K-Rex Finance Ltd v Cheng Chih Cheng

JurisdictionSingapore
JudgeChao Hick Tin J
Judgment Date30 October 1992
Neutral Citation[1992] SGCA 74
Docket NumberCivil Appeal No 94 of 1990
Date30 October 1992
Year1992
Published date19 September 2003
Plaintiff CounselRaj Singam, Randolph Khoo and Philip Lam (Drew & Napier)
Citation[1992] SGCA 74
Defendant CounselCheong Yuen Hee and Lim Chung Wei (Boey Ng & Wan)
CourtCourt of Appeal (Singapore)
Subject Matters 28(6) Companies Act (Cap 50, 1990 Ed),Whether good consideration Whether tainted by illegality of underlying transaction,Change of plaintiff company's name after the commencement of proceedings pursuant to Companies Ordinance of Hong Kong,Forbearance to sue,Consideration,Adequacy,Contract,Whether renders proceedings defective,Civil Procedure,Compromise agreement,Parties

This was an appeal against a decision of AP Rajah J dismissing the claim of the appellants against the respondent, who was the second defendant in the court below, for the sum of US$820,244.42, being the amount owing to them on 29 December 1981 (with interest thereon):

(a) under a continuing guarantee dated 1 June 1979 (`the 1979 guarantee`) signed by the respondent together with Yap Swee Hong and Vincent Yoong (deceased); or

(b) alternatively, under an agreement dated 9 June 1980 (`the compromise agreement`) signed by the respondent and several others whereby they agreed, inter alia, to guarantee payment to the appellants by 1 December 1980 of the sum of US$739,742.29 together with interest thereon at such rate as the appellants` bankers charge from time to time, costs, charges and expenses incurred by the appellants in recovering the said sum of US$739,742.29 from a company called Winsome Taiwan Enterprises Corp (`Winsome`) and its proprietor, Simon Tsai Wen Hung (`Tsai`), in Taiwan.



We heard the appeal on 19 August 1992 and reversed the decision of the learned trial judge [see [1991] 1 MLJ 336 ].
We now give our reasons.

The appellants were a company incorporated on 17 March 1978 under the laws of Hong Kong.
At all material times, they were a deposit-taking company registered under the Deposit-taking Companies Ordinance (Cap 328, 1979 Ed) of Hong Kong. One way in which the appellants would make advances to their customers was by having the customers apply to them for letters of credit. In accordance with their arrangement with the Ka Wah Bank Ltd (`Ka Wah Bank`) in Hong Kong, the appellants would then make a `back-to-back` application to Ka Wah Bank, which would issue the letter of credit and debit the appellants` account with them. Ka Wah Bank would be paid by the appellants, who would in turn obtain payment from their customers.

Sometime in 1979 Gobee Co Ltd (`Gobee`), a company incorporated in Hong Kong, approached the appellants for an advance of US$672,500 to pay for timber to be shipped to Taiwan by an Indonesian company called PT Nassalabi.
The appellants agreed to Gobee`s request and asked for security. Thus, the 1979 guarantee came to be given by the respondent together with Yap Swee Hong (the first defendant in the action in the court below) and Vincent Yoong (deceased), whereby they jointly and severally guaranteed the due payment of amounts advanced and to be advanced by the appellants to Gobee without any limit. Accordingly, on 19 June 1979 Gobee applied to the appellants for an irrevocable letter of credit for US$672,500 drawn on Gobee in favour of PT Nassalabi, the notifying party being Cheng Hsia Trading Co Ltd (`Cheng Hsia`), a company incorporated in Taiwan.

On 21 June 1979 the appellants in turn applied to Ka Wah Bank for an irrevocable letter of credit for US$672,500 drawn on the appellants in similar terms to the application submitted by Gobee to the appellants.


Peter Kwok, the appellants` chairman and director, gave evidence at the trial to the effect that the appellants received a telex dated 29 June 1979 from Tsai requesting that the notifying party be changed to Winsome.
He said that subsequently the appellants, on the instructions of Yap Swee Hong, sent an invoice dated 27 July 1979 to Winsome, together with a bill of exchange drawn on the latter for the payment of US$739,742.29. The invoice stated that the appellants had sold timber from Indonesia to Winsome for the sum of US$739,742.29. Peter Kwok had written the following on the appellants` copy of the invoice:

This is a trap. Otherwise why would they allow you to make invoice

739,742.29

Actual 672,497.09

67,245.20 ?



As for the bill of exchange, according to Peter Kwok, Yap Swee Hong asked him to prepare it and Winsome accepted the bill.
Peter Kwok said the appellants paid Ka Wah Bank US$739,742.29 in respect of the letter of credit, but the said bill of exchange was not honoured. He also gave the following evidence:

When we asked Gobee for payment, Mr SH Yap (first defendant) told us to start proceedings in Taiwan against [Winsome] and [Tsai] (the sole owner of [Winsome]). On the advice of SH Yap we went to Baker & Mckenzie, a firm of lawyers with an office in Taipeh, to take action against [Winsome] and Mr Tsai on the US$739,742.29 in Taiwan. Our lawyers in Taiwan advised us that we can attach the property of [Tsai] and [Winsome] if we pay into court one-third of the amount of the claim. This is Taiwan law. So we remitted one-third of our claim to our lawyers in Taiwan. Then properties belonging to [Tsai] and his wife were attached in Hongkong before action was taken. Tsai`s shares in a hotel called Carnival Hotel in Taiwan were also attached about late 1979 or early 1980.



According to Peter Kwok, the amount claimed against Tsai and Winsome in the Taiwan court was the exact amount set out in the bill of exchange.
The proceedings in Taiwan against Winsome and Tsai were eventually withdrawn when the compromise agreement was signed by the first defendant and the respondent together with Vincent Yoong and Gobee. The material provisions of the compromise agreement read:

In consideration of [the appellants] having at our request agreed to forgo or discontinue all legal and other proceedings which [the appellants] are entitled to maintain against [Tsai and Winsome] ... in respect of the sum of US$739,742.29 ... now due and owing to [the appellants] from them.



We hereby jointly and severally guarantee (1) the payment thereof together with all interest thereon at the rate of three per cent per annum above what your bankers may from time to time charge you costs charges and expenses as have already incurred [sic] by you for the purpose of recovering the said first-mentioned sum of US$739,742.29 by 1 December 1980 and (2) the payment to you of all accumulated interests ...

Further we hereby jointly and severally:

(1) ...

(2) Undertake to indemnify you against all losses charges damages costs and expenses which you may sustain or incur by reason of any instructions and/or advice you may at our request give to Messrs Baker & Mckenzie ... Taiwan in respect of all and any action(s) or proceeding(s) you may have abandoned or discontinued against the said parties.

(3) Undertake to indemnify you against all losses damages and costs which you may suffer by reason of any act or thing which you may do or omit to do at our request.

...

(7) Declare that this guarantee shall be in addition to and not in substitution for the guarantee given to you by Yap Swee Hong, Yoong Tatt Kwong Vincent and Cheng Chih Cheng.

...



When Peter Kwok was asked in cross-examination whether he honestly believed that the appellants had a reasonable chance of success in their claim against Winsome and Tsai, his answer was:

I believed we had a good claim against [Winsome] and Tsai otherwise I would not have remitted one-third of the amount to be deposited in the courts. The [compromise agreement] is a separate obligation that I am seeking from the guarantor because it concerns separate proceedings in Taipeh. The action was commenced against [Tsai] and [Winsome] in respect of the bill of exchange drawn
...

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