Bank of Credit and Commerce Hong Kong Ltd. (in Liquidation) v. Adrian Zecha

HCA011729/1993

1993 No. A11729

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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Coram : The Hon. Mr. Justice Keith in Chambers

Dates of Hearing : 29 April and 28 May 1998

Date of Delivery of Judgment : 28 May 1998

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J U D G M E N T

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Introduction

1. This is an appeal against the master's refusal to award the Plaintiff summary judgment under Ord. 14. The case is an unusual one. For that reason, the course which the proceedings have taken has to be considered in some detail.

The course of the proceedings

2. Tai Fung Hong Construction Materials Co. Ltd. ("the Company") was a customer of the Plaintiff ("the Bank"). In October 1984, a corporate guarantee in respect of the Company's liabilities and obligations to the Bank was given. This guarantee was replaced by one dated 12th March 1986 given by the Defendant amongst others. In this action, the Bank is suing the Defendant on that guarantee.

3. Although the Bank's solicitors sent the Defendant a letter before action in June 1991, the Bank did not commence these proceedings until December 1993. The sum claimed was in excess of $23m., $10.9m. odd being the sum owed by the Company to the Bank, and $12.1m. odd being the interest which had accrued on it.

4. Within a few weeks, the Defendant filed his Defence. The action then went to sleep. A notice of intention to proceed under Ord. 3 r. 6 was filed on 24th July 1996, but still no step was taken in the action until 16th January 1997 when the Bank filed its summons for summary judgment under Ord. 14. Directions were given on 24th February 1997 for the hearing of the summons. The Defendant had filed an affirmation in reply the previous week, and accordingly the directions given included a timetable for the filing of further evidence. Any further evidence to be filed by the Bank had to be filed within 21 days, and any further evidence to be filed by the Defendant had to be filed within 21 days after that. No further evidence could be filed except by consent or with the leave of the court.

5. Even though there had been considerable delay both before and after the issue of the writ, the Bank's solicitors did not file any further evidence within the time allowed, nor did they seek to fix the date for the hearing of the Ord. 14 summons. Instead, they waited until 9th September 1997 before they applied for an extension of time to file the Bank's evidence in reply. That evidence purported, amongst other things, to explain the delay. That application was refused on 14th October 1997, and an appeal from that refusal was dismissed on 29th October. As for the date for the hearing of the Ord. 14 summons, the Bank's solicitors did not seek to fix a date for the hearing until 22nd October 1997.

The master's reasoning

6. It was against that background that the Bank's summons for summary judgment came before the master on 22nd January 1998. The master did not deal with the merits because he took the view that the Bank's summons should be disposed of irrespective of the merits. In a careful and reasoned judgment, the master said:

"However, and I find this crucial to my decision, the Plaintiff's delay has not only deprived the Plaintiff itself of its right to adduce further evidence, but it has also similarly deprived the Defendant to the right to a further affidavit, to which the directions of 24th February 1997 entitled him. That the Defendant should be in anyway disadvantaged by the Plaintiff's enormous and unexplained failure to pursue this matter with all due haste should, in my opinion, deprive the Plaintiff of the right to judgment at the Ord. 14 level. The Defendant may have produced evidence on his affidavit, but he has been denied the opportunity."

In addition, the master was unhappy about the quantum of the Bank's claim. He said that the Bank's evidence was

"inadequate to satisfactorily account for the quantum of both the principal and the interest. It lacks reference to original documents as to quantification of the debt and as to the method used to calculate interest."

The upshot was that the master gave the Defendant unconditional leave to defend the action.

The Defendant's opportunity to file evidence

7. I cannot go along with the master's concern about the Defendant being denied the opportunity to file evidence. I say that for two reasons. First, the Defendant had filed his affirmation in reply in February 1997 in which he had had an opportunity to deal with the merits of the Bank's claim. He was given leave to file further evidence in response to such further evidence as the Bank chose to file. But since the Bank chose not to file any further evidence until much later, and since the Bank was not then permitted to file it, there was no further evidence for the Defendant to file because there was no further evidence for the Defendant to respond to. Secondly, even if the Defendant had been denied the opportunity to file further evidence, the course which the master ought to have taken was to adjourn the hearing of the summons at the Bank's expense in order to enable the Defendant to file such evidence as he wanted to.

Proof of quantum

8. I would have shared entirely the master's unease about the quantum of the Bank's claim on the evidence before him, but I do not think that that unease should have deprived the Plaintiff of such judgment as it would otherwise have been entitled to. If there was no defence to the Bank's claim, but there was concern as to whether the amount of the claim had been established, the right course would have been for the master to give judgment for the Plaintiff for an amount to be assessed.

The service of the Notice of Appeal

9. The Bank's time for filing any notice of appeal against the master's order expired on 31st January 1998. The Bank's Notice of Appeal was duly filed in time. By virtue of Ord. 58 r. 1(3), the Notice of Appeal had to be served on the Defendant's solicitors by 6th February 1998. In fact, it was not served until 16th February 1998. The Bank therefore sought leave to extend the time for its service.

10. The reason for the failure to serve the Notice of Appeal in time was because the Bank's solicitors had mistakenly relied on an outdated version of Ord. 58 r. 1(3), which required a notice of appeal to be served not less than 2 clear days before the date fixed for the hearing of the appeal. However, it was as long ago as 1991 that Ord. 58 r. 1(3) was changed to its current version, and there is no explanation as to how in February 1998 the Bank's solicitors were using a version of the Rules of the High Court which was so out of date.

11. Ms. Susan Kwan for the Defendant reminded me in her skeleton argument of the principles relating to applications for an extension of time referred to in Chiu Sin Chung v. Yu Yan Yan Angela [1993] 1 HKLR 225. However, those principles applied to applications to extend the time for filing a notice of appeal, not for serving a notice of appeal on the Respondent's solicitors. Accordingly, they have little application to the present case. It goes without saying that, although time requirements laid down by rules of court are not merely targets to be aimed at, but directions to be complied with, the overriding principle is that justice must be done. In Costellow v. Somerset County Council [1993] 1 WLR 256, it was said at p.264G-H:

"Save in special cases or exceptional circumstances, it can rarely be appropriate, on an overall assessment of what justice requires, to deny the plaintiff an extension ... because of a procedural default which, even if unjustifiable, has caused the defendant no prejudice for which he cannot be compensated by an award of costs."

Ms. Kwan accepted that the only consequence of the late serving of the Notice of Appeal was that the Defendant learned of the appeal 10 days later than he might otherwise have done. No prejudice was suffered by the Defendant as a result. There was, therefore, no proper basis for me to deny the Bank the extension of time which it seeks. At the earlier hearing of the summons, I extended the Bank's time for serving the Notice of Appeal to 16th February 1998.

The effect of the Bank's delay

12. The refusal of the Bank's application to file further evidence meant that the Bank's delay in issuing its Ord. 14 summons has not been explained. The effect of such delay was considered by the Court of Appeal in Morrison, Son & Jones (Hong Kong) Ltd. v. Yiu Wing Construction Co. Ltd. [1989] 1 HKLR 432 at pp.437J-438B as follows:

"Ord.14 provides a procedure for summary judgment where the court is satisfied that there is no defence to the claim. Although the rules clearly contemplate that ordinarily an application for summary judgment will be made before a defence has been filed, they impose no time limit and it is not for the court to take it upon itself to impose one indirectly as a matter of practice. There may also be circumstances where the delay is material to and adversely affects the substance and merits of the application. However each case must depend on its own facts and the court should approach each application on the footing that if the plaintiff has satisfied it that notwithstanding the delay there is no defence to his claim, he is entitled to summary judgment, albeit subject to questions of costs on account of delay, unless there are special circumstances which make summary judgment unjustifiable."

I note that, unlike the Plaintiff in the Morrison case, the Bank chose to ignore the allegations contained in the Defence, and merely relied on what is called "common form" evidence. However, that would not have been sufficient to deprive the Bank of summary judgment if the facts relied upon by the Defendant would not have amounted to a defence in law even if they had been established at trial.

The new evidence

13. When this appeal first came on for hearing, I was concerned about the state of the evidence. The Defendant had filed no evidence on the merits, and had been content simply to verify the facts pleaded in his Defence. That was an understandable stance for the Defendant to take in the light of the view which the master had taken of the case. However, I had provisionally formed the view that the master's approach was flawed, and I did not want the Defendant to find himself unexpectedly having to rely on the merits with hardly any evidence to speak of. I therefore gave the Defendant the opportunity to apply for an adjournment of the hearing to enable him to file evidence on the merits. He availed himself of that opportunity, and since the last hearing two affirmations have been filed on his behalf, one by him and another by his accountant. The Bank has responded by filing two affidavits in reply, and the Defendant responded to those affidavits by filing a further affirmation himself.

14. Unfortunately, one of the Bank's affidavits in reply, that of Sylvia Ng, was not filed by 4:30 p.m. on 25th May, which was the time and date by which the Bank's evidence in reply had to be filed. It was not filed until the following morning. Fortunately, the Defendant's solicitors had only slightly less time to consider its contents, because a draft of the affirmation (which was in identical terms to the affirmation as subsequently affirmed) was sent by fax to the Defendant's solicitors at 6:22 p.m. on 25th May. In those circumstances, there is no good reason for denying to the Bank an extension of time for filing and serving this affirmation, and I extend its time for doing so to 26th May. Since I want the Defendant to have every opportunity to assert whatever he wants to on this appeal, I also give him leave to rely on his latest affirmation.

The nature of the defence

15. A number of defences were set out in the Defendant's Defence, but the Defence has now been considerably overtaken by events. The only defence of substance on which reliance is now placed is the Defendant's claim that his agreement to execute the guarantee was subject to a number of conditions. The Defendant's primary case is that those conditions were agreed between him and the Bank. His secondary case is that even if they were not agreed, the Bank knew that he was only prepared to execute the guarantee on the basis of those conditions, and the Bank did nothing to suggest that it was unhappy with them. In view of the conclusion which I have reached on the Defendant's primary case, it is unnecessary for me to consider whether his secondary case amounts to a defence in law (which I doubt), but a common feature of both the Defendant's primary and secondary cases is that the Bank knew about the conditions to which the Defendant's execution of the guarantee was to be subject.

16. Three conditions are asserted by the Defendant:

(i) the guarantee was to be limited to the amount of the Company's liabilities to the Bank as at 12th March 1986;

(ii) the Bank would only seek to enforce the sums due under the guarantee once the Bank had exhausted all its remedies against the Company and against other securities held in respect of the Company's liabilities to the Bank, in particular, a guarantee for the Company's liabilities to the Bank dated 18th February 1981 given by Leung Kwok Kwong and his wife;

(iii) any sums paid by Mr. and Mrs. Leung to the Bank would be set off against their guarantee and not against other unrelated guarantees.

No particulars to speak of have been given as to the circumstances in which these conditions were agreed or known to the Bank. Although discovery has not taken place, the Bank claims that there are no documents whatever which support the Defendant's case. If the guarantee had been subject to such conditions, it is overwhelmingly likely that there would have been an internal record of them.

17. The Bank argues that the Defendant's evidence relating to these three conditions is inadmissible, since no evidence may be given to contradict or vary the clear terms of the guarantee. The evidence is therefore said to contravene the parol evidence rule. However, as Mr. Daniel Wan for the Bank fairly and realistically conceded, the parol evidence rule does not apply to collateral contracts, and the Defendant's primary case could, I think, be put on the basis that the consideration for the Defendant's agreement to sign the guarantee was a collateral agreement relating to the three conditions to which guarantee was to be subject.

18. There is a scintilla of support for the Defendant's assertion that the guarantee was to be limited in some way. The guarantee signed by the Defendant was on a standard form. It contained a paragraph which was to be deleted if the guarantee was unlimited. None of the copies of the guarantee had this paragraph deleted, and that supports the Defendant's case that the guarantee was limited in some way.

19. However, the probative value of that argument is very considerably diminished, if not completely neutralised, by the fact that the paragraph did not identify the amount to which the guarantee was to be limited. The Defendant's copy purports to show that the amount to which it was to be limited was $13.1m. But the Defendant's own case is that that was subsequently written on his copy of the guarantee by his accountant who, for reasons on which it is unnecessary to elaborate, assumed that that was the amount to which the guarantee was to be limited. The Bank's copy purports to show that the guarantee was indeed unlimited, because although the paragraph was not deleted, the words "all monies" had been typed into the space left for the amount to which the guarantee was to be limited.

20. The Defendant claims that the space was blank when he signed the guarantee because the precise amount of the Company's liabilities to the Bank could not be ascertained there and then. But even if the space had been left blank on all copies of the guarantee when the Defendant had signed it, the fact is that the amount to which the guarantee was to be limited was not specified in the guarantee. The upshot of all is this that the first of the three conditions to which the Defendant claims the guarantee was subject, like the other two conditions, is no more than a bare assertion of fact by the Defendant with nothing to support it. And if the guarantee was not subject to such a condition, the fact that the space for the insertion of the amount to which the guarantee was to be limited was left blank means that the guarantee should prima facie be construed as being unlimited: see Bank of America National Trust Savings Association v. Fountain [1990] 1 HKLR 115 at p.117B. The view expressed in that case was not disapproved of when the case went to appeal: [1990] 2 HKLR 158.

21. There are three other comments which I should make on the first of the three conditions to which the Defendant claims the guarantee was subject. First, the Defendant's assertion that the guarantee was to be limited to the amount of the Company's liabilities to the Bank as at 12th March 1986 was made for the first time in the affirmation filed last week. He did not deny that the guarantee was unlimited when the Bank wrote to him in May 1990 reminding him of that. He did not assert that the Bank's copy of the guarantee, which recorded him as guaranteeing "all moneys" owed by the Company to the Bank, was wrong when he received a copy of it. And although it was asserted in his Defence that the guarantee was limited, the nature of the limitation was not pleaded at all. The effect of what was pleaded was simply that the fact that the relevant paragraph in the guarantee had not been deleted meant that the guarantee must be treated as having been limited.

22. Secondly, the evidence suggests that the context in which the guarantee was signed was that banking facilities were to continue to be made available to the Company. In those circumstances, it would have been surprising if the guarantee had been limited to the Company's liabilities as at that date. On the other hand, there are a number of factors - of varying degrees of probative weight - which Ms. Kwan says show that it would have been commercially surprising for the Defendant to enter into an unlimited guarantee. I do not propose to lengthen this already lengthy judgment by setting them out: they are summarised in paras. 12(1)-12(4) of her helpful skeleton argument.

23. Thirdly, subject to the other two conditions to which the Defendant claims the guarantee was subject, the Defendant is, on his own case, liable to the Bank for a very substantial sum of money. The Defendant does not assert that the limit to which the guarantee was agreed to be subject related to interest as well. Indeed, if the amount of the guarantee had been limited and the relevant paragraph completed, the paragraph would have referred to the fact that interest was to be added to the amount to which the guarantee was to be limited. Accordingly, on the Defendant's own case, he is liable to the Bank (subject, as I say, to the other two conditions to which he claims the guarantee was subject) for the amount of the Company's liabilities as at 12th March 1986 plus interest which has accrued since then. The evidence before me suggests that that amount would have been very close to the amount claimed.

24. I turn briefly to conditions (ii) and (iii). Like condition (i), they are new allegations which have never been made before. As for condition (ii), it is contrary to the express terms of the guarantee (cl. 3) and to the express terms of another agreement also dated 12th March 1986 to which the Defendant was a party (cl. 3(b)). As for condition (iii), there is no obvious reason why the Bank would have discussed with the Defendant unrelated guarantees which were of no concern to him.

Conclusion

25. In these circumstances, I have very great doubts as to whether the assertions of fact which the Defendant makes would be believed at any trial of the action. But the question at this stage is whether his assertions of fact are believable, i.e. is it possible that they will be believed at trial? Although I think that the chances of that are very remote, I cannot say that there is no possibility that they will not be believed at trial. It follows that the Defendant must have leave to defend the action. But because his defence is so shadowy - in the sense that his chances of being believed at trial are so remote - this is classicly a case in which the Defendant should be required to pay the sum claimed into court.

26. The sum claimed in the Amended Statement of Claim is $23,071,306.31. The 3rd affirmation of Mr. Gabriel Tam explains how that sum was calculated. Since that affirmation was not before the master, leave to rely upon it on this appeal is said to be needed. On the assumption that such leave is needed, I give the Bank leave to rely upon it: the Defendant had the opportunity to deal with its contents, and elected to do so only to a modest extent. I have decided that the sum which the Defendant must pay into court as a condition of defending the action should be that sum, rounded down to the nearest $1m., making $23m. in all, even though a large amount of interest will have accrued on the capital element of that sum since then. To that extent, therefore, this appeal must be allowed. The order giving the Defendant unconditional leave to defend the action must be set aside, and substituted for it must be an order giving the Defendant leave to defend the action on condition that he pays the sum of $23m. into court.

27. Since the sum which the Defendant is required to pay into court is such a large one, and in view of the Bank's own delay in bringing and prosecuting these proceedings, I propose to give the Defendant longer than usual to pay this sum into court. The period will be 8 weeks from today. Accordingly, if the Defendant does not pay the sum of $23m. into court by 23rd July, judgment may be entered against the Defendant. However, the amount of that judgment will have to be assessed by a master on an enquiry akin to an assessment of damages.

28. Finally, I should add that there is no evidence before me that the Defendant will be unable to pay this sum into court by 23rd July. Indeed, the evidence is that a few years ago, his net worth was in the region of US$27m., even though he did not have immediate access to those funds. I am, of course, aware of what the House of Lords said in M. V. Yorke Motors v. Edwards [1982] 1 WLR 444 - namely, that conditional leave to defend should not be given if the condition cannot be complied with, because that would be tantamount to refusing leave to defend altogether. Thus, in case the Defendant wishes to allege that he will not be able to pay the sum of $23m. into court by 23rd July, I give the Defendant liberty to apply to vary the order I have made today. Such an application must be made by a summons to be filed and served within 14 days of today, and be supported by an affidavit or affirmation to be filed and served within 21 days of today. The summons can be heard by me one afternoon shortly thereafter, because although I start a long case on Monday, I am only sitting in the mornings.

29. I should add two things. First, the Bank plainly thinks that the Defendant is good for a large amount of money. If it were otherwise, it is unlikely that the Bank would be pursuing these proceedings against the Defendant. Secondly, if I am persuaded that the Defendant cannot pay the whole of the sum of $23m. into court, I shall require him, as a condition of defending the action, to pay into court such sum as I find he can afford. The Defendant would therefore be well advised to be as candid and comprehensive about his assets as is possible, as I shall treat any reticence about his assets as an indication that he has assets which he is not prepared to disclose.

Representation:

Mr. Daniel Wan, instructed by Messrs. Tang & So, for the Plaintiff.

Ms. Susan Kwan, instructed by Messrs. Wilkinson & Grist, for the Defendant.