GUANGDONG FINANCE CO LTD v. RANCO SERVICES LTD AND ANOTHER

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Reasons for judgment handed down: 27 March 1990

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JUDGMENT

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Fuad, V.-P.

1. This is an appeal by Mr. Yam Sik Ping from the  judgment given on 14th September 1989 by Judge D'Almada Remedios whereby he had found in favour of the plaintiff, Guangdong Finance Company Limited ("the finance company") in an action on a guarantee. The judge himself gave leave to appeal. Mr. Yam Sik Ping was the 2nd defendant in the action and was unrepresented at the trial.  The 1st defenant was Ranco Services Limited. At the conclusion of the hearing, on 20th March 1989 we allowed the appeal and now give our reasons.

2. The finance company by their Particulars of Claim pleaded a hire-purchase agreement in writing dated 30th October 1987 between themselves and Ranco Services whereby the finance company agreed to let and Ranco Services agreed to hire a particular light goods vehicle. It is pleaded that Ranco Services agreed to pay the plaintiff an initial payment of $20,839 for the hiring of the vehicle and monthly rentals of $3,836 each, payable on the 30th day of every month starting on 30th November 1987. Under the agreement there was also an obligation to pay interest at a stated rate on all instalments due and unpaid, until the date of payment.

3. The hire-purchase agreement, according to the pleading, further provided that if Ranco Services defaulted in payment of any of the sums punctually on the due date, without prejudice to its claim for arrears of instalments of rent, the finance company was entitled by notice in writing to terminate the hiring and retake possession of the vehicle. It was said that the agreement also provided that on the termination of the agreement, if Ranco Services had failed to pay two successive instalments of the hire rent they would be deemed to have repudiated the agreement, and in those circumstances the finance company was entitled to repossess the vehicle, and Ranco Services was obliged to pay all arrears of hire together with interest accrued up to the date of the finance company's acceptance of the wrongful repudiation of the agreement, as well as a sum in respect of damages for the wrongful repudiation equal to the difference between (1) the actual sum advanced plus interest thereon calculated at the rate of 10.5% per annum up to the termination of the agreement and (2) the aggregate of all instalments of rental paid and the best price obtainable by the owners on the resale of the vehicle less any deduction for expenses properly incurred.

4. The pleading continues by averring that Ranco Services wrongfully failed to pay 9 instalments due under the hire purchase agreement (the due dates are given) and that by a letter dated 6th August 1988 the finance company had given notice of termination of the agreement. This was therefore deemed to be a repudiation by Ranco Services and despite the notice of termination, Ranco Services had failed to deliver up possession of the vehicle.

5. The Particulars of Claims go on to aver that by a guarantee agreement in writing dated 20th October 1987 made between the finance company and Mr. Yam Sik Ping, Mr. Yam had guaranteed to the finance company the punctual payment of the loan advanced by the finance company to Ranco Services under the agreement. The pleading sets out a paraphrase of the terms of clause 1 of the guarantee.

6. I will mention here that Ranco Services did not defend the action and suffered judgment to be entered against them.

7. In his Defence, Mr. Yam pleaded that Ranco Services had never in fact had a vehicle delivered to them. He averred that on 7th October 1987 he had entered into two agreements with Ranco Services whereby they were supposed to procure a vehicle for his exclusive use in the business of freight carriage between Hong Kong and China along routes that might be permitted by the authorities of the People's Republic of China. The purpose of these two agreements was that Ranco Services should buy a vehicle in their own name but on behalf of Mr. Yam who would be responsible for paying the price of the vehicle. It would then be used by Mr. Yam in the freight carriage business between Hong Kong and the PRC.

8. Mr. Yam's pleading continued by saying that before the signing of the two agreements Ranco Services had represented to him that they had been given permission by the PRC authorities to use the vehicle along certain routes for transporting goods but the vehicles using those routes had to be in the name of Ranco Services. Relying on such a representation, Mr. Yam pleaded, he had entered into the two agreements with Ranco Services.

9. Mr. Yam went on to aver that about 20th October 1987 after the two agreements had been signed he had been asked by a broker to sign what he called a "one-page document" saying that it was a guarantee for the hire-purchase of the vehicle to be used by Mr. Yam and so he had signed the document as requested. He pleaded that he had never been shown the first page of the guarantee and had no knowledge that the guarantee was to be given to the finance company or that the amount guaranteed was the sum of HK$105,000. Mr. Yam also pleaded that in January 1988 he had been informed by Ranco Services that they were not in a position to secure the necessary permission of the PRC authorities and so the planned business could not start. They had therefore made another agreement in a solicitor's office to cancel the previous agreements and it was arranged that the deposit Mr. Yam had paid would be returned to him.

10. Paragraph 13 of the Defence is in the following terms:

11. The learned judge heard two witnesses, first a Mr. Alfred Wong who was in charge of the administration of the finance company's motor department. He told the Court that his company has acted through an agent, Headmark Company "to sign the hire-purchase agreement and the guarantee". He produced the guarantee document which he said had come with the hire-purchase agreement dated 30th October duly completed. He also produced that document. He showed the Court the signature of Ranco Services indicating that they had received the vehicle. He said that they had then released $105,000 to Headmark so that they could give the vehicle to Ranco Services. Ranco Services had paid $20,839 as a deposit, and so the sum actually advanced was $105,000 as shown on the hire-purchase agreement. They had kept the "ownership document" of the vehicle which he produced to the Court showing that Ranco Services was registered as the owner. The first instalment had been due on 30th November 1987 and Ranco Services had never paid any of the instalments due.

12. Mr. Yam Sik Ping gave evidence in his defence and to all intents and purposes supporter the pleas in his Defence.

13. In his judgment the learned judge reviewed the facts and Mr. Yam's Defence and noted that Mr. Yam had adduced no evidence to show that the finance company had any knowledge of the agreements he had with Ranco Services as reflected in the documents that had been produced to him. On the other hand, there was evidence before him that the vehicle had been delivered to Ranco Services pursuant to the hire-purchase agreement and that it was registered in their name. He said that he accepted the evidence given by Mr. Wong for the finance company that they were only prepared to make the advance of the sum of $105,000 to Ranco Services for the purchase of the vehicle under the hire-purchase agreement if Mr. Yam would act as a surety for "the repayment of the loan" on the terms of the guarantee document.

14. The judge went on to say that he did not believe Mr. Yam when he had said that he had been asked to sign a "one-page document" and that he had never been shown the first page. Nor did he believe that Mr. Yam had no knowledge that the amount he was guaranteeing was $105,000. In fact, the learned judge said, the guarantee document was not on two sheets of paper but on two sides of one sheet of paper. He was satisfied that Mr. Yam knew that he was signing a guarantee. The judge added that the vehicle had not been recovered and if Ranco Services had made off with the vehicle it was understandable that Mr. Yam should feel aggrieved, but that was a matter between him and Ranco Services and did not concern the finance company.

15. It is necessary, I think, first to observe that the agreement dated 30th October 1987 between the finance company and Ranco Services was a true hire-purchase agreement. As paragraph 3603 of Volume II of Chitty on Contracts, 26th Edition, states:

Since there is no dispute about this, I do not think it necessary to set out or discuss any of the terms of that agreement. We know, too, that "It is common practice for owners of goods let on hire-purchase to require a third party to guarantee the due performance by the hirer of his obligations under the contract" (see paragraph 3618 of Volume II of Chitty on Contracts.) It is quite obvious from the evidence in this case that this is what the parties intended to achieve but it is common ground that Mr. Yam's obligations arise out of the document of guarantee he signed on 20th October 1987 and they can be found nowhere else.

16. It is settled and trite law that a surety can never be made liable beyond the precise terms of his commitment and his contract must be strictly construed (see paragraphs 146 and 151 of Volume 20 Halsbury's Laws of England, 4th Edition), and on page 77 of Rowlatt on Principal and Surety, 4th Edition, we find "A guarantee will only extend to a liability precisely answering the description contained in the guarantee".

17. It is therefore necessary to examine closely the form of guarantee Mr. Yam gave to the finance company. I do not think that one needs to go beyond setting out clause (1) of the guarantee:

18. When one looks at the opening words of the clause one sees that the stated consideration is that the finance company makes or continues advances or otherwise gives credit or affords banking facilities to Ranco Services and by the operative part of the clause Mr. Yam agrees to pay on demand all sums of money owing on any account whatsoever ... It is obvious that the finance company utilised a very common form of bank guarantee. I mention here that there is no evidence upon which it could be suggested that the finance company can properly be described as a bank. However that may be, since even on the finance company's case it was in substance and in form a true hire-purchase agreement that Mr. Yam was guaranteeing, it cannot possibly be said that the finance company had made or continued an advance or had otherwise given credit to Ranco Services. No loan was involved. Nor could it be said, by any fair use of language, that the finance company had afforded banking facilities to Ranco Services - there was no banker/customer relationship between them.

19. Mr. Sakhrani made a brave effort to persuade us that the expression "banking facilities" was so wide that it should be regarded as embracing what the finance company did here but in my judgment this simply is not so.

20. I have mentioned earlier paragraph 13 of the Defence; that was sufficient to allow Mr. Rimsky Yuen to take the fundamental point that he has taken on behalf of the appellant in this appeal, from which the learned judge was understandably diverted by the other defences raised by the unrepresented Mr. Yam.

21. In my judgment the judge's decision cannot stand because the finance company did not establish that Mr. Yam had bound himself as a surety to be responsible for the financial obligations contained in the hire-purchase agreement between the finance company and Ranco Services entered into on 30th October 1987. I do not think that the matter is capable of any further elaboration.

22. It was for these reasons that I agreed with my Lords that the appeal should be allowed.

Hunter, J.A.:

23. I agree.

Penlington, J.A.:

24. I also agree.