THE BANK OF TOKYO-MITSUBISHI, LTD. v. LEE HOI KWONG

CACV407/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 407 OF 2000

(ON APPEAL FROM HCA 2671 OF 2000)

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REASONS FOR JUDGMENT

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Hon Le Pichon JA (giving the judgment of the Court) :

1. This is an appeal from the judgment of Seagroatt J dismissing an appeal against summary judgment granted to the plaintiff ("the Bank") in the sum of $60 million with interest and costs. At the conclusion of the hearing, the appeal was dismissed with costs. The reasons appear below.

The facts

2. The appellant is the guarantor under a guarantee executed by him on 8 October 1982 ("the guarantee") in favour of the Bank's predecessor-in-title in respect of advances made to Wingkee Trading Company Limited ("the debtor company"). The appellant's liability under the guarantee was capped at $60 million.

3. The facts are simple. The debtor company defaulted and went into compulsory liquidation in October 1984. During 1983 and 1984, the Bank's representatives made several oral demands of the appellant that he meet his obligations under the guarantee. The appellant responded that he was unable to do so. Nothing then happened for over 15 years. On 18 February 2000, the Bank sent a letter of demand requiring the appellant to make payment under the guarantee. On 14 March 2000 proceedings were commenced. The defence was that the Bank's claim was time-barred.

4. The issue which arises is whether (as is the Bank's case) time only started to run from the date of the written demand made on 18 February 2000, or whether (as is in the appellant's case) it started to run from the time the oral demands were made and for that purpose, it matters not whether the date taken is 1983 or 1984.

5. The judge below concluded that :

(i) on its true construction, Clause 5 of the guarantee required written notice to be given to the guarantor to trigger his liability thereunder;

(ii) the requirement of written notice under Clause 5 was not in any way qualified by Clause 9; and

(iii) the requirement in Clause 5 was not solely for the guarantor's benefit and so the guarantor was not in a position to waive that requirement and, in any event, there was no clear and unequivocal conduct on his part to constitute waiver.

Grounds of appeal

6. In the notice of appeal, the appellant challenged each of those conclusions. However, at the hearing of the appeal, the main thrust of the appellant's submissions concerned "consensual waiver" which nowhere featured in the grounds of appeal. It would be convenient to deal first with the grounds stated in the notice of appeal before turning to the question of consensual waiver.

Clause 5

7. The relevant part reads as follows :

"5. The liability of each of us to pay is to arise first when notice in writing is given to him requiring him to pay."

The submission was that the pronoun "him" referred to the debtor company rather than the guarantor and as written notice was given to the debtor company in 1983 or 1984 at the latest, the limitation period had long since expired.

8. Counsel for the appellant did not put this ground at the forefront of his submissions and rightly so since the point is totally devoid of merit. The guarantee is a standard form "Guarantee for Advances to Customer". Throughout the guarantee, the principal debtor whose name was to be inserted was defined and referred to as "the customer". It is apparent from the signature page of the guarantee that it was envisaged that there would be more than one guarantor executing the guarantee. For this reason, Clause 5 referred to the liability of "each of us" that is to say, each of the joint and several guarantors. It is plain beyond peradventure that the "him" in the first sentence of Clause 5 is referable to the first among "us", i.e. the joint and several guarantors to receive the notice. Where there is but one guarantor, "him" remains referable to that guarantor. The judge was plainly right in concluding that the pronoun "him" on the true construction of Clause 5 was not referable to the debtor company.

Clause 9

9. Counsel for the appellant relied on the first part of the last sentence of Clause 9 as negating or superseding the written notice which Clause 5 required. It is necessary to look at Clause 9 in its entirety :

"9. You shall be at liberty without thereby affecting your rights against any of us hereunder at any time to determine enlarge or vary and credit to the customer to vary exchange abstain from perfecting release omit or neglect to enforce any other securities held or to be held by you for or on account of the monies intended to be hereby secured or any part thereof to renew bills and promissory notes in any manner and to compound with give time for payment to accept compositions from and make any other arrangements with the customer or any obligants on bills notes or other securities held or to be held by you for and on behalf of the customer. And you may enforce or have recourse to all remedies or means for recovering the money for the time being due and unpaid on the general balance of the customer's account whether under the guarantee or under any other security or otherwise at such time and in such order and in such manner as you may think fit and as to any security other than the guarantee without notice or demand to or any of us. And we hereby expressly waive (sic) all requirements for diligence, presentments, demands, protests and notices whatsoever and expressly declare that you may do all or any of the above things without in any way limiting, restricting or discharging our liability." (emphasis added)

The first half of the clause authorised the Bank to take whatever steps it wished in relation to other securities held by it without prejudicing its rights under the guarantee. The penultimate sentence then gave the Bank total discretion over which securities to enforce in respect of monies due under the customer's account and the manner of enforcement without notice or demand to the guarantor save and except the guarantor's right to notice under the guarantee. In other words, the guarantor's entitlement to written notice under Clause 5 was expressly preserved. In these circumstances, the suggestion that the first part of the last sentence should be read in isolation from the rest of that sentence and then construed as dispensing with the need for serving any notice on the guarantor is not only singularly unattractive but wrong. First of all, it is unclear why the first part of the last sentence is to be accorded special treatment as compared to the rest of that sentence. Second, the construction put forward by the appellant would render the express preservation of the guarantor's entitlement to written notice meaningless. As a matter of drafting, it is unusual, if not unconventional, to make an express provision preserving certain rights which rights are then immediately removed.

10. The correct approach is to adopt a construction that would give effect to all the provisions of Clause 9. That is easily achieved by construing the waiver contained in the last sentence as limited to notices or demands required in relation to securities other than the guarantee.

Waiver

11. The judge's approach below was to consider whether the condition precedent to the liability of the guarantor, namely written notice, was a condition that was solely for the benefit of the party waiving the condition. He concluded that the term was not solely for the benefit of the guarantor. That conclusion is obviously correct since the creditor derives an advantage from the provision inasmuch as his cause of action will not accrue until demand is made. See O'Donovan and Phillips on The Modern Law of Contract at 493, note 264. It is trite law that a condition precedent may only be waived where the condition is solely for the benefit of the party waiving the condition. So if it is not obvious from the face of Clause 5 that it is for the exclusive benefit of the party seeking to waive it, it cannot be waived unilaterally. See Heron Garage Properties Ltd. v. Moss and Another [1974] 1 WLR 148 at 153F-H.

12. Counsel for the appellant appeared to suggest that the species of waiver he was replying on was "consensual waiver" as distinct from unilateral waiver, the latter being of the type considered in the Heron Garage case. It was submitted that consensual waiver depended on the response of the recipient of the notice and whether he acted upon it. In essence, the submission came to this : the oral demand on the part of the Bank operated as a representation that the demand was valid, that the appellant acted upon the demand by informing the Bank that he was unable to pay under the guarantee and that the appellant having thus acted upon the oral demand, an estoppel arose. To refer to this sort of situation as "consensual waiver" is unhelpful when what was relied on was none other than some form of estoppel.

13. That estoppel was relied on also appears from the fact that the appellant referred to a passage from the judgment of Lord Denning MR in Toepfer v. Cremer [1975] Ll LR 118 at 123:

"... The sellers themselves invoked the force majeure clause and gave the extension notice .... Can they be permitted to say that it was a bad notice? I think not. By giving the notice, the sellers represented that it was a good notice which entitled them to an extension of the contract period. The buyers accepted it as a good notice. At any rate they did not challenge it. ... In these circumstances we should apply the principle applied by this Court in Panchaud Freres S.A. v. Etablissements General Grain Co., [1970] 1 Lloyd's Rep. 53. It is this: When one person has led another to believe that a particular transaction is valid and correct, he cannot thereafter be allowed to say that it is invalid or incorrect where it would be unfair or unjust to allow him to do so. It is a kind of estoppel. He cannot blow hot and cold according as it suits his book. So in this case, seeing that the sellers put forward the notice as valid for their own purposes - and induced the buyer to accept it as valid - they cannot now turn round and say it is invalid. (emphasis added)

The critical passage is that appearing in italics which counsel for the appellant did not cite. In any event, it is difficult to see how the appellant could be said to have acted on the oral demand to his detriment even assuming that the oral demand constituted some kind of representation that it was a valid demand. The appellant was unable to pay and he so informed the Bank. He did nothing that would have altered his position adversely so as to render it unfair or unjust for the Bank to have issued the written demand in February 2000. The Panchaud Freres principle cannot assist the appellant.

14. The appellant's submissions on estoppel were difficult to follow. "Consensual waiver" became estoppel, encapsulated by the Panchaud Freres principle, and then "estoppel by convention". This type of estoppel is explained in Chitty on Contract at para 3-102 as follows :

"To give rise to an estoppel by convention, the mistaken assumption of the party claiming the benefit of the estoppel must, however, have been shared or acquiesced in by the party alleged to be estopped; and both parties must have conducted themselves on the basis of such a shared assumption : the estoppel "requires communications to pass across the line between the parties. It is not enough that each of two parties acts on an assumption not communicated to the other." Such communication may be effected by the conduct of one party, known to the other. But no estopped by convention arose where each party spontaneously made a different mistake and there was no subsequent conduct by the party alleged to be estopped from which any acquiescence in the other party's mistaken assumption could be inferred." (emphasis added)

The facts of the present case do not remotely satisfy the requirements of an estoppel by convention. It does not follow from the fact that the Bank made oral demands that it must have considered the demands valid. That is not a necessary or the only inference. Further, the response of the appellant to the oral demands on him to meet his obligations under the guarantee was equally neutral : it did not give rise to any necessary inference that the appellant must have regarded the oral demand as valid. Had the appellant acted upon it by making payment, it might have been different as that would have supported an inference that he must have considered the demand valid. But that was not the case. For these reasons, the submission that any estoppel by convention arose on the facts of this case is also to be rejected.