Intergulf Express H.k. Ltd. And Another v Delta Asia Credit Ltd

FACV No. 3 of 1998

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 3 OF 1998 (CIVIL)

(ON APPEAL FROM CACV No. 184 OF 1997)

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J U D G M E N T

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Chief Justice Li:

1. I have read the judgment of Mr Justice Litton PJ and agree with it. For the reasons which he gives, I would allow the appeal and make the orders including those as to costs set out in his conclusion.

Mr Justice Litton PJ:

Introduction

2. The appellants (plaintiffs at trial) are related companies having common shareholders and directors, with cargo forwarding as their principal business. They received, in the course of their business, cheques in foreign currencies, mainly Japanese yen and U.S dollars. Since 1981 they have dealt with most of these by negotiating them for Hong Kong dollars with the respondent (defendant at trial), an authorized foreign exchange dealer. For this purpose the appellants opened an account with the respondent in 1981. The account was opened by the appellants giving to the respondent (i) copies of minutes of directors' meetings of the two companies authorizing the transaction, (ii) specimen signatures of the directors entitled to act for the appellant companies, and by the appellants' directors signing a standard form of document provided by the respondent headed "Undertaking and Indemnity". The provisions of this standard form document will need detailed examination later, as it is upon the proper construction of its provisions that this appeal turns.

3. Business got underway in 1981. When cheques were ready for negotiation with the respondent the appellants' accountant would telephone the respondent to ascertain the exchange rate offered; if that was acceptable the accountant would have the cheques endorsed by two of the authorized signatories and have them delivered to the respondent's office in exchange for Hong Kong dollar cheques drawn by the respondent, crossed, payable to the order of one or other of the appellants. Business was conducted smoothly in this way for over a decade.

4. In March 1991 one Leung Lik Shan came to be employed by the appellants' group of companies. He was in overall charge of their accounts department. He had no signing rights and was not an authorized signatory in respect of the appellants' dealings with the respondent. He negotiated rates of exchange with the respondent and dealt with the mechanics of discounting third-party cheques on behalf of the appellants. To pick up the trial judge's narrative of the history at this point:

" No doubt he (Leung) became a familiar figure in the halls of Delta (the respondent), for often he undertook this activity personally. Tables reveal that between June 1991 and December 1992 there were some 90 separate transactions totalling over $12 million. Invariably Delta's cheques in payment were, in compliance with Delta's standard practice (which practice is evidenced in clause 5 in the undertaking and indemnity) made payable to the payee in each case and crossed, and found their way to the appropriate bank account.

But this did not always happen. Beginning in December 1991 and thereafter until October 1992, shortly before discovery, Leung on occasion asked that the cheque for payment be crossed payable to cash. Delta obliged. Leung then misappropriated those cheques, paying them into his own account for his own use. The irregularity did not come to light until the latter part of 1992."

5. The total amount stolen by Leung came to about HK $2.54 million. The appellants managed to re-coup $466,000 and claimed against the respondent for the shortfall of $2,010,372 and interest.

The appellants' claim

6. The appellants' case is simply this: By the contract entered into between the parties in October 1981, under the terms of which the business was thereafter conducted, the respondent was bound to settle each foreign exchange transaction by means of Hong Kong dollar crossed cheques made out in favour of the appellants, unless the appellants had, by their written instructions, authorized otherwise. They never did. Hence, when the respondent handed to Leung cash cheques in purported settlement of the foreign exchange transactions, it was in breach of contract.

The defence

7. The respondent's answer to the claim is equally simple: Accepting that the parties were in a contractual relationship, nevertheless the document upon which the appellants in their pleaded case rely - the "Undertaking and Indemnity" signed at the time the account was opened in October 1981 - was a unilateral document which imposed obligations on the appellants only; it gave the respondent contractual rights but imposed no obligations. Hence the respondent was at liberty to vary the practice under which the parties had been conducting business for a decade or more and hand cash cheques over to the appellants' employee in exchange for the foreign currency cheques without attracting legal liability.

8. Other defences dealt with at trial have fallen by the wayside and need not be mentioned here.

The proceedings in the lower courts

9. The trial judge, Deputy Judge Gill, by his judgment dated 27 June 1997, found for the respondent. The appeal by the appellants to the Court of Appeal (Godfrey and Liu JJA, and Keith J) was dismissed on 21 November 1997.

The "Undertaking and Indemnity"

10. The "Undertaking and Indemnity" dated 15 October 1981 executed by the 1st appellant - and another one in identical terms executed by the 2nd appellant on 2 November 1981 - provides as follows:

" I/We hereby request and authorise you to purchase cheques from me/us from time to time. In consideration of the purchase of cheques by you,

I/We, Intergulf Express H.K. Ltd. of Rm. 201-2 Kowloon Air Freight Agents Terminal, 70-78 Sung Wong Toi Road, Kowloon hereby agree without reserve to bind myself/ourselves to the terms and conditions as setforth below:-

(1) Your records for transactions of cheques purchased from me/us will be the only true and indisputable evidence of the transactions of purchases of cheques. I/we am/are unconditionally bound by your records.

(2) The acceptance of cheques will be at your absolute discretion.

If, for whatever reason, a cheque is not accepted, it is my/our understanding that you reserve the absolute right to cancel the order.

(3) The responsibility to deliver cheques purchased rests with me/us. Collection of cheques by you does not form part of the services offered. However, it is my/our understanding that cheques may be collected by you at your absolute discretion only at my/our request and when the circumstances permit. In the event that cheques are collected by you, I/we undertake that this is solely at my/our own risk.

(4) Delivery of cheques must be made by me/us immediately after confirmation of your purchase order.

If, for whatever reason, delivery of cheques is not made on the date of the execution of the order, it is my/our understanding that you reserve the absolute...