NANYANG COMMERCIAL BANK LTD. v. WONG CHE KEUNG

1987, No. A1683

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. This is an application by the Defendant to set aside a default judgment which was obtained on the 13th April 1987.

2. The Plaintiff took various steps in an endeavour to enforce the judgment. These included applications for a Charging Order against property and more particularly the examination of the Defendant under the provisions contained in Order 49B of the Rules of Supreme Court.

3. It is common ground that it was only in October 1987 that the present application was made.

4. It would appear from the Defendant's affirmation evidence that it was only when he sought additional legal advice in connection with the Order 49B proceedings that the decision was made to make this application.

5. Needless to say delay of this magnitude requires some explanation particularly bearing in mind that the Defendant accepts that the said default judgment was a regular judgment.

6. The Plaintiff's claim is on a series of Guarantees the Defendant entered into. He was the Chairman of a public company Kings Dyeing and Weaving Factory Ltd. (Kings). Kings was the principal debtor and the Guarantees were in favour of the Plaintiffs who are Bankers. The total amount claimed under the Guarantees amounted to a sum slightly in excess of HK$16 million.

7. Kings encountered financial difficulties and were the subject of a winding up order in 1986.

8. The application is made under Order 13 rule 9. As I understand the position there are two limbs to such an application where the judgment it is sought to set aside is a regular judgment. The first is that an explanation should be given as to how it came about that the judgment was entered. The second is that the Defendant must demonstrate that he does have a defence on its merits. The first limb essentially involves the exercise of judicial discretion whereas the second is a substantive issue. Evans v. Bartlam⁽¹⁾ provides some assistance in determining how the said discretion should he exercised.

9. Mr. Swaine represented the Defendant. I accept his contention that the importance of the second limb far transcends the significance of the first.

10. Notwithstanding this, it is necessary for me to determine how the said discretion should be exercised.

11. Before deciding this, it may be helpful to indicate the proper approach to be adopted. I accept Mr. Swaine's submission that I must made no attempt to adjudicate upon the truth or otherwise of issues which are raised in the affidavits filed by the parties. In the context of this case I must accept the veracity of all the statements which have been made by the Defendant on affirmation and proceed on the assumption that at the trial of the case he will be able to prove all the matters he refers to.

12. Also I must confine myself to the matters which are referred to in the affidavits. This is the approach which I have adopted in this application.

13. The main line of reasoning which the Defendant proposes to adopt in establishing a Defence is based upon the Court of Appeal judgment in Lloyds Bank Ltd. v. Bundy⁽²⁾ and subsequent cases of a similar nature.

14. Put simply the Defendant claimed to have had a friendship with a Mr. Chong who at the relevant time was the General Manager of the Plaintiff. He said that when he entered into the Guarantees in question, it was his impression that the Guarantees were much narrower in scope than the Guarantees in fact proved to be.

15. He accented Mr. Chong's assurances to the effect that the Guarantees were in the best interests of Kings and himself.

16. He had no knowledge of the English language and was certainly unable to read and understand documents written in the English language. Also he is of advanced age and in very poor health.

17. After the writ and Statement of Claim had been served upon him, he had gone to his former solicitors Messrs. King & Co. to seek legal advice. He had been advised that no useful purpose would be served by his attempting to defend the action. In effect it would be a waste of time and money to defend the action. On the basis of this advice he had allowed the judgment to be entered against him in default.

18. It was only when he had encountered difficulties with his examination under Order 49B that he had decided to obtain from the liquidators of Kings the necessary documentation. A decision had then been made to instruct his present solicitors who in turn obtained counsels' opinion. After receiving an opinion, he had decided to make the present application.

19. In my view, there is a serious flaw in the explanation which has been tendered to the Court.

20. The Defendant makes no attempt to provide details of the instructions he gave to Messrs. King & Co. What he does not say is that he explained to Messrs. King & Co. the problem which arose as a result of the Guarantees being much wider in scope than he imagined. I consider this to be a serious deficiency particularly in the light of the very considerable delay which has occurred. In fact I don't think it would be unfair to say that in the absence of some explanation as to how it came about that he received the advice he did from Messrs. King Co. the excuse which has been given for the delay is unconvincing and not of such a nature that I should validly exercise the necessary discretion in his favour.

21. To an extent the exercise of the discretion must also take cognisance of the strength of the defence which is put forward.

22. Having regard to the transcending importance of the Defence, I may have tried to exercise the discretion in the Defendant's favour. However for the reasons I will be giving, I do not believe that the Defendant has shown that he has an arguable Defence and so the exercise of the discretion becomes redundant.

23. I will now turn to the substantive issue as to whether the Defendant can satisfy me that he has an arguable Defence. Clearly the burden of establishing this is placed upon him.

24. The Defendant chose to present his case on the basis of a short introductory affirmation claiming that he has a Defence and exhibiting to it a form of proposed draft Defence. In the affirmation he swore that the facts pleaded in the Defence were true.

25. While I realise that this is often the manner in which such applications are made, it is not without its difficulties.

26. By its nature, a Defence addresses itself to the pleading in the Statement of C1aim. It is often appropriate to simply deny paragraphs in a Statement of Claim and just to put the Plaintiff to formal proof.

27. This may not be helpful in a situation where a positive burden is imposed upon a Defendant to satisfy the Court that he has a arguable case. In the present case the Plaintiff pleaded the seven Guarantees upon which the claim is based.

28. The result of the Defendant not acknowledging the claim was that the Plaintiff was able to obtain the default judgment without the necessity of any supporting affidavit exhibiting the Guarantees.

29. Mr. Swaine initially proceeded upon the assumption that the Plaintiff was under some duty on this application to exhibit the said Guarantees. I do not know why Mr. Swaine assumed this to be the case. I do not think that he was correct. The Plaintiff is in possession of a judgment and it is not incumbent upon them to adduce any further affidavit evidence on the Guarantees.

30. The problem then compounds itself. It is the Defendant's case that the Guarantees he entered into were not in the form he thought they would be in. He claims that when the Directors of Kings decided to request the Plaintiffs for further facilities they would convene a board meeting. Minutes would be kept of the meeting. In the minutes reference would be made to the Defendant's agreement to enter into a Guarantee in favour of the Plaintiff for the guarantee of the facilities which were being obtained.

31. According to my understanding, it is the main part of the Defendant's case that it was clearly stated in the said minutes that any Guarantee entered into by the Defendant would be limited to the particular type of facilities which were being grante. A copy of the said minutes were then sent to the Plaintiffs thus putting then on notice of the limited form of Guarantee envisaged by the Defendant.

32. Unfortunately the Defendant has not seen fit to exhibit copies of these minutes. The consequence of this is that it is impossible on the material before me to even ascertain the nature and extent of the disparity between the obligation the Defendant claims he was entering into and the actual Guarantees upon which the Plaintiff is basing its claim. I don't have any of the most important documents.

33. All I have is the vague assertion on affirmation by the Defendant that it was his impression that the Guarantees were of a limited nature and only related to the specific facilities being granted and that it was not his intention to enter into the unlimited Guarantees of the nature being claimed. This is totally unsatisfactory and I do not think that the Defendant has discharged the burden I have referred to of satisfying me that he has an arguable Defence.

34. However, even if I am wrong in this, there are still a number of highly unsatisfactory matters which I will deal with which further convince me that it would be wrong for me to grant the relief which is being sought.

35. I am much indebted to Mr. Ching who represented the plaintiffs. We took it upon himself to enalyse in some detail the draft Defence which was exhibited. I am satisfied that on the basis of his analysis, he has demonstrated that even on the facts alleged by the Defendant, he has no prospect whatever of success in this litigation.

36. Mr. Swaine in his reply complained that Mr. Ching's approach of tearing the draft Defence to pieces was inappropriate at this stage. With respect I disagree. I can see no reason why it is s not a legitimate exercise to subject the Defendant's proposed Defence to close and careful scrutiny even on an application of this nature.

37. The first overall observation I would make is that the Defence is woefully lacking in particularity.

38. I will give some examples of this criticism.

1.             The Defendant does not condescend to particulars as to the physical circumstances when any of these Guarantees were entered into. I do not know the pattern or procedure which was adopted when the Defendant executed the Guarantees. Were the Guarantees sent by post or by hand to the Defendant's office for him to sign them and then return them?

39. Alternatively did the Defendant attend at the Plaintiff's office to sign them?  If so, who was present. In what circumstances were the documents signed.

2.             Was there any "mutual agreement" between the parties? Did anyone specifically represent in any way that the scope of the Guarantees was limited as suggested by the Defendant? This is of some importance. What the Defendant thinks is a purely subjective matter. Mr. Chong or anyone else in the Bank cannot know what is in the mind of the Defendant. One possibility is that the situation which arose was one of offer and then counter offer. It may be the case that there was no meeting of minds.

40. All that the Defendant is prepared to say is that Mr. Chong gave an assurance that if the Defendant executed the Guarantees, it would be in his and his company's best interests.

41. Without being unduly cynical it may well be the case that this was true. Certainly there is no evidence to the effect that had Mr. Chong insisted that the Guarantees must extend to all Banking facilities the Defendant would have declined to enter into the commitment.

42. Mr. Ching drew my attention to a number of other instances where the proposed pleading was lacking in particularity but I see no point in labouring them all. It is sufficient to refer to what I regard as the most significant deficiencies.

43. All of this is of importance. I say this because all of the cases dealing with the relationship between Banks and their customers and Banks duties and responsibilities in such situations are largely dependent upon their particular facts. It is accordingly necessary to establish the circumstances which pertained in some detail to determine whether it might be possible to prosecute a Claim or Defence. I do not think that it would be right for me to just give the Defendant the benefit of any doubt there may be and assume that he will be able to give evidence which will bring him within the ambit of one of the cases on the subject.

44. Both Mr. Swaine and Mr. Ching took me in some detail through all the leading cases. These included Lloyds Bank v. Bundy⁽²⁾, Cornish v. Midland Bank⁽³⁾, National Westminster Bank v. Norgan⁽⁴⁾, Midland Bank v. Perry⁽⁵⁾. I was also referred to Avon Finance v. Bridger⁽⁶⁾ on the question of undue influence.

45. While I accept that this is a developing area of the law I do not think that the Defendant can conceivably bring himself within the principals laid down in any of these cases.

46. More specifically I do not think the Defendant has any prospect of establishing any fiduciary relationship of the type claimed. Nor do I think he has any better prospect of establishing that the Plaintiff or Mr. Chong have exercised undue influence over him or that they have been in any way negligent. I say this on the basis of the facts which were before me. It is the duty of the Defendant to discharge the burden of establishing that he has an arguable Defence. He has simply failed to discharge this onus.

47. The Defendant also wishes to prosecute a counterclaim against the Plaintiffs. Mr. Swaine submitted that the situation before me was in many respects analogous to an Order 14 application. This being the case it would be proper for me to order a stay of the judgment pending the determining of the counterclaim.

48. I disagree. The position is not the same. Judgment has already been entered in the Plaintiff's favour. As I have indicated earlier, I do not find the explanation proffered by the Defendant for the entering of the judgment or the delay which transpired thereafter convincing. I am not prepared to order that there should be a stay pending the determination of the counterclaim. This application is dismissed. I will hear the parties on the costs.

(1)    [1937] AC 473

(2)    [1975] 1 QB 326

(3)    [1985] 3 All ER 513

(4)    [1985] 1 All ER 821

(5)    Times Law Reports 28 May 1987

(6)    [1985] 2 All ER 281