PANIN INTERNATIONAL FINANCE CORPORATION LTD v. CHIU YUE KAM AND ANOTHER

Action No. 13842 of 1983

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. This started out as an action on a guarantee by a finance company; but in the event and as a result of amendment to the pleadings, it has turned into a claim by the guarantor for rectification of the contract of guarantee so as to change it from one of unlimited guarantee to one in which his maximum liability was to be $50,000, or alternatively for a declaration that that was the effect of the contract between him and the finance company. I have been asked to give judgment prior to the midday adjournment, and by reason of the time available my judgment is going to be fairly short. I review the facts briefly.

2. The principal debtor was a Mr. Chiu Yue-kam, and he had a credit facility with the plaintiff from about 1979 with a limit of $50,000. It was a policy of the company that any credit extended to borrowers should be supported either by tangible security or by guarantee. Mr. Chiu had no tangible security to offer, or at any rate none was offered, and so the plaintiff had taken a guarantee up to a maximum of $50,000 from a Mr. Wong. They had misgivings about the soundness of that guarantee. Nonetheless I have been told by Mr. Lee for the plaintiff credit was extended to Mr. Chiu not only up to his credit line of $50,000 but way beyond it. Indeed, by the end of August or the beginning of September 1981, credit had been extended up to $111,000. At one stage it reached $128,000. That was against a credit line of $50,000 and an existing guarantee, the soundness of which was doubted, of $50,000 only. Not surprisingly the plaintiff sought further security. It must have been the case that the plaintiffs officials were concerned with the appearance of these transactions in their records because here was credit being extended beyond a confirmed credit line without any additional security. Mr. Chiu, therefore, they say, was asked to find an additional guarantor. The 2nd defendant told me and I accept that he was approached by Mr. Chiu on the basis that any guarantee he would be asked to offer would be for $50,000 only, which, because Mr. Chiu was a relation by marriage, he was prepared to do. He himself had had dealings with the plaintiff previously, I think in 1979, when he borrowed money to assist in his business, and he trusted the plaintiff. A meeting was arranged on the 3rd September over luncheon at which Mr. Ho, the proposed guarantor, attended; so did Mr. Chiu; so did Mr. Leung. A junior official of the plaintiff's and his superior, Mr. Lee were also present. There was a conflict of evidence as to what was said at that luncheon meeting. Mr. Ho recalls that the question of a maximum limit of $50,000 was mentioned. Mr. Lee says he has no recollection of anything of the sort being said. I think he went further. He was adamant that nothing of that sort was said in his hearing though he conceded that he may have left the table for a short while at one time or another. Thereafter, according to Mr. Ho, he adjourned to his own office, accompanied by Mr. Leung. Mr. Chiu and Mr. Lee went their separate ways. It is what took place in the office which is important and it is, as Mr. Chan concedes, essentially a question of fact for me. According to Mr. Ho who is the only witness as to what took place in the office, Mr. Leung having been called by neither side, a form was produced the contents of which set out the terms of this contract which Mr. Ho signed. Included in it, typed in, is his name and address, the name of the debtor company and the address of the debtor company. After his signature, at the end of the document, his name is typed and his identity card number is also typed in. Clause 2 reads as follows :-

Mr. Ho told me that during those discussions he noticed that there was a blank following the dollars sign, being a space left for the inclusion of the maximum liability figure which had not been completed. He raised that with Mr. Leung who told him that the maximum sum, that is $50,000, which was all Mr. Ho was prepared to offer by way of guarantee, would be inserted later back at the plaintiff's office. That is the 2nd defendant's case. On that he says either the contract of guarantee was concluded at his office and it was a contract for $50,000 of which the written record is incomplete. Therefore it is a matter which he is entitled to have rectified. Alternatively, if the matter was not concluded then and there, this document constituted an offer by him to guarantee Mr. Chiu's debts up to $50,000 and if anything was accepted subsequently by the continuing or extension of credit to Mr. Chiu it was an offer to guarantee the 1st defendant up to $50,000 and no more. If his version of events is right one or other of those conclusions must follow.

3. Of course it is very strange that having noticed the omission he did not insist on having it remedied then and there and criticism can be made and it has been made and it is made perfectly legitimately of him for failing to do so. Equally criticism can be made of the plaintiff in not itself making sure that the word "unlimited" appeared or that the clause was deleted or altered in some way, either then or subsequently. It is said that a guarantee of $50,000 would be less than that which the plaintiff would wish for and I do not doubt that is the case. They would have preferred an unlimited guarantee, I am sure, if they could have got it, or at least a guarantee for a greater sum than $50,000. But that would be no reason for them to refuse to accept the offer which Mr. Ho says he did make. Any guarantee in the circumstances would be better than none and a guarantee of $50,000 was no doubt gratefully received. After all, it was not a case in which credit had not been extended as of the date of the transaction. Credit had already been extended in excess of $50,000, and the plaintiff or the plaintiff's employees, Mr. Lee and Mr. Leung, must have been looking to secure their position to the best extent possible. Criticism is made not only on that account. Mr. Ho said in evidence that he told one of his solicitors about the taking place of the conversation in relation to clause 2. That was challenged and the solicitor was not called, though he might have been to confirm the account. There could be a number of explanations. The solicitor not being called, of course, does arouse suspicion, but I cannot from that fact alone conclude that Mr. Ho was not telling me the truth or may not have been telling me the truth. Likewise there is some difficulty over what Mr. Ho says was typed in on the agreement at the time. It is a very fair point which Mr. Chan makes, and I may say that Mr. Chan has made with restraint every point that it is possible to make on the facts in this case in the absence of any evidence to contradict what Mr. Ho says was actually said in his office. Mr. Chan says it is remarkable that the identity card number could have been typed in as Mr. Ho believed it was before he signed the document because the identity card was not supplied or a photocopy of it was not supplied until the arrival of Mr. Leung at Mr. Ho's office. But I am not prepared to accept on the strength of that that Mr. Ho has not been telling me the truth. It is again capable of explanation in other ways, the most simple being that Mr. Ho is simply mistaken in his recollection in saying that that was on the document at the time he signed it. It could easily have been typed in subsequently after Mr. Leung had been provided with a photocopy of the identity card. The conclusion, of course, Mr. Chan invites me to arrive at is that the typing was done then and there at the office and therefore there is absolutely no reason why the maximum liability figure should not have been typed in at the time. I am afraid on the evidence before me I am not able to draw that conclusion. Mr. Chan invites me to consider all the surrounding circumstances; the fact that Mr. Ho made on his own account only sight enquiry into the circumstances of the principal debt before offering his guarantee and he says that he is unlikely and goes to Mr. Ho's credit. I take all those matters into account but at the end of the day I have to do the best I can, experiencing the difficulty which has been adverted to in argument, and trying to assess the witness who is giving evidence in the first place in a language which I do not understand. My conclusion is that both Mr. Ho and Mr. Lee, given an interval of over 3 years, which must affect the quality of their evidence and their ability to recall precisely what was said, have been doing their level best to tell me the truth. I do not think that Mr. Ho has come here to try to deceive me and there is nothing in the evidence, other than those matters which I have mentioned, which is inconsistent with his version, least of all the letter which he wrote after he was approached by the plaintiff to fulfil the terms of his guarantee on an unlimited basis which is entirely consistent with what is put forward by way of defence. So in the end I am constrained to accept what he has told me. One of the matters that I have taken into account is this. I think it very unlikely indeed that Mr. Ho would have been prepared to give what in effect would have been an open-ended guarantee. Of course, Mr. Chan says, he might not have intended to do that but if that is what his offer was he is bound by it because it would be his mistake and his mistake alone. But I do not think that Mr. Ho would have failed to raise the question of maximum liability with Mr. Leung at some stage in his office, that is having seen him, having done the best I can and accepting Mr. Chan's own assessment of him as an intelligent man with some business experience. Consequently, I do find that there was either a contract reached at the defendant's office on the 3rd September which would be in the form of the document at page 14 of the bundle as though $50,000 were inserted after the dollar sign or, if that agreement were not concluded then, an offer was made in those terms which were subsequently accepted by conduct.

4. Some question arises as to whether or not the plaintiff is entitled under clause 2 of the agreement to interest within the terms of its judgment. I haven't so far recited the whole of clause 2, I shall do so now.

The submission made to me by Miss pinto, which she described as technical, is that because in this case the plaintiff proceeded upon the assumption that the guarantee was unlimited and therefore made a demand for a much larger sum than the $50,000 which I had held to be the maximum extent of the defendant's liability together with such further sum for interest and other charges and costs, that there never was a demand within the terms of clause 2 and so the entitlement to interest never began to run. I reject that proposition. It seems to me that the reference to the demand is simply inserted for the purpose of determining the date as from which interest is to run and the plaintiff is entitled to interest under the clause. The rate of interest has been agreed subject to entitlement at 13%. So I shall order that judgment by entered in the sum of $50,000 together with interest on $50,000 at the rate of 13% from the 1st November 1983 until judgment. I ought to say, perhaps, that the matter is not without importance quite apart from the sum involved in itself because there was a payment into Court, as I am now told with the consent of both counsel, in February 1984 of $50,000, and the consequence of my ruling of course does have a bearing on the question of costs. Perhaps it is not so important as it might at first sight appear since I would have had to consider the position with great care as to what the appropriate order ought to be between the parties in the light of the fact that the 2nd defendant was given leave to remodel his defence on the first day of hearing and has only succeeded by reason of those changes of approach. However that may be, that argument will not arise before me in the circumstances since I think it will follow that there must be costs to the plaintiff and an order for payment out to the plaintiff solicitors forthwith of $50,000 in Court with any interest accrued thereon.