Bank of India v. Murjani Industries (HK) Ltd and Another
Read the full judgment text of CACV 36/1989 on BabelCite. This Court of Appeal judgment was delivered on 23 March 1989.
1. This appeal is brought form Sears J's refusal on 10th March, to discharge a prohibition order he had made earlier in this action at the behest of the plaintiff under section 21B of the Supreme Court Ordinance (Cap 4). It raises some important points on the court's jurisdiction under that section.
Cites 1 case
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CACV000036/1989 No 36 of 1989 Headnote (1) On a claim under a guarantee of a Hong Kong Bank account where liability accrues on demand, the guarantor incurs "the alleged liability which is the subject matter of the claim to Hong Kong while he (is) present in Hong Kong" within s 21B(3)(b) of Cap 4 if he is present in Hong Kong when demand is made. (2) On the truth construction s 21B(3)(d) obstruction or delay in both the obtaining and in the enforcement of any judgment is relevant.
BETWEEN
--------------------- Coram: Hon. Yang, CJ, Hunter, JA & Barnett, J Dates of hearing: 21 & 22 March 1989 Date of judgment: 23 March 1989 ----------------------- J U D G M E N T ----------------------- Hunter, JA : 1. This appeal is brought form Sears J's refusal on 10th March, to discharge a prohibition order he had made earlier in this action at the behest of the plaintiff under section 21B of the Supreme Court Ordinance (Cap 4). It raises some important points on the court's jurisdiction under that section. 2. The background is this. The plaintiff is a bank. Its customer was the 1st defendant, Murjani Industries (HK) Limited, which somewhat surprisingly in the facilities documents is described "as trustee of Murjani Industries Unit Trust" (sometimes with brackets round that phrase) "and/or Murjani Industries Limited". The 2nd defendant is involved as a guarantor. Two guarantees have been produced, The first, dated 13th December 1983, covered the total facilities afforded by the bank to the customer, the principal described in the guarantee, up to a maximum sum US$11 m. The document was signed by this defendant over a Hong Kong residential address. The second guarantee is dated 26th November 1985. It is in the same terms and was signed by the guarantor over the same address. The only difference is that the maximum liability is increased to US$14 m. 3. Having regard to the address on the second guarantee it is not entirely surprising that the bank drew the inference the document had been, signed by this defendant in Hong Kong. The truth as we now know it is that the document was sent by the bank to the principal, the company; the company then couriered the document to this defendant in New York where he then was; he signed the document in New York; and it was then returned to the company and via the company to the hank. 4. By the early part of this year, the company was in serious financial difficulties. The documents produced suggested an indebtedness by the company to this plaintiff of the order of US$10.7 m and an indebtedness to another Indian bank, the State Rank of India, in the sum of US$7.7 m. This produced a number of meetings he between 2nd and 8th April between the company, this defendant, and representatives of both banks. To these hanks this defendant produced a financial summary of the affairs of the Murjani Group. 5. It was a document calculated to chill the blood of any banker. It revealed some considerable losses over the years; the realisation of two of the Croup's principal assets in the United States the apparent satisfaction out of that realisation of the demands of bankers in the United States. There was only one other asset, which was awaiting realisation. The document ends up with an invitation to the "Indian Banking sector" which apparently included in the mind of the writer these bankers and other banks because it was said that the total indebtedness to that group was US$22 m, to form a consortium together, to take over or purchase this remaining asset, and apart, from that to rant a moratorium on all interest payments, and, I take it, on all capital repayments as well. 6. Those proposals were ill-received by this plaintiff and by the State Bank. It was the State Bank that took the first step. On 4th February it obtained a prohibition order from Bhind J. That was done with remarkable ineptitude. There was no prior demand under their guarantee. There was no production of a draft writ, or undertaking to issue a writ, or indeed issue of a writ at all. The first demand by that bank was made on 10th February. The demand by the present plaintiff both on the company and on the guarantor was made op 13th February. The significance of that was that it was made when this defendant was in Hong Kong. On 17th February the other bank issued a writ. On 24th February not entirely surprisingly Deputy Judge Sharwood discharged the order of 4th February and declined to replace it with any other prohibition order. 7. That evening this plaintiff, armed with a draft writ and the appropriate undertaking, obtained the material prohibition order from Sears J. The writ was issued the next day. It is in these terms. The action is brought against Murjani Industries (HK) Limited and the 2nd defendant, without further qualification. The general endorsement says : "The plaintiff claims, against the 1st defendant for banking facilities advanced to it and against the 2nd defendant in his capacity as a guarantor of the said banker facilities". The claim is in a total of US$10,798,955.91. 8. The appeal turns upon the true construction and effect of section 21B of the Supreme Court ordinance and particularly subsections (1), (2) and (3).
It is also pertinent to notice that subsection (4) gives the Court wide powers in relation to imposing conditions and discharge. Subsection (5) puts in effect a 3-months life upon prohibition orders. 9. We are concerned here with a civil claim and specifically with the four requirements set out in subsection (3) Only one of those requirements is accepted as having been satisfied, that is 3(c). It is accepted that this defendant is about to leave Hong Kong and most anxious to do so. The argument has centred around the other three subsections (a), (b) and (d). I shall deal with them in the same order as the counsel, starting with (b). 10. It is not suggested before us that this defendant carries on business in Hong Kong or is ordinarily resident in Hong Kong, so the issue is whether
One has here the circumstance of a claim under a guarantee signed in New York and upon which the demand was made Taken the defendant was in Hong Kong. For the appellant it is accordingly submitted that the liability referred to in this section is the liability which is sued upon That is the liability qua guarantor. That it is said was incurred when the guarantee was signed and that was in New York. 11. For the respondent plaintiff Mr Tang advances two alternative submissions. First; he submits that liability must he given at least its narrowest meaning of accrued liability. In support of that, he points to the use of the word "the": "The alleged ability which is the subject of the claim". Here he submits that the liability alleged required two events; both the signing of the guarantee and a demand under it. The demand was made in Hong Kong and that he argues is enough to give the court jurisdiction. The rest is a matter of discretion. Alternatively, he suggests that the word "liability" could he given the wider meaning of "continent liability" and that it would be sufficient for the purposes of this section if the guarantee were signed in Hong Kong, although the demand was made elsewhere. He offers that by way of illustration of a number of other problems which could arise under this section. 12. Both counsel have referred to the apparent purpose of the section and to the background, It is, think, common ground that the section passed in 1984, was the product of criticism of then existing practice which had been highlighted by the decision of this court in Shyam Naraindas Kirpalani v Days International Limited [1982] HKLR 534. It is an interesting decision in more ways than one. It may have produced the change of practice. It is perhaps less well known that the claim when it eventually reached the court failed and was dismissed. Perhaps it is a warning that one has to operate this section with some care. Again, it is transparent that the intent of this section was to narrow the ambit of the previous procedures, in the case of foreigners visiting Hong Kong or trading in and with Hong Kong. If they were not resident or carrying on business there had, both counsel agree, to be a real Hong Kong connection. The whole issue is what is a sufficient Hong Kong connection for the purposes of this section? Although the argument has ranged widely over many possibilities, I personally have not hesitation in accepting Mr Mills-Owen's invitation to deal only with the problem before us, which is the problem presented by this particular guarantee. 13. The guarantee takes the form of a typical banker's general facilities guarantee. The opening words read:
Being an all facilities guarantee, it was inevitably a fluctuating guarantee and it was expressly described as a "continuing security". It provided:
That ultimate balance has to be ascertained on a particular date and it can only be ascertaned on the happening of a particular event. That particular event was the demand. In common with most bank guarantees it is that demand which crystallised the liability, and that demand which created the liability. That demand likewise brought an end to the guarantee. The guarantee also provided:
So that whilst accepting without hesitation Lord Diplock's analysis of liabilities under guarantees generally in Moschi v Lep Air Services Ltd and Others [1973] AC 331 at p 348, and that in the absence of express words that is in damages not in debt. I myself no doubt that the liability under this guarantee is a liability which arises on demand, and on demand is a liability which lies in debt and not in damages. That is the first point in issue under this guarantee. 14. The second point to notice is that it is signed by the guarantor over a Hong Kong address. There are express of[provisions about service in guarantee which made the address so given the service address for all demands under that guarantee. What is the effect of the signing of that document? It seems to me that any guarantor signing a document in those terms incurs the contingent liability of a guarantor; contingent upon, first, default by the principal, and secondly upon demand by the banker. This was a guarantee of a Hong Kong Bank account. The indebtedness arising under the Hong Kong Bank account arises in Hong Kong, and requires demand in Hong Kong at the branch at which the account is kept. These are themselves strong indications that the liability of a guarantor of such an account likewise arises in Hong Kong. I would myself be minded to conclude that by signing that document this defendant incurred a contingent liability in Hong Kong under that guarantee, but of course he was not then himself present in Hong Kong when he signed it. 15. Finally when did actual liability arise under this guarantee? I have no doubt that it arose only after, demand. That is the crystallising event. It is the balance as that date which matters. It is that balance which gives rise to the indebtedness. Under the terms of this denate guarantee it is that sum which is payable two days after demand. 16. I return to sub-paragraph (b). There has been much deflate about the meaning of the word "liability". Both counsel have referred to the judgment of Megarry J in Bromilow & Edwards Ltd v Inland RevenueCommissioners [1969] 1 WLR 1180, particularly the passage starting at the foot of p 1189, where he considers the meaning of the word "liability" and suggests that the word "is capable of some amplitude of meaning", felicitous language which both counsel have naturally adopted. He draws in that judgment a distinction between that he calls "present and enforceable liability" and "contingent or potential liability". As an example of the latter he cites the position of the surety's liability for his principal, before there has been any default. Much of the argument here is whether liability in subsection (3) is used in the sense of present and enforceable" or in the sense of "contingent or potential", or possibly in both senses. 17. Mr. Tang's first submission is that when you see the context in which it is used, and particularly "the alleged liability" and "the subject of the claim", the word "liability" must at its minimum be given its narrowest meaning of accrued liability. The claim is for US$10.79 m. That claim is and has to be a post demand claim. It is the demand which quantifies that claim. So, argues Mr. Tang, if you give the phrase its narrowest meaning-and you cannot cut it down, more narrowly than that-it must comprehend the actual liability alleged; the specific liability which gives rise to that claim. It seems to me that that submission in this context must be right. Liability must have that basic meaing when you have a claim arising under a guarantee. That, if correct, would be sufficient for this case, because the liability so incurred arose at the time of demand in Hong Kong, when the guarantor was present in Hong Kong. But having said that, and having decided that and that a alone, I am bound to say that where you have got a situation arising under this type of guarantee where two events are necessary for the accrual of liability, and two events which may well be separated in point of time, there is a good deal to be said for the alternative submission which Mr. Tang advanced that there is a sufficient Hong Kong connection in the converse situation if the guarantee is signed in Hong Kong but the demand is made elsewhere. But that is another question which I do not purport to decide. 18. The second point which is taken arises under subparagraph (a). This requires the court to be satisfied that there is probable cause for believing that there is a good cause of action. This argument turns upon the words that I have read in the guarantee:" as Trustee of Murjant Industries Unit Trust and/or Murjani Industries Ltd". It can be said that the facilities documents are addressed to the company qua Trustee to the same way as the guarantee is so headed. Therefore, submitted Mr. Mills-Owens, under RSC 0 6 r 3 this is a writ which ought to have been endorsed in a Trust capacity either by describing the com any as Trustee or by some suitable words at the foot of the document. He submits that this is a fundamental defect in the cause of action or it reveals in the words of 0 44A r 4(3)(b) that he has "a substantial defence". 19. Not so, replied Mr Tang, this is no more than a storm in tea cup. The issue is whether or not there is probable cause for believing that there is a good cause of action. The cause of action alleged is as guarantor of this Company. The cause of action is for the total balance of US$10 m payable under that guarantee. It makes no difference to that cause of action whether the money is owed by the Company qua customer or qua trustee. If there is anything in this point, it is a pure technicality which can be dealt with by a minor amendment, and it is an abuse of language to describe it as "fundamental" or "substantial". 20. For myself I accept Mr Tang's argument. I have, I fear, made fear painfully obvious in the course of the argument that I do not under stand what these words mean in these documents. I cannot see any difference between the liability of this Company qua customer and the liability of this Company qua trustee. I have the gravest doubts whether these words have any real meaning at all. I have sought elucidation and obtained none. This will be a conundrum for some trial judge in the future. 21. I turn to the last issue under subsection (3) which is paragraph (d). There are taro points which arise, one of construction, and one of fact. The question of construction is to what point of time are the words directed? Is it the period of time to judgment or the period from writ through judgment to satisfaction? The words are : "by reason of paragraph (c) (ie about to leave Hong Kong) any judgment that may he given against that person is likely to be obstructed or delayed. For the appellant Mr Mills-ovens submits that that refers to the obtaining of the judgment the giving of the judgment. What has to he shown is that the absence from Hone Kong is going to obstruct or delay that event. For the respondent Mr Tang submits, and in effect the judge accepted, that it comprehends both periods, both the obtaining of the judgment, and its enforcement. 22. These words are not as clear as one would wish, and one has to do one's best with what one has in its context. The context here I think has to start with section 21A where one first finds these words:
So one has the same phrase used both in the context of a civil claim and in the context of a judgment When you come to section 21B you start with the opening words in subsection (1) where the same formula is repeated:
Those three words seem to me to cover three situations "Pursuance" must, in the context of a claim, be the obtaining of a judgment. "Securing" could be events which either happen pre-judgment or post. "Enforcement" suggests post judgment. 23. Those three words are used in respect of a judgment in subparagraph (a) for a (specified sum) of money. The operative words there must be "securing" and "enforcement". They are used in subparagraph (b) in respect of an interlocutory judgment or a judgment for delivery, with the qualification that by reason of the absence of the man from Hong Kong "the satisfaction of the judgment or order is likely to be obstructed or delayed". That is quite clear. What has to be obstructed of delayed is "the satisfaction" of the order. So one is dealing with certainly "enforcement" and possibly "security". Then one comes on to the material words where one has simply got "any judgment". Mr. Wills-Owens suggests, and there may be force in this, that the origin of this particular formula may have been the old O 44A r 1. One still has in O 44A r 7(1) reference to delaying the "execution of any judgment". What he suggests is the draftsman extracted that phrase; deleted the word "execution" deliberately; which suggests that be had in mind the obtaining of a judgment. He invites the court to read that subsection as it were in this form: "the giving of any judgment against that person is likely to be obstructed or delayed". 24. There are two general problems about that. The first is to fit it in with the breadth of the language in subsection (1). Whereas subsection (1) talks about the "enforcement, securing or pursuance " of a civil claim, the effect of that construction would be to leave two out of three of those parts out when it came to the vital enquiry under subsection (d). More embarrassing still is the proof of this. Mr Mills-Owens drew our attention to the decision Megarry J in Felton and Another v Callis [1969] 1 QB 200 where the point in issue was the availability of the writ Ne Exeat Regno in the United Kingdom. In the course of a fascinating historical analysis of execution in England going hack many years, between pp 211 and 214, he discusses section 6 of the Debtors Act 1869 which contained a requirement which would be indistinguishable from the construction Mr Mills-owens invites this court to adopt. The requirement of that Act ass this :"the absence of the defendant from England will material prejudice the plaintiff in the prosecution of his action". 25. That particular statute was examined by a Practice Committee which reported in 1953. Its conclusion was that "this writ is useless in its present application". They concluded that the writ was useless because it was an historical hang-over which no longer had any meaning. No one now thinks of calling defendants in support of their own case. When the Act was passed, and indeed when it was commented upon by Lord Esher MR in 1890, there would have been difficulties about obtaining interrogatories from a distant defendant. That may still have been the position in 1953. But since the advent of telex and fax it most certainly is not true now. There was reference to the problems of a man removing documents with him, but that went to removal of the documents rather than himself. The court has ample power to deal with a defendant, whether he is absent or present, if it is convinced he has suppressed documents. So there was no purpose in section 6 the committee said. 26. The same thing could be said about this section, if Mr Mills-Owens is right. One would have the remarkable conclusion that the legislature, whilst apparently creating a new format for the containment and issue of prohibition orders, has produced one which is a snare and a delusion. It gives the illusion of effectiveness, but by reason of this paragraph, so construed, would be totally useless. 27. If the matter had ended there one would have had an embarrassing conflict between two principles of construction: the principle of construction referred in Kirpalami itself shout giving a restrictive meaning to a provision which impinges upon liberty; and the provision referred to earlier in his judgment in Bromilow & Edwards Ltd by Megarry J, quoting this passage from a decision of Lord Simon, that "the courts should void a construction which would reduce the legislation to futility." If the matter ended there the choice would be very difficult and embarrassing. 28. I think that what defeats Mr. Mills- Owens' argument is the grammar in subsection (d). When you look at section 2(b) the phrase is "satisfaction of the judgment is likely to he obstructed or delayed". It is then clear that the governing word is "satisfaction." One has to see whether that might be obstructed or delayed. But in (d) the governing word is not "giving" the judgment. The governing, phrase is "the judgment". One has to ask the question: is the judgment likely to be obstructed or delayed? That seems necessarily to encompass a wider meaning than that which you have in (b). It leads naturally to the conclusion that the draftsman is referring both to the period before judgment and after. Then there was no radical cutting down of the concepts of enforcement, securing and pursuance with which the section starts. This produces a result which does not emasculate the section, but provides an intelligable framework. I believe that that is the right conclusion. I agree with the judge that the words cover both the obtaining of the judgement and the enforcement of the judgment. I would certainly accept that there was no evidence here, as there would be in most cases that any judgment would be delayed by this defendant's absence. 29. I turn to the last question of fact under this subsection which is whether the enforcement of any judgment is likely to he obstructed or delayed. The position here can be summarised thus. First this is a very large claim indeed. Secondly it is suggested that there is a defence of restructuring. This was only sketched in outline to us. I am bound to say that the document to which our attention was directed (at p 296 of the correspondence) is very difficult to fit in with any such defence. That in the opening paragraph records the agreement about the release of the properties on payments of US$3.8 m which was said to be part of this restructuring agreement. But it goes on :"Head office sanction also stipulated your undertaking to keep the interest current and to furnish within a month and a repayment schedule towards reduction of the present outstanding". That is difficult to reconcile with any existing agreement. Then when you go on to consider the memorandum presented at the meetings in February one finds no interest, no offers and no restructuring of any sort. So it does look as though this defendant is in the typical guarantor position where his company owes its hanker a very large sum of money. 30. Thirdly there are no available assets known of in Hong Kong, and certainly no available proprietary assets in the UK or anywhere, which would be sufficient to discharge this liability and which would enable the bank to look to property rather than to the person. From this I am minded to conclude that the examination of this debtor under Os 48 and 49B, if he were in Hong Kong, would he absolutely crucial to any investigation on enforcement. 31. This submits the appellant, is no loss. He is ordinarily resident in the UK. He can be examined in the UK under English O 48 by the simple expedient of registering the Hong Kong judgment in England. I go along with that part of the argument. The problem is that the examiner on an English examination under O 48 has very limited powers indeed, beyond recording answers. We have not investigated this in any depth, but I venture to think that someone being examined who refuses to answer questionsmight find himself in difficulty with contempt. But I can see no basis on which there could be any contempt arising out of the lack of quality, truthfulness or honesty in any answers being given. This is the fundamental difference between the position under n 48 and the position in Hong Kong under O 49B. 32. I accept that there has been a considerable alteration in O 49B since 1984, and since the decision in Kirpalant, and that imprisonment in Hong Kong is no longer at the whim of creditors followed by release unless imperfect discovery can be shown. The first stage has been abolished. Imprisonment only arises by order of the court in certain given circumstances particularly those speccified in O 49B r 1(B) (i) (b) and (c). In other words if there has been, in the view of the examiner, disposition of assets with a view to avoiding satisfaction, or a wilful failure to make full disclosure. It therefore follows that the full terms of Cons JA's analvsis of the position Kirpalani no longer apply. But in the course of that analysis, at p 538 of the report, Cons JA points out the important significance of O 49B then "by way of discovery". This is still true of the present O 49B. 33. So it comes down to this. Where you have a claim of this magnitude the 0 49B process in Hong Kong would I think to of great significance to any creditors. and their inability to use those processes because the defendant was not in Hong Kong could be well calculated to obstruct and delay the enforcement of any judgment. That was the position at the time Sears J made his order. It is still the position today. But the judge recognised that the matter could change. It may be that it could change quite soon. I say that because the sting and the value of 0 49B to a creditor, is the existence of the court's powers and the threat of their use towards complete, accurate and honest discovery. But this can arise in other ways. 34. On 14th March after the hearing before Sears J, Duffy J, on an ex parte application, granted this plaintiff a world wide Mareva injunction and all assets discovery. Very unfortunately, and I am speaking here purely personally because we are part heard in he appeal against part of that order, I think that there is a procedural mistake. The order a order was made for in indefinite period of time, without fixing a return date. It does seem to me crucial that where a court is granting a world wide Mareva and is also minded then and there to make an ex-parte order r for discovery which may involve the other party in very considerable trouble and expense, that it should not make an order without fixing a return date, and without making it blear that the discovery order was not to take effect before such return date, so that the propriety of that discovery order world of necessity be reconsidered by the court on the return date before it took effect. If that had happened hare then our other part-heard anneal would never have arisen. That simply illustrates a procedural failure in this case. 35. The fact remains that tie matter is still subjudice. The upshot could be that the order stands, and that as a result the coon became satisfied that the full discovery which might otherwise have been afforded under O 49B in this case had already be given. In those circumstances the court might look with a totally different view upon an application to discharge the prohibition order. As the matter now stands. I would agree with the trial judge on the construction he put upon sub-paragraph (d) and with his conclusions of fact. 36. The last point to be taken by way of challenge on this appeal is to the exercise of the judge's discretion. The position of this Court in those circumstance is notorious. All the matters that are relied upon now in argument were before the judge and were well known to him. In particular he was well aware of the change of front, as it is put by the appellant, between the case as presented to Sears I originally that the guarantee was signed in Hong Kong and the case as presented later that it was sufficient that the demand was made in Hong Kong. I do not feel it possible to criticise either the Bank or Sears J for the inference they drew from the form this guarantee. 37. Then it is said that this defendant would not have been in Hong Kong at all but for the events 4th February. I accept that that is the case and that those events were singularly inept. But I believe that is plaintiff is not affected by them. He is entitled to treat with this defendant as he finds him. Be that as it may, all these matters were before the judge. He exercised his discretion as he did. I can see no basis on which this Court could properly interfere with the exercise of such discretion. For these reasons in my judgment, this appeal fails and must be dismissed. Yang, CJ: 38. For reasons already given by my Lord Hunter, I too would dismiss the anneal. Barnett, J: 39. I also agree with the reasons that have been given by my Lord Mr Justice Hunter. There is nothing I think which I can usefully add. The appeal should he dismissed. Representation: R Mills-Owens, QC, R Faulkner (M/s J. S. M.) for Annellant/2nd Defendan Robert Tang, QC, Mrs B Kaplan (M/s Milkenson & Grist) for Respondent/plaintiff |
Cases cited in this judgment