CHINA CITIC BANK INTERNATIONAL LTD v. CHINA WILL ENTERPRISE LTD AND OTHERS

HCMP 1153/2022

[2024] HKCFI 1859

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1153 OF 2022

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BETWEEN

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DECISION

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1.   Introduction

1.1  This is my decision on an application by the 10^th Defendant (“D10”)[1] to set aside a default judgment entered against him on 15 November 2023 (“Default Judgment”), by which D10 is ordered to pay to P principal sums of HK$37,000 and HK$49,886,876.25 plus interest. D10 has throughout acted in person.

1.2  These proceedings were commenced by an Originating Summons dated 19 August 2022 (“OS”). In so far as relevant to the present application, the claim against D10 is premised upon a Guarantee and Indemnity dated 14 August 2017 (“2017 Guarantee”), by which D10, along with D2, D11 and D12 agreed to act as guarantors of D1’s indebtedness to P[2].

1.3  On 2 September 2022, P discontinued its claim against D13.

1.4  On 7 September 2022, D10 acknowledged service (“AS”) of the OS and gave notice of intention to defend these proceedings. In the AS, D10, as required under RHC Order 12, rule 3(2), specified an address which would be treated as the address for service (“Mongkok Address”).

1.5  On 26 September 2022, D10 filed and served a “Defence” (“2022 Document”). It is common ground that the filing and service of the 2022 Document is procedurally incorrect.

1.6  On 3 May 2023, Master Matthew Leung granted final judgment against D1 to D4 and D6 to D9. In so far as D10 and D12 were concerned, the OS was adjourned to a further hearing on 28 June 2023 before a Master.

1.7  At the hearing on 28 June 2023, Master Dick Ho granted leave to P to amend the OS (to correct the addresses of D5 and D11), ordered the present action to continue as if it had been begun by writ and gave directions for the filing of pleadings. Materially, D10 was ordered to file and serve his Defence and Counterclaim (if any) within 28 days after the filing and service of the Statement of Claim.

1.8  On 20 July 2023, P filed the Statement of Claim and served it on D10 on 24 July 2023 at the Mongkok Address by ordinary post. The Statement of Claim, by reasons of the discontinuance of the claim against D13 (§1.3 above) and the judgment granted by Master Matthew Leung (§1.6 above), only pleads a case against D5 and D10 to D12.

1.9  On 17 August 2023, P, pursuant to RHC Order 19, rule 8A, served notice (“Notice”) at the Mongkok Address of its intention to enter judgment.

1.10  D10 did not file a defence within the time prescribed by Master Dick Ho’s order. Eventually, the Default Judgment was entered on 15 November 2023.

1.11  The present application was initiated by a “Notice of Appeal” dated 4 December 2023 (“NOA”), supported by D10’s 2^nd Affidavit of even date (“Chan 2^nd”). At NOA §3, D10 seeks an order that “The order of Master Ho dated 15^th November 2023 be set aside.”

1.12  The NOA first came before me on 8 February 2024. At that hearing, P contended that the NOA was procedurally incorrect but indicated that it needed to file evidence in response to Chan 2^nd. I therefore gave directions for, inter alia, an evidential timetable. Although not part of the formal order, in the course of the hearing, I had indicated to D10 that he should consider whether it was appropriate to issue a summons pursuant to RHC Order 19, rule 9.

1.13  D10 thereafter did issue a summons under RHC Order 19, rule 9 on 22 February 2024 (“Order 19 Summons”). At the hearing on 4 March 2024, Master Lai granted leave to D10 to withdraw the Order 19 Summons. According to the learned Master’s notes, he was told that the NOA would be “treated as setting aside application” and therefore the Order 19 Summons was unnecessary. D10 was ordered to pay costs to P assessed at HK$2,500.

1.14  At the substantive hearing of the NOA, P and D10 confirmed their agreement that the NOA should be treated as an application under RHC Order 19, rule 9.

1.15  The following affidavit/affirmation evidence is before the court:

(1) Affirmation of Choy Siu Tak and Affirmation of Hau Wing Shing Vincent in support of the OS,

(2) Chan 2^nd,

(3) D10’s affidavit dated 22 February 2024 in support of the Order 19 Summons (“Chan 3^rd”),

(4) Affirmation of 梁永全 (“Leung”) dated 8 March 2024 in opposition to the NOA (“Leung 1^st”), and

(5) D10’s affidavit dated 5 April 2024 in reply to Leung 1^st (“Chan 4^th”).

2.   Background

2.1  At the material time, D2 and her husband Mr Leo Tsui (“Leo”) operated a number of restaurants under different brand names through D1, D3 to D4, and D6 to D9 which were part of a group of companies (“Group”). D5, a BVI company, was the holding company of the Group.

2.2  At the time of the execution of the 2017 Guarantee, the shareholders of D5 were D2 and D10 to D12. D2 was the only director of D5. On the evidence, the foregoing remained the position until 2021. During the corresponding period, D1, D3 and D4 were wholly-owned subsidiaries of D5. D10 was not a director of D1, D3 and D4.

2.3  The 2017 Guarantee is an unlimited guarantee in respect of D1’s liabilities to P. It was purportedly signed by D2 and D10 to D12 on 14 August 2017 and witnessed by one Jason Chow (“Jason”). Jason was at the material time an assistant vice president of business banking of P. According to Leung 1^st, Jason started working for P in 2016 and was Leung’s subordinate. Leung was told, and he verily believed, that Jason left P’s employ on 30 September 2023 on his own volition and it is said that Jason is unable to provide any evidence for P. I shall return to this aspect in my analysis below.

2.4  According to P, the banking relationship with the Group commenced on or about 14 August 2017 (ie the date of the 2017 Guarantee). The banking facilities granted by P to the Group were, inter alia, as follows:

(1) By a Facilities Letter dated 10 August 2017 and countersigned on 14 August 2017, banking facilities in the limit of HK$4,000,000 were granted to D1, which were secured by, inter alia, the 2017 Guarantee (“2017 Facilities Letter”);

(2) By a Facilities Letter dated 4 January 2018 and countersigned on 25 January 2018, banking facilities in the limit of HK$4,000,000 were granted to D1 and D3, which were secured by, inter alia, the 2017 Guarantee (“Jan 2018 Facilities Letter”);

(3) By a Facilities Letter dated 17 July 2018 and countersigned on 3 August 2018, banking facilities in the limit of HK$11,000,000 were granted to D1 and D3, which were secured by, inter alia, the 2017 Guarantee (“July 2018 Facilities Letter”);

(4) By a Facilities Letter dated 25 April 2019 and countersigned on 29 April 2019, banking facilities in the limit of HK$51,659,000 were granted to D1, D3, and D4, which were secured by, inter alia, the 2017 Guarantee and second legal charges over landed properties owned by Bing Kwan Investments Company Limited (“Bing Kwan”) (“2019 Facilities Letter”); and

(5) By a Facilities Letter dated 16 September 2020 and countersigned on 15 January 2021, banking facilities in the limit of HK$51,659,000 was granted to D1, which were secured by, inter alia, the 2017 Guarantee, second legal charges over landed properties owned by Bing Kwan and a landed property owned by Dragon Leo Limited (“Dragon Leo”) (“2020 Facilities Letter”)[3].

2.5  The present action is premised on the 2020 Facilities Letter. It is pertinent to note that each of the Facilities Letters contains a condition precedent that, prior to submitting any drawdown notice to the Bank, the Facilities Letters had to be (1) duly countersigned by the borrower, all the relevant guarantors and security provider (as the case may be) and (2) delivered to P.

2.6  According to D10:

(1) In late June 2022, D10 was in Canada visiting his mother;

(2) On 29 June 2022, he successively received calls from D12 and D13[4]. They both told D10 that they could no longer contact Leo and D2. D12, in particular, told D10 that Leo had since 2018 used unlawful means to obtain loans from various banks;

(3) On 5 July 2022, D10 found out from the news that the Group had closed down all restaurants, that Leo and D2 had fled Hong Kong, and that workers of the Group were owed more than HK$5 million in wages;

(4) D10 returned to Hong Kong on 10 July 2022 and attempted to investigate into the matter. However, his investigation was hampered by the fact that he was only a shareholder and the departure of the Group’s staff;

(5) On 11 July 2022, D13 made a police report. In the police report, D13 complained that he discovered in early July that his company, Dragon Leo, had become a guarantor of D1’s indebtedness owed to P. He then contacted P and eventually spoke to Jason. Jason informed D13 that D2 had obtained banking facilities from P through D1, and Dragon Leo had agreed to become a guarantor of the indebtedness. However, D13 did not sign the purported guarantee and alleged that someone had forged his signature. He had never seen the purported guarantee and no one from P had ever contacted him. D13 was told by Jason that it was not necessary for any staff to meet D13 in person, as there was sufficient documentary proof of his identity.

2.7  According to D10, following his return to Hong Kong:

(1) Whilst he was in quarantine, he received P’s demand letter dated 19 July 2022;

(2) His subsequent investigation revealed that the Group had obtained many loans and entered into tenancy agreements for which he was a guarantor, including loans obtained by another related company called Asia Catering (Holdings) Limited from Bank of East Asia Limited (“BEA”) and a tenancy agreement entered by D3 (as tenant) with MTR Corporation Limited (“MTR”) (as landlord). He did not sign or was misled into signing the relevant documents;

(3) He made a report to the police on 10 September 2022;

(4) In relation to BEA, he made a complaint to the Hong Kong Monetary Authority in December 2022 and BEA has since informed him that it would withhold the prosecution of the two actions commenced against him (ie HCA Nos 990 and 991 of 2022); and

(5) In relation to the tenancy agreement entered into between D3 and MTR and the relevant surety deed imposing liability upon D10, following a trial in HCA 1633/2021 commenced by MTR against D3, D2 and D10[5], DHCJ Reyes SC concluded that D10 did not sign the relevant surety deed and found, in all probability, Leo and D2 had forged D10’s signature (Judgment §2).

3.   Whether Default Judgment regular

3.1  The order made by Master Dick Ho, in so far as it concerned D10, was for D10 to file and serve a Defence and Counterclaim (if any) within 28 days after the filing and service of the Statement of Claim.

3.2  Initially, there was a concern whether the words “if any” should be interpreted in the light of the fact that D10 had prematurely but already filed the 2022 Document thereby obviating the need to file a further pleading in the event that the 2022 Document has already set out D10’s case. Having read the transcript of the hearing before Master Dick Ho, it is plain that the words “if any” was referable to a potential counterclaim by D10, as D10’s position at the hearing before the Master was equivocal.

3.3  D10 does not dispute that the Statement of Claim and the Notice were served by prepaid post to the Mongkok Address. D10, however, insists that he did not receive the Statement of Claim or the Notice. He attributes this to the “poor environment” of the Mongkok Address: Chan 3^rd.

3.4  I accept P’s submissions that the Default Judgment was obtained regularly.

3.5  First, the Statement of Claim in the present case was not required to be served personally. Service of the Statement of Claim and the Notice is governed by RHC Order 65, rule 5(1) and therefore may be effected by post.

3.6  Secondly, where service of the Statement of Claim and the Notice has complied with the rules, D10’s assertion that he did not receive them does not have the effect of rending the Default Judgment irregular: Chan Kam Wai and Chan Kam Cheung (in their personal capacities and as administrators of the estate of Lo Fung Kau, deceased) v Chan Kam Man [2023] HKCA 940 §17.

3.7  Thirdly, section 8 of the Interpretation and General Clauses Ordinance Cap 1 (“IGCO”), which is referred to at RHC Order 65, rule 5(2), provides:

“ Where any Ordinance authorizes or requires any documents to be served or any notice to be given by post or by registered post, whether the expression “serve” or “give” or “send” or any other expression is used, the service or notice shall be deemed to be effected by properly addressing, pre-paying the postage thereon and dispatching it by post or by registered post, as the case may be, to the last known postal address of the person to be served or given notice, and, unless the contrary is proved, such service or notice shall be deemed to have been effected at the time at which the document or notice would be delivered in the ordinary course of post.” (emphasis added)

3.8  Section 8 of IGCO was considered by the Court of Appeal in Chan Chun Chuen v Commissioner of Inland Revenue [2012] 2 HKLRD 379. At §41, Lam J (as he then was) said:

“ There are two parts in the section: the first part provides for the deeming effect as to service by post and the second part provides for the deemed timing of service. Though the two concepts are related, the effective giving of notice and the date when it is deemed to have been given remains distinct. Section 8 permits proof to the contrary when it comes to the deemed timing of service but not in respect of the deemed service, see R v County of London Quarter Sessions Appeals Committee ex p Rossi [1956] 1 QB 682 at p.700; A/S Cathrineholm v Norequipment [1972] 2 QB 314 at p.322A and 323G to 324A.” (emphasis added)

3.9  For the above reasons, I am of the view that the Default Judgment was obtained regularly.

4.   Whether Default Judgment should be set aside

4.1  The Default Judgment being a regular judgment, the burden is on D10 to demonstrate that he has a defence on the merits which has a real prospect of success or carries with it some degree of conviction. The court needs to form some provisional view of the probable outcome of the action but this does not mean that the court should undertake a mini-trial on affidavit evidence. Where the outcome depends on whose evidence is likely to be accepted, the appropriate test for determining whether the defendant has a real prospect of success is to ask whether the defence could well be established at trial or whether the defence witness could well be believed at trial: Chong Pui Cheong v Chong Pui Kwong [2022] HKCFI 3110 §§19-21.

4.2  Whilst it has been said that bare assertions are not sufficient, the court has to bear in mind that certain defences, by their nature, would in the ordinary course not be easily corroborated by documentary evidence. For example, it is said by Keith J in Taily Group Limited v Leung Pak Ming & Ors, HCA 9068 of 1995, 6 November 1996 (at page 6):

“ I appreciate that there is nothing to support the 3rd Defendant’s case as to what he was told apart from his own assertions. But his version of events, if true, is not one which could easily be corroborated by other evidence. Despite the claim that the 3rd Defendant is an experienced businessman with a knowledge of English far greater than he professes, I cannot discount the possibility of the 3rd Defendant being believed at the trial of the action. I do not of course say that the 3rd Defendant’s assertions are to be believed. All I say is that they are believable.”

(i) The parties’ respective case

4.3  In the 2022 Document (which contains a Statement of Truth), D10 stated as follows:

(1) He was only an investor in the Group and he admitted to being a guarantor of D1’s indebtedness owed to P;

(2) The restaurants operated by the Group mainly collected cash from their patrons and therefore did not require substantial loans for their operations. He was of the view that a loan in the neighbourhood of a few million dollars was reasonable, and according to his recollection, the documents which he executed only showed that a loan of a few million dollars was obtained from P. He was shocked when P demanded a sum in excess of HK$50 million and he reported the matter to the police on 10 September 2022;

(3) He never went to P’s office and never met any staff from P. He never received any documents showing that the loan granted by P had substantially increased over a few million dollars. The bank documents requiring his signature would invariably be brought to him by Leo and were represented as review documents, which he then signed.

4.4  In Chan 2^nd, D10 stated, inter alia, as follows:

(1) On 14 August 2017 (ie the date of execution of the 2017 Guarantee and the countersigning of the 2017 Facilities Letter), he was busy but he did not state in terms that he did not sign the 2017 Guarantee or the 2017 Facilities Letter;

(2) However, he positively stated that he did not sign the July 2018 Facilities Letter and the 2019 Facilities Letter as he was in a team conference (in the former case) and in the PRC (in the latter case) on the respective dates of their purported countersigning;

(3) He referred to D13’s report to the police (§2.6(5) above) and exhibited D12’s affirmation filed in opposition to the OS (“Lai 1^st”) to support his case.

4.5  The following matters are stated in Leung 1^st:

(1) Jason was the person responsible for the execution of the 2017 Guarantee;

(2) At the time of the execution of the 2017 Guarantee, P had in place established procedures to ensure the due execution of the 2017 Guarantee. They included an in-person meeting between P’s staff and a prospective guarantor, the provision by P and execution by the prospective guarantor of a written confirmation confirming that the established procedures had been followed (“Confirmation”), explanation by P’s staff of the terms of the guarantee to the prospective guarantor and P’s staff witnessing the execution of the guarantee: Leung 1^st §23;

(3) Prior to the execution of the 2017 Guarantee, P would in the ordinary course conduct identity verifications and obtain credit references of the prospective guarantors. In the present case, Leung was told by Jason that identity verifications were carried out and credit references were obtained: Leung 1^st §§24-25;

(4) Leung was told by Jason that Jason did meet with D2 and D10 to D12 between 10 and 14 August 2017 and the 2017 Guarantee was executed in compliance with P’s established procedures. Contemporaneous with the execution of the 2017 Guarantee, D2 and D10 to D12 signed a Confirmation acknowledging that the procedures had been complied with: Leung 1^st §26;

(5) Leung was told by Jason that, between 25 and 29 April 2019, he met with D10 in person regarding the execution of the 2019 Facilities Letter and the execution of another guarantee (“2019 Guarantee”) guaranteeing D4’s indebtedness (as the 2017 Guarantee was only in respect of D1’s liabilities owed to P): Leung 1^st §34; and

(6) Leung verily believed that D10 had a degree of control of D1.

4.6  In Chan 4^th, D10 stated, inter alia, as follows:

(1) He never met Jason on 14 August 2017 (ie the date of the execution of the 2017 Guarantee);

(2) He disputed the accuracy of the hearsay evidence set out in Leung 1^st as to what was told to Leung by Jason regarding the execution of various bank documents;

(3) A substantial number of persons have made police reports complaining of being defrauded by the Group; and

(4) D10 denied that he was a shadow director in the Group.

(ii) P’s Submissions

4.7  It is P’s case that D10 has failed to demonstrate that his defence is able to surmount the requisite merit threshold.

4.8  On the facts, it is said that D10’s defence is internally inconsistent and therefore not credible. P points out that D10’s case had evolved from admitting that he was a guarantor in the 2022 Document to denying that he had executed the 2017 Guarantee in Chan 2^nd and Chan 4^th.

4.9  P further points out that the 2017 Guarantee is an unlimited guarantee and, as a matter of law, D10’s claimed ignorance of the increase in the facilities granted by P to D1, even if established on the facts, does not constitute a defence in law. This is because:

(1) There is no obligation on the part of the creditor to volunteer information to the guarantor of the fact that the creditor intends to enter into a new agreement with the principal debtor which leaves the surety’s liability intact but extending credit to the principal debtor: The Modern Contract of Guarantee, O’Donovan and Philips, 4^th Ed at §4-020; and

(2) In a similar vein, it is stated at Wing Hang Bank Ltd v Crystal Jet International Ltd [2002] 3 HKC 279 §40 that there is no general obligation on a creditor to explain security documents or to disclose material facts to a surety in any particular circumstances which would make the surety’s position more hazardous.

(iii) Analysis

4.10  For the reasons stated below, I am of the view that D10’s defence has crossed the requisite merit threshold.

4.11  On the factual disputes, it seems to me that, on the present material, D10 may well be believed at the trial. I acknowledge there is some inconsistencies in or evolution of D10’s case from the 2022 Document to what has been stated in Chan 2^nd and Chan 4^th (§4.8 above). Indeed, at the hearing, D10 appeared to have accepted that he did sign and was aware of the banking documents relating to the 2017 Facilities Letter and the Jan 2018 Facilities Letter (ie limited to HK$4,000,000).

4.12  However, there are the following countervailing factors.

4.13  It is plain that the evidence adduced by D10 is in conflict with what was told by Jason to Leung.

4.14  In particular, Lai 1^st (which is exhibited to Chan 2^nd) contains serious allegations against Jason, including allegations that Jason was in cohort with Leo in perpetrating a fraud (§5.1):

(1) D12 only knew Jason in around 2019 which is in conflict with Leung’s evidence that he met D12 at the time of the execution of the 2017 Guarantee: Lai 1^st §§31 and 34;

(2) The 2019 Facilities Letter, which was secured by landed properties of Bing Kwan (owned by D12), was procured by misrepresentation: Lai 1^st §§31, 40, 70-75;

(3) He had no recollection of signing any documents in 2017 as there was no occasion in 2017 that he, D2, D10 and D11 met and signed documents together and witnessed by P’s representatives: Lai 1^st §§49.1 and 49.4; and

(4) He had no knowledge of the 2020 Facilities Letter.

4.15  Similarly, D10 has adduced evidence that D13 made a police report complaining of someone forging D13’s signature.

4.16  D10 has made formal and apparently genuine complaints to the police and Hong Kong Monetary Authority (in relation to BEA).

4.17  In such circumstances, I find it odd that P has chosen to adduce Jason’s evidence by way of hearsay. The mere fact that Jason has left P’s employ (purportedly on his own accord) does not provide a proper explanation as to why he could or would not swear an affidavit himself, particularly in the circumstances where many substantive paragraphs in Leung 1^st contain statements of information or belief, the source of which is attributed to Jason (eg §§22, 24, 25, 26, 30 and 34). If Jason provided assistance in the preparation of Leung 1^st, it is unclear, and no proper explanation is given, as to why Jason did not swear the affidavit himself.

4.18  The evidence of D10 is that Leo and D2 had systematically and over an extended period defrauded others including himself, D11 to D13. Many of the allegations were referred in the MTR action[6], and D10 was believed after trial in relation to his complaints that the purported surety deed in relation to D3’s obligation under the tenancy agreement had been forged. I must make clear that I am not suggesting that any estoppel (or like arguments) arise, but simply that D10 has been found by another judge after trial to be a credible witness.

4.19  The preceding paragraph should be considered in the light of the evidence of the present case which show the following unusual features:

(1) The banking facilities offered by P was substantially increased by the 2019 Facilities Letter (§2.4 above). As stated at §4.5(5) above, Leung was told by Jason that Jason had met D10 in person to execute the 2019 Facilities Letter and the 2019 Guarantee, purportedly in compliance with P’s established procedure. However, unlike the 2017 Guarantee, P has not adduced into evidence the provision and execution of a Confirmation in relation to the 2019 Guarantee, by which D10 would have acknowledged that P’s established procedures had been complied with in the execution of the 2019 Guarantee (Leung 1^st §34(b));

(2) Related to the above, there is no explanation as to why the 2019 Facilities Letter was expressly stated to have been replaced by the 2020 Facilities Letter. In the former case, the banking facilities were granted to D1, D3 and D4, and in the latter case, the banking facilities (of identical limit) was granted only to D1;

(3) Even in respect of the Confirmation for the 2017 Guarantee, the express words on the document are inconsistent with what was told by Jason to Leung. Jason told Leung that he met with D2 and D10 to D12 between 10 and 14 August 2017 (§4.5(4) above), but the Confirmation contains a statement signed by Jason that he had met all of D2 and D10 to D12 on the same day (ie 14 August 2017);

(4) Against D10’s evidence that the Group did not require the substantial increase in banking facilities and its businesses did not generate sufficient revenue to service the increased loans, there is no evidence adduced by P on any application for the substantial loan increase or any assessment or approval by P of the Group’s need to obtain and ability to service such loans. The banking facilities were increased multifold from the initial limit of HK$4,000,000 to over HK$50,000,000, and in the circumstances where the last increase was secured by landed properties of Bing Kwan and Dragon Leo (§2.4 above) which facts are challenged by both D12 and D13.

4.20  The documentary evidence adduced by P in the present application does not have the effect of rendering D10’s factual case unbelievable.

4.21  As I understand from the court files, the case against D11 and D12 are proceeding to trial. According to P’s Timetabling Questionnaire dated 15 March 2024, the issues identified by P are, inter alia, (1) whether Leo had made any misrepresentation and whether P had constructive notice thereof and (2) whether D11 had executed the 2017 Guarantee. P had indicated that it did not intend to take out further interlocutory applications to dispose of D11 and D12’s case summarily.

4.22  I am unable to accept P’s submissions that, depending on the factual findings at trial, D10 does not have a defence in law. The scope of a creditor’s obligation to disclose material facts to a surety is considered in Bank of China (Hong Kong) Ltd v Wong King Sing [2002] 1 HKLRD 358. Mr Recorder G Ma SC (as he then was) said:

“ [27] As to non-disclosure, this bore some resemblance to the misrepresentation defence in that it was asserted the Bank failed to disclose to WKF the full extent of the facilities afforded to WKS. In my view, it did not have to as long as it did not misrepresent the position. There is no general duty on the part of a creditor like the Bank to disclose material facts to a surety (which is how WKF is to be regarded), in particular any circumstances which would make the surety's position more hazardous. In other words, it is the surety who has the obligation to make all necessary inquiries. The creditor's duty is simply not to mislead. See in this context : Law of Guarantees : Andrews and Millett (3rd edition) at paragraph 5.15[7].

[28] To these general statements of principle, however, is an important qualification. Where there exist facts (in this context usually arrangements between the creditor and the principle debtor (in the present case, WKS) of which the surety is unaware and which he could not in the circumstances be expected to know but which materially affect his liability or potential liability, it is then incumbent on the creditor to disclose such facts to the surety. A failure to disclose would result in the creditor being unable to enforce the contract signed by the surety. Just as a surety will in general be discharged if the contractual arrangements between the creditor and the debtor are materially altered without his consent (since the surety's risk will be different to that which he had originally assumed) so the surety will not be liable in the first place where he has not been informed of matters or arrangements which he might not reasonably expect to have been a part of the risk he would bear under the contract with the creditor. This is a well established principle : Hamilton v Watson (1845) 12 C. & F. 109 (House of Lords); London General Omnibus Co. Ltd v Holloway [1912] 2 KB 72; Law of Guarantees: Andrews and Millett (3rd edition) at paragraph 5.15; Spencer Bower, Turner & Sutton : Actionable Non-Disclosure (2nd edition) at paragraphs 8.19, 8.23. I was also referred to Levett v Barclays Bank Plc [1995] 1 WLR 1260, where the principle is also referred to. There is some debate as to whether the facts that have to be disclosed are restricted only to arrangements between creditor and debtor or whether there should be disclosure of further matters (such as arrangements made between the creditor and third parties such as co-sureties or as between the debtor and third parties): see here Law of Guarantees: Andrews and Millett (3rd edition) at paragraph 5.15. It is not necessary in this case for me to reach a view on this, but I would be inclined towards the views expressed by the High Court of Australia in Commercial Bank of Australia v Amadio (1983) 151 CLR 447.” (emphasis added)

4.23  Whether the “important qualification” identified at Bank of China §28 set out above applies in the present case is of course a fact-sensitive matter.

4.24  Further, were D10 believed at trial that he did not sign the 2020 Facilities Letter (which in my view he may well be), it is then questionable whether the condition precedent that the 2020 Facilities Letter had to be duly countersigned by the Borrower, all the relevant guarantors and security provider and delivered to P had been fulfilled.

4.25  For completeness, it seems to me whether D11 and D12 prevail in their defence may have a bearing on P’s case against D10. For example, were D11 found not to have executed the 2017 Guarantee (which P appears to have accepted to be a matter for trial), it is then questionable whether the condition precedent stated in the 2020 Facilities Letter that a Guarantee and Indemnity duly executed by D2 and D10 to D12 for an unlimited amount had to be delivered to P was fulfilled.

4.26  For the above reasons, I set aside the Default Judgment.

4.27  P invited me to consider imposing conditions for the setting aside of the Default Judgment, on the basis that D10’s defence is shadowy and D10 has committed multiple procedure mishaps.

4.28  I do not regard D10’s defence as shadowy.

4.29  The only procedural mishaps identified by P are D10’s failure to file a defence and the fact D10 had erroneously initiated the present application by the NOA. The former, in and of itself, cannot amount to a sufficient reason to impose condition as, were it otherwise, any party seeking to set aside a default judgment would be subject to conditions being imposed. As to the latter, P has agreed to treat the NOA as an application pursuant to RHC Order 19, rule 9.

5.   Conclusion

5.1  The Default Judgment is set aside unconditionally.

5.2  In my view, D10 was at fault in failing to file a defence. As stated at Hong Kong Civil Procedure 2024 Note 13/9/16, the usual practice is for P to be awarded its costs in any event: Alan Chung Wah Tang and Kan Lap Kee (Joint and Several Liquidators of Wan Hin and Company Limited (in liquidation)) v Chung Chun Keung [2021] HKCFI 369 §67.

5.3  I make a costs order nisi that D10 do pay to P the costs of the present application in any event, to be taxed on an indemnity basis pursuant to the contractual provisions.