LARK INTERNATIONAL FINANCE LTD. v. LAM KIM MARISA t/a KAM SANG CO. AND ANOTHER

CACV146/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. CACV 146 OF 2000

(ON APPEAL FROM HCA 14104 OF 1997)

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J U D G M E N T

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Hon Rogers VP:

1. This is an appeal from a judgment of Deputy Judge To given on 16 March this year. The plaintiff in the action had already obtained a judgment against the 1st defendant for the sum of HK$1.7 million plus interest and costs in respect of a claim on 7 cheques. The action then continued against the 2nd defendant and after a trial which extended over 2 days, the judge gave judgment not only in respect of the cheques but in respect of a new claim for HK$2.7 million based on an alleged agreement by the 2nd defendant to be responsible for the 1st defendant's debt of HK$3.15 million. This claim was raised for the first time when the case was opened at the trial. From that judgment the 2nd defendant appeals.

The background facts

2. The plaintiff is a foreign exchange company and also discounts cheques in the course of its business. The 1st defendant is the 2nd defendant's wife. The wife trades under the name Kam Sang Company. She took over that business from the 2nd defendant's father. In the course of that business the 1st defendant discounted cheques with the plaintiff.

3. For various reasons, which are irrelevant for the purposes of this case, many of the cheques, which the plaintiff had discounted for the 1st defendant and which had been endorsed to the plaintiff, were dishonoured. As a result, the 1st defendant became indebted to the plaintiff in a sum of over HK$10 million.

4. In order to assist his wife, the 2nd defendant created a second legal charge on two of his properties which had been held in the name of a limited company which he controlled. The 2nd defendant also sold a house and transferred part of the proceeds to the plaintiff so that the charge on one of the properties could be released.

5. There is no dispute that in March 1997 the 1st defendant still owed the plaintiff HK$3.15 million. On 3 March 1997 there was a meeting between a Mr Meyer, who was the legal adviser of the plaintiff, a Mr Mok, also of the plaintiff, and the 2nd defendant. The 2nd defendant says that he was there as an agent for his wife. He laid particular emphasis on the fact that his wife was not feeling well at that time. At that meeting a document, and it is difficult to describe it any other way, was written out by Mr Meyer. It was headed with the date. It then reads :

"	3 MARCH 1997
MAR '97	2 X 50000 EACH
APRIL '97	$150,000
MAY '97	$200,000
JUNE '97	$200,000
JULY '97 & after	$250,000 EACH MONTH

Each payment due 1st of each month, except one March '97 payment due 17th MARCH '97.

FULL BALANCE, if any, due on April 1, 1998.

INTEREST on unpaid balance at HK Bank prime rate +11/2%.

Prepayments allowed without penalty.

For and on behalf of
Lark Finance

Signed (illegible)	Signed
______________________	______________________
	Peter Lam"

6. The dispute between the parties in respect of the meeting is as to whether the 2nd defendant undertook to be responsible for the debt which the 1st defendant owed the plaintiff at least to the extent of HK$3.15 million, or whether, on the 2nd defendant's case, the agreement was simply made on the 1st defendant's behalf. There were 15 cheques which included 7 post-dated cheques totalling HK$1.7 million which were subsequently dishonoured. All the cheques were on cheque forms obviously issued to Kam Sang Co.. These bore the chop of Kam Sang Co. which had the words "Kam Sang Co.", then a space and then dotted lines and then "Authorized Signature" under the dotted line. The 2nd defendant put his signature in the space above the dotted line and beneath "Kam Sang Co.".

This action

7. The writ endorsed with the statement of claim in this action was issued on 23 December 1997. The claim was in respect of the 7 dishonoured cheques totalling HK$1.7 million. The plaintiff applied for summary judgment. Judgment was awarded against the 1st defendant under Order 14 Rule 3 for the sum of HK$1.7 million on 5 March 1998. On 14 July of that year the 2nd defendant was given unconditional leave to defend. The defence filed was that the 2nd defendant had not signed the cheques in a personal capacity but was nominated as an authorised signatory of the 1st defendant's bank account, and when he signed the cheques he did so as an authorised agent of the 1st defendant.

8. The matter then proceeded somewhat slowly. On 27 October 1999 the plaintiff's solicitors filed a check-list indicating that all steps necessary to proceed with the action had been completed and in particular signified the affirmative to the question, "Are you satisfied the pleadings will require no further amendment?"

9. On the same day a Hearsay Notice was filed by the plaintiff's solicitors, which included a copy of the mandate for a sole proprietorship account with the plaintiff which the 1st defendant had completed. That showed amongst things that the 2nd defendant was an authorised signatory of the account. There was also included in the Hearsay Notice a copy of the handwritten document of 3 March 1997, to which I have referred above, and copies of the cheques together with the respective unpaid item memos.

10. Prior to the hearing of this action witness statements were filed by both sides. The witness statements filed on behalf of the plaintiff were by Mr Chan Shui Lun and Mr Donald Meyer. It is pertinent to quote from one paragraph of Mr Meyer's statement as follows :

"On 3rd March 1997, the Plaintiff's then General Manager, Mr. David A. Mok, the 2nd Defendant, Lam Man Leung and I attended a meeting in connection with repayment by the 1st Defendant of advances made by the Plaintiff in November 1996 for the purpose of the 1st Defendant. During the meeting, the 2nd Defendant signed a written memorandum dated 3rd March 1997 whereby he agreed to two HK$50,000.00 payments in March 1997, a payment of HK$150,000.00 in April 1997, payments of HK$200,000.00 in each of May and June 1997, and payments of HK$250,000.00 in each month from July 1997, with the balance to be paid on 1st April 1998. It was the intention of the Plaintiff and the 2nd Defendant that the 2nd Defendant signed the cheques in question so as to lend his personal support to the agreed deferred payments."

11. From that two things are certain. First, that Mr Meyer and the plaintiff were well aware that the debts were owed by the 1st defendant and that there was a distinction between the 1st defendant and the 2nd defendant. Secondly, it is clear that it was the plaintiff's case at that stage that the 2nd defendant had signed the cheques "to lend his personal support to the agreed deferred payments". Thus although it is not entirely clear, the inference, in my view, must be that, at that stage, it was the plaintiff's case that the 2nd defendant must have agreed the schedule on behalf of the 1st defendant and that his personal support lay in signing the cheques. If it were otherwise, namely, that the 2nd defendant had undertaken personal liability by contract when the payment schedule was agreed on 3 March, the use of the expression "lent his personal support to the agreed deferred payments" would be somewhat surprising because they would have been his personal commitments.

12. Nevertheless, despite all this, it is clear that on the face of the pleadings up to the opening of the trial the case was in respect of dishonoured cheques alone.

The conduct of the trial

13. The trial commenced on 8 March 2000. At the commencement of the trial the 2nd defendant was in person. The plaintiff was represented by counsel. At the outset counsel informed the court that the plaintiff wished to put its case on a new footing. She told the court :

"My Lord, I have taken instructions -- I have had a chance to have a conference with those instructing me this morning and with the plaintiff's representative this morning and those instructing me -- the instruction to me is this, that when the defendant signed this memorandum in a meeting on 3 March 1997, your Lordship, agreed to pay the sum of which a total of 3.2 million, because there's a schedule of payments, the total amount of those not set out here at the time the outstanding amount was 3.2 million."

14. When this was briefly explained to the 2nd defendant he objected. The judge then went through something of an explanation in which he said :

"Now, having talked about all this then what I am going to do is to, as Miss Lam's request, adjourn for one hour for the amendment to be typed out and then we will resume and hear the application. Now, as for you, you will have to prepare what you would like to do during this one hour. Now you heard about Miss Lam's application, you know what is it going about, you probably know what the evidence will be like because I assume that you ought to be able to recall what happened at the meeting. And in the meantime, do think whether there are any documents which, or witnesses which can help to rebut what is suggested by the amendment."

15. After that, the matter was adjourned and the court resumed at approximately noon that day. Counsel for the plaintiff then came to court with the draft amendments. Paragraph 4 of the draft amended statement of claim read :

"Further, or alternatively, by March 1997, the 1st defendant was indebted to the Plaintiff in the sum of or about HK$3,150,000. At a meeting on 3rd March 1997 between Mr. David Mok and Mr. Donald Meyer of the Plaintiff and the 2nd Defendant, the 2nd Defendant agreed to be personally liable to the Plaintiff for the said sum and to repay the same by 15 instalments from March 1997 to April 1998 as evidenced and set out in the Memorandum dated 3rd March 1997 and signed by the 2nd defendant personally. It was further agreed that the 2nd defendant would deliver to the Plaintiff post-dated cheques in accordance with the agreed instalments."

16. The amendment was allowed. The plaintiff's counsel's opening submissions lasted the rest of the morning and immediately in the afternoon Mr Meyer gave evidence. In his evidence-in-chief he said amongst other things (transcript page 20T) :

"A. ...I was dealing with Mr Lam and dealing with him on the assumption that, you know, he was acting -- indeed his own conduct, signing the document in March, allocated proceeds from property he owned, encumbering property represented as his.

Q. Okay ...

A. I thought we were dealing with the principle in other words."

17. That statement alone would in the light of Mr Meyer's witness statement seem to me to provide a significant opening for cross-examination of Mr Meyer as to the basis upon which he considered Mr Lam was acting. If, indeed, he thought Mr Lam was the principal of the 1st defendant rather than agreeing personal liability, both his witness statement and paragraph 4 of the amended statement of claim would seem to be inaccurate.

18. The 2nd defendant cross-examined Mr Meyer in the way one would expect of an inexperienced personal litigant. But it is noteworthy that in a number of Mr Meyer's answers he did not answer the question asked. One example on page 35 of the transcript is a question which was reframed by the judge :

"... really you claim you never promised to stand in to make repayments, is that what you want to put to him?"

The answer which came was :

"I have, you know, this notion that somehow payment was conditioned upon future business never ever came up in any dialogue I was present in and, I'm not aware of it anywhere else. Moreover nothing was conveyed in that meeting that your signing of that agreement was somehow contingent or conditioned on approval from your wife before it's an enforceable agreement, and furthermore the cheques that were delivered were four or five business -- say four, I think it was, business days later so that -- so if indeed there had been some conditionally, you know, there would have been ample time to have conveyed it and none was conveyed."

19. The judge did not insist upon the witness addressing his answer to the question. He merely said :

"I mean there's no need for this to be interpreted to the witness. And after all counsel will be fully bilingual and counsel understands that it is not a question."

If the judge was indicating that the witness had not asked an appropriate question that, in my view, was quite wrong. In any event, it would be a curious stand for the judge to take in view of the fact that he himself had framed the question. Whether or not that statement by the judge had the effect of inducing the 2nd defendant to proceed to other matters upon which to question the plaintiff's witness is, of course, not known.

20. It must be noted that the judge made severe criticism of the 2nd defendant and clearly did not believe his evidence. The judge said that the 2nd defendant was obviously an incredible witness.

21. I regret that viewing this matter with the benefit of the transcript, I have come to the conclusion that the 2nd defendant did not have a fair trial in respect of the plaintiff's new claim raised for the first time at trial. There was, as I have indicated, no apparent reason why this new claim was raised for the first time when the trial began. The belated nature of the claim is highlighted by the fact that there was no draft amendment ready at the opening of the trial. The case had to be adjourned for the plaintiff to formulate its case. Worse than that, on the following day the plaintiff filed voluntary particulars to plead consideration for the 2nd defendant undertaking the liability of the 1st defendant. In view of the way the plaintiff's case was put in its pleadings, what was contained in the plaintiff's witness statements and the way Mr Meyer's evidence came out, I consider that there is a real and live possibility, to put it at its lowest, that if the 2nd defendant had been represented, a very different result may have occurred. The judge said in his judgment :

"The 2nd defendant argued that he only acted as agent of his wife in signing the repayment schedule. As a matter of law, if a person signed a contract without making it clear at the time of signing that he was signing it not on his own behalf, but for and on behalf of a principal, either disclosed or not disclosed, he cannot escape personal liability on the contract."

22. The difficulty with that statement as regards the facts of this case is that the handwritten document which Mr Meyer had created could not, on any footing, be called a contract. It might be written evidence which could be used to support the existence of a contract but on its own it is a meaningless document.

23. In my view, the 2nd defendant did not have a fair opportunity of considering the plaintiff's new case. I have no doubt, if he had been represented, his counsel would have insisted on an adjournment when the plaintiff attempted belatedly to introduce a totally new case at the beginning of the trial without having even formulated an amendment. Instead the 2nd defendant was rushed into cross-examining the plaintiff's main witness without, in my view, having a fair opportunity of considering the matter carefully. In those circumstances I consider that the only fair outcome of the matter is that there should be a new trial in this respect.

24. Before concluding this aspect of the matter, it should be pointed out that, as acknowledged by counsel during the course of argument, the writ was issued on 23 December 1998. At the time of the issue of the writ, only HK$2,150,000 would have been payable according to the agreement alleged by the plaintiff in paragraph 4 of the amended statement of claim. Since it is not in dispute, and indeed pleaded in paragraph 6 of the amended statement of claim that HK$450,000 was paid by cheques which were honoured, the plaintiff's claim would have to be limited to HK$1.7 million.

The claim on the cheques

25. As has already been noted, the plaintiff had sought summary judgment against the 2nd defendant. The 2nd defendant had been given unconditional leave to defend. There is no written judgment on that ruling of the master but it is clear from the papers in the action that the basis upon which the 2nd defendant must have been given unconditional leave to defend was that the signature on the cheques was the signature of the firm, being a composite signature of its official stamp and the authorised signatory. The case of Kwok Wing v. Maytex Trading Co. [1977] HKLR 149 had been clearly at the forefront of the 2nd defendant's arguments. Whether it was this factor which, at the trial, prompted counsel for the plaintiff to rely upon an the alternative basis of claim and thus introduce the amendment would be a matter of speculation.

26. The decision in the Kwok Wing case was a decision of the Court of Appeal, it referred to a number of authorities not only from the United Kingdom but from Australia and Canada as well. Huggins JA cited from the case of Nicolaides v. Henwood, Son Soutter and Co. (1938) T.P.D. 390 where Solomon J said at p 394 :

"But the company's stamp is more complex, and forbids the name of the company to stand alone. The support of a director's signature is necessary to complete the signature of the company. In Chapman v. Smethurst (1909) 1 KB 927, this kind of signature was called a composite signature. When the company's stamp had been imposed on the bills, and before the defendant signed his name, the acceptances were incomplete, but they were those of the company partially completed. The stamped words applied only to the company and were in no sense descriptive of the defendant. As soon as the defendant had written his name on the dotted line, the acceptance was complete, because the composite signature of the company was thereby completed. The form of signature is therefore inconsistent with its being that of the defendant, and consistent only with its being that of the company. The stamped portion of the composite signature could only belong to the company; the written portion was added also belonging to the company in the person of its official. To convert it into the defendant's personal signature would be to contradict its structure."

27. In my view, precisely the same applies in the present case. The undisputed evidence was that the chops were put on the cheques first. The chop clearly only relates to Kam Sang Co. It is an undisputed fact that the 2nd defendant was not a partner in or the proprietor of Kam Sang Co.. Kam Sang Co. was the name under which the 1st defendant traded. The 2nd defendant was, however, authorised to sign the 1st defendant's cheques insofar as she used the name Kam Sang Co.. Although the Nicolaides case and the Kwok Wing case involved limited companies and not sole proprietorships, I see no reason why the same principle should not apply in respect of the signature in this case as applied in the other cases. In my view, the finding of the judge that the 2nd defendant was liable on the cheques was wrong. The cheque forms were cheque forms issued to the wife for use in conjunction with the bank account which she had in connection with the business she operated under the name Kam Sang Co.. The chop or stamp applied only to the 1st defendant and had nothing to do with the 2nd defendant. The 2nd defendant completed the signature of the 1st defendant, in its composite form as used in the 1st defendant's business by putting his signature inside the stamp as part of the composite signature. That, he was apparently authorised to do. The finding of liability in respect of the cheques should therefore also be set aside.

28. In my view, therefore, this appeal should be allowed and the case should be remitted to the Court of First Instance for retrial of the plaintiff's claim arising under paragraphs 4 and 6 of the amended statement of claim alone. There should also be an order nisi that the 2nd defendant should have his costs of this action and appeal to-date.

Hon Keith JA :

The Plaintiff's original cause of action

29. The Plaintiff's only cause of action prior to trial was a claim relating to seven cheques which had been dishonoured on presentation. The 2nd Defendant admitted that he had signed the cheques. His defence was that in signing them he had acted as the agent for his wife. The cheques bore the printed name of Kam Sang Co. on whose account they were drawn. Kam Sang Co. was the company of which his wife was the sole proprietor. The cheques bore Kam Sang Co.'s chop, which took the form of a rubber stamp with Kam Sang Co.'s name, underneath which was a dotted line, and underneath that were the words "Authorized Signature". The 2nd Defendant had signed on the dotted line.

30. Section 55(1) of the Bills of Exchange Ordinance (Cap. 19) ("the Ordinance") provides, so far as is material:

"The drawer of a bill, by drawing it .... engages that, on due presentment, it shall be accepted and paid according to its tenor, and that if it is dishonoured he will compensate the holder or any indorser who is compelled to pay it, provided that the requisite proceedings on dishonour are duly taken ...."

Thus, the critical question was whether the 2nd Defendant could bring himself within the exemption from liability contained in section 26(1) of the Ordinance, which provides, so far as is material:

"Where a person signs a bill as drawer, indorser, or acceptor, and adds words to his signature, indicating that he signs for or on behalf of a principal or in a representative character, he is not personally liable thereon; but .... the mere addition to his signature of words describing him as an agent, or as filling a representative character, does not exempt him from personal liability."

Thus, the question which the Plaintiff's original cause of action raised related to the legal effect of the language on the cheques, and not on whether or not the 2nd Defendant had as a matter of fact acted as agent for his wife. For the reasons given by Rogers V-P, I regard the conclusion of the Court of Appeal in Kwok Wing v. Maytex Trading Co. [1977] HKLR 149, with whose reasoning I agree, as decisive on the point. I therefore agree that the judge's conclusion on the Plaintiff's original cause of action cannot stand.

The Plaintiff's new cause of action

31. The amendments to the Statement of Claim for which the Plaintiff obtained leave on the first day of the trial added a new and wholly different cause of action. The 2nd Defendant was alleged to have agreed that he would repay his wife's debt to the Plaintiff. That raised for the first time three important questions of fact:

(i) Had there been any agreement for the repayment of the 2nd Defendant's wife's debt to the Plaintiff?

(ii) If so, had that agreement been entered by the 2nd Defendant on his own behalf or as agent on behalf of his wife?

(iii) If so, had that agreement been an agreement that that debt would be repaid to the Plaintiff by the 2nd Defendant?

32. I entirely share the misgivings of Rogers V-P about the fairness of requiring an unrepresented defendant (as the 2nd Defendant was at the trial) to meet, without an adjournment, a new cause of action which raised wholly different issues of fact to those raised on the case which had been pleaded hitherto - even though it had been thought (albeit erroneously) that one of those factual issues (i.e. whether the 2nd Defendant had been acting on behalf of his wife) had been a relevant issue on the original cause of action. To be fair to the judge, it would have been difficult for him to see the extent to which the issues of fact would be broadened by the new cause of action. But the fact remains that the 2nd Defendant was denied a fair trial on the Plaintiff's new cause of action, and there should therefore be a new trial of the Plaintiff's new cause of action.

The quantum of the Plaintiff's claim

33. The writ was issued on 23 December 1997. By that date, the instalments which had become due under the agreement evidenced by the memorandum of 3 March 1997 amounted to $1.7m. The Plaintiff's causes of action in respect of the balance of the sums due had not accrued by then, because the remaining cheques had all been post-dated to dates after 23 December 1997. Thus, there was no question of those cheques having been dishonoured on presentation by then. Nor by then had the sums represented by those remaining cheques become due and owing to the Plaintiff under the agreement to which the Plaintiff's new cause of action related.

34. Nevertheless, the judge gave the Plaintiff judgment, not for $1.7m. plus interest, but for $2.7m. plus interest. That additional $1m. represented the amount of the remaining cheques which had been post-dated to dates after 23 December 1997, less the $450,000.00 which had been paid by the date of the issue of the writ. He regarded himself as entitled to do that because the application for leave to amend the Statement of Claim on the first day of the trial had included an application to add a claim in relation to the remaining instalments which had by then become due and owing.

35. In my view, it was not open to the judge to allow the Statement of Claim to be amended in that way. The causes of action relating to the remaining instalments had accrued since the issue of the writ. That was conceded by Mr Patrick Szeto for the Plaintiff (who did not appear for the Plaintiff at the trial) in relation to the original cause of action based on the presentation of cheques which had been dishonoured. But it is also true of the new cause of action, because the failure to pay each instalment would have constituted a separate breach of the agreement, and a cause of action for breach of contract is only complete when there has been a breach. Until the time for repayment had arrived, there had been no breach of the agreement relating to the payment of those instalments.

36. It is well established that a Statement of Claim, whether indorsed on the writ or not, cannot be amended, without the defendant's consent, whether with the leave of the court or not, where the effect of the amendment is to add a cause of action which accrued since the issue of the writ: see Eshelby v. Federated European Bank Ltd. [1932] 1 KB 254 (Swift J), Roban Jig & Tool Co. Ltd. v. Taylor [1979] FSR 130 (Court of Appeal) and Chuan Chow Maritime SA Panama v. K/S A/S Bulk Sea Transport (1984), "The Times", 25 February (Neill J). Thus, the most which the judge could have given the Plaintiff judgment for was $1.7m. plus interest.

37. This result is not as unusual as it sounds. The situation does not occur as often as one might expect it to, because creditors who agree to the repayment of debts by instalments invariably insist on the debtors agreeing that if one of the instalments is not paid on the due date, the whole of the balance becomes payable immediately. In that way, the creditor can sue for the remainder of the debt even if the repayment period envisaged by the instalment schedule has not run its course by the date of the issue of the writ. In this case, the Plaintiff did not protect itself in that way.

Hon Le Pichon JA :

38. I agree with both judgments.