Lloyds Bank International Ltd v. Helyman Trading Ltd and Another

HCA013537/1983

BETWEEN

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Coram: Hon. Power, J.

Dates of Hearing: 5 March 1984

Date of Delivery of Judgment: 26 March 1984

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JUDGMENT

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1. In this matter the Plaintiff, Lloyds Bank International Limited, is suing the 2nd Defendant, David Siu Shu Sing, on a guarantee in writing dated the 20th May 1981 whereby, in consideration of the Plaintiff granting, or continuing to make available, facilities and accommodation to the 1st Defendant, at its request, the 2nd Defendant guarantees to procure, on demand, the payment to the Plaintiff of all moneys and the discharge, to the satisfaction of the Plaintiff, of all obligations and liabilities then or at any time thereafter due, owing or incurred to the Plaintiff by the 1st Defendant together with interest at such rates and upon such terms as may from time to time by payable by the 1st Defendant provided that the total amount recoverable from the 2nd Defendant thereunder was to be limited to HK$1,350,000 and interest.

2. By a letter of the 31st October, the Plaintiff demanded under the security that the 2nd Defendant pay it HK$1,350,000 together with interest.  The 2nd Defendant not having made any such payment, the Plaintiff has instituted an action against it.

3. The Plaintiff applied before the Master for final judgment under O.14 r.1, which application was granted and I am now dealing with an appeal from that order. The Master also gave judgment against the 1st Defendant and the appeal entered against that order has been withdrawn.

4. Mr. Warren Chan who appeared for the Appellant said that the appellant intended to raise two defences at the trial. He would be contending that there was no proper consideration and also that he had entered into the agreement because of a misrepresentation made as to the true nature of the guarantee by the representative of the Plaintiff. Mr. Chan said that he did not intend to argue the question as to the adequacy of consideration in this appeal but would rely only upon the submission that the agreement was not binding upon the 2nd Defendant because of a misrepresentation made by the servant of the Plaintiff.

5. The 2nd Defendant stated, in paragraph 9 of his first affirmation: "When I signed the said guarantee it was a blank form of guarantee. Mr. Folch Vernet asked me to sign it first. He said that he would ask the other director to sign later because the said guarantee was to be a joint and several guarantee. I signed the document on the basis and in the belief that it would be a joint and several guarantee as represented by Mr. Folch Vernet. I would not have signed it had I known that Mr. Folch Vernet would not ask the other director of the 1st Defendant to sign it." It is true that the covering page of the guarantee bears the words "Guarantee by an Individual".  However Clause 9(A) states: -

"The liabilities and obligations of the Customer if more than one or of the Guarantor if more than one shall be deemed to be joint and several and be construed accordingly."

The clause seems to recognize the possibility that the form was one which could be used in circumstances where there was more than one guarantors.

6. There were no facts put forward to contradict those affirmed to by the 2nd Defendant and anyway, as Mr. Chan quite rightly submitted, for the purpose of argument on an O.14 application, the Defendant's version must prevail.

7. Mr. Chan referred to a statement in Rowlatt on "Principle and Surety" , 4th Edition, at 182 which said -

"On similar principles a surety is not bound if the instrument, when signed by him, is drawn in a form, showing himself and another or others as intended joint and several guarantors, and any intended surety does not sign. It is immaterial by whom the instrument was prepared, or whether the survey omitted was solvent or not. In such cases the creditor must show that the surety consented to dispense with the execution of the document: by the other or others. The rule is an equitable one, and is applicable even though the surety who has executed did not execute as an escrow, and is consequently bound at law. The principle is, that the arrangement to which the surety consented to become a party has been left incomplete, and has, in equity, never become binding upon him. He is entitled, therefore, to have the instrument given up to be cancelled, and not merely to have relief to the extent of the contribution which the other surety might have been compelled to pay in his relief."

8. This statement of law deals with the situation where the instrument is drawn in a form showing the surety and others as intended joint and several guarantors. The statement relies upon Evans v. Brembridge 8 De G. M. & G.100. It is true that in this case the instrument was drawn in a form showing the surety and others as intended joint and several guarantors, however, the judgments delivered on the matter are not so narrowly reasoned as to indicate that the exercise of the court's equitable jurisdiction was founded wholly upon the form of the instrument.

9. Knight Bruce L. J. said at 108 -

"The Defendants seek to charge the Plaintiff with a contract, into which he did not enter. They claim a right to judge and decide for him, that the execution by Mr. Bradley of the instrument in question was a matter of indifference to the Plaintiff, except possibly as to a moiety of the debt or demand professed to be constituted by it. The Plaintiff, however, was and is entitled to judge and decide upon that for himself and to say effectually (without proving) that independently of the mere title to contribution as between sureties, he had reasonable grounds for thinking it important to him, and desiring that Mr. Bradley should be associated with him."

10. Turner L. J. said, agreeing with Knight Bruce L. J.:-

"I concur in thinking that as the Plaintiff entered into the obligation upon the understanding and faith that another person should also enter into it, he has a right in equity to be relieved, on the ground that the instrument has not been executed by the intended co-surety." (The underlining is mine.)

11. Neither of the learned judges stresses the form of the instrument. What was clearly uppermost in the mind of Turner L.J. was that the Plaintiff had entered into the obligation "upon the understanding and faith" that another person would also enter into it". I am satisfied that the principle is correctly stated by Rowlatt when he says, "The principle is, that the arrangement to which the surety consented to become a party has been left incomplete, and has, in equity, never become binding upon him." I am unable to see any material distinction between the situation where the instrument is drawn in a form which shows that there will be several sureties and the situation where the instrument is so drawn that it could be signed by more than one surety and the principle represents to the surety that it is to be a joint and several guarantee.

12. The position in this regard is, I am satisfied, more correctly stated at 4828 of Chitty on Contracts, 2nd Volume, 24th Edition, as follows:

"A guarantee may, on its true construction, be conditional. So, for example, where a person executed a guarantee on the faith of a representation that it would also be executed by another person as co-surety, the liability of the former, was held to be conditional on the execution of the guarantee by the latter."

As authority for that proposition the learned author, quite properly, in my view, cites Evans v. Bredridge.

13. Mr. Ma who appeared for the Plaintiff sought to rely upon the following statement in Rowlatt, at p. 183:-

"Thus, to take the cases relating to co-sureties, it has been held that mere knowledge by the surety who signed that the creditor is insisting on having the additional liability of another surety will not suffice, even though in his own mind the surety signing relied upon it, and still less the mere existence of the co-surety at the time when the surety seeking relief became bound."

14. He submitted that the knowledge by a surety who signed that a creditor insisted on having the additional liability of another surety in no way affected the validity of the guarantee entered into by the surety who signed and that this was the position in the present case. He submitted further that it was immaterial that a surety had relied upon this knowledge when signing. He referred to Traill v. Gibbons (1861) 2 F. & F. 358. This case is of little assistance. In it the Defendant surety simply knew that the principle was seeking to have another person as surety. There was no question that the principle had represented to the surety that it would obtain another surety or that the surety signed on the faith that the other person would also sign. There was simply no representation that it was to be a joint and several guarantee. In the present case, the 2nd Defendant says that Mr. Vernet asked him to sign first, saying that he would ask the other director to sign later because the said guarantee was to be a joint and several guarantee. According, then, to the 2nd Defendant, at the time he signed, it was represented to him that the document he was signing was to be a joint and several guarantee. He says that he signed the document, which was in a form that might appropriately have been used as a joint guarantee, on the basis and in the belief that it would be a joint and several guarantee and that he would not otherwise have signed it.

15. Upon the basis of these facts I am satisfied that, applying the principle enunciated both in Rowlatt and Chitty, the 2nd Defendant has an arguable case that the arrangement to which he consented to become a part has been left incomplete and that it has, in equity, never become binding upon him. The Defendant having raised an issue which ought to be tried and I set aside the order of the Master and the judgment entered thereunder and give liberty to the 2nd Defendant to defend this action. The Respondent is to pay the costs both here and below.

Representation:

Mr. G. Ma (Deacons) for Plaintiff.

Mr. Warren Chan (M. K. Lam & Co.) for Defendants.