STANDARD CHARTERED BANK (HONG KONG) LTD v. GOOD QUALITY INDUSTRIAL LTD AND OTHERS

DCCJ 1370/2016

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1370 OF 2016

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DECISION

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1.  By a summons filed on 22 September 2016 (“the Summons”), the plaintiff (“the Bank”) seeks summary judgment against the 2^nd defendant (“the Son”) pursuant to Order 14 of the Rules of the District Court.

2.  Having perused the evidence of service produced by the Bank, I am satisfied that all the documents concerning the application by the Summons have been duly served on the Son.  Accordingly, notwithstanding the Son’s absence in this hearing, I proceed to hear the Bank’s application.

The Bank’s claim

3.  The Bank’s case is simple and straightforward.  Its claim against the Son arises out of: (a) a guarantee executed by the Son in respect of a business loan owed by the 1^st defendant (“the Company”) to the Bank; and (b) a personal loan owed by the Son to the Bank.

4.  The 3rd defendant (“the Father”) is the father of the Son.  At all material times, the Father and the Son were the shareholders and the directors of the 1^st defendant (“the Company”).

5.  In May 2013, the Bank extended a business instalment loan in the sum of HK$2.4 million (“the Business Loan”) to the Company.  The drawdown advice provided the repayment period to be 36 months and that repayment would commence one month after the advancement of the loan by the Bank.

6.  Each of the Father and the Son executed a guarantee dated 24 May 2013 (“the Guarantee”) with respect to all liabilities of the Company subject to the maximum amount of HK$2.4 million.

7.  However, despite repeated demands and requests, the Company failed to duly repay the Business Loan to the Bank.  The outstanding principal is HK$458,367.03.  Under the Guarantee, the Son is liable to repay this sum to the Bank, together with interest at the rate of 5.34% per annum from 4 March 2016.

8.  In respect of the Business Loan, the Bank has obtained default judgment against the Company and the Father in August 2016.

9.  The Bank has also advanced a personal loan of HK$200,000 (“the Personal Loan”) to the Son.  The Son has failed to duly repay the Personal Loan to the Bank. As at 22 September 2016, the outstanding principal is HK$26,368.29.  The Son is liable to repay the sum to the bank, together with interest at the rate of 3.24% per annum from 23 September 2016.

The Son’s case

10.  As to the Business Loan, the defence put forward by the Son is that the Guarantee was signed by him under the undue influence of the Father.  By reason of the undue influence, the Bank is not entitled to hold him liable under the Guarantee.

11.  In his affirmation in opposition, the Son said that in April or May 2013, the Father told him that the Company would be getting a loan from the bank and asked him to sign a set of documents.  The Father told the Son that the documents were required to be signed by the Son as a director of the Company.  Relying on the trust and confidence placed with the Father, the Son signed the documents.  The Son did not know that there was a personal guarantee amongst the documents signed by him.  Further, since he worked for the Father at all times, he could not resist the Father’s request when the Father required him to sign the documents.

12.  As to the Personal Loan, the Son has not put forward any defence other than a bare non-admission of liability.

The principles

13.  The principles concerning Order 14 are trite.  After a plaintiff has raised a plausible and prima facie sustainable case, a defendant would have the burden to show triable issues.

(a)   See Hong Kong Civil Procedure 2017 (Vo.1), §14/4/4:-

“The defendant’s affidavit must “condescend upon particulars,” and should, as far as possible, deal specifically with the plaintiff’s claim and affidavit, and state clearly and concisely what the defence is, and what facts are relied on to support it. This obligation is to ensure that where a plaintiff raises a plausible and prima facie sustainable case, a defendant can convince the court there exists a triable issue… : Toy Major Trading Co Ltd v Plastic Toys Ltd [2007] 3 HKLRD 345. It should also state whether the defence goes to the whole or part of the claim, and in the latter case it should specify the part…

Indeed, in all cases, sufficient facts and particulars must be given to show that there is a triable issue (see r.3(1)).”

(b)   See also Hong Kong Civil Procedure 2017 (Vol.1) §14/4/9:-

“The defendant must show that there are triable issues. He has to satisfy the court that he has a “real or bona fide defence” (see Mass International Ltd v Hillis Industries Ltd [1996] 1 HKC 434 at 439, per P Chan J) or “a fair probability or reasonable grounds that a bona fide defence exists” (see Toy Major Trading Co Ltd v Plastic Toys Ltd [2007] 3 HKLRD 345 at [12], per Ma CJHC). If he makes an allegation, it must be credible or believable in the light of the evidence placed before the court… On the other hand, the court must not embark on a mini trial on affidavits…”

14.  Having read the statement of claim and the affirmations filed by the Bank in support of the Summons, I am satisfied that the Bank has raised a plausible and prima facie sustainable case against the Son.  I proceed to consider whether the Son has raised any triable issue in respect of the Bank’s claim.

The Business Loan

15.  In respect of the Business Loan, the defence raised by the Son is undue influence.

16.  In my view, the situation in this case is similar to the situation in Wing Hang Bank v Liu Kam Ying and Others (HCMP 2519/2001, 6 March 2002).  In that case, the 5^th defendant under a guarantee signed by him guaranteed the liabilities of the 6^th defendant.  The 5^th defendant claimed that he signed the guarantee under the undue influence by the 4^th defendant, his father.  In ruling that the undue influence raised by the 5^th defendant could not be an arguable defence to the plaintiff’s claim, Ma J. (as he then was) said:-

“16. The principles of undue influence have recently been the subject of an extensive review by the House of Lords in Royal Bank of Scotland v Etridge (No.2) [2001] 3 WLR 1021. I have tried to summarize the relevant principles in my judgment in Bank of China (Hong Kong) Limited v Wong King Sing [2002] 1 HKC 83.

17. Where third parties such as banks are involved and it is alleged that the relevant contract (in the present case a guarantee) came about as a result of undue influence being exerted on the party sued thereunder, there are three questions that the Court must deal with:

(1) Has it been proved that the transaction was affected by undue influence in the first place?

(2) Was the third party put on inquiry?

(3) If the third party was put on inquiry, did he take reasonable steps to satisfy himself that there was no undue influence?

See: Royal Bank of Scotland v Etridge at p.1054 at para.101 per Lord Hobhouse of Woodborough.

18. Only if all three questions are answered in favour of the party being sued, would the defence succeed. In the present case, even if I could be satisfied that questions (1) and (3) could be answered in favour of the 5th defendant (and I should not be taken to accept that this is the case), question (2) just cannot be satisfied on the evidence served by the 5th defendant.

19. Nothing in the evidence suggests even remotely that the plaintiff would or might have been put on notice, whether actual or constructive, that undue influence was or might have been exercised on the 5th defendant in the present case when he signed the Guarantee. The 5th defendant alleges that he was unduly influenced by his father, the 4th defendant. Even if this is true, the plaintiff had no inkling of this at all. All that the plaintiff knew was that the 5th defendant was the 4th defendant's son who also happened to be the majority shareholder of the 6th defendant and who had signed in the past important commercial documents for the 6th defendant. It is true that the 5th defendant alleges that the 4th defendant directed him to sign documents and that he was just a nominee for the 4th defendant in holding 91% of the shares in the 6th defendant, but it is not alleged that the plaintiff knew or should have known this. That leaves only the fact that the 5th defendant was the 4th defendant's son and this is not enough by itself to raise any presumption at all.” (Emphasis added)

17.  In this case, there is no allegation, let alone evidence, concerning that the Bank would or might have been put on actual or constructive notice that undue influence was or might have been exercised by the Father on the Son when the Son signed the Guarantee.  Accordingly, the undue influence raised by the Son is not a triable issue at all.

18.  In his affirmation in opposition, the Son mentioned that he did not know there was a personal guarantee amongst the documents signed by him.  He just did what the Father required him to do.  Although the Son has not specifically raised the defence of non est factum, I have considered whether this defence is available to him.

19.  The Son was born in 1979.   He graduated from secondary school in or about 1997.  Subsequently, he worked as a clerk in a commercial office for about a year and then started to work for his Father in the Company.   In other words, the Son was a mature adult and had more than 10 years’ working experience at the time of executing the Guarantee in 2013.

20.  In Wing Hang Bank, Ma J (as he then was) said at [14]:-

“…… the 5^th defendant is a man of full age and capacity. There is no reason at all why he should not be bound by the terms of the Guarantee which clearly states his liability on a personal basis. If he did not read the terms, this was negligent on his part and the defence of non est factum is unavailable in these circumstances.”

21.  In my judgment, what has been said by Ma J (as he then was) in Wing Hang Bank concerning non est factum is also applicable here.  The defence of non est factum is not open to the Son.

22.  There is no triable issue in respect of the Business Loan.  There should be summary judgment to the Bank on the Business Loan.

23.  The Bank claims interest at the rate of 5.34% per annum from 4 March 2016 until the date of the judgment.  This claim is supported by the documents produced by the Bank concerning the Business Loan, including the Guarantee.  I allow this claim.

Personal Loan

24.  In respect of the Personal Loan, no triable issue has been shown by the Son.  There should be summary judgment to the Bank on the Personal Loan.

25.  Originally, the Bank claims interest at the rate of 6.074% per annum from 23 September 2016 until the date of the judgment.  However, Mr Ken TC Lee, counsel for the Bank, fairly submits that in accordance with the evidence before the court, the interest rate on the personal loan should be 3.24% per annum.  Mr Lee therefore only asks for interest on the Personal Loan at 3.24% per annum from 23 September 2016 until the date of the judgment.  I accept Mr Lee’s submissions and allow the interest claimed by him.

Costs

26.  Since the Bank is successfully in obtaining summary judgment against the Son, costs of this action should be to the Bank.  There should be a certificate for counsel for the hearing before me.

27.  In the statement of claim, the Bank claims costs on full indemnity basis.  However, during the hearing, Mr Lee realizes that the Bank has not produced sufficient evidence to justify this claim and therefore only asks for costs on party and party basis.  I would order costs to the Bank on party and party basis. 

Disposition

28.  For the reasons above, I order that final judgment in the following terms be entered against the Son:-

(a)   the Son shall pay to the Bank HK$458,367.03 together with interest at the rate of 5.34% per annum from 4 March 2016 until the date of this judgment, and thereafter at judgment rate until payment in full;

(b)   the Son shall pay to the Bank HK$26,368.29 together with interest at the rate of 3.24% per annum from 23 September 2016 until the date of this judgment, and thereafter at judgment rate until payment in full;

(c)   costs of this action, including the costs of the Summons and all costs reserved (if any), be to the Bank, to be taxed on party and party basis if not agreed; and

(d)   there be a certificate for counsel for the hearing before me.

29.  I thank Mr Lee for the helpful assistance rendered to this court.