STANDARD CHARTERED BANK (HONG KONG) LTD v. PAK KWAN HO

HCA 1269/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1269 OF 2015

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J U D G M E N T

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A. INTRODUCTION

1.  This is the defendant’s appeal against the order of Master J Wong dated 6 June 2016 (the “Order”) granting summary judgment in favour of the plaintiff against the defendant in the sums of HK$14,024,277.57 and US$2,476,883.87 together with interest thereon as provided for in the Order.

2.  The plaintiff’s claim against the defendant is for his liability as a guarantor under three guarantees (collectively, the “Guarantees”) for the payment of debts due to the plaintiff by four principal borrowers (collectively, the “four Principal Borrowers”), namely: —

(1)  Pada Industrial (Far East) Company Limited (“Pada Industrial”);

(2)  Colour Apparel Company Limited (“Colour Apparel”);

(3)  Sinomax International (HK) Limited (“Sinomax”); and

(4)  Target Ease International Limited (“Target Ease”).

3.  The alleged defences and/or grounds of appeal raised by the defendant are: —

(1)   the defendant is only a guarantor, and the plaintiff cannot ask for repayment from the defendant until the plaintiff obtains judgment against the four Principal Borrowers;

(2)   the defendant does not admit the debts and requires the plaintiff to prove the debts with the liquidator; and

(3)   the defendant was not legally represented, and did not know he could not, and was not allowed to, raise defences before Master J Wong.

4.  An appeal from the master to the judge in chambers is dealt with by way of an actual rehearing of the application which led to the order under appeal, and the judge treats the matter as though it came before him for the first time, save that the party appealing, even though the original application was not by him but against him, has the right as well as the obligation to open the appeal.

B.     UNDISPUTED FACTS

5.  The defendant was a director and/or shareholder of the four Principal Borrowers at all material times.

6.  The defendant’s liability to the plaintiff arose out of the Guarantees, all signed by the defendant guaranteeing the payment of liabilities of the four Principal Borrowers.  They are as follows: —

(1)   The 1^st Guarantee, dated 5 December 2008, guaranteeing liabilities of Pada Industrial, Colour Apparel and Sinomax to the plaintiff;

(2)   The 3^rd Guarantee, dated 31 October 2012, guaranteeing liabilities of Target Ease to the plaintiff; and

(3)   The 2^nd Guarantee, dated 25 November 2013, guaranteeing liabilities of Target Ease to the plaintiff.

7.  The defendant admitted to the signing, validity, effectiveness and the terms of the Guarantees.  The defendant also admitted that the plaintiff did grant banking facilities to the four Principal Borrowers.  Indeed, the defendant himself personally signed the Facility Letters.

8.  Relevantly, the Guarantees contained terms to the following effect: —

(1)   The defendant is liable as the principal obligor and debtor;

(2)   The “conclusive evidence” clauses:

(i)    1^st Guarantee, clause 14: “...a certificate signed by any officer or representative of [P] certifying the amount of the liabilities shall be accepted by [D] and [his] legal representative as conclusive evidence thereof”;

(ii)   2^nd and 3^rd Guarantees, clause 12.2: “Any certification or determination by [P] of a rate or amount under the guarantee will be, in the absence of manifest error, conclusive evidence of the matters to which it relates”; and

(3)   The plaintiff’s right to pursue the defendant under the Guarantees is not affected by the plaintiff proceeding or abstaining from proceeding against any other person or enforcing any other sureties, and the defendant waives his rights to require the plaintiff to sue the four Principal Borrowers first.  See: (i) 1^st Guarantee, clause 5(d); and (ii) 2^nd and 3^rd Guarantees, clause 3.4.

9.  The plaintiff has pleaded the amount of the principal outstanding and due by each of the four Principal Borrowers in the Statement of Claim.  A detailed breakdown of the same has been provided in the 2^nd Affirmation of Sun Lai Fong made on 25February 2016.

C.     RELEVANT LEGAL PRINCIPLES

C1.   Applications for summary judgment under Order 14, Rules of the High Court

10.  The machinery of Order 14 works on the basis that if the plaintiff’s application is properly constituted, he is prima facie entitled to judgment unless the defendant shows cause to the contrary or the application is dismissed.  The burden shifts to the defendant to satisfy the court why judgment should not be given against him. [see: Practice Note 14/4/1 of the Hong Kong Civil Procedure 2016].

11.  It is trite that the defendant has to show that there is a triable issue or an arguable defence if he is to resist an application for summary judgment.  The defendant has to satisfy the court that he has a “real or bona fide defence”, or “a fair probability or reasonable grounds that a bona fide defence exists”.  If he makes an allegation, it must be credible or believable in the light of the evidence placed before the court.  Whether the defendant’s assertions are believable is a question to be answered by taking them in the context of so much of the background as is either undisputed or beyond reasonable dispute. [see: Practice Note 14/4/9 of the Hong Kong Civil Procedure 2016].

12.  The defendant’s affidavit must “condescend upon particulars” and should as far as possible deal specifically with the plaintiff’s claim and affidavit, and state clearly and concisely what the defence is, and what facts are relied on to support it.  A mere general denial that the defendant is indebted will not suffice unless the grounds on which the defendant realise as showing that he is not indebted are stated. [see: Practice Notes 14/4/4 of the Hong Kong Civil Procedure 2016]

C2.   Relevant law relating to Guarantees

13.  Whether there is condition precedent to the creditor enforcing against the guarantor depends on the terms of the guarantee.  There is no general obligation on the part of the creditor to commence proceedings against the principal borrower, let alone obtaining judgment, before the creditor may pursue the guarantor.  The creditor has a completely unfettered choice as to how, and against whom, he should proceed to recover the debt or damages to which he is entitled.  The creditor may simultaneously bring winding-up proceedings against the principal and sue on the guarantee in separate proceedings.

14.  A fortiori where the guarantee provides expressly that the guarantor waived any right he may have to require the creditor to first proceed against the principal borrower.  Such a clause is a perfectly normal provision in a guarantee and there is no obligation on the bank to proceed against the principal borrower before proceeding against the guarantors. [see: eg, OCBC Wing Hang Bank Ltd v Woo Koo Ping, HCA 2377/2014 (Judgment dated 20/07/16), paragraphs 12 and 13]

15.  Under a “conclusive evidence” clause, where the creditor has certified the overall indebtedness and amount payable under a guarantee, that is conclusive in the absence of “manifest error” which is obviously or easily demonstrable without extensive investigation.  Absent such “manifest error”, it is not appropriate to carry out extensive investigation or require a trial as this would render the conclusive evidence clause nugatory.  Such clauses are perfectly normal and well accepted as effective in Hong Kong. [see: OCBC Wing Hang Bank Ltd v Woo Koo Ping, Ibid, paragraphs 14 to 17]

D.     DEFENDANT’S ALLEGED DEFENCES

D1.   Plaintiff should sue and obtain judgment against the four Principal Borrowers first

16.  As pointed out by Mr Adrian Wong, counsel for the plaintiff, this defence was never raised in the defendant’s affidavit evidence nor in the Defence.

17.  As summarised above at paragraphs 13 and 14, there is, in general, no obligation for the plaintiff to pursue the four Principal Borrowers first before pursuing the defendant.  This is particularly true in the present case, as under the Guarantees (the effectiveness of which has never been challenged by the defendant), the defendant is liable as the principal obligor and debtor.  Further, there are indeed express terms in the Guarantees dealing with the position (see: paragraph 8(3) above).

18.  The only condition precedent in the Guarantees is that the plaintiff must demand for payment from the defendant, and such demands have been made repeatedly.

19.  In the circumstances, I agree that it is not open for the defendant to require the plaintiff to first pursue the four Principal Borrowers as a condition precedent to the plaintiff pursuing the defendant.

D2.   Plaintiff should be put to strict proof / prove the debts with the liquidators first

20.  As pointed out in paragraphs 11 and 12 above, the defendant must condescend upon particulars if it were to suggest that any part of the claim by the plaintiff is not owed by the defendant.  A mere general denial that the defendant is indebted will not suffice unless the grounds on which the defendant relies as showing that he is not indebted are stated.

21.  In Lady Anne Tennant v Associated Newspapers Group Ltd [1979] FSR 298 at 303, it was stated thus: –

“A desire to investigate alleged obscurities and a hope that something will turn up on the investigation cannot, separately or together, amount to sufficient reason for refusing to enter judgment for the plaintiff.”

22.  A fortiori that in the present case, the defendant’s response to the plaintiff’s claim does not even amount to a general denial, as can be observed in paragraphs 7 to 10 of the Defence, where the defendant simply stated that the particulars of the debts were “not admitted”.  Put in another way, the defendant falls short of even raising a single “alleged obscurities” that may require investigating.

23.  Further, as pointed out in paragraph 8(2) above, the Guarantees contained “conclusive evidence” clauses.  In the circumstances, absent “manifest error”, the Certificate of Indebtedness dated 18 November 2015 issued by the plaintiff certifying the indebtedness due and owing by the defendant constitutes conclusive evidence of the amount due.

24.  In the present case, the defendant has not raised any error regarding the figures stated in the Certificate, let alone a “manifest” one.

25.  Further still, the defendant’s alleged reasons for his inability to verify the amount claimed are not believable in the context of so much of the background as is either undisputed or beyond reasonable dispute.

26.  Through its Senior Account Manager Ms Sun Lai Fong, in her affirmations filed in support of the plaintiff’s application for summary judgment, the plaintiff has provided extensive and detailed documentation and accounting records of the respective Guarantees, Facility Letters, Demand Letters, Trade Documents and Statements, and Forex transactions documents evidencing the amount claimed against the defendant.

27.  As explained by Ms Sun in paragraph 30 of her 2^nd Affirmation:

(1)   The plaintiff had sent to the four Principal Borrowers regularly statements showing the amounts due by them.  Neither the defendant in his capacity as a guarantor or director of any of the four Principal Borrowers nor the four Principal Borrowers themselves have ever challenged the plaintiff on the amounts due;

(2)   The defendant had signed on behalf of the four Principal Borrowers most of the documents applying for loans from the plaintiff, amounts of which remain outstanding and are claimed in these proceedings.

28.  In the circumstances, I agree with the plaintiff that it is disingenuous for the defendant to now suggest that the plaintiff’s claim may be inaccurate for some unknown reason.

D3.   Defendant was not legally represented and was not allowed to raise defences

29.  The fact that the defendant was not legally represented at the hearing before Master J Wong is not a defence at all. 

30.  Regarding the allegation that the defendant was not allowed to raise defences before Master J Wong, as I have pointed out in paragraph 4 above, an appeal from the master to this court is dealt with by way of an actual rehearing of the application for summary judgement which led to the order under appeal, and this court treats the matter as though it came before this court for the first time.  In the circumstances, the defendant’s allegation is quite beside the point.

31.  At the hearing of this appeal, the defendant belatedly referred to one of the letters of confirmation dated 5 April 2014 (pages 320 to 325 of the Hearing Bundle) relating to the Treasury Facilities granted to Pada Industrial by the plaintiff.  The defendant submitted that the letter of confirmation was invalid as it was only signed by one of the directors of Pada Industrial.

32.  I should point out that the defendant’s assertions in this regard have no evidential basis at all.  The validity of the Guarantees, and the banking facilities granted to the four Principal Borrowers has not been challenged either in the Defence or in the affidavit evidence filed by the defendant.  As pointed out in paragraph 12 above, the defendant’s affidavit must “condescend upon particulars” and should as far as possible deal specifically with the plaintiff’s claim, and state clearly and concisely what the defence is, and what facts are relied on to support it.  This, the defendant has completely failed to do in respect of the validity of the letter of confirmation in question.

E.     CONCLUSION

33.  For the reasons stated above, I agree with the plaintiff that this is a case where the defendant has failed to show (i) any arguable defence; (ii) any other issue, question in dispute which ought to be tried; or (iii) any other reason for there to be a trial.

34.  Accordingly, the defendant’s appeal against the Order is dismissed.

35.  Further, I make an order that the costs of the appeal be paid by the defendant to the plaintiff, such costs are to be taxed if not agreed.

36.  The above order as to costs is nisi and shall become absolute in the absence of any application within 14 days to vary the same.