ZHUHAI INTERNATIONAL CONTAINER TERMINALS (JIUZHOU) LTD v. LO TONG HOI AND ANOTHER

HCA932/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 932 OF 2009

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BETWEEN

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J U D G M E N T

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1.  Wide Tech Shipping Ltd (“Wide Tech”) was a Hong Kong company principally engaged in the business of providing container feeder services by operating barges between ports in Hong Kong and the Pearl River Delta.

2.  Wide Tech started to engage the port facilities and services of the plaintiff, Zhuhai International Container Terminals (Jiuzhou) Ltd (“Jiuzhou Terminal”) from around 1993.  It had continued to use the facilities and services of the plaintiff up until the time it was wound up in November 2009.

3.  The 1^st defendant was a shareholder of Wide Tech and was at different times registered as its director, namely from September 1994 to July 2001, and April 2008 up to the time when Wide Tech was wound up.

4.  The 2^nd defendant had also been a director of Wide Tech and was at one stage a shareholder as well.  The plaintiff’s claim against the 2^nd defendant has been settled.

5.  The arrangement between the plaintiff and Wide Tech is governed by a tariff agreement that was entered into every year.  In brief, the plaintiff would charge Wide Tech for tariff fees for a number of services and for the use of the port’s facilities such as charges for docking, container handling, ship-side handling, etc.  The exact details and whether Wide Tech was paying on behalf of the cargo owners for some of the charges do not matter for the purpose of disposing of the issues in this case.

6.  The evidence shows that towards the end of each year, after negotiation of the charges/fess to be levied under the tariff agreement for the next year, a set of documents comprising the tariff agreement and personal guarantees to be executed would be passed on to Wide Tech.  Typically the manager such as Mr Eddie Chan Wai Kwong (“Mr Eddie Chan”) would sign the tariff agreement on behalf of Wide Tech and the 1^st and 2^nd defendants would execute the personal guarantees after considering the charges to be levied in that tariff agreement.  The documents would then be returned to the plaintiff.

7.  Another practice that had been adopted by the plaintiff and Wide Tech is that the personal guarantees executed in the last year would not be returned.

8.  In around 1998, there was a change of policy within the plaintiff requiring that guarantees should be provided in the form of bank guarantees as opposed to personal guarantees.  This was supposed to be implemented in 1999 but the plaintiff and Wide Tech managed to have an agreement that personal guarantees remained to be in use and two personal guarantees each for an amount of HK$2 million were therefore provided by the 1^st and 2^nd defendants.

9.  By the time the Tariff Agreement for 2000 (“the 2000 Tariff Agreement”) was negotiated at the end of 1999, the request for bank guarantee was repeated.

10.  What happened was that two personal guarantees issued in favour of the plaintiff for an aggregate amount of up to HK$1 million each was provided by the 1^st and 2^nd defendants.  The claim relates to the personal guarantee dated 1 January 2000 executed by the 1^st defendant (“the 2000 Personal Guarantee”).

11.  The plaintiff sues on the 2000 Personal Guarantee seeking to recover HK$1 million from the 1^st defendant.  There is no dispute that the outstanding sum owned by Wide Tech to the plaintiff exceeds HK$1 million after taking into account the sums recovered under the bank guarantee and the settlement with the 2^nd defendant.

12.  The 1^st defendant contends that :

(1)  The 2000 Personal Guarantee ceased to have effect when the tariff agreement of 2000 expired. 

(2)  Alternatively that the 2000 Personal Guarantee was a temporary security and had been superseded by the HK$1 million bank guarantee issued in favour of the plaintiff by Banco Comercial de Macau on 25 May 2000. 

13.  The consideration of these two issues involve the interpretation of the 2000 Personal Guarantee in the light of the factual matrix as well as the finding on an alleged oral discussion between the 1^st defendant and the late Mr Ho Kwok Keung (“Mr Ho”) of the plaintiff.

14.  The persons who were primarily and directly involved in the negotiations of the tariff agreements between the plaintiff and Wide Tech and the details or provision of guarantees were Mr Ho of the plaintiff and Mr Eddie Chan of Wide Tech.  Other personnel were involved only in an indirect way.  Mr Simon Tung Man Chau (“Mr Simon Chau”) who was responsible for the finances and accounts in the Jiuzhou Terminal of the plaintiff discussed with Mr Ho in advance of his negotiations and got reports back from him.  Mr Simon Chau said that he had no reason to assume that Mr Ho would agree to anything contrary to his advice as Mr Ho had to seek his consent for completing the deal.

15.  The 1^st defendant himself was informed by Mr Eddie Chan of the discussions.  Mr Lei Kam Kei (“Mr Lei”) who was responsible for the auditing and commercial matters of Wide Tech was also informed of the discussions by Mr Eddie Chan.  Insofar as hierarchy within Wide Tech is concerned Mr Lei said that Mr Eddie Chan was the manager level to whom he would provide advice but decision rests with Mr Eddie Chan.

16.  Mr Ho of the plaintiff passed away in May 2006.  Mr Eddie Chan was also not called to give evidence.

17.  Part of the evidence before me therefore is confined to what the superiors or colleagues of Mr Ho and Mr Eddie Chan had been internally discussed within the plaintiff and Wide Tech.  The utility of such evidence in the context of ascertaining the factual matrix is limited.

18.  The parties do not dispute that the general arrangements of the tariff agreements do not differ significantly from year to year save for the charges that was to be made. 

19.  The first agreement between plaintiff and Wide Tech was executed on 1 November 1993 (for 1 November 1993 to 31 October 1994) with no request for guarantees and a credit period was provided.  The next agreement was executed on 1 November 1994 for a contractual period of one year (1 November 1994 to 31 October 1995) which had a request for the provision of guarantees :

“保證

在簽約時，乙方須提供如下形式之一的保證作為其結算費用的擔保，金額為合同履行期間平均兩個月的收費額，但其最低金額不少於二百萬元。

1. 保證金

2. 銀行擔保

3. 個人擔保

4. 財產抵押或流資

辦理財產抵押或流資時，須提交財產實物或合法有效的產權證明文件。”

20.  From 1995, the six-yearly tariff agreement and費律表附件stipulated for the provision of guarantee in Clause 3 :

“保證

船公司必須向碼頭提供擔保。該筆金額相等於船公司平均兩個月的操作費，但其最低金額不少於兩百萬港元。”

21.  This same arrangement was repeated in the subsequent six years until the tariff agreement for 2004 which contained a different provision under Article VI :

“保證及付款方式

船公司必須向碼頭提供銀行擔保，該筆金額等於去年十二個月船公司發生的碼頭費中單月最大金額之兩倍，但其最低金額不少於二百萬港元。碼頭按月向船公司結算集裝箱裝卸費、船舶停泊費、吉箱堆存費、等港口使費，當船公司擔保額不夠支付碼頭費時，碼頭有權要求船公司現金支付超出部份的碼頭費，直至船公司提供新的擔保。”

22.  The parties’ evidence was that the requirements of the provision of guarantee under Clause 3 of the費律表附件remains the same throughout though for some reasons neither parties have been able to produce copies of that document for all of the years.

23.  For all intents and purposes, and as can be seen clearly from the wordings of the documents before me, the guarantee that the plaintiff had always required was an amount that represents the equivalent of the two-month charges or a minimum of HK$2 million.

24.  There is also no dispute between the parties that there was a 30 day credit period that was given to Wide Tech and it was explained that that was part of the reason why a guarantee was required.  The other reason for the guarantee is plainly to ensure that outstanding payment would be covered.

Construction of the 2000 Personal Guarantee

25.  The 2000 Personal Guarantee was dated 1 January 2000.  The relevant provisions are :

“1.  Guarantee  In consideration of the Company at any request agreeing to enter into a tariff agreement with Wide Tech Shipping Limited of 25^th Floor, China Overseas Building, 139 Hennessy Road, Wanchai, Hong Kong (the “Carrier”) for the use of the Company’s terminal facilities and loading and unloading services at Zhuhai upon the terms and conditions set out in the copy document attached hereto (the “Agreement”), I Lo Tong Hoi (the “Guarantor”), holder of Macau Identification Card No. 5/065996/0, hereby unconditionally and irrevocably guarantee and undertake with the Company as primary obligor and not merely as surety, that in the event of the Carrier at any time making default in the payment of any fee or charge payable by the Carrier to the Company under the Agreement, the Guarantor will on demand pay to the Company any arrear of such fee or charge as the Company may confirm to the Guarantor in writing from time to time up to the aggregate amount of HK$1,000,000.00, together with interest to date of payment, both before and after judgment, at the rates and on the terms set our in the Agreement and all other charges and expenses (including legal and other costs on a full indemnity basis) incurred by the Company in relation to the enforcement of the Agreement and this Guarantee.

2.  Indemnity Without prejudice to the guarantee contained in paragraph 1, the Guarantor unconditionally and irrevocably undertakes, as a separate, additional and continuing obligation, to indemnify the Company on demand against all costs and expenses whatsoever arising out of any failure by the Carrier to make due and punctual payment of all fees and charges under the Agreement or to duly and punctually observe and perform all its other obligations thereunder …

…

Continuing Security: This Guarantee is a continuing security and covers the ultimate balance from time to time owing to the Company by the Carrier in relation to the Agreement in any manner whatsoever notwithstanding any settlement of account or other matter whatsoever.  This Guarantee is in addition to, and independent of, any other guarantee or security or other remedy now or at any time hereafter held by the Company.  This Guarantee shall be binding on the Guarantor until full and final payment of the ultimate balance from time to time owing to the Company by the Carrier under the Agreement in which case the Guarantor shall be discharged.”

26.  The guarantee does not contain any expressed expiration date, unlike the bank guarantee in this case. 

27.  The 1^st defendant’s case is that the 2000 Personal Guarantee ceased to have effect when the 2000 Tariff Agreement expired.  The debt that the personal guarantee secured relates only to the debts arising under 2000 Tariff Agreement.

28.  The 1^st defendant contends that by Clause 1 of the 2000 Personal Guarantee, the “Agreement” is the 2000 Tariff Agreement by reason of the words in Clause 1 :

“… a tariff agreement ….. for the use of the Company’s terminal facilities and loading and unloading services at Zhuhai upon the terms and conditions set out in the copy documents attached hereto (the ‘Agreement’).”

29.  The plaintiff contends that the Agreement referred to was “the terms and conditions set out in the copy document attached hereto (the ‘Agreement’)”, namely, a set of standard terms and conditions by which certain arrangements were to be implemented for the execution of the tariff agreement and which Wide Tech acknowledged receipt of a copy of that in May 1996.  There is no evidence to suggest that there has been any change to that document nor that document was ever attached to the 2000 Personal Guarantee in 1999/2000 or indeed in any other years.  What was provided by the plaintiff each year was only a tariff agreement and the relevant personal guarantees.  At each year, the parties would only re-agree the relevant rates for the tariff that was to be charged by the plaintiff and it was the plaintiff who then provided a draft personal guarantee for the defendants to execute.

30.  The set of standard terms and conditions cannot be “the Agreement” referred to in Clause 1 of the 2000 Personal Guarantee.  “The Agreement” can only relate to the tariff agreement that was attached to the personal guarantees which the defendants were requested to provide.  For the 2000 Personal Guarantee, it will be the 2000 Tariff Agreement. That tariff agreement allows Wide Tech to use the plaintiff’s terminal facilities and loading and unloading services upon certain terms and conditions.  The terms and conditions themselves cannot be said to be an agreement in any way.  It is the 2000 Tariff Agreement that the 2000 Personal Guarantee is referring to and defined as the “Agreement”.

31.  It follows naturally that in relation to the wordings in the 2000 Personal Guarantee, the indemnity was for costs and expenses and other fees and charges incurred under the 2000 Tariff Agreement and the continuing security is also to cover the balance from time to time owing to the plaintiff by Wide Tech in relation to the 2000 Tariff Agreement.

32.  I therefore conclude that upon a construction of the 2000 Personal Guarantee the relevant debt that the 2000 Personal Guarantee was to provide a security for relates to the 2000 Tariff Agreement that was entered into at the time of this 2000 Personal Guarantee.  Similarly, the continuing security must be understood in the same way.  It continues and remains in force until the expiration of the full payment of the charges arising from the 2000 Tariff Agreement.

33.  The personal guarantee was drafted by the plaintiff and the 1^st defendant invited me to refer to the contra proferentem rule if necessary.  However I do not see the need for that as it is plain to me that the “Agreement” is the 2000 Tariff Agreement.

34.  The fact that previous personal guarantees were never returned and a new one was issued every year also reinforces my findings on the interpretation of the 2000 Personal Guarantee.  Not only did the parties understand at all times that the personal guarantee expired with the relevant tariff agreement, it is also consistent with the wordings to which I have dealt with above.  That is why, when a new tariff agreement was to be signed, the new personal guarantee was attached and the previous guarantee did not have to be returned or cancelled.

35.  I therefore conclude that the plaintiff’s claim is dismissed.

36.  As evidence had been led to deal with the 1^st defendant alternative case, I deal with this briefly below.

Alternative defence

37.  This alternative ground of defence is premised upon an oral agreement reached between Mr Ho and the 1^st defendant.

38.  It is not in dispute that in late 1998 the plaintiff requested Wide Tech to provide a bank guarantee for the amount of HK$2 million.  This request was repeated in late 1999.

39.  The 1^st defendant gave evidence that Mr Ho and himself had further discussed the requirement of the HK$2 million bank guarantee.  Thereafter, the 1^st defendant said that Mr Ho agreed that a HK$1 million bank guarantee would be acceptable.  As a result, he said that two personal guarantees of HK$1 million each were provided by the plaintiff together with the 2000 Tariff Agreement in accordance with their oral agreement for execution.  This was the case because the obtaining of the bank guarantee would require time and the 1^st defendant said that after the provision of the bank guarantee, the two personal guarantees would then be superseded or replaced by the bank guarantee.

40.  Mr Simon Chau of the plaintiff disagreed that there was any such agreement.  He maintained that the plaintiff had always wanted HK$2 million bank guarantee but was willing to temporarily accept a replacement of HK$1 million bank guarantee with two personal guarantees of HK$1 million each because of the long working relationship with Wide Tech and their desire to also keep the business.

41.  I find the evidence of the 1^st defendant inherently improbable.

42.  There does not seem to be any plausible reason proffered as to why a request for a HK$2 million bank guarantee would be amended to a HK$1 million bank guarantee.  Importantly, that purported agreement of a HK$1 million bank guarantee would be contrary to the expressed stipulation in the past tariff agreements and the 2000 Tariff Agreement to be executed which required the minimum amount of the guarantee to be HK$2 million in Clause 3.  Furthermore, whilst there are some differences in the reading of the Debtor Aging Analysis table that was prepared by the plaintiff for the purposes of this action (printed on 21 December 2010) it can be seen that in year 1998, the average turnover was above HK$1 million. By the time of negotiating for the year of 1999, the turnover of Wide Tech had further increased.  It is illogical and makes no commercial sense therefore that a lesser amount of bank guarantee would be acceptable.  In other words, whatever the form of the guarantee, it does not make commercial sense that a lower amount than HK$2 million could have been agreed to by Mr Ho.

43.  Given that the plaintiff had consistently requested for the guarantee to be of an amount of HK$2 million as well as Mr Simon Chau’s explanation of the shortcomings of personal guarantee as compared to a bank guarantee, I find that what the plaintiff and Wide Tech had agreed upon at the time was the provision of HK$1 million bank guarantee and HK$2 million personal guarantees.

44.  As a result, the evidence does not show that there has been any agreement or understanding that could reasonably be inferred to suggest that when the HK$1 million bank guarantee was issued, the two personal guarantees of HK$1 million each would be superseded.

45.  I therefore would dismiss this alternative ground of defence relied on by the 1^st defendant.

Miscellaneous

46.  The parties differed as to the reason for the provision of another HK$1 million bank guarantee in 2004.  There are post-events and do not affect the decision above.  I deal briefly with them below.

47.  The 1^st defendant said it was a result of the increase in the tariffs that were incurred by Wide Tech at the time.  He was taken to, on his request, a document dated 26 November 2003 from the plaintiff to Wide Tech setting out why HK$2 million was requested.  In that letter, the plaintiff pointed out that seven out of the nine months from January to September 2003, the monthly tariff incurred exceeded HK$1.9 million and was in excess of the HK$1 million bank guarantee that was already provided.  As a result, he said, they asked that for the year 2004 the bank guarantee be increased to HK$2 million.  The plaintiff then referred to this letter and other letters issued on 27 April 2001 and 6 May 2002 to show that all along they had been requesting for HK$2 million bank guarantee.  I prefer the plaintiff’s case as it is more consistent with the contemporaneous evidence.

48.  In the event, on 27 May 2004 a bank guarantee for the amount of HK$2 million was issued with a validity period of one year.

49.  Mr Lei also gave evidence regarding certain hand written comments said to have been made by Mr Eddie Chan to him marked on a letter from the plaintiff to Wide Tech dated 3 February 1999.  The gist of that note was that if the payments by Wide Tech would be punctual from January to June 1999, then personal guarantee could be used instead of bank guarantee.  The handwritten note suggested that that was an oral undertaking (口頭承諾) of Mr Ho.  This handwritten remark was, according to Mr Lei added shortly after the receipt of this 3 February 1999 letter.  By that stage, the tariff agreement for the year 1999 and the personal guarantee that were executed with it had already been issued.  What was being discussed, upon reading of the contents of the letter and that note would be that the HK$2 million bank guarantee requested for 1999 could be replaced by personal guarantees.  It did not amount to an agreement to accept personal guarantees for future arrangements.  This has to be and was negotiated year by year.

50.  There is a challenge raised by the 1^st defendant regarding the authenticity of a particular document which the plaintiff sought to refer to in showing that the 1^st defendant was aware of the events that were happening at all material times.  There are a number of other documents, exchanged between the parties that show that the 1^st defendant was involved at the material times.

51.  The document is a document that has been retrieved from the Commercial Bureau of Zhuhai (珠海工商局) and the letter head was clearly that of Wide Tech.  Whether Wide Tech misrepresented anything to the Commercial Bureau is not a matter that I need to be concerned with here because the 1^st defendant said that he was not the Chairman (董事長) at all times as represented in that document.  I have seen the original of a set of documents retrieved from the Commercial Bureau in Zhuhai which contained a copy of the challenged document.  I am satisfied that the company Wide Tech must have caused that particular document to be filed although I make no findings as to whether the signature was the 1^st defendant’s.

52.  The parties also referred to the provision of a 30 day payment credit period.  It was said that was at least one of the reason why a guarantee was required.  The plaintiff’s contention is that it makes no commercial sense if the personal guarantee in fact had expired when there were gaps in the years 2001, 2006 and 2007 whereby there was no bank guarantee that was in force.  That is purely a matter of internal arrangements of the plaintiff.  The fact that they chose to take risk or fail to realise that they were taking risk by reason of its own understanding of the meaning of the document does not affect the construction of the 2000 Personal Guarantee as set out above.  The subjective intention or understanding of the parties post contract cannot be relevant.

Conclusion

53.  The plaintiff’s claim is thereby dismissed.

54.  I make an order nisi on costs that the plaintiff shall bear and pay the 1^st defendant’s costs on a party and party basis, to be taxed if not agreed.