Allied Capital Resources Ltd v. Roller Industraies Ltd and Others

HCA005907/1982

BETWEEN

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Coram:  Hon. Liu J.

Dates of Hearing: 5/11/84-9/11/84, 12/11/84-16/11/84, 19/11/84-23/11/84, 26/11/84-30/11/84, 3/12/84-7/12/84, 10/12/84-12/12/84, 14/12/84, 17/12/84, 19/12/84-21/12/84, 4/1/85, 7/1/85-11/1/85, 14/1/85-18/1/85, 21/1/85-25/1/85, 28/1/85-31/1/85, 4/2/85-8/2/85, 11/2/85, 13/2/85-16/2/85.

Date of Delivery of Judgment: 15 March 1985

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JUDGMENT

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1. The plaintiff is a finance company. At the material time, the 1st defendant was its customer to which advances were made. The plaintiff's claim against the 1st defendant is for an outstanding balance of principal so advanced amounting to US$ 121, 960.26 as at 30th June 1982 with interest thereon accrued up to the same date in the sum 15, 627.16. The plaintiff, therefore, claims against the 1st defendant for a total of US$ 137, 587. 42 (US$ 121, 960. 26 +US$ 15,627. 16) and also US$ 72. 00 per day, being interest at 21.84% per annum on the outstanding principal as at the 30th June 1982.

2. The then 7 directors of the 1st defendant company allegedly signed a personal guarantee for its liabilities with the plaintiff. The plaintiff is suing only 2 of the directors on the guarantee, being the 2nd defendant and his wife, the 3rd defendant. Of the remaining 5 alleged guarantors, three are out of jurisdiction, and Mr. & Mrs. Chan are said to be impecunious.

3. In the Defence of all the defendants, the 1st defendant company's indebtedness to the plaintiff was denied. After the trial had gone on for 38 days and after the close of the plaintiff's case, during the opening of Mr. Allman-Browm, counsel for the defendants on the 39th day, the outstanding principal as at 30th June 1982 of US$ 121,960. 26 was conceded, but the defendants still maintained their challenge to the interest claimed. Notice to admit such facts was served on the defendants as early as the 23rd May 1983. It is difficult to appreciate why the outstanding principal had continued to be disputed.

4. The plaintiff has adduced evidence to support its claim for principal and interest both in quantum, conversion computation and rate.

5. By their Defence, the defendants also queried the legality of the plaintiff's advances to the 1st defendant under section 22 of the Deposit-taking Companies Ordinance, Cap. 328. The plaintiff led evidence. The Bank Examiner, Mr. Fung, was subjected to tedious cross-examination. Almost two whole days were wasted. Again on the 39th day of the trial, during the opening of Mr. Allman-Brown, counsel for the defendants, this illegality point was also abandoned.

6. The Guarantee sued upon by the plaintiff is exhibit "P11". In the Defence, it was sought to be argued that since the proviso to Clause 1 of the Guarantee was left uncompleted, the Guarantee was invalid. This contention was also abandoned on the 29th day of the trial. It is perhaps not unkind to comment that the conduct of the proceedings on behalf of the defendants ran, by chance or design, counter to usual economy of litigation time.

7. To disgress for a moment: Many document were introduced. Some were marked as exhibits and some were used for specific purposes and left for one reason for another unmarked. For ease of reference, I would call any document marked as an exhibit "Exhibit P5" or "Exhibit D2" as the case may be, and I would call any particular documents in a bundle, say, page 53 of Bundle A, "A53" and page 24 of Bundle H, "H24".

8. The defendants seemed to have assumed that the dealings between the plaintiff and the 1st defendant company throughout the years were neatly segmented in watertight compartments each on an independently new contractual relationship created upon the dispatch of a separate Facilities Letter. The plaintiff's case is founded on a wholly different basis: All the advances made to the 1st defendant company stemmed from the finance company/customer relationship entered into from the inception, and the Facilities Letters merely served to delineate the limit of the facilities from time to time granted. I will return to this aspect later.

9. The defendants claimed that "Exhibit P11" was not a valid guarantee for the facilities sued upon in this action by the plaintiff allegedly under a Facilities Letter dated the 5th June 1979, "A53" and/or a Facilities Letter dated the 30th April 1980, "A99" . The defendants relied heavily on a reference in the Facilities Letter "A53" to a grant of facilities "contingent upon the directors of the 1st defendant entering into" an alleged further guarantee. It was contended that a further guarantee must be one other than the Guarantee "Exhibit P11" sued upon herein by the plaintiff, which, according to the defendants, came into the plaintiff's possession prior to this "A53" Facilities Letter. The defendants also claimed that by the "A53" Facilities Letter, the plaintiff admitted or was estopped from denying "Exhibit Pal" as not covering facilities granted after the 5th of June 1979. It was part of the defendants' case that the representations in the Facilities Letter "A53" were that a further new guarantee would be required and that the 1st defendant was to signify its agreement to provide it by returning a countersigned duplicate. These representations were acted upon, so the defendants averred, to their detriment which was, as I understood the defendants to say, the utilization of the new facilities in the belief that "Exhibit P11" "did not cover the same". For the plaintiff's alleged admission, the defendants further relied on what was pleaded as a fact i.e. the Facilities Letter "A53" "offered a new facility superseding the former facility and the previous joint end several guarantee". I must confess that the defendants' pleaded case is not very easy to understand or follow.

10. The defendants also pleaded in the alternative that if "Exhibit P11" was in fact a valid guarantee "as at the date of its execution" i.e. in May 1979, the new facilities granted by the Facilities Letter "A53" dated the 5th June 1979 end the yet further facilities granted subsequently by the Facilities Letter "A93" dated the 30th April 1980 were, in each case, "without the requirement of any joint and several guarantee from the directors of the 1st defendant company". It was further alleged by the defendants that after the 5th June 1979, the plaintiff agreed (1) that all facilities granted to the 1st defendant were not to be secured by any guarantee, (2) that hence "Exhibit P11" was null and void and (3) that facilities granted to the 1st defendant company would be secured by, inter alia, assignment of letters of credit, assignment of the Bentley Socks Machinery and/or cash deposits. The defendants claimed, further or alternatively, that "Exhibit P11" "related only to the facilities of $3 million granted by the plaintiff's letter of the 22nd March 1979", "A21".

11. It can be seen from particulars delivered by the defendants, the defendants' assertion was that the plaintiff and/or its parent bank in Manila i.e. the Allied Banking Corporation agreed to grant facilities to the 1st defendant without the requirement of any guarantee from its directors. As for the agreement coming from Allied Banking Corporation, the defendants relied on the information allegedly conveyed to the 2nd defendant in person by Mr. Walter Eu-Yang between the 11th - 19th July 1979 to the effect "that Allied Banking Corporation was going to or had directed the plaintiff to dispense with the requirement of" the directors' personal guarantee. (See p.51 of the Pleadings Bundle: Answer to Request for Further and Better Particulars of the Further Re-Amended Defence filed on the 23rd October 1984). Mr. Walter Eu-Yang is a half brother of the 3rd defendant. In turn, so the 2nd defendant alleged, he passed this vague information on to Mr. S. K. Chang after the 2nd defendant's return to Hong Long on the 20th July 1979, and Mr. Chang subsequently obtained confirmation from Manila of such dispensation of the requirements of the directors' personal guarantee.

12. Mr. Tong, counsel for the plaintiff, provided a workable synopsis of the divers issues between the plaintiff and the defendants. I derived great assistance from his tabulation and propose to follow closely the subject-matters so ventilated.

Loan to the 1st defendant:

13. The principal and interest as at the 30th June 1982 was conceded on the 39th day of the trial in the opening of Mr. Allman-Brown, counsel for the defendants, who conceded the principal set out in the Statement of Claim as being outstanding and owed by the 1st defendant. Mr. Allman-Brown also abandoned his arguments on conversion or reconversion of currency by reason, so counsel explained, of the terms of a General Commercial Agreement, "A10".

14. Mr. Benson Lam led the court through the plaintiff's practice in conversion and reconversion of currency as well as the rate of interests charged all the way to the figures appearing in "C8". The defendants abandoned its challenge for conversion or reconversion of currency, so it was said, by reason of my ruling on the introduction of the General Commercial Agreement. Mr. Allman-Brown described that point as the "US dollars point". Whilst that point was not being pursued due to the embracing provisions of the General Commercial Agreement, it is difficult to understand why interest which was also being charged under the same General Commercial Agreement was still being contested. From its Clause 1, Clause 7(i) and Clause 19, it is quite clear that the plaintiff was entitled to be paid by the defendants on demand all costs, charges and expenses incurred in respect to bills of exchange and whatever interests that the plaintiff from time to time should decide to charge the 1st defendant.

15. Mr. Benson Lam testified that the plaintiff would charge 1% over and above the prevailing market rate for interest and that for an account overdue for 120 days, an extra 1% would be added unless it was otherwise waived. This extra 1% charge was said to have been the practice followed by the major banks in Hong Kong. Mr. Lam further explained that conversion of currency was usual in the process of debiting clients' account or billing clients for payment. He verified the rate of interest charged by the plaintiff as being reasonable. In fact, it had been accepted by the 1st defendant. On the 2nd June 1980 "A102", Virotex Limited of which the 2nd and the 3rd defendants were the only directors/shareholders complained to the plaintiff about the then interest rate charged on various companies, including the 1st defendant company. In a reply "A104", the plaintiff explained its comparatively higher rate due principally to its higher cost of funds, but the plaintiff was agreeable to reduce the interns rate on Trust Receipts by ½% to 3% over the Hong Kong prime rate or 2½% over interbank cost of fund, whichever was higher. Debit notes were thereafter sent to and paid by the 1st defendant without further ado as can be seen in "C5", "C6", "F4", "F230(2)", "F230(17) - (20)" etc. Mr. Lam also justified the rate of 21.84% per annum. It is common knowledge that high rate of interest has come down steadily since 1984. Prime rate is given in most bank statements. I take judicial notice of the prime rate. Prime rate for Hong Kong dollars in June 1982 was 15% per annum. That had come down to 12% per annum in September, to 11% in December 1982, and to 10½% in January 1983. In May 1983, it rose to 11½%, in June 1983 to 13½%, and it came down to 11½% to 12½% for July 1983. It was 13% to 16% for September 1983, 15% in October 1983, 13½% in November 1983, 12½% in January 1984, 10% in February 1984, 8.5% in March 1984, 11% in April 1984, 12% in May 1984, 13.75% in June, 17% in July and 15% in August 1984, and it came down to 13% in October 1984, 11½% in November 1984, 11% in December 1984 and 10½% in January 1985. It is also common knowledge that prime rate for U.S. dollars is about  higher and the plaintiff charged 1% over the prime rate and another extra percent for overdue accounts for over 120 days. I would take a rough estimate of prime, ranging from June 1983 of 13½% to January 1985 of 10% flunctuating in between, of say 11%. I would take 3% above prime i.e. 14% for overdrafts in Hong Kong dollars and 14½% in U.S. dollars. With an extra 2% charged by the plaintiff, that would take it to 16½%. To do the best I could, I would allow 21.84% from the 1st July 1982 to the 31st May 1983 and thereafter only at 16½% until payment.

16. I need merely say ex abundanti cautela that charging in U.S. currency is permitted by Clause 7(c), (h), (k)(iv) and (g) as well as Clause 16 of the General Commercial Agreement, "A10".

Liability under the alleged Guarantee "Exhibit P11":

17. The 1st defendant is, I find, indebted to the plaintiff as claimed save for the 16½% interest estimated by this court to commence from the 1st June 1983. The guarantors under "Exhibit P11" are also liable for the legal costs in recovering the outstanding amount against the 1st defendant company. The guarantors' liability under "Exhibit P11" was, inter alia, to pay "all money obtained from or liabilities incurred to the" plaintiff as financier "together with interest on all such moneys, debts and liabilities to the date of payment, commission, banking charges, legal and other tests, charges and expenses." See Clause 1(c) of "Exhibit P11". The 1st defendant . company is liable to pay to the plaintiff finance company, inter alia, all costs and expenses incurred in the recovery of the outstanding debts on a solicitor and own client basis. See Clause 1 and 28 of "A10".

18. Up to the 39th day of trial, the 1st defendant's indebtedness to the plaintiff was denied. The quantum of the plaintiff's total claim against the 1st defendant company has still not been admitted as the defendants challenge the interest and the plaintiff's right to claim above $3 million under "Exhibit P11", meaning presumably the unpaid balance of advances made in excess of the $3 million limit of the "A21" Facilities Letter dated the 22nd March 1979. Contractually, therefore, the alleged guarantors under "Exhibit P11" are also liable for these recovery costs and expenses on the solicitor and own client basis.

Whether facilities were granted to the 1st defendant without reference to the alleged Guarantee, "Exhibit P11":

19. The defendants' case is that "Exhibit P11" Was returned to the plaintiff on the 15th May 1979.' After the close of the plaintiff's case, the defendants had sought leave to raise the allegation that "Exhibit PIT, was a provisional document in the sense that it was handed over to the plaintiff in escrow pending the plaintiff's approval of facilities to the full extent of $6 million as requested on behalf of the 1st defendant by a letter of Virotex Limited dated the 12th May 1979, "A47". Leave was refused, and reasons were given for my refusal. Therefore, the defendants had to be content with their allegation that for various reasons and on account of various matters, facilities granted after the 5th June 1979 Facilities Letter, "A53", were without reference to the alleged or any guarantee. One of the defendants' multifarious allegations was that the alleged Guarantee, "Exhibit P11" could only be a valid guarantee for facilities to the limit of $3 million granted by the Facilities Letter of the 22nd March 1979, "A21". According to the defendants, "Exhibit P11" was returned on the 15th May 1979 after the 1st defendants request for a $6 million limit with an offer to give a guarantee on the 12th May. If that part of the defendants' case is true, then "Exhibit P11" was valid for only 21 days up to the 5th June when a new arrangement was said to be in the offing. Counsel for the plaintiff, Mr. Tong, described it as an absurd contention. I agree.

20. It is a misconception to put the facilities granted to and used by the 1st defendant throughout the years in different self-contained compartments. By a letter dated the 27th January 1979 "A17", the 1st defendant sent to the plaintiff documents, including an Application for Loans/Facilities "A16" in duplicate and the General Commercial Agreement "A10" apparently as pre-arranged. In that letter, the 1st defendant enquired as to when utilization of the facilities might commence. The 1st defendant was granted facilities accordingly. The first Facilities Letter to the 1st defendant is dated the 12th February 1979, "A18" whereby the 1st defendant was informed of the granting of facilities to it to the extent of $½% million, but the 1st defendant was not granted facilities by virtue of that Facilities Letter, "A18". There was need for the 1st defendant to be informed of the approval of its application and it was convenient to confirm in this first Facilities Letter the grant of facilities and the limit. As expected, there was no further reference to the granting of facilities in any subsequent Facilities Letters which merely dealt with limits and sub-limits. None of the Facilities Letters purported to create a new relationship. No new application was solicited; no new General Commercial Agreement was required. The 2nd dependant himself merely said that he was not qualified to say if one Facilities Letter, "A21" was superceded by another, "A53". Therefore, in one continuing relationship whether or not the duplicate Facilities Letter was returned must be immaterial.

21. The allegation that the grant of facilities to the 1st defendant after the 5th June 1979 was without reference to "Exhibit P11" or any guarantee was sought to be substantiated by suspicion and bold allegation of concealment of documents.

22. There is not one single document before the court to suggest that the plaintiff did not rely on "Exhibit P11" as a guarantee for facilities of various limits granted to the 1st defendant. The documents before the court spanned over the entire period. They gave no real indication that there could have been any documents to the contrary in between. The Credit Approval Memoranda for the Executive Committee Meetings, the minutes of Executive Committee Meetings and the Tables prepared for the Board of Directors Meetings in the plaintiff were all pointing to one direction i.e. the plaintiff had throughout relied on this Guarantee.

23. Even the defendants' conduct and documents which I will more closely examine pointed to the same direction, for instance, the meeting of the shareholders/directors of the 1st defendant company and Veronit Manufacturing Inc. of Manila held in Hong Kong in August 1981, "A172" at which reference was made to sharing o deficits between the Hong Kong and Filipino partners in the ratio of 60% and 40% AND the subsequent transmission of this information to the plaintiff. All this came after the 1st defendant had earlier in March spoken of "the Guarantee of the company" held by the plaintiff as collateral. See "A163". Thereafter, even in March 1982, the 1st defendant's telex "A211" contained a reference to "facilities under General Letter of Indemnity". The 2nd defendant offered strained explanations for the use of these terms.

24. As for suspicion and the charge of concealment, on behalf of the defendants Mr. Allman-Broom further suggested that "Exhibit 211" must have been returned at least before the 25th May 1979 because in the minutes of the plaintiff's Executive Committee Meeting on that particular day, the 1st defendant's facilities were said to be subject to a joint guarantee of all its directors. See "D9" at "DI0" for Resolution 46/79. But it must not be forgotten that it was by the Facilities Letter "A53" some 11 days afterwards on the 5th July 1979 that the 1st defendant was notified of the increased limit to $4 million from $3 million. The plaintiff's case is that there was no guarantee during the time when the limit was only $3 million and that therefore the reference to a directors' guarantee in the minutes of the 25th May meeting which approved the proposed limit to be raised to $4 million could not be taken as intimating that there was any existing guarantee. Mr. Allman-Browm, counsel for the defendants, also urged the court to have proper regard to the evidence of various witnesses: First, the evidence of Mr. Romeo Co who believed that the plaintiff was holding a guarantee from the 1st defendant before the dispatch of the Facilities Letter dated the 5th June 1979, "A53". Secondly, the 2nd defendant categorically stated that he returned "Exhibit P11" to Mr. S. K. Chang on the 15th May 1979. Thirdly, Mr. S. K. Chang confirmed that this document was returned to him during one of the visits of the 2nd defendant to his office in May. Lastly, Mr. Walter Eu-Yang stated in writing that he was approached to sign a Guarantee in April and he duly signed it in the first week of May. There was another company within the group of the 1st defendant by the name of Becopa Manufacturing Co. Ltd. (hereinafter referred to as "Becopa"). Becopa gave the plaintiff a guarantee, "Exhibit A17" of "F1124", which had also had to be signed by the Philippino shareholders. It is common around that this guarantee of Becopa's was returned to the plaintiff on the 14th May 1979. Therefore, so Mr. Allman-Brown submitted, the former private secretary to Mr. S. K. Chang, Miss Ellen Ng, must have been wrong in her evidence that "Exhibit P11", came into the plaintiff's possession after the Facilities Letter dated the 5th June 1979, "A53".

25. On the documentary side, Mr. Allman-Brown called attention to the absence of any reference to guarantee in the first Facilities Letter dated 12th May 1979 "A18", the second Facilities Letter dated the 22nd March 1979 "A21" and the Credit Approval memorandum (hereinafter referred to as "CAM") for the Executive Committee Meeting in February 1979, "H2". But the plaintiff has never maintained that it sought a directors' guarantee from the 1st defendant company in that period.

26. Miss Ng told the Court that the requirement of directors' personal guarantee from limited company had existed long before the resolution for "Overdue Account" in the minutes of Executive Committee Meeting held on the 20th July 1979. See "H18" for Resolution 76/79 at "H20": "OVERDUE ACCOUNT. As further security to all lendings it was resolved that personal guarantee should be made mandatory unless other-wise waived by the Executive Committee or loan is fully secured. "

27. Mr. Allman-Brown also sought to rely on the other instances where no directors' guarantee was taken from limited companies, like in the case of Fintry Enterprises Limited and other limited companies referred to in the minutes of the Executive Committee Meeting held on the 16th March 1979 "H3" as well as the Dermont Trading Co. Ltd. referred to in the Table "H25". On behalf of the plaintiff, explanations were given. I will come to them later.

28. Whilst reference was made to a directors' guarantee in the minutes of the Executive Committee Meeting held on the 25th May 1979, "D9" at "D10", the waiver of such a requirement later could be detected, so Mr. Allman-Brown suggested, from the lack of any subsequent mention of a guarantee in the minutes of the Executive Committee Meeting held on the 21st June 1979 "D13" and the minutes of Board Meeting held on the same day "D1" or "H14" or "Exhibit P16(1)".

29. According to Miss Ellen Ng, she had compared the Table for the Board Meeting held on the 21st June 1979 with the minutes and she found no discrepancy between the two. That Table would contain decisions of the Executive Committee made on the 25th May. That Table was not before the court. Mr. Allman- Brown also queried as to why there was no or no production of the CAM for the Executive Committee meeting held on the 25th May 1979. It was submitted that such CAM would throw light on the collateral offered by the 1st defendant at the material time and could possibly explain why shortly after by the Facilities Letter dated the 5th June "A53," another form of guarantee was sent for signatures by the directors of the 1st defendant company.

30. The plaintiff was bound by an order made in the course of these proceedings to refrain from producing any further documents without the consent of the defendants. Hence, so Mr. Tong explained, the court was not given the Table perused by Miss Ellen Ng for comparison with the minutes of the Board Meeting held on the 21st June 1979.

31. The Table, according to proper sequence, was prepared after the Executive Committee Meeting held on the 25th May 1979 which referred to a directors' guarantee. It was in evidence that such Tables would include matters decided by the Executive Committee for the Board Meeting following. Mr. Allman-Brown was, therefore, at pains to point out that the Table compared with the minutes of the Board Fleeting held on the 21st June 1979 must likewise contain reference to a directors' guarantee. But reference to a guarantee was made in other Tables, e.g. "H25" or "Exhibit P15" and "H41" or "Exhibit P24", the Tables for Board Meetings on 10th December 1979 and after May 1980 respectively. If, as Miss Ng testified, there was really no material difference between the Table in question and the minutes of the Board Meeting held on the 21st June 1979, it would have meant, so complained Mr. Allman-Brown, that the Table also contained no reference to any guarantee in glaring contradiction to the mention of a directors' guarantee made. in the minutes of the Executive Committee Meeting on the 25th May 1979.

32. Mr. Tong, counsel for the plaintiff, argued that there was no need to restate the guarantee in the Board minutes as, indeed, the Board minutes had not referred to the Becopa's guarantee or the Guarantee for the other company, Virotex Limited. Mr. Tong submitted that speculation as to what was precisely contained in that Table was unhelpful save for credibility, and counsel asked rhetorically why was there any cause or necessity for Miss Ng to fabricate the existence of a guarantee in all the subsequent documents before any disagreement whilst the plaintiff was empowered by the General Commercial Agreement to demand the same form of security on penalty of suspension or cancellation for non-compliance. See Clause 3(a) and 17 of the General Commercial Agreement.

33. Board minutes did not refer to any guarantee. It may well be that looking at it in that light, Miss Ng detected no difference in the documents. But whether Miss Ellen Ng made a mistake or whether for whatever reason the Table in question did in fact contain no reference to a directors' guarantee cannot be of real significance as I was greatly impressed by counsel's submission that there was no incentive for Miss Ng to fabricate a guarantee when, in fact, none existed whilst the plaintiff was then free to demand that kind of security or collateral from the 1st defendant company. I should also record Mr. Tong's explanation that the plaintiff could not locate any CAM for the June Executive Committee Meeting.

34. Mr. Tong further explained that these CAM made in May or June and the Table for the June Board Meeting would not likely offer any assistance to the defendants on their pleaded case. Counsel elaborated as follows: By the letter requesting for an increase in facilities dated 12th May 1979 "A49", the 1st defendant and its group of companies offered to give a directors' guarantee (See "A51"). The defendants' case is that the 1st defendant did give this Guarantee, "Exhibit P11", but allegedly on the 15th May. It was only after the Facilities Letter dated the 5th June 1979 "A53" that the 1st defendant ever allegedly refused to give a guarantee. The defendants' allegation was that the requirement was waived or lifted only in about July 1979. There was no Board Meeting in July from the documents before the court. The defendants themselves acknowledged that in June, there was no agreement for lifting the requirement of the directors' guarantee. Therefore, the CAM which cannot be located and the Table for comparison, both made in May, could not have contained any information to support the defendants' allegation that there was to be no guarantee because the position between the plaintiff and the 1st defendant company in June could not have been different from the one in which the 1st defendant was willing to give a directors' guarantee on the 12th May 1979 "A47" and handed over of the Guarantee, "Exhibit P11", allegedly on the 15th May 1979.

35. What is quite clear is: the documents before the court are all one way that the plaintiff had throughout relied on this Guarantee, "Exhibit P11". The non-production of documents has not been shown to be accompanied by any sinister motive. As for these two documents, CAM and Table made in May, they could not have contained any material substantiating the defendants' case.

36. The plaintiff relied heavily also on a CAM for the Executive Committee Meeting held on the 26th October 1979 , "H24". Miss Ellen Ng and Mr. S. K. Chang told the count that CAM was prepared by the Operations Department after having consulted the Master File of the company, which would contain the correspondence for the opening of account, the correspondence for requesting review of credit lines and Records of Guarantors, the guarantee, duplicates of Facilities Letters, previous CAMS and some information of decisions of the Executive Committee. This CAM "H24" (document No. 4 in "Exhibit P28") made specific reference to the directors' guarantee. Mr. S. K. Chang was at the meeting, and he was conscious of his duty to draw attention to any inaccuracy. He endorsed on the back of this CAM to the effect that the increase of facilities was approved to the limit of $5 million with a sub-limit of $2.5 million by the Executive Committee on the 26th October 1979. It was sought to be argued that the indorsement was confined to facilities limits and that Mr. S.K. Chang had not therefore by this endorsement acknowledged the existence of a directors' guarantee. I cannot accept it.

37. As for Mr. S. K. Chang, his explanation was: The plaintiff had asked for a guarantee for increasing the limit to $4 million in their Facilities Letter dated the 5th June 1979 "A53" and, therefore, he assumed that the plaintiff would require a guarantee for a higher limit of $5 million in October; on "H24", the directors' guarantee was under the heading "collateral offered" which meant what the plaintiff required and what the defendants offered. He further said that the 1st defendant might have made arrangement with the Operations Department to supply this guarantee. It appeared to him that the 1st defendant was prepared to give a guarantee of its directors, and he said that there was a guarantee dated the 2nd May 1979 in the plaintiff's possession. His evidence, one way or the other, on the Guarantee and this document "H24" was less than satisfactory.

38. The terms of Guarantee, "Exhibit P11", are sweeping. See Clauses 1, 2, 3, 6, 8 and 10. The facilities throughout the years were granted and with limit varied from time to time within the knowledge of the 1st and the 2nd defendants. Mr. Tong referred to two cases on how far guarantors were bound by the variation in terms between the creditor and the principal debtor. Suffice it for me to say that with knowledge of all the dealings in this credit line, it would not lie in the mouth of the 2nd or the 3rd defendants to make any capital out of the increased limits or other forms of indulgence extended to the 1st defendant. That, I was told, is essentially what is meant by estoppel pleaded in the Re-Amended Reply.

39. To recapitulate the sequence of events: The 1st defendant's limit was increased in March 1979 to $3 million. See "A21". On the 12th May 1979, the 1st defendant requested increase of facilities to $6 million with an offer of a directors' guarantee. See "A47" at "A51". A little later in the same month, on the 25th May 1979, the Executive Committee of the plaintiff met. It was decided to raise the limit to the 1st defendant company to $4 million with a sub-limit of million subject, inter alia, to "the joint guarantee of all the directors" ("D9" at "D10"). Then, by a Facilities Letter dated the 5th June 1979 "A53", the 1st defendant was informed of the increased limit to $4 million on a directors' guarantee. The defendants' allegation was that "Exhibit P11" was returned on the 15th May 1979. Thus, it was argued that by this Facilities Letter of the 5th June 1979 "A53", the plaintiff must, in effect, have been asking for a new guarantee to be signed and a signed duplicate to be returned and further that the subsequent Facilities Letter of the 30th April 1980 "A99" finally informing the 1st defendant of the increase to $5 million confirmed the lifting of the guarantee requirement as it was totally silent on any guarantee.

40. First of all, there was no evidence of any set practice on the part of the plaintiff setting out collateral in its Facilities Letters though Mr. S. K. Chang did list out collateral in its Facilities Letter dated the 5th June 1979 "A53" and in other Facilities Letters of Becopa and. Virotex Limited, "A54" and "A55". The defendants' case is that the 1st defendant's directors' guarantee had been replaced by other collateral such as assignment of letters of credit, assignment of the Bentley Socks machinery and cash deposits. In April 1980, the plaintiff was aware that the Socks machines were no longer available as collateral. See "H29". The plaintiff was allegedly left-with cash deposits and assignment of letters of credit. None of these alleged substituted collateral was set out in the Facilities Letter dated the 30th April 1980 "A99". The defendants were not suggesting that by lack of reference to these alleged remaining collateral in "A99", the plaintiff admitted that they did not exist or was estopped from raising them against the 1st defendant. It is, therefore, inconceivable that the defendants could rely on the lack of reference to a guarantee in this Facilities Letter dated the 30th April 1980 "A99" as being capable of setting up any estoppel or admission as regards the directors' guarantee. Counsel for the defendants never once suggested that the lack of reference to any collateral at all in "A99" would militate against his own clients' case of alleged substituted collateral. The lack of reference to the guarantee, therefore, in this Facilities Letter dated the 30th April 1980, "A99" could not have possibly misled the defendants.

The alleged waiver of the requirement for a directors' guarantee:

41. The pleaded case of the defendants is, as I have said, imprecise. In the said Particulars supplied, the allegation was that Mr. Walter Eu-Yang orally informed the 2nd defendant that the parent corporation in Manila "was going to or had directed the plaintiff to dispense with the requirement of the joint and several guarantee of directors with respect to the 1st defendant" (See pp. 51 and 52 of the Pleadings Bundle). The 2nd defendant's evidence was more specific. He gave us his understanding that as from the second week of July 1979, the guarantee requirement was no longer a term for the granting or utilization of the facilities. He told the court that Mr. S. K. Chang obtained subsequent confirmation to the same effect. The 2nd defendant is an astute and experienced businessman. He had caused to be argued the interest rate charged by the plaintiff. He had asked for blocking of facilities to the other companies in the same group so as to enable full utilization by the 1st defendant company. See "A57", "A71", "A72", "A73" and "A117". He was cautions as can be seen by the clarification readily offered by him in relation to the Bentley Socks machinery: In a letter date the 11th October 1979 "A62", he seemed to offer the Socks machines in the Philippines as collateral for facilities granted to the three companies in the group, but in the following letter dated the 13th October 1979 "A64", he hastened to add that the Socks machinery was to be collateral only for facilities required by Vironit Manufacturing Inc. of Manila. When Virotex Limited, one of the company in the group had secured adequate finance from other bankers, the 2nd defendant wasted no time in taking action by writing to the plaintiff in a letter dated the 12th January 1981 "A131" closing the account. He had made a success in Hong Kong. He had transactions with other local bankers. In correspondence, he conducted or caused to be conducted negotiation effectively when extension was sought on the maturity date of bills. He certainly was not a man who could easily be cornered into accepting something to his further prejudice e.g. in his refusal to give a promissory note in his telex in March 1982 "A211".

42. The 2nd defendant claimed that because of inadequate local resources of the 1st defendant and the location of its assets in the Philippines, he was reluctant to accede to the request for a directors' guarantee. Moreover, he said, the increase was too small to justify the giving of a guarantee. The 2nd defendant further explained that as financing cost was about 1/3 in Hong Kong, he was therefore seeking to have the guarantee requirement waived. But the 1st defendant company had given an unlimited guarantee to two banks and one finance company before and after the Facilities Letter dated the 5th June 1979 "A53", and the plaintiff had given a guarantee for about then HK$5 million to another finance company before June 1979. An unlimited guarantee was given to Algemene Bank Netherland N. V. on the 15th February 1978; an unlimited guarantee was given to European Asian Bank on or about the 18th June 1979 (Exhibit "D20"), and another unlimited guarantee was given to Asien-Pazifik Merchant Finance Company on the 15th January 1980. A guarantee was given to Hondela Finance Limited to the limit equivalent to the then HK$5 million on 21st February 1979. See "Exhibit D19".

43. The 2nd defendant's explanation for these unlimited and substantial guarantees was: They were guarantees replacing former guarantees and/or these facilities could not be obtained without complying with the request for a guarantee. The 1st defendant was willing to provide a directors' guarantee on 12th May 1979 for a $6 million limit. See "A47" at "A51". The 2nd defendant's refusal in June was said to have been prompted by a lower limit approved. If all this excuse for availability of assets in Hong Kong had been true, these defendants should not have had offered a guarantee for a higher facilities limit. I was not impressed with his explanations.

44. As for Virotex Limited, in May 1979, it enjoyed a limit of facilities up to $2½ million. See "A41". By its letter dated the 12th May 1979 "A47", Virotex Limited requested an increase also to $6 million. See "A50". In its reply of the 6th June 1979 "A55", the plaintiff approved a new limit of only $3 million. There was no suggestion that Virotex Limited under the control of the 2nd defendant and his wife, the 3rd defendant, was ever seeking the return of the unlimited guarantee then held by the plaintiff. With this existing guarantee in the hands of the plaintiff, and there was no suggestion of having any new or further guarantee, similar language was used in this letter "A55" i.e. "The facilities are contingent on the execution of ..... a joint and several guarantee of directors". Indeed, as Mr. S. K. Chang himself was driven to concede that the use of the words "contingent on" meant no more than a reference to the existing collateral. If the alleged Guarantee "Exhibit Pll" had been returned before the Facilities Letter of the 5th June 1979 "A53", these words "contingent on'' would not have signified a new or further guarantee. But I ought to mention again that the defendants also relied on the enclosed guarantee form sent with "A53". Mr. S. K. Chang's evidence was: "I did not know the legal position of the guarantee dated prior to the letter of offer of the 5th June, so I thought if the defendant could provide a new guarantee dated the 5th June or later, it would put the issue beyond doubt". If indeed, as the defendants claimed, "Exhibit P11" was returned before the 5th June Facilities Letter "A53" and if Mr. Chang were to be believed, then since no new guarantee was really sought but only a new form was prudently requested to be signed, the non-return of this form would not affect the validity of "Exhibit P11", though as a layman Mr. S. K. Chang had had doubt allegedly on account of its date. Mr. Chang never categorically suggested that the guarantee given was not valid for $4 million limit although mention was at one time made of his understanding of the guarantee "to be relative to the credit facilities which he (the 2nd defendant) was requesting." Mr. Chang further said that his understanding "could have been that if no increase was granted, the guarantee would be returned", but he could offer no particular reason for saying "his understanding could have been" so. Mr. Chang was conversant with the English language. Mr. Chang also said that "if the increased facilities had not been granted, he would have returned the guarantee", but he never did. On the other hand, if Miss Ng is to he believed, by the time of the dispatch of "A53", the plaintiff had not received back the guarantee.

45. Turning to Becopa Manufacturers Limited, in May 1979, it enjoyed a total limit of facilities of $1/2 million. See "A42". In Virotex's letter of the 12th May 1979 "A47" (at "A51"), $4 million facilities limit was sought. The guarantee of Becopa was given on the 14th May 1979. See "H11". The plaintiff by its letter dated the 6th June 1979 "A54" raised Becopa's limit to only $2 million. . Again, there was no suggestion that the guarantee given to the plaintiff was to be returned. Similarly, the same wording was used, i.e. "The facilities are contingent on all your directors entering into and providing a guarantee jointly and severally". It was also not suggested that a new and further directors' guarantee was to be signed.

46. Many points taken and explanations offered by the defendants were highly controversial and not wholly consistent with their other dealings.

47. As for the dispatch of another guarantee form in the Facilities Letter dated the 5th June 1979 "A53", Miss Ellen Ng was sure that by the time of this Facilities Letter, the Guarantee, "Exhibit P11", had not been returned to the plaintiff. In her position, she ought to know. I find her a truthful witness, and I accept her evidence.

48. The 2nd defendant claimed that he was sent three blank forms of guarantee for Becopa, Virotex Limited and the 1st defendant and that except for the earlier return of the Virotex Limited's guarantee, the other two were handed back to the plaintiff in mid May 1979. Mr. Tong referred to the margin symbol used in the typed correspondence for enclosing, a copy guarantee in support of Miss Ng's evidence that a set of documents including the guarantee form were given at the inception and that the guarantee forms were not sent save for the extra copy in "A53".

49. As for the 2nd defendant, he was unable to explain why a further guarantee form was sent if, as he suggested, the plaintiff had had "Exhibit P11" which was unlimited. The 2nd defendant was driven to shift the responsibility to Mr. S. K. Chang in his reply that that question should be put to Mr. Chang himself.

50. The defendants were disallowed to introduce yet a further inconsistent front in mid stream, viz. that. the Guarantee, "Exhibit P11", was given provisionally and subject to the granting of the full limit of $6 million requested on behalf of the 1st defendant by Virotex Limited' s letter dated the 12th May 1979, "A47" (at "A50"). Yet evidence adduced on behalf of the defendants drifted, from time to time, back to this assertion which had been disallowed. More confusion was caused. This line of proposed defence could not be run as I had refused the defendants' application for its introduction. No more need be said save for the fact that if there were any truth in this allegation, one would have expected Mr. S. K. Chang to dispose of this question about the dispatch of a further guarantee form with the plaintiff's Facilities Letter dated the 5th June 1979 "A53" by a straight-froward explanation that "Exhibit P11" was invalid for a lower limit of $4 million, hence a new guarantee form had to be signed instead of his alleged misgiving as to a pre-dated document. One must not overlook that the guarantees for Becopa and Virotex Limited, both dated the 2nd May 1979 were pre-dating the limit raised on the 6th June 1979. In neither of those two cases, did Mr. S. K. Chang claim to experience any doubt as to the existing guarantees.

51. On the Guarantee, Mr. S. K. Chang did not appear to be quite decided as to how far he was prepared to go in telling an untruth. He admitted, however, that he could not remember exactly when "Exhibit 211" was returned, though he said the 2nd defendant might have returned it on, a visit to his office in May.

52. The defendants' allegation was that the guarantee requirement was waived and that the facilities granted to the 1st defendant were ultimately to be secured by other collateral, such as assignment of letters of credit and/or cash deposits. Apart from bills collection which was not real collateral, there was no mention of any other collateral than these two alleged substitutes. For the facilities of the 1st defendant, there was no cash deposit. It was contested whether or not L/C assignments were real security. There was no evidence as to precisely how such L/C assignments were to be implemented. It certainly cannot be said that L/C assignments could never be so transacted as to provide for security. However, no assignments of letters of credit were in fact made. It would seem that L/Cs here would not, in any case, provide much security. As early as 19th April 1980, it was known that the Bentley Socks Machinery was no longer available as additional collateral for the lst defendant. See Internal Memorandum "H29". In the plaintiff's Facilities Letter dated the 30th April 1980 "A99", the further raised limit of $5 million already approved was notified to the 1st defendant. If there had been no valid guarantee in "Exhibit P11", the 1st defendant would have been enjoying facilities to that huge extent with little or practically no collateral.

53. I should now pass to consider more closely some of the documents of the 1st defendant. In a letter to the plaintiff dated the 16th March 1981 "A163", in requesting for yet a higher limit of facilities up to HK$8 million, the 1st defendant referred to two items of collateral. One was bill collection. Of the other item stated under the heading "Re: collateral", the 1st defendant wrote as follows: "Recently, you are holding the guarantee of the company." See "A164". The 2nd defendant's explanation was that was used as a loose term for the General Commercial agreement or a Letter of Hypothecation. But about a year later in March 1982 when the 1st defendant used the term "general letter of indemnity" in its telex "A211", the 2nd defendant claimed that by that term he also meant the General Commercial Agreement or a Letter of Hypothecation. It was to be expected that the 2nd defendant would not be able to explain satisfactorily as to why he did not simply refer to "General Commercial Agreement" and why he chose to use different terms for the General Commercial Agreement or a Letter of Hypothecation. Furthermore, the 2nd defendant was driven to concede that in Virotex Limited' s letter dated the 12th May 1979 "A47" at "A51", the word "guaranteed" was used in the sense of a guarantee but that in this later letter of "A163", the word "guarantee" was meant to denote something quite different. It is inconceivable that the 2nd defendant could have been so confused. Moreover, a General Commercial Agreement or a Letter of Hypothecation must have been known to the 2nd defendant to be incapable of offering any guarantee. When using the word "guarantee" under the heading of "collateral" in "A163" at "A164", the 2nd defendant must have meant a guarantee in the true sense of the word.

54. In August 1981, the Hong Kong shareholders of the 1st defendant agreed to bear 60% of the deficits. The whole deficit for both the 1st defendant and Veronit was stated to be in the region of US$650, 000 (see "A172"). I cannot accept the 2nd defendant's explanation that the generous gesture was an attempt to preserve the good name of the 1st defendant in view of the limited legal responsibility of the shareholders. There was also no logical reason, but for the guarantee, why the 1st defendant should have kept the plaintiff informed of the proportionate sharing of such deficit. Such conduct was more consistent with the existence of an unlimited personal guarantee.

55. One of the abandoned defences of the defendants was that the Guarantee, "Exhibit P11", incomplete in its proviso to Clause 1, was ineffective and null and void. But the guarantees of Virotex Limited and Becopa at one time held by the plaintiff as valid guarantees also had, so I find, their provisos left blank. They are "Exhibit D16" or "F120" or "Exhibit D17" or "F124".

56. Mr. Raymond Lo, solicitor having the conduct of these proceedings on behalf of the plaintiff, discovered certain alarming discrepancies in the original Guarantee of Virotex Limited, "Exhibit D16'' or "F120" when he was asked to compile a bundle of documents during the trial before Mr. Justice Mantell at the end of May 1984. What he discovered was that in the photostat copy of the same Guarantee retained by the plaintiff as well as in the copy of that very Guarantee disclosed in the defendants' Further Supplemental List of Documents as item 59, "Exhibit P26", filed on the 12th May (also "A145"), the proviso in each copy was blank, whilst the original of the Guarantee of Viretex Limited "Exhibit D16" or "F120", which had since been returned to that company had a completed proviso. The original Guarantees of Virotex Limited and Becopa with completed provisos would have been available, if used, as evidence in contradistinction to the uncompleted proviso of the alleged Guarantee of the 1st defendant, "Exhibit P11". The 2nd defendant explained that the Guarantee of Virotex Limited was returned with its proviso to Clause 1 already completed. If that were true, it would be impossible to account for the copy guarantee with an empty proviso disclosed as item 59 of "Exhibit P26" (also "A145"). This is a clear case of a document having been tempered with after a copy was taken and disclosed in the defendants' said Further Supplemental List of Documents. The motive is quite obvious though we know not who the actual cluprit was.

57. There is no such clear evidence of tempering with a document as regard the Guarantee of Becopa. The original is "Exhibit D17" or "F124" which also has its proviso to Clause 1 completed. The plaintiff's photostat copy taken of that Guarantee before it was returned to Becopa, "Exhibit P12", has its proviso to Clause 1 left blank. The defendants did not disclose a photostat copy of the original Guarantee of Becopa in item 58 of their said Further Supplemental List of Documents, "Exhibit P26". The 2nd defendant also claimed that the original of the Becopa guarantee was returned with a completed proviso.

58. I will now deal more specifically with the alleged waiver.

59. If the alleged waiver is true, it certainly would provide a good defence. It is worthy to note that the former solicitors for the defendants, Messrs. Johnson, Stokes and Master had not caused that to be raised on the pleadings.

60. The pleaded Defence case is that Allied Banking Corporation in Manila waived or instructed the plaintiff to waive the guarantee requirement. Allied Banking Corporation in Manila is a separate legal entity although it could influence the plaintiff in Hong Kong, but Allied Banking Corporation could not have themselves waived for the plaintiff. The 2nd defendant claimed that Mr. S. K. Chang had subsequently obtained confirmation of such promised waiver. Mr. S.K. Chang did not corroborate such an allegation. Mr. S.K. Chang was not prepared to go as far as to say that the plaintiff waived the requirement.

61. What was pleaded as having allegedly been told by Mr. Walter Eu-Yang to the 2nd defendant (see page 51 of the Pleadings Bundle) could not have been more vague for a specific assertion of this nature: The oral information from Mr. Eu-Yang was pleaded as: "Allied Banking Corporation was going to or had directed the plaintiff to dispense with the requirement of the joint and several guarantee of directors with respect to the 1st defendant".

62. The 2nd defendant was well aware that Mr. S. k. Chang had no authority to waive the requirement. Indeed Mr. Chang testified, for what it is worth, that upon the 2nd defendant refusing to give a guarantee, he did not accept the 2nd defendant's refusal. He told the courts: "I believe I made it clear to the 2nd defendant that I could not change the terms and conditions set out in the facilities, letter of the 5th June and that he had to take this issue up with the Executive Directors in the Philippines, if he wanted to negotiate". Mr. Chang further explained that it was an on-going outstanding matter and that as several principals were in the Philippines, it was logical for discussions to be had in the Philippines. He said he did not remember any further discussion with the 2nd defendant. When he was asked what happened in the case of the 1st defendant Following Mr. Buxani' s refusal to give the guarantee as requested, his reply was: "I do not remember."

63. There was hardly any real or sufficient collateral apart from the Guarantee, "Exhibit P11". Miss Ellen Ng was an impressive witness. She remained unswayed in her cross-examination. Miss Ellen Ng told the court that it was Mr. S. K. Chang himself who instructed her that a directors' guarantee must be obtained from a limited company. Such was described by her as a "basic requirement" known to all senior staff. She also told the court of the plaintiff's practice of sending out a whole set of documents including a guarantee form right at the inception. In this case concerning the 1st defendant, she was sure that by the time when the Facilities Letter dated the 5th June 1979 "A53" was dispatched, the plaintiff had not received back the guarantee form, hence, a further form was sent out to the 1st defendant for signature. She explained as to why in certain cases, limited companies did not give a directors' guarantee. In particular, she explained that Fintray Enterprises Limited was a company with adequate marginal cash deposit and had a close relationship with the Allied Banking Corporation in Manila through the family of Mr. Frank Chow who had a controlling interest in Fintray. She prepared the Tables for the use of Board Meetings after consulting from the company's box file. These Tables were placed before Mr. S. K. Chang. Under the "Remarks" column, both "H25" and "H41" contained a reference to the directors' guarantee. She was exhaustively cross-examined as to the source of her information and as to the language of the entry. It is difficult to believe that Miss Ng could have fabricated this entry well knowing it to be in any way untrue or inaccurate. At the time, dispute had not arisen, and the plaintiff was in a position to demand like security from the 1st defendant company under the General Commercial Agreement, "A10".

64. As for the 3rd defendant's evidence on the waiver of the guarantee requirement: First, she had been content to leave these matters in the hands of her husband. On one occasion involving a particular bill from an Italian drawee, in a letter of the 1st defendant, signed by herself, dated the 20th January 1982 "A198", the 3rd defendant instructed the plaintiff to telex the plaintiff's correspondents to accept a later payment date on the 1st February 1982. However, on the 28th January 1982, by a telex number 9, the plaintiff instructed its correspondents to protest for non-payment on the 25th January 1982, being the original maturity date. That was allegedly done without prior consultation with or consent of the 1st defendant. Then the 3rd defendant had a conversation with Mr. Benson Lam, and she followed it up by another letter of the 1st defendant dated the 28th January 1982, "A199", in which the plaintiff was requested never so to communicate with its correspondents in future "without first consulting the 1st defendant for instructions". In essence, due date of the bill was 25th January 1982. The 1st defendant instructed the plaintiff to accept late payment on the 1st February 1982, but for some reasons the plaintiff caused the bill to be protested without prior notification to the 1st defendant company. The 3rd defendant was disappointed. Whoever was in the right is quite immaterial. According to Benson Lam, the 3rd defendant impressed upon him that the plaintiff had a personal guarantee of the 1st defendant's directors and the directors would be held responsible for all liability and, therefore, the plaintiff should follow the 1st defendant instructions in full. Mr. Benson Lam was an employee of the plaintiff. The 1st defendant and Veronit of Manila were in the process of closing down due to financial difficulties. The plaintiff was informed in October 1981 of this fact. See "H56" and "H58". By November 1981, the 1st defendant was suffering heavy losses and a proposed Payment Schedule was submitted for the plaintiff's consideration. See "A178". Mr. Lam claimed to have good cause for protecting his company's interest in having the bill duly protested on maturity. Her said conversation as related by Mr. Benson Lam does not seem to be out of character if the 3rd defendant is to be judged by her occasional sharp retorts to counsel. There is no incentive for Mr. Lam to lie. I accept his evidence.

65. Then, the 3rd defendant suggested that she had a discussion with her half brother, Mr. Walter Eu-Yang on the guarantee requirement. She claimed to have discussed the Facilities Letter dated the 5th June 1979 "A53" with him. She told the court that she understood from her husband that "Exhibit P11" was not truly a Guarantee but was given to the plaintiff merely as a formality for obtaining facilities. She went on to explain that her father had advised his children including herself not to sign too many guarantees and to keep clear accounts so as to avoid argument between brother and sister. However, she did not mention having ever discussed the other guarantees of Becopa and Virotex Limited with her half brother. When she was asked by her own counsel whether she remembered seeing "A53", she said she could not quite remember. It was somewhat surprising to hear from the 3rd defendant a little later that she discussed this unfamiliar letter with her half brother. Her alleged discussion was not even pleaded.

66. Mr. S. K. Chang was uneasy and hesitant when he was confronted with matters concerning the Guarantee, "Exhibit P11". His evidence is contrary to the allegation of the 2nd defendant that he had obtained confirmation from Manila of the waiver of the guarantee requirement. He did not specifically say that he told the 2nd defendant that his company would continue on the basis as existing before the Facilities Letter dated the 5th June 1979, "A53". In answering defence counsel, he merely said that he himself expected that be the position of the 1st defendant. As to the provisos of the guarantees, he said quite categorically in cross-examination that he did not know whether these were all left blank in 1979, but in re-examination, he claimed that the Operations Department did in some cases fill them in.

67. Whilst the 2nd defendant relied on personal notes, "Exhibit D13" or "F118", "Exhibit D14" or "F118" and "Exhibit D15" or "F119", which contained no reference to any guarantee, for an alleged meeting with Mr. Chang on the 8th December 1979, Mr. Chang gave no evidence of these notes. There may well be good reasons for it, but in any case, because these notes are self-serving documents and the 2nd defendant had not been wholly consistent, I would not accept these notes as being part of his usual course of conduct or draw any inference therefrom.

68. Turning to the defendants' case once more: The 1st defendant had willingly offered a directors' guarantee in early May. See letter of Virotex Limited dated the 12th May 1979, "A47". In June, the 1st defendant was said to be disappointed with the approved low new limit in "A53" and refused to give the guarantee. The requests of Becopa and Virotex Limited were likewise not fully satisfied. It is difficult to understand, if the defence case be true, why these companies in the same group had not asked for the return of their respective guarantees. Mr. Allman-Brown sought to distinguish the attitude of these two companies by the fact that their guarantees had already been given and further that by E2 and E1 or "Exhibit P54", these two companies had signified their acceptance of the terms by returning the duplicate of the respective Facilities Letters. But these are poor excuses. The real point is why they continued to let the plaintiff hold their guarantees for a lower limit than that for the 1st defendant and why they accepted the terms without any negotiation. The 1st defendant apparently also accepted the new limit by utilizing it. See graph "F222".

69. Miss Ng told the court that the plaintiff could not locate any returned duplicate Facilities Letters from the 1st defendant. I have considered the effect of the non-returning of these duplicates.

70. I have also dealt with the 2nd defendant's other excuse of inadequate local assets and his explanations for the 1st defendant's unlimited or substantial guarantees to two banks and two finance institutions.

71. I do not propose to recount all these and the other matters concerning the defendants.

72. For years before the dispute had arisen, the defendants never once had any of these allegations about the Guarantee put on record. This group of companies constantly gave clarifications and voiced their complaints. I do not accept these of the 2nd defendant's explanations and the defence allegation that the 1st defendant refused to give any guarantee or did not give "Exhibit P11" as a guarantee.

73. Mr. S. K. Chang had no subsequent discussions with the 2nd defendant after his alleged refusal to give a guarantee. I do not propose to repeat my comments on his evidence. But Mr. S. K. Chang had never received any instructions from the Executive Committee or the Philippino directors to waive the guarantee requirement. He was involved with the CAM "H24" and the Tables "H25" and "H41" which all referred to the existing guarantee dated the 2nd Hay 1979. Whatever his understanding "could have been", he never caused "Exhibit p11" to be returned. The 2nd defendant testified that he had asked for the return of the guarantee upon Mr. Chang confirming the waiver, but he never pressed for the return of "Exhibit P11" by reason of his allegedly heavy commitments. Little time was spared for seeking the return of the guarantees of Becopa and Virotex Limited when they became inoperative after accounts had been closed. After Mr. Chang left the plaintiff, in another CAM, "H52", for the Executive Committee Meeting of the 5th December 1980, when a limit of $8 million was requested and & million approved, there was also a specific reference to the directors' guarantee. The plaintiff had been consistent from beginning to end, though CAM "H23" does contain an incorrect entry.

74. Mr. So who is no longer in the plaintiff's employ gave evidence of the 2nd defendant's admission of his personal liability at a discussion. I accept his evidence. As a matter of fact, on the 8th October 1981, the 1st defendant informed the plaintiff of the sharing of losses among the shareholders of both the 1st defendant and Veronit. See "H56". Around the 16th October 1981, when the 1st defendant company sought indulgences from the plaintiff, Mr. So met the 2nd defendant. According to Mr. So, the 2nd defendant said that he would undertake to repay all the debts owed to the plaintiff by instalments and he never distinguished himself from the company. Mr. So further said that at the time, all on the basis of the 1st defendant Company's guarantee, "Exhibit P11".

75. Criticisms levelled against the affidavits of Mr. Eu-Yang and the affidavit of Mr. John Ang ore not wholly unjustified. Mr. John Ang stated that the August 1981 meeting of the shareholders of and the 1st defendant led to a discharge and release of the Philippjno, directors' liability from the Guarantee. Mr. Fu-Yang was, however, silent on that, and in fact, there was no reference to the guarantee in the minutes of that meeting, "A172". Mr. Eu-Yang's was first affidavit failed to touch upon a material allegation of the defence, and he hastened to accommodate the plaintiff by a further affidavit. None of them has come forward to give evidence. I would attach little weight to matters disclosed in their respective affidavits save that, despite all this, I accept that neither of them was approached as regards the alleged waiver of the guarantee requirement. Of course, I have not overlooked the defendants' vague pleading an this aspect, the absence of documentary evidence of negotiation for or confirmation of the alleged waiver and the manner in which the 1st defendant's affairs were generally conducted. There was no waiver of the Guarantee or its requirement.

76. I should try to dispose of some peripheral matters raised by Mr. Allman-Brown. The defendants claimed that Allied Banking Corporation in Manila demanded no directors' guarantee from Veronit. There is no evidence to the contrary. But Becopa, a company of like shareholdings in the group had to give a directors' guarantee. The 1st defendant of the same composition had no reason to expect more beneficial tr atment. Furthermore, if no guarantee was required or the guarantee requirement waived, one would expect such favour to be evidenced in the correspondence or on record during the long association between the plaintiff and the 1st defendant. Mr. Allman-Brown further submitted that if the terms in the Facilities Letter, "A53", viz. a directors' guarantee, assignment of letters of credit and assignment of Bentley Socks Machinery, had all been in fact agreed to by the 1st defendant, it would not have been necessary for the question of the Bentley Socks Machines to be raised again on the 11th October 1979 in "A62". Mr. Tong offered the explanation that by October 1979, the Bentley Socks Machinery was offered as collateral for another company as can be seen in the following letter "A64" dated the 13th October 1979 from Virotex Llimited to the plaintiff, which expressly stated that the Socks machinery was to be collateral in relation to facilities required by Veronit Manufacturing Inc. of Manila.

77. Mrs. Wu explained her reference to joint and several unlimited guarantees in the Balance Sheets of the 1st defendant's audited account. There is no concrete evidence to show that she was wrong. Although she did not appear to be wholly impartial, I would not rely on such references against the defendants.

78. The plaintiff was not in possession of any Records of Guarantor of the 1st defendant. The defendants sought to make much of the fact that there were such Records of Guarantor for Becopa, but there were also no Record of guarantor for Virotex Limited which admittedly gave a directors' guarantee for Virotex Limited.

79. By the end of October 1979, the facilities limit to the 1st defendant was increased to $5 million. See CAM "H24". From the internal Memorandum "H29", as of the 18th April 1980, the plaintiff was aware that the Bentley Socks Machinery was no longer available for collateral for the 1st defendant company. The Executive Committee decided on the same day, i.e. the 18th April 1980, to continue with the $5 million limit and $2½ million sub-limit despite the unavailability of those Socks machines. See "H31" at "H32". Mr. Chang's memorandum to the Operations Department of the same date "H30" recorded that decision of the Executive Committee. From Miss Ng's indorsement on "H30", it would appear that Mr. S. K. Chang gave instructions to withhold the new approved limit from the 1st defendant by reason of the socks machines not being available. The increase was not notified to the 1st defendant until over 6 months later on the 30th April 1980 by another Facilities Letter of that date, "A99". In that Facilities Letter, the sub-limit of the 1st defendant company was increased from $2½ million to $4 million. Mr. Allman-Brown also directed attention to the fact that with the socks machines still unavailable and no further collateral, yet 12 days after the Executive Committee's decision to continue with the $5 million security, the sub-limit was increased. Mr. Allman-Brown submitted that there would have been hardly any need for Ms. Chang to withhold the information of the increase to the 1st defendant company for over six months if in fact there had been an unlimited guarantee, such as "Exhibit P11." I was invited to find in the plaintiff's concern over the availability of the socks machines in 1979/1980 and the plaintiff's sanction of inter-company utilization of facilities a course of. conduct more consistent with a belief of no or no effective guarantee.

80. Counsel further suggested that when inter-company utilization of facilities was suspended on the 30th April 1980 by "A99", the 1st defendant company was informed of the new $5 million limit which was provided on the security of L/C transactions and bills collection.

81. Mr. Allman-Brown contended that the description of the socks machines as "additional collateral" in "'H29" inferentially admitted the presence of co-existing collateral at the time, which were assignment of letters of credit and processing of the bills for the Bentley Socks Machinery.

82. Documents and facts were minutely analysed in all their less significant facets. I need not examine then one by one. of the substantial issues that I have specifically dealt with, there can be no doubt that the Guarantee "Exhibit P11" was a valid guarantee for all limits of facilities granted from time to time to the 1st defendant. The evidence in the main, particularly conduct established by or reflected in the documentary evidence is overwhelmingly in favour of the plaintiff. The defendants sought to rely on strained explanations, feigned ignorance, pathetic insinuations from administrative imperfection and, given the opportunity, perhaps even on documents improperly tampered with. The 2nd defendant, his wife and Mr. Chang were all unimpressive witnesses. Some documents and administrative procedure of the plaintiff were unsatisfactory, but in no way have these matters dissuaded me from the conclusion to which I am so powerfully drawn.

83. In conclusion, the guarantee sued upon by the plaintiff in this action was a guarantee for the facilities up to various limits granted to the 1st defendant. The action of the plaintiff, therefore, succeeds with interest as claimed up to the 31st May 1983 and thereafter until payment at 16½% on the outstanding principal.

84. As far costs, time wasted on recovery of the outstanding principal and interest against the 1st defendant company must be borne by all the defendants on a solicitor and own client basis, by virtue, of the terms of the General Commercial Agreement and the Guarantee. The defendants have embarked on an unnecessarily desperate faultfinding expedition. Much time was spent on matters which are of no assistance to the court. In essence, the allegations made by the defendants just cannot be true. The court is entitled to voice its strong disapproval of the role played by a litigant in the general conduct of the proceedings and/or in the irresponsible allegations raised. This is a fit and proper occasion on which I should exercise my discretion to penalize the defendants in costs on the highest scale. Except for costs already awarded, I order that costs of these proceedings be costs against the defendants on a solicitor and own client basis.

Representation:

Mr. R. Tong instructed by Gallant Y.T. Ho & Co. for the Plaintiff.

Mr. A. Allman-Brown instructed by M/S John, Ip & Co. for the 1st, 2nd and 3rd Defendants.