Case Detail

HCA 2145/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2145 OF 2011

_____________

BETWEEN
	CITIBANK N.A.	Plaintiff
and
	DAYARAM NANIK	1st Defendant
	DAYS IMPEX LIMITED	2nd Defendant
_____________

Before : Deputy High Court Judge Le Pichon in Chambers

Date of Hearing : 20 May 2013

Date of Decision : 3 June 2013

_____________

D E C I S I O N

_____________

1. This was an appeal from the decision of Master de Sousa dismissing the plaintiff’s summons summary judgment and granting the defendants unconditional leave to defend. The defendants are respectively the personal and corporate guarantors of unpaid debts under 3 guarantees of Days Impex Ltd (“the Borrower”), a company incorporated in Hong Kong. At the conclusion of the hearing, judgment was reserved which I now give.

Background facts

2. Nanik Dayaram (“the first defendant”) is the majority shareholder and director of the Borrower. The second defendant (having the same name as the Borrower) is a Liberian company owned by the first defendant.

3. The Borrower was wound up in December 2011. The outstanding indebtedness is said to be HK$36,523,487.88 plus interest.

CHRONOLOGY OF EVENTS

The 2001 facility letter

4. On 30 July 2001, the plaintiff (“Citibank”) issued a Demand Credit Facility (“the 2001 facility letter”) to the Borrower for “[u]ncommitted, revolving short-term credit facilities up to an average limit of HK$12,195,000” with specified sub-limits. The 2001 facility letter contained conditions precedent including a board resolution of the Borrower approving the facility with the lender and the execution of the relevant documents as well as resolutions of the board of directors and/or shareholders of the guarantors approving and authorising issuance of the guarantees. The security to be provided included a personal guarantee from the first defendant “guaranteeing the repayment of all outstanding indebtedness plus interest, costs and expenses” and a continuing guarantee from the second defendant “guaranteeing the repayment of all indebtedness plus interest, costs and expenses” (collectively “the Citibank guarantees”).

5. The 2001 facility letter contained the following provision (“the additional facilities provision”) printed inbold:

“The Borrower and the security provider(s), if any, hereby confirm that the Borrower may from time to time request that Lender to extend additional facilities which, in aggregate with the Facility, may exceed the Facility Amount specified in this Facility Letter. If the Lender accedes to such request by acting in accordance with the instructions from any authorized signatory of the Borrower, any transaction conducted in such manner shall bind the Borrower and the security provider(s) without the requirement of making any amendment to this Facility Letter.
… Please indicate your acceptance of the Facility by signing and returning to us the enclosed duplicate of this Facility Letter within one month after the date of this Facility Better, after which the offer will elapse (sic).”

Documents executed on 30 August 2001

(i) GCA

6. On 30 August 2001, the Borrower signed a General Customer Agreement (“GCA”) with Citibank.

(ii) The 2001 facility letter

7. The 2001 facility letter was executed by the Borrower and endorsed by the defendants.

(iii) Board minutes of the second defendant

8. On the same day, a copy of the 2001 facility letter and the Citibank guarantee were tabled at the board meeting of the second defendant held that day. The first defendant who was the chairman noted that the second defendant and the Borrower were in the same group of companies and that the second defendant was a “holding” company of the Borrower. The board minutes show that it was resolved that the board give its approval to the second defendant entering into the Citibank guarantee.

(iv) Notice to [the first defendant] as guarantor/security provider for the borrower (“the notice”)

9. This notice was sent to the first defendant pursuant to the Code of Banking Practice together with a copy of the guarantee. It was acknowledged in writing by the first defendant. This notice largely focused on liabilities under the 2001 facility letter. However, it was made clear that the guarantee was unlimited amount and, importantly, that “such liabilities will consist of, but are not limited to, amounts outstanding under the facilities granted to the Borrower …” (emphasis added)

(v) The Citibank guarantees

10. Each of the defendants executed the required security document viz. the Citibank guarantee on 30 August 2001. In pertinent part, each of the Citibank guarantees provides:

“1. (a) In consideration of your at my/our request:-
(i) from time to time granting, making and/or continuing any loan(s) or advance(s) and/or any form of financial facility and/or entering into and/or continuing to make available any credit arrangement on any account or in any other manner, either with or without security … upon which the Borrower (as hereinafter defined) is or may become liable … and/or making and/or continuing to make any advance to or with [the Borrower] (hereinafter called ‘the Borrower’) or to or with any other person at the request or on the guarantee or indemnity of the Borrower …; and/or
(ii) agreeing not to demand immediate payment of monies or any part thereof presently due to you either Borrower or by any other person at the request or on the guarantee or indemnity of the Borrower;
(all the loans, and advances, facilities, accommodations, arrangements and transactions referred to in subclause (i) and (ii) above being hereinafter referred to as ‘the Obligations’) the undersigned hereby agrees to pay and satisfy you on demand all sums of money and/or liabilities which are now or shall at any time be owing to you anywhere on account of the Obligations (hereinafter referred to as ‘the loans’) and all fees charges and commissions or other charges (hereinafter referred to as (‘the said charges’) which may be payable under any agreement or document entered into in relation to the Obligations (hereinafter referred to as ‘the loan documents’) (the loan and the said charges are hereinafter collectively referred to as ‘the principal sum’) … PROVIDED ALWAYS that the liability of the undersigned hereunder shall with respect to the loan not exceed THE SUM OF ____________ UNLIMITED AMOUNT]…
2. This guarantee shall be a continuing security and shall not be satisfied by any intermediate payment that shall be applied to any ultimate balance which by the covenants and terms of the security documents shall remain going or payable by the Borrower or any party to the loan documents to you.
3. This guarantee shall be binding on the undersigned his executors administrators and legal representatives and successors until the expiration of three calendar months after your receipt of a written notice to determine this guarantee served by the undersigned …”

Revisions and amendments to the 2001 facility letter

11. On 14 December 2001, Citibank sent to the Borrower a letter entitled “Re: Demand Credit Facility (the “Facility”) - Supplemental Facility Letter”. It set out the terms of the revised DCF. The letter stated:

“We refer to our Facility Letter to you dated July 30, 2001 (as amended from time to time, the ‘Facility Letter’) …
…
All other the terms and conditions stipulated in the Facility Letter remain unchanged and this Supplemental Facility Letter once accepted shall form an integral part of the Facility Letter.
… Please indicate your acceptance of the Facility by signing and returning to us the enclosed duplicate of this Supplemental Facility Letter.”

12. The Supplemental Facility Letter was duly endorsed by the defendants but it is clear from the opening paragraph that thereafter the 2001 facility letter took effect as if it had incorporated the changes/revisions made by that letter.

13. On 5 August 2003, Citibank sent the Borrower a further letter regarding the DCF. The only differences I can discern are that under the heading “Security”, relating to the continuing guarantee, the phrase (“already held by the Lender”) was inserted and after a provision similar to that appearing in bold and underscored in the preceding paragraph, there was another sentence added:

“When accepted and upon our satisfaction of all conditions precedent, this Facility Letter will supersede our previous facility letters and arrangements with you and the outstanding thereunder shall be transferred as outstanding hereunder.”

14. At the foot of the letter following the signature of the Borrower, each of the defendants put his/its signature to the document stating:

“I hereby acknowledge the terms and conditions of the Facility Letter and confirm that the duly executed Security Documents will automatically without the need for any further action secure any additional facilities that the Lender may at its discretion grant to the Borrower in the future.
I am fully aware that my obligations and liabilities under the Guarantee dated August 30, 2001 are unlimited in amount.”

15. Further letters were issued from time to time following the format in the letter of 5 August 2003.

16. The Borrower requested increases in the DCF limit from time to time to which requests Citibank acceded. On 11 June 2009, the DCF limit was further revised to HK$27 million plus US$1,280,000.

The 1^st facility letter

17. On 23 June 2010, the Borrower applied for a new facility of HK$12 million from Citibank under the Government’s Special Loan Guarantee Scheme (“the SLGS loan”). This was a non-revolving loan. The SLGS loan was subject to terms and conditions stipulated by the Government. The SLGS loan required the provision by the Borrower of an HKSARG Guarantee (“the SLGS guarantee”) in the prescribed form. The required SLGS guarantee was provided by the first defendant but it is clear from the wording of the 1^st facility letter that the SLGS guarantee was additional to the Citibank guarantees.

The 2^nd facility letter

18. On the same day, Citibank granted the Borrower’s application to revise the DCF to HK$27 million plus US$2.5 million. The revised terms are set out in the revised facility letter dated 23 June 2010 (“the 2^nd facility letter”) which was in the same format as that dated 5 August 2003.

The 3^rd facility letter

19. On 4 August 2011, the Borrower requested a further revision of the DCF. It was increased to HK$35 million (“the 3^rd facility letter”).

20. The SLGS loan was fully drawn down on 30 June 2010. As regards the DCF, the amounts drawn down were US$3,652,400 and US$515,291.

21. After the Borrower’s default, demand letters were issued to the Borrower and the defendants on 17 October 2011. No repayment was made by the defendants and these proceedings were commenced against them on 16 December 2011. Citibank applied for summary judgment on 25 May 2012. At the hearing before the master, the defendants advanced a new and underused argument on the construction of the Citibank guarantees.

22. The master granted unconditional leave to defend, culminating in the present appeal.

IS THERE A TRIABLE ISSUE?

23. Mr Alder who appeared for the defendants sought to resist summary judgment on the basis that there are triable issues both as to liability as well as quantum. These will be considered in turn.

(1) Liability

24. The question that arises is the scope of the Citibank guarantees, namely, whether on their true construction, they extend to the amounts advanced to the Borrower under the 2001 facility letter as well as subsequent facility letters including the 1^st, 2^nd and 3^rd facility letters issued almost a decade later.

25. It is trite law that in construing the scope of a guarantee, the factual matrix is relevant and may be taken into account in ascertaining the meaning of the words used in the guarantee. In the present case, the only affirmation filed on behalf of the defendants does not deal with the factual matrix and the only available evidence is to be found in the documents themselves which the parties signed.

26. Mr Alder, counsel for the defendants, submitted that the Citibank guarantees only applied to facilities made available under the 2001 facility letter and do not extend to facilities afforded by Citibank to the Borrower under subsequent contractual arrangements that entirely superseded the arrangements under the 2001 facility letter such as the amendment/revision made by the letter of 5 August 2003 and subsequent letters. He invited attention to the notice and the board resolution of the second defendant and submitted that, fairly read, it was at least arguable that the Citibank guarantees were brought into being for the purpose of the 2001 facility letter and nothing else. As regards the additional facilities provision in the 2001 facility letter, he submitted that this provision was meant to address advances needed as a matter of emergency and to oral variations of the 2001 facility letter only.

27. There is no evidence that prior to 2001 there had been any dealings between the parties. So, in considering the scope of the Citibank guarantees, the transaction entered into in 2001 has to be regarded as the beginning of a new and continuing relationship. Although Mr Alder submitted that future transactions could be explained by the fact that the facility under the 2001 facility letter was for uncommitted revolving facilities, it is an undeniable fact that the 2001 facility letter contemplated future transactions beyond the limit of HK $12.195 million. That was made absolutely clear by the additional facilities provision (see § 5 above).

28. Further, despite Mr Alder’s submission that the “additional facilities … that may exceed the Facility Amount” only contemplated funds needed in an emergency and to oral variations of the facility amount, he did not identify the basis for making those inferences and none can be ascertained from the contemporaneous documents themselves.

29. As already noted, the 2001 facility letter contained conditions precedent including the need for a personal and a corporate guarantee. Board approval and resolutions were required from the Borrower in respect of the facility and from the second defendant for the issuance of the corporate guarantee. A copy of the Citibank guarantees must have been made available to each of the defendants and the notice given to the first defendant at about the same time.

30. The Citibank guarantee was intituled “Continuing Guarantee” and expressed to be such in clause 2 of the Citibank guarantee. It contemplated the making of “loans, advances, facilities, accommodations, arrangements and transaction” by the bank from time to time collectively referred to as “the Obligations” and it was in respect of those “Obligations” that the Citibank guarantee (which was unlimited amount) was being provided. While the notice might suggest that the Citibank guarantee was tied to the 2001 facility letter, upon careful reading, in fact, that was not the case. Rather, responsibility was “for all actual and contingent liabilities of the Borrower(s), whether now or in the future”. Specifically, such liabilities were “not limited to amounts outstanding under the facilities granted to the Borrower (s)”.

31. I do not consider that the board minutes take matters further because its language was neutral and there is nothing in them that assists in the construction of the scope of the Citibank guarantees.

32. Mr Alder submitted that the present case falls within the principles set out in HSBC v Martel, unreported, CACV 54/2003, 3 June 2005. In that case, one of the issues raised on the appeal involved the identification of the underlying agreement which was guaranteed by the surety. In Martel, there was an existing banking relationship under which a joint and several guarantee for $5.5 million had been provided. Five years later, the bank had discussions that culminated in new facilities being granted set out in a facility letter in respect of which the company was asked to provide a new joint and several guarantee from the three directors for $6 million.

33. On the facts of that case, the Court of Appeal came to the conclusion on the evidence that the underlying agreement guaranteed was the agreement between the bank and company set out in the facility letter of the previous day, the facilities referred to in the letter being the commercial purpose which the guarantee was intended to serve.

34. As a matter of construction, in the present case, the clear commercial purpose the Citibank guarantees were intended to serve was to secure the “Obligations” as defined in those guarantees. It was a new banking relationship involving a new client and given the nature of the transactions for which Borrower required financing, the parties clearly contemplated future advances going beyond the specified limit. While the immediate financing required were the facilities granted by the 2001 facility letter, a fair reading of the contemporaneous documentation strongly support the view that the intention of the parties was that those guarantees should secure all monies to be advanced to the Borrower under the new banking relationship. The factual matrix is very different from that of Martel.

35. The fact that the 2001 facility letter was revised and amended from time to time is of no moment whether or not those revisions/amendments were expressed to supersede earlier arrangements because all the arrangements fell within the term “Obligations” as defined in the Citibank guarantees.

36. Another feature which is very different is that in the Martel case it was common ground that the surety knew nothing of subsequent revisions and did not consent to it. Contrast the present case where the defendants acknowledged and confirmed each and every revision/amendment to the 2001 facility letter as well as the 2^nd and 3^rd facility letters.

CONCLUSION

37. On the facts of this case and based on the contemporaneous documents, I have no hesitation in reaching the conclusion that there is no arguable defence. The Martel case is distinguishable and none of the legal arguments based on the documentation shows a triable issue on liability. I find that both defendants are liable under the Citibank guarantees and that those guarantees extend to the amounts advanced to the Borrower under the 2001 facility letter as well as subsequent facility letters including the 1^st, 2^nd and 3^rd facility letters.

(2) Quantum

38. The amount claimed in the statement of claim is HK$36,523,487.88. It is made up of the items shown in the following schedule below:

Facility Amount (HK$)
SLGS loan 12,000,000
(Less 14 monthly repayments of $200,000) (2,800,000)
Sub-total 9,200,000
DCF Amount (US$)
(a) Invoice financing 515,291.00
(b) Advances against documents 3,652,400.00
Sub-total 4,167,691.00
(c) Overdraft HK$453,635.08

39. Mr Lee has deposed to the fact that on 7 and 31 October 2011, Citibank applied a total sum of HK$5,638,137 held on security to partially set off the outstanding amounts owed by the Borrower to Citibank: see Mr Lee’s 1^st affirmation at § 17.

40. The Citibank guarantees contained a conclusive evidence clause. Clause 16 provides:

“A certificate in writing signed by your Manager or you or any other duly authorised officer stating the amount at any particular time due and payable to you from or by the Borrower or any party to the loan documents or any judgment obtained by you against the Borrower or any party to the loan documents shall (in the absence of fraud or manifest error) be conclusive evidence against the undersigned.”

41. At § 21 of the 1st affirmation of Lee Tak Sing dated 20 March 2012 the amount of HK$39,437,812.54 was stated to be due and owing made up of HK$36,523,487.80 being the principal outstanding and accrued interest up to and including 20 March 2012 as HK$2,914,324.66.

42. Mr Alder submitted that the statement in Mr Lee’s affirmation did not amount to a certificate within § 16 of the Citibank guarantee. As I understand it, the reason given was that Mr Lee’s statement did not predate the writ. Further, it was said that a conclusive evidence clause is akin to contractual estoppel and must be pleaded. Mr Alder also took issue with the amount said to be outstanding under the SLGS loan on the basis that no documentation has been provided to verify the amount of HK$9.2 million. Those matters were said to give rise to triable issues.

43. It would be convenient to deal, first, with the SLGS loan as Mr Alder’s criticisms can be addressed independently of the conclusive evidence clause.

The SLGS loan

44. The terms of the SLGS loan are in evidence. The terms required repayment of the loan principal by 60 consecutive equal monthly instalments commencing on the day one month after the drawdown date and authorised the lender to debit the instalment outstanding or principal and interest (as relevant) directly from the designated bank account on each repayment date or interest payment date.

45. The loan was drawn down on 30 June 2010. The first monthly repayment of $200,000 therefore commenced on 31 July 2010. As the petition to wind up the borrower was presented in September 2011, the last monthly repayment would have occurred at the end of August 2011. So, there have been 14 monthly repayments altogether, totalling $2.8 million. Accordingly, I see no basis for challenging the correctness of HK$9.2 million being outstanding on the SLGS loan.

46. It should be noted that irrespective of the Citibank guarantees, at the very least, Citibank must be entitled to summary judgment against the first defendant for this amount under the SLGS guarantee. That liability is not disputed.

47. I now turn to consider the remaining items in the schedule.

DCF

48. The amount claimed is made up of 3 items less an amount set off from the Borrower's bank accounts. In respect of two of the items, namely invoice financing and advances against documents, the only complaint boils down to the exchange rate adopted for the conversion of US dollars into Hong Kong dollars. There is no valid reason for challenging the amounts for those 2 items as expressed in US dollars as both amounts are fully substantiated: see exhibits LTS-10 to LTS-12 (inclusive) to Mr Lee’s affirmation.

49. In contrast, the amount of the overdraft appears be unsubstantiated. So unless Citibank can rely on the conclusive evidence clause, this amount will have to be disregarded for present purposes.

50. The conclusive evidence clause provides for a “certificate in writing” etc. The purpose of the “certificate” is for the relevant officer to state the amount due to Citibank by way of principal and interest as at a particular date and to sign the statement so made. Such a certificate is prima facie evidence of the debt and it will normally be conclusive as to the amount of that indebtedness. See Andrews and Millet, Law of Guarantees, 6^th edition, § 7-032.

51. As a matter of principle I consider that there is no reason why, if the information required by clause 16 is contained in an affirmation from the relevant officer of Citibank rather than a certificate as such, it cannot satisfy clause 16. However the 1^st affirmation of Mr Lee does not state the overdraft amount. In the circumstances, in ascertaining the extent of indebtedness of the defendants on the Citibank guarantees, the amount shown in the schedule as being the overdraft amount must be disregarded.

52. In passing I will briefly mention the submission that a conclusive evidence clause is some form of contractual estoppel that must be pleaded. Reference was made to DBS Bank (Hong Kong) Ltd v San-Hot HK Industrial Co Ltd, unreported, HCA 2279/2008, 12 March 2013 at §§ 194 - 209. The first matter to note is that DHCJ Pow SC’s observations on “contractual estoppels” were strictly obiter since, on his findings of fact, it was unnecessary for DBS to rely on the principle of contract estoppel. §§ 207-209 dealt with conclusive evidence clauses. The type of clause considered in that case concerned the conclusive nature of bank statements, similar to the clause that was considered and upheld by the Privy Council in Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank [1986] 1 AC 80, 109. It is of tangential relevance to the clause under consideration. I derive no assistance from it so far as Mr Alder’s submissions are concerned. Moreover, as it is unnecessary to decide this point in the present case, nothing more needs to be said on this topic.

Order

53. The parties are to submit an agreed draft Order for approval that reflects the matters decided in §§ 37, 45, 47 and 51 above on or before 10 June 2013.

(Doreen Le Pichon)
Deputy High Court Judge

Ms Eva Y W Sit, instructed by Baker & McKenzie, for the plaintiff

Mr Edward Alder, instructed by Tanner De Witt, for the 1^st and 2^nd defendants

HCA 2145/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2145 OF 2011

____________

BETWEEN
	CITIBANK N.A.	Plaintiff
and
	DAYARAM NANIK	1st Defendant
	DAYS IMPEX LIMITED	2nd Defendant
____________

Before: Deputy High Court Judge Le Pichon in Chambers

Date of Hearing: 5 March 2013

Date of Ruling: 15 March 2013

__________

R U L I N G

__________

1. This is the plaintiff’s application by summons dated 25 September 2012 for leave to adduce the affirmation of Keoy Soo Khim and its exhibits as further evidence in its appeal from Master de Sousa’s decision granting the defendants unconditional leave to defend and refusing the plaintiff’s application for summary judgment. The application was said to have been necessitated by a change in the defendants’ stance. At the conclusion of the application I reserved my ruling which I now give.

Background facts

2. The action was brought by the plaintiff, Citibank N.A. against Dayaram Nanik and Days Impex Limited, a Liberian corporation, respectively the 1^st and 2^nd defendants (collectively “the defendants”), as personal and corporate guarantors of the debts of Days Impex Limited, a company incorporated in Hong Kong (“the Borrower”) but which has the same name as the 2^nd defendant.

3. The guarantees sued upon were signed by the 1^st and 2^nd defendants on 30 August 2001 (respectively “the D1 guarantee” and “the D2 guarantee” and collectively “the guarantees”). The debts in respect of which the guarantees relate are said to arise under three facility letters granted some 10 years later, namely, (1) a demand credit facility under the Special Loan Guarantee Scheme (“the Loan Scheme”) -- Non-Revolving Loan dated 23 June 2010 (“the 1^st facility letter”); (2) a revolving short-term credit facility up to an aggregate limit of HK$27 million and US $2.5 million also dated 23 June 2010 (“the 2^nd facility letter”); and (3) a revolving short-term credit facility up to an aggregate limit of HK$35 million dated 4 August 2011 (“the 3^rd facility letter”).

4. It is relevant to mention that on 25 June 2010, the first defendant executed a guarantee and indemnity (“the 2010 guarantee”) in favour of the plaintiff limited to the demand credit facility under the Loan Scheme.

5. The writ was issued on 16 December 2011. The defendants filed their defence on 14 February 2012 following an ‘unless order’ by consent made by Master J Wong on 6 February 2012.

6. The plaintiff took out an Order 14 summons for summary judgment on 20 March 2012 supported by the 1st affirmation of Lee Tak Sing. The 1^stdefendant filed his affirmation in opposition on 11 April 2012 which added little to the issues already raised in the defence. There were three main areas of challenge:

(1)     the 2^nd defendant was not duly authorised to execute the 2^nd and 3^rdFacility Letters and the D2 guarantee;
(2)    the execution of the 2^nd and 3^rd facility letters and the D2 guarantee was defective in that they were not executed in accordance with the memorandum and articles of association of the 2^nd defendant; and
(3)    the guarantees and facility letters were ultra vires the defendants.

7. The plaintiff filed the 2^nd affirmation of Mr Lee on 27 April 2012 to address the issues arising from the first defendant’s affirmation.

8. The summary judgment application came before Master de Souza on 25 May 2012. On the preceding day, the plaintiff received the skeleton submissions of counsel for the defendants. While the defendants abandoned some of the arguments previously raised and raised new arguments that had not been raised in either the defence or the affirmation in opposition, they did not abandon all of the points taken earlier.

9. The defendants’ skeleton argument before the master is in evidence. So far as the new issues are concerned, they raised a “construction point” which is very different in nature from issues of defective execution. It concerns the “borrowings” that the guarantees were said to cover when construed against their proper factual matrix. The skeleton referred to the second defendant’s board resolution dated 30 August 2001 which identified a facility letter dated 30 July 2001 (“the 2001 facility letter”) which was “not in evidence”. The defendants went on to assert (at § 9) that

“It is (at least) arguable that the parties intended that the D1 Guarantee and the D2 Guarantee were only to apply to amounts advanced under the 2001 Facility Letter.”

10. They submitted that the factual matrix of the guarantees was of “critical importance”.

11. As part of the new construction point, the skeleton drew attention to the fact that the guarantees were executed on 30 August 2001 while the three facility letters under which the debts arose were granted a decade later. Buried in the skeleton (at § 12 (4)) was a reference to the 2010 guarantee which the plaintiff required when it came to the issuance of the 1^st facility letter. It was said that the 2010 guarantee supported the defendants’ construction argument that the guarantees were only intended to cover advances made under the 2001 facility letter and not subsequent facility letters. The impression conveyed was that the ten-year gap was significant, the 2001 facility letter creating one facility and the 1^st to 3^rd facility letters granted in 2010-2011 created different facilities.

12. The other new issue was a challenge to quantum.

13. The documents sought to be admitted into evidence for the hearing of the appeal from the master fall into three categories:

(1)    copies of the 2001 facility letter and the supplemental facility letters dated between 14 December 2001 to 11 June 2009 between the plaintiff and the borrower and acknowledged by the defendants;
(2)    copy of a leaflet issued by the Trade and Industry Department in relation to the Loan Scheme which was a government initiative and which shows that the 2010 guarantee was a requirement of the Loan Scheme; and
(3)    copy of a certificate dated 24 September 2012 is signed by the plaintiff’s authorised officer confirming the amount outstanding.

The issue

14. The application is made under Order 58 rule 1 (5) under which new evidence is admitted only if “special grounds” i.e. Ladd v Marshall conditions are made out. The conditions are that (a) the evidence could not have been obtained with reasonable diligence for use at the hearing below; (b) the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive; (c) the evidence must be such as is presumably to be believed. Argument centred on whether or not the first ground had been made out.

15. Ms Sit, counsel for the plaintiff (who did not appear below), submitted that prior to receiving the defendants’ skeleton argument, the new issues now raised could not have been anticipated from what had been filed by the defendants. Given that the new issues were introduced at the very last minute, it had not been possible for the plaintiff to carry out the necessary investigation and to adduce the documents relevant to the factual matrix of the guarantees during the time between receiving the skeleton on 24 May 2012 and the hearing before the master the following morning.

16. Mr Alder who appeared for the defendants strenuously opposed the application. He submitted that the new issues are clearly spelt out in the skeleton argument. The plaintiff could have applied for an adjournment or sought leave from the master to put in further evidence. It did neither. The present summons was not taken out until four months later.

17. A curious, not to say remarkable, feature of the defendants’ stance is that having raised the construction point and framed it in terms of § 9 of the skeleton argument (see § 9 above), the master was expected to form a view as to the viability of the argument relating to the scope of the borrowings covered by the guarantees without having sight of the 2001 facility letter itself. For my part, without sight of the 2001 facility letter I do not consider it possible to make, much less run, the construction point. Put differently, I do not begin to understand how the point could be made or any master or judge asked to form a view as to whether a triable issue arises in the absence of the 2001 facility letter itself.

18. On the facts of this case, plainly the construction issue could not have been anticipated and was unexpectedly sprung on the plaintiff at the 11^thhour. It may well be that the new issues only occurred to the defendants at the 11^th hour but the fact is that the plaintiff was taken by surprise and could not have adduced the first and second categories of documents that go to the factual matrix of the construction argument in time for the hearing. Given the lengthy delay that would inevitably be involved to obtain another three hour appointment before the master and the fact that not all the earlier arguments had been jettisoned and replaced by the new issues, I do not consider that the plaintiff could be criticised for making a judgment call and deciding to press ahead with the hearing instead of seeking an adjournment.

19. Ms Sit referred to Fortis Insurance Company (Asia) Ltd v Lam Hau Wah Inneo, CACV 86/2010, unreported, 28 October 2010, where the Court of Appeal (at § 18) adopted Lord Bridge’s observations in Langdale v Danby [1982] 1 WLR 1123, 1133D-F suggesting that it may well be that the standard of diligence required of a defendant preparing his case in opposition to a summons for summary judgment, especially if under pressure of time, will not be so high is that required in preparing for trial. It was said that a more flexible approach may be called for in determining whether the defendant has satisfied the reasonable diligence requirement.

20. Mr Alder sought to distinguish Langdale on the basis that those observations were directed at a defendant who was under time pressure. It was said that a plaintiff seeking summary judgment had all the time in the world to prepare its case and the Langdale observations were inapposite.

21. In my view, the critical matter is whether on the facts of the particular case the party seeking leave to adduce new evidence has acted with reasonable diligence. On the facts of this case, I accept that the first of the Ladd v Marshall conditions have been satisfied in relation to the first and second categories of documents relevant to the factual matrix of the guarantees.

22. As regards the third category which consists of the certificate, it was said that it was prompted by the challenge to quantum which was first made in the skeleton argument. But to succeed in its action, the plaintiff has to satisfy the court that the sum claimed is due. To that end, §§ 13-22 of the first affirmation of Mr Lee were directed at explaining the elements of the sum claimed. Since under the terms of the guarantees the certificate once duly issued is conclusive in the absence of fraud or manifest error, there was no reason why such a certificate (which would have pre-empted any challenge to quantum) could not have been procured and exhibited. I am not persuaded that in respect of the certificate the first condition has also been satisfied.

Conclusion

23. Accordingly, other than exhibit “KSK-4”, I will allow the affirmation of Mr Keoy and the other exhibits into evidence. There is to be an order nisi of costs in favour of the plaintiff.

	(Doreen Le Pichon)
	Deputy High Court Judge

Ms Eva Sit, instructed by Baker & McKenzie, for the plaintiff

Mr Edward Alder, instructed by Tanner De Witt, for the 1^st and 2^nd defendants

CITIBANK N.A. v. DAYARAM NANIK AND ANOTHER

Related cases with same parties

Files (2)

Facility	Amount (HK$)
SLGS loan	12,000,000
(Less 14 monthly repayments of $200,000)	(2,800,000)
Sub-total	9,200,000
DCF	Amount (US$)
(a) Invoice financing	515,291.00
(b) Advances against documents	3,652,400.00
Sub-total	4,167,691.00
(c) Overdraft	HK$453,635.08