Bank of America National Trust and Savings Association v. Graham Harry Fountain

HCA008313/1984

1984, No. 8313

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H E A D N O T E

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Application to set aside summary judgment obtained in default of appearance at the hearing.

HELD that the test to be applied on an application to set aside a regular judgment obtained in default is that laid down in the decision of the House of Lords in Evans v. Bartlam [1973] A.C. 473, as recently explained by the Court of Appeal in The Saudi Eagle [1986] 2 Lloyd's Rep. 221 at p.223. (The Court rejected the defendant's submission that the Court of Appeal had in the 1986 case, departed from the test laid down by House of Lords in 1937).

HELD FURTHER that:

(i) Where a guarantee is executed with the spaces for inserting a limit to the amount guaranteed left blank the prima facie position is that the guarantee is unlimited as to amount. The test in regard to the formation of contracts being objective, that prima facie position could not be displaced by purely subjective considerations pertaining to one party only. (The Court noted that, on the material placed before it, the law of California - which appeared to be the proper law of the guarantee - seemed to be the same as the law of Hong Kong on this point).

(ii) Where a defendant has allowed a judgment to go against him in default, and has then been guilty of delay in applying to set aside such judgment, the Court could, in the exercise of its discretion, refuse to act on any point relied upon in support of such application if the plaintiff is prejudiced in its ability to meet the point because witnesses upon whom it might have relied in meeting the point, if it had been taken earlier, have disappeared.

(iii) There may well be a rule of equity which prevents a creditor from unfairly placing the whole burden upon a particular surety (eg. by pursuing him to the exclusion of a solvent principal debtor or solvent co-sureties who could easily be, but are not, joined in the action). But merely pointing out that co-sureties have not been pursued is not enough to bring any such rule into operation.

1984, No. 8313

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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Coram: Bokhary J. in Chambers

Date of hearing: September 26, 1989

Date of delivery of judgment: September 26, 1989

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J U D G M E N T

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1. I would have preferred a little time to prepare my judgment in this matter, but I feel that I should give judgment straightaway because, for a variety of reasons, the matter does not really admit of delay; and it is not desirable to simply announce my decision without giving any reasons.

2. This is an appeal from the dismissal by a Master of two applications by the defendant guarantor. The applications were to stay execution on a judgment obtained by the plaintiff bank under Order 14 on February 4, 1985, and to set aside that judgment under order 14 rule 11.

3. The defendant had been served with the Order 14 proceedings, but did not appear at the hearing.

4. In the guarantee in question, which was signed back in 1981, the name of the borrower was left blank. This omission was not one on which the defendant had relied until I pointed it out in the course of the hearing before me today. I think that it is fair to say that the defendant knew full well who the borrower was, and that, if extrinsic evidence were necessary to complete the contract of guarantee in that regard, such extrinsic evidence is to be found in the material placed before the court by the defendant as well as by the plaintiff itself.

5. The guarantee is of "any and all indebtedness". This is stated in clause 1 of the guarantee. Clause 2 of the guarantee opens with a provision for limiting the amount guaranteed. When the guarantee was signed, the spaces for inserting the limit, in word and figures it would seem, were left blank. Where matters rest like that without more, the prima facie position is that the guarantee is unlimited as to amount. It is well establish that this is the law in Hong Kong.

6. A complication arises in the present case in that the guarantee contains a provision to the effect that it shall be governed by, and construed according to, the laws of the State of California. The parties have placed before me evidence as to Californian law. Each party has proferred an affidavit from a lawyer practising that law. Looking at the two affidavits, I find no discernible difference between the law of California and that of Hong Kong on this point. Save in so far as the Law of California is shown to be different from that of Hong Kong, it is to be taken to be the same. Of course, in proceedings such as these, I am not concerned simply with what the party asserting a difference has shown, but rather with what that party has managed to put forward as a difference properly to be investigated at trial. But however one approaches it, I do not detect any difference upon which I can act in the matter before me.

7. The test when it comes to the formation of contract is objective. Nobody is suggesting that this is not so in California.

8. What the defendant has said on affidavit is this: "My understanding of the transaction was that the guarantee would only be completed and become effective when the parties had agreed upon the limit of the guarantee. If the Company's accounts had stated that the guarantee was unlimited. I would have protested vigorously - such was not my understanding of the transaction."

9. That does not assist the defendant when one applies, as one must apply, an objective test. I pointed this out to counsel for the defendant this morning, and invited him to consider whether or not he wished to apply to put in some further evidence directed to an objective test. For reasons which appeared to him to be good, counsel for the defendant declined to put in any further evidence on this point.

10. Having given this matter very careful consideration, I do not think that the blanks left in the guarantee provide a basis for granting either of the applications refused by the learned Master.

11. It is not necessary to rehearse in great detail the approach of the courts in applications of this sort. The leading case is of course the decision of the House of Lords in Evans v. Bartlam [1937] A.C. 473. That case was considered by the Court of Appeal in the The Saudi Eagle [1986] 2 Lloyd's Rep. 221 In delivering the judgment of the Court of Appeal, Sir Roger Ormrod referred to the phrase "an arguable case" and continued thus at page 223:-

"If it is used in the same sense in relation to setting aside a default judgment, it does not accord in our judgment, with the standard indicated by each of their Lordships in Evans v. Bartlam. All of them clearly contemplated that a defendant who is asking the Court to exercise its discretion in his favour should show that he has a defence which has a real prospect of success. (In Evans v. Bartlam there was an obvious defence under the Gaming Act and in Vann v. Awford a reasonable prospect of reducing the guantum of the claim.) Indeed it would he surprising if the standard required for obtaining leave to defend (which has only to displace the plaintiff's assertion that there is no defence) were be the same as that required to displace a regular judgment of the Court and with it the rights acquired by the plaintiff. In our opinion, therefore, to arrive at a reasoned assessment of the justice of the case the Court must form a provisional view of the probable outcome if the judgment were to be set aside and the defence developed. The 'arguable' defence must carry some degree of conviction."

12. Counsel for the defendant suggested that the Court of Appeal was there departing from Evans & Bartlam. In my judgment, the Court of Appeal was not doing anything of the sort. In deciding what I have indicated and what I am about to announce, I have followed the test in The Saudi Eagle, which, in my judgment, follows Evans & Bartlam.

13. Another point taken on behalf of the defendant is that the plaintiff had no accrued cause of action when it issued its writ. The writ was issued on December 6, 1984. The guarantee imposes on the defendant a liability to pay "on demand". It was also on December 6, 1984, that the letter of demand was written. One gathers this simply by looking at the letter, which is not alleged to be a forgery. But the question remains : when was the demand by that letter made? In other words : when was that letter delivered? On the face of the letter, it was "by hand". The Statement of Claim endorsed 'on the writ makes reference to the letter. On the fade of it, therefore, one would not be disposed to think that the legal advisors of the plaintiff had reversed the proper order of demand and writ.

14. The defendant, however, has asserted that he did no receive the letter of demand until some days after the action had been commenced. Counsel for the plaintiff says that this assertion coming long after the time when the writ was issued has made it very difficult for his client adequately to counter what is being suggested. It seems that various employees of the plaintiff who could have spoken about these matters have now left the plaintiff and cannot be traced.

15. It is well-established that when a party seeks to set aside a regular judgment - which is what the defendant is trying to do in this case - he has to do so timeously, and that delay coupled with prejudice is a ground for refusing to set aside the judgment. So it is said that I should refuse to entertain this ground on the basis that the defendant should not be given an indulgence at the expense of the plaintiff.

16. Certainly the defendant comes to Court requiring an indulgence. To begin with, he has allowed a judgment to go in default against him. He did so, he says, because there were certain negotiations between the plaintiff and another bank which he believed would result in an arrangement under which no judgment obtained against him would be enforced. No material has been put before me to suggest that this was a reasonable belief. And on the face of it, one would have thought that it was more than anybody was entitled to assume that negotiations would definitely take a particular course and lead to a particular result.

17. The second respect in which the defendant requires indulgence is in regard to the delay of which it is said that he has been guilty in regard to applying to set aside the judgment obtained against him.

18. The judgment was obtained, as I have indicated, in early 1985. It was not until early this year that the defendant applied for a stay of execution and then for a setting aside, There has been a considerable measure of delay. But not all of that delay is the defendant's fault. Some of it, however, is delay on his part and his part alone.

19. In my judgment, the defendant's act of allowing judgment to go in default and his failure timeously to apply to set it aside has resulted in a position in which the plaintiff is severely hampered and prejudiced in meeting the point as to the accrual of its cause of action.

20. In the exercise of my discretion, I decline to grant the defendant any relief on that point. I should not be taken as being of the view that the point would have satisfied the test in The Saudi Eagle if I had been prepared to allow it to be relied upon.

21. The final point taken by the defendant is that the guarantee has been discharged by the plaintiff's conduct. Such conduct is divided up in the way that it has been put forward by the defendant into: first, conduct in relation to the principal debtor; secondly, conduct in relation to the defendant's co-sureties arising out of failure to pursue them; and thirdly, conduct in relation to the co-sureties by reason of an assignment.

22. As far as conduct in relation to the principal debtor is concerned, the argument, as I understand it, is that the plaintiff gave the principal debtor, or the "borrower" to use the language of the guarantee, time. That point is not so easy to isolate in the present case, which is one of a guarantee of any and all indebtedness incurred before or after the date of the guarantee. In some of the older cases the guarantees were of a particular set of obligations under a particular contract. So once the terms of the contract were varied, the point stood out in stark relief. What has been said, on high authority, is that if there has been any substantial change, then the guarantee is discharged, if that change is effected without the consent of the guarantor, whether or not the guarantor is really adversely affected by the change. As it was put by Lord Eldon, paraphrasing him, it is really a matter for the guarantor to decide what does or does not benefit him.

23. The complication in the present case is, however, removed by an express provision in the guarantee to the effect that the guarantors authorise the plaintiff, "… without notice or demand and without affecting their liability [under the guarantee], from time to time to renew, compromise, extend, accelerate or otherwise change the time for payment of, or otherwise change the terms of the indebtedness or any part thereof, including increases or decreases of the rate of interest thereon…" In light of that provision, I do not think that the point is one which has any merit.

24. As far as the co-sureties are concerned, I do not think that the defendant can erect a defence merely on the basis that the co-sureties have not been pursued. There may well be a rule of equity which prevents a creditor from unfairly placing the whole burden of the debt upon a particular surety. That maybe the case where, for example, the creditor pursues a particular surety to the exclusion of a solvent principal debtor or solvent co-sureties who could easily be, but are not, joined in the action. But merely to point out that the co-sureties have not been pursued without more does not avail the defendant.

25. Finally, there is the point in-relation to the assignment. I will come straight to the point. I do not think there is anything in the argument. The plaintiff had at one stage given a notice of assignment which, if it were accurate, suggested that the whole of the benefit of the judgment here in question had been assigned to another bank. But in turth, that is not what happened. What seems to have happened is that an arrangement was entered into between the plaintiff and another bank under which the plaintiff assigned a certain portion of what it my be able to recover by way of execution on the judgment, provided that the retained portion is fully satisfied first.

26. In the course of the argument, some reference was made to certain sums which the plaintiff has recovered. This, it is said, affects its right to execute on the judgment, on the basis that it has recovered something and must therefore give credit for it. That matter was not gone into in any detail. In any event, it does not provide a basis for a stay or a setting aside. No doubt, if the bank has received some payment, credit will be given when it comes to executing on the judgment. That is quite a different matter.

27. The result at which I have arrived, if it is not already clear, is that the appeal from the Master is dismissed. I wish to express my indebtedness to Counsel for the assistance which they have given me; and I apologize if, by reason of the haste with which I have had to give this judgment, I have not, in the way I have expressed myself, done full justice to the eloquent way in which they have expressed themselves. In any event, that is the result. I dismiss the appeal; and will now heard counsel on the question of costs.

(Submissions on Costs)

28. The defendant does not resist costs. The appeal is dismissed with costs to the plaintiff.

Representation:

Mr A. Huggins (instructed by Messrs Kao, Lee & Yip) for the plaintiff.

Mr B. Barlow (instructed by Messrs Simmons & Simmons) for the defendant.