DINERS CLUB INTERNATIONAL (HONG KONG) LTD v. NG KOON CHIANG AND ANOTHER

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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Background

1. On 21 June 1984, the second defendant signed a document that is headed "Indemnity" and is addressed to the plaintiff. It says -

"In consideration of your making available to Mr Ng Koon Chiang the facilities of a Diner's credit card, I/We hereby undertake to guarantee payment of all sums debited to you as a result of his/her use of the credit card and any subsequent cards issued.".

2. The plaintiff alleges that the "outstanding balance of the first defendant's account with the plaintiff in respect of the said credit card as at 29 July 1995 was $29,167.38".

3. On this basis, the plaintiff claims that sum from the second defendant.

4. The plaintiff claims summary judgment against the second defendant. The Master refused this application. The plaintiff now appeals.

5. The second defendant has advanced various defences to the plaintiff's claim.

The Pleadings

6. The second defendant's first defence is based on an imperfection in the plaintiff's pleadings. The plaintiff neglected to file a defence to the second defendant's counterclaim in which the second defendant repeated his defence and claimed a declaration that the indemnity was "void ab initio on the ground of non est factum".

7. This argument is based on the merest technicality. There could have been no doubt in anyone's mind that the plaintiff did not admit the plea of non est factum. However, whatever may have been the position before the Master, I am hearing the matter afresh, and this ground is no longer open to the second defendant. The plaintiff has now filed a defence to the counterclaim.

Misrepresentation and Non Est Factum

8. The second defendant says that he is a businessman in the textile trade. The first defendant was an acquaintance of his. He met the first defendant, who asked him to be his referee in an application for a credit card. He produced several documents for the second defendant to sign. The first defendant made it very clear to him that the second defendant would incur no liability whatsoever. He signed the forms. He does not understand English, and relied what the first defendant told him about the forms. The second defendant points out that there are some minor imperfections in the documents, none of which affect their validity.

9. This defence does not get off the ground.

10. The second defendant cannot hold the plaintiff responsible for what the first defendant told him. The first defendant was in no way the agent of the plaintiff.

11. Nothing in the documents signed by the second defendant and passed to the plaintiff was such that the plaintiff's suspicions should have been aroused that anything was amiss.

12. The second defendant is not a young, naive country bumpkin. He is a mature businessman. He signed documents that he knew were needed in connection with a credit card application by the first defendant. He had no reason to repose any particular trust in the first defendant. He did not understand, he says, what the documents said. He did not take any reasonable steps to find out from an independent, reliable source what he was signing. In these circumstances, he cannot, in my view, successfully deny responsibility for his clear undertaking.

Alteration of the Agreement

13. Mr Szeto points out that the agreement between the plaintiff and the first defendant relied upon by the plaintiff only came into force on 1 August 1995. He says that the agreement in force when the second defendant signed his guarantee is different from the agreement in force when the writ was issued.

14. Mr Szeto says that the law is that, where there is any variation in the terms of the agreement between the creditor and the debtor that could prejudice the guarantor, this will, unless the guarantor consents to that variation, discharge the guarantor from liability. It is immaterial that the variation has not in fact prejudiced the guarantor, or that the likelihood of this is remote. But, if it is self evident that the variation is unsubstantial or could not prejudice the guarantor, he will not be discharged.

15. In this respect, the second defendant is on firmer ground.

16. Mr Szeto was able to point to only one variation in the agreement that could prejudice his client.

17. The agreement in force at the time the guarantee was given provided that -

"All sums debited through the use of the card must be paid upon presentation of a monthly statement by Diners to the holder... Interest will be charged on all sums which have not been received by Diners within 25 days from the date of issue of the relevant monthly statement at a rate of interest to be fixed by Diners at its absolute discretion."

18. The agreement was varied as from 1 September 1993 so that the first defendant was entitled to a "payment line" of $20,000. Under the new agreement, if the first defendant did not pay the full amount due on the statement, he was liable to pay a "finance charge" of 2% per month calculated on a daily basis on the full amount due. If the defendant did not pay neither the full amount due nor a stated minimum amount, he was liable to an additional "late charge" or 5% calculated in the same way.

19. Although it is not likely that a guarantor of a cardholder under these agreements would be prejudiced by the variation, it is reasonably possible that he could be so prejudiced. The interest rate that actually fixed under the "old" agreement might be less than that specified under the "new" agreement. It is also so that the effect of the "new" agreement was to relax the terms of credit available to the first defendant, and this could prejudice a guarantor.

A New Point

20. All this assumes, however, that the second defendant's liability somehow depended on the terms of the agreement between the plaintiff and the first defendant. I do not think that this is so. What the second defendant guaranteed was "payment of all sums debited to you [the plaintiff] as the result of the first defendant's use of the credit card. The plaintiff seems to have assumed, according to its claim and evidence, that what the second defendant guaranteed was the first defendant's liability to the plaintiff. When a cardholder uses a credit card to pay for, say, a meal costing $1000, the result of this use of the card is that the plaintiff is debited with no more than $1000; I believe it may even be less than this. It is that sum debited to the plaintiff that is guaranteed; not the sum debited to the first defendant's account by the plaintiff. The sum debited to the first defendant by the plaintiff may be greater than the sum debited to the plaintiff, because the sum debited to the first defendant would not include any discount amount allowed to the plaintiff by the restaurateur and may include finance charges. In other words, the second defendant's liability to the plaintiff depends, not on any agreement between the first defendant and the plaintiff, but upon the plaintiff's liability to the person who provides goods or services to the first defendant as a result of the use of the card.

21. This point was not argued before me, and there is no evidence of what sums were debited to the plaintiff as the result of the first defendant's use of the card. I am reluctant to drag this matter out any further: I am sure the costs already are greater than the claim. But I cannot do justice to the matter without further argument and evidence.

The Result

22. Accordingly, I adjourn the appeal sine die. The plaintiff may wish to apply to amend its claim, and the parties may wish to adduce further evidence and argument. If the parties cannot agree on the way forward, they may apply to me for directions. I hope, however, what I have said in this judgment may assist the parties to come to a sensible settlement and avoid further costs.

The Costs

23. There is room for much argument on the question of costs. I will reserve these.