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FACV No. 11 of 2022
[2023] HKCFA 3
IN THE COURT OF FINAL APPEAL OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
FINAL APPEAL NO. 11 OF 2022 (CIVIL)
(ON APPEAL FROM CACV NO. 548 OF 2018)
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| BETWEEN |
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PT ASURANSI TUGU |
Appellant
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PRATAMA INDONESIA TBK |
(Plaintiff) |
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(formerly known as PT TUGU PRATAMA INDONESIA) |
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and |
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CITIBANK N.A. |
Respondent
(Defendant) |
___________________________
| Before: |
Chief Justice Cheung, Mr Justice Ribeiro PJ, Mr Justice Fok PJ, Mr Justice Lam PJ and Lord Sumption NPJ |
| Date of Hearing: |
6 January 2023 |
| Date of Judgment: |
6 February 2023 |
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JUDGMENT
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Chief Justice Cheung:
1. I agree with the judgment of Lord Sumption NPJ.
Mr Justice Ribeiro PJ:
2. I agree with the judgment of Lord Sumption NPJ.
Mr Justice Fok PJ:
3. I agree with the judgment of Lord Sumption NPJ.
Mr Justice Lam PJ:
4. I agree with the judgment of Lord Sumption NPJ.
Lord Sumption NPJ:
Introduction
5. This is a dispute about limitation. In reality however, it is about one of the oldest and most litigated questions in commercial law, namely the rights of a corporate customer against a banker who has paid money out of its account on the dishonest instructions of an authorised signatory.
6. The Appellant, whom I shall call Tugu, was at the relevant time the captive insurer of PN Pertamina, an Indonesian state-owned oil and gas company. In December 1990, three officers of Tugu opened a current account in Tugu’s name in Hong Kong with Citicorp Investment Services Ltd, a subsidiary of the Respondent, Citibank N.A., whom I shall call the Bank. They were Mr Sonni Dwi Harsono, the President Director of Tugu with general powers to bind the company under its articles of association, Mr Rizaludin Sunjaya, the company’s Finance Director, and Mr Mohamad Hasan, a member of its Board of Commissioners. It is common ground that they had authority to open the account and to agree the terms of the mandate. In April 1994, as a result of a corporate reorganisation of the Citibank group, the account was transferred to the Bank’s Hong Kong branch, where it remained throughout the relevant period.
7. The bank mandate provided that any two of the three officers who had opened the account were authorised to give instructions relating to it. The account-opening documentation directed that all documents and correspondence should be sent not to Tugu but to a “Hold All Mail” box number at the Bank’s branch in Jakarta. Between 23 June 1994 and 30 July 1998, substantial sums were received into the account from various operating subsidiaries of Tugu. They generally remained there for fairly brief periods before being paid out to one or more of Mr Hasan, Mr Harsono, Mr Sunjaya and a fourth officer called Anton Ponto. A total of 26 transfers worth US$51.64 million altogether were paid out this way, all of which were purportedly authorised by payment instructions signed by Mr Harsono and Mr Sunjaya. The Judge found that the sole purpose for which the account was used was to serve as a “temporary repository of funds” en route from the operating subsidiaries into the pockets of the four individuals. Apart from occasional transfers to short-term interest-bearing time deposits, there were no other significant transactions. The final payment instruction, dated 16 July 1998, directed the Bank to “transfer all funds in the account” to a Citibank account in Jakarta in the name of Mr Harsono and Mr Sunjaya and then to “close the account after the balance is nil”. The Bank duly executed the transfer and on 30 July 1998 purported to close the account.
8. On 6 October 2006, Tugu wrote to the Bank alleging that all 26 transfers had been dishonestly authorised and demanding payment of their aggregate value. On 2 February 2007 these proceedings were begun in furtherance of that demand. The basis of the claim was that the Bank ought to have known that the transfers were out of the ordinary course of business and were not for its benefit but for that of the transferees personally. As such, they could not have been within their authority, either actual or ostensible. It was alleged that the instruction of 16 July 1998 to close the account was also unauthorised. Tugu claimed that the debit entries resulting from the unauthorised transfer instructions and the unauthorised closure instruction of 16 July 1998 were of no effect, and that accordingly the account remained in existence and fell to be “reconstituted” by reversing the disputed debit entries. This was accordingly a claim in debt. Further or alternatively, Tugu claimed the same amount as damages for breach of a duty of care owed in contract and/or tort not to give effect to the payment instructions in circumstances where the Bank knew of facts which would lead a reasonable and honest banker to consider that “there was a serious or real possibility that [Tugu] might be being defrauded… by the giving of that payment instruction.” There was an alternative plea that the Bank was reckless and turned a blind eye to the improper character of the transactions by acting on the instructions without making inquiries or informing at least one of Tugu’s independent directors.
9. On the face of it, the payment of such large sums from a corporate account to its signatories and officers personally is unlikely to have been for the benefit of the company. The Judge, Anthony Chan J, found that all 26 transfers were fraudulent on the part of the signatories, and this is no longer disputed. He acquitted the Bank of dishonesty, recklessness or wilful breach of duty. But he held that a reasonable and prudent banker would have been put on inquiry by the time of the third transfer, when a pattern had emerged indicating the improper character of the way that the account was being operated. The Judge believed it to be common ground that the Bank made no inquiries. He held that this was a breach of the Bank’s duty. It followed that Tugu was entitled to have the account reconstituted by reversing all but the first two debits. However, he went on to hold that for limitation purposes, Tugu’s cause of action arose upon the purported closure of the account on 30 July 1998, because the closure instruction was authorised. The contractual relationship of banker and customer therefore terminated at that point notwithstanding the absence of a demand until 2006. It followed, on this view, that the claim was statute-barred by the time that these proceedings were commenced.
10. The Court of Appeal dismissed the appeal. The leading judgment was delivered by Kwan VP, with whom Barma JA and Au JA agreed. The conclusions of the Court of Appeal for the most part mirrored those of the Judge. They upheld his finding that the Bank had been put on inquiry from the time of the third payment instruction. They found that, contrary to the Judge’s belief, it had not been common ground that no inquiries had been made, but that in fact the necessary inquiries were not made. This was because the only record of any such inquiries suggested that the Bank had contacted the signatories only. They should, in the Court of Appeal’s view, have contacted directors independent of the operators and beneficiaries of the fraud. However, the Court of Appeal went on to uphold the Judge’s conclusion that the action was statute-barred, on slightly different grounds. They held that the closure of the account was unauthorised and repudiatory but that it was nevertheless effective to bring the relationship of banker and customer to an end and operated as a waiver of the need for a demand. It was irrelevant that the repudiation was not accepted by the customer. It followed that the cause of action for the wrongful payments accrued in 1998.
11. In both courts below, the Bank advanced a case of contributory negligence. It did not arise because both courts held that the claim failed in its entirety for limitation. Both courts, however, considered the issue and held that but for limitation, contributory negligence would have lain. The Judge assessed the contribution of Tugu’s fault at 50 per cent, and the Court of Appeal upheld him on that point.
The issues on the appeal
12. Leave to appeal was granted by the Court of Appeal, limited to two issues, which they formulated as follows:
“(1) In the context of a contract between banker and customer (debtor/creditor), if the banker invalidly terminates the contract, thereby evincing an intention no longer to be bound by the banker/customer relationship, whether the invalid termination (unless and until accepted by the customer as bringing the contract to an end) is of any relevance in identifying (for the purposes of the Limitation Ordinance) the date of accrual of the customer’s cause of action to recover back the amount which ought to be standing to his credit in his account, or any cause of action for damages for breach of the banker’s Quincecare duty.
(2) Whether a customer’s claim to recover the balance which ought to be standing to his credit in his account with the banker, which account has been emptied by unauthorised payments, ought properly to sound in debt (to which contributory negligence is not a defence).”
The first issue begs a number of questions relating to the signatories’ ostensible authority and the nature of the Bank’s duties. In practice the parties’ submissions ranged more widely to cover them. I think that they were right to do so, and that this court should decide these questions rather than resolve the appeal on what may be a false legal premise. I propose therefore to...
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