BANK OF BARODA v. VEE PEE GLOBAL LTD AND OTHERS

HCA 342/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 342 OF 2011

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D E C I S I O N

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1.  By a summons dated 6 January 2012 the 3^rd Defendant applied for the setting aside of a default judgment entered against him on 19 May 2011. That application was made on the basis that the judgment was irregular. However the allegation of irregularity was not subsequently pursued. At the hearing before me the application by the 3^rd Defendant was made on the basis that there was a defence available to the 3^rd Defendant which has a real prospect of success.

2.  The judgment which was entered against the 3^rd Defendant was entered in default of any defence having been served by the 3^rd Defendant. Default judgments were entered also against the 1^st and 2^nd Defendants, neither of whom contested the proceedings against them. The basis for the Plaintiff’s claim is, so far as the 1^st Defendant is concerned, the failure to repay sums drawn by the 1^st Defendant against credit facilities granted by the Plaintiff.  The action against the 2^nd and 3^rd Defendants was brought as guarantors of the indebtedness of the 1^st Defendant.

The Late Evidence

3.  Both the 3^rd Defendant and the Plaintiff filed summonses seeking leave to adduce further evidence.  So far as the 3^rd Defendant is concerned leave was sought in regard to the 3^rd affidavit dated 28 February 2012 and the 4^th affidavit dated 8 March 2012.  The Plaintiff opposed leave being granted.  So far as the 3^rd Defendant’s 3^rd affidavit is concerned this was, by the Order of Master Levy, to have been filed on or before 25 February 2012 (Saturday) but was only filed on (Tuesday) 28 February.  An unsworn copy of the 3^rd Defendant’s draft affidavit was filed in time it being explained that the 3^rd Defendant was in India and had been unable to swear the affidavit.

4.  The Plaintiff’s summons seeks leave to adduce four affidavits in response to the 3^rd Defendant’s 3^rd affidavit.  Since no prejudice is apparent to either party I give leave for the filing of all of the above affidavits and affirmations. 

5.  So far as the 3^rd Defendant’s 4^th affidavit is concerned there are only 2 points which are sought to be made in the affidavit.  The first relates to the delay in the filing of the 3^rd affidavit, and the second purportedly corrects a misidentification of an individual employee of the Plaintiff referred to in the 3^rd affidavit.  The Plaintiff submits that it would be only fair if it were allowed an opportunity to reply to this, but I do not see that the Plaintiff will be in a position to do more than make submissions as to the 3^rd Defendant’s explanations, and submissions as to the reliability of the proposed evidence were made by counsel at the hearing.  Accordingly, while reminding myself that the plaintiff has not replied to that evidence, I give leave for the 4^th affidavit also.

Delay

6.  The 3^rd Defendant’s explanation as to why he allowed judgment to be entered against him is that he was, in May 2011 suffering from shingles and unable to attend properly to his affairs.  Indeed he says he was unable to leave his house during this period.  He exhibits a doctor’s note in support.  Following his recovery from that illness he contacted representatives of the Plaintiff at their offices in India and says that he was assured that because of the long business relationship between the parties, the legal proceedings in Hong Kong would be put on hold and that no steps would be taken towards enforcement.  This is on its face somewhat unlikely, and is not accepted by the Plaintiff.  However the 3^rd Defendant exhibits an e-mail of 18 July 2011 and a letter of 7 September 2011 in which he set out the way in which the Plaintiff had agreed to withhold these proceedings.  Although these may be viewed as self-serving documents, Mr Chain who appears for the 3^rd Defendant points out that there was no contemporaneous response from the Plaintiff and only a recent denial that any such assurance was given.

7.  The 3^rd Defendant’s contentions as to an agreement having been reached are also said to be supported by the fact that a further guarantee was executed by the 3^rd Defendant in favour of the Plaintiff in July 2011.  Mr Chain, counsel for the 3^rd Defendant asks, rhetorically, why the 3^rd Defendant would sign such a guarantee, or indeed why the Plaintiff would seek such a guarantee, if there had been no agreement of the sort alleged.  No explanation for this has in fact been offered.

8.  Also relevant however to the question of delay, and the late emergence of the line of defence on which the 3^rd Defendant seeks to rely is the fact that the 3^rd Defendant says that he had not seen a copy of the specific guarantee on which the Plaintiff relies until late January 2012 when it was exhibited to an affirmation made by Mr Anand Mohan Kishore, Chief Manager of the Plaintiff in Hong Kong.  I note that this was after the application to set aside the default judgment.  It is not disputed that there was an earlier guarantee made by the 3^rd Defendant in favour of the Plaintiff in 2006 but the form of execution of the later guarantee (on which the Plaintiff has founded its claim) provides the basis on which the Defendant says he has a potential defence to the Plaintiff’s claim.

The 3^rd Defendant’s Defence

9.  The potential defence is based upon a misrepresentation having been made to the 3^rd Defendant by or on behalf of the Plaintiff at the time the guarantee was executed.  The misrepresentation is that he was informed that he would be signing the guarantee together with his business partner, the 2^nd Defendant. They did not sign the guarantee together or at the same time, and self-evidently the 3^rd Defendant was aware of this at the time that he signed.  However the 3^rd Defendant says that he was told by the representative of the Plaintiff (one Mr Usankar) that the 2^nd Defendant would sign later.  As matters transpired, and this appears not to be disputed, the 2^nd Defendant never did sign the guarantee.  Rather it was signed by the 2^nd Defendant’s brother against the name of the 2^nd Defendant.

10.  The 3^rd Defendant’s primary submission is that he is entitled to rescind the guarantee because of this misrepresentation, and in oral submissions this was supplemented in the alternative to the effect that the 3^rd Defendant would be entitled to damages because of the misrepresentation, the measure potentially being the amount of his liability under the guarantee. 

11.  No evidence was available from Mr Usankar who had retired from the Plaintiff’s employment but other officers of the Plaintiff disputed that any such representation had been made.  The 2^nd Defendant did not contest proceedings and judgment has been entered against him under the guarantee.

12.  In summary therefore the 3^rd Defendant’s defence turns upon him being able to establish the misrepresentation he alleges.  So far as appears from the evidence before me, the primary documentary evidence is the guarantee itself which, it is not disputed, was not signed by the 2^nd Defendant.

13.  The 3^rd Defendant submits that this is a circumstance in which, were leave to defend granted, the ultimate outcome of a trial would depend upon the weight to be attached to the oral evidence. As such it is submitted that no assessment of whether or not there is a real prospect of success can properly be made, and in those circumstances “an appropriate test to apply in those circumstances is simply whether the defence could well be established at trial”.  See O Mark Polyethylene Products Pty Ltd v Reap Star [2000] 3 HKLRD 144. 

14.  The Plaintiff does not wholly accept that principal submitting that the 3^rd Defendant is required to show a defence which has “a real prospect of success” and must therefore demonstrate the basis for a defence which is potentially credible and which carries some degree of conviction.  The 3^rd Defendant’s allegations are said however to be unbelievable. 

Prospects of the Proposed Defence

15.  The primary basis for the Plaintiff’s submission is that the 3^rd Defendant has misidentified the individual employee of the Plaintiff responsible, allegedly, for making the misrepresentation as to the signing of the guarantee.  In his 3^rd affidavit dated 20 February 2012 the 3^rd Defendant identifies this individual as one Mr Kalyanaraman.  In his 4^th affidavit, made “for the purpose of amending an inadvertent error in my 3^rd affidavit” the 3^rd Defendant states that all references to Mr Kalyanaraman in that 3^rd affidavit should be references to Mr Usankar.

16.  This accords with the Plaintiff’s evidence as contained in the affirmation of Mr Thakker, the Chief Manager of the Plaintiff in India, and formerly the Senior Manager, Trade Finance in the Plaintiff’s Tsimshatsui Branch.  A factual dispute arises however since Mr Thakker states in his affirmation that he was present at the execution of the guarantee by the 3^rd Defendant and denies that the 3^rd Defendant made any representations or requests such as he describes.  Mr Thakker says neither he nor that either he or Mr Usankar promised or agreed that the effectiveness of the guarantee would depend on the 2^nd Defendant’s signature.

17.  I do not think it appropriate to attempt to form a view as to the veracity or otherwise of these conflicting parts of the affidavit evidence at this stage.  The question I believe to be appropriate in the circumstances is that described by the Court of Appeal in O Mark Polyethylene Products Pty Ltd namely, whether the 3^rd Defendant’s case could be established at trial.  I consider this against a background of delay in the defence being advanced, in circumstances in which the proposed defence has not been formulated in a draft, and having regard to the misidentification by the 3^rd Defendant of the individual employee of the Plaintiff said to be responsible for the misrepresentation.  I accept the 3^rd Defendant explanation for the delay and do not think undue significance can be attached to the fact that the post-defence is not been formulated into a draft pleading.  The relevant issue appears clearly in the affidavits.  Nor do I think the misidentification by the 3^rd Defendant renders his evidence “unbelievable” as the Plaintiff submits.  The guarantee on which the Plaintiff relies was signed in July 2007, over 4 years prior to the 3^rd Defendant’s erroneous affidavit.

18.  For completeness I note that the 3^rd Defendant also says that, on recent investigation, he believes that there have been “fictitious transactions” by which the indebtedness of the 1^st Defendant, and therefore the liability under the guarantee, has been inflated.  The 3^rd Defendant asserts that he believes the Plaintiff to have been complicit in this.  However the 3^rd Defendant (who is no longer a director of the 1^st Defendant) says that he no longer has access to the documents which would enable him to establish this.  He explained in his affirmation the way in which funds appear to have been drawn on the trust receipt account, paid to another company and refunded all on the same day.  These transactions appear to be rather odd, but I cannot infer complicity on the part of the plaintiff on the basis of the evidence presented to me.

19.  The Plaintiff advances another line of argument as to why the proposed defence is unsustainable, this turning on the interpretation of clause 11 of the guarantee.  That clause provides an agreement by the Guarantor that any sums due under the guarantee which might not be recoverable “… on the footing of the guarantee… shall nevertheless be recoverable from the Guarantor as sole or principal debtor(s) in respect thereof and shall be paid by the Guarantor on demand.”.

20.  The availability of that clause as a basis on which the 3^rd Defendant could be said to be liable depends on whether or not the guarantee itself is binding on the 3^rd Defendant.  If it is not, for the reasons advanced by the 3^rd Defendant, then neither is that provision in the guarantee.

21.  For these reasons seems to me that the proposed defence advanced in behalf of the 3^rd Defendant is one to which the court should pay heed, as being one which could be established at trial. Accordingly I set aside the default judgment and allow leave to the 3^rd Defendant to defend the action. 

Costs

22.  Mr Nip, counsel for the Plaintiff submits that, in the event that the judgment is set aside the  3^rd Defendant should bear the costs of the application, seeking in effect an indulgence from the Court.  Mr Chain on behalf of the 3^rd Defendant submits that the order should be costs in the cause.  Having regard to the manner in which the 3^rd Defendant has advanced the defence on which he now relies, and the relative lateness of his evidence it seems to me that the appropriate order, which I make on an Order Nisi basis, be Plaintiff’s costs in the cause.