Read the full judgment text of CACV 000108/1996 on BabelCite. This Court of Appeal judgment was delivered on 24 October 1996 before Bokhary JA, Godfrey JA, Seagroatt J.
Civil law – banking – guarantee and suretyship – summary judgment under Order 14 of the Rules of the Supreme Court – creditor's claim against principal debtor for HK$12,406,972 in unpaid banking facilities – whether principal debtor has any defence – whether creditor's conduct discharges the sureties under their guarantees – 'merely irregular' conduct on the part of the creditor – bad faith, concealment, connivance, and variation of contract as the recognised discharging circumstances. The principal debtor, Quadrutec Hotel Management & Development Ltd, was indebted to the plaintiff bank, Bank of Credit and Commerce Hong Kong Ltd (in liquidation), in a sum exceeding HK$12m. The bank financed a Causeway Bay property development through Birren Ltd and Golden Root Investment, in which the 2nd defendant Hsu held a 40% interest. On 3 November 1988 Hsu gave the bank irrevocable written instructions, on behalf of Black Pearls Ltd, to apply the proceeds of HK$119,252,000 received from Fourth Tudor Inc. by paying HK$14m into the principal debtor's account to extinguish its indebtedness; these instructions were confirmed by a director of Black Pearls. The 2nd defendant subsequently countermanded those instructions by his letter of 29 December 1988, with the result that the balance was credited in US dollars to Black Pearls' account with BCCI Manila, on which he was the sole signatory, and no sum was transferred to discharge the principal debtor's loan. The 2nd, 3rd and 4th defendants were sureties under guarantees dated 28 June 1988, with the 2nd defendant also giving a further deed dated 6 September 1988 undertaking to discharge the indebtedness. The court held that the principal debtor had no defence at law or on the facts, as the creditor owed no duty of care in the joint venture and the 2nd defendant had himself breached his own undertaking by countermanding the irrevocable instructions. On the sureties' position, the court applied the test stated by Goff LJ in Bank of India v. Patel [1983] 2 Lloyd's Rep. 298, holding that merely irregular conduct on the part of the creditor, even if prejudicial to the interests of the surety, does not discharge the surety, and that none of the recognised categories of discharging conduct (bad faith, concealment amounting to misrepresentation, connivance at the default of the principal debtor, or variation of the contract between creditor and principal debtor) was present. The court further held that Order 14 was appropriate, the primary facts being undisputed and there being no arguable defence, applying the test of whether the suggested defence contained at least the embryo of something going beyond merely irregular conduct. Bokhary JA, in agreeing, expressed some unease in respect of the 3rd and 4th defendants but did not feel driven to dissent, and declined to follow everything said in Black v. The Ottoman Bank (1862) 15 Moo. PCC 472. Appeal unanimously dismissed with costs in the plaintiff's favour.
Legal issues: Whether the principal debtor has a defence to the creditor's claim under Order 14 · Whether irregular or otherwise wrongful conduct by the creditor discharges the sureties · Whether Order 14 summary judgment was appropriate
Outcome: Appeal unanimously dismissed in its entirety; the Order 14 judgment of Sears J in favour of the plaintiff bank against the principal debtor and the sureties for HK$12,406,972 with interest and costs is upheld.
Cited by 1 case