Union Bank of Hong Kong Ltd v. United China International Ltd & Others
Read the full judgment text of HCMP 4040/1999 on BabelCite. This High Court CFI judgment was delivered on 27 May 2004.
1. By order of Master Wong made on 3 November 2000 HCMP4040/1999, HCMP5017/1999 and HCA12924/1997 were consolidated.
Cites 1 case
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HCMP004040/1999 HCMP4040/1999 and 5017/1999 and HCA12924/1997 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO.4040 OF 1999 ---------------------
---------------------- (Consolidated by Order of Master Wong dated Coram : Hon Tang J in Court Dates of Hearing : 3-6 May 2004 Date of Judgment : 27 May 2004 ------------------------- J U D G M E N T ------------------------- 1.By order of Master Wong made on 3 November 2000 HCMP4040/1999, HCMP5017/1999 and HCA12924/1997 were consolidated. 2.The Union Bank of Hong Kong Limited ("the Bank") is the plaintiff in the consolidated action. 3.United China International Limited ("the Company") is the 1st defendant. 4.Lo Shiu Mui ("Madam Lo") who is the registered owner of the property known as Flat H, 2/F Gallant Court, Nos.240-246 Prince Edward Road ("Gallant Court") is the 2nd defendant in the consolidated action. 5.Yeung Yi Ching Ada ("Ada Yeung") the 5th defendant who is the registered owner of Apartment A, 21/F, Regal Crest, No.9 Robinson Road ("Regal Crest") is the 5th defendant in the consolidated action. 6.Chen Bing Yan ("Mr Chen") the 3rd defendant and Wong Sui Fun Stella ("Stella Wong") the 4th defendant were directors of the Company at all material times. 7.Ada Yeung was a director of the Company until 10 April 1995. 8.On 1 August 1995, Tang Man Lung, the 6th defendant, became a director of the Company. 9.The Company was incorporated with a paid up capital of $100,000.00 on 14 December 1993. The 3rd and 4th defendants were its only shareholders and directors at the time. The 5th defendant Ada Yeung was appointed as a director on 29 December 1994. At the trial, one Tang Hoi Lam, Tony ("Tony Tang") was the principal witness on behalf of the Company. At all times material to these proceedings, Mr Tang was an undischarged bankrupt. He described himself in his witness statement as a consultant, but in evidence he called himself the agent of the Company. It seems that he ran and controlled the Company. Madam Lo is his wife. According to Madam Lo, Stella Wong and Ada Yeung had had extra-marital affairs with Tony Tang. Tang Man Lung is the son of Tony Tang. Mr Chen is a resident in the PRC and is the registered owner of 50% of the shares in the Company. Stella Wong is the registered owner of the other 50%. 10.By a facility letter dated 20 February 1995, the Bank offered to the Company, inter alia :
11.The terms and conditions of the facility letter were agreed to and accepted by Mr Chen signing on behalf of the Company. There is also a board resolution of the Company dated 15 February 1995 signed by Ada Yeung and Stella Wong confirming the above. 12.According to Tony Tang he was the person who negotiated the facilities with the Bank. However, it was his evidence that he did not know that personal guarantees were required. 13.The loan documentations were prepared on the bank's behalf by Messrs Yaddy Cheung & Co. Solicitors. Mr Yaddy Cheung gave evidence and said that he had known Tony Tang through his litigation clerk, Allan Yue Wai Ching, for a number of years and that his firm was instructed by the Bank on referral by Tony Tang. 14.At that time Gallant Court was already under mortgage to the Dao Heng Bank. The amount due upon redemption was $2,372,523.00 as at 21 February 1995. It seems that the instalment loan to be granted by the Bank was to replace the existing instalment loan in favour of the Dao Heng Bank. 15.On 23 February 1995, Mr Chen signed a written guarantee in favour of the bank for $3,200,000.00. 16.By a document dated 28 February 1995 the Company acting by Stella Wong and Ada Yeung executed an agreement of pledge in favour of the Bank. This was witnessed by Yaddy Cheung. 17.By a written guarantee dated 28 February 1995, Stella Wong and Ada Yeung guaranteed the liability of the Company up to $3,200,000.00 in favour of the Bank. This was also witnessed by Yaddy Cheung. 18.By a document of the same day, the 1st defendant again acting by Stella Wong and Ada Yeung executed a standing instruction to debit its account for repayment of principal and interest which was also witnessed by Yaddy Cheung. 19.By a first legal charge dated 1 March 1995, Madam Lo as mortgagor and the Company by Stella Wong and Ada Yeung as borrower executed a first legal charge in respect of her interest in Gallant Court in favour of the plaintiff for all monies that might be due and payable by her and the Company. This was also witnessed by Mr Yaddy Cheung. 20.The redemption of Gallant Court from the Dao Heng Bank Limited was duly effected and the property charged to the Bank. Guarantees 21.The banking facilities were reviewed and extended from time to time and I can go to the 5th loan agreement which is contained in the Bank facilities letter dated 1 April 1997. The additional security required by this facility letter dated 1 April 1997 is a joint and several guarantee to be given by Mr Chen, Stella Wong and Tang Man Lung for $4,000,000.00. This was required in addition to the joint and several guarantee already given by Stella Wong and Ada Yeung for $3,200,000.00 in 1995. That joint and several guarantee was duly signed by Mr Chen, Stella Wong and Tang Man Lung. However, their signatures were not witnessed although it appears from the copy of the guarantee produced by the Bank, the signatures had been verified by a bank officer. In any event, so far as Mr Chen and Tang Man Lung are concerned their signatures are not in dispute. On the evidence before me I have no doubt that this guarantee dated 10 April 1997 was signed by Mr Chen, Stella Wong and Tang Man Lung. 22.Now on the pleadings Mr Chen, Stella Wong, Ada Yeung and Tang Man Lung have alleged that they were not aware when they signed the respective guarantees that they were signing guarantees. It is said that they signed them on representation by Tony Tang that they were merely banking documents. 23.Miss Chiu who appears on behalf of the 1st, 2nd, 3rd, 5th and 6th defendants has informed me that Mr Chen, Ada Yeung and Tang Man Lung no longer deny liability under any of the guarantees. But it is said that their evidence on the circumstances under which the guarantees were signed are relevant to credibility in relation to other live issues in the proceeding. Stella Wong was unrepresented. She was absent from the trial. Of course, Miss Chiu's concession does not cover her. 24.I have to say at once that I do not accept Tony Tang's evidence that he did not know that the Bank required guarantees to be given. 25.Moreover, I do not accept the evidence of any of the defendants that when they signed the guarantees they were not aware that they were signing guarantees. At one time, it was suggested that that was so because they were only given the last page of the guarantees to sign. However, when the original guarantees were produced, it transpired that they are printed on four sides but on only one sheet of paper which is folded in the centre. Also, on the first sheet of the guarantee the three Chinese characters擔保書appear. Therefore, the person signing guarantee must have been given the entire document and not just the last printed side. 26.As I have said Stella Wong was unrepresented and absent. In her case too, I am satisfied that when she signed the guarantees she knew what she was signing. 27.By the time Tang Man Lung gave evidence before me he admitted when he signed he knew that he was signing a guarantee. This is, however, to be compared with what he said in the witness statement which he gave on 21 May 2003. He said :
28.So on credibility I have no difficulty in finding that the defendants knew that they were required to sign personal guarantees and they signed. 29.One of the issues which was raised was whether the 1995 documents were signed in the presence of Mr Yaddy Cheung. According to the Mr Chen, Madam Lo, Ada Yeung and Tony Tang they were not signed in the present of Yaddy Cheung. According to Tony Tang the documents might have been given to him by Allen Yue. However, it is clear from the evidence from Mr Yaddy Cheung, which I accept that on 1 October 1994 Allen Yue ceased to be a litigation clerk of its firm and that fact was notified by him to the Law Society on 23 January 1995. In any event, I have no difficulty in accepting the evidence of Mr Yaddy Cheung that those documents which appeared to be witnessed by him were indeed witnessed by him. China Elegance shares 30.The important issue at the trial related to certain share transactions in 1997. There is a confirmation of acceptance dated 22 September 1997, address to U.B. Securities Ltd by the Company and is signed by Tony Tang on behalf of the Company. The subject of the confirmation of acceptance was a placement of shares by a company called China Elegance International Fashion Limited of 36,000,000 new shares of $0.10 each at a price of $4.05 per share ("the placing share"). The document reads :
31.In relation to this the defendants have raised two defences. First, that the Company never applied for any placing shares at all. So the Company was never under any obligation to pay. Secondly, that even if the Company had applied for any placing shares the application was to U.B. Securities Ltd and not to the Bank. So any obligation to pay was owed to U.B. Securities Ltd. In this connection, it is necessary to consider whether the Company had opened a margin loan account with the Bank. Part of the Bank's claim related to the margin loan account. Probably as a result of the financial turbulence in end September/October 1997 the placing shares lost a great deal of value. Unless there was a margin loan account the Bank would not be able to recover the loss from the Company, the guarantors or the chargees of Gallant Court and Regal Crest. 32.The first issue is a question of fact and in relation to that Tony Tang was the defendants' principal witness. I can take his evidence at paragraphs 9, 10, 11, 12, 13 and 14 of his witness statement :
33.Now, Mr Cheung has left the employment of the Bank and can no longer be traced. Mr Lee is dead. But I do not believe Tony Tang. It is quite clear to me that the confirmation of acceptance quoted by me in paragraph 30 above was an unconditional application for up to 500,000 placing shares. I think it was incredible that any bank or any broker would have suggested or told Tony Tang or that Tony Tang would have believed if told that the application was not binding. 34.Tony Tang relies on the fact that the original of the application form was never returned to U.B. Securities. But there is no dispute that it was faxed to U.B. Securities, from a company called Fair Fund Industrial (Group) Limited, a company in which Tony Tang was an employed consultant. Securities margin account 35.On 9 October 1997, the shares applied for by the Company which as a result of a bonus issue became 1,500,000 shares were delivered to the Bank against payment of $2,045,513.25. 36.On 15 October 1997, the Bank transferred from the account of the Company the sum of $1,000,000.00 to "securities margin account". 37.It is the Company's case that there was never a securities margin account and therefore the Bank was not entitled to make the transfer. I turn now to consider a series of documents dated 4 September 1997. The first was a board meeting signed by Mr Chen as chairman of the meeting :
38.Also, a Cash Client's Agreement dated 4 September 1997 addressed to U.B. Securities Ltd was signed by Tony Tang on behalf of the Company. There was a Mandate for Limited Company Accounts dated 4 September 1997, signed by Mr Chen as chairman of the meeting and Tang Man Lung as director on behalf of the Company. The Mandate requested and authorised the bank "to open and/or continue account(s) in the name of the Company". The Mandate also informed the Bank that the authorised signatory was given Tony Tang. I note that the specimen signature given of the authorised signatory in the Mandate was the signature of Tony Tang. It was not a composite signature in that his signature was not accompanied by a company chop. Another document which was undated but signed by Tony Tang and witnessed by his secretary Cheung Tze Ling is the Agreement of Pledge, whereby in consideration of the Bank granting to the Company "such accommodation as from time to time the Bank in its discretion may think fit ... or incurring liabilities ...", the Company "hereby pledge to the Bank all goods, stocks, etc." 39.Also on 4 September 1997, the Company signed a guarantee in favour of the Bank for all monies. This was also witnessed by Ms Cheung Tze Ling. This was not relied on by the Bank since this is a guarantee by the Company of the Company's liabilities to the Bank and is unnecessary. 40.There was another document dated 4 September 1997 called "Account Opening Application & Information Statement-Corporate". This was also signed by Tony Tang, the authorised signatory given on this document is also Tony Tang. However, although this document was signed by Tony Tang, the Company chop did not accompany his signature. The document was later returned to the Company with a request that the Company chop should be added. According to the copy produced by the Bank, this was later returned to the Company on 17 October 1997. According to Tony Tang, it was returned earlier. It does not really matter when this was returned to the Company. The relevant question is whether the absence of a company chop made this application invalid. Tony Tang said he did not return the document after he had added the company chop because he had not agreed to apply for any placement of shares. 41.In my opinion, the signature on this application is valid notwithstanding the absence of a company chop. As I have said, in the Mandate, the specimen signature given of the authorised signatory was Tony Tang's signature. There was no requirement that his signature be accompanied by a company chop. 42.Moreover, having regard to the terms of the minutes and the other documents signed on 4 September, I have no doubt that the Bank was authorised to and did open a margin account in favour of the Company. 43.Miss Chiu referred me to an internal document of the Bank which is a printed form headed "margin loan application" in which the proposed lending/trade limit was given as $1.00. She submitted that this shows that no margin account was opened because no meaningful margin limited was given. I do not agree. The fact no meaningful margin limit was given does not mean that the margin loan account could not have been opened. Miss Chiu also relies on this to show that there could have been no application for the placing shares because in the absence of a meaningful margin limit, the Company was not in a position to pay. I do not think that followed either. Order 44.In HCMP4040/1999, on 27 September 1999, the bank recovered judgment against the Company and Madam Lo in the sum of $7,613,833.78 together with interest on different sums at different rates until judgment and then thereafter at judgment rate. So the quantum of the Bank's claim against the Company and Madam Lo is covered by the judgement against them on 27 September 1999. 45.Mr K.M. Chong who appeared for the plaintiff argued that in any event, the defendants were estopped by the judgment against the Company from contending that the plaintiff was not entitled to recover the sum of $7,613,833.78 and since that figure took into account the purchase of the placing shares, there is an issue estoppel in relation to the plaintiff's right to recover the same from the Company. 46.Miss Chiu has referred me to the judgment of Megaw LJ in Turner v. London Transport Executive [1977] ICR 952 at 960, where he said : "If in any particular case the application of issue estoppel would be contrary to justice or good sense, then the doctrine does not stand to such a case." 47.This is such a case. Although judgment was given against the Company and Madam Lo in HCMP4040/1999 on 27 September 1999, the Bank's claim against the other defendants were ordered to proceed. Furthermore, at that time, HCA12924/1997 was already afoot. In HCA12924/1997 the Company claimed against the Bank in respect of the debiting of its account in connection with the placing shares. As I have said at the beginning of this judgment, HCA192924/1997, HCMP4040/1999 and 5017/1999 were consolidated for trial. Issue estoppel had not been relied on prior to the hearing. In any event, I do not believe justice or good sense would permit reliance on it. I do not think it was intended or understood that the judgment against the Company and Madam Lo would preclude the litigation of the dispute relating to the placing shares or the margin loan account. 48.In relation to the 5th defendant Ada Yeung it is now necessary for me to mention the Regal Crest property. This was mortgaged by a legal charge dated 3 June 1996 by Ada Yeung in favour of the Bank. This was an all monies guarantee in favour of the Bank in respect of monies advanced to her by the Bank. The amount due and owing as at 10 July 1999 is $11,146,333.38. This is the subject of HCMP5017/1999. The other defendants are not concerned with this. 49.There is no separate defence for this claim. The only dispute is over quantum and that depended on the margin trading account and the application for the placing shares. The 5th defendant had not offered to pay on redemption the full amount due and owing on the Regal Crest property. There was never a clog on the equity of redemption. 50.So far as the 1st and 2nd defendants are concerned, judgment has already been given against them by Master B. Kwan. See paragraph 44 above. 51.Counsel have agreed the quantum regarding 3rd, 5th and 6th defendants. Judgment should be entered against the 3rd and 5th defendants jointly and severally in the sum of $7.2 million with interest from judgment to payment at the judgment rate. In relation to the 6th defendant judgment should be entered against him in the sum of $4 million with interest from judgment to payment at the judgment rate. 52.As for the 5th defendant, the agreed quantum is $7,673,506.96 as at 6 November 1999, and the agreed interest payable by the 5th defendant is :
53.I order accordingly. I also dismiss the 1st, 2nd and 5th defendants' counterclaim. 54.As for the 4th defendant, she is in the same position as the 3rd and 5th defendants. Therefore, there will be judgment against her in the sum of $7.2 million with interest from judgment to payment at the judgment rate. Costs 55.I made an order nisi for costs against the defendants in favour of the plaintiff of the action and an order against the 1st, 2nd and 5th defendants in relation to their counterclaim. Such costs to be taxed if not agreed.
Representation: Mr K.M. Chong, instructed by Messrs Edward C.T. Wong & Co., for the Plaintiff in HCMP4049/1999 and HCMP5017/1999 and Defendant in HCA12924/1997 Miss Elmis Chiu, instructed by Messrs Louis K.Y. Pau & Co., for the 1st to 3rd and 5th to 6th Defendants in HCMP4049/1999 and HCMP5017/1999 and Plaintiff in HCA12924/1997 4th Defendant in HCMP4049/1999 Wong Sui Fun Stella absent |
Cases cited in this judgment