BANK OF CHINA (HONG KONG) LTD v. VAST SPARK INDUSTRIAL LTD AND OTHERS

HCA 18413/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 18413 OF 1998

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J U D G M E N T

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1.  This is a trial of the plaintiff’s claim against the 1st, 3rd and 4th defendants.  The claim against the 2nd defendant has been settled on 31 July 2008.  None of the 1st, 3rd or 4th defendant has turned up at this trial.  The plaintiff has duly proved its case.  This is my judgment on the plaintiff’s claim against these three defendants.

2.  The plaintiff is a bank.  The 1st defendant was a borrower of the plaintiff.  The 2nd to 4th defendants were guarantors of the 1st defendant.  The 2nd and 3rd defendants were at all material times the shareholders and directors of the 1st defendant.  They signed various guarantees in favour of the plaintiff between 8 October 1994 and 27 March 1997. 

3.  The 4th defendant was a 15% shareholder of the 1st defendant up to 10 April 1995.  He was also a director of the 1st defendant as at 23 July 1994.  It is not known when he resigned, but he was no longer on the board of the 1st defendant as at 23 July 1995.  He signed a guarantee in favour of the plaintiff on 12 November 1994. 

4.  All the guarantees signed by the 2nd to 4th defendants are in identical terms except their limits of liability.

5.  The plaintiff has, pursuant to the guarantees of the 2nd to 4th defendants, given general banking facilities to the 1st defendant.  The 1st defendant defaulted on repayment in early 1998.  The plaintiff demanded payment from all the defendants, but the demands were not satisfied. 

6.  Under clause 15 of the guarantees, the guarantors assumed the liabilities as primary obligors.  The sums due from the 1st and 3rd defendants by way of principal and interest as of today as calculated pursuant to proviso (ii) of paragraph A of the guarantees are US$1,633,455.86 and HK$34,946,163.64.

7.  The guarantee signed by the 4th defendant has a limit of HK$9 million by way of principal.  The total sum due from him inclusive of interest as of today as calculated pursuant to proviso (ii) of paragraph A of his guarantee is HK$15,595,273.98.

8.  All the guarantees provide in clause 5(b) that a certificate by an officer of the plaintiff as to the amount owing for the time being shall be binding on the defendants and be conclusive evidence in legal proceedings of the amount owing. 

9.  Though the 1st, 3rd and 4th defendants have not turned up at the trial, they have previously filed a defence containing purported grounds of defence.  I am prepared to look at these grounds and see whether there is anything that can be argued in favour of the three defendants. 

10.  The main ground of defence is that the plaintiff and the 1st to 3rd defendants had allegedly entered into a restructuring agreement and the plaintiff had breached this agreement.  However, the defendants have proffered no evidence to support this allegation.  The contemporaneous documents produced at the trial also negative the existence of such agreement.  There is thus nothing in this ground of defence.

11.  There is another ground that is relied on by the 4th defendant only.  He pleaded that his guarantee had expired or been replaced by subsequent guarantees signed by the 2nd and 3rd defendants.  Insofar as the allegation of expiration is concerned, there is no evidence of any notice of termination of his guarantee served on the plaintiff by or on his behalf.  This ground is thus not made out.  Regarding the allegation of replacement, it is in fact contrary to clause 7(b) of the guarantees which provide:

“7.     (b)     This Guarantee shall be in addition to and shall not in any way discharge prejudice or affect any other guarantees agreements undertakings rights liens collateral or other securities now or hereafter held by you from me/us or any one or more of us or any third party or parties for or in respect of all or any part of the debt and liabilities hereby guaranteed nor vice versa should this Guarantee be discharged prejudiced or affected thereby.”

12.  The allegation of replacement of the guarantee is thus defeated by clause 7(b), which clause exists in all guarantees signed by the 2nd to 4th defendants at various times. 

13.  In the premises, the 4th defendant has also failed to make out any ground of defence.  There is therefore nothing in the defence filed by the 1st, 3rd and 4th defendants that would operate as a ground of defence.  I give judgment to the plaintiff for the sums I have mentioned above together with costs of the action to the plaintiff.