DBS BANK (HONG KONG) LTD v. DAYS IMPEX LTD (INCORPORATED IN LIBERIA)

CACV 239 & 240/2012
( Heard together)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NOS. 239 AND 240 OF 2012

(ON APPEAL FROM HCA NOS. 56 AND 82 OF 2012)

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CACV 239/2012

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REASONS FOR JUDGMENT

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Hon Lam VP:

1.  I agree with the Reasons for Judgment of Barma JA.

Hon Cheung JA:

2.  I agree with the Reasons for Judgment of Barma JA.

Hon Barma JA:

3.  This was an appeal by Days Impex Limited (a company incorporated in Liberia) (“Days Liberia”) against the judgment of Mimmie Chan J dated 16 October 2012, by which she dismissed an appeal against the decision of Master S Kwang entering summary judgment in favour of DBS Bank (Hong Kong) Limited (“the Bank”) against Days Liberia and Mr Nanik Dayaram (“Mr Dayaram”), its sole shareholder, on the basis that Days Liberia and Mr Dayaram were liable as guarantors of debts owed to the Bank by Days Impex Limited (a company incorporated in Hong Kong) (“Days HK”), which was a subsidiary of Days Liberia.  Mr Dayaram had also appealed against the Judge’s judgment (by CACV 240/2012), but as he had become bankrupt, the conduct of that appeal vested in his trustee in bankruptcy, who did not pursue it, with the consequence that it was dismissed at the start of the hearing.  At the conclusion of the hearing, Days Liberia’s appeal was dismissed, with reasons to follow.  These are those reasons.

4.  The guarantee with which this dispute is concerned related to banking facilities granted by the Bank to Days HK.  By a facility letter dated 20 October 2003, the Bank offered Days HK a variety of banking facilities – both in the form of term loans and trade financing facilities, on condition, inter alia, that Days HK execute the Bank’s standard form General Commercial Agreement, and that Days Liberia and Mr Dayaram provide a Guarantee and Indemnity, also in the Bank’s standard form.  The Bank’s offer was accepted on about 23 October. On that date, Days HK’s shareholders resolved at an Extraordinary General Meeting that it should take up the facilities and execute the General Commercial Agreement.  Also on that date, resolutions were passed by the shareholders and directors of Days Liberia by which it was resolved that Days Liberia should enter into the guarantee which underlies these proceedings.  A similar guarantee was provided by Mr Dayaram.  I shall return later to consider more closely the terms of the guarantee and of those resolutions.

5.  Between October 2003 and December 2011, the banking facilities made available to Days HK were altered on a number of occasions.  The first amendment was on 11 November 2003, when a new facility (of account payable financing) was added.  Thereafter, there were further revisions to the facilities in May 2004, September 2005, October 2005, April 2006, October 2006, November 2009 and December 2009.  The revisions of May 2004, September 2005 and November 2009 were expressed as “superseding” the previous facility letters which had been issued, whereas the others were not.

6.  Days HK later found itself in financial difficulties.  On 12 December 2011, it was wound-up by the court, and at present remains in liquidation. Shortly after the making of the winding-up order, the Bank demanded payment under the guarantees from Days Liberia and Mr Dayaram of a sum of just under US$5 million, said to represent the amount due to the Bank by Days HK under the various facilities granted to it, secured by the said guarantees.

7.  Mr Alder, who appeared for Days Liberia, submitted that the Judge had erred in concluding that Days Liberia had no defence to the Bank’s claim against it.  He contended that she should have found that it was reasonably arguable that Days Liberia’s guarantee was limited only to securing any liability of Days HK under the initial facility letter of 20 October 2003, as amended on 11 November 2003, but did not secure any banking facilities granted under any of the subsequent facility letters expressed as superseding the then existing facilities, or amendments thereto.  As there was no evidence as to the amount (if any) outstanding in respect of the facilities granted under the initial facility letter (as amended), it was necessary for the matter to go to trial.

8.  The guarantee relied upon is in wide terms, and is clearly apt to cover liabilities of Days HK under facilities other than those specifically mentioned in the first facility letter and the amendment to it.  That this is so is evident from the following provisions in the guarantee:-

(1)   Clause 1, which provides:-

“In consideration of [the Bank] … granting, continuing or affording facilities at the request of [Days Liberia] for as long as the Bank may think fit to [Days HK], [Days Liberia] … agrees and undertakes with the Bank to pay to the Bank on demand all sums of money and liabilities … whether certain or contingent, now or hereafter owing or incurred to the Bank any account whatsoever by [Days HK] whether as principal or guarantor or surety and whether from [Days HK] solely or from [Days HK] jointly with any other person …including, without limitation:-

(a) …

(b) all money obtained from, and/or liabilities incurred to, [the Bank] pursuant to facilities granted by [the Bank] …

(c) …

(d)   in all cases, money due to the Bank in respect of any facilities granted to [Days HK] or at its request in any country together with all interest on all such debts and facilities to the date of payment …”

(2)   Clause 3, dealing with termination, which provided that the guarantee should be a “continuing guarantee”.

(3)   Clause 6, which stated that:-

“This Guarantee and the liability of [Days Liberia] under it shall not be impaired, reduced, discharged or otherwise adversely affect in any way by reason of:

…

(v) the Bank opening any new account or closing or redesignating any other account of [Days HK] or renewing any existing facilities to [Days HK] or providing any new or additional facilities to [Days HK] or requiring [Days HK] to provide or procure any other guarantee, indemnity or security in respect of [Days HK’s] obligations or the obligations of any other person; or

…

(ix)   any existing or future agreement by the Bank as to the application of any facilities made or to be made to [Days HK]; …”

(4)   Clause 23, which defined “facility” in the following terms:-

“…all types of credit and banking facility and accommodation provided by the Bank including, without limitation, loans, advances, overdrafts, credits, guarantees, confirmations, hire purchase agreements and financial, equipment, motor vehicle and other leases.”

9.  Further, by virtue of the fact that Part 3 of the Schedule to the guarantee was left blank, the guarantee was unlimited in amount.

10.  Mr Alder argued that, notwithstanding the wide terms of the guarantee, as it contained no reference to a particular loan contract or set of facilities, the surrounding circumstances known to both parties had to be examined to determine what liabilities the guarantee was intended by them to cover.  He went on to argue that the outcome of such an examination was that it was at least arguable that the guarantee was intended only to cover the facilities mentioned in the first facility letter as amended.

11.  In support of this argument, Mr Alder placed heavy reliance on the decision of the Court of Appeal in Hongkong & Shanghai Banking Corporation Ltd v Martel (unreported, CA, CACV 54/2003, 3 June 2005).  There, the defendant, who had been a director and shareholder of a company, had provided a limited guarantee to the bank to secure the debts of the company to the bank.  On the bank offering the company a different package of facilities in 1993, it asked for a fresh guarantee from the company’s directors, with a higher limit of liability.  Five years later, the defendant resigned as a director and notified the bank, at the same time asking to be released from his guarantee.  Shortly afterwards, without the defendant’s knowledge or consent, the bank and the company renegotiated the banking facilities, and less than a year after that the bank withdrew the facilities altogether.  When the company was wound-up, the bank sought to enforce the guarantee against the defendant, who argued that his liability under the guarantee was limited to facilities granted under the 1993 arrangements.  The Court of Appeal accepted this submission, holding that it was clear from the evidence that the underlying agreement guaranteed was that set out in the 1993 facility letter, pointing to the fact that the bank had expressly asked for the guarantee in the facility letter.

12.  In my view, the Martel case is of limited assistance here.  The proposition for which it is cited (that it is necessary to have regard to the whole of the factual matrix in order to arrive at the proper construction of the agreement) is no more than an orthodox principle of contractual interpretation.  Further, the Martel case is clearly distinguishable from the present case.  Whereas in Martel there had been an ongoing relationship, in the context of which a new guarantee was specifically sought on the occasion of a change in the package of facilities, thus lending weight to the contention that it was intended to secure the new package of facilities alone, we are here concerned with a relationship at its inception, where it would be apparent from the trade finance facilities offered that Days HK was a trading company, and would have been in the parties’ contemplation that the facilities afforded to Days HK might change over time.  Further, and significantly, here (unlike in Martel), it is clear from the terms of the guarantee that it covers additional or new facilities that might be granted by the Bank at a later stage (see Clause 6(v) of the guarantee, which is set out above).  The possibility of such additional or new facilities being granted was thus something of which the parties would have been aware. Although Mr Alder described this clause as a “non-discharge clause”, designed to prevent the principle that a guarantee may be discharged by the material alteration of the debts guaranteed from coming into play because of the grant of such additional or new facilities, the fact remains that such additional or new facilities were mentioned, and thus in contemplation.

13.  Mr Alder pressed upon us the submission that in the present case, the terms of the resolutions passed at the meetings of the members and directors of Days Liberia pointed to the conclusion (at least arguably) for which he contended.  He drew our attention to the fact that in both resolutions, it was recorded as being noted that the Bank had offered to make available certain banking facilities to Days HK on the terms and conditions of the 20 October 2003 facility letter (the first facility letter) as amended by the Bank from time to time, and that in the members’ resolution it was also noted that the guarantee was required to “secure the obligations and liabilities” of Days HK to the Bank, and that it was resolved that it was in the interests of Days Liberia to assist Days HK to obtain “the banking facilities”.  He suggested that this made it at least arguable that the guarantee was limited to the specific facilities, since there was express reference to the particular facility letter, and the references to “obligations and liabilities” and “banking facilities” are naturally to be read as being references to obligations, liabilities and facilities under the particular facility letter referred to.

14.  I am unable to agree with these submissions.  The noting of the 20 October facility letter in the minutes does no more than set out the background to the resolutions that were passed.  It simply records, as was the fact, that facilities had been offered to Days HK, and that to obtain them, it was necessary for the guarantee to be provided.  It says nothing about what the guarantee covered or was intended to cover.  As I have noted, it is clear from the terms of the guarantee, which (as also appears from the matters noted in the resolutions) was tabled at each of the meetings and therefore available to Days Liberia’s shareholders and directors to read, that it covers additional and new facilities to be granted in the future.  Against this, the mere reference to the facility letter does not take matters further.  The reference does no more than record in the minutes the fact that the facility letter existed, and that the grant of the facilities contemplated by it was the occasion for the giving of the guarantee.  This is something that would be apparent even in the absence of the statement in the minutes.  But this is not sufficient to suggest that the guarantee should not be understood in accordance with its terms – on virtually every occasion when a guarantee is taken, there will be either some pre-existing facilities in place (the guarantee being given in consideration of their continuation), or facilities about to be extended (the guarantee being given in consideration of their grant).  Of itself, the existence or impending grant of facilities does not mean that the guarantee can be regarded as being limited to those facilities alone, particularly where, as here, the guarantee is clear that it extends to other, additional or new, future facilities that might be granted (a possibility which is also adverted to in the minutes themselves, where the prospect of amendment of the facilities by the Bank is noted in connection with the facility letter).

15.  Further, it is noteworthy that there is no evidence from Days Liberia to suggest that it regarded the guarantee as being limited in the way that is now suggested, still less evidence that this was what it had agreed with the Bank.

16.  The Judge was therefore right to say that there was nothing in the factual matrix or surrounding circumstances to show that the guarantee was to be referable or confined to the 20 October 2003 facility letter, and to dismiss Days Liberia’s appeal against the grant of summary judgment by Master Kwang.

17.  For the foregoing reasons, this appeal was dismissed.  So far as costs are concerned, Mr Liu, appearing for the Bank, sought an order for the Bank’s costs to be taxed and paid on the indemnity basis.  Although not resisting an order for costs against his client, Mr Alder opposed the application for indemnity costs.  Clause 1 of the guarantee expressly provides that costs of enforcement or attempted enforcement may be recovered on a full indemnity basis.  I also consider that the appeal was lacking in merit.  I would therefore order that the Bank’s costs of this appeal are to be paid by Days Liberia, to be taxed on the indemnity basis if not agreed.