A company chop is the stamp of a company (usually rubber) and is something which is unique to Hong Kong and a select few other jurisdictions.

The term “chop” actually originates from colonial Indian English and the use of a company chop remains a necessity for conducting business in China (where companies often have different chops for various uses).

In Hong Kong, however, the company chop functions as a hybrid between the Western and Chinese systems and is widely used in commerce, although, legally speaking a chop is not needed for valid execution of a document.

In a recent Hong Kong case, TS Office System Ltd v Wing Kee Products Ltd the Hong Kong Court examined whether a company’s chop, affixed by its receptionist, was sufficient to legally bind the company on an order form for three orders of printer toner totaling HK$230,952.00.

Following delivery of the toners by the contractor, the receptionist, unaware that one box of toner was missing, affixed the company’s chop to the sales confirmations, invoices and delivery notes and returned the same to the contractor.

Upon discovery of the missing toner, the company refused to pay and returned the goods.

The contractor refused to accept them as by using the company chop, the receptionist was, in law, acting on the company’s behalf.

The company argued that the receptionist did not have the apparent authority to bind it to the contracts in this case.

The Court allowed the appeal on the following grounds:-

(i) the company’s permission to the receptionist to use its chop was a representation limited to showing 3rd parties that the receptionist could act on behalf of the company where only affixing the chop would suffice;

(ii) the contractor could only rely on the receptionist’s use of the company chop if it could be established that it did not act in a reckless or dishonest manner when accepting the apparent authority of the receptionist;
 

(iii) given the total value of the contracts, the contractor was reckless in accepting the company’s representation that its receptionist had the power to conduct business on its behalf;

(iv) it should be borne in mind, however, that where someone has power to use a company chop uses it for transactions that only require use of a chop, then the company is bound accordingly;

It was therefore decided that the company was not bound by the three contracts made on behalf of the company by its receptionist.

This decision serves as a timely reminder to companies to keep a close eye over which staff member is in possession of the company chop(s), how they are being used and who is using them, so as to avoid any issues as to civil and/or criminal liabilities being imposed on the company.

Publication Date: 5th May 2015

 

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