Article

Note: Hang Seng Bank Limited (Lender) advanced loans and credit facilities to Perfecta Dyeing Printing & Weaving Works Limited (Borrower), totaling HK$231,624,585.46 with accrued interest. As security, Borrower executed two mortgages, which were guaranteed by four sureties or guarantors. The credit facility provided Lender with the "overriding right of withdrawal and repayment on demand". In addition to other debts, the facility covered two packing credits for HK$96,350.00 and HK$566,000.00. Lender claimed that a payment was overdue and declared that the loan was in default and demanded repayment. Having not received it, Lender sued Borrower and Guarantors. The Court of First Instance of the Hong Kong Special Administrative Region, Chan, J., rendered judgment for Lender, permitting it to collect repayment on the credit facilities from Borrower and Guarantors.

One of the guarantors argued that there was no event of default, indicating that the supposed default occurred because LCs in favor of Borrower had been dishonored. It was alleged that in the past, Lender had informed Borrower of dishonored LC's on a monthly basis and arrangements were then made for repayment. The judge characterized these allegations as "tenuous" and expressed doubt:

"I doubt if the 1st defendant would have been contented with notice of non-payment of [packing] letter of credit to be given to it only at the end of the month. For non-payment of letter of credit, normally there would be prior notice of it by way of nonacceptance of documents on the ground of discrepancy or otherwise. A collecting bank would in the normal course of events immediately advise their client upon receipt of such notice. The client would therefore know that payment for the letter of credit may not be forthcoming."

[JEB/gdb]

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