Shanghai Commercial Bank Ltd v. K-tech International Ltd and Another

HCA 484/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 484 OF 2006

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BETWEEN

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Before : Hon Fung J in Court

Date of Hearing : 22 February 2008

Date of Judgment : 22 February 2008

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J U D G M E N T

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1.The plaintiff is suing the 2^nd defendant on three personal guarantees for loans advanced to the 1^st defendant.

2.The 1^st defendant has been petitioned to be wound up, and the plaintiff is not pursuing against it in the present proceedings, but in the winding-up proceedings.

3.The 2^nd defendant is absent today as he was absent on the original trial day on 26 November 2007.  Waung J directed that the notice of hearing be re-served at his last known address and also be advertised in the newspaper.  Those were done for the hearing today, but he is still absent.  Hence, I will proceed to hear the case in his absence.

Background

4.The 1^st defendant is a trading company, and the 2^nd defendant is the director of the 1^st defendant.  The 2^nd defendant signed three personal guarantees in respect of the loans advanced to the 1^st defendant.

5.The 1^st guarantee was dated 6 November 2002 for trade bills credit up to $8 million.  The 2^nd and 3^rd guarantees were dated 24 September 2003 in respect of overdraft and revolving trade finance facilities up to HK$6.1 million and US$1 million respectively.

6.Apart from the guarantees, the first loan was also secured by fixed deposit of $1 million placed by the defendants with the plaintiff, and the 2^nd and 3^rd lots of facilities were also secured by investment funds purchased by the plaintiff on behalf of the defendants.

7.The plaintiff is suing for the outstanding principal of $1,837,451.28 as at 13 February 2006 with interest at the prime rate plus 4.5%.

The issues

8.The issues raised by the Defence are as follows:

(1)	The 2nd defendant did not understand the contents, meanings and legal consequences of the guarantees;
(2)	he had not obtained legal advice;
(3)	he was unwilling to sign the guarantees but was repeatedly requested by the plaintiff to sign a standard document of formality; and
(4)	it was unfair for the plaintiff to charge compound interest;

Discussion

9.As a general principle, when a person signs a legal document, he or she is bound by the act of signature, and it is no defence to say that he or she did not understand the document and the contents of the legal document.  He takes the chance of being bound by its terms, as he can take the simple precaution of deny signing it until the contents have been fully explained and understood (see Bank of China (Hong Kong) Limited v Fung Chin Kan & Another [2003] 1 HKLRD 181 at 197 para. 51 per Litton NPJ).

10.As a matter of fact, when the facilities were granted, the plaintiff did issue a Notice to Guarantor to the 2^nd defendant, stating the full extent of liability by the guarantor, as well as the need to seek the independent legal advice, if so wished.

11.Ms Cheung, Manager of the Mongkok branch of the plaintiff, who personally dealt with the 2^nd defendant in the making of the loans, denied that she had ever put undue pressure on the 2^nd defendant to sign the guarantees.  She said it was the practice of the bank to require personal guarantees by directors to be given for loans to a limited company, especially where the 1^st defendant is a $2 company in this case.  She said that if the guarantees were not signed and the additional security were not given, the plaintiff was simply not willing to lend to the 1^st defendant.

12.The modern law as to whether the bank has to advise the guarantor to seek independent legal advice, or whether the transaction between the bank and guarantor to be set aside is set out in the Royal Bank of Scotland v. Etridge (No. 2) [2001] 3 All ER 449, followed in Hong Kong in Bank of China (Hong Kong) Limited v Wong King Sing [2001] 1 HKC 83 per Recorder Ma SC (as Chief Judge then was).  The principle is whether the bank, by reason of knowledge of the relationship between the creditor and the surety, is put on enquiry of any undue influence put on the surety by creditor.

13.This is a simple case of a director giving personal guarantee to his company, and I can see no circumstances of the bank being put on enquiry whatsoever.  There is no substance in the allegation that the bank had not advised the guarantor to seek independent legal advice, whether factually or as a matter of law.

14.As to the charging of compound interest, the Notice to Guarantor did specify that the bank was entitled to charge compound interest in the event of default, but as a matter of fact, the interest now claimed by the bank is only calculated on the basis of simple interest.

Conclusion

15.In the premises, I enter judgment for the plaintiff in the sum of $1,932,497.31 being principal and interest up to the 13 February 2006, thereafter at the interest rates to be calculated at prime plus 4.5% on the principal sum of $1,837,451.28 until judgment, and thereafter at judgment rate until payment.

Costs

16.I award costs on a party and party basis to the plaintiff, to be taxed if not agreed.

Mr Timon K L Shum, instructed by Messrs Chow, Griffiths & Chan, for the Plaintiff

The 2^nd Defendant, absent