Stephil Finance Ltd v. Famous Year Co Ltd and Others

HCA008562/1983

BETWEEN

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Coram: Hon. Clough, J.

Date of Hearing: 7 March 1984

Date of Delivery of Judgment: 7 March 1984

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JUDGMENT

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1. The appeals that I have before me include an appeal by the 2nd and 4th Defendants which is the subject of the Notice of Appeal of 7th of January 1984 against the decision of the learned Master ordering that their defence be struck out and giving judgment against them in favour of the Plaintiff for the amount claimed in the Statement of Claim with interest.

2. In conjunction with the appeals I have an application, made after the learned Master's Order, to amend the Defence of the 2nd and 4th Defendants. The Summons in that behalf was issued on the 19th of January, 1984. What it is sought to do in the Defence of the 2nd and 4th Defendants is to change a date which I will refer to in a moment in relation to the guarantee which again I will refer to below, and also to introduce a defence of illegality. That is what I have before me in relation to the 2nd and 4th Defendants.

3. As far as the 3rd Defendant is concerned the story is somewhat different. The 3rd Defendant was the subject of the striking out order made by the learned Master on the 5th of January 1984 but there was before the Master at the date of the striking out order, 5th of January 1984, a Summons by the 3rd Defendant to amend is Defence. That Summons was dated 23rd of December 1983 and it exhibited a proposed Amended Defence in which it was sought to plead with considerable elaboration facts giving rise to a defence on the basis that the guarantee in question had been given for past consideration. Again I will not go into details at this stage.

4. I think it is fair to say that counsel for the 3rd Defendant accepts that if his original Defence which was filed on the 12th October 1983 had stood he might have been in great difficulty in resisting the striking out application.

5. Against that rather complicated background I should briefly refer to the nature of the Plaintiff's claim here. The Plaintiff is a deposit-taking company and it sues the 1st Defendant which is a limited company and the 2nd to 6th individual Defendants. The 2nd to 6th Defendants are mostly directors of the company (I am told by his counsel the 3rd Defendant is not). Be that as it may they have all on the face of it executed a guarantee which I will refer to in a moment. Certainly the 2nd, 4th and the 3rd Defendants with whom I am concerned have done so.

6. The claim can be stated quite simply. It is a claim by the Plaintiff company against all these Defendants, as against the 1st Defendant as principal. It is a claim for a sum of $487,919.89 being the balance of a loan and a further sum of interest of $406,263.00 in respect of that loan and also for a sum of $822,907.40 which is owing in respect of what is referred to in the Statement of Claim as a revolving line of credit which I think relates primarily to discounting of cheques.

7. These sums are claimed in respect of these facilities afforded, so it is pleaded, by the Plaintiff to the 1st Defendant. The remaining Defendants are sued as guarantors in respect of those amounts.

8. The pleading in the Statement of Claim, I think it is fair to say, is not very satisfactory. It is pleaded in paragraph 2 that in consideration of the credit facilities granted (I think it is to be read as to be granted) by the Plaintiff to the 1st Defendant the 1st Defendant entered into an agreement called the General Commercial Agreement on the 26th of July 1982 with the Plaintiff under which the 1st Defendant undertook to pay on demand all moneys advanced or paid either by way of overdraft or other facilities by the Plaintiff to the 1st Defendant. Nothing more is pleaded about that agreement.

9. In paragraph 3 it is pleaded that pursuant to the General Commercial Agreement the Plaintiff (the word used is "grant" but it is clearly meant to be "granted") granted to the 1st Defendant (there is no reference to the date there) a loan of $500,000 which was repayable by monthly instalments of $10,417 on the 1st day of every month commencing from the 1st September 1982 together with interest.

10. The second facility pleaded is a revolving line of credit to the extent of HK$1,000,000 with interest. I emphasise there is no reference to date in paragraph 3(ii).

11. In paragraph 4 it is pleaded that in consideration of the aforementioned facilities then the word "granted" is used, by the Plaintiff to the 1st Defendant, the 2nd, 3rd, 4th, 5th and 6th Defendants "on the same date of the 26th July 1982 respectively and individually signed personal guarantees whereby they jointly and severally guaranteed the due payment to the Plaintiff on demand ..... of all the monies and liabilities" and then the words occur "then and thereafter owing to the Plaintiff by the 1st Defendant including interest." A limitation of HK$1,500,000 in respect of these guarantees is pleaded.

12. After that in paragraph 5 it is pleaded that as at the 1st day of May 1983 (so that it is going over to the next year) the sums of HK$487,919.80 and HK$822,907.40 were owing by the 1st Defendant to the Plaintiff and then there is further particularisation. The pleading goes on to plead demand and default by all the Defendants in respect of the amounts alleged to be owing.

13. What is sought to be one of the grounds of defence by the 2nd and 4th Defendants, in effect, is past consideration whereas the pleading by the Plaintiff is that the guarantees of the 2nd and 4th Defendants were executed on the 26th July 1982, the same day as the General Commercial Agreement.

14. The 2nd and 4th Defendants seek to plead that their guarantees were executed in early August 1983, an appreciable time therefore or at least some days after the 26th July 1983. Likewise the 3rd Defendant seeks to amend, as do the 2nd and 4th Defendants, to plead that the 3rd Defendant in fact signed his guarantee in or about the month of January in 1983 and that at the time in January, 1983 when the 3rd Defendant signed the guarantee the 1st Defendant was already indebted to the Plaintiff in the region of about HK$1,500,000 and that in the premises the consideration alleged was a past consideration and/or alternatively there was no consideration moving from the Plaintiff to support the alleged guarantee.

15. The Defence therefore sought to be raised is quite a simple one on the face of the pleading. In my judgment, putting it very briefly, and unhappily by reason of the pleading of the Statement of Claim being deficient, the Defence which it is sought to plead by amendment is one which, whilst it acknowledges the inadequacy of the previous pleading is one which should be permitted in the context of a striking out application because in my judgment it is by no means plain and obvious on the pleadings that there has been due consideration in this case pleaded by the Plaintiff in the first place.

16. Secondly in so far as consideration is pleaded it seems to me that the pleading sought to be introduced by amendment by the three relevant Defendants does raise an arguable defence on the past consideration issue. I will refer to the actual wording of the Statement of Claim but I find that it is impossible to adopt the view which has been urged upon me by Mr. Kwong for the Plaintiff that this is a commercial transaction and therefore the court is to infer certain matters particularly forbearance to sue in the present context, because what is pleaded is in terms that in consideration of the aforementioned facilities listed in paragraph 4 granted by the Plaintiff to the 1st Defendant the other Defendants, the guarantors, on the same date of the 26th July signed the guarantee.

17. If in fact the defence established at a trial that the guarantees were not signed on that day there seems to be at least a prima facie argument for the proposition that the consideration must have been past consideration on the face of the Plaintiff's pleading.

18. In paragraph 3 the facilities are pleaded to have been granted and in paragraph 4 the word in consideration of the aforementioned facilities "granted" by the Plaintiff is used. If one reads in favour of the Plaintiff the word "granted" as meaning to be granted then it still, in my judgment, leaves open to the Defendants the argument that if the guarantee was executed at a subsequent date in January 1983 in case of the 3rd Defendant and in August in the case of the 2nd and 4th Defendants then the consideration was past consideration.

19. I cannot forbear from observing that I find it very difficult to deal with this matter with forensic blinkers on purely on the basis of the pleading because I have seen the relevant agreement and the guarantee. On the face of it it seems to me quite clear that the consideration for the guarantee is actually stated and therefore I think it would be quite artificial, endowed with that knowledge, for me to even contemplate inferring some sort of forbearance to sue in line with authorities such as to Glegg v. Bromley [1912] 3 K.B. 474 and Fullerton v. Provincial Bank of Ireland [1903] A.C. 309.

20. Apart from the fact that those cases are I apprehend a special line of cases dealing with negotiable security, for the reasons I have given above it seems to me that the pleading in the Statement of Claim is so loose and so unrelated to the actual facts which seem to have emerged subsequently in evidence that the defences which are sought to be introduced by way of amendment should be permitted and the right course is to allow the appeal to the extent of setting aside the learned Master's order for striking out and to substitute (I will go into the terms of the order in a moment) an order giving leave to amend the pleadings in line with what has been sought by the various Defendants.

21. I should also mention that the question of illegality has mercifully been put aside in the proceedings because counsel for the Plaintiff in a very practical and fair way suggested that if he went down on the consideration issue then the illegality issue would fall away. He would be prepared to concede that the illegality issue was one which could properly be pleaded if he went down on the consideration issue. I cannot for my part see any real strength in the illegality issue but that is another matter and I will say no mere about that.

22. I have to deal with the order to be made now and the question of costs but those very briefly are my reasons.

23. I should just mention I should have made one observation in my reasons touching on the claimand the application by the Plaintiff to strike out on the basis that the defences sought to be introduced were vexatious.

24. I should just say this about that. It might well be that if the full facts were before the court that it could be demonstrated that those Defences were vexatious. But, on the evidence that "was before me, I did not consider that the Plaintiff had succeeded in establishing that the proposed pleading on behalf of the Defendants lacks bona fides and was hopeless or oppressive and tended to cause the opposite party unnecessary anxiety, trouble and expense in accordance with the test adumbrated by the learned editors of Bullen and Leake at page 145. I say that particularly by reference to the Statement of Claim as pleaded. Mr. Tong made this point most effectively and I think he was right, with respect, that one has to consider the defence in relation to the claim as pleaded. Although today the courts tend to use a broader brush when considering pleadings it is still, in my judgment, proper to hold the Plaintiff to his claim as pleaded and to invite the court to consider the Defence as proposed to be pleaded as against that claim. So, it is in that context and those circumstances that I have not been able to conclude (I do not think the Plaintiff really urged me streneously eventually but as counsel for the Plaintiff certainly originally urged me) that the defences proposed were vexatious in accordance with the test which I sought to apply.

Representation:

Mr. Jimmy Kwong instructed by M/s Foo & Li for the Plaintiff.

Miss H.C. Wong instructed by M/s Kwan & Kwan for the 2nd and 4th Defendants.

Mr. R. Tong instructed by M/s Rowdget W. Young & Co. for the 3rd Defendant.