XCHRX BANK OF CREDIT AND COMMERCE HONG KONG LIMITED (IN LIQUIDATION) v. ALLEN DALE KELLER alias DALE KELLER AND ANOTHER

1996, No.A7897

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. This is an application for summary judgment pursuant to Order 14 of the Rules of the Supreme Court. The Plaintiff's claim against the Defendants are rather straight forward. They are based on two agreements. The first is a general agreement for commercial business dated 4th August 1986, the second is an undated continuing guarantee to secure the liability of three companies owned and controlled by the Defendants. The Defendant raised various issues in defence of this claim. I do not propose to deal with all of them. Suffice it for me to say that I am satisfied that some of them do give rise to an arguable defence for which unconditional defence should be given, and I shall only deal with those issues which I find supportive of an arguable defence.

2. One of the issues raised by the Defendants is that there were various amounts of funds provided by the Defendants pursuant to sales of properties owned either directly or indirectly by the Defendants in discharge of the various liabilities of the parties. There is no evidence before me that the Defendants ever gave any specific instruction or authority to the Plaintiff as to any particular manner of application of such funds in discharge of the various liabilities of the parties herein. There is no authority in law for a creditor to apply funds provided by a guarantor in any manner the creditor sees fit. There is, of course, authority to the effect that a creditor can apply funds repaid by a debtor in discharge of various amounts of debts under different accounts of that debtor in any manner the creditor likes in the absence of any expressed instruction from the debtor. But, that principle has no application in the present case. The Plaintiff was not able to point to any document or evidence which would give rise to such a right to allocate money provided by the guarantor, not in discharge of the guarantor's liability under the general agreement and/or continuing guarantee, but in discharge of liabilities due from the various companies under wholly different accounts.

3. Mr Fok said that the Defendants have failed to condescend on particulars in this defence, and that the Defendants only raised this at the very last minute by way of submission. Be that as it may, once the issue is raised, and if it is an issue which on the face of the evidence before the court is arguable, then if the Plaintiff failed to defeat that arguability of the defence, the matter must go to trial. All the Defendants need to do is to raise the issue and say that in law there is no such right. The Plaintiff has failed to provide any basis of the existence of such right, by operation of law or by special instruction or authority under any particular provision of any written agreement between the parties. That is good enough to carry the Defendants over the threshold burden and give rise to an arguable defence.

4. The Defendants also raised a point of law as to the validity of the written demand that was required by the continuing guarantee for liability to arise. I was referred to the case of NRG Vision Limited and others v. Churchfield Leasing Limited and others [1988] 4 B.C.C.56. In that case, Mr Justice Knox expressly left open the following issue, i.e. whether an excessive demand is valid in law to satisfy the requirement for a demand giving rise to liability. I accept the correctness of the statement of law as pronounced by Mr Justice Walton that it is not necessary for the amount to be specified to make a demand a valid one. The making of a demand without an amount specified is a valid demand as a matter of law. It would appear then, from the logic of that case, that it is not necessary to advise the debtor of the precise amount of indebtedness to give rise to an obligation to repay. If that is right, then an incorrect amount should arguably stand in the same position as a demand without an amount specified. As in both cases, the debtor would be no wiser of the precise amount due. However, it is accepted that there is no director authority on this issue and this is a matter of law upon which the court would have to rule. I can certainly see arguments both ways. One consideration perhaps is that the validity of the demand is a separate issue from the obligation to pay arising thereunder; that the two need not co-exist at the same time. Or, putting it in another way, a valid demand made might not necessarily give rise to an immediate obligation to repay. It may be arguable that it can be implied into the continuing guarantee that the obligation to repay upon a demand only arises when the guarantor has been advised of the proper amount to be paid thereunder. That the knowledge as to the amount which give rise to an immediate obligation to repay may be a separate issue from the validity of the demand itself. I do not propose to say any further on this issue and it is apparent to me that this is not an issue which could be appropriately decided in an Order 14 application like this.

5. It is also trite law that a guarantor is entitled to an account from the creditor as to the precise extent of liability due under the guarantee. Any defects in the account rendered would entitle the guarantor to unconditional leave to defend, and to require the creditor to prove the liability and the extent of such liability of the guarantor. Authority for this can be found in the white book and I do not propose to refer parties to the well known passages there.

6. One further point raised by the Defendants was the amount of $2 million odd alleged to be recovery costs. It is submitted by the Plaintiff that that sort of money is not uncommon when the principal amount involved would be in the region of $22,000,000 or so. In otherwise, that 10% of the amount due is not an unreasonable amount or uncommon amount to be spent in the recovery of debt. It may very well be the case. But certainly, the guarantor is entitled to require the creditor to justify the reasonableness of such an amount.

7. The Plaintiff has not relied on Clause 11 of the continuing guarantee that provides the following :

"Any admission or acknowledgement in writing by the principal or any person on behalf of the principal of the amount of the indebtedness of the principal or otherwise in relation to the subject matter of this guarantee or any judgment or award obtained by you against the principal or proved by you in bankruptcy or company winding-up which is admitted or any statement of account furnished by you, the correctness of which is certified by anyone of your managers shall be binding and conclusive on the undersigned."

In the absence of the application of the circumstances set out in Clause 11, there is no principle of law which supports the conclusiveness of any alleged expenses incurred in the recovery of a debt as against the debtor.

8. For the reasons given above, I am satisfied that the Defendants have successfully raised an arguable defence against the Plaintiff's claims herein. I am not satisfied that the defence raised is shadowy. There is no other reason why any condition should be imposed on the Defendants in view of the nature of the defence. In the premises, unconditional leave to defend ought to be granted.