KINCHENG BANKING CORPORATION v. CHAN SIU KIT t/a SING FAI TOWELS SERVICES COMPANY AND ANOTHER

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JUDGMENT

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Sir Alan Huggins, V.-P.:

1. The Appellant bank sued the 1st Defendant upon an Undertaking for Repayment of Overdraft and the 2nd Defendant upon a guarantee of the due performance by the 1st Defendant of the undertaking. We are concerned only with the claim against the 2nd Defendant.

2. On 8th August 1985 ore of the parties made an interlocutory application to the court, the nature of which does not appear from the papers before us. However, by that date the 2nd Defendant had filed a Defence in which he admitted that he was a guarantor, he having been asked by the 1st Defendant to act as such for him. This so-called Defence alleged nothing which even hinted at an arguable defence to the action: it was a plea of poverty and should at best have been treated as an application to pay the debt by instalments after judgment. On 8th August no one appears to have appreciated that there was no issue to go to trial and directions were given for trial. The application, whatever it was, was dismissed.

3. At the trial on 1st October 1985 again no one appears to have looked at the pleadings to see what issue if any was before the court. Evidence was called by both sides and various matters were raised by the 2nd Defendant without objection. The proceedings took a most unusual course. When the Plaintiff's witness had been examined in chief the 2nd Defendant made a statement, which was recorded by the deputy judge, before the cross-examination began. In that statement the 2nd Defendant frankly admitted having signed what he knew to be a "Guarantee". He said in part:

"D1 asked me to act as guarantor - he asked me to sign - so he could borrow $20,000 from bank. I am kind-hearted so I promised him I would sign. I said I would act as his guarantor if not required to pay any money. I said I would be his guarantor if he would repay the money he borrowed from bank - if I did not have to pay. At time he said he would definitely pay $20,000 with interest. Later Chan took me to the bank to be his guarantor. At time I saw Mr. Lee in Bank - he spoke to me in Cantonese which I could not understand. I then asked Chan contents of guarantee - he said afterwards [I think that should read "after"] I agreed to be the guarantor he would borrow 120,000 from bank. He said he would definitely repay bank the sum - I had nothing to do subsequently."

The cross-examination then proceeded, and it was directed first to the 2nd Defendant's knowledge of Cantonese and his ability to understand what had been said to him by the bank officer at the time when the Guarantee was signed. It was then suggested - and denied  that the 1st and 2nd Defendants had a private conversation before the signing. The 2nd Defendant gave evidence to the effect that he had been misled by the 1st Defendant first into mortgaging his own property and lending the mortgage money to the 1st Defendant, then into signing the Guarantee. He said that he did not know that a guarantor visa liable to make repayment if the principal debtor did not pay: he thought he was only required to encourage the 1st Defendant to pay. By signing the document he was merely trying to be kind.

4. In delivering judgment the deputy judge ignored the pleadings and held:

With respect to him I am at a loss to understand how an unpleaded fraudulent misrepresentation by the 1st Defendant could be a defence to the action, even if made - and I am prepared to assume that the finding that such a fraudulent misrepresentation was made cannot successfully be impugned. The let Defendant was not the agent of the Plaintiff. There is nothing to show that the Plaintiff was party to, or even aware of, any fraud.

5. As to the allegation that the deed was not the 2nd Defendant's deed, on reading the judgment I cannot help suspecting that the deputy judge thought there was a duty on the Plaintiff to explain the effect of the Guarantee to the 2nd Defendant. The bank officer said that he did explain it - "in simple language" - but he did so in Cantonese, which he believed the 2nd Defendant could understand. The judge concluded that the 2nd Defendant could not understand Cantonese, but he did not find that no such explanation was given: he merely had "doubts concerning D2's understanding". Thus he found that the 2nd Defendant did not understand the document, that the 2nd Defendant was not negligent in signing a document which he did not understand and that, if he was negligent, "the Plaintiff has contributed by not reading and explaining the document in the right language or dialect". Whether the 2nd Defendant understood all the contents of the document is not relevant: the burden was on him to show that he thought he was signing a document of a different nature: it was not for the Plaintiff to establish that the 2nd Defendant did know the contents of the document. The 2nd Defendant had admitted in his "Defence" that he was a guarantor and that he had signed a guarantee. His evidence was "I did not know a guarantor is liable to repay". Although his "Defence" was written in English he used these very terms in his evidence, which he gave in Mandarin. It is absurd to suggest that he did not know the nature of the document simply because the bank officer explained it in Cantonese. The truth seems to be that he knew that by the document he was undertaking an obligation in relation to a liability of the 1st Defendant but that he did not appreciate its full legal effects. It is significant that he wrote a letter to the bank officer the last sentence of which reads as follows:

"At that time I just gave a personal guarantee for CHAN Siu-kit and had not furnished my landed property as security for CHAN Siu-kit."

His ignorance of the precise effect of the document is a very different thing from non est factum: it does not constitute a defence to the action: see Howatson v Webb 1908 1 Ch. 1.

6. The judge's conclusion that the 2nd Defendant was not negligent cannot bear scrutiny. Anyone who signs a document in a language he does not understand is necessarily negligent unless he has been  actively misled as to its nature. There is no suggestion that the Plaintiff misled the 2nd Defendant: it is said that the 1st Defendant did so. Again the 1st Defendant may have misled him as to the precise terms - the judge has found that he did so - but the 2nd Defendant knew very well he was signing a guarantee and thought only that he was responsible to get the principal to pay the money. He has not done even that.

7. Then the judge found that the Plaintiff contributed to the 2nd Defendant's damage by not reading and explaining the document in the right language or dialect. Disregarding the fact that the Plaintiff had no reason to doubt the 2nd Defendant's understanding of Cantonese, the finding cannot stand because the Plaintiff was under no duty to read and explain the document in any language or dialect.

8. In my judgment there was no defence to this action and the appeal should be allowed.

Yang, J.A.:

9. I agree.

Fuad, J.A.

10. I agree with all that my Lord the Vice-President has said. I merely wish to add that I think it is a great pity that once the defence had been filed (the contents of which have been summarised by my Lord the Vice-President), the District Judge on 8th August did not of his own motion consider whether he should act under the provisions of r.27(1)(b) of the District Court Civil Procedure (General) Rules and enter summary judgment for the Plaintiff bank on the ground that no reasonable ground of defence had been disclosed. Of course, it would have been necessary for him to go into the matter further, since the Defendant was unrepresented, but, had he done so and the Defendant had explained his defence in substance on the lines that he later gave in court, the judge would have been bound to hold that it was a proper case for summary judgment. The judge should have done this' on his own motion but it appears that an application for summary judgment was made on 8th August 1985. If that was so, it is a pity that there was no appeal against the order refusing the application. This would have saved the entire proceedings. Moreover, on 1st October 1985 when the deputy judge began to hear the case he should, too, have considered whether the costs and time of a trial were warranted when no viable defence was disclosed by the Defendant.

11. I too would allow the appeal.

25th April 1986