DBS BANK (HONG KONG) LTD v. OOI CHING YING

HCA 805/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 805 OF 2010

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1.  On the plaintiff’s application for summary judgment Master Levy on 24 January 2011 granted the plaintiff’s application and gave judgment against the plaintiff for the sum of HK$4,873,981.24 with interest at the rates set out in the judgment together with costs of the action and of the application on an indemnity basis to be summarily assessed if not agreed with certificate for counsel.

2.  By her notice of appeal dated 26 January 2011 the defendant gave notice of her appeal against the judgment of Master Levy.

3.  On 17 February 2011 after hearing arguments I dismissed the defendant’s appeal with costs of the appeal to be paid by the defendant to the plaintiff such costs to be summarily assessed.  The costs were also summarily assessed in the sum of $48,000 and I made an order that the said sum should be paid within 14 days.

4.  I indicated at the time that written reasons would be given for dismissing the appeal.  This I now do.

5.  The plaintiff’s claim against the defendant was as a guarantor under a written guarantee agreement provided to the plaintiff.

6.  The background facts are that the plaintiff bank granted banking facilities to Euro-Tech (HK) Ltd (“the borrower”) as set out in the letter dated 25 February 2004 addressed to the borrower (“the 1^st facility letter”).  The facilities granted by the 1^st facility letter were an overdraft of HK$200,000 and letters of credit, trust receipt, account payable financing and packing loan to the maximum amount of HK$4,500,000.  It was provided in the 1^st facility letter that there were conditions precedent as follows :

“ The availability of the Facilities is conditional upon completion and delivery of the appropriate supporting board minutes and/or shareholders’ resolutions, and the following documentation, items and evidence in form and substance satisfactory to the Bank:

(a)     the Bank’s standard form General Commercial Agreement duly executed by the Borrower;

(b)     (i) the Bank’s standard form all monies Charge on Cash Deposit(s) duly executed by Chan Chung King;

(ii) the deposit by Chan Chung King for an amount of not less than HKD2,500,000.- or in any approved foreign currencies, for an equivalent amount of not less than HKD2,777,778.-;

(c)     the Bank’s standard form all monies Guarantee and Indemnity duly executed by Ooi Ching Ying and Chan Chung King;

(d)     Commercial Credit Reference Agency (“CCRA”) consent form duly executed by the Borrower;

(e)      such other documents, items or evidence as the Bank may require.”

7.  The borrower agreed to the terms of the 1^st facility letter and this was confirmed by the directors of the borrower signing the letter.  The defendant was one of the two directors who signed this letter.

8.  Pursuant to the 1^st facility letter a general commercial agreement dated 1 March 2004 was executed by the borrower with the plaintiff.  The general commercial agreement was also signed by two directors of the borrower including the defendant.

9.  Also pursuant to the 1^st facility letter, Chan Chung King (“Chan”) and the defendant executed a written guarantee and indemnity dated 1 March 2004 (“the guarantee”) whereby the defendant jointly and severally with Chan agreed and undertook with the plaintiff to pay to the plaintiff on demand all sums of money and liabilities whether certain or contingent, then or thereafter owing or incurred to the plaintiff on any account whatsoever by the borrower on the terms and conditions as set out in the guarantee.

10.  Chan is a cousin of the defendant.  At all material times he was a director and shareholder of the borrower.  

11.  The defendant is a financial consultant.  She received education up to university level.  After graduation she worked in her family’s business as a sales manager for 8 years before joining the borrower.  She was not a shareholder of the borrower but was a director.

12.  The defendant was given written notice dated 1 March 2004 (“the 1^st notice”) by the plaintiff that before she signed the guarantee it was important that she should understand and agree that by giving the guarantee she might become liable instead of as well as the borrower, that the guarantee was unlimited as to amount and will secure all the actual and contingent liabilities of the borrower whether now or in future, that the liabilities secured by the guarantee were payable on demand, that her liability to the plaintiff would remain “in full effect if facilities extended to the Borrower were increased or varied and/or applicable terms and security arrangements are modified at any time”, that the guarantee may be enforced and that she may be called on to honour her obligations under it at any time as the plaintiff saw fit.  She was also advised to seek independent legal advice before signing the guarantee.

13.  The 1^st notice was signed by the defendant on 1 March 2004 thereby confirming and acknowledging the matters set out therein.

14.  Subsequent to the 1^st facility letter the plaintiff granted the borrower further facilities by the letter dated 16 March 2005 addressed to the borrower (“the 2^nd facility letter”).  The plaintiff stated

“ We are pleased to confirm that all the terms under [the 1^st facility letter] shall remain unchanged except the following variations until further notice.”

15.  The variations set out in the 2^nd facility letter were that the amount of the facilities for letter of credit, trust receipt, account payable financing and packing loan were increased from HK$4,500,000 to HK$ 6,500,000.

16.  In addition to the existing documentation, the plaintiff required the deposit by Chan Chung King for an amount of not less that HK$1,000,000 or in any approved foreign currencies for an equivalent amount of not less than HK$1,111,111.

17.  The borrower agreed to the terms of the 2^nd facility letter and this was confirmed by the directors of the borrower signing the letter which included the defendant.

18.  The defendant was given written notice dated 21 March 2005 (“the 2^nd notice”) whereby the plaintiff stated that the defendant had entered into the guarantee to secure the obligations of the borrower to the plaintiff.  It also stated that in respect of the amendment of the banking facilities to the borrower it was important that she understand that her liability to the plaintiff would remain “in full effect if facilities extended to the Borrower are increased or varied and/or applicable terms and security arrangements are modified at any time”.  She was also advised to seek independent legal advice.  

19.  The defendant confirmed and acknowledged the matters set out therein by signing the 2^nd notice.

20.  The borrower has utilized the facilities granted by the plaintiff and as of 25 May 2010 the amount owing by the borrower to the plaintiff was the sum of HK$4,873,981.24 with further interest as particularized at paragraph 6 of the statement of claim.

21.  Despite demands, the defendant has failed to pay the said sum with further interest.

22.  The plaintiff’s case is that she is liable to do so under the guarantee.

23.  Although the defendant raised a number of defences in her defence and in her evidence in opposition to the plaintiff’s application for summary judgment, at the hearing of the appeal Mr Chu, for the defendant, made it plain that the defendant was only relying on two defences :

(1)    That there was a material variation of the guarantee which would release the defendant as guarantor;

(2)    That the plaintiff was estopped from suing the defendant.

24.  The other defences including non est factum and undue influence were no longer relied on.  The matters pleaded in the defence and the evidence of the defendant in relation to the other defences are, therefore, no longer relevant and should be disregarded.

25.  It is trite that in an application for summary judgment under O. 14 RHC the threshold onus is on a defendant to show that there is a triable issue.

26.  In relation to defence (1) that there was a material variation to the guarantee which would release the defendant as guarantor, Mr Chu relied on Tridosbank NV v Dobbs [2005] 2 Lloyd’s Laws Reports 588.  Mr Chu submitted that by the 2^nd facility letter the defendant’s exposure under the guarantee was significantly increased.  He submitted that this was a material variation to the guarantee which would discharge her liability under the guarantee.

27.  I am unable to accept Mr Chu’s submissions.

28.  In Tridosbank it was held that a material variation in the contract between the creditor and the principal debtor would discharge the guarantor, unless the variation was one to which he assented or which was provided for in the contract of guarantee.  Any variation had to be within the general purview of the guarantee.

29.  By clause 1 of the guarantee the defendant agreed and undertook with the plaintiff to pay on demand “all sums of money and liabilities…..whether certain or contingent, now or hereafter owing or incurred to the [plaintiff] on any account whatsoever by the [borrower]”.

30.  By clause 2 of the guarantee it was provided that the defendant as guarantor “agrees that it shall also be liable under this Guarantee in respect of the Liabilities as a primary debtor and not merely as a guarantor or surety……”.

31.  By clause 6 of the guarantee it was provided that the guarantee and the liability of the defendant under the guarantee “shall not be………….discharged or otherwise adversely affected in any way by reason of:

(i)      ……………………………..;

(ii)    ………………………………;

(iii)   the [plaintiff] varying, realizing or abstaining from perfecting or enforcing any guarantees, indemnities,………or security of any kind which the [plaintiff] may hold in respect of liabilities, or any other rights, powers or remedies;

(iv)   ………………………………..;

(v)     the [plaintiff] ………….renewing any existing facilities to the [borrower] or providing any new or additional facilities to the [borrower] …………………….;

…………………………………………………………………

(xii)   the death, incapacity, insolvency or liquidation of the [borrower] or any surety.”

32.  It seems to me to be clear from the above clauses of the guarantee that it was well within the purview of the guarantee that the plaintiff would provide new or additional facilities to the borrower.  The defendant obviously knew that additional facilities were granted to the borrower as set out in the 2^nd facility letter as she was a director of the borrower who had signed and agreed to the terms of 2^nd facility letter.

33.  She also received the 2^nd notice and signed the same confirming and acknowledging the matters set out therein.

34.  In my judgment on the undisputed documentary evidence the defendant clearly knew of and assented to the additional facilities granted to the borrower by the plaintiff by the 2^nd facility letter.  The grant of the additional facilities was, in my view, clearly within the purview of the guarantee in particular clauses 1 and 6(v) as set out above.

35.  By signing the 2^nd notice the defendant has also clearly confirmed and acknowledged the matters set out therein.

36.  There is no merit in the plea at paragraph 5 of the defence that the plaintiff failed to inform her that her financial exposure had increased by the 2^nd facility letter.  There is also no merit in the plea at paragraph 9 of the defence that the plaintiff failed to inform her of the additional facilities granted to the borrower thereby depriving her of the opportunity to withdraw or vary the guarantee.  In the light of the undisputed documentary evidence that I have referred to these assertions are unsustainable.

37.  I am satisfied that the defendant has failed to show a triable issue as to the defence (1).

38.  As to the defence (2), paragraph 19 of the defence pleads

“ In the premises, the Plaintiff is now estopped from claiming against the Defendant by its own collection agent’s representation.”

39.  No particulars of this are provided in the defence.  However, Mr Chu relies on the evidence of the defendant set out in her affirmation.

40.  At paragraphs 11 to 13 of her affirmation the defendant says

“ 11. ……In about October 2006, a person who held himself out as a debt collector working for the Plaintiff, rang me several times on my mobile phone on diver hours in a very formidable manner. In fact, the said debt collector had also called my friends in the small hours informing them that I owed money to the Plaintiff which had in effect harassed them unfairly.

12. The said debt collector told me if I agree to pay the Bank (i.e. the Plaintiff) for $10,000 per month then I would have no other legal consequences. In other words, the Plaintiff would not take legal action against me. I then bargained with him and the figures came down to $5,000.

13.      In reliance of those representations, I was agreeable and instructed to make a monthly deposit of $5,000 therefrom commencing in November, 2006 by making various deposits to the Plaintiff’s designated account.  At some stage, it was varied from $3,000 to $5,000 level.  However, subsequently, due to the financial turmoil, it was reduced to $2,000.  Much to my surprise, the Plaintiff took back their own words and sue me, and I then cease to make any further payment upon taking legal advice.  Nonetheless, I made a total payment of $156,000 over the years.”

41.  She also exhibited a bundle of pay in slips to show that a total payment of HK$156,000 was paid into the borrower’s account with the plaintiff.  Those pay in slips show, however, that sometimes HK$3,000 and $4,000 was paid in whilst at other times HK$5,000 was paid in.

42.  The effect of her evidence is that there was a representation made by the plaintiff’s collection agent in or about October 2006 that if the defendant paid HK$5,000 per month then the plaintiff would not sue her.  Relying on the representation she made monthly deposits commencing in November 2006.  She says at some stage “it was varied from $3,000 to $5,000 level.  However, subsequently, due to the financial turmoil, it was reduced to $2,000”.  No particulars are given as to when it was ever agreed that $3,000 or $2,000 should be paid and with whom this was agreed.  All of this is, of course, denied by the plaintiff.  

43.  No particulars are given as to how long the defendant was required to pay $5,000 per month.  It seems to me to be wholly unrealistic and unbelievable that a commercial enterprise like the plaintiff bank would ever agree to accept payment of $5,000 per month to discharge the liability of the guarantor under the borrower.  How long was the monthly payment to continue?  As I have said, no particulars at all are given by the defendant.  

44.  The defendant’s assertions are bald assertions and the defendant has failed to condescend to particulars.  There is also not a shred of documentary evidence in support.  The defendant’s assertions are, in my view, unbelievable.

45.  Mr Chu made it plain that he was relying on promissory estoppel.

46.  In Luo Xing Juan v Estate of Hui Shi See (2009) 12 HKCFAR 1 at paragraph 55 Riberio PJ set out the requirements of promissory estoppel

“ A promissory estoppel may be said to arise where (i) the parties are in a relationship involving enforceable or exercisable rights, duties or powers; (ii) one party (the promisor), by words or conduct, conveys or is reasonably understood to convey a clear and unequivocal promise or assurance to the other (the promisee) that the promisor will not enforce or exercise some of those rights, duties or powers; and (iii) the promisee reasonably relies upon that promise and is induced to alter his or her position on the faith of it, so that it would be inequitable or unconscionable for the promisor to act inconsistently with the promise.”

47.  I am satisfied that the defendant has failed to show that there was ever a clear and unequivocal promise or assurance to the defendant that the plaintiff will not enforce the guarantee.

48.  Mr Chu also submitted that the defendant has suffered prejudice in that by making the payments to the plaintiff she thought that the plaintiff would not commence proceedings against her and because of that she did not take proceedings against Chan.  However, this assertion has not been pleaded in the defence.  There is also no evidence in support of this.

49.  In any event, I fail to see what prejudice or detriment the defendant has suffered by making payments to reduce the ultimate liability of the borrower to the plaintiff which would have the effect of reducing her own liability to the plaintiff under the guarantee.

50.  There is also no merit in the defence (2) based on promissory estoppel.

51.  In my judgment the master was right to grant summary judgment to the plaintiff.  For the above reasons the appeal was dismissed.