CHINA NATIONAL LIGHT INDUSTRIAL PRODUCTS IMPORT AND EXPORT CORP v. TAN CHENG KEE AND OTHERS

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J U D G M E N T

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Power, J.A.

1. The plaintiff respondent, The China National Light Industrial Products Import and Export Corporation (the Corporation), sued the three defendants TAN Cheng-kee, WONG Kwong-hung and WONG Shu-yin for moneys which it said were owed to it under an agreement partly oral and partly in a document dated 3rd March 1982 (the written agreement) whereby it was alleged the defendants in consideration of the Corporation's forbearing to enforce rights which it had against the Tung Ming Trading Co, (the Company), of which they were both directors and shareholders, agreed in their personal capacity as shareholders to advance money to the Company, which it would use to pay its debts to Corporation. The Corporation alleged that the defendants in breach of the agreement, failed to lend the moneys to the Company thereby causing loss to it. The defendants denied liability on the ground that they had not entered into any agreement in any personal capacity and further that any agreement that had been entered into was entered into under duress.

2. The Corproation was a manufacturer of electric fans which, at the relevant time, had a Guaranteed Sales Agreement with the Company whereby it agreed to sell a guaranteed quantity of electric fans to the Company at a guaranteed price upon guaranteed terms The Company, which had been incorporated in 1979 with a paid up capital of HK$500,000.00 had 5 shareholders. These were the Bangkok Hotel (Hong Kong) Ltd., the appellants, and a Mr. Hong Siu Ming and a Mr. Lam Kwai Chuen The Bangkok Hotel was controlled by Tan Cheng Kee the lst Defendant. At the 15th February 1982 the Company owed the Corporation some $5,700,006.00 and was responsible for a further $3,000,000.00 worth of acceptances which had not yet matured. On 15th February 1982 the Corporation wrote to the Company saying that they should immediately settle the overdue amount and that "before receipt of substantial information from you we will withhold the issue of goods". At a board Meeting of the Company on 22nd February 1982 it was resolved unanimously "that the debts owed to China National Light Industrial Products Import Export Corporation Guangtung Branch of 2, Chiao Kuang Road, Kwangchow China, should have to be settled immediately" and "on 25th February 1982, all directors of the company should go to Kwangchow to negotiate with China National Light Industrial Products Import & Export Corporation for settlement of debts." The Directors went to Kwangchow on 25th February 1982 and after negotiations which were concluded on 3rd March 1982 the written agreement was signed.

3. At the hearing at which the lst defendant, having died, did not appear, Deputy Judge Tang Q.C. rejected the defence of duress and found that the 2nd and 3rd defendants (the appellants) were bound by the terms of the written agreement in a personal capacity and owed the amounts claimed. The appeal lies from that decision.

4. In the event the only three matters that have been raised in the appeal are:

(i) Does the written agreement construed as a self-contained instrument bind the appellants in a personal capacity?,

(ii) Is it proper to construe the written agreement in the light of extrinsic evidence and, if so, is there any material evidence in that regard?

(iii) Did the trial judge find that there was a seaprate oral agreement whereby the appellants bound themselves in a personal capacity?

5. It is the argument of Mr. Ching Q.C., who appears with Mr Neoh for the Corporation, that the trial judge found such an oral agreement and that as the appellants have not appealed against this finding they cannot now be heard to call it into question. If this contention be correct the matter is simply and conclusively resolved.

(i) Does the written agreement construe as a self contained instrument bind the appellants in a personal capacity?

6. The agreement reads as follows:

"China National Light Industrial Products Import and Export. Corporation, Kwang Tung Province Branch Office.

Guarantee concerning the repayment of our Company's overdue D/A debt as follows:

To repay to your Company the overdue D/A for goods totalling HK$5,915,823.00, our Company (address: 2nd floor, Blocks A & B, 97 Wellington Street, Hong Kong) guarantees to repay not less than HK$5,000,000.00 of the.overdue D/A purchase price far goods within 10 days from today.

The details of the (repayment) method are as follows:

(1) Remittance from our Company's bank current account the sum of HK$1,000,000.00.

(2) The 5 shareholders shall raise the funds to be lent to Tung Ming Company for repayment of the indebtedness due to your Company. Each shareholder undertakes the following amount:-

Tan Cheng Kee HK$l,000,000.00 Wong Kwong Hung HK$1,000,000.00 Wong Siu tiling HK$1,000,000.00 Wong Shu Yin HK$500,000.00 Lam Kwai Chuen HK$400 000.00

    It is guaranteed that the above loans from each shareholder will he paid to the National Commercial Bank Limited by cashier orders within 10 days. Tung Ming Company will make repayment to your Company.

    It is guaranteed that the remaining debt of HK$915 823.00 shall he repaid within 20 days from today.

Guarantor Tung Ming Trading Co.Ltd. (Signatures of Directors)

(sd.)Tan Cheng Kee

(sd.)Wong Kwong Hung

(sd.)Wong Shu Yin

(sd.)Wong Siu Ming

(sd.)Lam Kwai Chuen

3rd March 1982, A.D., in

Guangdon

BANKERS: THE NATIONAL COMMERCIAL BANK LTD."

7. The paper on which the agreement is set out bears the heading "Tung Ming Trading Co. Ltd., Manufacturer Exporter Re-exporter Agents", the logo of Tung Ming Trading Co.Ltd. and its address.

8. The trial judge held:

"Construing this document on the assumption that it is self-contained, I am of the opinion that the shareholders were as much parties to this document as Tung Mang although the words 'signature of Directors appeared immediately preceeding their signatures. In my opinion, those words 'signatures of the Directors' were merely descriptive and were not meant to indicate that they signed in a representative capacity.".

9. He went on to say:

"Construing the guarantee in the background of the admitted knowledge on the part of the plaintiff and the shareholders that without the help of the shareholders, Tung would not have been able to repay with in a reasonable time, I am of the opinion that it was intended and understood by all concerned that the shareholders were undertaking to the plaintiff that they would lend the sum of $4,000,000.00 to Tung Ming It would not have been intended nor would it have been acceptable to the plaintiff if all that was being given was an undertaking, by Tung Ming or if it were a mere declaration of intent."

10. The trial judge was, it is clear, satisfied that the written agreement whether construed against the background of the the negotiations or construed as a self-contained instrument, bound the appellants in a personal capacity. He did not indicate why he considered that extrinsic evidence was admissible to assist in' the construction but this is, perhaps, understandable given his initial finding, that the document construed as a self-contained instrument bound the appellants.

11. Mr Dennis Chang Q.C., who appeared with Mr. Daniel Fung:for the appellants, submitted that the written agreement did not on its proper construction constitute a contract enforceable at the suit of the Corporation against the appellants. He submitted that the document amounted to no more than an undertaking given by the Company to the Corporation that it would pay the debt owed by it to the Corporation and that it was signed by the appellants and the other three Directors on behalf of the Company in their capacities as Directors.

12. Mr. Ching argued that the written agreement construed as a self-contained instrument spelt out a personal liability on the part of the appellants and that, if it was ambiguous, there was extrinsic evidence that would resolve that ambiguity.

13. He submitted, relying on Young v. Schuler^(l) that one signature can bind in two capacities and that, relying upon Elliott v. Bax - Ironside & another⁽²⁾ the word "Director" was a word of description only and did not exclude personal liability on the part of signatories. He pointed to the fact that the document did not contain any words such as "for and on behalf of" His argument in this regard was, in short, that there was no ambiguity in the document that its clear intent was to bind both the Company and the Directors in their personal capacity and that the fact that they had signed only once was no bar to their being held to be so bound.

14. The document is, on its face, plainly addressed to the Corporation. Given the words "our Company" in the opening paragraph prima facie it must be regarded as a document addressed by the Company to the Corporation. That being so it is argued that it bound only the Company and the Corporation. Further force i.s given to this argument by the fact that it states itself to be signed by "Guarantor Tung Ming Trading Co. Ltd. (Signatures of Directors)" and that this statement is followed by the signatures of the five directors. In our view the indications set out above that the agreement was between the Corporation and the Company and did not bind third parties would be displaced only if there was clear internal evidence to indicate that the directors were signing in two capacities. Reliance is placed upon the following sentence as giving such an indication: "It is guaranteed that the above loans from each shareholder will he paid to the National Commercial Bank Limited by cashier orders within 10 days". It is suggested that these words make it plain that the shareholders were individually undertaking to lend the sums stated to the Company. It was argued that this meaning must be Given to the sentence as such an undertaking could only flow from the individuals concerned and could not have been given by the Company.

15. It is important when examining this argument to look at the way.in which the document is set out. The primary undertaking, i.e. by the Company to pay the Corporation, is contained in the first paragraph. The following paragraphs are, in the words of the document itself, "The details of the (repayment) method...". We find considerable force in Mr. Chang's argument that the matter as to which agreement had been reached was contained in the first paragraph and that the following paragraph did no more than set out the mechanics by which it was contemplated the Company would raise the money to pay to the Corporation.

16. Even if this be so a clear statement in the following paragraphs which indicated personal liability on the part of the signatories might well be sufficient to bind them.

17. Does the sentence relied upon give any such clear indication? It is argued that the word "guaranteed" used therein clearly indicates personal liability. This word appears three times in the body of the document. The first use, in the first paragraph, is "our company .... guarantees". The meaning, here is, it seems to us, no more than "gives firm undertaking". In the last paragraph the use is: "It is guaranteed....". The meaning, here seems again clearly to be no more than "Firm undertaking, is given .... If that meaning, "Firm undertaking is given....", is alloted to the use in the sentepne relied upon it is argued that this must refer to, and have been understood by the parties to refer to, a firm undertaking by the signatories to the Corporation as individuals. We find this argument tenuous. It requires the reading into the words used a certainty of meaning which they do not comfortably bear. We can see nowhere a clear statement of the kind which we are satisfied would be required to establish personal liability.

18. We are satisfied that the agreement when construed as a self-contained document was an agreement between the Company and the Corporation and that it bound only those parties.

(ii) Is it proper to construe the written agreement in the light of extrinsic evidence and, if so is there any material evidence in that regard?

19. Mr. Chang while not conceding that the document contained a sufficient ambiguity to allow the use of extrinsic evidence in its interpretation, was prepared to argue the matter upon the basis that, even if this was so, there was no extrinsic which required that a meaning different from that conveyed by the words of the document itself should he given thereto.

20. It seems to us clear that if there be any such evidence it would have to be found in the evidence as to the meetings on 25th, 26th, and 27th February, and the 1st, 2nd and 3rd of March 1982. The trial judge, relying, largely upon the minutes kept by a Mr Ho Yiu Chung a staff member of the Electrical Appliances Section of the Corporation, which he was satisfied were an accurate record of what was discussed, set out in his judgment what he considered to be the material matters which occurred in those meetings.

21. He does not record anything of significance in this regard as having occurred at the meetings of the 25th and 26th February. At the meeting of the 27th February the 2nd Defendant was recorded to have said.

"Now that so much money is owed to the company it is better to (find out) how much money the company has now that can be paid in (sic) and how much is owed by others that has to be recovered, if it is insufficient, the shareholders shall contribute according to the shares held."

Mr. Lam Kwai-chuen was recorded to have said in reply:

"The aim of Mr. Tung Ming in setting up the business is cash from the rich and skill from the able. This is a past.practice. What about "following the past practice and ask Mr Wong Kwong-hung (D2) and Mr. Tan (D1) to raise the money.

The 3rd defendant is recorded to have said:

Every shareholder should find his/her own way to raise sufficient"

And the lst defendant:

"I agree with the opinion of Mr. Wong Kwong Hung".

22. Clearly no agreement was reached here. The most that can be said of this meeting is, in our view, that it raised the suggestion that shareholders should contribute according to the shares held. On Monday lst March 1982 the 2nd Defendant is recorded to have said:

"It is certain that the money has to be repaid, what I mean is(:) will Mr.Wong Siu Ming please put forward a plan, then shareholders on both sides should resolve the problem by consultation, is this agreeable?"

Mr Wong Siu Ming is recorded to have said:

"(Let's) follow the past practice and ask Mr. Tan Cheng Kee (D1) and Mr Wong Kwong Hung (D2) to lend out the money first and be repaid later."

23. As can be seen Mr Wong Siu Ming again advanced the suggestion, which had come from Mr Lam on the previous day, that Mr. Tan and Mr. Wong Kwong Hung lend the money. Nothing however seems to have been agreed. It is to be noted that Mr. Lam and Mr. Wong Siu Ming were working directors. The former was responsible for sales and exports and the latter for the technical side of the production. Nothing new was said at the meetings on 2nd March There was, further, no record of the meeting of 3rd March when the agreement was signed because, according to Mr Ho, little was said.

24. Mr. Ho's evidence as to this meeting, which was accepted by the judge, was as follows:

"The 3rd defendant said we have discussed the matter, last night we had a meeting of the shareholders at the Overseas Chinese Hotel, and we have reached a plan about repayment. Ho then asked them the details of the repayment plan and the 3rd defendant said the Company had some money and it could afford repayment of HK$1,000,000.00. He went on to say the 1st defendant, 2nd defendant and Wong Siu Ming would each be responsible for contributing HK$1,000,000.00. He himself would contribute HK$600,000.00 and Lam would be responsible for HK$400,000.00. Then Ho said as the total is only HK$5,000,000.00 when in fact the amount overdue is HK$5.9m what about the HK$900,000.00 odd. The 3rd defendant asked the plaintiff to allow ten days more to raise the remaining $900,000.00 odd. Kwok and Mak said as the msjor amount of the debt would be paid, the remaining smaller amount could be delayed and that the plaintiff should consider the matter from their long term friendship's point of view. I think at that juncture an agreement was made. They then asked the defendents to write a letter of guarantee. The 3rd defendent of his own accord wrote the gusrantee. The wording was the 3rd defendant's, nobody from the plaintiff suggested the wording to the 3rd defendant and of course Ho said he never threatened anybody at that meeting or at all. He confirmed, however, that after the document was prepared, there was some reluctance on the part of the 5 shareholders to be the first to sign. Eventually it was decided that the Chairman the lst defendant should sign first although the 1st defendant suggested that the General Manager perhaps should sign first. It is quite clear that from the point of view of the plaintiff the intention was that the shareholders should be personally responsible to repay HK$4m out of HK$5.9m.

25. It seems to us proper to observe that it was, no doubt, the expectation of the Corporation that the defendants would personally, pay the money to the Company. The Corporation.was clearly of the view that the defendants wanted the business arrangement to continue and that they would be prepared to pay over the money to ensure that it did. That, however, does not address the issue which is whether the Defendants bound themselves to the Corporation either by the written agreement or by something said by them to make such payments.

26. There is nothing anywhere in the above evidence that would establish that the defendants agreed or said anything to indicate that they would be prepared to agree to give a personal undertaking to the Corporation that they would lend the money to the Company. Having had regard to the extrinsic evidence upon which the trial judge .seems-to have relied in coming to his decision we are satisfied that there is nothing therein which would suggest that some meaning other than that indicated by the wards used should be given to the agreement.

(iii) Did the trial judge find that there was a separate oral agreement whereby the appellants bound themselves in a personal capacity?

27. We turn now to Mr. Ching's argument that the trial judge.found that there was a separate oral agreement in which the shareholders individually agreed with the Corporation that they would lend the money and that this finding must stand as there has been no appeal therefrom. Mr. Chang contends that nowhere in the judgment does any such 'finding exist.'

28. The trial judge, as we have already indicated, having, first construed the document on the basis that it was self-contained came to the conclusion that it bound the defendants. He then construed the document against the background of the knowledge, held both by the Corporation and the shareholders, that without the help of the shareholders the Company would not be able to repay within a reasonable time. He was satisfied that, given that knowledge, the agreement should be construed as involving personal liability.

29. He then turned to consider the question of consideration and detailed what had occurred at the meeting, on 3rd March. He observed:

"Perhaps they (the parties at the meeting of 3rd March) were not overly concerned with the mechanics of payment, i.e. whether HK$4 million should be paid directly by the shareholders to them or by the shareholders to Tung Ming who would in turn pay them. The mechanics was spelt out in the guarantee and accepted by the plaintiff and they gave time to Tung Ming accordingly. I think in lawyer's language the agreement made between the parties was that in consideration of the plaintiff allowing time to Tung Ming to repay the debt of HK$5.9m odd, as to HK$5m which within 10 days and the remaining HK$900,000.00 odd within 20 days, the defendants' shareholders agree to lend HK$4m to Tung Ming to enable Tung Ming to repay the plaintiff. I believe it is important on the construction of the agreement and the construction of the guarantee to ascertain what the consideration was for the 'promise' to lend money to Tung Ming. I believe the consideration in each case was that the plaintiff would give time to Tung Ming and also that the plaintiff would not during that period cancel the Guarantee Sales Agreement with Tung Ming."

30. Mr. Ching argues that the trial judge was clearly differentiating between "the agreement and "the guarantee" and that when he spoke of the agreement he was conveying that there was an oral agreement whereby the appellants agreed to be bound. It is, it is true, difficult to understand exactly what the judge meant when he differentiated between "the agreement" and the "guarantee". What must be appreciated is that he did so when endeavouring to ascertain whether there was consideration. We are satisfied that the only part of the agreement which he found to exist outside the written agreement was the understanding as to consideration. It seems to us clear that, having found that the promise made by the appellants to the Corporation was contained in the written agreement, whether construed as a self-contained instrument or against the background of admitted knowledge, he then turned to consider not whether there was any separate oral agreement but whether there was evidence to establish the passing of consideration. We are unable to accept Mr. Ching's argument that there was any finding of a separate oral agreement.

31. For the above reasons the appeal must succeed, the judgment of the trial judge is set aside. The claim against the defendant/appellants is dismissed.

(1) (1883) 11 Q.B.D. 651

(2) (1925) 2 K.B. 301