BANK OF CHINA (HONG KONG) LTD v. WONG MAN YI

HCA 2321/2012 & HCA 2323/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NOS 2321 AND 2323 OF 2012

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(HEARD TOGETHER)

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J U D G M E N T

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Background

1. This is an appeal against the decision of the learned master dismissing the defendant’s application to strike out the two actions on grounds of limitation.  Both actions relate to debts owed by two limited companies, Good Clever Development Ltd (“Good Clever”) and Newlink Investment Limited (“Newlink”) to the plaintiff bank.  The defendant was the personal guarantor in respect of the debts of Good Clever and Newlink to the bank.  It is not in dispute that the bank’s claim against the defendant would have been statute barred but for the bank’s reliance on a Chinese letter dated 17 January 2001 (“the 1^st Letter”) written by the defendant to the bank.  The bank relies on the 1^st Letter as acknowledgement of the claim within the meaning of section 23(3) the Limitation Ordinance, Cap 347.

2. It is the defendant’s first argument that the 1^st Letter did not constitute an acknowledgement under section 23(3).  The second argument is that the 1^st Letter is in any event inadmissible, being a “without prejudice” letter.  He thus applied to strike out the plaintiffs’ claims on the ground that the claims have been statute‑barred.

Section23(3) acknowledgment

3. It is common ground that the relevant legal principles governing what constitutes a sufficient section 23(3) acknowledgement have been helpfully set out in the Court of Final Appeal’s decision in New World Development Co Ltd v Sun Hung Kai Securities Ltd (2006) 9 HKCFAR 403 at §§90‑93:

(1)  The question is one of construction.

(2)  In construing the document relied on, the court will look at connected documents (not necessarily expressly referred to in the document relied on) to ascertain its proper meaning.

(3)  The object of the construction exercise is to decide whether, fairly read, the document relied on constitutes an acknowledgment by the debtor of a liability to pay outstanding amount to the creditor.  There is no need for the document to specify the amount of the debt so long as it can be ascertained by other means, including resort to extrinsic evidence, without requiring the parties’ further agreement.

(4)  Even if the document relied on acknowledges a debt, it is not sufficient acknowledgment for the purpose of the section if it is accompanied by words which nullify or materially qualify that acknowledgment which renders the document in effect a denial of liability.

The 1^st Letter

4. On 3 December 1997, the defendant signed a number of documents on behalf of Good Clever and Newlink mortgaging a total of three shops in the Laguna Arcade to the bank.  There were covenants in the mortgage deeds to repay all sums due and owing.

5. On the same day, the defendant signed two personal guarantees in favour of the bank in respect of the liabilities of Good Clever and Newlink which are the subject matters of these actions.

6. Good Clever and Newlink defaulted in repayment.  On 14 October 1999 the bank (through its lawyer) issued demand letters to the defendant in his capacity as guarantor for the indebtedness of Good Clever and Newlink.  The demands letter set out the exact amounts due and owing by each of the two companies.  The indebtedness arose out of non‑payment of mortgage loans.  The defendant did not reply to these demand letters and did not raise any dispute as to his liability as guarantor or the amounts demanded.

7. On 4 December 2000, the bank initiated HCMP 6251/2000 against Good Clever, Newlink and another company called Kam Lung Enterprises Limited (“Kam Lung”) seeking possession of the Laguna Arcade shops and monetary judgment.

8. On the same day, the bank instituted HCA 10275/2000 against the defendant and his brothers as guarantors for the debts of Kam Lung due and owing to the bank.  The indebtedness of Kam Lung arose out of certain trading facilities provided by the bank.

9. It was under these backgrounds that the defendant issued the 1^st Letter to the bank.  I will set out the entire contents of the 1^st Letter:

「		時間： 2001年1月17日

關於：和解建議書

李仕強 高級經理

李大鵬 經理：

您們好！

      本人在2000 年12 月8 日收到貴行透過梁錦濤關學林律師行發出的“原訴傳票6251 號”(關於收回麗港城兩個物業) 及 “傳訊令狀10275 號” (關於向擔保人追款)。本人立即於下一個工作日即12 月11 日拜訪貴行，希望商討一種解決問題的辦法。當天本人得到答覆說：只要我等同意將有關物業交還貴行處理，貴行將暫緩或撤回對擔保人的傳訊令狀訴訟。本人贊同並接受這樣的處理安排，並一心等候貴行整理好有關文件以便簽署。為令貴行有充足的時間準備文件，同時也為了本人獲得正確法律意見和援助，本人於12 月18 日特向法律援助署提出法律援助申請。遺憾的是，經過了將近一個月時間，本人仍未接到貴行任何進一步的通知；而與此同時，傳訊令狀規限的時間，已令本人無法再拖延提出抗辯的行動。因此，本人於2001 年1 月9 日在別無選擇的情況下，就 “傳訊令狀10275 號” 提出正式抗辯書。

事實上，本人極不願意透過法律訴訟的方式來解決問題。本人過去、現在、將來都有真誠希望：貴我雙方能夠秉持互信互諒、互商互量、共渡難關、長遠發展的原則，一步步的來妥善處理、解決過往遺留下來的問題。現在，本人抱著同樣的心愿，鄭重向貴行提出如下建議書，期望能夠得到貴行的理解和接納：

一．懇請貴行抓緊時間將物業交收的有關文件整理好，我等將第一時間予以配合簽署；當物業移交手續辦妥後，請依照貴行正常程序，將三個物業按合理巿價出售；當物業出售套現後，請將款項首先用於償還錦隆企業有限公司所欠貴行的信用證額度。在進行上述程序期間，貴、我雙方同意擱置高等法院10275/2000案件的訴訟。

二．在所有抵押物業全部出售套現並償還貴行之後，若有關公司仍無法全數清還所欠貴行的款項，而這些公司又涉及本人需要承擔個人擔保責任的，本人懇請貴行充分考慮以下因素並接納本人的如下請求：

1. 希望貴行能夠停止及寬免對這些剩余欠款的進一步追索行動，讓本人及/或其他擔保人有充足的時間、精力、狀態，全力以赴去爭取新的商業機會。

2． 眾所週知，造成今日我等可能無法全數清還貴行欠款的主要原因，是亞洲金融風暴的直接打擊和香港物業價格的大幅貶值——以目前的抵押在貴行的麗港城三個商舖為例，現今的巿價估計只有1991年十年前我們購入價格的20%而已。天意如此，人又奈何！

3. 我們兄弟與貴行有十幾年友好合作的記錄。我們一向是殷實、負責任的商人。我的父親連續十幾年是福建省政協委員，我的其中一個兄弟擔任廈門巿政協委員也超過五年時間。在90 年代初，當我們兄弟經營的業務比較順暢的時候，我們曾慷慨解囊，捐獻500 萬元港幣給廈門巿的教育、老人、體育事業，得到當地政府的稱許和嘉獎。

4. 為了履行向貴行還款的責任 (雖然這些債務都是其他兄弟造成的)，從1994 年開始，本人已陸陸續續將自己名下的所有資產，包括1996 年出售的迆灣港利中心20 層的權益，全數分毫不留的奉交給了貴行。坦率說，對貴行而言，本人已竭盡傾囊；對兄弟而言，本人亦做到仁至義盡！今天，本人也毫不掩飾的坦承：本人目前連維持自己一家4 口人正常生活的經濟來源都已經發生了嚴重困難。

5. 本人由衷期望貴行能夠理解和體諒的關鍵一點是：在力所能及之下，本人一定會盡可能代兄弟履行還款的責任。但是，當本人已經竭盡所能了，甚至走到絕處的時候，也希望貴行寬宏大量，不要再對本人及其他擔保人做出進一步的追究，不要告本人及其他擔保人至破產的地步，給予本人及其他擔保人一個賴以生存的空間和翻身的機會！是所盼祈，懇望 [准] 允，本人將感恩戴德不盡！

三．假若以上一、二兩項建議能夠得到貴行的認可和接納，本人願意隨時撤回1 月9 日就高等法院10275/2000案件所提交的抗辯書及反訴書。

請貴行慎重考慮本人的以上建議，並盼及時回覆確認為荷！

此致

        商祺！」

Parties’ arguments

10. Counsel for the defendant Mr Lam SC argued that when fairly read, the 1^st Letter did not constitute an acknowledgment of “a liability to pay outstanding amount to the creditor” because:

(1)  The defendant was referring to a contingency or possibility that he would owe money to the bank under the personal guarantees.  The contingency was: if and only if the sale proceeds of the mortgaged properties were insufficient to pay of all the debts of Good Clever, Newlink and Kam Lung.  Mr Lam stressed on the words “若” and “而” in Clause 2.

(2)  Then in that eventuality, the defendant would ask for such remaining debts to be waived.

(3)  The defendant was thus not admitting or acknowledging that there was any “outstanding” amount under his personal guarantees as at that time.

(4)  Not only that the amount of such contingent liability had not been identified, the amount was also not ascertainable at that time because the properties were yet to be sold.  It would require further agreement between the bank and the defendant on the selling prices.

11. Mr Man, counsel for the plaintiff bank submitted that it is plainly arguable that the 1^st Letter was a section 23(3) acknowledgment for these reasons:

(1)  Given the aforesaid backgrounds, it is clearly arguable that when the 1^st Letter was issued, the bank and the defendant had in mind, among other things, the defendant’s liability as guarantor for the monetary claims then being pursued against Good Clever and Newlink under HCMP 6251/2000.  Clause 2 referred to “有關公司” apart from “錦隆” and that was a reference to Good Clever and Newlink.

(2)  There were admittedly discussions between the defendant and Mr Li of the bank which are admissible evidence on construing the object and purpose of the 1^st Letter: whether it was a letter seeking to settle a dispute, or whether the defendant was merely asking for more favourable payment terms of a debt which he did not really dispute.

(3)  Clause 2 of the 1^st Letter clearly demonstrated that the defendant was pleading for the bank’s indulgence (not to exercise its rights to the fullest extent) by providing various reasons to invoke sympathy.  The defendant also stressed his hitherto actions done with a view to discharging his repayment obligation towards the bank and his intention to do so.

(4)  The defendant clearly referred to and recognized his obligation/liability as a guarantor for Good Clever and Newlink and there was absolutely no indication that he disputed such liability.  In so far as the filing of defence in HCA 10275/2000 the defendant explained that he did so because of time pressure.  In any event, it related to the debt owed by Kam Lung, unrelated to the defendant’s separate liability under the two guarantees in question.

(5)  By the time the 1^st Letter was written, outstanding debts of Good Clever, Newlink and Kam Lung had been ascertained and had been defaulted.  It cannot be said that the defendant’s liability as guarantor was not ascertained as at that time.  The fact that his liability could be reduced after successful realization of the mortgaged properties did not mean that the defendant’s liability was contingent.

(6)  Furthermore, although the exact quantum was not ascertained at the time, that is not a valid reason to prevent the 1^st Letter from being construed as an acknowledgment of liability to pay.  In the New World case, calculation of the exact indebtedness was disputed, still it did not prevent the document from constituting an acknowledgment of liability because the ascertainment of quantum would not require further agreement from the parties.  Similarly, in this case, whatever that could be realized from the mortgaged properties would be applied towards reducing the overall indebtedness.  No further agreement between parties would be required.

12. I accept the submissions of Mr Man.  It is at least an arguable interpretation of the 1^st Letter that the defendant acknowledged his liability as guarantor for the indebtedness of the two companies as per the demand letters.  He was only asking the bank to waive pursuing against him after the properties were sold and proceeds applied. The defendant was arguably acknowledging an ascertained outstanding which could be reduced by the realization of certain concurrent securities.  Such reduction required no further agreement from the parties.  It is not materially different from describing the defendant as having acknowledged a debt which could be ascertained without further agreement from the parties.  In my judgment, it cannot be said that the plaintiff’s arguments are clearly unsustainable.  I cannot strike out the plaintiff’s case on this ground because I do not find it a plain and obvious case to do so.

Admissibility of the 1^st Letter

13. The second argument of Mr Lam SC is that the 1^st Letter is in any event inadmissible because it was a without prejudice letter.  He submitted that although the 1^st Letter was not marked “without prejudice”, it was nonetheless without prejudice in nature because:

(1)  There was an existing litigation, HCA 10275/2000 in which the defendant had filed a defence and a counterclaim.

(2)   The 1^st Letter was entitled “和解建議書”.

(3)  It stated that if the bank agreed to his proposals, he was willing to withdraw his defence and counterclaim filed in HCA 10275/2000.

(4)  The only interpretation open is that it was a negotiation or compromise of a dispute.  It was not seeking better repayment terms of an admitted liability.

14. Mr Man referred me to Bradford & Bingley plc v Rashid [2006] 1 WLR 2066 and an explanation about that decision by Recorder Jat SC in Re Estate of Joachim Thomas [2011] 5 HKLRD 538 at §§30‑31:

“30. .... That submission seems to have been based on a misreading of Bradford & Bingley Plc v. Rashid …cited by Ms Lam. The facts of that case are very different from those in the instant case. What was in issue in that case was whether certain statements made by the defendant mortgagor in open correspondence between him and the claimant mortgagee constituted an acknowledgment of debt for the purposes of s. 29(5) of the Limitation Act 1980 (cf s.23(3) of the Limitation Ordinance, Cap. 347). The claimant did not dispute the debt or its amount, but in open correspondence proposed to pay a smaller amount than was owed ‘as final settlement’. The correspondence was not stated to be ‘without prejudice’.

31.  The House of Lords unanimously held that the claimant can rely on the statements as acknowledgment of the debt, but disagreed on the basis of their decision.  The majority of the House (Lord Walker, Lord Brown and Lord Mance) held that the without prejudice rule did not apply to such correspondence which was designed only to discuss the repayment of an admitted liability rather than to negotiate and compromise a disputed liability: see Lord Brown p.2089C, paras. 72-73 and Lord Mance, p.2091A-H, paras. 81-83.  (Lord Hoffmann and Lord Hope gave different reasons for their decisions) .…”

15. Mr Man thus relied on Bradford & Bingley plc v Rashid as an authority for the proposition that an acknowledgment of debt made in open correspondence to seek indulgence in respect of an undisputed debt is admissible.  He also referred to Thanki: The Law of Privilege (2^nd edn) §7.38and Phipson on Evidence (18^th edn) §§24‑30 in which the learned authors shared such a view.  Mr Man submitted that the facts in Rashid were pari materia with the present case.  He submitted that given context of the 1^st Letter, it is at least arguable that the defendant was not contesting his liability as guarantor in relation to the indebtedness of Good Clever and Newlink.  He stressed that HCA 10275/2000 was based distinctly on debts incurred by Kam Lung under its trading facilities.  The indebtedness of Good Clever and Newlink were incurred under two mortgage loans. They were the subject matters of HCMP 6251/2000 in respect of which the defendant never put forward any dispute.

16. I have earlier ruled that it is arguable that the defendant had admitted and acknowledged its liability as guarantor for the debts owing from Good Clever and Newlink.  In my judgment it is also arguable, reading the 1^st Letter in it proper and context and background, that the defendant was really attempting to seek the bank’s indulgence to waive his liabilities as guarantors for the indebtedness of Good Clever and Newlink after the mortgaged properties were realized.  Even in relation to HCA 10275/2000, there was some indication that the defence and counterclaim was put forward due to time pressure.  The request for waiver was also premised upon the proceeds being first applied to pay off Kam Lung’s indebtedness (see Clause 1).  It is thus arguable that the 1^st Letter was not one that negotiated for a compromise of disputed liability.  Rather, it was on the whole a request to satisfy admitted liability by a lesser amount. In the circumstances, I do not find it a plain and obvious case that the 1^st Letter is inadmissible.  I refuse to strike out the plaintiff’s claim on this basis either.

Conclusion

17. For the above reasons, I dismiss the appeal and maintain the order of the learned master.  Since I find that the plaintiff has an arguable case that the 1^st Letter is admissible evidence of a section 23(3) acknowledgment, it is unnecessary for me to consider whether a subsequent letter dated 6 February 2001 also constituted a valid section 23(3) acknowledgment.  I will leave this matter open at the trial proper.

Costs

18. I order that the defendant do pay the plaintiff the costs of this appeal on party‑and‑party basis.  Mr Man invited me to make directions for gross sum assessment.  I therefore direct that:

(1)  The plaintiff do submit to the defendant, within five days from the date of this order, a skeleton bill of costs.

(2)  Within five days from the date of receipt of skeleton bill of costs, the defendant do indicate such items that he contest and provide reasons.

(3)  In the absence of agreement, the matter be listed before me for assessment.