ALLAHABAD BANK v. UD TRADING GROUP HOLDING PTE LTD AND ANOTHER

HCA 712/2019

[2020] HKCFI 3030

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 712 OF 2019

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J U D G M E N T

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INTRODUCTION

1.  This is an application by the Defendants ("D1" & "D2" respectively), made by summons issued on 13 December 2029 ("Ds' Application" & "Ds' Summons", respectively) for an order setting aside and discharging the Order of Master Grace Chan made on 23 July 2019 whereby the former plaintiff, Allahabad Bank ("Allahabad Bank") was granted leave to issue a Concurrent Amended Writ in this action and to serve a copy of it on D1 in Singapore and D2 in India ("the Leave Order").

2.  By Order made on 2 July 2020, it was ordered that the proceedings be carried on in the name of Indian Bank, as plaintiff ("P") in place of Allahabad Bank.

3.  By the general indorsement of claim on the writ, Allahabad Bank claimed the principal sum of USD 6,558,739 (the outstanding indebtedness alleged to be due to it from its customer, UIL Hong Kong Limited), from D1 and D2 pursuant to (a) a Deed of Corporate Guarantee dated 24 March 2016 executed by D1 ("D1's Corporate Guarantee"), (b) a continuing guarantee dated 20 May 2013 executed by D2 ("D2's Continuing Guarantee") and (c) a further guarantee agreement dated 28 May 2013 executed by D2 ("D2's Letter of Guarantee").  Allahabad Bank also claimed interest, costs, damages and further or other relief.

4.  Allahabad Bank's ex parte application which led to the Leave Order was supported by the affirmation of Alice Ma ("the Ex Parte Affirmation").  Ms Ma is a consultant of Messrs Nixon Peabody, who are the solicitors for P and who were also Allahabad Bank's solicitors on the ex parte application.

5.  Paragraph 5 of the Ex Parte Affirmation is in the following terms:

"In consideration of, inter alia, the Plaintiff granting the Facilities to UIL, the 1^st and 2^nd Defendants executed the Deed of Corporate Guarantee dated 24 March 2016 (“Corporate Guarantee”), the Letter of Guarantee dated 28 May 2013 and the Continuing Guarantee Agreement dated 20 May 2013 (“Personal Guarantee”) respectively.  There is now produced and shown to me respectively marked “MLY-3” copies of the Corporate Guarantee and Personal Guarantee executed by the 1^st and 2^nd Defendants."

6.  Copies of D1's Corporate Guarantee as well as D2's Continuing Guarantee dated 20 March 2013 and D2's Letter of Guarantee dated 28 May 2013 (which, in paragraph 5 of the Ex Parte Affirmation were together referred to simply as "Personal Guarantee") were exhibited to the Ex Parte Affirmation.

7.  In paragraph 6 of the Ex Parte Affirmation:

7.1  the substance of clause 4 of D1's Corporate Guarantee was reproduced as follows:

"the [1st Defendant] will pay to the [Plaintiff] on demand all sums of monies and liabilities which are now or shall hereafter from time to time be due or owing or shall remain unpaid by [UIL] and/or any other Obigors to the Bank (including without limitation the Secured Debts) TOGETHER WITH all interest payable thereon and all costs, charges and expenses incurred by [Plaintiff] pursuant to the Facility Agreement and together also with legal and other costs charges and expenses which [Plaintiff] may incur in enforcing or seeking to enforce any security for or obtaining or seeking to obtain payment of all or any part of the monies and liabilities hereby guaranteed."

7.2  it was stated that "the Personal Guarantee" (without identifying which of the 2 guarantees given by D2 was intended to be referred to) provided as follows:

"The Personal Guarantee provides that “the [2^nd Defendant] declare that his liability under this guarantee shall be limited and restricted to the sum of USD 15mn (USD FIFTEEN MILLION only) with interest at the rate aforesaid but subject to such limit shall nevertheless be a Continuing guarantee to the [Plaintiff] as hereinafter specified for all sums whatsoever which may at any time be or become payable by the principal debtor to the Bank with interest at the rate aforesaid till repayment together with commission, Bank charges, legal and other expenses which the [Plaintiff] may incur in enforcing or seeking to enforce any security for or obtaining or seeking to obtain payment of all or any part of the money hereby guaranteed or otherwise in respect of the agreement."

[the above extract was in fact taken from clause 2 of the Letter of Guarantee dated 28 May 2013]

8.  Paragraph 15 of the Ex Parte Affirmation is in the following terms:

"The Corporate Guarantee expressly states that “[the Plaintiff] is at liberty to initiate an d take actions or proceedings or otherwise against the [1st Defendant] in the Republic of Singapore or any other court in any jurisdiction as the [Plaintiff] may elect…” The Personal Guarantee expressly states that “this Guarantee shall be governed by the law of Hong Kong in all respects and the [2^nd Defendant] hereby submits to the non-exclusive jurisdiction of the courts of Hong Kong."

9.  The extract from D1's Corporate Guarantee which is quoted in paragraph 15 of the Ex Parte Affirmation is taken from Clause 37 which, in full, is in the following terms:

“37. This Guarnatee shall be governed by and construed in all respects in accordance with the laws of Republic of Singapore but in enforcing this Guarantee the Bank is at liberty to initiate and take actions or proceedings or otherwise against the Guarantor in the Republic of Singapore or any other court in any jurisdiction as the Bank may elect and the Guarantor herby irrevocably agrees that where any actions or proceedings are initiated and taken in the Republic of Singapore the Guarnator shall submit to the non-exclusive jurisdiction of the courts of the Republic of Singapore in all matters connected with the Guarantor’s obligations and liabilities under or arising out of this Guarantee and the Guarantor hereby irrevocably and unconditionally submits itself and its property and assets to the jurisdiction of the aforesaid courts.”

10.  On the other hand the quotation from what is referred to as "the Personal Guarantee" has been extracted from Clause 30 of D2's Continuing Guarantee dated 20 May 2013, which, in full, is in the following terms:

“30. Governing law and jurisdiction

This guarantee shall be governed by the law of Hong Kong in all respects and the Guarantor hereby submits to the non-exclusive jurisdiction of the courts of Hong Kong. Nothing in this guarantee precludes you from bringing any suit, action or proceedings (“Proceedings”) in any other jurisdiction nor will the bringing of Proceedings in any one or more jurisdictions preclude the bringing of Proceedings in any other jurisdiction.”

11.  In paragraph 16 of the Ex Parte Affirmation, the deponent concluded, on the basis of the extracts taken from D1's Corporate Guarantee and D2's Continuing Guarantee, that:

"Accordingly, this application for leave to issue a Concurrent Writ and serve the same out of the Jurisdiction on the Defendant falls within Order 11, rule 1(1)(d)(iv) of the Rules of the High Court."

12.  RHC Order 11, rule 1(1)(d)(iv) provides as follows:

"1(1)  Provided that the writ is not a writ to which paragraph (20 of this rule applies, service out of the jurisdiction of the Court is permissable, with the leave of the Court if in an action begun by the writ:

........

(d)  the claim is brought to enforce, rescind, dissolve, annul or otherwise affect a contract or to recover damages or obtain other relief in respect of the breach of a contract, being (in either case) a contract which:

........

(iv)  contains a term to the effect that the Court of First Instance shall have jurisdiction to hear and determine any action in respect of the contract."

13.  The grounds for Ds Application are specified in Ds' Summons as being as follows:

"1.   In respect of the 1^st Defendant, the Corporate Guarantee does not contain term to the effect that the Court of First Instance shall have jurisdiction to hear and determine any action in respect of the contract.  Accordingly , there was no jurisdiction under O 11, r1(1) to grant leave to serve out in respect of any claim on that Corporate Guarantee.

2.  In respect of the 2^nd Defendant:

(1)  As regards the Continuing Guarantee Agreement dated 20 May 2013:

(a)   it has not been executed by the 2^nd Defendant at all or qua guarantor;

and

(b)   even if it was executed by the 2^nd Defendant qua guarantor, it was superseded and discharged, alternatively relevantly amended, by the Letter of Guarantee dated 29 May 2013.

(2)  As regards the Letter of Guarantee dated 28 May 2013, and/or the Personal Guarantee as amended by and/or supersedes by the Letter of Guarantee, it does not contain a term to the effect that the Court of First Instance shall have jurisdiction to hear and determine any action in respect of the contract.

(3)  Accordingly, there was no jurisdiction under O 11, r 1(1) to grant leave to serve out in respect of any claim on any guarantee comprising (a) the Continuing Guarantee Agreement, (b) the combined effect of t he Continuing Guarantee Agreement and the Letter  of Guarantee, and/or (c) the Letter of Guarantee.

3.  There exists a 4^th guarantee in respect of the indebtedness of UIL Hong Kong Ltd issued by Ushdev International Limited of India (UILI) on 17 May 2013. AN Order approving a ‘Corporate Insolvency Resolution Plan’ was made by the National Company Law Tribunal Mumbai Branch in respect of UILI on 7 November 2019.  The Plaintiff has filed a Proof of claim in the Plan process in respect of the liability of UILI to the Plaintiff in respect of UIL Hong Kong Ltd under the 4^th Guarantee in the amount of INR 459,500,000 which has been admitted.

4.  The Plaintiff was guilty of positively deceiving the Court in respect of the matter in paragraph 1 above and the Plaintiff was guilty of material non disclosure in failing to disclose the matters in paragraphs 2 and 3 above to the Master , fully and fairly or at all.

5.  For those reasons, and without prejudice to the burden of proof, the Plaintiff did not and cannot satisfy the Court that (a)Hong Kong is the natural, convenient or appropriate forum for the trial of the Plaintiff’s claims against both or either Defendant(s) and/or (b) the case is a proper one for leave to serve out of the jurisdiction.

D1'S CORPORATE GUARANTEE

14.  The first point to be made as regards D1's Corporate Guarantee is that the proposition contained in paragraph 16 of the Ex Parte Affirmation that the words extracted from it, which are set out in paragraph 15, viz: "[P] is at liberty to initiate and take actions or proceedings or otherwise against the Guarantor in the Republic of Singapore or any court in any other jurisdiction as the Bank may elect..."], constitute a term to the effect that the Court of First Instance shall have jurisdiction to hear and determine any action in respect of the contract, is plainly wrong.  These words are simply not capable of conferring jurisdiction on the Court of First Instance or of constituting an agreement to do so: see Mauritius Commercial Bank Limited v Hestia Holdings Limited and Sujana Universal Industries Limited [2013] EWHC 1328 (Comm), at §§37-38.

15.  Mr Edward Alder, counsel for Ds, submitted that, in advancing the proposition that D1's Corporate Guarantee contains a term to the effect that the Court of First Instance shall have jurisdiction to hear and determine any action in respect of it such as to bring the claim on that guarantee within the O 11, rule 1(1)(d)(iv) gateway and in failing to draw the court's attention to the full terms of Clause 37 of the Corporate Guarantee, Allahabad Bank was practicing a serious deceit on the court, in that, even read as a whole, Clause 37 clearly (so Mr Alder submitted) does not contain such a term.

16.  On the other hand, Mr Lee, counsel for P contended that, properly construed, Clause 37 (specifically the words at the end of the clause: "......and the Guarantor hereby irrevocably and unconditionally submits itself and its property and assets to the aforesaid courts") [which were not referred to in the Ex Parte Affirmation] does have the effect of conferring jurisdiction on the Hong Kong Court and is an example of an "asymmetric jurisdiction clause" which ensures that a creditor can always litigate in a debtor's home court, while preserving its right to bring proceedings where the debtor's assets may be located at the time a dispute arises and which, Mr Lee contends, is neither unusual nor objectionable: see Industrial and Commercial Bank of China (Asia) Ltd v Wisdom Top International Ltd [2020] HKCFI 322, at §§16-17, per Au-Yeung J.

17.  Mr Lee suggested that, for the purpose of construing Clause 37, it is helpful and convenient to break the clause down into 4 parts.

17.1  The first part ("This Guarantee shall be governed by and construed in all respects in accordance with the laws of Singapore") is self explanatory and is uncontroversial.

17.2  The second part, providing that "The Bank is at liberty to initiate and take actions or proceedings or otherwise against the Guarantor in the Republic of Singapore or any court in any other jurisdiction as the Bank may elect...", is also self explanatory; it is the hallmark of an asymmetric jurisdiction clause and no difficulty arises from this.

17.3  The third part, which provides that "the Guarantor hereby irrevocably agrees that where any actions or proceedings are initiated and taken in the Republic of Singapore the Guarantor shall submit to the non exclusive jurisdiction of the courts of the Republic of Singapore in all matters connected with the Guarantor's obligations and liabilities under or arising out of this Guarantee", also gives rise to no difficulty, the effect being an agreement on the part of D1 to submit to the jurisdiction of the Singapore Courts in the event that a claim is brought on the guarantee in Singapore.

17.4  As Mr Lee conceded, the difficulty lies in the fourth part which provides "......and the Guarantor hereby irrevocably and unconditionally submits itself and its property and assets to the aforesaid courts".  In this respect the words "the aforesaid courts" are ambiguous in that, on the one hand, they could refer either solely to the courts or Singapore, with which the third part of the Clause is concerned (the construction which Mr Alder places on these words) or, on the other hand, both to those Courts and the courts of any other jurisdiction as the Bank may elect (as per the wording of the second part of the clause), which is the construction Mr Lee places on these words.

18.  If the construction which Mr Alder advocates were to be accepted as being correct, the whole of the fourth part of the Clause would be otiose as being repetitive of and adding nothing to the third part.  On the other hand, if the construction which Mr Lee were to be accepted as being correct, the whole of the third part would be otiose.  There are therefore difficulties whichever construction is placed on the words in question.

19.  However, in my view, the construction placed on the Clause and in particular the words "the aforesaid courts" by Mr Alder is to be preferred.  In this respect an argument that a similar clause amounted to a pre-submission to the jurisdiction of every court in the world was rejected by Popplewell J in the Mauritius Commercial Bank case (supra), at §38, viz:

“it would be unlikely that the parties could have intended to submit their disputes to any court in the world however exorbitant. Indeed the Defendants' argument was that their construction, which bound them to litigation in any forum in the world of MCB's choosing, however inappropriate, was so unreasonable as to be invalid as contrary to English public policy. In the oft cited words of Lord Reid in Schuler (L) AG v Wickman Machine Tool Sales Ltd [1974] AC 235, at 251:

"The fact that a particular construction leads to a very unreasonable result must be a relevant consideration.  The more unreasonable the result the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly clear."”

20.  I similarly consider that it is unlikely that the parties to D1's Corporate Guarantee could have intended to submit their disputes to any court in the world, however exorbitant.

21.  In my view there is force in Mr Alder's submission that the third and fourth part of Clause 37 are only concerned with Singapore proceedings.

22.  If there remained any doubt about the true construction of the clause, I would resolve such doubt in favour of D1 on the basis of the contra proferentem doctrine.

23.  Mr Lee argued however that, regardless as to the true meaning of Clause 37, Clause 30(a) of D1's Corporate Guarantee bars D1 from making the present application on the basis that, by that clause, D1 purportedly agreed not to object to the jurisdiction of the Hong Kong Court.

24.  Clause 30(a) of D1's Corporate Guarantee is in the following terms:

"The Guarantor hereby irrevocably and unconditionally waives, any objection which the Guarantor may now or hereafter have to the laying of venue of any actions, suits or proceedings arising out of or in connection with the Guarantee brought in any court, and hereby further irrevocably and unconditionally waives and agrees not to :

(i)  challenge the jurisdiction of such court; and

(ii)  plead or claim that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum."

25.  In my view Clause 30(a) of D1's Corporate Guarantee does not have the effect for which Mr Lee contents and does not assist P.  In particular:

25.1  I do not consider that, on its proper interpretation, this clause has the effect of preventing D1 from applying to set aside an order for leave to serve a writ out of the jurisdiction on the grounds that the case falls outside the relevant gateway in RHC Order 11 rule 1(1);

25.2  notwithstanding the provisions of Clause 30(a), it is still in my view necessary for P to demonstrate that the court in which it wishes to proceed has jurisdiction to determine its claim;

25.3  on its proper interpretation, I consider that clause 30(a) refers only to 'as of right' jurisdiction, not long arm jurisdiction.

26.  In view of the foregoing I conclude that, to the extent that the Leave Order granted leave to serve the writ on D1 pursuant to the provisions of RHC Order 11 rule 1(1)(d)(iv), it was wrong.  However that is not the end of the matter because, on the hearing of the inter partes summons, Mr Lee, on behalf of P, invited the court to exercise its discretion to permit the Leave Order to stand or alternatively to grant fresh leave pursuant to the gateway provided by RHC Order 11 rule 1(1)(e) [which was not relied on by Allahabad Bank at the ex parte stage] on the basis that the claim is brought against D1 (as well as against D2) "in respect of a breach committed within the jurisdiction of a contract made within or out of the jurisdiction".

27.  There is no bar per se to a plaintiff seeking to invoke a new ground at the inter partes stage, particularly where there is no good reason why the court should not "use its curative powers to put right a technical defect" (see Securities and Futures Commission v C [2009] 4 HKLRD 315, per Le Pichon JA at §§44-45).  On appeal from the decision of the Court of Appeal in SFC v C, the Court of Final Appeal did not demur as regards this proposition (Kayden Ltd v SFC (2010) 13 HKCFAR 696).

28.  In my view P has shown a good arguable case that, notwithstanding the absence of any express provision in D1's Corporate Guarantee as to the place of performance of D1's payment obligations thereunder, the place of performance is Hong Kong.  This is by reason of the fact that D1's Corporate Guarantee was given to Allahabad Bank (Hong Kong branch) as a guarantee for the provision by it of banking facilities to its customer, UIL Hong Kong Limited and the principle that it is for the debtor to seek out and pay his creditor at the creditor's place of business.  See Komala Deccof & Co SA v Perusahaan Pertambangan Minyik [1982] HKC 47, per Hunter J at 52E-G.

29.  Mr Alder contended that the omission to draw the court's attention to the entirety of Clause 37 was a deliberate deceit on the court and that in these circumstances it is not only appropriate that the Leave Order should be set aside and discharged but that the court's discretion to re-grant the order should not be exercised in P's favour.

30.  Whilst I agree that Clause 37 in its entirety should have been drawn to the court's attention on the ex parte application, given its importance to the application; that it was insufficient to have drawn attention only to the limited extract to which reference was made in the Ex Parte Affirmation and that the Leave Order should in any case be set aside as against D1 on the ground that, on proper analysis, P's case against D1 does not fall within the O 11, r 1(1)(d)(iv) gateway, I do not consider that the failures and inadequacies at the ex parte state are such as to justify shutting P out from relying on gateway (e) on this, the inter partes hearing and from disqualifying P from seeking and obtaining a re-grant of the order for leave to serve the writ on D1 out of the jurisdiction.  In this respect I do not agree with Mr Alder that the omission to draw the court's attention to the entirety of Clause 37 was necessarily a deliberate deceit on the court.  I have seen no evidence that this was the case.

31.  In all the circumstances I will order that, as against D1, the Leave Order be set aside and discharged but, in view of the fact that I am satisfied that P has shown a good arguable case that the claim against D1 falls within the O 11 r1(1)(e) gateway, I will grant leave to P to serve the Concurrent Writ on D1 outside the jurisdiction on that ground.

D2'S GUARANTEES

32.  Unlike D1's Corporate Guarantee, D2's Continuing Guarantee does contain an express term (Clause 30 - see paragraph 10 above) to the effect that the Court of First Instance shall have jurisdiction to hear and determine any action in respect thereof and there can be no doubt that P's claim against D2 thereunder falls within RHC Order 11, r 1(1)(d)(iv).

33.  D2 contends that he did not execute the Continuing Guarantee and that, in any event, it was superseded by the Letter of Guarantee which did not contain such any term giving the court of First Instance jurisdiction.

34.  Whilst there are some aspects of the document said to constitute the Continuing Guarantee which are questionable and there is no witnessed signature of D2 in the space provided, the fact remains that what appears to be D2's signature does appear on each page of the document.  At this present stage of the proceedings, all that P needs to show is a good arguable case on the merits of its claim and I am satisfied that that burden has been discharged.

35.  I also accept that P has shown a good arguable case that, contrary to D2's contention that the Continuing Guarantee was superseded by the Letter of Guarantee, the two documents should be read together.  In this respect:

35.1  it is a well established principle that documents constituting a single transaction are read and construed as one document: Cherry Tree Investments Ltd v Landmain Ltd [2013] Ch 305, per Arden LJ (as she then was) at §80;

35.2  The two documents are dated May 2013 and concern the same subject matter, namely the guaranteeing of the same principal indebtedness;

35.3  there is nothing in the Letter of Guarantee to suggest that it was intended to supersede the Continuing Guarantee. On the contrary, Clause 6 of the Letter of Guarantee provides that the guarantee contained therein "shall be in addition to & shall be applicable notwithstanding any change in security (including guarantees) which the bank may now or hereafter hold from or on account of the Principal....";

35.4  in the affirmation of P's chief executive (Mr Shrivastav), affirmed and filed in opposition to Ds' Application, it is explained that the Letter of Guarantee is P's standard form in India and was executed simply out of prudence due to the fact that D2 holds an Indian passport and was at the time based in India.  There is in my view no reason to doubt this and, in my view, this is consistent with an intention that the two documents should be read together and complement each other, and

35.5  whilst the Continuing Guarantee is expressly stated as being governed by Hong Kong law and subject to the non exclusive jurisdiction of the Hong Kong courts, there is no governing law or jurisdiction clause in the Letter of Guarantee.  I accept that this is inconsistent with the proposition that the Letter of Guarantee amended or superseded the Continuing Guarantee.

36.  In all the circumstances I am satisfied as to the existence of a good arguable case that P's claim against D2 as guarantor does fall within Order 11 rule 1(1)(d)(iv).

37.  Mr Alder argued that leave to serve the writ on D2 should nevertheless be set aside (and not re-granted) on the basis of material non disclosure, namely the non disclosure of the fact that the Letter of Guarantee does not contain a term giving the Court of First Instance jurisdiction.  That complaint however falls away when it is concluded (as I have done) that the Letter of Guarantee and the Continuing Guarantee are to be read together.

38.  For all of the above reasons, I decline to accede to D2's application to set aside the Leave Order as regards P's claim against D2.

FORUM

39.  It was suggested on behalf of Ds (albeit faintly) that P had failed to show that Hong Kong was the most natural convenient and appropriate forum for the trial and determination of the disputes between the parties.

40.  The question of forum is addressed in the Ex Parte Affirmation in which the following points are made:

40.1  "The Facility Letter, the Facility Documents and the Guarantees as set out in paragraphs 4 and 5 above were negotiated, made and partially executed and/or concluded in Hong Kong;"

40.2  "The Guarantees were executed by the 1^st and 2^nd Defendants as a consideration for the Facilities granted to UIL which operates in Hong Kong and is a company incorporated under the laws of Hong Kong with a registered address at Hong Kong, there is now produced and shown to me marked (“MLY-6”) copy of Annual return of UIL;"

40.3  “The 1^st Defendant is the majority shareholder of UIL while the 2^nd Defendant is the director of UIL according to the Annual Return of UIL; and"

40.4  "Many of the potential witnesses who could give evidence on the events and matters pleaded or to be pleaded in this action, including the employees of the Plaintiff, are either residents in Hong Kong or frequently living and/or working in Hong Kong."

41.  I am satisfied that P has demonstrated that by reason of the above factors, Hong Kong is the most natural, convenient and appropriate forum for the conduct of the trial in this action and for the determination of the disputes between the parties.

COSTS

42.  I will make orders nisi that (a) P shall pay D1's costs of the application, to be taxed if not agreed but that (b) D2 shall pay P's costs of the application, to be taxed if not agreed.  It may well be that the parties may consider that the costs orders on these terms will cancel each other out and that, as a matter of expediency, the parties may agree that there should be no order as to costs or that, in practice, there would be little point in seeking to enforce either order.  I will leave this up to the parties to proceed as they think best.  However the order nisi as to costs will become absolute 14 days after the handing down of this Judgment unless application to vary it is made by either party within this time.