BANK OF CHINA (HONG KONG) LTD v. LEUNG SHIU KEE AND OTHERS

DCCJ 1208/2009

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1208 OF 2009

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DECISION

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Introduction

1.  This is an appeal against the Master's decision given on 28 April 2014 dismissing the plaintiff's application for summary judgment against the 5th defendant ("D5").

Background

2.  The plaintiff's claim against D5 is based on a Deed of Guarantee ("the Guarantee") dated 20 May 2002 singed, inter alia, by D5 in favour of the plaintiff which guaranteed the repayment of overdraft facility extended to Borneo International Education Organisation Limited ("Borneo") to the extent of $650,000 together with interest thereon.

3.  Default judgment against all defendants was originally entered on 17 April 2009.

4.  By the Order of Deputy District Judge S.P. Yip dated 30 May 2013, the judgment against D5 was set aside on condition of payment of a total sum of $400,000 into Court.  D5 did comply with the payment in condition.

5.  A Defence and Counterclaim was filed by D5 on 12 May 2014.

D5's case

6.  D5 did not dispute the signing of the Guarantee.  However, he said that according to his memory, the Guarantee was supposed to guarantee an overdraft under a HK$1 million Facility Letter. The fact that the plaintiff is now claiming that the Guarantee only guaranteed an amount not exceeding HK$650,000 is an indication that some changes had been made without his knowledge.  He alleges that the Guarantee is not valid because he was not informed of the change of terms after his signing and that he was not provided a copy thereof after its execution.

7.  D5 also alleges that around November or December 2003, at one of the two meetings with the plaintiff, some sort of partial arrangement had been agreed upon between the plaintiff, represented by its 2 managers (including Mr Sze Tin Chee), and him.  He was requested to make several monthly payments of $20,000 each and was promised that interests would no longer be charged on the Borneo facility.  Thereafter, he made 4 payments in a total sum of $80,000 in accordance to the said arrangement.  It is D5's case that the said arrangement "should have triggered the promissory estoppel principle in connection to the rights of charging further interests".

Legal principle on summary judgment

8.  In Schindler Lifts (Hong Kong) Ltd v Ocean Joy Investments Ltd, HCCT81/2001, 10 January 2003, unreported, Hon Ma J (as he then was) laid down the following standard approach in dealing with an application for summary judgment:-

(a) Factually, it has to be determined whether what the defendant says is believable, rather than whether its version of events is to be believed;

(b) As a matter of law, even if what the defendant says is believable, does it amount to an arguable defence in law?

Discussion

9.  D5 is not disputing that he did sign the Guarantee.  Rather, he is saying that according to his memory, he was supposed to guarantee banking facility to the extent of $1,000,000 whereas the Guarantee was only guaranteeing an amount not exceeding $650,000.  That said, he believed that the terms of the Guarantee had been changed without his knowledge.

10.  The Guarantee was not only signed by D5, but also by the other 4 defendants, all of whom were shareholders of Borneo.  The purpose of the signing of the Guarantee must be known by all of them.  It must have been a joint effort by all shareholders of Borneo to finance the business of the company.  The potential personal liability of each of them should have been discussed and agreed upon before they proceeded to obtaining the banking facility from the plaintiff.

11.  D5 is putting up a case that the plaintiff reduced the extent of his personal liability without informing him. Why would a bank do something which was advantageous to its customer without first informing him?  I find it totally unbelievable.

12.  In Bank of Credit and Commerce Hong Kong Ltd (in liq) v Quadrutec Hotel Management & Development Ltd [1996] 4 HKC 316, the Court of Appeal held that there was no general principle that irregular conduct on the part of the creditor (bank), even if prejudicial to the interests of the surety, discharged the surety.  In that case, the bank failed to execute the irrevocable instruction of one of the three guarantors to apply part of the money obtained from a transaction to reduce the indebtedness of the principal debtor.  The Court of Appeal held that such conduct on the part of the bank, though prejudicial to the interests of the guarantors, was not sufficient to discharge the surety.  Godfrey JA (at p324) particularly stressed that "O 14 proceedings are eminently suitable for claims on dishonoured guarantees when the primary facts are not in doubt and the only result of letting the case go to trial would be to delay the plaintiff further in the recovery of the money plainly due to him".

13.  In this case, D5 is only suspecting that there had been some irregular conduct on the part of the plaintiff, namely, reducing the limit of the Guarantee without informing him.  Such conduct, even if proven, fell far short of being prejudicial to the interests of D5, and would not serve to discharge the Guarantee.

14.  Without doubt, D5 has failed to establish an arguable defence on the basis of such allegation.

15.  D5 also alleges that in a meeting between himself and 2 managers of the plaintiff in late 2003, it was agreed that the plaintiff would stop charging interest on the outstanding debt on condition that D5 should pay monthly payments of $20,000 each for several months.

16.  The waiving of interest is no minor matter both to the plaintiff as a bank and to D5 as a guarantor.  Serious consideration must be given before a decision as such could be made.  Here, D5 is saying that the plaintiff promised to waive interest on the outstanding principal on receiving monthly payments of $20,000 from D5 for several months. At the material time, the outstanding indebtedness was over $500,000.  The question is, naturally, why the bank would forgo interest on payment of an imprecise amount?  If an agreement was reached between them on the waiver of interest, why no agreement was reached regarding the repayment of the then outstanding indebtedness?  If an agreement of any sort was reached between them, why the agreement was not reduced into writing?

17.  It is not in dispute that D5 was a professional accountant.  He should know the importance of protecting his interest by written agreement.  Obviously, there is no document to support his alleged agreement.  Even in his 4 letters to the plaintiff enclosing payments of $20,000 each, he was silent as to the alleged agreement on the waiver of interest.  In the 3^rd and 4^th letters, he was only asking the plaintiff to carry out/honour "your promises in relation to this matter" without giving details.  If there was an agreement on the waiver of interest, he must have explicitly said so.

18.  In my view, the allegation of D5 is not believable.  

19.  D5 also disagreed with the calculation of the total indebtedness as exhibited in the 6^th Affirmation of Lee Man King as LMK-24.  Table “a” in LMK-24 shows that all the monies received since 31 December 2003 were applied to reduce the outstanding balance and also shows how interests were accrued.  I see no substance in D5’s complaint.

Conclusion and order

20.  For the above reasons, I am driven to the conclusion that D5 has failed to raise any defence to the plaintiff's claim.  The plaintiff's appeal is therefore allowed. 

21.  As a consequence, I order that judgment be entered against D5 for:-

(a) the sum of HK$853,458.09; and

(b) interest on the sum of HK$477,615.43 at the rate of 6% per annum from 5 February 2009 to the date of payment.

Costs

22.  Costs should follow the event. However, there are a total of 8 reserved costs orders made previously, namely:-

(a) Order of HH Judge Chow dated 27 February 2013;

(b) 2 Orders of Registrar Lui both dated 28 March 2013;

(c) 4 Orders of Deputy District Judge S P Yip all dated 30 May 2013; and

(d) Order of Registrar R Lai dated 14 February 2014.

23.  Before determination, I direct that written submission be made by both parties on the question of costs.

24.  I direct that both parties shall file and serve their respective written submission on each of the above orders within 28 days from the date of this Decision.