CHONG HING BANK LTD v. PERFECTA DYEING, PRINTING & WEAVING WORKS LTD AND OTHERS

HCA 956/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 956 OF 2008

----------------------

----------------------

------------------------

J U D G M E N T

----------------------

Introduction

1.  These are Order 14 proceedings in which the Plaintiff bank has obtained judgment from Master Yu against the three Defendants in the sum of HK$19,154,411.29 and US$495.61 together with interest on those amounts [see Documents Bundle 27A].  This is an appeal from that Order.

2.  The Plaintiff has had a banking relationship with the 1^st Defendant since 2001 through which it has extended to it general banking facilities including international trade finance facilities such as opening for it letters of credit.  The 2^nd and 3^rd Defendants, who are father and son, own the 1^st Defendant and are its directors in which capacity they administer its business and have entered into a guarantee with the Plaintiff underwriting all of the 1^st Defendant’s indebtedness to the Plaintiff.  The case concerns the very familiar situation in which the 1^st Defendant, having accumulated a considerable indebtedness to the Plaintiff and having failed to repay it, has been sued as have the 2^nd and 3^rd Defendants, as guarantors of that debt.

3.  The Master found that the Defendants had no defence to the claim and accordingly entered summary judgment against all three.  In arguing this appeal, Mr Bruce Lau, who appears for the Defendants, has taken three points each of which, he says, raises a triable issue and that accordingly, unconditional leave to defend should be given and the matter allowed to go to trial in the conventional way.

4.  Mr Lau’s three points are these.  Firstly, that the Plaintiff has failed to prove the 1^st Defendant’s indebtedness to it by leading a sufficiently detailed and cogent statement showing how the amounts for which the Master had entered judgment are calculated.  Secondly, that Madam Claudia Kwok, the manager in charge of the 1^st Defendant’s account and her staff, had led the 1^st Defendant to believe that the second and subsequent instalment payments of 12, each in the sum of $1.5 million, would be deferred by seven days as had the first installment, with the result that when the 1^st Defendant had not settled the amount of the second instalment on the originally agreed date the 1^st Defendant had not expected to find that it was being held in default of the agreed instalment payments which had prompted the Plaintiff to bring this action for the whole of the outstanding balance.  Thirdly, and this only relates to the 2^nd and 3^rd Defendants, that the Deed of Guarantee dated 30 October 2001 upon which they are now sued had lapsed with the result that these two Defendants can have no liability in respect of it.

5.  I will need to take each of these points in turn, before which it will be helpful to refer to the material parts of the contractual documents upon which the action is based.

The Plaintiff’s Documents

6.  The relevant Facility Letter extending General Banking Facilities to the 1^st Defendant, which is dated 30 May 2007 is at Exhibits Bundle 2-9.  It is the last and one of seven such letters extending such facilities to the 1^st Defendant from 2001 to 2007.  The others are to be found at Exhibits Bundle 116-139.

7.  The nature of the facilities is set out in clause 2 [2-4] and include letters of credit, overdraft, bills purchases under reserve and a leasing loan.  These facilities are up to $93 million.  The Facility incorporates the Plaintiff’s “General Terms and Conditions”.  Clause 8[5] sets out the “Conditions of Availability” which at 8.1 requires an all monies Deed of Personal Guarantee from the 2^nd and 3^rd Defendants.  8.2 which relates to all the facilities save for the leasing loan facility, which is dealt with separately at 8.3, requires an all monies Charge on Deposit to be signed by 2^nd and 3^rd Defendants, in respect of a deposit in the amount of just over $3.8 million already held by the Plaintiff.  All the documents mentioned in clause 8 are referred to as the “Security Documents”.  The Plaintiff’s “General Terms and Conditions …” are at Documents Bundle 11-23.  The “On Demand Facility” at clause 3.1[13] is important.  It says this:

“Notwithstanding any provision in a Facility Letter or any other agreement between the Bank and the Borrower or any other person, all Liabilities are subject to the Bank’s overriding right to payment on demand at any time.  Upon the Bank making any such demand, all Liabilities shall become immediately due and payable and the Borrower shall forthwith pay to the Bank all the Liabilities or any part thereof as specified in such demand.”

I will return to the significance of this term presently, as I must to clause 14.1[17] which is in these terms:

“Subject to Clause 14.2, a statement issued by the Bank as to any amount owing by the Borrower to the Bank at any time or the rate or amount of interest, fees and other charges payable by the Borrower shall, save for manifest error, be conclusive evidence of such amount or rate for all purposes and binding on the Borrower and practicable to the extent permitted by law, any person providing security for any Liabilities.”

Clause 14.2 which is referred to in 14.1 has no application to this application.

8.  Finally, I refer to the Guarantee [Documents Bundle 36-43].  The nature of the Guarantee is in clause 1:

“I, the undersigned, hereby unconditionally guarantee to you, Liu Chong Hing Bank Limited (the ‘Bank’, which expression shall include and extend to its successors and assigns), the due and punctual payment of:

(i)  all moneys and liabilities (whether actual or contingent) which are now or may at any time hereafter be due, owing or payable, or expressed to be due, owing or payable, to the Bank from or by the principal specified in Schedule 1 (the ‘Principal’) (whether alone or with any other person, whether as principal or surety, and whether upon any banking account or otherwise, and including the amount of any notes, bills, guarantees and other securities held now or hereafter by the Bank on which the Principal may be or become liable);

(ii)  all interest, costs, commissions, fees and other charges and expenses which the Bank may charge against the Principal; and

(iii)  all legal and other costs, charges and expenses which the Bank may incur in enforcing or obtaining, or attempting to enforce or obtain, payment of any such moneys, liabilities, charges and expenses referred to in paragraphs (i) and (ii) above.

(the ‘Guaranteed Moneys’) and the due and punctual performance of all obligations and liabilities of any nature expressed to be owing by the Principal under any agreement or arrangement with you at any time relating to or evidencing the whole or any part of the Guaranteed Moneys, or pursuant to which the Guaranteed Moneys are expressed to be due, owing or payable (the ‘Related Document’) in any such case whether existing now or arising afterwards (the ‘Guaranteed Obligations’).  I agree that, if at any time or from time to time any of the Guaranteed Moneys are not paid in full on the due date therefor (whether at their stated date of payment, by acceleration, on demand or otherwise), I will immediately upon demand therefor unconditionally pay to the Bank the moneys which have not been paid as aforesaid and I agree to procure the observance and performance

 of the Guaranteed Obligations which have not been observed and performed fully and punctually at the times and in the manner provided in the Related Document.”

In this regard, 1(i) is significant in that it describes the Guarantee as an all monies guarantee which “are now or may at any time hereafter be due, owing or payable …”

9.  Clauses 5 and 6[37] are important because these describe the continuing obligations of the guarantors and how the liability of the guarantors can be discontinued:

“5.  Subject to clause 6, my obligations under this deed shall be continuing obligations binding on me and my personal representatives, estates, heirs, successors and assigns and shall not be satisfied, discharged or affected by any intermediate payment or settlement of account.

6.  If I or my personal representative (including executor and administrator) gives the Bank written notice of my wish or the wish of my personal representative to discontinue any further liability under this deed as from a specified date (the ‘Cessation Date’), which date shall not be less than 6 calendar months after receipt by the Bank of such notice, then:

(i)  I or my personal representative shall continue to be liable under this deed with respect to any obligation incurred by the Principal on or before the Cessation Date; and

(ii)  I or my personal representative shall not be liable under this deed with respect to any obligation incurred by the Principal after the Cessation Date.”

10.  Clause 12[38] deals with a certificate by the Plaintiff being conclusive evidence of the principal debtors indebtedness in the absence of “manifest error”.

“For all purposes, including any proceedings, suits or actions arising out of or in connection with this deed (the ‘Proceedings’), a copy of a certificate signed by an officer of the Bank as to the amount of any indebtedness comprised in the Guaranteed Moneys or the nature of any obligation comprised in the Guaranteed Obligations shall, in the absence of manifest error, be conclusive evidence against me that such amount is in fact due and payable or, as the case may be, such obligation is in fact outstanding for performance by the Principal to or in favour of the Bank”

11.  Clause 14[38] is a “catch all” provision designed to restrict the guarantors’ discharge.  I set it out here to show the purported binding and all embracing nature of the Deed, (v) perhaps being the most relevant in these circumstances:

“I shall not be released or discharged from any of my obligations under this deed, nor shall any of such obligations be in any way prejudiced affected by:

(i)  any invalidity, unenforceability, illegality or voidability of any obligation expressed to be assumed or owed by the Principal under or in connection with any Related Document; or

(ii)  time being given, or any other indulgence or concession being granted, by the Bank to the Principal or any other person or

(iii)  the Dissolution or any change in the name or constitution of the Principal or that of any other person or my death or mental illness or disability or that of the Principal; or

(iv)  any arrangement or compromise entered into by the Bank with the Principal or any other person; or

(v)  any other thing done or omitted or neglected to be done by the Bank or any other person or any other dealing, fact, matter or thing (including, but without limitation, any circumstances whatsoever affecting or preventing recovery of amounts under any Related Document) which, but for this provision, might operate to exonerate or discharge me from, or otherwise prejudice or affect, any of my obligations under this deed.”

12.  Mr Fung, who appears for the Plaintiff, has also drawn my attention to the Deed of Charge [Documents Bundle 45-47] but as nothing turns on this in terms of liability or the computation of the claim save that in recovering the 1^st Defendant’s outstanding indebtedness the Plaintiff took the proceeds of the $3.8 million deposit in part payment, it is not necessary to set out any of the terms of this Deed.

13.  These being the material parts of the relevant contractual documents, I now turn to consider each of Mr Lau’s three bpoints.

No Proof of How the Indebtedness is Calculated

14.  In this regard, it is worth observing that by mid-April 2008 the Plaintiff had become very concerned about the 1^st Defendant’s indebtedness to it which was by now in the order of $22 million [see Exhibits Bundle 141] and, Madam Kwok in an email to the 2^nd Defendant referred to their on-going discussions and proposed a re-payment schedule to pay-off this indebtedness.  The next day, she sent another email [142] setting out a revised proposal.  On 22 April 2008 [144] she referred to the debt now being four months overdue and set out a proposed re-payment schedule of 12 payments of $1.5 million each starting on 30 April 2008.  Also under consideration were other proposals to provide further security on property at Stubbs Road and Tai Hang Road.  At Exhibits Bundle 148, there is an email dated 2 May 2008 from the Plaintiff, by Madam Kwok’s assistant, she being on leave at that time, accepting deferral of the first  instalment of $1.5 million from 30 April to 7 May.  A separate point arises on this to which I will come presently.  The first payment was made by 9 May but the second instalment did not come by the due date of 15 May in which circumstances the Plaintiff’s solicitors sent a letter of demand on 21 May 2008 [Exhibits Bundle 151] for repayment of $22,988,992.16 and US$33,126.60.  This letter would have come as no surprise to the Defendants because this course of action had been threatened by Madam Kwok in the emails to which I have already referred.  Payment not being forthcoming, the writ came on 26 May 2008 for the amounts claimed in the letter of demand of 21 May.

15.  By her affirmation of 10 July 2008 in support of the Order 14 summons, Madam Kwok has provided a calculation of a lesser amount for which judgment was sought and obtained from the Master [Documents Bundle 37-38].

16.  It is in relation to this calculation that Mr Lau has taken issue.  He says that it is simply not possible to work out how these amounts have been arrived that without a full historical statement of how the indebtedness has been built up.  He submits that it is incumbent on the Plaintiff to prove its case properly and in the absence of such a detailed statement which could be forced out of the Plaintiff in the course of the trial process by discovery, interrogatories and requests for further and better particulars, the defendants should not be driven from the judgment seat on a sparsely pleaded computation.  For instance, he suggests that there is no telling whether the payment on 9 May 2008 of $1.5 million has been credited to the Defendant’s account in arriving at this total.

17.  Mr Fung’s response is to say that this is a completely new point, not specifically pleaded nor raised in affirmation opposing the summons for judgment.  Whatever the state of the pleaded defence and the affirmation in support, it seems to me that at no time did the Defendants challenge the amount of the indebtedness.  The April 2008 correspondence very clearly shows that they accepted the quantum of the 1^st Defendant’s debt, the only question that they were concerned with was keeping the banking facility going by agreeing instalment payments and proposing further security by offering property at Stubbs Road and Tai Hang Road in order to retain cash flow in circumstances of financial difficulty.  If there had ever been a hint of a dispute on quantum, I have absolutely no doubt whatsoever that the Defendants would have been challenging the amount of the debt well before Mr Lau’s skeleton argument before Master Yu.  There is nothing in the point at all.  The case on quantum has never been challenged and I take Madam Kwok’s calculation on oath as being the correct one.  And in any event, as Mr Fung correctly points out, the Plaintiff is entitled to rely on the conclusive evidence clause [clause 14.1] in the General Terms and Conditions and Clause 12 of the Guarantee.  What is required is a statement of the amount owing and this will be conclusive “save for manifest error”.  The statement must be one signed by an officer of the bank.  This is amply covered by Madam Kwok’s affirmation [Documents Bundle 37-38] and there is nothing there which can be said to be a manifest error.  And so one has unchallenged quantum when the repayment discussions were on-going in April 2008 supported by the conclusive evidence clauses.  Accordingly, this limb of Mr Lau’s case is completely lacking in substance.

Was the 1^st Defendant Misled on the Repayment Schedule

18.  This I’m afraid falls to be resolved entirely on the face of the emails which are clear beyond a peradventure.  The point is disposed of by a reading of the email of 2 May 2008 [Exhibits Bundle 148-149].  I will set it out in full:

“Dear David,

Further to the telephone conversation between your goodself and our Claudia Kwok on 30 April 2008, regarding the 1st repayment of $1.5M due on 30 April 2008, our Bank accept your request to postpone the repayment upto 7 May 2008 with NO FURTHER DELAY, otherwise, we are forced to pass the case of Credit Monitoring for debt collection.

Kindly settle the existing overdue according to the Repayment Schedule mentioned in Claudia’s email to you dd 22 April 2008.  Hereby state again as belows for your easy reference:

Instalments            Due Date                           Repayment Amount

1st                30 April 09 (extended to 7 May 08)     $1.5M

2nd               15 May 08                                            $1.5M

3rd               30 May 08                                            $1.5M

4th                15 Jun 08                                             $1.5M

5th                30 Jun 08                                             $1.5M

6th                15 Jul 08                                              $1.5M

7th                30 Jul 08                                              $1.5M

8th                15 Aug 08                                            $1.5M

9th                30 Aug 08                                            $1.5M

10th              15 Sept 08                                            $1.5M

11th              30 Sept 08                                            $1.5M

12th              15 Oct 08                                             $1.5M

*For detailed Terms & Conditions for the above repayment, please refer to Claudia’s email to you dd 17/4/2008.

We would like to emphasize that under the Bank’s Policy and HKMA’s guideline, we need to closely follow-up with the repayment of any overdue case and take appropriate & immediate action to avoid the situation from deterioration.

Regarding your previous proposal in transferring a property to our Bank, please be advised that it is still open for our discussion and if a property could be pledged to us, extension of repayment tenor would be considered.  But again, since it may take certain time to finalize the discussion and complete the transfer of property, in the meanwhile, kindly settle the existing overdue according to our above-mentioned repayment schedule.

Notwithstanding any repayment schedule mentioned herein or which the Bank may agree at any time thereafter, please note that all of the Company’s outstandings remain subject to the Bank’s overriding right of demand for full repayment at any time, including the right to call for full cash cover in respect of actual or contingent liabilities outstanding at any time.

Please also note that except for the above new repayment schedule, the Terms and Conditions of the Company facilities as stated in our facility letter dated May 30, 2007 remain unchanged.

Nothing herein shall be construed as waiving any of the Bank’s rights, all of which are hereby expressly reserved.

Should you have any query, please feel free to call me at 3768 1070 or our Ms Teresa Lee at 3768 1033.

Thanks for your kind attention.

Best Rgds,

Peter Chow

Corporate & Commercial Banking Dept

Chong Hing Bank Ltd”

Nothing could be more plain.  The forbearance to 7 May for the first instalment only related to that instalment.  The remainder needed to be paid on the dates that appear on this email.

19.  Mr Lau refers to the 2^nd Defendant’s affirmation relating to his instruction to Mr Pang of the 1^st Defendant telling him to obtain a deferral of the second instalment but this is completely undermined by the terms of the email of 2 May against a background, as disclosed by the emails from 16 April, that the Plaintiff was concerned to have this indebtedness run down as soon as possible.

20.  It seems to me that this point is evidentially unarguable but, in any event, the Plaintiff would still be able to reply on its overriding right to demand payment at anytime as appears in Clause 3.1 of the General Terms and Conditions which I have set out at paragraph 7 above.  The overwhelming case is that the Plaintiff, having been prepared to show forbearance by proposing an instalment plan and by further agreeing to defer the first instalment from 30 April to 7 May, was amply justified to call in the debt on 21 May when its solicitors sent a letter of demand after the 1^st Defendant had failed to come up with the second instalment, which it could have done in any event under Clause 3.1 above at any time.

21.  For these reasons, this point must also fail.  I now turn to the third and final point taken by Mr Lau.

Had the Deed of Guarantee Lapsed?

22.  Mr Lau contends for a situation whereby on a true reading of the Facility Letter of 30 May 2007 [Exhibits Bundle page 2-9] this contemplated a new Deed of Guarantee to be entered into by the 2^nd and 3^rd Defendants.  It is plain from a reading of the Guarantee itself, and I have set out the relevant clauses at paragraphs 8 to 11 above, this Guarantee subsisted from the time that it was entered into in 2001 in support of the first Facility Letter.  The position is very clear from the clauses that I have cited.  No steps were taken to discharge it and it remained in force and the 2^nd and 3^rd Defendants are liable under it.

Conclusion

23.  I regret to say that this has been a hopeless, albeit attractively presented, argument by Mr Lau to avoid a very clear-cut liability by the principal debtor, the 1^st Defendant, to its bankers and by the 2^nd and 3^rd Defendants who had guaranteed its debts to them.  The Master had been right to say that no triable issues had arisen before him and none are remotely apparent before me.  This appeal must therefore stand dismissed with costs.  Accordingly, the Master’s judgment will now take effect.