XCHRX MAN-TECH ELECTRONICS LTD. v. TONING ELECTRONIC CO. LTD. AND ANOTHER

HCA9203/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.9203 OF 1999

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J U D G M E N T

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O.14 application

1. The Plaintiff seeks to recover by way of summary judgment against the 2nd Defendant the sum of $596,596.25 pursuant to a guarantee dated 8th February 1999 provided by the 2nd Defendant to the Plaintiff.

Facts

2. The 2nd Defendant is a director of the 1st Defendant. The 1st Defendant owed the Plaintiff $1,193,192.50, being the balance of the price of goods sold and delivered by the Plaintiff to the 1st Defendant. The 1st Defendant issued five cheques for $589,550.00 as part-payment of the amount due to the Plaintiff. The cheques were dated 7th, 14th, 21st, 28th January 1999 and 4th February 1999 respectively. These cheques were dishonoured on presentation.

3. On 8th February 1999, the 2nd Defendant issued a guarantee to the Plaintiff. The terms are :

" (Translation)

GUARANTEE

To: MAN-TECH ELECTRONICS LIMITED

In consideration of the request by me, the six cheques (total sum of HK$646,590.00) given to your company for presentation in January 1999 be deferred for presentation in between the period from the 15th day of March 1999 to the 15th day of April 1999. Also, no legal action will be instituted against (TONING ELECTRONICS CO., LTD.) for HK$1,250,232.50 either in Hong Kong or in the People's Republic of China before the said period.

I, Paul Wong, Identity Card No. : A671701(5) hereby promise and voluntary to guarantee the debt of (TONING ELECTRONIC CO., LTD.) for HK$1,250,232.50, If, (TONING ELECTRONIC CO., LTD.) does not repay the debt or shut down, I will responsible to pay the debt but I am only liable for one half share of the debt, i.e. half share of the outstanding debt.

Also, if (TONING ELECTRONIC CO., LTD.) honoured the cheques within the time period (15th March 1999 to 15th April 1999), no legal action will be instituted by your company, otherwise this guarantee be void and without any effect! We apologize for any undesirable incident arising.

This certified.

	Signed : illegible
	Date : 8-2-99"

The defence

4. The only defence raised by the 2nd Defendant is that the Plaintiff had given time to the 1st Defendant to repay the sum of $1,193,192.50. By a letter dated 7th May 1999, the Plaintiff wrote to the 1st Defendant, with a copy to the 2nd Defendant, stating that :

"We offer to you the following repayment schedule :-

The total debt for HK$1,193,192.50 will be settled by 8 months. And Eight/8 : post dated checks must be issued to us at May 10, 1999 and guarantee that are honest checks."

The dates of the cheques were specified in the letter, namely, 10th May, 10th June, 10th July, 10th August, 10th September, 10th October, 10th November and 10th December 1999 respectively.

The Law

5. The principle is clear :

" A surety is discharged by the creditor, without his consent, either releasing the principal debtor or entering into a binding arrangement with him to give him time. The ground upon which the surety is discharged being in both cases that his right at any time to pay the debt, and sue the principal in the name of the creditor, is interfered with."

Rowlatt on the Law of Principal and Surety, 4th Ed., p.163.

The Plaintiff's explanation

6. Mr Lee of the Plaintiff in his affirmation in support of the O.14 application stated that :

" I admitted that the Plaintiff has agreed to give time to the 1st Defendant for payment of the amount of HK$1,193,192.50. However, such giving of time will not and does not discharge the 2nd Defendant from all liability under the said Guarantee."

Mr Lee had since explained in a latter affirmation what he meant earlier was this :

"I had indeed decided to offer to grant further indulgence to the 1st Defendant by extending the time within which it was to pay the sums due to the Plaintiff. I did not appreciate then that the use of the word 'agreed' may be taken to mean that there had been an offer to extend time for payment of the debt and an acceptance of it, which in turn would suggest, I am now informed by Mr. Jesse Kwok of Messrs. Jesse H.Y. Kwok & Co., that a binding legal agreement had been reached between the Plaintiff and the 1st Defendant."

2nd Defendant's new affirmation

7. The 2nd Defendant had filed a further affirmation in which he said that Ms Diana Kwan, another director of the 1st Defendant, had agreed with Mr Eric Lam of the Plaintiff on 10th May 1999 that the time for repayment of the debt was extended. This was denied by Mr Lam.

No credible defence

8. The test in O.14 application is whether the defence is credible. If yes, then the Defendant should have leave to defend, if not, judgment should be given to the Plaintiff.

9. The 2nd Defendant contends that whether there was an agreement for an extension of time is an issue that has to be tried. I disagree. The alleged agreement of 10th May 1999 was not pleaded in the defence of the Defendants which had expressly pleaded the agreement of 7th May 1999. If there was indeed such an agreement on a subsequent day, one would expect it to be raised at the first opportunity. What is more important in this case is that, it is clear from the letter of 7th May 1999 that the offer was subject to condition. The condition being that the 1st Defendant was required to pay eight post-dated cheques to the Plaintiff. Mr Lee stated that no cheque was ever issued by the 1st Defendant. The 2nd Defendant is one of the two directors of the 1st Defendant. Surely he must have known whether the 1st Defendant had complied with the condition by issuing the cheques to the Plaintiff. The 2nd Defendant is silent on this.

Conclusion

10. The rule on granting time to the principal is only applicable where there is a binding agreement between the parties : Rowlatt p.166. The agreement must be supported by consideration : Andrews & Millett : Law of Guarantees, p.261. This is not the case here and accordingly the Plaintiff is entitled to its application.