DBS BANK (HONG KONG) LTD v. WONG LAI PING AND OTHERS

HCA1941/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1941 OF 2004

J U D G M E N T

Introduction

1.  These are Order 14 proceedings.  On 29 September this year, Master Hui entered judgment against the 4th defendant in the sum of $1,357,584.89, he having been sued by the plaintiff bank on a guarantee in writing dated 20 November 1997, having purportedly guaranteed the joint purchase, on mortgage, of a flat in Sheung Wan by his then wife, the 1st defendant, and another lady, the 2nd defendant.  He now appeals against that judgment.

2.  Whilst his learned counsel Miss Catherine Wong has taken many of the points that can be open to a guarantor who seeks to avoid a guarantee, the essence of the case that has been advanced on his behalf is that at the time when he signed the guarantee he was not made aware of the nature of the document that he was signing.

The law

3.  I hope I may be forgiven for not setting out, even in brief outline, the relevant principles which apply in Order 14.  These are so well-known that to do so would serve no useful purpose.  Suffice it to say that once the plaintiff has established his case the burden will lie on the defendant to show that there is a triable issue which can only be resolved in the conventional way following a trial.

4.  Miss Wong has helpfully drawn to my attention a number of authorities which bear on this principle, and on how that should be applied to the particular facts of the case before the court.  I am grateful to her for having done so and I will have regard to them in my assessment of the evidence.

The Material Facts

5.  These, too, can be briefly stated.  The 1st defendant and her friend had become interested, as so many people had done in the course of 1997, in investing in the rapidly rising property market in the months before the transfer of sovereignty in mid-1997.  She and her friend had managed to save a certain amount of money from their own resources, but this represented only about 30 per cent of the asking price of properties that they considered they could afford.  The balance would need to be borrowed on mortgage.

6.  The two ladies signed a formal sale and purchase agreement on 2 May 1997 committing them to purchase a flat, being Flat C, 7th Floor, Tai Pak Terrace, 36 Sands Street, Sheung Wan.  Having been able to pay 30 per cent of the purchase price, they were left with the task of raising the balance.  This being a new development, the developer was able to introduce the plaintiff bank to the purchasers as being available to provide a mortgage for the balance.

7.  In terms of the relevant documents, these start with a letter of offer from the plaintiff dated 19 November 1997 for a loan of $2,650,000 “repayable by 360 equal and consecutive monthly instalments” [see pages 43 and 44].  The security for the loan is at page 44, which includes a “joint and several guarantee” for $2,650,000 from Ma Chor-yin, D3, the husband of the other joint purchaser D2, and Tang Man, this defendant.  The letter was signed by both purchasers, signifying their acceptance of these terms.  The legal charge which was a requirement for the loan is from page 48 to 103, signed by the purchasers.  The guarantee which is sued on appears from page 105 to 109, signed by the 3rd and 4th defendants, on 20 November 1997.

8.  The purchase having been completed on these terms by the 1st and 2nd defendants, the mortgage instalments initially appear to have been paid, but as the Asian economic slump deepened, taking with it the property market, the mortgage instalments stopped.  On 10 September 2001 [page 111] the plaintiff wrote to the 1st and 2nd defendants complaining of arrears on the mortgage of $107,102.81 in principal and interest and requiring repayment within 7 days.  On the same date a parallel demand was made of the two guarantors [pages 113, 114].

9.  Facing a hopeless situation, the purchasers surrendered the property to the bank, who sold it on 15 December 2001 for the by then, when compared to the initial purchase price paid by the 1st and 2nd defendants, very modest price of $1,460,000.  The statement of account of what was owing to the plaintiff as at 31 January 2002 of $1,357,584.89 was sent to all four defendants as principal debtors and guarantors respectively [page 112].

10.  This has not been satisfied, and on 20 August 2004 the writ in this action was filed.  Judgment in default of appearance has been entered against the first three defendants, which is neither here nor there for the purposes of my decision in this appeal, with this defendant maintaining that he is not liable.

The Issues raised by the Defendant

11.  It should be remembered, as I have already observed, that the 1st and 4th defendants were married at the time when the mortgage and the guarantees were entered into.  They have since divorced.  A convenient starting point is the letter before action [Exhibit P1] dated 25 July 2002, demanding payment on the guarantee.  The reply, which constitutes the 4th defendant’s first reaction and therefore a significant piece of evidence, was contained in a letter dated 11 September 2002 [page 192].  The material parts of this letter bear repetition here:

“I, Tang Man, is still indebted to your company in the sum of $120,000 through account No. 63102738.  I am now trying hard to make repayment in the sum of $4,000.  The debt would be repaid in three years’ time.  Another issue being that your bank has on 25 July 2002 instructed Messrs Michael Cheuk, Wong & Kee Solicitors to issue demand reference No. RL/KT/26886/2002 demanding me to pay debt at the sum of about $700,000.

I am much annoyed by that incident.  It is so because so far as I can recall that sum, after the sale and purchase of the property and prior to my signing the guarantee, I have verbally reminded the responsible staff of your bank, Mr Chan, that I have in the past 20 years been the customer of your bank (I trust that your bank must be very familiar with me and my company account).  In recent years it was at a deficit and my company’s commercial property has experienced negative equity.

I doubt very much if I am still qualified to act as a guarantor (because the amount under the guarantee was about $3 million) but it was the reply of your bank, Mr Chan, that I need to sign first and then later would check my account and submit to senior staff for consideration whether to approve, would then inform me later.  But until the time before the demand dated 25 July 2002 issued by the firm of solicitors instructed by your bank I failed to receive any document in confirmation, including any legal procedures.  As such, I consider that the matter was extremely unfair to me.  Now I can only seek advice from legal professional and find Caritas Family Crisis Support Centre for assistance.”

12.  What I get from this letter, which is material to the issue that I need to decide, is that the Defendant accepts having signed the guarantee although not clear whether he was qualified to be a guarantor given his then existing indebtedness to the bank, and that Mr Chan [the bank’s representative] told him that he should sign first and then the bank would decide, having looked into the matter, whether it would accept him as a guarantor.  This then needs to be compared - or perhaps better expressed as contrasted - with what he now says in his affirmation evidence, and in the affirmation of the 1st defendant, who has affirmed in support of his case.

13.  D1 has affirmed that the plaintiff bank had said that it could assist in arranging finance, and told her and her co-purchaser to bring along their husbands without informing them why they should also come along.  This contrasts somewhat with a passage in the letter of offer at page 44, that the husbands were required to stand as guarantors.  D1 then says that D4 was initially unwilling to accompany her but she told him that “if he did not lend a hand to accompany me to meet the bank staff I would not be able to complete the transaction...” [page 209, paragraph 15].  She says that he then relented and went along.  She says that she did not know and therefore could not tell D4 what the meeting was going to be about.

14.  D4’s evidence is that he had refused to act as a guarantor given his existing indebtedness, notwithstanding which Mr Chan of the plaintiff brought in a piece of paper at the meeting of 20 November 1997 and told him that it was an “internal document” for “internal use” and not part of the guarantee.  On the basis of this representation he signed.  What this amounts to is that he had been seriously misled into signing a guarantee which he had no intention of doing.

Conclusion

15.  This version simply cannot survive in the face of his initial reaction to all of this as set out in his letter of 11 September 2002, which shows quite clearly that he knew that he had signed a guarantee, although, he says, unaware that he would qualify as guarantor given his then level of debt to the plaintiff.  The overall effect of the defendant’s case shows that he knew what he was signing, which removes any semblance of credence from the case now put forward by him and on his behalf.

16.  If a case ever fell within the parameters of the judgment of Bokhary JA (as he then was) in Re Safe Rich Industries Ltd [1994] HKLY 183 it is this one.  The learned Justice of Appeal said this:

“The test at the summary stage is indeed as simple as whether the defendant’s assertions are believable.  But it must be recognised - as failure to recognise 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.”

17.  To allow this appeal would permit the defendant to delay his undoubted liability under this guarantee.  There is simply no doubt in my mind that the wives knew that the plaintiff bank would not advance the loan without guarantees from their husbands.  It is abundantly clear that everybody knew this and so the husbands went along on 20 November to sign the form of guarantee, which they did knowing full well what was going on.

18.  If I may say so, this is a rather shabby attempt to try and avoid a lawfully incurred obligation.  The Master was correct to have entered judgment, and this appeal must therefore be dismissed with costs.

Mr Raymond Lee of Messrs Michael Cheuk, Wong & Kee, for the Plaintiff

Ms Catherine K K Wong, instructed by Messrs Yeung & Tsang, for the 4th Defendant