DAH SING BANK LTD v. SUN CREATE RICHLY HOLDINGS (ASIA) LTD AND ANOTHER

HCMP 457/2023

[2024] HKCFI 1512

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 457 OF 2023

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JUDGMENT

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Introduction

1.  This is the substantive hearing of the Originating Summons issued on 22 March 2023 (“OS”) by Dah Sing Bank, Limited (“the Plaintiff”), the mortgagee bank in a mortgage action against Sun Create Richly Holdings (Asia) Ltd (“D1”), the borrower and mortgagor and Qi Tao (“D2”), the guarantor, pursuant to RHC Order 88 for payment of monies and delivery of possession of the mortgaged property[1]  described in the OS. At the conclusion of the hearing, judgment was reserved which I now give.

Relevant background

2.  By its facility letter dated 3 May 2021 (“the Facility Letter”), the Plaintiff made available to D1 the following facilities:

(1)  a Term Loan (available for a period of 3 months from 3 May 2021) of up to HKD 70 million or loan outstanding at the OCBC Wing Hang Bank Limited (“the OCBC Bank”) as of the drawdown date by D1 (the borrower), whichever is lower to be repaid by 60 monthly instalments commencing 1 month from the loan drawdown date; and

(2)  a Revolving/Investment Loan of HKD 30 million subject to a minimum amount of HKD 1 million (or its equivalent in USD) for 1, 2, 3 or 6 month (s) as selected by the borrower restricted to purchases in designated securities at an interest rate applicable to the currency selected.

3.  On 10 May 2021, D2 (as authorised signatory for D1) executed the Commercial Business Agreement. D1 and D2 are collectively referred to as “the Defendants”.

4.  Also on 10 May 2021, D2 executed a Guarantee in favour of the Plaintiff in consideration of facilities granted by the Plaintiff to D1. D2 guaranteed to the Plaintiff payment on demand of all monies and liabilities owing by D1 without limit.

5.  On 22 June 2021, (within the period prescribed by the Facility letter), D1 drew down approximately HKD 67.13 million which was applied to settle D1’s loan outstanding at the OCBC Bank.

6.  On the same day, 22 June 2021, D2 as sole director of D1 executed a mortgage over the property (“the Mortgage”) as security for due payment of all indebtedness owing to the Plaintiff.

7.  On 16 December 2021, D1 was further granted an investment loan in the amount of USD 140,000 (“the Investment Loan”).

8.  On 22 March 2022, D1 as borrower/mortgage and D2 as guarantor executed a Supplemental Facility Letter in favour of the Plaintiff. It replaced Schedule 1 to the Facility Letter with updated “Reference Rate Terms” for US Dollars.

9.  Since the drawdown and up to February 2023, D1 had made timely repayments of the facilities granted without issue.

10.  On 6 March 2023, the Plaintiff issued a demand notice on D1 as borrower/mortgage and D2 as guarantor respectively demanding repayment of the amount outstanding under (inter alia) the Term Loan (“the demand notice”) as follows:

	HK$
Term Loan Principal Outstanding Balance	62,958,016.12
Accrued Interest	108,310.42
TOTAL	HK$63,066,326.54
(Please note that interest on the outstanding principal accrues daily and interest is subject to fluctuation of interest rate.)

11.  On 22 March 2023, the Plaintiff commenced this action seeking repayment of the following:

Item	Amount (HKD)
Term Loan Principal Outstanding Balance	62,958,016.12
Accrued Interest	299,050.74
Total	63,257,066.86
	Amount (USD)
Investment Loan Principal Outstanding Balance	140,000.00
Accrued Interest	626.03
Total	140,626.03

12.  The Plaintiff also seeks against D1 delivery of vacant possession of the property and against D2 repayment of the same outstanding sums pursuant to the Guarantee.

Legal principles

13.  It is common ground that

(1)  even though the matter is litigated by way of Order 88 procedure, the Court can give judgment summarily in favour of the plaintiff if there is no triable issue on the evidence: see Bank of China (Hong Kong) Limited v China Hong Kong Textile Co Ltd [2011] 4 HKLRD 457 at §5;

(2)  unlike Order 14 applications where the defendant is obliged to provide sufficient grounds to justify the action continuing to trial, the burden in summary judgment applications under the originating summons procedure is on the plaintiff to justify its entitlement to summary judgment. However, once this is prima facie demonstrated on the evidence, it is then up to the defendant to show that he does have a defence or defences to the claim. In this way, there may in practice be little difference between an application for summary judgment in originating summonses and an application for summary judgment under RHC, Order 14: per Ma J in Wing Hang Bank Ltd v Liu  Kam Ying & Ors [2002] 2 HKC 57 at §10

14.  The evidential requirements of proceedings under RHC Order 88 are set out in rule 5.  Of particular relevance are the following sub- rules:

“(3) Where the plaintiff claims delivery of possession the affidavit must show the circumstances under which the right to possession arises and except where the Court in any case or class of cases otherwise directs, the state of the account between the mortgage or and mortgagee with particulars of ---

(a) the amount of the advance,

(b) the amount of the periodic payments required to be made,

(c) the amount of any interest or instalments in arrear at the date of the originating summons and at the date of the affidavit, and

(d) the amount remaining due under the mortgage.

…

(6) Where the plaintiff claims payment of money secured by the mortgage, the affidavit must prove that the money is due and payable and give the particulars mentioned in paragraph (3).

(7) Where the plaintiff’s claim includes a claim for interest to judgment, the affidavit must state the amount of a day’s interest.”

15.  RHC Order 28 rule 8 (1) provides as follows:

“Where, in the case of a cause or matter begun by originating summons, it appears to the Court at any stage of the proceedings that the proceedings should for any reason be continued as if the latter had been begun by writ, it may order the proceedings to continue as if the cause or matter had been so begun and may, in particular, order that any affidavits shall stand as pleadings, with or without liberty to any of the parties to add thereto or to apply for particulars thereof.”

16.  For misrepresentation, an obvious requirement is that the statement relied on be false: see Chitty on Contracts, 34th Edn at §9-006.

17.  For a bank to be held liable for misrepresentation, it is necessary to show that the misrepresentation was made either by the bank or by its agent acting within the scope of his authority or that the bank has either actual or constructive notice of the representation: see Bank of China (Hong Kong) Limited v Leung Wai Man [2011] 4 HKLRD 707 §§40-44.

18.  The legal requirements for establishing a defence of non est factum can be found in Soshila Keswani v Motiram Keswani [2022] 2 HKLRD 822 at §34:

“For the defence of non est factum to apply, it has to be established that (i) the defendant was under a disability, whether permanent or temporary; (ii) the document he signed was fundamentally different from what he thought he was signing; (iii) he was not careless in appending his signature to the document: Saunders v Anglia Building Society [1971] AC 1004. The defendant bears a heavy burden of proof and he must establish each of the three components.”

19.  A person of age and capacity is normally bound by his signature to a document. Thus, in Ming Shiu Chung & Ors v Ming Shiu Sum & Ors (2006) 9 HKCFAR 334 at [84],

“[84] … It is an everyday occurrence that people sign documents without reading the small (or even the large) print and therefore sign without actually knowing the terms (or all the terms) of the documents signed. But they are held to the documents which they have chosen to sign unless there is shown to be a recognised legal basis for concluding that their apparent consent has been in some way vitiated or that reliance on that document by some other person falls into some category of unconscionable conduct justifying relief in equity.”

20.  The plea of non est factum was further explained by Lord Reid in Saunders v Anglia Building Society [1971] AC 1004(at 1016E):

“But the essence of the plea non est factum is that the person signing believed that the document he signed had one character or one effect whereas in fact its character or effect was quite different. He could not have such a belief unless he had taken steps or been given information which gave him some grounds for his belief. The amount of information he must have and the sufficiency of the particularity of his belief must depend on the circumstances of each case.”

The Plaintiff’s case

21.  The OS is supported by the affirmation of Shum Chi Kwan Lydia dated 12 July 2023 (“Shum 1^st”) which stated (at §25) that D1 “has defaulted in repaying” the outstanding balances for the Term Loan and the Investment Loan. The demand notice showed (inter alia[2]) the total sum owing under the Term Loan of HKD 63,066,326.54[3]  as at 6 March 2023 was then exhibited.

22.  According to the conditions set out in the Facility Letter for the Term Loan, the “Interest Period” is one month commencing from drawdown and interest is payable in arrears at the end of each Interest Period. In the present case, the drawdown took place on 22 June 2021. Hence, the interest payments would fall due on the 22^nd day of each month.

23.  At the hearing, the Court queried the basis for issuing the demand letter of 6 March 2023 since all the calculations were based on or stemmed from the information set out in the demand letter.

24.  Mr Chow referred to the following provision under the last heading “L. OTHER TERMS AND CONDITIONS” on page 12 of the 14-page Facility Letter as the basis of the demand letter:

“… the Facility is subject to review at any time, and also subject to the Bank’s overriding right of withdrawal and repayment on demand at any time. The Facility shall be subject to modification, suspension, termination or cancellation at any time unconditionally by the Bank without giving any prior notice or reason therefor.”

25.  I note that that particular provision is not given any prominence[4]  in the Facility Letter but is tucked away at the tail end of a 14-page document.

26.  Be that as it may, the state of account between the Defendants and the Plaintiff as at the date of the OS (22 March 2023) is set out in Shum 1^st (at §31). The total amount of outstanding under the Term Loan had increased to HKD 63,257,066.86[5]. The difference of HKD 190,740.32 since the date of the demand notice is attributable to interest accruing during the intervening 14 day period which was said to be subject to a charge of overdue interest of 10% per annum above the Plaintiff’s HKD prime rate under the terms of the Facility Letter.

27.  The Plaintiff set out its calculation of the interest for the outstanding balances as at 22 March 2023 and 12 July 2023 in exhibit SCKL-8[6].

28.  As earlier noted, up to February 2023, no issue arose as to timely payments. Indeed, a payment was due and made on 22 February 2023.

29.  After the OS was issued, D1 made payments of USD 140,810.56 and HKD 8,722,700.99 on 4 April 2023.

The defences

30.  The Defendants oppose summary judgment on the following grounds: 

(1)  the Plaintiff’s failure to discharge its burden of proof and its non-compliance with the statutory requirements under Order 88 rule 5; and

(2)  defences of misrepresentation and non est factum.

31.  As regards (2) above, it is D2’s case that at the meeting 3 May 2021 had with the Plaintiff’s officer, a Mr Bob Lam (“ Mr Lam”)

(1)  D2 expressly told Mr Lam that he (D2) does not read English and cannot comprehend the context of the Facility Letter. Mr Lam assured him that those were mere formalities that the Plaintiff required and that D2 had nothing to worry about. Mr Lam further represented that D1 as borrower would be wholly liable for the Term Loan and the Investment Loan and the Plaintiff would only chase after D2 when D1 was unable to repay the debts (“the misrepresentation”); and

(2)  shortly before D2 executed the Guarantee and the Commercial Business Agreement on 10 May 2021, Mr Lam repeated the misrepresentation to him.

A.    Burden of proof and non-compliance with statutory requirements

32.  As regards the statutory requirements under Order 88, rule 5, in Dah Sing Bank Ltd v Rich Star Investment Development Limited, unrep., HCMP 1893/2016, 18 June 2020 Recorder Manzoni SC held (at §§43-45) that the statutory requirements of rule 5(3) are subject to the Court’s discretion, observing that they are more normally suited to domestic mortgages securing a simple loan and do not sit comfortably with a mortgage entered into for the purposes of securing a commercial banking facility which does not have specific periodic payments, or interest payments, or amounts regularly outstanding under the mortgage.

33.  In other words, in such cases, there is no breach of the statutory requirements so long as the plaintiff could identify the amounts that were outstanding and the default which justified the action on the mortgage.

34.  SCKL 8 contains the Plaintiff’s calculation of the interest for the outstanding balances as at 22 March 2023 and 12 July 2023. For present purposes, it suffices to set out its calculations for the Term Loan[7]  as at (1) 22 March 2023; and (2) 12 July 2023 which are as follows:

(1)  As at 22 March 2023

Loan Principal Interest rate From To No. of Days Interest (HKD)  Term Loan             27075388 $62,958,016.12 4.830240% 22/2/2023 19/3/2023 26 $216,620.82   $62,958,016.12 15.875000% 20/3/2023 22/3/2023 3 $82,147.26 Overdue Interest  $216,620.82 15.875000% 20/3/2023 22/3/2023 3 $282.66 Sub-Total  $62,958,016.12          $299,050.74  ... * Upon the obligors' failure to repay after 14 days from the date of demand (i.e. 6 March-2023), default interest rate at 10% p.a. over the Prime Rate will be charged starting from 20 March 2023. Please refer to the Facility Letter (pl0) dated 3 May 2021 signed by the obligors.

(2) As at 12 July 2023

Loan Principal Interest rate From To No. of Days Interest (HKD)  Term Loan             27075388 $62,958,016.12 4.830240% 22/2/2023 19/3/2023 26 $216,620.82   $62,958,016.12 15.875000% 20/3/2023 22/3/2023 (Date of Originating Summons) 3 $82,147.26   $62,958,016.12 15.875000% 23/3/2023 3/4/2023 12 $328,589.04   ($8,093,930.57) Set-Off Credit Balance on 4 Apr-2023   ($627,357.12)   $54,864,085.55 15.875000% 4/4/2023 7/5/2023 34 $811,312.08   $54,864,085.55 16.000000% 8/5/2023 12/7/2023 66 $1,587,300.66 Overdue Interest  $216,620.82 15.875000% 20/03/2023 3/4/2023 15 $1,413.30   Set-Off Credit Balance on 4 Apr-2023   ($1,413.30) Sub-Total  $54,864,085.55          $2,398,612.74

35.  They show that the Plaintiff calculated the interest due on the basis that overdue interest was chargeable after default in payment of the amounts set out in the demand notice. In SCKL 8, the Plaintiff referred the Defendants to “the Facility Letter (p10) dated 3 May 2021 signed by the obligors” as the basis for charging overdue interest.

36.  The relevant provision regarding the payment of ‘overdue interest’[8]  stipulated that the Plaintiff is entitled to charge overdue interest on any amount(s) due but not paid on the due date(s) at 10% per annum above the Prime Rate quoted by the Plaintiff until the date of final repayment. Further, overdue interest “shall be payable within 2 working days after the 24^th day of each month (the “working day” herein means a day other than Sunday or public holiday in Hong Kong)”.

37.  The  calculations shown in §34 above were made on the basis that overdue interest at the rate of 10% per annum above prime was chargeable on the outstanding balance (principal plus accrued interest) of the Term Loan for the periods

(i)  of 3 days from 20 March 2023 to 22 March 2023 (both dates inclusive); and

(ii)  from 23 March 2023 to 12 July 2023.

38.  ‘Chargeable’ and ‘payable’ are 2 different and distinct concepts. The demand notice required payment of the sums demanded before 19 March 2023, failing which overdue interest would be chargeable as from 20 March 2023 until payment.

39.  Once default in payment occurs, the Plaintiff is entitled to charge overdue interest which has been pre-set at 10% over prime over the outstanding balance.

40.  The Defendants submitted that even if it is accepted that the Plaintiff’s demand was made on 6 March 2023, overdue interest should only be payable on or after 27 March 2023 instead of 20 March 2023. That would appear to be a timing issue and has no bearing on the Plaintiff’s entitlement to charge overdue interest.

41.  At the hearing, Mr Chow went through the entries in SCKL 8. He explained what each entry represented and how chargeable interest was calculated, the applicable rates and the relevant periods.

42.  Ms Ho referred to the last sentence of the paragraph in the Facility Letter regarding overdue interest[9]  which reads:

“The Bank shall have its sole and absolute discretion to change interest rate(s) applicable to the Borrower at any time and from time to time by giving prior notice.”

43.  The complaint was that no prior notice was given to the Defendants. However, I do not see that the sentence set out in §42 is relevant to the present discussion. No question of ‘changing’ the interest rate arises.

44.  So far as I can understand it, the Defendants’ complaint is that they did not know the exact amount they should pay. However, as they are not able to show that the calculations set out in SCKL 8 are wrong, the contention is hopeless.

       B. Misrepresentation and non est factum

45.  The misrepresentation on which D2 relies is set out in § 31 above. D2 referred to DBS Bank (Hong Kong) Limited v Guanxiang (HK) Trading Limited and Others, unrep., HCMP 1767/2017, 21 June 2018 which was also a mortgage action under Order 88. In that case, D3 had signed a guarantee but his evidence was that the nature of the document was not explained to him. He was led to believe that they were general banking documents. An important issue in that case was D3’s degree of literacy in English. D3 produced evidence of his Hong Kong Certificate of Education Examination Results Notice showing that he failed in English. The judge considered that D3’s claim that he was close to illiterate in English could not be dismissed of hand as being unbelievable.

46.  In considering the evidence the judge noted (in §50) that the plaintiff did not adduce evidence from the relevant bank staff who had interacted with D3. The only evidence was from a bank officer who had no contemporaneous knowledge of the events that led to the issue of the originating summons and whose evidence was based solely on documents and records. In so far as the guarantee was concerned, at that stage, it was “D3’s words against nobody else”.

47.  Lei Shing Hong Credit Limited v Kingsfine International Limited and Another, unrep., HCMP 1169/2016, 21 April 2017 is another case where the defendant also maintained that he did not know English. In that case, the judge noted that the 2^nd defendant “received education up to primary 3 only, and he does not know English.”

48.  The Plaintiff submitted that those 2 cases show that it is incumbent on the party asserting that he does not know a foreign language to provide evidence[10]  as to his level of education in the language. The Plaintiff noted that in the present case, apart from stating that he does not read English and cannot comprehend the context of the Facility Letter, D2 has not adduced any evidence at all: there is no evidence as to whether he had studied English, and, if he had, the level attained.

49.  To focus solely on D2’s knowledge of the English language misses the point. In assessing whether or not a defendant understood the nature of the document he was signing, regard must be had to all relevant circumstances of the particular case.  The nub of D2’s defence is that he did not understand that by giving the Guarantee he would become jointly and severally liable with D1 as a primary obligor and that he was induced by Mr Lam’s misrepresentation into signing the Guarantee.

50.  The evidence filed in support of the Plaintiff’s case consists of the affirmations by Ms Shum, a Special Asset Management Senior Manager employed by the Plaintiff who did not make the representation on which D2 relies. No evidence has been adduced from Mr Lam who directly interacted with D2. Mr Lam is said to have made the representation referred to in §31. Yet, there is no evidence from him in the Plaintiff’s reply evidence. 

51.  Mr Chow sought to demonstrate that D2 knows English and therefore knew what he was doing by referring to the fact that D2 had signed a director’s report that was only in English and further, that D1 has an associated company in Luxembourg engaged in the business of leasing a cruiser for leasing income, submitting that these 2 matters show that D2 knows English.

52.  In my view, neither of those matters takes the Plaintiff’s case further. Signing a director’s report that is in English does not necessarily mean competency in that language and owning a business in a foreign country has no particular bearing on whether the owner is conversant with the language of that country.

53.  The Plaintiff also relied on Facility Letters from OCBC Wing Hang Bank dated 9 May 2019 and the Bank of China dated 17 June 2019. While they refer to personal guarantees, the guarantees themselves have not been exhibited. It is unclear whether they provide for primary or only secondary liability.

54.  The Plaintiff also relied on the fact that D2 signed the Guarantors/Security Provider Confirmation Letter (“the Confirmation Letter”) on 10 May 2021. The Confirmation Letter had the Chinese translation printed on the flipside but D2’s signature appears on the English side of the document. Absent evidence that D2 actually read the Chinese translation before signing the Confirmation Letter, the fact that the translation is on the flipside cannot assist.

55.  In any event, as matters stand, the only evidence the Court has on the issue of misrepresentation is from D2. Clearly, the Court is not in a position to form any view on the allegations of misrepresentation at this stage. In these circumstances, D2 is entitled to have the benefit of the doubt. Accordingly, there is a triable issue on misrepresentation as regards D2. It follows that it has not shown that the Plaintiff is entitled to summary judgment against D2 on the guarantee.

56.  As regards D1, Ms Ho did not articulate why D1 has a defence based on misrepresentation. It is not understood what representations were made to D1 that would entitle it to raise a defence of misrepresentation.

Conclusion

57.  As against D1, there is to be an order in terms of the paragraphs 1 and 2 of the relief sought against D1 in the OS in favour of the Plaintiff with an order nisi of costs in favour of the Plaintiff, with certificate for counsel, on an indemnity basis, such costs to be summarily assessed and payable forthwith.

58.  The relief sought against D2 in the OS is dismissed with an order of costs nisi in favour of D2, with certificate for counsel, such costs to be summarily assessed and payable forthwith.

59.  It is further  directed that:

(1)  As against D1,

i.     Plaintiff do lodge its statement of costs within 14 days;

ii.   D1 do lodge its list of objections (not exceeding 2 pages) within 14 days thereafter; and

iii.  Plaintiff do lodge its reply (not exceeding 2 pages if any) within 7 days thereafter.

(2)  As against D2,

i.    D2 do lodge his statement of costs within 14 days;

ii.    Plaintiff do lodge its list of objections (not exceeding 2 pages) within 14 days thereafter; and

iii.  D2 do lodge his reply (not exceeding 2 pages if any) within 7 days thereafter.