JOHN WANG v. BANK OF CHINA, SINGAPORE BRANCH

HCSD 22/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

APPLICATION TO SET ASIDE STATUTORY DEMAND NO. 22 OF 2003

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(Heard Together)

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REASONS FOR DECISION

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I. Introduction

1. By a Statutory Demand ("the 1st Statutory Demand") dated 13 June 2003 the Respondent ("the Bank") claimed payment from John Wang of certain amounts as follows:-

(1)	In relation to Acada Development Company Limited ("Acada"):-
	(a)	The Bank claimed US$27 million pursuant to a Joint and Several Guarantee ("the 1983 Acada Guarantee") dated 7 December 1983 executed by John Wang, Lee Mun Ha ("Mr Lee") and Jeanny Lie (John Wang's wife).
	(b)	The 1983 Acada Guarantee was made in respect of loan facilities ("the Acada Facilities") granted by the Bank to Acada. According to the 1st Statutory Demand, as at 22 May 2003 the outstanding balance of the Acada Facilities was US$33,645,991.03.
(2)	In relation to Fonda Oil Company Limited ("Fonda"):-
	(a)	The Bank claimed:-
		(i) US$25,000,000.00 pursuant to a Joint and Several Guarantee ("the 1983 Fonda Guarantee") dated 7 December 1983 executed by John Wang, Mr Lee and Jeanny Lie; and,
		(ii) US$7,980,000.00 pursuant to a Joint and Several Guarantee ("the 1996 Fonda Guarantee") dated 15 and 19 April 1996 executed by John Wang, Jeanny Lie, William Wang (John Wang's younger brother) and David Lau Siu Ying ("Mr Lau").
	(b)	The 1983 and 1996 Fonda Guarantees were made in respect of loan facilities ("the Fonda Facilities") granted by the Bank to Fonda.
	(c)	According to the 1st Statutory Demand, as at 22 May 2003 the outstanding balance of the Fonda Facilities was US$41,909,338.11.
(3)	In relation to Acada Singapore Pte Ltd ("Acada Singapore"):-
	(a)	The Bank claimed S$327,608.04 pursuant to a Joint and Several Guarantee dated 23 and 25 April 1992 ("the 1992 Acada Singapore Guarantee") executed by John Wang, Jeanny Lie, Mr Lau and Eric Liga Hermanto.
	(b)	The 1992 Acada Singapore Guarantee was made in respect of facilities ("the Acada Singapore Facilities") granted by the Bank to Acada Singapore.
	(c)	According to the 1st Statutory Demand, as at 22 May 2003 the outstanding balance of the Acada Singapore Facilities was S$327,608.04.

2. By a Statutory Demand ("the 2nd Statutory Demand") dated 13 June 2003 the Bank claimed payment from William Wang of US$7,980,000.00 in respect of the outstanding Fonda Facilities pursuant to the 1996 Fonda Guarantee.

3. By a Statutory Demand ("the 3rd Statutory Demand") dated 13 June 2003 the Bank claimed payment from Jeanny Lie of US$27,000,000.00 (in relation to Acada); US$32,980,000.00 (in relation to Fonda) and S$327,608.04 (in relation to Acada Singapore) pursuant to the 1983 Acada Guarantee, the 1983 and 1996 Fonda Guarantees and the 1992 Acada Singapore Guarantee respectively.

4. On 30 June 2003 John Wang, William Wang and Jeanny Lie (collectively, "the Applicants") respectively applied to set aside the 1st, 2nd and 3rd Statutory Demands (collectively, "the Statutory Demands").

5. At the hearing of the 3 applications ("the Setting-Aside Applications") on 19 November 2003 I refused an application by Mr B K Ho (counsel for the Applicants) to adjourn the substantive hearing of the Setting-Aside Applications pending the Applicants' appeal against an Order ("the Discovery Order") dated 29 October 2003. By the Discovery Order, Deputy High Court Judge Poon dismissed the Applicants' Summons ("the Discovery Summons") dated 30 September 2003 for specific discovery. Adjournment having been refused, I heard submissions on the Setting-Aside Applications. At the end of those submissions, I dismissed the Setting-Aside Applications. I set out below my reasons for dismissing Mr Ho's adjournment application and the Setting-Aside Applications.

II. Background

A. Basic Facts

6. The Bank was incorporated in the Mainland and has a branch office in Singapore.

7. Acada, Fonda and Acada Singapore (collectively, "the Companies") are owned and controlled by the Wang family.

8. John Wang and Jeanny Lie were appointed directors of Acada on 28 April 1983. According to Acada's Annual Return made up to 22 April 1997, John Wang and Jeanny Lie were still directors of Acada in 1997. The same return records that in 1997 John Wang held 1,750,000 of Acada's 2,500,000 shares and William Wang held the balance of 750,000 shares. Acada's Annual Return dated 22 April 2003 confirms that in 2003 John Wang and Jeanny Lie were still directors of Acada. Insofar as shares are concerned, the 2003 Return shows that John Wang's 1,750,000 shares had been transferred at an unspecified time to Acada Group Limited ("Acada Group"), while William Wang continued to hold 750,000 Acada shares.

9. John Wang and Jeanny Lie were appointed directors of Fonda on 1 January 1982. They were still directors of Fonda in 1995. See, for example, a Resolution dated 1 September 1995 authorising the Bank to act upon fax instructions in relation to Fonda's accounts signed by John Wang as Director and Jeanny Lie as Director and Secretary. That remained the position in mid-1996, as is evident from an extract from a Minute dated 10 April 1996 whereby Fonda's Board resolved to accept the Fonda Facilities from the bank. The Minute is signed by John Wang as Director and Jeanny Lie as Director and Secretary. In 1996 John Wang held 4,500 shares in Fonda, William Wang 500 shares. According to Fonda's Annual Return dated 6 November 2002, in 2002 Fonda's directors were John Wang and William Wang, while Fonda's shareholders were Acada Group (4,500 shares) and William Wang (500 shares).

10. As for Acada Singapore, John Wang was appointed director on 1 October 1981 and Jeanny Lie on 23 January 1984. As at 31 January 2002 Acada Group, Mr Lau and Goh Phoon Keong were shareholders of Acada Singapore.

11. The 1983 Acada and Fonda Guarantees are in similar terms. On signing both, John Wang stated his occupation as a "Businessman", while Jeanny Lie described herself as a "Business-woman". The 1983 Acada Guarantee guaranteed the Acada Facilities up to a limit of US$27,000,000.00 "together with a further sum comprising the accrued interest on that amount". The 1983 Fonda Guarantee guaranteed the Fonda Facilities up to a limit of US$25,000,000.00 plus accrued interest thereon.

12. The following are material terms of the 1983 Acada and Fonda Guarantees:-

(1) (Clause 1)

"IN CONSIDERATION of Bank of China (hereinafter called 'the Bank') ... at my/our request making or continuing advances or otherwise giving credit or affording banking facilities for so long as the Bank may think fit ... the undersigned HEREBY JOINTLY AND SEVERALLY GUARANTEE on demand in writing being made to me/us by the Bank ... to pay and satisfy to the Bank all sums of money which are now or shall at any time be unpaid to the Bank anywhere on any account whatsoever ... together with in all the cases aforesaid all interest, discount and other banker's charges including legal charges costs and expenses occasioned by or incident to this or any other security held by or offered to the Bank for the same indebtedness or in the enforcement of or in seeking to enforce any such security until full payment is received by the Bank both after as well as before judgment shall have been obtained in respect thereof...."

(2) (Clause 2)

"This Guarantee shall not be considered as satisfied by any intermediate payment or satisfaction of the whole or any part of any sum or sums of money owing as aforesaid but shall be a continuing security and shall extend to cover any sum or sums of money which shall for the time being constitute the balance due from the Customer [Acada/ Fonda] to the Bank upon any such account as hereinbefore mentioned."

(3) (Clause 3)

"This Guarantee shall be binding as a continuing security on me/us ... until the expiration of three calendar months after I/we ... shall have given to the Bank notice in writing to discontinue and determine the same but subject nevertheless to the provisions of clause 17 hereunder."

(4) (Clause 6)

"Any admission or acknowledgement in writing by the Customer or any person on behalf of the Customer of the amount of the indebtedness of the Customer or otherwise in relation to the subject matter of this Guarantee ... or any certificate by an officer of the Bank as to the moneys and liabilities for the time being due and remaining or incurred to the Bank from or by the Customer or a copy of the account of the Customer contained in the Bank's book of account or of the account for the preceding six months if the account shall have extended beyond that period signed by any officer of the Bank shall be binding and conclusive evidence on me/us ... in all Courts of law and elsewhere."

(5) (Clause 7)

"The Bank shall at any time be at liberty (without being bound to do so) to resort for the Bank's own benefit to any other means of payment at any times and in any order as the Bank may think fit without thereby diminishing my/our liability hereunder and the Bank may exercise the Bank's rights under this Guarantee either for the payment of the ultimate balance after resorting to the other means of payment or for the balance due at any time notwithstanding that other means of payment have not been resorted to and in the latter case without entitling me/us to any benefit of such other means of payment so long as any money remain owing and unpaid by the Customer to the Bank and in addition the Bank shall be at liberty to require payment by me/us of any money owing to the Bank without taking any proceedings first to enforce such payment by the Customer."

(6) (Clause 11)

"For the consideration aforesaid and as a separate and independent stipulation:-

(i)

I/We hereby agree that all sums of moneys which may not be recoverable from me/us on the footing of a guarantee whether by reason fo any legal limitation disability or incapacity on or of the Customer or any other fact or circumstance, whether known to the Bank or not shall nevertheless be recoverable from me/us on demand as though I/we were the sole and principal debtors; ..."

(7) (Clause 13)

"This Guarantee shall be without prejudice to and shall not be affected by, nor shall I/we be released or exonerated by any of the acts or matters, following, that is to say:-

(i)	any securities, negotiable or otherwise, including other guarantees, if any, which the Bank may now or at any time hereafter hold from the Customer or any other person or persons in respect of any money hereby guaranteed;
(ii)	any variation exchange renewal release discharge or modification of any such securities or any refusal or neglect to complete enforce or assign any judgment specialty or other security or instrument, negotiable or otherwise or other contracts or the proceeds of any of the foregoing, and whether satisfied by payment or not;
(iii)	any time given or extended to the Customer and/or any other person or persons including anyone or more of me/us and the parties to any negotiable or other security instrument guarantee or contract and any other indulgence granted to or compromise composition or arrangement made with the Customer and/or any other person or persons including anyone or more of me/us whether with or without consent from or notice to me/us;
(iv)	any release or discharge given to any one or more of me/us whether with or without consent from or notice to me/us."

(8) (Clause 14)

"The Bank may at all times without discharging or releasing me/us or in any way affecting this Guarantee:-

(i)	determine or vary any credit to the Customer and open and/or continue with any other account or accounts current or otherwise of the Customer with the Bank at any branch or branches;
(ii)	deal with exchange release modify or abstain from enforcing this Guarantee or any other guarantees or securities held or to be held by the Bank for or on account of the moneys hereby guaranteed or any part thereof;
(iii)	renew bills and promissory notes in any manner and compound with accept compositions from and make any other arrangements with the Customer or any person or persons liable on bills notes or other securities held or to be held by the Bank for or on behalf of the Customer."

(9) (Clause 17)

"The Bank may enforce this Guarantee against me/us at any time jointly or severally at the Bank's absolute discretion notwithstanding that any bills or other Instruments covered by it may be in circulation or outstanding, and the Bank may include the amount of the same or any of them in the said general balance or not at the Bank's option, and this Guarantee shall not be determinable by me/us except on the terms of my/our making full provision up to the limits of my/our guarantee for any then outstanding liabilities or obligations to the Bank on the Customer's account."

(10) (Clause 18)

"This Guarantee shall be in addition to and not in substitution for any other guarantee or other security for the Customer which the Bank may now or hereafter hold whether from me/us or any one or more of me/us or otherwise and on discharge by payment or otherwise shall remain the Bank's property."

(11) (Clause 21)

"This Guarantee shall be construed and governed by the laws of the Republic of Singapore and I/we hereby agree to submit jointly and severally to the jurisdiction of the Courts of Singapore in all matters pertaining thereto but with full liberty for the Bank to resort to the Courts of any other country where jurisdiction may exist or be established."

13. The 1996 Fonda Guarantee has terms similar to those just quoted from the 1983 Acada and Fonda Guarantees. The 1996 Fonda Guarantee was subject to a limit of US$7,980,000.00 plus accrued interest thereon. It was signed (among others) by John Wang, Jeanny Lie and William Wang as Directors. Their signatures are stated by the document to have been witnessed by Mr Lawrence Lam, a solicitor and notary public, on 15 April (signatures of John Wang and Jeanny Lie) and 19 April (signature of William Wang). Just above the signatures of the Guarantors, the following has been typed in: "NOTE TO WITNESS: PLEASE ENSURE THAT THE GUARANTEE IS EXPLAINED TO THE GUARANTORS."

14. The 1992 Acada Singapore Guarantee is in similar terms to the Guarantees described above. It is subject to a limit of S$1,300,000.00 plus accrued interest thereon. It was signed (among others) by John Wang and Jeanny Lie as directors. The 1996 Acada Singapore Guarantee states that the signatures were witnessed by Mr W I Cheung, a notary public. There is a note above the signatures which is identical to that in the 1996 Fonda Guarantee.

15. The Bank first agreed to extend the Acada Facilities by a letter dated 22 October 1983. The Acada Facilities comprised an Overdraft Facility of US$2,000,000.00 and a Letter of Credit/ Trust Receipt Facility of US$25,000,000.00. The Acada Facilities were subject to a Review Term to the effect that:-

"[t]he facilities may be reviewed from time to time at [the Bank's] discretion and the Bank reserves the right to cancel, amend, vary all or any of the terms and conditions in respect of the [Acada] facilities without prior notice to [Acada]."

16. By letter dated 18 November 1997 the Bank agreed to continue granting the Acada Facilities. It was a term of the continuance that the 1983 Acada Guarantee remain in full force and effect. On 8 December 1997 John Wang and Jeanny Lie, as joint signatories of Acada's bank account with the Bank, signed a copy of the 18 November 1997 letter to signify acceptance of its terms.

17. By a Deed of Confirmation dated 3 July 1997 John Wang confirmed that the 1983 Guarantee would remain in full force and effect in consideration of the Bank continuing the Acada Facilities. Jeanny Lie executed a similar Deed of Confirmation on 1 September 1998. At the bottom of the Deed as executed by Jeanny Lie, the following statement occurs:-

"On this 1st day of September 1998 before me, Koo Hai Yan, Donald, a Notary Public practising in Hong Kong personally appeared JEANNY LIE who of my own personal knowledge I know to be the identical person whose name 'JEANNY LIE' is subscribed to the within written instrument and acknowledged that he/she had voluntarily executed this instrument at Hong Kong."

I shall refer to the 2 Deeds as "the Confirmation Guarantees".

18. The 18 November 1997 letter further stated:-

"The total banking facilities together with all monies and liabilities which may be owing to the Bank from time to time shall be secured by an Equitable Mortgage and/or Hak Tanggungan or such other security interest as the Bank requires to be created over land parcel Hak Guna Bangunan No.159 ['the Indonesian Land'] covering an area of Three Hundred Ten Thousand Four Hundred and Forty square metres (310,440 m2) (Tanah di Desa Cikeas Udik Kecamatan Gunung Putri Kabupaten Bogor Propinsi Jawa Barat Indonesia) together with the fixtures thereon provided that the title is in order and the legal requisitions are satisfactory."

The Indonesian Land is owned by P T Artha Paraguna. The title deeds to the Indonesian Land were delivered to the Bank to secure the Acada Facilities. But, according to the Affirmation of Lim Sock Huang filed on the Bank's behalf, the Bank's Indonesian lawyers have advised that the delivery of title deeds was insufficient to create a legal or equitable mortgage and the Bank holds no enforceable security over the Indonesian Land.

19. The Bank first agreed to extend the Fonda Facilities by a letter dated 22 October 1983. The Acada Facilities comprised a Letter of Credit/ Trust Receipt Facility of US$25,000,000.00. The Fonda Facilities were subject to a Review Term similar to that which the Bank stipulated in the Acada Facilities.

20. By letter dated 3 April 1996 the Bank agreed to augment the Fonda Facilities with a Banker's Guarantee/ Revolving Short Term Loan facility of US$7,980,000.00. It was a term of such addition to the Fonda Facilities that the 1996 Fonda Guarantee be executed. As security for the addition to the Fonda Facilities, a First Preferred Naval Mortgage was also created in the Bank's favour over the vessel "ACADA DOLPHIN" ("the Vessel").

21. The Bank first agreed to extend the Acada Singapore Facilities in a letter dated 9 April 1992. The Acada Singapore Facilities comprised a Term Loan of S$1,300,000.00. The Acada Singapore Facilities were revised to an Overdraft Facility of S$200,000.00 and a reduced Term Loan of S$277,000.00 by letter dated 18 November 1997.

22. By letters dated 10 January 2003 to the Companies respectively, the Bank's Singapore solicitors (Messrs Rajah & Tann ("R & T")) stated that the Acada, Fonda and Acada Singapore Facilities had been cancelled in consequence of the defaults of the Companies. R & T demanded payment of the outstanding balances under each of the Facilities. On 10 January 2003 R & T wrote separately to John Wang, William Wang and Jeanny Lie to enforce the Guarantees signed by each of them.

23. The Bank uplifted a fixed deposit of US$1,100,000.00 to reduce Acada Singapore's indebtedness on 27 February 2003 pursuant to a Letter of Set Off dated 18 November 1997. The Acada Singapore indebtedness referred to in the 1st and 3rd Statutory Demands reflected the balance due after set-off. The Acada Singapore debt was later reduced to zero from the sale proceeds of 2 Singapore properties which Acada Singapore mortgaged to the Bank to secure the Acada and Acada Singapore Facilities. The sale took place on 28 August 2003. As a result, the Bank no longer pursues the debt claimed in the 1st and 3rd Statutory Demands in respect of the 1992 Acada Singapore Guarantee and the Acada Singapore Facilities.

24. Part of the sale proceeds from the 2 Singapore properties was used to reduce the balance due from Acada. Excluding interest due since the 1st and 3rd Statutory Demands, US$33,209,056.26 remains outstanding under the Acada Facilities. This sum is still above the US$27,000,000.00 limit (excluding accrued interest) of the 1983 Acada Guarantee.

25. The Vessel was sold for US$3,373,700.00. The sum of US$2,995,134.41 remaining after payment of legal costs, arrest costs, crew claims and insurance premiums was used to reduce Fonda's debt. The Statutory Demands claim Fonda's outstanding balance after deduction of the proceeds from the sale of the Vessel.

B. Singapore Banking Act (Chapter 182), 1970 Revised Edition

26. The Applicants claim that the original loans granted to Acada and Fonda in 1983 under the Acada and Fonda Facilities were illegal under the Singapore Banking Act (Chapter 182), 1970 Revised Edition ("the Act"). They contend that the 1983 Acada and Fonda Guarantees are accordingly unenforceable. I summarise here the relevant provisions of the Act.

27. As it stood in 1983, the Act provided in s. 25(1) that:-

"A bank shall not:
(a)	grant or permit to be outstanding to any customer any advances, loans or credit facilities or give any financial guarantees or incur any other liabilities on his behalf to an aggregate amount of such advances, loans, facilities, guarantees or liabilities in excess of sixty per cent of the capital funds or, with the approval of the Authority, up to but not in excess of one hundred per cent of the capital funds of the bank:
	Provided that the provisions of this paragraph do not apply to:-
	(i)	transactions with the Government;
	(ii)	transactions between banks;
	(iii)	the purchase of telegraphic transfers or loans or advances made against telegraphic transfers;
	(iv)	any facilities granted against letter of credit or bills or guarantees or documents in respect of imports into or exports from Singapore; or
	(v)	any other type of transactions which the Authority may from time to time approve."

28. The Authority mentioned in the Act is defined as the Monetary Authority of Singapore (s. 2(1)). The expression "capital funds" in s. 25 is defined in s. 2(3) as:-

"	(a)	in the case of a bank whose head office is situated in Singapore -- the paid-up capital and published reserves of that bank; and
	(b)	in the case of a bank whose head office is situated outside Singapore -- the net head office funds and such other liabilities as the authority may decide."

Section 31 of the Act provided that, for the purposes of s. 25, "there shall be deducted from the capital funds of the bank any debit balance appearing in the profit and loss account of the bank".

29. Section 33(1) of the Act stipulated:-

"Any bank whose head office is situated outside Singapore may apply in writing to the Authority for an order relieving that bank from the restrictions or limitations imposed by sections 25, 27 and 28 of this Act in relation to any transactions referred to in those sections and the Authority may make such an order subject to such conditions as it thinks fit."

30. Section 25(1) of the Act was repealed in 1984 when it was replaced by a new s. 29(1). The latter provision read:-

"	A bank shall not:
	(a)	grant or permit to be outstanding to any one person, firm, corporation or company or to any group of companies or persons which such person, firm, corporation or company is able to control or influence any credit facilities to an aggregate amount of such credit facilities in excess of 30% of the capital funds or, with the approval of the Authority up to but not in excess of 100% of the capital funds of the bank."

Section 29(1) was revised in 1993 to stipulate as follows:-

"	Subject to sub-section (3), a bank shall not:
	(a)	grant or permit to be outstanding to any one person or to any group of persons under the control or influence of any one person, any credit facilities if the aggregate amount of such credit facilities exceeds 25% of its capital funds or such other percentage not exceeding 100% of its capital funds as the Authority may approve."

By s. 2(1) "person" includes corporations.

31. Following the 1984 amendments to the Act, s. 29(1)(b) provided as follows:-

"	A bank shall not:
	...
	(b)	grant substantial loans which in the aggregate exceeds 50% of its total credit facilities or such other percentage as the Authority may determine."

Section 29(5) defined "substantial loan" to mean:-

"any credit facility granted by a bank to a single person, firm, corporation or company or to any group of companies or persons which such person, firm, corporation or company is able to control or influence which in the aggregate exceeds 15% of the bank's capital funds".

That definition was refined in 1993 to:-

"any credit facility granted by a bank to a single person or to any group of persons under the control or influence of a single person which in the aggregate exceeds 15% of the bank's capital funds".

32. The 1984 amendments to the Act also introduced a new s. 69A which came into effect on 9 March 1984. That provided as follows:-

"	(1)	No person shall establish and operate an Asian Currency Unit without first obtaining the approval of the Authority.
	(2)	The operation of an Asian Currency Unit shall be subject to such terms and conditions as the Authority may from time to time determine.
	(3)	Every person who operates an Asian Currency Unit by virtue of this section shall be subject to the provisions of this Act except those that are specified in sub-section (4).
	(4)	If the person referred to in sub-section (3) is a corporation that is:-
		(a) incorporated outside Singapore, it shall not be subject to the following sections:
		(i) section 25(1)(a), (b) and (d)(iii);
		...
		(b) ...
	(5)	In this section, 'Asian Currency Unit' means an operational unit that has been approved by the Authority to operate in the Asian Dollar Market subject to such conditions as the Authority may determine."

Section 69A later became s. 77 of the Act by which time it conferred an exception to ss. 29(1)(a) and (b) mentioned above.

33. The Acada and Fonda Facilities were denominated in US$ and granted under an Asian Currency Unit ("ACU"). The Bank, having been incorporated outside Singapore, has been authorised by the Authority to operate an ACU since 27 February 1980.

C. The Discovery Summons

34. The Applicants allege that Mr Lee, a family friend who worked for Bank of China Hong Kong branch and helped the Wangs obtain the Acada and Fonda Facilities in 1983, informed John Wang that:-

"but for [Mr Lee's] good connections with the top people in the Bank of China Group, the substantial loans or facilities would never have been granted because the extent of facilities or loans granted exceeded the restrictions placed on commercial banks in Singapore".

No other evidence has been adduced in support of the allegation that the Bank breached the Act. There is no affidavit from Mr Lee who died in February 2003. The Applicants say that they are unable to ascertain from publicly available documents whether, in granting the Acada and Fonda Facilities, the Bank acted in breach of the Act by lending in excess of its capital funds.

35. Conscious of the lack of evidence for their case on the Bank exceeding its capital funds, the Applicants took out the Discovery Summons seeking disclosure by the Bank of the following documents:-

"Statements of accounts, or other documents accounting or otherwise containing or evidencing the capital funds of the bank of China, head branch in Beijing and the amount of its liabilities which the Monetary Authority of Singapore had decided in accordance with Section 2(3)(b) of the Banking Act of Singapore in 1970 for the fiscal years of 1983, 1996 and 2002 when the loans or facilities were granted by the Respondent to, or allowed to be outstanding by, acada Singapore Pte Ltd, Acada Developments Company Limited, and Fonda Oil Company Limited."

36. In his Decision setting out reasons for dismissing the Discovery Summons, Judge Poon stated (at §12):-

"In my view, the present application is nothing but an expedition embarked by the applicant with a view to fishing possible evidence to support his assertion of illegality, which is wholly unparticularized and based on nothing but hearsay and unverified evidence from the late Mr Lee. Further, there is no evidence before me to contradict the evidence that the respondent had at all material times been authorized to operate the ACU, thereby exempting it from the application of the relevant restrictive provisions in the Singaporean Banking Act. I am unable to accept the submission of Mr Ho, counsel for the applicant, that the ACU point is still a live issue."

37. The Applicants filed a Notice of Appeal against the Discovery Order on 10 November 2003. The Court of Appeal refused to hear the appeal on an urgent basis prior to the hearing before me on 19 November 2003. As at the latter date, no hearing appointment had been fixed for the appeal.

III. Discussion

A. General

38. Bankruptcy Rules ("BR") r. 48 provides as follows on applications to set aside a statutory demand:-

" (4) On the hearing of the application, the court shall consider the evidence then available to it, and may either summarily determine the application or adjourn it, giving such directions as it thinks appropriate.

(5) The court may grant the application if:-

(a)	the debtor appears to have a counterclaim, set-off or cross-demand which equals or exceeds the amount of the debt or debts specified in the statutory demand;
(b)	the debt is disputed on grounds which appear to the court to be substantial;
(c)	it appears that the creditor holds some security in respect of the debt claimed by the demand, and either rule 44(5) is not complied with in respect of it, or the court is satisfied that the value of the security equals or exceeds the full amount of the debt; or
(d)	the court is satisfied, on other grounds, that the demand ought to be set aside."

39. BR r. 44(5) mentioned in r. 48(5)(c) provides:-

"If the creditor holds any security in respect of the debt, the full amount of the debt shall be specified [in the statutory demand], but:-

(a)	there shall in the statutory demand be specified the nature of the security, and the value which the creditor puts upon it as at the date of the demand; and
(b)	the amount of which payment is claimed by the demand shall be the full amount of the debt, less the amount specified as the value of the security."

40. Where a person applies for a statutory demand to be set aside under BR r. 48(5)(b), the Court considers whether the debt claimed is bona fide disputed on substantial grounds. "Substantial grounds" means grounds of substance. Thus, an applicant has an evidential burden of showing that there is both legal and factual substance to the alleged dispute between himself and the creditor.

41. As to factual substance, while the BR r. 48(5)(b) test bears some analogy to that which would apply in an application for summary judgment under RHC Order 14 Rule 3, the 2 tests are not identical. As in Order 14, it is not enough for an applicant seeking to set aside a statutory demand merely to assert the existence of a dispute or the existence of a counterclaim, set-off or cross-demand. The Court has to evaluate whether the evidence adduced by the applicant is believable (in the sense of being capable of belief). But, in contrast to Order 14 where a defendant need only establish a fair probability of a defence, BR r. 48(5)(c) expressly requires that an applicant show that he has a substantial defence (meaning a defence of substance).

42. Mr Ho relies on 2 defences:-

(1) In relation to all the Applicants, illegality under the Act; and,

(2) In relation to William Wang and Jeanny Lie only, undue influence.

B. Illegality

43. Mr Ho argues that the 1983 Acada and Fonda Guarantees are unenforceable, because the Acada and Fonda Facilities were granted in contravention of the Act. That would still leave the Bank's claim for US$7,980,000.00 under the 1996 Fonda Guarantee. To deal with that, Mr Ho relies on the Indonesian Land for a set-off. John Wang's affirmation evidence asserts that the Indonesian Land is worth about US$10,000,000.00. This means (Mr Ho says) that, to the extent that it has an equitable mortgage over the Indonesian Land, the Bank holds a security which exceeds the claim under the 1996 Fonda Guarantee. There being no effective claim under any of the Guarantees, Mr Ho submits that the Court should exercise its discretion under BR r. 48(5) to set aside the Statutory Demands.

44. Mr Ho suggests that Judge Poon failed to appreciate that s. 69A of the Act did not come into effect until March 1984. Since the Acada and Fonda Facilities became available in 1983, the ACU exception in s. 69A could not have operated to exempt the Bank from compliance with the then s. 25(1)(a) of the Act. For this reason, Mr Ho contends that Judge Poon wrongly rejected the Discovery Summons. Unless an adjournment were granted pending the Applicants' appeal against the Discovery Order, the Applicants would be deprived of the chance to rely on their illegality argument.

45. In my view, Judge Poon rightly dismissed the Discovery Summons as a fishing expedition. The allegation that the Bank exceeded its capital fund borrowing allowance under the Act in 1983 is wholly unparticularised. It is pure speculation.

46. Moreover, regardless of the outcome of the appeal against the Discovery Order, I think that the illegality argument lacks legal and factual substance. I set out below my reasoning for this conclusion. I shall proceed on the basis that, in originally extending the credit facilities to Acada and Fonda in 1983, the Bank somehow offended against the Act.

47. Mr Ho's argument depends on an assumption that the monies loaned out between October 1983 (when the Acada and Fonda Facilities were granted) and March 1984 (when s. 69A of the Act came into effect) are exactly the same monies for which the Bank seeks repayment today. This is because, insofar as the Acada and Fonda Facilities were made (or continued to be made) available by the Bank (and were drawn on by Acada and Fonda) after s. 69A of the Act came into effect in March 1984, such subsequent lending would have been exempted from compliance with s. 29(1). From March 1984 use of the Acada and Fonda Facilities could not have been illegal whatever the position might have been beforehand.

48. Mr Ho's critical assumption is unsupported by the evidence. Indeed, I do not think that one can plausibly make that assumption, particularly after a lapse of nearly 20 years between the grant of facilities in 1983 and the issue of the Statutory Demands in 2003.

49. The Acada and Fonda Facilities were effectively running account facilities between Acada or Fonda on the one hand and the Bank on the other. Debit balances on such running account would have fluctuated over the years as the facilities were drawn on (in whole or in part), repaid (in whole or in part), drawn on again (in whole or in part), repaid again (in whole or in part) and so forth, in accordance with the business needs of Acada and Fonda.

50. There is no suggestion in the Applicants' affirmations that the monies loaned in late 1983 and early 1984 have not already been paid back long ago. The Applicants have not presented evidence to show that precisely the same monies lent out in late 1983 and early 1984 have remained outstanding over the years. What evidence the Applicants have put forward suggests the contrary.

51. John Wang says that, with the provision of credit by the Bank in 1983, the businesses of Acada and Fonda prospered and grew "many folds". This would mean that Acada and Fonda should have been able to meet their financial commitments (including those owed to the Bank under the Acada and Fonda Facilities) as and when due. According to John Wang, it was not until around 1992 or 1993 that the business of Acada and Fonda declined "when the Mainland implemented the well known 'mega control'". Further retrenchment apparently occurred following the 1997 Asian financial crisis and afterwards, with the result that since 1997 "[t]he Group has been operating under difficult times and staff were reduced to the bare minimum".

52. It follows from the available evidence that it was only from 1992 at the earliest that Acada and Fonda would have experienced any difficulty in repayment. Until then at least, the revolving credit afforded by the Acada and Fonda Facilities would presumably have been drawn on and replenished from time to time. In fact, despite hard times from 1992 onwards, Acada and Fonda's credit record with the Bank was still good enough to merit the grant of the 1992 Acada Singapore Facility, the grant of the additional $7,980,000.00 facility to Fonda in 1996, and the continuance of the Acada Facility in 1997.

53. Since there is no evidence that the underlying debts now being claimed by the Bank under the 1983 Acada and Fonda Guarantees specifically relate to monies borrowed by Acada or Fonda prior to March 1984, I am unable to treat the Bank's present claims against John Wang and Jeanny Lie on the 1983 Acada and Fonda Guarantees as claims in respect of monies loaned before March 1984. It is more likely that the debits to the Acada and Fonda Facilities underlying the Bank's demands on the 1983 Acada and Fonda Guarantees were incurred more recently or (at any rate) long after March 1984. Accordingly, in light of s. 69A, there is no reason why the Bank should be prevented from now enforcing its claims under the 1983 Acada and Fonda Guarantees.

54. The foregoing analysis, based on a consideration of the available evidence, would dispose of Mr Ho's illegality argument regardless of the outcome of the appeal against the Discovery Order. Even if discovery were ultimately ordered by the Court of Appeal and it were found that the Bank in 1983 had made available credit facilities in excess of its capital funds, that circumstance alone would render neither the Bank's claim under the Acada and Fonda Facilities nor the Bank's claim under the 1983 Acada and Fonda Guarantees invalid.

55. It is possible to take the analysis further. I have so far operated on the premise that, from a proposition ("Proposition X") that the loan of monies under the Acada and Fonda Facilities prior to March 1984 was illegal under s. 25(1) of the Act, the conclusion ("Conclusion Y") can logically be drawn that the Bank's claims under the 1983 Acada and Fonda Guarantees would be unenforceable if such claims related to pre-March 1984 loans. On closer examination, however, it seems to me that, even if monies were originally loaned under the Acada and Fonda Facilities prior to March 1984 and those very same monies have remained and continue to be outstanding up to today, it does not follow that claims under the 1983 Acada and Fonda Guarantees for such monies fall outside the exemption conferred by s. 69A of the Act. Proposition X does not lead to Conclusion Y.

56. It is important to consider the implications arising from the running or revolving nature of the Acada and Fonda Facilities carefully. Tha credit was made available by the Bank on a continuing basis, subject to constant review by the Bank in accordance with the respective Facilities' Review Terms. This means that, on an ongoing basis, at each moment during the lifetime of the credit facilities, an offer for continuation of the Acada and Fonda Facilities was being made by the Bank and (by using the facilities) the Bank's offer was being continually accepted by Acada and Fonda.

57. Thus, on 9 March 1984, when s. 69A came into effect, the Bank was in law offering to continue the Acada and Fonda Facilities (whatever may have been the debit balances under the same) in consideration of Acada and Fonda continuing to be bound by the terms of the respective Facilities. It was open to Acada and Fonda at that moment (just as it has been open to Acada and Fonda at any moment during the lifetime of the Acada and Fonda Facilities) to terminate the facilities. Had Acada and Fonda terminated the facilities on 9 March 1984, the Bank would inevitably have requested payment of outstanding debit balances. It may or may not have been possible at that stage to argue that the loans made prior to 9 March 1984 were illegal and unenforceable. But termination did not happen then. Instead Acada and Fonda continued with the Acada and Fonda Facilities. In terms of legal analysis, they chose to accept the Bank's ongoing offer:-

(1)	to continue the facilities in general; and,
(2)	to continue extending credit in respect of the debit amounts then due on the Acada and Fonda Facilities in particular.

In return for the Bank not calling in outstanding amounts on the Acada and Fonda Facilities on 9 March 1984, Acada and Fonda by their conduct agreed to remain bound by the terms of the Acada and Fonda Facilities.

58. As a result, whatever debit amounts there were on the Acada and Fonda Facilities continued to be treated as loans to Acada and Fonda as from 9 March 1984. Such continuation of the loans from 9 March 1994 would have been exempted by s. 69A from the application of s. 29(1) of the Act. As from 9 March 1984, whatever may have been the position in respect of their legality or illegality beforehand, the loans were rendered fully legal and valid by s. 69A. In the circumstances, there is no reason why such loans, even if involving monies lent before 9 March 1984, should not be capable of being claimed under the 1983 Acada and Fonda Guarantees.

59. There are 2 components to Mr Ho's argument under the illegality head. Mr Ho must show not only that the 1983 Acada and Fonda Guarantees are unenforceable, but also that there should be a set-off of the potential proceeds from the sale of the Indonesian Land against the Bank's claim under the 1996 Fonda Guarantee. The loan facility of $7,980,000.00 granted to Fonda in 1996 was indisputably exempted from the application of s. 29(1) of the Act. The 1996 Fonda Guarantee given in respect of such loan facility therefore cannot be illegal. Establishing invalidity of the 1983 Acada and Fonda Guarantees would not be enough for Mr Ho's purposes since that would leave extant the Bank's sizeable claim under the 1996 Fonda Guarantee.

60. Strictly, by its letter dated 18 November 1997 referred to above, the Bank required the creation of an equitable mortgage of the Indonesian Land as security for the total banking facilities lent to Acada, not Fonda. It is unclear on what basis Mr Ho asserts that the Bank can now exercise any security rights which it might have over the Indonesian Land to recoup Fonda's debts.

61. But assume that the Bank can exercise whatever rights it has over the Indonesian Land under Indonesian law (as the lex loci of the property) to reduce Fonda's debt.

62. The Bank's evidence is that, under Indonesian law, it has no effective equitable mortgage over the Indonesian Land. It thus has no power to sell the latter. The Applicants have not adduced any Indonesian law evidence to counter the Bank's statement.

63. Nonetheless, assume further in the Applicants' favour that the Bank holds an effective equitable mortgage in respect of the Indonesian Land. Even that would not help the Applicants' case.

64. Mr Ho says that the Court should take the Indonesian Land into account because of BR r. 48(5)(c), the Indonesian Land's putative value of $10,000,000.00 being in excess of the amount of US$7,980,000.00 claimed under the 1996 Fonda Guarantee. Mr Ho adds that, contrary to BR r. 44(5), the Indonesian Land has not been mentioned in the Statutory Demands as a security held by the Bank.

65. In Cheng Wai Kei v. Commerzbank Aktiengesellschaft [2002] 2 HKC 340, Chu J stated (at 346-7):-

"14. Miss Leung for the respondent argued that r. 44(5) has no application to the present case in that the other securities were not provided by the applicant, relying on the judgment of Deputy Judge Woolley in Re Ip Lam On (HCSD11/2000, unreported). The fact of that case are not dissimilar to those in the present case. It is an application by a guarantor to set aside a statutory demand based on the guarantee he gave to the respondent bank. Apart from the guarantee, the respondent bank in that case also held legal charges over 15 properties owned by third parties. When the borrower defaulted, the respondent bank obtained possession of 11 of the properties. The applicant argued that the statutory demand should have set out the 11 properties and the value of the 11 properties was sufficient to cover the indebtedness of the borrower. Deputy Judge Woolley rejected the argument and held that rr. 44(5) and 48(5) only relate to security provided by the applicant himself and that securities provided by others need not be specified in the statutory demand.

15. Deputy Judge Woolley reached that conclusion after considering and applying the judgment of Le Pichon J (as she then was) in Re Kwok Chok Yee [2000] 2 HKC 543. In Re Kwok Chok Yee, Le Pichon J noted the definition of 'secured creditor' under s. 2 of the Bankruptcy Ordinance (Cap.6), namely, 'a person holding a mortgage, charge or lien on the property of the debtor or any part thereof, as a security for a debt due to him from the debtor'. She went on to observe that in the context of a bankruptcy petition presented against a guarantor, the term 'debtor' is a reference to the guarantor himself and not the borrower, so that the debt under the petition is not a secured debt where the security held by the creditor is provided by the borrower and not the guarantor. These observations are in line with the English authorities: Re a Debtor (No. 310 of 1998) [1989] 1 WLR 452.

16. The purpose of r. 44(5) is to require a secured creditor to give credit for the security he held so that he should only claim against the debtor the balance of the debt, after deducting the value of the security. Alternatively, the secured creditor may elect to give up the security he held upon the making of the bankruptcy order. Under s. 2 of the Bankruptcy Ordinance, a creditor only becomes a secured creditor if he holds security provided by the debtor over the debtor's properties. Rule 44(5) should therefore only apply to a secured creditor who holds security over property of the person against whom the statutory demand is made.

17. In the present case, all the other securities held by the respondent were either over properties of Philco or of Winful. They were not provided by the applicant nor were they in respect of the applicant's properties. As against the applicant, the respondent is not a secured creditor for the purpose of s. 2 of the Bankruptcy Ordinance. Rule 44(5) therefore has no application and the statutory demand needs not specify the nature and value of the other securities held by the respondent to secure the credit facility granted to Philco.

....

23. It follows from the analysis in the preceding part of this judgment that the value of the security referred to in r. 48 (5)(c) means the value of the security over the property of the person against whom the statutory demand is made: see also Re Ip Lam On. Rule 48(5)(c) does not extend to properties provided by parties other than the applicant. The value of the other securities provided by Winful or Philco is therefore irrelevant. It is not open to the applicant to rely on r. 48 (5)(c) and argue that the value of the other securities exceeds the amount of the debt due by the applicant under the guarantee."

66. The Indonesian land belongs to a 3rd party. It does not belong to the Applicants. It follows from Cheng Wai Kee that the BR impose no obligation on the Bank to mention the Indonesian Land in the Statutory Demands. There has been no contravention of BR r. 44(5). Nor is the Bank to be treated as a secured creditor as against the Applicants in relation to the Indonesian Land for the purposes of BR r. 48(5)(c). Where (as here) there are express provisions in the Guarantees (including the Fonda Guarantees) permitting the Bank to enforce claims against John Wang and Jeanny Lie without first enforcing the Bank's securities or remedies against any 3rd parties, the Bank is not bound in law to exhaust its claims against such 3rd parties before starting proceedings on the Fonda Guarantees.

67. Regardless of the merits of the illegality limb of Mr Ho's argument in connection with the 1983 Acada and Fonda Guarantees, I see no good reason on the available evidence why the Court should treat the Bank's claim against the Applicants under the 1996 Fonda Guarantee as extinguished by the alleged value of the Indonesian Land.

68. For the above reasons, in my judgment Mr Ho's illegality case is untenable in law and fact.

69. In my view, it was pointless to adjourn the substantive hearing of the Setting-Aside Applications pending a decision by the Court of Appeal on the Discovery Order. There seemed to be little merit in the appeal against Judge Poon given the evidential and legal problems with Mr Ho's argument which I have identified. I refused an adjournment. Mr Ho then applied on the spot to adjourn the substantive hearing of the applications to set aside the Statutory Demands pending an appeal against my refusal to adjourn. For the same reasons that I refused Mr Ho's 1st application to adjourn, I refused his 2nd.

70. Finally on illegality, I briefly mention 2 points.

71. First, Mr Ho suggested in the course of argument that, given Proposition X, Acada and Fonda should have a restitutionary claim for the return by the Bank of all interest paid by Acada and Fonda over the years in respect of monies loaned under the Acada and Fonda Facilities in the pre- March 1984 period. As guarantors of Acada and Fonda, the Applicants (Mr Ho submitted) should be allowed to raise that restitutionary claim against the Bank. The claim for repayment of interest is likely (Mr Ho suggested) to be sizeable and would probably exceed the Bank's demands under the 1996 Fonda Guarantee. There being no merit in the illegality argument, Mr Ho's restitutionary claim based on it must also fail. I note that, in any event, Mr Ho has not adduced any evidence of the existence of a restitutionary claim of the nature alleged by him under Singaporean law.

72. Second, I have taken it for granted in my analysis that the effect of a contravention under the Act is to render monies advanced to Acada and Fonda irrecoverable by the Bank under Singaporean Law. I should not be taken to have accepted that is in fact the case. What evidence there has been before me of Singaporean Law is to the effect that the Singapore Court proceeds in a similar way to a Hong Kong Court when considering the effect of illegality under a statute. It is necessary to examine whether or not the legislative intent behind the prohibition is to avoid contracts and bar restitution of any benefits conferred by one party to another under the illegal contract. At first impression, the purpose of s. 29 (1) of the Act would appear to be to prevent banks from over-extending themselves by imprudent lending. If so, it would be odd if a bank which had lent money in excess of the permissible percentage of capital funds, should be prevented from recovering by way of restitution any monies loaned. I do not understand why a borrower should get to keep all monies loaned to him and thereby obtain a windfall from the violation of a statute intended to protect a bank and its creditors. Nevertheless, it is unnecessary for me to consider this point since, even on the assumption that illegality implies unenforceability, it seems to me that the Applicants' illegality case has no substance.

C. Undue Influence

73. Mr Ho accepted that, if the illegality claim failed, there would be no basis to set aside the 1st Statutory Demand against John Wang. It is not claimed that John Wang was the victim of undue influence by the Bank. By contrast, in respect of the 2nd and 3rd Statutory Demands against William Wang and Jeanny Lie respectively, Mr Ho contended that both were entitled to rely on a defence of undue influence in relation to the Guarantees signed by them.

74. Mr Ho's argument was that William Wang and Jeanny Lie signed the Guarantees sought to be enforced against them on the instructions of John Wang. John Wang did not explain the Guarantees' contents and their legal consequences to William Wang and Jeanny Lie before they signed. William Wang and Jeanny Lie merely signed because John Wang was the elder son of the Wang family and, in a traditional Chinese family such as theirs, it was incumbent on a younger brother and a wife to sign a document if so instructed by the elder son.

75. In his 1st Affirmation, William Wang denied ever signing any personal guarantee in favour of the Bank. He also stated there:-

"7. We are Indonesian Chinese and we adhere strongly to Chinese family tradition and value. Before my father passed away in 1996, everyone in the family listened to what he said and acted accordingly. My elder brother is the eldest son of the family and he was the 2nd person in authority in the family. His juniors, including me as his younger brother and everybody else simply did whatever he told us too. This was particularly so after out father passed away in 1996 and he became the head of the family. Whatever he said was done without question by any of us."

76. When confronted with a copy of the 1996 Fonda Guarantee, he stated the following in his 2nd Affirmation:-

"4. My elder brother now had a copy of the Guarantee which was executed by him, my sister-in-law Jeanny Lie and me, to guarantee the loan of US$7,980,000.00 granted to Acada Oil. At the time of making my 1st Affirmation I had no recollection at all that I had ever executed any Guarantee in favour of the Creditor. My elder brother asked me to sign documents from time to time, he never told me what they were, I merely signed at the spots as directed by him. The liability I assumed by signing the Guarantee is grossly disproportionate to my nominees position in Fonda Oil. I would never have signed it if my elder brother did not ask me to do so."

77. Jeanny Lie's 1st Affirmation put her case thus:-

" 7. Both my husband and I were Indonesian Chinese and such Indonesia Chinese families adhere strongly to Chinese family tradition and value. Before my father-in-law passed away in 1996, everyone in the family listened to what he said and acted accordingly. My husband is the eldest son of the family and he was the 2nd person in authority in the family. His juniors, and me as his wife, did whatever he told us too. This was particularly so after my father-in-law passed away in 1996 and he became the head of the family. Whatever he said was done without question by any of us.

...

13. I had complete trust and confidence in my husband, besides he was also the dominating person in the family, and particular in our marriage. I dared not question his authority or any his requests whenever he asked me to do or sign anything relating to the affairs of the companies. I believed that my husband would not ask me to do anything which might bring me any harm or disadvantage.

14. He did not explain to me the contents of the banking document that he asked me to sign except that some of them were signatory cards, and I dared not ask him to explain the contents to me. Even if he had explained them to me and that I would have to guarantee loans to be made to the companies to a substantial extent, I would not dare to refuse to sign them."

78. As far as the different classes of undue influence identified in Barclays Bank Plc v. O'Brien [1994] 1 AC 180 are concerned, Mr Ho says that the undue influence alleged here falls within Class 2B. He says that this is a case where undue influence should be presumed because:-

(1)	as a matter of fact William Wang and Jeanny Lie reposed trust and confidence in John Wang; and,
(2)	the signing of Guarantees by William Wang and Jeanny Lie is not readily explicable by the relationship between Jeanny Lie and John Wang as husband and wife and between William Wang and John Wang as younger and elder brother.

79. Assume in favour of William Wang and Jeanny Lie that they reposed trust and confidence in John Wang. Assume as well that, when asking them to sign Guarantees, John Wang did not explain the contents of the documents and their legal consequences but simply told them to sign. That would still not be enough to set aside the 2nd and 3rd Statutory Demands.

80. This is because what is sought to be set aside is not a guarantee between William Wang or Jeanny Lie and John Wang, but a guarantee between William Wang or Jeanny Lie and the Bank. Something more has to be shown before it can be said that the Bank's conscience is affected and the Bank should not be allowed to enforce the Guarantees signed by William Wang and Jeanny Lie. There are typically 2 ways in which, as regards a 3rd party lender ("the 3rd Party Lender"), a surety can escape the consequences of a guarantee signed through the undue influence of a spouse or other wrongdoer ("the Influencer"). The surety can show that:-

(1)	the Influencer was acting as the 3rd Party Lender's agent; or,
(2)	the 3rd Party Lender had actual or constructive notice that the Influencer exercised under influence on the surety.

See Bank of China (Hong Kong) Ltd v. Wong King Sing [2002] 1 HKLRD 358, at 374-7 (§§58-69).

81. On agency, Recorder Ma SC in Bank of China (Hong Kong) Ltd v. Wong King Sing at 376 (§63) stated:-

"The mere fact that a debtor is required by his bank to obtain security for facilities afforded to him whether by way of guarantee or otherwise and he then approaches the surety, does not mean that the debtor is acting as the agent of the bank; in such circumstances he may well be acting for himself: Barclays Bank Plc v. O'Brien at pp.193G-194B. In my view, it will not be a common occurrence for a debtor (the influencer) to be the bank's (the third party's agent)."

I do not think the evidence in this case establishes that John Wang acted as the Bank's agent in asking his wife and brother to sign the relevant Guarantees.

82. John Wang's evidence in his 1st Affirmation on the signing of the 1983 Acada and Fonda Guarantees is as follows:-

"39. As already mentioned above, it was through Mr Lee that the facilities and loans were obtained from the Bank of China, Singapore Branch. He did in 1983 take me to Beijing to meet various top bank officials of the Bank of China, Beijing Branch. The meeting with them was cordial and friendly which was followed by wining and dining. We only stayed in Beijing for 2 days. Not long after we returned to Hong Kong, Mr Lee told me that the Bank of China, Singapore Branch had agreed to grant the loans to us.

40. Shortly thereafter Mr Lee gave me various forms and bank documents for execution. I was told by Mr Lee that some of the forms were for opening accounts and some of them were for banking facilities. Beside the signature cards, all the directors had to execute these documents. At the time these were granted to Acada Development and Fonda Oil. The directors of Fonda Oil were me, my wife and Mr Yuen, and the directors of Acada Development were me and my wife. As already mentioned above, Mr Yuen was not a member of our family and he exercised his independent judgment concerning the affairs of Fonda Oil. When I asked him to execute the guarantee documents he refused. This explained why, according to the Statutory Demand, Mr Yuen was not mentioned as one of the persons who provided personal guarantee to secure the loan granted to Fonda Oil.

41. Both my wife and myself were Indonesian Chinese and understood very little English. Although my English had improved throughout the years when I was running the business of the Group, my staff had to explain or interpret all English documents to me.

42. When the bank forms and documents were given to me by Mr Lee did not explain the contents of each f the documents to me. I had full trust and confidence in Mr Lee as he was previously an experienced top bank officer, and he was a good family friend. There was indeed no need for him to explain anything to me and I readily signed then without any prompting., He further highlighted the spots where my wife had to sign with pencil marks. As far as I can remember there were probably about more than 7 or 8 sets of documents that he gave me. After I signed them I asked my wife to sign them.

43. I did tell her that these were bank documents as she was a director. Since I did not know the exact nature of the documents, I did not, and in fact could not tell her precisely what each of them were for. I had no intention of misrepresenting the contents of the documents to her. If I knew that some of these documents were my wife's personal guarantee documents for the loans to be granted I would have told her. But if I knew and told her, and if she were to refuse to sign, she probably would need very little persuasion from em for her to sign them one way or another because the loans were too important for my business, and she would never have contradict or challenge my authority.

44. On the other hand it was not my habit to tell her everything that I asked her to sign, Of all the documents that she had to sign as director of the companies, she was seldom told what they were for and she simply complied with what I asked her to do. At any rate she had to take care of our daughter and left for Australia in 1996. I removed her from the Group as director and she had nothing to do with the Group since then. As far as the personal guarantee she signed in 1992 for Acada Singapore, it was executed under similar circumstances."

According to Acada's Annual Return for 2003 (see above), contrary to what John Wang deposes, his wife apparently remained as a director of Acada even after 1996.

83. In his 2nd Affirmation, John Wang says the following:-

"3. My wife and younger brother also signed Exhibit 'JW-11' [the 1996 Fonda Guarantee] these were signed in 1997 after Mr Lee Mun Ha had long since left the family companies. They were sent to me by the Creditor [Bank] and I simply asked them to sign it. I did not explain the contents of the Guarantee to them I simply told them that their signatures were required on the documents to be returned to the Creditor. After they signed them I asked my secretary to arrange for them to be done by a firm of friendly solicitors in central, none of us went to the office of the solicitor notary public. Each time when we had to prepare notorized documents, we simply left it to my secretary to arrange for them to be notorized in this way."

84. The above evidence hardly goes to show that John Wang acted as the Bank's agent in requesting his wife and brother to sign the Guarantees. If anything, the material suggests that John Wang approached his wife and brother on behalf of the Companies. For example, John Wang frankly admits that it was important for the business of Acada and Fonda to obtain the Acada and Fonda Facilities. Thus, in asking his wife and brother to sign he would have been approaching them for the purposes of Acada and Fonda. This fact incidentally also indicates that William Wang and Jeanny Lie would probably have signed the Guarantees in any case, even if they had known what its true nature and effect was¹.

85. That leaves the question whether the Bank was put on inquiry as to the possibility of undue influence being exerted by John Wang over William Wang and Jeanny Lie. Here Mr Ho's case was simply that the Bank was put on inquiry because it ought to have known that, in a traditional Chinese family such as the Wangs, a wife and younger brother would simply do as the elder brother instructed. To put it baldly, Mr Ho contends that the Bank should have been on notice of undue influence from the mere fact that the Wangs were Chinese. The proposition needs only to be stated for it to be seen as devoid of merit.

86. As far as the Bank was concerned, the Guarantees were signed by Jeanny Lie and William Wang in their capacities as directors of Acada or Fonda. There is nothing remarkable about directors signing guarantees to secure loans to companies of which they are directors. There is nothing inexplicable about Jeanny Lie or William Wang signing Guarantees for Acada or Fonda in the circumstances. Mr Ho argues that Jeanny Lie and William Wang were only nominee shareholders in Acada or Fonda and even then their holdings were small in comparison to the companies' total share capital. That may be the case. But there is no explanation how the Bank ought to have known that Jeanny Lie and William Wang were mere nominees for (say) John Wang. Nor is it clear why, regardless of whether they were or were not nominee or nominal shareholders, the Bank could not take their directorships of Acada or Fonda at face value².

87. For the above reasons, there is no factual or legal substance in the alleged defence of undue influence. I add that, although the Applicants affirmation evidence hinted that the Applicants were also relying on a lack of understanding of the English language to mount a plea of "non est factum", Mr Ho did not pursue such plea before me.

D. Miscellaneous

88. Mr Ho faintly suggested that I should nonetheless set aside the Statutory Demands under BR r. 48(5)(d) on the ground that the value of the Indonesian Land would offset the amount claimed under the 1996 Fonda Guarantee. Given my rejection of the illegality argument and my comments on the Indonesian Land as a relevant security, I do not think that it would be appropriate to set aside the Statutory Demands on this alternative basis.

III Conclusion

89. There being no substance to the Applicants' submissions, I dismissed the Setting-Aside Applications. I also ordered that the Bank was to have the costs of the 3 Setting-Aside Applications. Finally, pursuant to BR r. 48 (7), I authorised the Bank to issue a bankruptcy petition after the expiry of 14 days from the date of my dismissal of the Setting-Aside Applications.

1 Compare Bank of Ireland v. Bongard [2003] EWHC 612 (QB) where Wright J stated (at §13): "It has been common ground throughout this case that the burden of proof rests upon Mrs Bongard to establish on the balance of probabilities, first that she was the subject of undue influence by her husband in prevailing upon her to sign and execute the deed of guarantee of 28 October 2000, and secondly that the circumstances were such that she would not have signed the document if she had known what its true nature and effect was. In the circumstances, it is not necessary for me to grapple with the interesting and difficult conundrum as to whether the circumstances in which Mrs Bongard came to enter into a guarantee of her husband's Company's business debts were such as to put the Bank on enquiry and thus obliged to take reasonable steps to satisfy itself that she had understood and freely entered into this transaction."

2 Compare, on sibling relationships, Wing Hang Bank Ltd v. Crystal Jet International Ltd [2002] 3 HKC 279, where Deputy Judge Saunders held (at §65): "It is right that M L Ko and Winnie Ko are sisters. But both were directors and shareholders of Mazlo. As such it was plainly in both their interests that banking facilities were secured. In these circumstances it cannot be said that, on its face, the transaction was not to her financial advantage. There was nothing in the relationship of sisters, who are both working directors of the a company, to put the bank on enquiry that one director of the company might have exercised any particular influence over the other."