Bank of India v. Gimajasa Ltd and Others
Read the full judgment text of HCA 1956/2017 on BabelCite. This High Court CFI judgment was delivered on 4 February 2021.
1. In this action, the Plaintiff (“ P ”) claims against the 4 th Defendant (“ D4 ”) for the sum of HK$5,097,791.84 plus interest said to have been due under a guarantee dated 15 November 2006 executed by D4 in favour of P (“ Guarantee ”).
Cited by 3 cases · Cites 1 case
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HCA 1956/2017 [2021] HKCFI 354 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1956 OF 2017 _______________ BETWEEN
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__________________________________ REASONS FOR JUDGMENT __________________________________ 1.In this action, the Plaintiff (“P”) claims against the 4th Defendant (“D4”) for the sum of HK$5,097,791.84 plus interest said to have been due under a guarantee dated 15 November 2006 executed by D4 in favour of P (“Guarantee”). 2.At the end of the trial, I dismissed P’s claim for reasons to be handed down later. These are my reasons. Background 3.The following facts and matters are not in dispute. 4.Pursuant to a Facility Letter dated 22 August 2006 (as renewed by letters dated 12 September 2007, 11 September 2009, 21 September 2010 and 21 November 2011 in substantially similar terms) (collectively “Facility Letters”), P agreed to grant various loan facilities in the aggregate amount of HK$7,800,000 to the 1st Defendant (“D1”) (“Facilities”). 5.The Facilities comprised of the following:
6.The 2nd to 5th Defendants (“D2” to “D5”) executed guarantees in favour of P in respect of D1’s indebtedness under the Facilities on 27 October 2006, 27 October 2006, 15 November 2006 and 17 November 2006 respectively. 7.The Guarantee executed by D4 contained, inter alia, the following terms:
8.D4’s address, as stated on the Guarantee, was Motzener Str 12-14, 12277 Berlin, Germany (“Berlin Address”). 9.On 11 March 2013, D4 sent a letter to P stating that he would withdraw his Guarantee with effect from 31 March 2013 and he would not be responsible for any new bills or liabilities P accepted on account of D1 under the Facilities after that date. 10.In response, by letter dated 22 March 2013, P noted that D4’s letter indicated his “intention to withdraw [the Guarantee]”, but stated that as D4 was still a shareholder and director of D1, according to P’s rules, his Guarantee was required for continuation of the Facilities. 11.On 26 March 2013, D4 sent a letter to P by email reiterating that he had withdrawn his Guarantee for all new obligations which P might choose to accept on account of D1 under the Facilities after 31 March 2013, and requested that P disclose the exact extent of his exposure under the Guarantee as of that date. 12.On 27 March 2013, P sent D4 a “statement of loan outstanding against [D1]” which showed that the amount due as at 11 November 2012 was HK$8,732,245.06. 13.On 2 July 2013, D4 sent a letter to P requesting for its “current facility letter and the statement of accounts” to be sent to him without undue delay. 14.On 27 November 2013 and 29 April 2014, D4 sent further letters to P repeating his request for “a comprehensive statement” with details of all outstanding loan and interest remained payable by D1, and reiterating that he would not be liable for any further or additional credit advanced to D1 under the Facilities after 31 March 2013. 15.Between 31 August 2015 and 19 February 2016, P made 14 advances to D1 totalling HK$2,015,750.28[1] under the trust receipt facility and 12 advances totalling HK$2,765,562.04 under the foreign export bill facility (together “Subject Advances”). 16.On 18 October 2016, P (through its solicitors) sent letters to Ds demanding that they pay D1’s outstanding indebtedness as at 31 May 2016 in the sum of HK$6,455,040 together with interest at 8.5% p.a. as from 1 June 2016. P’s letter to D4 was sent to an address on Lyttelton Road, Hong Kong (“Lyttelton Road Address”), and it was subsequently returned in the post. 17.As at 31 May 2017, D1 was indebted to P under the Facilities in the principal sum of HK$5,097,791.84 and interest of HK$647,210.58 (“Indebtedness”). According to §11 of the Agreed Facts, the Indebtedness arose entirely out of the Subject Advances.[2] 18.On 18 August 2017, P issued the Writ in this action, claiming the sum of HK$5,118,219.36 and interest of HK$426,000, being the amount allegedly owed by Ds as at 31 March 2017. It obtained default judgment against D1 on 19 September 2017 and against D2, D3 and D5 on 1 December 2017. 19.In its Re-Amended Statement of Claim dated 23 April 2020 (“RASOC”), P now claims from D4 the Indebtedness, i.e. the amount owed by D1 to P as at 31 May 2017.[3] The parties’ cases 20.Ms Jasmine Cheung, counsel for P, contends that despite what is pleaded in the RASOC, P is in truth claiming against D4 in respect of D1’s outstanding indebtedness at the time when D4 terminated the Guarantee, i.e. HK$8,732,245.06. However, given that D1’s indebtedness has since then been substantially reduced, P is content to only enforce the Guarantee to the extent of D1’s present indebtedness. 21.Ms Cheung further submits that in light of the Principal Debtor Clause, there is no need for a demand in order for D4’s liability under the Guarantee to arise and, in any event, P made a valid demand by its letter dated 18 October 2016. As a further alternative, D4 has waived or is estopped from asserting the existence of a requirement of a formal demand by virtue of his correspondence with P in 2013 and 2014. 22.Mr Sebastian Hughes, counsel for D4, submits that P’s only pleaded claim is a claim in respect of D1’s Indebtedness as at 31 May 2017. As it is common ground that the Indebtedness arose entirely out of the Subject Advances, which were advanced by P1 to D1 after D4 had terminated the Guarantee, P’s claim does not get off the ground. 23.As a fallback position, Mr Hughes says that on a proper construction of the Guarantee, D4’s liability is contingent on receipt of a demand. As P did not make any demand prior to the termination of the Guarantee (which took effect on 11 June 2013), there is no basis to claim that D4 was liable in respect of D1’s indebtedness in 2013. In any event, D4’s letters to P in 2013 and 2014 were insufficiently clear and unequivocal to give rise to any waiver or estoppel. The Indebtedness 24.Given the parties’ disagreement as to what P’s claim actually entails, it is necessary to examine the pleadings in some detail. 25.In its Statement of Claim dated 18 August 2017, P’s claim was originally quantified as follows:
26.By a Request for Further and Better Particulars dated 6 September 2018, D4 requested P provide, inter alia, (1) particulars of when the outstanding principal amount of HK$5,118,219.36 arose, and (2) a breakdown of D1’s borrowings under the Facilities which remain outstanding. 27.In its Answer to D4’s Request for Further and Better Particulars dated 11 January 2019 (“F&BP”), P stated as follows:
28.Annex 1 listed a total of 32 advances made by P to D1, namely:
29.There are various discrepancies in the figures stated above. First of all, the outstanding amount under the HKD-denominated trust receipt advances in the F&BP is stated as HK$2,196,673 whereas Annex 1 lists advances totalling HK$2,422,673.00. Second, and more importantly, there is no explanation for the difference between outstanding principal amount claimed in §7 of the Statement of Claim (HK$5,118,219.36) and that set out in the table in the F&BP (HK$6,153,091.84). 30.Be that as it may, the Statement of Claim was amended on 24 April 2019 and re-amended on 23 April 2020. The relevant passage now reads:
31.No amendment was made to F&BP. As such, P’s pleaded case remains that the outstanding principal (HK$5,097,791.84) derived from 26 advances (out of the 32 advances) set out in Annex 1 of the F&BP (i.e. the Subject Advances). 32.That being the position, it is clear that P’s only pleaded claim is in respect of loans which were advanced by P to D1 in 2015 and 2016. P’s claim is not, as Ms Cheung submits, in respect of (a portion of) D1’s outstanding indebtedness as at 31 March 2013. 33.For completeness, I have not lost sight of the fact that in §14 of RASOC, there is a plea that by his 4 letters to P, D4 accepted that he was liable for D1’s indebtedness as of 31 March 2013, such that he has waived the requirement of a formal demand and/or is estopped from contending that such demand was required.[7] Such plea only concerns P’s defence of waiver or estoppel, and is not a plea that P’s claim was in respect of D1’s indebtedness as of 31 March 2013 or that such indebtedness remained due and owing by the time the writ was issued. 34.Furthermore, Ms Cheung’s contention does not sit well with the fact that P’s claim is one brought against D1-D5 “jointly and severally”. It makes no sense for P to bring a claim against D1 in respect of its indebtedness as at 31 March 2013 if, as the evidence demonstrates, P continued to extend loans to D1 and D1 made further repayments of its loans after that date. Similarly, there is no basis for crystallising D2, D3 and D5’s obligations in March 2013 when their guarantees continued in force after that date. It follows that the only plausible reading of the RASOC is that P claims against each of D1-D5 in respect of D1’s Indebtedness as at 31 May 2017. 35.The next question is whether D4’s obligations under the Guarantee extended to any part of the Indebtedness. They clearly do not. There is no dispute between the parties that D4 validly gave notice to terminate the Guarantee on 11 March 2013, thereby bringing the Guarantee to an end with effect from 11 June 2013. Accordingly, D4 was released from liability in respect of any new facilities advanced by P to D1 after that date. 36.Pleadings aside, it is clear from the evidence adduced by P that the Indebtedness comprised only of the new facilities advanced by P to D1 after D4 had terminated the Guarantee.
37.In the premises, both on the basis of its pleadings and documentary evidence adduced, P’s only claim against D4 is in respect of the Subject Advances, not the Indebtedness. 38.Ms Cheung in her written opening and closing submissions tries to salvage P’s claim by suggesting that the above analysis on the RASOC and the evidence “wholly ignores the nature of [D1’s] account being a running account, and crucially, [the Subsequent Payment Clause]” which, she said, “is effective to preserve the guarantor’s liability for the amount quantified at the time of termination”.[8] 39.I reject Ms Cheung’s submissions. 40.First, it is not P’s pleaded case that the Facilities were advanced to or otherwise maintained in “a running account”. Nor is there any evidence in support of that suggestion. To the contrary, the Facility Letters, and each of them, provided that the foreign export bills and trust receipt facilities were all advanced on the basis of a fixed tenor of 90 or 120 days. This is confirmed by the bills and trust receipts disclosed by P (in respect of the Subject Advances), which show that P had used the new bills and trust receipts facilities advanced to D1 for the purpose of pay off the earlier facilities. 41.Second, even if there is a proper basis for Ms Cheung’s suggestion that the Facilities were in the nature of a “running account”, it does not alter the fact that on P’s pleaded case, the entire outstanding principal and interest (i.e. the Indebtedness) arose under the Facilities advanced to D1 in 2015 and 2016 (i.e. Subject Advances). 42.As far as the Subsequent Payment Clause is concerned, even assuming the Clause has the effect of preserving D4’s liability at the time of termination of the Guarantee, it does not assist P, as P has not pleaded a claim for D1’s liability as at 11 June 2013. If, as in the present case, P is claiming for an amount outstanding as at 31 May 2017, it is necessary to ascertain what portion of that amount is attributable to D1’s liability at termination. Given P’s case that the Indebtedness for which it is claiming arose entirely out of D1’s borrowings after D4 had terminated the Guarantee, the fact that D4’s liability at time of termination was preserved by the Subsequent Payment Clause is neither here nor there. 43.P’s claim therefore fails on this ground alone. However, in case I am wrong, and in deference to counsel’s full submissions as to (1) whether D4’s liability was contingent on a demand being made, and (2) whether there was any waiver or estoppel in respect of this requirement, I will also go on to briefly discuss both issues. Requirement of a demand 44.Ms Cheung submits that by virtue of the Principal Debtor Clause, D4 is liable under the Guarantee regardless of whether a demand was made before termination of the Guarantee, even where the contract provides for payment on demand. She cites Esso Petroleum Co Ltd v Alstonbridge Properties Ltd [1975] 1 WLR 1474, MS Fashions v BCCI [1993] Ch 425, and TS&S Global Ltd v John Fithian-Franks [2007] EWHC 1401 as authorities for this proposition. 45.Mr Hughes, on the other hand, submits that the Guarantee should be read in a way which does not render the words “two days’ demand” mere surplusage. He points out that the Principal Debtor Clause is vague and ambiguous, tucked away at the very end of the Guarantee, and phrased in the passive voice. This may be contrasted with the clear and prominent requirement for 2 days’ demand in the Guarantee Clause at the beginning of the document. As for authority, he points out that MS Fashions was distinguished by Nugee J (as he then was) in Levin v Tannenbaum [2013] EWHC 4457 (Ch). 46.I agree with Ms Cheung that a number of Mr Hughes’ criticisms miss the point. For example, I do not see how anything turns on whether the Principal Debtor Clause is in the active or passive voice. Furthermore, I do not think that Ms Cheung’s reading of the Guarantee necessarily renders the reference to a demand nugatory. As she submits, while the requirement of a demand can be read as a condition precedent to the guarantor’s liability arising, it can also be read as a procedural requirement in the sense of a request for payment. I also agree with Ms Cheung that one must approach Levin v Tannenbaum with some caution, as it was a decision on an application for reverse summary judgment, where the test is one of whether the claimant had a real prospect of succeeding on the claim. 47.On balance, however, I think that Mr Hughes is right when he submits that as a matter of construction, D4’s liability under the Guarantee was conditional on a demand being made. I note in particular the following matters:
48.The parties then disagree on whether such a demand must have been made before the Guarantee was terminated. Mr Hughes relies on National Westminster Bank v Hardman [1988] FLR 302 in support of his submission that P’s failure to serve a demand within the 3 months’ notice period had the effect of releasing D4 from liability under the Guarantee. On the other hand, Ms Cheung seeks to distinguish Hardman on the facts, and invited the Court to not apply Hardman in view of its doubtful precedential value. 49.In my view, this is a moot point. The only demand alleged by P was the letter dated 18 October 2016.[9] As Ms Cheung accepts in her oral closing, P cannot rely on the Deemed Service Clause to deem service of the letter on D4 as the letter was sent to the Lyttelton Road Address, instead of the Berlin Address stated on the Guarantee. As such, P must prove that this letter was actually received by D4 in order for it to constitute a valid demand. 50.However, there is no evidence to suggest that D4 received the letter before the commencement of this action. D4 denies having received the letter in his evidence, explaining that the residence at the Lyttelton Road Address was owned by D1 and used by D2 and D5 as their accommodation. Mr Satpute confirms in cross-examination that D4 was living in Germany during the entire time that he dealt with D4. In any event, it is P’s own pleaded case that the letter was returned in the post.[10] 51.In her closing submissions, Ms Cheung suggests for the first time that D4 “must have received the demand letter at some point, at least by the time of discovery of these proceedings”, and submits that this is sufficient, relying on the decision of Simon Picken QC (as he then was) in United Trust Bank v Dohil [2011] EWHC 3302 (QB) [2012] 2 All ER (Comm) 765. However, this is not a matter relied upon in P’s pleadings. I do not think P should be permitted to rely on this point raised only in closing. 52.In any event, I see considerable force in the observations of the learned authors of Law on Guarantees (7th ed) §7-007 that it is not sufficient for the bank to prove that a guarantor received the letter relied on as a demand, and that the bank must instead show that the letter was in fact served as a demand:
53.For these reasons, I hold that D4’s obligations under the Guarantee were conditional upon a demand being made, and that no such demand was ever served by P before the commencement of this action. Waiver and estoppel 54.As Ms Cheung confirms in her opening submissions, P relies only on D4’s letters to P between March 2013 and April 2014 for its defences of waiver and estoppel. The relevant passages in those letters are as follows:
55.Ms Cheung contends that by these statements, D4 had unequivocally and repeatedly accepted that he remained liable for D1’s indebtedness as of 31 March 2013, thereby waiving the requirement of a formal demand. Furthermore, P altered its position in reliance on these statements by not making a formal demand on D4 and continuing its dealings with D1 contrary to its own rules and policies, such that D4 is now estopped from denying liability on the basis that P never made any formal demand. 56.I do not accept Ms Cheung’s submissions. In my judgment, there was no sufficiently clear and unequivocal act capable of giving rise to any waiver or estoppel. 57.First, D4’s assertions that he would not be liable for any new liabilities after the termination of the Guarantee are silent as to his liabilities prior to that date. There was thus no unequivocal acceptance of liability in respect of D1’s previous borrowings. A fortiori, one cannot read into those statements an admission that D4 was liable for D1’s previous borrowings regardless of whether a demand was made. This is especially so when the letters do not make any reference to the contractual stipulation for a demand. 58.Ms Cheung points out that under cross-examination, D4 accepts that by stating that borrowings after 31 March 2013 were at P’s risk, he also meant that he was liable for all borrowings before that. However, what D4 intended by his letters is of little relevance to the (objective) question of whether his statements read as a whole were sufficiently clear and unequivocal. 59.Second, D4’s repeated requests for copies of D1’s statement of account, if anything, demonstrated that he lacked visibility into his liabilities under the Guarantee at the time. It can scarcely be considered a clear expression of an intention to abandon whatever defences he might have in respect of his obligations thereunder. 60.Ms Cheung submits that the flip side of D4’s statement that “a failure to disclose such information will be understood as if my personal guarantee has been discharged in full” is that disclosure of the information sought means that D4’s personal guarantee is not discharged in full. Even if that is right (I do not think it is), D4’s statement says nothing as to his liability under the personal guarantee, and more pertinently, whether he decided to not insist on a formal demand. 61.Third, D4’s statement that “my personal guarantee is valid for all obligations dated prior to 31st March 2013”, taken at its highest, is an acceptance that his Guarantee applies in respect of loans made before March 2013. It is not an admission that he was unconditionally liable for such loans. As above, it says nothing about whether D4 intended to insist on a formal demand. 62.In any event, P has failed to make out the other elements of the 2 defences. 63.As far as waiver is concerned, it is well-established that a party will only be taken to have waived his rights if his unequivocal representation is made with the requisite knowledge (Large Land Investments v Cheung Siu Kwai Pansy [2002] 4 HKC 652, §15 per Yuen JA, Wilken and Ghaly, The Law of Waiver, Variation and Estoppel (3rd ed) §§1.27, 4.16-4.26). Ms Cheung accepts this in her oral closing. There is no plea in the RASOC as to D4’s state of mind at the time he sent the 4 letters. Nor does Ms Cheung put any such suggestion to D4 during cross-examination. 64.As for estoppel, P fails to prove that it detrimentally relied on any representation by P to the effect that he waived the requirement of a formal demand. P’s pleaded case is that it “acted in reliance on this express promise to its detriment by renewing and/or not terminating the [Facilities], and not issuing a formal demand to [D4] on or before 11 June 2013”. However, putting aside the fact that 2 of the subject letters were sent after 11 June 2013, the documentary evidence plainly demonstrates that P never relied on any such statement. In its letter to D4 dated 22 March 2013, P stated that:
65.This was repeated in its email to D4 on 27 March 2013, where P wrote as follows:
66.In his oral evidence, Mr Satpute confirms that this was P’s stance at the time, stating that since P’s internal policies required personal guarantees from all majority shareholders and directors of companies to which it lent money, it continued to treat the Guarantee as valid notwithstanding D4’s notice of termination. 67.These matters make it plain that P renewed the Facilities not because of any alleged representation made by D4, but because it (incorrectly) considered that D4’s Guarantee remained valid in respect of any new facilities to be advanced to D1. Similarly, P did not refrain from issuing a formal demand to D4 under the Guarantee because of any representation made by D4, but because it saw no reason to crystallise D4’s liability in June 2013. As such, P has failed to prove any detrimental reliance on its part. 68.As a final aside, I note that P’s assertion that it renewed the Facilities because D4 had unconditionally accepted liability in respect of D1’s indebtedness as at March 2013 was inherently implausible in the first place. There is no reason why a bank’s decision whether to advance further loans should have been affected by whether a guarantor had accepted liability in respect of past loans. Conclusion and costs 69.For these reasons, I dismiss P’s claim against D4. 70.As for costs, Mr Hughes informs the Court after I dismiss the claim that D4 made a sanctioned payment. Pursuant to Order 22 rules 23(3)-(5) of the Rules of the High Court, the Court shall order the plaintiff to pay costs incurred by the defendant after the last date on which the payment could have been accepted without leave of the Court on an indemnity basis, and interest on those costs at a rate not exceeding 10% above judgment rate, unless it considers it unjust to do so. I therefore give directions for the parties to lodge submissions on costs.
Ms Jasmine Cheung, instructed by Nixon Peabody CWL, for the plaintiff Mr Sebastian Hughes, instructed by Munros, for the 4th defendant [1] This comprised 9 HK dollar advances totalling HK$993,763 and 5 US dollar advances totalling US$130,367.00. P adopted an exchange rate of US$1:HK$7.84 in its calculations, in respect of which D4 did not raise any objection. [2] It will be noted that as at 31 May 2017, the Subject Advances total HK$4,781,312.32 whereas the principal sum of the Indebtedness is HK$5,097,791.84. There was no explanation for this discrepancy. However, nothing ultimately turns on this point for reasons which will become clear below. [3] RASOC §7, Prayer (a). [4] Of which 9 are Subject Advances. 4 of the remaining trust receipts were repaid and one was partially repaid. It is unclear why the outstanding amount in respect of the partially paid trust receipt does not form part of the Indebtedness. [5] Of which 5 are Subject Advances. It is unclear why the remaining trust receipt does not form part of the Indebtedness. [6] All of which are Subject Advances. [7] RASOC §14 states that “by, inter alia, letters dated 11 March 2013, 26 March 2013, 27 November 2013 and 29 April 2014, [D4] expressly accepted (at the very least) that he was liable for the indebtedness of [D1] as of 31 March 2013, i.e. around HK$8,732,245.06, thereby waiving any requirement of a formal demand to be made by [P]…”. [8] §33. [9] F&BP §4. [10] Reply §18. | ||||||||||||||||||||||||||||||||||||||||||||||||||
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