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Union Bank of Hong Kong Ltd v. Ng Yiu Hing t/a Ng Yiu Hing Company and Another

Read the full judgment text of HCA 3978/1973 on BabelCite. This High Court CFI judgment.

1. The plaintiff bank agreed to provide the first defendant with overdraft facilities and, in consideration of that agreement, the first defendant on 2nd January 1973, signed an "Undertaking for Repayment of Overdraft". On the same date the second defendant signed a Guarantee in favour of the plaintiffs guaranteeing due performance of the Undertaking by the first defendant and committing himself, in the event of the first defendant's default, to repay to the plaintiffs upon demand such advances,

Case No.HCA 3978/1973
Court
High Court CFI
Date—
Judge—
Case Document
100%Judiciary

HCA003978/1973

IN THE SUPREME COURT OF HONG KONG

(ORIGINAL JURISDICTION)

ACTION NO.3978 OF 1973.

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BETWEEN    
  UNION BANK OF HONG KONG LIMITED Plaintiff
  and  
  NG YIU HING trading as NG YIU HING COMPANY 1st Defendant
  NG KA CHEE trading as WAI SANG JEWELLERY MANUFACTORY 2nd Defendant

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Coram: Pickering, J.

Date of Judgment : 27th September, 1974.

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JUDGMENT

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1. The plaintiff bank agreed to provide the first defendant with overdraft facilities and, in consideration of that agreement, the first defendant on 2nd January 1973, signed an "Undertaking for Repayment of Overdraft". On the same date the second defendant signed a Guarantee in favour of the plaintiffs guaranteeing due performance of the Undertaking by the first defendant and committing himself, in the event of the first defendant's default, to repay to the plaintiffs upon demand such advances, or debts and liabilities as should be owing to them by the first defendant.

2. The plaintiffs have obtained judgment, albeit empty, against the first defendant and now seek to enforce the Guarantee given by the second defendant. The amount claimed is $75,718.77 with interest at the rate of 1.2% per month from 10th December 1973 until payment or judgment. The second defendant does not deny having signed the Guarantee but he pleads Non Est Factum claiming to have been unaware that what he was signing was in fact a Guarantee in respect of the bank overdraft. He was told by the first defendant, he says, that the document, which was in English, a language which he does not speak, was a Guarantee in respect of the proposed hire-purchase by the first defendant of four air-conditioners having a total value of about $8,000. His evidence was that he has known the first defendant for eight or nine years and that the latter appeared quite well off being on the board of directors of the Tung Wah Group of hospitals and having had a primary school named after him by that Group. The first defendant was also one of the directors of the Hing Sheung Fung Restaurant Ltd., a large restaurant of four floors and also operated another big restaurant known as Hing Kam Fung.

3. At the beginning of January 1973, the second defendant said, the first defendant telephoned him and arranged a meeting at the Hing Sheung Fung Restaurant. At that meeting the first defendant said that he wanted to install air-conditioners in his flat at Everwell Gardens in Homantin and asked the second defendant to be his guarantor in respect of the hire-purchase of four air-conditioners valued at about $8,000. Upon the second defendant's agreeing to this, the first defendant produced a document in English, the blanks in which were not filled in either in typescript or in manuscript. The first defendant, according to the evidence of the second, assured him that his signing of the document was a mere formality and the second defendant duly signed, believing that he was signing a guarantee in respect of the hire-purchase of air-conditioners. At the time that he signed, he says that no other document was attached to the Guarantee.

4. On or about 16th October 1973 the second defendant received a letter from a solicitors' firm written on behalf of the plaintiff bank. He received the letter at his imitation pearl factory and asked his accountant whom, he says, understands English but not much, to explain the contents to him which the accountant did in very general terms, whereupon the second defendant became aware that the letter concerned the borrowing of money by the first defendant. He did not go to see either the solicitors from whom the letter emanated or the plaintiff bank named in the letter. He went to see the first defendant who said that the matter had nothing to do with the second defendant and that all that he had to do was to hand the letter to the first defendant. Similar assurances were received from the first defendant when the second defendant received a second solicitor's letter on or about 30th November 1973 and again after the issue of the writ herein. The second defendant says that he went repeatedly to see the first defendant who, on each occasion, told him not to worry and that he, the first defendant, would settle the matter. Eventually the second defendant was unable to find the first defendant and made three visits to Taiwan for the purpose of trying to find him, being successful upon only the last occasion when he received similar assurances. The second defendant, who is now unable to find the first defendant either in Hong Kong or in Taiwan, gave evidence that had he realised that the signing of the Guarantee was to attach a liability to him in the region of $80,000, he would never have signed since he had not the ability to pay such an amount.

5. In cross-examination, the second defendant agreed that he was a good friend of the first defendant who was managing director of the Hing Sheung Fung Restaurant upon which more than one million dollars had been spent upon decorations and also managing director of the Hing Kam Fung Restaurant which had been decorated at a cost of more than half a million dollars.

6. The second defendant agreed that the first had asked him to join the board of the Hing Kam Fung Restaurant and had actually put down the second defendant's name in the list of directors. To this the second defendant objected and the first defendant said that he would have the name removed. The second defendant did not put any money into the restaurant and said that he did not know whether or not there was any requirement in the Memorandum and Articles of Association that a permanent director should invest capital in the company. The second defendant agreed that his own partner in the imitation pearls business, Miss Ng Kwei Fong, was a good friend of the first defendant and also a permanent director of the Hing Kam Fung Restaurant which is now in the process of being wound up. The second defendant also agreed that the installation of air-conditioning in the two restaurants of which the first was managing director must have been an expensive business. The relevance of that answer will become apparent.

7. The second defendant further agreed that his factory had been burnt down during last year and that the insurance company had paid some $700,000 in respect of the fire; that a new factory had been built for $900,000, $150,000 of which was borrowed from friends interest-free, $150,000 of which was from retained profits of the business and $600,000 of which was by way of mortgage from a bank. This factory had since been sold for one million dollars.

8. Mr. K.H. Woo, for the second defendant, argued that the Guarantee signed by the second defendant guaranteed due performance of the Undertaking signed by the first defendant in favour of the bank and that it was for the plaintiff to show that the Guarantee was referable to the Undertaking. They had failed to show this since, on the evidence the Undertaking was not attached to the Guarantee at the time the second defendant signed the Guarantee. I find no substance in this argument. The issue is whether or not the second defendant knew what he was signing and it matters not whether or not he was shown the Undertaking signed by the first defendant.

9. The only defence of any substance is the plea of non est factum. The burden of proof in relation to that defence is a heavy one which lies upon the second defendant and the first requirement of that defence is that the second defendant should be believed. He is not. I find it incredible that the second defendant should believe that a man of the first defendant's apparent financial and social standing, who had recently spent large sums of money in the air-conditioning of two restaurants should need to be guaranteed in respect of a $8,000 hire-purchase air-conditioning transaction. The reason which the second defendant repeatedly gave in evidence for saying that he would not have guaranteed the first defendant's overdraft had he been asked so to do, was that he had not the financial ability to do so. His admitted resources belie that. He was content to sign the Guarantee in blank and I am fully satisfied that he knew the nature of the Guarantee but considered it impossible that a person of the first defendant's financial standing would ever be unable to repay his overdraft. The second defendant accepted what he thought was a non-existent risk, for the sake of friendship. His visits to Taiwan are not inconsistent with this view for he has good cause to seek out the first defendant in order to try to persuade him to repay the overdraft and so render the Guarantee superfluous to the plaintiffs' needs.

10. I would add that in my view even had I believed the second defendant's evidence, the defence of non est factum would not have availed him for, although he does not read English, there was a considerable degree of carelessness in signing this Guarantee in blank merely upon the first defendant's verbal explanation that it was a Guarantee relating to an $8,000 hire-purchase transaction. In the well-known case of Gallie v. Lee(1) Lord Reid(a) said:

"The matter generally arises where an innocent third party has relied on a signed document in ignorance of the circumstances in which it was signed, and where he will suffer loss if the maker of the document is allowed to have it declared a nullity. So there must be a heavy burden of proof on the person who seeks to invoke this remedy. He 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. I do not say that the remedy can never be available to a man of full capacity. But that could only be in very exceptional circumstances".

Lord Hodson(b) said:

"Want of care on the part of the person who signs a document which he afterwards seeks to disown is relevant. The burden of proving non est factum is on the party disowning his signature; this includes proof that he or she took care. There is no burden on the opposite party to prove want of care. The word 'negligence' in this connection does not involve the proposition that want of care is irrelevant unless there can be found a specific duty to the opposite party to take care".

Lord Wilberforce(c) said:

"In my opinion, the correct rule, and that which in fact prevailed until Bragg's case, is that, leaving aside negotiable instruments to which special rules may apply, a person who signs a document, and parts with it so that it may come into other hands, has a responsibility, that of the normal man of prudence, to take care what he signs, which, if neglected, prevents him from denying his liability under the document according to its tenor. I would add that the onus of proof in this matter rests upon him, i.e., to prove that he acted carefully, and not upon the third party to prove the contrary".

and later

"As to persons who are illiterate or blind, or lacking in understanding, the law is in a dilemma. On the one hand, the law is traditionally, and rightly, ready to relieve them against hardship and imposition. On the other hand, regard has to be paid to the position of innocent third parties who cannot be expected, and often would have no means, to know the condition or status of the signer. I do not think that a defined solution can be provided for all cases. The law ought, in my opinion, to give relief if satisfied that consent was truly lacking but will require of signers even in this class that they act responsibly and carefully according to their circumstances in putting their signature to legal documents".

Finally in the case of Muskham Finance Limited v. Howard(2) Donovan, L.J. said:

"The plea of non est factum is a plea which must necessarily be kept within narrow limits. Much confusion and uncertainty would result in the field of contract and elsewhere if a man were permitted to try to disown his signature simply by asserting that he did not understand that which he had signed".

11. There will be judgment for the plaintiff bank in the amount claimed with interest at the rate of 1.2% per month from the 10th day of December 1973 to the date of judgment and thereafter at the rate of 8% until the date of payment. Casts follow the event.

Representation:

R. Tang (Philip K.W. Wong & Co.) for Plaintiff.

K.H. Woo (Edmund Cheung & Co.) for second Defendant.

(1) 1971 A.C. 1004;

(a) @ 1016;

(b) @ 1019;

(c) @ 1027.

(2) (1963) 1 Q.B. 904, 912.