TSUI YAN KO v. CITICORP SERVICES INCORPORATED

HEADNOTE

                COMMERCIAL LAW - traveller's cheques - whether issuer's duty to make refund in the event of loss is subject to any implied duty to take reasonable care to avoid or prevent such loss on the part of purchaser.

El-Awadi v Bank of Credit and Commerce International SA Ltd. [1990] 1QB 606 considered.

IN THE DISTRICT COURT OF HONG KONG

CIVIL JURISDICTION

ACTION NO. 424 OF 1991

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BETWEEN

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JUDGMENT

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1. By a writ issued on the 18th January 1991 the plaintiff ("Mr. Tsui") seeks to recover US$11.700 from the defendant as a refund of the face value of 98 Diners Club International traveller's cheques. The cheques were purchased by Mr. Tsui on the 12th April 1988. They were stolen from him in Bangkok on Saturday the 16th April 1988. Mr. Tsui reported the loss to the Thai police on the same day; and two days later he applied for a refund from a representative or agent of the defendant in Bangkok. I have not seen all of the correspondence between the parties since then. But, it would seem that the defendant was extremely suspicious about the alleged loss and put Mr.Tsui to proof of his claim. The reason for the defendant's refusal to make the refund did not really emerge until the morning of the trial when the Defence was further amended. In the result, I am only concerned with two questions. Did Mr. Tsui fail to exercise due care and diligence in safeguarding the cheques against loss or theft? If so, does such failure disentitle him from any refund?

2. On the basis of the agreed bundle of documents and the oral testimony of Mr. Tsui I make the following findings of fact. Mr. Tsui arrived in Bangkok late on the 14th April 1988, and checked into the Krung Kasem Srikrung Hotel. The following day he moved to a cheaper hotel in Chinatown and shared a room with a Mr. Yeung, who was a friend of a Mr. Lam Ah Yan, Mr. Tsui's immediate contact in Bangkok. The next morning Mr. Tsui exchanged three traveller's cheques for some Thai currency. From then until about 3:30 p.m. on that day he carried the other cheques, with a total face value of US$11,700, in a small handbag or airline bag. In the company of Mr. Yeung he visited various crowded parts of Bangkok. He took no special measures against this bag being snatched. He just carried it by the handle or strap allowing it to swing as he walked. He did not leave the traveller's cheques at the hotel reception. He didn't know whether the hotel had safe-deposit boxes. He never enquired whether such facility or any other method for safeguarding large sums of money or valuables was available. He treated the cheques like cash and thought that it was safer to carry the same on his person when shopping or going to places "to have fun". He did not discover the loss until he sought to pay the fare for a taxi journey. He then discovered that the bag had been ripped or cut open and the cheques and his wallet removed. Apart from the visit to the money changer in the morning, Mr. Tsui kept his passport and the purchase agreements relating to the traveller's cheques (pp 51-60 AB; Exh. P.1) in the pocket of a jacket, which he left in the wardrobe of his room at the hotel.

3. In the circumstances of this case, I do not think that I have to express any conclusion on Mr. Tsui's credibility as a witness. The defendant's allegations and suspicions never proceeded beyond a mild flirtation with alleging fraud on his part. In the end the fact of the theft or loss of the cheques was not challenged. Not surprisingly, Mr. Tsui denied all suggestions of carelessness on his part. It is not necessary for me to make any finding as to his credibility in order for me to reject that opinion. Mr. Tsui did not deny the basic factual details of his behaviour on the relevant day or the suggestions put to him by Mr. Adams on behalf of the defendant. I have no hesitation in finding that Mr. Tsui was negligent in his handling of this large wad of traveller's cheques at the material times.

4. In the first place, there was no necessity for carrying the 98 cheques with him, as he had already "cashed" three cheques to a total value of US$300. The day was spent on shopping and "fun" and worship at a temple in circumstances that suggested that there would be no need to use any of the remaining cheques for further expenses. Secondly, he made no enquiries about facilities for keeping the remaining cheques at his hotel. He did not even secrete any of them in his room, or in his pockets, contrary to his previous practice when carrying substantial bankrolls of notes. Thirdly, he failed to maintain adequate control over his possession of this large amount and quantity of valuable instruments, which he regarded as equivalent to cash. Swinging a bag at the end of a strap (even if it is twisted around a wrist) may be a fashionable way of carrying such bags. But, when the holder is carrying a substantial sum of money or valuables in a crowded place, where thieves are constantly on the look out for potential victims, the habits and practices followed in fashionable society must give way to those of the conventional reasonable man or woman, however boring or unexciting they may be. In my view, it is likely that Mr. Tsui would not have lost the 98 cheques if he had clutched the bag in his hand or tucked it under his arm, instead of swinging it by its strap. I am unable to accept Miss Wong's contention that adoption of such protective measures would have merely served to attract the attention of would-be thieves. Finally, the fact that Mr. Tsui did not discover the loss until the end of a taxi journey is a further indication that he was inattentive to the need to safeguard the contents of his bag. If, as he claimed, the cheques and his wallet were removed as a result of someone cutting or slashing his bag, instead of unzipping it, it is not unreasonable to expect that to be discovered sooner.

5. Although I consider that Mr. Tsui handled these traveller's cheques with a distinct lack of reasonable prudence and care, I do not think that it was so serious as to attract the addition of epithets such as "gross", "culpable", "wicked", "complete", or "reckless". I make this finding because it may be material to the question whether any duty of care is to be implied in the agreement between the plaintiff and the defendant in this case; and whether that implied duty has been breached in his case. I turn now to the question whether any terms to that effect should be implied in the agreement between the plaintiff and the defendant in the present case.

6. The traveller's cheques were issued subject to the following terms printed on the back of the purchase agreements: -

7. The proper law of these agreements is clearly that of the State of New York. Although I have been referred to a judgment of a court in that jurisdiction, I have not heard any expert evidence on the law of New York in this regard. This being a question of fact I must, in a civil case, follow the convention of assuming that the law of New York is the same as that in Hong Kong. Nor have I received any evidence of the "attached refund instructions" referred to in condition 4 of the agreement. If they exist at all, there is certainly no evidence that any steps were taken to bring them to the notice of the plaintiff at any material time.

8. In support of her submission that no duty of due care and diligence should be implied, Miss Wong relied on the judgment of Hutchison J. in El-Awadi v Bank of Creditand Commerce International S.A. Ltd. [1990] 1QB 606, and the fact that the express conditions did not impose any obligation in these terms. In the case cited, one of the questions was whether the issuer was contractually bound to make a refund in the event of loss, or merely had an unfettered discretion to do so, or to refuse a refund. The learned judge concluded that there was an express obligation to refund lost or stolen cheques, after acknowledging that there were difficulties as to the nature of the discretion to withhold approval in that case, partly because of the sparsity of the contractual provisions. In the present case, I am fortunately spared such difficulties because of the clear words of conditions 3,4 & 5, as well as the heading in bold print: "PURCHASE AGREEMENT-READ CAREFULLY: THIS AFFECTS YOUR REFUND RIGHTS." These are in my view, clear indications of an express obligation to refund the value of lost or stolen cheques; and overcome the dictum in Braithwaite v. Thomas Cook Travellers Cheques Ltd. [1989] Q.B553 to the effect that, apart from contract, a purchaser is not entitled to any refund in respect of lost or stolen traveller's cheques. The question whether the purchaser is under a corresponding implied duty of care did not arise in the Braithwaite case because of the express provision that the purchaser should properly safeguard each cheque against loss or theft. However, it did arise in the El-Awadi case; and I must consider whether I should adopt the reasoning of the learned judge in that case for rejecting any implied duty of care on the part of the purchaser.

9. In her very helpful written and oral submissions, Miss Wong contended that there was no room for implying such duty on the part of the plaintiff. It could not be implied in fact because of the state of the evidence; and it should not be implied in law because it was not necessary in order to protect the defendant's legitimate interests or to achieve the commercial objectives or business efficacy of the agreements. Furthermore, she contended that the imposition of such a duty was a matter which the defendant was free to achieve by its express conditions. Yet it had chosen not to do so; and should not be allowed to do so by resort to the doctrine of implied contractual terms, or indirect use of tortious concepts. Cf. Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd. [1986] A.C. 80.

10. There is evidence, which I accept, that before purchasing the traveller's cheques, Mr. Tsui was assured that he could get a refund because losses were "covered by insurance." I do not think that these assurances amounted to express warranties collateral or otherwise. In my view, they were merely accurate statements that the value would be refunded in the event of loss. Mr. Adams contended that there was an obligation to refund if there was no fraud or negligence; and that the El-Awadi case was wrongly decided to the extent that Hutchison J. refused to qualify the obligation to refund. He further argued that the implied term was necessary to protect the issuer against fraud and to prevent criminal conduct. The cheques are intended for world-wide use but, without the implied duty of care, the duty to notify losses immediately (condition 3) would not provide world-wide protection.

11. Whilst any court would seek to avoid encouraging any persons to be careless in the conduct of their affairs or to disregard the legitimate interests of others, the concept of a general duty to prevent crime is, in my view, far too broad and amorphous to justify the implication of a duty of care in the contract between the purchaser and the issuer of a traveller's cheque. Assuming that it is correct to treat their relationship as equivalent to that between banker and customer, I do not think that it is a necessary incident of their relationship that the purchaser should be obliged to take reasonable care to ensure that the issuer obtains the world-wide protection which Mr. Adams has in mind. It is difficult to see how much more protection would be afforded by adding such a duty to the duty to notify losses promptly. The latter should be all that is necessary to enable the issuer to take steps to prevent a stolen or forged traveller's cheque from being negotiated unlawfully, by setting in motion the machinery for notifying its world-wide agents and similar organisations. If the issuer wishes to obtain protection against such negotiation during the interval between loss and prompt notification, it is free to secure it by a suitably drafted express term of the agreement. In my view, there is no necessity for implying any duty of care on the part of the purchaser during that interval, or before the loss occurs.

12. Mr. Adams contended that it was necessary to impose the implied duty of care because it would be unreasonable not to do so; otherwise, purchasers would not take proper care of their traveller's cheques. There is much to be said for the argument that the issuer's obligation to make a refund, whether express or implied, should be subject to a correlative duty on the part of the purchaser to take certain steps to avoid loss of the cheques. But, apart from the difficulty of defining the scope of that duty, and determining whether it should be based on mere negligence, gross negligence, recklessness or deliberate conduct, it is not in my view sufficient that it would be reasonable to impose the appropriate duty. The test of implication is not reasonableness, but necessity. Cf. Tai Hing Cotton Mill Ltd v. Liu Chong Hing Bank Ltd [1988] AC 80, 104-5. I am not persuaded that the relationship between the issuer and purchaser would be rendered inefficacious, futile or absurd if the purchaser owes no duty of care to avoid loss of the traveller's cheque. One of the advantages of purchasing a traveller's cheque is the assurance that a prompt refund can be obtained in the event of loss. The issuer obtains adequate protection from the requirement of a prompt report of any loss. The advantage to the purchaser would be largely lost if the right of refund were dependent upon a detailed enquiry into every aspect of his conduct in order to eliminate all forms of negligence.

13. In the present case I am satisfied that Mr. Tsui was assured at the time of purchase that losses would be "covered by insurance." I have already indicated that I do not consider such assurance to amount to a collateral warranty. But, it did accurately. reflect the position, in the sense that a refund would be made in the event of loss, however occasioned. If any term is to be implied into the agreement between the issuer and purchaser as a matter of necessity, I consider that it should be no wider than that in a contract of insurance. The insurer is only exempted from liability for perils brought about by the assured's own act if it is wilful. Mere negligence is not enough, unless the contract expressly stipulates for exemption or limitation on that ground. In the context of traveller's cheques, it is always open to the issuer to impose such a qualification by an express contractual term. In the present case, the defendant merely has to amend condition 5, or incorporate a provision similar to that in Braithwaite's case. It is not for the court to improve or amend the express written contract made between the parties.

14. In his endeavour to support the implication of a duty of care on the part of the purchaser, Mr. Adams contended that the El-Awadi case was wrongly decided. I do not think that Mr. Adams questions the reasoning adopted by Hutchison J. for coming to the conclusion that a duty to make a refund had to be implied as a matter of necessity. However, he does question the learned judge's rejection of any implied qualification to that obligation; and suggests that the learned judge "fell at the last hurdle" For my own part I find it difficult to ascertain the learned judge's reason for rejecting any implied duty of care in that case, despite his finding that the plaintiff was guilty of the most serious negligence" (at 615) and his apparent view that the implied obligation to refund the value of lost or stolen cheques "ought to be subject to some qualification to take account of commercial realities" (at 626). The reference to "commercial realities" seems to be a reference to arrangements between the issuer and other financial institutions concerning the circumstances in which forged traveller's cheques will be honoured. With respect, I cannot see the relevance of these arrangements to the question whether a duty of care should be implied in the relationship between the issuer and a purchaser, unless the duty of care is related in some way to the signing and countersigning of the cheques by the purchaser. It is not suggested that Mr. Tsui was guilty of any default in this respect. Having considered at length, and in considerable detail, the arguments for implying a duty to refund the value of lost traveller's cheques, Hutchison J. gave no other reason for rejecting a correlative duty of care. He merely said (at 626) :

"I can see no reason for qualifying that obligation by confining it to cases where the loss has occurred without negligence or without gross negligence or recklessness. Such deficiencies on the part of the traveller do not determine, whether he or the issuer is out of pocket."

15. The latter assertion is true. The question is whether such deficiencies should determine whether the purchaser or the issuer is to bear the risk of loss in the event of an unauthorised negotiation of the traveller's cheque. In the absence of any express stipulation in the purchase agreement, I consider that such risk is assumed by the issuer when it receives the face value of the cheque and the 1% fee from the purchaser, and undertakes to make a refund in the event of loss. If the issuer wishes its obligation to be limited to losses not caused by the negligence of the purchaser it must, in my view, so stipulate at the time of the contract. It is not a limitation to be imposed as a matter of necessary implication.

16. In Braithwaite's case it was also accepted that there must be some causal link between the purchaser's failure to take care of the cheques and the ultimate loss. I am satisfied that Mr. Tsui has discharged the burden of proving that no such causal link existed in the present case. He reported the loss of the cheques on the 18th April 1988. They were negotiated some two months later in Japan on the basis of signatures and countersignatures, which are clearly different from those on the purchase agreements. I do not know whether the defendant has honoured the cheques negotiated with banks in Japan. I assume that it has done so. The fact that someone was able to obtain payment upon known forgeries so long after a report of their loss suggests a serious defect in the defendant's organization, which would have happened whether or not the purchaser had taken all reasonable care to avoid loss of the cheques. Accordingly, for all the aforesaid reasons the plaintiff has proved his case and is entitled to judgment in the sum of US$11.700. The court's discretion to award interest should be exercised in his favour. But, in view of the delay in bringing this claim before the court I order that interest at 12 per cent per annum from the date of service of the writ until judgment should be added to the sum of US$11.700.