Kbc Bank N.V. v. Automotive Communications Ltd and Others
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HCA542/2005 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 542 OF 2005 ----------------------- BETWEEN
----------------------- Before : Deputy High Court Judge Mayo in Court Dates of Hearing : 4 to 8 July 2011 Date of Judgment : 28 July 2011 ----------------------- J U D G M E N T ----------------------- 1.The plaintiff is a Belgian bank having a branch bank in Shenzhen. 2.The present proceedings were commenced in 2005. 3.A default judgment was entered against the 1st defendant for money owed as a borrower from the plaintiff and as guarantor for East Sector International Ltd (“East Sector”) in the sum of US$1,983,675.80 on 14 September 2007. 4.A default judgment was also entered against the 2nd defendant in the sum of US$2 million on account of its failure to comply with court orders on 23 April 2010. 5.It is the plaintiff’s case that the 3rd defendant was at all material times a director of Internet Appliances Hong Kong Limited (“IAHK”) and the 2nd defendant and that he made a number of fraudulent misrepresentations which they acted upon to their detriment thus occasioning their loss. 6.IAHK was granted loan facilities on 20 June 2001. It was a condition for granting the facilities that a cross-guarantee to and from East Sector which was signed by IAHK on 21 June 2001 be obtained (“the IAHK Guarantee”). 7.The plaintiff contends that the 3rd defendant signed this guarantee for and on behalf of IAHK and that by so doing he represented that he was duly authorised to sign and execute the guarantee and accept the terms and conditions contained within it. 8.This has been referred to as “the 1st representation”. 9.As a consequence of this representation the plaintiff granted to East Sector banking facilities of US$2 million. East Sector is an associated company within IAHK. 10.The plaintiff also contends that the 3rd defendant signed a banking facilities letter dated 20 June 2001 and its amendment dated 26 June 2001 granting banking facilities to IAHK. By so doing the 3rd defendant represented to the plaintiff that he was authorised by the company to sign the letter and that company would comply with its terms. This has been referred to as “the 2nd representation”. 11.On account of this representation the plaintiff granted banking facilities of US$2 million to IAHK. 12.In July 2005 a decision was made to transfer the banking facilities enjoyed by IAHK to the 1st defendant. 13.The 1st defendant executed the guarantee to guarantee moneys owed by East Sector to the plaintiff (“the Automotive Guarantee”). 14.The plaintiff required the 2nd defendant to enter into a guarantee to guarantee the facilities granted to the 1st defendant. It is the plaintiff’s case that the 3rd defendant signed this guarantee and thereby represented to them that he was authorised to enter into the commitment and that the company would comply with the terms of the guarantee. This has been referred to as “the 3rd representation”. 15.In reliance of these representations the plaintiff granted a facility of US$2 million to the 1st defendant and cancelled the IAHK Guarantee. The Automotive Guarantee was then executed by the 1st defendant to guarantee payment of all moneys due from East Sector to the plaintiff. 16.By a facilities letter dated 22 July 2003 the plaintiff agreed to extend the facilities granted to the 1st defendant to 31 July 2004 provided the 2nd defendant entered into a Continuing Guarantee. This was signed by the 3rd defendant on behalf of the 2nd defendant and guaranteed the facilities of the 1st defendant up to US$2 million. 17.This Continuing Guarantee was provided to the plaintiff together with minutes of a board meeting of the 2nd defendant in which the 3rd defendant was authorised to execute the Continuing Guarantee. 18.Mr Zimmern, for the plaintiff, helpfully summarised the factual matrix in these terms :
19.The plaintiff contends that the 3rd defendant by signing the Minutes of the Continuing Guarantee on behalf of the 2nd defendant represented that he had authority to represent the 2nd defendant and sign the Continuing Guarantee and for the 2nd defendant to comply with its terms and he intended that they, the plaintiff, would continue granting facilities to the 1st defendant. This has been referred to as “the 4th representation”. 20.The plaintiff in reliance upon the representations made by the 3rd defendant advanced moneys to the 1st defendant and to East Sector. 21.As at 18 March 2005 the 1st defendant owed US$1,398,895.20 and East Sector US$1,983,675.80 plus interest accruing at prime rate plus 3%. None of these moneys have been recovered. 22.The 3rd defendant in his amended defence admits that he has been a Director of IAHK and the 2nd defendant at all material times. 23.However he claims that he had no knowledge of any banking relationship with the plaintiff and denies that he signed any of the documents which have been adduced as evidence by the plaintiff. 24.Indeed he goes on to assert that any documents which it is claimed that he has signed must be forgeries. 25.The main witness to give evidence for the plaintiff was Madam Jennifer Fang Xin (“Ms Fang”). 26.She was from November 1998 to February 2002 the Head of the Commercial Banking Division of the Shenzhen branch of the plaintiff. 27.In the course of her duties she came into contact with Mr Zhang Longjun (“Mr Zhang”) who was a Director of China Shenzhen Colour Television Corporation (“CSCTV”), a state owned enterprise. It was her understanding that state owned enterprises were not allowed to have dealings with foreign banks and that it was often their practice when they want to do business with foreign banks that they would do so through what was known as window companies. 28.These were companies often incorporated in Hong Kong which could thereby circumvent the prohibition referred to. 29.Mr Zhang informed her that CSCTV used the services of two window companies, East Sector and Internet Appliances Corporation Ltd (“IAC”) which subsequently changed its name to Internet Appliances Hong Kong Ltd. 30.Towards the end of 2000 or early 2001, Mr Zhang informed her that he wanted to become a customer of the bank. 31.Ms Fang undertook relevant inquiries and investigations and when she established that CSCTV had a satisfactory credit record she prepared a submission to Mr David Tang Yuk Wah (“Mr Tang”), the Branch Manager, for his consideration. 32.Mr Tang, who also gave evidence, approved the submission and arrangements were then made first for East Sector to open an account and then IAC. 33.The idea was that an ad hoc facility would be granted to IAC on condition that it would be secured by export credit insurance which would be assigned by IAC to the plaintiff. 34.On or around 10 January 2001 Mr Zhang attended at the bank. He was accompanied by the 3rd defendant. Mr Zhang introduced her to the 3rd defendant. The purpose of the visit was for an account to be opened for IAC with the bank. 35.Ms Fang requested the 3rd defendant to produce his identity card for the purpose of identification, and when he did so she took it and arranged for a photostat copy of it to be made. The chop of IAC was affixed to the copy, and this was exhibited as part of Ms Fang’s evidence. 36.It is pertinent to add that the identity card number is the same as the identity card number given on the Annual Return of the 2nd defendant which bears the 3rd defendant’s signature. 37.Mr Zhang and the 3rd defendant then signed :
38.All of the bank documents were signed in Ms Fang’s presence. 39.Ms Fang said that shortly after this she prepared credit proposals for both IAC and East Sector for the approval of the plaintiff’s local credit subcommittee. 40.While this was being done she was informed that IAC was going to change its name to Internet Application Hong Kong Ltd on 16 February 2001. 41.This change necessitated the amendment of the banking documents earlier referred to and other consequential requirements. 42.One of these was for there to be an assignment of receivables in respect of the proceeds of insurance from the Hong Kong Export Credit Insurance Corporation. 43.Both Mr Zhang and the 3rd defendant signed the deed which was dated 1 March 2001. 44.Some time in early March 2001, Mr Zhang and the 3rd defendant again attended at the bank. 45.The 3rd defendant was requested to provide a specimen signature in relation to IAHK. He did so in her presence. 46.This specimen signature card was dated 13 March 2001. 47.Although this date was recorded on the card she could not recollect that it was in fact on 13 March that the card was signed by the 3rd defendant. 48.In cross-examination by the 3rd defendant, she said that where the date of the document was not of critical importance it would often be the case that the date may be left in blank and members of the bank staff may at a later date complete it on some subsequent date. This would be done within a few days of the actual signing. 49.This was a matter of some importance in this case. 50.As will be apparent when commenting upon the 3rd defendant’s defence he attaches great weight to the fact that according to the transcript he obtained from the Director of Immigration it appeared that he was in Hong Kong on 13 March 2001. 51.Ms Fang supported her recollection by stating that this had been the second occasion she had witnessed the 3rd defendant signing documents. 52.The ad hoc facilities were set up in March 2001. Following this she had a number of communications with the 3rd defendant. None of these were face to face. 53.However, shortly after this, the 3rd defendant attended at the plaintiff’s Shenzhen bank to give a power point presentation. She was physically present at this. She remembered that the purpose of the demonstration was to inform the plaintiff of the type of business activities IAHK was engaged in. 54.At around this time she and Mr Tang attended at IAHK’s offices at Tsimshatsui or Jordon in Hong Kong. 55.They were accompanied by Mr Zhang and met the 3rd defendant there. They were shown around the offices. Her overall impression was that there were not many people working in the office. The explanation the 3rd defendant gave for this was that the business had only been operating for a relatively short period of time and it was anticipated that more staff would come on strength in due course. 56.On 25 April 2001 she received back from the 3rd defendant the mandate for corporate accounts and other documents required when opening an account which had been signed by the 3rd defendant on IAHK’s behalf. 57.On 8 June 2001 she finalised here credit proposals for IAHK and submitted them to the plaintiff’s credit department for approval. 58.On or around 14 June 2001 approval was forthcoming. 59.Thereafter Ms Fang prepared facility letters. IAHK’s facility letter was countersigned by the 3rd defendant. 60.One of the requirements of the facility letter was that there must be cross-guarantees between East Sector and IAHK. The 3rd defendant signed the cross-guarantee for IAHK. 61.This was provided together with a written board resolution of IAHK which was signed by the 3rd defendant amongst others. 62.Banking facilities were then made available to IAHK and they made good use of them up to the time of her departure on28 February 2002 from the plaintiff. 63.I formed a favourable view of Ms Fang as a witness. 64.Her evidence was coherent and made sense as a whole. I believe it to be truthful and honest. 65.Certainly she was not shaken in any way by the lengthy cross-examination conducted by the 3rd defendant. 66.What is very clear is that she had abundant opportunity to observe the 3rd defendant and that the possibility of her making a mistaken identification of the 3rd defendant is remote in the extreme. 67.Mr Tang gave evidence. He was the General Manager of the Shenzhen Branch of the plaintiff from 1998 to 2006. He engaged the services of Ms Fang in 1998 and she subsequently became Head of the Commercial Banking Division of the bank. 68.In late 2000, Ms Fang introduced him to Mr Zhang, a director of CSCTV. 69.Mr Tang’s evidence concerning the development of the relationship with Mr Zhang, CSCTV and the 3rd defendant is very similar. 70.In particular, he testified that he had met Mr Zhang and the 3rd defendant on a number of occasions at the plaintiff’s Shenzhen Branch. The 3rd defendant had been introduced to him as a director of IAHK. 71.While he had not himself been physically present at the meeting that had taken place on 10 January 2001, he was aware that the meeting had been arranged so as to enable the necessary documentation to be signed to enable IAC to become a customer and in due course to be granted banking facilities. 72.He received copies of the documents which had been signed by the 3rd defendant on IAC’s behalf. These were the mandate for corporate accounts, a general agreement for trade financing, an account rules-general and an authorisation and indemnity in respect of the use of facsimile signatories. 73.He was aware that IAC changed its name to IAHK on or about 13 March 2001 and that Mr Zhang and the 3rd defendant had signed the necessary documentation to take account of this. 74.Following this he had together with Ms Fang attended at IAHK’s office in Tsimshatsui. They had been shown around the offices and he also had been surprised by the comparatively small number of employees present. 75.Shortly after this Ms Fang submitted to him the credit proposals she had prepared for IAHK and he had approved him. 76.Subsequent to this banking facilities had been granted to IAHK. 77.In February 2003 Ms Fang left the bank’s employment and her position was taken by Dela On Yang (“Ms Yang”). 78.In or about May 2002 Ms Yang informed him that she had received a request from Mr Zhang to transfer the facilities provided to IAHK to the 1st defendant. 79.This was agreed and Ms Yang prepared the necessary documentation to implement it. 80.One of the requirements for this was that the 2nd defendant would provide a corporate guarantee to the plaintiff in respect of the facilities granted to the 1st defendant. 81.Ms Yang was in charge of these arrangements and required there to be an annual review of the outstanding facilities. 82.Such a review was undertaken in 2003 and relevant documentation was executed as required. 83.Towards the end of 2004 or the beginning of 2005, he had heard in the market that Mr Zhang had been arrested by the Chinese authorities. 84.As Mr Zhang was a pivotal figure in all these companies Mr Tang called in the facilities and loans which had been extended to the 1st defendant and East Sector. 85.He also wrote a letter to the 2nd defendant requiring it to comply with the terms of the said guarantee and he required the 2nd defendant to pay US$1,511,621.24 plus interest which was due from the 1st defendant. 86.The amount outstanding from the 1st defendant as at 18 March 2005 was US$1,398,895.24 and from East Sector US$1,983,675.80. 87.These moneys remain outstanding. 88.The 3rd defendant cross-examined Mr Tang at some length. He mainly dealt with the nature of his duties and the extent of the due diligence which had been undertaken by him. 89.What emerged from this was that a considerable measure of responsibility had been delegated to Ms Fang and Ms Yang and that they were the ones to prepare various proposals which were produced to him for approval. 90.Mr Tang agreed that he had from time to time communicated with Mr Zhang. One of his concerns had been to ensure that the plaintiff had a comfort letter from CSCTV and this had been obtained. 91.The 3rd defendant pressed Mr Tang on the dating of the specimen signature card and the fact that the information from the Immigration Department indicated that he had been in Hong Kong on 13 March 2001. 92.Mr Tang’s explanation was similar to Ms Fang’s. 93.He said that although he had not been physically present at the meeting on or about that time he emphasised that undue weight should not be attached to the date on the card as it was by no means unusual for such a document to be dated by a member of the bank’s staff after the conclusion of the signing thereof. 94.Mr Tang was also able to provide details of what had transpired after Ms Fang had left the bank’s employment. 95.Mr Tang was not shaken in any way in his cross-examination. His evidence in all respects complemented Ms Fang’s and there can be no doubt whatever that the 3rd defendant did assume a principle role in satisfying the plaintiff that the various facilities should be extended to various companies within the group of companies which have been referred to in this judgment. 96.In conclusion I was satisfied that Mr Tang was a truthful and reliable witness. 97.A short witness to give evidence for the plaintiff was Ms Lui Mi Ping (“Ms Lui”). She was able to give evidence concerning all the bank documents adduced as evidence and accordingly the requirements of the Evidence Ordinance, Cap. 8 were complied with. 98.The final witness to give evidence for the plaintiff was a handwriting expert Dr Daniel Wong (“Dr Wong”). 99.Dr Wong is a very experienced handwriting expert who has given evidence before these courts on numerous occasions. 100.In the witness box he expanded upon the evidence contained in his report and gave an explanation of the methodology he adopts enabling him to form an opinion whether a document is genuine or the work of someone other than the purported writer of a document. 101.What is of particular importance are what are described as being the control signatures from which comparisons are made. 102.Elsewhere I have given my reasons for accepting the evidence of Ms Fang and rejecting the evidence of the 3rd defendant on the issue as to whether he signed the documents on 10 January and on or about 13 March 2001. 103.The consequence of this finding is to eliminate conjecture as to whether the documents which were signed on those days were or were not signed by the 3rd defendant. 104.Further, these documents can be regarded as control documents with all the implications flowing from this. 105.This can also be taken further. During his cross-examination the 3rd defendant admitted that he had placed his signature on the affirmation made on 20 September 2005 which signature could also be analysed by Dr Wong as emanating from the 3rd defendant’s hand. 106.The method adopted by Dr Wong was to undertake an examination of all of these signatures and pay particular regard to the personal writing attributes, e.g. fluency of writing documents, relative alignment of strokes, proportion of strokes, stroke connections, angularity, start of a stroke, ending of a stroke and pen pressure. 107.It may be helpful to particularise the documents examined by Dr Wong :
108.The documents in Bundle 2, that is, nos 4 to 8, are the documents which I find were signed in Ms Fang’s presence. 109.Document DW-9 being the 1st document in Bundle 3 is the document the 3rd defendant admitted during his cross-examination he had signed. 110.Adopting the methodology he described and his overall analysis of all the documents Dr Wong expressed the opinion that it was highly probable that all of the signatures submitted to him had a common author. 111.He said that highly probable was the 2nd highest probability on a scale of 1 to 11. 112.One possible factor for it not being the highest possible probability was that the documents in Bundle 3 were photostat copies which meant that there could not be complete certainty. 113.There is one important matter which has to be considered in relation to this exercise. 114.Dr Wong pointed out that the signature he was considering was most unusual in that half the signature consists of an English component and half consists of a Chinese character. 115.Dr Wong expressed the opinion that such signatures are very rare. 116.In addition to this he expressed the view that particular difficulties would be encountered by person who attempted to copy the signature. 117.He said this at para. 28 of his results of his examination of all the signatures :
118.In his evidence in court Dr Wong went further. He said that for all practical purposes it would be impossible for anyone to fluently produce a signature linking the English and Chinese components of the signature. 119.This opinion is of relevance if one comes to consider the 3rd defendant’s conjecture that someone masquerading as him signed the documents in the presence of Ms Fang. 120.I found on considering Dr Wong’s report and his evidence before me that it is a virtual certainty that the 3rd defendant signed all 26 documents which were produced to him. 121.I propose to deal fairly shortly with the 3rd defendant’s evidence on account of the fact that this case will almost entirely be determined on the question as to whether he signed the various documents. 122.The basis of his defence is that he never did so and had no knowledge of the relationship between IAC, IAHK, the 1st defendant and the 2nd defendant on the one part and the plaintiff on the other. 123.There is also his contention that because the signature card was dated 13 March 2001 and the information obtained from the Director of Immigration indicated that he was in Hong Kong on that day it was impossible that Ms Fang could have been telling the truth. 124.We have her evidence in this connection. She did not claim that the documents were signed on that day. Her explanation which was supported by Mr Tang was that it was by no means certain that simply because the date is recorded as 13 March 2001 that it was necessarily signed on that day. It was often the case that bank staff would complete blank spaces on documents after a customer had left the bank, that is assuming that the date of the document is not of crucial importance. 125.In this connection it is clear from the Director of Immigration’s record that the 3rd defendant left Hong Kong on a number of occasions on dates in close proximity of 13 March 2001. 126.On considering the matter carefully I have come to the conclusion that the explanation offered by Ms Fang is credible and that the 3rd defendant did indeed sign the documents as claimed by Ms Fang. 127.There are other matters that have to be weighed in the balance. The 3rd defendant’s evidence in relation to his identity card was unconvincing. 128.In cross-examination Mr Zimmern pressed him on why he had given his Hong Kong identity card to Ms Fang at the meeting on 10 January 2001. All he was able to come up with was that it was “simply for convenience”. 129.I do not believe that he would just hand his identity card to Ms Fang if he was not attempting to open an account for either IAC or IAHK. In this connection the chop of IAC was affixed to the photostat copy of the identity card. 130.On the evidence it was not until mid‑February 2001 that IAC’s name was changed to IAHK. This cast some doubt on the 3rd defendant’s evidence that it was not until early March that he ever attended at the bank’s premises. 131.Another highly unsatisfactory aspect of the 3rd defendant’s evidence was his assertion that all of the signatures on the documents were forgeries. 132.He did not base his surmise or conjecture on any proven facts. This being the case no weight whatever can be attached to it. 133.In weighing the evidence of the 3rd defendant against the evidence of Ms Fang and Mr Tang, I have no hesitation in rejecting the 3rd defendant’s evidence. I find as a fact that all of the signatures produced to Dr Wong were the genuine signatures of the 3rd defendant and that the signatures which Ms Fang said were signed before her were indeed so signed. 134.In coming to this conclusion I have borne in mind the fact that the 3rd defendant has not adduced any expert evidence of handwriting. 135.Mr Zimmern informed me that the 3rd defendant had approached three different handwriting experts. 136.The first prepared a draft report but this was never adduced as evidence notwithstanding the fact that the 3rd defendant was himself alleging forgery. 137.It is not known what happened in respect of the 2nd expert. 138.The 3rd expert examined the original documents at the plaintiff’s solicitors’ office but no report was ever produced to the plaintiff. It should be added that legal aid was withdrawn shortly after this. 139.However, the fact remains that no expert report was produced which might cast any doubt upon Dr Wong’s expert evidence. 140.As indicated in the early part of this judgment the plaintiff’s claim against the 3rd defendant is for fraudulent misrepresentation. 141.The four misrepresentations claimed have been outlined earlier in this judgment. 142.It is now necessary to consider the law to ascertain whether the plaintiff’s claim can succeed. 143.The law on the Tort of Fraudulent Misrepresentation is conveniently set out in Chapter 18 of the 20th Edition of Clerk & Lindsell on Torts, Sweet & Maxwell. 144.The definition is contained in 18-01 :
145.Having regard to the circumstances of this case the commentary at para. 18-08 is helpful :
146.In the present case it is not so much what the 3rd defendant said as what he did. By signing the various documents he was clearly representing that he was authorised to do so and that the terms and conditions contained in the documents would be complied with. 147.The 1st representation was the signing of the IAHK Guarantee. The consequence of this representation was that the plaintiff granted banking facilities to East Sector its associated company. 148.The 2nd representation made by the 3rd defendant was the signing of a banking facilities letter dated 20 June 2001 and its amendment dated 26 June 2001. By signing it he represented that he was authorised to do so and that the company would comply with the terms and conditions contained in the documents. The plaintiff granted facilities to IAHK to its detriment and loss. 149.The 3rd representation made by the 3rd defendant was the signing of the IA Guarantee dated 25 June 2002 when the decision was made to transfer the facilities extended to IAHK to the 1st defendant. Similar consequences flowed from this as from the first two representations. 150.The 3rd defendant’s 4th representation was the signing of the minutes of a board meeting of 29 June 2003 where he represented that he had authority to sign the minutes and that the minutes authorised the 2nd defendant to enter into the Continuing Guarantee dated 29 July 2003 which guaranteed the facilities granted to the 1st defendant. It was as a result of this that the facilities were extended by the plaintiff to the 1st defendant. 151.The final matter that has to be considered is the state of mind of the 3rd defendant and whether these representations can accurately be characterised as fraudulent misrepresentations 152.The classic definition of what constitutes fraud in this context is contained in the passage at 339 of Derry v Peek (1889) 14 App. Cas 337 :
153.If this test is adopted it is clear that the representations were fraudulent. 154.For the reasons given in this judgment I find that the plaintiff has proved its case against the 3rd defendant and judgment must be entered for it in the sums claimed, namely :
Mr Richard Zimmern, instructed by Messrs Stephen Mok & Co., for the Plaintiff 3rd Defendant in person, present | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||