plaintiff. This was done by the Plaintiff bank and the money was credited to the Defendants firm's bank account on the 18th February.

3. What happened was that on the 19th the next day, three payments in the form of three cheques were made from the bank account of the Defendants firm with the Plaintiff. These cheques appear on page 36 of the Bundle. One was a cash cheque and the other two being cheques uncrossed to different third parties. What had happened was that these payments were in fact to persons not connected with the mortgage. The customer of the bank, the mortgagor was never paid.

4. The Plaintiff demanded the return of the $1,300,000.00 from the Defendants firm which was not done. The solicitor handling this matter of the Defendants firm Steven Wong Kam Shan, the first named of the Defendants absconded. The dispute now is between the second named of the Defendants firm, Jeremiah Yau Chung Wo and the Plaintiff.

5. Three defences or issues were raised by the 2nd named of the Defendants. The first issue in respect of the transaction made not in the course of business was not pressed upon by Mr. Lau for Mr. Yau of the Defendant at the hearing and I therefore say nothing further about this issue except to mention that in my view the point is clearly unarguable.

6. The third issue raised by Mr. Lau is that the firm's chop appearing on the cheques was not pursuant to the mandate. I have looked at the firm's chop on the specimen sample and I have also looked at the firm's chop on the 3 cheques. In my view, a reasonable cashier would plainly find they are the same and that they meet with the mandate.

7. The real dispute at the hearing turns on the second issue. The second issue raised on behalf of Jeremiah Yau is whether in all the circumstances, the Plaintiff ought to be put on inquiry as to stop the payments made on 19th February.

8. Mr. Fung for the Plaintiff has very helpfully gone back a stage further in the legal inquiry and referred me to the leading case of Lipkin Gorman v. Karpnale [1989] 1 WLR 1341. The proposition of law relied on by Mr. Fung is in the Lipkin Gorman judgment in the Court of Appeal. What happened in Lipkin Gorman was that at first instance, the judge found the bank to be liable to its customer in relation to cheques drawn on the firm's account in respect of a solicitor's bad gambling habits. The Court of Appeal reversed the first instance judgment and held the bank to be not liable.

9. Lord Justice May in the Court of Appeal gave the leading judgment and I think it is instructive to have regard to what was there said about the relationship between the banker and the customer and the limited duty of the bank to its customer in relation to the payment out on the customers' cheques.

10. At page 1355, at letter H Lord Justice May said this:

"The relationship between the parties is contractual. The principal obligation is on the bank to honour its customers' cheques in accordance with its mandate on instructions. There is nothing in such a contract, express or implied, which could require a banker to consider the commercial wisdom or otherwise of the particular transaction. Nor is there normally any express term in the contract requiring the banker to exercise any degree of care in deciding whether to honour a customer's cheque which his instructions require him to pay. In my opinion any implied term requiring the banker to exercise care must be limited. To a substantial extent the banker's obligation under such a contract is largely automatic or mechanical. Presented with a cheque drawn in accordance with the terms of that contract, the banker must honour it save in what I would expect to be exceptional circumstances."

Then at letter E, Lord Justice May went on to say this:

"the basic obligation on the banker is to pay his customer's cheques in accordance with his mandate. Having in mind the vast numbers of cheques which are presented for payment every day in this country, whether over a bank counter or through the clearing bank, it is, in my opinion, only when the circumstances are such that any reasonable cashier would hesitate to pay a cheque at once and refer it to his or her superior, and when any reasonable superior would hesitate to authorise payment without inquiry, that a cheque should not be paid immediately on presentation and such inquiry made. Further, it would, I think, be only in rare circumstances, and only when any reasonable bank manager would do the same, that a manager should instruct his staff to refer all or some of his customers' cheques to him before they are paid."

11. The case of Lipkin Gorman was decided after the case of Barclays Bank v. Ouincecare Ltd. [1992] 2 AER 363 was decided. Reference was made by counsel in the course of argument to the Ouincecare case. I do not believe that there is anything said in the Ouincecare case that in anyway casts doubt on the correctness of the subsequent decision of Lipkin Gorman.

12. The question that calls for decision on this appeal applying Lipkin Gorman is whether there are such exceptional circumstances in this case which call for inquiry by the bank when these three cheques were presented for payment. The circumstances suggested by Mr. Lau are as calling for inquiry are:

1) that the fact that two of the cheques were not crossed;

2) that one of the cheques is a cash payment cheque;

3) that the mortgage sum of $1,300,000.00 had been paid into the firm's account;

4) that this account was an inactive account.

Would any reasonable cashier at any reasonable bank presented with any of the three cheques hesitate immediately? Would such cashier have suspicion of fraud and refer the matter to his superior and would the superior also hesitate and would make inquiry? This is the test suggested by Lord Justice May in Lipkin Gorman. In my view, this is clear not such a situation. I think in the circumstances of this case what caused the bank to perform its primary obligation to pay according to the mandate, is clearly the signature of the customer on the cheque with its appropriate chop. Accordingly, the cashiers of the Bank made payments on three separate occasions.

13. In my judgment, the case calls for no hesitation and there is nothing to investigate at the trial. The Plaintiff is plainly entitled to judgment and the appeal therefore must be dismissed with costs.