XCHRX KOO HON MING v. BANK OF COMMUNICATIONS

HCSD2/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

APPLICATION TO SET ASIDE A STATUTORY DEMAND
NO.2 OF 2001

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REASONS FOR DECISION

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1. In these proceedings, the applicant applies to set aside the Statutory Demand served on him on 10 January 2001. At the conclusion of the submissions, I dismissed the application and gave oral reasons for so doing. I now reduce them into writing.

Background

2. The respondent is a bank. A company called Wai Son (HK) Development Ltd ("Wai Son") is its customers. The applicant was a manager and a director of Wai Son.

3. Pursuant to a facility letter dated 17 January 1995, the respondent granted to Wai Son an instalment loan of HK$4.13 million secured by two office premises at Parkes Commercial Centre ("Parkes Properties") owned by Wai Son and also two personal guarantees given by the applicant and another director, Mr He Litian. The guarantee executed by the applicant was dated 25 January 1995 ("the 1995 Guarantee").

4. By another facility letter dated 28 April 1997, the respondent offered to revise the banking facilities granted to Wai Son to be secured by certain securities. One of the banking facilities offered to be revised was the HK$4.13 million instalment loan. Among the securities required included personal guarantees to be given by the applicant Mr He Litian, and a third director, Mr Gong Ping. On 30 April 1997, the applicant, Mr He and Mr Gong jointly executed a guarantee in favour of the respondent ("the 1997 Guarantee").

5. As of 15 December 2000, Wai Son was indebted to the respondent in the sums of HK$71,739,091.46 and US$2,609,220.34. This has taken into account a sum of HK$1,483,807.41, being the proceeds of sale of the Parkes Properties, and another sum of $300,000 received by the respondent on 15 June 2000.

6. The respondent issued the Statutory Demand on 15 December 2000 based on the 1997 Guarantee. On 30 January 2001, the applicant applied to set aside the Statutory Demand. The application was made out of time. Leave was granted on 8 February 2001 to extend the time for the making of the application.

The applicable principles

7. It is common ground that in applying to set aside a statutory demand, the applicant bears the burden of showing that the debt is genuinely disputed on substantial grounds. The burden that the applicant bears is higher than that of a defendant opposing an Order 14 application in that not only must he show that his defence is credible, he must also adduce precise factual evidence in support of his defence : See Re ICS Computer Distribution [1996] 3 HKC 440 at 444B.

The facts

8. The applicant disputes liability for the debt in the Statutory Demand on the basis that, before he agreed to execute the 1997 Guarantee, he had been promised by a Mr Gordon Shing, senior manager of the respondent, that he would be released from the guarantee when the bank reviewed the facilities in the following year. It is argued that, based on the doctrine of promissory estoppel, the respondent is now estopped from enforcing the 1997 Guarantee against the applicant.

9. According to the affirmations filed by the applicant, his case can be summarized as follows. Prior to the signing of the 1995 Guarantee, the applicant was merely an employee of Wai Son, which is an enterprise owned by two state enterprises of the Mainland. In 1995 when Wai Son was applying for the instalment loan of HK$4.13 million from the respondent, one of Wai Son's directors, was unable to obtain a visa to come to Hong Kong to execute the guarantee. As a result, the applicant was appointed as a director so that he could execute a guarantee in lieu of the director who could not come to Hong Kong. It was under such circumstances that the applicant came to give the 1995 Guarantee. The applicant said that the 1995 Guarantee had not been fully explained to him and he was told that it was only to guarantee the instalment loan of HK$4.13 million.

10. Between 1995 and April 1997, further banking facilities were granted to Wai Son by the respondent secured by further guarantees. The applicant had, however, not joined in any of these guarantees.

11. Then in April 1997, Mr Shing of the respondent told the applicant that since he was one of the guarantors on record in respect of the instalment loan of HK$4.13 million, he was required to join in as one of the guarantors under the letter of facility dated 28 April 1997. When the applicant refused, Mr Shing then promised him that he would be released when the respondent reviewed the facilities given to Wai Son in the following year. As a result, the applicant signed on the 1997 Guarantee. Later in December 1997, Mr Shing told him that the respondent had approved the release of his guarantee.

12. The respondent denies that Mr Shing had given the promise to release the applicant upon review of the facilities in the following year. It is said that Mr Shing was not a senior manager at the material time and did not have authority to make such promise. There is however no affirmation coming form Mr Shing.

13. The respondent further points out the following matters, which are of significance. Firstly, both the 1995 and 1997 Guarantees are unlimited. Secondly, clause 2 of the 1995 Guarantee provides that it is a continuing guarantee, and that the liability of the applicant thereunder shall not be discharged until all the indebtedness of Wai Son has been fully repaid. Thirdly, clause 3 of the 1997 Guarantee also provides for it to be a continuing guarantee, and that the guarantors shall not be discharged until the expiration of three months from the date of actual receipt of a written notice to determine the guarantee given by all the guarantors. Fourthly, the 1995 Guarantee was signed in the presence of a solicitor, Mr Stephen Wong, who had signed thereon confirming that he had interpreted the contents of the guarantee to the applicant. Fifthly, the 1997 Guarantee was also signed in the presence of a solicitor, Mr Lung Siu Wing. Mr Lung is a partner of the solicitors acting for the applicant in these proceedings.

Reasons for the decision

14. On the factual issues, it is true that Mr Shing has made no affirmation directly disputing the applicant's assertions. However, the express term of the 1997 Guarantee is directly contrary to the assertion of a promise to release in the following year. There is no doubt from the material before the court that the applicant has a competent command of the English language. This is apparent from the letter he wrote to the respondent's solicitors after being served with the Statutory Demand, and also his 1st affirmation in support of the application. These were prepared at a time when he was not legally represented. Further, when he executed the 1997 Guarantee, the applicant was legally represented and had access to legal advice. Despite all these, he has not mentioned in his affirmations whether he was aware of the provision in the 1997 Guarantee for determination by the giving of notice from all guarantors, and if so, why he nevertheless signed on it. It would also be incumbent upon him to explain the reasons for it if he was not aware of such a provision, despite being legally represented. Given the oral promise made by Mr Shing, it will be difficult to understand why the applicant did not establish with his solicitors the terms in the 1997 Guarantee governing release or discharge.

15. In addition, there is no evidence from the applicant as to what step, if any, he has taken to secure his release from the 1997 Guarantee. If he was aware of the provision for determination by notice, then given his assertion that Mr Shing had told him in late 1997 that the respondent had approved his release, one will expect him to procure a determination as provided for in clause 3 or, at the very least, to obtain a written confirmation of his release. This is particularly so when one considers his assertion that in the first place he was made a guarantor "out of convenience" and, secondly, he gave the 1997 Guarantee reluctantly.

16. On the other hand, it is plain that his liability under the 1995 Guarantee remains notwithstanding the creation of the 1997 Guarantee. The affirmations of the applicant is however couched in general terms when they say that Mr Shing had promised to release the applicant from the guarantee and that the respondent approved the release of his guarantee. The affirmations do not specify which guarantee Mr Shing was allegedly referring to. This is significant because notwithstanding the discharge of the 1997 Guarantee, the applicant remains liable under the 1995 Guarantee since the indebtedness of Wai Son has not been fully repaid. That being the case, the oral promise allegedly given by Mr Shing is of no assurance to the applicant.

17. In my view, the assertions of the applicant are both incredible and not supported by the evidence adduced. That aside, as a matter of law, I am also of the view that the doctrine of promissory estoppel does not avail the applicant.

18. In equity, detriment is required to feed an estoppel, be it promissory or proprietary. The kind of detriment or harm that the law seeks to protect is that which would flow from a change of position if the assumption were asserted that led to it : per Dixon J in Grundt v. Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 followed in Bestkey Development Ltd v. Incorporated Owners of Fine Mansion & Anor [1999] 2 HKLRD 662 at 668D.

19. In the present case, both the 1995 and 1997 Guarantees are for unlimited accounts. The creation of the 1997 Guarantee does not have the effect of discharging the 1995 Guarantee. The provision for determination by notice in the 1997 Guarantee is not present in the 1995 Guarantee. There is therefore no change in the applicant's position in the sense of a worsening of his position. The detriment required to feed an estoppel is not found.

20. Mr Lau for the applicant argues that the applicant's position is that the 1995 Guarantee was induced by misrepresentation, hence the creation of the 1997 Guarantee has worsened the applicant's position. This misrepresentation relied upon is in respect of the amount of liability under the 1995 Guarantee. Firstly, it is to be observed that the applicant's evidence on this is extremely vague and brief. He has not identified the person(s) who told him that the amount guaranteed was limited to the amount of the instalment loan plus interest. Neither has he given any details of the circumstances in which the representation was made. It is also to be noted that the 1995 facility letter expressly refers to an unlimited personal guarantee. Secondly and more importantly, the 1995 Guarantee continues to be binding until it has set aside on account of misrepresentation. It was therefore binding in April 1997 when the applicant executed the 1997 Guarantee. Not only that, the applicant, by his letter of 11 January 2001, had in no ambiguous terms affirmed the 1995 Guarantee and his liability thereunder. The fact that this letter was written without the benefit of legal advice is immaterial. The assertion of misrepresentation therefore does not avail the applicant.

21. I wish finally to mention that I have some reservations whether this is a true case of promissory estoppel even assuming that Mr Shing did give the oral promise as alleged. Unlike the classic cases of promissory estoppel in which the promisor promises not to enforce the strict legal rights under a contract, the alleged oral promise of Mr Shing was given before the parties entered in the 1997 Guarantee which contains provision contrary to the oral promise. But as Mr Cheung for the respondent has advanced no submission on this, I shall say no more on this.

Conclusion

22. For the reasons above, the applicant has failed to show that the debt is genuinely disputed on substantial grounds. The application is accordingly dismissed with costs to the respondent, to be taxed if not agreed.