Banque Nationale De Paris v. Chan U Tong

CACV000025/1967

IN THE SUPREME COURT OF HONG KONG

APPELLATE JURISDICTION

CIVIL APPEAL NO. 25 OF 1967

(On appeal from O.J. Action No. 388 of 1967)

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Coram: Hogan, C.J., Rigby, S.P.J. and Blair-Kerr, J.

Date of Judgment: 12 September 1967

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JUDGMENT OF THE CHIEF JUSTICE

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PRESIDENT:           This is an appeal against a decision of the judge whereby he granted to the defendant in the court below, the appellant before us, conditional leave to defend and the condition imposed was that he, the defendant, should pay one half of the sum, namely $25,000, into court. The claim of the plaintiff in the court below is somewhat tersely set out in the Statement of Claim as based on the liability of the defendant as a guarantor under a guarantee in writing dated 29th June, 1965 guaranteeing overdraft facilities granted by the plaintiff to the Texwood Mercantile Company. The Statement goes on to say that the Texwood Mercantile Company, having failed to comply with the terms of the overdraft facilities granted, the plaintiff claimed a sum of $50,000 and costs. Some question might perhaps arise as to whether that is an adequate Statement of Claim but it is, so far as these proceedings are concerned, supplemented by an affidavit of the sub-manager of the plaintiff company in which he sets out the terms of the alleged letter of guarantee, which is annexed to the affidavit, and also a certificate by himself as assistant sub-manager stating that the principal debtor in the present case, the Texwood Mercantile Company, was on the 1st of April 1967 indebted to the bank for $255,285.30. Then it is claimed that this certificate is sufficient to fulfil the requirements of Clause 16 of the document of guarantee which reads as follows:-

"A certificate by an officer of the Bank as to the monies and liabilities for the time being due or incurred to the Bank from or by the Principal and as to the service or receipt of any notices hereunder shall be conclusive evidence in any legal proceedings against any Guarantor or against the executor administrator or legal representative thereof.".

Some question might perhaps arise as to whether parties can prescribe in that way what will and what will not be treated as conclusive evidence before a court of law.

2. However, the defence which it was sought leave to pursue in the court below is disclosed in the affidavit of the defendant dated the 2nd of June 1967 in which he admits that his signature appears on the alleged guarantee and that he wrote it, but he claims that he did so because a certain Mr. SO Kit Man, sole proprietor of the Texwood Mercantile Company, had informed him that Mr. SO intended to apply for a grant of an overdraft from the plaintiff bank and wanted Mr. CHAN U TONG to act as guarantor. According to Mr. CHAN U Tong's affidavit he was doubtful that the bank would accept him as such. Consequently Mr. SO suggested that he should sign an application to act as guarantor first "so that investigation might be carried out by the said bank regarding my financial status. He also stressed that if the bank was satisfied after investigation, I would be notified of the amount to be guaranteed by the bank and a formal Letter of Guarantee would be executed afterwards." He went on to say that a document printed in English was then produced to him by Mr. SO and at Mr. SO's request Mr. CHAN wrote his name on it. But he said, "I had not gone through the contents of the said document as the understanding was that the document was only an application for the aforesaid purpose". He went on, however, to say that he remembered distinctly that the document presented to him for signature was a blank form and apart from the words in print nothing was typed or written thereon. He says that after receiving the letter of demand from the bank he consulted his solicitors and there he obtained a copy of the guarantee and on inspecting the document he discovered that the spaces which were originally left blank, and were blank when he signed it, had been filled in with additional words inserted by typewriter. He concluded by saying that "I say that there was a total mistake of fact as to the nature of the document signed by me. I further say that the said document was in any event null and void by virtue of the addition of the words thereto without my knowledge or consent". And he ended up by stating that he did not admit that the Texwood Mercantile Company was indebted to the plaintiff in the sum of $50,000 or any amount and put the plaintiff to the strict proof thereof.

3. When the matter was argued in the court below the learned judge made a note of what I think we might say are the reasons for his decision which read as follows: "Circumstances so greatly suspicious that I was almost prepared to give judgment forthwith"; but the Order which he made was leave to defend given to defendant on condition of $25,000 being paid into court within ten days. Counsel for the defendant contends that that should be altered to an order for unconditional leave to defend, and in support of his argument he has referred us to the Annual Practice 1967 at page 127 and also to the case of Lloyd's Banking Company v. Ogle⁽¹⁾. He places particular reliance on the statement by Baron Bramwell in respect of a claim then under consideration in that case, which was also a claim on a guarantee. The Baron said:-

"... where a guarantor bona fide says that he does not know that the debt is due, and that he requires it to be proved, I think the statute was not intended to operate to take that right from him.".

Counsel contends that that is precisely the position in the present case because he does not know and has not admitted what amount is due to the plaintiff by the Texwood Mercantile Company. Counsel went on to refer to Carlisle and Cumberland Banking Company v. Bragg⁽²⁾; a case where the defence was that the document, which the defendant in that case had also admittedly signed, was not the document which he thought it to be. The headnote reads:-

"The defendant signed a document, which purported to be a continuing guarantee by him, up to a certain amount, of the payment by R. of any sum which ??ight at any time thereafter be or become due from R. to the plaintiffs, a banking company, on the general balance of his banking account with them. In fact the defendant had been induced by the fraud of R. to sign the document, without reading it, and not knowing that it was a guarantee, but supposing it to be a document of a different character. Subsequently to the signature of the document by the defendant, R. forged the signature of an attesting witness to it, and handed it to the plaintiffs. The jury, in answer to a question put to them by the judge, found that the defendant was negligent in signing the document:-

Held, affirming the decision of Pickford J., that in an action on the supposed guarantee the defendant was not estopped from denying that he had contracted to guarantee the debt of R., inasmuch as he was under no duty to the plaintiffs in the matter, and the proximate cause of the plaintiffs' loss was the fraudulent action of R. and not the defendant's supposed negligence.".

Particular reliance was placed by counsel on a passage in Lord Justice Buckley's judgment appearing at page 495 where he said:-

"I will suppose a case in which he asks a person who brings him a document what its effect is, and he is told untruly that its effect is what it is not, and then signs it. In that state of things in general the document will not be his deed. The true way of ascertaining whether a deed is a man's deed is, I conceive, to see whether he attached his signature with the intention that that which preceded his signature should be taken to be his act and deed. It is not necessarily essential that he should know what the document contains: he may have been content to make it his act and deed, whatever it contained; he may have relied on the person who brought it to him, as in a case where a man's solicitor brings him a document, saying, 'this is a conveyance of your property,' or 'this is your lease,' and he does not inquire what covenants it contains, or what the rent reserved is, or what other material provisions in it are, but signs it as his act and deed, intending to execute that instrument, careless of its contents, in the sense that he is content to be bound by them whatsoever they are.".

Finally, he referred us to an Irish case, the case of The Governors and Company of the Bank of Ireland v. Patrick M'Manamy and others⁽³⁾. The headnote says:-

"The defendants signed a document purporting to be a guarantee, in the honest belief that it was a document of a wholly different nature, the mistake not being due to any negligence on their part.

Held, that they were not bound by the document, although there was no evidence that their signatures had been obtained by fraud."

Counsel says that in the present case there was clearly an issue which should have been tried as to whether the defendant had or had not put his signature on the document intending to execute a letter of guarantee to the bank for $50,000 in respect of the principal debtor, the Texwood Mercantile Company. Counsel argues that his contention that this was a triable issue is greatly strengthened by a fact brought to our attention by an additional affidavit, which we allowed to be admitted but which was not before the judge in the court below, to the effect that the signature which appears on this document as the signature of a witness and which purports to be the signature of Mr. C.L. CHANG of Room 1305 Tak Shing House, Hong Kong, accountant, is not the signature of Mr. CHAN Cheong Loong, accountant, who during the period in question was employed as such by the Texwood Mercantile Company at Room 1305 Tak Shing House. Mr. CHAN Cheong Loong's affidavit goes on to say that no one else of that name was employed by the company at that address. Counsel for the appellant contends that this strongly supports the contention that this document is not what it purports to be and that it indicates he may well be successful if the case goes to trial in establishing his defence that he did not sign the document as a document of guarantee for $50,000. In the circumstances he says that he should have had unconditional leave to defend and should not have been required as a condition to bring into court the sum of $25,000. He says that the judge was wrong in suggesting that there were suspicious circumstances in this case insofar as the defendant was concerned, although, relying particularly on this latest affidavit of Mr. CHANG, he says that there were suspicious circumstances insofar as the plaintiff was concerned.

4. Mr. Ching, on behalf of the plaintiff, contends that counsel for the appellant in this case has not been directing his attention, or indeed the court's attention, to the proper issues. He says that one matter with which we should be concerned is whether the judge did or did not in the court below exercise his discretion properly when he imposed a condition on leave to defend. Other matters, he said, merely go to the question of how the particular issue arising in the case, issues which the judge has given the defendant an opportunity of contesting, should eventually be determined. He has, however, himself taken us through some interesting law on the question of mistake as to documents and the availability of the defence of non est factum. He has referred us to the Muskham Finance Ltd. v. Howard and Another⁽⁴⁾ and the Mercantile Credit Co. Ltd. v. Hamblin⁽⁵⁾. He has referred us, if I understand him correctly, to these cases primarily for the purpose of showing that in order to establish the defence - and he says that the only defence really open to the defendant in this case is non est factum - it must be shown that the document which the defendant claims was non est factum by himself differed in character and class from the document which he thought he was signing, and Mr. Ching contends that in the present case no such contention has been put forward by the defendant because he admits that he put his signature on this document and he thought he was signing an application to be accepted as a guarantor. Mr. Ching contends this clearly implies that, if accepted, and that was a decision to be taken by the plaintiff bank, the plaintiff bank was free to insert whatever sum, having regard to the nature of the business transactions and the relationship existing between them and the Texwood Mercantile Company, would be appropriate, and therefore the defendant cannot complain if they inserted a figure of $50,000 and that sum was eventually found to be due by the Texwood Mercantile Company to the bank. Counsel says that, in such circumstances, clearly the defendant at best could claim that he was mistaken as to the contents of the document but could certainly not claim that it was a different class and character of document to that which he supposed he was signing. Having taken us some distance down that road so as to show us what matters might, in due course, have to be determined, counsel for the plaintiff came back to his contention that the judge's order was a matter of discretion and that this court sitting as a court of appeal should regard itself as bound by the limits mentioned in the note in the Annual Practice to Order 59 Rule 1 (1967 Edition P.736) and therefore should not interfere with the decision of the judge in the court below unless we thought that the judge had acted on a wrong principle or had taken account of matters which should not have been taken into account or under a mistake of law. Mr. Ching would I be right in stopping at that or should I add misapprehension as to facts?

5. Mr. Asome for the defendant stressed in reply that this court was entitled to interfere if the order in the court below would result in injustice.

6. This question as to whether a court should or should not interfere with the decision of the lower court in granting or refusing leave to defend or making leave subject to conditions is a fairly frequent source of appeal, and the principles on which the court should act in dealing with such applications have been set out in the notes to the Annual Practice at some length, at page 121 of the Annual Practice for 1967. It is stated that -

"The power to give summary judgment under 0.14 is 'intended only to apply to cases where there is no reasonable doubt that a plaintiff is entitled to judgment, and where therefore it is inexpedient to allow a defendant to defend for mere purposes of delay'.".

The notes also set out a number of other cases where these principles have been applied. Of course in the case before us, we are not really concerned with the question whether the defendant should be deprived entirely of the right to defend because the judge in the court below has given him conditional leave to defend. It was recognized that there was an arguable case which should go to trial. Mr. Ching, however, said that he recognized that there was only just such a case, and in seeking a logical basis for his argument that this is a matter of discretion, he suggested that we should approach it in this way: that if the material before the judge or before us showed there was a defence which, if proved, would provide an answer to the case then the defendant should be entitled to defend, but if the judge had reason to suspect that the defence was merely a sham or merely put up for delay, then the exercise of discretion came into operation and should not be interfered with other than on the grounds just mentioned. When asked as to what grounds there were in the present case for thinking that the defence was suspicious or a mere sham, he mentioned three: that the defendant in his affidavit had not specifically denied a knowledge of the English tongue or inability to read the document; that by referring to the presence of blanks in the document he had clearly admitted that he had some knowledge of the document because unless without that knowledge, the blanks would be entirely irrelevant. As his third point he put forward the fact that the printed document shows in large black type the word "guarantee" which could hardly have been overlooked by anybody who had any acquaintance at all with mercantile matters.

7. Mr. Asome for the defence, however, contends that none of these matters were in themselves sufficient to justify the suggestion or allegation that the defence here was a sham or was subject to suspicion.

8. On this question as to whether, in dealing with the decision of a judge in the court below on an issue such as this, we are dealing with the exercise of a discretion, there does not appear to be much authority. At least speaking for myself I cannot remember this matter having been dealt with in any of the English decisions, either to which we have been referred or to which I have at any time had occasion to refer myself, but there is some mention of it in the Hong Kong decision of Fook-Hong Chan and Wang King Fong⁽⁶⁾; a case in which all three members of this court were concerned in one way or another. In that case the argument was put forward that the judge had exercised a discretion in the court below and counsel in the appeal court argued that the court should be slow to interfere with it. At page 661 this appears:-

"It has been urged upon us that the judge in the court below was, in this matter, exercising a discretion and that consequently this court should be slow to interfere. Reference has been made, inter alia, to the statement of Lord Atkin in the case of Evans v. Bartlam⁽⁷⁾.".

Then we get a quotation. Over the page, it says:-

"In the present case it appears that the judge, in reaching his decision overlooked a paragraph which is, in our opinion, very material to the defendant's argument, an omission which could lead to an injustice. Moreover, even within the limits of the material to which the judge had regard, it would not appear, from the Order which he made, that he was satisfied the plaintiff had a clear case and the defendant no plausible or arguable ground of defence. In our view, having regard to paragraph 2 of the affidavit - the effect of which was not referred to or apparently considered by the learned judge - taken in conjunction with paragraph 3, there was sufficient material disclosed in the affidavit to set up a triable issue of fact as to whether or not the plaintiff was a money-lender - and an unlicensed money-lender - within the meaning of the Ordinance. That material may, or may not, be expanded and supported by further and better particulars obtained on interrogatories or otherwise, but once the issue was disclosed upon the affidavit and a prima facie case set up that the plaintiff was an unlicensed money-lender, that was a defence going to the validity of the whole transaction and we think the defendant was entitled to unconditional leave to defend. To require him to pay a substantial sum of money into court before allowing him to defend might well prevent him from raising a defence which, in our opinion, should properly have been left open to him." .

9. Now, speaking for myself alone, I don't wish to express any views on issues which may subsequently be fought out in the court below, but I would agree with the trial judge that there was a triable issue in this case as to whether the defendant could show that he was not liable on this particular document. Whether he could show that by establishing to the satisfaction of the trial judge that there were blanks in the document which were subsequently filled up in a manner not authorised by him or whether he could show it by establishing that the document to which he put his hand was not the document which had been represented to him as the subject matter of his signature, seems to me entirely a matter for evidence and I doubt if any useful conclusion could be reached as to the limits of the defence of non est factum until these facts are clearly found and established after an appropriate hearing at a trial.

10. On the question as to whether that triable issue was surrounded by circumstances of suspicion or appearance of a sham which would have justified acceptance of Mr. Ching's argument, I would not have thought that there was anything suspicious in this defence if the defendant here is telling the truth. Whether he is or is not telling the truth cannot I think be determined by merely looking at these affidavits, and in these circumstances it seems to me that he ought to have had leave to defend and I would echo the words which were used in this Hong Kong decision, that "to require him to pay a substantial sum of money into court before allowing him to defend might well prevent him from raising a defence which, in our opinion, should properly have been left open to him".

11. If this was an exercise of discretion by the judge - and on that matter I would like to keep an open mind because I am doubtful if the exercise by a judge of his power to decide whether leave shall be conditional or unconditional is correctly described as a matter of discretion - I would be disposed to say that the way in which he exercised his discretion could cause injustice and I, for my part, would allow this appeal and permit the defendant to defend this matter unconditionally.

BLAIR-KERR, J:

12. I agree with the judgment delivered by the learned President. In my view the defendant should have unconditional leave to defend. There is nothing I can add to that.

12th September, 1967.

Representation:

Asome (Woo and Woo) for Defendant/Appellant.

Ching (Deacons) for Plaintiff/Respondent.

Judgment delivered on 12.9.67.

(1) 1 Ex.D. 262 at 264.

(2) 1911 (1) K.B.D. 489.

(3) 1916 (11) I.R. 161.

(4) 1963 (2) W.I.R. 87.

(5) 1964 (3) W.L.R. 798.

(6) 1961 H.K.L.R. 655.

(7) 1937 (2) A.E.R. 650.

APPELLATE JURISDICTION

CIVIL APPEAL NO.25 OF 1967

(On appeal from O.J. Action No.388 of 1967)

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Coram: Hon. C.J., Rigby, S.P.J. & Blair-kerr, J.

Date of Judgment: 12 September 1967

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JUDGMENT

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RIGBY, J:

13. I agree. The only doubt in my mind is as to whether the plea as to non est factum, which, as I understand it, is the substantial plea raised in this case, can properly be so raised. The defence put forward by the defendant in this case was that at the time he signed the document, which is undoubtedly a guarantee, it was represented to him by the principal debtor, who was the sole proprietor of the Texwood Mercantile Company, that what he was being asked to do was not to sign a guarantee itself but to sign an application to act as guarantor. According to his affidavit he said that he understood that he would be notified of the amount to be guaranteed by the bank and a formal letter of guarantee would be executed thereafter. That is, in substance, a plea of non est factum.

14. Now, in the case of Muskham Finance, Ltd. v. Howard and Another⁽¹⁾, Donovan, L.J., delivering the judgment of the court said:-

And in the case of Mercantile Credit Co., Ltd. v. Hamblin⁽²⁾, Lord Justice Salmon said:-

He refers to the case of Muskham Finance Ltd. v. Howard and he goes on to say:-

15. It is perhaps arguable that the distinction between a guarantee and an application for a guarantee is not so much a distinction between the character or class of a document such as to justify a plea of non est factum but rather a misrepresentation as to the contents of the document itself. Again, it is perhaps arguable that an application for a guarantee is in the same class or character as a guarantee itself and that by signing the application for a guarantee the applicant impliedly authorised the bank to complete the blank part of that guarantee as to the amount involved. However, it seems to me that these matters are essentially questions of fact, or of mixed law and fact, for a trial court to determine; that the defendant ought not to be precluded from arguing the matter upon the law before a trial court, and that he ought to be given unconditional leave to defend. For those reasons I would allow this appeal.

12th September, 1967.

Representation:

Asome (Woo and Woo) for Appellant/Befendant.

Ching (Deacons) for Respondent/Plaintiff.

Judgment delivered on 12.9.68.

(1) 1963 (1) A.E.R. p.83

(2) 1964 (3) W.L.R. p.818