NANYANG COMMERCIAL BANK LTD v. CHEUNG KUNG TAI AND ANOTHER

CACV 317/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 317 OF 2003

(ON APPEAL FROM HCA NO. 1295 OF 2003)

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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 Lam J given on 29 September 2003. The application before the judge was an appeal from a decision of a master refusing summary judgment under Order 14. The judge allowed the appeal and gave judgment in the sum of $1,520,435.01 together with interest. At the conclusion of the hearing of this appeal, this court reserved judgment which we now give.

Background

2. The plaintiff's claim in this case is under a guarantee signed by both defendants in respect of a loan of $2 million granted to Gate Mun Company Limited. The guarantee was dated 18 October 1996. As at 1 January 2003 there was still an outstanding amount on the loan of $1,520,435.01. There was no dispute as to the amount owing or as to the interest which had been accrued on the loan.

3. Action was commenced against the defendants by writ issued on 9 April 2003. A defence was filed on behalf of the defendants on 7 May 2003. That defence raised a number of points. Apart from putting the plaintiff to proof, the defendants averred that the plaintiff had represented that the borrower had deposited sufficient security with it to cover the loan and that the plaintiff had, furthermore, agreed to use its utmost efforts to obtain payment from the borrower in addition to or alternatively securing discharge of the liability by means of the security which had been deposited. It suffices to say that those grounds of defence were no longer pursued by the time of the hearing of this appeal.

4. At the time of the hearing before the master the defendants sought to put forward a further defence. This was a defence of set-off. No doubt, it was this defence which influenced the master to grant leave to defend because, at the same time, he granted leave to the defendants to amend the defence by inserting the new line of defence. The material part of that reads as follows:

"13. The plaintiff is rightfully indebted to the 2nd Defendant for HK$1,276,898.59 being unauthorized credit balances transferred out, in or about December 2002, from an account maintained by the 2nd Defendant with the Plaintiff in Hong Kong to another account of Nanyang Commercial Bank Limited Shekou Branch in PRC which caused losses and damages to the Defendants by the unexpected depletion of cash-flow for the business of the Defendants and the companies with the Defendants as shareholders and/or directors."

5. The other account in the Shekou Branch of the plaintiff to which reference is made in that paragraph was a mortgage loan account which the 2nd defendant had in the Shekou Branch in respect of the purchase of property in Shenzhen. According to an affirmation of Mr Cheung So Wah filed on 3 September 2003, the 2nd defendant's indebtedness on that Shekou Branch account was backed by a guarantee provided by Samlin Industry (Shenzhen) Limited.

6. The only evidence filed on behalf of the defendants was filed by a trainee solicitor of the defendants' solicitors. In his affirmation filed on 19 June 2003, the trainee solicitor exhibited an account from the plaintiff showing the 2nd defendant's account at the Shekou Branch. That indeed showed that the sum of $1,276,898.59 had been transferred into that account on 31 December 2002. The explanation for that was provided in Mr Cheung's affirmation of 3 September 2003 in which he produced 2 exhibits. The first was a copy of a cheque made out to the 2nd defendant in the sum of HK$1,389,747.79 together with a transfer or payment-in slip both dated 7 August 2002 indicating payment into the 2nd defendant's account at the plaintiff's Wanchai Branch. The cheque and the transfer/payment-in slip showed that the cheque was drawn on Samlin Development Company Limited and the payment-in slip showed that the payment in or transfer was also made by Samlin Development Company Limited.

7. The other exhibit was a letter from Samlin Development Company Limited on the following day. There is some difficulty with the translation, which was only prepared very shortly before this appeal, since the accuracy of part of the translation of that letter was challenged at the hearing. In consequence the Court Interpreter has been requested to prepare and certify a translation. That translation reads as follows:

"Mr Li
Manager
Nanyang Commercial Bank Limited Wanchai Branch

Dear Mr. Li,

Our Company has transferred a sum of HK$1,389,747.79 from our account with your bank numbered 04350300074500 to a Kam Lan Ying of account no. 04349710112970. The said sum was used to pay the mortgage loan concerning the purchase of property from and return of property to our company made by the said Kam Lan Ying (sic), and therefore, should be transferred to the said Kam Lan Ying's account with Nanyang Commercial Bank Limited Shekou Branch numbered 043468030052187 for repayment of bank loan. Nevertheless, our person in charge of the matter mistakenly transferred the sum to the account numbered 04349710112970. In view of that, we would be obliged if you help transfer the said sum to Kam Lan Ying's account with the Shekou Branch or refund the said sum to our account. Thank you.

	Yours faithfully,
	For and on behalf of
	Samlin Development Company Limited

	(signature) (illegible)
	Date: (illegible) of 2002 "

8. The judge below decided the case in the plaintiff's favour on the basis that since the monies which had been transferred were utilised to discharge the 2nd defendant's liabilities in the Shekou Branch, the 2nd defendant had lost nothing and since there was no evidence of any loss caused by the depletion of the Wanchai Branch account, it had not been established that there had been any arguable case of loss or damage suffered by the defendants. That way of looking at the case may have arisen from the way in which the case was argued, at least in part, below.

9. Before this court, Mr Au, who appeared on behalf of the plaintiff demonstrated by the use of his skeleton arguments used in the court below, that he had indeed taken the point that seems to me to be crucial in this case. What has happened was quite simply, this: the payment in made by Samlin Development Company Limited had been made in error to the wrong account. On the following day Samlin Development Company Limited, which was the party that had made the payment in in error, requested the plaintiff to correct that error. I see no reason why that error should not be corrected.

10. Such a correction could, in my view, have been made even without reference to the 2nd defendant. If money were credited in error to a bank account I see no reason why the bank cannot, in appropriate circumstances, correct that error. In this case, the letter indicated that the money should have been paid into an account which the paying party, or at least a company which was almost certainly closely connected with the paying party, had guaranteed. If the 2nd defendant had attempted to keep that money other than for the purpose of discharging the liability which the paying party had guaranteed she would have been unjustly enriched.

11. Nevertheless, the bank attempted to contact the 2nd defendant. There is no dispute that its attempts to contact the 2nd defendant met with no success, seemingly because the 2nd defendant had deliberately made herself unavailable in Hong Kong or anywhere else, for that matter. The delay between August and December when the plaintiff finally made the transfer between the 2nd defendant's accounts was explained by the fact that, in that intervening time, the plaintiff operated under an authorisation which the 2nd defendant had given the plaintiff to make monthly transfers from her Wanchai Branch account to her Shekou Branch account. It would appear that on 10 December 2002, the Shekou Branch demanded the repayment of all outstanding indebtedness by the 2nd defendant on or before 15 December 2002. The balance of the money deposited by Samlin Development Company Limited was transferred to the Shekou Branch on 31 December 2002.

12. The facts recited above were not disputed by or on behalf of the defendants. The only further affirmation which was filed was again by the trainee solicitor. All that he said in his affirmation filed on 18 September 2003 was:

"4. I was told by the 1st Defendant and verily believe that:

a.

the payment made by Samlin Industry (Shenzhen) Limited was usual business settlement transaction between the Defendants and Samlin and that the 6 auto-payment transactions effected by the Plaintiff for the period 8/8/2002 to numeral 9/12/2002 referred to in paragraph 16 of Plaintiff's 2nd Affirmation speaks of itself that the Plaintiff did not believe that there was any mistake and payment and/or the monies were properties of person(s) other than the 2nd Defendant."

13. That, in my view, establishes nothing. It certainly does not establish that Samlin Development Company Limited (or Samlin Industry (Shenzhen) Limited) did not make the payment into the Wanchai Branch account in error. The reference to the plaintiff's lack of belief can at best only be attributed to a banker's cautious approach. It goes nowhere to establishing that there had not been any mistake in the making of the payment into the 2nd defendant's Wanchai Branch account which Samlin Development Company Limited and the plaintiff were entitled to rectify.

14. I would therefore dismiss this appeal with an order nisi as to costs in favour of the plaintiff.

Hon Le Pichon JA:

15. I agree.