ABBOTT WILFRED LIGHTER AND ANOTHER v. HANNAH ZION

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. In December, 1983 the Plaintiffs held 25% of the shares in Mei Yee Limited and John Allen Limited ('the two companies') both of which were involved in the jewellery trade. The remaining shares in the two companies were held by the Defendant and two others, one of whom was John Rae and the other John Ip. In order to secure credit facilities for the two companies each of the four shareholders had given personal guarantees to the lending banks one of which was the Algemene Bank Nederlands N.V. ('ABN').

2. The Plaintiffs' case is that at sometime prior to 29th December, 1933 there was a meeting of all four shareholders at which it was agreed that, in consideration of the Plaintiffs' transferring their shares to a trust company of which the Defendant was the beneficiary, the Defendant, Rae and Ip would indemnify the Plaintiffs against any present or future liabilities which might attach to the Plaintiffs by virtue of their involvement with the two companies.

3. The Defendant, both in her pleadings and her evidence denied that she attended any such meeting but admitted signing, with Rae and Ip, a letter dated 29th December, 1983 addressed and delivered to the Plaintiffs which, after referring to "our recent conversation" went on as follows:-

"...... we wish to confirm the following with you: -

1.    We agree to pay you at least your initial investment of US$15,000.00, if we are able within a year to  the losses that have been incurred.

2.    We have discussed with ABN Bank the possibility of you no longer being shareholders, and they stated that upon the receipt of the documents showing evidence of this, that they will release your personal guarantee.

3.    That upon the signing by you of the transfer of shareholdings we will not the hold you responsible for any liabilities.

We trust that this letter which is in the form of an agreement between us is to the satisfaction of all parties."

On 4th February, 1984 the Plaintiffs wrote to ABN, as follows:-

"This letter is by way of confirmation of your discussions with Mr. John Rae and (the Defendant) of our transferring our shareholdings in (the two companies) to the above individuals.

I have been informed by the present shareholders in writing that in their discussions with your bank, you have stated that upon receipt of documents showing evidence of this transfer that you will release all our personal guarantees in support of these two companies.

...... we would appreciate your written confirmation of the above ...."

On 14th February, 1984 ABN replied as follows:-

"......

In reply, we wish to inform you that we have no objection to release your personal guarantees provided all the documentation for the transfer of your shares for both companies are completed."

4. The "documentation for the transfer" was completed on or about 12th March, 1984 and ABN was informed of that completion by the auditors of the two companies.

5. In November, 1985 ABN instituted proceedings for the recovery of advances mace to the two companies. Nothwithstanding the implied promise to release the Plaintiffs from their personal guarantees on completion of the documentation for the transfer of their shares, ABN joined the Plaintiffs as Defendants in the action with the two companies, Rae, Ip and the Defendant. The Plaintiffs unsuccessfully sought to have the action struck out insofar as it affected them, institutes an action against ABN seeking a declaration that they had been released from their guarantees and served a Notice of Contribution on the Defendant in ABN's action. ABN's action and the Plaintiffs' were consolidated. Eventually, after prolonged negotiation, ABN, the Plaintiffs and the Defendant consented to the discontinuance of the consolidated action with no order as to costs.

6. It is agreed that the Plaintiffs' costs in the consolidated action amounted to $265,028.30. It is that amount which the Plaintiffs seek to recover from the Defendant in this action.

7. The Plaintiffs are husband and wife. Their evidence was that they had invested in the two companies in 1976. In about September, 1983 the auditors' report caused them concern about the financial standing of the two companies.  The Plaintiffs owned their own home in Repulse Bay Road and they were extremely worried that that if they continued their personal guarantee there was a grave risk that they might lose that very valuable asset. It was, therefore, on their initiative that a meeting was called and held at their home for the purpose of discussing the means by which they could avoid that risk. When they were called upon some years later to give particulars of the date of the meeting they relied on a note in the husband's diary which referred to such a meeting arranged for 22nd December, 1983. During the trial, however, after having examined the Defendant's passport which showed that she was absent from Hong Kong from 14th December, 1983 to 16th January, 1984 they concluded that the meeting must have been held sometime in late November because the husband was absent from Hong Kong from 2nd December to 17th December. But, whatever the date of the meeting, they were certain that it was before 29th December and that the Defendant was present. The occasion was indelibly impressed on their memories because the wife was emotionally upset by the thought that their home was at risk. The husband's evidence was that when the Plaintiffs told the others what they were worried about, the Defendant and John Rae said that they understood their concern but that the Plaintiffs would have nothing to worry about if the Plaintiffs transferred their shares to them. According to him, what they said was to this effect: "If you transfer your shares to us you will have no further liability. Turn your shares over to us and you are finished. We will assume total responsibility for anything that may occur while the shares are being turned over and after." When he and his wife asked for that to be put in writing the Defendant and Rae agreed and fulfilled that agreement by supplying the letter dated 29th December, 1983. He summed up the meeting by saying that the predominant features in his recollection of it were the presence of the parties, the agreement that the Plaintiffs' links with the two companies were to be released, the assurance that the Plaintiffs would be at no risk once the shares were transferred, the Plaintiffs' agreement to transfer the shares and the agreement of the others to give the Plaintiffs a letter confirming the agreement. He said that the letter dated 29th December, 1983 is the letter provided to confirm the agreement but that it is a "brief precis" of what occurred, that the Plaintiffs relied on the Defendant's word and that it would have been offensive if anyone had suggested getting a solicitor to reduce their agreement to writing. In cross-examination he was asked: "When you received tire letter was it to your satisfaction?", and he replied: "In terms of all that was discussed, yes." He was then asked: "Did you try to amend it?", and his reply was: "No. I took no legal advice whatever but depended upon the word of (the Defendant)."

8. The wife's evidence about the meeting was: "We discussed with (Ip, Rae and the Defendant) about the state of the companies and, as we were very concerned, the agreement was that if my husband and I signed over our shares we would then be released from the bank guarantees and we would therefore be totally out of the companies and liability." Later, she said: "Liability was to encompass any exposure to the situation. We would be covered in all aspects because of the close and personal relationship." She said that she thought the letter of 29th December, 1983 was fair and covered the points they had agreed upon.

9. The Defendant's evidence was that she did not attend any such meeting and that she did not sign the letter until her return from the United States on 16th January, 1984. On the night of her return John Rae had telephoned her at her home saying that he had papers for her to sign, that he came to her house at about 11 p.m., explained about the letter and she then signed it.

10. She was closely cross-examined by Mr. Whitehead, for the Plaintiffs, on her evidence about the circumstances under which she came to sign the letter. Although she did appear to be somewhat unsettled by the vigorous manner in which the cross-examination was conducted, I found her version of the circumstances acceptable because it was quite consistent with acceptable evidence given by the Plaintiffs and with other facts accepted by both sides. I accepted the Plaintiffs' evidence that they were deeply concerned about the risk of losing their home and that they were pressing the other shareholders to agree to releasing them from exposure to that risk. It is understandable that the Plaintiffs would be anxious to have confirmation in writing of an oral promise to release them, whether that promise was directly given by each of the other shareholders as the Plaintiffs said, or directly by some and indirectly by proxy on behalf of others, as the Defendant's evidence implies. On the evidence of the Defendant's movements at that time she could not have signed the letter in Hong Kong before 16th January, 1984. By that time, on the Plaintiffs' evidence the oral agreement was then some six weeks old and the written confirmation of it was more than two weeks old and awaiting only the Defendant's signature to ease the Plaintiffs' tension. There is no evidence which contradicts the Defendant on this point so I accept her evidence that she did sign the letter immediately on her return to Hong Kong in the way she described. I do, of course, accept that the cross-examination did make its central point, namely, that the Defendant was more familiar with the terms of the agreement set out in that letter than she was prepared to expressly concede.

11. As to the Defendant's presence at a meeting at which an agreement was reached which led to the issue of the letter of 29th December, it is now obvious, and accepted by the Plaintiffs, that the Defendant could not have attended any meeting at their home in Repulse day on 22nd December, 1983. On the other hand, the person who prepared the letter dated 29th December, 19L3 must have had sound reason to believe that the Defendant was in agreement with it and would sign it. The letter also indicates that the Defendant was present at some conversation with the Plaintiffs which led to the agreement of which the letter was intended to be written confirmation. When cross-examined by Mr. Wong, Mr. Lighter agreed that, in an affidavit sworn by him on 6th January, 1986 in the discontinued proceedings begun by ABN, he said as follows:-

"In or about December, 1983 a meeting took place at my home in 20 Repulse Bay Road between myself, my wife and John Allan Rae, the 4th Defendant in this action, at which it was agreed that my wife and I would resign our directorships in (the two companies) transfer our shares as requested by the other Directors and, subject to the approval of (ABN) be released from our Guarantees."

12. His explanation for the omission of the Defendant's name in connection with that meeting was that the description given in an affidavit in other proceedings in which the Plaintiffs and the Defendant were on the same side was "a simplification of the occasion."

13. Mrs. Lighter, in her evidence, said there were further meetings with Rae after the November meeting but she could not be exact about the dates.

14. In view of the concern of the Plaintiffs about the financial standing of the two companies towards the end of 1983, I do not think that the other shareholders would nave delayed for more than a month to negotiate with ABN and reduce the terms of their agreement to writing. I find nothing in the evidence which satisfactorily explains why, if final agreement was reached in late November, it was necessary to arrange or hold the meeting, which, on Mr. Lighter's evidence, was booked for and/or held on 22nd December. That date is so close to the date of the letter confirming the "recent conversation" as to make it understandable that the Plaintiffs would put it forward as the date when the oral agreement was reached. It is also the date which they would have put forward in evidence had it not been for the incontrovertible evidence of the Defendant's absence from Hong Kong on that date. I think therefore that Mrs. Lighter was right in her recollection that there were discussions with the Defendant before she left Hong Kong and that there were further discussions with Rae after the late November meeting. I find her evidence to be consistent.  With what must have been the fact, namely, that discussions continued with Rae during the Defendant's absence. I find that the Defendant was not present when the Plaintiffs had the final discussion with Rae which led to the writing of the letter dated 29th December.

15. On the other hand, the contents of the letter and the Defendant's readiness to sign it immediately on her return from the United States, lead me to find that she must have reached some form of agreement in principle with the Plaintiffs before she left Hong Kong, and/or conveyed her agreement with the terms of the December letter to whoever drafted it.

16. The Plaintiffs in cross-examination agreed that that letter fairly expressed the terms of their agreement. I accept Mr. Wong's submission that by those terms there was no promise by the Defendant to indemnify the Plaintiffs in respect of the costs they incurred in the discontinued action. The Plaintiffs incurred those costs, not through any failure by the Defendant to keep her promise, but through the failure of ABN to keep a collateral promise. I therefore further agree with Mr. Wong that in order to succeed the Plaintiffs must establish a term, not expressed in the letter, by which the Defendant undertook to indemnify the Plaintiffs in respect of any costs, howsoever incurred by them, as a result of their involvement with the two companies.

17. It was the Plaintiffs' case that the Defendant had given such an oral undertaking. Relevant to this issue is Mr. Lighter's acknowledgment in cross-examination that the Plaintiffs' claim for contribution from the Defendant in the consolidated action relied, not on any oral term in their agreement, but exclusively upon the terms of the letter of 29th December, 1983.  Mr. Wong also elicited evidence from Mr. Lighter that he had paid half of a $5,000,000 claim against the two companies made by another bank in 1984. The cross-examination on that matter then continued as follows:-

18. Later in his cross-examination he said that the payment to Hong Kong Bank had no bearing on this case and, in re-examination, said: "I was not in fact released from the Hong Kong Bank (guarantee) although I thought I was going to be I had no defence to the Hong Kong Bank so I had no choice but to make a payment."

19. I find that attitude inconsistent with a belief that the Plaintiffs had been indemnified by the Defendant in respect of all claims against them arising out of their involvement with the two companies. That attitude, the inconsistent descriptions (in the affidavit of January, 1986 and in evidence before me, of the composition of the all-important meeting), the inconsistency between the claim made in the Notice of Contribution and the claim now made and the terms of the December letter lead me to prefer the evidence of the Defendant and find that she did not make an oral promise to indemnify the Plaintiffs as they allege.

20. I therefore dismiss the Plaintiffs' claim and make an order nisi that the Plaintiffs pay the Defendants costs of this action, to be taxed if not agreed.