Trilease International Ltd. v. Kinsley Ltd. and Others
Read the full judgment text of HCA 9126/1999 on BabelCite. This High Court CFI judgment was delivered on 30 November 2000.
1. This is a claim to enforce a guarantee for due performance of a lease of chattels under which the lessee has defaulted in the payment of rent and other moneys due.
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HCA009126/1999 HCA 9069/1999 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 9069 OF 1999 ____________
(By Original Action) ____________ AND HCA 9126/1999 ACTION NO. 9126 OF 1999 ____________
(By Counterclaim) (Consolidated by Order of Master Jones dated the 29th day of October, 1999) Coram: Deputy High Court Judge Gill in Court Date of Hearing: 23 November 2000 Date of Judgment: 30 November 2000 _______________ J U D G M E N T _______________ 1. This is a claim to enforce a guarantee for due performance of a lease of chattels under which the lessee has defaulted in the payment of rent and other moneys due. 2. In a separate but consolidated action the guarantor is claiming recovery of a sum paid in a conditional offer made by him to settle the debt, wrongfully withheld when the offer was rejected. Background 3. Trilease International Limited (Trilease) is a Hong Kong company whose primary business is to lease machinery. Kinsley Limited (Kinsley) is a Hong Kong company controlled and operated by Mr Chan Cheung Lit (Mr Chan). Mr Thomas Lai Sin Tong (Mr Lai) is a certified public accountant in practice in Hong Kong. He describes himself as a longstanding friend of Mr Chan. He was also at the material time a director of Kinsley, though he has since resigned. 4. In or about October 1997 Kinsley expressed an intention to lease a power generator and cone crusher from Trilease. Trilease was willing to do so provided Messrs Chan and Lai guaranteed Kinsley's performance. The parties agreed to this proposal and the terms. The upshot was that on 20 October 1997 Kinsley and Trilease signed a lease agreement under whose terms Kinsley agreed to lease from Trilease a power generator and cone crusher as more particularly described therein for a period of three years. It was agreed that the rental would be payable monthly in advance, the first being $495,073.60 and the next 35 being $59,213.00, the last three of which in fact being payable at the commencement of the lease. On the same date Messrs Chan and Lai entered into a document called a continuing guarantee in favour of Trilease in terms of which in consideration of Trilease entering into the lease agreement with Kinsley they guaranteed sums due by Kinsley up to the sum of $1,569,659.00 (excluding accruing interest and charges). 5. I do not believe it necessary to reproduce the terms of the lease agreement or continuing guarantee in whole or in part. But those I think are pertinent I now summarize. 6. Dealing first with the lease agreement:- 7. Clause 2 provided that the term of the lease should run from the date Kinsley accepted delivery of the machinery. (This took place on 21 October 1997). 8. Clause 3 stated that at all times title to the machinery shall remain with Trilease. 9. By virtue of clause 4.1 the first rental payment fell due on 20 October 1997, and that established the monthly date thereafter. 10. Clause 4.5 gave Trilease the right to charge interest at 2.5% per calendar month on any overdue payment. 11. Clause 13 prevented Kinsley from removing or permitting the removal of the machinery from Hong Kong. 12. Clause 15 gave Trilease power to terminate the lease agreement on stated grounds, one of which was when Kinsley fell into default in meeting its rent payments or for other breach. 13. Clause 16 stated that if Trilease exercised its right under clause 15 to terminate the lease agreement Kinsley would be deemed to have repudiated it and be liable to Trilease for, inter alia, all rent due under the lease agreement and interest thereon still outstanding, and entitle Trilease to repossess the machinery. 14. I come now to the continuing guarantee:- 15. Clause 1 provided that Messrs Chan and Lai agreed to be liable for all moneys due by Kinsley to Trilease, up to the stated limit, excluding interest and costs. (The stated limit is $1,569,659.00). 16. Clause 5 I shall reproduce in full, where Principal refers to Kinsley:-
17. Clause 9(a) gave Trilease the right to act as if Messrs Lai and Chan were principal debtors. 18. Clause 17 provided that none of the terms of the guarantee could be waived, altered or modified except in writing and signed by or on behalf of Trilease. 19. Up to the beginning of 1999 Kinsley paid the rent as it fell due and otherwise complied with the terms of the lease agreement. But on 20 February 1999 and thereafter Kinsley defaulted. 20. In purported exercise of its rights under clause 15 and 16 of the lease agreement Trilease terminated the lease agreement and called up the full amount due, calculated at $1,018,163.72, together with interest under clause 4.5 of 2.5% per month. Notice to this effect was sent to Kinsley on 13 May 1999. On the same day similar notices were sent to Messrs Chan and Lai. I reproduce that sent to Mr Lai:-
Particulars
21. Mr Lai took legal advice and instructed his solicitors to respond by letter of 18 May, which I reproduce in full:
22. Mr Lai's cheque for $248,394.72 payable to Trilease accompanied the letter. 23. Trilease instructed its solicitors to decline the proposal and they responded by letters of 19 and 21 May giving reasons as follows:-
24. These prompted a response from Mr Lai's solicitors of 24 May as follows:-
25. The parties were unable to resolve their differences and each filed a writ. The Proceedings 26. Trilease filed its on 3 June 1999 suing Kinsley as 1st defendant and Messrs Lai and Chan as 2nd and 3rd defendants respectively. The claim sought to recover the debt due by Kinsley arising from its default under the lease agreement and as against Messrs Chan and Lai for their failure to comply with a notice of demand as guarantors for payment thereof. With due credit allowed for the sum of $248,394.72 paid by Mr Lai the claim is for $774,725.40 together with accrued interest at 2.5% per month to judgment. 27. Mr Lai filed his on 2 June 1999 suing Trilease as 1st defendant and Kinsley as 2nd. The claim against Trilease is for recovery of the sum of $248,394.72 which was incorporated in Mr Lai's offer to settle and which was wrongfully withheld by Trilease notwithstanding its rejection of the offer. The claim against Kinsley is to recover such amount that he is found to be liable to pay Trilease under the guarantee. 28. No steps in either proceedings have been taken either by Kinsley or Chan. Trilease in its action was on 26 July 1999 awarded judgment against both in the full amount claimed. Mr Lai in his action was on 27 June 2000 awarded judgment against Kinsley for damages together with interest on $248,394.92 to be assessed. 29. On 29 October 1999 by order the proceedings were consolidated, and thus have been tried together before me. The Issues 30. It is not disputed that Kinsley defaulted in its payments under the lease agreement and that the amount outstanding and the interest accruing has been correctly assessed for which Trilease now has judgment against both Kinsley and Chan. Nor is it doubted that Chan and/or Kinsley caused the machinery to be transported out of Hong Kong to the Mainland and that Trilease has taken no steps to recover it. And Mr Lai fairly concedes that but for the matters he has raised that I am about to come to he, as a signatory to the continuing guarantee, would be liable to pay the judgment debt. 31. It is Mr Lai's case that there was an implied term in the continuing guarantee upon which his committing himself to it was conditional, namely, that in the event of default by Kinsley, Trilease would exhaust its remedies under the lease agreement before looking to the guarantors for relief. This included recovery of the possession of the machinery which would then have enabled it to assign the machinery to him in terms of his proposal of 18 May 1999. 32. Alternatively he says he is entitled to an equitable relief. He claims that a creditor owes a duty to protect a surety and that includes preserving the security and making it available for the surety where the surety is called upon to satisfy the debt. He prays in aid the judgment Wulf v. Jay (1872) LR 7 QB 756. Cockburn CJ said at page 762:-
Hannen J said at page 764:-
And Quain J said at page 765:-
33. It is Mr Lai's case that Trilease tacitly permitted the removal of the machinery out of the jurisdiction, or alternatively was negligent in allowing that to happen, and has taken no or insufficient steps to have it restored to Hong Kong. Those acts and/or omissions put Trilease in breach of the implied condition to pursue its remedies against Kinsley first; alternatively, in equity its failure to protect the guarantors by preserving the security discharges Mr Lai from liability. 34. As to Mr Lai's claim to recover the sum of $248,394.72 his case is that this was forwarded expressly on condition that it was part and parcel of his proposal to settle. Trilease having rejected the offer had no right to retain the cheque in part payment. 35. I come now to deal with these issues. The Outcome 36. Mr Lai from the witness box confirmed his witness statement in which he said that he executed the continuing guarantee in favour of Trilease as a favour to Mr Chan and on the implied condition that Trilease and Kinsley would comply with all the terms and conditions of the lease and such guarantee would stand as a secondary collateral security of the lease. But quite fairly he conceded that he gave no notice of such condition to Trilease before signing the continuing guarantee, nor is there any reference to it in what is a comprehensive document. I find that there was no such condition, express or implied. 37. I turn now to his remedy in equity. His difficulty in pursuing that course is that in the context of these proceedings the machinery is not security as such, held by a creditor pending compliance by a debtor with the terms of repayment of a debt, thereafter to be redeemed by the debtor. In this case the machinery was being leased by its owner to a lessee. Whether or not the lease was to have run its course or, as it happened, be terminated prematurely, title at all times remained with Trilease and on termination it was entitled to recover possession. Accordingly there was no security to be protected for the guarantor even if he by subjugation assumes the role of the creditor. 38. The parties, as I find, were tied by the express words of the continuing guarantee; no more or less. As Deputy Judge Saied said in Wing On Finance Co. Ltd v. Lam Soo Wing Stephen [1989] 1 HKC 307 at p. 315:-
39. So what does the continuing guarantee state? 40. Clauses 1, 5 and 9(a) permitted Trilease to pursue its remedies against Messrs Lai and Chan as principal debtors with or without contemporaneous action against Kinsley. Mr Vong of Trilease said in evidence that Trilease had not been invited to approve the transfer out of Hong Kong of the machinery, had not approved that and was not aware of this default until after the event. It abandoned any prospect of recovery of the machinery given the uncertainty of its whereabouts, its condition, and the possibility that the Authorities in China or some other party might have claimed an interest. But there was no need for him or anyone else on behalf of Trilease to have to justify that. The terms of the relevant clauses are crystal clear. Repossession was just one of a number of options available to it which it was entitled to choose to pursue or not, without explanation. 41. In the Privy Council case The China and South Sea Bank Limited v. George Tan [1990] 1 HKLR 546, Lord Templeman said at p. 549:-
42. It follows that Trilease owed no duty to Mr Lai in contract or equity to ensure that the machinery was not taken out of Hong Kong or to pursue a recovery or to assign it to him as a precondition of calling up the guarantee. As owner of the machinery it owes no one a duty apart from itself to repossess it. It was entitled to look to Mr Lai to recover its loss and he is liable to meet it. 43. To complete the picture I turn now to deal with Mr Lai's claim to recover the sum of $248,394.72, though in practical terms it makes no difference given my findings above. Whether or not the tender of the cheque was part of the offer depends on the wording. And that was professionally drawn; one must assume that if the intention was that it be part and parcel of the offer that would have been clearly spelt out. But one only has to reread the letter of 18 May 1999 to see that that was not the case. In my view the payment was tendered, as is clearly stated, as a gesture of goodwill; perhaps to encourage a positive reaction to the offer submitted earlier, but certainly not as a condition of it. And it is noteworthy that whilst the solicitors for Trilease by their letters of 19 and 21 May 1999 gave notice that the cheque would be credited against the amount due, there was no protest about that in the response of 24 May 1999. Trilease was, as I find, entitled to accept the same as part payment of the total indebtedness. 44. Save for the orders that concludes all matters. Costs shall follow the event but will be nisi at first instance. The Orders 45. In HCA 9126/1999:- 46. There will be judgment in favour of the plaintiff against the 2nd defendant in the sum of $918,113.54 together with interest from today until payment at the judgment rate. 47. Costs, nisi at first instance, are to the plaintiff, taxed if not agreed. 48. In HCA 9069/1999:- 49. The claim against the 1st defendant is dismissed. The damages in the judgment of 27 June 2000 are assessed at the total of $918,113.54, $284,394.72, interest on the said sum of $284,394.72 being 12% from 18 May 1999 to today (561 days) $52,453.29 and the costs the plaintiff is bound to pay to the 1st defendant in HCA 9126/1999 and in this action. This amounts to $1,254,961.55 plus costs to be agreed or taxed. Interest will run at the judgment rate until payment. 50. Costs of the plaintiff taxed if not agreed shall be paid by the 2nd defendant. 51. Costs of the 1st defendant taxed if not agreed shall be paid by the plaintiff. This order shall be nisi at first instance.
Representation: Mr Erik Shum, instructed by Messrs Lo, Wong & Tsui, for the plaintiff in HCA 9126/99 and first defendant in HCA 9069/99 The plaintiff in HCA 9069/99 and 2nd defendant in HCA 9126/99 in person |
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