NANYANG COMMERCIAL BANK LTD v. SUN YUET TAI LTD AND OTHERS

HCA2860/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.2860 OF 1999

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J U D G M E N T

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1. I have before me the trial of an action brought by the plaintiff bank against the 6^th defendant in respect of a guarantee signed by the 6^th defendant — this went back to August 1998.  I will first give a brief account of the history of the matter before I proceed to consider the various matters in dispute by the parties.

2. The plaintiff is a Mainland Chinese bank with a substantial business in Hong Kong.  They had a business relationship with Mr Chan Kar Leung (“Mr Chan”) who was formerly also closely connected with Chukong Shipping, a Mainland Chinese shipping and who as a businessman in Hong Kong had built up a substantial business and certainly by the time of the handover of Hong Kong in 1997 he had under his wing a number of companies included a public listed company I think by the name of Righteous Management Ltd (“Righteous”). 

3. The company Sun Yuet Tai Limited, the 1^st defendant, is one of the companies under the wing of Mr Chan.  This company was a borrower from the plaintiff, Mr Chan being a director, and Mr Tsui Wai Chi (“Mr Tsui”), the 6^th defendant, was a senior officer who had been working for the company as well as for Righteous another company under Mr Chan’s ownership, for some time.  It was disputed at the trial of what was the extent of his senior position in the organization.  On the plaintiff’s side, the persons involved are two.  There is Mr Cheuk Tin Fai (“Mr Cheuk”) who was the branch manager of the Western Branch and there was Mr Cheung who was what I would call, accounts manager dealing with this particular account at the relevant time. 

4. The downturn of the market after 1997 caused major problems not least of which was the security given by the borrower in the form of a property mortgage, the value of which had gone substantially down.  I think it must have gone down something from $9 million at the top of the market to something like $4.8 million when it was valued in July 1998.  The downturn of the market has caused another effect, the effect was that the borrower found that it was not able to redeem the T/Rs as a result of which the bank started proceedings to recover the $9 million then outstanding.  So this was the previous action launched by the bank.

5. The effect of that litigation was dramatic because in August 1998 there was another set of proceedings where the 1^st defendant was the plaintiff and it was suing BAT in relation to some claim for, I think, upwards of $50 million.  The impact of the recovery action by the bank against the 1^st defendant was that it gave rise to an application or proposal by BAT for security for costs and of course that would have a serious impact on the ability of the 1^st defendant to continue that action. 

6. So the matter of the termination of the bank’s recovery action against the 1^st defendant was quite important and quite urgent.  There was therefore discussion that took place on 13 August between the bank and the 1^st defendant.  This was attended by Mr Cheuk and another on the bank’s side and by Mr Chan, i.e. the 3^rd defendant, and by Mr Tsui of the 6^th defendant.  

7. There were proposals made at the discussion and it comes down to a proposal by the borrower of the repayment of the $9 million to be achieved by an immediate payment of $1.5 million, another payment two months later in October of another $1.5 million by way of a post-dated cheque, and then the balance of $6 million by way of regular instalment payments spread over some seven years.  That was the gist of the discussion and this was then followed up by a document drafted by, I think, Mr Tsui, which can be found on page 15.  So there the matter stood.  The matter then has to be approved by the head office and because the branch certainly was not in a position to make any firm agreement on 13 March.  I have no doubt that that was the position and any contrary suggestion is not seriously tenable. 

8. The necessity for approval could be seen by a document at page 125 where Mr Cheuk in the position of the account officer prepared this document and submitted it forward to the head office.  It sets out in a table form in the middle of that document, on the left hand side the existing facilities and on the right hand side the proposed facilities.  It is to be noted that on the right hand side the proposed facilities referred to repayment over seven years in relation to the $6 million loan repayment. 

9. The elaborate procedure that was required to be undertaken in the bank can be seen by the following document at page 126 (which was helpfully further reduced for the purpose of the trial into typescript form at page 126A).  There in various boxes are the various personnel in the bank who were contributing their views as to the consideration of how to deal with this proposed restructuring.  So it was by no means straightforward for the resolution of something of this nature.  It can be seen on page 126A that there were references to both five years (i.e. a reduction from seven years to five years) as well as a reference to seeking the pledging of shares of the public company as additional security.  It can be seen, therefore, that there was no straightforward approval that could be given to the original proposal that was put forward at the meeting of 13 August by the borrower. 

10. These matters of considering and approving the restructuring of course would take time and I do not think the Mainland banks are known for the brevity of their carrying out such work. 

11. In the mean time there was considerable urgency on the part of the borrower.  It seems to me from the totality of evidence that there was certain considerable pressure on and by the borrower and in particular in the form of Mr Chan the big boss wishing to have the bank quickly resolve this matter of restructuring so that the litigation can be terminated, i.e. the litigation by the bank against the borrower, which would enable Mr Chan, i.e. the 3^rd defendant to better deal with his other business problems including particularly the BAT. 

12. Now what then happened on 24^th was rather a matter of substantial dispute because on the one hand the plaintiff gave this version: because of the time being taken after the 13 August’s meeting (this was some 11 days later) Mr Tsui approached a third party in the form of Mr Chan Shu Wah (“Mr SW Chan”) who was an old school friend of both the 3^rd defendant as well as the 6^th defendant and who was also a manager of a branch in Kennedy Town of the plaintiff, in the hope that he could help because the manager at Western Mr Cheuk was on leave and therefore could not be found to enable a fast decision on restructuring to be made.

13. So the case of the plaintiff is that there was a series of discussions between Mr Tsui with Mr SW Chan as a go-between who got in touch with Mr Cheuk who was on leave asking how the matter could be quickly resolved and the answer coming back from Mr Cheuk to Mr SW Chan which was then related to Mr Tsui was that if Mr Tsui wanted to have it quickly resolved, one of three options was open : (1) pay up right away all outstanding; (2) find new security; (3) find an acceptable additional guarantor. 

14. The result of which, according to the plaintiff’s case, is that Mr Tsui volunteered and asked whether he would be acceptable as a guarantor and was told yes.  That was the plaintiff’s version of what happened on 24 August or around that time.  The defendant’s version was totally different.  He said nothing of that kind happened.  Instead what happened was out of the blue on 27/28 August there was a telephone conversation initiated by Mr Cheung to Mr Tsui saying that if he want it to be done quickly then put up additional security, may be in the form of a guarantor, and when Mr Tsui says he would volunteer, misrepresentations were alleged to have been made to Mr Tsui by Mr Cheung. 

15. The misrepresentations alleged to have been made by Mr Cheung to Mr Tsui inducing Mr Tsui to agree to be guarantor were that : (1) the mortgage to the plaintiff bank did not cover the $1.6 million loan; (2) therefore the $1.6 million loan had to be covered/secured and that could be in the form of a guarantee, and (3) that guarantee would be any way discharged as soon as the property is sold and the proceeds of sale would be first used to discharge that $1.5 million guarantee.  So that was alleged to have been the misrepresentations given by Mr Cheung to Mr Tsui which induced Mr Tsui to agree to sign the guarantee. 

16. There is not much dispute as to the fact that he signed.  There is however substantial dispute as to whether it was signed the day of the conversation or whether it was signed on the next day.  Mr Tsui said immediately after the conversation he rushed to the bank and signed there.  Mr Cheung said that no, it was the next day because it was the next day so that the loan department could prepare the document and type on the document with all the necessary particulars, i.e. the name of the borrower, that is the name of the 1^st defendant, this could be seen at page 21, with name of the principal “Sun Yuet Tai Ltd”, the address of the principal, the amount, under Part B $7.5 million, the name of the guarantor “Tsui Wai Chi”, the ID card number of the guarantor and the name of the witness “Cheung Shing Tak”.  All that was alleged to have been there when the guarantee was signed.  Mr Tsui gave a totally different version and says no, the guarantee presented was in blank, nothing filled in there, and he just signed in blank.

17. So, there are two directly opposite versions and that is the main dispute between the parties.  There is of course additional twist to this dispute and that is to say the one version given by the plaintiff is that immediately after it was signed a copy was made and given to Mr Tsui whereas, Mr Tsui says no, he left with no copy.  Instead Mr Tsui alleged that a copy was given to him some three days later when Mr Cheung turned up at Mr Tsui’s office and gave him a document which he found it had all been filled in and in particular filled in with this sum of $7.5 million and at which he protested.  Mr Cheung denied that that was the case, or that he went there to give a copy.  

18. Events on the 31 August were that the two undertakings were signed.  First the $1.5 million undertaking in relation to the $1.5 million loan that was supposed to be repaid in October by way of the post-dated cheque dated 20 October and the second undertaking was the repayment of the $6 million by way of the five year instalment payment.  

19. The restructuring was therefore completed by 31 August and in fact for the first month, it went smoothly because the undertaking in relation to the first instalment payment of the $6 million loan was fulfilled for the first month.  But that however was not repeated again, and by October the first undertaking was also breached in that the $1.5 million cheque was dishonoured.  So the bank therefore again went back to the position of asking for its money back except this time of course it was $7.5 million not $9 million like earlier in July or August.  There were further discussions with a meeting taking place on 16 December.  

20. That is briefly the history of the matter.  I will go on to analyse the merits of the various contention in relation to the main issues before me.  But this is a case turning largely on credibility, of course to be determined by the assistance of inherent probabilities and documentation. 

21. First I must say something about the witnesses.  I start with first Mr Tsui.  Mr Tsui was in my court over a period of four days.  He conducted his case with skill and ability.  Mr Tsui has a very chequered history.  He has risen from modest background if I may call this, having been educated in a leftist school in the Chinese language education.  He has risen to I believe a distinguished position.  He had a chequered history of education, having gone through middle school, then got himself the first degree and the second degree through his sheer hard work. He then pursued his career in newspaper reporting followed by various occupations in computer science and in research institute and then eventually becoming a personal assistant, if I may call it that, to a rising businessman.  His life is a life of, if I may call, a struggling leftist intellectual.  I have no doubt about several aspects of Mr Tsui : (1) that he is a man of ability, (2) he is a man of intelligence, and (3) that he is a fast learner.  I have a great deal of sympathy for his present plight in the position he has found himself in, namely this tremendous piece of litigation which is life and death for him. What I cannot be certain is whether and to what extent he is honest.  I now turn to the other main witnesses.

22. The other main witness is Mr Cheung.  Mr Cheung is the account manager of the plaintiff bank who was dealing with this matter, and he is the one who got Mr Tsui to execute the guarantee.  He has been a bank officer for many years.  He had served previously in the Standard Chartered Bank and then in the plaintiff bank.  One thing I am certain about Mr Cheung is, whereas Mr Tsui has ability, Mr Cheung I do not believe has got great ability.  From his evidence and from the documentation he has prepared and from all the material that I have before me, I am certain that he is not a man who has done his job fully or properly.  What is in doubt is his honesty, namely whether he is just not very good at his job or whether he is also dishonest. 

23. Then there is Mr Cheuk.  Mr Cheuk gave his evidence reasonably well.  I think on the whole he is an honest witness.  There is also Mr SW Chan, i.e. Mr Chan Shu Wah.  He is a quiet man.  He has quite impressed me as being basically honest.  He is a largely independent witness in the sense that he was dragged into the transaction.  He had no personal interest in the transaction although accusing fingers were pointed towards him in saying that he had got reasons to lie. 

24. This is a case where I think either all three plaintiff witnesses were lying, a lie in the form of a substantial serious conspiracy, or basically there is only one substantial liar, that is Mr Tsui.  The other two witnesses of the defendant are minor characters.  His former boss, the 3^rd defendant gave really marginal evidence, not on the transaction, and Wu Tak Lung (“Mr Wu”) was a former colleague who gave ambiguous evidence which is not really crucial to the case.  However the impression I have of both Mr Chan, the 3^rd defendant, and also of Mr Wu is that these are two men of abilities.  However I have doubt as to their veracity.  

25. I now turn to an analysis of the main dispute.  The first and most important allegation is of course the misrepresentation which was the basis of the excuse so to speak for getting additional security in the form of a guarantee from Mr Tsui, namely Mr Tsui’s allegation that Mr Cheung said the $1.5 million loan was not covered by the guarantee.  This was said to have been alleged or represented by Mr Cheung and on the basis of that excuse there was the suggestion for the $1.5 million guarantee to be given by Mr Tsui. 

26. Now even with my somewhat negative view of the ability of Mr Cheung, I do not think Mr Cheung could be as bad a banker as to have come to the view that, the $1.5 million loan was not covered by the existing guarantee.  I think everyone in court at the end of the day appreciate and accept that the whole debt whether $9 million or $7.5 million (anything owing by the borrower to the bank) is covered by the mortgage.  Now, of course it is possible that Mr Cheung deliberately mis-stated the position.  But my view of Mr Cheung is that he is not that bright to be able to make up that kind of deliberate misrepresentation.  So I have serious doubt on the 1^st premise of the defence that there was a representation that the $1.5 million loan was not covered by the mortgage.

27. The second allegation is that it was $1.5 million guarantee promised and not $7.5 million guarantee wrongly filled in.  Now there was a clear reference to $7.5 million guarantee in the document that Mr Cheung wrote immediately after the execution of the guarantee and I think that is on page 17 where he in his submission to the head office said “oh we now have a $7.5 million guarantee by Mr Tsui”.  Now that was a contemporaneous document.  So there could be no question that to Mr Cheung’s mind the guarantee executed was a $7.5 million guarantee.  The question therefore is : having regard to this, is it possible that Mr Cheung had deliberately misrepresented the position and said to Mr Tsui the guarantee was for only $1.5 million?  In my view, I do not think that is the case.  The whole position is I believe supported by a common sense view and the common sense view is : what is the point of asking for a $1.5 million guarantee?  The outstanding debt is $7.5 million.  There was already existing other guaranties.  There was also to cover the $7.5 million debt also the existing mortgage which covered the whole full $7.5 million.  It would be quite extraordinary to ask for a guarantee for just $1.5 million.  So this deals with the point about the $1.5 million defence.

28. The third misrepresentation is the undoing of Mr Tsui because the allegation is that Mr Cheung made the misrepresentation that the guarantee was perfectly safe with no risk because when the property is sold under the mortgage, the proceeds would be used first to discharge the $1.5 million and therefore upon that being paid off the guarantee of Mr Tsui would be discharged and therefore there is very little risk to any guarantor.  But if that is the case, what was the whole point of the exercise for the bank obtaining another guarantee from Mr Tsui.  There was nothing to be gained by the bank.  In fact the banker would be worse off because then the bank would have a security worth less, to cover all the other outstanding.  So, in my view, it makes no commercial sense for that kind of misrepresentation to be made.  Now I haven taken a negative view of Mr Cheung as a banker but he was not a fool nor was he an idiot.  I do not think that the alleged misrepresentation was made or could have been made in these circumstances.

29. I find further support for my above findings, namely in relation to the giving of the copy of the guarantee.  The case put forward by Mr Cheung on the giving of the copy of the guarantee is that it was given right away.  Now that is the usual common practice in the bank.  The case put forward by Mr Tsui would necessitate an unusual practice of first Mr Tsui signing in blank.  The view I have taken of the ability of Mr Tsui is that certainly he is not the sort of person who would ever do that — to sign totally in blank by him is inconceivable.  If he did not sign in blank but had signed the document as already filled in, then it was also logical that he was given a copy right away.  Then it also follows logically from that, there was no going to the office by Mr Cheung three days later to give Mr Tsui a copy.  It did not make sense for Mr Cheung to go all the way to the office of Mr Tsui, assuming it was signed in blank, to give him the copy.  If he wanted to give Mr Tsui a copy, he could ask Mr Tsui to come and collect it.  It could be of course that Mr Cheung did go there that day of the 31 August because there was in evidence that he went there for the execution of the two Undertakings.  But it was for a different purpose, not for the purpose of giving to Mr Tsui a copy of a guarantee that was signed in blank and later filled in. 

30. I think for me what seems to be compelling is the principle to bear in mind in all cases involving serious allegation of misconduct.  If Mr Tsui is correct then there are two serious allegations of misconduct.  The first serious allegation misconduct is that there was false documentation created by Mr Cheung — to have someone signed in blank and then contrary to his representation of $1.5 million he then filled in $7.5 million, in order to gain the security of that guarantee is a crime.  Furthermore to have all these witnesses to conspire together to give false evidence is serious allegation of criminal misconduct.  Therefore it requires compelling evidence for the court to accept such serious allegation.  Not only is the evidence not compelling, I think the evidence and the circumstances are overwhelmingly the other way — it is inherently improbable. 

31. The view I have taken is that on the whole, because of the urgency of the matter, therefore although the documentation on the side of the bank is not desirable, there is no dishonesty and the matter happened was more or less the way as described by the witnesses for the plaintiff. 

32. Now there is the matter of subsequent complaint that was raised by Mr Tsui to support his allegation that he was cheated — the document he signed was not what he was understood to have been represented to him.  The after-event complaint took the form of firstly of his personally complaining at his office as he said and his case was partly supported by the evidence of Mr Wu and Mr Chan.  Now Mr Wu gave evidence very carefully and he, of course, did not say he saw Mr Cheung there.  All he said was that he heard loud voices raised and then afterwards Mr Tsui coming in and complaining about the guarantee — he was misled into signing a guarantee and the bank then did the wrong thing or put in the wrong figure. 

33. I am not saying that Mr Wu was lying, but it is possible and I suspect, in the circumstances, I take the view that Mr Tsui staged managed the complaints.  Mr Wu was however wrong in his timing when he said what happened was in August but not later.  His reason given that it must be in August — I do not accept.  In my view, if he is telling the truth then his memory is defective and that it was probably much later.  It is of course possible that Mr Tsui, after he had executed the guarantee, came to regret having signed it and tried to disown the guarantee that he had given.  It is possible therefore it seems to me, that the subsequent complaint arose as a result of his having second thought.  Of course there is no direct evidence on this having second thought, but having seen Mr Tsui, specially having heard Mr Tsui telling me about his family and about the impact on the family of what he has done, it seems to me highly likely that what really happened was that he signed in the way described by Mr Cheung.  There was no misrepresentations by Mr Cheung as alleged by Mr Tsui.  Then Mr Tsui came to regret what he did.  It is unfortunate that Mr Tsui found it necessary to sign, may be out of his good heart, may be he was a very loyal assistant and he was hoping to help his boss Mr Chan and, doing his best, to enable the restructuring to take place right away which led Mr Tsui to sign the guarantee. 

34. I entirely also accept that may be the bank has taken advantage of the situation and obtained the security of Mr Tsui which otherwise normally the bank would not have obtained from an employee, even a senior employee, of an organization.  But this was what happened and I have to discharge my duty.  Much as I regret the conclusion I have to reach and the decision I have to make, and of all the guarantee cases I have tried in my 13 years as a High Court Judge this is the most regrettable decision I have to make against a guarantor.  It is not a decision that is fair on moral terms, but in law I have no choice.  It seems to me that in the circumstances I have no choice but to come to a decision that judgment must be given against the 6^th defendant in the sum claimed and detailed by Mr Cheuk, in his supplementary witness statement, in the amount of $4,096,379.38 plus interest thereon from 24 July 2007.  I would put interest at 1% above prime, I think the quantum otherwise is not in dispute.  The plaintiff must also have the costs of the action.

35. If there is application for payment by special means either by installment or otherwise, then I suggest Mr Tsui should discuss it first with the bank to see whether there is some formula that can be agreed upon and if there is an application, that can be made to me and I would then entertain the application.