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Carrie Lee

A DEPOSITOR with the now defunct Bank of Credit & Commerce (Hong Kong) yesterday lost an appeal which, if successful, would have honoured his deposit with the bank to its full value instead of just the sum from the liquidation.

  The Court of Appeal yesterday ruled that the liability imposed on the depositor, plaintiff William Young Hong-yui, by a contract, known as ''continuing guarantees'', was contingent instead of immediate.

  He signed the instrument in favour of the bank - the defendant in this case - on February 27, 1991, when it held in his account Canadian dollar deposits worth about HK$6.4 million as at the start of the bank's liquidation on July 17, 1991.

  On the same signing day, he also signed two other instruments to charge the deposit to the bank to secure the indebtedness to the bank of a company known as Galleon Industrial, and of his brother Antonio Young Shau-yan.

  The depositor was a director of the company in which both the Youngs were shareholders.

  The continuing guarantees imposed a personal liability on the depositor to answer for the indebtedness of the company and his brother to the bank.

  It was the consensus that as between the creditor and the surety, when the liability of the surety to pay is expressed as a liability to pay ''on demand'', the making of a demand will usually be treated as a condition precedent to the liability of the surety. That is a contingent liability.

  If no such demand is expressed in the contract, then the liability is immediate.

  In this case, if the plaintiff's liability is immediate, he is entitled to the benefit of a set-off of the $6.4 million owed to him by the bank against what is due from him to the bank to satisfy his liabilities to the bank under the continuing guarantees.

  With the set-off, his deposit would be worth the full $6.4 million to him.

  If the liability is contingent, the depositor is not so entitled, and will only recover part of the $6.4 million by way of dividend in the liquidation.

  Justice of Appeal G M Godfrey said yesterday it appeared from the verbal construction of a clause of the continuing guarantees that the contract's nature was that of a secondary obligation.

  It was not an arrangement whereby the depositor engaged himself to pay his own debt, but a contingent engagement to pay on demand in writing what was not his own debt and what he would never be liable to pay anyone.

  A number of other clauses in the continuing guarantees also demonstrated that the demand was a condition precedent to any liability on the part of the depositor, he said.

  Nothing in the continuing guarantees lent any support to the depositor's contention that his liability to the bank under the continuing guarantees was to be an immediate liability; all the indications were the other way, Mr Justice Godfrey said.

  Gabriel Moss QC, on behalf of Mr Young, argued that even if such a demand was interpreted as implied in the contract, the court should direct the liquidator to make such a demand, to make the liability immediate and thus entitle the depositor a right to set-off.

 Mr Justice Godfrey said that this would stand to prejudice the general body of creditors in order to favour one particular creditor.

  ''It is the primary duty of the liquidator to protect the interest of the general body of creditors,'' he said. ''Such treatment would produce a result unfair to the general body of creditors.''     Yesterday's case was an appeal from an order made last September.



Depositor loses appeal in bank liquidation case