XCHRX KING PROSPER TRADING LTD. v. WONG TAN LEE t/a Messrs D L Co. AND OTHERS and FAIR FOCUS LTD. (Third Party)

HCA5049/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.5049 OF 1999

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J U D G M E N T

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Appeal of the 2nd defendant

1. The plaintiff obtained summary judgment against the 2nd defendant for the sum of $4,713,917.19. The 2nd defendant now appeals.

The plaintiff's case

2. The plaintiff's case against the 2nd defendant is that she requested the plaintiff to lend money to the 1st defendant and had guaranteed the repayment of money advanced by the plaintiff to the 1st defendant.

3. Briefly the facts are these : the 1st and 2nd defendants are sisters. On 10 August 1998, the plaintiff agreed to lend money to the 1st defendant by signing a written document dated 7 August 1998. The loan was in the form of a letter of credit. The plaintiff was the applicant of the letter of credit and the beneficiary was a supplier of goods to the 1st defendant. The 1st defendant did not have enough money to pay for the goods. The plaintiff issued the letter of credit on 18 September 1998. The 1st defendant, however, only paid back $200,000 to the plaintiff. The plaintiff sued the 1st defendant for the amount of the letter of credit together with interest and expenses incurred on the letter of credit, less the amount paid by the 1st defendant and the value of some goods pledged by the 1st defendant. The 1st defendant obtained conditional leave to defend.

Guarantees

4. Regarding the plaintiff's case against the 2nd defendant, it is said that on 4 or 5 August 1998, the 2nd defendant orally promised that the 1st defendant and her family members, including the 2nd defendant, would guarantee the payment of the money lent by the plaintiff by their property in Hong Kong. This was repeated orally on 10 August 1998. On 16 September 1998, the 2nd defendant approached the plaintiff and asked the plaintiff to open the letter of credit. As the plaintiff had not received any guarantee from the defendants, he would not open the letter of credit. The 2nd defendant immediately wrote and signed the guarantee dated 16 September 1998.

Document of 16 September 1998

5. One of the defendants' arguments is that she was coerced to sign the document of 16 September 1998. The allegations are put in the vaguest terms. However, it is not necessary for me to dwell on this because there is a more fundamental problem concerning the terms of the guarantee. The document of 16 September 1998 is in these terms :

"本人黃煜兹委托劉軍先生开出信用証，如未能按協議书還款，劉軍先生有權收回黃煜及家人的物業，此件於信用証完結后，归還黃煜。

黃煜
16/09/1998"

6. Although the English translation of this document stated that the letter of credit was issued on the 2nd defendant's behalf, there was no such provision in the Chinese document. In fact, it is clear from the plaintiff's own case that the money was lent by the plaintiff to the 1st defendant.

7. The document further stated that :-

"... In the event of failure to settle the payment in accordance with the Agreement ... "

It did not specify who would be responsible to make the payment in the first place. At that time, the 1st defendant had already signed the agreement dated 7 August 1998, agreeing to pay the money and expenses under the letter of credit. There was no promise by the 2nd defendant in the document of 16 September 1998 to repay the money.

8. The document further stated that the plaintiff has the right to possess the premises owned by the 2nd defendant and her family. No property was identified in this document. It is not clear how is the property to be valued. The real question is what is the extent of 2nd defendant's liability? If the plaintiff is entitled to possess the 2nd defendant's property, and if her property is not sufficient to cover the repayment, would the 2nd defendant still be liable for the balance?

9. For the purpose of an Order 14 application, there are clearly arguable issues on whether the terms of the written guarantee are clear enough to found liabilities against the 2nd defendant.

Oral guarantees

10. The plaintiff relied on the previous oral agreements. Again, the same problem arises on the ambit of the 2nd defendant's liability. These so-called oral agreements referred to the agreement by the 1st defendant and her family members, including the 2nd defendant, to guarantee the payment by their properties. The same problem on what I have said earlier on the written guarantee arises on these oral agreements.

11. The 2nd defendant had, at one stage, submitted that the guarantee must be in writing by reference to the Statute of Fraud of 1677. However, this is no longer the case in Hong Kong : Halsbury's Laws of Hong Kong, Vol.13, para 200.045.

Consideration

12. Arguments were raised by the 2nd defendant on the lack of consideration of the guarantee. It was said that by 16 September, the plaintiff had already promised to lend money to the 1st defendant by reason of the agreement of 7 August 1998. There was no consideration moving from the plaintiff for something he had already promised to do : Jones v. Waite (1839) 5 Bing. (N.C.) 341.

13. As appeared from the affirmations, the plaintiff had refused to open the letter of credit because of the absence of the guarantee promised by the defendants. But again, this is something I do not need to dwell on by reason of the view I have formed on the uncertainty of the ambit of the 2nd defendant's liability.

Appeal allowed

14. This appeal is accordingly allowed, judgment set aside, and the 2nd defendant is given unconditional leave to defend.