HANG SENG BANK LTD. v. HIGHFIT DEVELOPMENT CO. LTD.

HCA 1700/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1700 OF 2002

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J U D G M E N T

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1. This is an appeal by the Plaintiff (hereinafter called the Bank) against the decision of Master Stephen Wong given on 20 November 2002 whereby he ordered that unconditional leave be granted to the Defendant in an application by the Bank for summary judgment.

2. This is an action brought by the Bank against the Defendant for recovery of monies due to the Bank on overdraft. It appeared that since 27 November 1992, the Bank had granted overdraft facilities to the Defendant. The overdraft limit in 1992 was $49 million. The limit was increased to $90 million on 25 May 1993. On 19 September 1995, the overdraft limit was further increased to $140 million. There was another review of the facilities on 25 May 2000 when the Bank was still prepared to grant the overdraft facilities to the limit of $140 million on the terms and conditions set out in the Bank's letter of 25 May 2000. I will have to consider the detailed terms of the facilities later on. In fact by then the amount overdrawn by the Defendant was already in excess of the limit. By a letter dated 25 April 2002, the Bank demanded payment of the total amount of $167,520,304.03 being the sum total of $167,379,955.43 principal and $140,438.60 interest. The Defendant failed to make any payment and as a result, on 6 May 2002, this action was commenced against the Defendant. The claim was based on the express term of an Undertaking for Repayment of Overdraft dated 19 September 1995, being part of the banking documents when the facilities were increased to $140 million in 1995. Following the acknowledgement of service, the Bank applied for summary judgment on 29 May 2002. By then because of the accrual of interest since the demand on 25 April 2002, the Plaintiff sought judgment in the sum of $155,049,787.54 together with interest on the sum of $154,691,035.04 at the rate of 1% above the lending rate calculated on monthly rests on the 20th day of each month. There is no dispute on the quantum of the claim. The dispute between the parties is on the issue of liability only.

3. The Bank's case was extremely simple. The Defendant was granted overdraft facilities and the Defendant had executed an undertaking to repay the overdraft. The Defendant did overdraw in its account and the Bank had duly made the demand for repayment. There was no dispute on the quantum and the Defendant was clearly liable. The Defendant's case was that although the Defendant did execute the undertaking to repay the overdraft and did overdraw in its account, the Defendant was not liable to the Bank because the Bank was estopped from denying that the Defendant would not be liable for its overdrawn account and that the only person liable to repay the Bank for the amount overdrawn would be one Mr Lim Por Yen (hereinafter called "Lim"). Thus, before me, the main issue between the parties was whether the Defendant had succeeded in raising some triable issues on the defence of estoppel by convention, and the supplemental issue was whether the Defendant had shown that there was some other reasons for a trial so that the Defendant ought to be given an opportunity to defend this action. In order to resolve these issues, it is necessary to go into some details of the background of the banking relationship and the relationship between Lim and one Ms Koo Sin Ying (hereinafter called "Koo") as the Defendant had relied on these matters heavily.

4. Since the granting of leave to defend by the Master, the Defendant had amended its Defence which I take it must be a proper reflection of the Defendant's case. According to the Amended Defence, the banking relationship and the banking documentations executed by the Defendant was part of a larger series of transactions involving the Bank, the Defendant, Lim and Koo. The Defendant's case is that there was a special agreement between Koo, Lim and the Defendant which formed an important background affecting the banking relationship between the Bank and the Defendant. It is said that because of that special agreement, although on the face of all banking documents the Defendant was liable to repay the bank the overdraft, yet the Bank was bound by an estoppel from recovering from the Defendant. It is said that by the operation of that estoppel, the Bank could only recovery from Lim in respect of the overdraft in the Defendant's account.

5. According to the Amended Defence and Koo's affirmation, Koo was a common law wife of Lim since 1956. The Defendant was incorporated on 25 April 1991. Initially it was owned and controlled by Lim and Koo. Lim and Koo were then the sole shareholders and directors. According to Koo, the Defendant was acquired by Lim and Koo for the purpose of holding a property which property was supposed to be a gift by Lim to her. Initially only 2 shares were allotted and each of Lim and Koo held one share. In February 1992, there was a further allotment of 9998 shares in the Defendant to Koo. However Lim and Koo both remained to be director of the Defendant until September 2001.

6. As to the details of the special agreement or relationship between Koo, Lim and the Defendant which the Defendant would allege to have constituted a larger series of transactions which affected the banking relationship, I think it would be best smmarised by quoting the Defendant's Amended Defence.

"3. ....the Defendant's avers that insofar as documentation may have been signed by the Plaintiff and the Defendant, being in the nature of documents purporting to grant an overdraft facility that all such documents was part of a larger series of transactions involving the Plaintiff, the Defendant and certain of the former directors of the Defendant namely Lim Por Yen and Madam Koo Siu Ying.

4. In this regard the Defendant avers as follows:

f) In or about the early 1990's Madam Koo had become increasing concerned as to Hong Kong's future after 1997 and sought to emigrate to and/or invest in North America or Europe. Lim did not wish to emigrate and did not wish Madam Koo to immigrate. In the circumstances, in or about 1992, Lim persuaded Madam Koo not to emigrate to and/or to invest in Europe or North America and instead to purchase and develop property in Shanghai which he would fund.

g) In or about 1992 Madam Koo had indentified a property at 41 Hengshan Road, Shanghai, suitable for redevelopment.

h) In consideration of Madam Koo not emigrating to and/or investing in Europe or North America, Lim promised in or around November 1992 to provide funds to Madam Koo for her own use and benefit and/or for the redevelopment of the property at 41 Hengshan Road, Shanghai.

i) Pursuant thereto, Lim proposed that a loan by obtained by the Defendant from the Plaintiff and in consideration for Lim's promise to be solely responsible for repayment to the Plaintiff, the Defendant agreed to and did obtain an overdraft facility, evidenced as between the Plaintiff and Defendant, by letter dated 27 November 1992, initially limited to HK$49 million (the "facility").

j) In the premises, thee was an agreement between Lim, Madam Koo and the Defendant, that the funds referred to in sub-paragraph (h) above would be advanced by the Plaintiff to the Defendant (as referred in sub-paragraph (i) above) as a matter of form and convenience, as suggested and procured by Lim, but that Lim and only Lim would repay the Plaintiff so that as a matter of substance Madam Koo, through the Defendant, would receive such funds from Lim, (the "Agreement").

k) There was consideration given the Defendant under the Agreement in that it undertook and incurred obligations to the Plaintiff (including liability to pay interest on the overdraft) only as a result of and in reliance on Lim's promise to repay.

Particulars of the Agreement and its performance further to sub-paragraphs (h) -(k) above.

[the Defendant pleaded that Lim had partially performed the Agreement by putting in funds into the Defendant's account with the Bank and that all monies deposited into account save for about $12 million were from Lim and that of the monies paid in by Lim only $12,688,920.39 paid on 30 April 2002 was in response to demand by the Bank under the guarantee given by Lim and thus the Defendant avers that payments by Lim were not in pursuance of the guarantee but was in pursuance of the Agreement. The Defendant also relied on a statement of Lim that "I agreed with Ms. Koo that I would lend her funds for the development project and also assist in arranging bank financing for the same purpose. I lent funds to Ms. Koo in the period form 1994 to 2001. Bank financing was also obtained so that I would not have to draw entirely upon my personal resources."]

l) As between Lim and Madam Koo the funds Lim would provide in the manner described in sub-paragraphs (h)-(j) above were not repayable and subject to Madam Koo's agreement not to emigrate from Hong Kong were to be paid by way of gift.

m) It was at all material times represented by Lim to the Defendant and Madam Koo that Lim would be personally responsible for the repayment to the Plaintiff of the Defendant's overdraft facility with the Plaintiff and that the Defendant therefore need not concern itself with outstanding overdraft facilities.

n) Lim further represented to Madam Koo and the Defendant that by providing funding to Madam Koo by means of the Defendant's overdraft with the Plaintiff certain tax savings and cash flow advantages could be made as opposed to Lim providing such funding directly.

o) Lim and certain of the companies controlled by him have for many years been substantial customers of the Plaintiff."

7. In paragraph 5 of the Amended Defence, the Defendant alleged that the Defendant agreed to sign the banking facilities documents including the Undertaking for repayment of overdraft in 1995 in reliance on the representation pleaded in paragraph 4 (m) & (n) which I have set out in the last paragraph. In paragraph 6, the Defendant alleged that there was never any direct dealing between the Bank and the Defendant other than through Lim, and that when Koo signed the banking documents on behalf of the Defendant she did so in reliance of Lim's representation that it was necessary for her to sign in order that the Bank "would allow operation of the facility upon the basis pleaded in sub-paragraphs 4(h) to (k)" which I have set out in the last paragraph. In paragraph 8 the Defendant pleaded that in order to satisfy the standard requirements of the Plaintiff and in order to induce the Plaintiff to grant, revise and/or renew the facility, Lim executed various banking documents including personal guarantees, share mortgages and power of attorney as security for the guarantees. As to the effect of the banking documents signed by Lim, the Defendant pleaded in paragraph 9(b) that the documents reflected and evidenced matters pleaded in sub-paragraphs 4(h) to (k) of the Amended Defence and that the Defendant was thereby led to belief that it would not be held responsible by the Plaintiff for repayment of the overdraft.

8. The Defendant's case was that whether the Bank was aware of the Agreement between Lim, Koo and the Defendant or not, the Plaintiff assumed and acted on the assumption that notwithstanding the documents executed by the Defendant relating to the overdraft facilities and the use of the facilities by the Defendant, only Lim and not the Defendant would be liable to the Bank in respect of the overdraft (see paragraph 10 of the Amended Defence). It was also said that it was the common intention of both the Bank and the Defendant that the repayment of the overdraft would be made by Lim only (see paragraph 11 of the Amended Defence). It was also said in paragraph 13 of the Amended Defence that the assumption that only Lim and not the Defendant would be liable was shared by the Bank and the Defendant and/or the Bank had acquiesced in that assumption. It was also said that because the Defendant had changed its position and/or acted to its detriment in that the assumption had caused the Defendant to draw on the facility and incur substantial interest charges when it would not otherwise have done so, the estoppel was established.

9. It is thus clear from the Defendant's pleading (and also from the evidence filed) that

(a) It is not the Defendant's case that there was any conspiracy to defraud or to injure or to misrepresent.

(b) It is not the Defendant's case that the banking documents were void at their inception or were executed under any mistake as to their effect.

(c) It is not alleged that there was any variation of the contractual rights or obligations arising from the banking documents.

(d) It is not alleged that there was any collateral contract to which the Bank was a party which would have the effect of modifying or varying the rights and obligations of the parties under the banking documents.

(e) It was not alleged that there was any misrepresentation on the part of the Bank or any of its servants or agents.

(f) It is not alleged that any of the banking documents purported to have been executed on behalf of the Defendant were not binding on the Defendant on the ground that the person executing it did not in fact have the Defendant's authority to do so.

(g) It is not alleged that the Bank was party to any agreement between Lim, Koo and the Defendant whereby Lim was solely responsible to repay any loan made by the Bank to the Defendant. In fact, as would appear from paragraph 10 of the Amended Defence, it was not even alleged that the Bank was aware of the alleged agreement or arrangement between Lim, Koo and the Defendant, and the evidence filed certainly did not show that the Bank was aware of such agreement or arrangement.

10. At this stage, it would be necessary to see what banking documents had been executed in connection with the overdraft facilities granted by the Bank to the Defendant. The facility granted in 1992 was evidenced by a facility letter dated 27 November 1992 from the Bank countersigned by Koo on behalf of the Defendant and also by Lim, no doubt in the capacity as being the guarantor. The facility letter was not addressed to any particular person in the Defendant. By the term of this letter, the Bank agreed to grant overdraft facilities up to the limit of $49 million. It was a term of the facilities that Lim should be the guarantor with the further securities in the form of quoted shares acceptable to the Bank to be put up by Lim as the guarantor. The Bank also wanted (a) the Defendant (mistakenly described as Lender in the letter of 27 November 1992) to execute an undertaking for repayment of overdraft and also a supporting board resolution relating to the undertaking for repayment of overdraft, (b) Lim to execute a deed of guarantee and also a deed of mortgage of shares and power of attorney. The Bank's requirements were complied with. Koo on behalf of the Defendant duly executed the Undertaking to for Repayment of Overdraft. The Bank was given an extract from the minutes of the Board of the Defendant signed by Lim as chairman and Koo as secretary. This extract purported to evidence a board resolution that "Hang Seng Bank Limited ...be requested by the Company to grant to the Company advances to the extent of HK$49,000,000 by way of overdraft on terms as per Undertaking for Repayment of Overdraft attached". The extract of the Board minutes went on to say that :

"That the attached Undertaking for Repayment of Overdraft be adopted and authorized to be given by the Company to the Bank and that the following person(s) namely _____ be and he/she/they is/are hereby authorized to sign the said Undertaking for Repayment of Overdraft on behalf of the Company."

On the part of Lim, he had also duly executed the Deed of Guarantee and also the Deed of Share Mortgage and Power of Attorney. In fact the latter was witnessed by Koo.

11. By a facility letter dated 19 September 1995, the Bank agreed to grant overdraft up to the limit of $90 million. The terms of the facility letter were mutatis mutandus the same as the one dated 27 November 1992. The same securities and guarantee were required and the same documentations were required which were also duly given by the Defendant and Lim. However it does not appear that any extract of board resolution had been given to the Bank.

12. By contrast, the facility letter of 19 September 1995 was marked for the attention of Mr Wilson C Kwok, the Financial Director of the Defendant. The letter referred to a recent discussion between Mr Dennis Chan, an Assistant General Manager of the Bank and Mr Kowk. By the term of this letter the Bank agreed to grant overdraft facility available by drawing cheques on the Defendant's current account no. 267-031987-001 with the Bank to the overdraft limit of $140 million. It was a term that Mr Lim should be the guarantor, and the letter further required the further securities of (a) the earmarking of the Facility Amount from the overdraft facility granted to Lim available to his current account no. 293-027272-001, (b) guarantee given by Lim subject to the limit of $140 million and interest thereon, and (c) quoted securities acceptable to the Bank to be put by Lim with the Bank to secure the facility. The facility was repayable on demand. The documentations required under this letter were of the same kind as those required under the 1992 facility letter. The facility letter was countersigned by Koo on behalf of the Defendant and also by Lim, again on doubt in his capacity as guarantor. The Undertaking for Repayment of Overdraft required by the Bank was duly signed by Koo on behalf of the Defendant. By the term of this Undertaking, it was provided that in consideration of the Bank allowing the Defendant to overdraw its current account with the Bank form time to time at the Defendant's request, the Defendant undertook and agreed with the Bank to repay at any time on demand all moneys which might be owing to the Bank from the Defendant on the general balance of the Defendant's account with the Bank together with interest and all cost and expenses (legal or otherwise) which the Bank might incur in enforcing or seeking to enforce payment of all or any part of the money which might be owing by the Defendant on a full indemnity basis. Under the terms of the Undertaking, any sum owing to the Bank shall bear interest at such rate or rates as the Bank may from time to time for the time being charge the Bank's customers on overdraft accounts. The Undertaking further provided for the interest to be calculated on the daily balance of the account and also that the interest was to be debited to the account on a monthly basis. This would in effect mean that interest was payable on a compound interest basis on monthly rest. Lim also executed the documents required by the Bank under this facility letter.

13. In fact, the various Undertakings for Repayment of Overdraft signed by the Defendant from time to time were in a standard printed form provided by the Bank. Hence their terms were mutatis mutandus identical. The same is also true for the Guarantee signed by Lim and also the Share mortgage. The only difference is that for the 1995 Share Mortgage, there was added to it a further clause 2A to reflect the requirement of ear marking of $140 million from the personal overdraft facilities of Lim as security for his obligation under the Guarantee for the liability of the Defendant.

14. By 10 May 2000, the Defendant's current account was overdrawn to the extent that it exceeded the limit of $140 million by $8,932,629. By a letter dated 12 May 2000, the Bank requested the Defendant to rectify the excess or to submit a repayment plan acceptable to the Bank. This had not been done. However on 19 May 2000, Lim executed another guarantee in favour of the Bank, under which his guarantee for the overdraft of the Defendant was increased to $155 million and interest thereon. Meanwhile, the Bank by a letter dated 25 May 2000 continued to grant overdraft facility to the limit of $140 million to the Defendant. The terms of the letter were the same as the 1995 letter. The only material difference is that on the requirement of documentation, the letter simply stated that the existing Undertaking for Repayment of Overdraft executed by the Defendant and the Deed of guarantee and share mortgage executed by Lim shall remain in full force. There was however an additional term that in the event that the outstanding debit of the account was in excess of the available limit of the facility, the Defendant shall, without demand necessarily being made by the Bank, immediately repay such outstanding amount of the Facility and/or top up the Security by the Guarantor so that the outstanding debit of the Account would be restored to not exceeding the available limit of the facility as determined by the Bank from time to time. There was also a reminder that the facility limit of $140 million had already been exceeded and that the Defendant was requested to rectify the excess as soon as possible.

15. The Defendant did not rectify the excess overdraft. By a letter dated 21 August 2000, the Bank informed the Defendant that the overdraft had been exceeded by $12,831,705.94 and demanded that the Defendant should repay this excess within 7 days failing which the Bank would reserve it rights to take whatever actions it deemed fit without further notice. The letter was copied to Lim.

16. The demand letter of 21 August 2000 was answered by a letter dated 1 September 2000 signed by Pearl Lam on behalf of the Defendant. In this letter the Defendant said:

"We are sorry to have extended our overdraft by HK$11,831,705.94 due. We will endeavour to repay this amount plus the principle (sic) immediately after mid 2001 in accordance to a proposed repayment schedule. We have been diligently working towards a refinancing package. It is within our schedule to commence the repayment by the mid 2001. We shall be submitting to you the proposed schedule as soon as we have the concrete answer on the refinancing package."

17. It is to be noted that the Defendant's answer made no denial of any liability to the Bank at all. Faced with this letter, Pearl Lam's explanation for writing a letter in those terms was that it was a Mr Ho, representing Lim, who suggested to her that she should respond along the lines set out in the letter with the purpose of securing more time for Lim to arrange refinancing. She also claimed that the letter was approved by Ho representing Lim.

18. By August 1999 the current account of the Defendant had already become rather inactive. Between August 1999 and January 2000 there were usually only one or two cheques of a about a few thousand dollars being deposited into the account. There was no drawing of cheques since August 1999 and the debits from the account were the auto pay debit in respect of petrol expenses and debit interest from the overdrawn balance. By the end of April 2001, the Defendant's account was overdrawn to $156,188,494.33, which was in excess of the limit of the guarantee given by Mr Lim. The auto pay debit for petrol expenses was stopped in April 2001. Since May 2001, there was no further drawing from the account and all debits were for interest payment.

19. On 31 July 2001, the Bank wrote to the Defendant informing the Defendant that the Bank would continue to make available the facility granted in the 25 May 2000 facility letter on the same terms and conditions. The explanation given by the Bank was that although by then the Bank realized that the limit of the facilities had been exceeded and various attempts made to ask the Defendant to regularize the account position had not been successful, if the facility was not continued, the Bank, in accordance with its policy, would have to demand and take steps for the recovery of the whole amount outstanding. At the time, the Bank decided to see if it could resolve the matter amicably with the Defendant. Since the continuation of the facilities on the same term as the 25 May 2000 facilities would not result in the Bank's having any further exposure as no further drawing would be allowed, the Bank decided to continue to renew the facility thus avoiding to take immediate action to recover the outstanding amount. In fact unlike the previous facilities letters, the letter of 31 July 2001 was extremely brief in terms, and no further new security documentation was required.

20. The Bank's case is that since the overdraft limit was exceeded the Bank had kept a close monitor on the Defendant's account. There were various attempts to get in touch with the Defendant. By a letter dated 8 January 2002, the Bank again drew the Defendant's attention to the fact that the account had exceeded its overdraft limit by over $24 million and asked the Defendant to regularize the position. Meanwhile the Bank's officer Tse Yuk Wah continued to make efforts to contact the Defendant with a few of resolving the overdraft problem. It was not until 11 March 2002 that Tse was told by one Agnes Tang of the Defendant over the phone that the Bank should contact Lim in respect of the Defendant's indebtedness and the Defendant would not be making any repayment. On the same occasion Agnes Tang also told Tse that Pearl Lam's (a director and a substantial shareholder of the Defendant by then) instruction to her was that Lim was solely responsible for making repayment to the Plaintiff. This was the first occasion when there was ever any suggestion made by the Defendant to the Bank that it would not be liable to the Bank. In the light of the attitude of the Defendant, the Bank decided to instruct solicitors to make a formal demand and to institute legal proceedings for recovery.

21. For the purpose of the present hearing, I am prepared to take the view that right up to at least August 2001, the facilities actually drawn by the Defendant was fully secured by the Guarantee given by Mr Lim, and Mr Lim's liability as guarantor was also fully secured by quoted securities he mortgaged to the Bank and also by the Bank's holding or ear marking $140 million from the overdraft facilities granted by the Bank to Mr Lim. The effect of the ear marking of the overdraft facilities was that instead of asking Mr Lim to deposit the sum of $140 million as security, in circumstances when Mr Lim would be able to get the same amount from his own overdraft with the Bank to make the deposit, the Bank merely ear marked $140 million from the overdraft facilities available to Mr Lim for such purpose. Of course, Mr Lim's own overdraft facilities would have been fully secured.

22. Since there was no agreement or representation on the part of the Bank not to pursue its contractual rights against the Defendant the Defendant could only rely on the doctrine of estoppel by convention. The doctrine of this kind of estoppel was explained in Chitty on Contract 28 edition paragraphs 3-100 and 3-103:

"3-100 Distinguished from estoppel by convention. Estoppel by convention may arise where both parties to a transaction "act on assumed state of facts or law, the assumption being either shared by both or acquiesced in by the other. The parties are then precluded from denying the truth of that assumption, if it would be unjust or unconscionable to allow them (or any one of them) to go back on it. Such an estoppel differs from estoppel by representation and from promissory estoppel in that it does not depend on any "clear and unequivocal" representation or promise; it can arise where the assumption was based on a mistake spontaneously made by the party relying on it, and acquiesced in by the other party...

3-102 "communication" passing "across the line" To give rise to an estoppel by convention, the mistaken assumption of the party claiming the benefit of the estoppel must, however, have been shared or acquiesced in by the party alleged to be estopped; and both parties must have conducted themselves on the basis of such a shared assumption: the estoppel "requires communications to pass across the line between the parties. It is not enough that each of two parties acts on an assumption not communicated to the other. Such communication may be effected by the conduct of one party, known to the other. But no estoppel by convention arose where each party spontaneously made a different mistake and there was no subsequent conduct by the party alleged to be estopped from which any acquiescence in the other party's mistaken assumption could be inferred.

3-103 Effect of estoppel by convention The effect of this form of estoppel is to preclude a party from denying the agreed or common assumption. One such assumption may be that a particular promise has been made; thus it is possible to describe the result in Amalgamated Investment & Property Co. Ltd v Texas Commerce International Bank Ltd by saying that A Co. was estopped from denying that it had promised X Bank to repay any sum left unpaid by B Co. to Y bank. But, although estoppel by convention may thus take effect in relation to a promise, it is quite different in nature from promissory estoppel. In cases of promissory estoppel, the promisor or representor is not estopped from denying that the promise or representation has been made: on the contrary, this must be proved to establish that kind of estoppel. The doctrine of promissory estoppel is concerned with the legal effect of a promise that has been shown to exist. Estoppel by convention on the other hand, may operate so as to prevent a party from denying that a promise has been made or from disputing its terms: it does not specify the legal effect of the assumed promise. Hence it has been said that the effect of estoppel by convention is not to give rise to an enforceable contract without consideration: "Estoppel by convention is not dependent on contract but on a common assumption".....

23. In Yuen Ching Yuen v Union Insurance Society of Hong Kong Ltd. [1998] 2 HKC 294, Cheung J (at page 304I) held that for an estoppel by convention to apply, the following conditions had to be satisfied:

(1) There must be a common mistaken assumption by both parties as to the existence of a state of affairs or as to the construction of a document.

(2) The mistaken assumption must have been communicated to each other.

(3) Both parties must have conducted themselves on the basis of such a mistake.

(4) It would be unjust to allow one party to go back on that assumption.

(5) Once an understanding is shown to be a mistaken one, the estoppel would not apply to future dealings between the parties."

24. In my view, it is plain and obvious that the Defendant in the present case failed nearly in each and every of the requirements such that the Defendant had not shown any triable issue on estoppel by convention.

25. First in relation to the requirement of common mistaken assumption, the case of the Defendant as evidenced by paragraph 10 of the Amended Defence was that "the Plaintiff assumed and acted on the assumption that notwithstanding the documents in relation to the overdraft facility and its use by the Defendant only Lim and not the Defendant would be liable to the Plaintiff in respect thereof". In support of such allegation, the Defendant purported to rely on a series of matters particularized under paragraph 10 of its Amended Defence. These matters included the fact that the Bank had obtained full security from Lim in form of guarantee and other securities, the Bank did not request for a lot of crucial financial information from the Defendant, the Bank did not appear to have been concerned with the form or contents of the Board resolution furnished to the Bank relating to the Defendant's execution of the Undertaking for Repayment of Overdraft, and the Defendant had exceeded its overdraft limit but the Bank did not inform the Defendant and had not taken any action until these proceedings. In my view, none of the matters relied upon by the Defendant either singly or cumulatively would give rise to the inference that the Bank acted on the assumption that notwithstanding the clear terms of the banking documents only Lim and not the Defendant would be liable for the overdraft in the Defendant's account. The Bank's conduct no doubt did give rise to an inference that the Bank relied heavily or even exclusively on the security furnished by and the credit worthiness of Mr Lim in granting the overdraft to the Defendant. It is an every day occurrence in the banking industry that facilities was granted in full reliance of the security given by a third party. This could not mean that the Bank would intend that the primary debtor should not be liable to the Bank for the loans to the debtor. Furthermore given that the Bank had obtained full security for the indebtedness of the Defendant, the lack of enquiries of the details of the Defendant's financial position such as in obtaining its audited accounts could not mean that the Bank had assumed that the Defendant was not to be liable despite the express terms of the banking documents. Again the point about the board resolution could not give rise to any inference that the Bank acted on the assumption that the Defendant was not to be liable. The resolution was said to be defective in that it did not specify the person to be authorized to execute the Undertaking for Repayment of Overdraft. However, there was never any question as to the authority of Koo in signing on behalf of the Defendant. The resolution merely related to the signing of the Undertaking. Even without the Undertaking there could not be any doubt that the Defendant was bound by the terms of the facility letters which were countersigned by Koo for the Defendant and also by Lim. Furthermore having drawn on the facility under the facility letter which clearly stated that the Undertaking was to be given as a term for the facility, the terms of the Undertaking would be binding on the Defendant in any event, whether the Undertaking was signed or not.

26. While I am conscious that I am considering an application for summary judgment and I should not attempt to try the matter on affirmations, in looking at the evidence before me in order to decide whether the Defendant had shown any triable issues, I have to approach the matter with some common sense. If it is said that the Bank would assume that the Defendant would not be liable to the Bank for the repayment of the overdraft, why should the Bank be bothered to ask the Defendant to execute the banking documents, and why should it not be the case that the Bank should just advance the money to Lim, in which case, it would be open to Lim to make use of the advance in whatever manner he thought fit. The fact that on every occasion of the Bank's granting or extending overdraft facilities to the Defendant between 1992 and 1995 the Bank would stipulate that Mr Lim should be the guarantor and certain security in the form of mortgage of quoted securities would clearly indicate that the Bank intended that the Defendant was to be the primary debtor whose liability would have to be secured. What is missing in the Defendant's contention is that there is a world of difference between the Bank's assuming and acting on the assumption that the Defendant, the customer to whom the overdraft was granted, was not to be liable to repay the overdraft, and the Bank's placing full reliance on the security or credit worthiness of Mr Lim in deciding to grant the overdraft to the Defendant. In this respect, it is important to note that the Defendant was not a mere corporate shell. The Defendant from the outset had a separate business of holding the Property at Perkin Road. Later since 1993, the Defendant was also engaged in property development in Shanghai and was certainly not a mere nominee or corporate vehicle of Mr Lim.

27. Again on the evidence before me, I have no doubt that the Defendant could not have acted on the assumption that it was not to have any liability to the Bank for the amount lent to it in the form of overdraft either. As it was clearly admitted in paragraph 4(k) of the Amended Defence the Agreement between Koo, Lim and the Defendant, which was relied on by the Defendant as the larger series of transactions forming the background to the facilities to be obtained from the Bank, was predicated on the Defendant's furnishing consideration in the form of its undertaking and incurring obligations to the Bank as a result of and in reliance on Lim's promise to repay the loans granted by the Bank. It was one thing that as between Lim on the one hand, and Koo and the Defendant on the other, that Lim would take up the responsibility of repaying any loan made to the Defendant by the Bank, it is another that as between the Defendant and the Bank,the Defendant was not to have any liability to the Bank for any loan made to it. It was plain that the Defendant's case could only be that as between the Bank and the Defendant, the Defendant would incur the liability to repay the facility. I cannot see how the Defendant could argue that it did incur liability and obligation to the Bank in respect of the loans so that it could take the benefit of the Agreement between Lim, Koo and itself, and yet somehow it also acted on the "mistaken assumption" that its liability to the Bank was not an enforceable by the Bank. Again the fact that the Defendant would believe that as between Lim and the Defendant, Lim would take up the responsibility to repay the loan obtained by the Defendant from the Bank did not mean that there was no legal liability owed by the Defendant to the Bank.

28. Indeed, the Defendant's behaviour did not indicate that the Defendant treated Lim as being the sole person having the primary liability for discharging the liability to repay the Bank. In purported support of its case that it made the assumption that Lim was solely and primarily liable for the repayment, the Defendant exhibited a number of cheques and pay-in slips purporting to show that Lim had deposited large sums of money into the Defendant's account with the Plaintiff to discharge the overdraft liability. However it was clear from many of such pay in slips that the repayments made were regarded as loans from Lim to the Defendant. This would completely negative the Defendant's assertion that all along, the Defendant worked on the assumption that Lim alone would be legally and primarily liable to repay the overdraft because if that was the case, the cheques or other sums paid into the Defendant's account by Lim to reduce the overdraft could not be loans from Lim.

29. In relation to the requirement that the mistaken assumption must be communicated to each other, the Defendant's counsel frankly admitted that he would have difficulties of identifying anything to show that there was such communication. However he submitted that such communication was not in fact required. He also submitted that it was not necessary that each of the parties should know that the other was working on the same assumption. He referred to the decision of Government of Swaziland Central Transport Administration v Leila Maritime Co. Ltd. [1985] 2 Lloyd's Rep 172. However in my view, The Leila could only support the contention that the party estopped need not have done anything to mislead the party relying on the estoppel by convention. On the facts in The Leila the agent for the defendant there had the knowledge and acquiesced in the plaintiff's assumption that the contract between them did contain an English jurisdiction clause.

30. As a matter of principle, it is difficult to see how there could be any estoppel by convention without the party estopped knowing that the other party had conducted its affairs based on certain assumption or belief which he would also share. In the present case, even if there was any evidence to show that the Defendant did believe that it would not have any legal liability to repay the Bank the amount overdrawn in its account, there was no evidence at all that the Bank was aware of such belief on the part of the Defendant. Again there was nothing to show that the Defendant knew or believed that the Bank was working on the assumption that the Defendant would not be legally liable to the Bank for the amount lent to the Defendant, even if the Bank did have such assumption or belief which I do not consider to be the case.

31. Regarding the requirement that both parties must have conducted themselves on the basis of the mistaken assumption, I am of the view that it was plain and obvious that at least the Bank did not conduct itself on the basis that the Defendant would not be liable to repay the overdraft. The fact that there was a good surety whom the Bank had every reason to believe would be good for the repayment did not mean that the Bank conducted its affairs relating to the loan on the basis that the Defendant would not be liable as the primary debtor. In fact the Bank's conduct was just the opposite. The Bank required the Defendant to execute documents evidencing and its liability to repay the Bank and Lim to execute guarantee to secure the liability of the Defendant which was consistent only with the Bank working on the basis that the Defendant had the liability as primary debtor.

32. In fact I am also of the view that there was no triable issue that the Defendant also had not conducted itself on the assumption that it had no liability to the Bank. Apart from the matters set out in paragraphs 27 and 28 above, the Defendant never denied any liability to repay until March 2002. The letter of Pearl Lam of 1 September 2000 made no hint that the Defendant would consider that there was no liability on the Defendant's part and that it was only Lim who requested for time to make refinancing arrangement. The purported explanation given by Pearl Lam that the letter was written by her on the suggestion of Ho as the representative of Lim could not take the matter any further. If indeed there was the assumption by the Defendant that it was only Lim alone who would be liable to the Plaintiff, surely the same assumption must have been shared by Lim, and there would have been no reason for Lim to request the Defendant to answer the Bank in the terms of the letter of 1 September 2000 without mentioning that the Defendant was not to be liable at all.

33. On the requirement that the Defendant must be able to show that it would be unjust to allow the Bank to go back on the assumption that the only Lim alone and not the Defendant would be liable to repay the overdraft, I have serious doubt as to whether the alleged prejudice suffered by the Defendant namely, the incurring of liability for the interest on the loan could amount to sufficient prejudice to give rise to the estoppel. The Defendant must be taken to be well aware of the terms of the loan. In fact, from the facility letter of 19 September 1995 sued upon by the Bank, it is clear that the grant of the facilities was the result of some discussions between Wilson Kwok, the financial director of the Defendant and the Bank. However, in view of my decision that the Defendant has failed to show triable issues on other essential requirements to establish the defence of estoppel, it is not necessary for me to decide on this point.

34. On the last observation by Cheung J that the estoppel would cease to apply to any transaction after the assumption is shown to be a mistaken one, it is my view that the burden is on the Defendant who sought to set up and claim the benefit of the estoppel to show that the estoppel operated at the time which would negative its liability to the Bank. In the present case, it is not clear whether the Defendant was contending that the estoppel would operate as soon as the Defendant had drawn on the first facility granted in 1992 or whether it would argue that the estoppel came into existence only sometime afterwards where a pattern of conduct on the part of the Bank was established; and if it was contended that the estoppel would only come into existence sometime after the drawing on the first facility in 1992, the Defendant was never able to point out the precise time when it would contend that the estoppel was established. Assuming that the Defendant had made the assumption in 1992 when it was first granted the facility that it was never under any liability to repay, surely the Defendant must have realized that the Bank was not under the same assumption when in 1993, September 1995, and May 2000 the Bank asked for the execution of the Undertaking to Repay the Overdraft.

35. As I have pointed out the Defendant's case was not very clear on this point, I do not think that I could say that the Defendant's plea of estoppel by convention would definitely fail because by the time of the Defendant's acceptance of the terms of the facility letter of 19 September 1995, being the agreement sued upon by the Bank in this action, the Defendant must have realized that the Bank was not acting on the same "mistaken assumption" if the Defendant could otherwise satisfied the other essential requirements to establish the estoppel.

36. To conclude, I am of the view that there is clearly no triable issue in this case. The Defendant however contended that the court should grant the Defendant leave to defend on the basis that there was some other reason for a trial. The Defendant criticized that Bank for not exhibiting any record of the Bank in relation to the grant of the facilities in 1992 and 1993, and not revealing any circumstances on how the facilities came to be granted in 1992 and 1993. It was contended that the Defendant should be given the chance to obtain discovery of the banking records and documents in relation to the grant of the facilities or the handling of the Defendant's account. It was also said that the Defendant ought to be given the opportunity to serve interrogatories to find out the circumstances leading to the grant of the facilities to the Defendant. It was contended that if it could be shown that the facility was granted as a result of the discussion or request by Lim to the Bank and/or if there was record to show that Lim had told the Bank of the "Agreement" or arrangement between Lim, Koo and the Defendant as alleged by the Defendant, then it would go a long way to show that there was a common mistaken assumption and that the Bank was aware of and had acquiesced in the assumption made by the Defendant that it was only Lim who would alone be liable to the Bank for the repayment of the overdraft.

37. I am not convinced that the Defendant had shown that there was some other reason for a trial. It is plain from the Amended Defence that even on the Defendant's case, the Agreement or arrangement which was so essential to the Defendant's case of estoppel by convention would involve the Defendant furnishing consideration in the form of incurring obligations to the Bank. In the context the obligation could only be enforceable obligations. Even if it was shown that Lim had informed the Bank that there was such wider arrangement between him, Koo and the Defendant, it could only work to destroy the Defendant's defence of estoppel by convention. In any case, there was not a shred of evidence to show that the Bank was aware of the alleged wider "Agreement" or arrangement, and I do not think that in the circumstances of this case, leave to defend should be granted to allow the Defendant to try to fish for evidence in the hope of establishing a defence.

38. I am thus of the view that the appeal should be allowed. I will direct that final judgment be entered against the Defendant in terms set out in paragraphs (a) of the Notice of Appeal dated 2 December 2002. Since the Bank is successful in its appeal and I have given final judgment against the Defendant, I think the Bank should also be entitled to its costs in terms of paragraph (b) of the Notice of Appeal. I will make an order nisi to that effect.