EASTLITE INDUSTRIES LTD. v. WILLIAM HUNG YU YANG

CACV 313/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. CACV 313 OF 2001

(ON APPEAL FROM HCA NO. 2224 OF 2000)

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J U D G M E N T

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Hon. Rogers VP:

1. This is an appeal from a decision of Waung J given on 10 January of this year. The Judge below was hearing an appeal on an Order 14 application from a judgment which was given by the Master.

2. The plaintiff sued the defendant on two guarantees. The first was dated 5 March 1990 and the second was 21 March 1994. The plaintiff company is apparently a company of some substance and, at one stage, the defendant was a director of that company and signed the accounts, in particular, for at least the years 1990, 1991 and 1992.

3. The defendant has, since the events which gave rise to this action, himself been a chairman of a public company in Hong Kong. It is right to say, right at the beginning, that the second guarantee was signed in front of his own solicitor, with the plaintiff company signing with its own solicitor present as well.

4. The plaintiff's case is that the defendant was a director of a company by the name of Taligold Limited ("Taligold"). Taligold was lending money, as its draft accounts show, at approximately 24 per cent. The audited accounts of Taligold, which have subsequently been produced, show that a large part of the money that Taligold was lending was being lent to companies which were controlled by the defendant himself. Indeed, the audited accounts of Taligold go on to show that, really, the only substantial business which was conducted by Taligold was that of lending money. The audited accounts, and indeed the draft accounts also, show that the money which Taligold had initially in 1990 was money which was borrowed from the plaintiff. In 1991 Taligold increased its share capital from $2 to $1,000,000. The plaintiff company's accounts show that the loans to Taligold by the plaintiff company were entered in as short-term loans.

5. On the face of the matter, the plaintiff's case is clear, that the defendant signed the two guarantees: the first in respect of Taligold's debts to the plaintiff and the second in respect of Taligold's debts as well as the debts of two other companies, Daimatsu International and Maxico-Hong Kong Cultural Association Limited ("Maxico").

6. When the letter before action was written on behalf of the plaintiff, the only reply which was received was a holding reply from the defendant's solicitors, saying virtually nothing other than the fact that the matter was being looked into. After the statement of claim was filed, as the Judge below observed, there was only a bare denial of liability and the reasons for that denial could not be discerned from the defence. The matter then came on, some months later, in front of the Master. The defence affirmations were filed at the last minute.

7. The defence, as it has boiled down to, is that, particularly in respect of the second guarantee, the guarantees were entered into upon the undertaking of Mr Lin, who happens to be the defendant's brother-in-law and whom the defendant says controlled the plaintiff, that the guarantee would not be relied upon. The defendant says that what had happened was that Mr Lin wanted to invest in various projects, in particular in projects in the Mainland and wanted to use Taligold as a joint venture vehicle. The defendant accepts that he had some interest in it, but says he shared that with another party and in that respect, therefore, would only have a 25 per cent interest in the investments. The defendant says that, as a result of that joint venture, he was told that the guarantees which he signed would not be called upon but were only there to satisfy the bank.

8. The first problem that faces the defendant in respect of that is that, although in his first affirmation he says that there was a joint venture from the beginning, in paragraph 15 of his fifth affirmation, he says that the joint venture arrangement did not come about until later, until a few months after the first guarantee was signed. As regards Maxico, the first affirmation of the defendant simply says that the capital invested in Maxico had nothing to do with him, but it would appear that Maxico certainly had a great deal to do with the defendant. Indeed, there are documents in the bundles, including letters from Maxico indicating that the name of the company had been changed, which were signed the defendant himself.

9. At the end of the day, there is nothing in all the documents which have been produced by the defendant that, in any way, support his suggestion that there was a joint venture between Mr Lin and himself and the third party. Nor is there anything to suggest that there is any substance in the allegation that Mr Lin undertook that the guarantee which the defendant had signed in favour of the plaintiff would not be enforced. As I have indicated, Mr Yang is a person of some substance; after these events he has been a chairman of a public company and the second guarantee was a document that was signed in front of his own solicitor. If it was not intended to have effect, there should have been at least something in writing to show that. There is nothing.

10. In my view, the defendant can only consider himself fortunate that judgment was not entered for the full amount but he has been given leave to defend in respect of part of the amount claimed. Judgment was only entered for the sum of $5,583,156.96 with costs, and he was given leave to defend in respect of the remaining $3,304,195.02.

11. In my view, this Court can only dismiss this appeal.

Hon. Le Pichon JA:

12. I agree.