Far East Bank Ltd v. Ronald Li-kai Chu and Another

Case No.HCA 85/1969

Court

High Court CFI

Date12 May 1969

Judge—

Case Document

100%Judiciary

HCA000085/1969

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO. 85 OF 1969

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BETWEEN:
	Far East Bank Limited	Plaintiffs
	AND
	Ronald Li-kai Chu	1st Defendant
	Fong Ah Kwong	2nd Defendant

Coram: Blair - Kerr J. in chamber

Date of Judgment: 12 May 1969

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JUDGMENT

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1. The first defendant is managing director and the second defendant is a director of International Transistor Corp. (H.K.) Ltd. (hereinafter referred to as "the principal debtor"). On 23rd July, 1965, the two defendants executed an undertaking for repayment of overdraft facilities granted to the principal debtor by the plaintiff bank. The undertaking reads in part:-

"Hong Kong, 23rd July, 1965

To:

	Far East Bank Ltd.,
	Hong Kong.

In consideration of your agreeing to our request to open an Overdraft Account in our favour in an amount not exceeding .......... $210,000 for a period of two years ........... we ............. hereby agree and undertake to repay to you on or before the 20th July 1967 ............... all moneys which may be due to you from us on the general balance of our account with you together with interest calculated at the rate of one percent per month ........................

	International Tansistor Corp. (HK) Ltd.
	(Sgd.) Ronald Li Kai Chu
	(Sgd.) Fong Ah Kwong"

At the same time the two defendants executed a document guaranteeing the repayment of the overdraft granted to the principal debtor. The guarantee reads in part:-

"Hong Kong, 23rd July, 1965

To: Far East Bank Ltd.

In consideration of your agreeing to open an overdraft account in favour of International Transistor Corporation (Hong Kong) Limited ....................................... in an amount not exceeding ........ $210,000, we ............. hereby jointly and severally guarantee the payment to you, within the limits aforesaid, on all moneys which may be due to you from the said International Transistor Corp. (H.K.) Ltd. on the general balance of their account with you together with all interest calculated at the rate of one per cent per month ..............................................................

	(Sgd.) Ronald Li-Kai Chu
	(Sgd.) Fung Ah Kwong."

2. It is common ground that on 23rd July, 1965 the plaintiff bank advanced to the principal debtor $210,000; that on various dates between 10th September, 1966 and 19th June, 1968, the principal debtor repaid various sums totalling $51,250.00 and that the balance of the principal sum advanced ($158,750) has not been repaid.

3. There was some argument before me as to whether the words "together with interest calculated at the rate of one per cent per month" entitled the bank to charge compound interest on the outstanding balance of the overdraft. Counsel for the bank argued that these words envisaged monthly rests and that at the end of each month the interest accrued should be added to the amount outstanding.

4. I do not propose to decide such a question on an Order 14 summons. There is, however, no doubt that the bank was entitled to charge simple interest; and, on that basis, the amount which the principal debtor now owes the plaintiff bank is $237,627.03.

5. No arguable defence has been put forward on behalf of the second defendant; and I therefore give judgment to the plaintiff bank against the second defendant in the sum of $237,627.03.

6. The first defendant admits his liability under the guarantee; but he says that he has a valid counterclaim against the plaintiff bank far exceeding any sum owed by him under the guarantee; that this counterclaim amounts to an equitable set-off; and that he should be given unconditional leave to defend. According to the first defendant, he and the managing director of the plaintiff bank (Deacon Chiu) are tenants in common in equal shares of certain properties; that during the bank crisis in 1965 Deacon Chiu approached the first defendant and persuaded him to agree to the mortgaging of these properties to the Hongkong and Shanghai Bank as security for the grant of overdraft facilities by that bank to the plaintiff bank; that the three properties together with other properties belonging to the plaintiff bank, the Lai Chi Kok Amusement Park and Deacon Chiu personally were all mortgaged to the Hongkong and Shanghai Bank by a document dated 23rd June, 1965 (described in the affidavits before me as "a further charge"); that one of the three properties of which the first defendant is a tenant in common with Deacon Chiu has now been developed and that the first defendant's half share therein is valued at over $600,000.

7. Towards the end of 1965, it would appear that the first defendant approached Deacon Chiu and requested him to write a letter to him relating to the charging of the three properties in question. Deacon Chiu wrote to the first defendant on 23rd December, 1965. The letter begins:- "I confirm that ...................."; and the last two paragraphs read:-

"For the purpose of the said Further Charge the above-mentioned properties were valued at $724,245.79 and you should have been credited in the books of the Far East Bank Ltd. with the sum of $362,122.89 thus extinguished to this extent your liability to the Far East Bank Ltd. under the original overdraft.

In view of the foregoing, I now confirm that you should not have been made a party to the said Further Charge to the Hong Kong and Shanghai Banking Corporation and I hereby undertake to obtain from the Hong Kong and Shanghai Banking Corporation within one month from the date hereof a reassignment of the above properties as well as your release from all liabilities whatsoever under the said Further Charge.

	Yours faithfully
	(Sgd.) Deacon Chiu

	Confirmed by Far East Bank Ltd.
	(Sgd.) Deacon Chiu
	Managing Director"

8. The general manager of the plaintiff bank has stated in his affidavit that he knew nothing about this letter; and, to say the least of it, it is a very strange letter. So far as the evidence goes, the first defendant was not granted overdraft facilities by the plaintiff bank. The principal debtor was granted such facilities. Furthermore, the first defendant voluntarily agreed to the charging (or mortgaging) of the properties in respect of which he held a one half share with Deacon Chiu. If these properties were to be mortgaged to the Hongkong and Shanghai Bank, clearly he and Deacon Chiu had to be made mortgagors.

9. In this case, the writ was served on the first defendant on 24th January, 1969; and on the 25th January he wrote to the plaintiff bank referring to Deacon Chiu's letter to him of 23rd December, 1965 and stating as follows:-

	"............. your Bank undertook to obtain a release of all the properties therein referred to from the Hongkong & Shanghai Banking Corporation within one month from the date thereof. Despite repeated requests the said Mr. Chiu and your esteemed Bank have so far failed to obtain the release of three of the properties ..................... I am tenant-in-common with the said Mr. Chiu in equal shares of these premises and at the request of the said Mr. Chiu as well as your Bank, I mortgaged my one half share or interest in these properties to the said Hongkong & Shanghai Banking Corporation to save you from embarrassment during the bank crisis.
	More than 3 years have passed since you promised to secure the release of the above properties from the Hongkong & Shanghai Banking Corporation so I must ask you in all earnestness to obtain this release without further delay.
	c.c. Mr. Deacon T.K. Chiu"

10. The first defendant says that by this letter of the 25th January, 1969 he gave the plaintiff bank notice to return the documents of title to him; that they have failed to do so; and that his counterclaim for damages is founded in trover.

11. The further charge referred to by the first defendant has not been exhibited and I am unaware of its provisions. There is nothing in the evidence to suggest that the first defendant agreed to the mortgaging of his property for a limited period; and I must presume that the Hongkong & Shanghai Bank would have insisted on having security for the whole period of the overdraft - which might be twenty years. I have no knowledge as to the state of the plaintiff bank's overdraft with the Hongkong & Shanghai Bank or whether this latter bank is in a position to release the properties which have been charged to them by way of security.

12. In these circumstances, I cannot understand how it could be argued that the plaintiff bank was bound to obtain the release of the mortgaged properties because of the purported "confirmation" of the letter of the 23rd December, 1965 by Deacon Chiu. The transaction involving the first defendant, Deacon Chiu, the Lai Chi Kok Amusement Park and the plaintiff bank on the one hand and the Hongkong & Shanghai Bank on the other, was not connected in any way with the granting of overdraft facilities to the principal debtor and the guarantee of that overdraft by the principal debtor's managing director; and I do not think that any court could be persuaded to regard the alleged counterclaim as an equitable set-off.

13. On the first defendant's admissions, I see no reason why the plaintiff bank should not have judgment on their claim against the first defendant. There will therefore be judgment to the plaintiff bank against the first defendant for $237,627.03.

14. If the first defendant genuinely believed that he could have sued the bank for the return of his documents, it is strange that he has not done so before now. He may not be in a position to do so because of the terms of the further charge.

15. I do not think that there should be any stay of execution.

	(W.A. Blair-Kerr)
	Puisne Judge
	12th May, 1969