IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO.1872 OF 2001
|THE FUJI BANK, LIMITED
|SANKO AIR-CONDITIONING ENGINEERING LIMITED
|SANKO TECHNOLOGY LIMITED
|LAI PUI HING, DENNY
|LI MUN KEUNG
|LIU CHUNG LAW, PHILIP
|FUNG NGAI WING
|LIU HIN PING
|TAM SHOOT YUNG, ALFRED
Coram: Hon Waung J in Chambers
Date of Hearing: 3 & 4 December 2001
Date of Judgment: 4 December 2001
J U D G M E N T
1. This is an appeal from the Order 14 judgment entered by the master in the court below against all the defendants in the full amount claimed by the plaintiff of some $1.5 million.
2. The claim by the plaintiff against the 1st defendant is as borrower in respect of alleged debt owing by the 1st defendant as a borrower. The claim is made against the 2nd to the 8th defendants as guarantors. What had happened is this : the 1st and 2nd defendants are associated companies and they were both customers of the bank. By a loan Facility Letter dated 6 October 1997 addressed to the 1st and 2nd defendants, the bank granted various facilities to the 1st and 2nd defendants on the terms set out therein. The terms included an overdraft of up to $1.5 million, a total overdraft for both companies and a total Trust Receipt ("TR") facility of up to $9 million. The interest provision, which is the most important provision for the consideration of this case, in relation to overdraft is HK Prime + 2.5% and for trust receipt is HK Prime + 1.25%. The security required under the facility included a cross-guarantee to be executed by the two respective borrowers for that $10 million total facility package, joint and several guarantees to be executed by the various guarantors and these are the 3rd to the 8th defendants and, lastly, a pledge of time deposit of not less than $2 million. Pursuant to the acceptance of the terms of the Facility Letter, securities of time deposit of $2 million in the name of the 2nd defendant as well as the guarantees by the 2nd to the 8th defendants were all given to the bank. In fact, I believe the 1st defendant also gave the guarantee under the cross-guarantee provision.
3. In support of this banking arrangement, of course, there were the various terms of conditions of the bank and there are three that are relevant. One and the most important is the guarantee indemnity conditions dated 8 October 1997; second is the general agreement on bank transactions dated 9 October 1997 and finally there is a charge on cash deposits dated 17 November 1997.
4. The facilities were used and they were used in this way : because of the two companies existing side by side, each of the company has a current account and under that current account, each of the company enjoys the overdraft facility. There was, in addition, of course the Letters of Credit but that does not concern us, and the TRs. Towards the beginning of January 1999 as a result of the downturn in the economy and the various contraction of business, the two companies found that they had to write to the bank to propose a new arrangement, namely to repay what was then outstanding by some proposed instalments over a period of one year. The then amount outstanding by 11 January 1999 come to something like $6.1 million. The document at page 70 the letter dated 12 January from the bank shows the breakdown of two trust receipts of the 1st defendant, totalling some $1.8 million, overdraft of the 1st defendant in the sum of $200 thousand odd and in relation to the 2nd defendant, four trust receipts in the sum of well over $2 million and overdraft of $1.28 million. Of the four trust receipts of the 2nd defendant, two are for sterling ￡46,000, the rest are in Hong Kong dollars. In addition, of course, there are some accrued interest on those outstandings. So the state of affairs as of the beginning of January 1999 when the two companies found themselves in difficulties in meeting the payments on the trust receipts was that they required the bank's indulgence or agreement to a proposed schedule to pay off these outstandings. It is important to note that in the letter dated 7 January, on page two under the schedule of the proposed payments by instalment, there was included under the schedule a set off of the fixed deposit of the $2 million. By a letter dated 12 January 1999 from the Fuji Bank to the two companies at page 70, it says :
"We refer to your letter dated 7-1-99 in which your proposed repayment schedule is unacceptable to us. We hereby inform you that the Banking Facilities granted to you under our Facility Letter to you dated 6-10-97 have been cancelled by our Bank with immediate effect. The outstanding debts under the said Banking Facilities become due immediately. We hereby formally demand from you the immediate payment of the following outstanding debts plus all accrued interest and other expenses or charges due to our Bank."
And then, it sets out in the table which I have indicated earlier the precise amount of the outstandings. Then the letter followed by saying :
"If the payment of the mentioned outstanding debts plus all accrued interest and other expenses or charges are not fully received within 7 days from the date of this letter, we will commence legal...