Orix Asia Ltd v. Wong Chi Ming and Another

DCCJ 5049 / 2007

 IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5049 OF 2007

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BETWEEN

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JUDGMENT

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1.Mr Wong (4^th Defendant) and Mr Lee (5^th Defendant) both signed a guarantee dated 11 March 2005 in favour of Orix (the Plaintiff) to guarantee the liability of Manufacturing Modes International Ltd (1^st Defendant).  The guarantee was given in consideration of Orix entering into a lease agreement with Manufacturing for leasing to it four sets of machine, with an option to purchase them at the end of the lease period.

2.Orix now applies for summary judgment against Mr Wong and Mr Lee on the basis of the guarantee for the sums of $101,118.33 and $583,083.80.

3.Although formerly legally represented, Mr Wong and Mr Lee respectively filed a Notice of Intention to Act in Person on 7 April 2008, upon which they also provide their respective service address.   They however do not appear at today’s hearing.

4.Mr Kwan for Orix at the hearing undertakes to the Court that an affirmation of service would be filed within today to confirm that the skeleton with the lists of authorities, and the hearing bundle have been served on Mr Wong and Mr Lee respectively at the said service addresses.   In light of this undertaking and the fact that today’s hearing was fixed when Mr Wong and Mr Lee were still legally represented, I am satisfied that they should have been aware of the hearing via their former solicitors, and the service of the skeleton and hearing bundle.   They could appear today if they choose to do so.  In the circumstances, I am also satisfied that the hearing should continue in their absence.

Background

5.Between 2 May 2002 and 27 August 2006, Mr Wong and Mr Lee were directors (with others) of Manufacturing.  They have also until today been its shareholders.

6.By a facility letter dated 15 October 2004, Orix offered to Manufacturing credit facilities to finance Manufacturing to purchase, inter alia, the four sets of machine by entering into a separate lease agreement. 

7.It is provided in the facility letter that, one of the security documents required by Orix is a guarantee executed by, inter alia, Mr Wong and Mr Lee. 

8.Mr Wong and Mr Lee respectively signed this facility letter.

9.As mentioned above, on 11 March 2005, Mr Wong and Mr Lee executed the guarantee, guaranteeing Manufacturing’s liability to repay Orix under the lease agreement.

10.On 3 May 2005, Manufacturing signed the lease agreement with Orix for the leasing of the 4 machines.  The monthly rental was $98,685.00, for a period of 36 months.  The option price to purchase the machines at the end of the lease period was $500.00.

11.The machines have since been installed in Manufacturing’s factory located in Shenzhen. 

12.On 27 August 2006, Mr Wong and Mr Lee resigned as directors of Manufacturing.

13.In October 2007, Manufacturing defaulted in its payment of the rental under the lease agreement.

14.By its solicitors’ letter dated 22 October 2007 sent respectively to Manufacturing, Mr Wong and Mr Lee, Orix demanded them respectively to pay the total sum of $694,985.66 as loss and damage suffered by Orix as a result of Manufacturing’s breach of the lease agreement.  These demands were not met.

15.Orix brought its present claims against Manufacturing, Mr Wong and Mr Lee, and the other guarantors.  Orix has since obtained default judgment against all the other defendants under this action.

The present application

Applicable principles

16.The principles applicable to summary judgment application are well established.  It is for the defendant to show by credible evidence that it has a triable defence: in that there are triable issues raised by the defence.  Further, the defendant should condescend to particulars in his defence.  See:  Hong Kong Civil Procedure 2008, paras 14/4/1 – 14/4/4, 14/4/9.

Orix’s claim

17.Orix’s claim against Mr Wong and Mr Lee is straightforward and simple.  Its case is that, given Manufacturing’s default, Mr Wong and Mr Lee as guarantors are clearly liable for the loss and damage suffered by Orix as result of Manufacturing’s breach.  The loss is calculated as follows:

(1) As at 18 October 2007, $98,685.00 being the rental in arrears, together with interest in the sum of $2,433.33, calculated at the default interest rate of 3% (as provided in the lease agreement) on this sum.

(2) $583,083.80 as Orix’s loss of future rentals pursuant to Clause 20.3(c) of the lease agreement, after giving rebate of interest calculated according to the Rule of 78.

The defences

18.Mr Wong and Mr Lee have not disputed the above calculations. 

19.On the other hand, by way of their Defence and affirmations filed, the defences raised by Mr Wong and Mr Lee are the same, and can be summarized as follows:

(1) They resigned as directors from Manufacturing on 27 August 2007.

(2) The did not in fact support Manufacturing’s idea to lease purchase the 4 expensive machines, and had told the 2^nd and 3^rd Defendants (the other directors) that they would only agree to give a personal guarantee if Orix was to only first chase and enforce against Manufacturing for any outstanding liability, and would only enforce their personal guarantee for any remainder balance of such liability.

(3) On the date of execution of the personal guarantee, Mr Yim of Orix orally represented to them that in case of default by Manufacturing, Orix would only first chase and enforce against Manufacturing for any outstanding liability, and would only enforce their personal guarantee for the reminder of any liability.  It was only relying on this representation that they executed the guarantee.

(4) If the representation is false and incorrect, the guarantee should be set aside for misrepresentation.

(5) Alternatively, if the representation is true and correct, it became part of the term of the guarantee, and thus Orix could only now seek recovery from them for any remainder liability after taking enforcement against Manufacturing.  Since the present market value of the four sets of machine (which are still in Manufacturing’s possession) exceeds the claimed sums, they are not liable to Orix under the guarantee.

Discussion

They have resigned as directors since 27 August 2007

20.This defence is a non-starter.  The personal guarantee Mr Wong and Mr Lee have executed is a continuing one.  Therefore, unless it is terminated in accordance with terms of the guarantee (which it has not been), the fact that they have resigned as directors of Manufacturing since 27 August 2007 is neither here nor there.  The guarantee is still valid and binding on them.

21.There is no triable issue raised under this defence.

They did not support the leasing arrangement and their insistence with the 2^nd and 3^rdDefendant on giving a conditional guarantee

22.This is a defence without merit.  Whatever are the internal arrangements and discussions between Mr Wong and Mr Lee on one hand, and the other directors of Manufacturing on the other hand, they have  nothing to do with the validity and enforceability of the guarantee.  It does not in any way vitiate the guarantee’s validity and binding nature.

Mr Yim’s purported oral misrepresentation

23.The starting point is when a person signs a legal document, he or she is bound by the act of signing unless he or she can show some equitable wrongs to set it aside, such as misrepresentation or undue influence.  See:  Bank of China (Hong Kong) Ltd v. Fung Chin Kan [2003] 1 HKLRD 181 (CFA), per Litton NPJ at 197, para 5; Bank of China (Hong Kong) Ltd v. Wong King Sing [2002] 1 HKLRD 431, at paras 59-67 per Recorder Ma SC (as he then was).

24.Further, there is no effective misrepresentation in law if there is no reasonable reliance by the misrepresentee on the misrepresentation in entering into the subject matter contract:  Chitty on Contracts (29^th ed), para 6-010.

25.In the present case, I am of the view that the allegation of Mr Yim’s representation is either not worthy of belief or that it does not amount to any operative misrepresentation:

(1) It is provided expressly on the front page of the guarantee in English and Chinese that it is a legally binding document and Mr Wong and Mr Lee should sign it only if they agree to be legally bound by its terms.

(2) It is expressly provided in the front page and the execution page of the guarantee in English and Chinese that they should seek independent legal advice on its terms.

(3) Clause 3.4 of the guarantee written in both English and Chinese provides expressly and clearly that Orix can demand payment from Mr Wong and Mr Lee as guarantors without the need to first make demands or take enforcement actions against Manufacturing.

(4) At the front page and clause 4.1 of the guarantee, it is expressly stated in English and Chinese that Mr Wong and Mr Lee are liable “instead of, or as well as” Manufacturing under the lease agreement.  In other words, it is clear that they are liable as primary obligors.

(5) In light of all these clear and express terms set out in the guarantee, it is unbelievable that Mr Yim, as an officer of Orix would have made an oral representation which is entirely contradictory to and inconsistent with the express terms of the guarantee.

(6) For the same reasons, purely for the sake of argument, even if such a representation had been made, I am of view that it was unreasonable for Mr Wong and Mr Lee to have relied on it in entering into the guarantee.  There is thus no operative misrepresentation to vitiate the guarantee, as there is no reliance as required by the law.

26.For the above reasons, I am not satisfied that this ground amounts to any triable defence on the evidence or in law.

Mr Yim’s representation as a term of the guarantee

27.As I have already concluded that it is not worthy of belief that Mr Yim had made any such oral representation, this defence must also fail on this ground alone.

28.Further, under the parole evidence rule, generally no evidence should be admitted to introduce a term to an agreement which is inconsistent with or contradictory to its written express terms.  I see no exceptions recognized by law exist in the present case to dis-apply this rule:  Chitty on Contracts, paras 12-096 – 12-100.

29.In the premises, no triable defence is raised under this basis as well.

Market value of the 4 machines exceeds the outstanding liability

30.Given my above ruling and the aforesaid express terms of the guarantee, there is simply no duty on Orix to try to set-off any value of the machines against Manufacturing’s outstanding liability.

This defence must also fail.

Conclusion

31.For the above reasons, Mr Wong and Mr Lee have failed to show any triable defence to Orix’s claim.  Summary judgment should be granted.  I therefore make the following orders:

(1) There be judgment against Mr Wong and Mr Lee for the sums of $101,118.33 and $583,083.80.

(2) Mr Wong and Mr Lee are also liable to pay (a) interest on the sum of $98,685.00 at the rate of 3% per month from 19 October 2007 until judgment and thereafter at judgment rate until full payment, and (b) interest on the sum of $583,083.80 at 1% above the prime rate as from time to time quoted by the Hongkong and Shanghai Bank from the date of writ until judgment, and thereafter at judgment rate until full payment.

(3) Costs of this action and the application be to Orix on an indemnity basis to be taxed if not agreed.

Plaintiff, represented by Mr. P. KWAN of Messrs Deacons, present.

4^th & 5^th Defendant, in person, absent.