Bank of Baroda v. Ravissant Ltd and Others

HCA 166/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 166 OF 2016

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J U D G M E N T

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1.I have before me a summons for summary judgment underOrder 14 of the Rules of the High Court (“RHC”) dated 26 May 2016 (“the Summons”).

2.The plaintiff (“P”) bank seeks judgment against D1 as borrower for outstanding indebtedness of HK$12,652,857.57 plus interest.  ‌The P bank also seeks judgment in the same amount against D2 – D5 as guarantors of D1’s debt.  ‌D2 – D4 are husband, wife and son, and are all directors of D1.  D5 is a BVI company which owns 87% of the shares in D1; the remaining 13% of D1 is owned by D2.

3.Prior to the hearing, I was provided with limited skeletonsubmissions by Robertsons, solicitors for D1 and D5, simply relying on the Defence and the evidence filed in opposition to the Summons.

4.At the start of the hearing, Mr Szeto representing D1 and D5 informed me that D1 and D5 would submit to judgment; and D4 in person informed me that he would submit to judgment.  ‌D4 informed me that his parents D2 and D3 also wished to submit to judgment but that he had neither written confirmation of this nor written authorisation to represent them atthis hearing.  ‌D4 stated that his parents were in India where his father D2 is undergoing medical treatment, and that it would take a few days to get writtenconfirmation of an intention to submit to judgment.  ‌Mr Paul Leung, counselfor P, stated that P did not wish to adjourn, and wished to proceed with thehearing in order to obtain summary judgment against D2 and D3.  In thesecircumstances, I have heard the Order 14 summons against D2 and D3, in D2 and D3’s absence, without representations being made on their behalf.

5.P issued its Writ endorsed with its statement of claim on 19 January 2016.  ‌D1 – D5 filed a joint defence on 29 April 2016.  ‌D1 – D5 were at that stage all represented by Robertsons solicitors.

6.P’s claim is based on credit facility documents dated 23 December 2009, 6 April 2011 and 11 September 2013 (“the Facility Letters”), pursuant to which P granted D1 a facility of HK$16 million.  ‌The Facility Letters made clear that P was entitled to repayment on demand and to cancel all or part thereof. 

7.P claims D2–D5 are liable to P as guarantors of D1’s indebtednessunder guarantees dated 28 December 2009 and 13 April 2011 (“the Guarantees”).  Those guarantees were limited to HK$16 million plus interest and specified charges.

8.P made demand on each of D1 to D5 by solicitors’ letters dated 21 December 2015.

9.The Defence claims:

(a) D2 and D3 were not able to understand the technicality of identified banking documents including the Facility Lettersand the Guarantees, as they do not have sufficient English language proficiency.

(b) P did not explain or clarify the Facility Letters to any of D1 to D5.

(c) D1 – D5 were unable to adequately understand P’s banking documents (including the Facility Letters and Guarantees) or the overriding right to payment on demand or to cancel the facilities.

(d) By letter dated 14 October 2015, P threatened to cancel D1’s facilities unless the cash margin was increased.

(e) P did not meet with D2 – D5 at the time of delivering the Guarantees and did not explain the Guarantees to them.

(f) D2 and D3 did not understand the English version of the Guarantees.

(g) P sought to change terms of D1’s facilities without notifying D2 – D5.

(h) P was in breach of its fiduciary duty and duty of care to D1–D5by failing to inform D1 – D5 of “extraneous circumstances relevant to each and every transaction” (para 9.1 of Defence); and P’s banking documents (including the Facility Letters and Guarantees) were liable to be set aside.

(i) P placed undue influence on D1 – D5 to sign the banking documents (including the Facility Letters and Guarantees)without adequately explaining the contents thereof in particularto D2 and D3 who are not proficient in English.  ‌The particulars of this allegation are to the effect that P threatened to cancel D1’s banking facilities if the defendants did not take on additionalbanking loans and credit facilities against the wishes of D1–D5,and D1 – D5 were forced into taking on more loans and credit facilities.

(j) The Guarantees are not valid and enforceable.

10.P issued its summons for summary judgment on 26 May 2016, supported by the 1^st affirmation of Mr Rastogi, the chief manager of P’s Tsim Sha Tsui branch.  In this evidence:

(a) Mr Rastogi provides information relating to D1 which includesD1’s annual return for 1992 which is entirely in English and issigned by D2 and D3 in their capacities as director and company secretary of D1 respectively.

(b) He exhibits the Facility Letters which were signed by D4 (the son, who does not claim any limitations in English) as an authorised signatory of D1.  ‌The terms and conditions in the2009 and 2011 facility letters state that the facility is repayableon demand.  ‌The terms and conditions in the 2013 facility letter(signed by each of D1 to D5) state that the facility is repayable on demand and may be cancelled at any time.

(c) He exhibits minutes of a board meeting of D1 resolving thatD1 should execute the 2009 and 2011 banking documentation                             . 

(d) He exhibits the Guarantees.

(e) He exhibits a letter dated 2 December 2009 from D4 to Mr Usankar of P, in English, thanking him for visiting D1’s officesand stating “the meeting was indeed quite useful in understandingeach other better.  ‌We enclose the application form, duly filled in along with copies of the documents requested by you.”

(f) He exhibits letters dated 29 May 2013 and 17 December 2014from D4 on behalf of D1, in English, requesting renewal of D1’s credit facilities.

(g) He gives evidence of various meetings with D1 and D4 over the years.  In particular he exhibits a contemporaneous note of a meeting on 13 November 2015 at D1’s office at which heinformed D2 and D4 of P’s concern about D1’s indebtedness; D2 explained the difficult business conditions they were facing;and D4 assured P that a deposit of HK$500,000 would be madeon 17 November 2015 with the balance cleared within one month                                           . 

11.This evidence in my view establishes that P is prima facieentitled to judgment against D2 and D3, subject to D2 and D3 establishing an arguable defence.

12.In light of the Defence, the possible arguments which seem to be being advanced are non est factum, undue influence and duress.

13.Non est factum is simply not arguable here where D2 and D3 do not suggest they did not understand that they were agreeing to guaranteethe debts of D1.  ‌Nor do they assert that they do not understand English at all,as opposed to technicalities of banking documents.  ‌Even native speakers of English may need assistance with the technicalities of banking documents     . 

14.Mr Leung referred me to BOC v Hui HCA 709/2010, 14 September 2016 at paras 14 – 21, which refers to the legal principles on undue influence.

15.D2 and D3 have been directors of D1 at all material times, bothinvolved in D1’s business.  ‌Their relationship with D1 is a business relationship.  It is not arguable that the P bank was put on inquiry that either of D2 or D3 were being unduly influenced by someone in which they reposed trust and confidence.  Nor is it arguable in the circumstances that either of them reposed trust and confidence in the P bank itself.

16.Mr Leung submits and I accept that in the absence of P being put on inquiry of undue influence on a potential guarantor, there was no duty on P to explain the banking documents to D2 and D3.

17.Insofar as para 9.2 of Defence intends to plead a case of duress, it is not adequately particularised, in particular not giving any dates of the alleged “coercion”.  ‌The allegation appears to be that P coerced D1 into takingadditional loans and credit facilities, but without particulars it is impossible to examine.

18.D2 filed evidence in opposition on behalf of all of the defendants on 25 July 2016.  ‌This affirmation is given in English without any suggestionthat D2 was assisted in its preparation or that he needed a translator’s assistance.  This affirmation does not support all points advanced in the Defence.

19.D2 asserts P did not explain the banking documents, putting D2 and D3 at a disadvantage because their English proficiency was not sufficiently high to enable them to understand the technicality of the documents.  ‌I have already dealt with that point; I do not consider it gives rise to an arguable defence. 

20.D2 disputes P’s evidence as to the circumstances in which the Guarantees were signed.  ‌I note that Mr Leung says this is an irrelevant factual dispute because there was no undue influence situation, there was no alleged misrepresentation from the P bank, and there is no arguable duress.  I agree.

21.D2 asserts breach of fiduciary duty. However there is no evidence of circumstances provided by the defendants to indicate a fiduciary duty ever having arisen. 

22.D2 gives evidence as to P’s representatives insisting on an increase in cash margins at a meeting when D4 was tired, leading to D1 agreeing to increase the cash security supporting the facilities.  ‌In my view, this is neither a pleaded particular of the coercion/duress alleged in the Defence; nor do I think the alleged facts sufficient to support a case of duress.

23.At paras 18 – 19, D2 asserts that at a meeting which he did nothimself attend, P and D4 negotiated whether a cash balance in D1’s account should be used to top up security, and that P “forced” D4 to write a letter agreeing to P’s suggestion.  In my view there is nothing in the evidence indicating anything other than a commercial discussion and a commercial outcome, and nothing to support the pejorative term “force”.

24.I note Mr Leung for P submits that the allegations of duress made in D2’s affirmation are of duress by P against D1, and are irrelevant inthe context of D1 by its lawyers having submitted to judgment, and the only current concern is the validity of the Guarantees.

25.What is notable is that the pleaded case of coercion at para 9.2 of the Defence is not supported in any way by the affirmation.

26.Accordingly, P’s Summons against D2 and D3 succeeds.  I grant an order as sought, with the same costs order as made against D1, D4 and D5. 

Mr Paul Leung, instructed by Nixon Peabody CWL, for the plaintiff

Mr Frank Szeto, of Robertsons, for the 1^st and 5^th defendants

The 2^nd and 3^rd defendants were not represented and did not appear

The 4^th defendant appeared in person