NATIONAL BANK OF CANDA(BANQUB NATIONALE DU CANDA) v. ROGERIO LAM SOU FUNG

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JUDGMENT

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1. This is an appeal from an Order of Master Betts made on the 11th of June this year whereby he gave unconditional leave to defend to the Defendant, Rogerio Lam Sou-fung, who is one of two guarantors of a certain mortgage to the Plaintiff. The mortgage, which is before me in the Exhibits, was between Lam & Associates Real Estates Limited on the one part and the National Bank of Canada, the Plaintiff, in this action on the other, and it provided for advances up to $30,000,000.00. The Defendant entered into a guarantee under seal on the 18th of February 1982, and, for various reasons into which I need not go at this stage of the proceedings, he entered into a further quarantee under seal on 28th March 1983. There was a number of events in between, which it does not fall to me to recite; but, by the middle of last year, very large sums indeed were owed to the Benk by the borrower. In the course of last year, the borrower, to meet the lawful and proper requests from the Bank for repayment, entered into negotiations for and eventually sold part of his property in a building now known as Bank of America Tower. The borrower received, on 10th August of last year, an offer from Hong Kong Carpet Manufacturers Limited to buy a further piece of the property to which I referred, and it is with that offer and what happened to it that I am concerned in this appeal. What had happened was that the offer which had been made to purchase this piece of property on 3rd August, and which was not wholly satisfactory was superseded by another of 10th August. The 10th of August offer is contained in Exhibit RLSF-3 to an Affidavit of the Defendant sworn in the Order 14 proceedings before the Learned Master. The final paragraph said, "this offer is valid for 48 hours.". The borrower, of course, could not dispose of any of his property without the consent of the Bank, and that is provided for in the mortgage in what I apprehend is the usual form: (It is in Clause 9.4(xii) at page 17 of the mortgage). 48 hours, of course, was an unreasonably short space of time, particularly as the earlier offer of the 3rd of August was a five days' offer: And the Bank requested, and it appears that an extension of time was granted, in the first instance, of 7 days. The events that followed were these: There was a meeting which did not involve the Defendant. There was, what I am told is, a request for formal approval by Head Office in Montreal, and there was an acceptance subject to the Bank's consent - all within the month of August of last year. Alas for all the parties, on 31st August an action brought against the borrower by another Bank, in which the valuation of a piece of property in the same building was material, was publicised in the press. As a result of that, Hong Kong Carpet Manufacturers Limited withdrew their original offer, in so far as it related to prices per square foot, and made another offer which was later accepted. Despite demands, the Defendant did not meet what the Bank alleged where his obligations. And, in due course, the Bank issued a Writ, on which is endorsed a full Statement of Claim. Four days later, the Bank issued Order 14 proceedings, and those were supported by an Affidavit of a Mr. Shuster of 21st May. In the meantime, however, a Defence had been served. It was served on 15th May, and that was before the Master and is before me. On 31st May, the Defendant swore his Affidavit, which bears a singular similarity in wording to the pleading, which is an indication perhaps of an identity of view of the deponent and his Counsel, of the nature and strength of what is put forward before me as a Defence. As I have said, on 11th June, Master Betts gave unconditional leave to defend, and on 12th June the Notice of Appeal lodged; that is the one with which I am now dealing. On 27th June two further Affidavits were lodged on behalf of the Plaintiff, and I commenced this hearing yesterday in the forenoon.

2. This morning when I sat the Defendant asked leave to lodge an Affidavit in rejoinder, the Affidavit being that of the Defendant sworn to-day. Mr. Kaplan, of course, did not consent, but said, while lodging a formal opposition, that he left the matter to me, and I allowed the Affidavit to go in.

3. What then are the matters that I have to determine. They are these. There is no challenge to the arithmetic in the Statement of Claim. There is no challenge indeed to the essence of it. The Defence which was lodged shortly after service, admitted practically all of.the Statement of Claim. But what the Defence said was this. You, the Bank, declined to give your consent to the borrower's acceptance of the offer of 10th August and you, the Bank, caused the borrower to continue negotiations with the same potential purchaser in an attempt to secure an improved offer. And it is said that that discloses a triable issue of law and fact, and it behoves me to read the paragraphs in the Defendant's Affidavit of the 31st of May, that is the one in answer, not the one in rejoinder. Paragraph 11 reads as follows:-

"    The Plaintiff declined to give its consent to the acceptance by the Borrower of the offer of the Purchaser dated the 10th August, 1983 and caused the Borrower to continue negotiations with the Purchaser in an attempt to secure an improved offer. By letter dated 30th August, 1983 the said V-2 Enterprises Limited with the consent and approval of the Plaintiff offered to sell the premises to the Purchaser for the same price as proposed by that company in its offer made on the 10th August, 1983 but the Purchaser declined to accept this offer.":

And then he exhibits a letter. Paragraph 13 reads:-

"     By reason of the matters aforesaid the Borrower through the actions and/or inactivity of the Plaintiff was unable to accept the offer of the Purchaser dated 10th August, 1983 and subsequently forced to sell the premises at a reduced price and to assign two additional carparking spaces.".

4. The first of those paragraphs appears in almost in its entirety (with the exception of the Exhibit, of course), in paragraph 8 of the Defence served on 15th May, and the second paragraph that I have read appears as part of paragraph 11 of the Defence. But 11 of  the Defence reads as follows in addition to that:-

"     By reason of the matters set out in paragraph 6 to 8 and paragraph 10 hereof the borrower through the actions and/or inactivity of the Plaintiff was unable to accept the offer of the Hong Kong Carpet Manufacturers Limited dated the 10th August, 1983 and was subsequently forced to sell the premises at a reduced price and to assign two additional carparking spaces. In the ordinary course of events the borrower and the Plaintiff could have expected an agreement for sale and purchase concluded as a result of the offer dated the 10th August, 1983 to have been completed on or before the 19th September, 1983 and the sum of $15,660,000.00 to have been paid by the borrower to the Plaintiff in reduction of its indebtedness by that date. In consequence the borrower and the Defendant as guarantor are being asked by the Plaintiff to be responsible for the period from the 20th September, 1983 to the 7th February, 1984 for interest, after the payment of the proceeds of the sales to MM WORMS FAR EAST LIMITED and PRESERVATRICE FONCIERE TIARD COMPAGNIE D'ASSURANCES on the 19th September, 1983, on the principal then outstanding to the Plaintiff totalling $16,538,750.00 rather than on a sum of $878,750.00 of the Plaintiff had consented to the proposed sale to the Hong Kong Carpet Manufacturers Limited in accordance with its offer dated the 10th August, 1983."

There is a difference in fact between the Bank and the borrower as to what happened between 17th and 25th August and between 25th and 31st of August of last year. I need not trouble with anything prior to the 17th, because no allegation of unreasonable conduct is made before then. Generally, of course, where those are clear conflicts of fact then leave to defend should be given (conditionally or unconditionally). This case, however, has two other considerations. The first is, is the conflict so clear that a triable issue arises, or is the conflict a cloud of words which, when penetrated, reveals nothing at all other than the averments of the Plaintiff. The second, which is much more important is this: Even if there were such a conflict of fact as would normally give leave to defend, can it avail the Defendant here if the circumstances are such that, if a Judge were to find wholly for the Defendant on the facts, that would not afford the Defendant any defence. And, if it would not, the mere fact that there were conflicts of evidence would become irrelevant. I will deal with the second point first.

5. A conflict of fact such as to justify giving leave to defend, would be material only in circumstances when, if the facts were found in favour of the Defendant, that would, ipso facto, result in a defence materialising to the extent that it was sufficient to defeat the claim of the Plaintiff. The resolution of fact in favour of the Defendant here could only avail the Defendant if two things were to be proved. One that there were some form of duty between the Bank and the Defendant qua guarantor, and there was such a breach of that duty as would prevent the Bank from succeeding in its claim. It is clear from the paragraphs of the Defence that I have read, that no duty has been defined. It is clear also that no breach of a duty has been alleged or identified. As I pointed out to Mr. Sceats, this is not a question of the form of a pleading, or indeed of the wording of a pleading:  For a Defence to be set up, a duty must be identified, the breach specified and a consequence averred. To-day, Mr. Sceats conceded that, if I were to give leave to defend, it would have to be made conditional upon his identifying and alleging the duty, and identifying and alleging the breaches relied on, and identifying and, if possible, quantifying, the consequences of such breach of such duty. And after further consideration, he accepted that what he was alleging was not in effect a Defence, but a claim to set-off a counterclaim for, inter alia, damages for a breach or breaches of that duty or damages for negligence. And Mr. Sceats said: "If you give me leave to defend, I will amend my Defence to put in a claim to set-off the counterclaim, in addition to the other matters to which I have just referred.".

6. Which brings me, I apprehend, to the duty, the existence of which is an issue between the parties. Speaking for myself, I know of no duty between a mortgagor and the guarantor of which the Courts in any case which either bind me, or is of persuasive authority, that have decided, and neither Counsel has invited my attention to any English or British or United Kingdom or Commonwealth or Common Law authority which says that there is such a duty. The researches of Mr. Kaplan and his junior have sunk to such depths as the Estates Gazette to find anything on the subject, and my attention has been invited to Barclays Bank Ltd. v. Thienel & Anor. (1978) 247 E.G. 385. It was a decision of Thesiger, J. on a preliminary issue, ordered under Order 32 rule 3, on the wording of the guarantee then before him. In the course of his judgment, Thesiger J. apparently referred to the Cuckmere Case, through which Mr. Kaplan has taken me, that is Cuckmere Brick Co. Ltd. v. Mutual Finance Ltd. [ 1971] Ch. 949. The principles there established are too well-known for me to have to repeat. The point is that Thesiger, J. in his judgment said that he did not think that there was any justification in extending the Cuckmere principle to the case of the principal creditor and surety, nor did he think that such extension could be justified by way of some analogy to a case where there was a prima facie duty of care: But he said that in the context of the interpretation of exemption clauses. Clearly, there must be some duty not to act fraudulently and the like. But I know of no authority, and for myself I can not hold, that there is a duty on a mortgagee to a guarantor to act with despatch in any given situation. It is possible, I suppose, that the Courts may hold, in the absence of strict unambiguous wording in a guarantee, that the Cuckmere principle could extend to the relationship of mortgagee and surety, but I should need very persuasive authority for me to hold that it went as far as that. As I have said, I am quite prepared to accept that there is a duty: But it is not a matter on which I have to touch in this case, because the alleged duty here is entirely different from any duty that I envisage could possibly be said to exist. I take some comfort from that fact that a man of the experience particularly in drafting, as Counsel for the Defendant as himself, has been unable to formulate that duty in such a way as to stand close scrutiny. But that is as it may be; the more important thing is this: If there were such a duty as envisaged by Mr. Sceats, where is the breach of it?  At one time, I thought that such a breach might become manifest in the course of the hearing, because on the face of it there is implicit in paragraph 8 of the Defence and paragraph 11 of the Defendant's first Affidavit - a refusal by the Bank to consent to the borrower accepting the offer of Hong Kong Carpet Manufacturers Limited. When I put this point to Counsel, it seemed to me that there may be lurking somewhere in the background, such a refusal.  But I gave leave, as I have said already, to the Defendant to rejoin, and the significant thing about the Affidavit in rejoinder is that it nowhere recites a refusal of the bank to give its consent. It is not as if this could have been overlooked, because the question of the meaning of the word "declined" in the sentence I have already read twice, "The Plaintiff declined to give its consent", was raised yesterday more than once, and the question of whether or not it was alleged that there was a refusal was raised specifically yesterday! And, despite the adjournment yesterday afternoon for the Defendant's benefit, and despite my having allowed in evidence in rejoinder at the latest possible hour, there is no evidence before me at this stage of such a refusal. So, if I were wrong about the duty, then wherein is to be found the breach? The answer is, on the papers presently before me, "nowhere": But is not as if that stood alone, because, inextricably linked in the two paragraphs that I have mentioned in the Defence and the first Affidavit of the Defendant, is the subsidiary allegation of the Bank, (that is the Plaintiff), having caused the borrower to continue negotiations with the same potential purchaser in an attempt to secure an improved offer. If there were a duty such as is urged upon me, those two matters would have amounted to a serious breach of such a duty. In the Affidavit in rejoinder, there is not even a hint of any action by the Bank which could come within the words "caused the borrower to continue negotiations in an attempt to secure an improved offer". It is now clear, I apprehend, what I meant earlier, about the conflict of evidence per se being irrelevant. Conflict of evidence there might be, but, if there is the situation that I envisaged earlier, and I am now shewn that there is, whereby, if the conflict were resolved in favour of the Defendant, on all the papers before me there still would be no breach of the duty (if it existed). There is nothing to go forward to trial.

7. There is a last point on which I should touch before formally pronouncing my decision, and it is this. Even if I were wrong on everything that I have so far said, the Defendant would be met with what I considered to be an insuperable difficulty, namely his having accepted the terms of, and having signed, the letter from the Plaintiff to the borrower - to him personally - and to another company, sent on 29th December 1983, and exhibited as DN-10 to the Affidavit of Daisy Ng, which was sworn in these proceedings on 27th June. The difficulty, as I see it, arises in two ways. One, that there is unqualified unacceptance of indebtedness, and I say unqualified advisedly - the indebtedness as calculated by the Bank; and the other is the wording of paragraph 6 on page 2 of that letter, being one of the terms and conditions strictly subject to which the Bank expressed its agreement to the subsequent sale of the property referred to, to Hong Kong Carpet Manufacturers Limited.

8. Having said all that, it follows that this appeal must be allowed and there must be judgment for the Plaintiff.