XCHRX BANK OF COMMUNICATIONS, HONG KONG BRANCH v. YENWIN INVESTMENTS LTD. AND OTHERS

HCA6014/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.6014 OF 1999

----------------------

---------------------

J U D G M E N T

----------------------

The appeal

1. This is the 3rd defendant's appeal against the decision of the master granting judgment to the plaintiff in the sums of HK$12,589,817.26 and US$395,704.86 together with interests and costs.

The plaintiff's claim

2. The plaintiff is a bank. It had lent money to the 1st defendant by way of banking facilities. The claim by the plaintiff against the 3rd defendant is based on a Deed of Guarantee dated 12 January 1998 ("the Guarantee") in which the 3rd defendant agreed :

"TO PAY and SATISFY to you (i.e. the plaintiff) ON DEMAND in writing all sums of money, debts and liabilities whether certain or contingent whether now or at any time hereafter owing or incurred due but unpaid to you from or by the Principal (i.e. the 1st defendant)."

3. The 2nd and the 4th defendants had also signed on the Guarantee. The 2nd, 3rd and 4th defendants are directors of the 1st defendant. This appeal is only concerned with the liability of the 3rd defendant. The plaintiff had also obtained summary judgment against the 1st defendant with the quantum to be assessed.

Defence

4. The 3rd defendant was ambiguous on whether he had in fact signed the Guarantee. It was said that if the signature that appeared on the Guarantee was his, then the Guarantee was signed on an occasion together with other documents when he was told by the plaintiff that the documents were for the provision of new banking facilities. He did not know the document was a guarantee. He had never agreed to stand as a guarantor and he never intended to sign the document as a guarantee.

5. The 3rd defendant's case is that the 1st defendant applied to the plaintiff for the granting of banking facilities and had agreed to provide two corporate guarantees. One was to be provided by the 5th defendant and the other by a company called Yin Hong (China) Enterprises Development Company ("Yin Hong"). The plaintiff told him and the other directors of the 1st defendant that since the 5th defendant and Yin Hong would stand as guarantors for the 1st defendant, there would not be any problem in getting the application approved. As to the circumstances in which the Guarantee was signed, it is best to refer to the 3rd defendant's own words in his 1st affirmation :

"In a meeting held in about December 1997 we submitted a contract of guarantee duly executed by Yin Hong as agreed, a true copy of which is now produced and shown to me and exhibited herewith marked 'YWN-3'. In this meeting, we were further invited by Mr. Leung Tak Hung, the Manager of the Plaintiff (hereinafter referred to as 'Mr. Leung') and Mr. Wong Wai Hong, an officer of the Plaintiff (hereinafter referred to as 'Mr. Wong') to append our signatures on some printed documents which Mr. Leung and Mr. Wong orally represented and warranted to be documents for the provision of the new banking facilities which had to be executed by the other 2 companies (the 1st Defendant company and the 5th Defendant company) as a formality. At all material times I did not know English, and was not able to understand the contents of these documents or their effect. And it was only in reliance upon the aforesaid representation and/or warranty made by Mr. Leung and Mr. Wong and induced thereby that I appended my signature on various spaces on the documents as directed by them. As far as my memory goes, the printing (sic) documents were still blank. I wish to emphasize that neither Mr. Leung nor Mr. Wong have explained the contents of these documents or their true purport to us at any time, or indicated or required any of us to provide any personal guarantee or any further guarantee for the 1st Defendant's application."

6. The 5th defendant is a Hong Kong company controlled by Yin Hong. The 5th defendant holds properties in Hong Kong. Yin Hong is a subsidiary company of the Industrial and Commercial Bank of China. Its address is in Beijing.

The plaintiff's response

7. The plaintiff stated that it had expressly informed the individual defendants that the Guarantee to be signed was a personal guarantee from each of them. It was further denied that there was any representation that the execution of the Guarantee by the 3rd defendant was a mere formality. Further, the Guarantee provided by Yin Hong was not initially accepted because of defects in execution. It was only on 9 March 1998 that the Guarantee was provided by Yin Hong.

Overview

8. It is necessary to take an overview of the case when one considers the defence raised by the 3rd defendant :

(1) Personal guarantees furnished to banks by the directors of a corporate borrower is not an unusual feature in commercial transactions in Hong Kong.

(2) The case is not concerned with some elderly persons who provided personal guarantees to banks for their children or relatives and received no benefit from the money that were advanced by the banks.

(3) The 3rd defendant is a businessman. He is in his late 30's (as disclosed in the assessment for credit by the plaintiff). He is the majority shareholder of the 1st defendant. He has been a director and shareholder of the 1st defendant since 1994. He is also a director and shareholder of a company called Wan Yu Industries (Groups) Limited ("Wan Yu") since 1994. Wan Yu had between 1994 and 1997 executed various security documents such as charges and letters of hypothecation with another bank in respect of banking facilities and money owing by Wan Yu to that bank.

(4) The facility letter issued by the plaintiff to the 1st defendant dated 11 December 1997 in which it set out the terms of the banking facilities to be granted to the 1st defendant specifically required personal guarantees from the 3rd defendant and the 2nd and 4th defendants.

Credibility of the defence

9. It is against this background that one considers the credibility of the defence now raised by the 3rd defendant.

10. The facility letter was expressly stated to be confirmed and accepted by the 1st defendant as the borrower; the 5th defendant as the guarantor, and also the 2nd, 3rd and 4th defendants as guarantors.

11. There are three signature clauses on the facility letter with the names of the 1st and 5th defendants respectively, both in Chinese and English, stamped onto the first two clauses. The 2nd and 3rd defendants signed as the authorised signatories of the 1st defendant. The 2nd and 4th defendants signed as the authorised signatories of the 5th defendant. The third signature clause was for the individual guarantors. It was signed by the 2nd, 3rd and 4th defendants. There was no company name imposed on this clause. The 1st defendant also executed an Undertaking for Repayment of Overdraft dated 12 January 1998. Again, the name of the 1st defendant in English and Chinese, was chopped on the signature clause with the 2nd and 3rd defendants signing as its authorised signatories.

12. If the documents that were signed were represented to be documents that had to be executed by the two companies, namely, the 1st and the 5th defendants, then one fails to see why the 3rd defendant should sign his name on the third signature clause on the facility letter as well. One may ask, if the plaintiff had actually required personal guarantees from the individual defendants as provided expressly in the facility letter, why would it represent to the 3rd defendant that the documents to be signed were merely documents which had to be executed by the two companies as a formality? There is no suggestion that the lending by the plaintiff to the 1st defendant was out of the ordinary. It is simply incredible that the plaintiff would try to secure a personal guarantee from the individual defendants by some pretext when the requirement was expressly provided for.

Lack of knowledge: unreal and incredible

13. What the 3rd defendant said about his lack of knowledge that the document he signed was a guarantee was unreal and incredible. He was a director of two companies, one of which had previously executed documents relating to financing from a bank. It is clearly pointed out by Lord Reid in Saunders v. Anglia Building Society [1971] AC 1005, at p.1016, that the plea of non est factum could not be available to anyone who signed without taking the trouble to find out at least the general effect of the document. Lord Wilberforce at p.1027 further stated this :

" The preceding paragraphs contemplate persons who are adult and literate: the conclusion as to such persons is that, while there are cases in which they may successfully plead non est factum these cases will, in modern times, be rare."

14. The 3rd defendant stated that he did not understand English. To that, I will respectfully adopt the observation of Millett LJ in Barclays Bank plc v. Schwartz, The Times Law Reports, 2 August 1995 :

" An illiterate knew that he could not read. A man who was unfamiliar with English was aware of that fact. If he signed a document which he did not understand he had only himself to blame.

A man who signed a document in a language with which he was insufficiently familiar to understand could be in no better position than the man who signed a document which he did not read because he was too busy."

Photocopies of the signature page

15. Questions were raised by the 3rd defendant on the page of the facility letter which contained the signatures. Apparently, the plaintiff had made photocopies of page containing the signatures. The plaintiff had stamped against the signatures with a chop bearing a circle with the initials "s.v." inside.

16. Miss Chan, counsel for the 3rd defendant, referred to the original of this document in court. She stated that correction fluid had been applied to the page and behind the fluid, one can see the character (免), meaning "not required". What Miss Chan said in court was not referred to in any of the affidavits of the 3rd defendant. The plaintiff had explained the procedures dealing with the documents. Mr Leung, counsel for the plaintiff, had further informed the court that the chop merely represented that the bank had verified the signatures in the facility letter. In any event, what the 3rd defendant said is not a matter that could advance his case.

Demand in writing

17. The plaintiff accepted that the liability of the 3rd defendant would only arise upon demand by the plaintiff of the debt. The plaintiff on 10 December 1998 issued a demand letter to the 3rd defendant. The 3rd defendant stated that he had not received this letter. The demand letter was sent to the 3rd defendant's address as stated on the Guarantee, namely, Room 1905, 19/F Fortress Tower, 250 King's Road, North Point, Hong Kong. According to the 3rd defendant, it was the registered address of the 1st defendant and it had moved out from that address to the 22/F of the same building on 3 November 1998. On a day before 10 December 1998, the 3rd defendant had informed the plaintiff of this change of address. The address printed on the bank statement of the 1st defendant for the period ending 31 December 1998 was that of the new address on the 22/F of Fortress Tower. Hence the plaintiff must have received the notice of change of address.

The short answer

18. In my view, the short point to this so-called defence is that notifying the bank of the new address is only one way of ensuring the mails will be sent to the new address. The 1st defendant had only moved up three floors in the same building. There are other methods of redirecting mails, such as applying for the mail-redirection service provided by the post office. The point on the redirection of mail was specifically dealt with by Yam J on 24 January 2000, when he heard the 1st defendant's appeal against the summary judgment granted by the master against it. (The plaintiff had issued two separate summonses for the Order 14 application against the 1st and 3rd defendants which were dealt with separately.) Notwithstanding the comment by the judge on redirection of mail, the 3rd defendant had not filed any affirmation to show that he had not applied for the mail to be redirected to the new address.

19. What is more significant is this. The writ was issued on 13 April 1999 against all the defendants in this case. Paragraph 13 of the Statement of Claim pleaded that demand had been issued against all the defendants on 10 December 1998. In the Defence filed on 23 June 1999, the 3rd defendant had merely denied and put the plaintiff to strict proof of its allegation on demand. The specific defence that he had not received the letter was only put forward in his 2nd affirmation filed on 28 September 1999. If the 1st and 3rd defendants had not received any demand from the plaintiff for repayment of the debt before they received the writ, one would expect them to react differently to the action taken by the plaintiff. One would expect them to protest vehemently that they should not be dragged into litigation when they have not even received any letter in demand from the plaintiff to make the repayment. Instead, the matter was only raised belatedly. I do not find this to be a credible defence at all.

Amount of the judgment

20. The 3rd defendant is only liable to the extent of the liability of the 1st defendant. A master had heard the assessment of the quantum against the 1st defendant.

21. Counsel informed the court that in the assessment, the dispute is really on the interest of the claim rather than on the principal. In the present application, the dispute is likewise on the interest only. As such, the master is entitled to enter judgment against the 3rd defendant on the principal.

22. Accordingly, the appeal is dismissed. The order of the master is varied to the extent that the plaintiff's claim on interest is to be assessed by the master. The plaintiff is not pressing for costs on indemnity basis against the 3rd defendant. Accordingly, the master's order to that regard is also varied. The plaintiff is entitled to costs nisi of the appeal.