Read the full judgment text of HCA 005407/2001 on BabelCite. This High Court CFI judgment was delivered on 14 January 2004 before Deputy High Court Judge Gill.
Banking law – guarantee – Deed of Guarantee in standard bank form – continuing guarantee – whether guarantor discharged by subsequent variations to principal debtor's banking facilities – whether guarantor discharged by bank's agreement to give time to principal debtor – whether guarantor discharged by bank's release of collections to principal debtor – whether guarantor discharged by alleged full payment of principal debtor's indebtedness – Code of Banking Practice – whether voluntary code has force of law – counterclaim for set-off of fixed deposit – Charge on Deposit – continuing security – express right of set-off on default by principal debtor – alleged oral representation that deposit would be released on expiry of bank guarantee – whether established – misrepresentation – whether established – costs – solicitor-client basis under guarantee. Nanyang Bank brought a claim against Sanko Technology and its directors, including the 3rd defendant Mr Liu, under a Deed of Guarantee dated 30 September 1998 securing banking facilities of HK$26.73 million. The Deed of Guarantee was a comprehensive continuing guarantee in the bank's standard form, expressly permitting the bank, without notice to or consent of the guarantors, to determine, vary, continue, renew or grant further banking or credit facilities, to settle or compound with the principal debtor, to give time or indulgence, and generally to grant any time or indulgence without affecting its rights against the guarantors. The bank made further revised offers in June 1999, November 1999, May 2000 and October 2000; the directors, including Mr Liu, signed acknowledgements after the first three confirming the Deed of Guarantee remained valid, subsisting and binding. In January 2001 the bank called up the debt; it was then agreed between the bank and Sanko Technology that the company would pay monthly instalments and sell two properties, with Mr Liu chairing the board meeting that approved the Settlement Letter. In June 2001 Mr Liu charged a US dollar deposit of US$53,140.41 by a Charge on Deposit as security for a bank guarantee of HK$420,000 required in connection with a Mainland supplier transaction. After Sanko Technology defaulted in September 2001, the bank set off the deposit and called up the remaining debt. Held, giving judgment for the bank: (1) the Deed of Guarantee was a continuing guarantee; the 3rd defendant was not discharged by reason of the bank's variation of facilities, the bank's agreement to give time, the release of bill proceeds to Sanko Technology in the ordinary course, or partial payments; the bank's express contractual rights prevailed. (2) The Code of Banking Practice is a voluntary code with no force of law, following In the matter of Chit Lee Holdings Limited (unreported HCCW 114/2000); any non-compliance could not relieve the 3rd defendant. (3) The alleged misrepresentation was not made out; the 3rd defendant's evidence in substance was a complaint of non-disclosure rather than positive misrepresentation, and in any event he was an experienced businessman who read the documents, signed the acknowledgements and chaired the meeting that approved the settlement. (4) The counterclaim failed: the alleged oral representation was not established and the Charge on Deposit, with its prominent warnings and express set-off clauses, displaced the 3rd defendant's case. (5) Quantum was uncontested. Judgment for the plaintiff in HK$3,681,439.52, with interest at 10.5% p.a. on HK$3,446,877.15 from 1 January 2003 to the date of judgment, thereafter at the judgment rate; counterclaim dismissed; costs to the plaintiff on a solicitor-client basis pursuant to the Deed of Guarantee.
Legal issues: Discharge by variation of banking facilities · Misrepresentation inducing the Deed of Guarantee · Breach of the Code of Banking Practice · Discharge by agreement to give time (settlement of January 2001) · Discharge by releasing funds to Sanko Technology · Extinguishment of indebtedness by full payment · Counterclaim for the fixed deposit set-off
Outcome: Judgment for the plaintiff against the 3rd defendant; the 3rd defendant's counterclaim dismissed. Costs to the plaintiff on a solicitor-client basis.
Cites 1 case