XCHRX UY JUANITO AND ANOTHER v. THE CHASE MANHATTAN BANK

HCA 15288/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 15288 OF 1999

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D E C I S I O N

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Introduction

1. This is the Defendant's appeal against the Order of Master Jones dated 20 October 2000 when he dismissed the Defendant's application to strike out para. 4(3) of the Reply.

2. The Plaintiffs were the joint-name account holders of a US dollar time deposit account with the Defendant bank. The time deposit account was opened in about November 1984. The Plaintiffs allege that on about 2 April 1998 the Defendant wrongfully closed the account and paid out the credit balance therein to someone else. They allege that the Defendant did so:

(1) without their authorization or instruction;

(2) negligently.

The Plaintiffs claim the repayment of US$413,437.49 being the sum lost with interest and costs.

3. This claim is denied by the Defendant. Various lines of defence were raised in the Re-Amended Defence. The defence relevant to this appeal is based on what can (for convenience) be called an exemption clause: Clause 21 of the Defendant's "Onshore Deposit Accounts Terms and Conditions" which reads:

"Limitation of liability

The Bank shall not be responsible for and the account holder shall fully indemnify the bank and hold the bank harmless against all losses, claims, actions, proceedings, demands, damages, costs and expenses which may be incurred or sustained by the account holder or the Bank in connection with any or all of the accounts whatsoever or the Bank's execution of the account holder's instructions notwithstanding such instructions may be fraudulent or unauthorised or if any of the account holder's accounts or any part thereof is reduced or frozen by any government or official authority."

4. In their Amended Reply, the Plaintiffs join issue with the Defendant and, among other things, they deny that Clause 21 formed part of their contract with the Defendant. Para. 4(3) of the Reply further avers:

"... if which is denied Clause 21 ... governed the relationship between the Plaintiffs and the Defendant .....[and] if (which is denied) Clause 21 permits the Defendant to act in respect of the Account upon instructions which do not come from the Plaintiffs, Clause 21 is unreasonable and accordingly avoided by Section 8 of the Control of Exemption Clauses Ordinance (Cap. 71)."

The Nature of this Appeal

5. It is undisputed that it is only in plain and obvious cases that a pleading or part(s) of it will be struck out, whether under the Rules of the High Court or the court's inherent jurisdiction. The Defendant argues that this is one such case.

6. The gist of the Defendant's argument is as follows:

(a) it is plain and obvious that the contract between the Plaintiff and the Defendant including Clause 21 was made before 1 December 1990, the date when Cap. 71 came into force;

(b) by reason of Section 19 of Cap. 71, this Ordinance does not apply to the US dollar time deposit account because it was a "pre-Ordinance" contract.

7. On the other hand, the Plaintiffs contend (expressly without prejudice to the other issues raised in their pleadings) that:

(1) it is at least arguable whether the contract between the Plaintiffs and the Defendant was "pre-Ordinance" or "post-Ordinance";

(2) (even if the contract was "pre-Ordinance") it is at least arguable whether Cap. 71 is applicable to a "pre-Ordinance" contract where liability for any loss or damage is suffered on or after 1 December 1990.

8. I must point out that this appeal relates to O. 18 r. 19 and the court's inherent jurisdiction to strike out pleadings. It is not, for example, an application for the determination of an issue under O. 33 r. 3. If the court decides not to strike out the pleading, it would not be desirable or appropriate for the court to comment on the matters in dispute because this may prejudice either or both parties' case at a later stage of the proceedings. With this in mind, I turn to deal with the issues raised in this appeal.

Issue 1: It is plain and obvious that the contract was "Pre-Ordinance"?

9. At least for the purpose of this appeal, it is undisputed that Clause 21 was introduced by the Defendant in July 1996. The Defendant submits that despite this, the contract containing Clause 21 was a "pre-Ordinance" one. This is because Clause 2 of the contract permits the Defendant to unilaterally change its terms. Clause 2 reads:

"The Bank may amend, supplement or modify these terms and conditions at any time without any prior notice to or consent of the depositor and such amended, supplemented or modified terms and conditions will be binding on the depositor."

The Defendant says that the change did not bring about a new contract and the same contract remains in existence.

10. The Plaintiffs dispute the correctness of this submission and submit that (at least arguably) the imposition of a new term resulted in the parties entering into a new contract by continuing with their former relationship. They rely on the following passage in Lewison: The Interpretation of Contracts (1997) 2nd Edition, para. 2.03 (p. 28):

"Contracts of long duration are often varied from time to time ... it may be forcefully argued that having taken the opportunity to review their contract, the parties must be taken to have entered into a new contract on the date of the (last) variation of it ...".

11. I agree with the Plaintiffs' submissions that it is not plain and obvious that the contract in question was definitely a "pre-Ordinance" contract.

Issue 2: it is plain and obvious that Cap. 71 is inapplicable?

12. Having decided the first issue in the Plaintiff's favour, it would follow that I must decide this issue in the Plaintiffs' favour as well; namely, it is not plain and obvious that Cap. 71 is inapplicable to the contract in question. This is irrespective of whether the true meaning of Section 19 Cap. 71 is as contended for by the Defendant. However, I shall also examine whether it is plain and obvious that Cap. 71 is inapplicable even if the contract in question was a "pre-Ordinance" one.

13. Section 19, Cap. 71 reads:

"Nothing in this ordinance applies to contracts made before the date on which it comes into force but, subject to this, it applies to liability for any loss or damage which is suffered on or after that date."

14. The parties differ over what the word "... but, subject to this, ..." mean. In short, the Defendant argues that these words mean "subject to the foregoing". Whereas the Plaintiffs argue that they mean "subject to the following."

15. The parties accept that there is no direct authority (whether in Hong Kong or the UK) regarding the meaning of Section 19 (which is similar to Section 31(2) of the Unfair Contract Terms Act 1977 in the UK).

16. The determination of this point involves (1) the construction of a statutory provision and/or (2) policy considerations such as whether pre-existing rights have been taken away. I find that it is not plain and obvious that Cap. 71 is inapplicable to the contract involved in this action.

17. Further, the determination of this point may also affect the rights of people beyond the litigants in this action. This is a further reason for not deciding this issue at this stage but to leave it to be determined after trial.

Conclusion

18. By reason of the above matters, I agree with the Master's Order. The appeal is dismissed.