XCHRX ANTHONY PATRICK FAHY v. JOHN GILBERT

1992 No. A8740

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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Background

1. As a consequence of a guarantee given by the plaintiff to a bank on 11 June 1983, the plaintiff was obliged to pay money to the bank. This was paid, by various means, between 15 August 1986 and 6 April 1988. The guarantee was given by the plaintiff and the defendant jointly and severally. The plaintiff claimed a contribution from the defendant in proceedings commenced on 10 December 1992, and obtained judgment against the defendant under Order 14 on 6 July 1995. The defendant now appeals.

2. The defendant died in October 1993

Limitation

3. The first point that arises for consideration is whether or not the plaintiff's claim is time-barred.

4. By section 4 of the Limitation Ordinance (Cap. 347), "actions founded on simple contract" may not be brought after the expiration of 6 years from the date on which the cause of action accrued. If this is the provision governing the matter, as Mr Coleman argues, the plaintiff's claim is not barred.

5. If, however, as urged by Mr Poll, the case falls under section 6 of the Ordinance, which provides a 2-year time limit, the plaintiff is out of court. Section 6 concerns the case of an action to recover a contribution by virtue of section 3 of the Civil Liability (Contribution) Ordinance (Cap. 377).

6. Section 3 of Chapter 377 provides that "any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with him or otherwise)". Section 2(3) of this Ordinance provides that "A person is liable in respect of any damage . . . if the person who suffered it . . . is entitled to recover compensation from him in respect of that damage (whatever the legal basis of his liability, whether tort, breach of contract, breach of trust or otherwise.".

7. Other possibly relevant provisions of Chapter 377 are section 9(2), which provides that a person shall not be entitled to recover contribution or liable to make contribution in accordance with section 3 by reference to any liability based on a breach of obligation assumed by him before the date of the commencement of the Ordinance, and section 9(3), which provides -

"The right to recover contribution in accordance with section 3 supersedes any right, other than an express contractual right, to recover contribution (as distinct from indemnity) otherwise than under this Ordinance in corresponding circumstances; but nothing in this Ordinance shall effect -

(a) any express or implied obligation contractual or other right to indemnity; or

(b) any express contractual provision regulating or excluding contribution,

which would be enforceable apart from this Ordinance (or render enforceable any agreement for indemnity or contribution which would not be enforceable apart from this Ordinance)."

8. In Barclays Bank Plc v Miller 1990(1) WLR 343, Staughton LJ said, at page 349 -

"Turning to the present action, there are undoubtedly issues which may give rise to difficulty. The question whether [the equivalent of our section 3 of Chapter 388] applies to a claim for contribution between co-sureties is one on which the textbooks appear to take different views."

9. His Lordship did not himself express a view.

10. Halsbury, at paragraphs 255 and 278, says "It is not clear whether [Chapter 377] applies to claims between co-guarantors.".

11. Although in its broadest sense, "damage" means loss ( the root is the Latin "damnum" meaning "loss"), it is clear that the Law Commission (Report 79; March 9, 1977; paragraph 29), when recommending the changes in the law brought about by the statute, did not intend that the word "damage" should cover debt, and recommended that the law regarding contribution between persons jointly liable for the same debt, such as joint guarantors, should remain unchanged.

12. In Goff and Jones; The Law of Restitution, Fourth Ed., at page 305, the authors express the belief that the statute does not apply "where persons are jointly liable for the same debt", as with co-obligors, such as co-sureties.

13. At page 771, it is said -

"Any claim for contribution which arises from a contract between two parties will be barred after six years, since it is an action "founded on simple contract" . . . Not all contribution claims, however, depend on contract. Indeed the genesis of the right of contribution in equity was . . . unjust enrichment, and contribution between co-obligors, such as co-sureties, were sustained even though there was no contract between them. In these circumstances [the equivalent of our section 4 of Chapter 347] would appear to be inapplicable, unless it could be said that, as soon as the claim lies, a debt arises between the parties. This reasoning is artificial, and it may be more attractive to hold that the equitable doctrine of laches should apply. It is an open question whether equity will then follow the analogy of [section 4 of Chapter 347], when the limitation period is six years, or [section 6 of Chapter 347] . . ."

14. It seems to me that, as things appear now, neither section 4 nor section 6 of Chapter 347 apply, by their terms, to the plaintiff's action. In this case, as the authors of The Law of Restitution suggest, it may that one or the other should be applied by analogy. Or, perhaps not. To some extent, laches does not depend only on delay, but the effect of the delay on the defendant's position. This is a matter of evidence.

15. This is not a question, in my view, that should be decided on an application under Order 14.

Non-joinder

16. Another complaint by the defendant is that the plaintiff has failed to join the principal debtor in the action.

17. In this respect, Mr Poll relies on Hay v Carter [1935] 1 Ch 397, in which Lord Hanworth MR said, at page 405 -

"Now the upshot of all this appears to be that the rule in Lawson v Wright [in which the Master of the Rolls said that, the insolvency of the principal debtor not having been proved, he would have refused relief if the principal debtor had not been made a party to the action] must be affirmed and applied but that its observance can be avoided if there is evidence that no useful purpose would be served by having the principal debtor before the Court by reason of his insolvency."

18. In a defence dated 17 September 1986, the plaintiff stated that the principal debtor offered to pledge its assets as security for the debt, that the principal debtor had a contract "which in the course of one year can pay off the debt with interest" and that he and the principal debtor had offered to pay the debt by instalments of nearly $15,000 per month. The defendant held 51% issued shares in the principal debtor, which were transferred to the defendant. As the result of judgment by Barnett J. delivered on 13 March 1991, the defendant was compensated, Mr Coleman told me, in the sum of $176,000 in respect of these shares; this being their valuation on a net asset value basis. So it appears that, when this compensation was assessed, the net asset value of the principal debtor was something like $345,000. Although it seems that the principal debtor was in financial difficulties, it is not clear that it was insolvent. It is certainly not clear that "no useful purpose would be served by having the principal debtor before the Court". On the contrary, it seems that, at some time after 13 March 1991, the principal debtor had sufficient net assets to pay the whole of the debt due. It may be, of course, that the situation has changed since then, but this is matter that should be investigated at trial, as should the question of why it is that the principal debtor has not been proceeded against by the plaintiff earlier, and whether the defendant has been prejudiced by this.

19. In any event, these are matters that can be properly decided only at trial.

Other Defences

20. The defendant has raised other defences. He raised, as well as the point of time-bar, "inducement by representation" and estoppel before the Master, and he has raised, as well as the point of non-joinder, matters of laches and undue influence before me. In view of my findings on the limitation and joinder points dealt with above, it is unnecessary to deal with these other defences here. I will say that, taking into account the findings of Barnett J. in the trial concerning the parties in 1990 and 1991, one of which was that "[the plaintiff] could manipulate [the defendant] as he pleased", that, in his defence to the action by the bank, the defendant said that ". . . the responsibility of guarantor at the [bank] has been already been assumed by me personally", and the unexplained delay, between 15 August 1986 and 6 April 1988, when the plaintiff paid the bank, and December 1992, when the plaintiff issued his summons against the defendant, there may well be other defences to the plaintiff's claim that should be fully investigated at trial.

Conclusion

21. In the result, the judgment against the defendant cannot stand. It is set aside, and the defendant is given unconditional leave to defend. On the face of it, there seems no reason why costs should not follow the event. Accordingly, I make an order nisi that the plaintiff pay the defendant's costs.