RESONA BANK LTD v. LAM SIE AND OTHERS

HCA11870/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.11870 OF 1999

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J U D G M E N T

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1. This is an application for summary judgment by the Resona Bank Limited (formerly known as The Daiwa Bank, Limited), against the 1^st and 2^nd defendants (“the defendants”) who are husband and wife.  The defendants are sued as guarantors.  The guarantee related to the indebtedness of L.E. Garment Limited and Apace Knitting.  Both companies were owned or controlled by the 1^st defendant.  There was a third company owned or controlled by the 1^st defendant called Koonhon.

2. It is the defendants’ case that the accounts of these three companies had been wrongly debited by the plaintiff.  In the defendants’ Amended Defence for which I gave leave at the hearing of this application, it was pleaded that the funds wrongly dissipated/debited by the plaintiff in relation to L.E. Garment was HK$58,122,854, in relation to Koonhon HK$17,711,441, and Apace HK$27,685,478.  The total was HK$103,519,773.  If so, these companies would not be indebted to the plaintiff.  It is the defendants’ case that the wrongful dissipation or debiting of these accounts took place between June 1994 and October 1996.  However, up to date, there is no evidence to show how the figures were arrived at.

3. This was what the 1^st defendant said in his 1^st Affirmation :

“9.    Everything went on well until June 1994.  My accountant informed me that he found some strange transactions in the accounts of L.E. Garment, Apace Knitting and Koonhon Garment Limited (“Koonhon”) which were maintained in the plaintiff.  Koonhon is a company set up in or about 1991 mainly for the purpose of holding a lease for one of the rented office premises for my business.  The accountant showed me the bank statements issued by the Plaintiff that there were some transfer of money from the above said accounts to some accounts which had no connection with my business and at the same time there were deposits of money from accounts which had no connection with my business, that is, LE Garment, Apace Knitting, Sunrise and Koonhon.  Such bank statements did not show the correct account of money held by or averred to the Plaintiff on account of or by me or my business.  It is now produced and shown to me marked exhibits ‘LS-1a’ ‘LS-1b’ and ‘LS-1c’ respectively copy of the bank statements of L.E. Garment, Apace Knitting and Koonhon.

10.    I immediately made enquiries with Mr Luk.  He said he would follow up to see why.  In the meantime, I asked my accountant to be very careful in dealing with the plaintiff’s bank statements.  I went to Mr Luk every few days with my record trying to sort out the matter with him.  I could not get an answer from Mr Luk.  At the same time I was informed by my accountant that there were still money being transferred in and out to and from accounts unknown and had no connection with me nor my business.

11.    As the business was going on and cash-flow was crucial to the business I could not suspend the accounts nor could I close them to open accounts in other bank.

….

15.    In fact starting from mid 1995, whenever I wanted to withdraw money from the business accounts of my business.  Mr Luk would ask me to sign some forms together with some blue colour forms.  I asked him what the forms were.  Mr Luk said it was part of the withdrawal instructions.  I did sign some of them.  All of the forms which I signed were in English.  I do not know English except a few alphabets or names of certain persons or companies in English.  Later I put up more enquiries and Mr Luk did not insist me to sign but leave them with me.

16.    In fact starting from mid 1995, I had opened some bank accounts with the Belgian Bank.  After much heated argument in September 1995.  Mr Luk gave me the plaintiff’s consent to redeem the mortgage on three properties by the Plaintiff and they were the property at Duke Street and the two industrial units in Alexandra Industrial Building.  Four other properties registered in the names of my family members are still mortgaged in favour of the :Plaintiff.

17.    It was only until late 1996 I managed to fully operate all business transactions with the accounts in Belgian Bank.

18.    In the meantime I was still pursuing the matter of unauthorised transactions as shown in the plaintiff’s bank statements with the Plaintiff.  There was no result.  I hired an audit team to sort out the matter for me .  The Plaintiff was asked to co-operate with my audit team but in truth and in fact they made no investigation into the unauthorised transactions.  There was nothing the audit team could do without the cooperation of the Plaintiff.  Mr Luk left the Plaintiff in about 1997.

19.    In late 1997, I gave instructions to lawyers and accountants to look into the matter.  They found it extremely difficult to sort out the unauthorised transactions and it took us quite some time to understand the situation.  It was discovered that money from the same bank accounts of my business had been transferred to around 43 accounts most of which I did not know.  I had never given my consent or instructions for such transfer.  The total amount of such unauthorised transfer involved, subject to final checking, amounted to over HK$499 m..  It is now produced and shown to me marked exhibits ‘LS-2a’, ‘LS-2b’ and ‘LS-2c’ respectively copy of the draft breakdown of such unauthorised transfers in the bank accounts of L.E. Garment, Apace Knitting and Koonhon.

20.    I started to seek legal advice on any possible legal action against the Plaintiff.  Like the problem with the auditors, it took a very long time before we could sort out some of the transactions.  In fact up to now only a small portion of the problem transactions have been identified.

21.    Upon legal advice, three High Court actions have started by my family members against the Plaintiff for the unauthorised withdrawal of money from their account.  They are HCA8599/99, HCA10606/99 and HCA17254/99.  There are now produced and shown to me marked exhibits ‘LS-3’, ‘LS-4’ and ‘LS-5’ copy of the relevant pleadings filed in these proceedings respectively.”

This 1^st Affirmation was filed on 4 March 2000.

4. The claim by the plaintiff against the defendants in relation to the indebtedness of L.E. Garment was as follows :

“	Particulars
Advance Account		HK$   2,878,000.00
Collection Advance		HK$      460,000.00
Unpaid Export Bills		HK$   2,150,100.00
Overdraft		HK$   8,699,380.10
Pre-Export Loam		HK$   1,410,000.00
Real Estate Loan		HK$   1,286,685.87
Trust Receipt		HK$   2,982,000.00
		HK$   9,866,165.97
Interest		HK$   3,592,443.86
Bank Charges		HK$          8,267.83
		HK$23,466,877.66”

And in relation to Apace Knitting :

“	Particulars
Unpaid Export Bills		HK  $2,049,000.00
Real Estate Loan		HK  $3,389,681.98
		HK$  5,438,681.98
Interest		HK$     842,898.14
Bank Charges		HK$         2,904.00
		HK$ 6,284,484.12”

5. Put quite simply, the issue before me was whether the defendants have a credible defence.  The defendants’ case was that Mr Joseph Luk (“Luk”), the branch manager of the plaintiff and his assistant, Mr Ng Wing Kin (“Ng”), made unauthorized transfers from and into accounts of the 1^st defendant’s companies.  Ms Eling Lee who appeared for the defendants said that the defendants were not relying on the so-called pooling arrangement.  The pooling arrangement related to certain allegations that accounts of different customers of the bank were treated as being part of a pool so that banking facilities of one company might be used for the benefit of an unrelated company.  However, the unauthorized transfers, relied on by the defendants, were allegedly made either by virtue of blank cheques or blank blue transfer forms signed by the 1^st defendant pursuant to the misrepresentation of Luk or, indeed, by transfers which were made without any signed transfer form at all.

6. It is the defendants’ case that substantial sums had been stolen from the companies’ bank accounts.  But what evidence is there of that?  The audited accounts of the companies have not been produced to show that on their books the companies had funds which had gone missing.  There is no accountants’ report to show any of these companies had lost anything as a result of the so-called “unauthorized transfers”.  Ms Lee said in the course of her submission that proceeds from letters of credit from the sale of goods by these companies had gone missing.  If so, one would have thought that there should be evidence of that.  After all, it was said that the 1^st defendant and his accountants first became suspicious because proceeds from letters of credit seemed not to be available.  Although L.E. Garment had been wound up, that was not given as a reason why the 1^st defendant was unable to provide the evidence.  Ms Lee said that they had had accountants’ assistance but there was simply nothing before me to show that these companies had so much money to be stolen.  Indeed, there was no evidence that there was any money to be stolen.

7. The 1^st defendant claimed that he had complained to Luk and Ng.  Luk had left the bank in October 1996 but Ng was still with the bank.  If Luk was responsible for stealing so much money from the 1^st defendant’s accounts, it seems to me quite incredible that the 1^st defendant would not have gone to someone higher.  I appreciate that it was the defendants’ case that Luk was the branch manager in Tsimshatsui and Ng, the assistant manager, but there were more senior personnel in the bank to whom complaints could have been made.  

8. There was a meeting after the companies’ accounts had become delinquent between more senior personnel of the bank and the 1^st defendant.  There is a memo recording the meeting which is reproduced below :

“Subject  :    Chase repayment fromLE Garment Ltd

Date       :    August 1, 1997

We, Mr. Kenneth Wong, Mr. Edwin Siu & Mr. Charles Tam, has visited subject’s office in Cheung Sha Wan in a hope to chase repayment of indebtedness that subject owed to us & has been delinquent for some time & by the way to get information about its latest business condition.

Mr. Lam Sie, the Managing Director, told that cash had been tight in these few months, only about $12 MM of goods had been shipped in the past four months, which represented only a month’s turnover in the past.  In addition, the court case with Super Gala, which sued LE for $600,000- being amount due, had resulted its another, the only another besides us, banker Belgian Bank freeze its BA.  LE now has two LC for US$302,328- & US$882,235.59 opened by Manhattan Surplus Ltd (a company of Wal-Mart) & Mast Industries (F.E.) Ltd respectively covering shipment of garments during August & September this year.  Since its BA with Belgian Bank was frozen, no packing credit nor EB negotiation can be made to smooth its already tight cash flow, subject requests us to finance about $4 MM based on these LCs or what so ever so that it can complete the production.  Besides, subject also showed us a shipping schedule for shipment from June end to mid-October for a total amount of US$4.4 MM.

Since subject’s indebtedness has been delinquent for some time without a penny of repayment of principle nor interest accrued, we showed a reluctant attitude to his suggestion.  We also discontent with subject’s attitude & excuse to its non-repayment.  Of course, we need to discuss with our senior management before giving subject the decision of our bank.

With regard to the court case instituted by Super Gala Co. Ltd for amount due of $600,000- towards subject.  Mr. Lam told us that LE owed also the Treasure/Willing group for $6.7 MM (including accrued interest for the past 4 months of about $0.7 MM).  Since he could not service the lender interest on monthly basis, the lender had employed debt collector to chase him very closely.  Mr. Lam told us the following story.  The account of LE has involved in the transfer of funds between accounts ever since 1993.  He had tried to cease such fund transfers various times.  However, when he required working capital finance, he was requested to lodge, to Mr. William Ng, signed blank cheques of LE Garment Ltd & its related companies, namely Apace Knitting Factory Ltd & Koonhon Garments Ltd, for the convenience of fund transfers after he had enjoyed the benefit of “Borrowing Without Collateral” from unknown source(s).  He did not know the detail of transfer of funds & he is still investigating even though the investigation has been started in early 1995 with the help of Mr. William Ng.  At present, there are still some unreconciled items subject wants to find out & request our assistance to search our tickets &/or microfilms retrospect to the year 1993, which have already been stored in our warehouse.  Mr. Lam showed us a list of names which were involved in the irregular transactions in these years.  The number of accounts involved is more than 40 & they are supposedly accounts of our bank with or without BA (Attached are the lists for your reference)”

9. For the purpose of this application, the 2^nd and 3^rd paragraphs of the memo are particularly important.  Although the defendants, in their affirmations, commented on this memorandum twice, they have not denied either of these paragraphs.  On the other hand, the plaintiff has produced two documents (Box 2, pages 104 and 105) setting out shipment schedule for shipment from June to mid October, which has a total value of US$4,458,349.  The 1^st defendant has confirmed that these were internal documents or his companies but he could not confirm whether he had given them to the plaintiff.  Moreover, witnesses from the plaintiff confirmed the accuracy of this memo and, as I have said, these two paragraphs had not been disputed by the defendants.

10. The case of the defendants was that, by 1 August 1997, the 1^st defendant was aware that substantial sums had been wrongfully debited or dissipated from his companies’ accounts.  If so, I would have thought that the 1^st defendant would have complained of the missing money.  Indeed, I would expect him to have attributed the companies’ financial difficulties to the missing money rather than to poor business, since according to the defendants, the plaintiff had wrongfully debited from the companies’ account a net sum of some $103,000,000.  These companies should have been extremely cash-rich.

11. As I have said, the defendants’ case was that the 1^st defendant had been misled in the giving blank cheques and signing blank transfer forms.  He said in his affirmation that he did not know he was signing blank transfer forms because he could not read English.  But the forms were bilingual.  He now relied solely on misrepresentation.  The 1^st defendant also complained about transfers which were effected without signed transfer forms.

12. These were dealt with in the 2^nd Affirmation of Wu Ching Tin (“Wu”), deputy manager of the plaintiff :

“16.       Considering only those Transactions where no written authorisation could be located in respect of that transferee within the same account, the amount of unsigned withdrawals/transfers to third parties comes further down to the following figures :

              L.E. Garment :                         $9,755,009.00

              Apace Knitting :                       $4,564,000.00

              Koonhon Garments :                $9,144,675.00

17.     For further analysis of those remaining Transactions referred to in the above paragraph where no written authorisation could be located in respect of that transferee within the same account, I have extracted those remaining Transactions to prepare another set of tables.  The table shows that these transferees did in fact had other dealings (not listed in the Transactions) with Mr Lam Sie’s companies.  I now produce the set of tables marked as exhibit ‘WCT-13’, setting out the dealings together with the supporting information showing that the allegedly ‘unknown parties’ to Mr Lam Sie in fact had dealing(s) with Mr Lam Sie’s companies before and/or after the specific Transactions.  Hence, Mr Lam Sie’s allegation that any of those transferees referred to in the Transactions were unknown third parties to him and had no dealings at all with his companies were in fact untrue and wholly unfounded.

18.     To explain why there were transactions where no written instructions could be located, apart from accepting written instructions, the Plaintiff would at times, accommodate acquainted customer’s requests, effect transfers from their accounts to specified beneficiaries pursuant to customer’s oral instructions on an urgent basis given to the Plaintiff’s handling officer for the customer’s account.  Mr Lam Sie was of course considered as an acquainted customer of the Plaintiff under which oral instructions were permitted.  After the transfers had been put through the teller’s terminal in accordance with Mr Lam Sie’s request, the completed ‘Transfer Debit’ slips together with the debit advices (the blue colour forms) were sent to Mr Lam Sie for his signature and return.  If the customer fails to return the form, the Plaintiff’s officer would follow up with the customer with telephone calls chasing them to sign and return the debit advice form for Plaintiff’s record, which applies to Mr Lam Sie as well.  It is virtually impossible that any transfer could be effected without authorisation or knowledge of the customers.”

13. So far as these transfers were concerned, they were duly reflected in the monthly statements which were sent to the 1^st defendants’ companies.  They had not been challenged.  As for blank cheques, this was what Wu said :

“7.         Mr Luk no longer worked in the Tsim Sha Tsui Sub-Branch since 1 October 1996.  Mr Luk on his own accord left the employment of the Plaintiff in about May 1997.  The Plaintiff herein has never received any complaint from Mr Lam Sie for any unauthorised transactions as alleged or at all before Mr Luk left the employment of the Plaintiff.  It was only on about 1 August 1997 that Mr Lam Sie first alleged about unauthorised withdrawals, when the staff of the Plaintiff visited him to chase for repayment of the indebtedness in the same accounts of L.E. Garment and Apace Knitting.  There is now produced and shown to me marked exhibit ‘WCT-10’ a copy of the memorandum of that visit prepared by the relevant staff.  The allegation by Mr Lam Sie as recorded in that memorandum, in particular but not limited to the allegation that Mr Lam Sie was ever required by the Plaintiff to lodge any signed blank cheque, is denied.  The Plaintiff has never had such practice as alleged and such practice is neither acceptable nor ever condoned by the Plaintiff.  In fact, after learning of the alleged cheques kept at the sub-branch, the Plaintiff instructed all the sub-branches not to keep blank signed cheques for customers and to return all the blank signed cheques to the customers if such cheques were kept in the custody of the sub-branches.  With regard to Mr Lam Sie’s allegation about Mr William Ng (Ng Wing Kin), I was informed by Mr William Ng that sometimes Mr Lam Sie himself or his staff would hand over to him blank cheques duly signed by Lam Sie, to be completed pending Mr Lam Sie’s further instructions.  Upon further instructions from Mr Lam direct or through Mr Joseph Luk, William would then fill in the particulars of the cheques and deposit the cheques to the accounts as per Mr Lam Sie’s instructions.  As far as William could recall, the accountant of Mr Lam Sie’s approached him sometime in 1995 requesting for some allegedly missing records of fund transfers to and from Mr Lam’s companies and William provided the same to him, as in the normal course of customer’s request for bank records.  No complaint or objection of any allegedly ‘unauthorised transfers’ was raised to William or the Plaintiff at the time.  Save as aforesaid, I verify believe that the allegation concerning William as recorded in the said memorandum has no truth in it.”

This paragraph has been confirmed as correct by Ng in his 2^nd Affirmation.

14. Ms Lee referred to these transfers at Box 4, at pages 1304, 1439 and 2129, and they amounted to millions of dollars.  But, as I have said, they were duly recorded in monthly statements sent to the companies.  There was no evidence that these companies were not aware of these transfers.  Of course, the 1^st defendant’s case was that he complained to Luk and Ng.  The 1^st defendant also said that he refused to sign blank transfers and that was why Luk and Ng had to use unsigned transfers.  If the 1^st defendant had refused to sign blank transfers and he was being robbed blind nevertheless by Luk and Ng, I think it is incredible that he would not have complained to more senior officers in the bank. 

15. Ms Lee explained the 1^st defendant inaction by saying that he was careless in dealing with his own money or that he had left it to his own accountant to complain.  I think that is incredible.  As would have been seen from the memo, the defendants’ companies were not doing well.  Their accounts with the plaintiff were delinquent, they were being sued by their customers and their account with the Belgium Bank had been frozen.  That state of affairs did not happen overnight.  I do not believe the explanation as real or bona fide.

16. And then it was said that some of these transfers were to unrelated companies in a sense that there were not companies owned by the 1^st defendant.  It was said that the same printing appeared on the cheques at Box 5, pages 1642, 1855 and 1863. 

17. In the skeleton submission of the defendants, Ms Lee had set out the following :

“30.     Below are some of the extracts of the misuse of blank cheques by the Plaintiff:

(a)       Cheuqes issued by Born Shine Garment Fty and deposited to the 1^st Defendant’s Companies in May 96:

16th May 96	Cheque #019520 to Koonhon	$970,000
14th May 96	Cheque #019523 to Koonhon	$870,000
14th May 96	Cheque #019524 to Koonhon	$960,000
27th May 96	Cheque #019525 to L.E.	$960,000(P.1568, Box 5,C)
27th May 96	Cheque #019526 to L.E.	$980,000(P.1569, Box 5,C)
28th May 96	Cheque #019527 to Koonhon	$950,000(P.1873, Box 5,C)
28th May 96	Cheque #019528 to Koonhon	$900,000(P.1871, Box 5,C)
27th May 96	Cheque #019529 to Koonhon	$900,000
30th May 96	Cheque #019534 to L.E.	$980,000(P.1570, Box 5,C)
4th June 96	Cheque #019536 to Koonhon	$760,000(P.1875, Box 5,C)

(b)       Cheques issued by Win Bloom and deposited to the 1^st Defendant’s Companies in Sep 96:

5th Sep 96	Cheque #083905 to Koonhon	$900,000
18th Sep 96	Cheque #083913 to L.E.	$900,000(P.1590, Box 5,C)
25th Sep 96	Cheque #083919/20 to Koonhon	$1,760,000
27th Sep 96	Cheque #083923 to Koonhon	$910,000(P.1886, Box 5,C)
27th Sep 96	Cheque #083924 to Koonhon	$970,000(p.1888, Box 5,C)
1st Oct 96	Cheque #083927/8 to Koonhon	$1,910,000
2nd Oct 96	Cheque #083930 to Koonhon	$1,700,000

(c)       Cheques issued by Wing Luck Hong and deposited into 1^st Defendant’s accounts in April and May 96:

9th Apr 96	Cheque #008633 to L.E.	$950,000
16th Apr 96	Cheque #008639 to L.E.	$960,000
23rd Apr 96	Cheque #008640 to Koonhon	$800,000
25th Apr 96	Cheque #008648 to L.E.	$880,000
17th Apr 96	Cheque #008651 to L.E.	$870,000
22nd Apr 96	Cheque #008654 to L.E.	$830,000
23rd Apr 96	Cheque #008655 to L.E.	$950,000
24th Apr 96	Cheque #008656 to L.E.	$700,000
24th Apr 96	Cheque #008657 to L.E.	$670,000
29th Apr 96	Cheque #008650 to L.E.	$1,001,000
30th Apr 96	Cheque #008663 to L.E.	$600,000
30th Apr 96	Cheque #008664 to L.E.	$900,000
2nd May 96	Cheque #008665 to L.E.	$880,000
6th May 96	Cheque #008666 to L.E.	$870,000
9th May 96	Cheque #008676 to L.E.	$908,000
9th May 96	Cheque #008677 to L.E.	$920,000
13th May 96	Cheque #008683 to L.E.	$789,000

31.            From the extract above, the cheque numbers are almost consecutive to one another.  It is virtually impossible that the 1^st Defendant’s Companies had such business activities with these companies.  This supports our allegation that Joseph Luk and Ng Wing Kin requested their customers to sign a number of blank cheques for them to keep (which Wu Ching Tin denies).

32.            Mysterious enough, the dates of the cheques always the same dates of depositing into the bank accounts.  If these cheques were really the business dealings with the 1^st Defendant’s Companies, there must be a time lapse between the date of the cheques and date of receiving and depositing the cheques.

Cheques from different companies borne the same printing

33.            Extract from WCT-14 showing cheques from different companies with the same printing.

(a)       Cheque #840598 issued by Chaintex to Koonhon (P.1855, Box 5,C)

(b)       Cheque #828575 issued by Wing Luck Hong to Koonhon (P.1863, Box 5,C)

(c)       Cheque #808854 issued by Jun Trading Co. to Koonhon (P.1865, Box 5,C)

(d)       Cheque #019527 and #019528 issued by Born Shine Garment Fty to Koonhon (P.1871, Box 5,C)

(e)       Cheque #666090 and #666091 issued by Koonhon to Trustex Co. (P.1877, 1879, Box 5, C)

(f)        Cheque #050569 issued by Koonhon to Born Shine Garment Fty (P.1895, Box 5,C)

(g)       Cheque #078723, 078724 issued by Trustex Co. to Koonhon (P.1899, 1901, Box 5, C)

(h)       Cheques issued by Born Shine (P.1568, 1569, 1570, Box 5, C)

(i)        Cheques issued by L.E. Garment (P. 1585, 1588, 1589, Box 5, C)

(j)        Cheques issued by Wing Luck Hong (P.1617, 1621, 1623, Box 5, C)

(k)             Cheques issued by Jun Trading (P.1632, 1638, Box 5, C)

34.            The printing on the cheques from different companies also the same printing in the transfer receipts printed by the Plaintiff (P.1642, 1643, Box 5, C)

35.            This further supports our allegations of collecting blank cheques from customers by Joseph Luk and Ng Wing Kin in order to manipulate their customers’ bank accounts.”

18. Even if some of these transactions were suspicious, they did not by themselves prove that the companies’ accounts had been wrongly debited.  Of course, if by reason of such transactions, one could come to the conclusion that the defendants’ case was not incredible then the defendants should be given leave to defend.  But any suspicion regarding these transfers could not overcome the clear view I have formed that the defendants’ case that their companies had lost money as a result of the wrongful transfers is incredible.

19. However, I should mention that the summons for summary judgment was initially issued in February 2000.  There has been a long delay.  In a suitable case, delay of itself would entitle the court to refuse to entertain an application for summary judgment.  This was what was said by Fuad J (as he then was) in Stephen P. Kaufman v. Maker Industrial Company Limited [1982] HKLR 20, at 22 :

“… Speaking for myself if the delay was not too great, provided a defence filed did not disclose any arguable case, I would be inclined to grant an application for summary judgment notwithstanding the delay, and consider penalizing the delay by an appropriate order for costs.”

But delay would not necessarily preclude the applicant from succeeding.  But I think having regard to the delay, I should look at the plaintiff’s case with great circumspection. 

20. Mr Chan Chi Hung who appeared for the plaintiff explained the delay in part by telling me that there were actions brought by the plaintiff against other customers, and they were referred to in paragraph 20 of the 2^nd Affirmation of Wu :

“20.       As to paragraphs 21 and 25 referring to other legal proceedings and the alleged pooling scheme, I wish to inform the Court that there have been a number of final determinations by the Court and in none of those did the allegation of a pooling scheme avail the debtors of the Plaintiff.  I crave leave to refer to some of those as set out below :-

(a)          HCMP1708 of 1999

Plaintiff :                  The Daiwa Bank, Limited

Defendant :             Cheung Wai Man

The defendant in that action raised similar type of pooling scheme arrangement defence.  It was stated on page 6, line B of the Judgment that the Judge, in brief, was of the view that the defendant and Luk had reached an agreement, unknown to others including the Plaintiff, benefiting each other.  Under this agreement, the defendant allowed Luk to make use of his account, hence, the defendant could not plead this as a defence in saying that the money was not applied towards his business.  There is now produced and shown to me a true copy of the written judgment in HCMP1708 of 1999 marked as exhibit ‘WCT-16’.

(b)          HCMP3423 of 1998

Plaintiff :                  The Daiwa Bank, Limited

1^st Defendant :        Kwan Cheuk Kong

2^nd Defendants :      Lo Kwok Wa Ronnie, Chan Ng Sang Vincent & Yu Kwok Ming Allen t/a Trustex Company

3^rd Defendant :        Truztex Apparel Limited

(c)           HCMP3091 of 1998

Plaintiff :                  The Daiwa Bank, Limited

1^st Defendant :        Chan Ng Sang Vincent

2^nd Defendant :        Lo Kwok Wa Ronnie

2^nd Defendants :      Lo Kwok Wa Ronnie, Chan Ng Sang Vincent & Yu Kwok Ming Allen t/a Trustex Company

At the hearing of both HCMP3423 of 1998 and HCMP3091 of 1998, Master K.Y. Chan also made an order in favour of the Plaintiff despite similar defence of pooling scheme arrangement was pleaded in the affirmation of the defendants in that action.  When the learned Master gave reasons for his judgment, he mentioned that,

“Banks make money by charging interest on loans.  It does not need a banker to understand that.  Any businessman should know that.  I therefore cannot accept that Luk was acting for the plaintiff when he told the defendants about the scheme where money in the defendants’ account would be used by the plaintiff and not by the defendants and, in return, the defendants would be paid [2.5% interest per month].  I accepted that something funny has been going on in the operation of the defendants’ account, but that was a matter between Luk and the defendants and had nothing to do with the plaintiff.  I cannot imagine why the plaintiff should have used the money of the defendants’ account to lend it to other customers and then paid interest to the [defendant], I cannot imagine why the Plaintiff should have done so, and I also do not understand why should there be a bank within a bank, or why should a bank benefit the defendants with 2.5% per month interest … I also do not understand why should the bank benefit the defendants with 2.5% per month interest when it was the bank’s business to lend money to worthy customers within the risk limits as assessed by the bank.

There is no reasonable explanation to these questions.  I therefore do not accept the defendants’ argument that the Plaintiff had, through Luk, entered into and [perpetuated] the scheme of lending money in the defendants’ accounts.”

This is now produced and shown to me a true copy extract of the transcript from pages 113 to 119 in relation to Master K.Y. Chan’s reasons for his ruling marked as ‘WCT-17’.

(d)          HCMP3514 of 1998

Plaintiff :                  The Daiwa Bank, Limited

1^st Defendant :        Chua You Sing

2^nd Defendants :      Yeung Ping Ching t/a Kane Enterprise Company

3^rd Defendant :        Kane Enterprise Holdings Limited

Mr Justice Cheung when considering the appeal of the 2^nd defendant said in his Judgment that the alleged pooling scheme arrangement was not a normal banking business.  Even if the staff of the Plaintiff did engage in such kind of arrangement, it could not be said that the Plaintiff should be held responsible.  This is now produced and shown to me a true copy of the written Judgment of Mr Justice Cheung of the High Court, exhibited and marked ‘WCT-18’.

(e)          HCMP10570 of 1998

Plaintiff :                  The Daiwa Bank, Limited

Defendant :             Mo Lau Ching trading as Sun Luen Electrical Company

This is now produced and shown to me a copy of the transcript of the ex-tempore judgment of Master Andy Ho of the High Court, exhibited and marked ‘WCT-19’.

(f)            HCA8599 of 1999 (referred to in paragraph 21)

This is now produced and shown to me a copy of the unreported of the judgment of the Honourable Mr Justice Lugar-Mawson of the High Court, exhibited and marked ‘WCT-20’.

(g)          HCA9153 of 1999 (referred to in paragraph 25)

Judgment against the debtor plaintiff was entered in favour of the defendant Bank.  This is now produced and shown to me a copy of the sealed order of the High Court, exhibited and marked ‘WCT-21’.”

21. The last in time was the judgment of Lugar-Mawson J in HCA8599/1999 which was given after trial on 10 October 2002.  I should also mention in passing that this action was brought by a customer of the plaintiff who alleged that unauthorized transfers had been made to companies controlled by the 1^st defendant.  The 1^st defendant did not give evidence in that action but the claim was dismissed because the learned judge disbelieve the plaintiff in that case.  That action has no bearing on the present application.  I only mention it to show that this was part of Mr Chan’s explanation about the delay, namely, that the bank wanted to proceed with these other claims first.

22. For the above reasons, despite the long delay, I am of the opinion that the defendants had not raised a credible case of wrongful debit or unauthorized transfers giving rise to any claim by any of the companies against the plaintiff.  In other words, there is not a fair or reasonable probabilities of the defendants having a real or bona fide defence.  I do not believe I should dismiss the application simply because of the delay.  Ordering a trial when there is no bona fide defence will only waste valuable court time.

23. If I were right that the main defence of these defendants were incredible, then the defence relied on by these defendants, namely, that the risk to the guarantors was materially increased because the accounts had not been used in the usual course of business because there had been unauthorized transfers, must also fail. 

24. So far as the 2^nd defendant was concerned, she said that she could not remember when and where she signed the guarantees, and that when they were signed nobody had explained the contents and the legal effect of the guarantees.  She was a director of L.E. Garment, Apace Knitting and Koonhon.  I do not believe that such a bare assertion could be a defence.  Nor the fact that the 1^st defendant knew very little English.  I believe it was incredible when he said that he thought that the documents he signed were documents enabling his companies to obtain credit from the plaintiff, if this was to be taken as an assertion that he did not know he was signing guarantees.

25. It was also asserted that the guarantees were so manifestly disadvantageous to the 2^nd defendant and the plaintiff had not taken any steps to advise her to take independent legal advice.  But there was no evidence of any undue inference at all, so such a defence could not arise.

26. Mr Chan also relied on the conclusive evidence clause in the guarantees :

“17.     A certificate by an officer of the Bank as to the money and liabilities for the time being due or incurred to the Bank from or by the Customer shall be conclusive evidence in any legal proceedings against the undersigned or against the undersigned’s personal representatives.”

27. Mr Chan referred me to Bache & Co. (London) Limited v. Banque Vernes ET Commerciale de Paris S.A. [1973] 2 Lloyd’s Rep.437.  That was a case concerning a performance guarantee given by a bank which provided as follows :

“Notices of default shall from time to time, be given by [plaintiffs] to [defendants] and on receipt of any such notice [defendants] will forthwith pay … the amount stated therein as due, such notice of default being as between [plaintiffs and defendants] conclusive evidence that [defendants’] liability hereunder has accrued in respect of the amount claimed.”

This was given to the plaintiff who were commodity brokers on the London Commodity Exchange before they entered into buying and selling transactions on behalf of their customers who was a French trading company.

28. When the trading company failed to pay and a notice of default was served on the defendants, the defendants refused to pay.  The bank argued that the conclusive clause was contrary to public policy and invalid.  It was held by the Court of Appeal that if Notice of Default was given in pursuance of the conclusive evidence clause, it was binding according to its terms.  And that it was not contrary to public policy.  This was what Lord Denning, MR said at page 440 :

“      I would only add this: this commercial practice (of inserting conclusive evidence clauses) is only acceptable because the bankers or brokers who insert them are known to be honest and reliable men of business who are most unlikely to make a mistake.  Their standing is so high that their word is to be trusted.  So much so that a notice of default given by a bank or a broker must be honoured.  It ranks as equivalent to, if not higher than, the certificate of an arbitrator or engineer in a building contract.  As we have repeatedly held, such a certificate must be honoured, leaving any cross-claims to be settled later by an arbitrator.  So if a banker or broker gives a notice of default in pursuance of a conclusive evidence clause, the guarantor must honour it, leaving any cross-claims by the customer to be adjusted in separate proceedings.

       In my opinion the Judge was quite right in giving full effect to the conclusive evidence clause.  He gave judgment under Order 14 for the full amount.  I entirely agree with his judgment.  We had the additional advantage of the Australian case which was not put before him.  I would dismiss the appeal.”

This was what Scarman LJ said at page 441 :

“      It is not necessary to analyse the detailed language of the clause to see that there is nothing in this contract to preclude that process of adjustment.  Nevertheless the clause is explicit upon the point.  The main sentence of the clause runs as follows: ‘Such notice of default being as between you [— that is, the bank —] and us [— that is, the English brokers —] conclusive evidence that our liability hereunder has accrued in respect of the amount claimed.’  In other words, the clause is expressly limited to the relationship directly arising between the English broker and the bank as guarantor; and contains nothing that would in any way influence or modify the subsequent adjustment that can take place which involves the principal debtor and as a result of which the guarantor would have the rights of the principal debtor, if the principal debtor were found in any dispute to have any rights.”

29. In my opinion, this was not an authority for Mr Chan’s proposition that even if there had been wrongful debiting of the defendants’ companies’ accounts, the companies or these defendants had to pay first and then sought their relief by separate actions.  May be a properly drafted provision could have that effect : Tai Hing Limited v. Liu Chong Hing Bank [1986] 1 AC 90 at page 109.

30. I do not believe clause 17 has that effect.  It does not in terms or by necessary implication preclude any cross-claim or set off.  However, in the absence of evidence from the defendants showing the plaintiff’s figures were or might be incorrect, clause 17 would enable judgment to be given according to the figures shown on the certificates. 

31. For the above reasons, I would give judgment in favour of the plaintiff :

(1)     the sum of HK$23,466,877.66;

(2)     the sum of HK$3,858,306.70;

(3)     the sum of HK$6,284,484.12; and

(4)     the sum of HK$926,700.18.

32. The parties are to make submissions on the appropriate interest rate within 14 days of today.

33. I make an order nisi that the 1^st and 2^nd defendants are to bear the costs of the action, to be taxed if not agreed.