CITIBANK, N. A. v. ASIAGLOBE TRADE LTD AND OTHERS

HCMP 1760/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1760 OF 2014

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REASONS FOR JUDGMENT
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1.  By an order made by Master K Lo on 23 December 2014 (“the order”) it was ordered that:

(1) The plaintiff do recover against the 1^st, 2^nd and 3^rd defendants (“D1, D2 and D3 respectively”) jointly and severally for:

(a) the sum of HK$21,998,629.81; and

(b) interest on the said sum together with interest at the daily rate of HK$8,990.97 from 12 August 2014 to the date of the order and thereafter at judgment rate until payment.

(2) D3 do within 28 days after service upon him of the order deliver up to the plaintiff vacant possession of the property comprised in a legal charge/mortgage dated 15 November 2013 and registered in the Land Registry by Memorial No 13112902240022 (“the legal charge”) and known as Flat A, 10^th floor, Tower 1B, The Latitude, No 638 Prince Edward Road East, Kowloon (“the property”).

(3) Upon D1, D2 and/or D3 paying to the plaintiff the money ordered to be paid and all other moneys (if any) secured to the plaintiff by the legal charge, the plaintiff (subject and without prejudice to the due exercise of any power of sale for the time being vested in it) do redeliver to D3 possession of the property and release to D3 the security constituted by the legal charge as D3 may agree or this Honourable Court may think fit.

2.  The master also ordered that the costs of the proceedings be to the plaintiff on an indemnity basis which was summarily assessed in the sum of HK$150,414.

3.  By a notice of appeal dated 20 January 2015 D1, D2 and D3 gave notice that they intended to appeal against the order.

4.  The appeal came before me for hearing on 27 April 2015.  D3 represented himself and D2 and D3.  Ms Zabrina Lau, instructed by Wilkinson & Grist (“W&G”), represented the plaintiff.

5.  After hearing submissions, I dismissed the appeal.  I also made an order that the costs of the appeal be to the plaintiff, to be taxed on an indemnity basis if not agreed.  I indicated at the time that reasons in writing would be given later on.  This I now do.

6.  By the originating summons dated 18 July 2014 the plaintiff claimed against D1, D2 and D3 for:

(1) Payment of all monies due to the plaintiff under the respective covenants contained in:

(a) the legal charge dated 15 November 2013 made between D3 as mortgagor, D1 and D2 as the borrowers and the plaintiff as the lender;

(b) a guarantee and indemnity dated 9 August 2012 executed by D3 in favour of the plaintiff to secure the indebtedness due and/or payable by D1 to the plaintiff;

(c) a second guarantee and indemnity also dated 9 August 2012 executed by D3 in favour of the plaintiff to secure the indebtedness due and/or payable by D1 to the plaintiff;

(d) a guarantee and indemnity dated 8 October 2013 executed by D1 and D2 in favour of the plaintiff to secure the indebtedness due and/or payable by D1 and D2 to the plaintiff; and

(e) a guarantee and indemnity dated 11 November executed by D3 in favour of the plaintiff to secure the indebtedness due and/or payable by D2 to the plaintiff.

(2) Delivery of vacant possession by D3 to the plaintiff of the property.

(3) Costs on a full indemnity basis.

7.  D3 is the sole shareholder and director of D1 and D2.  They were at all material times the customers of the plaintiff bank.

8.  There is no dispute that the defendants entered into the said guarantees and indemnities and the legal charge with the plaintiff upon the terms and conditions contained therein. 

9.  By the legal charge made between D3 as the mortgagor, D1 and D2 as the borrowers and the plaintiff as the lender, D3 charged the property to secure the banking facilities granted or to be granted by the plaintiff to D1 and D2 upon the terms and conditions contained therein.

10.  There is also no dispute that banking facilities were advanced by the plaintiff to D1 and D2 pursuant to the terms and conditions of, inter alia, the legal charge, the said guarantees and indemnities, the plaintiff’s general customer agreement dated 9 August 2012 executed by D1, the plaintiff’s general customer agreement dated 8 October 2013 executed by D2, three facility letters all dated 30 July 2012, and a further facility letter dated 7 October 2013 as subsequently amended by a supplemental facility letter dated 20 March 2014. 

11.  The undisputed evidence is that as at 18 July 2014 when the originating summons was issued the amounts owing to the plaintiff by D1, D2 and D3 jointly and severally was the sum of HK$22,429,414.96 as particularized at para 20 of the 1^st affirmation of Lee Tak Sing of the plaintiff.

12.  The amount owing as at 11 August 2014 was the sum of HK$21,998,629.81 as particularized at para 21 of the 1^st affirmation of Lee Tak Sing and at para 5 of the 2^nd affirmation of Lee Tak Sing. 

13.  At the hearing of the appeal, D3 representing the other defendants and himself raised two defences to the plaintiff’s claims:

(1) that there was a conflict of interest on the part of W&G acting for the plaintiff in these proceedings as they had acted for him previously; and

(2) to the knowledge of the plaintiff the property was occupied by a tenant and that the master should not have made the order for delivery of vacant possession whilst the tenancy was continuing.

14.  There is, in my view, no merit in either of the defences raised.

15.  As to the allegation of conflict of interest on the part of W&G, the undisputed evidence shows that W&G did act for D3 when he purchased another property namely, Flat B, 1^st floor, Tsui Lan Mansion, 5 Westlands Road, Quarry Bay, Hong Kong (“the Quarry Bay property”) in October 2013.

16.  W&G also acted for D3 when he mortgaged the Quarry Bay property in favour of the Indian Overseas Bank in November 2013.  The Quarry Bay property was mortgaged to the Indian Overseas Bank to secure the banking facilities granted by the Indian Overseas Bank to D1.

17.  By its letter dated 15 September 2014 from W&G to D3, W&G made it plain that they had not acquired any confidential information and were not in possession of any confidential information which might be relevant to these proceedings.  They denied that there was any conflict of interest on their part in acting for the plaintiff in these proceedings.

18.  The Quarry Bay property and the property the subject of these proceedings are different and unrelated properties.  The transactions are unrelated.  There is only a bald assertion of a conflict of interest on the part of W&G.  The defendants have failed to particularize the nature and extent of the confidential information allegedly acquired by W&G when acting on the Quarry Bay property transactions and the ways in which the defendants’ interests have been affected as a result of the alleged conflict of interest. 

19.  It is also alleged that W&G initially acted as the solicitors for D1, D2 and D3 in the transfer of the mortgage on the property from HSBC to the plaintiff (para 4 of the 1^st affirmation of D3 affirmed on 7 October 2014). 

20.  From the email exchanges between Cleresa Wong of W&G and D3 on 17 and 18 October 2013 (exhibited as part of Annexure E to the 1^st affirmation of D3) it is clear that there were negotiations on the fees to be charged by W&G. There was no agreement on the fees quoted and W&G were not engaged to and did not act for any of the defendants on the transfer of the mortgage of the property from HSBC to the plaintiff.

21.  I would observe that W&G also did not act for the plaintiff in the preparation and execution of the legal charge.  Y C Lee, Pang, Kwok & Ip were the solicitors acting for the parties to the legal charge.

22.  I fail to see why there should be any conflict of interest on the part of W&G to prevent them from acting for the plaintiff in these proceedings. 

23.  In any event any suggestion of a conflict of interest on the part of W&G in acting for the plaintiff in these proceedings does not provide the defendants with a defence to the claims of the plaintiff.   

24.  As to whether the order for vacant possession should have been made as there was a tenant on the property, D3 submitted that the plaintiff knew that there was a continuing tenant on the property.  He submitted that the order for vacant possession should not have been made whilst the tenancy was continuing. 

25.  D3 relied on a tenancy agreement between himself as landlord and Tsang Tai Yuen Johnny (“Tsang”) as tenant made on 23 June 2014 (“the new tenancy”) a copy of which is exhibited as Annexure H to the 1^st affirmation of D3.  The term of the tenancy was from 8 July 2014 to 7 July 2016.

26.  There is no dispute that at the time of the legal charge the plaintiff was aware that the property was occupied by a tenant.  It is clear from the email exchanges between Florence Lai, of the plaintiff, and D3 on 29 August 2013 (exhibited as part of Annexure A to the 3^rd affirmation of D3 affirmed on 4 November 2014) that at all material times the plaintiff was aware that the property was occupied by a tenant.  By the said email exchanges D3 had provided the plaintiff with a copy of the tenancy agreement made on 20 June 2012 (“the old tenancy”) between D3 as landlord and one Wong Wing Lok Wilfred (“Wong”) as tenant of the property.  The term of the tenancy was from 1 July 2012 to 30 June 2014.   

27.  It is plain that the tenant under the old tenancy was a different tenant than the tenant under the new tenancy.  On the termination of the old tenancy with Wong, D3 entered into the new tenancy with Tsang.

28.  There is no merit in describing the old tenancy and the new tenancy as one continuing tenancy as D3 has done.

29.  By Clause 6.2 of the legal charge D3 undertook, inter alia, that he:

“… will not, unless the [plaintiff] otherwise agrees in writing:

…

(c) part with the use, occupation or possession of the Property or any part thereof in any way whatsoever whether by way of leasing, letting, sub-letting, licensing, lending, sharing, assigning or other means whereby any person other than the Mortgagor obtains the use, occupation or possession of the Property or any part thereof, irrespective of whether any rental or other consideration is given for such use, occupation or possession. …”

30.  There is no evidence that the plaintiff was ever asked to agree to the new tenancy that D3 entered into with Tsang.  There is no evidence that the plaintiff ever agreed to the granting of the new tenancy in writing or at all.

31.  Ms Lau submitted, correctly in my view, that the failure to pay the monies owing to the plaintiff upon demand being made was already an event of default under clause 7.1(a) of the legal charge.  The first demand was made by letter dated 16 June 2014 from W&G on behalf of the plaintiff to each of the defendants.

32.  Ms Lau further submitted, correctly in my view, that the breach of the undertaking under clause 6.2(c) of the legal charge on the part of D3 by granting the new tenancy to Tsang on the termination of the old tenancy with Wong constituted another event of default on the part of D3 under clause 7.1(a) of the legal charge.

33.  I would observe that the new tenancy was granted by D3 to Tsang by the agreement made on 23 June 2014 after the first demand had been made by the said letter dated 16 June 2014 from W&G.

34.  I was also informed at the hearing of the appeal by Ms Lau that the new tenant had already vacated the property after the order of the master.  The plaintiff has already obtained vacant possession of the property. 

35.  As I have said, there is no merit in either of the two defences raised.

36.  Clause 15 of the legal charge provided that:

“15. EVIDENCE OF DEBT

Any statement of account purporting to show an amount due from the Borrower or the Mortgagor to the Bank under this Deed and signed as correct by a duly authorised officer of the Bank shall, in the absence of manifest error, be conclusive evidence of the amount so due.”

37.  In my view there is a sufficient statement of account purporting to show the amounts due from the borrower or the mortgagor to the plaintiff under the legal charge in the 1^st and 2^nd affirmations of Lee Tak Sing.  In the absence of manifest error, and none is suggested, the statement of account shall be conclusive evidence of the amount so due under clause 15 of the legal charge. 

38.  In Chong Hing Bank Limited (formerly known as Liu Chong Hing Bank Limited) v Perfecta Dyeing, Printing & Weaving Works Limited and others (HCA 956/2008, 5 February 2009) DHCJ Carlson at para 17 of his judgment held that the plaintiff was entitled to rely on a similarly worded clause in that case.

39.  I would also observe that in lodging the notice of appeal, D1, D2 and D3 were out of time.  By the notice of appeal they also sought an extension of time.  However, as Ms Lau took no point on the fact that the appeal was lodged out of time, I need say no more about that.

40.  I was also satisfied that under the legal charge, the guarantees and indemnities and the general customer agreements, the plaintiff was entitled to costs on an indemnity basis.

41.  For the above reasons, the appeal was dismissed with the order for costs that I made.