BANK OF CHINA (HONG KONG) LTD v. PAU TING CHUNG AND OTHERS

HCA 9949/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 9949 OF 2000

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J U D G M E N T

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1.  This is a claim by a bank suing under various guarantees entered into by the three defendants to support advances and credit made available to a defaulting customer.

2.  The bank was formerly known as the China State Bank Limited (CSB).  Since the writ was filed it has become part of the Bank of China (Hong Kong) Limited, but I shall refer to it throughout as CSB.

3.  The customer in default is a trading company called Chain Liaison Investment Limited (Chain Liaison).  At the material time its shareholders and directors were the 1st and 2^nd defendants (respectively, Mr Pau and Madam Lam).  They are husband and wife.  The 3^rd defendant is their adult son Danny Pau.  At the material time he was employed by Chain Liaison, earning a salary of $9,000 per month plus commission.

4.  The claims against the three defendants have all along been disputed and the trial proceeded as a defended one.  Mr Pau and Madam Lam shared the same defence; Danny Pau, separately represented and advised, had an independent defence.

History

5.  Mr Pau sought and obtained accommodation for Chain Liaison from CSB in 1996 in the shape of trust receipt loans.  Security included a guarantee in standard form from the customer’s directors Mr Pau and Madam Lam.  This, known as the 1^st guarantee, came to be executed in April 1996.  CSB also took as security mortgages over some six properties in Hong Kong which were variously owned by Chain Liaison or otherwise indirectly by Mr Pau.  Included was a flat at Yick Fung Garden, Kennedy Town, occupied by the Pau family (including Danny Pau) as the family home.

6.  Further credit sought by Mr Pau was granted the following year and again was approved.  This resulted in an additional guarantee from Mr Pau and Madam Lam signed in February 1997.  This is now known as the 2^nd guarantee. 

7.  I mention here that a senior manager of the CSB called Ho Kwok Yui all along represented the CSB in these transactions.

8.  In November 1999 Chain Liaison defaulted.  CSB followed this up with demand letters to the guarantors.  This prompted a visit to Mr Ho by Mr Pau.  He asked not only that legal action be withheld, but that CSB provide additional accommodation, being another trust receipt loan for $2.2 million.  He was told the request could only be considered if a 3^rd guarantor was available to guarantee repayment of all moneys borrowed as well as the proposed further advance.

9.  In circumstances which are disputed as I shall come to,  Danny Pau became a guarantor when he signed what is now known as the 3^rd guarantee in January 2000.

10.  But there was continuing default.

11.  There was another conference, in March 2000, between Mr Ho of CSB and Mr Pau.

12.  The upshot was an arrangement entered into whose express terms are disputed.  But, broadly speaking, it was agreed that CSB would withhold for the meantime legal action to recover the indebtedness, provided that Chain Liaison paid $50,000 per month from March 2000 on account of the debt and that the six mortgaged properties be surrendered to CSB.  Mr Pau thus caused the properties to be surrendered and for the monthly instalments to be paid.

13.  But not for long.  After three payments, to June 2000, Chain Liaison paid no more.  The circumstances of that, whether it was in default or because CSB was in breach of the agreement, is in dispute.

14.  In June 2000 CSB issued this writ suing for what was then outstanding, just in excess of $23 million with interest accruing.

15.  Since then the properties have variously been sold and the net sale proceeds have been credited towards the debt.  But as at 2 June 2008 interest had inflated the debt to more than $29.5 million.  The principal sum of some $18.36 million continues to accrue interest at 9.5% p.a.

The Pleaded Defences

16.  That of Mr Pau and Madam Lam contained the following assertions:

(1) Both admitted the existence and execution of the 1^st and 2^nd guarantees whilst denying liability.

(2) They denied that there had been demand properly made in pursuance of the guarantees.

(3) CSB breached the agreement made in March 2000 when contrary to its terms, its officers caused the locks of the surrendered properties to be changed.

(4) CSB withheld selling one of the properties, whose address is at Eastern Street, to a purchaser found by Mr Pau, who had offered $50,000 more than a registered valuer’s estimate of its worth.

17.  The defendants not only denied liability but counterclaimed for damages occasioned by CSB’s default.

18.  Danny Pau’s defence was based on:

(a)    duress from CSB, and/or

(b)   duress and/or undue influence from his father Mr Pau.

19.  He admitted signing the document branded the 3^rd guarantee in late December 1999 or early January 2000, but denied liability.  He particularized the duress and/or undue influence in this way:

Mr Ho of CSB had telephoned his father in late 1999, threatening to call in the indebtedness, which would mean Chain Liaison would be wound up and his parents would be bankrupted.  This might be avoided if he could persuade a third person to join the guarantors; a suitable person would be Danny Pau.

20.  Mr Pau passed on and reiterated this threat to him in December 1999 with the consequences that Chian Liaison would be wound up and the parents bankrupted and they would lose their home.

21.  As a result of this duress and/or undue influence he signed the 3^rd guarantee. 

22.  I should say here that this defence was settled by counsel of maturity and experience.

Application for Summary Judgment

23.  By way of completeness I mention that early on in the litigation CSB filed for an Order 14 RHC summary judgment.  After a defended hearing the defendants were all given unconditional leave to defend.

24.  A feature of this with consequences was that one of the affirmations filed in support was from a bank officer called Lee Foon Yung.  As a subordinate of Mr Ho, he was instructed to prepare the facility letter and what was to become the 3^rd guarantee, following CSB’s decision to accept Danny Pau as another guarantor.  In his affirmation he gave particulars of this and his attendance on Danny Pau when he came to sign.

25.  With this the trial in the end not taking place until some years following the attempt to get summary judgment, Mr Lee has meanwhile left CSB and cannot be traced.

26.  Application was accordingly made, and granted, for his affirmation to be admitted in evidence at the trial.

Pre-Trial

27.  There was a pre-trial review held in my court on 29 May 2008.

28.  Mr Man appeared for CSB, and told me he would be representing CSB at trial; he did so.

29.  The three defendants all appeared in person.  In fact the record reveals that Danny Pau had discharged his solicitors in April 2002 and his parents did likewise, but not until September 2007.  They all told me they were going to represent themselves having no money to engage lawyers.

30.  And so then to the trial.

The Trial

31.  Matters did not proceed seamlessly; far from it.

32.  On 23 June, a Monday, being the 1^st day of the 4 days allocated, Danny Pau did not appear.  Mr Pau told me he was unable to attend, having been admitted to hospital in Guangzhou.  He was he said incapacitated, suffering from back pain.  This was a relapse of an old injury.

33.  Mr Pau speaking for all defendants, asked for an adjournment.  Mr Man vigorously opposed.  In the event I stood the matter down until the next day for further enquiries to be made.

34.  The next day Danny Pau was still missing.  Mr Pau handed up a medical certificate of sorts.  Mr Man had caused enquires to be made and reported what had been unearthed.  I do not propose to burden this judgment with details of this.  Suffice to say I was not satisfied in the circumstances that an adjournment was the proper course.  I gave Mr Pau the opportunity to contact his son and time for him to make his way to court.  Mr Pau told me that he had spoken to Danny who told him he would not be coming. 

35.  The trial then proceeded, in his continued absence.

The Evidence

36.  Mr Man called two CSB officers but his primary witness was Mr Ho who had made three witness statements, the contents of which he adopted.

37.  He provided background details which are non-controversial.

38.  The 1^st guarantee was capped at $10 million plus interest and costs.  The 2^nd was capped at $14.55 million plus interest and costs.  By its terms it was in addition to and did not replace the 1^st guarantee.  When it came to considering Mr Pau’s request to withhold legal action and to ask for enhanced accommodation in or about November 1999, it was Mr Pau who proposed that that be his son Danny.  Mr Ho said CSB knew Danny Pau had been working for the company for some time, assisting his father to run it, that he was regarded as a “key person managing the business of the Borrower”.  But he emphatically denied ever suggesting to Mr Pau to exercise his influence over or to threaten his son in order to make him agree to take over the obligation of guarantor.

39.  Whatever Mr Pau might have said to Danny Pau before he signed, he had no knowledge of that; in particular, of any undue influence or threats.

40.  He instructed his subordinate Mr Lee to prepare the appropriate facility letter and form of debenture.  The 3^rd debenture was according to its date executed by Danny Pau on 26 January 2000, before Mr Lee as witness.  By its terms it was capped at $22.34 million plus interest and costs.

41.  As to the events of March 2000; he deposed that the terms of the assignment agreed with Mr Pau were that CSB would withhold taking legal action to recover the debt due on condition that:

(a) $50,000 per month would be paid from March 2000 on account of moneys due;

(c)    the six mortgaged properties would be surrendered to CSB.

42.  These terms were set out in a letter sent to Chain Liaison on 12 May 2000 and accepted on 3 July 2000.  Therein the two loans were identified as being for $9.8 million and $12.35 million.  Of these it recorded:

“We agree to grant you a grace period of six months for deferring payment of interest provided that you should repay a sum for $50,000 monthly.  After the 6 months’ grace period, the interest rate and repayment terms should be redetermined as we may agree.”

43.  But only three instalments were met; thereafter there was default.

44.  He also said that CSB did change the locks, regarding the surrender of the properties as giving it the right to do so.

45.  He denied that CSB had acted unreasonably in refusing to sell the Eastern Street property at $700,000, $50,000 above the stated valuation.  In fact it came to be sold at the higher price of $800,000.

46.  He denied that the sale proceeds of the mortgaged properties were not credited towards the indebtedness, itemising the circumstances of the sales.

47.  And he confirmed the amount outstanding, with interest accruing.

48.  In a 2^nd statement he gave evidence to refute the defence claims that neither Mr Pau nor Madam Lam had received demands.

49.  He said these were sent not just to their last known address being the address of their home but also to two others of the properties.

50.  He denied ever having represented that the 2^nd debenture was in substitution for the 1^st.  Not only was this clearly set out in the debenture, it was common knowledge to all those involved and contemplated that they were and are cumulative.

51.  And it was Mr Pau not CSB who proposed that the 3^rd guarantor be Danny Pau.

52.  He denied that it was agreed that Mr Pau should retain the keys to the Yick Fung Garden flat which was occupied by the Pau family.  As he stated, that would hardly be tantamount to a surrender of the property.

53.  The adoption of these statements by Mr Ho as his evidence in chief took us to the end of the 2^nd day of trial.

The Evidence Interrupted

54.  There was a typhoon and the hoisting of the No.8 signal on the scheduled 3^rd day; but I am not referring to his.  On the next available date Danny Pau showed up; not only that, he was accompanied by solicitors and counsel, Mr Lau, who had just been instructed.

55.  Mr Lau gave notice that he intended to apply to amend the defence, but had not had sufficient time to draft the proposed terms.  He was given time to do so, and then argued for the amendment.

56.  This was to add the further defence of undue influence from his father Mr Pau, with CSB having actual and constructive notice of that.  In proposed particulars, he spelt out his relationship with his parents and that he held no shares or office in Chain Liaison.  He stated that he was not warned by officers of CSB that there were risks in his standing as a surety or the effect of his signing the 3^rd guarantee.  He was given no opportunity nor was it suggested to him to get independent advice.  He signed because his father procured him to do so.

57.  The application to amend was supported by Danny Pau’s parents but opposed, and vehemently so, by Mr Man.

58.  I will not rehearse all the points he made; suffice to say I refused the application because it was to attempt to introduce a defence that was available to Danny Pau from the outset; that there was no good reason why it was delayed to as late as part way through the trial, with CSB’s main witness in the witness box and thus unable to give instructions.  As I have said, at the outset Danny Pau was represented, and his original defence was settled by counsel.  Inevitably the trial would have had to go off.

59.  The undue influence already pleaded could not at this late stage be so significantly enlarged.

The Evidence Continues

60.  Mr Ho having concluded his evidence in chief was then cross-examined.  Mr Pau and Madam Lam went first but nothing significant emerged from their questioning.

61.  In response to cross-examination by Mr Lau, Mr Ho said that he had met Danny Pau having been introduced by his father; that the father had told him Danny was prepared to be a guarantor.  He said that he instructed his assistant Lee Foon Yung to prepare the necessary documents consequent upon CSB approving Danny Pau and that included supervising the signing of the 3^rd guarantee.  CSB’s copy of the guarantee showed that F Y Lee had been the witness to Danny’s signing.

62.  Danny Pau’s case was then put to him:

“Do you agree you asked a messenger to take the guarantee to the office of the customer borrower for signing by Danny?”

“Do you agree no officer of CSB was present to explain the contents and nature of the same to Danny?”

“Do you agree F Y Lee failed to comply with CSB’s instructions on the execution of bank documents?”

To all these propositions he disagreed.

63.  Mr Lau continued to put his client’s case:

“Do you agree on a day in November 1999 you told Mr Pau that CSB intended to recall all Chain Liaison’s debts and to sue Mr Pau and Madam Lam as guarantors?”

“Do you agree you told Mr Pau that CSB would not do so if there could be an additional guarantor?”

“Do you agree you required Mr Pau to influence his son into becoming an additional guarantor?”

“Do you agree you required Mr Pau to threaten Danny Pau that unless he signed a guarantee Chain Liaison would be wound up and that the parents would be made bankrupt?”

In answer to all of these questions he said that he disagreed.

64.  Asked about Danny Pau’s circumstances and means to pay if called upon, he said he was aware he was quite young and had no capital, that he would not have been able to meet the indebtedness.  However CSB’s management took the view that as a son of the mainstay of the customer borrower and working for it that he did have in effect an interest in keeping the company afloat whilst having no shares in it, or the financial means to support it.

65.  The evidence from the bank officer Mr Lee focused on his role in attending on Danny Pau when he came to sign the 3^rd guarantee.  As it was in effect a rebuttal of Danny’s allegations of impropriety in the signing, I shall come to deal with that after recording a summary of Danny Pau’s evidence.

66.  Subject to that, there was no further evidence called for CSB.

67.  Mr Pau adopted a witness statement as his evidence in chief, prepared in the days when he and his wife were represented.  He admitted they executed guarantees drawn in proper form to cover trust receipts for 90-day letters of credit in favour of Chain Liaison.  However he was told by Mr Ho that the 2^nd guarantee replaced the 1^st guarantee and signed in reliance on that.  He admitted there was default, so that by March 2000 close to $19 million was outstanding and overdue. 

68.  Then it was that he and Mr Ho worked out the interim arrangement which was that CSB would put a hold on accruing interest and otherwise not take legal action provided that Chain Liaison paid $50,000 per month off the debt and the six mortgaged properties would be surrendered to CSB.  This surrender included handing over the keys save and except for those of the flat at Yick Fung Garden, the family home. 

69.  He caused the debtor company to begin paying the instalments, and delivered all the house keys to Mr Ho.  He said he was assured by Mr Ho that the locks would not be changed.

70.  But when the locks were changed, and CSB declined to act when he found a buyer for the Eastern Street premises at well above valuation, he regarded the bank as being in breach and stopped paying the instalments after the 3^rd had been paid.  He concluded:

“to the best of my knowledge, the said sale proceeds [in respect of the properties sold by CSB] have never been taken into account by the plaintiff in favour of the Defendants at all.”

71.  Prior to this action he claimed never to have received any demand for repayment from CSB.

72.  Cross-examined by Mr Lau, he said that when the matter of a 3^rd guarantee was mooted, Mr Ho said the best candidate would be his son. But he did not know how the document came to be signed.  He disagreed that it had been given to him to give to Danny.  He did agree that he did not explain its contents.  And he did agree that he told Mr Ho he would exercise his influence over Danny to persuade him to sign.  He agreed that he told him that if he did not sign the company would be wound up, his parents would be bankrupted and they would lose the family home.  Then it was put to him:

“Do you agree that Danny signed the document as a result of your undue influence on him?”

He responded:

“I absolutely agree.”

73.  Next he was cross-examined by Mr Man.  It was put to him that the original of letters of demand before action copied into the evidence were sent to the parties, to their home address in Yick Fung Garden.  He agreed but declined to reverse his allegation that there had not been proper demand.  He said of this:

“I may not have received it although it was mailed there.  It was 7 years ago I can’t remember.”

74.  He conceded that the 2^nd guarantee was in terms that it was in addition to and not in substitution for the 1^st guarantee, but said he had not read this before signing.

75.  He agreed that although he withheld the keys to Yick Fung Garden for a while he did hand them over to CSB officers in 2001.  He said the reason why he caused Chain Liaison to stop paying the $50,000 was because of the CSB not adhering to its promise not to change the locks of the surrendered properties, and because it refused to sell the Eastern Street premises to the buyer he had found.

76.  But then he conceded that at the time Chain Liaison had no money to pay.

77.  It was put to him that Danny was made the 3^rd guarantor at his suggestion not Mr Ho’s.  He disagreed.

78.  It was put to him that Mr Ho never suggested that he exercise his influence over Danny to get him to sign.  He vehemently disagreed.

79.  It was put to him that Mr Ho never threatened that unless there was the guarantee he would call up the debt and wind up the company.  He disagreed.

80.  Madam Lam adopted her witness statement which was to confirm that she signed guarantees for the purpose of the business of the company.  However she did not participate in the operation of the business and signed because Mr Pau, effectively in full control, required her to do so.

81.  Next came Danny Pau.  He adopted 2 witness statements he had made; the first back in 2002 by which time he was acting in person, the second in July 2008, during the course of the trial, having reinstructed solicitors.

82.  I think it fair to say that Mr Man grumbled at the late filing, but did not in the end object to its coming in.  Mr Pau and Madam Lam did not oppose either.

83.  In the first statement, Danny Pau described events which caused him to sign the 3^rd guarantee.  He confirmed at the time he was 22 years old, working for his father’s company as a salesman on $9,000 plus commission.  He said apart from being an employee he had no interest in the company and exercised no control over the company.  He said he lived at home because he had insufficient money to live independently.  Then he said and I repeat this verbatim:

“7.   I was told by the 1^st Defendant that on a day in or about November 1999, Mr. Ho Kwok Yui, the senior branch manager of the Plaintiff, rang up the 1^st Defendant and told him that the Plaintiff had decided to exercise its right as a creditor of the said company to recall all debts and interest due from the said company and that the 1^st and 2^nd Defendants, as guarantors would be obliged to pay the Plaintiff and this would result in the said company’s business being would up as the said Ho knew that neither the said company nor the 1^st and 2^nd Defendants had the money to pay the Plaintiff.

8.  I was also told by the 1^st Defendant that the said Ho further told him that the Plaintiff would consider refraining from exercising its right as the creditor if the 1^st Defendant would provide the Plaintiff with another person to act as additional guarantor for the debt.  The 1^st Defendant also told me that he told the said Ho that no one would be willing to act as additional guarantor since neither the said company nor the 1^st and 2^nd Defendants had any money to pay off the debts owed to the Plaintiff and anyone willing to act as guarantor would mean shouldering the financial responsibility to pay all the debts owing to the Plaintiff.

9.  I was told by the 1^st Defendant that at this point, the said Ho suggested to the 1^st Defendant that (he) could exercise his influence over his sons and to cause one of them to become the additional guarantor.  The said Ho further suggested that the 1^st Defendant should threaten his son that unless he was willing to become an additional guarantor, the said company would be wound up, the 1^st and 2^nd Defendants would be forced into bankrupt and that his son would lose his job and his home.

10.    Shortly after the said telephone conversation, the 1^st Defendant re-iterated the threats of the said Ho and told me that I should become an additional guarantor.  In so doing, the 1^st Defendant passed on the threats of the said Ho and the consequence that the said company would be wound up, the 1^st and 2^nd Defendants going bankrupt and I losing my job and my home.

11.    Apart from passing on the threats of the said Ho, the 1^st Defendant further influenced me to become an additional guarantor by telling me that he was my father and that, as his son, I have an obligation to see that my parents would not go bankrupt.

12.    I was also required immediately to consent to so acting as an additional guarantor or else I would lose my job and my home.

13.    As a result of the said Ho’s threat and the undue influence of the 1^st Defendant, I had no choice but to accede to the demand of the said Ho and I then told the 1^st Defendant that he might tell the said Ho that I would become an additional guarantor.  As a result, the 1^st Defendant spoke to the said Ho over the phone that I had agreed to be the additional guarantor.  I was told by the 1^st Defendant that it was only upon hearing from the 1^st Defendant that I would act as the additional guarantor that the said Ho agreed not to immediately press for winding up of the said company, to proceed for bankruptcy of the 1^st and 2^nd Defendants and to recover possession of and to sell the said flat.

14.    But for the threats of the said Ho and the undue influence of the 1^st Defendant, I would not have agreed to act as the additional guarantor.”

Then he went on to describe how he came to sign the guarantee:

“16.   A few days later, the said Ho caused a messenger to bring a standard form of documents to the said company for my signature.

17. The said standard form document was left behind by the messenger of the said Ho as at that time, I was not in the said company but working outside at the office of its customers.

18. When I returned, I was shown by the 1^st Defendant a printed document which had some type written letters thereon.  I was asked by the 1^st defendant to sign the document at a space with a cross mark and the name ‘Danny’ thereon written in pencil which I did.  ‘Danny’ is my English name.  The 1^st Defendant told me that once I have signed this documents, the Plaintiff would not seek to wind up the said company, to proceed for bankruptcy of the 1^st and 2^nd Defendants or to ask for repossession and sale of the said flat.

19. When I signed the said printed document, I did not know that it was a guarantee document nor did I know its contents although that was a document that, upon my execution, the Plaintiff would refrain from taking action against the said company, against the 1^st and 2^nd Defendants and to take possession of the said flat.  After signing this document, a copy of the document that I had signed was made and the signed document was then delivered by the 1^st Defendant to the said Ho.”

84.  In his 2^nd witness statement he stressed that he signed the guarantee without benefit of having the contents explained by any officer of CSB.  Before it was sent back to the bank a copy of it was taken for the company’s file.  Produced in the bundle was that copy showing his signature but not that of any witness.  He did not receive a copy of the document produced by the CSB which showed that a bank officer had entered his name as witness.

85.  Then he was cross-examined by Mr Man.  He confirmed that prior to signing the guarantee he had no communication with Mr Ho.  Whatever it was that Mr Ho was said to have stated came second hand from his father.

86.  Taken to the time and date and place when he signed the guarantee, it was put to him that he did so at the offices of CSB after its contents had been explained by Mr Lee and Mr Lee then witnessed his signature.  He disagreed.  It was put to him that he was given a copy before Mr Lee had entered his own name was witness.  He disagreed.

87.  Finally, I come to the evidence adduced by Mr Lee through his affirmation.  He deposed as to the signing by Danny of the guarantee in this way:

“6. It was the guideline of the Plaintiff that whenever an officer of the Plaintiff handling loan application is required to attend execution of guarantee document, he/she would explain to the guarantor in his/her native language the nature of the guarantee document and advise the guarantor to seek independent legal advice thereof should he/she deem necessary prior to this/her execution whereof.

7.    Therefore, during the course of my attending the 3^rd Defendant, I had, as my usual practice by following the guideline of the Plaintiff and being aware of the relationship between the 1^st and 3^rd Defendant as father and son, explained to the 3^rd Defendant in Cantonese the nature of the guarantee document.  I specifically referred the 3^rd Defendant to the extent of liability under the guarantee which was in the sum of HK$22,340,000.  I explained to the 3^rd Defendant that he would be liable to pay for the principal sum of HK$22,340,000 together with interest thereon should the Borrower fail to repay the same.  I further advised the 3^rd Defendant to seek independent legal advice thereof should he consider it necessary prior to his execution of the guarantee.

8.    I recalled that at the material time, after confirming with the 3^rd Defendant that he elected not to seek independent legal advice and being ensured that the 3^rd Defendant understood the nature and contents of the guarantee, I then proceeded to attend the execution of the guarantee by the 3^rd Defendant.

9.    It is denied that the guarantee was delivered to the office of the Borrower for the 3^rd Defendant’s execution.  I emphatically deny that no one from the Plaintiff was present when the guarantee was executed by the 3^rd Defendant.

10.    To the best of my recollection, the copy guarantee exhibited as ‘PYH-4’ should be a copy provided by me to the 3^rd Defendant after his execution of the guarantee.  At the time when I made the copy, I had not yet signed on the guarantee document as witness to the execution of the 3^rd Defendant.

11.    I submit that the allegations of the 3^rd Defendant in his affirmation are untrue and incorrect.  I am advised by the Plaintiff’s solicitors and verily believe, in light of the matters deposed hereto, that the defence of the 2^nd and 3^rd Defendants is only a sham defence and there is no defence to this action.  I humbly ask this Honourable Court to make an Order in terms of the Summons filed herein on 4^th November 2000.”

The Issues

88.  In respect of Mr Pau and Madam Lam these are:

(1) Was the 2^nd guarantee in substitution for or in addition to the 1^st guarantee?

(2) Was there proper demand made for payment of the debts due prior to action?

(3) Did CSB breach the agreement of March 2000?  If so, did this entitle Mr Pau to cause Chain Liaison to stop payments?

89.  In respect of Danny Pau these are:

(4) Was the 3rd guarantee invalid by reason of CSB’s duress?

(5) Was the 3^rd guarantee invalid on the grounds of duress and/or undue influence by Mr Pau?

Discussion

90.  There is no question but that the 2^nd guarantee was an additional guarantee.  The factual circumstances at the time, and the additional debt incurred make that immediately apparent.  So does the wording of the 2^nd guarantee.  The only evidence to the contrary comes from Mr Pau’s allegations that Mr Ho told him it was a substitution.  That would have meant that Mr Ho for some unknown reason would have deliberately made a false representation to a customer.  Mr Ho flatly denied that he had.  That, I am satisfied, is where the truth lies.

91.  Demands sent to the three defendants were valid having been sent to their address in terms of the guarantees.  And there does not appear to be a pleading or evidence that demand somehow was not received.

92.  As for the agreement of March 2000; there was no breach by CSB of its terms.  Having been handed possession of the mortgaged properties, (which was no more than its right to pursue had it not been voluntary) its officers were entitled to change the locks.  And there was no dereliction of a duty in the sale of the Eastern Street property, which in the event sold at a price much higher than the one Mr Pau’s purchaser had offered.

93.  There was thus no entitlement for payment of the instalments of $50,000 to cease.  In fact the real reason emerged in the cross-examination of Mr Pau; that there was no more money available, except from the sale proceeds of those of the properties which were not then sold.

94.  None of the defences raised by Mr Pau and Madam Lam succeed.

95.  Turning now to the case against Danny Pau; first I make the general observation that I find it surprising that CSB would be prepared to offer enhanced facilities and defer to sue for past defaults on the strength of a guarantee from someone who had no apparent means to meet the debt of the defaulting principal.  That said, I do not accept that Mr Ho suggested that Mr Pau should ask his son and at the same time exercise his influence over the son to get him to sign.

96.  I make that finding of fact because I prefer Mr Ho’s account to that of Mr Pau, there being no other version to weigh in the balance.

97.  Whatever Mr Pau said to Danny before he signed was not at the instigation of Mr Ho or any other CSB officer, so that if there were threats as both allege, CSB cannot be found to have instigated them. 

98.  Nor can it be said that if Mr Pau did by threats cause Danny to sign the 3^rd guarantee CSB had constructive notice of these.  This was not pleaded, and the late application to amend the defence to this effect failed.

99.  In case the point is later taken I find there was no informality or irregularity in the signing of the 3^rd guarantee by Danny Pau.  Notwithstanding that his evidence was not able to be tested in cross-examination, I am satisfied as to the truth and accuracy of Mr Lee’s account of events as deposed in his affirmation, and reject as an inherent improbability that of Danny Pau, which would have been an extraordinary departure from the rules laid down by CSB as to the execution of bank documents by customers.

100.  For completeness I make this observation: even had Mr Ho told Mr Pau that without the signing by his son of a 3^rd guarantee CSB would act to enforce payment, this does not, at law, normally amount to duress; see Chitty on Contracts 29^th edition at 7.036, and Enonchong’s Duress, Undue Influence and Unconscionable Dealing at 3.014 to 3.031. Nor does it amount to undue influence; see Enonchong 8-019 and 8-020.

101.  The defences put up by Danny Pau fail also.

The Result

102.  There will be judgment in favour of the plaintiff against all three defendants in the sum made up of principal and interest set out in the supplemental witness statement of 10 June 2008 of Mr Ho, with interest running to the date hereof.

103.  Costs, nisi, are to CSB, based on the contract rate which is on an indemnity basis.

(Note-because 29 August 2008 is my last date in office, there will be abridgement of time for the filing of an application to vary the costs order nisi.  That must be done by 4 p.m. on 27 August 2008.  If no steps by then are taken, the costs order will become absolute.)