CHEKIANG FIRST BANK LTD. v. NG CHUN HING BENJAMIN

HCA3473/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.3473 OF 2000

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J U D G M E N T

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1. The plaintiff's claim as pleaded in the statement of claim endorsed on the writ is for the sum of $9,550,985.54 (being the principal and interest allegedly due and owing as at 18 March 2000) and for interest on that sum. This has now been modified to a claim for $7,434,666.72 as at 2 June 2001 : see the 5th affirmation of Steven John Cheng.

2. The claim arises out of a guarantee dated 28 October 1994 signed by the defendant in favour of the plaintiff ("the Guarantee"). It is in standard form and states in essence that in consideration of the plaintiff making advances or otherwise giving credit or affording banking facilities to one Ho Lai Hing Betty ("the Borrower"), the defendant would pay upon demand forthwith all moneys or liabilities due and owing from the Borrower to the plaintiff.

3. The Borrower was a close friend of the defendant, probably at that time his girlfriend. There is a letter dated 20 October 1994 from the Borrower to the defendant in which he is described as "husband". I shall returning to this letter when dealing with the merits of the defence.

4. As at 18 March 2000, the Borrower was allegedly indebted to the plaintiff in the sum of $9,550,985.54. Letters of demand dated that day were sent to both the Borrower and the defendant. No payment was made; hence the present claim.

The present appeal

5. On 1 April 2000 the plaintiff issued the writ in the present action. Acknowledgment of service was entered on 19 April 2000. By a summons dated 28 April 2000 the plaintiff applied for summary judgment under RHC Order 14.

6. On 15 May 2000 Master Jones entered summary judgment against the defendant in the said sum of $9,550,985.54, being the principal and interest as demanded under the said letters dated 18 March 2000 to the Borrower and the defendant. The defendant was not present at this hearing, so that the judgment that was entered against him was essentially a default judgment.

7. At that time the defendant was not legally represented but on 26 July 2000 a Notice to Act was filed in the action by the defendant's then solicitors (they have since ceased to act). It was not until 6 November 2000 that the defendant applied by summons to set aside the default judgment under Order 14 rule 11. The application was also made under Order 13 rule 9 but this provision is inapplicable since the defendant was not in default of giving notice of intention to defend.

8. At the hearing of the setting aside application on 7 June 2001, Master Mary Yuen ordered, inter alia, that : -

(1) The judgment entered by Master Jones on 15 May 2000 do stand as to the sum of $2,989,101 (being the aggregate of the outstanding amount as at the date of the Guarantee, $2,389,101 plus $600,000) and the residue of the judgment be set aside;

(2) Accordingly, the defendant was to have unconditional leave to defend the action as to the residue of the plaintiff's claim.

9. Both the plaintiff and the defendant appealed, the plaintiff by a notice of appeal dated 20 June 2001, the defendant by a notice of appeal dated a day earlier. The plaintiff's position was that the Master should have maintained the whole of the default judgment. The defendant's position was exactly the opposite : the Master ought to have set aside the whole of the judgment and not just part.

10. Accompanying the defendant's notice of appeal was his statement dated 16 June 2001. The defendant also served an affirmation dated 16 July 2001 in support of the appeal although no leave had been given for this to be filed and served. At the start of the present hearing I gave leave for this affirmation to be used.

The approach to setting aside default summary judgment under RHC

Order 14 rule 11

11. The approach is the same as an application to set aside default judgment under Order 13 rule 9. See : Hong Kong Civil Procedure 2001 at paragraph 14/11/1.

12. Where default judgment has been obtained regularly, as in the present case, the primary consideration for the court is to look at the merits of the defence. Here the defendant has to show a defence which has a real prospect of success. The court is therefore required to form a provisional view of the merits of the case.

13. There are of course other considerations which a court must consider in deciding whether or not to set aside default judgment, such as the reason why default judgment was allowed to occur in the first place, any delay in setting aside and any consequent prejudice caused to the plaintiff. The court's approach is to conduct a balancing exercise of all relevant factors : see Morigood Development Ltd v. Sunny Trading Co. (a firm) [1999] 2 HKC 710 (a case decided under Order 14 rule 11).

14. The critical factor and starting point in applications to set aside default judgment, however, whether under Order 13 rule 9 or under Order 14 rule 11, are the merits of the defence. If the defence has no real prospect of success, there is no point in setting aside. I refer to the judgment of Bokhary JA in Premier Fashion Wares Ltd v. Chow Cheuk Man and Li Hing Hung [1994] 1 HKLR 377 at 380 where he said :

"Now, there is no doubt that the merits are always of particular importance because : first, no court would wish to re-open a matter without merit since that would only pointlessly postpone the inevitable; and, secondly, no court likes to decide any matter other than in accordance with the merits if any are in real prospect because the court's objective is justice."

15. I therefore deal first with the merits and whether I am satisfied that the defendant is able to demonstrate a defence which has a real prospect of success.

The merits

16. I have already mentioned that the plaintiff's claim is now for the sum of $7,434,666.74, this representing the indebtedness of the Borrower as at 2 June 2001. The defendant was not in a position to accept this and indeed denied it. However, he was unable to put forward any evidence to contradict the figure. I accept that the figure put forward by the plaintiff represents the amount of the indebtedness. I regard it as particularly significant that although the defendant asked the Borrower to make an affirmation to support his case, there was nothing in that affirmation dealing with the indebtedness that she owed to the plaintiff, much less contradicting it.

17. The defendant raises essentially two defences : -

(1) Misrepresentation : - the defendant alleges he was led to believe that the Guarantee was a limited one even though on its wording it was unlimited.

(2) Unconscionable Contracts Ordinance Cap.458 : - here the defendant alleges that as he was not informed of the full extent of the banking facilities afforded to the Borrower and as he had not consented to guaranteeing those facilities, this was somehow unconscionable.

18. Apart from these defences the defendant raises other complaints which, with respect, do not carry the matter much further but with which I deal for completeness's sake : -

(1) Several of the defendant's affirmations raise the question of who witnessed his signature on the Guarantee. The Guarantee itself refers to one Chu Wai Ming as being the witness. Mr Chu made an affirmation confirming this. The defendant denies that Mr Chu was the witness. In my view, whether or not Mr Chu witnessed the defendant's signature is a point of no significance given the fact that there is no dispute that the defendant signed the Guarantee.

(2) The defendant also complains that he was not given proper advice as to the effect of the Guarantee nor was he told to seek independent advice. In my view, there was no obligation on the plaintiff to do so. The need to advise arises when, for example, a defendant has established some form of undue influence, whether actual or presumed. There are no facts before me to raise any issue of undue influence.

19. I now come to misrepresentation.

20. In his 1st affirmation, the defendant alleges that when he signed the Guarantee, he was told by a female cashier employed by the plaintiff that his liability under the Guarantee was limited to the amount owing by the Borrower to the plaintiff as at the date of the Guarantee. No further particulars are given of this bare assertion, such as the identity of the female cashier, the circumstances under which she said what she allegedly did or why the defendant would have relied on the word of just a cashier in the first place. In view of the defendant's failure to condescend to particulars of this important allegation, I find the defence implausible in the extreme and particularly so when one looks at the wording of the Guarantee itself, which made it clear that liability thereunder was unlimited. I should add here that evidence was adduced to the effect that as at the date of the Guarantee the Borrower's indebtedness to the plaintiff amounted to $2,389,101.84 and, as I have said, this formed part of the judgment that was ordered by Master Mary Yuen not to be set aside.

21. However, in fact this was not the defendant's case at all when the rest of his evidence is looked at and in his submissions before me he did not seek to maintain that this was his case on misrepresentation. Instead, the defendant's case was that the Guarantee was limited to the amount of $600,000. This was also the stance he adopted before Master Mary Yuen, who accordingly did not set aside the default judgment to the extent of this sum as well. In his 3rd affirmation, the defendant relies on the letter from the Borrower to him dated 20 October 1994 (I have already referred to this letter). In this letter, the Borrower refers to her application to the plaintiff for an overdraft facility of $600,000 and requests the defendant to sign a document, which in context can only mean a guarantee. It was further stated in that letter that the overdraft facility was required for the purpose of her boutique business. Based on this letter, it was the defendant's case that the Guarantee was therefore limited to the sum of the overdraft facility of $600,000. This was also apparently the understanding of the Borrower, as she deposed to in her affidavit dated 7 March 2001, although significantly it was not asserted that this was a representation that the plaintiff had made to the defendant. The Borrower was of course not the plaintiff's (or the defendant's) agent. In none of the affirmations before me from the defendant was there an allegation that the plaintiff at any stage represented to him that the liability under the Guarantee would be limited to $600,000. Although it was faintly suggested to me in the course of his submissions by Mr Ng that this representation was made to him by the plaintiff, again no particulars were provided as to this. At its highest, this represented yet another shift in the factual position put before the court.

22. In my judgment, it is very difficult to attach any amount of credibility to this defence in view of the inconsistent way that it has been run by the defendant. It will be remembered that in his 1st affirmation the defendant alleges that the representation made to him by a female cashier was to the effect that the Guarantee was limited to the amount of the Borrower's indebtedness as at the date of the Guarantee. Such a representation therefore related to the indebtedness of the Borrower pre-existing as at the date of the Guarantee. The representation now asserted by the defendant is quite different in nature : it relates to the Borrower's indebtedness, not pre-existing as at the date of the Guarantee, but a future one being the overdraft facilities afforded by the plaintiff to the Borrower limited to the sum of $600,000. The defendant tried to deal with this inconsistency by saying that at the time of his 1st affirmation he did not have in his possession the said letter dated 20 October 1994. I do not accept this explanation. The defendant frankly acknowledged to me that this was the only guarantee that he had signed. In the circumstances, I find it hard to believe that at the time of his 1st affirmation he was not able to remember the true nature of his liability (as he perceived it) under the Guarantee.

23. I should also perhaps add that the said letter dated 20 October 1994 did not expressly state that the Guarantee would be limited to the sum of $600,000. The most that can be made of that letter is that the request by the Borrower for overdraft facilities to the extent of $600,000 was perhaps the reason why a guarantee was required of the defendant by the plaintiff.

24. Quite apart from the inconsistent way in which the defendant has run this misrepresentation defence, it is to be noted that this defence (in whatever form) did not surface until the defendant filed his affirmations in relation to the summons to set aside. I note here that there was no response to the demand letter sent by the plaintiff to the defendant dated 18 March 2000, a letter to which I have already referred above. One would have expected the defendant after receiving this letter to have responded by denying that he was liable under the Guarantee for any sum other than that to which he had allegedly agreed, if he was liable in the first place. There is no doubt that the defendant received the letter. It was sent to him by registered post. In his 2nd affirmation dated 12 January 2001 the defendant tried to explain why he did not respond by saying that he did not do so because at that time he had not received the copy of the Guarantee and other reasons were given. In his submissions to this court the defendant then tried to explain the lack of response by saying that as the Borrower was having discussions with the bank she told him that it was not necessary to respond to the letter. This is yet another example of the inconsistent approach which the defendant has adopted in relation to the plaintiff's claim.

25. It is worthwhile pointing out that the defendant was not, at the time the Guarantee was signed, an unsophisticated person nor was he unfamiliar with legal documents. By profession a police officer, he had however, prior to the Guarantee, in respect of a flat situate at 26D Orchid Court in New Town Plaza Phase III, together with the Borrower, executed mortgages dated 28 August 1991 (in favour of the First Pacific Bank) and 16 March 1993 (in favour of the plaintiff). Both mortgages, to a layman, are complicated legal documents. I appreciate that for one or both of these mortgages, the defendant says that the contents were explained to him, but in my view, it is inconceivable that in signing the Guarantee the defendant would not have appreciated the extent of his liabilities thereunder. If he thought that the extent of his liability was limited, he should have made sure of this by carefully reading the terms of the Guarantee.

26. The fact that the defendant is unfamiliar with the English language is no defence. It provides no defence in cases of non est factum : see Union Bank of Hong Kong Limited v. Ng Yin Hung [1975] HKLR 26. This defence, insofar as it is run by the defendant, is a non-starter given the somewhat stringent requirements : Saunders v. Anglia Building Society [1971] AC 1004. Upon analysis, however, I do not believe that the defendant is in fact running a non est factum defence. He knew what he was signing was a guarantee. His case is that he was misled as to the extent of his liability thereunder.

27. In my view, as far as the defence of misrepresentation is concerned, the defendant has not demonstrated a real prospect of success or, in Order 14 terms, a triable issue (if the two tests are different in the first place).

28. I now deal with the defence under the Unconscionable Contracts Ordinance, Cap.458. I agree with the submissions of Mr Simon Chan for the plaintiff that this Ordinance is inapplicable in the present case : -

(1) By section 4 of the Ordinance, it is expressly stated that it does not apply to contracts made before the commencement of the Ordinance (being 20 October 1995). The Guarantee in the present case is dated 28 October 1994.

(2) Furthermore, the Ordinance only applies to contracts for the sale of goods or supply of services. A guarantee is not within these categories.

29. Furthermore, even if the Ordinance did apply, I would not have found the contract to have been unconscionable. The fact that the defendant was not told of the full extent of the banking facilities made to the Borrower whether at the time he entered into the Guarantee or from time to time when such facilities were granted to the Borrower, was not unconscionable. The defendant did not ask for details of the extent of banking facilities nor did he request to be kept informed whenever facilities were granted or utilised. If he wanted to know the full extent of his liability under the Guarantee from time to time, he could have asked the Borrower himself for such details, and especially so given their close relationship. It is worth observing that at common law, there is no general duty on the part of a creditor like the plaintiff to disclose material facts to a surety (such as the defendant), in particular any circumstances which might make the surety's position more hazardous. It is the surety who has the obligation to make all necessary inquiries. The creditor's duty is simply not to mislead : see Law of Guarantees by Andrews and Millett (3rd edition) at paragraph 5.15.

30. Accordingly, I am of the view that the defendant has not demonstrated any defence which has a real prospect of success or any triable issue.

Conclusion

31. The view I have taken of the merits makes it unnecessary for me to consider those other matters which otherwise might be relevant to the setting aside of the default judgment. I should out of completeness, however, just mention that had I been persuaded by the defendant that there existed defences which had real prospects of success, the other factors that Mr Chan has urged upon me such as delay, the absence of a good explanation in allowing default judgment to occur, would not by themselves have been sufficient for me not to have set aside the default judgment. The reason for this is that there was no prejudice caused to the plaintiff. However, these further considerations are academic.

32. Accordingly, for the above reasons, I dismiss the defendant's appeal and would allow the plaintiff's appeal and make the following orders : -

(1) I set aside Master Mary Yuen's Order dated 7 June 2001.

(2) The default judgment dated 15 May 2000 will stand save that the relevant judgment sum be varied, in view of the subsequent payments made as detailed in the 4th and 5th affirmations of Steven John Cheng, to the sum of $7,434,666.74 as at 2 June 2001.

(3) Interest to accrue on the said sum at the judgment rate as from 3 June 2001.

(4) The plaintiff shall have its costs for the hearing below and I also make an order nisi that the plaintiff shall have its costs for the present appeal.