NANYANG COMMERCIAL BANK LTD. v. JIALING INTERNATIONAL HOLDINGS LTD.

HCCW612/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING UP PROCEEDINGS NO.612 OF 2000

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J U D G M E N T

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1. This is a petition presented by the Nanyang Commercial Bank Limited. The Company is Jialing International Holdings Limited which executed certain guarantees in consideration of banking facilities being granted to Jialing Finance Company Limited ("the 1st Borrower"), Jialing Nonferrous & Minmetals Company Limited ("the 2nd Borrower") and Loong Tai Enterprise (HK) Limited ("the 3rd Borrower").

2. As appears from the petition, the amounts owed by the principal debtors, namely the 1st, 2nd and 3rd Borrowers, totalled over HK$7.7 million and US$4.6 million. These underlying debts are not disputed. An affirmation has been filed on behalf of the Company disputing its liability to pay under the various guarantees that it had executed in respect of borrowings by the 1st, 2nd and 3rd Borrowers. In respect of the 1st Borrower, the Company gave two guarantees : the first is dated 6 July 1995, guaranteeing up to US$8 million of loan facilities. The second is dated 13 March 1997, guaranteeing the sum of HK$10 million. The guarantees given in respect of borrowings by the 2nd and 3rd Borrowers are dated 6 May 1997 and 9 January 1997 for the sums of HK$8 million and HK$6 million respectively.

3. Although there was some intimation of a possible restructuring in the affidavit filed in opposition, at the hearing, counsel for the Company informed the court that it was not being pursued.

4. As I understand it, the basis of the opposition comes to this. As regards the 1st Borrower, the Company's position was that there was no good reason for the Company to have entered into the guarantees since it only had a 5% interest in the 1st Borrower and there was no way in which they could have exercised control over the operations of the 1st Borrower. In respect of the 2nd and 3rd Borrowers, the Company no longer has any interest in them. Generally, the point raised appeared to be non est factum.

5. However, it transpired that at the relevant dates, i.e. the dates on which the guarantees in respect of the 2nd and 3rd Borrowers were executed, the Company held 51% of the shares in each of those companies. It would appear that the Company disposed of its shareholdings in the 2nd and 3rd Borrowers in July 1997. For reasons which are not apparent, no arrangements were made for the transfer of the liabilities under the guarantees on the disposal of the shareholdings. That, of course, has nothing to do with the petitioning creditor. It was possibly a slip-up on the part of the Company for which they must take responsibility.

6. As regards the guarantees executed in respect of borrowings by the 1st Borrower, the affirmation of Wei Wen Hao filed on behalf of the Company did not really state why it should not be liable under the first of the two guarantees. All he said was that when he was asked "to renew the guarantee granted in favour of the 1st Borrower previously", he saw no reason not to approve the request. But when one looks at the guarantees, it was not a question of the second guarantee superceding the first guarantee: they are for different amounts and, certainly on the face of the documents, both guarantees appear to be still extant. So there is in fact no explanation on the part of the Company as to why it should not be liable under the first guarantee executed in 1995 in respect of banking facilities granted to the 1st Borrower. It is, of course, not entirely clear whether at some earlier stage the Company held more than 5% of the issued shares of the 1st Borrower. That may be the present position but having regard to the dealings with its interests in the 2nd and 3rd Borrowers, I cannot rule out the possibility that back in 1995, it had more than a 5% interest in the 1st Borrower.

7. Be that as it may, the evidence filed goes nowhere near to establishing any defence of non est factum. The essential matters that must be established for a plea of non est factum are set out clearly in Saunders v. Anglia Building Society [1971] AC 1004. These may be summarized as follows :

"(a) that there was a radical (or fundamental) difference between what he signed and what he thought he was signing;

(b) that the mistake was as to the general character of the document, as opposed to its legal effect; and

(c) lack of negligence, i.e. that he took all reasonable precautions in the circumstances to find out what the document was."

See Andrews and Millet on the Law of Guarantees at page 98. On the facts of the present case, I do not see that the evidence filed remotely sufficient to satisfy those three elements. For one thing, Mr Wei knew that the document he was signing was a guarantee.

8. It was intimated to the Company that if it wanted an adjournment in order to file additional evidence, the court was minded to entertain such an application. However, upon instructions counsel for the Company informed the court that the Company did not wish to file any further evidence.

9. In those circumstances, on the evidence I cannot see that the Company has any grounds for opposing the petition. It is accordingly appropriate that I make a winding-up order.

10. The costs of the Petitioner and the Company are to be a liquidation expense.