Article

Note: Standard Chartered Bank Ltd. (Lender/Beneficiary) loaned HKD 14,024,277.57 and USD 2,476,883.87 to four borrowers: Pada Industrial (Far East) Company Limited, Colour Apparel Company Limited, Sinomax International (HK) Limited, and Target Ease International Limited (Borrowers).

Pak Kwan Ho (Guarantor), a director and principal shareholder for the four Borrowers, personally executed three guarantees (the Guarantees) for all of these loans in favor of Lender/Beneficiary.

The opinion detailed the terms of the Guarantees:

"1. [Guarantor] is liable as the principal obligor and debtor;

2. The ‘conclusive evidence’ clauses:

  1. 1st Guarantee, clause 14: ‘ ...a certificate signed by any officer or representative of [Lender/Beneficiary] certifying the amount of the liabilities shall be accepted by [Guarantor] and [his] legal representative as conclusive evidence thereof’;
  2. 2nd and 3rd Guarantees, clause 12.2: ‘Any certification or determination by [Lender/Beneficiary] of a rate or amount under the guarantee will be, in the absence of manifest error, conclusive evidence of the matters to which it relates’; and
  1. The [Lender/Beneficiary’s] right to pursue the [Guarantor] under the Guarantees is not affected by the [Lender/Beneficiary] proceeding or abstaining from proceeding against any other person or enforcing any other sureties, and [Guarantor] waives his rights to require [Lender/Beneficiary] to sue the four [Borrowers] first.”

Although the appellate opinion does not provide details, it appears that demands were made on all of the Guarantees, and all were honored.

Lender/Beneficiary sued Guarantor for having wrongfully made payment under the Guarantees. The Hong Kong Court of First Instance, Wong, Master, granted summary judgment in favor of Lender/Beneficiary against the Guarantor in the sums of HKD 14,024,277.57 and USD 2,476,883.87, along with interest. On appeal, the Court of First Instance, Chan, J, dismissed Guarantor’s appeal, ruling that Guarantor failed to show any arguable defense or valid claim.

In his appeal, Guarantor alleged that (1) Lender/Beneficiary could not claim repayment from Guarantor until Lender/Beneficiary had obtained judgment against the Borrowers; (2) the underlying debts were not admitted, requiring Lender/Beneficiary to prove the debts; and (3) Guarantor was not represented by counsel, and did not know that he could not raise defenses.

The Appellate Judge observed that: “[t]here is no general obligation on the part of the [Lender/Beneficiary] to commence proceedings against the principal borrower, let alone obtaining judgment, before the [Lender/Beneficiary] may pursue [Guarantor]. [Lender/Beneficiary] has a completely unfettered choice as to how, and against whom, he should proceed to recover the debt or damages to which he is entitled. [Lender/Beneficiary] may simultaneously bring winding-up proceedings against the principal and sue on the [G]uarantee in separate proceedings.” The Judge stated that: “[t]he only condition precedent in the Guarantees is that [Lender/Beneficiary] must demand for payment from [Guarantor], and such demands have been made repeatedly.”

The appellate Judge then ruled that a more general denial by the debtor is without effect, unless it alleges that part of the alleged debt is not owed. Moreover, he noted that Guarantor simply stated that the particulars of the debts were “not admitted”, and that the “conclusive evidence” clauses in the Guarantee constitutes conclusive evidence of the amount owed. The Judge noted that “[u]nder a ‘conclusive evidence’ clause, where [Lender/Beneficiary] has certified the overall indebtedness and amount payable under a guarantee, that is conclusive in the absence of ‘manifest error’, it is not appropriate to carry out extensive investigation or require a trial as this would render the conclusive evidence clause nugatory. Such clauses are perfectly normal and well accepted as effective in Hong Kong.” Furthermore, the Judge cited evidence from extensive and detailed documentation and accounting records of the respective Guarantees, Facility Letters, Demand Letters, Trade Documents and Statements, and Forex transactions documents evidencing the amount claimed against Guarantor.

Comment: This case reveals the difficulty of determining whether a “guarantee” is dependent or independent. Although it probably was dependent (the court does not consider this question), it has many features of an independent guarantee.

[ZLK]

COPYRIGHT OF THE INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE

The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of the ICC or Coastline Solutions.