SUMIKIN BUSSAN INTERNATIONAL (HK) LTD. v. KING SHING ENTERPRISE LTD. AND ANOTHER

HCA4761/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.4761 OF 2001

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J U D G M E N T

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1. The 2nd defendant is appealing against a decision of the Master entering final judgment against him in the sum of US$618,331.26, with interest, under Order 14 of the Rules of the High Court.

The background

2. The plaintiff has sued the 1st defendant for asphalt supplied as per four invoices, two dated 18 September 1996 and two dated 27 August 1996. The plaintiff has sued the 2nd defendant under a guarantee dated 22 July 1996, signed by the 2nd defendant as guarantor. The 2nd defendant is a director of the 1st defendant.

3. The preamble in clause 1 of the guarantee provides as follows :

"In consideration of SBIHK (i.e. the Plaintiff) at the guarantor's request from time to time supplying goods on credit or otherwise giving credit or granting time to or on the account of asphalt business of King Shing Enterprises Limited (hereinafter referred to as 'the Principal') (i.e. the 1st Defendant), I/We the undersigned hereby jointly and severally guarantee to and agree with SBIHK as follows:

(1) The guarantor will pay SBIHK on demand and hereby guarantee the repayment to SBIHK on demand of all sums of money which now are or shall hereafter become due to SBIHK from the Principal in respect of any dealing or transaction on account of or for the benefit or accommodation of or at the request of the Principal together with all interest, costs, commission and other charges and expenses which SBIHK may charge against the Principal or may incur in enforcing or obtaining payment of the sums of money due to SBIHK from the Principal as SBIHK in their absolute discretion think fit."

4. Clause 3 provides that the guarantee shall be a continuing guarantee to the extent, at any one time, of US$1 million only.

5. The 2nd defendant filed his first affirmation before the Master on behalf of himself and the 1st defendant. He stated that :

(a) Dolly Enterprises Pte. Limited, a Singaporean company owned by him, as opposed to the 1st defendant, was the contracting party of the asphalt business; and

(b) he agreed to enter into a guarantee for the cotton business between the plaintiff and another company in his group and not for any asphalt business.

6. He recalled being given a guarantee form in blank, but he did not recall signing it. He never gave any guarantee for the asphalt business of the 1st defendant or any other party.

7. The 2nd defendant stated in his first affirmation that on 16 July 1996, six days before the alleged guarantee dated 22 July 1996, the plaintiff sent a letter to him requesting him to give a guarantee in a different form, covering only two letters of credit. He refused to sign it. It was therefore highly unlikely that a guarantee in a more sophisticated form for the same business as in the guarantee dated 22 July 1996 was produced by the plaintiff one week later. He said he certainly did not sign such a form guaranteeing the asphalt business.

8. Summary judgment was entered against the 1st and 2nd defendants. Both the 1st and 2nd defendants appealed against the order. The 1st defendant now indicates that they will not maintain the appeal.

The second affirmation of the 2nd defendant

9. The 2nd defendant sought to introduce new evidence for the appeal by way of a second affirmation dated 6 August 2002. The 2nd defendant now stated that in mid-July, a Mr Nakajima of the plaintiff handed him a guarantee in blank to sign. He agreed with Mr Nakajima that it was a guarantee for the cotton business. It is now said to be the guarantee for the asphalt business on which this action was based. He did not sign any guarantee for the asphalt business, and that was understood between them. Mr Wither, for the 2nd defendant, applied for leave to file the second affirmation.

10. The 2nd defendant explained that the delay in filing the second affirmation was due to the fact that the transaction took place in 1996 and he had to look through the files, and he was ill with pneumonia in the meantime. Mr Wither mentioned that the 2nd defendant had indicated in the first affirmation that he was still looking through the files. He was willing to concede to an adjournment on costs.

11. Mr Li, for the plaintiff, objected to the late filing of such affidavit. He said the 2nd defendant had ample opportunities to prepare his case. The Statement of Claim was issued on 5 November 2001, three times summonses were taken out by the defendants, and the defence was filed on 11 January 2002. Further, at the Order 14 call-over on 15 April 2002, the Master ordered that at the request of the 2nd defendant, the filing of a second affirmation within 21 days, with right of reply to the plaintiff. The 2nd defendant purported to file the second affirmation just three days before the appeal with no prior intimation, and it amounted to questionable tactics. At any rate, Mr Li indicated that he would not be seeking an adjournment to file the affidavit in reply, in any event.

12. I see that there was a change in stance from the assertion of not recall signing a guarantee and not signing a guarantee for the asphalt business, to the assertion of signing a guarantee in blank intended for the cotton business, which became a guarantee for the asphalt business. There is quite a difference, but not so radical to have caused prejudice to the plaintiff.

13. In the exercise of my discretion, I grant leave for the 2nd defendant to file a second affidavit.

The legal principles

14. The principles in an Order 14 application are well settled : Banque de Paris v. Costa de Narray [1984] 1 LR 21 per Lord Justice Ackner, at page 23 :

"It is appropriate to be reminded of the principles applicable to an Order 14 application. They are well-known and in fact not disputed by the parties. The Plaintiff (a Defendant to the 2nd Defendant's counterclaim) must show that there are triable issues. He has to satisfy the court that he has a 'real or bona fide defence'."

Re Safe Rich Industries Limited [1994] HKLR 115, Bokhary JA (as he then was) :

"The test at the summary stage is indeed as simple as whether the defendant's assertions are believable, but it must be recognised - because failure to recognise it would create a debt-dodger's charter - that whether the defendant's assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as either undisputed or beyond reasonable dispute."

Ng Sui-kei v. Chong Mee-mee [1991] 1 HKC 693 per Yeung J (as he then was) at page 694G-H :

"It has been well established that the mere assertion in an affidavit of a given situation which is to be the base of a defence does not ipso facto provide leave to defend, and a court must look at the whole situation and ask itself whether the defendant has satisfied the court that there is a fair and reasonable probability of the defendant having a real or bona fide defence."

Lastly, I will refer to the caution by Godfrey JA in Ng Shou-chun v. Hung Chun-san [1994] 1 HKC 155, at 158F-G :

"I would sound a note of caution about Murjani, which has come to be cited in almost every case under Order 14 or Order 86 to justify the plaintiff in asking the court to embark upon a minitrial of the action on affidavit evidence. That is not a proper course for the court to take. It will in future be sufficient for the court to ask itself the simple question: 'Is what the defendant says credible?' If so, he must have leave to defend. If not, the plaintiff is entitled to summary judgment. The issue is not whether the defendant's assertions are to be believed; it is whether those assertions are believable."

Whether real or bona fide defence

15. Mr Wither submitted that the guarantee was signed in blank and understood to be for the cotton business only. It was materially altered to be for the asphalt business, and it was void and of no effect. Mr Wither submitted that if the 2nd defendant had refused to sign the one-page guarantee proposed by the plaintiff in the letter dated 16 July 1996, there was no reason for him to sign the eight-page guarantee dated 22 July 1996.

16. Mr Li submitted that the 2nd defendant's defence of signing the guarantee in blank is simply not credible or believable. Firstly, the allegation was raised for the first time at a very late stage in the second affidavit. The plaintiff's solicitors sent a demand letter dated 18 January 2001 to the 2nd defendant for the sum sued, citing the guarantee dated 22 July 1996. There was no correspondence in writing protesting the falsification or invalidity by the 2nd defendant.

17. Secondly, while the 2nd defendant alleged the guarantee was signed in blank, the copy of the guarantee produced by him with the first affidavit contained a front page identical with the copy produced by the plaintiff which stated that the guarantee was for the asphalt business. There was no explanation whatsoever why this completed guarantee relating to the asphalt business was in his possession, nor was the guarantee relating to the cotton business produced.

18. Thirdly, the signing of a blank guarantee and the refusal to give any guarantee for the asphalt business was contrary to commercial sense and the tenor of the contemporaneous documents. The asphalt business was first proposed by the 2nd defendant to the plaintiff in a fax dated 1 July 1996. The issue of the guarantee was raised by the 2nd defendant :

"As for the payments against the above LCs, we will arrange from Hong Kong according to your requirements. Besides, we give our full guarantee for payment. If you have any further query, please inform to us immediately."

Then the plaintiff, by letter dated 16 July 1996, sought a guarantee, albeit in a shorter form, from the 2nd defendant. There was no correspondence from the 2nd defendant in rejecting either form of the guarantee. On the other hand, on 12 July 1996, the plaintiff did request the 2nd defendant to give security for the payment of the asphalt by way of property or other valuable assets in Singapore by the end of October. On 15 July 1996, the 2nd defendant did promise to provide such security, though he never did. It was submitted that what the 2nd defendant said about refusing to give the guarantee must be viewed in the context of the plaintiff's likely reaction to the shipment of the asphalt.

19. Mr Wither relied on Billion Silver Development Limited v. All Wide Investments Limited [2002] HKC 262 for the proposition that even if the court comes to the conclusion that the defence being run by the defendant was shadowy, if there were such issues concerning the plaintiff's case which the court could not leave unresolved, the correct course was to give unconditional leave to the defence so that all the matters could be ventilated at the trial. Mr Wither raised the following suspicions on the plaintiff's case :

(a) the shorter form of the guarantee as per the plaintiff's letter dated 16 July 1996 was never given;

(b) the plaintiff has not mentioned the guarantee dated 22 July 1996 until the demand letter dated 18 January 2001, and even then there was no express mention of the asphalt business;

(c) on 3 September 2001, the plaintiff's solicitors enclosed a repayment agreement for the 2nd defendant's signature and agreement included provision for guarantee for the debt of US$618, 331.26;

(d) the 2nd defendant has only promised to provide security to Singapore, and no reference was made to a guarantee;

(e) the plaintiff delayed for five years before bringing the action; and

(f) neither Mr Nakajima nor Mr Takahashi, the plaintiff's representative in the asphalt business, has deposed to the circumstances of the signing of the guarantee dated 22 July 1996.

20. Mr Wither queried if the plaintiff has the valid guarantee all along, why it has delayed in relying on it and why it had to request a new guarantee.

21. Mr Li referred to the correspondence, and submitted that the parties were in negotiation for repayment as early as January 1997. It is clear beyond peradventure that the guarantee mentioned in the demand letter was relied on for the sum sued, and after the demand letter there was neither response nor protest to it. The cover letter of the repayment agreement stated that the agreement was prepared at the 2nd defendant's request, and the guarantee sought was reduced from US$1 million to the actual invoice prices of US$618,331.26. Hence there was no undue delay or any suspicion to it.

22. Mr Li referred to Lady Anne Tennant v. Associated Newspaper Group Limited [1979] DR 298 per Megarry V-C :

"A desire to investigate alleged obscurities in the hope that something will turn up upon the investigation cannot separately or together, amount to sufficient reason for refusing to enter judgment for the plaintiff. You do not get leave to defend by putting forth a case, that is all surmise and micawberism."

23. The plaintiff is suing on the signed guarantee which is otherwise complete and regular on its face. The 2nd defendant raised the defence of material alteration, or indeed falsification of the guarantee. It is a very serious allegation to make. Not only did it begin and end with a mere assertion, it leaves a lacuna in the explanation as to why the guarantee produced by the 2nd defendant was complete and relating to the asphalt business and why no protest upon its validity was made earlier, save at this 11th hour. Mr Wither quite rightly said he could not explain on behalf of the 2nd defendant why that was so, save he could point to a request by the defendant's solicitors for a copy of the guarantee in November 2001 and a copy was later provided. Be that as it may, I accept Mr Li's submissions, except that the point on the giving of the valuable security in Singapore was neutral.

24. The 2nd defendant's defence is simply incredible or unbelievable at all. There is no reasonable probability of a real or bona fide defence.

25. The considerations in the Billion Silver case are different. The plaintiff sued on the signed IOUs but the defendant had produced documentary evidence to show the loan agreement was a sham. Here, I do not see there is any moment in the so-called suspicions. They are neutral in themselves, and even taken together, in no way goes to bolster the 2nd defendant's lame defence. They fall by the wayside with the defence and leave me in no doubt of the plaintiff's claim.

26. In the premises, both appeals by the 1st and 2nd defendants are dismissed.

27. The costs of the appeal, including the application for leave to file the second affirmation of Mr Mody, are to be paid by the 1st and 2nd defendants to the plaintiff.