BANK OF CHINA (HONG KONG) LTD v. LIU SIK WING AND OTHERS

HCA 2052/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2052 OF 2003

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J U D G M E N T

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1. I have before me an appeal by the Plaintiff bank from the order of the Master refusing the Plaintiff's application for summary judgment. Unconditional leave to defend was granted. Since the decision of the learned Master, the Defendants have amended their defence and in relation to this appeal, both parties have filed further evidence and supporting documents. The upshot is that the basis of my present decision on this appeal is quite different from that on which the Master made the order under appeal.

2. Mr Siu, appearing for the Defendants, confirmed with the Court that in summary, there were seven points run by him on behalf of his three clients in opposing the bank's renewed effort by way of this appeal in seeking summary judgment against his clients. I will deal with them one by one. Four of them go to liability and the remaining three relate to quantum.

3. First, the oral agreements. The Defendants in their amended defence allege for the first time that by various oral agreements, the bank has made promises in their favour, the net result of which is that the guarantees on which the bank is suing are not enforceable against the Defendants.

4. I am in total agreement with Mr Chan, counsel for the Plaintiff, regarding his submission on these "brand new defences", as Mr Chan has put it in his skeleton argument. Given the nature of things and in particular the very nature of these alleged agreements, one would expect the agreements to have been mentioned, raised and relied on at the first available moment as the main defences of the Defendants to the bank's claim for payment of money under the guarantees. Yet nowhere was there any mention of, let alone reliance on the alleged oral agreements in the pre-action documents, the original defence and the affirmations filed by the Defendants in opposition to the present application when the matter was before the Master.

5. As mentioned, these brand new defences only surfaced after the Order 14 hearing, by way of amendments to the original defence. Although belatedly, the 2nd Defendant has by his latest affirmation confirmed the contents of the amended defence as true and correct, no explanation whatsoever has been given by him or indeed by any of the Defendants regarding why the oral agreements had not been mentioned earlier.

6. Of course I bear in mind the nature of the present application; it is not the function of this Court to try any bona fide factual disputes on paper. I have no intention whatsoever to do so; my task here is to see whether the Defendants' assertions are believable, as opposed to whether they should be believed.

7. As I said, I agree entirely with Mr Chan's submission against these belated assertions of oral agreements.

8. For those reasons, I find the assertions wholly unbelievable, and I reject them for the purposes of the present appeal.

9. Second, it is argued that in relation to the 4th instalment loan, since the loan is guaranteed by the Government, the subject guarantees do not apply to the loan and the Defendants should not be held liable.

10. I reject the argument. Insofar as this alleged result is said to have been the result of an oral agreement between the Defendants and the bank, I reject the agreement as being incredible for the same reasons that I have rejected the other oral agreements. The alleged agreement did not surface until the amendments were introduced to the original defence.

11. Insofar as the argument is based on law, I again reject the argument. In particular, I bear in mind that under the guarantees there are express provisions to the effect that the guarantees are in addition to and not in substitution of any other guarantee given by any other third party, which must include the Government. To be fair to Mr Siu, he did not really press the argument at the hearing.

12. The 3rd and 4th points on liability raised by Mr Siu relate solely to the position of the 3rd Defendant, the wife of the 2nd Defendant. Mr Siu argued that by reason of her mental condition, she should not be held bound by the two guarantees that she has signed. Furthermore there has been undue influence exerted on her by her husband and the bank is affected by the undue influence.

13. I am of the view that Mr Siu has on behalf of the 3rd Defendant shown arguable defences to the bank's claim. There is sufficient material before me to support the claimed mental condition of the 3rd Defendant. Likewise, there is sufficient material before me to found an arguable case of undue influence. In relation to undue influence, I of course realize that the bank is a third party vis-à-vis the 3rd Defendant, the alleged victim of undue influence exerted on her by her husband, the wrongdoer (i.e. the 2nd Defendant). But the Court of Appeal decision in Re Lai Yin Shan [2002] 3 HKLRD 500 illustrates that in this type of situations, the bank could be affected by the undue influence.

14. In short, in relation to the position of the 3rd Defendant, I find that she has shown arguable defences. There is thus no question of the bank getting summary judgment against her. Given my conclusion, I would say no more about the case against her or her defences.

15. The 5th to 7th points raised by Mr Siu all relate to quantum. Mr Siu argued by reference to evidence filed by his clients that there had been an oral agreement reached regarding waiving of interest by the bank as from August 2001. Unlike the oral agreements referred to earlier on in this judgment, this allegation of an oral agreement regarding waiver of interest has been raised from the outset.

16. Having considered the material before me, I accept that there is a bona fide dispute on the facts.

17. The 6th argument relates to appropriation of the partial repayments made by or on behalf of the Defendants. Again, I am prepared to accept that there is an arguable dispute here.

18. All this leads me to the final point raised by Mr Siu. Mr Siu argued that having taken into account the alleged oral agreement on waiver of interest and the argument over appropriation, at most, his clients are indebted to the bank in the region of $0.55 million only.

19. I have looked at the figures and the documentary evidence, and have listened carefully to counsel's competing arguments. In this regard, I proceed on the assumption that what the Defendants say regarding the agreement over waiver of interest is true and the Defendants' preferred mode of appropriation should be adopted. Paragraphs 32 and 33 on pp. 130M to 130N of the appeal bundle may be used conveniently as a summary of the figures in question.

20. Having listened carefully to the arguments, I think there is no possible argument against the figure of 2,244,089.73 being the outstanding principal figure regarding instalment loan 1.

21. As regards instalment loan 2, the outstanding principal is nil, but Mr Siu argued by reference to p. 218 and p. 384 of the exhibits that the bank failed to give credit to a sum of $256,353.72 that had been repaid to the bank on 18 December 2001. I reject the argument. P. 395 of the exhibit bundle clearly shows how the repayment of $700,000.00 made on 18 December 2001 (of which $256,353.72 formed part) has been appropriated in partial repayment of the outstanding indebtedness under different accounts as per the Defendants' preferred mode of appropriation. Page 218, which Mr Siu relied on, is a document setting out the bank's method of calculation based on its preferred mode of appropriation. There is no omission of the sum of $256,353.72 in the calculations.

22. As regards instalment loan 3, I accept, as did Mr Chan on behalf of the bank for the purpose of this appeal, that there is a discrepancy in the sum of $246,688.00, being part of the sale proceeds of the Wan Chai property. To that extent, the figure claimed by the bank must be reduced for the purpose of the partial judgment that Mr Chan is seeking from this Court by way of a fallback position in this appeal.

23. Incidentally, I should mention that in the evidence there has been raised some challenge as to the appropriateness of the sale price of the Wan Chai property in the sum of $2,605,000.00. But Mr Siu has not relied on it as part of his case in opposition to this appeal and I need deal with it no more in this judgment.

24. In relation to instalment loan 4, the figure of $2,750,000.00 cannot be disputed and in fact Mr Siu did not raise any specific argument in relation to it.

25. In relation to the OD balance, Mr Siu argued by reference to pp. 323 and 393 of the exhibit bundle and said that the bank's figures are confusing and thus wrong. I reject the argument. It is plain from the evidence that p. 323 represents calculations of the bank based on its preferred mode of appropriation, whereas p. 393 represents a re-calculation of the figures by the bank based on the Defendants' own method of appropriation. There is no confusion and there is no discrepancy.

26. As regards the US dollars and Hong Kong dollars trust receipt accounts, Mr Siu raised no argument in relation to the outstanding figures.

27. Turning to the figures set out in paragraph 33, the total repayment by cash in the sum of $2,400,882.00 has been accepted by Mr Siu. In fact, I have got a good breakdown on p. 395 of the exhibit bundle, as to which Mr Siu or his clients have not mounted any substantive dispute.

28. The main argument of the parties revolved around the sum of $1 million that was previously deposited in an OD account. Mr Siu and his clients argued that the sum of $1 million should be taken into account on top of the repayment by cash in the total sum of $2.4 million mentioned above.

29. Mr Chan has managed to demonstrate clearly to this Court that that would result in double counting. According to paragraph 10 on p. 120 of the affirmation bundle and p. 406 of the exhibit bundle which should be read together with p. 393 also of the same bundle, it is quite clear that the sum of $1 million together with the accrued interest have been credited towards the OD account in full on 7 May 2001, thus, bringing the outstanding OD amount down to slightly less than $1 million. That figure tallies well with the opening figure of slightly more than $1 million OD on p. 393.

30. Mr Siu has on behalf of his clients - his argument reflected the general approach of his clients - sought in effect to put the bank to strict proof. That approach does not really attract me. First, this is an Order 14 application and it is for the Defendants to show an arguable case, or put another way, to pass the threshold test. Secondly, the borrower is in fact run and managed by the 2nd Defendant. I do not accept any suggestion that the 2nd Defendant does not have, at the very least, a general idea of how much his company has borrowed from the bank and how much his company or the Defendants have repaid the bank. Insofar as his general non-admission is concerned, that is my approach. Insofar as the 2nd Defendant has raised specific points or defences to the figures relied on by the bank, I hope I have, in my judgment above, demonstrated that I have dealt with all his points insofar as they have been run by his counsel, Mr Siu, in this appeal.

31. For all the above reasons, there is clearly a substantial amount of principal money due and owing by the 1st and 2nd Defendants to the bank, and accordingly I am prepared to grant the Plaintiff a partial judgment against the 1st and 2nd Defendants for that amount, with (unconditional) leave to the two Defendants to defend the rest of the Plaintiff's claim. The exact figure of the partial judgment will have to be worked out by the parties who should submit to this Court for approval a draft judgment. If no agreement can be reached, the matter should be restored for hearing before me.

32. But before I leave the quantum of the claim, I must not forget Mr Chan's argument that even based on the Defendants' own case on waiver of interest as from August 2001, the bank would be entitled to payment of pre-August 2001 interest. I can see no answer to that argument and Mr Siu has not sought to provide the Court with any. So in working out the amount of the partial judgment, the pre-August 2001 interest should also be taken into account.

33. As I have mentioned at the outset, this appeal is decided by reference to the material presently before the Court, which is significantly more substantial than that which has been placed before the Master. To the extent indicated above, I allow this appeal. I will now hear the parties on costs.

[Submissions on costs]

34. On the question of costs, I bear in mind that the bank is successful to a substantial extent. Although by comparison, the claim for outstanding interest (on which, apart from the pre-August 2001 interest, the Plaintiff does not obtain partial judgment) is in itself also very substantial, there has not been any payment into court, nor has there any Calderbank letter. The bank is not suing on separate causes of action or running separate and distinct claims against the Defendants. In those circumstances, I see no sufficient justification for splitting up the costs.

35. Having heard counsel's arguments, I award the costs here and below regarding the Plaintiff's claim against the 1st and 2nd Defendants to the Plaintiff, to be taxed if not agreed. I would not disturb the Master's order on costs regarding the Plaintiff's claim against the 3rd Defendant, but for the costs of this appeal, I award the costs to the 3rd Defendant against the bank, again to be taxed if not agreed.