Air Tiger Logistics (HK) Ltd v. Hui Kai Hing and Another

HCA 2361/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2361 OF 2012

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J U D G M E N T

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Introduction

1.The following facts are either admitted and/or are uncontroversial and/or supported by contemporaneous documents, and I find them as facts:

(1)  At all material times, the plaintiff carried on business as an air freight forwarder.

(2)  At all material times, the 1^st defendant was a director of a company called Power Base Global Logistics Company Limited (力豪環球物流有限公司) (“Power Base”) which, as its name suggests, carried on business of a logistics nature.  The plaintiff had been providing air freight services to Power Base since 2004.

(3)  The 1^st defendant was the owner of 3,500 out of 10,000 issued shares in Power Base.  The other 6,500 shares were in the name of the 1^st defendant’s mother.  The 1^st defendant and his mother were the only two directors of Power Base.  According to the 1^st defendant, which I accept, his mother was named as a director and shareholder because when Power Base was formed at least two directors and shareholders were required as a matter of law, but she did not take any part at all in the operation and management of Power Base, of which the 1^st defendant was the ultimate decision‑maker and controller.

(4)  The 2^nd defendant was and is the wife of the 1^st defendant.  At all material times she worked as a part‑time accounts clerk at Power Base, and was a signatory for cheques of Power Base.

(5)  At all material times, the defendants were the owners (as joint tenants) of a property at Flat B, 9/F, Wilmont Court, 25 Kin Wah Street, Hong Kong (“the Property”).[1]

(6)  A document titled “結帳保證書”[2] was executed on behalf of the plaintiff and Power Base (with the company chop of each affixed) on 3 July 2012 in consideration of the plaintiff granting, or continuing to grant, air freight services to Power Base.  The defendants signed on behalf of Power Base and Chung Wing Tung (also known as Stanley Chung) (“Chung”), the station general manager of the plaintiff, signed on behalf of the plaintiff.  The signatures of the defendants also appear in the document against their names as the owners of the Property.  The Guarantee, typed on the letterhead of the plaintiff, is in the following terms:

「 結帳保證書

甲方:  [The plaintiff]

乙方:  [Power Base]

甲方在有關空運業務上向乙方提供空航倉位與乙方及在雙方同意及確認之情況下，以月結四十五天的付款條件下結帳。

如乙方在任何情況下不能根據以上之付款條件向甲方清付有關運費，甲方有權立即要求乙方將以下之指定物業變賣，以作為清付乙方所欠甲方之一切費用。乙方不得以任何理由反對及拖慢變賣該物業的時間，否則相關之欠款會根據銀行公報之最優惠利率計算相關利息，直至所欠之款項清付為止。

該物業在此保證書生效日期起，不得自行賣出或作任何其他底押之用途,除非得到甲方之書面同意，該指定物業之持有人必須在此保證書上簽署確認。

物業詳情

地址: [The Property]

物業持有人: [ The 1^st defendant] [I/D Card No] [Signature of the 1^st defendant]

[The 2^nd defendant] [I/D Card No] [Signature of the 2^nd defendant]

該物業持有人與[Power Base]之關係：

該物業持有人為[Power Base]之股東。

經雙方協議上述協訂，並確認簽署作實。」

(7)  By a Writ of Summons issued on 9 November 2012 (HCA 2091/2012), the plaintiff sued Power Base for a total sum of $6,396,193.45[3], alleged to be outstanding air freight charges due and payable by Power Base.  Power Base did not give a notice of intention to defend and a default judgment in the sum claimed with interest and fixed costs was entered against it on 28 December 2012.  The judgment sum remains unpaid.

(8)  On 22 November 2012, the liquidation of Power Base commenced, and provisional liquidators were appointed.

The pleaded cases

2.By this action, the plaintiff claims against the defendants the total sum of $6,396,193.45, allegedly “being the sum the 1^st defendant and 2^nd defendant guaranteed and contracted to pay the plaintiff to satisfy all money or liabilities owing or incurred or due and unpaid from POWER BASE” (see the Prayer for Relief in the Re‑Amended Statement of Claim). The plaintiff does not claim any order for sale of, or any relief in relation to, the Property.[4] Nor is a claim for damages pleaded.

3.The defendants deny that there was any contractual agreement between them and the plaintiff. Further, they say that under the Guarantee, neither Power Base nor either of them agreed to guarantee or contract to pay the plaintiff anything to satisfy any monies or liabilities owed or incurred by Power Base, and they never agreed that the Property was to be used as collateral for monies or liabilities owed or incurred by Power Base.

4.It is also averred by the defendants that:

(1)  It is impossible for Power Base to sell the Property to repay any outstanding fees and thus the Guarantee was void.

(2)  Chung, before and after the signing of the Guarantee, misrepresented to the 1^st defendant that the plaintiff had obtained legal advice and the Guarantee would have no effect on the Property’s ownership, and the Guarantee was “drafted half‑heartedly so as to brush the chief finance officer off at the internal meeting of the plaintiff” (“the alleged misrepresentations”).  Relying on the alleged misrepresentations, the 1^st defendant signed on behalf of Power Base.  Chung also requested the 1^st defendant to ask the 2^nd defendant to sign.  The 2^nd defendant signed the Guarantee upon the 1^st defendant’s instruction, and in reliance on the alleged misrepresentations.  No specific relief has been asked for in relation to the alleged misrepresentations, whether for rescission of the Guarantee or for damages.

5.In reply, the plaintiff avers that the defendants put their signatures on the Guarantee as owners of the Property and so they must have known and understood that they were to act as guarantors to pledge the Property as security for the plaintiff to grant service facility to Power Base.  The alleged misrepresentations by Chung were denied and it is averred that both defendants requested that the Guarantee be entered into and they well understood the legal consequence of the Guarantee.  It is averred that it was the defendants (in about March to May 2012) who orally suggested “pledging” the Property as security for the plaintiff to continue to grant the service facility and to settle outstanding sums, and the information about the Property was provided by the defendants to the plaintiff.  Further, it is averred that on about 11 June 2012 Chung had sent a draft copy of the Guarantee to the 2^nd defendant who said that she would handle it with the 1^st defendant upon his return, and she fully understood and had sole and full responsibility to handle the Guarantee.

6.I should add that by re-amendment made to the Statement of Claim, the plaintiff alleges that the guarantee provided by the defendants was partly oral and partly in writing.  The written part is the Guarantee.  No particulars have been given in the pleading as to what were the alleged orally agreed terms or the circumstances or particulars of their agreement.  During his opening submissions, Mr Yau, counsel for the plaintiff, informs me that the oral part of the agreement alleged by the plaintiff was its agreement to extend the credit period[5] for Power Base to pay the freight charges from 30 days to 45 days.  It is not alleged that there was any oral promise by the defendants and which the plaintiff is now seeking to enforce.  Thus, the only relevant contractual obligation (if any) owed by the defendants to the plaintiff would be contained in the Guarantee, and this is a matter of construction for the court to decide.

Discussion

7.At the trial, Chung gives evidence for the plaintiff.  The defendants give evidence on their own behalves.

8.I shall not set out in full the evidence given by the witnesses (whether in their witness statements or orally).  Having considered their evidence, I make the following findings, which are not really in dispute between them, in addition to those I find at §1 above:

(1)  Sometime around April 2012, the amount of charges overdue and outstanding from Power Base to the plaintiff began to increase from the level that it had been before. Chung was under some pressure from the plaintiff to collect the overdue charges, and he discussed the overdue charges with the defendants on various occasions so that the business relationship could continue, culminating in the defendants signing the Guarantee on 3 July 2012.

(2)  The 1^st defendant signed the Guarantee at the office of the plaintiff in the presence of Chung.  The 1^st defendant then brought the Guarantee home and asked the 2^nd defendant to sign on it, which she did. 

(3)  The defendants admit that the signatures on the Guarantee are theirs and, subject to question of the alleged misrepresentations, it is clear (and I so hold) that they both signed the Guarantee voluntarily, not just on behalf of Power Base, but also in their personal capacity as the owner of the Property, and are thus bound by whatever terms therein which, properly construed, impose any legal obligations on them personally.  Mr Chan, counsel for the defendants, accepts this.  He also accepts that whatever contractual obligations which the defendants have under the Guarantee were supported by consideration.

9.Save to the extent for resolving the question of the alleged misrepresentations, which I deal with below, it is not necessary for me to set out and make findings on what was supposed to have been negotiated or discussed by the parties before the Guarantee was signed, as the plaintiff is not seeking to rely on any oral promise supposedly made (§6 above), and such negotiations or discussions are not admissible to assist me in construing the Guarantee (Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 913B per Lord Hoffmann; Jumbo King Ltd v Faithful Properties Ltd (1999) 2 HKCFAR 279 at 296G‑H per Lord Hoffmann NPJ) which, as explained below, is in effect the sole real issue in this case.

10.I do not accept the defendants’ case that the alleged misrepresentations had been made by Chung, for the following reasons:

(1)  In his witness statement, the 1^st defendant says that the alleged misrepresentations were made by Chung to him when he signed the Guarantee on 3 July 2012.[6]  However, during his cross‑examination, when asked about the signing of the Guarantee on 3 July 2012, he says that he read the Guarantee (for the first time) there, and could see from the words there that the document had nothing to do with him personally, and, as for the third paragraph thereof which stated that the Property could not be sold or pledged without the plaintiff’s consent, as he had no intention to do so anyway he did not see any problem in signing the Guarantee to confirm that. It was also not clear as to what he was confirming by signing.  He says that Chung told him that he needed the document to keep the business relationship between the plaintiff and Power Base, and so he signed to help Chung, who was his friend.  He does not mention the alleged misrepresentations at all during this part of his testimony. 

(2)  I find the written and oral evidence of the 1^st defendant to be inconsistent in this respect.  The alleged misrepresentations were supposed to be the main reason for him to sign, yet he does not mention it at all during cross‑examination.  Rather, the tenor and effect of his testimony is that he read, and became satisfied, for himself as to the effect of the Guarantee before signing.  He does say that the document is a fairly easy one to understand.  To this extent, even if the alleged misrepresentations were made by Chung (on which I am not satisfied), there does not appear to me to be any reliance thereon by the 1^st defendant.

(3)  As for the 2^nd defendant, the statements of both defendants say that the 1^st defendant repeated the alleged misrepresentations to her at home in the evening of 3 July 2012, before, and in reliance on which, she signed.  However, during his testimony, when asked about the circumstances of signing by his wife, the 1^st defendant says that they read the Guarantee together, and they both understood the contents as they were clear.  He also says he did not explain the contents of the document to the 2^nd defendant as there was nothing to explain, since the words were not difficult to understand.  They could see that the Guarantee did not affect them personally, as it was just between the two companies.  While he does mention in this part of his testimony that Chung told him that the document was needed to “brush off” (應酬) his boss, he does not say that he told the 2^nd defendant this, or the lack of effect of the document on the Property.  Rather, he says that they signed because they understood the Guarantee to be between the two companies only, and did not affect them personally. 

(4)  During her testimony, the 2^nd defendant says she signed the Guarantee because the 1^st defendant asked her to do so as there was no problem.  When asked whether the 1^st defendant said anything to her when he asked her to sign, she says that he just asked her to sign.  She does not say that her husband relayed to her the alleged misrepresentations by Chung.  She also says she read the document herself, and as she found that it was just between the two companies, and had nothing to do with her personally, so she signed. 

(5)  In the premises, I also find that there is an inconsistency between the written and oral evidence of the defendants regarding the circumstances under which the 2^nd defendant signed the Guarantee.  If the alleged misrepresentations were the, or a, main reason for the 2^nd defendant to sign, it is surprising that the 2^nd defendant does not mention that at all in her testimony, when asked about whether the 1^st defendant told her anything other than asking her to sign, or that the 1^st defendant does not do so in much clearer terms.  Further, as in the case of the 1^st defendant, I do not see any reliance on the alleged misrepresentations by the 2^nd defendant: clearly the reason why she signed, on her own testimony, is that she was satisfied for herself on the nature and effect of the Guarantee after reading it herself, and after being told by the 1^st defendant to sign.

(6)  Both defendants are cross‑examined as to their understanding of their obligations under the Guarantee.  They both reply by reference to what their understanding of the effect of the words used therein to be, and do not suggest their understanding was or is in any way affected or influenced by any alleged misrepresentations by Chung. 

11.In the premises, it becomes a pure question of construction of the Guarantee to see if the defendants have assumed thereunder any personal obligation in relation to any sums owed by Power Base to the plaintiff.  This is because, as stated above, the plaintiff is suing the defendants for “the sum [they] guaranteed and contracted to pay the plaintiff to satisfy all money or liabilities owing or incurred or due and unpaid from POWER BASE”, and does not claim any order for sale of, or any relief in relation to, the Property. Whatever obligations the defendants have in relation to the Property under the Guarantee (if any) are therefore irrelevant, as no such obligations are being enforced.

12.In my judgment, it is clear that there is no such personal obligation owed by any of the defendants at all under the Guarantee.  The only provision of the Guarantee relating to the defendants expressly is in the third paragraph, by which they confirm that the Property would not be sold or pledged.  I do not see how one can construe or infer from that, or any part of the Guarantee, or the Guarantee read as a whole, that there is any such personal obligation.

13.In its opening, the plaintiff says:

“The meaning of the Guarantee is to sell the Property and to use the proceeds to repay the Outstanding Sum to [the plaintiff].”

14.In its closing, the plaintiff puts its case on the effect of the second and the third paragraphs of the Guarantee as follows:

“The plaintiff submits that in construing the meaning of paragraph (2), among others, [the plaintiff] is entitled to demand Power Base to procure [the defendants], or demand [the defendants] as Guarantors, to dispose of the Property and apply the sale proceeds to repay all outstanding sums should there be any default in payment by Power Base. The plaintiff did, in or around November 2012, demand [the 1^st defendant] to surrender title deeds of the Property. The plaintiff further submits that in construing the meaning of paragraph (3), from the effective date of the Guarantee, [the defendants] cannot dispose of the Property or create any encumbrance on the Property unless written consent is obtained from the plaintiff. The registered owners of the Property must sign and confirm the Guarantee. In substance, the meaning of the Guarantee is for [the defendants] as Guarantors to use the Property as collateral to guarantee Power Base’s payment to satisfy all money or liabilities owed or incurred by or due and unpaid from Power Base, including all interest on such debts and liabilities, to the date of payment to [the plaintiff].”

15.It is an interesting point as to whether, as the plaintiff argues, the defendants are under an obligation to sell the Property when demanded by the plaintiff to do so to pay off the debts of Power Base (on top of the express obligation of not selling or pledging the Property).  That would have to be implied, as there is clearly no such express obligation on the defendants.  However, as no such implied term is pleaded, and no order for sale is now being sought, this question is academic and I shall express no view on the matter.  But it seems to me to be clear that, even on the plaintiff’s own case as stated above (the correctness of which it is not necessary for me to rule on), there is no personal obligation on the defendants to pay.

16.When asked by the court as to why the defendants are under any personal obligation to pay the debts of Power Base, Mr Yau emphasises the nature of the document being a guarantee, and the factual matrix, in support of his argument that the defendants were under a personal obligation to repay.  I do not see how those matters assist him. 

17.It is not helpful just to say that the document is a guarantee and the defendants are guarantors.  It begs the question: the true nature of the document and the obligations owed by the defendants does not depend on the name or description one gives to the document.  It is rather the nature of the obligations assumed by the defendants, properly construed, that defines what the nature of the document truly is as far as they are concerned (whatever name the parties gave it), and not the other way round.  For example, even though the document is headed “結帳保證書” (meaning, literally “Settlement Guarantee”), one cannot conceivably refer to the obligations of Power Base thereunder as a guarantor. 

18.Even in cases where a party does assume an obligation to answer for the liability of another, it does not necessarily mean that the obligation is a personal one.  The surety can only be providing security in support of the principal debtor’s obligation, and nothing more.  As stated in Andrews and Millett, Law of Guarantees (7^th ed, 2015), at §1‑001:

“In most cases, the contract [of suretyship] will involve the assumption by the surety of personal liability to the creditor. However, it may also consist of the provision of the surety of a pledge or security in support of the performance of the principal’s obligation, for example, a charge on property.”

The important point is therefore to construe the document to see whether, in this case, any personal obligation has been assumed by the defendants.  The answer, in my judgment, is clearly no.

19.Nor does the factual matrix helps the plaintiff.  The factual matrix, as submitted and relied upon by the plaintiff, is only that, in the light of the increasing debt owed by Power Base, a solution had to be found in relation to the outstanding sum so that the plaintiff and Power Base could continue the business relationship.  It cannot, in my judgment, assist or form the basis for me to construe the Guarantee in any way to find a personal obligation on the defendants to pay.  What the Guarantee does is at least to give the plaintiff the right to demand Power Base to seek to procure the sale of the Property by the defendants, and if the defendants do not do so Power Base would be in breach of the Guarantee, thus placing some commercial pressure on the defendants to sell (or otherwise to pay) if they wanted Power Base to continue to be in business. This is common ground, and that might give the plaintiff some comfort in relation to the repayment of debts by Power Base.  Whether the document goes further to impose an obligation on the defendants to sell is, as I said, not necessary for me to decide.  But it certainly, in my view, does not go to the extent of imposing any personal obligation on the defendants to pay.  The fact that the document could have gone further in imposing obligations on the defendants does not mean that I can, or should, under the guise of interpretation, take the obligation to be what the document does not provide for.  In the circumstances, there is no question of the plaintiff having any right to demand the defendants to pay the debts owed by Power Base.

20.The plaintiff also refers to the point that as the 1^st defendant was a shareholder of Power Base he would benefit from the profits made by it.  That, however, does not mean that the 1^st defendant would, without more, be liable personally for the debts of Power Base.  That is the whole point of using a limited liability company to conduct business.  Whether as a matter of commercial morality the 1^st defendant ought to pay Power Base’s debts is not for me to say and it is utterly irrelevant.

Disposition

21.For reasons stated above, I dismiss the action by the plaintiff and make an order nisi that the costs of this action be to the defendants, to be taxed if not agreed.

22.I thank counsel for their assistance.

Mr Norman Yau, instructed by Wong & Wong, for the plaintiff

Mr Sunny Chan, instructed by Day & Chan, for the defendants