Hang Seng Bank Ltd v. Golden Tech (Asia) Ltd and Others

cacv 262/2004

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 262 of 2004

(on appeal from HCA NO. 193 of 2003)

_________________________

BETWEEN

_________________________

Before: Hon Rogers VP, Le Pichon and Yeung JJA in Court

Date of Hearing: 2 March 2005

Date of Judgment: 2 March 2005

Date of Handing Down Reasons for Judgment: 9 March 2005

_________________________

REASONS FOR JUDGMENT

_________________________

Hon Rogers VP:

1.This is an appeal from a judgment of Mr Justice Tang, as he then was, given on 6 August 2004.  The matter before the judge was an appeal from the master who had given the 3^rd defendant conditional leave to defend the claim brought by the plaintiff on a guarantee dated 5 March 2001.  The judge set aside the order of the master and ordered judgment in favour of the plaintiff for the full amount claimed in the statement of claim namely $1,348,685.66 (being the aggregated sum of $1,343,789.26 and $4,896.40).  At the conclusion of the hearing at this appeal, this court permitted the 3^rd defendant to adduce further evidence, allowed the appeal and gave the 3^rd defendant leave to defend the action.  The award of costs in the court below in favour of the plaintiff were left undisturbed save that they were made in any event and the costs in this court were made costs in the action. 

Background

2.On 5 March 2001, the 3^rd defendant was requested by officers of the bank to sign a guarantee in favour of the plaintiff securing the indebtedness of the 1^st defendant.  As explained in the affirmation of Mr Au Pak Tin of 29 August 2003, a Relationship Manager of Commercial Banking of the plaintiff, the 3^rd defendant was requested to give the personal guarantee as a director of the 1^st defendant.

3.All was, however, not well between the 3^rd defendant and the 1^st and 2^nd defendants, who was another director of the 1^stdefendant.  On 18 June 2001, the 3^rd defendant wrote to the plaintiff in the following terms:

“

By a recent company search with the Companies Registry, I found that since last annual return which recording information up to September 23, 2000, my name disappeared on the list of members of the company.  This record in the Companies Registry shows a completely different story from my understanding and knowledge that I was a shareholder of the company.  It was my best believe that I was a registered shareholder when I was requested to sign and signed by personal guarantee for Golden Tech (Asia) Limited.  For this situation, I hereby demand to withdraw my personal guarantee with immediately effect.  As it is my understanding that the company’s banking facilities with your bank was arranged by Ms Chan Siu King, please clarify with her for this matter.”

4.The dispute between the 3^rd defendant and the 1^st and 2^nd defendants escalated to the extent that the 3^rd defendant presented a winding up petition against the 1^st defendant on 10 July 2001.  This, no doubt, had certain consequences in respect of the 1^st defendant’s operation and by letter dated 18 September 2001 the plaintiff demanded payment under the guarantee from the 3^rd defendant for the balance up to 17 September 2001.

5.That request was not honoured and correspondence ensued between solicitors acting on behalf of the 3^rd defendant and the solicitors acting on behalf of the plaintiff.  Eventually on 16 January 2003 the writ in this action was issued claiming the indebtedness due from the 1^st defendant as at the close of business on 8 December 2002.  The amount claimed was the amount ordered to be paid in the judgment in the court below.

6.The application for summary judgment had a chequered history.  As the judge below said, many points had been relied upon on behalf of the 3^rd defendant.  Many of those were abandoned.  Three issues remained in the court below.  Only one issue remains now.  That issue relates to the question of whether it was open to the 3^rd defendant to terminate the guarantee by notice in circumstances where the termination was not a joint termination by both the 2^nd and the 3^rd defendants.

7.The clause relating to termination is clause 4 of the guarantee.  That reads as follows:

“	4.	Determination
		This guarantee shall be binding as a continuing security on me/us and on the estate(s), successor(s), assign(s), personal and/or legal representative(s) of me/us and each and every one of us until the expiration of three calendar months from the date of the actual receipt by you of such notice of determination to determine or discontinue this guarantee to be given by:-
		(a)	if there is only one undersigned, me or in the event of my death or becoming under disability, my personal or legal representative(s) (as the case may be); or
		(b)	if there are more than one undersigned, all of the undersigned jointly together or in the event of the death or becoming disability of one or more of us, the personal or legal representative(s) of each and every one of us so died or under disability (as the case may be) jointly together with all of us who survive or are not under disability, if any,
		Provided that such determination shall not release me/us from this guarantee in respect of any liability actual or contingent accrued or not yet accrued owing or incurred by the Principal to you as aforesaid during the currency of this guarantee but not maturing due or accrued till after the determination of this guarantee.”

8.The judge dealt with this point along with, of course, the other points taken on behalf of the 3^rd defendant.  In respect of this aspect he referred to the facility letter, which was also dated 5 March 2001, in which it was made clear that the facility for the 1^st defendant would only be made available on the basis that a deed of guarantee for $5 million would be executed by the 2^nd and 3^rd defendants.  The form of guarantee was attached to the facility letter.  It would seem that the argument on behalf of the 3^rd defendant before the judge was predicated on the fact that the 3^rd defendant’s case was that when she signed the guarantee it had not been signed by the 2^nd defendant.  The judge, however, held that the guarantee was a joint and several guarantee and since the 3^rd defendant had signed the facility letter he did not believe the 3^rd defendant could have believed that she was not required to give a joint and several guarantee.  Hence he came to the conclusion that the notice given by the 3^rd defendant only was not effective.

9.There does not seem to have been any argument in any of the hearings prior to this appeal as to whether one of the guarantors can give notice by themselves to terminate their liability under the guarantee.  Mr Chain, who appeared on behalf of the 3^rddefendant in this court, but not in the court below, has drawn attention to the case of Kalil v Standard Bank of South Africa Ltd. [1967] 4 S.A. 550.  In that case the question of whether one of several guarantors could give notice to terminate his or her liability was discussed.  In that case the wording of the relevant clause was slightly different from the wording of clause 4.  It read as follows:

“

… we agree and declare that this guarantee … shall remain in force as a continuing security… notwithstanding the death or legal disability of any of us, until the Henry Street Branch of the said Bank shall have received notice from us, or from our respective executors trustees or other legal representatives as the case may be, terminating the same and until the sum or sums due or accruing at the date of the receipt of such notice shall have been paid.  And it shall in like manner remain in force as a continuing security on the others or other of us notwithstanding it may on any ground in whole or in part have ceased to be binding on any one or more of us.”

The court considered that there could be three possible meanings of the relevant words.  At page 559 D-G Williamson JA said:

“	It seems to me that there are three possible meanings which can be attributed to the words in para. (c) of the guarantee that
	‘	it shall remain in force as a continuing security … until the said bank shall have received notice from us’.
	In the first place they could mean that both the guarantee as a whole, as well as the individual liability of any one surety thereunder, can only be terminated by notice if such notice is given by or on behalf of all the co-sureties liable.  This is the meaning attributed to the words on behalf of the Bank.
	Secondly, they could mean that not only can the whole guarantee be terminated by a notice given by all the co-sureties, but that also any one surety can terminate his individual liability for any future obligations by a notice given by himself; that is the argument on behalf of the appellant.
	Thirdly, they can be read as dealing solely with the question of the termination of the guarantee as a whole by a notice duly given by all the co-sureties and the right of any individual surety to terminate his own liability thereunder is in no way referred to or affected.”

10.The judge, with whom the 4 other members of the court concurred, came to the conclusion that the provision related only to termination by notice of the guarantee as a whole as a continuing security and that there was no express or implied stipulation removing the right of an individual surety to bring to an end, by notice duly given, his continuous liability for future obligations.  In considering the first alternative meaning the judge made these observations:

“

To give the words the first of the above meanings entails the bringing about, by a mere inference from words, of the unusual results which would flow, if countenanced by law, for instance on the death or insolvency of a co-surety; the executor or trustee would, assuming the enforceability of the stipulation, not be able to prevent a continuation and possible increase of the estate’s liability under the suretyship without the co-operation of the other co-sureties in the giving of a notice of termination; an individual surety, without such co-operation on the part of his co-signatories to the continuing guarantee, could never cease to be liable for any future relevant obligations of the principal debtor to the Bank, even though he had, for instance, ceased to be a member of, or had even been ejected from, a body such as a board of directors controlling the activities of the principal debtor.  I find no necessary implication which must be drawn from the actual words of the document that such results must be taken to have been contemplated and agreed upon by the parties.”

That case was also an appeal in respect of a summary judgment.  In allowing the appeal and dismissing the application the court considered the case of Egbert and Others v National Crown Bank [1918] AC 903.  It observed that the document under consideration in that case was very similar to the guarantee which it was then considering.  Nevertheless Williamson JA, said in respect of that decision:

“

We were referred to certain differences between the words of that document and the present document; but I do not deem it necessary to consider them. I find nothing in the extremely brief reasons of the Privy Council, for holding that such a clause takes away the right of an individual co-surety (in that case the executors of a deceased signatory) to terminate his liability by notice, which persuades me that my view of the effect to be given to the clause here under consideration should be other than what I have concluded it is.”

Williamson JA’s observations in relation to the Privy Council decision may well be justified.  Indeed it would seem from the report that the argument in the Privy Council was somewhat convoluted.  Be that as it may, it would seem that there is a dearth of authorities on this point.  It appears to me to be a point which is of some importance and although this court was urged by Mr Lam, who appeared on behalf of the plaintiff, that it was open to this court to decide difficult questions of law on an application for summary judgment, it seems to me that this is a point which should be decided after a full argument at trial.

11.The evidence which was sought to be admitted on behalf of the 3^rd defendant related to the date upon which it was said that the letter of 18 June 2001 was delivered to, or otherwise received by, the plaintiff and the date on which the plaintiff’s letter of 18 September 2001 was received by the 3^rd defendant.  The evidence is that the 18 June letter was most likely sent by fax and that instructions were given to an office assistant, to deliver the letter by hand.  That evidence is not altogether satisfactory but given the facts that there was no evidence from the plaintiff and, seemingly, there was a concession at one of the hearings in the court below that the plaintiff had received that letter on 18 June 2001, it would appear that, at least for the purposes of the summary judgment proceedings, the court should proceed on the basis that the letter was received by the plaintiff on 18 June 2001. 

12.As regards the letter of 18 September 2001 this has, clearly, all the hallmarks of a letter that was posted.  The 3^rd defendant’s evidence suggests that she may not have received the letter for a few days after 18 September.  There is, nevertheless, clause 16 of the guarantee which provides that a letter would be deemed to have been received on the day following the day of posting.  In those circumstances it would seem, on the face of the matter, that the letter of 18 September 2001 was received more than three months after the date upon which the bank received the 3^rd defendant’s notice of termination.  This, again, is a matter which calls for proper inquiry at the trial. 

13.In those circumstances, Mr Lam’s heavy reliance on the principles in Ladd v Marshall [1954] 1 WLR 1489 as constituting a bar to the admission of the further evidence, becomes irrelevant.  Although the rules relating to the admission of further evidence on appeal after what is technically regarded as a trial or hearing on merits have to be observed, that does not dictate that the court must shut its eyes to reality nor to previous admissions made by the opponents.

14.In those circumstances, in view of the new material placed before this court, this court allowed the appeal.

Hon Le Pichon JA:

15.I agree.

Hon Yeung JA:

16.I agree.

Mr Douglas Lam, instructed by Messrs Li, Kwok & Law, for the Plaintiff/Respondent

Mr Benjamin Chain, instructed by Messrs Keith Ho & Co.,  for the 3^rd Defendant/Appellant