ING BANK N.V., HONG KONG BRANCH v. CERTAIN DELUXE LTD.

HCMP 1568/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDING NO. 1568 OF 2000

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J U D G M E N T

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Background:

1. These proceedings concern the enforcement by the plaintiff, ING Bank N.V. Hong Kong Branch, (the Bank) of a mortgage as part of security it claims to hold under a "Risk Participation Agreement" (RPA) entered into by the defendant Certain Deluxe Limited (Certain). It is Certain's contention, not accepted by the Bank, but irrelevant for these preliminary applications, that the Bank is not entitled to rely upon the mortgage as part of any security it may have from Certain.

2. There is a summons by the Bank to amend the Originating Summons. The amendment is simply to correct the amount sought to be recovered, and an order is made in terms, by consent.

3. It is agreed by both sides that a Risk Participation Agreement is a guarantee, one of the two forms of contracts of suretyship (the other being a contract of indemnity). In most guarantee situations the consideration for the guarantee is usually the grant of the facility to the borrower, and the guarantor is associated with the borrower, and benefits from the grant of the facility. In an RPA the guarantor, for a fee, agrees to guarantee the debt of a party not associated with the guarantor. It is a particular term of the RPA in this case that the guarantor's involvement will not be disclosed to the debtor and that the guarantor may not communicate directly or indirectly with the debtor. Of course the RPA must be interpreted according to its particular terms.

4. In the RPA the Bank is described as "the Lender", "Certain as "the Participant" and the debtor "the Co-borrowers". The documents comprising the security given by the Co-borrowers to the Bank are called "the security documents" or "the relevant documents". The papers were presented in four bundles (I, II, III, and IV) and references to exhibits are to pages in those bundles).

The facts:

5. In 1996 Lo Kin Man (Mr. Lo) was introduced to the Bank. He entered into an RPA in his personal capacity. In 1997 Certain was incorporated and Mr. Lo its main shareholder and director. On 5 May 1997 Certain entered into an RPA with the Bank. On 12 May 1997 the Bank granted Certain overdraft facilities. Certain executed the mortgage to secure the overdraft.

6. In October 1997 Certain entered into a new RPA. The limit of Certain's liability under the RPA is $10 million. The RPA guaranteed the obligations of Hillgrove International Limited, York Island Limited, and Teng Lung (China) Advertising Limited, (the Co-borrowers). The Co-borrowers are a group of companies controlled by Mr Cannon Sum. The group specialises in outdoor advertising, particularly on bus shelters and the like in the Mainland. The security held by the Bank from the Co-borrowers included debentures granted by each of the Co-borrower companies, two share charges of the shares in two companies associated with the Co-borrowers, China Media Network Limited, now known as the ADV Group Limited and Birkfield Media Management Limited, an assignment of an insurance policy, personal guarantees by Cannon Sum and Sum Ka Yau and corporate guarantees by China Media Network Limited and Birkfield Media Management Limited.

7. The debentures and share charges contain the usual provisions for enforcement including the appointment of receivers and the direct power of sale of the assets secured by the Bank. The RPA was extended and varied on a number of occasions but it is common ground that nothing turns on any of the extensions or variations.

8. In April 1998 the Co-borrowers defaulted in payment of their obligations to the Bank. On 21 May 1998, with the Co-borrowers in default, the Bank paid Certain the participation fee required under the RPA, but did not, notwithstanding a specific requirement in clause 2.02 of the RPA, give notice to Certain that the Co-borrowers were then in default.

9. The first step taken by the Bank as a consequence of the default was not taken until 12 March 1999, 11 months after the default. A reminder notice (III 907) was issued to the Co-borrowers. Even then, notwithstanding the requirement for notice of the default to be given to Certain under clause 2.02, no notice was given. On 28 June 1999, 14 months after the default, the Bank issued formal demands to the Co-borrowers (III 1129-43). At the same time, under the obligation on it by Clause 2.02 of the RPA the Bank gave Certain notice of the default by the Co-borrowers (I 249). There then followed a prolonged period during which the Bank and Mr. Sum for the Co-borrowers were in contact from time to time, and various information was given to the Bank by Cannon Sum, as to steps being taken by the Co-borrowers to remedy the default.

10. On 19 May 2000 the Bank's solicitors advised Certain that the Bank did not believe that a willing purchaser could be found for any of the Co-borrowers business or assets (III 1072). There is no evidence as to the basis of this opinion. To the contrary, the evidence indicates that at that time the Bank had made no enquiries at all with a view to the disposal of the business.

11. On 11 August 2000 the Co-borrowers made a specific, without prejudice, offer to settle the amount outstanding, then about $14 million by way of either a one-off payment of $10 million with an immediate payment of $1 million and the balance of $9 million within 2 months of acceptance of the offer; or a payment of $14 million by way of an immediate payment of $1 million, $4 million within 2 months of acceptance of the offer and the balance of $9 million 2 months later (I 409). The letter of offer made it clear that the Co-borrowers were in negotiation with third party investors and needed a response to further those negotiations. Certain were not told of the offer. There is no evidence that there was any response by the Bank to that offer.

12. On 8 August 2000 the Bank instructed a firm of "corporate advisors", RSM Nelson Wheeler (RSMNW) to make enquires and prepare an "Information Memorandum" for the prospective sale of the Co-borrower's businesses. On 4 October 2000 the Bank's solicitors, by letter (III 1094) advised Certain that:

"the receiver is currently making all reasonable efforts to prepare to enforce the security".

In fact, at that time, nor at any time, had a receiver had been appointed.

13. On 14 December 2000 the Bank, by its solicitors, made formal demand on Certain for the sums of HK$16,544,882.18 and US$1,890.00 then outstanding by the Co-borrowers (I 254). On 14 March 2001, after the demand was made, RSMNW reported to the Bank (I 251) that they had been unable to find a buyer for the Co-borrowers' business and that in their view it was unlikely that a successful sale of the business through a receiver or independent disposal of the debt could be achieved.

14. The Originating Summons was filed on 21 March 2001. Certain, by way of counter-claim, seeks to recover from the Bank participation fees due under the RPA. The counter-claim does not need to be considered in this judgment.

15. On 8 June 2001 Certain's solicitors wrote to the Bank, (IV 1571) informing the Bank that there was "market information" that some of the assets of the Co-borrowers were shortly to be sold or injected into a joint venture. The Bank were required by Certain to take urgent and immediate steps to monitor the same with due diligence. This brought a response from the Bank's solicitors (IV 1575) reminding Certain's solicitors of Certain's obligation of confidentiality under the RPA and the requirement that Certain was not permitted to communicate directly or indirectly with the Co-borrowers. They said that the Bank was "investigating" the matter with the Co-borrowers.

16. On 14 August 2001, and without any prior notice to Certain, the Bank entered into a compromise agreement (the Compromise) with the Co-borrowers (I 417) whereby a sum of $8 million was accepted by the Bank. At that time the debt, with accrued interest and costs stood at just under $18 million. Upon receipt of the sum of $8 million the Bank agreed not to sue any of the Co-borrowers in respect of their liabilities relating to any outstanding amount and released and discharged all the securities it held. It is common ground that all securities held were released and discharged. Apparently coincidentally, the limit of Certain's liability under the RPA is $10 million and so if the Bank succeeds in these proceedings it will have made a full recovery.

17. On 21 August 2001 press releases revealed that the Co-borrowers had entered into a joint venture agreement with TOM.COM Limited, a public listed company, on a basis that would, according to Certain, value the assets that were previously secured to the Bank at some $27 million. There is an issue as to whether there were other assets injected into the joint venture, and as to the value that can be placed on the assets secured to the Bank. But what is clear is that the basis of the joint venture is that the Co-borrowers assets were valued in the joint venture transaction at a substantial sum.

18. On 24 August 2001 Certain's solicitors complained to the Bank's solicitors about the disposal of the secured assets. On 14 September 2001 the Bank's solicitors informed Certain's solicitors informing them, one month after the event, and for the first time, of the Compromise, and the terms which involved a release and discharge of the secured assets.

Certain applies to stop the proceedings in limine:

19. Certain seeks to dispose of the Originating Summons now, on two bases. First, under O. 18 r. 19, and under the inherent jurisdiction, it is contended that the Originating Summons discloses no reasonable cause of action. The argument is that there was, at the time the Originating Summons was issued, no valid demand made of Certain by the Bank. Second, Certain seeks to resolve the matter at this stage was by way of an application under O. 14A r. 1 to determine a point of law on the basis that if the point was decided in Certain's favour it would finally determine the proceedings. The point, in simple terms, is that the release and discharge of the securities held by the Bank, under the Compromise, has the effect of discharging the obligations of Certain to the Bank.

20. The general approach to the construction of a guarantee is that contracts of this kind must be strictly construed so that no liability is imposed on the surety which is not clearly and distinctly covered by the terms of the agreement: Law of Guarantees 3rd Ed., 2000, para 4.02, Andrews & Millett. Thus in cases of ambiguity the contra proferentum rule will normally be applied. Andrews & Millett give the justification for this approach as being that in most cases the contract will have been drafted by the creditor. Notwithstanding the requirement for a strict approach to construction the court must always try to construe the language of the guarantee to give a fair effect to the intention of the parties, to the extent that the language enables it to do so: see Coghlan v Lock (1987) 8 NSLWR per Lord Oliver. I have regard to these principles in the interpretation of the RPA

Has there been a valid demand by the Bank?

21. The general rule is that a guarantor who has not paid the principle debt cannot require the creditor to proceed against the principle debtor or to enforce any securities held for the debt before having recourse to the guarantor: China & South Seas Bank Ltd. v Tan [1990] 1 AC 536, PC; [1990] 1 HKLR 546. But the general rule is always subject to the express terms of the guarantee.

22. The RPA requires, by clause 2.02, that a formal demand must be made of Certain before it will be liable for payment. The clause is in the following terms:

"Payments Under Risk Indemnity. If at any time on or after the Effective Date, the Lender, for whatever reason, fails to receive any Relevant Payment on the due date in respect of the Facility (whether or not by virtue of any acceleration of the loan or termination of the Facility), then the Lender shall give the Participant written notice specifying the Defaulted Amount in relation to such Relevant Payment at the date of such notice (the "Notice"). The Participant irrevocably and unconditionally agrees (as primary obligor and not merely as surety) that upon receipt of a demand following the period specified in Clause 2.04 below (the "Demand"), it will immediately pay to the Lender in Hong Kong Dollars the Defaulted Amount, in accordance with this agreement."

23. The law is clear, and was not challenged by Mr. Chow, that if a guarantee expressly requires a demand to be made on the surety, the creditor cannot sue the surety until he has made such a demand; see: Re Brown's Estate [1893] 2 Ch 300 and Andrews & Millett, above, para 7.02A. In this case, it must be noted that by Clause 2.02 of the RPA a demand can only be made following the period specified in Clause 2.04.

24. Clause 2.04 provides as follows:

"Application and Enforcement. It is agreed by the parties that prior to making the Demand, the Lender shall first use reasonable efforts to enforce its rights under the Security Documents (save for the personal guarantees provided by Mr. Cannon Sum and Mr. Sum Ka Yau and the guarantee provided by the China Media Network Limited) and realise the assets charged or securities thereunder. Failure, for any reason, to realise the assets will not prejudice the rights of the Lender against the participant hereunder. The Lender may serve demand requiring payment under Clause 2.20 above at any time from 90 days after the date that it first gives Notice to the Participant."

The argument was that the express terms of the RPA abrogated the general rule and required the Bank to take enforcement action against the Co-borrowers before the demand could be made. It was conceded that the efforts to enforce the Bank's rights need only be reasonable efforts. But the case for Certain was that the Bank had made no effort at all to enforce its rights at all prior to making the demand, and that accordingly the Bank was not, as at 12 December 2000 entitled to make a demand in terms of clause 2.02 of the RPA. Ms. Eu argued that, on the plain facts, there had simply been no enforcement action and that therefore there could be no valid demand.

25. It was conceded by Mr. Chow, properly on the evidence, that no formal steps had been taken by the Bank in the nature of appointment of a receiver, taking possession of property or the like. Notwithstanding that, he argued that as the evidence established that as there was, at the time of the demand, no realistic likelihood of formal enforcement action achieving anything, the Bank had taken all reasonable efforts to enforce its rights. In other words he argued that the requirement for the efforts to be reasonable meant that in appropriate circumstances no formal enforcement action need be taken. He made that argument, saying however that he did not need to go that far, and that the steps taken to achieve a sale of the business by RSMNW were actions by the Bank to "enforce its rights under the security documents" and that it was a matter for trial as to whether those efforts were reasonable.

26. The concept of a requirement to "enforce" rights has been previously considered by the courts in a number of cases. All turn on their specific facts and the legislation or documents under consideration, but they are useful in arriving at an interpretation of the expression "enforce" in these proceedings.

27. In Musket v Rogers the Elder (1839) 5 Bing N.C. 728, 132 ER 1281 the guarantee did not contain the word "enforce' but instead a provision similar to that in clause 2.04 of the RPA. The provision required the plaintiff to "avail himself to the utmost of any actual and bona fide security, lien or deposit" from the debtor before taking steps against the guarantor. Included in the security was a bill given by an acceptor who was insolvent and had been in prison for two years. It was held that it was not reasonable to require the creditor to sue upon a bill that was hopeless.

28. Next, in Holt v AEG Electric Company Limited [1918] 1 Ch 320 the court considered the Trading With The Enemy Amendment Act 1916 which prevented steps for the enforcement of the rights of creditors without the leave of the Board of Trade. The plaintiff brought an action to establish the liability of the defendant to pay the plaintiff a sum, which was denied. It was argued by the defendant that the bringing of proceedings constituted "enforcement" and that without the leave of the Board of Trade the proceedings could not continue. The court held that the bringing of an action to establish a disputed debt did not constitute "enforcement". Younger J noted in the course of argument:

"I think that the appointment of a receiver in a debenture-holder's action would be a "step for the enforcement of the rights of any creditors". How can it be said that the plaintiff whose claim is absolutely denied by the company and who is said to be entitled to nothing at all is a "creditor"?"

It must be noted that in this case there has never been any dispute by the Co-borrowers as to their liability.

29. In Re John Jones, Ex parte The National Provincial Bank [1932] 1 Ch 548 the court considered the provisions of s 12 of the Agricultural Credits Act 1928. The effect of an amendment to the Act had been that if no enforcement action had been taken by the creditor bank prior to 1 January 1931 the bank was entitled to retain from the proceeds of sale of a farm the whole amount of the debt. If enforcement action had been taken prior to that date a reduced amount only could be retained. On 3 September 1930 the creditor bank had served a formal demand under a floating charge which thereby became fixed. But the bank took no further steps until January 1931 when it appointed an agent to take possession of the assets and sell, a course that took place on 14 January 1931. On appeal, the court held that the act of giving notice, which had the effect of fixing the charge, was a step preliminary to enforcement, but was not itself a step which enforced the security. Enforcement took place, it was held, at the earliest, when the agent took possession with a view to sale.

30. In Mercantile Credit Co Ltd v Cross [1964] 2 QB 205 the question was whether voluntary surrender of goods under a hire purchase agreement constituted "enforcement" of the agreement, a course that was permitted by the Hire Purchase Act 1938 to be only by action. The act of surrender of the goods followed the making of a demand by the creditor upon the debtor's default. It was held that the creditor's acceptance of a voluntary surrender of goods, freely given by the debtor, after the debtor had received full information as to his rights, did not constitute "enforcement" of the creditors rights. Wilmer LJ said at p 212:

"The words to be construed are "enforce any right to recover possession". Those words appear to me to imply some active step being taken. They are not, in my judgment, apt to describe the passive conduct of one who merely accepts the delivery of goods surrendered by consent." (Emphasis added).

31. Finally, in Lonsdale Nominees Pty Ltd. v. Southern Cross Airlines Ltd. (In Liq.) [1993] ACSR 740 the question was whether a letter before action was "a step in the enforcement of the charge" that, if taken within 6 months after the creation of the charge, rendered the charge void in the liquidation under s. 267 of the Corporations Law. The charge holder had written to the debtor recording that it claimed the benefit of the charge and warning that any step in contravention of the rights it had may be met by action. Hayne J in the Victorian Supreme Court found that the letter, being a threat of legal action did not amount to taking a step in enforcement. At p 746 the learned judge said:

There is no doubt that as a matter of ordinary English usage the "enforcement" of a charge refers to compelling the observance of the rights asserted. Thus mere passive receipt of the property the subject of the claimed right would not amount to what ordinary usage would describe as an "enforcement" of that right by the person having the benefit of the right."

At p 747 he said further:

"In the end I consider that one must fall back on the ordinary meaning of the words used in the section, to see whether some action by or on behalf of the chargee is to be characterised as taking a step in the enforcement of the charge.

In my view simply informing another party who claims an interest in the property which is subject to the charge of the existence of the charge, or informing that party of the fact that the chargee claims rights given by the charge is not taking a step in its enforcement. As was pointed out in argument, the every fact of registration of the charge amounts to notice to the world of the existence of the charge and the rights that are claimed. Giving that notice again to a party interested in the property does not in my view amount to a step in the enforcement of the charge. It may be characterised as a step taken with a view to a subsequent enforcement of the charge but having no element of immediate invocation or exercise of compulsive power, I do not consider that it is in itself a step in enforcement of the charge. It is clear from the Act that appointing a receiver or taking possession of the charged property is taking a step in enforcement. Of course they are not the only matters that are or can be steps in enforcement but in my view it is significant that each of those steps is the actual exercise of power given by the charge and that that exercise is against the company in invitum. (Emphasis added).

32. I will deal with the decision in Musket v Rogers separately. Throughout all of the remaining decisions there is a constant theme that the act of enforcement of rights under a security is an act that involves a definitive step, to the knowledge of the debtor, in terms of the security documents, in the nature of an active and actual exercise of the powers of the creditor under the security documents. A mere indication to the debtor by the creditor to the debtor that he ought to observe his obligations or make a payment is not sufficient to constitute an enforcement of rights. Not even notice crystallising a floating charge has been held to be an enforcement of rights under the charge.

33. The relevant period in which the Bank must use reasonable efforts to enforce its rights is the period between the default, April 1998, and the demand, 14 December 2000. The evidence is that the following steps were taken by the Bank during that period:

(i) Default occurred in April 1998;

(ii) On 12 March 1999 a "reminder" notice was sent to the Co-borrowers. At that time the debt stood at $13.3 million;

(iii) On 28 June 1999 the Bank issued a formal demand to the Co-borrowers; At the same time the Bank gave formal notice to Certain of the default pursuant to clause 2.02 of the RPA, but made no formal demand from Certain.

(iii) Between March 1999 and 14 December 2000 the Co-borrowers discussed the debt with the Bank and made various proposals to settle the amount outstanding, none of which were accepted by the Bank;

(iv) On 8 August 2000 the Bank instructed RSMNW, without the knowledge of the Co-borrowers, to make enquires and to prepare an information memorandum for the prospective sale of the Co-borrower's business.

(v) On 28 September 2000 the RSMNW "Information memorandum" was prepared and submitted to two prospective purchasers for consideration;

(vi) On 14 December 2000 formal demand was made of Certain. By that time, with unpaid interest and costs, the debt had risen to $16.5 million.

34. While Mr. Chow said that the evidence was not exhaustive of all the steps taken or considered by the Bank, he was obliged to acknowledge that no formal steps were taken under any of the security documents during the relevant period. It is clear from the facts that the Bank took not one single step that may be characterised as "an act that involves a definitive step, to the knowledge of the debtor, in terms of the security documents, in the nature of an active and actual exercise of the powers of the creditor under the security documents". No receiver was appointed, no possession of property was undertaken, there was no "compelling of the observance" of the Bank's rights, and no compulsive power was exercised.

35. The appointment of RSMNW, the only act upon which, on the evidence, the Bank can rely, was, as described by the Bank's solicitors in the demand, (I 254) a step "with a view to the enforcement of its rights". The Bank's own solicitors did not feel able to characterise that action as an enforcement step. The requirement that a guarantee must be interpreted strictly requires that if the Bank is to make efforts to enforce its rights it must be able to demonstrate efforts which can properly be characterised as steps of enforcement. It cannot do so.

36. I accordingly conclude that the Bank has not, during the relevant period taken any step to enforce its rights under the security documents.

37. The next question that arises is whether "steps" are the same as "efforts". I find no distinction between the two terms. In my view, having regard to the authorities cited, if no step has been taken, it can hardly be said that any "effort" has been applied. The requirement is for the Bank to take "efforts to enforce" the rights, not "efforts to prepare to enforce" the rights. The Bank is relieved of any adverse result by the terms of the clause, a further provision which tells towards a strict interpretation against the Bank. In simple fact nothing was done in terms of the security documents. In my view, the Bank has made no efforts to enforce its rights.

38. The expression "reasonable" plainly qualifies the expression "efforts", and apply to the RPA the principle enunciated in Musket v Rogers. If the evidence is as unequivocal as it was in that case, where there was plainly no prospect whatsoever of recovery of anything, then no efforts need be made by the Bank. Can that be said in this case?

39. Mr. Chow's argument was that the assets of the company were merely "some bus shelters" in the mainland. That may be so. Exhibited were the report and financial statements of Teng Lung, (III 1174-1186), and the draft report and financial statements of Hillgrove, (III 1251-1269), and York Island, (III 1208-1226), each for the year ended 30 June 1999, during which the Co-borrowers had been in default for the entire period. First, those accounts showed that the fixed assets of the Group were valued at $17.6 million at the end of June 1999. Those are the assets which have comprised at least part of the assets that have been the subject of a very substantial joint venture exercise. The accounts show, for the year ended 30 June 1999, a turnover by Teng Lung of $1.1 million, by York Island of $8.3 million and Hillgrove of $8.9 million. Hillgrove's accounts for the year ended 30 June 2000 show a turnover of $11.8 million.

40. It is right that each company operated at a loss, but that is a loss for taxation accounting purposes. As far as a receiver would be concerned there was available income from the Group, in the first year the Co-borrowers were in default, and during which the Bank made no enforcement efforts whatsoever, of some $18.3 million, from which he could draw the expenses of a receivership and perhaps make a reduction in the loan from the Bank. It may be that there is an element of duplication of income in the accounts of York island and Hillgrove, but if that is discounted there is still a group income of $9.4 million in the 98/99 year and $11.8 million for the 99/00 year. In any terms, it cannot be said that there was no prospect whatsoever of any recovery, even of the costs of a receivership. The terms of the Compromise demonstrate that the Co-borrowers themselves considered there was at least $8 million worth of assets or business to preserve by making a payment and entering into the Compromise. That they were right to do so is amply demonstrated by the terms of the joint venture with TOM.COM Ltd.

41. In those circumstances it simply cannot be said that the appointment of a receiver was uneconomic. To the contrary, there was very significant cash flow and a receiver would not be subjected to the same demands upon cash flow that the companies would have to face. The cash flow alone would plainly have been sufficient to meet the costs of a receivership and if nothing more was recovered the Bank was relieved from liability to Certain by the terms of clause 2.04.

42. Further the security documents included more than the debentures with the attendant power to appoint a receiver. There was an assignment of an insurance policy on Cannon Sum. That may have had value. There were share charges of which may have had value. There is no evidence that the Bank made any enquiry as to any of these forms of security.

43. The evidence in this case is not such that it can be said that there was no prospect whatsoever that anything at all would be recovered by enforcement action. In those circumstances neither the principle in Musket v Rogers or the "reasonable efforts" provision do not save the Bank nor excuse them from taking no enforcement action at all. Had some enforcement action have been taken, there might be a question for trial as to whether that enforcement action was reasonable. But in the absence of any enforcement action no question of reasonableness arises.

44. It was also argued by Mr Chow that the provisions of clause 7.02 of the RPA could save the Bank. That is a general provision saving the Bank should it abstain from enforcing any of its rights. As a general provision, it must plainly be read subject to the Bank's specific obligation under clause 2.04, and accordingly cannot be prayed in aid as an answer to default under clause 2.04. Some reliance also was placed on clause 9.02(c) permitting the Bank to refrain from exercising its rights. Again this general provision must plainly be read subject to the specific obligation of the Bank under clause 2.04.

45. For these reasons I hold that no valid demand has been made by the Bank because it has failed to make any efforts at all to enforce its rights under the security documents, as required by clause 2.04 of the RPA.

Does the Compromise release Certain?

46. The summons under O 14A r. 1 seeks the determination of a question of law, namely whether Certain is discharged from liability under the RPA because the Bank, on 14 August 2001 entered into a compromise agreement with the Co-borrowers, without the consent of Certain, in which the Bank released and discharged the security held by the Bank. Mr. Chow did not contend that, if the question, on the undisputed facts, was answered in Certain's favour, the answer would not dispose of the case. This is accordingly a proper case for consideration under O. 14A r. 1. There is no dispute about the relevant facts which are set out above.

47. It is a fundamental principle of the law of guarantees that a guarantor who is required to meet the debtor's liabilities is entitled to call for the securities held by the lender. The securities must be in the same state and condition as they were when originally received by the creditor. Subject to the provisions of the guarantee, the creditor may not act or neglect to act so as to worsen the position of the guarantor, and if by his act or neglect the benefit of a security is lost or diminished, the guarantor will be discharged: see Andrews & Millet above, para 9.14, p. 315. The learned authors describe the surety's rights to call for the securities as "one of the most important rights that a surety has". This right of subrogation does not derive from the contract of guarantee. Andrews & Millet, above, para 11.17 p. 375 describe the position in this way:

"It is a right that arises out of the relationship of surety and creditor itself. Equity intervenes to assist the surety because, he having paid off the principle debt (or at least that part for which he is liable a surety), it would be unconscionable for the principle then to recover the securities from the creditor while remaining under an obligation to indemnify the surety for payment, an d for the creditor to throw the whole liability onto the surety by electing not to avail himself of the security for the guaranteed debt."

48. The law is that a surety may contract himself out of his right to have the creditor's other security preserved for the surety's benefit: Perry v National Provincial Bank of England [1910] 1 Ch 464 CA, Bank of Adelaide v Lorden (1970) 45 ALJR 49 (HCA). I have already referred to the need to interpret contracts of guarantee strictly. If a provision in a guarantee should seek to abrogate a right that is one that is described as "one of the most important rights" a surety may have, and one that if lost to the surety creates an "unconscionable" situation the provision must always be interpreted strictly.

49. The argument for Certain is that its liabilities to the Bank have been discharged by the Bank's action 14 August 2001 in entering into the compromise agreement and releasing and discharging all of the securities it held, without the consent of Certain. Ms. Eu argued that it was unconscionable that the Bank should be able to compromise with the Co-borrowers for a sum less than the whole of the debt, then release them from the securities and turn to Certain for the balance, with Certain not being able to enjoy its right of subrogation. There is moral strength in the argument.

50. The terms of the Compromise are such that the Co-borrowers are not released from personal liability to the bank. The Bank has agreed "not to sue" the Co-borrowers in respect of their liability. Such an agreement by the Bank does not prevent Certain from proceeding against the Co-borrowers in their personal capacity: Mallet v Thompson (1804) 5 Esp. 178, 170 ER 778; Cole v Lynn [1942] 1 KB 142. But the securities held by the bank have been released and accordingly Certain cannot now achieve any priority over any other creditors of the co-borrowers, that might have otherwise been available to a holder of the securities. There is no authority for the proposition that the reservation of a right of a personal action against the debtor is sufficient to meet any obligation the bank may have to preserve the securities for Certain.

51. Instead the Bank relies upon the specific terms of the RPA to say that they were not obliged to preserve the securities. The relevant clause in the RPA upon which the Bank places primary reliance is clause 9.02, in the following terms:

"Enforcement. The Lender reserves the sole right to enforce the obligations of the Co-borrowers or any other party in respect of the relevant documents and may, in its sole discretion:

....

(d) release any of the Co-borrowers or any other party in respect of any obligations under the relevant documents and permit substitutions or withdrawals of security."

52. On its face, Certain has, by this provision, given consent, in advance, to the step that the Bank has taken in the Compromise, that of granting a release to the Co-borrowers from the security documents. Ms. Eu sought to argue that the requirement for strict interpretation meant that unless the clause clearly provided that the Bank could release all of the security documents then the Bank's action in releasing all of the securities would have the effect of discharging the guarantee. In simple terms the argument was that wherever the word "any" appeared in clause 9.02(d), to have the effect sought by the Bank, it should provide "any or all".

53. The expression "any" has been considered by the courts in many contexts. In Beckett v Sutton (1876) 19 Ch D 646 Chitty J said, in relation to the phrase, "any decree or order" in legislation, that the words of the section were "as wide as possible". In Clarke-Jervoise v Scutt [1920] 1 Ch 382 at 388 Eve J described "any" as a word of very wide meaning, and that prima facie the use of it excludes limitation. It may be noted that Stroud's Judicial Dictionary 2000 6th Ed, wrongly attributes this statement to Fry L.J. in Duck v Bates (1883) 12 QBD 79, a decision that is quite unrelated, and in which Fry L.J. did not sit. In Victorian Chamber of Manufacturers v Commonwealth (1943) 67 CLR 335 at 346, per Williams J. it was held in the court that "any" was a word that ordinarily excluded limitation or qualification and which should be given as wide construction as possible. Accordingly the expression "any goods" was held to include all goods except where such a wide construction was limited by the subject matter or the context of a particular statute. In Isle of Wight Railway v Tahourdin (1883) 25 Ch D 320 CA it was held that a notice of an extraordinary general meeting of a company to "remove any of the present directors" justified a resolution to remove them all.

54. There are old cases involving real estate which demonstrate a similarly wide interpretation of the word "any". In Rendlesham v Meux (1844) 14 Sim 249, 60 ER 353, the court held that a power of sale of "any part" of an estate would probably authorise the sale of the whole of it. The same decision was reached independently in Cooke v Farrand (1816) 7 Taunt 122, 129 ER 49. Finally, in South Africa, "any" has been held, in its natural and ordinary sense, to be an indefinite term which includes all of the things to which it relates, unless restricted by the context: Hayne & Co v Kaffrarian Steam mill Co Ltd [1914] AD 37, per Innes JA.

55. I cannot find anything in the terms of clause 9.02(d), or any other part of the RPA that enables me to place a restrictive meaning on the word "any" in order to say that it should not include "all" of the items to which it refers, in this case, the securities held by the Bank. There is nothing in either the context or the subject matter in relation to which the word is used which requires it to be restricted. That being the case I am of the view that the consent given by Certain in clause 9.02(d) to the release of securities by the Bank is a consent to a release of all the securities. It follows that the act of entering into the Compromise by the Bank does not discharge Certain's obligations under the RPA.

56. Having so concluded I do not need to consider whether clauses 7.02, 7.03(iii) or the "sole discretion" provisions in clauses 9.01 or 9.02 assist the Bank.

Conclusion:

57. Certain has succeeded in its argument that no proper demand has been made by the Bank. There being no proper demand upon which the Bank can rely, there is no basis upon which the originating Summons can stand. Accordingly there is no reasonable cause of action and there will be an order that the Originating Summons shall be struck out.

58. There remains outstanding the question of the disposal of the counterclaim and costs, both to be determined in the light of this decision. As to the counterclaim, I expect the parties will be able to resolve the matter by agreement. As to costs there will be an order nisi that the defendant shall have its costs, with a certificate for second counsel.