Lloyds Bank International Ltd v. Chu Fai Hung Nicholas

HCA012415/1982

BETWEEN

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Coram: Hon. Liu J. (In Chambers)

Date: 7th May, 1983.

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JUDGMENT

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1. The plaintiff bank granted facilities to Stemark Industries Limited (hereinafter referred to as "Stemark"). By a Guarantee in writing dated the 1st June 1982, the defendant guaranteed to procure, on demand, the payment to the bank of all moneys due and owing to the bank by Stemark. Any statement of account of Stemark signed as correct by any duly authorised officer of the plaintiff bank was expressly stipulated to be conclusive evidence as against the defendant as guarantor. The defendant's liability under the said guarantee was not made dependent on any default of Stemark. However, judgment against Stemark for the same sum was obtained on the 8th April 1983 in High Court Action No. 1603 of 1983.

2. As at the 15th December 1982, the indebtedness of Stemark was $10,671,708.26. Respective letters of demand dated 17th December 1982 were given to Stemark and the defendant on the 18th December. It was alleged on behalf of the defendant by his wife that on the same day, the 18th December, the defendant and the plaintiff were still engaged in active negotiation and that Mr. Scott on behalf of the plaintiff bank told the defendant to ignore these letters of demand. On that date, the 18th December, according to Mr. Scott, the defendant categorically stated that he, the defendant, would not be leaving Hong Kong until the 20th of December. But the defendant's wife explained that her husband had tried but failed to book a later flight. It was said that the defendant departed from Hong Kong on the 19th, Sunday.

3. Came Monday, the 20th December 1982, the writ in the present action was issued, and early that morning an Order 44A order and warrant were sought and obtained from Cons, J.A. sitting as an additional judge of the High Court. After the Order 44A order and warrant, Mr. Scott and the wife of the defendant met, and it was alleged that Mr. Scott repeated to her that the letters of demand were to be ignored as a mere formality.

4. The defendant had informed Mr. Scott before his departure from Hong Kong that he had removed all of his personal assets out of jurisdiction. At the hearing, it was not sought to be argued that the defendant had or would have sufficient assets in Hong Kong to satisfy any judgment that might be obtained against him in this action. At the adjourned hearing, with a judgment then entered against Stemark, the plaintiff nevertheless pressed its claim against the defendant under the said Guarantee.

5. The Statement of claim in this action was filed on the 22nd January 1983 and on the same date, an Order 14 summons was taken out against the defendant by the bank. Through his solicitors, the defendant exhibited a draft Defence by counsel.

6. On the 11th February 1983, the defendant caused to be issued a summons for, inter alia, discharging the Order 44A order and warrant with costs. The defendant also sought an enquiry as to damages and a consequential order for payment over thereof. It is to be noted that the defendant did not apply for setting aside the Order 44A order and warrant obtained ex parte under Order 32 rule 6 of the Rules of the Supreme Court; nor did he appeal.

7. Counsel for the plaintiff took a technical point. It was submitted that the Order 44A order and warrant could be discharged only upon the defendant showing cause pursuant to Order 44A rule 3. There is no prohibition in Order 44A rule 3 against a defendant showing cause except on the successful return of the warrant for his arrest or on his personal attendance. I do not share the narrow interpretation so urged upon me of rule 3 of Order 44A, and I cannot accede to this procedural objection raised on behalf of the plaintiff.

8. As for sequence, it was ultimately agreed to have both the defendant's summons for discharging the order and warrant and the plaintiff's Order 14 summons heard in the same proceedings with the defendant's summons for discharge taken first.

9. A further matter need be disposed of. On behalf of the defendant, counsel submitted that it was incumbent upon the plaintiff bank to establish a strong prima facie case against the defendant in its Order 44A application. Order 44A stands on its own as a modified adaptation from the provisions of the Indian Civil Code. In Days International Limited v. Shyam Naraindas Kirpalani, ⁽¹⁾ Kempster, J. observed that he could not imagine any court would grant relief under Order 44A unless a strong prima facie case was shown. Counsel for the defendant also directed my attention to the headnote of judgments of the English Court of Appeal referred to by Templeman J. in Universal Studios v. Mukhatr & Sons, ⁽²⁾ to the effect that permission to enter a defendant's premises would be granted on an Anton Piller Order obtained ex parte only in "most exceptional circumstances, where the plaintiffs had a very strong prima facie case, actual or potential damage to them was very serious and there was clear evidence that defendants possessed vital material which they might destroy or dispose so as to defeat the ends of justice before any application inter partes could be made". The reference does not relate to the very peculiar and exceptional procedure under Order 44A.  Moreover, emphasis there can clearly be seen to have been put on the power to enter.

10. When the Shyam case reached our Court of Appeal, ⁽³⁾ only peripheral comments were passed on the plaintiff's standard of proof. At page 5, Cons J.A. described the plaintiff's right to an Order 44A warrant as having been "prima facie extended to him. At page 21, in demonstrating the harshness of an Order 44A warrant, Fuad J.A. agreed that the warrant had been properly granted and should be continued on "genuinely disputed" figures, from which the liability of the defendant as guarantor was said to have arisen. At page 25, Leonard V.P. referred to the acceptance by Kempster J. of the plaintiff's evidence as "showing a prima facie entitlement to summary judgment". Subsequently at page 32, in upholding the court's discretion in fixing the amount of deposit, if offered under Order 44A rule 3(4) in lieu of bail, Leonard V.P. allowed to be taken into consideration "the strength of the plaintiff's case".

11. Of these passing observations made in the Court of Appeal, it may possibly be said that no higher than the usual "prima facie case" was favoured, but the matters at issue before the Justices of Appeal were merely whether Order 44A would apply to a non-resident, what was the effect of the absence of an explicit averment of the defendant being unlikely to be within jurisdiction at the time of judgment and what the amount of deposit in lieu of bail should be. Nothing really turned on evidential onus.

12. What must not be lost sight of is the devastating aspect of arresting a defendant pending litigation. It is a civil restraint with far-reaching repercussions. In Felton v. Callis, ⁽⁴⁾ whilst recounting the adaptation by the Chancery Courts of the power of arrest on mesne process in the form of a writ of Ne Exeat Regno, Megarry J., as he then was, had occasion to reiterate a warning given by Lord Talbot L.C. as early as 1734 that the "writ should be taken out and granted with caution".

13. At page 559 of the Indian Code of Civil Procedure (Act X of 1877), the footnote states:

"To arrest a man on mesne process, which is the proceeding under the next section, is a very strong measure, and the court would not willingly adopt it except for very cogent reason. It has, therefore, been held that applications for this purpose must be founded upon strong evidence, and must clearly show that the defendant has taken, or intends to take, the steps indicated in order to avoid the suit."

14. It is only too true to say that both in the provisions of the Indian Civil Code and our Order 44A, nothing is said of the degree of proof of the plaintiff's claim against the defendant. In fact, a plaintiffs claim is not even expressly required to be verified. What need be shown in the Indian Civil Code and our Order 44A is simply the defendant's past or future conduct, and for that purpose under the Indian Civil Code the plaintiff must satisfy "the court by affidavit" inter alia "that the defendant has removed from the jurisdiction of the court his property or any part thereof", before security may be sought to be taken for the appearance of the defendant to answer any decree that may be passed against him in the suit and before "an order for bringing the defendant before the court to show cause why he should not give security for his appearance" can be issued; the court, after examining the applicant and making such further investigation as it thinks fit, must he "satisfied" inter alia "that the defendant has removed from the jurisdiction of the court his property or any part thereof". ⁽⁵⁾

15. Our Order 44A is also slient on the plaintiff's evidential standard in setting up his claim against the defendant, but in so far as it seeks to establish the defendant's conduct under complaint, that is to say whether or not he is about to leave the jurisdiction or has disposed of or removed from jurisdiction his property and in either case, the execution of the judgment that may be given against him will thereby likely be obstructed or delayed, the court need merely be "of the opinion that there is probable cause for believing" these specific allegations.

16. However, the arrest of a defendant on mesne process is a drastic measure to take, and I would agree with Mr. Litton that there must be strong evidence for a "prima facie case" in the plaintiff's claim as well as in what the defendant allegedly has done or intends to do. For all these matters, evidence placed before the court must be cogent. The plaintiff's claim may be challenged as being "groundless" or not "bona fide" upon the defendant showing cause and the strength of the plaintiff's case may be taken into consideration generally just as it may be for assessing the adequacy the amount of deposit offered by the defendant. But evidence in support of the plaintiff's allegations against the defendant must be and remain, after challenge, cogent in all respects.

17. The defendant confined himself to attacking the plaintiff's claim against him and did not seek to show cause otherwise as envisaged by rule 3 of Order 44A. It was argued on behalf of the defendant that as a defendant's imminent departure, disposition or removal from the jurisdiction of his property is statutorily spoken of under Order 44A with reference to "an action" instituted, both its rules 1 and 2 must therefore be read as having some casual connexion with an intention to avoid, defeat or delay execution of a judgment in that action. I do not subscribe to such a suggested interpretation. It has been long established and recently reaffirmed in the Shyam case that provided a defendant is shown to have fallen within one of the stated categories together with the fact or necessary inference that he may not immediately satisfy any judgment, the mere proof of his body or property being unlikely to be there for execution thus causing obstruction or delay will be sufficient to invoke the Order 44A procedure without any intention to avoid, defeat or delay. See Shyam case: page 3 per Cons J.A. and pages 29 and 31 per Leonard V.P. This point must now be considered as well settled.

18. I turn then to consider the other contentions advanced on behalf of the defendant. First, the defendant challenged the nature of the plaintiff's claim. It was submitted that as the plaintiff's claim against the defendant on the said Guarantee would lie only in damages, the plaintiff's claim for payment of a quantified sum as money due and owing by Stemark to the plaintiff bank was misconceived and should not be entertained. Secondly, the letter of demand served on the defendant on the 16th December 1982 was said to be invalid by reason:

19. Thirdly, relying on the alleged continued negotiation between the plaintiff and the defendant and the alleged invitation of Mr. Scott to the defendant to ignore the letters of demand both on the 18th and the 20th of December 1982, the plaintiff was said to have waived its right or otherwise been estopped.

20. I will deal with these arguments in the same order as they were put. First, the nature of the plaintiff's claim on the said Guarantee: The defendant leaned heavily on the decision in Lep Air Services v. Rolloswin Ltd. ⁽⁶⁾ In Lep Air Services, a creditor accepted the repudiation of the principal debtor and rescinded the contract which was brought to an end. The principal debtor was thus relieved of his obligation to meet later instalments, and on the terms of the guarantee before the House of Lords the creditor's claim was held to lie only in damages for breach. The case was focussed on the interpretation of the guarantee terms in the light of such accepted repudiation. Clause (XIII) of the guarantee there under consideration was construed as a guarantee of performance of obligations. Clause (XIII) was in the following terms:

21. At page 352 G/H, Lord Simon of Glaisdale observed that

"in thus guaranteeing performance of obligations, the contract of guarantee was ........... endorsing the common law obligation and liability of a surety".

22. At page 351 G/H, confining himself to the particular guarantee before the House, a guarantee of performance of obligations, Lord Diplock condemned as a "false assumption" the proposition "that the primary obligation of the guarantor was to pay the instalments if the debtor did not do so." In his review of a surety's common law obligation and liability, at page 348 G/H, the learned Law Lord described the legal nature of a guarantor's obligation at law as being "not an obligation himself to pay a sum of money to the creditor, but an obligation to see to it that another person, the debtor, does something." It was concluded that at common law "the creditor's remedy for the guarantor's failure to perform it lies in damages for breach of contract only." At pages 352 B end 357 E, Lord Simon of Glaisdale lent his support to this historical analysis of Lord Diplock "that the liability of a surety at common law always sounded in damages rather than in debt, even when he was guaranteeing a debt" as it would he "consistent with the surety's obligation, even when guaranteeing a payment, being not to pay a sum of money in default but to ensure performance of the principal debtor's obligation."

23. At page 349 B-D, of a great many variety of forms for a guarantee, Lord Diplock had this to say:

"Whether any particular contractual promise is to be classified as a guarantee so as to attract all or any of the legal consequences to which I have referred depends upon the words in which the parties have expressed the promise. Even the use of the word 'guarantee' is not in itself conclusive. It is often used loosely in commercial dealings to mean an ordinary warranty. It is sometimes used to mis-describe what is in law a contract of indemnity and not of guarantee. Where the contractual promise can be correctly classified as a guarantee it is open to the parties expressly to exclude or vary any of their mutual rights or obligations which would otherwise result from its being classifiable as a guarantee. Every case must depend upon the true construction of the actual words in which the promise is expressed."

At page 352 G/H, Lord Simon reiterated that it was open to the parties to a contract of guarantee to modify "such common law obligation and liability and substitute some other".

24. Therefore, for a guarantee in the form of an undertaking to see to that the debtor does pay or does perform his obligation by satisfying a debt, the remedy against the guarantor would lie only in damages. See Lep Air Services, p. 345 D per Lord Reid; p.348 G/H per Lord Diplock; p.352 B/C per Lord Simon and p.359 E per Lord Kilbrandon. The quantum damages is the loss "caused by the debtor having failed to carry put his contract." (per Lord Reid at p.345 E). Such quantum is to be measured by "the debtor's liability to the creditor." (per Lord Diplock at p.349 B). At page 356 D/E, Lord Simon put the measure of damages as the totality of the outstanding debt."

25. At page 344 G, Lord Reid acknowledged that "with regard to making good to the creditor payments of instalments by the principal debtor there are at least two possible forms of agreement." I should emphasize the words "at least". The learned Law Lord gave his two examples and construed the guarantee before the House as of the latter of these two types which are: "a person might undertake no more than that if the principal debtor fails to pay any instalment, he will pay it" and "he might undertake that the principal debtor will carry out his contract." In the instant case, the guarantee took the following form:

"In consideration of LBI.granting or continuing to make available facilities and accommodation at the request of the Guarantor for so long as it may think fit to Stemark Industries Ltd., (hereinafter called "the Customer") the Guarantor hereby guarantees to procure on demand the payment to LBI of all moneys and the discharge to the satisfaction of LBI of all obligations and liabilities whether certain or contingent which are now or may at any time hereafter be or become from time to time due owing or incurred to LBI by the Customer (in all cases whether alone or jointly with any other person and in whatever style name or form and whether as principal or surety) or in respect of which the Customer may be or become liable to LBI whether on any current loan or other account or otherwise in any manner whatsoever including the amount of any loans acceptance or other credits or advances made to or for the accommodation or at the request of the Customer of any notes or bills made accepted endorsed discounted or paid ...................... Any statement of account of the Customer signed as correct by any duly authorised officer of LBI shall be conclusive evidence as against the Guarantor of the indebtedness of the Customer to LBI."

26. Here the defendant as guarantor has clearly undertaken, on demand, to see to it that the plaintiff's bank is paid, from whatever source and whether or not there has been any default by Stemark. This seems to be yet a further variation in form, whereby a personal obligation on the part of the defendant to ensure payment to the bank was created. Therefore, it is reasonably clear that the defendant must personally cause the amount due to be paid to the bank whose claim against the defendant lies not in breach nor sounds in damages but is for payment of the amount due. The Guarantee here bears no resemblance to that in Rickaby v. Lewis, ⁽⁷⁾ where the wife's guarantee was for the repayment of the advance to her husband "as per the agreement of April 9" which required the husband to repay within 3 months upon the receipt of a written notice. The Guarantee in the instant case is also different in terms from those set out in Form 2:1 given in volume 9 Forms and Precedents 4th edition, which is a guarantee for "the repayment by the said (principal debtor) of all sums of money advanced by you to him .......... subject as  hereinafter mentioned, that is to say: (1) notice in writing of any default on the part of the said (principal debtor) is to be given by you to us and within ...... days from his receipt, payment shall be made by us of all sums then due from us under this guarantee". In both of these forms, the liability of the guarantor was made conditional upon default of the principal debtor. In the former case, a 3 months notice for repayment to the principal debtor was in addition required. In the latter case, a time notice to the guarantor was made an express prerequisite. They were not, like that in the instant case, stipulations for an immediate payment to the creditor on demand without any default on the part of the principal debtor.

27. The entitlement of the plaintiff bank is not even predicated on any breach caused by a default on the part of the debtor. The indebtedness of the debtor from which the defendant's liability arose is readily ascertainable from the "conclusive evidence" provided for in Clause 1 of the said Guarantee. Furthermore, it was not a personal obligation to procure payment within a period of time after demand but was an obligation to cause payment to be made upon demand.

28. In my judgment, the said Guarantee created a personal obligation on the part of the defendant to pay or cause to be paid the bank immediately upon demand.

29. In this case, there has been no termination of the liability of Stemark, and judgment has now been obtained against Stemark accordingly. Thus, whatever the true nature of the plaintiff's claim against the defendant is (be it in damages for breach by the defendant itself to procure payment to the bank or be it for payment of a sum on a personal obligation to pay or cause to be paid the bank), it will be, in reality and practice, a monetary claim representing the debt due and owing from Stemark. In formulating its claim against the defendant as a guarantor, the plaintiff need aver no more than what is contained in its existing writ and Statement of Claim. I have been referred to various precedents, 234 to 237 in the 12th edition of Bullen and Leake, pages 462 to 464. Those precedents fortify Mr. Mills-Owen's contention that irrespective of the true nature of the plaintiff's claim against the defendant, there is nothing objectionable to the plaintiff suing in its present form of pleading. Therefore, my interpretation of Clause 1 of the said Guarantee does not seem to be relevant. Even in Lep Air Services, for a claim obviously sounding in damages, at page 358 B, Lord Simon of Glaisdale was clearly of the opinion that the creditors "were entitled to sue ........ for the total sum guaranteed".

30. I turn next to the second point on validity of the letter of demand. Point 2(a): The letter of demand for a sum certain and not for damages was invalid. In my opinion, it would make no difference at all, whatever the nature of the plaintiff's claim is, for a demand to be made just for the "total sum guaranteed". Moreover, Clause 1 of the said Guarantee stipulated for a mere demand for payment of "all money ..... due or owing to LBI" and not for a demand for payment of damages. I have also given my views on the interpretation of Clause 1 of the said Guarantee, and on that interpretation a demand for payment of a sum was all that was required. I hold that the letter of demand was good in form and valid. Point 2(b): No good cause of action had accrued before the defendant had reasonable time to comply with the demand. The word "procure" in Clause 1 of the said Guarantee should be construed as procuring an immediate payment. It was clearly provided that the defendant as guarantor guaranteed "to procure on demand the payment to" the bank of all the moneys due and owing to the bank by Stemark. If the parties to the said Guarantee had minded to give time for compliance, it could have easily stipulated for compliance to be within a reasonable time or a specified period. In my view, liability for making or causing to be made payment to the bank of all moneys due and owing by Stemark arose immediately. If, in fact, practical difficulties had been encountered in the implementation of such an immediate obligation, (for which there was no evidence) it might not have been reasonable for the plaintiff bank to instantly resort to litigation, but this would be essentially a matter for costs. Point 2(c): Whether or not the writ is itself a fresh demand for payment. I was referred to the case of Decro-Wall International SA v. Practitioners in Marketing Ltd.,⁽³⁾ where failure to pay promptly with the likelihood of a similar delay in the future was held not to constitute a repudiation of the agreement there under consideration, and it was decided that the plaintiff's letter purported to accept such a failure to pay as a repudiation, constituted itself a repudiation by the plaintiff and that the plaintiff's letter could not effectively serve as a notice to terminate the agreement. The ratio decidendi was that since the plaintiff's letter in accepting an omission erroneously interpreted as a repudiation was itself a breach, a unilateral breach could not bring any agreement to an end and no repudiation of a contract could operate as any notice given under it, the plaintiff's letter was held to be ineffective as a notice of termination served under the existing agreement. It is reasonably clear that no document should be allowed to function in dual but inconsistent capacities.

31. The cause of action of the plaintiff is founded on a letter of demand dated the 17th December 1982 and served on the defendant on the next day. True enough, the writ in this action demanded payment on the force of an alleged invalid letter of demand, but nevertheless it was itself a demand. Putting it differently, if in fact the plaintiff had expressly pleaded in the alternative that by this very writ, the plaintiff demanded payment from the defendant under the said Guarantee, there would have been left little room for argument that the plaintiff bank did not by its writ demand payment or that the writ itself would not thus, on the alternative plea, constitute a valid fresh demand. The omission to state the obvious in the alternative should not deflect the writ from its intrinsie nature, which, in seeking to recover from a guarantor on a former alleged invalid letter of demand, was in effect itself making a demand for payment. When a writ evinces an intention to re-enter, actual re-entry in a forfeiture case is unnecessary, but still a formal demand would be required unless otherwise expressly dispensed with. I have not heard it argued that a writ may itself be taken as such a demand, but for the reasons above stated, it seems to be arguable. However, I have come to a conclusion adverse to the defendant on the alleged invalidity of the letter of demand under both Point 2(a) and Point 2(b). Whether or not the writ in this action would itself constitute a demand for payment does not really call for an answer.

32. Before Cons J.A., the defendant's liability as a guarantor was substantiated by, inter alia, the letter of demand, bank statements and the said Guarantee. I have not found favour with the defendant's submission on the alleged defective formulation of the plaintiff's claim. It would seem that the ex parte Order 44A proceedings were not susceptible to any valid criticism. And this is not an application to set aside the ex parte order made by Cons J.A. if it were, it would be desirable to have the matter placed before the same judge. On behalf of the defendant, it was further submitted that the factual dispute or what Mr. Scott allegedly said of the letter of demand, together with the various matters just disposed of above, had reduced the plaintiff's case against the defendant below that required for the support of an order 44A application. I have expressed my views on the first and second points, and in conjunction with my observations on Mr. Litton's last submission on estoppel, evidence of the plaintiff's claim against the defendant remains, in my opinion, just as cogent, and there is no conceivable reason why tin order and warrant under Order 44A should be discontinued.

33. Finally, I come to the plaintiff's Order 14 summons. It is not possible for this court to resolve the factual dispute on which the third and last point of the defendant was built. The allegation was that the defendant was led to continue with negotiation with the plaintiff on the basis that all the letters of demand were given as a matter of formality just to be ignored. The plaintiff has proceeded against the defendant with diligence, and judgment has now also been obtained against Stemark. Reference was also made by counsel for the plaintiff to Mr. Scott's various minutes of meetings with the defendant and his wife. It appeared from these minutes that at all the meetings, the plaintiff through Mr. Scott was unimpressed with the information from the defendant and his wife and was frustrated by what Mr. Scott would describe as evasive feed-backs. Mr. Scott was constantly pressing for assurance that cheques would be honoured on presentation and the defendant was requested to refurbish or increase his security held by the plaintiff bank. The ptaintiff caused to be issued the present writ on the 20th December 1982 and immediately obtained an Order 44A order and warrant against the defendant. Throughout the plaintiff's conduct was wholly inconsistent with the bare assertion made on behalf of the defendant by his wife that Mr. Scott would have the letters of demand ignored. No attempt was made on the part of the defendant to honour his obligation under the said Guarantee even with knowledge, at the last stage of the proceedings, that judgment had been obtained against Stemark, but the defendant persisted in his technical objections to the nature of the claim as formulated on the alleged absence of a valid demand and lack of a reasonable time for compliance. I have doubt as to the bona fide of the defendant in this contest. Arguments advanced were technical and in part based on a bare allegation quite inconsistent with the events. There was no challenge made to the defendant legal responsibility under the said Guarantee; nor were the other usual material considerations as regards the discharge of an Order 44A warrant canvassed. The circumstances as to the mode of presenting the defendant's case have given rise to the suspicion of a mere tactical delaying manoeuvre. The defendant has succeeded in raising some triable issues, but in the final analysis, it is fit and proper for me to grant leave to defend only conditional upon the full amount of the plaintiff's claim being paid into court.

34. I order:

Representation:

Mr. Mills-Owens, Q.C. with Mr. Michael Bunting instructed by Messrs. Deacons for Plaintiff.

Mr. Henry Litton, Q.C. with Mr. Ronald Mayne instructed by Messrs. Foo & Li for Defendant.

(1)   High Court Action 10422 of 1982, judgment given on 6th November 1982, page 3.

(2)   [1976] 1 W.L.R. 560 at 570H

(3)   Civil Appeal No.146 of 1982, judgment whereof was given on the 26th November 1982.

(4)   [1969] 1 Q.B. 200 at p.205

(5)   See sections 471 & 478 at pages 559 to 562 of the Indian Code of Civil Procedure (Act X of 1877)

(6)   [1973] A.C. 331

(7)   The Times Law Reports XXII (1905) 130

(8)   [1971] 2 A.E.R. 216