THE BANK OF EAST ASIA LTD. v. NEI WAI FOO

HCMP 186/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 186 OF 2000

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J U D G M E N T

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1. This is an appeal by D5 (Nei Wai Foo) against the order of Master AuYeung granting summary judgment against him in favour of the Plaintiff (The Bank of East Asia Limited) for the sum of $5.5 million.

2. The dispute involved two limited companies, D3 (Great Unicorn Enterprises Ltd.) and D4 (Joyce Enterprises Ltd.)

3. At all material times, D1 (Woo Cheuk Ping, Frederick) and D2 (Ho Sze Yin, Ivy) were the directors and shareholders of D3 and D4 whereas D5 was the director and shareholder of D3 only.

4. In July 1996, D3 and D4 through D1 and D2 applied for general banking facilities from the Plaintiff and by a Legal Charge dated 29 July 1996, D1, D2, D3 and D4 jointly and severally covenanted to pay to the Plaintiff on demand all sums of monies due to the Plaintiff by D3 and D4.

5. In the circumstances, D3 became liable not just for its own debts to the Plaintiff, but those of D4 as well.

6. By two guarantees dated 30 July 1996 and 24 October 1998 respectively, D2 and D5 jointly and severally guaranteed payments of all monies due by D3 to the Plaintiff. But D5's liabilities under the said two guarantees were limited to the respective sums of $2.5 million and $3 million.

7. It is not disputed that the total debts due to the Plaintiff by D3 and D4 as at 13 April 2000 were in excess of $6.8 million.

8. It is therefore the Plaintiff's case against D5 that D5 was liable to the extent of the limit of his liability under the two guarantees, namely the total sums of $5.5 million.

9. D5 contended that he was not liable for the sums advanced before the execution of the 2nd guarantee on 24 October 1998 nor was he liable for the loans advanced to D4.

10. D5 suggested that between July 1996 and October 1998, the Plaintiff had already advanced to D3 and D4 the sum of over $6 million which far exceeded the loan under the said Legal Charge and that there was no further loan after the execution of the 2nd guarantee.

11. D5 also suggested that he was only a dormant shareholder of D3 and was ignorant of the arrangement and the terms of the said Legal Charge dated July 1996 when he executed the 2nd guarantee in October 1998. One of his defence is non est factum.

12. D5 further suggested that the Plaintiff, through its officer Mr Yu Man Tak and his assistant had made misrepresentation to him when they suggested to him at the execution of the 2nd guarantee in October 1998 that he would not be subject to any liability as the Plaintiff would sell the properties of D1 and D2 and the proceeds would be adequate to cover all the debts due to the Plaintiff.

13. D5's contentions contradict the clear terms of the relevant documents.

14. Clause 1(a) of the two guarantees stipulates that "The guarantor shall forthwith pay.........all monies now or at any time hereafter or from time to time due............." It is not open to D5 to suggest that he is not liable for the monies advanced before the execution of the guarantees.

15. By the two guarantees in the form of deeds, D5 guaranteed the payment of all monies due by D3 to the Plaintiff, including D3's liability under the said Legal Charge executed on 29 July 1996, namely the debts of D4.

16. Is it open to D5 then to suggest that when he executed the 2 guarantees, he was unaware of the terms of the said Legal Charge and therefore the nature of his liabilities under the 2 guarantees?

17. The burden of proof in relation to a defence of non est factum is a very heavy one which lays on the person pleading it and there are authorities to the effect that a plead of non est factum could not be argued unless it could be shown that the signatory thought that he was signing a documents substantially different in nature or in kind and that the person raising the plea had acted reasonably and with due care. (see Union Bank of Hong Kong Ltd. v Ng Yiu-hing and another [1974] HKLR 26, Kin Cheng Banking Corp. v Kao Yu Kuei [1986] 1 HKC 212, Overseas Trust Bank Ltd. v Tang Che Ching & others HCMP 837 of 1986.)

18. It was not D5's contention that he did not realize the nature of the said Legal Charge and the guarantees that he had signed. On his own case, the defence of non est factum is not available to him.

19. In any event, the mere assertion in an affirmation of a given situation which is to be the basis of a defence does not itself provide leave to defend to a defendant. The defendant has to satisfy the court that there is a fair and reasonable probability of him having a real or bona fide defence.

20. D5 was the major shareholder and director of D3. In 1996, he signed a letter on behalf of D3 to accept the offer of the $2.5 million banking facilities and he also chaired a Board Meeting of D3 in which two directors were appointed to handle such banking facilities. D5 of course also signed the said Legal Charge on behalf of D3.

21. D5 could not be allowed to hide behind the suggestion that he was unaware of the nature and extent of his liabilities after he had signed the said Legal Charge and the two guarantees.

22. D5 claimed to be the victim of misrepresentation. The plaintiff might not have explained clearly to him the nature of the documents in question and his liabilities thereunder. But the Plaintiff was under no obligation to do so.

23. If the plaintiff was not to hold D5 liable, why bother to have him as a guarantor in the first place. The alleged misrepresentation contradicted the clear terms of the guarantees and in my view was not believable.

24. I can understand D5's grievance when he became liable for debts that he did not create. He may also think that such debts have nothing to do with him. But he did create those liabilities by signing the documents in question.

25. The learned master was right in rejecting D5's contentions and granting summary judgment in favour of the plaintiff.

26. There is no basis to interfere with the decision of the learned master.

27. The appeal must therefore be dismissed with an order nisi that D5 is to bear the plaintiff's costs to be taxed if not agreed.