UCO BANK v. ROOPCHAND HASSARAM (H.K.) LTD. AND OTHERS

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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D E C I S I O N

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1. The plaintiff is a bank incorporated in India having a place of business in Hong Kong. The 1st defendant was its customer. The 2nd, 3rd and 4th defendants were guarantors for the transactions, subject matters of this action. The 2nd and the 4th defendants evinced nointention to file any defendant, and judgment was obtainedby the plaintiff bank against them. The 1st and the 3rd defendants resisted the bank's application for summary judgment.

2. The bank sues the 1st defendant as principal debtor and the 3rd defendant as guarantor. The O.14 summons before the Master was concluded with conditional leave to defend granted to the 1st and the 3rd defendants. Provided that the condition be fulfilled, the 1st defendant be allowed also to pursue its counterclaim against the plaintiff bank.

3. Dispute arose from divers ills of Exchange transactions one of which related to a Bill of Exchange drawn by the 1st defendant for acceptance by a customer in Spain. The 1st defendant has enough security with the plaintiff bank for payment of that transaction. For the other Bills of Exchange drawn by the 1st defendant for acceptance by its customers in Nigeria, the amounts were ordered to be paid into Court. Hence, the 1st defendant with its guarantor, the 3rd defendant, managed to secure only conditonal leave for all the bills tranactions, the condition being payment of the amounts on these Nigerian hills into Court.

4. Bills of Exchange were drawn by the 1st defendant and on the force of these drafts, the bank lent money to the 1st defendant. The 3rd defendant became guarantor of the 1st defendant's liability to the bank. The Bills of Exchange for the Nigerian customers were duly accepted in Nigeria. Negotiation of and collection on these bills were completed by the plaintiff's correspondent bank in Nigeria. Unfortunately in 1984, the Nigerian Government imposed what could best be described as an embargo on outflow of foreign funds. Foreign Exchange Regulations were brought into operation, whereby funds collected by the plaintiff's correspondent bank in Nigeria were prevented from being remitted out of Nigeria, back to Hong Kong.

5. There were inter-governmental negotiations resulting in the Central bank of Nigeria offering Promissory Notes with accruing interest for some of the outstanding remittances. The Nigerian Government selected some as debts eligible for substitution by these Promissory Notes. The funds held by the plaintiff's Nigerian correspondent bank fell into this category.

6. The plaintiff bank put pressure on the lst defendant to agree to the acceptance of these Promissory Notes through its correspondent bank in Nigeria. The plaintiff bank successfully procured from the 1st defendant consent for funds so collected in Nigeria to be replaced by issued Promissory Notes of the Central bank of Nigeria. Some interests on these promissory Notes had been paid before the Central bank of Nigeria suspended all payment and in fact defaulted on the payment of these Promissory Notes.

7. Mr Dissanayake, appearing for the 1st and the 3rd defendants on this appeal, wished to submit that Bills of Exchange transactions between the plaintiff bank and the 1st defendant could fall into one of the three distinct and separate categories, namely (1) outright purchase of the bills; (2) discounting of the bills and (3) facilities granted or moneys advanced on acquisition of the bills.

8. Solicitor for the 1st and the 3rd defendants was to submit that the nature of the transaction was such that upon honour of the Bills of Exchange in Nigeria in terms of negotiation and collection, the right of recourse in favour of the plaintiff bank against the 1st defendant would become exhausted. The plaintiff bank, so it was proposed to be argued, upon receipt of funds in Nigeria through its correspondent bank, would have to forgo all its legal claims against the 1st defendant, hence the 3rd defendant as guarantor.

9. Mr Dissanayake appreciated the real difficulty to overcome in the sense that after collection of funds in Nigeria, the 1st defendant consented to the acceptance of Promissory Notes from the Central bank of Nigeria in substitution for the funds which had been so collected. The consent so given would have the effect of depriving the bank of any collected currencies in hand and give the plaintiff bank through his Nigerian correspondent a mere right to payment under the Promissory Notes. As I have said the Promissory Notes have not been honoured by the Central bank of Nigeria, hence even in the contended case of the 1st and the 3rd defendants, the plaintiff bank has yet to receive full satisfaction on the Bill of Exchange drawn by the 1st defendant on its Nigerian customers.

10. The 1st and the 3rd defendants would also wish to argue that the consent so given to the plaintiff bank to accept the Promissory Notes was obtained from the 1st defendant as a result of economic duress. Mr Dissanayake was almost prepared to concede that the plea of economic duress, raised in the circumstances known, is less than a perfect answer to the plaintiff's claims against the 1st and the 3rd defendants. Such a plea could very well be tantamount to a shadowy defence which would justify the condition imposed by the Master on the leave granted to these defendants to defend.

11. Solicitor for the 1st and the 3rd defendants pleaded with the Court on account of the unfortunate incident that led to the action against the his clients. Solicitor maintained that in fact these defendants are impecunious and that all they, in fact, desired was to have the condition for leave to defend set aside on account of their impecuosity.

12. Mr Dissanayake intimated that further affirmations as regards the financial positions of these defendants would have to be filed. Miss Kwan, Counsel for the plaintiff bank spared no time in affirming her intention to cross appeal against the decision of the Master. Counsel explained that the plaintiff feels aggreived by the leave to defend granted to these defendants. Miss Kwan submitted that no cross notice of appeal would be required. Mr Dissanayake voiced his grievance at the hearing of the proposed cross appeal today : he had not been forewarned and was taken by surprise; he was not in a position to resist the cross appeal without preparation.

13. As for the future conduct of these proceedings, the parties have finally come to terms. The court is to allow the 1st and the 3rd defendants to amend the Notice of Appeal (1) by deleting the word "rescinded" and inserting therefor "varied by the removal of the condition that the 1st and the 3rd defendants do pay into the court a sum of US$398,058.92"; and (2) by adding at the end of the penultimate paragraph of the Notice of Appeal "That the order of Master Cannon made herein be stayed pending the outcome of this appeal". Directions are also sought from this court in the following terms : (1) the 1st and the 3rd defendants do have leave to file and serve an affidavit on or before the 15th September 1989; (2) the plaintiff do have leave to file an affidavit in reply within 14 days from the date of service on it of the defendants' affidavit, (3) the plaintiff do have leave to file a Notice of Appeal out of time, such notice to be filed and served on the 1st and the 3rd defendants on or before the 21st September 1989; (4) the 1st and the 3rd defendants do apply to set down the appeal for hearing before Liu J. within 28 days from the date of the service of the 1st and the 3rd defendants' affidavit; (5) costs of today to the plaintiff in any event; (6) should the 1st and the 3rd defendants fail to comply with the directions as to the filing of affidavit and/or setting down for the hearing of the appeal, the stay ordered by Liu J. on the 31st August 1989 be lifted and the plaintiff be thereupon at liberty to enforce the order of Master Cannon dated the 5th August 1989; and (7) liberty to apply.

14. The parties are ad idem as to terms for the future conduct of the proceedings. I am prepared to accede to the consensus. I order by consent : (1) that the 1st and the 3rd defendants be at liberty to amend the notice of appeal in terms of the proposed amendements; (2) the stay sought be granted; and (3) the directions asked for be given with costs of to-day be costs to the plaintiff in any event. I further order that these proceedings be adjourned to a date to be fixe by the clerk-in-charge of the Lists, estimated time to be jointly supplied by legal advisers for the plaintiff and the 1st and the 3rd defendants within 7 days from today.