LOW CHUNG SONG AND ANOTHER v. THE KA WAH BANK LTD

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. This is an appeal by the plaintiffs against a decision of Master Beeson given on the 30th November 1989 when she refused their application for summary judgment under order 14 of the Rules of the Supreme Court.

2. The Ka Wah Bank Limited ("the defendant") and its subsidiaries, after experiencing massive financial difficulties were eventually taken over by the China International Trust and Investment Corporation ("Citic") in. 1986 following a rescue operation taken by the Hong Kong Government.

3. C.S. Low (1st plaintiff) was the managing director and in effective control of the defendant from 1975 until his resignation on about the 23rd June 1986. C.S. Low Investment Limited (2nd plaintiff) described as the alter ego of the 1st plaintiff, held a controlling interest in the defendant until 1986.

4. On the 22nd May 1980, the 1st plaintiff entered into a Deed of Indemnity with the defendant whereby he agreed to indemnify the defendant against losses arising from overdue accounts, amounting to over $65 million, not having been paid on or before the 31st December 1984 to a maximum extent of $44 million. By way of security, the 1st plaintiff paid the sum of $24 million to the defendant to be placed on fixed deposit with the Overseas Trust Bank in the name of Tubela Investments Limited (Tubela) as trustee. The defendant also acknowledged by the deed that the sum of $20 million had already been lodged by the 2nd plaintiff as a form of partial security for the repayment of overdue accounts by virtue of letters written by the 2nd plaintiff to the defendant dated the 12th May 1978 and the 27th March 1979. These letters refer to sums of $11 million and $9 million placed upon fixed deposit by the 2nd plaintiff with the defendant which were not to be withdrawn on maturity until the matter of bad and doubtful accounts referred to in a trust deed dated the 24th may 1975 executed by the 2nd plaintiff in favour of the defendant had been resolved. These deposits were renewed from time to time until the 31st December 1984 when the 2nd plaintiff claims that the sums were repayable with interest.

5. On the 11th September 1982, a second Deed of Indemnity was entered into between the 1st plaintiff, the defendant and Tubela whereby Tubela was released as trustee thus enabling the deposit of $24 million together with interest accrued to be placed on fixed deposit with the defendant. The defendant acknowledged receipt of $28,225,015.89 as the amount deposited with interest by Tubela which was evidenced by a deposit certificate that is described as "non-interest bearing". No interest understandably accrued thereafter as the defendant would be paying its own monies for this purpose.

6. By the deed, the 1st plaintiff has the right to renew the fixed deposit from time to time provided that the deposit should not be uplifted until the 31st December 1984 or until the overdue accounts have been paid in full, whichever event happens earlier. In the event that the overdue accounts have not been paid in full on or before that date, the defendant has the right forthwith to uplift the deposit and to apply the whole or part of the amount towards payment of the balance of the overdue accounts. To the extent that any part of the total sum due under the overdue accounts is repaid to the defendant by any debtor before the 31st December 1984, the defendant agreed to release upon maturity of the deposit a sum equivalent to those amounts and to place the balance on further deposit.

7. By the statement of claim, the 1st plaintiff claims repayment of the sum of $24 million with interest on the grounds that as all overdue accounts were not repaid in full on or before the 31st December 1984, the defendant did not uplift the deposit with the result that the 1st plaintiff is entitled to payment of this sum with interest from the 4th June 1982, the date of the deposit certificate. However, the deed provides that the defendant is entitled to retain possession of the certificate until the 1st plaintiff's liabilities under the indemnity are fully discharged. The 2nd plaintiff also claims repayment of the sum of $20 million with interest, on the grounds that the sums had matured and became repayable since the 31st December 1984.

8. The defendant denies that it had not uplifted the deposit on the 31st December 1984 and applied the whole part of the sum towards payment of the then balance of the overdue accounts, but in the alternative maintains that it is entitled to do so while the balance of any overdue account remains outstanding. A further argument advanced by Mr Tang, counsel for the defendant, is that as the 1st plaintiff still controlled the defendant on the 31st December 1984, his failure to ensure that the deposit at the time was uplifted to repay the outstanding balance amounted to a breach of fiduciary duty rendering him liable for damages. The defendant also contends that by a letter of the 23rd June 1986 to the Board of Directors of the defendant, the 1st plaintiff expressly agreed that he had no claim for compensation for loss of office or otherwise howsoever, so that in these circumstances, he is estopped from asserting the alleged indebtedness by the defendant. Mr Tang also raised an argument that any claim to interest is time barred for any cause of action arose in 1982 whilst the present proceedings were not instituted until the 26th July 1989. These issues would appear to be arguable.

9. Although the 2nd plaintiff was not a party to either deed, the 1st plaintiff is authorised to represent the interests of the 2nd plaintiff. The second deed does not specifically refer to the $20 million, but the certificate of time deposit refers, on its face, to the deed made between the 1st plaintiff, the defendant and Tubela as trustee. Quite clearly, both amounts are subject to the provisions of the second deed for the purpose of paying overdue accounts.

10. Mr Mitchell, counsel for the plaintiffs argued that the 2nd plaintiff was entitled to withdraw the $20 million with interest accrued from the outset at any time for the monies did of amount to a security, but could be-compared to a letter of comfort. However, I am satisfied that Mr Tang was right when he said that the 2nd plaintiff's liability for partial security relates to its liability for part of the total debts outstanding. Mr Mitchell, mounted a separate argument that the 2nd plaintiff is in any event entitled to interest in the absence of any reference to interest forming part of the security that was agreed. However, I consider that this is a specious proposition having regard to the circumstances of this case. The 1st plaintiff claims interest from the 11th September 1982, but as I have said, Mr Tang submits that this claim if justified, which is most improbable, is statute barred.

11. However, the nub of Mr Mitchell's submission relates to his interpretation of clause 3(d) of the second deed which provides :-

"(d) In the event that the Overdue Accounts have not been paid in full on or before 31st December 1984 the Bank shall have the right forthwith to uplift the then current deposit and apply the whole or part of the said sum (as the circumstances require) towards payment of the then balance of the Overdue Accounts;"

He contends that if the defendant did not forthwith uplift the deposits within a reasonable time after the 31st December 1984 for payment of the overdue accounts, the plaintiffs are entitled to repayment of the deposits. I do not agree with Mr Mitchell's analysis which would produce an absurd result. It is clear, in my judgment, upon a proper construction of the clause that the defendant is entitled to uplift the deposits at any time and is under no duty to do so within a reasonable time after the 31st December 1984.

12. There are undoubtedly several issues to be tried in this action and strong defences that can be put forward. The application for summary judgment under Order 14 was quite without merit.

13. The appeal is therefore dismissed and there will be an order nisi for costs to the defendant with a certificate for two counsel.