Liu Chong Hing Bank Ltd. v. Ocean Importers & Exporters Company Ltd. and Others
Read the full judgment text of HCA 18412/1998 on BabelCite. This High Court CFI judgment was delivered on 8 June 2001.
1. The plaintiff is a bank. The 1st defendant was a customer of the plaintiff at its Sheung Wan branch ("the said branch"). By a continuing guarantee in writing dated 22 June 1993 in consideration of the plaintiff making or agreeing to make advances to the 1st defendant, the 2nd, 3rd and 4th defendants guaranteed and agreed with the plaintiff to pay upon demand all monies advanced by the plaintiff to the 1st defendant ("the guarantee"). Pursuant to the guarantee the plaintiff granted banking fac
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HCA018412/1998 HCA 18412/1998 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 18412 OF 1998 _______________________
_______________________ Coram: Hon. Sakhrani J in Court Date of Hearing: 21-25 May 2001 Date of Judgment: 8 June 2001 _____________________ J U D G M E N T _____________________ 1.The plaintiff is a bank. The 1st defendant was a customer of the plaintiff at its Sheung Wan branch ("the said branch"). By a continuing guarantee in writing dated 22 June 1993 in consideration of the plaintiff making or agreeing to make advances to the 1st defendant, the 2nd, 3rd and 4th defendants guaranteed and agreed with the plaintiff to pay upon demand all monies advanced by the plaintiff to the 1st defendant ("the guarantee"). Pursuant to the guarantee the plaintiff granted banking facilities and made advances to the 1st defendant. As at 15 October 1998 the 1st defendant owed the plaintiff a sum in excess of $3 million. Demands for payment were made on all the defendants but payment was not made by any of them. The writ in this action was issued on 15 October 1998 against all the defendants. 2.The 1st, 3rd and 4th defendants did not defend the action. Judgment in default was entered against them on 8 January 1999. By the amended judgment it was adjudged that the 1st, 3rd and 4th defendants do pay the plaintiff :
3.The 3rd and 4th defendants did not dispute their liabilities to the plaintiff under the guarantee. They accepted that they were liable to the plaintiff under the guarantee. The 2nd defendant, however, has disputed liability to the plaintiff under the guarantee and has defended this action. The plaintiff's case against the 2nd defendant is that she is liable to the plaintiff under the guarantee. The 2nd defendant admits that she signed the guarantee. However, she has raised a number of defences :
The evidence 4.The plaintiff called Chan Ping Wing, the business manager of the plaintiff, and Chan Jub Chung, the manager of the said branch at all material times, to give evidence. 5.The 2nd defendant gave evidence. She also called the 3rd and 4th defendants to give evidence. 6.Prior to November 1992 the 3rd defendant operated Ocean Trading Co. It was a sole proprietorship registered in the name of his daughter but the 3rd defendant was the owner and the person in control of the business. Its business was mainly in import and export of, inter alia, electrical products with customers in Cambodia, Vietnam and USA. Ocean Trading Co had a bank account with the plaintiff at the said branch which was located close to its place of business. The 3rd defendant acquired Ocean Chest Co in November 1992. The 2nd and 3rd defendants became shareholders and directors of Ocean Chest Co which later changed its name to the name of the 1st defendant. The documents produced show that the 2nd and 3rd defendants each signed a bought note in respect of the purchase of one share each in the company as well as an instrument of transfer. 7.On 20 April 1993 the 1st defendant opened a current account with the plaintiff at the said branch. Chan Jub Chung, the branch manager, said that he was aware that the 1st defendant was formed to take over the business of the sole proprietorship. The bank account of the sole proprietorship was closed and a new current account was opened for the 1st defendant on 20 April 1993. On that day the 2nd, 3rd and 4th defendants all went to the said branch to open the current account and signed a number of documents for that purpose. 8.In June 1993 the 1st defendant applied to the plaintiff for banking facilities. The facilities that were required were for overdraft, letters of credit and trust receipts. The application by the 1st defendant for banking facilities which it required was contained in an application dated 22 June 1993 which was signed by both the 2nd and 3rd defendants. It was necessary for the 1st defendant to open a bills account with the plaintiff to utilise the banking facilities. On 22 June 1993 Chan Ping Wing, the business manager of the plaintiff at the said branch, was instructed by Chan Jub Chung to obtain the signatures of the 2nd, 3rd and 4th defendants on the documents which were required by the plaintiff for the opening of the bills account. One such documents was the guarantee to be signed by the 2nd, 3rd and 4th defendants. 9.Chan Ping Wing said that he had brought a number of documents with him to the 1st defendant's offices located near the said branch so that these could be signed. He brought with him five facility documents which were (1) a continuing agreement an indemnity relating to the issue of shipping guarantees or indemnities; (2) a general letter of hypothecation; (3) an agreement and indemnity relating to the opening of commercial credits; (4) a running trust receipt agreement and (5) a general letter of indemnity for irregular documents. He also brought with him the guarantee and a charge on fixed deposit. He had typed in all the relevant information on the documents before bringing them to the 1st defendant's offices. On the guarantee he had also typed in the word "unlimited" on the first page to indicate that the liabilities to be guaranteed were unlimited. 10.Chan Ping Wing also said that inside the 3rd defendant's room he informed the 2nd, 3rd and 4th defendants that he had brought the said documents with him for their signature. He told them that the documents had to be signed before the bills account could be opened. He also told them that the guarantee had to be signed and that as the guarantee had the word "unlimited" on it and as it was unlimited it meant that they would be liable to repay all the amounts owed to the plaintiff. He also asked them to sign above the word "unlimited" on the first page of the guarantee to show that it had been explained to them that it was a guarantee which was unlimited in amount. After the three of them understood that he asked them to sign on the document. Chan Ping Wing also said that his standard of English was average. He said that he did not explain the terms of all the documents which he had brought with him as he did not consider it his duty to do so. Chan Ping Wing was, however, adamant that he did explain the nature and effect of the guarantee to the 2nd, 3rd and 4th defendants before they signed it. He also said that he did not explain the other facility documents to them. They did not request copies of the documents that they had signed and he did not provide the same to them. On the evidence of Chan Ping Wing he did explain the nature and effect of the guarantee to the 2nd, 3rd and 4th defendants. 11.It was suggested to Chan Ping Wing in cross-examination that the word "unlimited" was not on the first page of the guarantee before the 2nd, 3rd and 4th defendants signed on the first page but that it was added subsequently after the document was signed. He denied this suggestion. There was no merit at all in the suggestion put to him. It was not supported by the evidence adduced on behalf of the 2nd defendant. Furthermore, looking at the original of the guarantee, exhibit P.1, it is beyond doubt that the word "unlimited" was already typed on the first page of the guarantee before the 3rd defendant signed over that word. The 3rd defendant also accepted in evidence that he had signed over that word when he looked at exhibit P.1 in evidence. He did, however, say that he did not notice or pay attention to that word at the time when he signed over it. The 2nd defendant also said that she did not pay attention to that word when she signed. 12.Chan Ping Wing also denied the suggestion that he had heard the 3rd defendant say to the 2nd defendant on the same occasion that she was not a real shareholder and director of the company but a mere employee and that there would be no problem for her to sign the documents. He also denied the suggestion that he himself told the 2nd defendant that by signing the documents she would not be liable for the company's debts. There was, however, no evidence at all adduced on behalf of the 2nd defendant in support this suggestion. 13.It was also the evidence of Chan Ping Wing that he knew that the 2nd defendant was an employee of Ocean Trading Co before the 1st defendant was incorporated but that he had no idea how she became a shareholder and director of the 1st defendant. 14.Chan Jub Chung was not present when the guarantee and the other documents were signed on 22 June 1993. He gave instructions to Chan Ping Wing to get the signatures on the documents which were required for the opening of the 1st defendant's bills account with the plaintiff which included the guarantee. He knew that Ocean Trading Co was the 3rd defendant's business and that Ocean Trading Co was a customer of the said branch from about 1989. He also knew that the 2nd defendant was employed by the firm. He said that after the 1st defendant was incorporated in November 1992 he learnt from the company's search record of the 1st defendant that the 2nd defendant had become a director and shareholder of the 1st defendant. He denied that he had been told by the 3rd defendant that although the 2nd defendant was a shareholder and director of the 1st defendant she did not in fact have a beneficial interest in the company. He denied that he was told that she was just a nominal shareholder and director only holding such position on trust for the 3rd defendant. 15.The 2nd defendant gave evidence that she joined Ocean Trading Co as a shipping clerk in 1990. The 3rd defendant was her boss. She said that her level of English was average having completed Form Six in a Chinese secondary school. According to her she had no fixed duties. Her duties included dealing with shipping documentation, contacting suppliers and customers. It was a small firm with about four employees. She effectively became the 3rd defendant's personal assistant. According to her, the 3rd defendant trusted her to a large extent. The 3rd defendant also confirmed that he found her trustworthy. 16.The 2nd defendant said that she had been occupying a relatively junior position around November 1992 when the 3rd defendant told her that he had to form a limited company. He told her that the company required two directors and said that he wanted her to be a director. She said that he did not mention that she should be a shareholder. She did not wish to be a director and suggested that he should ask his wife or one of his children to take up the post. However, later on he asked her again to be a director. The 3rd defendant told her that his wife was a housewife who knew nothing and that his son, the 4th defendant, was living in France so it would be convenient for the 2nd defendant to be a director as she was always in the office and could sign documents. He also told her that she would incur no liability as a director and if she wished she could telephone the firm of accountants that were acting for the firm to confirm this. She said that she telephoned them and an accountant told her that she would not incur any liability as a director. The 3rd defendant told her that the accountant had prepared the necessary documentation. She said that she agreed to be a director as she thought that she would incur no liability so she decided to help him. She went with him to the accountants' firm to sign the necessary documents. She did sign, inter alia, a bought note dated 26 November 1992 as well as an instrument of transfer for one share in the company. Although she did sign documents showing clearly that she was to be not only a director but also a shareholder of the company, she said that the accountant had not explained all the documents to her. She said that she did not know that she was a shareholder of the company until over a year later when the annual return was received by the company's accounting officer from the firm of accountants. She also said that the 3rd defendant told her that when his son, the 4th defendant, returned from France she could have her name removed. However, when the 4th defendant did return to Hong Kong from France after the Chinese new year in 1993, the 3rd defendant did not then take steps to have her name removed as he told her that the accountant advised delaying that until the next annual return was to be filed. She, however, remained a director until late 1996 and a shareholder until January 1997. The 2nd defendant said that although she had asked the 3rd defendant to remove her as a director earlier this was not done as he made all sorts of excuses. 17.The 2nd defendant said that she went with the 3rd and 4th defendants to open the current account for the 1st defendant at the said branch in April 1993. There is no dispute that an account was opened on 20 April 1993. She said that she did not wish to sign the documents for the opening of the current account but the 3rd defendant seemed to be very annoyed and told her that as she was a director she was required to sign. She did not refuse to sign because she thought that if she refused she might lose her job. 18.On the occasion of her signing the documents in June 1993 at the 1st defendant's offices, the 2nd defendant said that prior to the arrival of Chan Ping Wing she did not know that he was coming. She showed him to the 3rd defendant's room and left. After a while the 3rd defendant asked her to go in. The 4th defendant was not there at the time. The 3rd defendant told her that she was required to sign some documents in relation to the bills account of the 1st defendant. She told him that she had already signed documents on the previous occasion and asked for the reason why she was required to sign documents again. She said that the 3rd defendant told her in the presence of Chan Ping Wing that she was not a real director but just an employee and asked her not to worry as she would not have to bear any liability. He then asked her to sign next to his signature on the documents that he had already signed. She said that Chan Ping Wing did mention that the documents were in relation to the opening of the bills account. She said that she did not have the time or the opportunity to consider the documents but she did not ask for more time to do so as she would not understand them. She said that no one told her that one of the documents was a personal guarantee for an unlimited amount. She did not notice the word "unlimited" on the first page of the guarantee where the 3rd defendant had signed. She also gave evidence that she was just an employee and had she been told that she was signing a guarantee she would not have signed it. She did not have the financial means to guarantee the company's debts. She also said that she had no financial interest in the 1st defendant and did not pay for the shares in the company. She denied that Chan Ping Wing had explained the nature and effect of the guarantee before she signed it. She also denied that he drew her attention to the word "unlimited" on the first page of the guarantee. 19.The 2nd defendant also said that the 3rd defendant pressured her to become a director of the 1st defendant. She was under the impression that if she refused she would lose her job. She said that she was also pressured when she went to the said branch to open the current account in April 1993. She felt that she might not be able to find another job although she did say that in fact she did not look for another job at the time. She said that she was also pressured on the occasion in June 1993 when she signed the documents including the guarantee at the 1st defendant's offices. On that occasion she was reluctant to sign the documents but the 3rd defendant repeated that she was a director and had to sign the documents. She said that he told her that it was very important to apply for the credit facilities on the bills account and that as she was only a nominal director there was no problem as she would not have to bear any liability. She was also told by the 3rd defendant that if she did not sign then the bills account could not be opened and there would be problems with her job. She took that to mean that she would lose her job although he did not specifically say so. 20.The 3rd defendant in evidence said that he was the owner of Ocean Trading Co although it was registered in the name of his daughter as the sole proprietor. He was advised to acquire a limited company which he did in November 1992. He acquired Ocean Chest Co which later changed its name to the name of the 1st defendant. He knew that a limited company required at least two shareholders and directors. He initially wanted his daughter to be a director with him but she refused. He intended to ask his son, the 4th defendant, to do so but he was in France at the time and could not assist him until after his return. He therefore asked the 2nd defendant to be a director of the company as he felt that she had been working for him for about three years and she was honest and trustworthy. He thought that she could be a director and shareholder on a nominal basis and that upon his son's return from France the same could be transferred to him. He did not intend to confer any beneficial interest in the company to the 2nd defendant. 21.The 3rd defendant said that he did tell Chan Jub Chung that the 2nd defendant only lent her name to the company and in fact she did not have any real share. Chan Jub Chung denied this. The 3rd defendant, however, said that this was said only in late 1993 or the beginning of 1994 which was well after the execution of the guarantee in June 1993. 22.The 3rd defendant confirmed that the 2nd defendant was reluctant to be a director and he told her that she would not be liable as the business was his and she was just acting on a nominal basis with no interest in the company. She finally agreed and they went to the accounting firm to sign the relevant documents. 23.The 3rd defendant also said that the 1st defendant opened the current account at the said branch and the old account in the name of Ocean Trading Co was closed. He said that at the said branch outside the room of Chan Jub Chung he did tell the 2nd defendant that she was required to sign documents for the opening of the current account and that there would be no liability on her part as he would shoulder all the liability because the business was his. This was, however, not said in the presence of Chan Jub Chung as it was said outside his room. 24.The 3rd defendant also said that the 1st defendant had applied for banking facilities and confirmed that he had signed the application dated 22 June 1993 together with the 2nd defendant for this purpose. He remembered that Chan Ping Wing came to the 1st defendant's offices for signatures to be obtained from him, the 2nd and 4th defendants on documents in relation to the opening of the bills account. He couldn't remember the documents that he signed on that occasion or whether the guarantee was one such document. He said that Chan Ping Wing did not say that one of the documents was a guarantee nor did he mention anything about the guarantee being unlimited. He also said that Chan Ping Wing did not draw their attention to the word "unlimited" on the first page of the guarantee. The 3rd defendant also said that he never told the 2nd defendant that she was required to sign a personal guarantee in favour of the plaintiff to secure banking facilities for the company. 25.The 4th defendant also gave evidence. He could not remember which documents he signed on the occasion of the opening of the current account of the 1st defendant when the same was opened at the said branch. He was also unable to remember which documents he signed on the occasion in June 1993 when Chan Ping Wing went to the 1st defendant offices. He was unable to remember what was said by the bank officer on that occasion. He could not also remember whether anybody was reluctant to sign on the documents. He was, however, sure that no one mentioned that one of the documents was a guarantee which was unlimited in amount. 26.Having seen and heard the witnesses, I have no hesitation in accepting Chan Ping Wing and Chan Jub Chung as honest witnesses who have given their evidence truthfully. They impressed me as witnesses of truth. They were credible and reliable witnesses. I believe their evidence. I cannot say the same for the 2nd defendant, the 3rd defendant and the 4th defendant. I was not impressed with them as witnesses who gave their evidence truthfully. Where their evidence is at variance with the evidence of Chan Ping Wing and Chan Jub Chung, I prefer the evidence of Chan Jub Chung and Chan Ping Wing. I believe them and disbelieve the 2nd, 3rd and 4th defendants. 27.The 2nd defendant struck me as being an intelligent woman. She is not a naive housewife or a country bumpkin. Although she commenced work as a shipping clerk for the 3rd defendant in 1990 she became his trusted employee. She in effect became his personal assistant dealing with the shipping documentation, contacting customers and suppliers. The 3rd defendant said that he did not know English but he relied on her to help him with English documents. 28.The 2nd defendant tried to distance herself away from any knowledge that she had in fact signed the guarantee. Her evidence was that prior to receiving the letter of demand from the plaintiff's solicitors dated 29 June 1998 she did not in fact know that she had signed a continuing guarantee in favour of the plaintiff. I do not believe her. If she really only found out for the first time when receiving the said letter of demand that she had signed the guarantee, I am confident that she would have been outraged and would have made her position clearly known to the plaintiff. That she did not do. It is significant that she did not seek to dispute her liability on the guarantee. She did not raise any of the defences raised at trial. By her letter dated 26 October 1998 she wrote to the plaintiff seeking indulgence to allow her to pay the plaintiff what she could afford to pay by instalments. Although in the said letter she accused the accountant of misleading her to become a director, she never made any allegations against any officer or employee of the plaintiff. In evidence she tried to explain away this letter by saying that a friend advised her that she was liable on the guarantee and that was why she did not dispute it. She also said that the 3rd defendant had asked her to write the letter seeking indulgence as he would be the one paying it. Her reasons for not raising any of the matters which she has subsequently raised by way of defences are unconvincing. I do not believe her. 29.Furthermore, the application by the 1st defendant for banking facilities dated 22 June 1993 was signed by her and the 3rd defendant. She was one of the guarantors particularised under "particulars of guarantors" which words were also in Chinese in the document. The 2nd defendant suggested in evidence that when she signed that document some places might have been in blank but she could not say whether that was in fact so. I find that she would have known that she was one of the guarantors mentioned in the application by the 1st defendant for the banking facilities. I also do not believe the 3rd defendant when he said that he did not tell the 2nd defendant that she was a guarantor in respect of the debts of the 1st defendant to the plaintiff. 30.The 3rd defendant also wrote to the bank on 22 July 1998 in an attempt to seek the discharge of the 2nd defendant as a guarantor. No doubt he felt responsible to the 2nd defendant and wished to help her. In that letter he stated, inter alia, that she was only an employee but not a real director and shareholder and that she had no benefit in the company. It is significant that nowhere in the said letter was it ever suggested that the plaintiff had previously been told of or had known these matters. I do not believe the 3rd defendant when he said that he informed Chan Jub Chung in a casual conversation in late 1993 or early 1994 that he had asked the 2nd defendant to be a director on a nominal basis and that she did not in fact have any real shares in the company. This conversation is said to have taken place well after the execution of the guarantee but I do not believe that the 3rd defendant ever said that to Chan Jub Chung. 31.The 3rd defendant also said that he only came to know that he had signed a guarantee when he was sued by the plaintiff in the action. That cannot be true and I disbelieve him. The application for banking facilities dated 22 June 1993 clearly set out the particulars of the guarantors. He signed that document together with the 2nd defendant. Also the subsequent correspondence from the plaintiff to the 1st defendant in the supplemental bundle, for instance, the letter of 11 March 1995 marked for his attention and the 4th defendant's attention made it plain that he had provided a guarantee. 32.The 4th defendant said that even at the time that judgment was entered against him he did not know that he had signed the guarantee. This cannot be true. I do not believe him. The said letter dated 11 March 1995 in the supplemental bundle shows clearly that he had provided a guarantee. He must have known that. He did not remember very much about the events and, in my view, he is an unreliable witness. 33.As I have said, I prefer the evidence of Chan Ping Wing and Chan Jub Chung to the evidence of 2nd, 3rd and 4th defendants. I believe Chan Ping Wing and Chan Jub Chung. I disbelieve the 2nd, 3rd and 4th defendants. 34.I find that the 2nd defendant knew that she was required to provide a guarantee. At the material time she was a shareholder and director of the 1st defendant and was registered as such. It may be that she in fact had no beneficial interest in the company but I find that the officers of the plaintiff did not know this nor did they know that she was a director and shareholder on a nominal basis. I also find that the plaintiff had no reason to be put on inquiry as to this. I find that the 3rd defendant did not say to Chan Jub Chung at any time that he had asked the 2nd defendant to be a director of the 1st defendant on a nominal basis and that she did not have any real shares in the company. I also find that the 3rd defendant did not say to the 2nd defendant in the presence of Chan Ping Wing on the occasion at the 1st defendant's offices on 22 June 1993 that she was not a real director but just an employee and would not have to bear any liability. There is nothing unusual in a bank requiring personal guarantees from the directors and shareholders of a company where banking facilities are to be given to that company. There was nothing unusual in my judgment in the plaintiff requiring the guarantee from the 2nd defendant. At the material time she was a director and shareholder of the 1st defendant and was registered as such. How she became a shareholder and director and what were the internal arrangements between the members of the company were not matters known to the bank nor was there any reason for them to be put on inquiry. 35.I find that on 22 June 1993 the 2nd, 3rd and 4th defendants knew that they were signing documents in relation to the opening of the bills account for the 1st defendant. I also find that they knew that one of the documents was a continuing guarantee in favour of the plaintiff which was unlimited in amount. I find that Chan Ping Wing had typed in the word "unlimited" on the first page of the guarantee and that he drew this to their attention and asked them to sign there to signify that they understood that it was an unlimited guarantee. I find that Chan Ping Wing did explain the nature and effect of the guarantee to them including the 2nd defendant and that they understood that they were signing a guarantee which was unlimited in amount. I also find that before the 2nd, 3rd and 4th defendants signed the guarantee they knew that they were providing a continuing guarantee for an unlimited amount to the plaintiff as security for the banking facilities granted by the plaintiff to the 1st defendant. I turn to the defences raised. Non est factum 36.The 2nd defendant's case is that she signed the guarantee under a "fundamental mistake as to the character and nature of the document" (para 3 of the re-re-amended defence and counterclaim). I accept Mr Fung's submission that for a plea of non est factum to succeed the 2nd defendant must establish two things :
37.In view of my findings above the 2nd defendant has failed to establish that there was a radical or fundamental difference between what she signed and what she thought she was signing. I am satisfied that she knew that she was signing the guarantee for an unlimited amount to guarantee the banking facilities granted by the plaintiff to the 1st defendant. In my judgment the defence of non est factum fails. Economic duress 38.Para 3(9) of the re-re-amended defence and counterclaim alleges that before she signed the guarantee the 3rd defendant intimated to her in the presence of Chan Ping Wing that if she did not sign she could not keep her job. This was never put to Chan Ping Wing when he gave evidence. I do not believe that the 3rd defendant ever said or intimated this to the 2nd defendant whether in the presence of Chan Ping Wing or otherwise. 39.Para 7-038 of Chitty on Contracts 28th Edn (1999) states as follows :
On the facts as I have found them the 2nd defendant has failed to show that even if there was duress exercised by the 3rd defendant, the plaintiff did not know this. There was no reason for the plaintiff to be put on inquiry as to whether she was acting under duress. The plaintiff did not have constructive notice of it and did not procure the making of the guarantee through the agency of the party who exercised the duress. In any event, I am not satisfied that the 2nd defendant was in fact acting under duress when she signed the guarantee. 40.Mr Fung referred me to Lord Scarman's speech in Pao On v Lau Yiu Long [1980] AC 614 @ 636 where he said :
I am not satisfied that even if there was duress exercised by the 3rd defendant on the 2nd defendant this amounted to a coercion of her will that vitiated her consent to sign the guarantee. She has failed to establish this defence which also fails. Undue influence 41.Her defence is that she signed the guarantee under the undue influence of the 3rd defendant with actual or constructive notice of the plaintiff (para 7 of the re-re-amended defence and counterclaim). Mr Fung referred me to Royal Bank of Scotland v Etridge (no. 2) [1998] 4 All ER 705 at 711 where Stuart Smith LJ said:
The 2nd defendant relies on the Class 2B undue influence and she alleges that she reposed trust and confidence in the 3rd defendant. On the evidence of the 2nd and 3rd defendants the trust and confidence that she had in the 3rd defendant was only on a working level at work and not on a personal level. She did not consult him on personal matters. She said that he was an honest employer and she trusted him. She did, however, say in evidence that her trust and confidence in the 3rd defendant was not to the extent that it caused her to lose her own independent mind. I find that she did not have trust and confidence in the 3rd defendant to the extent that she did not exercise her own free will when signing the guarantee. Furthermore, I have already found that the plaintiff did not know that she was not a real shareholder or director of the 1st defendant with no beneficial interest in the company. She was a director and shareholder of the company and registered as such at the material time. There was no reason for the bank to be put on inquiry as to any undue influence on her. 42.The case of Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144 cited by Mr Wong, counsel for the 2nd defendant, is clearly distinguishable on the facts. Unlike the present case where the 2nd defendant was a director and shareholder of the 1st defendant at all material times, the defendant in that case was neither a shareholder nor a director of the company where she worked as a junior employee. That case provides no assistance to the 2nd defendant. 43.I accept Mr Fung's submission that the burden is on the 2nd defendant to show that the plaintiff had constructive notice of the alleged undue influence (Barclays Bank PLC v Boulter and another [1999] 1 WLR 1919 @ 1925). In my judgment the 2nd defendant has failed to establish this. This defence also fails. Misrepresentation 44.Her case is pleaded at para 3(3)(ii) of the re-re-amended defence and counterclaim namely, that before she signed, inter alia, the guarantee Chan Ping Wing told her that :
There was no evidence to support this assertion. On the facts as I have found them there was no misrepresentation by Chan Ping Wing. I have found that he did explain the nature and effect of the guarantee and there was no misrepresentation by him or anyone else from the plaintiff. 45.By para 3(8) of her pleading it is pleaded that the 3rd defendant in the presence of Chan Ping Wing assured the 2nd defendant that she would not incur any personal liability by signing the documents as she was merely his employee and not a real director and shareholder of the 1st defendant. I have already found that the 3rd defendant did not say this in the presence of Chan Ping Wing. In my judgment the plaintiff had no knowledge or notice of any misrepresentation by the 3rd defendant. I also accept Mr Fung's submission that the burden of proving that the plaintiff had notice of any misrepresentation by the 3rd defendant was on the 2nd defendant (Barclays Bank PLC v Boulter and another [1999] 1 WLR 1919 @ 1925). She has failed to establish this. The defence of misrepresentation also fails. Estoppel 46.This defence is based on the misrepresentation relied on by the 2nd defendant and it is said that the plaintiff is estopped from relying on the guarantee. As the 2nd defendant has failed to establish the misrepresentation this defence of estoppel also fails. Conclusion 47.The 2nd defendant has failed to establish any of her defences. The plaintiff is entitled to judgment against the 2nd defendant. It is provided in the guarantee that any judgment recovered by the plaintiff against the 1st defendant in respect of the indebtedness shall be binding and conclusive against the guarantors including the 2nd defendant. The plaintiff also gives credit to the 2nd defendant in respect of the sum of $22,000 which has been paid since the date of judgment. There will therefore be judgment for the plaintiff against the 2nd defendant for the sum of $3,749,135.78 ($3,771,135.78 - $22,000). There will also be judgment for the plaintiff against the 2nd defendant for interest on the overdue bills receivable of $3,665,568.22 at the rate of 3.5% per annum over prime rate (subject to fluctuation) from 16 October 1998 to 8 January 1999 which is the date of the amended judgment against the 1st defendant and thereafter at judgment rate until payment. There will also be judgment to the plaintiff against the 2nd defendant for interest on the current account of $87,768.15 at the rate of 6% per annum over prime rate (subject to fluctuation) from 16 October 1998 to 2 January 1999 and on the balance sum of $77,768.15 at the same rate from 3 January 1999 to 8 January 1999 being the date of the amended judgment against the 1st defendant and thereafter at judgment rate until payment. 48.There will also be an order nisi for costs of the action in the plaintiff's favour against the 2nd defendant . The 2nd defendant's own costs are to be taxed in accordance with the Legal Aid Regulations. 49.Finally, I would like to express my gratitude to counsel for their able and helpful assistance.
Representation: Mr Eugene Fung instructed by Messrs Anthony Chiang & Partners, for the plaintiff Mr Wong Po Wing instructed by Messrs Ho, Tse, Wai & Partners, for the 2nd defendant |
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