XCHRX THE CHINA AND SOUTH SEA BANK LTD. v. WONG WAI CHI AND ANOTHER

HCA 2611/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2611 OF 2001

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J U D G M E N T

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1. This is an application for summary judgment under Order 14 rule 1 of the Rules of High Court.

History

2. The plaintiff is a bank licensed to carry on the business of banking in Hong Kong. By virtue of facility letters written in August 1996 the plaintiff agreed to make loans totalling $20.33m to a customer called Modern Prosper Limited (MPL). As part of the security called for the 2nd defendant, indirectly a part owner of MPL, was required to give his personal guarantee in favour of the plaintiff. He did so by executing a deed of guarantee in prescribed form dated 12 September 1996. I shall call this the first guarantee.

3. Upon notice received by the plaintiff from the 2nd defendant that he had sold part of his interest in MPL to companies controlled by the 1st defendant, the plaintiff agreed to continue the accommodation to MPL upon both 1st and 2nd defendants giving their personal guarantees. They agreed to this course. The plaintiff issued fresh facility letters, and the defendants both signed a deed of guarantee dated 23 June 1997. I shall call this the second guarantee. The first guarantee was not discharged.

4. MPL honoured the terms of its commitment to the plaintiff until July 1999. Then it defaulted. The plaintiff made formal demand in September 1999 that it make good the default. Copies were sent to both defendants as guarantors. Nothing was paid; nothing was said. The plaintiff wrote again to MPL on 2 February 2000 calling for repayment in full, again copying the letter to both defendants. By now there was outstanding $17,689,009.07. Again there was no reaction.

5. On 23 February the plaintiff's solicitors wrote to the 1st and 2nd defendants demanding satisfaction under the guarantees. Neither replied. In August some reductions were made and the indebtedness fell to $16,548,906.06. Nothing further was received.

6. By letters dated 8 February 2001 the plaintiff wrote again to the defendants calling for payment in full. There was no response. Then by letter dated 6 March 2001 the 1st defendant in his capacity of Chairman of MPL wrote to the plaintiff giving notice of repayment in full by 25 March. But this was not forthcoming.

7. The plaintiff issued the writ on 11 June 2001. The defendants filed an acknowledgement of service on 19 June giving notice of an intention to defend. The plaintiff filed this summons on 30 June.

8. There are disputes of fact which I shall have to consider. These are revealed in an account of the evidence, which I come to next.

The Evidene

9. The 2nd defendant filed an affidavit in opposition to the plaintiff's summons. In it he took no issue with his being a party to the first guarantee or that both defendants had signed the second. Nor did he challenge how and why and with what effect the second guarantee came into being, save that it was his belief it superseded the first.

10. But he denied liability. He said that up to October 1998 he and the 1st defendant had indirect interests in MPL, owned through corporate entities they respectively owned and controlled. Then on 18 October 1998 they sold their interests to a company called Jetworld Investment Limited. They told the plaintiff. As a result there was a meeting, held at the plaintiff's office, attended on behalf of the plaintiff by a Mr Jimes Cheung (Mr Cheung), a manager having conduct of the MPL account. He said it was then agreed that the 1st and 2nd defendants would be released from their obligations under the 2nd guarantee, which liability would be taken up by Jetworld.

11. The 1st defendant also filed an affidavit. He confirmed the content of the 2nd defendant's.

12. Mr Cheung filed an affidavit in reply. He confirmed the history of events up to the execution of the 2nd guarantee. But he denied categorically that he had been told about a sale to Jetworld or that there was a meeting as a result or that as a consequence he agreed to releasing the 1st and 2nd defendants from their guarantees.

13. He said that by letter of 8 October 1998 the 1st defendant wrote to the plaintiff stating that MPL was shortly to be sold to some entity called DC Finance with the proposal that the limit of the accommodation be reduced to $15m. No other alteration was proposed. No suggestion was proffered that the purchaser sign a new guarantee. No proposal was made that the 1st and 2nd defendants be released from their guarantees.

14. In the event there was no reduction of MPL's indebtedness which remained in excess of $19m.

15. In early 1999 someone telephoned claiming to be from DC Finance. He said DC Finance now owned MPL. Beyond that there was nothing further said or done.

16. When MPL defaulted, the plaintiff looked to the defendants under the guarantees for recourse because all along they were and remain in full force and effect. That there was no response and, in particular, no denial of liability, reflected that the defendants accepted their obligations.

17. Notwithstanding reference to the purported sale to DC Finance, it was from the 1st defendant in his capacity as Chairman of MPL that the plaintiff received the letter of 6 March 2001 about repayment in full.

18. Mr Cheung denied the allegation that the defendants or either of them were released from their guarantees. He noted that there was no document produced to support this bare allegation. Neither served notice of their wish to terminate the guarantees; standard procedure if that was being sought. And he said: "As a prudent bank it would simply be impossible for the plaintiff to give up its existing security without securing a satisfactory replacement for the security released".

19. Against that background and dispute of facts, I now come to consider the plaintiff's application for summary judgment.

The law

20. It is for the defendants to show that summary judgment should not be ordered because there are triable issues; that they have evidence to put forward in defence which is reasonably capable of belief; see Banque de Paris et des Pays-Bas (Suisse) SA v. Costa de Naray [1984] 1 Lloyd's Rep. 21.

21. For the court to consider this the test is as described by Bokhary JA (as he then was) in Re Safe Rich Industries Limited CA 81/94 (unreported):-

"The test at the summary stage is indeed as simple as whether the defendant's assertions are believable. But it must be recognized - because failure to recognize it would create a debt-dodger's charter - that whether the defendant's assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as either undisputed or beyond reasonable dispute."

22. But unless it is obvious that the defence put forward is frivolous then judgment should not be entered, it not being the appropriate procedure for a trial to establish facts; see Mars International Limited v. Hollis Industries Limited [1996] 1 HKC 434.

23. Mortimer J said in Manciple Ltd v. Char On Man [1995] 3 HKC 459 at p. 466:-

"There is a difficulty because the court cannot resolve issues of fact on affidavits. However, there are some cases in which the defendant's own case, although apparently it raises issues which, if found in his favour, would provide him with a defence, are so incredible or so contradicted by contemporaneous documents or circumstances that it becomes clear that his defence is a sham."

24. It has been said two tests are appropriate, namely, "Is what the defendant says credible?" and, if the answer is yes, "Is there a fair or reasonable probability of the defendant having a real or bona fide defence?"

25. In Ng Shou Chun v. Hung Chun San [1994] 1 HKC 155, Godfrey J noted that there was a trend that where a plaintiff asked for an Order 14 summary judgment where the facts were in issue, he invariably invited the court to embark on a mini-trial of the action on affidavit evidence. Of this practice, he said at p. 158:-

"That is not a proper course for the court to take. It will in future be sufficient for the court to ask itself the simple question: 'Is what the defendant says credible?' If so, he must have leave to defend. If not, the plaintiff is entitled to summary judgment. The issue is not whether the defendant's assertions are to be believed; it is whether those assertions are believable."

26. On the basis of this summary of the law, I now come to my ruling.

The Ruling

27. The test is clear; have the defendants or either of them been able to establish there are triable issues, serious disputes of fact, which can and should only be resolved at trial?

28. Evidence adduced to this effect amounts to the allegation made by the 2nd defendant and supported by the 1st that Mr Cheung agreed on behalf of the plaintiff that consequent upon a change of ownership of MPL, the debtor customer, they would thenceforth be released from their guarantees. Neither produced any documentation or contemporaneous record to support that bare allegation. Mr Cheung denied there was notice of change of ownership, at least as put up by the 2nd defendant, and no consequential release asked for or given.

29. But one does not need even to turn to Mr Cheung's denial to find that the defendants' allegation is unbelievable. No documentation in support has been produced or even mentioned. I am satisfied that is because there is none. For a bank to authorize an officer to reduce its security without first ensuring a satisfactory alternative and for the officer to make such agreement would be extraordinary. For it to be done without the stroke of a pen is entirely fanciful. The answer to the question posed above is a resounding "No". There are no triable issues; what the defendants allege is incredible.

30. It follows that there shall be and I now order final judgment against the 1st and 2nd defendants for the amount set out in the prayer in the statement of claim. Costs including those reserved are to the plaintiff taxed if not agreed. (The order for costs is nisi at first instance).