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

HCA 14104/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 14104 OF 1997

____________

_______________

J U D G M E N T

_______________

1. The plaintiff is a foreign exchange company and discounts cheques from customers with whom it has established business relations, including the 1st defendant, Kam Sang Company. Originally Kam Sang Company was operated by the 1st defendant's father in law when the relations were first established. It is now a sole proprietary business of the 1st defendant. The 1st defendant had an account with the plaintiff in the name of Kam Sang Company for discounting cheques. Under that arrangement, the plaintiff would discount cheques endorsed by the 1st defendant, her husband, i.e. the 2nd defendant, and his sister.

2. Subsequently many of the cheques endorsed to the plaintiff were dishonoured. As a result, by autumn of 1996, the 1st defendant became indebted to the plaintiff in the sum of over $10 million. The plaintiff's general manager, Mr Mok and their legal adviser, Mr Meyer, became involved in discussing with the 1st defendant on repayment of the debt. These negotiations were gradually taken over by the 2nd defendant. Mr Mok and Mr Meyer had been to Kam Sang Company two or three times. They were met by the 2nd defendant. The 1st defendant only greeted them in the conference room and then absented herself without taking part in the negotiations.

3. As a result of those negotiations, in December 1996, the 2nd defendant created a second legal charge on two of his properties in United Commercial Centre in Jaffe Road as security for the outstanding debt. These properties were held in the name of Bally Company Limited. The shareholders of Bally were the employees of Kam Sang Company, but the 2nd defendant is in fact the person in control and owns 70% of its shares.

4. Shortly after that, the 2nd defendant sold his house in Deep Water Bay and instructed his solicitors to transfer $2 million from the proceeds of sales to the plaintiff so as to release the charge on one of the units in Success Commercial Centre.

5. By March 1997, the debt of Kam Sang Company was reduced to $3.15 million. Mr Mok invited the 2nd defendant to attend the plaintiff office to discuss further repayment on 3 March 1997. There Mr Meyer proposed a repayment schedule of 15 payments in twelve months at an interest rate of prime plus 2% p.a. The schedule was signed by Mr Mok on behalf of the plaintiff. The 2nd defendant signed over his own name. Pursuant to that agreement, the plaintiff collected 15 cheques post-dated in accordance with the schedule some days later. The cheques were drawn on the account of Kam Sang Company with Wing Hang Bank Ltd and signed by the 2nd defendant. The first four cheques were duly honoured but not the other eleven.

6. The plaintiff sued both defendants in respect of seven of the cheques which were dishonoured as at the date of issue of the writ. Judgment was obtained against the 1st defendant and the present proceedings concern the 2nd defendant. At the hearing, the plaintiff amended its statement of claim to include a claim based on the agreement of 3 March 1997 and in respect of the then outstanding balance of the debt of $2.7 million.

7. The plaintiff does not dispute the amount of debt due from Kam Sang Company. His defence was that he was standing in as agent of his wife, the 1st defendant, for the meeting as his wife was not feeling well. He said he had no authority to agree to anything and his duty was just to listen to the plaintiff's proposals and report back to his wife for her agreement. He said his English was not good and he did not know what was going on at the meeting. He said he was pressurised into signing the agreement and he never intended to assume personal liability by so signing.

8. The 2nd defendant is obviously an incredible witness. He is now 49 years old and claims to be unemployed and being supported by his parents and sibblings from overseas. In fact, he is a person of means and substance. Under cross examination, he admitted to be the owner of a horse, but he says he was only the registered owner and the horse belongs to others. He had been in the business of property investment, having netted at least on one transaction $30 million from the sale of his house in Deep Water Bay. He had operated a profitable billiard centre and is looking around for investment in China. He had 70% interest in Bally Company Limited, though the shares were registered in the names of employees of Kam Sang Company. He had lived in Canada for eight years and obtained a bachelor degree in business management from the University of Ottawa. There could not be any truth in his evidence that his English was not good and he could not understand what was going on at the meeting on 3 March 1997. He said he had no business or office in Kam Sang Company and just happened to be there when Mr Meyer called or visited on the four or five occasions. I do not find him an honest and credible witness. He was evasive and defensive and obviously looking for any excuse to avoid his liability. I reject his evidence that he was forced to sign on the repayment schedule, or that he did not understand what the meeting was about. I also reject his evidence that he signed the repayment schedule as evidence of what had been proposed. If it was just a proposal, there was no need for both parties to sign on the schedule. I find that it was evidence of a concluded agreement.

9. While the debt was originally incurred by the 1st defendant trading as Kam Sang Company, the 2nd defendant was actively involved in the business of Kam Sang Company. In fact Kam Sang Company had been his father's business, before his wife became the sole proprietor. He was authorised to endorse its cheques. He took an active role in negotiating for repayment of its debts, while the 1st defendant took no part in the negotiation, even though that took place within a small office of 500 square feet. He offered his own property as security and paid part of the debt out of his own funds. He then negotiated for the 3 March 1997 repayment schedule. He did so without having to consult his wife or seek her approval. He never sought to exclude his personal liability by saying that he was acting as agent only or putting down words to that effect after his signature. He explained that he did not have the legal knowledge to appreciate the significance of the use of those words. That is not credible as he is an experienced businessman and has received a degree in business management.

10. At that time one of his commercial units in United Success Commercial Centre was charged to the plaintiff. That was at a time when the property market was approaching its peak and correction was never in sight. He certainly had a great personal interest in preventing the plaintiff from executing on this charge. It is only obvious that if the repayment of the 1st defendant's debt was not resolved, the plaintiff would execute on this charge and would sue his wife. Objectively, when he was negotiating for the repayment schedule, he did so as principal on his own right in order to save his property from execution and to obtain the plaintiff's forebearance from suing his wife. His position as principal was so understood by Mr Meyer.

11. 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. This principle has been well established by the Privy Council in Basma v. Weekes, [1950] AC 441. In that case, Lord Reid in approving the dicta of Kelly C.B. in Calder v. Dobell, (1871) L.R. 6 C.P. 486 held at 499:

"The contract was made in the name of Cherry, the agent; but the case shows that it was made on behalf of a principle who was named at the time. I think the plaintiffs had a right to sue either the agent or the principal, at their election."

On the strength of the above dicta, even if the plaintiff knew that the 2nd defendant was acting as agent, but as the 2nd defendant did not make it clear while signing the schedule that he was not signing it on his own behalf, the plaintiff has the option to sue either him or the 1st defendant. The above principle was adopted by Godfrey J, as he then was, in Wu Man Kin Eddie v. Cable & Wireless Systems Ltd, [1989] 2 HKC 477 at 478. Thus, even on the facts as alleged by the 2nd defendant, the 2nd defendant would still be liable.

12. In view of the above, it may not be necessary to consider the plaintiff's claim on the cheques. I shall nevertheless deal with them for completeness. The seven cheques were cheques belonging to the account of Kam Sang Company with the name of the company printed on the lower left hand side of the cheque. On each of the cheques was a chop imprinting the words "Kam Sang Company" below which was a dotted line below which were printed the words "authorised signature". The 2nd defendant signed on the dotted line.

13. Sections 26(1) and 55(1)(a) of the Bills of Exchange Ordinance, Cap. 19 provide as follow:

26(1) 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, subject to section 26A, 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.

55(1) The drawer of a bill, by drawing it -

(a) 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.

The 2nd defendant signed as drawer of the cheques. By so signing, he engaged 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 of the cheques. He could only escape liability from section 55 by praying in aid section 26(1).

14. The words "Kam Sang Company" and "authorised signature" were the only words appended to his signature. The cheques also bear the name of Kam Sang Company. I think neither the name of the account holder nor the account number has any significance because section 55 attaches liability on the person signing. In my view, the name of the account holder and the words "authorised signature" together mean that the signature is one which will be acknowledged by the drawee bank and will operate the account named. Putting them at the highest, they may indicate that the person signing could be an agent of the account holder but that is not sufficient as to indicate that he signed for or on behalf of a principal or in a representative character such that it is that other who will pay and that he will not be personally liable. To bring himself within section 26(1), there must be clear, unequivocal words upon the cheque to indicate that the person signing it does so for and on behalf of another or in a representative character. If such words are not inscribed upon the cheque, the drawer must attract personal liability. Accordingly, the 2nd defendant is liable for the total of $1.7 million under these seven dishonoured cheques.

15. If Kam Sang Company had a corporate identity of its own, it could be argued that by signing on a cheque with the name of Kam Sang Company and with the chop of Kam Sang Company, the 2nd defendant represented that it was Kam Sang Company which was to pay and that he was only the instrument whereby Kam Sang Company drew the cheque. That would fall squarely within section 26A.

16. Having found the 2nd defendant liable under the 3 March 1997 agreement, I enter judgment in favour of the plaintiff in the sum of $2.7 million with interest at the rate of 2% over and above prime rate until judgment and thereafter at judgment rate until payment. I also award the plaintiff costs against the 2nd defendant.