XCHRX DAH HWA LEATHER AND TRADING CO. LTD. v. TADASHI ISHIDA

1996 No. A8923

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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INTRODUCTION

1. The Plaintiff is a supplier of leather. In 1993, it supplied a quantity of leather to Bobcats Fur Factory Company ("Bobcats"). Various cheques which Bobcats had drawn to pay for the leather were dishonoured on presentation, and a schedule for the repayment by instalments of the sums due to the Plaintiff was drawn up. The Plaintiff claims that the Defendant, whose business card described him as the Managing Director of Bobcats, signed a form of guarantee in which he promised to pay the whole of sum due to the Plaintiff if Bobcats failed to pay any of the instalments on the due dates.

2. Bobcats defaulted on their repayment obligations. The Plaintiff claimed the outstanding balance from the Defendant, and issued these proceedings against the Defendant when he did not pay. The Plaintiff sought summary judgment for that sum under Ord. 14, but on 10th April Master Chu gave the Defendant unconditional leave to defend the action. The Plaintiff now appeals against that order. The outstanding balance is said now to be $135,481.41.

THE DEFENDANT'S CASE

3. There has been a significant shift in the Defendant's case on the facts since the hearing before the master. His case now is as follows. Bobcats' principal customer was a Japanese company, Bobcats Co. Ltd. In November 1993, Bobcats Co. Ltd. was declared insolvent, owing Bobcats debts of about US$450,000.00. In consequence, Bobcats itself became insolvent and was unable to pay its debts. The Defendant claims that he went to the office of the Plaintiff in Hong Kong to tell the Plaintiff's staff that he felt that the Plaintiff had been let down.

4. He maintains that when he went to the Plaintiff's office he met one of the Plaintiff's employees, Mrs. Lee. She was unsympathetic to him. She insisted that he had to accept responsibility for Bobcats' debt. He tried to tell her that he was simply an employee of Bobcats, and was himself owed unpaid salary (as were other members of staff). He claims that she refused to let him leave the office until he had accepted responsibility for Bobcats' debt. Indeed, he was surrounded by several male members of the Plaintiff's staff. Thinking that he would not be able to leave the Plaintiff's office until he had accepted his responsibility for Bobcats' debt, he signed a blank piece of paper in which he agreed to take responsibility for Bobcats' debt to the Plaintiff. He was then permitted to leave.

5. The Defendant accepts that he returned to the Plaintiff's office about two weeks later at Mrs. Lee's request. He was handed the form of guarantee on which the Plaintiff now sues. He did not want to sign it, but it was pointed out to him that he had already agreed to take responsibility for Bobcats' debt to the Plaintiff. Believing that he had committed himself to repaying Bobcats' debt to the Plaintiff, he signed the form of guarantee. The form of guarantee was in English. The Defendant claims that his ability to read and understand English is not good. However, he does not dispute that he understood it sufficiently to know that he was assuming responsibility for Bobcats' debt to the Plaintiff. What he added was a rider in his own handwriting which he believed committed him to make payments to reduce Bobcats' indebtedness to the Plaintiff only when he was in a financial position to do so. Thus, he wrote the words: "I can not fixed repayment date, anyway I will pay as soon as possible".

THE ISSUES FOR TRIAL

6. It is surprising that the Defendant should have returned to the Plaintiff's office on this occasion if he had been subjected to the intimidation he alleges two weeks earlier. On the other hand, if the Defendant was simply an employee of Bobcats (and he has produced the letter of dismissal which shows that that was all he was), it would be even more surprising for him voluntarily to assume responsibility for debts which were not his. To that, the Plaintiff claims that the Defendant was prepared to assume responsibility for Bobcats' debt to the Plaintiff in order to maintain his reputation in the trade, but the assumption of debts in the region of $235,000.00 would have been a remarkably high price to pay to avoid the possibility of one's reputation being tarnished.

7. I do not overlook the significant shift in the Defendant's version of events between his first and second affirmations. Nor do I overlook the fact that the mere assertion of facts which would amount to a defence in law if true is not sufficient to enable a defendant to be granted unconditional leave to defend an action. The facts relied upon have to be credible. However, I cannot say that the Defendant's version of events is so obviously "moonshine" (which was the word used by Godfrey J.A. in Man Earn Ltd v. Wing Tong Fong [1996] 1 HKC 225) or so incredible that the Defendant should be denied the chance of relying on that version of events at his trial -provided, of course, that his version of events is capable in law of amounting to a defence to the Plaintiff's claim.

8. On that question, a number of defences are relied upon by Miss Monica Chow for the Defendant, but for the purposes of disposing of this appeal I need only refer to one of them: the defence of duress. In my view, the facts relied on by the Defendant could well be held at trial to be capable in law of amounting to the defence of duress. If it is found that on his first visit to the Plaintiff's office the Defendant only agreed to take responsibility for Bobcats' debt because of threats that he would not otherwise be allowed to leave, it is plain that his signing of the piece of paper on that occasion is capable in law of being held to be the result of duress. It may be that he was not subjected to similar threats on his second visit to the Plaintiff's office when he signed the form of guarantee. But if he only signed the form of guarantee because he thought that he had already committed himself to taking responsibility for Bobcats' debt, and if that commitment had itself been induced by duress, it is arguable that his signing of the form of guarantee is capable in law of being held to be the result of duress.

9. Mr. Francis Yip for the Plaintiff, in a careful and well-argued submission, relied upon the voidability of a contract made under duress:

"...a contract entered into under duress is voidable and not void; consequently a person who has entered into a contract under duress may either affirm or avoid such contract after the duress has ceased; ...if, after escaping from the duress, he takes no steps to set aside the transaction, he may be found to have affirmed it": Chitty on Contracts, Vol. 1, 27th. ed., para. 7-022.

Mr. Yip points out that no attempt had been made by the Defendant to avoid the guarantee until after the commencement of these proceedings. That is a point which can be explored at trial, but it may well be that the delay on the part of the Plaintiff in taking any steps to enforce the guarantee lulled the Defendant into a false sense of security that no action was going to be taken upon it.

CONCLUSION

10. For these reasons, I believe that Master Chu was correct to give the Defendant unconditional leave to defend the action, and this appeal must therefore be dismissed.