XCHRX Fortis Bank Asia HK and Another v. Queensmill Investment Ltd. and Another

HCMP 7864/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 7864 OF 1999

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J U D G M E N T

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Background

1. The plaintiff took out an Originating Summons against the 1st defendant as the mortgagor and the 2nd defendant as the borrower for payment of all monies due under a Legal Charge dated 14 June 1996 and a Mortgage dated 30 October 1996 and further for delivery of vacant possession of two mortgaged properties namely:

(a) Offices A & B, 4th Floor, Henfa Commercial Building, 348-350 Lockhart Road, Hong Kong; and

(b) 50C Tai Hang Road, Hong Kong.

2. On 21 April 1998, the plaintiff consolidated the defendants' loans and overdrafts by a second facility letter and offered a short term loan of $26 million for a period of 6 months at an interest rate of 3% over the current prime rate of interest to the defendants. The facility letter was addressed to the 2nd defendant. The loan was secured on the two properties referred to in the Legal Charge and Mortgage referred to above. The 1st and 2nd defendants agreed to settle the repayment of the loans under the short term loan facilities and the new overdraft facilities in one lump sum within 6 months of the drawing down of the loan under the terms of the second facility letter. The short term loan facilities and new overdraft facilities became due on 7 November 1998.

3. On 30 July 1999, through its solicitors, the plaintiff issued demand letters to the 1st and 2nd defendants for a total indebtedness inclusive of interests up to 28 July 1999 of $27,966,475.01. Upon failure to settle the said loan and interests, the plaintiff took out an originating summons on 21 December 1999.

The 27 January 2000 Meeting

4. A meeting took place between the 2nd Defendant and the plaintiff's special assets manager Mr. Wan Hoi Kwai at the plaintiff's head office on 27 January 2000. The 2nd defendant alleged that Mr. Wan had orally agreed that the plaintiff would withhold these proceedings on condition that the 2nd defendant paying a sum of $300,000 per month to the plaintiff to cover interests and mortgage repayments. According to the 2nd defendant he had shown Mr. Wan the approved general building plans of 50A, B & C of Tai Hang Road, ("the said property") and informed Mr. Wan that he was waiting for the Lands Development to assess the premium for modification for the re-development of 50A, B & C Tai Hang Road and that the matter was in its final stage. He further promised to keep Mr. Wan informed of the progress of the re-development of the said property.

5. According to the 2nd defendant's affirmations and his evidence at the hearing, he expected to obtain a building loan to cover his liabilities to the plaintiff. He referred to a letter dated 17 May 2000, exhibited to his affirmation of 25 August 2000, from Canadian Eastern Finance Limited addressed to one Master King Holdings Limited and to the 2nd defendant confirming a building loan facility of a total of $114,500,000 for the re-development of the said property for the purposes of land and building costs.

6. The 2nd defendant claimed that he had kept up his promise and paid a monthly sum of $300,000 to the plaintiff since 27 January 2000 and that he had frequent telephone conversations with Mr. Wan to inform him of the progress of the re-development. He claimed the plaintiff should keep its promise and withhold proceeding with this action.

7. Mr. Wan of the plaintiff, on the other hand, denied he had reached any agreement with the 2nd defendant to stay the action on condition that the defendants should pay a sum of $300,000 per month to the plaintiff. He confirmed that the 2nd defendant did present his re-development project at the meeting and asked the plaintiff to stay the proceedings pending the necessary approval and finance to redevelop the said property mortgaged to the plaintiff. He said the 2nd defendant had represented to him that the redevelopment would proceed soon within 1 to 2 months' time. In reply, he had asked the 2nd defendant to keep him informed. According to paragraph 3 of Mr. Wan's affirmation of 8 September 2000 and his evidence at the hearing, he informed the 2nd defendant at the meeting that the plaintiff was not interested in the project and its interest was in the repayment of the loan. He claimed he had emphasized to the 2nd defendant that the defendants remained liable to repay the loan irrespective of the re-development. He agreed the 2nd defendant did contact him several times between December 1999 and July 2000 concerning the progress of the re-development. Furthermore, in May 2000, at the requests of the 2nd defendant, the plaintiff through its solicitors agreed to release the title deeds of the said property to the Lands Department and consented to the re-development of the said 1st property subject to its receiving payment to their satisfaction for settlement of the mortgage loan due to it. It is Mr. Wan's evidence at the hearing that it is not up to him to grant an extension of time of over-due loan repayments, that he had to report to the 'Problem Loans Committee' which meets quarterly, and it would give directions in respect of such problem loans.

The Issues

8. The issues to be decided are:

(a) Whether there was a verbal promise on 27 January 2000 between Mr. Wan and the 2nd defendant not to proceed with the originating summons against the defendants;

(b) If there was, whether the plaintiff is estopped from enforcing the Mortgage and Legal Charge by the originating summons.

9. Mr. Ling, counsel for the plaintiff, referred to Chitty on Contract vol. 1, 28 ed. para. 3-081 and submitted that for the defendants to rely on the doctrine of promisory estoppel, they must show that:

(i) the plaintiff made a clear and unequivocal representation to the 2nd defendant that it would not enforce its strict legal rights against them;

(ii) the plaintiff intended the defendants would rely on such representation;

(iii) the defendants relied on the representation;

(iv) it would be inequitable for plaintiff to go back on its promise.

Findings

10. It is clear on the evidence that the 2nd defendant met Mr. Wan on 27 January 2000 in the hope that the plaintiff would withhold the proceedings against himself and the 1st defendant (the 2nd defendant is a director of the 1st defendant). He told Mr. Wan of the re-development of the said property which is one of the 2 properties mortgaged to the plaintiff, because he wanted it to know he would be re-developing it and the assessment of premium payment would be completed soon, and he was expecting a building loan to be extended to him. Meanwhile, he offered to pay $300,000 per month to the plaintiff. From Mr. Wan's evidence, it is quite possible that he had told Mr. Wan that within 1 to 2 months the re-development project would proceed. That upon hearing this, Mr. Wan agreed to accept payment of $300,000 per month to cover interests and loan repayments. It was quite apparent to all parties then that at the prevailing interest rate of 14% per annum charged, the $300,000 per month would be insufficient to cover the monthly interest of the $26 million loan. The 1-2 month passed, the month of April came and gone, and the matter dragged on for 6 months, there was no sign from the 2nd defendant that the repayment would be forthcoming. Mr. Wan was hoping for redemption to take place during that time, but notification of the premium assessment did not come. In fact, it wasn't until 14 May 20001 that the 2nd defendant received notification from the Lands Department of the premium assessment. Due to the delay in the premium assessment, the 2nd defendant sent to Mr. Wan a copy of the letter from the Lands Department dated 26 July 2000 and the letter from Canadian Eastern Finance Limited, in an attempt to obtain further indulgence. Further support can be found in the 2nd defendant's 12 August 2000 letter to the plaintiff craving for indulgence to withhold action until 30 April 2001.

11. It is quite clear from the evidence before me, the parties did not come to a clear and unequivocal agreement as to how long the plaintiff would withhold these proceedings other than a couple of months. Paragraph 3-086 of Chitty on Contract Vol. 1 provides that:

"The purpose of the requirement that the promise or representation must be "clear" or "unequivocal" is to prevent a party from losing his legal rights under a contract merely because he has granted some indulgence by failing to insist throughout on strict performance of the contract; or because he has offered some concession in the course of negotiations for the settlement of a dispute arising out of the contract. Thus the requirement was not satisfied where one of the parties to such a negotiation throughout insisted on strict compliance with the terms of the contract; where he accepted less than to which he was entitled but did so subject to an express reservation of his rights."

Clearly, the defendants failed to satisfy the requirement set out in Chitty. The plaintiff was merely granting the 2nd defendant some indulgence in the hope that redemption would take place soon.

12. I further find that in granting the defendants some indulgence in redeeming the mortgage, Mr. Wan had agreed to the defendants' paying part of the interests which had accrued and continued to accrue in the meantime.

13. Though the defendants began paying the sum of $300,000 per month, they were merely paying off the interests which they were liable to pay under the second facility letter, the Legal Charge and the Mortgage. By such performance, the defendants have in no way acted in detriment of or altered their positions. It is therefore not inequitable for the plaintiff to enforce the Legal Charge and Mortgage.

14. Mr. Ling submitted that even if the defendants succeeded in establishing a case on promisory estoppel, the effect would thereby be suspending the plaintiff's rights but not to debar its rights to enforce it.

15. I agree with Mr. Ling and find that the plaintiff is entitled to enforce its rights under the Legal Charge and the Mortgage. I cannot accept that the plaintiff by agreeing to the defendants' paying some of the accrued interest by a payment of $300,000 per month should be barred from recovering the loans extended to the defendants indefinitely. I cannnot find any evidence that the defendants have been put in a position they would not be otherwise able to put back to. In fact, the defendants benefitted from the delay in the plaintiff enforcing its rights under the Legal Charge and the Mortgage.

16. For the aforesaid reasons, I find the defendants have failed to satisfy the requirements of promissory estoppel.

17. Even if I was wrong in my finding that there was no promissory estoppel established, it would be inequitable to bar the plaintiff from exercising its rights under the Legal Charge and Mortgage even though it might have desisted from actively pursuing legal action for seven months from January to July 2000. The effect of any such promise could only be a suspension of its rights to enforce its legal rights. Such a suspension would only be for a reasonable period, for the 2nd defendant himself had asked for 8 months in his own affirmation of 25 August 2000. It follows, therefore, the most the defendants are entitled to is to be given reasonable notice as in the case of Hughes v. Metropolitan Railway Co. (1877) 2 App. Cases 439 and such notice could be served by means of notice to hear the originating summons as in the case of Tool Metal Manufacturing Co. Ltd. v. Tungsten Electric Co. Ltd. [1955] 1 WLR 761.

18. For the above reasons, I grant an order in terms of the originating summons with costs nisi to the plaintiff with certificate for counsel.