BANK OF CHINA (HONG KONG) LTD v. CHENG KA LUN GRAND AND OTHERS

HCA 513/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 513 OF 2000

(Pursuant to the Order to Carry On dated 5th October 2001)

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REASONS FOR JUDGMENT

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1. In both actions the 2nd defendant appealed against the order of Master S. Kwang given on 24 September 2003 giving judgment to the plaintiff against the 2nd defendant on the plaintiff's application for summary judgment under O.14 RHC. In Action No. 513 of 2000 ("Action 513") the master gave judgment to the plaintiff for the sum of HK$7,950,781.12 together with interest on the principal sum of HK$5,686,493.79 at the rate of 15% per annum from 29 November 2002 to 24 September 2003 and thereafter at judgment rate until payment in full. In Action No. 515 of 2000 ("Action 515") the master gave judgment to the plaintiff for the sum of HK$15,802,091.19 together with interest on the principal sum of HK$15,003,374.76 at the rate of 15% per annum from 29 November 2002 to 24 September 2003 and thereafter at the judgment rate until payment in full. The master also ordered that the 2nd defendant do pay the plaintiff the costs of both actions.

2. On 10 December 2003, after hearing Counsel's submissions, I dismissed the 2nd defendant's appeals in both actions with costs to the plaintiff. I indicated at the time that I would give my reasons in writing. This I now do.

3. The plaintiff's claims against the 2nd defendant in both actions are in respect of the 2nd defendant's liabilities under a total of 5 guarantees signed by her in favour of the plaintiff. The plaintiff is a bank. The 3rd defendant in Action 513, namely Julilake Ltd. ("Julilake") was sued as guarantor of the liabilities of the borrower Grand Earth Investments Ltd. ("Grand Earth") to the plaintiff under a guarantee executed by Julilake in favour of the plaintiff. The 1st and 2nd defendants were also sued as guarantors of the liabilities of Grand Earth to the plaintiff under 3 guarantees executed by them in favour of the plaintiff. The 1st and 2nd defendants are husband and wife. In Action 515 the 1st and 2nd defendants were sued as guarantors of the liabilities of Julilake to the plaintiff under 2 guarantees.

4. The 1st guarantee was dated 5 December 1994 and was in respect of the liabilities of Grand Earth to the plaintiff ("the 1st guarantee"). The 2nd guarantee was dated 9 June 1995 and was in respect of the liabilities of Julilake to the plaintiff ("the 2nd guarantee"). The 3rd guarantee was dated 8 September 1995 and was in respect of the liabilities of Grand Earth to the plaintiff ("the 3rd guarantee"). The 4th guarantee was dated 1 May 1996 and was in respect of the liabilities of Grand Earth to the plaintiff ("the 4th guarantee"). The 5th Guarantee (which was executed by Julilake) was also dated 1 May 1996 and was in respect of the liabilities of Grand Earth to the plaintiff ("the 5th guarantee). The 6th guarantee was also dated 1 May 1996 and was in respect of the liabilities of Julilake to the plaintiff ("the 6th guarantee").

5. The 1st defendant has been adjudicated bankrupt on 23 December 2002. Summary judgment was entered against Julilake in Action 513 in respect of its liabilities under the 5th guarantee at the hearing on 11 March 2003 before the master upon Julilake's indication that it did not wish to contest the proceedings.

6. The threshold onus is on the 2nd defendant to show a triable issue. The court should not, of course, embark on a mini-trial of the action on affidavit evidence. However, the mere fact that a defendant supported a defence by sworn evidence did not mean that the court was obliged to suspend its critical faculties and accept that evidence as if it were probably accurate. The filing of evidence which surpassed belief should not deprive a plaintiff of its entitlement to relief (Microsoft Corporation v. Eclectro-Wide Limited and another [1997] FSR 580).

7. And Bokhary JA (as he then was ) said in Re Safe Rich Industries Ltd. unrep., Civil Appeal No. 81 of 1994 at pg. 5 :

“ The test at the summary stage is indeed as simple as whether the defendant's assertions are believable. But it must be recognized-because failure to recognize it would create a debt-dodger's charter-that whether the defendant's assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as is either undisputed or beyond reasonable dispute."

8. If what a defendant says is not credible, then there is no fair or reasonable probability of the defendant having a defence (per Glidewell LJ in National Westminster Bank plc. v. Daniel [1993] 1 WLR at pg. 1457 E-F.

9. The defences filed on behalf of the 2nd defendant do not raise any triable issue as they consist of bare denials. However, Mr. Kwok, for the 2nd defendant, relied on her affirmations and submitted that these raise triable issues on the defence of misrepresentation, estoppel and undue influence arising out of a special relationship between the ex-Chairman of the plaintiff and the 2nd defendant.

The 1st guarantee

10. As the combined chronology shows, on 29 January 1994 Grand Earth entered into agreements to purchase 15C & 17C Goodwill Garden, 83, Third Street, Hong Kong ("the Goodwill Garden properties") at $2,157,400 and $2,192,360 respectively.

11. At all material times, the 1st and 2nd defendants were shareholders and directors of Grand Earth. Of the 10,000 paid up shares of Grand Earth, the 2nd defendant held 9,999 shares whereas the 1st defendant held 1 share. Thus, the 2nd defendant held 99.99% of the shares of Grand Earth whereas the 1st defendant held 0.01%.

12. As regards the 1st guarantee, the 2nd defendant in her affirmation made on 1st December 2000 stated that Grand Earth had been a long standing customer of the plaintiff who provided banking services to Grand Earth from time to time. At para. 4 of her affirmation she stated that :

“ In or about 1994, I deposited a sum of HK$3,000,000.00 ("Cash Deposit") into a fixed deposit account with the Plaintiff in support of its business at the Wanchai branch. There is now shown and produced to me a copy of the deposit slip and marked exhibit "CSMC-1". After a while the Plaintiff granted an overdraft facility ("OD Facility") to the Borrower up to the extent of HK$3,000,000.00 against the security of the Cash Deposit. The Borrower then started drawing funds from the OD Facility. In or about early December 1994, the bank manager of the Plaintiff told me that even though the OD Facility has already been utilized by the Borrower, it was in the interest of the Plaintiff to require additional collateral security for the OD Facility. As such, the bank manager suggested that both the 1st Defendant and myself should sign a personal guarantee for the amount of HK$3,000,000.00 to provide some peace of mind to the Plaintiff. Initially I objected to it. But the manager then vowed to me that the Plaintiff would not enforce the personal guarantee to be executed by me for the following reasons :

(i) The OD Facility to the extent of HK$3,000,000.00 has been fully secured by the Cash Deposit of an equal amount.

(ii) The reason why even though the OD Facility was fully secured, the Plaintiff was still asking for a guarantee from me was merely one of formality to be complied with in accordance with the Plaintiff's internal policy.

(iii) The bank policy of the Plaintiff was to enforce the asset deposited with the Plaintiff first (i.e. the Cash Deposit) before taking any action against the personal guarantor.

Based on such representation by the bank manager, I therefore agreed to sign the 1st Guarantee afterwards."

13. In her 2nd affirmation, the 2nd defendant stated that the bank manager that she had referred to in her 1st affirmation was a Mr. Yau. However, it appears that she was in fact referring to Mr. Chiu Wei Wen ("Mr. Chiu") who filed an affirmation on behalf of the plaintiff dated 6 December 2000. In her 2nd affirmation she further stated at para. 3 as follows :

“ The Plaintiff has been providing banking services to many of my companies from time to time, and have [Judiciary1]maintained a good business relationship over the years. My relationship with the Plaintiff went back to the years when I was investing in Shanghai and I was in good terms with the now ex-Chairman of the Plaintiff, namely Mr. Cheng Pak Lun (鄭柏林) ("Mr. Cheng"). When he later became Chairman of the Hong Kong head office of the Plaintiff, he had requested the 1st Defendant and I to support him by depositing a fixed deposit with the head office in Hong Kong, which we did by transferring funds to the head office of the Plaintiff in Hong Kong. Later on, when the Plaintiff opened a new branch in Wanchai, Mr. Chiu approached the 1st Defendant and I for business. Knowing that it might be difficult for the Plaintiff to have sufficient customers for their new branch, and seeing I was in good business relationship with the Plaintiff, I further transferred a sum of HK$3,000,000.00 as fixed deposits to its newly opened Wanchai branch to support its business. Furthermore, in order to increase their business portfolio, both Mr. Cheng and Mr. Chiu had also wanted us to mortgage our properties with their bank."

14. The evidence of the 2nd defendant was to the effect that overdraft facilities to the extent of $3,000,000.00 were granted to Grand Earth on the security of the fixed deposit and that it was only after the overdraft facility had been utilized by Grand Earth that the plaintiff's bank manager told her that additional collateral security was required. It was at that time that the bank manager suggested that the 1st and 2nd defendants should sign a personal guarantee for the amount on $3,000,000.00. She initially objected but the manager vowed not to enforce the personal guarantee for the reasons stated. Based on such representation she signed the 1st guarantee. It was in such circumstances that she signed the 1st guarantee.

15. The 2nd defendant's evidence of the circumstances under which the 1st guarantee was executed is, in my view, unbelievable. It is clearly contradicted by contemporaneous documentary evidence.

16. In November 1994, Grand Earth, acting by the 1st and 2nd defendants, applied to the plaintiff for banking facilities totaling $3,000,000.00. The loan application form was signed by the 1st and 2nd defendants for and on behalf of Grand Earth. It is significant that in the loan application form under the section headed "Guarantor Reference" it is provided that the guarantors were to be the 1st and 2nd defendants. This was, as the 1st and 2nd defendants well knew, one of the securities to be provided for the loan applied for by Grand Earth.

17. By the facility letter dated 26 November 1994 addressed to Grand Earth the plaintiff confirmed the loan to Grand Earth. It was clearly stated therein that one of the securities to be provided was an unconditional and irrevocable personal guarantee to be executed by the 1st and 2nd defendants. Also required as security was a pledge of deposit in the plaintiff's favour of not less that $3,000,000.00 together with a charge of deposit to be executed. Both the 1st and 2nd defendants, as directors of Grand Earth, signed the facility letter on 5 December 1994 confirming acceptance to the terms and conditions set out in the facility letter. The 2nd defendant, therefore, clearly knew that the charge of deposit and the guarantee were required as securities for the grant of the overdraft facilities totaling $3,000,000.00 to Grand Earth. It was only after that date that the guarantee dated 5 December 1994 was signed by the 1st and 2nd defendants and provided to the plaintiff.

18. Quite apart from the loan application and the facility letter which were signed by the 1st and 2nd defendants as directors of Grand Earth, there are also the plaintiff's internal approval documents which show clearly that the provision of the guarantee was also required for the facilities to be granted to Grand Earth.

19. The documentary evidence also clearly shows that it was only after the plaintiff had obtained the securities for the loan, including the guarantee executed by the 1st and 2nd defendants, that the plaintiff granted the relevant overdraft facilities to Grand Earth. The plaintiff's overdraft account information input forms dated 7 December 1994 show clearly that Grand Earth's account was given a credit limit of the sums of $500,000.00 and $2,500,000.00 amounting to a total of $3,000,000.00. The facilities were, therefore, granted to Grand Earth only on 7 December 1994 after the plaintiff had obtained the relevant securities for the granting of the facilities. This included the 1st guarantee.

20. In my view, therefore, the 2nd defendant's assertions as to the circumstances under which the 1st guarantee was given are unbelievable and are clearly contradicted by the contemporaneous documentary evidence.

The 2nd guarantee

21. On 19 November of 1994 Julilake entered into a provisional agreement to purchase Flat 4, 31st Floor, Apartment Tower, Western Side, Convention Plaza, 1, Harbour Road, Hong Kong ("the Convention Plaza property") at $19,880,000 to be completed on 31 May 1995. By a letter dated 10 December 1994, Messrs. Augustine C.Y. Tong & Co. introduced their client Julilake to the plaintiff to apply for a mortgage loan of $13,916,000.00 in respect of the completion of the purchase of the Convention Plaza property.

22. At all material times, the 1st and 2nd defendants were also shareholders and directors of Julilake. The 1st defendant held 8,999 shares out of the 20,000.00 paid up shares of Julilake. The 2nd defendant held 11,000 shares. The 2nd defendant thus held 55% of the shares in Julilake.

23. Pursuant to the application of Julilake for the mortgage loan, the plaintiff eventually, by a facility letter dated 23 May 1995, confirmed to Julilake that it would grant a total of $15,200,000.00 in facilities consisting of $14,200,000.00 in an instalment loan and $1,000,000.00 by way of overdraft. It was clearly stated in the facility letter that the securities that were required included a charge/pledge on the Convention Plaza property as well as an unconditional and irrevocable personal guarantee to be executed by the 1st and 2nd defendants. It was also stated in the facility letter that

“ [Julilake] should sign and return this Facility Letter to the Bank within fourteen days from the date hereof and undertakes to execute and complete all the legal and security documents as required by the Bank on or before 31 May 1995....."

24. The terms and conditions of the facility letter were accepted by Julilake when the 2nd defendant signed the bottom of the facility letter for and on behalf of Julilake. Thus, the 2nd defendant well knew that one of the securities required for the facilities to be granted to Julilake was the guarantee to be executed by her and the 1st defendant.

25. On 31 May 1995 Julilake completed the purchase of the Convention Plaza property. The first legal charge of the Convention Plaza property to the plaintiff was dated 31 May 1995. On 9 June 1995 the 1st and 2nd defendants executed a joint and several guarantee whereby they agreed to pay and satisfy on written demand all money then or thereafter owed by Julilake to the plaintiff up to $15,200,000.00 for principal plus, inter alia, interest and costs and expenses.

26. The 2nd defendant in her 1st affirmation in Action 515 at para. 4 stated, inter alia, that :

“ Prior to the purchase of the Property, when [Julilake] approached the Plaintiff for the application of the Mortgage, I remember that the bank manager of the Plaintiff, who handled the Borrower's application, represented to the Borrower that some form of personal guarantee might be needed from me in order to secure the Mortgage. I distinctly remember that both the 1st Defendant and I told him that I would insist on a loan under the Mortgage to be granted without the security of any form of personal guarantee because of the good relationship with the Plaintiff. I insisted that the security of the Property itself was sufficient for the purpose of the loan. The bank manager then acceded to my requests and said that he would make the necessary arrangement with the Plaintiff.

27. She went on to state as follows :

“ 5. Hence, based on my belief of the representation of the bank manager, the loan was drawndown on 31st May 1995 without any additional collateral security and the Mortgage was executed and the purchase of the Property completed on that day.

6. However, approximately one week after the completion of the purchase, the bank manager of the Plaintiff told me that both the 1st Defendant, who being another director of the Borrower, and I myself would have to sign a personal guarantee to guarantee the indebtedness owing under the Mortgage. The said bank manager further informed me that the signing of the personal guarantee was merely a notion of complying with the Plaintiff's banking policy at that time. The said bank manager further went on to confirm to me that the Plaintiff would not enforce the personal guarantee on the basis of the following reasons :

(i) Even though the loan had been drawndown without any personal guarantee being signed as at the date of the drawdown, the loan department of the Plaintiff had revised the situation afterwards and thought that they still needed some form of personal guarantee in order to comply with the internal policy of the Plaintiff, which was standard procedure fare in each case. As such, the personal guarantee served no more than a piece of documentation for him to report to the Plaintiff.

(ii) More importantly, the Plaintiff realized that the property was a good quality and thus can command a very good market price easily. Hence, the property has a high equity value. As such, the Plaintiff has a mandate given to the relevant department that the Plaintiff would not, prior to the actual sale and disposal of the property, take any action to enforce any collateral security attached to the Mortgage, or any security being given to secure the indebtedness of the Borrower. The bank manager further informed me that one of the reasons why the Plaintiff allowed such concession was because of the good and long standing relationship between the Plaintiff and both the 1st Defendant and myself.

(iii) He further said to me that had the Plaintiff really insisted on any form of collateral security for the Mortgage, the Plaintiff would have insisted upon me to sign the personal guarantee prior to the drawdown of the loan.

Hence, based on such representation from the said bank manager, I then agreed to sign the guarantee dated 9th June 1995 afterwards........."

28. In her 2nd affirmation, the 2nd defendant made some corrections to her 1st affirmation. At para. 5, she stated that she recollected that the conversation set out at para. 6 of her 1st affirmation with the bank manager took place sometime before completion of the Convention Plaza property and not one week after the completion. At para. 6, she stated that she wished to clarify that by the word "afterwards" at para. 6(i) of her 1st affirmation she was referring to the time after the representation set out at para. 4 of her 1st affirmation but before completion of the purchase.

29. The 2nd defendant's evidence initially in her 1st affirmation was that one week after the completion of the purchase of the Convention Plaza property, i.e. one week after 31 May 1995, the plaintiff's bank manager told her that she and the 1st defendant would be required to sign a guarantee which the plaintiff would not enforce. This was corrected in her 2nd affirmation to have taken place sometime before completion of the purchase and not one week after completion. Even on her corrected version, however, this occurred after the loan was approved. In my view, this is unbelievable. The 2nd defendant's assertions are contradicted by the contemporaneous documentary evidence.

30. The letter dated 10 December 1994 from Messrs. Augustine C. Y. Tong & Co. asked for a mortgage loan of $13,916,000.00 on behalf of Julilake. In the plaintiff's 'Audit Procedure Form of Audit Group' dated January 1995 it is recorded that after group discussion it was agreed that a mortgage loan in the sum of $13,000,000.00 with an overdraft in the sum of $650,000.00 would be granted to Julilake. It was provided there that a guarantee to be signed by the 2 directors of Julilake would in addition be required. The said record was dated 16 January 1995. On 17 January 1995, the General Manager, Mr. Cheng Pak Lun agreed with the audit group's decision. So in January 1995 the loan that was sought and agreed to by the plaintiff was a mortgage loan of $13,000,000.00 and overdraft of $650,000.00 but a guarantee by the 2 directors was required. The evidence shows that in May 1995 there was an application to increase the facilities to be granted. It was proposed to increase the mortgage loan by $1,200,000.00 and the overdraft by $650,000.00. The evidence shows that on 19 May 1995 after group discussion it was agreed to conduct an inquiry for approval of the loan of $14,200,000.00 and the overdraft of $1,000,000.00. It was recorded on 19 May 1995 in the 'Audit Procedure Form' that in addition to the pledge, the guarantee of the 1st and 2nd defendants would be required. The inquiry which was conducted must have been positive as by the facility letter dated 23 May 1995 addressed to Julilake, the plaintiff confirmed its agreement to grant to Julilake the instalment loan of $14,200,000.00 and the overdraft of $1,000,000.00 with the securities to be provided being a charge/pledge of the Convention Plaza property and the unconditional and irrevocable personal guarantee to be executed by the 1st and 2nd defendants. The terms of the facility letter were accepted by the 2nd defendant signing the same on behalf of Julilake.

31. One day later, on 24 May 1995, it was proposed to allow the guarantee to be executed after the date of completion as the directors were away from Hong Kong. As the mortgage had been signed in advance it was agreed to accept the guarantee later.

32. The two letters dated 30 May 1995 from Messrs. Augustine C. Y. Tong & Co. to the plaintiff show clearly that the plaintiff agreed to accept the guarantee later as an indulgence to the guarantors. The letters made it plain that the 1st defendant was in China at the time and recorded the plaintiff's agreement to allow the guarantee to be executed after the release of the mortgage loan to the solicitors on the ground that the 1st defendant was in China at the time and unable to attend the execution of the guarantee before the completion of the purchase. By a further letter dated 30 May 1995, Messrs. Augustine C. Y. Tong requested the plaintiff to credit their bank account with the mortgage loan.

33. The purchase of the Convention Plaza property was completed on 31 May 1995. The First Legal charge was duly executed before the mortgage loan was drawn down. By letter dated 9 June 1995, Messrs Augustine Tong sent the plaintiff the guarantee executed by the 1st and 2nd defendants. This was witnessed by Mr Augustine C. Y. Tong, their solicitor. There is no suggestion at all in any of the letters from the solicitors that it was represented to the 1st and 2nd defendants that the guarantee would not be enforced.

34. The documentary evidence shows clearly that although the guarantee was executed after the mortgage loan was drawn down, this was solely because of the indulgence granted by the plaintiff. The 1st defendant was away from Hong Kong and could not sign the guarantee before completion of the purchase as was confirmed by the 1st and 2nd defendant's solicitors in their letters dated 30 May 1995 to the plaintiff. The 2nd defendant's assertions are, in my view, unbelievable and are clearly contradicted by the contemporaneous documentary evidence.

The 3rd guarantee

35. As regards the 3rd guarantee dated 8 September 1995, the 2nd defendant stated at para. 5 of her 1st affirmation as follows :

“ 5. The Borrower had on 20th June 1995 purchased two properties known as Flat C, 15th Floor, Goodwill Garden, No. 83 Third Street, Hong Kong ("1st Property") and Flat C, 17th Floor, Goodwill Garden, No. 83 Third Street, Hong Kong ("2nd Property"). There are now shown and produced to me copies of the relevant land search records of the 1st Property and the 2nd Property and marked exhibit "CSMC-2".

6. In or about July or August 1995, the Borrower approached the Plaintiff to apply for a mortgage to be secured against the 1st Property and the 2nd Property. Eventually the Plaintiff granted general banking facilities to the Borrower for a loan of HK$3,300,000.00. Prior to the approval of the Mortgage, the Plaintiff had confirmed to me that no other security, except the 1st Property and the 2nd Property, would be needed by the Plaintiff in granting the loan. Subsequently a mortgage with Memorial No. 6396921 ("Mortgage") was executed by the Borrower in favour of the Plaintiff on 17th August 1995 when the loan of HK$3,300,000.00 was drawndown.

7. However, less than 2 weeks later, the bank manager of the Plaintiff informed me that it was their customary bank's policy that I should personally guarantee the outstanding indebtedness owing under the Mortgage by the Borrower. The bank manager further assured me that the Plaintiff would not take any action to enforce my personal guarantee to be signed by me because of the following reasons :

(i) The Plaintiff was of the view that the 1st Property and the 2nd Property were ample securities for the Mortgage of HK$3,300,000.00, noting the active property market at that time.

(ii) The reason for asking me to sign a personal guarantee was no more than a matter of formality of the Plaintiff rather than treating it as a security which was to be enforced against.

(iii) If the Plaintiff had really insisted upon a personal guarantee to be executed by me, the Plaintiff would have asked me to sign it prior to loan drawdown.

(iv) A special concession given by the Plaintiff states that in order to recover any outstanding indebtedness owed by the Borrower, the Plaintiff would look to repossessing the 1st Property and/or the 2nd Property first and sell the same in the market. If the Plaintiff managed to sell any of the 1st or 2nd Property at their market value, the Plaintiff would not, seeing that both the 1st Defendant and I were valuable customers of the Plaintiff, enforce against our personal guarantee. He said that that was the Plaintiff's special concession to me and therefore told me not to worry a thing about it.

Therefore, based on such of the said bank manager's representation, I then agreed to sign [the 3rd guarantee] afterwards."

36. Here again, the 2nd defendant's assertions are unbelievable. They are contradicted by contemporaneous documentary evidence.

37. As is recorded in the plaintiff's 'Branch Audit Procedure Form', on 15 June 1995 the plaintiff's credit operator proposed to extend an instalment loan to Grand Earth in the sum of $2,900,000.00 and overdraft in the sum of $400,000.00 against the securities of the Goodwill Garden properties and the guarantee for $3,300,000.00 to be signed by the 1st and 2nd defendants. The completion of the Goodwill Garden properties took place on 20 June 1995. It is plain from the contemporaneous documents that in addition to the security of the Goodwill Garden properties, the guarantee of the 1st and 2nd defendants for $3,300,000.00 was required for the mortgage loan of $2,900,000.00 and the overdraft of $400,000.00.

38. The documentary evidence also shows that after the plaintiff's audit group discussion it was agreed to increase the facilities granted to Grand Earth and that this was to be guaranteed by the 1st and 2nd defendants for the amount of $3,300,000.00. This was as recorded on 5 July 1995 on the plaintiff's 'Audit Procedure Form of Audit Group'.

39. By the facility letter dated 31 July 1995 addressed to Grand Earth the plaintiff confirmed its agreement to extend its line of credit to Grand Earth by a further line of $3,300,000.00 making a total of $6,300,000.00 to be granted to Grand Earth. The facility letter clearly set out the securities to be provided which were a charge/pledge on the Goodwill Garden properties, pledge of deposit as well as an unconditional and irrevocable personal guarantee to be executed by the 1st and 2nd defendants.

40. On 8 September 1995 the 1st and 2nd defendants, as directors of Grand Earth, accepted the terms of the facility letter on behalf of Grand Earth by signing the same. On the same day the 3rd guarantee was executed by the 1st and 2nd defendants.

41. Before acceptance of the facility letter on 8 September 1995 the legal charge on the Goodwill Garden properties had already been executed on 17 August 1995. However, no monies had been drawn down at the time of the execution of the charge because the completion of the purchase of the properties had already taken place and the purchase price was paid in full. The decision was made to convert the instalment loan to overdraft facility. The overdraft was made available to Grand Earth on the same date that the guarantee was executed on 8 September 1995. This is shown clearly by the plaintiff's overdraft account information input form which shows that the credit limit of $3,300,000.00 was made available on 8 September 1995.

42. The 2nd defendant's assertion that the question of the 2nd defendant providing a guarantee was raised less than 2 weeks after the signing of the mortgage is unbelievable. The facility letter dated 31 July 1995 clearly stated the requirement of the guarantee to be provided and this was well before the execution of the first legal charge on 17 August 1995. The drawdown of the overdraft was only made on 8 September 1995, the same date as when the guarantee had been executed. The 2nd defendant's assertions are clearly contradicted by the contemporaneous documentary evidence and are unbelievable.

The 4th, 5th and 6th guarantees

43. The 4th, 5th and 6th guarantees were all executed on 1 May 1996. The 4th guarantee was executed by the 1st and 2nd defendants in respect of the liabilities of Grand Earth to the plaintiff whereby they agreed jointly and severally to pay and satisfy all money owed by Grand Earth to the plaintiff up to $7,500,000.00 for principal plus interest, costs and expenses. The 5th guarantee was executed by the 1st and 2nd defendants for and on behalf of Julilake in respect of the liabilities of Grand Earth to the plaintiff whereby Julilake agreed to pay and satisfy all money owed by Grand Earth to the plaintiff up to $13,900,000.00 for principal plus interest, costs and expenses. Judgment has already been obtained by the plaintiff against Julilake in respect of its liabilities under the 5th guarantee as Julilake did not resist the plaintiff's O. 14 application. The 6th guarantee was executed by the 1st and 2nd defendants in respect of the liabilities of Julilake whereby they agreed jointly and severally to pay and satisfy all money owed by Julilake to the plaintiff up to $1,900,000.00 for principal plus interest, costs and expenses.

44. As regards the 4th guarantee, the 2nd defendant stated at para. 8 of her 1st affirmation in Action 513 that :

“ In or about April 1996, [Grand Earth] intended to apply for a further advance facility and a Trust Receipt facility from the Plaintiff. Eventually the further advance facility was granted and a Trust Receipt facility of HK$2,500,000.00 was also granted to [Grand Earth]. After the further advance has been drawndown, a bank manager of the Plaintiff then came to me and told me that he was instructed by the Plaintiff to require both me and the 1st Defendant to sign a personal guarantee as additional security of the facilities. The said bank manager, prior to my executing [the 4th guarantee], confirmed to me that the Plaintiff would not enforce or take any action against the personal guarantee to be signed by me because of the following reasons :

(i) Just like the other 2 previous guarantees ......, this one served no more than a piece of document for him to report to the Plaintiff and apart from that, it serves no particular purpose other than a red-tape filing record.

(ii) He was proposing that I should procure [Julilake] at the same time to sign a guarantee to guarantee the indebtedness of [Grand Earth]. He said that because [Julilake] was the registered owner of a valuable property known as [the Convention Plaza property], the Plaintiff's bank policy was that when it really comes to execution, the Plaintiff would, in view of the substantial equity value of the property held by [Julilake], only enforce guarantee provided by [Julilake] and not the 1st Guarantee, [3rd] Guarantee or the personal guarantee which I was at that time required to sign (later known as the [4th] Guarantee.)

(iii) In order to maintain the good relationship between the Plaintiff and myself. I should consider signing the guarantee.

On the basis of such of the bank manager's representation, I then agreed to sign the [4th] Guarantee afterwards. I wish to submit that up to the date hereof, the Trust Receipt of HK$2,500,000.00 hitherto has never been utilized by the Borrower."

45. At para. 6 of her 2nd affirmation she corrected para. 8 of her 1st affirmation by stating that when she said in her 1st affirmation "after the further advance has been withdrawn" she had meant to say instead that "after the bank facility letter has been issued".

46. As regards the 4th guarantee, the 2nd defendant's evidence is to the effect that the bank manager approached her for the guarantee to be given after the bank facility letter had been issued. Her assertions are unbelievable. They are contradicted by the contemporaneous documentary evidence.

47. The report prepared by the credit analyst of the plaintiff dated 1 April 1996 made it plain that for the increased facilities to be granted to Grand Earth both 1st and 2nd defendants should sign a guarantee to the extent of $7,500,000. The contemporaneous documentary evidence shows clearly that the guarantee was required by the plaintiff well before the facility letter was issued to Grand Earth. The facility letter is dated 17 April 1996. This was to confirm the plaintiff's agreement for increase of facilities to Grand Earth by $7,500,000.00. It is clearly provided there that the securities required were the unconditional and irrevocable personal guarantee of the 1st and 2nd defendants and the corporate guarantee of Julilake. It was also provided there that Grand Earth would return the facility letter within 14 days and undertake to execute and complete the security documents on or before 21 May 1996. The 1st and 2nd defendants as directors of Grand Earth signed the facility letter well knowing that the guarantees were required as securities. The 4th guarantee was then executed on 1st May 1996. However, the requirement for the provision of guarantees was already provided for in the facility letter dated 17 April 1996 as the 2nd defendant well knew.

48. The documentary evidence also shows clearly that it was on 2 May 1996, only after the execution of the 4th guarantee, that the increased facilities were made available to Grand Earth. This is shown in the plaintiff's "Inward Bills, Limit Create/Amendment Input Form" dated 2 May 1996.

49. The 2nd defendant's assertions are unbelievable and are clearly contradicted by the contemporaneous documentary evidence.

50. As regards the 6th guarantee, the 2nd defendant stated at para. 7 of her first affirmation in Action 515 that :

“ In or about April 1996, the Plaintiff granted a further advance to be used by [Julilake]. The signing of any personal guarantee was not a condition precedent of the drawdown of the further advance. Subsequent to the drawdown of the further advance, however, the bank manager of the Plaintiff then approached me sometime later, informing me that the Plaintiff had instructed him that a personal guarantee in respect of the further advance had to be signed by me and the 1st Defendant. The said bank manager further told me that initially both the 1st Defendant and myself could be exempted from having to sign the guarantee due to the fact that we were valuable customers of the Plaintiff, nevertheless the Plaintiff had changed that (sic.) its mind and was asking if we could, as a matter of formality, sign a further guarantee for the extent of HK$1,900,000.00. At first I objected because I would not have agreed to apply for such further advance had I been initially informed by the Plaintiff that I had to sign a personal guarantee. However, the said bank manager then assured me that the Plaintiff would not enforce the personal guarantee on the following reasons :

(i) According to the bank mandate given by the Plaintiff and described in paragraph 6 above, the Plaintiff would not, at any time prior to the actual sale or disposal of the property, take any legal action against any other collateral securities given, including personal guarantee signed or to be signed by me to secure the indebtedness owed by [Julilake].

(ii) By reason as aforesaid, the signing of the personal guarantee was merely a formality registered by the Plaintiff and serves no other purpose other than it being a red-tape formality.

Hence, based on the bank manager's assurance, I then afterwards signed the guarantee dated 1st May 1996 [the 6th guarantee] as referred to in exhibit "LKM-1" of the Plaintiff's Affirmation."

51. By the facility letter dated 10 April 1996 addressed to Julilake the plaintiff confirmed its agreement to increase overdraft facilities of $1,900,000.00 to Julilake. As stated in the facility letter the unconditional and irrevocable personal guarantee to be executed by the 1st and 2nd defendants was required as security. The 1st and 2nd defendants, on behalf of Julilake, accepted the terms of the facility letter by signing at the bottom of the same. The 2nd defendant well knew that a guarantee was required for the increase in overdraft facilities to Julilake.

52. The 6th guarantee was signed and provided on 1 May 1996. It was only on the following day that the increased facilities were made available to Julilake. The plaintiff's overdraft account information input form shows clearly that on 2nd May 1996 the overdraft facilities in the sum of $1,900,000.00 were made available to Julilake. The contemporaneous documentary evidence shows clearly that the guarantee was required and this was provided before any drawn down of the further overdraft of $1,900,000.00. The 2nd defendant's assertions are unbelievable. They are contradicted by the contemporaneous documentary evidence.

Any triable issue?

53. Mr. Kwok submitted that there were triable issues on 3 defences raised in the affirmation evidence :

(i) Misrepresentation;

(ii) Estoppel;

(iii) Undue influence arising out of a special relationship between the ex-Chairman and the 2nd defendant.

54. In my judgment there is no triable issue on the defence of misrepresentation. In respect of the plaintiff's claim on each of the guarantees against the 2nd defendant, I have said that the 2nd defendant's assertions are unbelievable. They do not raise a triable issue.

55. As to the defence of estoppel, it is alleged that because of the misrepresentations of the plaintiff, the plaintiff should be estopped from relying on the guarantees. As the defence of estoppel relies on the same facts as the defence of misrepresentation, there is also no triable issue raised on the alleged estoppel.

56. As to undue influence, it was submitted by Mr. Kwok that by uttering the representations, the mind of the 2nd defendant was influenced by those representations and coupled with the fact that the 2nd defendant and the plaintiff had a long course of dealing, there was a special relationship between herself and the ex-Chairman and she was induced to sign the guarantees. It appears that the reference in the 2nd defendant's evidence to the ex-Chairman was a reference to Mr. Cheng Pak Lun who was the General Manager. As there is no triable issue on misrepresentation, there is also no triable issue that the 2nd defendant was influenced by the alleged representations. I would also observe that the evidence shows clearly that the 2nd defendant is a businesswoman who was an active director and the majority shareholder of both borrowers, Grand Earth and Julilake. She also ran her own jewellery shop at the Grand Hyatt Hotel. This is not the type of case where a housewife or an elderly person signed a guarantee for a spouse or for a company in which the guarantor had no interest. Also, although it was submitted that there was a special relationship between Mr. Cheng Pak Lun and the 2nd defendant and that the 2nd defendant was induced to sign the guarantees, the evidence does not show that Mr. Cheng Pak Lun played any part in persuading the 2nd defendant to execute any of the guarantees.

57. The plaintiff failed to show a triable issue on any of the defences raised. That being so, I dismissed the appeal with costs to the plaintiff.