Wong Kin Wah v. Golden Castle Finance Corporation (HK) Ltd

HCA001939/1978

IN THE SUPREME COURT OF HONG KONG

High Court Action No.1939 of 1978

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Coram: Mr Commissioner de Basto, Q.C.

Date of Judgment: 19th March 1980

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JUDGMENT

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1. In about June 1977 Fung Kwong Enterprises Ltd (Fung Kwong) were interested in leasing premises at New Lucky House in Jordan Road (the premises). The landladies of the premises (the landladies) required a bank or other financial institution to act as guarantor. The defendant company (which has a paid-up capital of $20,000,000) was approached. The defendant company agreed to act as guarantor for Fung Kwong provided its guarantee was secured by properties or shares. Eventually the defendant company was offered 2,500 shares (each share having a par value of $100) in DeSauna Ltd, then registered in the name of the plaintiff and a cheque for $50,000. Subsequently a guarantee (the guarantee) in favour of the landladies and a Deed of Indemnity (the Deed) in favour of the defendant company were drawn up. It is with the latter document that this case is concerned.

2. The plaintiff was at all material times the Manager and Director of Fung Kwong and also a director of DeSauna Ltd. In about November 1977 Fung Kwong suffered from financial difficulties and in April 1978 the landladies informed the defendant company of Fung Kwong's default in paying rent and called upon the defendant company to make good the default under the guarantee. The plaintiff said it was sometime in April 1978 when he went to see Mr Fan of the defendant company to arrange payment "by instalments" but at that meeting he learnt, for the first time, that his liability under the Deed was not limited to $270,000 whereupon, he said, he retained Messrs H.H. Lau to take legal steps against the defendant company. Messrs H.H. Lau's first letter in the matter appears to be a letter dated the 11th April 1978 addressed to the defendant company (Document 22). In that letter Messrs H.H. Lau make reference to some "disputes" between Fung Kwong and the landladies. The defendant company is also asked not to make any payments to the landladies under the guarantee (Document 9) "until the disputes are settled". The "disputes", the plaintiff said in evidence, related to certain negotiations for the surrender of the premises back to the landladies. The letter goes on to say that their clients, i.e. the plaintiff and Fung Kwong, would be challenging the validity of the Deed and that an application would be made to the Court for a declaration that the Deed was null and void. The letter does not condescend to particulars. Although that letter purports to be written on behalf of Fung Kwong as well as the plaintiff there is no evidence as to who retained Messrs H.H. Lau on Fung Kwong's behalf. There is no evidence that the plaintiff, whatever his position in Fung Kwong, had any authority to retain solicitors on behalf of Fung Kwong. Although Fung Kwong is a defendant to the counterclaim, Fung Kwong has taken no part in these proceedings nor filed any documents herein. By another letter of the same date (Document 23) addressed to Messrs Deacons, Messrs H.H. Lau (again acting for the plaintiff and Fung Kwong) alleges the Deed was not signed in the presence of a solicitor. The letter goes on to say that "the duplicate or counterpart of the document has been deposited with us by our clients and we can present the same to you for inspection if you so desire". No evidence was adduced as to when that counterpart first came into the plaintiff's possession. Again, Messrs H.H. Lau stated that they had instructions to have the Deed declared null and void. No particulars are given unless one is to assume that the basis for such a declaration was that the Deed was not properly attested.

3. Document 25 is a copy of a reply from Messrs Gunston & Chow to Messrs H.H. Lau dated the 13th April 1978. In that letter Messrs Gunston & Chow state, inter alia, as follows:

4. By letter dated the 17th April 1978 (Document 26) Messrs H.H. Lau replied to Messrs Gunston & Chow stating, inter alia, that the plaintiff said he had never signed the Deed in Gunston & Chow's offices or in the presence of Mr Stansfield. They further go on to say that they are instructed that the Deed was never interpreted and explained to the plaintiff and that he was never advised "thoroughly" of his obligations or liabilities under the Deed. They go on to say that they have instructions to apply to the Court for the Deed to be declared null and void on the ground that the Deed was never interpreted and explained to the plaintiff nor was he advised of his obligations and liabilities under the Deed.

5. By letter dated the 3rd May 1978 (Document 31) Messrs Gunston & Chow wrote to Messrs H.H. Lau in reply stating, inter alia:

".......... from the contents of (your letter under reply) we assume that your client has omitted to inform you that he speaks English. Your client was fully advised as to his obligations and liabilities under the Deed in question by our Mr Chu Siu-lun".

6. I will not comment on the other letters in the agreed bundle except to say there is not a single letter from Messrs H.H. Lau which refers, even remotely, to the misrepresentation on which the plaintiff now appears to attach so much weight and which was mentioned for the first time in Mr Law's opening for the plaintiff on the 11th February 1980.

7. There were interlocutory proceedings in this case and the Court was referred to an affirmation by the plaintiff dated the 10th August 1978. Paragraph 9(a) of that affirmation reads:

"The facts are that on or about the beginning of June, 1977 I was informed by Mr Wong Geor Kee, my co-director in Fung Kwong Enterprises Ltd that in order to obtain the shop premises ...... from the owners thereof, a guarantee from a local bank or other finance corporation accepted (sic) by the owners to guarantee payment of the monthly rent of the said premises and that the defendant had been approached to request to act as such guarantor and that the defendant required certain security to be put up. Mr Wong Geor Kee requested to put my shares in DeSauna Ltd as security and said that the directors of the defendant's company are his friends and business associates and that it was only a formality and that my shares would not be sold as long as interests being paid to the defendant even in the event that the defendant was called upon by the owners to pay the rent for the premises in question and that such interests would be borne by our company i.e. the Fung Kwong Enterprises Ltd. Acting and relying on what Mr Wong Geor Kee said, I agreed in principle to put up my shares as security. I personally had never contacted the Defendant in any way".

8. I found that paragraph tortuous but again, I note, there is nothing in that paragraph remotely similar to the main allegation now relied on by the plaintiff. In that paragraph, however, there is a hint of a misrepresentation made, not by the defendant company, but by the plaintiff's business colleague and co-director, that the Deed was only a formality and that, in effect, his shares would not be sold as Fung Kwong would pay the interest. This alleged misrepresentation does not appear to have been pursued in the pleadings.

9. The original Statement of Claim was dated the 21st June 1978 and the only paragraph dealing with execution by the plaintiff of the Deed is as follows:

"The plaintiff signed the said Deed without being informed of the specific obligations required of him. The persons present at the signing did not translate or otherwise explain the contents of the said Deed to the Plaintiff. The plaintiff was therefore uninformed as to the true nature of the obligations set out in the Deed and therefore the said Deed is non est factum".

10. I note that in the original Statement of Claim, no issue is made that the plaintiff did not execute the Deed in the presence of Mr Stansfield.

11. This action commenced before me on the 11th February 1980. In his opening speech Mr Law for the plaintiff stated, inter alia:

"Plaintiff now alleges that he signed the Indemnity under the mistaken belief that his liability was only to $270,000 as represented by the agent or servant of the defendant company and the co-director of Fung Kwong, Mr Wong Geor Kee. The agent or servant of the defendant company was Mr Yip Wai Chau who is a director of Fung Kwong, the defendant company and also of DeSauna Ltd. Another person who represented to the plaintiff about the extent of his liability under the Indemnity was Mr William Fan, the Secretary of the defendant company. The plaintiff's case basically relying on doctrine of non est factum".

12. At the conclusion of Mr Law's opening Mr Wei for the defendant complained that the allegation that the plaintiff had executed the Deed in the mistaken belief that his liability would be limited to $270,000 had taken him completely by surprise. Mr Law conceded that "extensive" amendments to the Statement of Claim were required. I granted an adjournment for this to be done. Mr Wei applied for a further day to amend his defence and counterclaim and Mr Law applied to make consequential amendments to his reply and defence to counterclaim.

13. It was quite apparent from the plaintiff's opening speech and from the amended Statement of Claim that he now heavily relied on the allegation that it had been misrepresented to him by three persons that his liability under the Deed was limited to $270,000. He frequently repeated that allegation in the witness box.

14. The plaintiff testified that on the 9th September 1977 at the Cafe' de Chine there was an informal board meeting of the directors of DeSauna Ltd and there, for the first time, he met Mr William C.L. Fan the Secretary of the defendant company. I quote a part of the plaintiff's evidence:

"After I was introduced to Mr Fan he asked me if I was Wong Kin-wah of Fung Kwong and he said he had something for me to sign and then he asked me to go over to another table and from his briefcase he took out documents all typed out in English. I ask Mr Fan the purpose of signing those documents and he said they were for the guarantee for arrears of rent of $270,000."

15. The plaintiff said he saw Mr Wong Geor Kee's signature on the last page and the seal of Fung Kwong. The plaintiff said that Mr Fan went on to say:

"Since you are so familiar with Wong Geor Kee and Yip Wai-chau you would not be cheated - you just sign those documents".

16. The plaintiff said that at the Cafe' de Chine he signed the (engrossed) Deed (Document 10) and some copies. He said no one interpreted or explained the contents of the Deed. He said, in effect, he was induced to sign the Deed on the misrepresentation that his liability was limited to $270,000. The plaintiff denied that at the Cafe' de Chine Mr Fan merely had a draft of the Deed and that he had interpreted the draft sentence by sentence. The plaintiff denied he executed the Deed at the offices of Messrs Gunston & Chow in the presence of Mr C.V. Stansfield, a solicitor with Messrs Gunston & Chow. The plaintiff also denied that Mr Chu Siu-lun had interpreted and explained to him the terms of the Deed. The plaintiff admitted that, prior to the execution of the Deed, he had known Mr Chu socially and also because he had previously sought Mr Chu's advice on business matters. He also admitted he had met Mr Stansfield socially.

17. The plaintiff was referred to Document 6 which is a copy of a minute of a Directors' Meeting of DeSauna Ltd held on the 25th July 1977. He was also referred to Document 7 being a document signed by the plaintiff and dated the 28th July 1977, the last sentence of which, in parenthesis, reads "the said (sic) guarantee shall not exceed $270,000". The Plaintiff said that the directors of DeSauna Ltd agreed that his liability should be limited to $270,000 but he was unable to explain, or explain satisfactorily, why that agreement was not recorded in the minutes of DeSauna Ltd.

18. He said he only learnt that the rent for the last two years' of the tenancy of the premises was $54,000 per month (as against $45,000 per month for the first three years) when he went to Messrs H.H. Lau for advice in April 1978. He was asked if he could think of any reason why his brother directors in Fung Kwong had kept this information from him and the plaintiff replied that it might have been because they thought that if he had been given that information he would not have signed the Deed. Under continued cross-examine the plaintiff admitted that Mr Wong Geor Kee had mentioned an extension of two years but not that the rent would be higher for those two years. It was put to him Mr Wong mentioned that for the last two years' the rent would be $54,000 per month and the plaintiff replied Mr Wong mentioned "a small increase". When questioned further he said Mr Wong mentioned "about a 15% or 20% increase". When it was put to him that an increase of 20% on $45,000 a month would make the rent $54,000 per month, the plaintiff replied in the affirmative. It was then put to the plaintiff that he knew that for the last two years' the rent was to be increased to $54,000 per month and the plaintiff finally answered in the affirmative.

19. The amended Statement of Claim made no reference to the Deed not having been signed before a solicitor (although this was pleaded in the amended Reply and Defence to Counterclaim dated the 15th February 1980).

20. The plaintiff called a Mr Wong Nang to give evidence. Mr Wong Nang was engaged in real estate. He was asked in-chief, inter alia, whether the directors of Fung Kwong were informed of the terms is that the defendant company required to indemnify Fung Kwong and he replied, "No, because the plaintiff fixed it up with the defendant." I did not derive much assistance from Mr Wong Nang's evidence partly because I wasn't always quite sure which parts of the evidence he was giving derived from his personal knowledge or whether or whether he had heard it from someone else.

21. Mr Fan the Secretary of the defendant company testified, inter alia, that he was not present when the plaintiff executed the (engrossed) Deed. Mr Fan said he first met the plaintiff one evening in June or July 1977 at the Cafe' de Chine. Also present were Mr Wong Geor Kee, Mr Yip Wai-chau, Mr Tang Fei-wan, Mr Chan Hong, the plaintiff and some others whom he did not know. He said he had never met the plaintiff before. He said the purpose of his being there was to explain the contents of a draft deed to the plaintiff "sentence by sentence". He did so in the presence of Mr Wong and Mr Yip - he said the final outcome was that the plaintiff asked Mr Fan to hand the draft to Mr Chu Siu-lun for his approval and he did that accordingly. Mr Fan was not that the Deed was not executed in the Cafe' de Chine (at that stage it was only a draft) and that the plaintiff had never executed anything in his presence.

22. Mr Fan said the draft deed was substantially the same as the Deed eventually engrossed. Mr Fan was then asked to interpret Clause 2 on page 1 of the Deed in the manner he explained it to the plaintiff. Mr Fan said he explained to the plaintiff that the effect of Clause 2 of the Deed was that the plaintiff would, in the event of default by Fung Kwong, be responsible for six months' rent and six months' rates for the first period of three years and six months' rates for the last two years.

23. But even on Mr Fan's incorrect interpretation or explanation of Clause 2 of the Deed, it must have been apparent to the plaintiff that his liability was in excess of $270,000 which only exactly covered six months' rent but no rates. Mr Law estimated the two lots of rates at about $60,000.

24. In re-examination in answer to a direct question by Mr Wei, Mr Fan said he did mention the figure of $324,000 when he explained Clause 2 of the Deed to the plaintiff.

"You just hand over all the documents relating to Chu Siu-lun - then it would be all right."

25. Mr Fan said the next day he sent the draft to Mr Chu. Mr Chu's wife was a director of Fung Kwong.

26. Mr Chu Siu-lun testified he had been an interpreter/clerk for Messrs Gunston & Chow for 18 years. He said Mr Charles Stansfield was, in 1977, a solicitor with Gunston & Chow but that he had left Hong Kong to go back to England a few months ago and he did not know whether he was coming back.

27. Mr Chu testified that he was concerned with the guarantee regarding rents and rates of the premises. He said that before execution, the draft lease had been sent by the landladies to Gunston & Chow for approval. He said, in relation to the Deed, it was brought to his firm by the plaintiff and Mr Wong Geor Kee. I have not mentioned before that the Deed provides for Fung Kwong as well as the plaintiff to be jointly and severally liable under the Deed.

28. Mr Chu said that when the plaintiff went to Gunston & Chow with Mr Wong Geor Kee, the plaintiff said he wanted their signatures witnessed on the Deed. Mr Chu interpreted the Deed to both Mr Wong's in Cantonese and he also answered questions put by them. He said that after this he took the two Mr Wong's to see Mr Stansfield - they signed the documents and Mr Stansfield signed as a witness. The alteration on the second page was also signed or initialed by the plaintiff, Mr Wong Geor Kee and Mr Stansfield.

29. He confirmed the contents of Document 25 were correct and he said he thought that letter was written by Mr Stansfield. Mr Chu said he explained the contents of the Deed to both Mr Wongs even though they both spoke English. When the plaintiff and Mr Wong Geor Kee were brought before Mr Stansfield, they chatted with him in English. Mr Chu was asked how he explained, in Cantonese, Clause 2 of the Deed. He gave his answer in Cantonese which was interpreted into English (the language in which Mr Chu gave his evidence). The explanation in Cantonese he said he made to the two Mr Wongs cannot, in my view, be faulted. He said it was Gunston & Chow's practice only to insert an interpretation clause if the firm were acting in relation to the document in question - in the present case the two Mr Wongs said they only wished their signatures to be witnessed by a lawyer in Gunston & Chow.

30. When counsel had finished questioning Mr Chu I asked him how many times he had met the plaintiff before the execution of the Deed and he replied "on many occasions", sometimes socially and at the other times for business. He said he heard the plaintiff speak in English on no less than three occasions.

31. There were discrepancies in the evidence of Mr Fan and Mr Chu about the draft and engrossed Deed. This all took place in 1977 and, having seen and heard the witness, these discrepancies have not caused me any doubt.

32. I was unimpressed by the plaintiff. I do not believe his evidence, in particular what he said transpired in the Cafe' de Chine.

33. I am satisfied that Mr Fan, at the Cafe' de Chine, only had with him a draft of the Deed the contents of which he purported to explain to the plaintiff. I do not believe for one moment that Mr Fan told the plaintiff that his liability under the proposed Deed would be limited to $270,000. Although Mr Fan knew in July 1977 that the plaintiff's intention at that time was to limit his liability to $270,000 Mr Fan said, and I believe him, that the plaintiff knew "from the beginning to the end" that that was not enough.

34. I accept Mr Chu's evidence in particular that the plaintiff and Mr Wong Geor Kee went to the offices of Messrs Gunston & Chow asking that their signatures to the Deed be attested by a lawyer and that he correctly interpreted and explained in Cantonese the contents of the Deed to them and answered their questions and that he then took them before Mr C.W. Stansfield who witnessed their signatures and initials.

35. I am satisfied that when the plaintiff executed the Deed he knew "the general effect of the document" to use the words of Lord Reid in Saunders v. Anglia Building Society (1970) 3 All E.R. 961 including the fact that his liability was, by no means, limited to $270,000 and that in fact, apart from rates, his liability extended to a further $324,000. There will be judgment for the defendant against the plaintiff and Fung Kwong.

36. If my findings of fact had been different I would still have held against the plaintiff on the basis that in signing the Deed in the Cafe' de Chine he did not act with reasonable care.

37. If, as the plaintiff testified, he executed the Deed in the Cafe' de Chine on the basis of Mr Fan's representation (allegedly echoed by his friends Mr Yip and Mr Wong) that his liability under the Deed was limited to $270,000 then, in my view, the plaintiff did not act prudently and carefully. Mr Fan, at that time, was a total stranger who had only just been introduced to him - furthermore, he must have known that Mr Fan was connected with "the other side", the defendant company.

38. The plaintiff may well have been a hotel porter in earlier years but when he was in the witness box I got the impression he was anything but naive. At the time of the execution of the Deed he was not a poor man - on his own evidence he had put up a deposit of $105,000 for the premises and he was the registered owner of shares in DeSauna Ltd with a face value of a quarter of a million dollars and I think he also owned real property. If the plaintiff did not understand English and if he did not take steps to have the Deed interpreted and explained to him by some independent and responsible person then, in my view, he did not act carefully. I note that in Document 64 dated 20th November 1977 he signed a letter written in English to the defendant company. He told the Court that Mr Lai, one of his companies' accountants had explained the contents of that letter to him in Cantonese. Mr Lai was at least one responsible person whom he could have asked to translate and explain the Deed to him. The plaintiff admitted knowing Mr Chu of Gunston & Chow both socially and "for business". Mr Chu was another person he could have approached to ascertain his obligations under the Deed. If he did not read English sufficiently well to understand the Deed, it was careless of the plaintiff not to take the precautions which he ought to have taken. As Mocatta J. said in Credit Lyonnais v. P.T. Barnard and Associates (1976) Ltd LR 557 at 558

Mocatta J. continued by saying:

"(The person invoking the remedy) must prove all the circumstances necessary to justify its being granted to him, and that necessarily involves his proving that he took all reasonable precautions in the circumstances".

39. In my view, if the Deed was signed in the circumstances alleged by the plaintiff (which I do not accept) then, on his own evidence, he acted with a remarkable lack of normal business prudence. No man may take advantage of his own carelessness. He cannot now disavow his signature.

40. As I said there will be judgment against the plaintiff and Fung Kwong and costs to the defendant.

Representation:

Mr. Alfred LAW, instructed by Robin J. Oliver for the Plaintiff & 1st Defendant by Counterclaim.

Mr. Robert WEI, Q.C., instructed by Deacons for Defendant & Plaintiff by Counterclaim.

HIGH COURT CIVIL JURISDICTION ACTION NO.: 1939 of 1978

Case cited in Judgment

Cases & Authorities cited in agrument but not in Judgment

Representation:

Mr. Alfred LAW, instructed by Robin J. Oliver for the Plaintiff & 1st Defendant by Counterclaim.

Mr. Robert WEI, Q.C., instructed by Deacons for Defendant & Plaintiff by Counterclaim.