TSANG KING WAH PETER v. CHOW CHOI WAH AND OTHERS

DCCJ 1018/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1018 OF 2002

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JUDGMENT

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1. The Plaintiff claims against the 1st Defendant for $520,000 under a loan agreement, the 2nd and 3rd Defendants as guarantors under that agreement and interests.

2. The 1st Defendant owned 99% of the shares of the 3rd Defendant and is a director of the 3rd Defendant.

3. The 1st Defendant asked the Plaintiff to lend her money by way of the Plaintiff issuing letters of credit for the use of the 3rd Defendant. By 28/9/00 the principal and interest amounted to $520,000.00.

4. The Plaintiff and the 1st Defendant are the shareholders and directors of USA99 International Ltd. The 2nd Defendant is the husband of the 1st Defendant.

5. Under the agreement the 1st Defendant acknowledged she owed the Plaintiff $520,000 and she pledged her shares in USA99 International Ltd. to the Plaintiff as securities and agreed to pay interests calculated according to the interests charged by the Bank for overdraft facilities to the Plaintiff. It was agreed that should the 1st Defendant repaid the loan and interest to the Plaintiff, the Plaintiff would release the pledged shares back to the 1st defendant and that all losses and profits of USA99 International Ltd. would be borne by the 1st Defendant and that if the value of the shares in USA99 International Ltd. could not set-off the outstanding sums then the 2nd and 3rd Defendants would be the guarantors and would be responsible for the outstanding amount.

6. It is agreed that USA99 International Ltd. is now heavily in debt and the shares have no value.

7. The Defendants alleged that the 1st Defendant did not participate in the business of the 3rd Defendant. She is just a nominee shareholder and director. The 2nd Defendant is the beneficial owner of the 3rd Defendant and that the business of the 3rd Defendant was solely carried out by the 2nd Defendant and that the said sum of $508,146.24 was lent to the 3rd Defendant.

8. The 1st Defendant had been an accounts clerk for over 10 years. She must be aware the responsibilities of directors of a company. If she had delegated her responsibilities to the 2nd Defendant then whatever the 2nd Defendant had done must have been on behalf of the 1st Defendant. Even if it were the 2nd Defendant who asked the Plaintiff to lend money to the 3rd Defendant it must have been on her behalf.

9. She signed the memorandum acknowledging herself to be the borrower, she could not be heard to say that she did not know the contents.

10. From that memorandum she acknowledged that she owed the Plaintiff $520,000 and had to pay interests. She had pledged her shares in USA99 International Ltd. to the Plaintiff. It was only when the value of the shares in USA99 International Ltd. could not set-off the outstanding sum then the 2nd and 3rd Defendants would guarantee repayment. On the construction of that document it does not mean that her responsibility to repay ceased when the shares in USA99 International Ltd. could not set off the outstanding sum. The 2nd and 3rd Defendants only stepped in as guarantors and replaced the pledged shares on such event.

11. The 2nd Defendant contended that he was not liable under that document as he did not sign on it. It was he who amended the draft memorandum and added his name as guarantor. As the Statute of Frauds 1677 did not apply in Hong Kong, a guarantee may be proved in the same way as any other contract. [See Halsbury's Laws of Hong Kong (vol. 13 para. 200.045)]. I find the 2nd Defendant also liable to the Plaintiff as guarantor. The 3rd Defendant having signed as guarantor, it is also liable as guarantor.

12. The interest accrued from 1/10/00 to 31/1/02 amounted to $12,703.96.

13. By reasons aforesaid all the 3 Defendants are jointly and severally liable to the Plaintiff in the sum of $520,000 + $12,703.96 being interests up to 31/1/02.

14. In the premises there be judgment for the Plaintiff against all the Defendants in the sum of $532,703.96 with interests at 1% above prime per annum from 1/2/02 until judgment and thereafter at judgment rate.

15. Order nisi: Costs to the Plaintiff. Certificate for counsel.