OVERSEAS TRUST BANK LTD v. CHAN CHEONG

1984 No. 2842

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. Virtually up to the very last moment, the defendant Mr. Chan Cheong was legally represented. At the date of hearing, the court was told that a Notice of Change had been filed. Thereafter, the defendant, Mr. Chan Cheong acted in person.

2. The pleadings with the various amendments as they now stand, are not entirely free from complexity. The matters in dispute are clear cut. With the assistance of Mr. Lai, counsel for the plaintiff bank, certain issues were proposed to be framed for the determination of this court.

3. The plaintiff bank through Counsel has undertaken to establish quantum against the defendant by way of proving the debt of the alleged principal debtor, Mr. Chung Tai who has apparently absconded and cannot be found. Subject to such undertaking, the Consent Order made is as follows:

The following 2 issues be framed for the determination of the court, namely

 

"(1)
	(A)	Whether or not the Defendant signed the "Guarantee" as and believing it to be a document "in respect of Kwok Wah's tax return";
	(B)	Whether or not in signing the said "guarantee", the Defendant acted with reasonable care;
(2)	For the purposes of these 2 framed issues the Defendant do have the burden of proof as plaintiff and the Plaintiff bank as defendant;
(3)	The Defendant, Chan Cheong will succeed only when he succeeds in both issued
(4)	The Plaintiff bank will be entitled to judgment as claimed in the event of the Defendant, Chan Cheong failing in either of the above 2 framed issues. "

4. The alleged guarantee has been produced as Exhibit P1. The debt of the alleged principal debtor has now been substantiated by the production of Exhibit D4 and D5. D4 certifies a principal loan of $200,000 plus accrued interests up to the 15th of February 1984 in the sum of $8,107.42. And from D5, the total interests including the $8,107.42 up to yesterday, the 24th February 1986 is $67,831.52. Mr. Lai, counsel for the plaintiff informs me that the bank is unconcerned with the one day's interest uncalculated. Despite my reminder that under the alleged Guarantee, the rate of interest may be at variance with the rate set down by the Rules of Supreme Court, Counsel is content to rely solely on those rules for the calculation of interest after judgment. That represents the totality of the claim of the bank.

5. On these 2 framed issues, Mr. Chan Cheong gave evidence. He told the court that by 1983 he had left the Kwok Wah Metal and Electronic Company for some years. He had remained a partner until only recently when he had to withdraw his $10,000 share for the payment of legal expenses and ceased to be a partner of Kwok Wah. He explained to the court that he left Kwok Wah as he found that his effort was not yielding a satisfactory return and that back he went to the New Territories and resumed his occupation as a vegetable farmer. Despite his departure from Kwok Wah, being a partner he had , from time to time, to file tax returns. Such was required of him annually. Before his retirement, even after the disappearance of Chung Tai, he returned to Kwok Wah twice for signing the yearly tax returns. According to Mr. Chan, he was called upon to sign his annual tax return for filing as partner of Kwok Wah in about March or April each year. Prior to the disappearance of Chung Tai, for a number of years, on four occasions to be precise, Chung had taken his annual tax returns to the New Territories for him to sign.

6. Both Chung Tai and Mr. Chan Cheong were members of a Chit Fund Association which held, for many years last past, a lunar monthly feast on the 1st day of each lunar calendar month. At such meetings, a dinner was to be had. Mr. Chan Cheong further testified that at one of these monthly meetings of the Chit Fund Association, Mr. Wong Ting, Mr. Lo Moon Yuen and himself being members of the Association had arranged for a game of mahjong with Mr. Chung Tai. Messrs. Wong and Lo together with Mr. Chan Cheong had arrived earlier, waiting for the last participant in this pre-arranged mahjong game for the evening. Mr. Chan Cheong's evidence was that no sooner had Chung Tai turned up than he produced a document and a pen for him, Mr. Chan to sign under the pretext that the same was his tax return.

7. Mr. Wong Ting gave the most vivid description. He recalled his remark made some three years ago in jest: "They (the writings) know me but I don't know them". That is a very common Chinese expression, supposedly humorous. Mr. Wong Ting explained to the court that as everyone was keen to have the game started, Mr. Chan said : "Let me sign it so we can play mahjong". He was less than sure of this in the midst of his crossexamination, but he said he also urged Mr. Chan to expedite the signing saying : "Sign it and start the mahjong game".

8. Mr. Lo also gave evidence. He was unable to recall these remarks or the wisecrack.

9. But both Messrs. Wong and Lo reinforced the assertion that some three years ago, Chung Tai requested Chan to sign what was held out to be a tax return at one of the Chit Fund Association dinners.

10. Mr. Leung, a packer in Kwok Wah was called.   He corroborated the evidence of Mr. Char, Cheong that personal annual tax returns had to be filed by a partner of Kwok Wah and he confirmed that for the recent 2 years, Mr. Chan Cheong had been notified by him to return to Kwok Wah for the purposes of having those documents prepared in English signed.

11. Despite some discrepancies between the witnesses called by Mr. Chan Cheong and Mr. Char, Cheong himself, I am satisfied on the balance of probabilities that on an occasion some 3 years ago, it may very well be 1983, that a document was produced by Chung Tai for the signature of Mr. Chan Cheong with the explanation that the same was his personal income tax return. Chan had known Chung for 10/11 years. They were both members of the same Chit Fund Association. Chan is an illiterate knowing not more than the first four alphabets in English. Chung Tai had been taking tax returns into the New Territories for Chan to sign on three previous occasions. There was no cause for Chan Cheong to entertain any suspicion. Knowing the background disclosed in these proceedings, there was nothing to put Mr. Chan, Cheong on enquiry. In these circumstances, trusting the description given by a long standing friend of a yearly document usually prepared in English, even with some grown-up children of his own presumably well-versed in English, is certainly no evidence of negligence. If Exhibit P1 had been the document signed as alleged by Mr. Chan Cheong on that occasion, presumably in 1983, Mr. Chan cannot be fairly criticized, in my view, for any lack of care or negligence. Therefore, the crux of the matter in this framed issues revolves around the first that is to say, whether or not Exhibit P1 is the document Mr. Chan Cheong signed labouring under the misapprehension that it was a tax return and not a guarantee.

12. Mr. Chan Cheong denied earlier in his cross-examination having met the witness for the bank, the former Mongkok branch Manager, Mr. Kwan. He then admitted that he met him only after having received the solicitors' demand letter, but he did not know if he was surnamed Kwan.

13. Mr. Kwan testified that before instructions given to the bank's solicitors for the dispatch of the demand letters to the alleged principal debtor and the alleged guarantor, Mr. Chan Cheong paid him a surprise visit, quite uninvited and without any appointment. On this particular visit, according to Mr. Kwan, Mr. Chan was excited and very concerned as to how matters stood in the absence of Chung Tai. Mr. Kwan claimed that Mr. Chan Cheong appeared to be aware of the financial predicament of Tin Tai Trading Company, a company of which Mr. Chung Tai was its sole proprietor. Thereupon, so said Mr. Kwan, Mr. Chan Cheong was told by him that Mr. Chung Tai could not be located for the time being and his company Tin Tai Trading Company owed the bank a substantial sum of money, and it was further explained to Mr. Chan Cheong that if Chung Tai could be found and the matter resolved, there would be no adverse consequences, but otherwise, he, Mr. Chan Cheong as the guarantor would be responsible. Thereupon, according to Mr. Kwan, Mr. Chan Cheong requested sight of the letter of guarantee, Exhibit P1, and a photostat copy thereof. At no time, Mr. Kwan told the court, did Mr. Chan Cheong either complain that the document was not known to be a guarantee at the time of his signature. As a matter of fact, Mr. Kwan categorically stated that Mr. Chan Cheong did not appear to be surprised that he was the guarantor.

14. In his cross-examination of Mr. Kwan, Mr. Chan Cheong posed questions which suggested that the meeting did take place, at which he, Chan accused the bank for not obtaining his personal confirmation and that he approached the bank after having received information from Chan Hing's wife. There was no mention of the meeting arising as a result of the said demand letter. There was no real challenge to the evidence of Mr. Kwan as to his, Chan's reaction at that meeting, nor his silence as to the nature of Exhibit P1 that he had signed. Mr. Kwan explained that "P1" was handed out and returned with Chan Cheong as guarantor in a matter of days after Chung Tai's request for extended facilities in August 1983. From "D4" and "D5", bank advances were made from November. Mr. Chan Cheong had testified that he signed his annual tax returns in March or April each year. It is improbable that the document signed in the presence of Wong Ting and Lo Moon Yuen was in fact "P1".

15. There can be no doubt if the evidence of Mr. Kwan on this meeting were to be accepted, Mr. Chan Cheong must have been fully aware of the nature of Exhibit P1 which he had signed. Having taken into consideration the whole circumstances, I prefer and accept the evidence of the Bank Manager. Mr. Wong and Mr. Lo are I accept, truthful witnesses. The inescapable inference is that the occasion testified to by both Mr. Wong and Mr. Lo must have been another occasion on which Mr. Chan Cheong was indeed requested by Chung Tai to sign a tax return, a document other than "p1".

16. I find that Mr. Chan Cheong knew fully well the nature of this document at the time when he signed it and that he signed it as a letter of guarantee for the bank account of his friend's, Mr. Chung Tai's company, Tin Tai Trading Company.

17. The indebtedness of the principal debtor, Tin Tai Trading Company has been established. The plaintiff must succeed as the defendant has failed on the first issue (A). I need make no determination on the second issue. In logic, despite my other findings on fact favourable to Mr. Chan, the second issue must, in effect, also fail by reason of its terms, i.e. whether or not in signing the said "guarantee", the defendant acted with reasonable care. To be more precise, in view of my findings against Mr. Chan, the second issue is left with no substratum for any deliberation on "reasonable care". In the circumstances I find, the question of "Reasonable care" would simply not arise. I therefore give judgment as claimed against the defendant in the sum of $200,000 plus $67,831.52 interest. I will award cost against the defendant.