HANG SENG BANK LTD v. GOLDEN TECH (ASIA) LTD AND OTHERS

HCA193/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.193 OF 2003

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J U D G M E N T

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1. The plaintiff's claim against the 3rd defendant is on a guarantee ("Guarantee") dated 5 March 2001. The principal was the 1st defendant . The 2nd defendant was a co-guarantor. The 2nd and 3rd defendants were shareholders and directors in the 1st defendant. The plaintiff has obtained judgment against the 1st and 2nd defendants.

2. The 3rd defendant was given conditional leave to defend by the learned Master. This is her appeal. The plaintiff on the other hand seeks final judgment against the 3rd defendant.

3. Many of the points relied on by the 3rd defendant before the learned master have been abandoned. I am left with three main issues :

(1)	discharge of guarantor due to material variation of the contract between the plaintiff and the 1st defendant;
(2)	termination of the guarantee by notice; and
(3)	some other reasons for a trial.

(1) Material variation of the contract

4. In relation to (1) the 3rddefendant relies on the change of the signature mandate given by the 1st defendant to the plaintiff. As I understand it, under the original mandate dated 5 March 2001, two signatures were required to operate the 1st defendant's account with the plaintiff. The authorised signatories were the 2nd and 3rd defendants.

5. However the mandate was changed on 11 July 2001 so that any two or three signatures would be sufficient. The third signature was by one Chiu, Joan Sin Ha. In support of this contention Mr Ambrose Ng, who appeared for the 3rd defendant, relied on Holme v. Brunskill (1873) 3 QBD 495, and submitted that any material variation of the terms of the principal contract would discharge the surety.

6. He also referred to me to the facility letter, which preceded and required the guarantee.

7. However I do not believe that he has been able to show that it was a material term of the contract between the plaintiff and the 1st defendant that the signature mandate should remain unchanged. No doubt it was important to the plaintiff that there should be a proper mandate, but there was nothing to suggest that the 1st defendant could not change its authorized signatories.

8. The important issue is : whether there had been any material variation of the terms of the principal contract. Mr Ng was unable to refer me to any evidence to support his submission. He made the point that it was important to the 3rd defendant that she should remain a necessary co-signatory. That might well be so, but there was nothing in the facility letter or in the guarantee which indicated that she had to remain a necessary co-signatory. Mr Ng also relied on the fact that in the facility letter, the bank required a joint and several guarantee to be given by the 2nd and 3rd defendants. But I do not believe one can read into that, a material term of the contract between the bank and the 1st defendant, that the signature mandate could not be changed by the 1st defendant or that the 3rd defendant must remain a necessary co-signatory.

(2) Termination by notice

9. By a letter dated 18 June 2001, the 3rd defendant gave notice of termination to the bank with immediate effect.

10. Clause 4 of the guarantee deals with determination :

"4. Determination

This guarantee shall be binding as a continuing security on me/us and on the estate(s), successor(s), assign(s), personal and/or legal representative(s) of me/us and each and every one of us until the expiration of three calendar months from the date of the actual receipt by you of such notice of determination to determine or discontinue this guarantee to be given by:-

(a) if there is only one undersigned, me or in the event of my death or becoming under disability, my personal or legal representative(s) (as the case may be); or

(b) if there are more than one undersigned, all of the undersigned jointly together or in the event of the death or becoming disability of one or more of us, the personal or legal representative(s) of each and every one of us so died or under disability (as the case may be) jointly together with all of us who survive or are not under disability, if any,

Provided that such determination shall not release me/us from this guarantee in respect of any liability actual or contingent accrued or not yet accrued owing or incurred by the Principal to you as aforesaid during the currency of this guarantee but not maturing due or accrued till after the determination of this guarantee."

11. The guarantee on its face is a joint and several guarantee by the 2nd and 3rd defendants. However the 3rd defendant's case is that when she signed it, it had not been signed by the 2nd defendant. The 3rd defendant relies on this only for the argument that she could alone terminate her liability under the guarantee. The other arguments relating to the circumstances under which the guarantee was signed by the 3rd defendant had been abandoned when the parties appeared before Sakhrani J on 4 March 2004. The 3rd defendant's argument is that the guarantee must be treated as if it was given by her alone and hence she could terminate her liability under the guarantee alone. Mr Ng also relied on the position of the signatories on the guarantee. I have to say I find this allegation unbelievable. The guarantee was required by the facility letter and was sent to the 1st defendant together with the facility letter. The 3rd defendant had signed the facility letter confirming acceptance. I do not believe the 3rd defendant could have believed that she was not required to give a joint and several guarantee. Nor do I think the position of the signatories on the guarantee would enable me to come to a different view. So the notice given by the 3rd defendant only was not effective.

12. It is common ground that under the guarantee, the 3rd defendant's liability arose on demand only. The 3rd defendant's argument is that no demand was made within the three-month period. There was a demand dated 18 September 2001. Mr Ng argued that the demand came too late, because the three months expired on 17 September 2001.

13. Mr Douglas Lam, who appeared for the plaintiff, submitted that 18 September 2001 was the last day relying on the "corresponding date rule". He referred to me to The Interpretation Of Contracts, 2nd Edition, by Kim Lewison, QC :

"Where a contract provides for the performance of an act within a certain number of months, the period expires on the day of the month bearing the same number as the date on which the period begins or, if there is no such day, on the last day of the month.

In Dodds v. Walker, Templeman L.J. formulated the corresponding date rule as follows :

'When time is limited by reference to calendar months no account can be taken of the fact that some months are longer or shorter than others. February equals March. In my judgment if an act is authorised to be performed on any arbitrary day in any month of the year, then one month elapses on the corresponding day of the next month, provided that the day of the act itself is excluded from computation.'..."

14. I am of the view that 18 September 2001 was indeed the last date. However, Clause 16 of the guarantee provided :

"16. Notice

A notice or demand by you under this guarantee may be served by post and shall be deemed to have been duly served on the day following the day of posting if addressed to me/us or any of us or the legal representative(s) of me/us or any of us at the respective addresses given herein or last known to you in the Hong Kong Special Administrative Region, its return by the post office to you notwithstanding."

15. Mr Lam submitted that there is no evidence that the notice was sent by post. Indeed, there is no evidence how the notice was sent. Mr Lam argued that on an Order 14 application, the burden is on the 3rd defendant to raise a defence, and there is no evidence from the 3rd defendant when she received the notice. This is a case where at one time or another every conceivable argument had been raised on behalf of the 3rd defendant. Thus, the fact that no point was taken about the date of the receipt of the demand was probably deliberate. In all the circumstances, I am of the view that the demand was made before the expiry of the notice. So even if the notice had been validly given by the 3rd defendant it would not help her.

16. Mr Ng also argued that failure to make a demand within three months discharged the 3rd defendant from liability. Mr Ng relied on the decision of the English Court of Appeal in National Westminster Bank PLC v. Hardman [1988] FLR 302. There the liability of the surety only arose upon demand made. The surety determined the guarantee by notice. The notice expired after three months. But no demand was made until more than 18 months after the expiry. It was held that the surety was not liable to the bank in respect of sums where the demand for payment was not made before the expiration of the notice. This is what Parker LJ said at line 20 at p.305 :

"The words 'the amount due hereunder' refer back to the guarantee. The defendant's case is therefore very simple. He says that, no demand having been made at the date of expiration, nothing was 'due hereunder.' There was no principal due and there could be no liability for interest, even contingent, for interest runs from the date of the demand. But for cl. 7 (to which I shall shortly come) I should have no hesitation whatever in accepting the defendant's contention. The plaintiff's contention involves reading the saving part of the clause as if it said : 'But such determination shall not affect the contingent liability of the guarantor in respect of the amount due from the debtor at the date of expiration,' or : 'But this guarantee shall remain as security for the indebtedness of the debtor at the date of determination.'

Thus far I can see no reason for reading the clause as having either of these two meanings when it does not express them, the more particularly as to do so (i) is in direct conflict with the actual words; (ii) involves the result that the guarantor remains contingently liable without limit of time, so that a demand could be made many years later and a writ issued six years after the demand; (iii) by cl. 5 the bank would at any time in the future be entitled to extinguish any credit balance on any accounts of the guarantor with the bank in or towards payment of the debt due from the debtor at the date of expiration, notwithstanding that it had made no demand at all."

17. It is unnecessary for me to decide this point, the demand was made within the three months. Also, the notice of termination was required to be given by both the 2nd and 3rd defendants. So this defence is also not established.

(3) Other reasons for trial

18. Now, the guarantee was for $5 million. The $5 million was broken down in the facility letter into $4 million, for inter alia, documentary letters of credit, trust receipt facilities. However, it went on to provide that $1 million of this facility was "for overdraft facility on your current account."

19. Mr Ng argued that since the plaintiff's claim for $1,343,789.26 was described in para. 9 of the Statement of Claim as "amount overdrawn from Current Account No. 347-236333-001", that is a reason for trial. However, I do not believe Mr Ng is assisted by this argument. First, the facility letter referred to and required the 1st defendant to sign an "undertaking for repayment of overdraft" as well as a guarantee to be executed by the 2nd and 3rd defendants. In the "undertaking for repayment of overdraft" signed by the 2nd and 3rd defendants as authorized signatories for the 1st defendant, Clause (j) provides :

"(j) Maximum Facility

The total amount outstanding overdrawn by me/us at any one time shall not exceed DOLLARS ONE MILLION ONLY IN HONG KONG
Currency(HKD1,000,000.00)

Provided Always That I/We hereby expressly agree and acknowledge that :-

(i)	...
(ii)	Bank may variate maximum Facility
	you shall be at liberty at any time to increase reduce and/or otherwise vary by notice in writing to me/us the maximum amount of overdraft to be granted whether specified hereinabove or anywhere. ..."

20. Moreover, Clause 7 of the guarantee provides :

"7. Indulgence

You shall be at liberty without notice to and/or consent of me/us and without thereby affecting your rights against me/us hereunder at any time at your sole and absolute discretion

(a) to determine or reduce or limit or restrict or enlarge or vary or continue or renew any credit facility loan and/or advance to the Principal, ..."

21. So I do not think the fact that the claim is for $1.3 million by way of overdraft is a reason for trial.

22. Moreover, as the correspondence show, the sum claimed was made up of overdraft in the sum of $759,219.63 and an import loans of $620,970.00. (See letter from the plaintiff to the 3rd defendant dated 18 September 2001). Also by a letter dated 13 September 2002, Messrs C.Y. Kwan & Co., solicitors for the plaintiff informed Messrs Keith Ho & Co., solicitors for the 3rd defendant, that the figure of $1.3 million odd was the result of combining the liability of the 1st defendant under its bills account with the indebtedness under its current account.

23. There was also some argument that the 3rd defendant did not accept the amount demanded as correct.

24. Clause 6 of the guarantee is relevant :

"6. Evidence of indebtedness

Any admission of acknowledgement in writing by the Principal or by any person authorised by the Principal of the amount of indebtedness of the Principal to you and any judgment recovered by you against the Principal in respect of such indebtedness shall be binding and conclusive on and against me/each of us and my/our respective executors administrators or legal representatives in all courts of law and elsewhere. A certificate by an officer of yours as to the money and liabilities for the time being due or incurred to you from or by the Principal shall be binding on me/each of us and conclusive evidence in any legal proceedings against me/us or any of us and my/our respective executors administrators or legal representatives in all courts of law and elsewhere."

25. Mr Ng relies what Megaw LJ said in the case of Bache & Co. v. Banque Vernes [1973] 2 LLR 437, at p.440 :

"... If the defendant bank showed fraud on the part of the plaintiff company or if it showed a mistake on the face of the notice of default, then there could be no suggestion that the contents of that notice of default, at any rate pro tanto, would amount to conclusive evidence preventing them from disputing the liability or the amount, or both, as the case might be. ..."

26. But I do not think that one can say, looking at the demand or the Statement of Claim that they on their face show any error at all.

27. Nor do I think that the fact that the 3rd defendant had issued a summons for discovery or leave to serve interlocutories by summons dated 15 June 2004 provides a good reason for trial.

28. For the above reasons, the 3rd defendant's appeal is dismissed. I set aside the order of the learned Master and order judgment in favour of the plaintiff as claimed.

29. I make an order nisi that the plaintiff is to have the costs of the action, including the costs of this appeal and the hearing before the learned Master.