CANARA BANK v. EXCEL TRIUMPH LTD AND ANOTHER

HCA 1736/2019

[2021] HKCFI 3747

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1736 OF 2019

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DECISION

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1.  This is the hearing of the summons of 11 June 2021 (the “Summons”) taken out by the plaintiff (“P”) pursuant to Order 14 rule 1 of the Rules of the High Court for final judgment against the 1^st defendant (“D1”) as debtor, and against the 2^nd defendant (“D2”, and with D1 collectively as “Ds”) as the guarantor.

2.  Mr Woo of Messrs ONC Lawyers appeared for P.  Mr Simon Wong together with Ms Samantha Lau appeared for Ds.

Parties’ pleaded case

3.  P’s claim is set out in its Statement of Claim of 17 October 2019 as follows. P is a registered non-Hong Kong company carrying on the business of banking and financial services.  D1 has been one of its customers with an account (“D1’s A/C”) with it.  On 20 November 2017, P and D1 entered into the Terms and Conditions for General Customer Services (the “T&C”).  On 13 October 2017, D2 executed a guarantee agreement (the “GA”).  D2 agreed thereby to guarantee D1’s principal indebtedness up to the limit of USD3,000,000.  On 14 December 2018, P granted to D1 banking facilities in the sum of USD3,000,000 pursuant to the T&C (the “Facilities”), which sum (in the amount of USD2,985,145.83 net of advance interest, the “Credited Amount”) was credited into D1’s A/C.  In consideration thereof, D1 drew to the order of P a bill of exchange (the “Subject BoE”).  The Subject BoE was in the amount of USD3,011,200, and was drawn on a Hong Kong company called IGC Enterprises Limited (“IGC”). On 14 December 2018, P presented the Subject BoE to Indian Overseas Bank (“IOB”) for acceptance.  IOB was the bank of the drawee.  On 2 July 2019, IOB by letter returned the Subject BoE to P.  It was dishonoured for non-acceptance upon IGC’s instructions.  The Facilities have remained unpaid.  P therefore sues D1 as the debtor and D2 as the guarantor.  

4.  D1 filed its Defence on 31 December 2019.  It admitted having signed the T&C.  It denies almost everything else.  It denies having been granted the Facilities, and denies having drawn the Subject BoE.  It avers that it is a forged document, and that P knew or ought to have known that.  The Credited Amount was credited into D1’s A/C on 14 December 2018, but was immediately debited out in two sums of USD40,333.33 and USD3,000,008.00.  All those happened without D1’s instructions, authorization or knowledge.  It also pleads a counterclaim of breach of duty, which we are not concerned with.

5.  P on 11 March 2020 filed its Reply and Defence to D1’s Counterclaim (“R&D”). Forgery was denied.  P avers that D1 utilized the bill discounting facilities under the T&C almost immediately after the execution of the same.  On 21 November 2017, P upon D1’s request first discounted a bill in the amount of USD3,0200,000 (the “1^st BoE”).  The proceeds were credited into D1’s A/C, and were on the same date and upon D1’s instructions transferred to Grace On Limited (“Grace On”) and Jubilant Overseas Limited (“Jubilant”) in the respective sums of USD204,000 and USD2,775,000.  Subsequently, a 2^nd bill (the “2^nd BoE”) was discounted on 27 December 2017 to repay the 1^st BoE, a 3^rd one (the “3^rd BoE”) discounted on 29 January 2018 to repay the 2^nd BoE, a 4^th one (the “4^th BoE”) discounted on 12 April 2018 to repay the 3^rd BoE, a 5^th one (the “5^th BoE”) discounted on 17 August 2018 to repay the 4^th BoE, and ultimately the Subject BoE discounted on 14 December 2018 to repay the 5^th BoE.  The alleged transaction history of all those bills is set out in an appendix attached to the R&D.

6.  D1 filed a rejoinder on 3 December 2020.  In gist, D1 avers that all of the five earlier bills are forgeries.

7.  D2 filed her defence on 5 February 2021.  She avers that she has no legal or beneficial interest in D1.  She put P to strict proof of its case against her.  She avers that at the time when she signed the GA, she was only given a blank proforma guarantee.  The information on the GA was only subsequently inserted.  She did not know that what she signed was a guarantee. She further avers that P has failed to take any or any reasonable steps to satisfy itself that D2 signed the GA freely and with full knowledge of its nature, terms and effect, and that she was induced to sign the same by P’s non-disclosure.  She also counterclaims for rescission.  

The Summons, and the relevant affirmatory evidence

8.  In support of the Summons, P has filed (1) the Affirmation of Rakesh Chandra Shandilya filed on 11 June 2021 (“RCS” and “RCS/1”) and (2) the 2^nd Affirmation of RCS filed on 16 September 2021 (“RCS/2”). Also relevant is an earlier affirmation of Rajesh Kumar Redhu filed on 5 August 2020 (“RKR” and “RKR/Aff”) to state whether the 5^th BoE is or has any stage been in the possession, custody and control of P.

9.  In opposition, D1 has filed the affirmation of Vrishab Saraf (“VS” and “VS/Aff”).  D2 has filed her affirmation of 7 October 2021 (“D2/Aff”).

10.  In reply, P relies on the 3^rd affirmation of RCS (“RCS/3”), the affirmation of Hakim Singh (“HS”, and “HS/Aff”) (witness of the execution of the T&C) and the affirmation of Muthukaruppan Krishnan (“MK”, and “MK/Aff”) (against whom allegations have been made that he was close to P’s external auditor).

The applicable law

11.  Mr Woo and Mr Wong have together cited to me quite a number of authorities on the principles applicable to Order 14 applications.  They are not in dispute.  Any difference between Mr Woo and Mr Wong is only a matter of emphasis.  I have considered all of those authorities, and will not recite them here.  I remind myself that Order 14 is for clear cases.  The court must not embark on a mini trial on affirmations.  The issue is whether the defendant’s assertions are believable.  Whilst the burden is on the defendant, all that the defendant needs to show is a triable issue.  But before the court looks at the defence, one must look at the plaintiff’s case first.  If possibly genuine weaknesses were exposed in the plaintiff’s case, this casts doubt on the plaintiff’s right to invoke the summary procedure in the first place.  If the court has suspicion concerning the plaintiff’s case, the correct course is to give the defendant unconditional leave to defence so that the matters can be ventilated at trial.  But if having regard to inherentplausibility, inconsistency with contemporaneous documents and other compelling evidence, the defence is not credible, the court must say so - Maintek Computer (Suzhou) Co Ltd. & Others v Blue Anchor Line & Others HCAJ 106/2008 (unreported, 2 April 2013), per To J at §§11-17, Billion Silver Development Ltd v All Wide Investments Ltd [2000] 2 HKC 262, per Ribeiro J (as he then was) at 268C-D, and Li Mingren v Questex Development Inc & Anor CACV 141/2014 (unreported, 18 November 2015) per Yuen JA at §13, Menfond Electronic Art & Computer Design Co Ltd v Wong Wang Tat Victor and Another HCA 293/2011 (unreported, 3 January 2013), per Deputy Judge Lisa Wong (as she then was) at § 61.

Discussions

The case against D1

12.  I consider first of all P’s case against D1.

13.  In my view, genuine weaknesses have been exposed in P’s case against D1, which weaknesses cause this Court to have real suspicion concerning it.  I set out the reasons as follows.

14.  According to its Statement of Claim, P is suing on D1’s alleged outstanding indebtedness, particularized as being principally the “Face value of the [Subject BoE]” (together with “Interest up to 11 September 2019”)[1].

15.  The Subject BoE is a vital important document in P’s case.

16.  P’s case is however materially inconsistent as to whether it has ever had the original Subject BoE (or just a faxed copy thereof), how it was allegedly delivered to it, and what were presented to IOB:

 (a)     At §7(c) of P’s R&D, P pleads that D1 on 14 December 2018 tendered the Subject BoE for discount by fax.  To similar effects are §9(b) of the R&D, §§29 and 36 of RCS/1, and §13(5) of RCS/3;

 (b)     However, at §10 of its Statement of Claim, P pleads that also on 14 December 2018, it presented the original Subject BoE to IOB for acceptance. To the same effect are §§13 and 32 of RCS/1;

 (c)     No explanation has been provided as to where P got the original Subject BoE from.  In fact, P’s case is that it was entitled to received faxed instructions from D1, so that the receipt by it of a faxed copy of the Subject BoE was good enough – see §37of RCS/1;

 (d)     But if P had received the original, one wonders why P had to rely on the faxed copy;

 (e)     A copy of the Subject BoE which P says it received from D1 has been produced[2]. I note the contents.  I note further one term therein, that “At – DA 30 days of this SECOND OF EXCHANGE (First being unpaid)”;

 (f)     However, according to the letter of 14 December 2018 issued by P to IOB for presentment of the Subject BoE, not just one, but 2 bills of lading, were presented;

 (g)     According to the letter of IOB of 2 July 2019, 2 bills of exchange were returned to P.  At §11 of its Statement of Claim, P pleads that the “original” Subject BoE was thereby returned;

 (h)     Copies of the 2 returned bills have been produced[3]. One of them looks similar to the one produced by P at [B/80].  The second one also bears similar contents, except that one of the terms is “At – DA 30 days of this FIRST OF EXCHANGE (Second being unpaid)”, which is different from the terms on the copy which P says it received from P;

 (i)     There is no evidence from P as to where it got that other bill from, and why it was presented to IOB;

 (j)     The above open up factual issues as to what document(s) was (or were) tendered by D1 to P on 14 December 2018, how many (one bill or two bills), how (whether by fax), whether the document(s) tendered was (or were) copy or original, and what were in turn presented by P to IOB;

 (k)     I have focused above on the Subject BoE.  There is also inconsistence as to whether the airway bill allegedly tendered was a copy or the original.

17.  The Subject BoE also on its face bears some highly unusual features:

 (a)     Just by mere inspection, one sees that all of the signatures said by P to be those of VS on the Subject BoE and the supporting documents are exactly the same; 

 (b)     RCS seeks to give an explanation on it.  He says at §37 of RCS/1 that:

“ Whilst the signature on the Bill of Exchange is a copy sent by the 1^st Defendant to the Plaintiff, the Plaintiff is entitled to accept instructions by way of facsimile/fax …”

 (c)     I do not accept that it is a good enough explanation.  Whether P was entitled to receive fax instructions involves a totally different issue.  It does not explain why the signatures are exactly the same.  In any event, if P in fact had received the original Subject BoE, the explanation will cease to be of any relevance at all;

 (d)     There is no company chop of D1 on the Subject BoE, the invoice and packing list;

 (e)     Mr Wong also points to the airway bill[4]. He highlights the boxes of “Requested Flight/Date” and points out that that date was in fact earlier than the date of the packing list and that of the Subject BoE.  While I accept Mr Woo’s submissions that what that date actually was is subject to interpretation, as to whether it is the date of the airway bill or the date of the flight, it is another factual issue which needs further consideration;

 (f)     The features about the signatures and lack of company chop are matters of genuine concern.

18.  The 5^th BoE being missing:

 (a)     According to the R&D, the discounted amount for the Subject BoE was applied towards repayment of the 5^th BoE;

 (b)     P is however unable to produce the 5^th BoE.  It claims that the 5^th BoE was misplaced when P relocated its office in September 2018.  RKR/Aff was filed to explain that;

 (c)     I accept Mr Wong’s submissions that the explanations tendered by RKR are unsatisfactory, and warrants at the very least further investigation.  RKR is an alternate Chief Executive of P.  He does not pretend to have personal knowledge of the matter.  He wrote to a “Senior Officer” of P by the name of Iris Ip who was said to have been responsible for the 5^th BoE.  Iris Ip answered by a letter.  RKR/Aff was based on the contents of that letter.  Iris Ip has not herself given any affirmation confirming the true of her letter.  No explanation has been tendered why.  There are features on the face of that letter (“Iris” having been misspelt and mistyped on more than one occasions as “Irish” and corrected by hand back to “Iris”) which mistake and correction appear also on the letter from RKR to Iris Ip, opening up the criticism by Mr Wong that the letter allegedly from Iris Ip might not have been prepared by herself but by RKR;

 (d)     Mr Woo submitted in the course of the hearing that the 5^th BoE was irrelevant, as even if one skips the 5^th BoE, there was still the 4^th BoE, which ultimately could be traced back to the 1^st BoE that could ground P’s claim.  I do not agree.  The 5^th BoE according to P’s pleaded case was the reason for D1 seeking from P the Facilities.  The validity or otherwise of the 5^th BoE bears directly upon the present claim by P against D, and in particular on the issue as to whether P could have validly and with authority transferred the proceeds of the discounted Subject BoE towards repayment of the 5^th BoE.

19.  The unexplained connection between some of the entities concerned and an auditor of the external auditors engaged by P:

 (a)     It is D1’s case that it has no business dealing and relationship with the beneficiaries and drawees of the bills concerned;

 (b)     That assertion by itself may not take D1 very far, until the following evidence is taken into account;

 (c)     A number of entities have been involved in the transaction history:

(i)     the drawee of the 1^st BoE was Innovative Trades Limited in Hong Kong (“Innovative”);

(ii)     Jubilant, as I have explained above, got transferred USD2,775,000 out of the discounted sum of the1^st BoE;

(iii)     IGC was the drawee of the 4^th and Subject BoEs;

 (d)     A Mr Natarajan was an auditor of the external auditors engaged by P. This is accepted by P – MK/Aff, §6;

 (e)     According to the Incorporation Form of IGC of 23 November 2017[5], Mr Natarajan was the sole director and shareholder of IGC;

 (f)     The address of IGC as stated in the Subject BoE is one at the Capitol (the “Capitol Address”);

 (g)     Land search records[6] show that Mr Natarajan has been the registered owner of the Capitol Address since July 2015;

 (h)     Mr Natarajan was between 20 November 2017 and 10 May 2018 a director of V One Enterprises Limited (“V One”)[7], which in turn has been the sole shareholder of Innovative since 15 December 2018[8], and a director of Innovative as shown on the Annual Return of Innovative as of 20 January 2019[9];

 (i)     According to the Incorporation Form of V One of 14 October 2017[10], its proposed registered office, and the stated residential address of the founding member and first director (Asoori Seshadri Sridhar) were that of the Capitol Address;

 (j)     C&N Associates Limited (“C&N”) is as shown on the Annual Return of V One as of 23 October 2018[11] its company secretary.  C&N is also shown on the Incorporation Form of IGC as being its Company Secretary[12];

 (k)     Mr Natarajan was appointed the Company Secretary of C&N on 29 July 2013[13], and remained so appointed according to its Annual Return as of 17 June 2019[14]. The Capitol Address has been its registered office[15];

 (l)     A Mr Nagarjun Godlamudi Vaseudeo Rao (“Mr Rao”) was appointed as the sole director of Jubilant on 17 August 2017[16]. Mr Rao had until 15 September 2018 been a director of Innovative[17]. He had also been a shareholder of Innovative, until V One acquired all the shares in Innovative on 15 December 2018[18];

 (m)     In §11 of MK/Aff, MK “strenuously den[ies]” D1’s allegation that he had a close personal and business relationship with Mr Natarajan.  Beyond that, no explanation has been offered on the above matters;

 (n)     Innovative is supposed to be a customer/buyer of D1[19]. It was the drawee of the 1^st BoE.  Jubilant is supposed to be a supplier of computer items to D1[20] and the beneficiary named by D1 as the recipient of part of the discounted sum of the 1^st BoE[21].  IGC is supposed to be another customer/buyer of D1[22].  D1 has denied any dealing and relationship with them.  They on the other hand can be traced to be connected to an auditor of the external auditor of P.  The connection, in the context of the allegation of forgeries by D1, in my view gives rise to grave suspicion, is a serious cause for concern, and warrants at least further canvasing during the trial.

20.  Mr Woo submits in effect that none of the above matters.  He submits that even if there had been forgeries, D1 is still under the T&C liable to repay the Facilities.  He relies on Clauses 5 and 6 of the Annexure to the Account Opening Form dated 22 August 2017 (the “Annexure”)[23]. I agree with Mr Wong that the application of those clauses is dependent upon whether the Subject BoE “appears on its face to be genuine”, which is a triable issue.  Mr Woo relies further on Clause 8 of the Annexure.  Again, the application of that Clause is dependent upon whether P has acted negligently or fraudulently, which are facts sensitive.

21.  Mr Woo further refers to a number of emails and letters said to be from P chasing D1 for repayment of its indebtedness at various stages.  I have considered those correspondence.  In respect of those emails sent in May and June of 2018[24], there is a bona fide issue as to whether they were sent to the correct email address.  In the course of his oral reply, Mr Woo was at one stage seeking to assert that there was a typographical error in §34(a) of RCS/1 in relation to D1’s email address.  With respect, this Court cannot receive evidence from the bar table.

22.  Mr Woo refers to a statement of D1’s A/C produced by P[25] and highlights certain transactions unconnected with those in dispute.  The amounts involved were however relatively small.  More importantly, Mr Woo accepted that there is no evidence showing that account statements had regularly been sent to D1.  I note that that account statement relied upon by Mr Woo is the only one that has been adduced, but was only generated on 14 January 2020 after the commencement of the present action.

23.  Mr Woo points to certain records apparently showing that D1 had picked up certain documents[26], or that certain documents had been delivered by DHL to D1[27]. Those records are equivocal. 

24.  Mr Woo then refers to the letters of demand issued in April and August 2019[28] by ONC Lawyers to Ds.  He pointed out that D1 had failed to reply to them, and that the allegations of forgery were only first made when D1 filed its Defence.  VS says at §22 of VS/Aff[29] that he was “extremely astonished and frustrated” by those letters, and he instructed his lawyers to look into the matter.  I cannot at this stage, given all the other facts discussed above, conclude that the lack of timely response by VS or D2 renders D1’s defence unbelievable.

25.  In all the circumstances and on the evidence before me, I am of the view that triable issues have been raised in relation in particular to the authenticity of the Subject BoE, and genuine weaknesses have been exposed in P’s case against D1, which causes this Court to have real suspicion concerning it.

The case against D2

26.  D2 is being sued in her capacity as the guarantor.  I accept Mr Wong’s submissions that all the defences open to D1 are equally open to D2.

27.  In the course of his submissions, Mr Woo submitted in answer to my question that given D2’s liability is “on demand”, this Court can grant final judgment against her even if D1 has established triable issues.  He has not cited me any authority in support, nor gone into the GA to make good his submissions.  On the other hand, Mr Wong cites to me section 24 of the Bill of Exchange Ordinance, §§20-024 of Byles on Bills of Exchange and Cheques (30^th ed.), and §6-020 of Andrews & Millett, The Law of Guarantees (7^th ed.), the last of which explains that:

“ In accordance with the principle of co-extensiveness, the fact that a principal obligation is void will mean that as a general rule the surety is not liable under his guarantee of the principal’s obligations thereunder …”

28.  I do not accept Mr Woo’s submissions in this regard. 

29.  In the light of my views on P’s case against D1, and that D1 has successfully established triable issues, I am of the view that D2 has also established issues to be tried.

30.  In any event, I have considered D2’s defence that at the time when she signed the GA, she was only given a blank proforma guarantee, and that information on the GA was only subsequently inserted.  Mr Wong has taken me to the GA[30]. It can be seen that the particulars of the debtor, the description of D2 and the limit of the guarantee are all inserted in manuscript.  That is to be contrasted with another guarantee signed by another party in favour of P in relation to the indebtedness of Grace On[31], where one sees that similar details are all typed in. 

31.  In the above regard, I note that P has filed no reply to D2’s Defence. In HS/Aff at §11, all HS has said are that:

“ I confirm that prior to [D2’s] signing of the [GA], the particulars of the debtor, i.e. [D1], and [D2], were already handwritten onto the [GA].”

As Mr Wong has highlighted, that sentence was couched in passive voice.  No evidence has been given as to whether it was HS who did the insertion, and if not, by whom.

32.  I have considered Ming Shiu Chung v Ming Shiu Sum (2006) 9 HKCFAR 334 which Mr Woo has cited to me.  Mr Wong clarified during the hearing that it is not so much non est factum which D2 is running.  Her defence is that material particulars were only inserted after execution, and that the GA “is a forged document, and is void and unenforceable.”[32]  It is a factual issue which D2 can raise despite Ming Shiu Chung.  I accept Mr Wong’s submissions in those regards.  I cannot conclude that D2’s defence is factually unbelievable and legally bad.    

33.  I have also consider other matters raised by Mr Woo, like the Request for Sanction of Limit of 22 September 2017 and the Information Memorandum[33]. I note Mr Wong’s submissions that only 2 of the pages within the Information Memorandum bear D2’s signature.  Those documents do not take P’s case far for the purpose of the present application.

34.  For the above reasons, I conclude that D2 has in any event raised issues that have to be tried.

Disposition

35.  For the above reasons, I rule that triable issues both in respect of the claims against D1 and D2 have been raised.  Those issues constitute arguable defences. They ought to be tried.

36.  I have considered Order 14 rule 7.  I have considered the contents of the pleadings.  In my view, before the issue of the Summons, P knew that D1 and D2 relied on contentions which would entitle them to unconditional leave to defend.  In the circumstances, I accede to Mr Wong’s request and dismiss the Summons.

Costs

37.  Following on from my dismissal of the Summons and the reasons therefor, I make a costs order nisi that P shall bear the costs of and occasioned by the Summons, with certificate for one counsel only, to be summarily assessed.  Any application for variation or submission of statement of costs shall be made within 14 days from the date hereof, upon receipt of which directions for further conduct will be given with the view of disposing the same on the papers.