BANK OF INDIA v. GIMAJASA LTD AND OTHERS

HCA 1956/2017

[2021] HKCFI 354

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1956 OF 2017

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BETWEEN

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REASONS FOR JUDGMENT

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1.  In this action, the Plaintiff (“P”) claims against the 4^th Defendant (“D4”) for the sum of HK$5,097,791.84 plus interest said to have been due under a guarantee dated 15 November 2006 executed by D4 in favour of P (“Guarantee”).

2.  At the end of the trial, I dismissed P’s claim for reasons to be handed down later.  These are my reasons. 

Background

3.  The following facts and matters are not in dispute. 

4.  Pursuant to a Facility Letter dated 22 August 2006 (as renewed by letters dated 12 September 2007, 11 September 2009, 21 September 2010 and 21 November 2011 in substantially similar terms) (collectively “Facility Letters”), P agreed to grant various loan facilities in the aggregate amount of HK$7,800,000 to the 1^st Defendant (“D1”) (“Facilities”).

5.  The Facilities comprised of the following:

5.1   A letter of credit (L/C-DP) facility of HK$1,800,000;

5.2   A foreign export bill (FBP-DA) facility of HK$3,000,000; and

5.3   A trust receipt (TR) facility of HK$3,000,000.

6.  The 2^nd to 5^th Defendants (“D2” to “D5”) executed guarantees in favour of P in respect of D1’s indebtedness under the Facilities on 27 October 2006, 27 October 2006, 15 November 2006 and 17 November 2006 respectively.

7.  The Guarantee executed by D4 contained, inter alia, the following terms:

“I the undersigned hereby guarantee the due payment, two days after demand in writing, of all advances, liabilities, bills and promissory notes, whether made, incurred or discounted before or after the date hereof, to or for [D1], either alond [sic] or jointly with any other person or persons, and also all bills, promissory notes, or guarantees held by you bearing [D1’s] signature, together with interest, commission and other Banking charges including all legal charges and expenses (“Guarantee Clause”).

[…] this guarantee shall be a continuing security to you, and shall not be determined except at the expiration of three calendar month’s written notice given to you of intention so to do by me […] (“Continuing Guarantee Clause”).

[…] this guarantee shall be applicable to the ultimate balance that may become due to you from [D1] in the account notwithstanding that such account may in the meantime at any time or times have been in credit or may have disclosed a reduced or nil balance […] (“Ultimate Balance Clause”).

A demand in writing shall be deemed to have been duly given to me or my legal personal representatives by sending the same by post addressed to me at the address hereunder written and shall be effectual notwithstanding any change of residence or death and notwithstanding notice thereof to [P], and such demand shall be deemed to be received by me or my legal personal representatives as the case may be 24 hours after the posting thereof, and shall be sufficient if signed by any officer of [P], and in proving such service it shall be sufficient to prove that the letter containing the demand was properly addressed and put into the Post Office (“Deemed Service Clause”).

In the event of this guarantee being determined either by notice by me or by my legal representatives or by demand in writing by [P] it shall be lawful for [P] to continue the account with [D1], notwithstanding such determination, and the liability of myself or of my estate for the amount due from [D1] at the date when the guarantee is so determined shall remain, notwithstanding any subsequent payment into or out of the account by or on behalf of [D1] (“Subsequent Payment Clause”).

I agree that a copy of the account of [D1] contained in your books of account (or of the account for the preceding six months if the account shall have extended beyond that period), signed by the Agent or Manager for the time being of the office at which such account shall be kept, or any officer of [P], shall be conclusive evidence against myself and my estate, of the amount for the time being due to you from [P] in any action or other proceeding brought against me or my estate upon this guarantee (“Conclusive Evidence Clause”).

Should the guarantee cease from any cause to be binding as a continuing security on me you may open a fresh account or accounts and continue any existing account with [D1] and no money paid into such account and subsequently drawn out by [D1] shall on settlement of any claim under this guarantee be appropriated towards or have the effect of payment of any part of the moneys due from [D1] at the time of this guarantee ceasing to be so binding as aforesaid in the absence of a direction in writing to appropriate given to you by the person paying in such money.

To give effect to this guarantee you may act as though I was the principal debtor (“Principal Debtor Clause”).

This guarantee shall be governed by and construed in accordance with the laws of Hong Kong and the parties hereby submit to the non-exclusive jurisdiction of the Supreme Court of Hong Kong [sic]”. (underline added)

8.  D4’s address, as stated on the Guarantee, was Motzener Str 12-14, 12277 Berlin, Germany (“Berlin Address”). 

9.  On 11 March 2013, D4 sent a letter to P stating that he would withdraw his Guarantee with effect from 31 March 2013 and he would not be responsible for any new bills or liabilities P accepted on account of D1 under the Facilities after that date. 

10.  In response, by letter dated 22 March 2013, P noted that D4’s letter indicated his “intention to withdraw [the Guarantee]”, but stated that as D4 was still a shareholder and director of D1, according to P’s rules, his Guarantee was required for continuation of the Facilities. 

11.  On 26 March 2013, D4 sent a letter to P by email reiterating that he had withdrawn his Guarantee for all new obligations which P might choose to accept on account of D1 under the Facilities after 31 March 2013, and requested that P disclose the exact extent of his exposure under the Guarantee as of that date. 

12.  On 27 March 2013, P sent D4 a “statement of loan outstanding against [D1]” which showed that the amount due as at 11 November 2012 was HK$8,732,245.06. 

13.  On 2 July 2013, D4 sent a letter to P requesting for its “current facility letter and the statement of accounts” to be sent to him without undue delay.

14.  On 27 November 2013 and 29 April 2014, D4 sent further letters to P repeating his request for “a comprehensive statement” with details of all outstanding loan and interest remained payable by D1, and reiterating that he would not be liable for any further or additional credit advanced to D1 under the Facilities after 31 March 2013. 

15.  Between 31 August 2015 and 19 February 2016, P made 14 advances to D1 totalling HK$2,015,750.28[1] under the trust receipt facility and 12 advances totalling HK$2,765,562.04 under the foreign export bill facility (together “Subject Advances”).

16.  On 18 October 2016, P (through its solicitors) sent letters to Ds demanding that they pay D1’s outstanding indebtedness as at 31 May 2016 in the sum of HK$6,455,040 together with interest at 8.5% p.a. as from 1 June 2016.  P’s letter to D4 was sent to an address on Lyttelton Road, Hong Kong (“Lyttelton Road Address”), and it was subsequently returned in the post. 

17.  As at 31 May 2017, D1 was indebted to P under the Facilities in the principal sum of HK$5,097,791.84 and interest of HK$647,210.58 (“Indebtedness”).  According to §11 of the Agreed Facts, the Indebtedness arose entirely out of the Subject Advances.[2]

18.  On 18 August 2017, P issued the Writ in this action, claiming the sum of HK$5,118,219.36 and interest of HK$426,000, being the amount allegedly owed by Ds as at 31 March 2017.  It obtained default judgment against D1 on 19 September 2017 and against D2, D3 and D5 on 1 December 2017. 

19.  In its Re-Amended Statement of Claim dated 23 April 2020 (“RASOC”), P now claims from D4 the Indebtedness, i.e. the amount owed by D1 to P as at 31 May 2017.[3]

The parties’ cases

20.  Ms Jasmine Cheung, counsel for P, contends that despite what is pleaded in the RASOC, P is in truth claiming against D4 in respect of D1’s outstanding indebtedness at the time when D4 terminated the Guarantee, i.e. HK$8,732,245.06.  However, given that D1’s indebtedness has since then been substantially reduced, P is content to only enforce the Guarantee to the extent of D1’s present indebtedness.

21.  Ms Cheung further submits that in light of the Principal Debtor Clause, there is no need for a demand in order for D4’s liability under the Guarantee to arise and, in any event, P made a valid demand by its letter dated 18 October 2016.  As a further alternative, D4 has waived or is estopped from asserting the existence of a requirement of a formal demand by virtue of his correspondence with P in 2013 and 2014.

22.  Mr Sebastian Hughes, counsel for D4, submits that P’s only pleaded claim is a claim in respect of D1’s Indebtedness as at 31 May 2017.  As it is common ground that the Indebtedness arose entirely out of the Subject Advances, which were advanced by P1 to D1 after D4 had terminated the Guarantee, P’s claim does not get off the ground. 

23.  As a fallback position, Mr Hughes says that on a proper construction of the Guarantee, D4’s liability is contingent on receipt of a demand.  As P did not make any demand prior to the termination of the Guarantee (which took effect on 11 June 2013), there is no basis to claim that D4 was liable in respect of D1’s indebtedness in 2013.  In any event, D4’s letters to P in 2013 and 2014 were insufficiently clear and unequivocal to give rise to any waiver or estoppel.

The Indebtedness

24.  Given the parties’ disagreement as to what P’s claim actually entails, it is necessary to examine the pleadings in some detail.

25.  In its Statement of Claim dated 18 August 2017, P’s claim was originally quantified as follows:

“7. As at 15 March [2017], [D1] was and is still indebted to [P] under the [Facilities] in the sum of HK$5,118,219.36 and interest amount HK$426,000.00 up to 31 March 2017 and further interest accruing thereon at a rate of 8.50% per annum from 31 March 2017 until payment in full. […]

AND [P] CLAIMS against [D1 to D5] jointly and severally for:-

a. the sum of HK$5,118,219.36 and interest amount HKD 426,000 up to 31 March 2017;

b. interest on the sum HK$5,118,219.36 at the rate of 8.5% per annum from 31 March 2017 until judgment …”

26.  By a Request for Further and Better Particulars dated 6 September 2018, D4 requested P provide, inter alia, (1) particulars of when the outstanding principal amount of HK$5,118,219.36 arose, and (2) a breakdown of D1’s borrowings under the Facilities which remain outstanding. 

27.  In its Answer to D4’s Request for Further and Better Particulars dated 11 January 2019 (“F&BP”), P stated as follows:

“Answer

FACILITY	PRINCIPAL	INTEREST as on 31.03.2017
TRUST RECIEPT [sic]	HKD 2,196,673.00 & USD 151,895.00	HKD 291,002.14 USD 14,941.43
BILLS	USD 352,750.26	USD 39880.73
TOTAL IN HKD	HKD 6,153,091.84	HKD 720,807.87
RATE USD @ 7.84 HKD

[P] refers to Annex 1 hereof.”

28.  Annex 1 listed a total of 32 advances made by P to D1, namely:

28.1   14 HKD-denominated trust receipt advances, with original due dates between 26 February 2016 and 13 May 2016, totalling HK$2,422,673.00.[4]

28.2   6 USD-denominated trust receipt advances, with original due dates between 11 May 2016 and 17 August 2016, totalling US$151,894.80.[5]

28.3   12 foreign export bill advances, with bill dates between 31 August 2015 and 1 February 2016 and due dates between 27 February 2016 and 30 July 2016, totalling US$352,750.26.[6]

29.  There are various discrepancies in the figures stated above.  First of all, the outstanding amount under the HKD-denominated trust receipt advances in the F&BP is stated as HK$2,196,673 whereas Annex 1 lists advances totalling HK$2,422,673.00.  Second, and more importantly, there is no explanation for the difference between outstanding principal amount claimed in §7 of the Statement of Claim (HK$5,118,219.36) and that set out in the table in the F&BP (HK$6,153,091.84).

30.  Be that as it may, the Statement of Claim was amended on 24 April 2019 and re-amended on 23 April 2020.  The relevant passage now reads:

“7. As at 15 31 March May 2017, the [D1] was and is still indebted to [P] under the [Facilities] in the sum of HK$5,118,219.36 HK$5,097,791.84 and interest amount HK$426,000.00 HK$647,210.58 up to 31 March May 2017 and further interest accruing thereon at a rate of 8.50% per annum from 31 March May 2017 until payment in full. […]

AND [P] CLAIMS against [D1 to D5] jointly and severally for:-

a. the sum of HK$5,118,219.36 HK$5,097,791.84 and interest amount HKD 426,000.00 HK$647,210.58 up to 31 March May 2017;

b. interest on the sum HK$5,118,219.36 HK$5,097,791.84 at the rate of 8.5% per annum from 31 March May 2017 until judgment …”

31.  No amendment was made to F&BP.  As such, P’s pleaded case remains that the outstanding principal (HK$5,097,791.84) derived from 26 advances (out of the 32 advances) set out in Annex 1 of the F&BP (i.e. the Subject Advances). 

32.  That being the position, it is clear that P’s only pleaded claim is in respect of loans which were advanced by P to D1 in 2015 and 2016.  P’s claim is not, as Ms Cheung submits, in respect of (a portion of) D1’s outstanding indebtedness as at 31 March 2013. 

33.  For completeness, I have not lost sight of the fact that in §14 of RASOC, there is a plea that by his 4 letters to P, D4 accepted that he was liable for D1’s indebtedness as of 31 March 2013, such that he has waived the requirement of a formal demand and/or is estopped from contending that such demand was required.[7]  Such plea only concerns P’s defence of waiver or estoppel, and is not a plea that P’s claim was in respect of D1’s indebtedness as of 31 March 2013 or that such indebtedness remained due and owing by the time the writ was issued.

34.  Furthermore, Ms Cheung’s contention does not sit well with the fact that P’s claim is one brought against D1-D5 “jointly and severally”.  It makes no sense for P to bring a claim against D1 in respect of its indebtedness as at 31 March 2013 if, as the evidence demonstrates, P continued to extend loans to D1 and D1 made further repayments of its loans after that date.  Similarly, there is no basis for crystallising D2, D3 and D5’s obligations in March 2013 when their guarantees continued in force after that date.  It follows that the only plausible reading of the RASOC is that P claims against each of D1-D5 in respect of D1’s Indebtedness as at 31 May 2017.

35.  The next question is whether D4’s obligations under the Guarantee extended to any part of the Indebtedness.  They clearly do not.  There is no dispute between the parties that D4 validly gave notice to terminate the Guarantee on 11 March 2013, thereby bringing the Guarantee to an end with effect from 11 June 2013.  Accordingly, D4 was released from liability in respect of any new facilities advanced by P to D1 after that date. 

36.  Pleadings aside, it is clear from the evidence adduced by P that the Indebtedness comprised only of the new facilities advanced by P to D1 after D4 had terminated the Guarantee. 

(1) In her oral closing, Ms Cheung produces an annotated version of Annex 1 of the F&BP which identifies the underlying documents in respect of each of the advances mentioned therein.  The underlying documents are all in relation to the facilities advanced by P to D1 in 2015 and 2016.   

(2) P’s only witness, Mr Atul Ramads Satpute, who was P’s Credit Manager in charge of D1’s account from 2011 to 2014, confirms in cross-examination that (a) D1’s facilities for trust receipt facility and foreign export bill were all short-term facilities with tenors of 90 or 120 days, and (b) D1 had not defaulted under any of its facilities while he was in charge of D1’s account.  The only inference which may be drawn from such evidence is that all the facilities advanced by P to D1 were repaid in full by the end of their tenors. 

(3) Indeed, P has not adduced any documentary evidence to show that the HK$8,732,245.06 or any part thereof remained outstanding, whether at the time the demand was made in August 2016, or on the date the writ was issued or when the F&BP was filed. 

37.  In the premises, both on the basis of its pleadings and documentary evidence adduced, P’s only claim against D4 is in respect of the Subject Advances, not the Indebtedness. 

38.  Ms Cheung in her written opening and closing submissions tries to salvage P’s claim by suggesting that the above analysis on the RASOC and the evidence “wholly ignores the nature of [D1’s] account being a running account, and crucially, [the Subsequent Payment Clause]” which, she said, “is effective to preserve the guarantor’s liability for the amount quantified at the time of termination”.[8]

39.  I reject Ms Cheung’s submissions. 

40.  First, it is not P’s pleaded case that the Facilities were advanced to or otherwise maintained in “a running account”. Nor is there any evidence in support of that suggestion.  To the contrary, the Facility Letters, and each of them, provided that the foreign export bills and trust receipt facilities were all advanced on the basis of a fixed tenor of  90 or 120 days.  This is confirmed by the bills and trust receipts disclosed by P (in respect of the Subject Advances), which show that P had used the new bills and trust receipts facilities advanced to D1 for the purpose of pay off the earlier facilities. 

41.  Second, even if there is a proper basis for Ms Cheung’s suggestion that the Facilities were in the nature of a “running account”, it does not alter the fact that on P’s pleaded case, the entire outstanding principal and interest (i.e. the Indebtedness) arose under the Facilities advanced to D1 in 2015 and 2016 (i.e. Subject Advances). 

42.  As far as the Subsequent Payment Clause is concerned, even assuming the Clause has the effect of preserving D4’s liability at the time of termination of the Guarantee, it does not assist P, as P has not pleaded a claim for D1’s liability as at 11 June 2013.  If, as in the present case, P is claiming for an amount outstanding as at 31 May 2017, it is necessary to ascertain what portion of that amount is attributable to D1’s liability at termination.  Given P’s case that the Indebtedness for which it is claiming arose entirely out of D1’s borrowings after D4 had terminated the Guarantee, the fact that D4’s liability at time of termination was preserved by the Subsequent Payment Clause is neither here nor there. 

43.  P’s claim therefore fails on this ground alone. However, in case I am wrong, and in deference to counsel’s full submissions as to (1) whether D4’s liability was contingent on a demand being made, and (2) whether there was any waiver or estoppel in respect of this requirement, I will also go on to briefly discuss both issues. 

Requirement of a demand

44.  Ms Cheung submits that by virtue of the Principal Debtor Clause, D4 is liable under the Guarantee regardless of whether a demand was made before termination of the Guarantee, even where the contract provides for payment on demand.  She cites Esso Petroleum Co Ltd v Alstonbridge Properties Ltd [1975] 1 WLR 1474, MS Fashions v BCCI [1993] Ch 425, and TS&S Global Ltd v John Fithian-Franks [2007] EWHC 1401 as authorities for this proposition. 

45.  Mr Hughes, on the other hand, submits that the Guarantee should be read in a way which does not render the words “two days’ demand” mere surplusage.  He points out that the Principal Debtor Clause is vague and ambiguous, tucked away at the very end of the Guarantee, and phrased in the passive voice.  This may be contrasted with the clear and prominent requirement for 2 days’ demand in the Guarantee Clause at the beginning of the document.  As for authority, he points out that MS Fashions was distinguished by Nugee J (as he then was) in Levin v Tannenbaum [2013] EWHC 4457 (Ch). 

46.  I agree with Ms Cheung that a number of Mr Hughes’ criticisms miss the point.  For example, I do not see how anything turns on whether the Principal Debtor Clause is in the active or passive voice. Furthermore, I do not think that Ms Cheung’s reading of the Guarantee necessarily renders the reference to a demand nugatory.  As she submits, while the requirement of a demand can be read as a condition precedent to the guarantor’s liability arising, it can also be read as a procedural requirement in the sense of a request for payment.  I also agree with Ms Cheung that one must approach Levin v Tannenbaum with some caution, as it was a decision on an application for reverse summary judgment, where the test is one of whether the claimant had a real prospect of succeeding on the claim.

47.  On balance, however, I think that Mr Hughes is right when he submits that as a matter of construction, D4’s liability under the Guarantee was conditional on a demand being made.  I note in particular the following matters:

47.1   The Guarantee is structured around a demand being made.  This is not only mentioned in the Guarantee Clause, but also referred to in the Subsequent Payment Clause (“In the event of this guarantee being determined … by demand in writing by [P]”) and the Deemed Service Clause (“A demand in writing shall be deemed to have been duly given to me …”). 

47.2   The latter 2 clauses are significant.  The Subsequent Payment Clause obviously envisages a demand having some substantive effect on the parties’ respective obligations under the Guarantee.  As for the Deemed Service Clause, there is no good reason why the parties stipulated for deemed service of a demand if it were merely procedural in character: a request for payment which is deemed to have arrived but did not in fact arrive simply fails to serve its purpose.  On the other hand, the inclusion of this clause makes perfect sense if the demand is a condition precedent to D4’s liability to pay.  It prevents D4 from contending that his obligations under the Guarantee have not arisen because of difficulties in delivery of the demand. 

47.3   The Principal Debtor Clause itself provides that it is subordinate to the other terms of the Guarantee, stating that “to give effect to this guarantee you may act as though I was the principal debtor” (underline added).  Ms Cheung’s contention that the Principal Debtor Clause overrides the express requirement of a demand in the Guarantee Clause is thus not supported by the language of the respective clauses. 

47.4   It is also relevant that the Guarantee Clause provides that D4 need only make payment 2 days after a demand in writing.  The obvious implication of this express time stipulation is that D4 is not liable under the Guarantee until after the expiry of those 2 days. 

47.5   Finally, I note that the clauses in MS Fashions and TS&S Global were materially different from those in the present case.  In both cases, the principal debtor clause formed part of the main covenant to pay, such that there was no doubt that the covenant to pay had to be read subject to the principal debtor clause.  In TS&S Global, the parties stipulated that “the guarantors, as primary obligors, hereby unconditionally and irrevocably guarantee to the Beneficiary, the due payment and discharge by the Company of such amount as is due and owing by the Company” (underline added).  In MS Fashions, the guarantor agreed that “as a separate and independent obligation hereunder [the company’s liabilities] shall be recoverable by you from me as principal debtor and/or by way of indemnity and shall be repaid by me on demand made in writing” (underline added).  Here, by contrast, the Principal Debtor Clause is wholly unclear as to the ways in which “[P] may treat [D4] as a principal debtor”.  There is nothing in the Guarantee which explicitly ties the Principal Debtor Clause to the Guarantee Clause.  Instead, the requirement of a demand in writing is expressly mentioned alongside the covenant to pay in the Guarantee Clause. 

48.  The parties then disagree on whether such a demand must have been made before the Guarantee was terminated.  Mr Hughes relies on National Westminster Bank v Hardman [1988] FLR 302 in support of his submission that P’s failure to serve a demand within the 3 months’ notice period had the effect of releasing D4 from liability under the Guarantee. On the other hand, Ms Cheung seeks to distinguish Hardman on the facts, and invited the Court to not apply Hardman in view of its doubtful precedential value.

49.  In my view, this is a moot point.  The only demand alleged by P was the letter dated 18 October 2016.[9]  As Ms Cheung accepts in her oral closing, P cannot rely on the Deemed Service Clause to deem service of the letter on D4 as the letter was sent to the Lyttelton Road Address, instead of the Berlin Address stated on the Guarantee. As such, P must prove that this letter was actually received by D4 in order for it to constitute a valid demand. 

50.  However, there is no evidence to suggest that D4 received the letter before the commencement of this action.  D4 denies having received the letter in his evidence, explaining that the residence at the Lyttelton Road Address was owned by D1 and used by D2 and D5 as their accommodation.  Mr Satpute confirms in cross-examination that D4 was living in Germany during the entire time that he dealt with D4.  In any event, it is P’s own pleaded case that the letter was returned in the post.[10]

51.  In her closing submissions, Ms Cheung suggests for the first time that D4 “must have received the demand letter at some point, at least by the time of discovery of these proceedings”, and submits that this is sufficient, relying on the decision of Simon Picken QC (as he then was) in United Trust Bank v Dohil [2011] EWHC 3302 (QB) [2012] 2 All ER (Comm) 765.  However, this is not a matter relied upon in P’s pleadings. I do not think P should be permitted to rely on this point raised only in closing. 

52.  In any event, I see considerable force in the observations of the learned authors of Law on Guarantees (7^th ed) §7-007 that it is not sufficient for the bank to prove that a guarantor received the letter relied on as a demand, and that the bank must instead show that the letter was in fact served as a demand:

“In United Trust Bank v Dohil [2011] EWHC 3302; [2012] 2 All ER (Comm) 765 the guarantor complained that because the creditor had sent the demand to a different address from the one stipulated in the guarantee, he did not become aware that a demand had been made until much later, when the creditor had obtained judgment in default and a statutory demand was served on him. The judge found that as a matter of construction, the contractual provisions as to where the demand was to be served were permissive. However he then went on to decide that so long as the guarantor received the demand at some point, that would be good enough to perfect the cause of action. If and insofar as this was a finding that the demand did not have to be formally served on the guarantor, and it was sufficient that it came to his notice by some other means, we respectfully suggest that is a step too far. If the provisions for service of a demand are permissive, it means that a demand can be validly served by other means, but it does not obviate the necessity of service. If the bank’s solicitors provided the guarantor with a copy in the course of exchanging lists of documents (which was one of the ways in which it was suggested the demand may have come to his attention) that would not ordinarily be regarded as serving a demand. However technical the defence might appear, each of the parties to a contract is entitled to expect the other contracting party to adhere to his bargain.”

53.  For these reasons, I hold that D4’s obligations under the Guarantee were conditional upon a demand being made, and that no such demand was ever served by P before the commencement of this action.

Waiver and estoppel

54.  As Ms Cheung confirms in her opening submissions, P relies only on D4’s letters to P between March 2013 and April 2014 for its defences of waiver and estoppel.  The relevant passages in those letters are as follows:

“Letter dated 11 March 2013:

… After 31^st March 2013, I shall not be responsible or guarantor for new bills or liabilities you may decide to accept on account of [D1] …

Letter dated 26 March 2013:

… I reiterate that I have withdrawn my personal guarantee for all new obligations you may chose [sic] to accept on [D1], after 31^st March 2013. Any new obligations you may chose [sic] to accept for [D1] after this date, will be understood to be expressly at your own risk and cost ...

… Lastly, I formally request you to disclose the exact extent of my exposure under my personal guarantee, by latest 31^st March 2013 so that I can ensure that the obligations are paid by [D1]. A failure to disclose such information will be understood as if my personal guarantee has been discharged in full …

Letter dated 27 November 2013

… After all, it is our client’s intention to put your bank on notice that he shall not be held liable for any further or additional credit or banking facilities advanced or to be advanced to the company on or after 31^st March 2013 without our client’s notice and written approval …

Letter dated 29 April 2014

  … All new obligations you have chosen to accept on [D1] after this date, freely and without any influence on my part, are totally at your own risk and cost, and expressly not covered by my personal guarantee … Since my personal guarantee is valid for all obligations dated prior to 31^st March 2013, I request you to please send me the actual statement of accounts for [D1] so I can ascertain the extent of my actual exposure …”

55.  Ms Cheung contends that by these statements, D4 had unequivocally and repeatedly accepted that he remained liable for D1’s indebtedness as of 31 March 2013, thereby waiving the requirement of a formal demand.  Furthermore, P altered its position in reliance on these statements by not making a formal demand on D4 and continuing its dealings with D1 contrary to its own rules and policies, such that D4 is now estopped from denying liability on the basis that P never made any formal demand. 

56.  I do not accept Ms Cheung’s submissions.  In my judgment, there was no sufficiently clear and unequivocal act capable of giving rise to any waiver or estoppel. 

57.  First, D4’s assertions that he would not be liable for any new liabilities after the termination of the Guarantee are silent as to his liabilities prior to that date.  There was thus no unequivocal acceptance of liability in respect of D1’s previous borrowings.  A fortiori, one cannot read into those statements an admission that D4 was liable for D1’s previous borrowings regardless of whether a demand was made.  This is especially so when the letters do not make any reference to the contractual stipulation for a demand. 

58.  Ms Cheung points out that under cross-examination, D4 accepts that by stating that borrowings after 31 March 2013 were at P’s risk, he also meant that he was liable for all borrowings before that.  However, what D4 intended by his letters is of little relevance to the (objective) question of whether his statements read as a whole were sufficiently clear and unequivocal. 

59.  Second, D4’s repeated requests for copies of D1’s statement of account, if anything, demonstrated that he lacked visibility into his liabilities under the Guarantee at the time.  It can scarcely be considered a clear expression of an intention to abandon whatever defences he might have in respect of his obligations thereunder.  

60.  Ms Cheung submits that the flip side of D4’s statement that “a failure to disclose such information will be understood as if my personal guarantee has been discharged in full” is that disclosure of the information sought means that D4’s personal guarantee is not discharged in full. Even if that is right (I do not think it is), D4’s statement says nothing as to his liability under the personal guarantee, and more pertinently, whether he decided to not insist on a formal demand.

61.  Third, D4’s statement that “my personal guarantee is valid for all obligations dated prior to 31^st March 2013”, taken at its highest, is an acceptance that his Guarantee applies in respect of loans made before March 2013.  It is not an admission that he was unconditionally liable for such loans.  As above, it says nothing about whether D4 intended to insist on a formal demand.

62.  In any event, P has failed to make out the other elements of the 2 defences. 

63.  As far as waiver is concerned, it is well-established that a party will only be taken to have waived his rights if his unequivocal representation is made with the requisite knowledge (Large Land Investments v Cheung Siu Kwai Pansy [2002] 4 HKC 652, §15 per Yuen JA, Wilken and Ghaly, The Law of Waiver, Variation and Estoppel (3^rd ed) §§1.27, 4.16-4.26).  Ms Cheung accepts this in her oral closing.  There is no plea in the RASOC as to D4’s state of mind at the time he sent the 4 letters.  Nor does Ms Cheung put any such suggestion to D4 during cross-examination. 

64.  As for estoppel, P fails to prove that it detrimentally relied on any representation by P to the effect that he waived the requirement of a formal demand.  P’s pleaded case is that it “acted in reliance on this express promise to its detriment by renewing and/or not terminating the [Facilities], and not issuing a formal demand to [D4] on or before 11 June 2013”.  However, putting aside the fact that 2 of the subject letters were sent after 11 June 2013, the documentary evidence plainly demonstrates that P never relied on any such statement.  In its letter to D4 dated 22 March 2013, P stated that:

“… as you are still shareholder and Director [of D1], as per [P’s] rules, your personal guarantee is required for continuation of the loan. Therefore, we regret that we may not be able to accept your withdrawal of the guarantee. …”

65.  This was repeated in its email to D4 on 27 March 2013, where P wrote as follows:

“… Please refer to our letter dated 22.03.2013 we have clearly mentioned in letter as you are majority Shareholder holding 25% of shareholding we can not allow you to withdraw guarantee till you Continue as shareholder. We repeat that you shall continue as guarantor and you shall be liable for any amount owes by [D1] to us. [sic]”

66.  In his oral evidence, Mr Satpute confirms that this was P’s stance at the time, stating that since P’s internal policies required personal guarantees from all majority shareholders and directors of companies to which it lent money, it continued to treat the Guarantee as valid notwithstanding D4’s notice of termination.

67.  These matters make it plain that P renewed the Facilities not because of any alleged representation made by D4, but because it (incorrectly) considered that D4’s Guarantee remained valid in respect of any new facilities to be advanced to D1.  Similarly, P did not refrain from issuing a formal demand to D4 under the Guarantee because of any representation made by D4, but because it saw no reason to crystallise D4’s liability in June 2013.  As such, P has failed to prove any detrimental reliance on its part.

68.  As a final aside, I note that P’s assertion that it renewed the Facilities because D4 had unconditionally accepted liability in respect of D1’s indebtedness as at March 2013 was inherently implausible in the first place.  There is no reason why a bank’s decision whether to advance further loans should have been affected by whether a guarantor had accepted liability in respect of past loans.

Conclusion and costs

69.  For these reasons, I dismiss P’s claim against D4. 

70.  As for costs, Mr Hughes informs the Court after I dismiss the claim that D4 made a sanctioned payment.  Pursuant to Order 22 rules 23(3)-(5) of the Rules of the High Court, the Court shall order the plaintiff to pay costs incurred by the defendant after the last date on which the payment could have been accepted without leave of the Court on an indemnity basis, and interest on those costs at a rate not exceeding 10% above judgment rate, unless it considers it unjust to do so.  I therefore give directions for the parties to lodge submissions on costs.