SOUTH CHINA PETROLEUM & CHEMICALS CO. LTD. v. KEIO INDUSTRIES (HK) LTD. and Another

1996, A12013

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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REASONS FOR JUDGMENT

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1. The plaintiff says that the second defendant, on behalf of the first defendant, procured a loan from it of RMB1.4 million (equivalent to HK$1.285 million). The second defendant guaranteed this loan. The first defendant gave a cheque to the plaintiff to repay this loan on or about 20 September 1996. This cheque was dishonoured. The plaintiff pursues the second defendant for this sum of HK$1.285 million on the basis of the guarantee.

2. The plaintiff obtained an order against the second defendant prohibiting him from leaving Hong Kong. The second defendant applies to me to discharge that order. To succeed, the second defendant must satisfy me that he has a "substantial defence" to the plaintiff's claim. The plaintiff is seeking final judgment against the second defendant. Here, the second defendant must show that he has a bona fide defence. As the argument in both applications centred on the nature of the second defendant's defence, I heard them together.

3. After hearing Ms Yeung, I did not call upon Mr Chung, refused the application to discharge the prohibition order, granted final judgment, ordered that the second defendant pay the costs, including the costs of the hearing on 4 December 1996 and said that I would hand down my reasons later. These are those reasons.

4. The second defendant says that he did not request the loan and did not give his personal guarantee.

5. The guarantee referred to by the plaintiff is dated 20 September 1996 and is addressed to the plaintiff. It says - "With reference to the cash cheque of HK&1,285,000 issued by us, the time limit is on the afternoon of 24 September 1996. Our company and I will give an undertaking and warranty that we/I will assume liability if the cheque is dishonoured. Please inform Chen Wen Ge, the manager to finish the matter in relation to the issuance of a RMB1,400,000 bank draft". It is signed by both defendants.

6. The second defendant says that, on 17 September 1996, he arranged on behalf of the first defendant for shipment of 2 containers of cleaning products to a company called Shantou Wentong Oversea Development Company (SWODC). The second defendant then goes on to say - "As I failed to contact one Mr Li Wen Ming of the consignee to collect the goods, I arranged with the wife of Mr Chen Wen Ge, Ms Lin Siu Fang whose company is Shantou Penng Developing Trading Co. Ltd. (SPDTCL) to take over the goods on condition that Mr Chen would immediately transmit RMB1,400,000 (equivalent to HK$13,000,000[sic]) to my personal account as payment for the goods.". On 20 September 1996, HK$1,300,000 was credited to his account. Mr Chen requested him on behalf of the first defendant on 20 September 1996 to drawn a cheque post-dated to 24 September 1996 in the sum of HK$1,285,000 in favour of the plaintiff "being the representative of Mr Lin's Company in Hong Kong, as damages in case the goods were found faulty", and he was required to provide a personal guarantee for the cheque.

7. On 18 October 1996, the plaintiff's solicitors wrote to the second plaintiff, giving details of the guarantee and the dishonoured cheque, and demanding payment by 4 pm on 22 October 1996. The second defendant replied to this on 22 October 1996. He said - "Regarding the payment to your captioned client, as the business is very complicated, we could not settle the payment within today as per your request. However, we have the sincerity to settle down this matter. We expect that could allow us to have the extension of payment upto the end of November 1996. Please obtain your client's approval and confirm with us by return fax. Thank you for your coooperation. Looking forward to hearing from you soon. Thanks and Regards Lau Chu Oi Ming.".

8. To this damning piece of evidence, the second defendant says not one word of explanation. He had plenty of opportunity to do so. He ignores it altogether.

9. So, the second defendant's story is that he entered into a contract of sale on behalf of the first defendant with one company, then sold the goods to another company. This second company paid the price for the goods. This price was paid on 20 September. On the same day, the defendants agreed to give a cheque to the plaintiff "in case the goods were found faulty", and the second defendant guaranteed this cheque. The plaintiff then demands payment from the second defendant. The second defendant raises no defence to his liability, but asks for time to pay. The second defendant makes no attempt at all to explain why he did this; why he did not raise, in response to the letter of demand, the defence that he raises now.

10. In my view, it is improbable that the second defendant, a businessman, would, in these circumstances, upon receiving payment of the price of goods, give in return a cheque for the equivalent of the purchase price of the goods to a purchaser "in case the goods are found faulty". This makes no sense at all. And if, for some strange reason, he were to give such a cheque, it is improbable that he would do so without ensuring that it was made clear in writing that the cheque was given on this basis. And it is improbable that, even if he were to give such a cheque without that ensurance, he would give the cheque and the guarantee to the plaintiff, which, according to the second defendant, had nothing at all to do with the transaction. And then, when the second defendant is asked for the money by the plaintiff, he impliedly admits the debt and asks for time to pay. And, to top it all, the second defendant makes no attempt whatsoever to explain why he did raise his defence at the first opportunity - in response to the letter of demand.

11. In my view, the second defendant had not raised any kind of defence that was fit for trial or which could be called "a substantial defence."

12. For these reasons, I made the orders mentioned.