The Canton Trust & Commercial Bank Ltd v. Yuen Chen Koo and Others

HCA000991/1971

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO. 991 OF 1971

-----------------

-----------------

Coram: Mr. Commissioner T.L. Yang.

Date of Judgment: 20th July, 1973.

-----------------

JUDGMENT

-----------------

1. This is the plaintiff bank's claim against one of the fourth defendants, i.e. Mr. LEE Yung-po (hereafter referred to as the defendant guarantor) on a continuing guarantee.

2. There are two issues to be decided: (I) whether the plaintiff bank's claim on the principal guaranteed is barred under section 4 of the Limitation Ordinance, and (II) if so, whether the plaintiff bank's claim for interests on the principal guaranteed is similarly barred.

3. The guarantee, which was dated the 7th August, 1963, was in the following terms (Exhibit P1B):

4. It is not disputed that the guarantee was terminable only by the plaintiff bank in writing and that it has not been so terminated.

5. On 7th February, 1965 the Financial Secretary made an order that the Commissioner for Banking should assume control of the plaintiff bank. The Commissioner for Banking in turn appointed a firm of accountants, namely Messrs. Lowe, Bingham & Matthews, as the Official Receiver and Liquidator. On 12th May, 1965 the plaintiff bank was wound up by court order. The only advance by the plaintiff bank to the Success Textiles was the sum of $43,454 made on 2nd December, 1963, which amount was subsequently increased to $43,501 by the addition of a small banking charge of $47 on 27th December, 1963 (See Exhibit D1). On 26th June, 1964 an amount of $47 was paid into the account of the Success Textiles to pay off the banking charge. On 27th June, 1967 a further sum of $934,24 was credited into the account of the Success Textiles by reason of some sales made by that firm. Nothing has been paid by the Success Textiles to the plaintiff bank since then.

6. It appears from the documents produced that sometime near the end of 1964, the plaintiff bank's then solicitors had demanded re-payment of the advance from the Success Textiles as well as a guarantor by the name of Wo Sang Cotton Yarn Company (See Ex. D2). Subsequent to that date, but before the early part of April 1965, further letters of demand were sent to the Success Textiles, the Wo Sang Cotton Yarn Company, another guarantor called the Grand Piecegoods Company and also the defendant guarantor's firm called the Maxim Textile Company. The letters of 1965 never reached the addresses (See Ex. P3).

7. On 12th July, 1966, Messrs. Lowe, Bingham and Matthews as Official Receiver and Liquidator of the plaintiff bank wrote to the Maxim Textiles Company demanding payment of the amount guaranteed and interests thereon (Ex. P2b & c). This letter also failed to reach the addressee.

8. The writ of the present action is dated 8th May 1971. The latest date on which the plaintiff bank's cause of action must accrue was therefore six years before that date.

9. On the facts as stated above Mr. Li as counsel for the defendant guarantor made a submission of no case and called no evidence.

10. Mr. Asome in his submission on behalf of the plaintiff bank suggested that the cause of action accrued either on 12th July, 1966 when the Official Receiver and Liquidator of the plaintiff bank wrote to the Maxim Textiles Company, or alternatively on 12th May, 1965 when the winding up order was made. As a further alternative it was suggested that the Limitation Ordinance started to run from the date when the security was shown to be unsafe. No authorities were cited, but Mr. Asome appeared to have relied on paragraph 394 of Halsbury, Volume 24, which refers to Sheers v. Thimbleby & Son (1). The circumstances in that case were quite different. There what the defendants guaranteed was the safety of a mortgage.

11. I am much indebted to Mr. Li for his able and pursuasive arguments, and for the authorities cited in support. As a basis of his argument that the plaintiff bank's claim must fail, Mr. Li submitted that the present guarantee was a guarantee of a debit balance subject to the limit specified, that no demand for payment need be made by the plaintiff bank on the defendant guarantor, and that the interests guaranteed were not interests on the whole of the principal debt but on the amount guaranteed.

12. On the first issue the following prepositions were advanced:

(i) In the case of a continuing guarantee of a debit balance, the cause of action accrues against the guarantor when the debit balance is constituted or struck (Hartland v. Jukes (2), Wright v. New Zealand Farmers Co-operative Association of Canterbury Ltd. (3), Cf. Parr's Banking Company v. Yates (4) ).

(ii) In the case of a continuing guarantee of this nature, where a demand upon the guarantor is necessary, the cause of action accrues against the guarantor when (a) the debit balance is constituted or struck AND (b) when a demand has been made on the guarantor (Hartland v. Jukes (2) Bradford Old Bank Ltd. v. Sutcliffe (5), Cf. Joachimson v. Swiss Bank Corporation (6) ).

(iii) As to the time when a debit balance can be said to be constituted or struck, the authorities give no guidance (see Hartland v. Jukes (2), per Pollock, C.B., Wright's Case (3) ).

13. It was further submitted that on the facts of this case a balance must have been constituted or struck either at the end of 1964 or at any rate before the early part of April 1965, or at the latest in mid-April or the latter part of that month when a petition of winding up was made in respect of the plaintiff bank. The date of the writ of this action being 8th May, 1971, the claim against the defendant guarantor is accordingly statute barred.

14. On the second issue, it was argued that as interest is an accessory to principal, it follows that in the present situation unless the interests have been converted into principal according to banking practice (Parr's Case (4),), the plaintiff bank's claim for interests is also statute barred (Cheang Thye Phin v. Lam Kin Sang (7), Elder v. Northcott (8) ), but there is in this case no evidence as to what the banking practice in Hong Kong is.

15. In Hartland v. Jukes (2), the guarantor promised to pay the creditor bank on demand. It was argued there that the Statute of Limitations started to run in favour of the guarantor as soon as the principal debtor became indebited to the bank, but Pollock, C.B. said (at p. 675):

"It was contended before us that the statute began to run from the 31st December, 1855, by reason of the debt of £173 1s. 11d., then due from Courtney, the customer, to the bank; but no balance was then struck, and certainly no claim was made by the bank upon the defendant's testator in respect of that debt; and we think that the mere existence of the debt, unaccompanied by any claim by the bank, would not have the effect of making the statute run from that date."

16. However the Court of Appeal in Parr's Case (4) treated the statute as beginning to run in respect of each item on the debit side from the date it came into the account (per Vanghu Williams L.J., at p. 467). Parr's Case was distinguished by the Privy Council in Wright's Case (3). In that case, the plaintiff by a guarantee in writing agreed that the "guarantee shall be a continuing guarantee and shall apply to the balance that is now or may at any time hereafter be owing." It was decided that that guarantee was a guarantee of the repayment of each debit balance as constituted from time to time, during the continuance of the guarantee, by the surplus of the total debits over the total credits. The numbers of years which had expired since any individual debit was incurred was therefore immaterial. The question of limitation could only arise in regard to the time which had elapsed since the balance guaranteed and sued for had been constituted. Referring to Parr's Case Lord Russell said in the Privy Council (at p. 450):

"Their Lordships express no opinion whether that particular decision was right or wrong. They would wish to keep that question open for further consideration should the necessity to determine it ever arise. They are, however, satisfied that it has no application to the rights and liabilities of the parties to the guarantee which is under examination of this appeal."

17. In the present case the only advance made by the plaintiff bank to the Success Textiles was on 2nd December 1963, from which date the Limitation Ordinance may be regarded as having begun to run on the strength of Parr's Case. If, on the other hand, the date on which balance is struck or constituted be the date from which the statute begins to run, then the crucial date in this case would be either the end of 1964 or sometime before the early part of April 1965 when demands were made on behalf of the plaintiff bank for payment, for it is inconceivable that such demands would have been made without first a balance having been struck. The payment of $934.24 on 27th, June, 1967 into the account of the Success Textiles did not keep alive the liability of the defendant guarantor, the payment not being made on his behalf. Therefore, alternatively, even on the authority of Hartland v. Jukes (2), the claim on the principal debt is also statute barred.

18. Almost all the authorities cited relate to those guarantees in which it was specifically provided that payment by the guarantor was to be made "on demand" or "on request". However, the guarantee now under consideration did not contain these words. In Bradford Old Bank Ltd. v. Sutcliffe (5), the guarantee stipulated that the creditor must "have demanded payment". In Hartland v. Jukes, the sum guaranteed was "payable on demand." It was the same in the old cases cited in Bradford Old Bank Ltd. v. Sutcliffe, starting with Birks v. Trippet (9), where the defendant was obliged to pay "when he should be thereunto requested." The guarantee in Parr's Case made no mention of any requirement of a demand, but this question was not touched upon in the judgments of the Court of Appeal. It will be seen that the guarantee in Wright's Case also made no mention of the need for a demand, it was nevertheless decided that the question of limitation could only arise in regard to the time which had elapsed since the balance guaranteed and sued for had been constituted. On the authority of Wright's Case as well as on the construction of the guarantee in question, I am of the view that no demand was required and that time began to run under the Limitation Ordinance at the latest from a point of time before the early part of April 1965 when balance must be deemed to have been struck or constituted. Moreover, since the creditor and guarantor had not seen fit to include such a condition in the guarantee the only conclusion that can reasonably be drawn is that they did not require a demand to be made upon the guarantor.

19. For the forgoing reason the plaintiff bank's claim for the principal amount guaranteed, i.e. $38,000, must fail.

20. On the second issue, I need only refer to the judgment of A.L. Smith, L.J., in Parr's Case (4):

"I need not read the guarantee again. In the result I think that, upon the true construction of it, no advances having been made for a period of more than six years before the date of the writ in the action, the plaintiffs' right of action in respect of the advances is barred by the Statute of Limitations. That however does not dispose of the case, because the guarantee was given not only in respect of sums advanced to the guaranteed party, but also in respect of interest, commission, and other banking charges. In my opinion, as interest, commission, and other banking charges, the payment of which is as much guaranteed by the guarantee as the payment of the advances, have accrued against the guaranteed party within the period of six years before the commencement of the action, the Statute of Limitations does not affect those items, and the plaintiffs are entitled to recover such interest, commission, and other banking charges as they can shew to have become due from the guaranteed party to them during that period, that is between September 3, 1891, and September 3, 1897. The doctrine that interest is an accessory which falls to the ground with the principal does not apply to a case like this, because the payment of interest, commission, and other banking charges due from the guaranteed party is as much guaranteed as payment of the sums advanced themselves. I do not think that the doctrine with regard to the appropriation of payments to interest before principal upon which the defendant relied has any application to the present case. The result is that the judgment of the learned judge in the Court below must be varied, and the plaintiffs must have judgment only for the amount due to them for interest, commission, and other banking charges which accrued within the period of six years before the action."

21. Cheang Thye Phin v. Lam Kin Sang (7) covers the relationship of creditor and debtor (see also Elder v. Northcott (8) ), which calls for different considerations from that of creditor and guarantor.

22. Following Parr's Case I give judgment for the plaintiff bank for interests on $38,000 which have accrued within the period of six years before 8th May 1971, at the rate of 40 cents per $1,000 per day. I will hear submissions on the question of costs.

Representation:

Mr. Miohael Asome (W.K. Lore & Co.) for Plaintiff.

Mr. Andrew Li (T.M. Chow & Co.) for 2nd named of 4th Defendants.

(1) (1897) 76 L.T. 709, at p.711

(2) (1863) 1 H & C. 667

(3) (1939) A.C. 439

(4) (1898) 2 QB 460.

(5) (1918) 2 KB 833

(6) (1921) 3 KB 110

(7) (1929) A.C. 670

(8) (1930) 2 Ch. 422

(9) 1 Wms Saund 32.