CITIBANK N.A. v. DAYARAM NANIK AND ANOTHER

HCA 2145/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2145 OF 2011

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R U L I N G

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1.  This is the plaintiff’s application by summons dated 25 September 2012 for leave to adduce the affirmation of Keoy Soo Khim and its exhibits as further evidence in its appeal from Master de Sousa’s decision granting the defendants unconditional leave to defend and refusing the plaintiff’s application for summary judgment. The application was said to have been necessitated by a change in the defendants’ stance. At the conclusion of the application I reserved my ruling which I now give.

Background facts

2.  The action was brought by the plaintiff, Citibank N.A. against Dayaram Nanik and Days Impex Limited, a Liberian corporation, respectively the 1^st and 2^nd defendants (collectively “the defendants”), as personal and corporate guarantors of the debts of Days Impex Limited, a company incorporated in Hong Kong (“the Borrower”) but which has the same name as the 2^nd defendant.

3.  The guarantees sued upon were signed by the 1^st and 2^nd defendants on 30 August 2001 (respectively “the D1 guarantee” and “the D2 guarantee” and collectively “the guarantees”).  The debts in respect of which the guarantees relate are said to arise under three facility letters granted some 10 years later, namely, (1) a demand credit facility under the Special Loan Guarantee Scheme (“the Loan Scheme”) -- Non-Revolving Loan dated 23 June 2010 (“the 1^st facility letter”); (2) a revolving short-term credit facility up to an aggregate limit of HK$27 million and US $2.5 million also dated 23 June 2010 (“the 2^nd facility letter”); and (3) a revolving short-term credit facility up to an aggregate limit of HK$35 million dated 4 August 2011 (“the 3^rd facility letter”).

4.  It is relevant to mention that on 25 June 2010, the first defendant executed a guarantee and indemnity (“the 2010 guarantee”) in favour of the plaintiff limited to the demand credit facility under the Loan Scheme.

5.  The writ was issued on 16 December 2011.  The defendants filed their defence on 14 February 2012 following an ‘unless order’ by consent made by Master J Wong on 6 February 2012.

6.  The plaintiff took out an Order 14 summons for summary judgment on 20 March 2012 supported by the 1st affirmation of Lee Tak Sing.  The 1^st defendant filed his affirmation in opposition on 11 April 2012 which added little to the issues already raised in the defence.  There were three main areas of challenge:

(1)     the 2^nd defendant was not duly authorised to execute the 2^nd and 3^rd Facility Letters and the D2 guarantee;

(2)    the execution of the 2^nd and 3^rd  facility letters and the D2 guarantee was defective in that they were not executed in accordance with the memorandum and articles of association of the 2^nd  defendant; and

(3)    the guarantees and facility letters were ultra vires the defendants.

7.  The plaintiff filed the 2^nd affirmation of Mr Lee on 27 April 2012 to address the issues arising from the first defendant’s affirmation.

8.  The summary judgment application came before Master de Souza on 25 May 2012.  On the preceding day, the plaintiff received the skeleton submissions of counsel for the defendants.  While the defendants abandoned some of the arguments previously raised and raised new arguments that had not been raised in either the defence or the affirmation in opposition, they did not abandon all of the points taken earlier.

9.  The defendants’ skeleton argument before the master is in evidence.  So far as the new issues are concerned, they raised a “construction point” which is very different in nature from issues of defective execution.  It concerns the “borrowings” that the guarantees were said to cover when construed against their proper factual matrix.  The skeleton referred to the second defendant’s board resolution dated 30 August 2001 which identified a facility letter dated 30 July 2001 (“the 2001 facility letter”) which was “not in evidence”. The defendants went on to assert (at § 9) that

“It is (at least) arguable that the parties intended that the D1 Guarantee and the D2 Guarantee were only to apply to amounts advanced under the 2001 Facility Letter.”

10.  They submitted that the factual matrix of the guarantees was of “critical importance”.

11.  As part of the new construction point, the skeleton drew attention to the fact that the guarantees were executed on 30 August 2001 while the three facility letters under which the debts arose were granted a decade later.  Buried in the skeleton (at § 12 (4)) was a reference to the 2010 guarantee which the plaintiff required when it came to the issuance of the 1^st facility letter.  It was said that the 2010 guarantee supported the defendants’ construction argument that the guarantees were only intended to cover advances made under the 2001 facility letter and not subsequent facility letters.  The impression conveyed was that the ten-year gap was significant, the 2001 facility letter creating one facility and the 1^st to 3^rd facility letters granted in 2010-2011 created different facilities.

12.  The other new issue was a challenge to quantum.

13.  The documents sought to be admitted into evidence for the hearing of the appeal from the master fall into three categories:

(1)    copies of the 2001 facility letter and the supplemental facility letters dated between 14 December 2001 to 11 June 2009 between the plaintiff and the borrower and acknowledged by the defendants;

(2)    copy of a leaflet issued by the Trade and Industry Department in relation to the Loan Scheme which was a government initiative and which shows that the 2010 guarantee was a requirement of the Loan Scheme; and

(3)    copy of a certificate dated 24 September 2012 is signed by the plaintiff’s authorised officer confirming the amount outstanding.

The issue

14.  The application is made under Order 58 rule 1 (5) under which new evidence is admitted only if “special grounds” i.e. Ladd v Marshall conditions are made out.  The conditions are that (a) the evidence could not have been obtained with reasonable diligence for use at the hearing below; (b) the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive; (c) the evidence must be such as is presumably to be believed.  Argument centred on whether or not the first ground had been made out.

15.  Ms Sit, counsel for the plaintiff (who did not appear below), submitted that prior to receiving the defendants’ skeleton argument, the new issues now raised could not have been anticipated from what had been filed by the defendants.  Given that the new issues were introduced at the very last minute, it had not been possible for the plaintiff to carry out the necessary investigation and to adduce the documents relevant to the factual matrix of the guarantees during the time between receiving the skeleton on 24 May 2012 and the hearing before the master the following morning.

16.  Mr Alder who appeared for the defendants strenuously opposed the application.  He submitted that the new issues are clearly spelt out in the skeleton argument.  The plaintiff could have applied for an adjournment or sought leave from the master to put in further evidence.  It did neither.  The present summons was not taken out until four months later.

17.  A curious, not to say remarkable, feature of the defendants’ stance is that having raised the construction point and framed it in terms of § 9 of the skeleton argument (see § 9 above), the master was expected to form a view as to the viability of the argument relating to the scope of the borrowings covered by the guarantees without having sight of the 2001 facility letter itself.  For my part, without sight of the 2001 facility letter I do not consider it possible to make, much less run, the construction point.  Put differently, I do not begin to understand how the point could be made or any master or judge asked to form a view as to whether a triable issue arises in the absence of the 2001 facility letter itself.

18.  On the facts of this case, plainly the construction issue could not have been anticipated and was unexpectedly sprung on the plaintiff at the 11^th hour.  It may well be that the new issues only occurred to the defendants at the 11^th hour but the fact is that the plaintiff was taken by surprise and could not have adduced the first and second categories of documents that go to the factual matrix of the construction argument in time for the hearing.  Given the lengthy delay that would inevitably be involved to obtain another three hour appointment before the master and the fact that not all the earlier arguments had been jettisoned and replaced by the new issues, I do not consider that the plaintiff could be criticised for making a judgment call and deciding to press ahead with the hearing instead of seeking an adjournment.

19.  Ms Sit referred to Fortis Insurance Company (Asia) Ltd v Lam Hau Wah Inneo, CACV 86/2010, unreported, 28 October 2010, where the Court of Appeal (at § 18) adopted Lord Bridge’s observations in Langdale v Danby [1982] 1 WLR 1123, 1133D-F suggesting that it may well be that the standard of diligence required of a defendant preparing his case in opposition to a summons for summary judgment, especially if under pressure of time, will not be so high is that required in preparing for trial.  It was said that a more flexible approach may be called for in determining whether the defendant has satisfied the reasonable diligence requirement.

20.  Mr Alder sought to distinguish Langdale on the basis that those observations were directed at a defendant who was under time pressure.  It was said that a plaintiff seeking summary judgment had all the time in the world to prepare its case and the Langdale observations were inapposite.

21.  In my view, the critical matter is whether on the facts of the particular case the party seeking leave to adduce new evidence has acted with reasonable diligence.  On the facts of this case, I accept that the first of the Ladd v Marshall conditions have been satisfied in relation to the first and second categories of documents relevant to the factual matrix of the guarantees.

22.  As regards the third category which consists of the certificate, it was said that it was prompted by the challenge to quantum which was first made in the skeleton argument.  But to succeed in its action, the plaintiff has to satisfy the court that the sum claimed is due.  To that end, §§ 13-22 of the first affirmation of Mr Lee were directed at explaining the elements of the sum claimed.  Since under the terms of the guarantees the certificate once duly issued is conclusive in the absence of fraud or manifest error, there was no reason why such a certificate (which would have pre-empted any challenge to quantum) could not have been procured and exhibited.  I am not persuaded that in respect of the certificate the first condition has also been satisfied.

Conclusion

23.  Accordingly, other than exhibit “KSK-4”, I will allow the affirmation of Mr Keoy and the other exhibits into evidence. There is to be an order nisi of costs in favour of the plaintiff.