SHANGHAI COMMERCIAL BANK LTD v. SUNBO (H. K.) LTD AND OTHERS

DCCJ 4347/2015

[2018] HKDC 1288

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4347 OF 2015

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JUDGMENT

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INTRODUCTION

1.  In these proceedings, the plaintiff (“the Bank”) seeks to enforce 3 guarantees against the 2^nd defendant (“Cheung”) and the 3^rd defendant (“Chan”).  The guarantees in issue (“the Guarantees”) are as follows:-

(1)   the guarantee executed by Cheung and Chan in favour of the Bank on 22 April 2008;

(2)   the guarantee executed by Cheung and Chan in favour of the Bank on 10 November 2008; and

(3)   the guarantee executed by Cheung and Chan in favour of the Bank on 8 April 2009.

2.  The 1^st defendant (“the Company”) was and is a customer of the Bank.  Since 2004, the Bank has been providing trade financing facilities to the Company.

3.  The Bank has continued to grant various facilities to the Company under its facility letter dated 24 April 2012 (“the 2012 Facilities”), subject to the terms and conditions of the said facility letter.  The facilities are as follows:-

(1)   Overdraft facilities and invoicing loan for not exceeding HK$500,000.00;

(2)   Packing loans not exceeding HK$750,000.00;

(3)   Outwards bills negotiation facilities not exceeding HK$1,500,000.00; and

(4)   Corporate Credit Card(s) having a revolving credit limit of HK$60,000.00

4.  Cheung and Chan are husband and wife.  At all material times, they were both the shareholders and the directors of the Company.  Cheung held 1% of the issued shares of the Company, and Chan held the remaining 99%.

5.  The Company defaulted in repaying the indebtedness owed to the Bank.  The Bank has sued the Company in these proceedings for repayment.  On 19 August 2016, the Bank obtained judgment against the Company.  On 14 December 2016, the Bank managed to obtain a winding-up order against the Company in the Court of First Instance.

6.  Subject to an exception which will be discussed later in this judgment, Cheung and Chan do not dispute the amounts owed by the Company to the Bank. Cheung and Chan also do not dispute that the Bank’s solicitors have sent demand letters dated 19 August 2015 and 26 August 2015 respectively to demand them to repay the said indebtedness to the Bank.

7.  Cheung and Chan do not dispute that they have signed the Guarantees. However, they dispute the enforceability of the same.

THE BANK’s CASE

8.  The Bank’s case is simple and straightforward.  The Bank says that by executing the Guarantees, Cheung and Chan have offered their undertakings to the Bank that they would upon demand jointly and severally repay the indebtedness owed by the Company to the Bank under the facilities provided by the Bank to the Company.  The Bank is calling upon Cheung and Chan to honour their undertakings in the Guarantees.  It is the Bank’s case that the Guarantees are certainly enforceable against Cheung and Chan.

9.  The Bank’s assistant relationship manager of the Tsimshatsui East Branch, Mr Lam Kwok Wai (“Lam”), has given evidence in support of the Bank’s case.

CHEUNG AND CHAN’s CASE

10.  The key in Cheung and Chan’s case has been pleaded in paragraph 7(b) of their defence, which is as follows:-

“(b) However, [Cheung] and [Chan] never intended to execute the said documents as guarantees. They were induced to sign the said guarantees in reliance upon the misrepresentation and undue influence of [the Bank]:-

Particulars of Misrepresentation & Undue Influence

(i) In or about April 2008, November 2009 and April 2009, Mr Joey Lam of [the Bank] came to the office of the 1^st defendant and asked [Cheung] and [Chan] to sign various documents (“the said Signed Documents”). The Guarantees were believed to be among the said Documents.

(ii) [The Bank] did not provide any draft copy of the said Signed Documents to the defendants for advance information and comment.

(iii) [The Bank] deliberately prevented the defendants to read the said Signed Documents carefully and asked them to sign in the spaces indicated with “sign here” stickers in hasty manner in the said Signed Documents.

(iv) Mr Joey Lam warranted and represented to [Cheung] and [Chan] that they were required to sign on the said Signed Documents in discharge of their function as directors; and that the said Signed Documents did not include any documents which would give rise to personal liabilities on their parts and/or encumber the title of their real properties.

(v) Mr Joey Lam warranted and represented to the defendants that since the revolving loan facilities were secured by the SME Loan Guarantee Scheme and that [Cheung] and [Chan] would be liable for no more than the agreed amounts of the cash deposits of [Chan] charged to [the Bank] for the 2008 – 2009 Facilities.

(vi) [The Bank] and Mr Joey Lam have provided banking services to the defendants since or about 2004. The defendants reposed trust and confidence in Mr Joey Lam and [the Bank]. [Cheung] and [Chan] were asked to sign on various documents from time to time for the purposes of formality.

(vii) There were occasions where Mr Joey Lam executed transactions for [Chan] to benefit [the Bank] without her consent. For instance, since or about May 2015, Mr Joey Lam processed a time deposit rollover for [Chan] without her consent.

(viii) [The Bank] is well aware of the fact that [Cheung] was a mere trustee of the shares of the 1^st defendant. He did not take part in the operation and management of the 1^st defendant and he did not receive any benefit from the transaction personally. However, [the Bank] failed to advise [Cheung] to seek independent advice.

(ix) It was always the intention of [Cheung] and [Chan] that they would not be hold personally liable for the debt of the 1^st defendant so that the family home situated in Tin Hau would not be adversely affected by the ups-and-downs of the business of the 1^st defendant.  Their intention was expressly made known to Mr Joey Lam in the outset and all along.  It was against this background that [Chan] agreed to have her time deposit charged to [the Bank].”

11.  Accordingly, Cheung and Chan has put forward the following as defences to the Bank’s claim:-

(1)   Misrepresentation

(2)   Undue influence

(3)   Non est factum

(4)   Non-continuing nature of the Guarantees

(5)   Liabilities under the Guarantee were discharged when the 2008-2009 facilities were rescinded in April 2012

12.  Cheung and Chan counterclaims that they are entitled to rescind the Guarantees.

13.  Cheung and Chan have given evidence to support their case.

THE PRINCIPLES

14.  Cheung and Chan argues that they are entitled to disavow the responsibilities created by the Guarantees notwithstanding the fact that they have signed the same.  In these circumstances, it would be necessary to bear in mind the reminder given by the Court of Final Appeal in Ming Shiu Chung & Others v Ming Shiu Sum & Others[1]. In that case, Ribeiro PJ said:-

“84. …… Reliance is universally placed on signatures appended to documents by persons of full age and understanding as signifying the signatory's assent or adherence to what that document states. Where such a person has signed a document which purports to have legal effect, the law has never regarded it as enough to show that he signed without knowing its contents for the document to be disavowed. It is an everyday occurrence that people sign documents without reading the small (or even the large) print and therefore sign without actually knowing the terms (or all the terms) of the document signed. But they are held to the documents which they have chosen to sign unless there is shown to be a recognized legal basis for concluding that their apparent consent has been in some way vitiated or that reliance on that document by some other person falls into some category of unconscionable conduct justifying relief in equity.

85. Thus, in Saunders v Anglia Building Society [1971] AC 1004 at 1016, Lord Reid warned against an approach, like that of the Court of Appeal, which inverts the general rule:

We find in many of the authorities statements that a man's deed is not his deed if his mind does not go with his pen. But that is far too wide. It would cover cases where the man had taken no precautions at all, and there was no ground for his belief that he was signing something different from that which in fact he signed. I think that it is the wrong approach to start from that wide statement and then whittle it down by excluding cases where the remedy will not be granted. It is for the person who seeks the remedy to show that he should have it.

86. And in Bank of China (Hong Kong) Ltd v Fung Chin Kan & Another (2002) 5 HKCFAR 515 at p 533, Litton NPJ acknowledged:

… the fundamental principle that, generally speaking, when a person signs a legal document, he or she is bound by the act of signature: As a matter of general law, it is no defence to say that he or she did not understand the contents of a legal document; that person takes the chance of being bound by its terms, as he or she can take the simple precaution of not signing until its contents have been fully explained and understood.

87.  The vitiating factors at common law include fraud, mistake, misrepresentation, non est factum, duress, undue influence and lack of mental capacity: see, for instance, Blay v Pollard & Another [1930] 1 KB 628; and Gillman v Gillman (1946) 174 LT 272. To disown a signed legal document, facts constituting the particular vitiating factor relied on must be pleaded and established by the evidence.  ……”

15.  The burden is on Cheung and Chan.  They have to establish a “vitiating factor” recognized by law by cogent evidence.  Otherwise, they cannot succeed.

16.  One of the defences put forward by Cheung and Chan is undue influence. The law concerning undue influence is well established.

(1)   In Swiss Finance Mortgage Services Ltd v Wong Kam Fan and Another[2], B Chu J summarized the law and said:

“28….[A]s seen in Royal Bank of Scotland v Etridge (No 2) [2001] UKHL 44; [2002] 2 AC 773 and Li Sau Ying and Bank of China (Hong Kong ) Ltd [2004] HKCFA 80; (2004) 7 HKCFAR 579, there are two major classes for undue inference. Class 1 is actual undue influence and Class 2 consists of cases of presumed undue influence and is sub-divided into Class 2(A) of a relationship where a presumption arises as a matter of law and Class 2(B) when there is no such relationship.”

(2)   In Bank of China (Hong Kong) Ltd v Chan Fook Wing and Another[3], To J said:

“28. The legal principles applicable to the defence of undue influence are well settled and are not in dispute. They are admirably summarised by Recorder Ma SC, as he then was, in Bank of China (Hong Kong) Ltd v Wong King Sing as follows:

“…the defence of undue influence is ultimately a simple concept. It has all to do with informed consent. Once a court forms the view that consent was freely given with full knowledge of the consequences of entering into the relevant transaction, that is the end of the matter, however improvident the transaction may objectively appear. The rationale for the defence of undue influence is to prevent the victimisation of the complainant. It is there to protect people from being forced, tricked or misled in any way by others into entering into a disadvantageous transaction: see Allcard v Skinner (1887) 36 Ch D 145, at 182-183; National Westminster Bank Plc v Morgan [1985] UKHL 2; [1985] AC 686, at p 705. As Lord Nicholls of Birkenhead said in Royal Bank of Scotland v Etridge (No 2) [2001] UKHL 44; [2001] 3 WLR 1021 at p 1029 para 8, the unacceptable conduct lies in “a relationship between two persons where one has acquired over another a measure of influence, or ascendancy, of which the ascendant person then takes unfair advantage.”

29. As was held by the Court of Final Appeal in Li Sau Ying v Bank of China (Hong Kong) Ltd, the question to ask is whether the evidence justifies the inference, on a balance of probabilities, that the impugned transaction was procured by undue influence, that is to say, by an abuse by the alleged dominant party of the trust and confidence reposed in him by the alleged subservient party. The Court of Final Appeal also noted that the current trend is to move away from presumptions arising from any particular relationship, as such an approach is likely to detract from the real issue. However, the existence of such relationship is helpful in enabling the inference to be drawn. The question is one of informed consent. Undue influence may be actual or presumed (or “inferred” in the light of the Court of Final Appeal’s observation in Li Sau Ying v Bank of China (Hong Kong) Ltd).

30. In case of actual undue influence, the subservient party has to prove affirmatively that the dominant party exerted influence on him which caused him to enter into the particular transaction impugned. He has to prove that the alleged dominant party has the capacity to influence the subservient party; the influence was in fact exerted; the exercise of influence was undue; and the exercise resulted in the transaction complained of, although it need not be the only reason as long as it was a significant reason.

31. Absence evidence of actual undue influence, the subservient party may rely on inferred undue influence. In such a case, the subservient party has to show there was a relationship of trust and confidence between him and the dominant party of such a nature that it is fair to infer that the dominant party abused that relationship in procuring the subservient party to enter into the impugned transaction. In the case of certain special relationships, such as solicitor and client, or doctor and patient, the law irrebuttably presumes a relationship of trust and confidence between the dominant party and the subservient party. Where no such special relationship exists, the subservient party has to prove the de facto existence of a relationship under which he generally reposed trust and confidence in the dominant party. Where the existence of such special relationship or de facto existence of a relationship is proven, the burden is shifted to the dominant party to prove that the subservient party entered into the impugned transaction freely, for example by showing that the subservient party had independent advice. The ultimate question is whether the evidence justifies the inference that, on a balance of probabilities, the impugned transaction was procured by an abuse by the alleged dominant party of the trust and confidence reposed in him by the alleged subservient party.”

(3)   In relation to Class 2 “presumed undue influence”, the House of Lords in Barclays Bank v Etridge (No 2)[4] said:

“Sir Guenter Treitel QC has rightly noted that the question is whether one party has reposed sufficient trust and confidence in the other, rather than whether the relationship between the parties belongs to a particular type: see Treitel, The Law of Contract, 10^th ed (1999), pp 380-381. For example, the relation of banker and customer will not normally meet this criterion, but exceptionally it may: see National Westminster Bank plc v Morgan [1985] AC 686, 707-709.” (Emphasis added)

(4)   Further, the House of Lords went on and said[5]: “In Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923, Slade LJ split the Class 2 cases into two subdivisions.  He categorised, at p 953, the “well established categories of relationships, such as a religious superior and inferior and doctor and patient where the relationship as such will give rise to the presumption” as Class 2A cases, and confirmed that neither a husband/wife relationship nor a banker/customer relationship would normally give rise to the presumption. (See also National Westminster Bank plc v Morgan [1985] AC 686, 703 and Barclays Bank v O'Brien [1994] 1 AC 180, 190)” (Emphasis added)

(5)   Normally, there is no Class 2A “presumed undue influence” as a matter of law (ie by reason of a particular class of relationship) or Class 2B “presumed undue influence” by virtue of “trust and confidence” reposes on the other party between a banker and customer.

17.  On the question of non est factum, it is well established that ignorance of the contents and the effect of a document when signing the same does not constitute non est factum.

(1)   In Kincheng Banking Corporation v Kao Yu Kuei[6], Huggins VP said:

“His ignorance of the precise effect of the document is a very different thing from non est factum: it does not constitute a defence to the action: see Howatson v Webb [1908] 1 Ch 1.”

(2)   In Wing Hang Bank International Limited v Crystal Jet International Limited[7], DHCJ Saunders (as he then was) said:

“40. The law is clear. 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. It is the surety who has the obligation to make all necessary enquiries: see Bank of China (Hong Kong) Ltd v Wong King Sing at 90F….

41. In so far as the argument is one of non est factum the defence must fail. The plea of non est factum is not available to anyone who has signed a document without taking the trouble to find out, at least, the general effect of the document, neither can it be available to a person whose mistake was really a mistake as to the legal effect of the document: Gallie v Lee [1971] AC 1004. In simple terms a person who elects to sign a document without reading it cannot thereafter be heard to complain about the terms of the document and will be taken to have agreed to its terms. To hold otherwise would create commercial mayhem.” (Emphasis added)

18.  In respect of evaluating the evidence given by witnesses, I would adopt the well-known principles set out in Hui Cheung Fai and another v Daiwa Development Limited^[8] and Lee Fu Wing v Yau Po Ting Paul^[9].

THE DOCUMENTARY EVIDENCE

19.  I would first set out the evidence which can be gleaned from the documents.  There is no dispute that all the signatures of Cheung and Chan on these documents are genuine.

20.  On 17 May 2004, Chan signed the following 2 documents in her personal capacity:-

(1)   An “Advice to the guarantor/third party security provider” (“the 2004 Advice”), in which the Bank requested Chan to pay attention to, inter alia, that by giving a guarantee or a third party security, the guarantor/ third party provider shall assume primary liabilities instead of or as well as that of the borrower.  The Bank also requested advised Chan to seek independent legal advice for the purpose of understanding the contents and the effects of the guarantee and third party security.

(2)   A personal guarantee provided by Chan to the Bank, in which Chan undertook to act as the surety of the Company to the extent of HK$600,000.00.

21.  On 23 August 2004, Chan signed a personal guarantee in which she undertook to act as the surety of the Company to the extent of HK$350,000.00.

22.  On or about 15 April 2008, the Bank issued a facility letter to the Company, in which the Bank informed the Company that the Bank would be willing to provide revolving trading finance facilities as per the terms set out in the letter to the Company (“the April 2008 Facilities”).  One of the conditions of that offer was that Chan and Cheung should jointly and severally provide a continuing guarantee to the Bank up to the limit of HK$1,500,000.00.  On 22 April 2008, Chan signed this facility letter on behalf of the Company.  Another condition was that Chan should charge her cash deposit of HK$100,000.00 to the Bank.  Chan also assigned this facility letter in her personal capacity as guarantor and chargor.  Cheung signed this facility letter in his personal capacity as guarantor.

23.  On 22 April 2008, Chan also in her personal capacity signed the following documents:-

(1)   deed of charge over securities;

(2)   general letter of hypothecation;

(3)   securities finance agreement;

(4)   confirmation of fixed deposit;

(5)   deed of guarantee[10];

(6)   an advice from the Bank to guarantor/third party security provider (“the April 2008 Advice”), the contents of which are same as the contents of the 2004 Advice.

24.  Cheung also signed the April 2008 Advice in his personal capacity on 22 April 2008.

25.  On 23 April 2008, Chan signed in personal capacity a deed of charge on account(s) and set-off.

26.  On or about 24 October 2008, the Bank issued a facility letter to the Company, in which the Bank referred to the facility letter dated 15 April 2008 and offered revised facilities to the Company (“the October 2008 Facilities”). In gist, the Bank had increased the facilities provided to the Company in this letter.  The offer of these revised facilities was subject to the terms set out in the letter, including:-

(1)   the existing guarantee provided by Chan and Cheung up to the limit of HK$1,500,000.00 should continue;

(2)   there should be another continuing guarantee given by Chan and Cheung in which they undertook that they would jointly and severally guarantee all amounts payable by the Company to the Bank up to the limit of HK$750,000.00; and

(3)   Chan should charge her cash deposit of not less than HK$150,000.00 to the Bank.

27.  On 10 November 2008, Chan and Cheung signed the following documents in their respective personal capacities:-

(1)   deed of guarantee[11];

(2)   an advice from the Bank to guarantor/third party security provider (“the November 2008 Advice”), the contents of which are same as the contents of the 2004 Advice.

28.  On or about 18 March 2009, the Bank issued a letter to the Company, in which the Bank informed the Company that the facilities offered to the Company in October 2008 would need to be amended.  The Bank required an additional security by Chan charging a cash deposit of not less than HK$100,000.00 to the Bank.  On 8 April 2009, Chan on behalf of the Company signed on this letter, signifying the Company’s acceptance of this amendment.  Chan also signed on the letter in her personal capacity as chargor and guarantor, and Cheung signed on the letter as guarantor, indicating their agreement to this amendment.

29.  On 19 March 2009, the Bank issues a facility letter to the Company, in which the Bank informed the Company that the Bank was prepared to offer facilities to the Company under the Special Loan Guarantee (“SLG”) Scheme run by the Government of the HKSAR (“the 2009 Facilities”).  A condition of this offer was that Chan and Cheung should offer their personal guarantee up to the limit of HK$500,000.00.

30.  On 8 April 2009, Chan and Cheung executed the following documents:-

(1)   general letter of pledge signed by Chan;

(2)   deed of guarantee signed by Chan and Cheung[12];

(3)   an advice from the Bank to guarantor/third party security provider (“the April 2009 Advice”) signed by Chan and Cheung, the contents of which are same as the contents of the 2004 Advice;

(4)   an application for SLG signed by Chan on behalf of the Company.

31.  On or about 20 April 2009, the Government informed the Bank in writing that the Company’s application for the SLG was approved in principle.  That guarantee offered by the Government was up to the limit of HK$350,000.00 and was valid from 15 April 2009 to 14 April 2012.

32.  On or about 23 April 2012, the Bank wrote to the Company and informed the Company that the facilities provided to the Company under the SLG Scheme were rescinded on 20 April 2012.

33.  On or about 24 April 2012, the Bank issued a facility letter to the Company, in which the Bank referred to the facility letter dated 18 March 2009 and 24 October 2008 and offered revised facilities to the Company (“the 2012 Facilities”).  The offer was subject to the terms set out in the letter, including the continuing the 3 Guarantees previously given by Chan and Cheung. On 25 April 2012, Chan signed on this letter on behalf of the Company, indicating the Company’s agreement to the offer stated therein.  Chan also signed this letter in her personal capacity as chargor and guarantor, and Cheung signed this letter in his personal capacity as guarantor, signifying their consent to the terms set out in the letter.

THE WITNESSES

Lam

34.  In his evidence, Lam mentioned that in respect of the April 2008 Facilities, the October 2008 Facilities, the 2009 Facilities, and the 2012 Facilities, the facility letters were provided to the Company, Cheung and Chan first and they had time to read the same.

35.  On each occasion, the facility letters and the relating documents were signed by Cheung and Chan in the Company’s office.  Lam had explained the main terms of the documents, including the terms of the guarantee in question, before Cheung and Chan signing the same.  Lam had also reminded Cheung and Chan to seek independent legal advice before the execution of the documents.

36.  Lam denied that he had ever been told that Cheung was a mere trustee holding the shares of the Company on trust for Chan.  Lam also said that he had never been told that Cheung was only a nominal shareholder and a nominal director of the Company.

Chan

37.  Chan said that in or around April 2008, Lam contacted her by phone and tried to persuade her to apply for a small and medium enterprises (“SME”) business loan package.  Chan firmly told Lam that she and her husband would not be willing to assume any personal liability for any indebtedness owed by the Company to the Bank.  Lam told Chan that the SME loan was guaranteed by the Government.  All that Chan would need to do was to charge some fixed deposits to the Bank, and Chan and Cheung’s personal liability would no more than the amount of the fixed deposits.

38.  The documents relating to the April 2008 Facilities were signed by Chan and Cheung in the Company’s office.  In this meeting, Lam assured Chan and Cheung that the documents presented by him to Chan and Cheung would not give rise to any personal liability.  Lam further told Chan and Cheung that the Bank did not require them to execute any personal guarantee.  There were many “sign here” stickers on the documents, and Lam flipped through the documents without any detail explanation as to the contents and the nature of the documents.  Lam did not give them reasonable time to read the documents.  Relying on the trust and confidence reposed on Lam, Chan and Cheung signed the documents.  They were under the impression that they were signing the documents as the directors of the Company. 

39.  In or about 2008, Chan asked Lam whether it would be possible to enlarge the facilities enjoyed by the Company.  Chan reiterated that she and her husband would not assume any personal liability in respect of the debts owed by the Company to the Bank.  A few days later, Lam replied and told Chan that the Bank could provide more facilities to the Company on the condition that Chan would provide a further fixed deposit of HK$50,000.00 to the Bank.

40.  On or about 11 November 2008, Lam brought the document to the Company’s office and had a meeting with Chan and Cheung there.  In the meeting, Lam told Chan and Cheung that the Bank did not require them to execute any personal guarantee, and all the documents presented to them would not give rise to any personal liability.  Like the meeting in April 2008, there were many “sign here” stickers on the documents.  Lam did not explain the documents in detail, and did not give reasonable time to Chan and Cheung to read the documents.  Chan and Cheung trusted Lam, and they signed the documents under the impression that they were signing the same on behalf of the Company.

41.  In March 2009, Lam contacted Chan and promoted revolving facilities under the Government SME loan guarantee scheme.  Chan again told Lam that she and her husband would not agree to assume any personal liability in respect of the indebtedness owed by the Company to the Bank.  Lam told Chan that since the Government would provide a guarantee, Chan and Cheung would not be required to execute any personal guarantee.

42.  On or about 8 April 2009, there was a meeting in the Company’s office. In that meeting, Lam told Chan and Cheung that they would only be liable to the Bank for no more than their fixed deposit charged to the Bank, the total of which was HK$250,000.00.  Lam assured that Chan and Cheung would not assume any personal liability.  In these circumstances, Chan and Cheung signed the documents presented to them by Lam.  They were under the impression that they were just signing the documents in respect of the acceptance of the 2009 Facilities by the Company.  There were many “sign here” stickers on the documents.  Lam did not give them reasonable time to read the documents and did not explain the documents to them in detail.  They trusted Lam and therefore signed the documents.

43.  In or about mid-April 2012, Lam told Chan that all the previous facilities granted to the Company were rescinded, but the Bank was prepared to grant the Company some new facilities.  Chan again told Lam that she and her husband were not willing to have any personal liability in respect of the indebtedness owed by the Company to the Bank.  Lam only required Chan to charge a further fixed deposit of HK$100,000.00 to the Bank and to purchase a life insurance policy and assign the interest of the beneficiary thereunder to the Bank.

44.  On 25 April 2012, Chan and Cheung met Lam in the Company’s office.  In that meeting, Lam told them that the new facilities would still be covered by the guarantee provided by the Government, and Chan and Cheung would have no need to provide any personal guarantee.  Chan and Cheung’s liability would be no more than the fixed deposits charged to the Bank, the total of which at that time was HK$350,000.00.  All the documents relating to the 2012 Facilities would not lead to any personal liability on Chan and Cheung.  Chan and Cheung therefore signed the documents presented to them by Lam.  They signed under the impression that they were signing the same on behalf of the Company.  Lam did not give them reasonable time to read the documents and did not explain the documents to them in detail.  There were many “sign here” stickers on the documents.  They signed the documents because they trusted Lam.

Cheung

45.  In his witness statement, Cheung said that he was a nominal shareholder and a nominal director in the Company.  Chan was the one in control of the Company.  He was merely holding 1% of the shares of the Company on trust for Chan.  Cheung said that he had told Lam all these when he first met Lam in 2004.

LIABILITY

Evaluation of the evidence

46.  Chan is a businesswoman doing business for over a decade.  She understands some English.

47.  In my judgment, Chan is not an honest and reliable witness.  She changed her position from time to time when she was giving evidence.  Further, her evidence is contradicted by documents on various material aspects.  I am unable to accept her evidence.

(1)   Under cross-examination, Chan said that every time when she was on behalf of the Company accepting some facilities offered by the Bank, she would pay attention to the essential terms, which included the maximum indebtedness created under the facilities, the interest, and what securities would be given to the Bank.  That being the case, Chan must realize that in each and every facility letter, there is a term requiring a continuing guarantee from Chan and Cheung as a security.

(2)   Chan signed each and every facility letter in her personal capacity as “Chargor and Guarantor”.  This description is printed just below her signature on every facility letter, and there is no way that those words would escape Chan’s attention.  Under cross-examination, Chan was asked to explain her understanding of those words.  She said that she thought that both “chargor” and “guarantor” was referring to the fact that she would charge some fixed deposits to the Bank.  This defies common sense, particularly the description under Cheung’s signature is only “Guarantor”.  In my judgment, when Chan signed each facility letter, she actually knew that one of the securities to be given to the Bank was a personal guarantee from her.

(3)   Chan has produced a copy of the facility letter dated 15 April 2008 and a copy of facility letter dated 19 March 2009.  These copies have been signed by the Bank and have not been signed by the Company, by Chan and by Cheung. Chan said that these copies were given to her by Lam upon her request after execution of the facility letters.  This is inherently improbable.  If Chan’s evidence is true, the copies given to Chan should be copies of the facility letter signed by the Company, by Chan and by Cheung.  It would be meaningless for the Company, Chan and Cheung to keep unsigned copies of the facility letters after execution of the same.  In my view, Chan’s possession of these unsigned copies is evidence in support of the Bank’s case that the facility letters were provided to the Company, Chan and Cheung first, and they had several days to read the documents before execution.

(4)   At one stage of the cross-examination, Chan said that she signed the documents after the same had been explained to her. Chan was then asked whether this meant whenever a document was signed by her, the said document had been explained to her. Chan then changed her position and said that nobody had explained to her any document that had been signed by her.

(5)   Under cross-examination, Chan was asked in the meeting held on or about 22 April 2008, whether Lam really told her that the Bank did not require Chan and Cheung to sign any personal guarantee.   After think for nearly 10 minutes, Chan said that she could not be sure.  However, after a few minutes and when being cross-examined on another area, Chan claimed that she was able to recall the matter and confirmed that Lam did tell her in the meeting that the Bank did not require any personal guarantee from Chan and Cheung.

(6)   Chan claimed that the Company would not agree to have facilities from the Bank if any personal guarantee was required, for the Company had many other choices from other banks at the material times.  However, Chan has not produced any evidence to show those other choices.

(7)   In the application form for the “Special Loan Guarantee Scheme” provided by the Government signed by Chan on behalf of the Company on 8 April 2009[13], both Chan and Cheung signed Part B of the form in their respective personal capacities.  Part B of the form is “Statement by Guarantors”, in which Chan and Cheung confirmed that they had been advised to take independent legal advice in relation to the guarantee to be given.  When being asked on this, Chan said that she did not notice this part and just signed.  In my view, the heading of this Part B is conspicuous and in large print.  Being a businesswoman, it would be inherently improbable that Chan would not see the heading of this Part B when she put her signature on the same page.

(8)   In each Guarantee, just above Chan’s signature and Cheung’s signature, there is a line saying “This Guarantee has been executed by or on behalf of the Guarantor under seal ……”  It is inherently improbable that Chan would overlook this line when she was signing the Guarantee.

48.  Cheung was the head of risk control of Bayerrische Landesbank Hong Kong Branch until its closure in 2010.  He has a MBA degree and is competent in English.

49.  Under cross-examination, Cheung admitted that he was not a nominal shareholder and he was not a nominal director of the Company.  He said he was entitled to vote as a shareholder and a director of the Company.  He resigned from the directorship on his own accord.  He admitted that it would not be correct to say that he was holding 1% of the shares of the Company on trust for Chan.  Cheung also said that he signed the facility letters and the Guarantees because he saw Chan’s signature on those documents.  That is an admission that Cheung signed all these documents not because of anything said or done by Lam. I attach weight to these admissions.

50.  Cheung said that he agreed with Chan on what Chan had said in her witness statement.  For the reasons set out in paragraph 47 above, I do not regard this part of Cheung’s evidence as truthful and reliable.

51.  In my view, save and except the admissions made by Cheung as set out in paragraph 49 above, Cheung is not a credible and reliable witness.

52.  Lam’s evidence is cogent and straightforward.  His evidence is in line with the documents.  I accept his evidence.

53.  Based upon the evidence accepted by this court, the Bank has never made any misrepresentation to Chan and Cheung inducing them to sign the Guarantees. There is also no undue influence, actual or presumed, exerted by the Bank on Chan and Cheung.

54.  The Bank has given time to Chan and Cheung to read the documents relating to the facilities, including the Guarantees.  That being the case, the defence of non est factum is not open to Chan and Cheung.  The defence has no application at all if a person chooses to sign a document without reading the same.

55.  Each of the Guarantees begins with the following passage:-

“To: [the Bank]

In consideration of your making or continuing from time to time to make advances or otherwise giving credit or accommodation or affording banking facilities as from time to time you in your discretion may think fit by way of loans discounts overdrafts advances letters of credit authorities to purchase bills of exchange and/or in other ways (including inter alia the issue of guarantees by you and your acceptance of guarantees by the Debtor as hereinafter defined in favour of third parties) and/or forbearance to sue and/or for other considerations to [the Company] (hereinafter called “the Debtor”) I/we the undersigned jointly and severally hereby agree and undertake to you as follows ……”

56.  Further, clause 3 of each Guarantee is as follows:-

“3. This Guarantee shall be a continuing guarantee and shall extend to cover any sum or sums which now or shall for the time being constitute the balance due to you from [the Company] …… and shall be binding as a continuing security on me/us ……”

57.  In my judgment, it is plain that each Guarantee is a continuing guarantee, and it is unarguable to say the otherwise.

58.  The letter from the Bank to the Company dated 23 April 2012 only has the effect of rescinding the “revolving facilities” provided to the Company and does not have any effect on the Guarantees.  There is no reference to any of the Guarantees in that letter at all.

59.  I am also of the view that the ambit of the Guarantees is wide enough to cover the indebtedness owed by the Company under the 2012 Facilities.

60.  In my judgment, none of the defences put forward by Cheung and Chan has merit.  I rule that Cheung and Chan is liable to the Bank and shall honour their obligations under the Guarantees.

QUANTUM

61.  The Bank’s pleaded case is that the Company is owing the following sums to the Bank under the 2012 Facilities:

(1)   HK$147,019.58, with interest thereon at 15.25% per annum from 9 September 2015 up to the date of this judgment and at the judgment rate thereafter until full payment;

(2)   US$8,050.00, with interest thereon at 4.75% per annum from 22 August 2015 up to the date of this judgment and at the judgment rate thereafter until full payment;

(3)   US$27,500.00, with interest thereon at 4.75% per annum from 22 August 2015 up to the date of this judgment and at the judgment rate thereafter until full payment;

(4)   US$16,450.00, with interest thereon at 4.75% per annum from 22 August 2015 up to the date of this judgment and at the judgment rate thereafter until full payment.

62.  The Bank’s case is that Cheung and Chan are jointly and severally liable to pay the aforesaid sums and interests to the Bank.

63.  In their defence, Cheung and Chan admit the aforesaid amounts, subject to one exception.  Cheung and Chan say that two sums, ie US15,950.88 and US$4,500.00 paid into the Company’s account by mistakes by third parties were wrongfully withheld by the Bank.

64.  The Bank has produced two remittance advices[14] to show that the two sums in fact have been paid to the Company.  Cheung and Chan do not dispute this.  I hold that the two sums have been remitted to the Company.

65.  Based upon the admission made by Cheung and Chan in their defence, the sums and interests payable by Cheung and Chan to the Bank are those stipulated in paragraph 61 above.

DISPOSITION

66.  I order that Cheung and Chan do jointly and severally pay the sums and the interests set out in paragraph 61 above to the Bank.

67.  I dismiss the counterclaim.

68.  I have heard submissions on costs.  In my view, costs should follow the event.  The Bank has succeeded in establishing its own claim and in defeating the counterclaim.  I order that costs of these proceedings (including all costs reserved, if any) be to the Bank, with a certificate for counsel, to be taxed if not agreed.

69.  I direct that this judgment be interpreted to Cheung and Chan by a court interpreter at a mutually convenient time inside the District Court.

70.  Lastly, it remains for me to thank the parties for the assistance rendered to the court.