廣東匯立投資有限公司 v. WONG MAN PAN

HCA 10027/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 10027 OF 2000

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J U D G M E N T

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1. In this action, the Plaintiff sues the Defendant for payment of outstanding indebtedness on a so-called deed of irrevocable guarantee（不可撤銷擔保契據）.

2. The Defendant, acting in person, did not appear at trial to defend the claim. Oral as well as documentary evidence was adduced by the Plaintiff to prove its claim. My findings of fact, based on the evidence that has been adduced at trial, appear in the following paragraphs.

3. At all material times, the Defendant was the chairman, legal representative and a substantial shareholder of two limited companies incorporated in the Mainland, namely, 廣州市世紀金隆房地產發展有限公司 ("LAJL") and 廣州世紀房地產實業有限公司 ("LARE"). The companies were involved in a property development in Guangzhou. Apparently the project went into liquidity problems. The Defendant was acquainted with a Mr Yeung Kwok Yu, who was at the material time a director of a listed company, of which a Mr Chiu Tao was the chairman. Through the introduction of Messrs Yeung and Chiu, the Defendant approached Mr Gao Yang, the legal representative of the Plaintiff, another limited company incorporated under the laws of the Mainland, for a loan of RMB30 million on a short-term basis. Eventually, a loan agreement was signed in Guangzhou on 25 October 1999. It was a tri-parte agreement between the Plaintiff, LAJL and LARE. Under the agreement, the loan was to be advanced by the Plaintiff to LAJL for a period of six months with interest at the rate of 10% per annum. Default interest was agreed at the rate of 15% per annum.

4. Pursuant to the loan agreement, RMB29 million was advanced on 3 November 1999 and the remaining RMB1 million was advanced on 11 November 1999. The loan was therefore repayable with interest on 3 May 2000 and 11 May 2000.

5. However, by the time the loan was due for repayment, only slightly more than RMB8 million had been repaid. On behalf of the Plaintiff, Messrs Chiu and Yeung met the Defendant on a number of occasions to discuss repayment of the balance of the loan. Eventually at a meeting in July, it was agreed that the repayment deadline would be extended to 13 August 2000. It is the Plaintiff's case, as supported by the oral evidence of both Mr Chiu and Mr Yeung, that the Plaintiff's agreement to extend the deadline was reached in consideration of an increase of interest from 10% per annum to 15% per annum (which in any event was the default interest rate), the provision of further securities by LARE (in addition to those already provided under the original loan agreement) and most importantly, the Defendant promising personally to repay the outstanding amount should LAJL fail to repay the entire outstanding loan and interest.

6. Pursuant to the parties' agreement thus reached, a supplementary agreement in Chinese dated 21 July 2000 was signed, extending the due date of repayment to 13 August 2000. According to the evidence which I accept, when the supplementary agreement was signed, the document embodying the above personal promise of the Defendant was not yet ready for signature; however, it was made clear by Mr Chiu to the Defendant that he must execute the document once it was ready. The Defendant confirmed that he would sign the document when it was already.

7. On 1 August 2000, when the written document was ready for signature, Messrs Chiu and Yeung took it to the Defendant for his execution. The Defendant signed the document in their presence. The Plaintiff's seal had already been affixed on the document. This document is the so-called deed of irrevocable guarantee.

8. However, despite the extension of the repayment deadline, the Defendant's two companies still failed to fully repay the outstanding indebtedness, despite some further repayments after the signing of the supplementary agreement. Indeed there were further repayments after the lapse of the extended deadline, and some securities (some carparking spaces in the development in question) were liquidated and the proceeds were used for partial repayment of the outstanding indebtedness.

9. A demand letter was sent to the Defendant pursuant to the so-called deed of irrevocable guarantee on 31 October 2000 on behalf of the Plaintiff by its then solicitors. On 13 November 2000, the Defendant wrote to Mr Chiu asking for a further extension of one month for the repayment of the loan.

10. The writ in the present case was issued on 17 November 2000. After the issue of the writ, the Plaintiff received two further repayments in November and January 2001.

11. In his defence, the Defendant alleges that the loan was "inherently illegal or void and thus unenforceable" because under the relevant law in the Mainland, the Plaintiff was forbidden to lend money to LAJL and it was illegal to charge interest at higher than 10% per annum. It is therefore pleaded in the defence that the so-called deed of irrevocable guarantee, which arose out of an underlying transaction that was (allegedly) "either illegal or void", is also "illegal and unenforceable". It is also pleaded that the same "arose out of an illegal contract, or void contract and [is] thus unenforceable".

12. It is convenient to deal with the true nature of the so-called deed of irrevocable guarantee here. Despite its name, it is plain that it is neither a deed nor a guarantee. The document was simply signed by the Defendant. It was not sealed. Subject to the Defendant's further argument on past consideration, the document is simply a contract made in writing.

13. As regards the true nature of the contract, Mr Jat SC, appearing for the Plaintiff, contended that the contract is actually an indemnity rather than a guarantee.

14. This is essentially a question of construction of the document: see Shenzhen Development Bank Co. Ltd v. New Century Int'l (Holdings) Ltd HCA 2976/2001 Lam DJ (31 July 2002) paras. 40-44.

15. In the present case, the so-called deed provides in clause 1 that the document is intended to be unconditional and irrevocable. Clause 2 says that the Defendant undertakes joint and several liability towards the Plaintiff. Clause 11 expressly says that the legality and validity of the deed would not be affected even if the whole or any part of the loan agreement were illegal, invalid or unenforceable.

16. I agree with Mr Jat that on the true construction of the document as a whole, bearing in mind particularly those clauses that I have just highlighted, the document in question is a contract of indemnity rather than guarantee.

17. In those circumstances, I further agree with counsel's submission that the validity or lawfulness of the loan agreement under the law in the Mainland would not affect the validity of the so-called deed in Hong Kong, which also provides in clause 12 that Hong Kong law is the proper law for determining the proper construction of the document. See Kleinwort, Sons & Co. v. Ungarische Baumwolle Industrie Aktiengesellschaft [1939] 2 KB 678; Dow MBF Ltd v. Detrick Ltd [1988] 1 HKLR 344, 351H-352G; Shenzhen Development Bank, supra, at paras. 40-44.

18. In those circumstances, the so-called deed, which I will from now on refer to as the indemnity, is valid and enforceable under local law, regardless of the validity (etc.) of the underlying loan agreement and supplementary agreement under the law of the Mainland (which governs those two documents), unless there are some other grounds affecting the validity or enforceability of the indemnity in Hong Kong.

19. In any event, I have no difficulty in accepting the expert legal evidence on Mainland law that has been adduced before me. The expert evidence is to the effect that while it is true that the Plaintiff, not being an authorised financial institution, was not in a position to lend money to other companies in the Mainland and that any such loans would be "invalid"(無效), the borrower of any such loans would still need to repay the principal together with interest at the prevailing lending rate of the People's Bank of China to the lender. In other words, LAJL remained liable to repay the principal amount borrowed from the Plaintiff, or the outstanding amount thereof, together with interest at the prevailing lending rate of the People's Bank of China. There is thus no question of the indemnity not being valid, lawful or enforceable against the Defendant, at least in relation to the repayment of the outstanding balance of the principal amount, together with the arrears of interest calculated according to the prevailing lending rate of the People's Bank of China. However, because of my holding in respect of the true nature of the so-called deed, all this is rather academic.

20. The next defence pleaded in the defence is past consideration, given that the indemnity was signed by the Defendant about 10 days after the signing of the supplementary agreement extending the repayment deadline.

21. I have no difficulty in rejecting this defence. I have already outlined and indicated my acceptance of the evidence of Mr Chiu and Mr Yeung regarding how the supplementary agreement came to be signed by the parties and the requirements of the Plaintiff in agreeing to extend the repayment deadline, one of which was the Defendant's promise to repay the outstanding indebtedness if his company should fail to do so. This eventually became the indemnity signed by the Defendant on 1 August 2000.

22. Furthermore, recital 3 of the indemnity clearly says that the indemnity was given voluntarily as a condition to the Plaintiff agreeing to the extension of the deadline for repayment.

23. I have no difficulty in finding as a fact that the supplementary agreement and the indemnity were substantially one transaction.

24. In those circumstances, the Court is not bound to apply a strictly chronological test in determining whether consideration is past. On the facts as found by me, I am further of the view that the consideration is not past. See Chitty on Contracts (28th ed.) Vol. 1 para. 3-026; BCCI Finance Int'l Ltd v. Aftab Ahmed [1991] 1 HKC 375, 381C-D; Pao On v. Lau Yiu Long [1980] AC 614, 628E-631C.

25. The defence also pleads that the indemnity in itself is "oppressive and for that reason unenforceable". It is alleged that the Defendant was "deprived of any opportunities to obtain legal advice".

26. Again, I reject this pleaded defence. First, the Defendant has not appeared at trial to give evidence to substantiate his pleaded allegations. His witness statement, in those circumstances, does not form part of the evidence before the Court. No witness has been called on behalf of the Defendant to substantiate the allegations either.

27. Secondly, I do have the evidence of Mr Chiu and Mr Yeung, which was totally inconsistent with the Defendant's bare allegations. Furthermore, the indemnity expressly says that the Defendant entered into the indemnity voluntarily without fraud or duress (recital 3), that the Defendant had prior to his signing the indemnity carefully read the contents of the document and had satisfied himself with the same (recital 4), and that the Defendant had obtained independent legal advice and had clearly and willingly assumed legal responsibility under the document (clause 15).

28. As I said, I reject the Defendant's bare allegations.

29. The defence goes on to plead that Mr Chiu was not a legal representative of the Plaintiff and he had made various "false representations" saying that the indemnity was required to satisfy his bankers and that he would not enforce it in any event, which induced the Defendant to enter into the indemnity.

30. Again I reject these bare allegations. The Defendant has not appeared at trial to give evidence to substantiate his allegations. Mr Chiu and Mr Yeung have both given evidence before the Court, and the allegations of the Defendant were denied. I have already referred to the contents of the indemnity, which was of course written in the Chinese language. For all these reasons, I reject the Defendant's bare allegations.

31. Furthermore, whilst it is true that Mr Chiu was not a legal representative of the Plaintiff, I fail to see its relevance to the Plaintiff's claim. The official chop of the Plaintiff has been placed in the indemnity. There is nothing in the Plaintiff's allegation.

32. Finally, it is also pleaded in the defence that when the indemnity was signed Mr Yeung was in fact not present, and both his signature as well as the chop of the Plaintiff which appear on the indemnity were absent when the document was signed by the Defendant.

33. I am not sure if I follow the relevance of this allegation. In any event, I have the evidence of Mr Chiu and Mr Yeung, which was to the contrary effect. I accept their evidence.

34. In short, all the pleaded defences of the Defendant fail. There is thus no defence to the Plaintiff's claim on liability.

35. As regards quantum, I accept, on the evidence before me, that as at 25 November 2003 the total outstanding indebtedness covered by the indemnity was in the sum of RMB28,793,969.78, comprising outstanding principal in the sum of RMB20,131,786.17 and interest in the sum of RMB8,662,183.61.

36. I therefore give judgment for the Plaintiff on its claim against the Defendant in the sum of RMB28,793,969.78, together with interest on the principal sum of RMB20,131,786.17 at the contractual rate as per the supplementary agreement, namely, 15% per annum from 26 November 2003 to the date of full payment.

37. As regards costs, I bear in mind the contractual provisions in clause 1 of the indemnity providing for payment of costs on an indemnity basis. There are no exceptional circumstances before me suggesting that the Court should not respect the parties' contractual agreement on costs (see Chekiang First Bank v. Fong Siu Kin [1997] 2 HKC 302, 309B-H). I therefore order that the costs of this action be paid by the Defendant to the Plaintiff; such costs are to be taxed on a full indemnity basis if not agreed.

38. Finally, I wish to thank counsel for his helpful and fair assistance.