WONG BIK HAR v. GANG PIAO JIA MARKETING LTD AND ANOTHER

HCA 724/2022

[2023] HKCFI 3223

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 724 OF 2022

________________________

________________________

________________________

D E C I S I O N

________________________

A.  Introduction

1.  This is an Order 14 appeal.  The 2^nd defendant (“D2”) seeks thereby to appeal against the final judgment in the sum of HK$5,000,000 with indemnity costs entered against him by Master Elizabeth Cheung on 6 April 2023.

2.  Mr Jeffrey Tam appeared for D2.  Ms Niomi Chan appeared for the plaintiff (“P”).

B.  The pleadings, and the relevant affirmations

3.  P filed her statement of claim on 15 June 2022 (the “Statement of Claim”).  D2 filed his defence on 19 December 2022 (the “Defence”). The Defence was subsequently amended on 27 March 2023 (the “Amended Defence”).  That took place some 3 months after P had on 6 January 2023 taken out her application for summary judgment against D2. 

4.  The relevant affirmations are, on P’s behalf, her own affirmations filed on 9 January and 17 March 2023 (“P/Aff1” and “P/Aff2”), and, on D2’s behalf, one each of D2 and Ng Wai Ting (“Ng”) both of 2 March 2023 (“D2/Aff” and “Ng/Aff”).  Ng is a director of D1.  

C.  The factual background

5.  The present claim arises from a loan agreement of 27 June 2018 (the “Loan Agreement”).  P signed as the lender.  The 1^st defendant (“D1”) signed as the borrower.  The agreed loan was in the sum of HK$5,000,000 (the “Loan”).  D2 was one of the guarantors named therein, though he did not signed on the same as such.  He did however sign a separate guarantee (the “Guarantee”), which bears the same date as that of the Loan Agreement. 

6.  According to P, D1 on 27 June 2018 issued a written notice of drawing (the “Notice of Drawing”), as per Schedule 1 of the Loan Agreement, thereby serving notice that it intended to make a drawing down of the Loan on or before 28 June 2018.  The last sentence of the Notice of Drawing[1] reads:

“I hereby instruct you to draw a cheque in favour of [D1] in the sum of HK$5,000,000.00.”[2]

7.  According P/Aff2, between 29 June and 4 July 2018, P twice tried to effect the Loan, first by a cheque, and then by way of local Interbank Transfer.  Both attempts failed, and the Loan could not be paid into D1’s account with Citibank.  On 5 July 2018, P and D1 agreed that the Loan would instead be advanced by 3 cheques issued, not to D1 as the payee, but to an entity nominated by D1, whose name closely resembles that of D1, namely “Gang Piao Jia Management Limited” (“GPJ Management”) (the “Drawdown Agreement”).  The 3 cheques were in the amount of HK$500,000[3] (“Cheque 1”), HK$3,500,000[4] (“Cheque 2”) and HK$1,000,000[5](the “Replacement Cheque”) to GPJ Management (collectively the “3 Cheques”).  The Loan was in this way successfully made. 

8.  The loan period was between 27 June 2018 and 25 September 2020.  D1 had failed to repay any part of the principal.  Despite demands, D2 had failed to fulfill his obligations under the Guarantee.

9.  The action herein was subsequently initiated and the Statement of Claim filed.

10.  In his Defence, D2 pleaded that in around May 2020, D1 entered into a new agreement superseding the Loan Agreement, whereby “[P] agreed to waive [D1’s] and as a result [D2’s] liability to pay for the 1^st Loan Facility under the Loan Agreement (“New Agreement”)”[6]. He further averred that “his liability to pay was waived by the New Agreement and he has no legal obligation to pay in light of the New Agreement”[7].

11.  In D2’s Amended Defence, D2 adds and avers that certain “Non-Enforcement Misrepresentations” have been made to him, to the effect that P would not request performance by the guarantors of their obligations, and that the Guarantee would not create any legal obligation[8]. D2 pleads that those representations were made fraudulently[9], and/or that the execution of the Loan Agreement and the Guarantee were a fraud perpetrated against him, so that they are “null and void, unlawful, invalid and/or no legal effect”[10].

12.  However,it is not D2’s pleaded case that the alleged Non-Enforcement Misrepresentations were made by P or his agents.  There are no averments or particulars to such effects.

D.  D2’s case on appeal

13.  In pursuing the present appeal, Mr Tam does not rely on the alleged Non-Enforcement Misrepresentations.  They are not referred to in his written submissions.  He fairly confirmed this during the hearing.  Instead, he submits[11] that:

“… the issues in the present case can be reformulated into two questions[12]:

(1) Whether the Loan was in fact advanced in favour of [D1];

(2)  Whether non-compliance of the Loan Agreement constitutes material variation of the Loan Agreement.”

14.  For P, Ms Chan submits that this is a simple and straightforward case of debt-recovery on a deed of guarantee.  Whilst the Loan was not directly debited into D1’s account, it was as a result of the Drawdown Agreement advanced to D1 through GPJ Management.  It was in compliance with the Loan Agreement.  In any event, it was not a material variation of the Loan Agreement.  D2’s liability remains.  She relies in particular on Clauses 3.1 and 15.2(b) of the Guarantee.

E.  The applicable legal principles

15.  Mr Tam accepts that P has establish a prima facie case against D2.  The onus is on D2 to demonstrate issues to be tried.

16.  I have been reminded of the observations of Cheung JA at §5.2 of Time Rich 08 Limited v DBE (HK) Limited & Others [2018] HKCA 404, that:

“As this Court had said in summary judgment applications, in deciding whether a plaintiff is entitled to summary judgment the relevant test is whether the defendant has raised credible triable issues. If there are, the matter should go to trial. If not, judgment should be entered against the defendants. In considering whether there are triable issues, the Court will not take the defence on its face value but test it against the evidence disclosed in the affidavit including matters such as contemporaneous documents, whether the alleged defence is inconsistent with the defence previously put forward or whether the defence is only recently raised despite opportunity being given to the defendant to respond earlier. The Court will also consider the inherent probability of the defence but what the Court should not do is to conduct a mini-trial on complicated factual issues: Paul Y Management Ltd v Eternal Unity Development Ltd (CACV 16/2008).”

17.  I apply the same.

F.  D2 has no arguable defence

18.  For the following reasons, I am of the view that D2 has failed to show any arguable defence to P’s claim.

F.1  The Reformulated Issue 1

19.  The contemporaneous documents, which include printout of WhatsApp messages (among a group of which a director of D1 was a member) and P’s bank statements, clearly show that after the first and second failed attempts, D1 and P reached the Drawdown Agreement to the effect that the Loan was to be effected via the 3 Cheques. They were on 5 July 2023 collected by a staff member of the defendants called Jeff.

20.  D2’s assertion that D1 had not received the Loan is not supported by any contemporaneous document.  At §13 of D2/Aff, he says that “本人印象中[D1] 並沒有從[P] 收過該500萬”.  That looks more like a game of words, evading the question as to whether D1 had through GPJ Management received the Loan.  Ng’s evidence is equally evasive.  He claims that according to his recollection (“本人自己的記憶”), D1 had not received the cheque deposit of HK$5,000,000[13], and that he did not see from D1’s bank statements any deposit of “港幣500萬的支票”.  But as summarised above, P’s case is that ultimately, the 3 Cheques of HK$500,000, HK$1,000,000 and HK$3,500,000, but not one cheque of HK$5,000,000, were issued to GPJ Management.

21.  I note further that according to the documents produced by P:

(a)  D1 has signed acknowledging receipt of Cheque 1, Cheque 2 and Cheque 3[14], and that

(b)  D1 had in fact made repayment of certain interest for the Loan.  It would be most incredible for D1 to have done so if it in fact had not received the Loan.

22.  The evidence in my view supports the existence of the Drawdown Agreement.  D1 had nominated GPJ Management to receive the 3 Cheques.  Insofar as D2 seeking to argue that D1 has never received the Loan, in the sense that it has not even through GPJ Management received the 3 Cheques, my view is that that issue is not an arguable or triable one.

23.  Insofar as D2 seeking to argue that the Drawdown Agreement was not made in compliance with the Loan Agreement, that is linked to the Reformulated Issue 2, which I will next turn to.

F.2.  The Reformulated Issue 2

24.  Mr Tam accepts[15] that it was open for D1 to name a nominee for the purpose of receiving the Loan.  He submits that whilst that is so, “the issue in the present case does not concern the change of recipient of the Loan per se, but rather whether such change and the arrangement of drawdown is effected in the way prescribed by the Loan Agreement.”  Mr Tam refers to a number of clauses in the Loan Agreement, including most relevantly Clause 11.01[16].  He submits that the change was not effected by an instrument in writing.  He relies on Triodos Bank NV v Dobbs [2005] 2 CLC 95 at §14.  He submits that it is therefore not open for P to argue that D2 would still be bound by the Guarantee even if the Loan drawn does not comply with the Loan Agreement.

25.  For the Reformulated Issue 2 to be reasonably arguable and triable, reasonably arguable and triable issues on a number of constituent matters will have to be established, as follows. 

26.  First off, I am prepared to accept that there had been a change of the manner in which Loan was intended to be effected.  According to the Notice of Drawing, the Instruction was to draw a cheque in favour of D1 in the sum of HK$5,000,000.  It could not be so effected.  P and D1 subsequently reached the Drawdown Agreement instead.

27.  The next issue is whether the change was in compliance with the Loan Agreement.  I am not satisfied that it is arguable that it was not:

(a)  The Loan Agreement, properly construed, does not suggest that the manner of drawdown would be governed by any stringent formality.  Subject to the terms of the Loan Agreement, the “Borrower may draw down the Loan by prior arrangement with the Lender”[17], that the Notice of Drawing needs only to be “substantially in the form set out in the Schedule 1 hereto”[18], and that “the Loan may be drawn by the Borrower … in such manner as may be agreed between the Lender and the Borrower”[19];

(b)  Mr Tam submits that the Notice of Drawing is irrevocable once given. But according to Clause 3.02, it is irrevocable only in the sense that “the Borrower shall be bound to make the drawing of the entire amount of the Loan in accordance herein”;

(c)  The Notice of Drawing had been given.  Only the Instruction had been varied by the Drawdown Agreement;

(d)  I accept Ms Chan’s submissions that there is no provision which obliges the parties to make or draw the Loan in full compliance with the Notice of Drawing;

(e)  Mr Tam relies heavily on Clause 11.01 of the Loan Agreement.  But that Clause applies only to “provision hereof”, which the manner of drawdown or the Instruction is not.

28.  Next, and in any event, D2 will have to establish triable issues that (1) the change is a material one (“Materiality”), and (2) that the change is not provided for in the Guarantee and hence outwith the general purview of the Gurarantee (the “Guarantee Provisions”).

29.  In respect of Materiality:

(a)  Ms Chan relies on AVC Property Development Co Ltd v Joyful Grace Trading Ltd & Anor [2018] 3 HKC 47 wherein Lam VP (as the PJ then was) at §§35 to 36 observed that:

“35. The law can be taken from Holme v Brunskill (1878) LR 3 QBD 495. At pp 505-6, Cotton LJ said:

‘The true rule in my opinion is, that if there is any agreement between the principals with reference to the contract guaranteed, the surety ought to be consulted, and that if he has not consented to the alteration, although in cases where it is without inquiry evident that the alteration is insubstantial, or that it cannot be otherwise than beneficial to the surety, the surety may not be discharged; yet, that if it is not self-evident that the alteration is unsubstantial, or one which cannot be prejudicial to the surety, the Court, will not, in an action against the surety, go into an inquiry as to the effect of the alteration, or allow the question, whether the surety is discharged or not, to be determined by the finding of a jury as to the materiality of the alteration or on the question whether it is to the prejudice of the surety, but will hold that in such a case the surety himself must be the sole judge whether or not he will consent to remain liable notwithstanding the alteration, and that if he has not so consented he will be discharged.’

36. In Courtney & Phillips, The Modern Contract of Guarantee (3rd Ed), para 7-002, the learned editors opined:

‘The principle is an equitable one and is applied strictly.  If the variation of the principal contract could prejudice the guarantor, the guarantor will be absolutely discharged whether or not the variation has in fact resulted in prejudice and whether or not it is likely to do so.  The guarantor will remain liable only where the alteration to the principal contract is obviously ‘unsubstantial’, with no possible prejudice to the guarantor resulting, or whether the alteration is inevitably for the benefit of the guarantor.’ ”

(b)  On the facts of the present case, no basis has been put forward as to why the nomination of the GPJ Management as nominated recipient of the 3 Cheques, and the breaking up of a HK$5 million into 3 of HK$500,000, HK$3,500,000 and HK$1,000,000, would be substantial or material alterations, or how D2 could have been prejudiced thereby.

30.  In respect of the Guarantee Provisions:

(a)  According to Triodos Bank (which Mr Tam cites) at §14:

“It is, of course, the law that a material variation in the contract between the creditor and the principal debtor will discharge the guarantor, unless the variation is one to which he assented or which is provided for in the contract of guarantee. In his book (1898) on the Law of Principal and Surety, Mr Sidney Rowlatt (as he then was) said:

‘…it is apprehended that assent, whether previous or subsequent to a variation, only renders the surety liable for the contract as varied where it remains a contract within the general purview of the original guarantee … If a new contract is to be secured there must be a new guarantee.’ ”

(b)  In Triodos Bank:

(i)  The guarantor guaranteed payment of all monies “under or pursuant” to the loan agreement;

(ii)  The guarantee agreement provided that the creditor might at any time without reference to the guarantor “agree to any amendment, variation, waiver or release in respect of an obligation of the [debtor] under the Loan Agreement”;

(iii)  The Court of Appeal held that certain subsequent and new agreements were considerably more than amendment or variation of the original loan agreement, so that any sums due under the new agreements were not monies “under or pursuant” to the original loan agreement, so that they were not within the purview of the original loan agreement[20], so that there was a material variation, leading to the conclusion of the guarantor having been discharged;

(c)  In the present case, according to Clause 15.1 and 15.2(b) of the Guarantee (emphasis added for ease of presentation):

“15.1. The liabilities and obligations of the Guarantor under this Guarantee shall remain in force notwithstanding any act, omission, event or circumstance whatsoever, until full, proper and valid payment of the Secured Obligations.

15.2. Without limiting Clause 15.1, neither the liability of the Guarantor nor the validity or enforceability of this Guarantee shall be prejudiced, affected or discharged by:

…

(b)  any variation or modification of the Loan Agreement, this Guarantee or any other security document executed pursuant to the Loan Agreement.”

(d)  In so far as Mr Tam seeking to argue that the underlined words qualify “any variation or modification” so that they had to be in writing, I do not agree, and do not find that arguable.  The underlined words qualify “any other security document executed”, so that Clause 15.2(b) covers variation or modification of 3 documents (or 3 types of documents), namely, (1) the Loan Agreement, (2) the Guarantor, and (3) any other security document executed pursuant to the Loan Agreement.  This interpretation is clearly correct when Clauses 15.2(c) and (d) are taken into account and construed together.  In fact, Mr Tam accepted that in the course of the hearing when the above were suggested to him;

(e)  The change is clearly provided for in the Guarantee, so that any variation which the Drawdown Agreement might have brought about (be it regarded as a change to the Loan Agreement or “any other security document executed pursuant to the Loan Agreement”) remains within the general purview of the Guarantee.

31.  For the above reasons, Reformulated Issue 2 also raises no arguable or triable issue.

G.  Conclusion

32.  For the reasons set out above, I dismiss the appeal.

33.  On costs, I make a costs order nisi that D2 shall bear the costs of the action, including the costs of P’s application for summary judgement and this appeal, with certificate for counsel, on an indemnity basis (as envisaged by Clause 4 of the Guarantee), to be taxed if not agreed.  I believe taxation in the absence of agreement will be preferable to summary assessment given the fact that the costs of the entire action are involved.  Any application for variation may be made by letter addressed to my Clerk within 14 days from the date hereof, upon receipt of which I may hand down further directions with the view of dealing with the matter on the papers.