WELLSHIP CO LTD v. NGAN CHUNG LEUNG

HCA 3606/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3606 OF 2001

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J U D G M E N T

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1. The plaintiff brings this action to recover the sum of HK$820,140.58 from the defendant. The plaintiff's primary claim against the defendant is in respect of an oral guarantee given by him to the plaintiff to secure a debt of HK$820,140.58 owed by Majone Garment Factory Limited ("Majone") to the plaintiff.

2. The defendant denies that he is liable to the plaintiff as a guarantor. He denies that he ever gave an oral guarantee as alleged by the plaintiff.

3. The central issue is whether the defendant ever gave the alleged guarantee.

4. In the alternative, the plaintiff claims against the defendant as an accommodation party to three cheques drawn by Majone in favour of the plaintiff and indorsed by the defendant under the provisions of s. 28 of the Bills of Exchange Ordinance, Cap. 19. However, it is common ground between the parties that the alternative claim does not take the plaintiff's case any further. The essential issue is whether or not the defendant gave the oral guarantee relied on by the plaintiff. It is common ground also that a guarantee is no longer required to be evidenced in writing. (Paras. 200.003 and 200.045 Vol. 13(2) 2003 Reissue Halsbury's Laws of Hong Kong.) If the defendant did give his oral personal guarantee then he would be liable to the plaintiff on its primary claim. If he did not, it is accepted that he would not be liable either on the primary claim or the alternative claim. Thus, the plaintiff's alternative claim takes the plaintiff's case no further.

5. The undisputed facts are that the defendant was the majority shareholder and managing director of Majone at all material times. He held 9,500 out of 10,000 issued shares of Majone. The plaintiff had business dealings from about 1996 or 1997 with Majone, whereby the plaintiff sold garments to Majone which it exported to overseas customers, principally in the USA and Canada. The plaintiff would issue invoices to Majone about one week after delivery of goods and Majone was given a credit period of one month to settle the invoices. In or about late 1997 or early 1998 Majone was in financial difficulties and there was delay in settling the plaintiff's invoices. By November 1998 Majone had an outstanding balance of HK$1,520,140.58 due and owing to the plaintiff.

6. A meeting was held between Mr. Tseng Jor Hai ("Mr. Tseng") and Mr. Chung Sit Lau ("Mr. Chung") representing the plaintiff, and the defendant at the offices of Majone in or about December 1998. Mr. Tseng was at all material times the managing director and majority shareholder of the plaintiff. Mr. Chung was at all material times the production and sales manager of the plaintiff. This was the first such meeting which Mr. Tseng attended regarding the outstanding balance owing to the plaintiff by Majone. At this meeting Mr. Tseng and Mr. Chung were given eight post-dated cheques drawn by Majone in favour of the plaintiff in the total sum of HK$1,520,140.58. The defendant signed his name at the back of all the eight cheques at that meeting.

7. The above facts are undisputed. What is disputed is whether the defendant gave an oral personal guarantee at the meeting. The reason why the defendant signed his name at the back of each of the eight cheques is also disputed. I heard evidence from Mr. Tseng and Mr. Chung who gave evidence on behalf of the plaintiff. I also heard evidence from the defendant.

8. The plaintiff's case is supported by the evidence of Mr. Tseng and Mr. Chung. Mr. Tseng gave evidence that he and Mr. Chung went to Majone's offices to attend the meeting so as to press for repayment of the outstanding sum. He denied that Majone's accounts clerk, Ms Lam Woon Loy ("Ms Lam"), was present at the meeting. He said that the defendant proposed the repayment of the outstanding sum by way of eight monthly instalments. During the meeting, Ms Lam brought in eight cheques which had been filled in and which had been stamped with the company chop of Majone. She asked the defendant to sign the cheques at the front of the cheques which he did in their presence.

9. It is common ground that the eight post-dated cheques were for the amounts and dated as follows :

Date	HK$
31 January 1999	100,000.00
28 February 1999	100,000.00
31 March 1999	100,000.00
30 April 1999	200,000.00
31 May 1999	200,000.00
30 June 1999	207,890.91
31 July 1999	200,000.00
31 August 1999	412,249.67

10. Mr. Tseng gave evidence that he was unwilling to accept the repayment by instalments as proposed by the defendant as he realized that Majone was in financial difficulties at that time. He gave evidence that the defendant said that Majone had no problems and that if his company could not make the payments he himself would be personally liable for the repayment. Mr. Tseng then said to him that if he was willing to be personally liable for the repayment the defendant should give his personal guarantee by signing at the back of the cheques. The defendant agreed and said that if his company defaulted in payment he would be personally liable for the payment. He then signed his name at the back of each of the eight cheques. It was under those circumstances that Mr. Tseng agreed to allow Majone to pay by instalments and agreed to the defendant personally guaranteeing payment. Mr. Tseng also said that if the defendant had not given his personal guarantee he would have sued Majone and would not have continued doing business with Majone. He also said that after December 1998 the plaintiff continued to do business with Majone but payment for invoices was no longer by cheques, but by letters of credit instead.

11. The evidence of Mr. Tseng as to what happened at the meeting in or about December 1998 was supported by Mr. Chung. He confirmed that the eight cheques brought in by Ms Lam at the meeting had not yet been signed by the defendant but that the defendant only signed his name at the front of the cheques in their presence at the meeting. He also confirmed that Mr. Tseng did not accede to the defendant's request to allow him to make payment by instalments by the eight post-dated cheques. He said that Mr. Tseng only agreed to accept the cheques after the defendant said that he would be personally liable for the payments if the cheques were dishonoured and after he signed his name at the back of each of the cheques. He also said that if no agreement was reached at that meeting the plaintiff would have taken legal proceedings immediately against Majone for repayment. He also confirmed Mr. Tseng's evidence that the plaintiff thereafter continued to do business with Majone with payments made by letters of credit rather than by cheques from Majone.

12. The defendant gave a different version of what happened at the meeting. He said that the eight post-dated cheques had already been signed by him when brought in by Ms Lam to the meeting. He also said that Ms Lam was there throughout the meeting. The defendant said that Mr. Tseng was extremely unhappy on seeing the eight cheques post-dated for such a long time. He said that Mr. Tseng queried whether the post-dated cheques had really been signed by the defendant. He asked the defendant to sign his name once more at the back of the cheques to see if it matched the signature at the front of the cheques. The defendant did as he was asked and it was in those circumstances that he signed his name at the back of each of the eight cheques. He said that he did not sign his name at the back of the cheques for the purpose of personally guaranteeing payment of the cheques, but that he did so only to provide his specimen signature so that the signature at the front of the cheques could be verified. He also denied that for the business that Majone did with the plaintiff after December 1998, payment was made by letters of credit. He said that Majone continued to pay for goods purchased from the plaintiff by cheques.

13. It is common ground that the first five cheques were honoured when presented for payment. However, the sixth, seventh and eighth cheques were dishonoured on presentation for payment. The total sum for these cheques is in the sum of HK$820,140.58, the amount claimed by the plaintiff in this action.

14. It is also common ground that Majone was wound up in or about July 2000. There is no dispute that Mr. Chung did continue to press Majone and the defendant for payment of the outstanding sums.

15. The defendant was adamant in his evidence that there was never any mention to him of a personal guarantee at all during the meeting or at any time thereafter. It was only after the writ was issued that he heard the mention of a personal guarantee for the first time. However, when reminded of what he had said at para. 12 of his witness statement, he said that he then remembered that when the plaintiff realized that a petition for winding up was presented against Majone, Mr. Chung requested him to provide a personal guarantee for the three remaining cheques which he refused to give. I do not believe the defendant.

16. I have no hesitation in accepting Mr. Tseng and Mr. Chung as witnesses of truth who have tried their best to tell me what happened honestly and truthfully.

17. Mr. Chung gave evidence at one stage that the three cheques were presented for payment twice but when it was pointed out to him that this was not borne out by the dates on the reverse of the cheques, Exhs. P1, P2 and P3, he said that he was not clear about when the cheques were presented for payment and whether they were presented more than once. The dates on the reverse of the cheques show that Exh. P1 was presented for payment on 29 December 1999, Exh. P2 on 28 January 2000 and Exh. P3 on 28 February 2000.

18. Mr. Chung confirmed what he had said at para. 11 of his witness statement that the defendant had requested the plaintiff not to present the three remaining cheques until the defendant confirmed that there were sufficient funds in the account and that before the plaintiff acceded to that request, he had asked the defendant for verbal re-confirmation of his personal guarantee to pay the amounts of three cheques if they were dishonoured. The defendant said "alright, alright." This was, however, denied by the defendant. In my view, Mr. Chung was mistaken about when the three remaining cheques were presented for payment. This does not, however, in my view, undermine his evidence as to what happened at the meeting in December 1998. His credibility has not been undermined.

19. I have no hesitation in accepting Mr. Tseng and Mr. Chung as witnesses of truth who have given their evidence truthfully as to what happened at the December 1998 meeting. The defendant, however, was an evasive witness. I find that he is neither a truthful nor a reliable witness. Where the evidence of the defendant is at variance with the evidence of Mr. Tseng and Mr. Chung, I have no hesitation in preferring the evidence of Mr. Tseng and Mr. Chung to the evidence of the defendant. I believe Mr. Tseng and Mr. Chung. I do not believe the defendant.

20. On the central issue between the parties, I find that the defendant did give his oral personal guarantee to the plaintiff's representatives, Mr. Tseng and Mr. Chung, at the December 1998 meeting. He agreed to be personally liable for the payment if the post-dated cheques handed to Mr. Tseng and Mr. Chung at that meeting were dishonoured. I also find that the defendant did sign at the back of each of the cheques as evidence of his personal guarantee.

21. On the defendant's evidence, a specimen signature was required by Mr. Tseng. I do not believe the defendant. If a specimen signature was required it makes no sense for the defendant to sign his name at the back of each of the eight cheques. A single specimen signature would have been sufficient. I believe Mr. Tseng's and Mr. Chung's evidence that the defendant only signed his name at the front of the eight cheques in their presence after the cheques were brought into the meeting by Ms Lam. I find that the post-dated cheques had not yet been signed by the defendant when they were brought in but that he only signed his name at the front of the cheques in the presence of Mr. Tseng and Mr. Chung. That being so, there was no reason at all for Mr. Tseng to ask the defendant to provide a specimen signature.

22. The defendant also said that Mr. Tseng was extremely unhappy to see that the cheques were post-dated for a long time. That being so, and since he well knew that Majone was in financial difficulties, it would not make any commercial sense for an experienced businessman like Mr. Tseng to accept the post-dated cheques as payment for the outstanding sums unless something extra was given to him. The defendant's personal guarantee was that something extra given. On that basis the plaintiff was prepared to accept the post-dated cheques at the meeting instead of insisting on immediate payment of the outstanding sums.

23. It is not disputed that Mr. Chung gave notice of dishonour of the cheques to the defendant and that neither Majone nor the defendant has paid the plaintiff the amount claimed.

24. I am satisfied that the plaintiff has proven its case on its primary claim. That being so, the alternative claim does not arise.

25. I give judgment to the plaintiff in the sum of HK$820,140.58. I also give judgment for interest on the said sum at 1% above prime rate from 29 February 2000 until judgment and thereafter at judgment rate until payment. The date, 29 February 2000, is the date when the last of the three cheques was dishonoured on presentation for payment.

26. I also heard arguments on costs. I agree with Miss Chow that the costs of the adjournment at the first day of trial should be borne by the plaintiff. This was granted as the plaintiff's witness, Mr. Chung, was unavailable until the second day of trial. This was through no fault of the defendant and the plaintiff should pay the defendant his costs of the adjournment granted at the first day of trial. Save for that, I make an order that the costs of the action be costs to the plaintiff to be paid by the defendant, such costs to be taxed if not agreed.