NEXT MAGAZINE ADVERTISING LTD v. AMERICA ADVERTISING LTD AND OTHERS

DCCJ 4280/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4280 OF 2004

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DCCJ 4281/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4281 OF 2004

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BETWEEN:

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JUDGMENT

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1.  This case highlights the problem that may arise if someone elects to send important legal documents to another person using just ordinary mail.

2.  The Plaintiffs are responsible for the order of advertisement spaces in the publications known as “Next Magazine” and “Apply Daily” respectively, and they are subsidiary companies of the Next Media’s Group of companies (“Next Media’s Group”).  In consideration of 2 written guarantees dated 18 March and 24 February 1998 respectively given by the 2^nd and the 3^rd Defendants as the guarantors, the Plaintiffs agreed to allow the 1^st Defendant to place orders for advertisement spaces in the said publications on credit terms.  At the time when they executed the guarantees, the 2^nd and the 3^rd Defendants were the shareholders and directors of the 1^st Defendant.  Subsequently, the 1^st Defendant defaulted in the payment of advertisement fees in the total sum of $520,588 to the Plaintiffs, and the latter therefore brought the present two actions against the Defendants to recover such fees.

3.  Under the terms of the guarantees, the liability of the 2^nd and the 3^rd Defendants in the present case is limited to the sums of $130,000 and $300,000 under the 2 respective guarantees claimed in DCCJ Nos. 4280 and 4281 of 2004.

4.  Default judgments have been obtained by the Plaintiffs against the 1^st and the 2^nd Defendants, and this is only a trial for the claim against the 3^rd Defendant.

5.  In the trial, the 3^rd Defendant does not dispute the debt owed by the 1^st Defendant, but he claims that his liability under the guarantees ceased 7 days after he had sent the notices of revocation to the Plaintiffs by ordinary mail on 10 April 1999.  By that time, the 3^rd Defendant was no longer the director or shareholder of the 1^st Defendant.  However, the Plaintiffs denies that they have ever received such notices, and the issues in the present case are therefore as follows:

(i)	whether the 3rd Defendant was entitled, as a matter of law, to revoke his liability under the continuing guarantees?
(ii)	whether the notices of revocation took effect when the 3rd Defendant posted the notices, or when the Plaintiffs actually received such notices? and
(iii)	if the notices of revocation only took effect when the Plaintiffs actually received the notices, whether the Plaintiffs had, as a matter of fact, received the notices in the present case?

6.  The first two are issues of law and the third one is a question of mixed law and fact.  I will deal with these issues in turn.

Revocation of liability under the continuing guarantees

7.  It is trite law that if a surety enters into a continuing guarantee, under which his liability continues to accrue, the question whether he may revoke it depends on whether the consideration for his promise is divisible or entire, which in turn depends on the nature of the principal contract.  If the consideration is divisible, the guarantee is treated as if it were a standing offer by the surety which is accepted pro tanto by part-performance of the consideration, and therefore, in accordance with the general rule that an offer may be revoked at any time before it is accepted, the surety may revoke all future liability under the guarantee at any time, save insofar as the contract provides otherwise.  On the other hand, if the consideration for the continuing guarantee is entire and indivisible, then the guarantor cannot revoke his liability (see: Laws of Guarantees by Andrews & Millet, London Sweet & Maxwell, 4 ed., at para. 8-003).

8.  In my judgment, the consideration for the promise is certainly divisible in the present case.  The 1^st Defendant would place orders with the Plaintiffs from time to time, and each transaction was separate in nature.  The situation is just like a guarantee in respect of advances made or goods supplied from time to time by the creditor to the principal, which has long been accepted as a guarantee with divisible consideration (see: Modern Contract of Guarantee by Donovan & Phillips, London Sweet & Maxwell, English Edition, paras. 9-38 & 9-39).  Hence for liability not yet accrued, the 3^rd Defendant could revoke his liability under the continuing guarantees by notice.

Time when the notices of revocation took effect

9.  It is the 3^rd Defendant’s original contention that the notices of revocation did take effect at the time when he posted the notices.  However, after considering the authorities submitted by the Plaintiffs, including Drew v Nunn (1879) 4 QBD 661 and In re Amalgamated Investment and Property Co. Ltd. [1985] 1 Ch 349, the 3^rd Defendant accepts that the notices of revocation would only take effect when the Plaintiffs actually received the notices.

Receipt of the notices of revocation

10.  The question to follow is, therefore, whether the Plaintiffs had actually received the notices.  In this regard, the 3^rd Defendant testified in the trial that he had personally drafted the notices of revocation.  Subsequently, his close friend one Mr. Siu Yiu-sing KK typed out the notices and sent the same in one envelope to the Plaintiffs by ordinary mail in the Post Office in Middle Road, Tsimshatsui.  On the other hand, the Credit Control Manager of the Next Media’ Group, Mr. Lam Kwok-ming Spencer, testified that he had not received the notices.  According to him, his department was very concerned about notice of revocation by guarantor.  If he had received such notice, immediate action would have been taken to contact the principal debtor to arrange for replacement guarantor.  Further, the Plaintiffs had a good system of directing incoming mail to appropriate handling staffs, and had the 3^rd Defendant sent the notices of renovation, it was quite impossible for him not to have received them.  His evidence is supported by the testimony of one Mr. Law Yau-choi, who was a messenger working in the Mailing Centre of the Next Media’s Group responsible for collecting incoming mail and distributing them to appropriate companies and departments, and Ms. Siu Siu-wan Katherine, who was a secretary of the Finance Department of the Next Media’s Group responsible for collecting incoming mail to her department.

11.  I agree with Ms. Lai, counsel for the Plaintiffs, that the evidence of the 3^rd Defendant does have certain dubious features, in particular how the 3^rd Defendant, without any legal training, was able to draft the notices of revocation which contained so many technical legal terms.  Despite such observation, and in the absence of any rebuttal evidence, there is not sufficient material before me to conclude that any of the witnesses in the trial is a liar.  Having heard their testimony, I am prepared to accept that all the witnesses are telling the truth in court.

12.  It is common ground that, in establishing his defence, the 3^rd Defendant must be able to prove that the notices of revocation had actually reached the Plaintiffs’ Mailing Centre.  If the notices were lost inside the Plaintiffs’ office, then the Plaintiffs are deemed to have received the notices.

13.  Based on the findings of fact above, there were only two possibilities: either the notices of revocation were lost in the post, or they were lost after they had reached the Mailing Centre of the Plaintiffs.  One may tend to think that the chance of losing the notices in the post is rather slim, but such thing does occur in real life.  On the other hand, the Plaintiffs’ witnesses are able to convince me that the Plaintiffs did have a good system of directing incoming mail to the responsible staffs, at least the Plaintiffs’ witnesses are not aware of any incidents, complaints or inquiries for lost incoming mail in the past 10 years.  Based on the existing evidence, I cannot say that the notices of revocation were more likely lost after they had reached the Plaintiffs’ Mailing Centre.  It was equally possible for the notices to be lost in either way, and there is nothing before me to conclude that the post system was more reliable than the Plaintiffs’ system of collecting and directing mail.  As the 3^rd Defendant has failed to discharge the burden of proving, on the balance of probabilities, that the notices of revocation had actually reached the Plaintiffs’ Mailing Centre, his defence must fail.  Hence, I grant judgments in favour of the Plaintiffs against the 3^rd Defendant for the sums of $130,000 and $300,000 claimed under DCCJ Nos. 4280 and 4281 of 2004 respectively.

14.  I also make an order nisi that:

(i)	there be interest on the judgment sums at the rate of  9.234% per annum, which is the existing judgment rate, from the date of the Writs to the date hereof and thereafter at judgment rate; and
(ii)	the costs of the actions be to the Plaintiffs to be taxed on indemnity basis (as provided for in the guarantees) with certificate for counsel.

The order nisi is to be made absolute 14 days after the date of the handing down of this Judgment.

15.  As demonstrated by the present case, communications by ordinary mail do sometimes pose problem.  It is therefore advisable that if someone elects to send important legal document to another person, he should send it by registered post, or at the very least after posting, he should contact the intended recipient to see whether the latter has actually received the document.  If he did neither, he runs the risk of facing an uphill battle in subsequent litigation, as the 3^rd Defendant has experienced in the present case.