National Bank of Canda v. Yeebo (International Holdings) Ltd

HCCL000201/1995

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

COMMERCIAL LIST

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Coram : Hon. Mrs Justice Le Pichon in Chambers

Date of hearing : 15 February 1996

Date of handing down decision: 26 February 1996

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DECISION

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1. By a writ dated 23 October 1995, the National Bank of Canada ("the Bank") issued proceedings against Yeebo (International Holdings) Limited ("the Company") claiming the sum of US$3 million under a Corporate Guarantee executed by Makie Hui Po Yuen for and on behalf of the Company. A summons for summary judgment was taken out on 10 November 1995, supported by an affirmation of Adrian Lau Yuen Sun and an affidavit of Vincent Sofia. The Bank now concedes that the Company ought to have unconditional leave to defend. The only matter outstanding is the question of costs. The Bank submitted that the proper order is that costs be in the cause, whilst the Company submitted that this is an appropriate case where the Order 14 summons ought to be dismissed with costs.

2. According to the Company, the Corporate Guarantee came about in the following circumstances. The Company had been granted a credit facility of up to US$3 million by the Bank in early 1994. In mid-1994, the Defendant Company was considering the purchase of some of the shares of Kin Son Electronics (Holdings) Company Limited ("Kin Son") which was then in financial difficulties. As it was to the Company's advantage to ensure Kin Son's continued liquidity, its director Mr Hui and Mr So, the chairman of Kin Son, approached Adrian Lau, the vice-president of Asia and branch manager, and requested the Bank to grant credit facilities to Kin Son. The negotiations culminated in an agreement as follows :-

3. The Bank's account is not materially different save that it denies that Mr So was involved in the negotiations at all. It is common ground that by July 1994, the Company's credit line from the Bank was effectively transferred to Kin Son and the Corporate Guarantee was provided by the Company in consideration for the Bank granting or continuing credit all banking facilities to Kin Son.

4. As at 2 August 1995, Kin Son was indebted to the Bank in sum of over HK$31 million. On 8 September 1995 judgment was entered against Kin Son for that amount. On 13 September 1995, the Plaintiff Bank served a demand on the Company under the Corporate Guarantee.

5. In response to the demand, the Company's solicitors wrote on 20 September 1995 to the Bank's solicitors setting out the Company's "defence". After relating the Company's account of how the Corporate Guarantee came into existence, the letter went on to explain that in October 1994, the Company decided not to proceed with the purchase of Kin Son's shares and Mr Lau was accordingly informed and asked to grant a separate line of credit facility in favour of Kin Son so that the Company could continue to enjoy the full exclusive benefits of the credit facilities granted by the Bank and also that the Company's Corporate Guarantee could be released. According to the Company, on 18 January 1995, a telephone conversation took place between Mr Lau of the Bank and Mr Hui of the Company to the following effect :-

Following that conversation, Kin Son accepted the Bank's offer of credit facilities made in a letter dated 18 January 1995 and personal guarantees were provided by Mr and Mrs So in respect of the facilities. Since that day, the Company has enjoyed full use of its own credit facilities.

6. In response to the Order 14 summons, Mr Hui filed an affirmation exhibiting a draft defence. Suffice to say that whilst the affirmation and draft defence contain additional matters of detail, the Company's defence is essentially its account of the conversations that took place in October 1994 and on 18 January 1995 between Mr Hui and Mr Lau as set out in the letter of 20 September.

7. That being the case, ought the Order 14 summons have been issued in the first place? Mr Barlow for the Bank submitted that the summons was properly issued because Mr Hui's credibility is doubtful and his assertions are contradicted by contemporaneous documents. He cited the following as examples :-

8. When considered more closely, these matters go no further than possibly raising doubts as to Mr Hui's credibility and honesty. As leading counsel for the Company correctly submitted, suspicions as to the credibility or honesty of Mr Hui are beside the point. The test is set out in Ng Shou Chun v. Hung Chun San [1994] 1 HKC 155 at 158G. "'Is what the defendant says credible?' If so, he must have leave to defend. If not, the plaintiff is entitled to summary judgment. The issue is not whether the defendant's assertions are to be believed; it is whether those assertions are believable."

9. None of the matters put forward by Mr Barlow contradicts what Mr Hui has said about the conversation so as to render Mr Hui's account not credible. The specific examples cited by Mr Barlow do not remotely show that what Mr Hui has said about his conversation on 18 January is not credible or believable.

10. Much was made of Mr So's disappearance in July 1995 and the fact that the liquidator had discovered serious misconduct on Mr So's part in relation to Kin Son's affairs. Mr Barlow also prayed in aid the fact that the Daiwa Bank had been provided with a forged guarantee upon which it had lent $11 million to Kin Son. He submitted that in the light of Mr Hui's close association with Mr So, Mr Hui's various proffered explanations were "shadowy".

11. In order to determine whether Mr Hui's account of the conversations in October and on 18 January was "shadowy", one has to consider the inherent likelihood of what Mr Hui said was the substance of the telephone conversations he had with Mr Lau. In so doing, Mr Hui's alleged "close" association with the "fugitive" former proprietor of Kin Son is and must be irrelevant: any notion of guilt by association must be rejected. Was it inherently unlikely that the Bank might have embarked on an idea to replace the temporary arrangements for Kin Son by a different arrangement which would result in additional business and new guarantees? In para. 10 of its Points of Claim, the Bank acknowledged that in October 1994, the Company through Mr Hui requested the Bank to make available to Kin Son trade financing facilities separate from those provided to the Company's subsidiaries. The conversation between Mr Lau and Mr Hui on 18 January 1995 is not denied; in fact parts of the conversation are acknowledged to be correct as appears from Mr Lau's affirmation. A credit line was in fact established for Kin Son that day. For these reasons. I agree with Mr Thomas that what Mr Hui's says about the conversation is not inherently unlikely.

12. Although the Bank has characterised Mr Hui's account of the conversation with Mr Lau on 18 January as a "bogus story" and a "complete fabrication", all that this amount to is no more than that the Bank takes issue with Mr Hui's account. That is wholly different from there being no defence to the claim. Yet, in his affirmation at para.9, Mr Lau asserted that the Defendant has no defence. Likewise, in his affidavit in support of the Order 14 summons, Mr Sofia stated on oath that he verily believed that there is no defence to this action. Since the Bank knew what the Company's defence was and that its defence raised an issue of fact, there was no justification for those statements. Moreover, although Mr Barlow referred on several occasions to the Company's litigation with Daiwa, the relevance of that case to the Bank's stance on the Order 14 application escapes me since it did not in any way impinge on, alter or affect the Company's defence to this action.

13. Under Order 14, Rule 7, the court has a discretion to dismiss an Order 14 application with costs if it appears that the Plaintiff knew that the Defendant relied on a contention which would entitle them to unconditional leave to defend. In the present case, it is clear that the contention that entitles the Company to defend is Mr Hui's account of his conversation with Mr Lau on 18 January 1995. The Bank has known about that contention since 20 September, a month before it issued the writ and two months before it issued the Order 14 summons. As appears from the judgment of Godfrey JA in Man Earn Limited v. Wing Ting Fong, Civil Appeal No.94 of 1995, summary procedure should be invoked only where the defendant has clearly no defence to the plaintiff's claim. The Bank could not fairly have asserted that there is no defence to this action. The summons ought never to have been issued since the truth of Mr Hui's assertions as to the January conversation is a matter that can only be determined at trial. Accordingly, the summons ought to be dismissed.

14. In his affirmation filed in opposition to the Order 14 application, Mr Hui asked for costs on an indemnity basis. Whilst I am of the view that the summons should never have been issued, the circumstances are not so egregious as to warrant either a peremptory costs order or an order for costs other than on the usual party and party basis. In these circumstances, the Company is entitled to have the summons dismissed with costs. I also grant a certificate for two counsel.

Representation:

Mr Barrie Barlow, inst'd by M/s Koo and Partners, for the Plaintiff

Mr Michael Thomas, Q.C. & Mr Godfrey Lam, inst'd by M/s Bough & Company, for the Defendant