THE HONGKONG AND SHANGHAI BANKING CORPORATION LTD v. YEUNG FUK KWONG AND OTHERS

HCMP 559/2025 and HCA 1104/2024

(Heard Together)

[2026] HKCFI 1608

HCMP 559/2025

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 559 OF 2025

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AND

HCA 1104/2024

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1104 OF 2024

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(Heard Together)

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D E C I S I O N

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INTRODUCTION

1.  There are three matters before this Court. First is the Originating Summons dated 10 April 2025 taken out by the Hongkong and Shanghai Banking Corporation Limited (the “Bank”) for the enforcement of mortgages pursuant to Order 88 of the Rules of High Court (the “Mortgage Action”) against Yeung Fuk Kwong (the “1^st Defendant”), Young Fuk Ki Sarena, the executrix of the 2^nd Defendant estate of Suen Wan Yuk, deceased (the “the 2^nd Defendant”), Everin (Hong Kong) Limited (the “3^rd Defendant”) and New Loyal (Hong Kong) Limited (the “4^th Defendant”) (together the “Mortgagors”).

2.  Secondly, the Mortgagors’ Summons dated 16 June 2025 seeking, inter alia, to (1) stay the Mortgage Action pending the final determination of the proceedings in HCA 1104/2024 (the “HCA Action”), or (2) convert the Mortgage Action to a Writ action and consolidate the Mortgage Action and HCA Action, or in the further alternative, (3) for the trials of the Mortgage Action and HCA Action to be heard together (“Mortgagors’ Consolidation Summons”).

3.  Thirdly, the Bank’s Summons dated 28 July 2025 to, inter alia, stay the HCA Action until the final determination of the Mortgage Action. Mr Lau for the Bank informed this Court that this Summons was originally for an interim stay (i.e. to stay the HCA Action pending this hearing). It is now effectively spent. Hence, there is no need for this Court to deal with the Bank Summons dated 28 July 2025.

4.  It is logical for this Court to deal with the Bank’s Mortgage Action first.

THE MORTGAGE ACTION

5.  The facts of the Mortgage Action are straightforward. Tsuen Wan Delicious Food City Company Limited (the “TWDF”), is the borrower under various facility letters (the “Facility Letters”) granted by the Bank. TWDF is wholly owned and controlled by the 1^st Defendant.

6.  The 1^st Defendant is the sole director of TWDF, the sole director and one of the shareholders of the 3^rd Defendant, and one of the directors of the 4^th Defendant.

7.  The 2^nd Defendant is the Estate of the 1^st Defendant’s late mother. By Order dated 16 September 2025, Young Fuk Ki Sarena (楊福琪) has been joined to the proceedings as the executrix of the 2^nd Defendant.

8.  The 1^st to the 4^th Defendants have all mortgaged their properties  in favour of the Bank. The 4 mortgages (the “Mortgages”) all dated 7 November 2016 had been granted by each of the Defendants, securing “all monies” payable by TWDF (i.e. the borrower) to the Bank (the “Secured Indebtedness”). The 4 Mortgaged Properties are:

(1)  The Whole First Floor, Second Floor and Third Floor, Nos. 13, 15, 17 and 19 Chung On Street and Nos. 38-40 Shiu Wo Street (the “Tsuen Wan Property A”) granted by the 1^st Defendant.

(2)  Shop C on the Ground Floor, Nos. 13, 15, 17 and 19 Chung On Street and Nos.38-40 Shiu Wo Street (the “Tsuen Wan Property B”) granted by the 2^nd Defendant.

(3)  Units 205, 206, 209, 210, 211, 212, 214, 215, 216 and 216A on the Second Floor, Nine Queen’s Road Central, Hong Kong (the “Central Property”) granted by the 3^rd Defendant.

(4)  No.4 Derby Road, Kowloon Tong, Kowloon, Hong Kong (the “Kowloon Tong Property”) granted by the 4^th Defendant.

9.  The Bank is the lender under the Facility Letters and the mortgagee of the Mortgages. HSBC Broking Securities (Asia) Limited, an affiliated company of the Bank, was originally the 2^nd Defendant in the HCA Action, but the claim against it was discontinued on 30 June 2025.

10.  It is undisputed that since 2016, the Bank has granted various facilities to TWDF in the form of written facility letters, duly signed by the 1^st Defendant on behalf of TWDF. They include: -

(a)  Facility Letter-1 dated 28 September 2016. It granted HIBOR Loans totalling HKD262,000,000, Revolving Loan (I) of HKD38,000,000, and Revolving Loan (II) of HKD50,000,000;

(b)  Facility Letter-2 dated 26 October 2017 (amended by Facility  Letter-3 dated 11 June 2018 and Facility Letter-3A dated 28 August 2018). It revised the facilities including increasing Revolving Loan (II) to HKD70,000,000;

(c)  Facility Letter-4 dated 18 December 2018 (amended by Facility Letter-5 dated 18 April 2019, Facility Letter-6 dated 19 November 2019, Facility Letter-7 dated 25 February 2020, Facility Letter-8 dated 22 February 2021 and an authorisation letter from TWDF dated 16 August 2022).

(d)  Facility Letter-4 (as amended) is the basis for the Bank’s current claim. There were various amendments and increases to the revolving loans, ultimately reaching HKD285,000,000 in total revolving facilities by February 2021.

11.  The HIBOR Loans, and Revolving Loans provided to TWDF as mentioned above are secured, inter alia, by the Mortgages.

(a)  HIBOR Loans: There were three lines of HIBOR Loans originally granted for the purpose of refinancing an outstanding mortgage loan in the amount of HKD262,000,000 with another bank. Under Facility Letter-4, the amounts of the three HIBOR Loans were HKD68,083,350, HKD132,583,350, and HKD32,722,250. No further changes were made to the HIBOR Loans.

(b)  Revolving Loans: The subject Revolving Loans in these proceedings were for the 1^st Defendant’s personal investment purposes.

12.  The outstanding loan principal under the Facility Letters is HKD445,256, 913.27 as of 10 April 2025 (the “Outstanding Liabilities”). This comprises: (1) Revolving Loans: HKD281,220,742.31; and (2) HIBOR Loans: HKD164,036,170.96. The Defendants have not disputed the quantum of the Outstanding Liabilities.

13.  The Bank’s case is that the Defendants’ default and the Bank’s right to enforcement arose as follows.

(a)  As against TWDF, the Facility Letters make clear that the facilities are “subject to the Bank’s overriding right of repayment on demand including the right to call for cash cover on demand for prospective and contingent liabilities.” (Emphasis added.) 

(b)  On 10 July 2023, the Bank issued a demand letter to TWDF demanding immediate repayment under the Facility Letters of HKD458,271,276.41 (including unpaid interest). This demand was not met. The Outstanding Liabilities remain unpaid.

(c)  As against the Mortgagors, by Clause 2.1 of each of the Mortgages e.g., each Mortgagor covenanted with the Bank that it will make payment to the Bank for any sums outstanding and due from TWDF “ON DEMAND, by notice in writing of [the Bank] made to [it] and/or [TWDF]”.

(d)  On 11 July 2023, the Bank further issued demand letters to each of the Mortgagors. These demands were similarly not met.

(e)  Pursuant to Clauses 5.1(a) of the Mortgages, it is an event of default if the Mortgagors make default in the payment of the Secured Indebtedness or any part thereof following demand duly made.

(f)  Pursuant to Clauses 6.1(a) of the Mortgages, if an Event of Default occurs, it shall be lawful for the Bank at any time thereafter without consent of each of the Mortgagors or any person to enter and take possession of the Mortgage Properties.

(g)  Hence the Mortgage Action and the relief sought in the Originating Summons, which includes: (1) payment of the Outstanding Liabilities; (2) delivery up of the Mortgaged Properties; and (3) payment of the Bank’s reasonable expenses on a solicitor and own client basis pursuant to Clause 18.1 of the Mortgages: see HSBC v King Wai Pieces Good Company Limited [2025] HKCFI 1371 at §§114-116.

14.  It is submitted that the Bank has established  a prima facie case for enforcement of the Mortgages. As a matter of the Court’s approach on an O.88 Originating Summons, this shifts the burden to the Defendants to demonstrate a triable issue: Habib Bank Zurich (Hong Kong) Ltd v Tee Vee Brands International Ltd [2025] HKCFI 2100 at §8 per Deputy High Court Judge Grace Chow.

DEFENCES

Misrepresentation and Mistake

15.  First, the 1^st Defendant claims that before Facility Letter-2 was executed on 2 November 2017, the Bank’s officer Mr Lee Chi Yeung (“Mr Lee”) offered him a revolving loan of HKD70,000,000 to increase his buying power in his personal accounts held with HSBC Private Banking.

16.  Mr Lee then represented to the 1^st Defendant orally he could “withdraw proceeds freely, for so long as there are profits above the level of the loans, without having to first utilize any such proceeds to repay any outstanding investment loans.”)  (the “Representation”).

17.  The Defendants say the Representation is false because there was a term under Facility Letter-2 that “Any proceeds from disposal of the investment shall be applied for repayment of the investment loan” (the “Withdrawal Restriction”). Facility Letter-2 to Facility Letter-7 are said to have been executed under the inducement of the Representation.

18.  The Defendants therefore seek rescission and damages for misrepresentation.

19.  The Defendants also claim that there was a unilateral mistake as TWDF misunderstood that proceeds could be withdrawn freely in entering into Facility Letter-2 to Facility Letter-7, which is thereby rendered void.

20.  Despite the most able submissions of Mr Wong SC on behalf of the Defendants, I am of the view that this misrepresentation and mistake defence arise out of the alleged oral representation of Mr Lee is not capable of belief. They are not bona fide defences to the Mortgage Action.

21.  First, the only written material relied upon is a WhatsApp exchange dated 17 June 2020, some 2.5 years after the alleged representation and after disputes had broken out. However, materially, even then, there was no mention of the Representation. What it refers to is a “practice” between the parties. It could well be that a matter of practicality and reality, the Bank did allow the practice in the past. But that is conceptually different from the making of the Representation. One would have thought that if the Representation were made, this would be the first challenge or complaint to be raised by the 1^st Defendant. In my view, this evidence actually negates the existence of the Representation.

22.  The Defendants cannot point to any other contemporaneous electronic or written footprints of the Representation. I find it hard to believe that a bank officer would make statements directly contradictory to the written terms of Facility Letter-2 and the 1^st Defendant being a seasoned investor would have relied on it.

23.  Mr Lau for the Bank is correct in reminding the Court that the 1^st Defendant is a highly sophisticated individual. He is a qualified solicitor with higher education, a former magistrate, and experienced businessman. I find it incredible that the 1^st Defendant would at any time entertain any genuine belief that the Bank would not enforce the strict terms of the Facility Letters and the Mortgages as and when it suits the Bank’s best interest.

24.  Secondly, the Representation is inconsistent with the loan documentations that the 1^st Defendant willingly entered with the Bank. I agree that the full suite of the Bank’s documents contains so many express terms inconsistent with the Representation that the 1^st Defendant could not have been labouring under any misunderstanding:

(a)  Paragraphs 1 and 2 of Revolving Loan (II) as contained in the Facility Letter-2 dated 26 October 2017 both restate the Withdrawal Restriction. I agree with Mr Lau that given the 1^st Defendant’s seasoned background, he would surely have objected if the express terms of Facility Letter-2 were so at odds with his understanding.

(b)  Importantly, the 1^st Defendant does not say he missed these terms. He claims that he noticed them, but was then orally told it did not apply. I find it hard to believe the 1^st Defendant would ever entertain any thought that the Bank would not enforce the terms of its loan documents.

25.  Mr Lau for the Bank also helpfully referred this Court to a document entitled a “MEMORANDUM OF CHARGE FOR THIRD PARTY’S OBLIGATION” (the “HKD70M Charge”) dated 2 November 2017. The HKD70M Charge reiterates the Withdrawal Restriction:

(a)  The “Important Notice” on the very first page of the document states that all the 1^st Defendant’s assets and properties held with the Bank will be charged as security for TWDF’s liabilities.

(b)  Importantly, Clause 7(a) of the Conditions of Charge makes clear that the 1^st Defendant cannot deal with the Charged Property, which includes all of the 1^st Defendant’s accounts maintained with the Bank and all assets therein (see definition of “Charged Property”) without the Bank’s written consent.

(c)  Further, before signing the HKD70M Charge, the 1^st Defendant had been advised by independent solicitors Christine F.L. Ip & Young (now the Mortgagors’ solicitors, “CFLIY”). The Bank had provided CFLIY with a copy of Facility Letter-2 and the HKD70M Charge, and CFLIY confirmed that they held a face-to-face meeting with 1^st Defendant in which they explained to the 1^st Defendant the terms of the HKD70M Charge.

26.  Mr Lau is correct in submitting that the 1^st Defendant had further  signed a series of documents which are all inconsistent with the Representation. The repeated confirmations of the Withdrawal Restrictions include when renewals or amendments were made for each of Facility Letter 3 to Facility Letter 5 in June 2018, January 2019 and April 2019; the two letters of undertaking for Facility Letter-3 dated 12 June 2018, a charge of HK$170,000,000 dated 24 December 2018, lien made for account ending -003, solicitor’s confirmation for Facility Letter-4, a charge of HK$220,000,000 dated 24 April 2019, solicitor’s confirmation for Facility Letter-5, lien made for account ending -004.

27.  Kwan VP’s observations in But Ka Chon v Interactive Brokers [2019] 4 HKLRD 85 at §43 (see generally §§30-45) are very apt in the present circumstances:

“It is tantamount to saying that having read the margin webpage and having been induced by some of its contents to enter into contractual relationship with IB, Mr But could simply ignore the contents of the legal terms he was requested to accept or decline as well as the contents of the Customer Agreement, notwithstanding that the relevant parts of the agreement on modifying margin requirements were printed in block letters and in bold. The proposition has only to be stated to be rejected.” (Emphasis added.)

28.  Similarly, the observation in Have Result Finance Ltd v Chan How Chung Victor [2025] HKCFI 2611 (defence of bank promising not to enforce its strict legal rights rejected) at §§4.5, 5.8-5.9 namely that it is “inherently difficult” that any bank in a “purely commercial” setting would represent that it would not enforce its rights, is also applicable with force.

29.  Thirdly, whilst Mr Wong SC is correct that there is the record of previous withdrawals from the 1^st Defendant’s accounts consistent with the Representation, I agree that this is not enough to prove the existence of the Representation as the Bank’s internal documents make it clear that it retains a discretion on whether to enforce the Withdrawal Restriction: see e.g. Memo of 13 November 2017 in connection with the HKD70M Charge. I accept that past practice or indulgence cannot create a binding legal obligation, still less evidence that the Representation was ever made.

30.  It is quite normal in the commercial world for the Bank to grant indulgence to its customers, but it is unrealistic to expect that when things turn south, the Bank would not enforce its strict legal rights. Accordingly, I find it hard to believe that the 1^st Defendant could have relied on the Representation even if the same was made.

31.  Fourthly, Mr Lau is correct in submitting that the defence of misrepresentation and mistake are barred by affirmation. On the Defendants’ case, he discovered the Withdrawal Restriction by June 2020. Yet, in February 2021 he executed Facility Letter-8, which (1) confirms that prior the Facility Letter terms remain in full force and effect: “save as amended by this letter, the terms of the Facility Letter and (if any) all related documents shall remain unchanged and continue in full force and effect”; and (2) expressly re-states the Withdrawal Restriction in the amendments to the terms of the Revolving Loans.

32.  I agree that the 1^st Defendant’s signing on FL-8 is wholly inconsistent with any claim to rescission of prior Facility Letters: “if the representee, having discovered the misrepresentation, either expressly declares the intention to proceed with the contract, or does some unequivocal act that is communicated to the representor and is inconsistent with an intention to rescind the contract, the representee is bound by the affirmation”: Chitty on Contracts (36^th Ed), at §10-143.

33.  I am of the view that the 1^st Defendant could not have been operating under any mistake when executing Facility Letter-8. He had learnt of the Withdrawal Restriction by then but chose to accept it and the other terms of the prior Facility Letters.

34.  The 1^st Defendant claims that after discovering the Withdrawal Restriction, he “requested to convert the Revolving Loans into a term loan” (§41.1) and “arrange the repayment of HK$90 million” (§41.4), and that signing on Facility Letter-8 was to buy time to exit from the Facility Letters. With respect , whether to buy time or not, the 1^st Defendant has chosen to confirm the terms of the Facility Letters including the Withdrawal Restriction. It is a price the 1^st Defendant willingly paid to buy time. That is the end of analysis.

35.  In any event, Mr Lau for the Bank is also correct that in seeking to “convert” or “repay” the loans, the 1^st Defendant affirmed that validity of the Facility Letters which cannot be rescinded and remain valid. (See Wong Ling Pan v Team Building Ltd [2021] HKCFI 336 at §42 per Deputy High Court Judge William Wong SC.)

36.  For the above reasons, I am of the firm view that the defence of misrepresentation and mistake are not capable of being believed.

37.  For the sake of completeness, I should mention that I do not find it necessary to deal with the doctrine of severance and the issue of whether a claim in restitution is a claim for the Secured Indebtedness. I see the force of Mr Wong SC’s submissions on these two sub-issues. However, for the reasons set out above, I find it sufficient to dismiss the Defendants’ defence of misrepresentation and mistake. There is nothing to be tried on those defences. They are simply not capable of being believed.

Breach of the Duty of Good Faith

38.  Similarly, in my view the defence of the breach of the duty of good faith cannot get off the ground. The Bank has a strict contractual right to demand for the repayment of the Outstanding Liabilities as part of the Secured Indebtedness. If the borrower, in this case, TWDF, fails to repay the same, as a matter of contractual bargain, the Defendants qua mortgagors, have to repay the same failing which there is a default.

39.  In the present case, it is said that the demand to repay the Outstanding Liabilities is motivated by bad faith.

40.  Mr Wong SC on behalf of the Defendants submitted that the demand for repayment was motivated by bad faith because: -

(a)  It is undisputed that TWDF had been faithfully and punctually repaying the HIBOR Loan before the Bank withdrew the facility on 10 July 2023. By the time the HIBOR Loan was withdrawn, it had been in place for roughly 7 years. There was thus no commercial rationale for the Bank to revoke the said loan, forgoing the long-standing and stable stream of interest income from TWDF.

(b)  The withdrawal of the HIBOR Loan occurred precisely amid escalating disputes between 1^st Defendant and the Bank concerning the Revolving Loan. During this period, the 1^st Defendant repeatedly complained against the Bank’s conduct – including allegations of misrepresentation, obstruction of loan repayment, and failure to warn of investment risks. He even escalated his grievance by sending a handwritten letter to Ms Anastasia Wong, Vice President of HSBC Commercial Banking on 4 January 2023. The correspondence demonstrates the 1^st Defendant’s ongoing dissatisfaction and persistent complaints regarding the Bank’s actions.

(c)  On 10 July 2023, HSBC abruptly issued the demand letter, withdrawing all loan facilities and demanding immediate payment. The letter failed to identify any event of default or reason for revoking the loan facilities. Instead, the Bank relied solely on a vague assertion that it was “no longer prepared to continue to make banking facilities available to you”.

(d)  The Bank’s subsequent attempt to justify the revocation in its affirmation is likewise based on issues relating to the Revolving Loan, not the HIBOR Loan. Specifically, the Bank pointed to the parties’ negotiation regarding the breach of the NAV ratio and expressed dissatisfaction with the 1^st Defendant’s conduct of the negotiation.

(e)  Further, the Bank deliberately chose not to join TWDF as a party to the Mortgage Action despite being fully aware that TWDF commenced proceedings against HSBC in HCA 1104/2024. This omission strongly suggests an intention by the Bank to silence TWDF and circumvent any potential counterclaims. In DBS Bank (Hong Kong) Ltd v Honour Elite Corporation Ltd and Another [2026] HKCFI 401 at §74 Au-Yeung J, said:

“The failure of DBS Bank to bring in CNAM [the borrower] as a defendant is deafening – to rely on the status of CNAM as a separate entity and avoid a counterclaim that can stop DBS Bank from getting judgment against the Mortgagors and Guarantor. It brings into question DBS Bank’s good faith”. [emphasis added]

(f)  Worst still, like DBS Bank in Honour Elite (supra), the Bank unreasonably withheld consent for the existing tenancies on the mortgaged properties in July 2025, despite being fully aware of these tenancies when the Mortgages were created in 2016. The Bank’s act was, to use Au Yeung J’s word, irrational – it caused significant financial repercussions for the Defendants and further impaired their ability to make repayments.

41.  Taken together, the timing, lack of default, irrelevant explanations, and procedural manoeuvring and unreasonable withholding of consent for tenancies strongly support the inference that the Bank withdrew the HIBOR Loan not for debt-recovery purposes but as a pressure tactic intended to silence the 1^st Defendant and TWDF, limit their ability to seek redress against the Bank, particularly as their grievances had renewed relevance in light of the Hong Kong Monetary Authority’s directive in July 2023.

42.  I do not accept that the Mortgage Action is the Bank’s pressure tactic to silence the 1^st Defendant and TWDF, or to limit their ability to seek redress against the Bank. There is no evidence that HCA 1104 of 2024 could not continue or somehow will be stifled if summary judgment were to be granted in favour of the Bank in the Mortgage Action. To the contrary, directions were agreed for HCA 1104 of 2024 to proceed with full speed with trial to take place by the end of the year. It is not explained to the Court as to how the initiation of the Mortgage Action will somehow silence the 1^st Defendant and TWDF or limit their ability to seek redress against the Bank.

43.  There are no other ulterior motives alleged against the Bank. There is the want of evidential foundation to constitute a case of breach of the duty of good faith against the Bank. First, the demand for repayment of the Outstanding Liabilities despite punctual repayment of the HIBOR Loans cannot ipso facto give rise to a breach of the duty of good faith. Mr Lau for the Bank cannot be faulted in submitting that the Bank has a contractual right to demand for the repayment vis-à-vis TWDF. Enforcing one’s strict legal rights cannot be said to be a breach of a duty of good faith. A bank owes its customers no duty to give reasons as to why it chose to strictly enforce its contractual rights. Whether that is commercially justified from the borrower’s perspective or morally right is an entirely different matter.

44.  Secondly, as far as timing is concerned, I note that the Writ in HCA 1104 of 2024 was issued on 6 June 2024, but it contained only claims for relief and no factual allegations. It is a protective writ. The Writ was only served on the Bank on 4 June 2025 (before the expiry of the one-year period), i.e., after the Mortgage Action was commenced on 10 April 2025. Hence, it is difficult for this Court to conclude that the Writ in HCA 1104 of 2024 dated 6 June 2024 and the complaints leading to the said Writ caused the commencement of the Mortgage Action.

45.  It is correct that the Bank issued the demand letter, withdrawing all loan facilities and demanding immediate payment on 10 July 2023 without specifying reasons. However, I am not entirely convinced that such conduct amounts to a breach of the duty of good faith. It is a fact that the Revolving Loan was applied for the 1^st Defendant’s personal investment which for reasons subject to disputes had not performed well. As of 13 October 2022, the total asset value of the 1^st Defendant’s personal private bank account stood at HK$14,967,849.50. It is the Defendants’ own case that the HIBOR Loan and the Revolving Loan cannot be segregated from consideration. The substantial amount of the Revolving Loans that had been deployed for the 1^st Defendant’s personal investments are, in my view, legitimate concerns for the Bank when the 1^st Defendant’s personal investments dropped to HK$14,967,849.50.

46.  I am of the view that it is conceptually and factually incorrect to suggest that a mere exercise of a strict legal right to call a loan even though the borrower and mortgagor had been servicing the monthly repayments punctually by itself amounts to a breach of the duty of good faith. To hold otherwise would mean that such contractual clauses have no meaningful legal effects and so long as the borrower is paying its repayments punctually, such clauses cannot be enforced. This is not the contractual bargain. Whether it infringes one’s sense of commercial ethics, that is another matter.

47.  I agree with Mr Lau’s submission that the legal principles relied upon by the Defendants concerning mortgagees’ duty of good faith does not apply to the Bank’s rights in calling in loans under the Facility Letters, where the Bank is acting qua lender but not mortgagee. The Bank’s right is not qualified.

48.  I also accept that there is no overarching case put forward by the Defendants which points to the Bank having any ulterior motive such as appointing a receiver to control the Defendants, with no intention to realise the security and repay the mortgage. (See CCMD Overseas Ltd v Sinom Investments Ltd [2025] HKCA 678. )

49.  I am of the view that the Bank have spent considerable amount of time (about 1.5 years) to engage with the 1^st Defendant before issuing the demand letters. The Bank resorts to the Mortgage Action to protect its own commercial interests rather than to harm the Defendants or to pressurize the Defendants.

50.  Thirdly, I do not find the Bank’s refusal to give consent for the existing tenancies on the mortgaged properties in July 2025 is unreasonable or irrational. The Mortgage Action was commenced on 10 April 2025. The Bank is applying for vacant possession of the mortgaged properties. Accordingly, it is only natural that it did not give further consent for the existing tenancy to continue.

51.  Finally, I am of the view that the failure to join TWDF is not relevant because TWDF is present via HCA 1104 of 2024, and the Defendants’ full case is before this Court. I do not find this to bring in the question of the Bank’s good faith.

52.  For all the reasons stated above, I do not agree that the Bank exercised its decision to demand immediate repayment arbitrarily and irrationally without good reasons in breach of its duty of good faith.

Breach of Advisory Duty and Failure to Execute Instructions

53.  For the reasons set out in paragraphs 31 to 63 of Mr Wong SC’s very comprehensive submissions, I am of the view that the issues of whether the Bank had breached its advisory duty and the duty to execute the 1^st Defendant’s instructions are issues that cannot be determined summarily. These claims should be adjudicated in the full trial in HCA 1104 of 2024. As the case will be tried at the end of the year and the case is ongoing, I am of the view that the full merits of the case should be ventilated then. It suffices for me to say that there are serious issues to be tried.

54.  Mr Lau for the Bank does not contest otherwise. What the Bank submits is that such breach of duty claims, if proved, only operates as cross-claims or set-offs to the Bank’s claim under the Mortgages. They cannot bar the mortgagee from obtaining judgment. The 1^st Defendant’s remedy is to pursue his cross-claims separately:

(a)  At common law, “mis-selling claims…cannot, as a matter of law, be set off against the mortgage debt (irrespective of whether the claimants’ contract with the bank contains a ‘no set-off’ clause)” pursuant to English CA authorities: Woodeson v Credit Suisse (UK) Ltd [2018] EWCA Civ 1103 at §§51-53 per Leggatt J (as he then was).

(b)  Clause 17.1 of each Mortgage is the precise type of “no set-off” clause envisaged: “All sums payable...shall be made free and clear of and without any deduction for or on account of any right of set-off, crossclaim or counterclaim…each of the Mortgagor and the Borrower hereby waives…any right to make deduction or withholding in payment of any part of the Secured Indebtedness on account of-any crossclaim or counterclaim which the Mortgagor and/or the Borrower may have against the Lender”.

(c)  Such no set-off clauses are regularly enforced by the Courts. See: CF v SHK [2024] 5 HKC 303 at §32.

55.  I am of the view that Mr Lau’s submissions on this issue are correct. First, paragraph 88 of the Statement of Claim in HCA 1104 of 2024 sets out the Plaintiffs’ claims there. The Plaintiffs in HCA 1104 of 2024 do not plea that the breaches of the Bank’s advisory duty and the asserted failure to carry out instructions caused and/or prevented their ability to repay the Outstanding Liabilities.

56.  Secondly, the Affirmation of the 1^st Defendant in the Mortgage Action does not mention or hint that the asserted breach of the Bank’s advisory duty and the duty to execute the 1^st Defendant’s instructions had caused and/or prevented their ability to repay the Outstanding Liabilities.

57.  It is fair that the prevention principle was only first raised in Mr Wong SC’s written skeleton submissions. Mr Wong SC submitted that: -

(a)  It is well-established that the prevention principle bars a contractual party who is in breach of an obligation owed to the other party from asserting rights which arise in consequence of his own breach: Kensland Realty Ltd v Whale View Investment Ltd (2001) 4 HKCFAR 381 at §§91 and 96 per Ribeiro PJ.

(b)  To invoke the principle, two elements have to be established: -

(i)  The relevant party acted in breach of contract in respect of an obligation owed to the other party.

(ii)  The contractual right which the relevant party is seeking to assert, or claim arises as a direct consequence of that prior breach.

Kensland (supra) at §§94-95; Honour Elite (supra) at §§53-54.

(c)  The recent case of Honour Elite, decided in January 2026 (Au- Yeung J) is particularly relevant, not least because it was a decision made in the context of a summary judgment application under O.88 by a bank against the mortgagors of certain landed properties. In that case:

(i)  The bank sought to enforce mortgages to recover outstanding debts owed by borrowers, and to obtain possession of the mortgaged properties. One of the borrowers was CNAM, but it was not joined by the bank in the O.88 action.

(ii)  The mortgagors opposed the bank’s application relying on the prevention principle. They claimed that the bank was in breach of the prevention principle by breaching its duty of confidentiality to CNAM and disclosing confidential information on CNAM’s fund flow to a major client without CNAM’s authorisation. As a result of the information leak, CNAM lost the major client which led to a drastic drop of CNAM’s revenue and caused it to suffer significant financial loss.

(iii)  Like the present case, the mortgagors in Honour Elite had never defaulted in mortgage repayments. It was held by the Court that the bank had no right to call in the mortgage loans, as there was no Event of Default under the Mortgages (see §§27, 38, 48-52 of the judgment).

(iv)  The Court further held that there was a bona fide allegation of breach of confidentiality on the part of the bank, which resulted in CNAM losing a significant client, experiencing a substantial decrease in revenue, and ultimately being unable to repay its loans (§§64-80).

(v)  At §70, Au-Yeung J held that:

“The ‘breach’ was not directly of the Mortgages or Guarantees. However, it is arguably within the reasonable contemplation of DBS Bank that breach of the duty of confidentiality may have impact on the ability of CNAM (a commercial entity) to repay under the Mortgages. This may be an arguable point of law.” [emphasis added]

(vi)  Moreover, Her Ladyship at §74 was critical of the tactical move of the bank to sue the mortgagor and guarantors only, without bringing in the borrower/CNAM which was asserting that the bank had acted in breach of its duty of confidentiality:

“The failure of DBS Bank to bring in CNAM as a defendant is deafening – to rely on the status of CNAM as a separate entity and avoid a counterclaim that can stop DBS Bank from getting judgment against the Mortgagors and Guarantor. It brings into question DBS Bank’s good faith.” [emphasis added]

(vii)  Her Ladyship considered that the loss of a major client as a result of the bank’s breach of duty towards CNAM could give rise to an arguable defence for the defendants/mortgagors (§80), and granted unconditional leave to defend the Originating Summonses and ordered that the mortgage action be converted to a writ action (§83).

58.  It is submitted that in the present case, it is common ground that there is no breach of the HIBOR Loan whatsoever, and the only reason why the Bank withdrew the facilities and demanded immediate payment of the liabilities under the Facility Letters is the depreciation or loss of the investment portfolio financed by the Revolving Loan, and the dispute between the parties arising out of such a depreciation or loss. This is clear from the correspondence in 2022 and 2023 repeatedly demanding the restoration of the NAV before the demand letters that were finally issued on 10 and 11 July 2023. This, in fact, again shows that the issuance of the demand letters was related to the failure to restore the NAV. There is no lack of good faith on the part of the Bank.

59.  Mr Wong SC submitted that the causation between the Bank’s breaches (of its duty to execute instructions and its advisory duties) and the current dispute is plain. It is submitted that without the abovesaid breaches:

(a)  The 1^st Defendant would not have procured TWDF to obtain the Revolving Loan for investment in the first place. The alleged indebtedness and depreciation resulting therefrom would not have arisen at all.

(b)  Alternatively, the 1^st Defendant would not have purchased the investment portfolio in his Private Banking Account using the Revolving Loan or would have already liquidated his investment portfolio and would have already fully repaid the Revolving Loan in 2021. Notably, it is not disputed that the value of the investment portfolio in the 1^st Defendant’s Private Banking Account at those material times in 2021 was sufficient to discharge the outstanding Revolving Loan.

(c)  The remaining HIBOR Loan, which had been duly performed at all material times, would not have been recalled if TWDF had not taken out the Revolving Loan in the first place, or if the Revolving Loan for investment had already been fully repaid as intended by the 1^st Defendant by late 2021 at the latest.

60.  Therefore, by operation of the prevention principle, and applying Honour Elite, the Bank should be prohibited from (i) calling in the Revolving Loan; and (ii) enforcing the Mortgages against the Defendants and thereby benefiting from its own breach. The Defendants in HCMP in 559 should therefore be entitled to unconditional leave to defend.

61.  It is fair that the Defendants should be allowed to raise this legal submission in these proceedings. In fact, I am of the view that the real issue in the Mortgage Action is the applicability of the prevent principle to the facts of the present case.

62.  It is common ground that there is a requirement of causation for the prevention principle to apply. It must be shown that the contractual right which the Bank is seeking to assert, or claim, arises as a direct consequence of a prior breach. For example, in Kensland Realty (supra), the vendor’s invocation of the time is of the essence clause “arose”, i.e. was made possible, only because of the vendor’s own prior breach in failing to deliver a split cheque to the purchaser (§§101-102).

63.  In the present case, first, I do not agree that without the abovesaid breaches, the 1^st Defendant would not have procured TWDF to obtain the Revolving Loan for investment in the first place. The asserted breaches of the duty to advice and the failure to execute instructions to liquidate happened subsequently. The Revolving Loans were first granted in 2018. The asserted breaches of duties happened after that. There is no causative relation.

64.  Secondly, on the failure to liquidate the 1^st Defendant’s investment portfolio in 2021, I have directed the parties to file a supplemental written submission to deal with this specific point. Mr Wong SC objected to the Bank’s reliance on new evidence, namely, bank statements in relation to the 1^st Defendant’s private banking account with the Bank. The objection is reasonable. I will not take into consideration of any new factual evidence.

65.  However, on the existing facts, Mr Lau’s analysis is accurate. Mr Wong SC in §71.2 of his Skeleton Submissions refers to the 1^st Defendant’s Private Banking Account. The table referred in footnote 88 of the same paragraph shows that as of the date of event 4, namely, the date the first order to liquidate the entire portfolio was issue, on 27 October 2021, the 1^st Defendant’s Private Bank Account had a loan of HK$158,068,219.90 and a total asset value of HK$201,444,332.00 which means that if the entire portfolio was liquidated, the 1^st Defendant would have a net position of HK$43,376,112.10. This sum would not be sufficient to fully repay the total principle of the Revolving Loans which was HK$283,374,657.44 at the material time. Hence, even on a full liquidation scenario, it was perfectly legitimate for the Bank to demand for repayment of the outstanding Revolving Loans.

66.  Even without the new evidence which the Bank produced to this Court, for the sake of completeness, I am of the view that the “fixed loan principal” on the table referred in footnote 88 refers to the total loan position in the 1^st Defendant’s Private Banking Account and not the Revolving Loans. First, the table is the Defendant’s homemade document “HSBC PB8088 Pivotal Dates Accounts”. It only has to do with the 1^st Defendant’s private banking account. Secondly, the table shows the maximum amount of this loan only ever reached HK$170 million odd, which is far less than the HK$285 million cap of the Revolving Loans (i.e. HK$245 million under Facility Letter-6, plus HK$40 million in Revolving Loan (I) under Facility Letter-4. Thirdly, the table shows that this loan was taken out only on 23 February 2021 (column (2)) and fully repaid by 13 October 2022 (column (9)). All these show that the loan in the table is not the Revolving Loans (taken out in 2017, and never fully repaid).

67.  As a matter of fact, funds from the liquidation of the assets in the 1^st Defendant’s private banking account were applied to repay this private banking loans first, and not the Revolving Loans.

68.  At no point can the full liquidation of the assets in the 1^st Defendant’s private banking account results in sufficient cash to pay off both his loans in his private banking account and the Revolving Loans. I am of the view that the value of the investment portfolio in the 1^st Defendant’s Private Banking Account at those material times in 2021 was not sufficient to discharge the outstanding Revolving Loan. As such, the calling for the repayment of the HIBOR Loan and the Revolving Loans is not unreasonable.

69.  For the sake of completeness, whilst the execution of the 1^st Defendant’s instructions on 23 February 2021, namely, the repayment of HK$90 million, would have reduced the 1^st Defendant’s portfolio size, and thus significantly reduced the 1^st Defendant's losses during the subsequent market downturn, it is not at all clear to this Court, in terms of numeric figures, how that would have made the 1^st Defendant fully covered in terms of both of his personal banking loans and the Revolving Loans.

70.  Hence, I am of the view that on the evidence, there is no causative link between the asserted breaches of duties and the contractual rights that the Bank seeks to enforce under the Mortgage Action.

71.  Thirdly, I am of the view that Honour Elite is distinguishable. Every case depends on its own facts. In that case, the Court proceeded on the basis that the bank’s overriding and freestanding right to demand repayment was not (properly) invoked (§§38-47).

72.  The Defendants also rely on Honour Elite (supra) in support of the proposition that all mortgagors can invoke the prevention principle. I am not sure that is correct. There was no detailed reasoning of this issue in the case. I agree that to allow non-parties to the relevant contracts to invoke the prevention principle, is contrary to established authority. The prevention principle applies only where there is “breach of the contract in respect of an obligation owed to the other party” and not breach of “duties owed to third persons”: Kensland (supra) at §94.

73.  Finally, I note Mr Lau’s submission that the threshold for causation is that performance must be “rendered impossible”: TMF Trustee Ltd v Fire Navigation Inc [2019] EWHC 2918 at §§29, 34; alternatively, that performance must be “impossible or impracticable”, or that the Bank’s breaches must have “actually prevented” the Defendants from performing: North Midland Building Ltd v Cyden Homes Ltd [2017] EWHC 2414 at §23 per Fraser J.

74.  Mr Lau for the Bank submitted that on the Defendants’ best-case scenario, the Bank’s failures caused the 1^st Defendant or TWDF loss, but it does not follow that 1^st Defendant or TWDF have no ability to pay. That must be demonstrated by evidence of financial means. But before this Court there is no evidence of their financial status as of 2023, when the demands to pay were made. Ds have failed to rule out the very real possibility that they have other assets available to repay the Bank at the relevant time.

75.  However, the Court cannot decide cases by completely engaging in logically deduction and divorce itself from reality. The facts speak for themselves. Had the 1^st Defendant or the other Defendants had other sources of income, they would have repaid the Bank. The factual scenario that the Defendants had had liquid assets but let the Bank to commence the Mortgage Action is simply unreal.

DISPOSITION

76.  For all the reasons given above, I will make an order in terms of the Draft Order as submitted by the Bank. The Mortgagors’ Summons dated 16 June 2025 is also dismissed.

77.  I also make a costs order nisi that: -

(a)  For the Mortgage Action, the Defendants are to pay the costs of and occasioned by the Bank on an indemnity basis with a certificate for two counsel.

(b)  For the Mortgagors’ Summons, the Plaintiffs therein are to pay the costs of and occasioned by the Bank to be taxed on a party to party basis if no agreement can be reached by the parties with a certificate for two counsel.

The above costs order nisi will be made absolute within 14 days from the date of this Decision unless an application is taken out to vary the same within the 14-day period.

78.  I also grant the standard order that vacant possession of the Mortgage Properties be delivered to the Bank.

79.  Out of abundance of caution, I also grant a general liberty to the parties to apply to this Court for further directions and/or orders arising of this Decision.

80.  Finally, it remains for this Court to thank counsel for their most able assistance.