The Hongkong and Shanghai Banking Corporation v. Cheung Kung Hai and Another
Read the full judgment text of HCA 15405/1983 on BabelCite. This High Court CFI judgment.
1. These are my reserved reasons for making an order on the 16th March 1984 giving the Plaintiff Bank summary judgment under 0.14 against the Defendants for the sum of $60,000,000 with interest.
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HCA015405/1983
BETWEEN
______________ Coram: Hon. Clough, J. Dates of Hearing: 15th & 16th March 1984. Date of Delivery of Judgment: 30 MAR 1984. ___________ JUDGMENT ___________ 1. These are my reserved reasons for making an order on the 16th March 1984 giving the Plaintiff Bank summary judgment under 0.14 against the Defendants for the sum of $60,000,000 with interest. 2. By its specially endorsed Writ issued on the 23rd December 1983 the Bank claimed the above mentioned sum and interest against the Defendants as guarantors under an instrument of Guarantee dated the 23rd January 1981 under which the Defendants agreed to pay on demand all sums outstanding to the Bank from Keneva Company Limited ("Keneva") subject to a limitation of the Defendants' liability as guarantors to the sum of $60,000,000 with interest at the rate of 18 3/8 per cent per annum from the date of demand for payment. 3. Counsel for the Bank informed the court that personal service of the Writ and Statement of Claim was effected on the Defendants. They acknowledged service by their solicitors on the 5th January 1984 but they left the jurisdiction at some date prior to the 26th January 1984 and have not yet returned. 4. On the 11th January 1984 the Bank issued a Summons in the action under O.14 returnable on the 27th January 1984. The Summons was supported by the usual verifying affidavit sworn by Mr. Harrison an officer of the Bank. On the 26th January 1984 an affidavit in opposition of Mr. Chung Yin Shu, the 2nd Defendant's son, was filed and on the 27th January 1984 Master Hansen adjourned the Bank's Summons to a judge in Chambers for argument on a date to be fixed after giving directions as to further evidence which included a direction that any further evidence was to be filed 7 clear days before the hearing. 5. Thereafter affidavits of Messrs. Donaldson and Penketh, officers of the Bank, were filed on the 6th March 1984 in answer to Mr. Chung's affirmation. Subsequently, with the leave of the court, an affidavit of Mr. Chan Man Kong was filed on the 15th March 1984, the first day of the hearing of the Summons before me. Several days notice of this latter affidavit had been given to the Bank's solicitors. 6. The background of the case is as follows. In 1980 the Defendants were well known property developers in Hong Kong. Keneva was the vehicle by which they contemplated the ownership and development of an 11 storey tenanted industrial building ("the building") situated at 32 Tai Yau Street, San Po Kong. The shareholders of Keneva are three companies owned and controlled by the Defendants and the building is the only asset of Keneva. 7. Towards the end of 1980 there were certain negotiations between Mr. Donaldson on behalf of the Bank and Mr. Chung on behalf of the Defendants and Keneva and other companies of the Defendants regarding the possibility of the Bank financing the purchase and development of the building and other properties to be developed by the Defendants and their companies. There followed a letter dated the 24th December 1980 addressed to Keneva by the Bank and signed by Mr. Donaldson on behalf of the Bank. The letter was headed to refer to banking facilities for the building and expressed the agreement in principle of the Bank to a loan of $64,000,000 to Keneva subject to the terms and conditions contained therein. The loan was stated in the letter to be available on completion of the security documentation and subject to a satisfactory valuation by the Bank's Property Department and the security was stated to be a first registered mortgage in favour of the Bank over the building for the full amount of the advance and a joint and several guarantee for $64 million from "all shareholders". Repayment was stated to be by one lump sum three years after the date of draw down. After setting out all the relevant terms of the proposed loan there appeared in the letter the statement that the loan was subject to the Bank's overriding right of repayment on demand. 8. The penultimate paragraph of the letter was in the following terms:-
9. The Bank's letter dated the 24th December 1980 had been addressed to Keneva for the attention of Miss P.C. Cheung. By a letter dated the 29th December 1980 and signed by the Defendants Keneva returned to the Bank their letter together with the guarantee duly signed. Keneva's letter went on to inform the Bank that the borrower was Keneva and that the shareholders of Keneva were E. Wah Realty Limited(¼), Wah Ha Realty Company Limited (¼) and Wan Chip Realty Limited (½). According to the evidence of Mr. Donaldson, which was not challenged, the guarantee forms returned by Keneva to the Bank on this occasion had been signed by the Defendants. The form of guarantee had been described in the Bank's letter dated the 24th December 1980 as "our standard form". 10. On the 29th December 1980 the Bank was advised that the building had a market value of $90,000,000 and as this was less than the price of $97,000,000 which had been paid by Keneva for the building the Bank decided to reduce the loan facility from the sum of $64,000,000 previously offered to the latter sum of $60,000,000. Accordingly, by its letter dated the 22nd January 1981 addressed to Keneva and again signed by Mr. Donaldson, the Bank offered a loan facility of $60,000,000 to Keneva in the same terms as had been set out in what appears to be a standard form of the Bank in its previous letter dated the 24th December 1980. The penultimate two paragraphs of the letter dated the 22nd January 1981 were expressed in the following terms:-
11. Again Keneva returned the Bank's letter dated the 22nd January 1981 and it bears the signature of the Defendants as Directors of Keneva. Keneva also returned the form of guarantee which had accompanied the Bank's letter dated the 22nd January 1981 and the form which was dated the 23rd January 1981 bears the signatures of each of the Defendants. By a letter dated the 27th January 1981 addressed to Keneva the Bank acknowledged receipt of the joint and several guarantee for $60,000,000 executed by the Defendants and of the copy of the Bank's letter dated the 22nd January 1981 duly signed. 12. On each occasion the Bank had sent a standard printed form to Keneva for signature and the letter dated the 22nd January 1981 had also stipulated that the security for the loan should be a first registered mortgage and a joint and several guarantee for the amount of the loan "from the shareholders". 13. It was not disputed that the liability of the Defendants as guarantors under the guarantee dated the 23rd January 1981 was expressed to be one which arose, under clause (1) "on demand" nor was it disputed that clause (7) of the guarantee was expressed to provide that the guarantee should be in addition to and should not be in anyway prejudicial or affected by any collateral or other security then or thereafter held by the Bank for all or any part of the money thereby guaranteed. Clause (13) of the guarantee was expressed to provide that a notice by the Bank under the guarantee might be served by post. 14. There was no issue regarding the receipt of the loan of $60,000,000 by Keneva and on the 27th February 1981 Keneva executed a formal Deed of Mortgage which was executed by the Defendants on Keneva's behalf and assigned the building to the Bank to secure the performance of Keneva's covenant to repay on demand by notice in writing of the Bank all sums of money outstanding at the date of such demand including both principal and interest. 15. By clause 5.01 (i) and (ii) of the Mortgage Deed events of default by Keneva included default in payment of the principal or interest on demand duly made under the Deed and default in payment of principal or interest outstanding and payable by Keneva in accordance with the terms and conditions relating thereto. 16. Under clause 6 of the Mortgage Deed in the event of default by Keneva as mortgagor the rights of the Bank as mortgagee included the right to take possession of the building and to receive the rents and profits and a power of sale exercisable one month after previous demand for payment followed by further default. 17. Clause 17.01 of the Mortgage Deed dealt with waiver in the following terms:-
18. As a result of the slump in property values the Defendants and their companies found themselves in difficulty in meeting the mortgage interest in respect of a number of properties, including the building, and by a letter dated the 27th October 1982 signed by the Defendants the Bank was informed, inter alia, that the Defendants reluctantly proposed to suspend the interest payments temporarily in respect of the mortgage affecting the building. The sequel to the suspension of the interest payments under the mortgage was that the Bank initially, by its letter dated the 14th December 1982 addressed to the Defendants, demanded payment of all rents in respect of the tenancies pertaining to, inter alia, the building direct to the Bank as mortgagee. 19. Thereafter, on the 26th January 1983 by a letter addressed to Keneva, the Bank, by reason of Keneva's failure to pay interest under the mortgage for the months of October, November and December 1982 formally made a final demand for payment forthwith of the principal sum of $61,807,692.16 and interest in the sum of $584,895.60 accrued up to the 25th January 1983 with further interest accruing. By the same letter the Bank asserted its entitlement but not obligation to exercise all or any of its rights and powers under the mortgage and further declared that any delay, forebearance or indulgence on the Bank's part in taking any action against Keneva should not prejudice or affect its rights and powers. 20. There followed an Assignment dated the 23rd March 1983 whereby Keneva assigned to the Bank as lender and mortgagee all its right to any payments by the tenants of the building. The Assignment recited the mortgage and the default of Keneva and further recited that in consideration of the Bank refraining from immediately exercising its rights and powers conferred on the Bank by law or by the Mortgage the parties had agreed to execute the Assignment. 21. Clause 1 of the Assignment began in the following terms :-
22. Between April and the 21st July 1983 there were negotiations between the Bank and other banks on the one hand and the Defendants and their companies, including Keneva, on the other hand concerning the liabilities of the Defendants and their companies to the various banks and the Bank was represented by Wardley which had set up an informal working party composed of representatives from the various banks who evidently negotiated with Mr. Oscar Lai the solicitor acting for the Defendants. 23. These negotiations having failed the working party was disbanded and on the 1st August 1983 the Bank appointed Receivers and Managers in respect of the building and on the 5th September 1983 the Bank sent two letters of demand under the guarantee to Keneva. The letters were in common form save that one was addressed to Keneva for the attention of the 1st Defendant and the other was addressed to Keneva for the attention of the 2nd Defendant. Each of the letters was expressed to constitute a formal demand under the guarantee dated the 23rd January 1981 for the sum of $60,000,000 under clause (1) of the guarantee. 24. Further negotiations ensued following the letters of demand dated the 5th September 1983. The Bank and the Defendants differed regarding the sum which could be raised on the disposal of the mortgaged building. Efforts to achieve some form of moratorium to enable a better price to be obtained for the building on the basis that security should be made available for any shortfall together with some form of intermediate token payment unhappily failed although the negotiations continued until the 5th January 1984 after the issue of the Writ in this actin. 25. Against that background the Plaintiff by its counsel Mr. Andrew Li contends that it is entitled to judgment under 0.14 on the basis that the Bank's claim is a simple one under a guarantee limited to $60,000,000 with interest at the stipulated rate to which there is no defence. 26. By leading counsel Mr. Oswald Cheung the Defendants contended that the court should be satisfied that there are triable issues which ought to be tried by reason of the six grounds of defence summarised in paragraph 14 of Mr. Chung's affirmation. 27. The first ground of defence is affirmed by Mr. Chung to be that the Defendants executed the guarantee relying on the oral agreement between Mr. Chung acting as the Defendants' agents and Mr. Donaldson to the effect that the Plaintiff Bank would treat the mortgage as the primary security and would only resort to the Defendants' guarantee in satisfaction of any shortfall. 28. Evidence from the Defendants on this issue is conspicuously absent. They relied solely on the evidence of Mr. Chung. His evidence on this matter is to the following effect. He affirms that in or about the end of 1980 when he and Mr. Donaldson were co-directors of Associated Hotels Limited Mr. Donaldson, of his own initiative, asked Mr. Chung about the possibility of a business relationship between the Bank and the Defendants who were well-known property developers, and their companies. As a result, Mr. Chung affirmed, the Defendants agreed to ask the Bank to finance the purchase and development of three properties including the building. 29. According to Mr. Chung there followed a meeting between himself and Mr. Donaldson at which Mr. Chung requested the Bank to grant fixed loans to the Defendants' relevant companies of up to 65% of the purchase price of the various properties and Mr. Donaldson said that subject to valuation the Plaintiff would be willing to grant the loans on the security of the properites to be purchased. The affirmation of Mr. Chung then continues as follows:-
30. There was no further evidence before me regarding any subsequent negotiations between Keneva and the Bank until the letter dated the 24th December 1980 containing the Bank's proposals which has already been referred to above. That letter referred to a previous letter of the 2nd December 1980 but the letter in question was not exhibited in evidence. 31. Mr. Donaldson has denied that he ever agreed with Mr. Chung or said anything to lead him to believe that the Bank would treat the mortgage of the property as primary security and would first resort thereto to satisfy Keneva's indebtedness before pursuing the Defendants on their personal guarantees. However, for the purpose of considering the question whether Mr. Chung's evidence raises a triable issue regarding the relative priority of the mortgage and the guarantees I have assumed that Mr. Chung's evidence would be accepted as true at any future trial. 32. Mr. Li for the Bank accepted, rightly in my view, that if on the credible evidence of Mr. Chung and any other credible evidence adduced on behalf of the Plaintiff a collateral agreement by the Bank to enforce the mortgage before the guarantees were resorted to could be established, then such collateral agreement could qualify the subsequent written agreement and get round the usual parol evidence rule. The relevant authorities making this clear are referred to in Chitty on Contract, Volume 1, at para. 734, concluding with the following citation from the judgment of Lord Denning M.R. in Evans (J.) Ltd. v. Andrea Merzario Ltd. [1976] 1 W.L.R. 1078 at p.1081 E-F :-
33. In my judgment the evidence of Mr. Chung relates demonstrably to the initial tentative stages of negotiations between representatives of their principals. This is emphasised by the fact that Mr. Donaldson is alleged to have remarked that the Bank "would perhaps require personal guarantees to be furnished by the Defendants". He is alleged to have said that after his statement that the Bank would be willing to grant loans on the security of the properties to be purchased. 34. Accepting this evidence at its face value Mr. Donaldson was clearly indicating that he was unable to say whether personal guarantees would in the event be required at all. His alleged observations also indicated that he did not have authority to commit the Bank on the terms of the loan when he discussed the matter with Mr. Chung on the date in question. When, therefore, he allegedly agreed that the applications for loans could proceed on the basis and understanding that the Defendants would be agreeable to giving personal guarantees provided the Bank would treat the mortgages of the various properties as the primary security he was doing no more than agreeing to applications being made on that basis but he was not, in my judgment, giving the Defendants any promise or assurance on behalf of the Bank that the applications would be granted if made or that any application which would prove to be successful would be accepted by the Bank subject to any oral promise by Mr. Donaldson on behalf of the Bank to treat the security of the mortgage of the relevant property as the primary security. 35. In so far as Mr. Donaldson was inviting the Defendants by Mr. Chung to rely on any agreement by him regarding the relative priority of the future mortgages and guarantees he was doing so on the basis that guarantees would perhaps be required and reliance could be placed on his agreement by the Defendants in relation to the making of the application and not further. Put another way, at the most it can be concluded from Mr. Chung's evidence, assuming it would be accepted at the trial, that Mr. Donaldson was intending that Keneva and the Defendants should act on his agreement by making an application for a loan and not by entering into a binding contract. 36. Moreover the Bank, by Mr. Donaldson, made its position abundantly clear by its letters dated the 24th December 1980 and 22nd January 1981 containing in clear terms the conditions upon which the Bank was prepared to make a loan to Keneva. 37. Mr. Chung's evidence is to the effect that the finalisation of the loans was left to the individual staff of the Defendants' companies handling the particular projects. However the documentary evidence before the court which is not disputed, indicates clearly that the Defendants themselves accepted the proposals of the Bank on both occasions and that they signed all the relevant documentation. There can be no doubt but that they signed the Bank's letter accepting its terms and conditions on both occasions and that they likewise signed the forms of guarantee. The combined effect of the two letters and of the Bank's standard form of guarantee was that the security of the mortgage of Keneva's property and of the guarantee of the Defendants were independent and several securities available to the Bank. 38. Mr. Chung asserts in paragraph 14(i) of his affidavit that the Defendants executed the guarantee relying on the agreement between himself and Mr. Donaldson regarding the priority of the securities. He does not depose that the Defendants have informed him of their state of mind at the time they executed the relevant documents. The Defendants themselves have remained silent on the subject. There is a complete gap in the evidence adduced on behalf of the Defendants regarding the Defendants' state of mind at the time they signed the Bank's letters and guarantees. 39. Mr. Cheung for the Defendants was constrained to contend that the court should presume that the Defendants were influenced and induced to enter into the guarantee by the agreement of Mr. Donaldson deposed to by Mr. Chung during the negotiations. In my judgment this argument is quite unacceptable. The Bank had made its position abundantly clear by its letter. The Defendants had accepted its proposals unequivocally. If and so far as Mr. Donaldson had made any representation or agreement during his earlier conversation with Mr. Chung it had been overtaken by the Bank's subsequent letters. In the absence of any direct or indirect evidence of the state of mind of the Defendants at the time they signed the Bank's letters and guarantees there can be no sensible ground, in my judgment, for presuming that the Defendants were relying on any collateral agreement or representation of Mr. Donaldson at the time they accepted the proposals contained in his two letters dated the 24th December 1980 and the 22nd January 1981 and signed the two guarantee forms. 40. The evidence of Mr. Chan, the personal executive assistant of the 2nd Defendant, did not, in my view add any substance to the proposed defence of the Defendants on this issue. In paragraph 3 of his affidavit, after pointing out that both the Bank's letters containing their proposals for the loan stipulated that there should be a joint and several guarantee from "all shareholders" in the earlier letter and "from the shareholders" in the later letter from the Bank, Mr. Chan deposed as follows:-
41. My understanding of this evidence, which is forensic in character, is that Mr. Chan is not in a position to give evidence regarding the state of mind of the Defendants when they executed the relevant guarantee and that he is simply adopting or reiterating the evidence of Mr. Chung and not enlarging upon that evidence except to make the forensic point that the letters from the Bank did not stipulate for personal guarantees from the Defendants but rather for guarantees from the shareholders of Keneva. 42. Mr. Oswald Cheung argued that the fact that the Defendants responded to the Bank's letters in both cases by giving their own personal guarantees supported the proposed defence because the Defendants' understanding that their personal guarantees were required derived from the alleged agreement by Mr. Donaldson with Mr. Chung. However, as Mr. Li pointed out, the only clear inference from the conduct of the Defendants in signing the guarantees after pointing out by their letter dated the 29th December 1980 that their companies were the shareholders of Keneva, is that it was the understanding of the Defendants that their personal guarantees would suffice and likewise the Bank in making the advance subsequently on the strength of the Defendants' guarantees demonstrated the Bank's understanding to the same effect or, alternatively its acceptance of the Defendants' guarantees. 43. In the absence of any evidence from the Defendants themselves regarding their state of mind at the time they signed the guarantee, there can, in my view, be no ground for going on to infer that the giving of the guarantee by the Defendants and not the shareholders of Keneva is a factor supporting the existence of the alleged collateral agreement or assurance regarding the relative priority of enforcement of the mortgage and guarantee. 44. Mr. Chan deposed that at a meeting on the 17th June 1983 Mr. Penketh of the Bank had stated that the Bank had no intention to make a demand under the guarantee but would only like to preserve "its power of sale etc. under the mortgage". Mr. Chan also deposed that at a subsequent meeting on 12th September 1983 after the issuing of the letters of demand on the 5th September 1983, Mr. Penketh and Mr. Harrison of the Bank were asked in the presence of Mr. Chan why the Bank had issued the letters of demand and they had replied that the letters were only a matter of formality and that the Plaintiff did not have any intention of making a call on the guarantees for the time being. 45. Mr. Cheung argued that this evidence indicated that the Bank was at this stage treating the guarantees of the Defendants as security secondary to the mortgage. He further contended that the Defendants were entitled to a trial at which Mr. Penketh and Mr. Harrison could be cross-examined, as could Mr. Chan, about the reference to the guarantee as a formality. Likewise, Mr. Cheung contended, the conduct of Mr. Penketh and Mr. Harrison could be relied upon as supporting the contention that they had knowledge of the evidence of the alleged collateral agreement with Mr. Donaldson regarding the priority of the securities. 46. I was not persuaded by any of these arguments and I accepted the submission of Mr. Li for the Bank that the fact that the Bank appears from all the exhibited documents to have been prepared to negotiate with the Defendants and Keneva for a settlement dealing with the security of the mortgage and additional cover for the shortfall beyond the value of that security does not give rise to any reasonable inference that the Bank was recognising that it had agreed or was in anyway bound to enforce the mortgage before resorting to the guarantees. 47. Moreover the minutes of a meeting held on the 3rd October 1983 attended by both the Defendants and Mr. Chan recorded that Mr. Penketh stated that the Bank would call the guarantees unless substantial payment was received plus a firm repayment schedule for the balance. There is no indication of any protest by the Defendants or any of their associates that the adoption of this attitude was a breach of any prior agreement or assurance on the part of the Bank. Later, at a meeting during the negotiations on the 26th November 1983, Mr. Penketh included in the Bank's proposal the proposal that the guarantees should remain intact until full settlement, to be enforced if there should be any default of the settlement proposals, but I do not regard this proposal, made in the course of negotiations, as in anyway indicating that the Bank had at any time agreed that it was only entitled to enforce the guarantees if there was a shortfall after enforcement of the mortgage. 48. Accordingly, assuming but not deciding, that the evidence, as distinct from the forensic assertions of Mr. Chung and Mr. Chan is to be accepted as true, I conclude that it is wholly inadequate to satisfy the court for the purposes of 0.14 r.3(1) that there is an issue or question in dispute which ought to be tried with respect to the Bank's claim in this action or that there ought for some other reason to be a trial. Mr. Cheung rightly emphasised that the Defendants do not have to show a complete defence in order to be granted leave to defend but, in my judgment, in the present case they have relied on evidence which is wholly inadequate to show even a triable issue. 49. Mr. Cheung cited a number of authorities in support of his argument. They are all cases in which a collateral agreement or assurance was held to be binding so as to qualify the terms of a written instrument made between the parties. However, I base my decision on the first ground of defence advanced by Mr. Cheung on the lack of any sufficient evidence, even if accepted, to establish the existence of any oral collateral binding agreement or assurance binding the Bank in this case and I do not consider that any useful purpose will be served by my referring to Mr. Cheung's authorities in relation to the first ground of defence relied upon by the Defendants. 50. Mr. Li made a subsidiary submission regarding the evidence of Mr. Chung in support of the alleged oral contractual agreement or assurance by Mr. Donaldson on behalf of the Bank. He contended that on the material before him the evidence of the alleged oral collateral agreement was, in the words of Lord Lindley "practically moonshine" and that the court should reject Mr. Chung's evidence on this issue and give it virtually no weight. 51. This matter is going further and accordingly I think it is right that I should indicate that if I am held to be wrong in holding, as I have above, that even if Mr. Chung and Mr. Chan's evidence is given full weight and credibility the Bank is entitled to summary judgment, I consider that this is a case in which the court should adopt the extreme course of rejecting the evidence of Mr. Chung and Mr. Chan concerning the alleged collateral agreement as being so inherently implausible and so manifestly inconsistent with all the documentary evidence as to be incredible. 52. All the documentary evidence from the 24th December 1980 onwards is wholly consistent with the Bank's claim. There is no evidence whatsoever of any contention by the Defendants or any of their associates, particularly their solicitor Mr. Oscar Lai who seems to have advised them throughout the negotiations after Keneva's default, that Mr. Donaldson ever made or was alleged to have made any collateral agreement or gave or was alleged to have given any binding assurance to Mr. Chung regarding the priority of the securities. The first indication of any such allegation was made for the first time in Mr. Chung's affirmation made on the 26th January 1984 after the Defendants had left the jurisdiction. 53. Mr. Chung has deposed that he had the authority to make his affirmation on behalf of the Defendants. Mr. Chan also made his affidavit with the same authority. The Defendants themselves, whose state of mind at the date they signed the guarantee is crucial, have elected to remain out of the jurisdiction and have filed no evidence whatsoever. The fact that a person is out of the jurisdiction does not preclude his making an affidavit or affirmation in proceedings in which he is a party. No explanation has been offered for the silence of the Defendants. 54. In my judgment this is a situation where it would be unrealistic for the court to give any credence to the evidence of the alleged collateral agreement or assurance by Mr. Donaldson. To do so in the circumstances of the present case would in my view amount to accepting wrongly that it is the function of the court in 0.14 proceedings to give credence to every statement in affidavits however incredible: c.f. the observations of Beldam J. in Bremar Holdings Ltd.v. de Roth reported in the "Times" on the 28th February 1984 and the reservations of the English Court of Appeal expressed in Paclantic Financing Co. Inc. v. Moscow Narodny Bank Ltd. reported in the "Times" on the 22nd February 1984 regarding the exclusive categorisation by Webster J. of the circumstances in which affidavit evidence may be rejected in O.14 proceedings. 55. Accordingly, my second and distinct reason for rejecting the first ground of the proposed defence of the Defendants in this case is that I find that the evidence of Mr. Chung and Mr. Chan regarding the alleged collateral agreement or assurance made by Mr. Donaldson with Mr. Chung on behalf of the Defendants is not sufficiently credible in all the circumstances to raise an issue or question in dispute which ought to be tried or to raise any other reason why there ought to be a trial. To conclude otherwise would in my view only result in Defendants, who have no semblance of a defence to an action on the guarantee, obtaining the advantage of delay to the wrongful prejudice of the Bank which is entitled to summary judgment. 56. The second ground of the Defendants' proposed defence is really in substance the same as the first ground but it is merely expressed by reference to an equity rather than collateral agreement or assurance. My understanding was that Mr. Cheung, in relying on the reference to an equity, was founding his argument on the dictum of James L.J. in Erskine v. Adeane (1873) L.R. 8 Ch. App. 756 at p.765. James L.J. there observed:-
In the same case, which was clearly decided on the basis that a binding collateral agreement had been made between a landlord and a tenant at the time they were agreeing to enter into a written lease, Mellish L.J. concluded that it would be "............ contrary to the ordinary rules of justice if the tenant were afterwards to have no remedy." 57. Having regard to the fact that the proceedings in Erskine v. Adeane were administration proceedings in which the tenant was making a claim on his deceased landlord's estate and to the fact that the proceedings, having been begun in 1871 would have been brought in the Chancery court it seems to me to be clear that the dictum of James L.J. distinguishing between a claim at law and in equity was merely intended to distinguish the two jurisdictions. The real basis of the decision was clearly collateral agreement which would be enforceable both in the courts of law and equity. 58. Mr. Cheung did also rely on the reference to an equity by Lord Denning M.R. in his minority judgment in Brikom Investments Ltd. v. Carr [1979] 1 Q.B. 467 at p. 485B. I emphasise that that part of Lord Denning's judgment was not concurred in by the other two members of the court but in any event, whether the basis of the claim under this head is described as an equity or collateral agreement, for the reasons given earlier in this judgment I conclude that there is no sufficient evidence adduced on behalf of the Defendant to substantiate any "equity" or collateral agreement. 59. The third ground of proposed defence of the Defendants is that the mortgaged property is sufficient to satisfy the indebtedness of Keneva towards the Plaintiff. In view of the grounds of decision above to the effect that the Defendants have not shown any grounds for defending the Bank's claim that the liability of the Defendants under the guarantee is independent of the Bank's rights under the mortgage of the building, I do not consider that any useful purpose will be served by dealing here with the evidence regarding the value of the building. 60. Suffice it to say that the indebtedness of Keneva to the Bank exceeds $60,000,000 and that after initially relying on Mr. Chung's valuation of the building, expressed in paragraph 13 of his affirmation as a figure of over $70,000,000, the Defendants subsequently relied on a professional valuation of $58,000,000 as at the 10th March 1984 which was exhibited to the affidavit of Mr. Chan. This figure was expressed in the valuation to be an open market value and the valuation appears to have made no reduction in respect of a forced sale by a mortgagee. However in a letter dated the 23rd November 1983 from Mr. Oscar Lai the Defendants' solicitor to the Bank an allowance of 2 years was being sought to obtain the best selling price of the units in the building and a 20% reduction on the Defendants' then valuation of $71,000,000 was being envisaged in respect of a forced sale of the building, thereby reducing the price at that time to $56,000,000. It would therefore seem clear that on any footing the building is not worth, at current values, particularly on a forced sale, the amount of the indebtedness of Keneva to the Plaintiff. Indeed the Bank exhibited a valuation dated the 6th February 1984 in which the building is valued at a market value of $41,000,000 and a forced sale value of $35,000,000. 61. The fourth proposed ground of defence was that the Bank's loan was for a fixed term of three years from the 27th February 1981 expiring on the 26th February 1984. The argument in support of this ground is based on the proposed term for the loan contained in the Bank's letter dated the 22nd January 1981 to the effect that repayment of the loan is to be by one lump sum three years after the date of draw down. However the argument is clearly untenable because the same letter contains the usual qualification in clear and unequivocal terms that - "This loan is subject to our overriding right of repayment on demand." 62. The fifth ground of proposed defence is that there has been no demand for repayment made against the principal debtor, Keneva. Although a demand had been made upon Keneva by the Bank on the 26th January 1983 for the repayment of $61,807,692.16 with interest under the mortgage, Mr. Cheung contended that this demand was spent because of the subsequent assignment of the rents in respect of the building by Keneva to the Bank on the 23rd March 1983. In my judgment this contention is not sustainable. The letter of demand from the Bank dated the 26th January 1983 included a statement by the Bank of its claim to entitlement to exercise all its rights and powers as mortgagee by reason of the default of Keneva but it clearly safeguarded itself by declaring that any delay forbearance or indulgence on the part of the Bank in taking any action against Keneva should not prejudice or affect its rights and powers. 63. The Assignment of the rents dated the 23rd March 1983 displayed the same caution. It recited inter alia that the Bank had become entitled to demand immediate repayment from Keneva and the consideration moving from the Bank was its refraining from immediately exercising its rights and powers conferred on the Bank by law or by the mortgage. Clause 1 of the Assignment is expressed in the following terms:-
64. In my judgment the expressed terms of the Bank's letter of demand on Keneva and of the subsequent Assignment of the rents make it abundantly clear that Keneva's debt became payable at the time it received the letter of demand and the debt never ceased to be repayable thereafter. Furthermore the only consideration moving from the Bank in respect of the Assignment of rents was its agreement not to make immediate demand for payment at the time of the Assignment and clause 1 expressly reserved the right of the Bank to make an immediate demand for payment of an existing debt which was already outstanding at any time after the execution of the Assignment. It was admittedly a very one-sided agreement but was clearly intended to be such. 65. Finally the sixth proposed ground of defence is that no demand for repayment has been made against the Defendants. The obligation of the Defendants under clause (1) of the Guarantee dated 23rd January 1981 is to pay to the Bank "on demand" all sums of money outstanding from Keneva to the Bank and under clause (13) of the Guarantee a notice under that instrument may be served by post upon the Defendants. The two letters dated the 5th September 1983 intended to be demands under the Guarantee were sent to Keneva. One letter was expressed to be for the attention of the 1st Defendant and the other letter was expressed to be for the attention of the 2nd Defendant. Although each letter begins with the words "Dear Sirs", each letter continues in common form to refer to the Guarantee "executed by yourself" for the sum of $60,000,000 in respect of general banking facilities granted to Keneva. The letters go on to make a formal demand under that Guarantee for $60,000,000 under the Guarantee. 66. There is no suggestion on behalf of the Defendants that these two letters were not received by Keneva or by either of the Defendants. The only question arising therefore is whether the letters would be understood by each of the Defendants as making a demand upon them under the Guarantee. In my judgment there can be no room for doubt but that each of the Defendants having received the letter expressed to be for his attention must have understood himself to be receiving a demand for payment of $60,000,000 in accordance with the terms of the Guarantee dated the 23rd January 1981 executed by him and the fact that each demand was addressed to the company does not deprive it of its intended character as a demand by the Bank upon each of the Defendants for payment under the specified guarantee to which they were both parties. 67. Accordingly, for the above reasons, I gave summary judgment for the Plaintiff in this action.
Representation: Mr. Andrew Li instructed by M/s Johnson, Stokes & Master for the Plaintiff. Mr. Oswald Cheung, Q.C. with Mr. Patrick Fung instructed by M/s Oscar Lai & Ho for the Defendant. |