XCHRX STANDARD CHARTERED BANK AND ANOTHER v. SHANTOU INTERNATIONAL TRUST AND INVESTMENT CORPORATION

HCA 10174/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 10174 OF 1997

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J U D G M E N T

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Godfrey, J.A. :

1. This is an application for summary judgment, founded on a guarantee dated 25 August 1988. The guarantee was given by Shantou International Trust and Investment Corporation, the defendant in the proceedings. The 1st plaintiff in the proceedings is Standard Chartered Bank, to which the benefit of the guarantee has been assigned by Nissei Industrial Corporation ("Nissei") the 2nd plaintiff, in whose favour the guarantee was given.

2. The guarantee was given as one of a series of instruments relating to a Supply Contract made on 20 July 1988. It guaranteed the due and punctual repayment in Japanese Yen, to Nissei, by Shantou Special Economic Zone Aquatic Eel Breeding Joint Development Corporation ("SEDC"), which is a PRC company, the sum of ￥1,640,625,000.00, together with interest thereon at the rate of 5.25% per annum, provided by Nissei to SEDC pursuant to article 3(1) of the Supply Contract.

3. The guarantee provided that it should be a continuing guarantee of the monetary obligations owed by SEDC to Nissei under the Supply Contract, and that it should apply to and secure any balance due or remaining unpaid to Nissei, and should not be discharged except by the complete performance of such monetary obligations. It further provided that in no circumstance should the liability of SEDC be discharged in any way by any dealing between Nissei and SEDC or by any defect in Nissei's right under SEDC under the Supply Contract.

4. The first question I have been asked to consider is a question as to the proper law of the guarantee, for a reason which will shortly appear. The guarantee was signed (and possibly chopped) in Hong Kong but it is said that it was given to a Japanese corporation. Was it intended to be governed by Hong Kong law, PRC law, or Japanese law (which is to be taken as the same for this purpose as Hong Kong law)? If PRC law applies, then SEDC says it is arguable whether the guarantee is binding at all. The evidence filed on behalf of SEDC suggests that the Provisional Rules of the People's Bank of China, governing the issuance of foreign exchange guarantees by resident institutions in China and published on 20 February 1987, governed the 25 August 1988 guarantee, and that it is arguable that under these Rules the 25 August 1988 guarantee requires the prior approval of the State Administration of Foreign Exchange of the People's Republic of China.

5. This bare assertion would not justify refusing the plaintiff, on this ground alone, the right to enforce the benefit of the guarantee assigned to it. If SEDC seeks to advance an argument like that, it should have condescended to particulars of precisely why it claims that such a point is arguable.

6. Accordingly, if the matter rested there, I would simply give judgment for the plaintiff on whatever amount is due to it under the guarantee. There are however, questions as to what that amount is. The plaintiff, claiming the benefit of the guarantee cannot have any greater right than its assignor was given, a right to the payment of whatever was due from the debtor. If the creditor, Nissei, has accepted payment from the principal debtor, SEDC, then just as the creditor has to give credit for that payment, so has the person to whom a guarantee of payment was given.

7. In the present case, it is admitted that ￥12,175,113.76 was due up to 28 July 1988 by the debtor to the creditor but remained unpaid. Clearly, the guarantee is good at least for this sum and I am told that that sum has been paid into court. I see no reason why judgment should not be given to the plaintiff now for at least that sum, with liberty to the plaintiff to take that sum out of court.

8. Furthermore, the sum has been arrived at by deducting from the indebtedness some legal costs and fees incurred in arbitration proceedings which led to the indebtedness being reduced. I am of the opinion that those costs should not be taken into account. The figures given in the defendant's calculations indicate the sum for which judgment ought to be given, that is to say, ￥23,929,262.81 with interest at 5.25%.

9. I am not satisfied that I ought to give judgment at this stage for the remainder of the outstanding indebtedness claimed by the plaintiff and I will give the defendant unconditional leave to defend as to the balance.