BANQUE NATIONALE DE PARIS v. R.C. CHEN AND ANOTHER

1988 No. A8157

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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J U D G M E N T

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1. The plaintiff is a bank.  The defendants are two of the four signatories to a guarantee.  The principal debtor in an account with the plaintiff bank is a company called Sino Rubber Australia Pty Ltd. I shall call it "Sino Rubber".

              "Suffice it to say that in 1982, by what has been described by Mr Scott as a bank facilities letter dated the 15th March 1982, exhibited to the second affidavit of husband defendant and therein marked "RCC-1", the plaintiff bank agreed to grant facilities to Sino Rubber with the defendants and two other as guarantors. It is not quite necessary for me to go into the provisions and clauses of the guarantee.  It is in extensive terms covering every conceivable liability flowing from these facilities granted to Sino Rubber to be drawn on an overdraft account.

2. From the Amended Statement of Claim, in particular paragraph 3(2) thereof, it can reasonably be deduced that the debit balance in the overdraft account with the plaintiff bank was exclusively incurred under the said facilities letter.  These facilities granted to Sino Rubber were expressly subject to the approval of the Reserve Bank of Australia.  The Reserve Bank of Australia did approve the said facilities to Sino Rubber, but on conditions.  The conditions imposed can be seen in a letter from the Reserve Bank of Australia to the Secretary of Sino Rubber dated the 29th November 1978, which is exhibited to the second affidavit of the husband defendant and therein marked "RCC-3".  The four conditions specified in what way the said facilities might be used.  It is common ground between the parties to this action that the use of the said facilities by Sino Rubber was to be so regulated.

3. The plaintiff sought summary judgment from the master under 0.14.  Issues debated before the master were wholly different from the matter advanced before me today On the various issues raised on behalf of the defendants before him, the master declined to grant leave to sign judgment, hence the instant appeal.  It is an appeal in form but in substance, as it is in Jaw it is truly a fresh hearing.

4. Both counsel have been exceedingly helpful in the prosecution of the appeal before me this afternoon.  I am in a comfortable position to be able to deliver judgment by way of an oral decision ex tempore.

5. A different front, but not on dissimilar facts, is now being canvassed for the defendants.  Mr Fok, counsel for the defendants, fairly limits contention for the defendants to one narrow point. The shore point is whether there had been material variation in the principal contract between the plaintiff bank and Sino Rubber so as to render the guarantee unenforceable with the result of releasing the guarantors, including the defendants, from liability thereunder.

6. The husband defendant was, at the early stage, a director of sino Rubber.  He has since relinquished most of his connections with that company save and except some shareholdings in it. 

7. The purchases of rubber by Sino Rrbber were to be financed by the said facilities so granted by the Bank in the circumstances I have endeavoured to relate.  In the purchase of rubber, another entity was involved which carries the name of "Maclaine Watson", a Singaporean registered company.  What is being, in the main, complained of is that funds were resorted to under and out of the said facilities by Sino Rubber in breach of the terms imposed by the Reserve Bank of Australia and on occasions.  So it is alleged, funds were misused, not in financing the transactions in rebber purchases by Sino Rubber, but in financing the transactions o f Maclaine Watson.

8. That a material variation or alteration of the principal contract affect the liability of the guarantors or sureties is not a legal principle in dispute. A surety cannot be saddled with a different risk. The crux of the matter for determination is whether the materials and assertions sought to be placed before me this afternoon has set up an arguable case in defence.

9. Assertions made by the husband defendant in his first and second affidavits were read to me in extenso.  The stance of the wife defendant follows the pattern sought to be established by the husband defendant.

10. I have been referred to documents and bank statements, in particular, the entries therein.  In essence, what is being heavily relied upon by the defendants are the number and sequence of shipments of rubber, the withdrawals particularly those on successive days, debits in round figures and certain vague description to the commercial routines of Sino Rubber and Maclaine Watson.  What is being sought to be demonstrated is that arising from all these materials and assertions were matters of suspicion.  From the knowlege of the husband defendant, as a formal director of Sino Rubber, he seeks to interpret the possible suspicious circumstances as meaning material variations of the principle contract affecting the guarantors. He draws inferences from these inconclusive circumstances.  He also claims that funds had been used for purposes others that purchasing of rubber by Sino Rubber.  He speculates on events and entries open to suspicion.

11. I have listened to counsel's submissions with care and circumspection.  I was particularly concerned.  In view of the vague assertions and the inconclusive documents and band statements, that Mr Fok for the defendants should have every opportunity to state the defendant's case for by assistance.  But tried as I have, I have not been able myself to draw the same legitimate inferences as Mr Chan, the husband defendant, has.

12. Mr Fok has been unable to pinpoint any particular passage, either in the husband assertions or in the materials or documents placed before this court, in direct support of the assertions of Mr Chen Nothing placed before me can be said to have taken any matter beyond mere suspicion and bald speculation.  The allegations are serious allegations.  Apart from having to be fair to a bank operating in Hong Kong not to take seriously allegations of this nature unless well founded, the assertions of the husband defendant have simply failed to establish even a prima facie case of defence.  There is therefore no justification for having the plaintiff bank shut out from its judgment seat.  In the circumstances, I allow the appeal in the sense that the defendants should not be granted leave to defend.  The plaintiff ought to be granted leave to sign judgment against them and I order (1) Appeal be allowed; (2) order of the master be set aside; (3) Leave granted to the plaintiff to sign judgment against the defendants as claimed.

13. In paragraph 9 of the affidavit of Mr Ellard filed on behalf of the plaintiff bank, a credit of $330,000 Singaporean dollars has been given.  Therefore the net claim of the plaintiff against the defendants should stand at S$1,139,718.66.  One slight complication surfaces in the 0.14 summons.  What appears to be claimed by the plaintiff in that summons is a sum of HK$670,000.  Mr Scott, counsel for the plaintiff, informs the court that considerably smaller quantum set out in the 0.14 summons cannot be reasonably accounted for.  Counsel assures me that the correct sum should be S$1,139,718.66.  To that extent, the 0.14 summons be amended by the Court.

14. Interest at the contract rate of 1½% above prime be awarded to the plaintiff against the defendants on the judgment sum from the 1st December 1988 to today.