EAST ASIA CREDIT CO LTD. v. FULL YOUNG PROPERTY LTD. AND ANOTHER

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 7166 OF 2001

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J U D G M E N T

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1) This is an application for summary judgment against the 2nd Defendant. It is the Plaintiff's case that by a guarantee dated 28 August 1997, the 2nd Defendant and one Madam Yip Sau-kuen, in consideration of the Plaintiff in providing or continuing to provide credit facilities to the 1st Defendant, agreed to guarantee any debt owed by the 1st Defendant to the Plaintiff. Judgment has already been obtained by the Plaintiff against the 1st Defendant and so the present application only concerns the 2nd Defendant.

2) It is trite law that it is the duty on the part of the defendant to establish an arguable defence in an Order 14 application. The defendant must be able to supply sufficient particulars to enable the court to accept that the defendant's allegation is a credible one. Once the defendant is able to supply such particulars and the defendant's allegations are ones capable of being believed, the court must then grant the defendant unconditional leave to defend.

3) In opposition to the Plaintiff's claim, the 2nd Defendant made the following allegations:

1) no one explained to him the content of the guarantee and he signed the said documents without knowing its true nature and contents;

2) he was misled into signing the loan application form;

3) all the 2nd Defendant was asked for was to sign the documents quickly for the purpose of borrowing money. The 2nd defendant did not know who actually borrowed the money;

4) the documents were suspicious as;

a) certain handwritings on the documents did not belong to the 2nd defendant;

b) no one signed the document as witness; and

c) the column of name, address and occupation on the documents had been left out.

4) In reply to the 2nd Defendant's allegation, the Plaintiff filed a detailed affirmation in reply setting out the background of the transaction. In short, the Plaintiff had advanced a Home Decoration Loan to the 1st Defendant. The director and the shareholder of the 1st Defendant were two companies incorporated in the British Virgin Islands. The 2nd Defendant and the said Madam Yip were the directors of one of the said BVI companies and so they were asked to guarantee the loan advanced to the 1st Defendant. Indeed, they had submitted tax returns and other proof of income to the Plaintiff to prove their ability to repay the debt.

5) In fact, the said Home Decoration Loan was closely related to a mortgage loan advanced by the Plaintiff's parent company to the 1st Defendant for purchase of his property, and the 2nd Defendant was deeply involved in the discussion relating to the restructuring of that mortgage loan.

6) On 7 November 2000, the 2nd Defendant actually requested the Plaintiff to release the said Madam Yip as the co-guarantor, and the 2nd Defendant also signed a letter to confirm his liability as the sole guarantor.

7) The guarantee signed by the 2nd Defendant was in fact contained in one single document so that in signing the document, the 2nd Defendant would be in a position to look at all the terms of the guarantee.

8) Further, according to the proof of income submitted by the 2nd Defendant to the Plaintiff, the 2nd Defendant had earned an annual income of $2.6 million. Being a person earning high income, it is very difficult for the court to accept that the 2nd Defendant did not understand the nature of the document when he signed it.

9) In my judgment, in the light of all this background information, the Defendant's evidence is only bare allegation without substance. The most important thing is that he did sign the guarantee. He claimed that he did not know the nature of the document when he signed it. However, if that was the case, what did he intend to sign? Why did he sign the guarantee? Why had he not read the documents before he signed it? If he had been misled to sign the documents, who made those misrepresentations and what were the words being said to him that induced him to sign the documents? All these important facts are missing from the Defendant's case.

10) In his submission, Mr Pang for the 2nd Defendant argued that the 2nd Defendant might have been influenced or misled by her sister to sign the documents. However, if that was the case, it was the duty on the part of the 2nd Defendant to make such positive allegations. It is not sufficient for someone with the background such as the 2nd Defendant to come to this court and just claims that he did not know why he signed a particular piece of document. Indeed, the 2nd Defendant signed a letter describing him as the guarantor. He wrote to the Plaintiff to request for a rescheduling of the loan and he also made the request to the Plaintiff to relieve her sister as a co-guarantor. Further, he also submitted proof of income to the Plaintiff. In such circumstances, it is quite unbelievable that he did not know that he was a guarantor of the loan.

11) The 2nd Defendant also claims that there was a duty on the part of the Plaintiff to advise him to seek legal advice before signing the guarantee. However, in the case of Lai Kwok-man Ex Parte Hongkong Shanghai Bank Corporation HCB 2318 of 1989, unreported, it has already been held that the bank does not have such a duty if there is nothing to put the bank on enquiry. In the present case, the 2nd Defendant's position was like a director of the company guaranteeing the loan made to his company. There was nothing to put the bank on enquiry, and the parties have all along been dealing in arm's length. In such circumstances, I do not accept that there was such a duty on the part of the bank to advise the Defendant to seek legal advice. In any event, the Plaintiff's case is that such advice has been given.

12) In conclusion, I do not accept that the 2nd Defendant has even come close to establish an arguable defence in the present case. No sufficient reason has been given to explain the 2nd Defendant's conduct in the transaction and his evidence is just bare allegation incapable of being believed. In such case, I allow the Plaintiff's application and grant judgment in favour of the Plaintiff.