HO KAN BAU AND ANOTHER v. YEUNG MAN LUNG VINCENT

HCA 789/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 789 OF 2009

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BETWEEN

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J U D G M E N T

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1.  This is an appeal from the judgment of Master Ng delivered on 18 November 2009.

2.  The claims being made in this action relate to a Guarantee given by the Defendant on 18 October 2007.

3.  The Guarantee was in favour of the Plaintiffs in these proceedings who are the Landlords of a shop in Westlands Gardens in King’s Road, Hong Kong.

4.  The formal Tenancy Agreement was between the Landlords and Master Yield Limited, the Tenant.

5.  A separate action was commenced by the Tenant against the Landlords on 16 May 2008 for misrepresentation, failure to make disclosure and various breaches of the Tenancy Agreement.

6.  The Landlords filed a Defence to the claim on 30 June 2008 and counterclaimed for inter alia unpaid rent.

7.  The Landlords took out an application for summary judgment on their counterclaim and Suffiad J handed down judgment on 25 August 2009.

8.  In the judgment which was in fact an appeal from a Master’s decision, he upheld the Master’s order that judgment be entered for the Landlords save that he ordered credit be given to the Tenant for the deposit paid to the Landlords and that there be a stay of execution on the judgment pending the trial of the Tenant’s claim.

9.  For the purposes of the instant claim, it is important to note that the stay which was ordered by the judge in the first action was based on the Tenant’s claim in that action being a cross claim and not a set off.

10.  In the present action, Master Ng delivered a 24 page judgment which with respect was an excellent judgment which dealt in some depth on all of the relevant issues before her.

11.  At the commencement of the hearing before me, Ms Queenie Ng, for the Defendant conceded that she was unable to resist the judgment which had been entered by the Master.

12.  However, she did wish to argue that the Master’s decision not to stay the execution of the judgment in a similar manner to Suffiad J was mistaken. She adopted the reasons given by the judge.

13.  The Master dealt with the issue in this way at para 60 of her judgment.

“60.  For completeness, I should mention that Ms Ng relied on Hopeson Engineering Limited v Able Engineering Ltd HCA1668/2003, Deputy Judge To (unreported, 17 September 2003) in support of her contention that there should be stay of execution pending the determination of the Tenant’s claim against the Landlords in the First Action.  However, the factual scenario in Hopeson Engineering Limited is quite different from that in the First Action and the present case.  In Hopeson Engineering Limited, the plaintiff commenced 2 separate legal actions against the same defendant, so when the court granted summary judgment against the defendant in 1 action, execution was stayed until the trial of the defendant’s counterclaim in the other action or further order. Such factual matrix is more akin to the situation of the Tenant who successfully applied to stay the judgment on the counterclaim in the First Action pending the resolution of its cross-claim against the Landlords.  But it is a far cry from the present scenario where the defendant as primary obligor under the Guarantee is not entitled to rely on the co-extensiveness principle or the aforesaid set off and/or cross-claim by the Tenant against the Landlords.”

14.  Ms Ng placed reliance upon para 11-70 of The Modern Contract of Guarantee 2003 which is as follows:

“Moreover, the guarantor should be allowed to resist an application for summary judgment on the basis of this defence without joining the principal as a party to the proceedings at all.50  It should be sufficient that the principal is joined before the ultimate determination of the validity of the claim, so that the principal is bound by the final orders.  In the case of the guarantor showing an arguable defence to the application for summary judgment, leave to defend should only be granted on the condition that the guarantor join the principal as a party to the proceedings.  The principal could be joined as a co-defendant on the ground that the relief sought requires the principal to be bound by the final orders.51”

15.  However it is necessary to read this in context. It is apparent from the context as a whole that the observations contained in this paragraph are relevant when what is being considered is a right of set off rather than a cross claim.

16.  Mr Anthony Lo, for the Plaintiff emphasised the differences between the legal position relating to the Tenants in the first action and that relating to the Defendant in this action.

17.  What is of most significance is that unlike the Tenant, the Defendant does not have any cross claim against the Plaintiffs.

18.  In answer to Ms Ng’s submission above referred to, he made reference to the passage appearing at p. 416 of the judgment of Mr Anthony Colman Q.C. in Sun Alliance Pensions Life & Investments Ltd v RJL & Another [1991] 2 Llord’s Rep. 410.

“It was common ground between the parties that a set-off available to the principal debtor which (a) arose out of the same transactions as the principal debt and (b) was for a limited amount, the effect of which if it were established would be to extinguish or reduce the debt, could be relied upon by the guarantor to extinguish or reduce his personal liability to the creditor on the guarantee.  Where, however, the principal debtor had no more than a cross-claim against the creditor for unliquidated damages, as distinct from a claim for a liquidated sum arising out of the same transaction, the guarantor could not rely on that cross-claim to extinguish or reduce his liability on the guarantee unless he joined the principal debtor as a party to the action.”

19.  Here of course the situation is that by virtue of the all embracing terms of the Guarantee, there can be no question of there being a right of set off and accordingly the Defendant does not have any right of action along the lines indicated by Mr Colman Q.C..

20.  Over and above all of this, it is hardly ever the case that the holder of a Guarantee has to await the outcome of legal proceedings before he is able to enforce the terms of the Guarantee he is the beneficiary of.

21.  I have no doubt that the Master’s analysis of the situation is correct, and that it is not open to me to make an order that there be a stay of execution pending the outcome of the first action.

22.  This being the case this appeal is dismissed.

23.  I make an order nisi that the Plaintiffs will have their costs and there will be a certificate for counsel.