Telings International Hong Kong Ltd v. John Ho and Others

CACV 10/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 10 OF 2010

(ON APPEAL FROM HCA NO. 2114 OF 2005)

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BETWEEN

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Before: Hon Le Pichon JA, Stone and Bharwaney JJ in Court

Date of Hearing: 25 February 2011

Date of Handing Down Judgment: 2 March 2011

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J U D G M E N T

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Hon Le Pichon JA:

1.This is an application by the plaintiff for leave to appeal to the Court of Final Appeal from a judgment of this court dated 22 October 2010 pursuant to section 22(1)(a) and/or the “or otherwise” limb of section 22(1)(b) of the Hong Kong Court of Final Appeal Ordinance, Cap. 484. There is also an application by the first and second defendants (collectively “the defendants”) for leave to appeal out of time. At the conclusion of the hearing judgment was reserved which we now give.

2.The background can be gleaned from the judgment of this court to which reference should be made.  This court allowed the defendants’ appeal and set aside the order of Chung J that the defendants pay the plaintiff the sum of $136 million plus interest but ordered a retrial before a different judge.

3.The defendants were parties to and guarantors under an agreement for the sale of the entire issued capital of Uniplan (“the agreement”) by the plaintiff as vendor to the third defendant (“the purchaser”).  A deposit was paid on the signing of the agreement.  The purchaser’s obligation was to pay the balance of the purchase price on 27 February 2006, with interest at 4% per annum on the balance until actual payment, the interest being payable half yearly in arrears.  The balance of the purchase price was immediately due and payable in the event of any default by the purchaser in the payment of interest.

4.The proceedings against the defendants were brought against them in their capacity as guarantors.

As of right

5.Mr Yin who appeared for the plaintiff submitted that the claim against the defendants as guarantors was a liquidated claim.  He relied on clause 8.02 which expressly provided that the guarantors would be jointly and severally liable was “as if they were the sole principal debtors” and not merely a surety and clause 8.05 which was a separate stipulation by the defendants that any sum payable by the purchaser on account of his obligations but which is not recoverable from the defendants on the basis of a guarantee shall be recoverable from them on demand as if they were the sole principal debtors.

6.The court was referred to a passage from Lord Reid’s speech in Moschi v Lep Air Services Ltd [1973] A.C. 331, 344-345 which drew a distinction between 2 types of guarantees:

“ With regard to making good to the creditor payments of instalments by the principal debtor there are at least two possible forms of agreement. A person might undertake no more than that if the principal debtor fails to pay any instalment he will pay it. That would be a conditional agreement. There would be no prestable obligation unless and until the debtor failed to pay. There would then on the debtor’s failure arise an obligation to pay…

On the other hand, the guarantor’s obligation might be of a different kind. He might undertake that the principal debtor will carry out his contract. Then if at any time and for any reason the principal debtor acts or fails to act as required by his contract, he not only breaks his own contract but he also puts the guarantor in breach of his contract of guarantee. Then the creditor can sue the guarantor, not for the unpaid instalment but for damages. His contract being that the principal debtor would carry out the principal contract, the damages payable by the guarantor must then be the loss suffered by the creditor due to the principal debtor having failed to do what the guarantor undertook that he would do.”

7.The distinction is important.  If the guarantee is of the first type - to pay if the principal fails to do so – the creditor’s cause of action is in debt.  If it is of the latter type – to guarantee performance of all the terms and provisions of the contract – the cause of action will generally be in damages for breach of contract.  Mr Yin submitted that the agreement is a guarantee of the first type and so the claim is a liquidated claim.

8.Clause 8.01 of the agreement reads:

“8.01 The Guarantors hereby jointly and severally and unconditionally and irrevocably guarantee to the Vendor the due and punctual performance and observance of and compliance with the Guaranteed Obligations by the Purchaser and in particular and without limitation, that, if for any reason the Purchaser did not pay any sum payable by it to the Vendor, by the time(s) and on the date(s) specified in this Agreement for payment, the Guarantors will immediately, on demand by the Vendor jointly and severally pay that sum to the Vendor.”

9.While the second half of that clause appears to be a guarantee of the first type, it is subsumed within the governing provision which is the first part of clause 8.01.  The first part is undoubtedly a guarantee of the second type which sounds in damages.

10.It has been suggested that where a guarantee combines both types an action for a liquidated sum may be appropriate.  However, the agreement is not a conventional agreement but tailor-made and involves an unusual transaction.  In my view, where there is doubt or uncertainty as to true nature of the claim, it would not be appropriate for this court to grant leave on the basis that the claim is within section 22(1)(a).

“Or otherwise” ground

11.At the hearing Mr Yin abandoned his application for leave on the basis that the appeal raises matters of great general or public importance.  Rather he applied for leave under the “or otherwise” ground.  I see no basis for departing from the usual practice of this court of refusing leave, it being generally a matter that should be decided by the Court of Final Appeal itself.

Extension of time

12.The defendants are 2 months out of time.  The reason for the delay appears to be a change of mind on the part of their legal advisors as to the advisability of an appeal.  That is not sufficient reason to warrant an extension of time.

13.As to the merits, it should be mentioned that the application for leave, were an extension to be granted, would be on the basis that a question of great general importance arises.  The question posed reads:

“Is an order for retrial appropriate, where it is apparent that the Plaintiff’s case as it had been deliberately run at first instance, was clearly insufficient in establishing a claim against the Defendant(s)?”

14.It is evident that no question of great general or public importance arises that deserves consideration by the Court of Final Appeal.  Dissatisfaction with this court’s exercise of its discretion is not a valid reason.  No question of principle or law is involved.

Order

15.I would refuse both the plaintiff’s application for leave and the defendants’ application for an extension of time.  I would also order nisi that there be no order as to costs.

Hon Stone J:

16.I agree with the judgment of Le Pichon JA.

Hon Bharwaney J:

17.I agree.

Hon Le Pichon JA:

18.Accordingly, there will be an order in terms of §15 above.

Mr Michael Yin, instructed by Messrs Yu Tsang & Loong, for the Plaintiff

Mr Clive Grossman SC, Ms Lisa Remedios and Mr Jose Remedios, instructed by Messrs John Ku & Co., for the 1^st and 2^nd Defendants