HON HAI PRECISION INDUSTRY CO LTD v. BESTRONICS (INTERNATIONAL) CO LTD AND ANOTHER

HCA 206/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 206 of 2006

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REASONS  FOR  JUDGMENT

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1. Chiu Chi Hung and his younger brother, Chiu Chi Sing, was running a business in about 1985 in the name of Bestronics (International) Co.  Chiu Chi Hungsaid it was a small firm and they had employed only one staff to do the secretarial work.  In 1994 the company was incorporated as a limited company and that is the 1^st defendant herein.  Up till now, according to Chiu Chi Hung, Bestronics has only one employee.

2. Bestronics started its business with the plaintiff company since 1986.  The plaintiff company, Hon Hai (鴻海), is a subsidiary of a Taiwan listed company.

3. The 1^st defendant was the distributor of the plaintiff’s products such as connecters and cables for personal computers.  They sourced customers for the plaintiff and were paid commission in return.  They also placed orders for the plaintiff’s products and sold to their own customers.

4. In 1992 the 1^st defendant set up their own logistics company, “Hai San” Cargo Transport Co. Ltd.( 海山), and provided logistics services in relation to the plaintiff’s goods delivered to the 1^st defendant.  That was the case until about late 2002 when the plaintiff basically discontinued using Hai San as its freight carrier and decided to use another company, “ValuePlus” Global Logistics Ltd., instead.

5. Until then, the turnover of the business between the plaintiff and the 1^st defendant had grown much bigger.  Chiu Chi Hungsaid during the period around 1998 to 2003, it was agreed between the two parties that invoices issued by the plaintiff to Bestronics for the goods ordered, and the invoices issued by Hai San to the plaintiff for the logistic services payments, would be mutually set off.  Normally on a monthly basis the plaintiff would e-mail to the 1^st defendant statements listing out the invoice numbers for the purchase orders placed by the 1^st defendant.  The 1^st defendant then settled the invoices by telegraphic transfer.  Chiu Chi Hung said he relied on the plaintiff’s statements as being accurate.  In other words, they could have checked each and every item from their own record, but apparently from the small establishment in the 1^st defendant, they did not check the statements item by item and month by month as they were not keeping a full record themselves.

6. The 1^st defendant in making the payment would set out which invoices of the plaintiff would be set off by which invoices of Hai San and the amount outstanding after the aforesaid set off.

7. However, the plaintiff did not prepare its accounts on the same basis as the 1^st defendant.  According to Chiu Chi Hung, the plaintiff paid Hai San a small lump sum without indicating which invoices they were settling.  There are bound to be some discrepancies between the accounts of the plaintiff and the 1^st defendant.

8. In 2003 the plaintiff and the 1^st defendant signed a non-exclusive “Distributor Agreement” and the effective date was between 1^st April 2003 to 31^st December 2003.  The plaintiff’s case is that between March and September 2003 the unpaid purchase price for goods sold and delivered amounted up to $34,466,604.77.  Since that amount was not paid, the plaintiff by their solicitor’s letter dated 11^th November 2003 demanded payment.

9. The 1^st defendant originally by their solicitor’s letter dated 20^th November 2003 denied in total their liability under the Agreement.  They alleged that the Agreement, so signed by the 1^st defendant, had never been signed by the plaintiff and, therefore, the Agreement should be void.  Not a word was said as to whether goods were sold and delivered to the 1^st defendant as alleged by the plaintiff.  However, they asked for copies of all invoices, delivery vouchers and receipts for the consideration of the 1^st defendant.

10. By 24^th March 2004, the 1^st defendant wrote to the plaintiff and agreed that the total amount of payment made by the 1^st defendant to the plaintiff up to the 15^th December 2003 as shown in their own record is the same as the records provided by the plaintiff.

11. However, they said that: “after detailed examination of the goods receipt documents from our forwarder, Hai San, some invoices totalling HK$963,610.38 issued by your company were without any document evidencing that we had received the goods as indicated on the same.  The summary of these invoices be set out in the attached list.”

12. In other words, of the claim of $34 million odd, they only discovered a sum of just less than $1 million was not supported by documents supplied by the plaintiff.

13. The plaintiff then applied for summary judgment after it issued its writ on 27^th January 2006.  The 1^st defendant at first alleged that there were strong suspicions that some of the invoices produced by the plaintiff were forgeries.  However, when the matter was argued before me, Mr Gerald McCoy appearing with Mr Newman Lam for the 1^st defendant have very properly withdrawn such an allegation of forgery.  They embarked on a number of items showing irregularity and discrepancies in the documents and cast doubts on the accuracy of the total sum of $34 million odd claimed.

The Issue

14. The question before the court now between the plaintiff and the 1^st defendant is whether the 1^st defendant has shown any triable issue to any part or parts of the total sum claimed.

The Plaintiff’s Case

15. In order to understand the 1^st defendant’s various defences, one must first of all consider how goods were delivered to the 1^st defendant from the plaintiff when ValuePlus became the carrier.  The shipping documents were made in a set of five called the waybill.  These five copies are:

(i)    shipper’s copy;

(ii)    manifest’s billing copy;

(iii)    custom’s copy;

(iv)    D/C copy;

(v)    consignee copy.

16. The plaintiff have factories both in Shenzhen and Kunshan (near Shanghai).  The logistic delivery of goods would differ from goods coming from Shenzhen and goods coming from Kunshan.  They would both be delivered to ValuePlus warehouse in Hong Kong.

17. When goods originate from the plaintiff in Shenzhen, the various copies of the waybill would be used as follows:

(i)    The first shipper’s copy would have to be signed by whoever collected the goods from ValuePlus.  ValuePlus would then use this copy as a record for demanding payment.  As the 1^st defendant is responsible to pay the charges of ValuePlus, this copy would ultimately be sent to the 1^st defendant for payment.  In other words, the 1^st defendant should have the shipper’s copy checked with the goods sold and delivered to them.

(ii)    The second copy – the manifest’s billing copy – would be retained by the accounts department of ValuePlus as part of ValuePlus’ records.

(iii)    The third custom’s copy would be given to the recipient of the goods.  This was the case because the fifth consignee copy would not be very clear.

(iv)    The fourth D/C copy is intended to be used by check points of ValuePlus and is not relevant to the circumstances of the case.

(v)    The fifth consignee copy is intended for the record of the recipient of the goods, i.e. the 1^st defendant herein.  However, most of the time the fifth copy would be rather blurred and therefore normally ValuePlus would give the third copy to the recipients of the goods.

18. When goods were shipped, ValuePlus would take out the second, fourth and fifth copies of the waybill and would ask the driver who collected the goods to sign and chopped on the first and third copies.  Hence, only the first and third copies would have any signature or chop from the 1^st defendant or its carrier, Hai Sanwho came to collect the goods.  The plaintiff said that, due to the large number of transactions per day, it is not impossible that the aforesaid formalities were not strictly followed in every transaction.

19. Further, when the waybill was given by ValuePlus to the representative of the 1^st defendant for acknowledgment of receipt of goods, the waybill would come with two or three further documents, namely:

(i)    a shipping notice (發貨通知單) showing the information of goods delivered;

(ii)    an invoice of the plaintiff which would be formal invoice bearing a number, prefix “SZZ” originating from the plaintiff in Shenzhen;

(iii)    normally a packing list but it was not always the case when the shipping notice already contained all the relevant information.

20. Thus the 1^st defendant could check the actual goods received against the documents for all relevant information including the product numbers, the weight and quantity, the goods and the purchase order of the 1^st defendant to which the goods relate.

21. The representative of the 1^st defendant or its agent would then sign and affix a little circular chop of the 1^st defendant on the first and third copies of the waybill.  He would take away the third copy for the 1^st defendant’s record, whilst ValuePlus would retain the first copy, and then send it to the 1^st defendant when payment was requested from them.  ValuePlus would retain a photocopy of the first copy for its own record.

22. When the plaintiff’s goods were delivered from Kunshan to Hong Kong, the plaintiff would bear the logistic charges from Kunshan to Hong Kong.  In that case the waybill would be prepared by ValuePlus in the plaintiff’s factory in Kunshan as follows:

(i)      The first copy would be used by ValuePlus as a record for demand for payment from the plaintiff;

(ii)     The second manifest’s billing copy would be retained  by ValuePlus for its own internal record;

(iii)     The third to fifth copies would leave Kunshan together with the goods.

23. After the goods have arrived in Hong Kong, the services provided by ValuePlus would be paid by the 1^st defendant.  The original of the third to fifth copies of the waybill would accompany the goods up to Shenzhen, and then they would be collected by ValuePlus Shenzhen and would not arrive ValuePlus Hong Kong.

24. Hence, before the third copy of the waybill leaves Kunshan, ValuePlus Kunshan would scan the third copy and send it by e-mail to ValuePlus Hong Kong.  ValuePlus Hong Kong would then print out a copy in advance, and ask the driver from the 1^st defendant or its logistic company, Hai San, to acknowledge receipt on that printed copy upon the collection of goods in Hong Kong.  That printed copy would then serve as the record of ValuePlus Hong Kong when it demanded payment from the 1^st defendant for charges of ValuePlus in respect of services provided after the goods arrived in Hong Kong.  Similarly, the representative of the 1^st defendant acknowledged receipt on the printed copy of the waybill which would be accompanied by a packing list and an invoice.  Sometimes a shipping notice would be attached as well.  This document would therefore contain all the relevant information of the goods as aforesaid for the 1^st defendant’s checking.

25. The invoice for goods originated from Kunshan would only be a proforma invoice (i.e. ultimately the demand for payment would not be based on this invoice and it was produced for the clearing of customs only.)  These invoices would bear the prefix “EOA”.  Eventually for goods from Kunshan, a final invoice would replace the proforma invoice, on which actual payment would be based.  That final invoice would bear a prefix of “SZZ”.

26. In light of the aforesaid logistics operation, I shall now consider each and every item of the defences raised by which the 1^st defendant queried the accuracy of the plaintiff’s case in respect of those invoices amounting to less than $1 million.

The 1^st Defendant’s defences

27. The 1^st defendant by the affirmation of Chiu Chi Hung raised several items of irregularities among the airway bills supplied by the plaintiff as follows (A/5/45-46):

1.    The airway bills do not bear the rectangular chop of Hai San (B-229).

2.    A large number of them have signatures and chops outside the airway bills and the 1^st defendant says this is impossible to happen.

3.    Some of them have no seals or signatures (B-238).

4.    Some contain a circular chop bearing the name of the previous un-incorporated company of the 1^st defendant, i.e. Bestronics (International) Co. (B-242).

5.    The contents of a number of them were handwritten and suspiciously bearing different types of handwriting.  According to the 1^st defendant, this should not happen as the airway bills should be computer printed-out forms (B-246).

6.    Some of them on the face of the record were not referring to goods delivered to Bestronics and the 1^st defendant said “ridiculously the invoices were issued to Bestronics but goods were delivered to one JABL (B-250)”.

7.    Chiu Chi Hung said “Most obviously, of the airway bill no. 6933-2100-4385 (B-255 and 256) which Bestronics has a genuine copy, the copy supplied by the plaintiff is in different formats – the irresistible inference must be that it was forged.”  Counsel for the 1^st defendant categorically accepted that the 1^st defendant’s case is not one based on forgery.  It will be seen from the reply of the plaintiff as to why forgery could not be established by the aforesaid bare allegation.

The Plaintiff’s Reply

28. The plaintiff, however, in reply to all these allegations of the 1^st defendant, made various points by way of evidence and submissions of Mr Benjamin Yu, SC, appearing with Mr Bernard Man, counsel for the plaintiff.  Speaking generally, the 1^st defendant could not, because of its small-sized establishment, say that they could not be sure whether this amount of $34 million was outstanding because apparently they have not been able to keep full and proper accounts and record.  Instead, they relied on the plaintiff.

29. When the first demand of the plaintiff was made through solicitors, the first reaction of the 1^st defendant was a blank denial.  But their denial only centred on the fact that they have not signed the Distributor Agreement (which turned out to be wrong).  They did not deny that there was business relationship between the two parties, and goods were sold and delivered to the 1^st defendant.  The demand of the plaintiff came about because the 1^st defendant had not made the payment after the final payment made on 4^th July 2003.

30. The ensuing correspondences between the parties are quite telling.  By the 1^st defendant’s letter dated 24^th March 2004, as aforesaid, the 1^st defendant said they had conducted “detailed examination” of goods receipt documents from Hai San and, based on their documents only, they suggested that the total amount of a little bit less than $1 million according to invoices issued by the plaintiff, was without any document evidencing receipt.  However, that was before the 1^st defendant was supplied by the plaintiff with copies of invoices and acknowledgment of receipts in November 2004 (B/11/202).

31. Thereafter, the 1^st defendant was trying very hard to pick holes in all the documents supplied by the plaintiff as the 1^st defendant asserted that it has lost its own documents.

32. Counsel for the plaintiff submitted, which I accept, on an “Order 14” summons for summary judgment, it is not for a plaintiff to prove his case beyond any shadow of doubt.  Rather it is for a defendant to adduce sufficient evidence to persuade the court that there is a fair or reasonable probability of it having a real or bona fide defence; see Banque de Paris v. Costa de Naray [1984] 1 Lloyd’s Report 21.

33. The aforesaid seven points made by the 1^st defendant were answered by the plaintiff by evidence and submission.  They are as follows:

1.    It is neither here nor there for the 1^st defendant to allege that the waybill was not affixed with the rectangular chop of Hai San.  No forgery is now alleged by the 1^st defendant.  Counsel for the 1^st defendant submitted that document at C/372 is what a proper waybill should look like.  That one in fact does not contain the regular rectangular chop, but with a little circular chop.  Similarly, for the documents at C/442-444, no rectangular chop was placed to evidence receipt of the goods by Hai San.  However, this waybill together with the invoice was paid by the 1^st defendant.

2.    Some of the airway bills have signatures and chops made outside the document itself.  The 1^st defendant even said this is something which is impossible to happen.  It has been explained previously that for goods coming from Kunshan the print-out copy from the scanned copy sent through e-mail would be used.  It is just natural that the recipient would have put the chop and signature on the side of the print-out copy and such a margin would not be available if the recipient was only given the original copy.

3.    When the 1^st defendant through Chiu Chi Hung said on oath that some of the documents as produced in CCH-7, i.e. B/16/238, they even have no seals or signatures.  However, those copies produced by him at B/238-240 are all the second manifest’s billing copy.  This only confirmed the plaintiff’s version that this second copy was meant to be kept by ValuePlus for their own record and would not be given to the recipient of the goods.  Naturally, they would not have any seal or signature of the recipient of the goods.  When copies of them were given to the 1^st defendant for their checking, they made a song out of them and danced around them.

4.    The 1^st defendant attached the circular chop bearing the name of Bestronics (International) Co. without the word Limited.  The plaintiff pointed out that it is not uncommon and not impossible that some drivers still retain the little circular chop even after the incorporation of the 1^st defendant and kept on using the same on the documents evidencing receipt of the goods.  No forgery is now alleged, this point would lead to nowhere for the 1^st defendant.

5.    The 1^st defendant complained that a number of the invoices contained handwritten particulars with different kinds of handwriting.  It suggested that the airway bills should be computer printed-out forms and this should not happen at all.  However, the plaintiff explained that many a time, the goods were prepared in a hurry with a lorry waiting outside the factory.  Once the goods could be packed and shipped, then and only then particulars could be filled in and it is not uncommon that in such a hurry the particulars were filled in by way of handwriting for onward shipments.  It has never been suggested that the 1^st defendant had ever refused to accept any documents with handwriting particulars instead of computer print-out.

6.    The 1^st defendant complained that the goods were delivered to JABL, but the 1^st defendant was billed for them.  However, the plaintiff said that that was at the direction of the 1^st defendant and JABL was the designated purchaser from the 1^st defendant.  The 1^st defendant has not raised any objection when they were billed until after this Order 14 application and documents were supplied by the plaintiff frankly to the 1^st defendant.

7.    Originally Chiu Chi Hung made the most serious allegation of forgery by referring to airway bill no. 6933-2100-6385.  He said that the 1^st defendant somehow had a genuine copy themselves and the copy supplied by the plaintiff is in a different format.  He went on to say that the irresistible inference must be that it was forged.  This was CCH-11 at B/20/255 & 256.  Now counsel for the 1^st defendant had fairly withdrawn the allegation of forgery.  However, on a more meticulous examination of these two copies, 255 is only the third custom’s copy whereas 256 is the first shipper’s copy.  Their format obviously would differ although they are in the same set of the waybill with the same number.  If the 1^st defendant was desperate enough to attack these two different formats because they are two different copies, naturally adverse inference would be drawn against the 1^st defendant for such a desperate attack to allege forgery without any basis at all.  Further, documents at 255 faintly revealed that there was a document underneath which said in Chinese “華南銷售發貨通知單, 日期:2003/9/5, 楊敏霞” who apparently was the “發貨人”.  This is probably the document at C/46/451.  The documents at 255 and 256 said clearly that for the particulars of the goods please see the attached (“請看附件”).  This is not an irregularity at all.  Further, this confirmed the plaintiff’s version that the 1^st defendant would get the original of the third copy and keep it in his own record.  Later on, ValuePlus would keep a copy of the first copy after they had used the original of the first copy to request for payment from the 1^st defendant.  

34. Further it is quite clear from what the 1^st defendant did not say.  It was never alleged that goods were not sold and delivered by the plaintiff to the 1^st defendant nor the 1^st defendant had paid for them or any part or parts thereof.

35. The 1^st defendant only raised the points that it had already paid for items 1-10 of the particulars in the schedule to the amended Statement of Claim.  However, the plaintiff has demonstrated clearly that the accounts of the 1^st defendant was wrong since they did not take into account that certain payments were made for part of an invoice and now the plaintiff is only claiming the remaining balance which is left unpaid.  The 1^st defendant did not put in any evidence to contradict that.

36. In an application for summary judgment it is for a defendant to condescend upon particulars in order to establish that it has triable issues on merit.  I consider that the 1^st defendant herein has failed to demonstrate that it has any defence on merits.  On the contrary, all the points raised by the 1^st defendant are without merit and some of them have proven to be definitely wrong.

37. In short, in my view the plaintiff is entitled to the amount as claimed in the Statement of Claim.

The Guarantee

38. The plaintiff further claims against the younger brother, Chiu Chi Sing, the 2^nd defendant as a guarantor of the Distributor Agreement, i.e., the 2^nd defendant signed a guarantee in respect of the performance of the 1^st defendant.  It is provided in the Distributor Agreement under clause 10.7 as follows :

“簽署本約致乙方[即第一原告人] (包括關係企業, 如適用) 負責人及乙方母公司為本合約連帶保證人”

Thus two guarantors are required, one is the responsible person of the 1^st defendant personally and the other one is the parent company of the 1^st defendant.

39. The 1^st defendant was held by the parent company called Tanon Technology Limited.  Shareholdings of the two companies are as follows :

1.    In respect of the 1^st defendant’s shareholdings, Tanon is holding 999,999 shares whereas the elder brother, Chiu Chi Hung, is holding 1 share.  The two brothers, however, are both directors of the 1st defendant.

2.    Tanon was in turn owned 50/50% by the two brothers and both are directors of Tanon. 

40. The first reaction of the 2^nd defendant to the initial claim of the plaintiff through its solicitors was that he had never signed such a guarantee at all.  It then turned out from the documents that he had actually signed as the responsible person of the 1st defendant in his own name.  He then put forward defence that the parent company, Tanon, the defendant had never signed the joint guarantee and therefore he is discharged. 

41. The document, however, shows under the printed column for the parent company of the 1st defendant, Chiu Chi Sing, the 2^nd defendant, had actually signed for and on behalf of the 1^st defendant instead of Tanon.  The photostat copy at B/9/122 clearly shows that the 2^nd defendant himself apart from signing as the 乙方負責人, the responsible person of party B, i.e., the 1^st defendant, in his own name, he further signed under another column as the responsible person of the 乙方母公司, i.e., the parent company of party B.  However, the name of the 1^st defendant and not Tanon was typed out and the chop affixed thereon is the chop of the 1^st defendant and not Tanon.

42. Another copy of a similar document at B/23/279 had clearly shown that in the column of the parent company of party B, the 1^st defendant’s name and chop was affixed thereon.  This original document is the only original, I was told, available to the plaintiff and was produced to the court.  The chop of the 1^st defendant was very clear and affixed in this column.  However, the 2^nd defendant did not sign thereon but he signed in the lower column as the responsible person of the 1^st defendant. 

43. On the ground that the parent company, Tanon, had not signed as a joint tenant, Mr Chan Chi-hung, SC, counsel for the 2^nd defendant, had ably argued that the one who had signed a joint guarantee (連帶保證人) should be discharged.  He relied on a number of cases and textbooks.  I shall start with the cited textbook of Rowlatt on Principal and Surety5 ed. : 

“Para 9-03  On similar principles a surety is not bound if the instrument when signed by him is drawn in a form showing himself and another or others as intended joint and several guarantors and any intended surety does not sign.  It is immaterial by whom the instrument was prepared or whether the surety omitted as solvent or not.  In such cases the creditor must show that the surety consented to dispense with the execution of the document by the other or others.  The rule is an equitable one and is applicable even though the surety who has executed did not execute as an escrow and is consequently bound at law.  The principle is that the arrangement to which the surety consented to become a party has been left uncompleted and has, in equity, never become binding upon him.  He is entitled therefore to have the instrument given up to be cancelled, and not merely to have relief to the extent of the contribution which the other surety might have been compelled to pay in his relief.”

44. Mr Chan for the 2^nd defendant, relied on a number of cases.  The most spectacular one which will illustrate his point, I think, is the case of Ellesmere Brewery Co. v. Cooper cited  in the case of James Graham Ltd. V. Southgate-Sands (C.A.) and another [1986]  1 QB 80 at pp.89-90:

“In Ellesmere Brewery Co. v. Cooper [1896] 1 Q.B. 75, the position was different.  Four sureties jointly and severally guaranteed due payment of money collected by one of the brewery’s travellers in the sum of £150, but the bond limited the liability of N. and E. to  £50 and P. and B. to £25. N. was the last to sign and when the plaintiff’s representative presented the bond to him he signed and added:  “£25 only.”  The traveller defaulted in the sum of £48 and the brewery claimed that sum from the four sureties.  The county court judge held that there had been a material alteration in the bond to which E., P. and B. had not consented, and that none of the surties were liable, including N.  This judgment was upheld on appeal to the Divisional Court.  When dealing with N., Lord Russell of Killowen C.J. said, at p. 82:

“The result, therefore, is that neither Emberton, Pay, nor Bromfield can be made liable on this bond.  Each of them is entitled to say, ‘The contract into which I entered was on the basis of Nunnerley being a party to it with a liability of £50.  That is not the contract as it now appears from the bond, and I am, therefore, not bound by it.’  Their position would be still stronger if Nunnerley is not bound by the bond at all.  The remaining question then is – is Nunnerley bound at all?  I have already intimated, that as he has expressly said, “I shall be liable only for £25,’  he cannot be made liable for the £50;  but is he liable even for the £25?  I think he is not.  He, in good faith, expressly limits his liability to £25;  but he undertakes that liability not as a separate or independent liability, but as part of a contract in which three other sureties are joining him, against whom in certain eventualities he will have rights of recourse,  between whom and himself a common burthen is to be borne, although unequally distributed.  But if in fact such sureties are not bound by the contract (and we have adjudged that they are not), Nunnerley is entitled to say, ‘This is not the contract in which I have entered, and I am not bound by it.’”

Thus, Mr Chan submitted since Tanon had not signed as another joint guarantor, the 2^nd defendant should be discharged.  At least it is arguably so at this stage.

45. Mr Yu, counsel for the plaintiff, however, submitted that “in order for such a defence to be made out, there must be evidence that the additional guarantee must be obtained, rather than that there is a mere contemplation that such guarantee might be obtained.  He relied on the textbook of O’Donovan & Phillips, The Modern Contract of Guarantee (English edition) para 3-90:

“The burden of proof is on the guarantor to show that it is clearly contemplated that additional guarantors must be obtained, rather than that there is a mere contemplation that such guarantors might be obtained.  This burden of proof has proved difficult to satisfy.”  (original emphasis)

46. Thus, similarly, Mr Yu submitted that even in respect of the equitable jurisdiction, it is necessary to prove that the guarantor took it as a condition for its own execution that the other co-surety would execute the guarantee.  It would not be sufficient if the guarantor did not insist that the co-surety should execute.  See Traill & anor v Gibbons (1861) 2F & F 352, 360 (Erle CJ).

47. I do not see any serious contradiction between the submissions of the two counsel for the two parties.  In short, if the guarantee anticipated that there would be two joint tenants, but only one joint tenant signed, the other did not, then, unless there are other evidence to the contrary, the one who signed would be discharged because he would anticipate that the other guarantor would be a joint guarantor.  However if there is evidence that the one who signed the guarantee would not care or would not consider that it is a condition that the other joint guarantor would sign and jointly guarantee with him in respect of the performance of an agreement, then the guarantor who signed would have been considered as bound by the guarantee even if the other one had not signed since he had not expected the presence of the other one to be an important condition for his own liability.

48. The evidence before me did not support the version put forward by the 2^nd defendant and the legal consequence as submitted by Mr Chan on his behalf.  The 2^nd Defendant, Chiu Chi Sing, said that there are two versions of the written agreement received from the plaintiff.  His staff member, without naming whom (but we should remember that he only had one staff in a small office) filled in his details under the column of the responsible person of party B, including his name and ID number.  He then signed all four hard copies in two versions and asked his staff to send them to Tanon, the parent company of the 1^st defendant.

49. However, we must remember that it was a small office whereby Tanon and the 1^st defendant occupied the same office.  It is not a case of a big corporation whereby one branch of the corporation did not know what the other branch of the same corporation was doing. 

50. The 2^nd defendant further said that he also signed provisionally on the space for the parent company pending decision by it in particular his brother, Chiu Chi Hung.  It is true as I have pointed out earlier that from the photostat copy at B/122, his signature was found in the column intended for the parent company of party B, i.e., the 1^st defendant.  The copy also shows that the responsible person therefor was the 2^nd defendant, Chiu Chi Sing himself.  However, in a different column, the chop and the name of the parent company was described in the name of the 1^st defendant with its chop affixed thereon.  (It is not possible at this stage on the photostat copy to ascertain whether his signature thereon was on top of the chop and the writing or whether the chop and the writing was printed out later on after he had signed as he had said.)

51. However, the 2^nd defendant did not condescend on any particulars in this important aspect.  Chiu Chi Hung is absolutely silent as to what had happened to his decision and why he could have decided to use the 1^st defendant as a guarantor to guarantee its own performance instead of, as required by the plaintiff, engaging the parent company as a guarantor.  Chiu Chi Sing, the 2^nd defendant, then said that he only found out in or around November 2003 “that Tanon had decided not to be the guarantor and therefore the name and details of the 1^st defendant instead of Tanon were entered in the space with Tanon was supposed to execute and the chop of the 1^st defendant instead of Tanon was put in the space for joint guarantors.” 

52. This is highly incredible and amounted to a moonshine in terms of summary judgment application.  Both the two brothers had been businessmen for a long time.  It is inconceivable that they had decided to engage the 1^st defendant to guarantee its own performance instead of, as required by the other party, engaging the parent company to guarantee the performance of a subsidiary company.  The high probability of inference is that the 1^st defendant had made the mistake and had typed out the name of the 1^st defendant and affixed the chop of the 1^st defendant instead of the parent company, Tanon.  Chiu Chi Sing actually signed for and on behalf of the 1^st defendant.

53. In other words, in either case (i.e. whether there was a mistake or intentionally the 1^st defendant decided to guarantee its own performance instead of involving the parent company Tanon), Chiu Chi Sing knew or should have known that the 1^st defendant was guaranteeing the performance of the 1^st defendant itself and that the other one who was the joint guarantor was the 2^nd defendant himself.  He is therefore reckless as to whether there would be another joint guarantor which would be the parent company.

54. He is after all one of the two directors of Tanon but he said he did not know why Tanon decided not to be a guarantor and he was not a party to that decision.  As I have said before, his elder brother Chiu Chi Hung did not explain at all as to the state of affairs there and then. 

55. In the end I find the defence of the 2^nd defendant very shadowy on facts and I consider that he is only entitled to conditional leave to defend.

56. The alleged amount of liability is however conceded by the plaintiff to be a lesser sum of $30,614,696.81, since the guarantor is only liable for goods sold and delivered on and after 1^st April 2003.  Thus items 1-119 in the schedule should not be counted on his head as they were done before the Distributor Agreement.

Postscript

57. The 2^nd defendant was granted 21 days to file an affirmation as to what condition he could comply with.  He did not do so.  The plaintiff therefore issued a summons and asked for the full amount outstanding for the guarantor to be paid into court as a condition.

58. The 2^nd defendant acting in person now, did not resist this application.  He just raised 3 points which he considered to be not his liability, namely:

(1)     the US$10,000 liquidated damages;

(2)     the interest on the sum he is liable;

(3)     costs of the action.

59. At the hearing of that subsequent summons, I have decided that in respect of (1), there is no reason why he is not liable as he is guaranteeing the performance of the 1^st defendant.  When the 1^st defendant is liable, he is also liable. 

60. In respect of the interest and costs, I shall consider it more fully herein below.

Interest

61. The plaintiff also claims interest from 11^th November 2003 (i.e. seven days after the first demand letter issued by its solicitors) up to the date of the writ on 27^th January 2006 (i.e. a long period of  nearly two years and three months).  Parties put in submissions in this respect.

62. During this period the 1^st defendant would be withholding the money from the other and could have made use of the same for his own use.  In any event, the plaintiff was kept out of the money which ought to have been paid to him.

63. The plaintiff was kind enough to allow a negotiation and in spite of the fact that the first reaction of the 1^st defendant was denying liability in toto.  Then the 1^st defendant asked for time since its own record was incomplete.  They asked for documents and the plaintiff has been most obliging and supplied them with all the necessary documents for them to check.  In spite of that the 1^st defendant could only come up, as aforesaid, with the sum of less than $1 million which they considered to be doubtful.   But then the 1^st defendant was not offering to pay the balance sum of $33 million odd.

64. All in all, I do not consider that the plaintiff should be deprived of interest on the enormous outstanding sum for this long period of time.  However, I consider the commercial reality, as urged upon me by counsel for the 1^st defendant, and I would award a lesser rate for the same period of time at five per cent p.a.  After all, the plaintiff also got liquidated damages of US$10,000 according to the terms of the Distributor Agreement.

65. Accordingly, the plaintiff is further entitled to interest at five per cent p.a. from 11^th November 2003 up to 27^th January 2006 on the two different judgment sums entered respectively against the 1^st and the 2^nd defendants.

66. The defendants shall also pay the plaintiff’s costs of the action including this application for summary judgment to be taxed, if not agreed. The extent of the 2^nd defendant’s liability to costs is only a matter of taxation.  There is no reason why he should not be liable to costs at all.