DBS BANK (HONG KONG) LTD v. DAYS IMPEX LTD (Incorporated in Liberia)

HCA 56/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 56 OF 2012

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BETWEEN

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D E C I S I O N

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Background

1.  This is an appeal against the orders of Master S Kwang made on 21 May 2012, whereby summary judgment was entered against the defendants for their payment to the plaintiff (“Bank”) of the sum of US$4,949,236.21, with interest and costs.  The documents in the two sets of proceedings against the different defendants are identical.

2.  The Bank’s claim against each of the defendants is on the basis of a Guarantee and Indemnity signed by the defendant on 23 October 2003 (“Guarantee”). Under the Guarantee, each defendant agreed and undertook to pay to the Bank on demand all sums of money and liabilities owing or incurred to the Bank on any account of the principal debtor, Days Impex Ltd (“Debtor”), a Hong Kong company now in liquidation.  What is not in dispute is that banking facilities (“Facilities”) were granted by the Bank to the Debtor pursuant to a facility letter issued by the Bank and dated 20 October 2003 (“1st Facility Letter”), and a General Commercial Agreement made between the Bank and the Debtor dated 23 October 2003 (“Agreement”).  The 1st Facility Letter was subsequently revised by a supplemental facility letter of 11 November 2003.

3.  Other facility letters were issued later by the Bank to the Debtor, respectively dated 7 May 2004, 22 September 2005, 10 October 2005, 7 April 2006, 25 October 2006, 9 November 2009, 16 December 2009 and 29 July 2011.

4.  The Bank claims that as at 28 December 2011, the sum of US$4,949,236.21 (“Debt”) was due and payable by each defendant pursuant to their Guarantees, and that demand was made for payment against the defendants on 6 January 2012.  On 12 January 2012, proceedings were issued against the defendants for recovery of the Debt. 

5.  On 24 February 2012, Defences were filed in the proceedings, whereby the defendants denied liability.  It was claimed that the facility letters relied upon by the Bank contained material terms and conditions precedent, and that such conditions were not satisfied or fulfilled.  In particular, the defendants claim that the 1st Facility Letter was subject to the condition precedent that the availability of the Facilities was conditional upon the Debtor’s completion and delivery of the appropriate supporting board minutes and/or shareholders’ resolutions, and an assignment of ECIC (ie Export Credit Insurance Corporation) Policies in favor of the Bank, and that such documents were not procured by the Bank.  The Defence pleads that there was no ECIC policy and that there was never any assignment of such policies to the Bank.  Hence, although the defendants admit that they executed the Guarantees, they claim that the facility letters relied upon by the Bank are all invalid and void, and that the Bank is not entitled to recover the Debt under the Guarantees.

6.  On 13 February 2012, the Bank applied for summary judgment.  An affirmation was made by Mr Nanik Dayaram (“ND”) in each of the two proceedings to oppose the Bank’s application.  The affirmations are identical, and simply referred to and relied on the Defences filed in the actions.

7.  At the hearing before the Master on 21 May 2012, counsel for the defendants confirmed that the defence relied upon was as pleaded under paragraph 16, ie that the facility letters were invalid and void as the condition precedents specified were not fulfilled.  The Master did not accept that there was any substantial or triable defence, and gave judgment in favour of the Bank.

8.  At the hearing of the appeal before this court on 22 August 2012 (effectively a rehearing of the Order 14 application), counsel for the defendants abandoned all arguments relating to the alleged conditions precedent, and raised for the first time the argument that the Guarantee of the defendant named in HCA 56/2012 (“Days Liberia”) only extends to the 1st Facility Letter (as revised by the supplemental facility letter of 11 November 2003), but does not apply to the Debtor’s liability under any of the subsequent facility letters issued after 20 October 2003.  It was argued that as the Bank has not pleaded or disclosed the extent of the Debtor’s liability under the 1st Facility Letter, and further because the Bank acknowledges that the 1st Facility Letter had been superseded by the later facility letters, there are triable issues as to the scope of the Guarantees and Days Liberia should be given leave to defend the Bank’s claim.

9.  In respect of ND, it cannot be disputed that he had signed his acknowledgment to specific notices issued by the Bank in respect of the facility letters of 7 May 2004, 22 September 2005, 10 October 2005, 7 April 2006, 25 October 2006 and 9 November 2009, confirming by such letters that his liability under his Guarantee remained in full force and effect notwithstanding that the facilities extended to the Debtor were increased or varied.  It was argued by counsel that these acknowledgments of ND amount to new contracts of guarantee, and that as an intended co- surety, ND is not liable if Days Liberia was not liable under its Guarantee, since ND has been deprived of his right of contribution from his intended co-surety.

10.  Counsel for the defendants rely principally on the decisions of the court in Hongkong and Shanghai Banking Corporation Ltd v Martel [2003] 1 HKLRD 497 and CACV 54/2003 3 June 2005, to argue that despite the wide terms contained in the Guarantee as emphasized by counsel for the Bank, the 1st Facility Letter was the specific contract which was the subject matter of the Guarantee, such that the obligations of Days Liberia under its Guarantee only cover the facilities extended to the Debtor under the Bank’s 1st Facility Letter, and not any other facility letter.

11.  The scope of the Guarantee is a question of construction.  The principles of construction set out by Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98, 114-115 apply.  Words should be given their “natural and ordinary meaning”.  The factual matrix may be referred to, but in this case, since the defendants have not filed any evidence as to the factual background, the only available evidence is in the form of and to be gathered from the documents which have been signed by the parties.  Each case must be decided on its own facts, dependent on the language used in the document to be construed, and if applicable, on the relevant factual matrix.

12.  Clause 1 of the Guarantee is headed “Guarantee Provision”.  It provides that in consideration of the Bank “granting, continuing or affording facilities” to the Debtor at the guarantor’s request, each of the defendants as Guarantor agreed and undertook to pay to the Bank on demand: “all sums of money and liabilities, whether certain or contingent, now or hereafter owing or incurred to the Bank on any account whatsoever by (the Debtor)”, including:

“(b) all money obtained from, and/or liabilities incurred to, the Bank pursuant to facilities granted by the Bank…;” and

“(d) in all cases, money due to the Bank in respect of any facilities granted to (the Debtor) or at his request…”.

13.  On the face of the Guarantee, it does not make specific reference to any contract.  It simply refers to all moneys obtained by the Debtor pursuant to facilities granted by the Bank and money that may be due to the Bank in respect of any facilities granted to the Debtor at its request.  Further, the Guarantee refers to its being given in consideration of the Bank “continuing” facilities to the Debtor.  “Facility” is itself defined in clause 23 of the Guarantee to mean “all types of banking and credit facility and accommodation provided by the Bank including, without limitation, loans, advances, overdrafts, credits”, etc.

14.  I can find nothing in the factual matrix or surrounding circumstances which shows that the Guarantee is to be referable and confined to a particular or specific contract, facility or transaction.  Significantly, ND has not in his affirmation filed on behalf of Days Liberia and himself referred to any fact to support such claim.  In an application for summary judgment, it is for the defendant to condescend to particulars and to satisfy the court that he has a bona fide defence, and that his evidence is reasonably capable of belief. Counsel argued that the background circumstances of the Guarantee should be examined at trial to determine the scope of the Guarantee, but the defendants have not identified any relevant circumstance, either in their defence or their affirmation in opposition.  It is trite that a desire to investigate alleged obscurities and a hope that something will turn up on the investigation cannot, separately or together, amount to sufficient reason for refusing to enter judgment for the plaintiff (Lady Anne Tennant v Associated Newspapers Group Ltd [1979]FSR 298).

15.  The available evidence in fact shows that there was a continuous course of dealings between the Bank and the Debtor, to the knowledge of and expressly acknowledged by ND, and through him, Days Liberia.

16.  At the same time as the execution of the Guarantee, the Debtor signed a General Commercial Agreement with the Bank (“Agreement”).  Under the Agreement, the Debtor agreed to pay to the Bank on demand all sums from time to time paid or advanced by the Bank to or for the Debtor’s account at the Debtor’s request, and all other sums for which the Debtor may be liable to the Bank on any account or in any manner.  The Agreement extends to documentary credits opened by the Bank at the Debtor’s request, running trust receipts, and the other usual banking facilities. 

17.  By a document entitled “Notice (to individual third party security provider)” (“Notice”) addressed to ND, which was countersigned by ND on 23 October 2003, the Bank referred to ND’s entering into a Guarantee to secure the Debtor’s obligations to the Bank in respect of general banking facilities and other financial accommodation provided by the Bank to the Debtor from time to time.  The Notice referred to ND’s Guarantee being unlimited as to amount, which would “secure all the actual and contingent liabilities of (the Debtor), whether now or in future”, and to the fact that ND’s liability to the Bank would “remain in full effect if facilities extended to (the Debtor) are increased or varied and/or its applicable terms and security arrangements are modified at any time”.

18.  To the extent that the subsequent conduct of the parties can be considered to see how they had acted upon the contract in question, on each occasion when the Bank had issued the facility letters subsequent to those of 20 October 2003 and 11 November 2003 to the Debtor, ND had confirmed and acknowledged by countersigning a notice issued by the Bank to him.  These notices confirmed and acknowledged that he had entered into the Guarantee of 23 October 2003 to secure the obligations of the Debtor to the bank “in respect of general banking facilities and other financial accommodation provided by (the Bank) to (the Debtor) from time to time, as more particularly described” in the facility letters of 7 May 2004, 22 September 2005, 10 October 2005, 7 April 2006, 25 October 2006, and 9 November 2009.

19.  ND was the chairman and director of the Debtor and Days Liberia, and had signed all documents of the Debtor and of Days Liberia as director.  The board resolutions of the Debtor and of Days Liberia, which approved the Guarantee and the banking facilities to the Debtor, were likewise signed by ND.  Since 2009, he was the sole director of the Debtor.  The only available evidence shows that ND at all material times acted on behalf of both the Debtor and Days Liberia, in procuring the Facilities from the Bank, from October 2003 and thereafter, and in executing all the documents required by the Bank.  Clearly, ND was the key protagonist, if not the directing mind, of both the Debtor and Days Liberia. As is apparent from the documents signed at the material time, ND was “in the driving seat” of both the Debtor and Days Liberia, and clearly had knowledge of the Facilities extended to the Debtor at different times, as evidenced by his acknowledgment on the Notices, and of the extent of the Debtor’s Indebtedness to the Bank.  It is hardly believable for Days Liberia, at all times acting through ND up to the stage of the filing of its affirmation in opposition to summary judgment, to turn around and assert that it had no knowledge of and had not consented to the further facilities provided by the Bank to the Debtor, as described in the facility letters issued after 20 October 2003 and 11 November 2003, which letters had all been sent to ND and acknowledged by him. 

20.  I come to the conclusion that the Guarantees were provided as and clearly expressed to be continuing guarantees, and not to secure the 1st Facility Letter only or specifically.

21.  At the hearing of the appeal, counsel for the defendants did not seriously argue that there had been material variation of the underlying contract covered by the Guarantee.  Nor do I consider that there is any triable issue on material variation, as the further Facilities extended by the Bank after 23 October 2003 were envisaged and contemplated by the Guarantee.

22.  The express provisions of clause 6 of the Guarantee allow the Bank to open any new account of the Debtor, to renew any existing facilities to the Debtor, and to provide any new or additional facilities to the Debtor.  Clause 6 further provides that the Guarantee and the liability of the Guarantor shall not be impaired, reduced, discharged or otherwise adversely affected by reason of the Bank granting any time, indulgence, waiver or consent to either the Debtor or any surety, or by the Bank varying or releasing any guarantee or security of any kind which the Bank may hold, or by the Bank waiving, discharging, releasing or varying the liability of the Debtor or any other person, or by any existing or future agreement by the Bank as to the application of any facilities made to the Debtor.

23.  It was argued for ND that as an intended co-surety, he should not be liable if Days Liberia should be released from its Guarantee.  My finding is that Days Liberia should not be released from its liability.  Significantly, however, ND has not made any affirmation to verify what his belief or understanding was at the time when he signed his Guarantee: whether he had intended only to be co-surety with Days Liberia, or that he should not be liable under his Guarantee unless Days Liberia should sign a guarantee and be liable thereunder.

24.  In any event, by virtue of clause 5 of the Guarantee, the Guarantee is expressed to be “in addition to and shall not be in any way prejudiced or affected by any guarantee, indemnity or security provided by any person now or hereafter held by the Bank”.

25.  Having tested the alleged defences against such evidence as has been disclosed including the contemporaneous documents, and bearing in mind the defences originally filed and the entirely new arguments raised for the first time on the appeal, I do not find any of the assertions made by the defendants to be believable, or to constitute any arguable defence. 

26.  The appeal is accordingly dismissed, with costs to the Bank, to be taxed if not agreed, with certificate for counsel.  Judgment is entered against the defendants for the sum claimed by the Bank, with interest and costs as the learned Master awarded.