CITIBANK N.A. v. DAYS PROPERTIES LTD

HCMP 477/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 477 OF 2012

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JUDGMENT AND REASONS FOR DECISION

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1.  The plaintiff is a bank and its claim is a simple one. It is for the repayment of monies advanced to the defendant under various credit facilities. The plaintiff also seeks to enforce the underlying securities to secure payment.

2.  The plaintiff’s claim is made pursuant to the following instruments entered into between the plaintiff and the defendant, all of which contain express terms giving the plaintiff the right to repayment of the loan on demand:

(i)   a banking facility dated 23 June 2011 (“the 2011 Facility”);

(ii)   a legal charge dated 19 March 2011 (Memorial No. 8353806) over the 1^st and the 2^nd Properties as defined in the title of this action (“the 2001 Legal Charge”); and

(iii)   a legal charge dated 30 June 2006 (Memorial No. 0607271390125) over the 3^rd Property as defined in the title of this action (“the 2006 Legal Charge”).

3.  The substantive hearing of the originating summons was fixed to be heard on 18 June 2013.  On 10 May 2013, the defendant took out a summons (“the Discovery Summons”) applying for discovery of various documents including, inter alia:

(i)   all the telephone logs between the plaintiff’s and the defendant’s representatives from January 2001 relating to the credit facilities granted by the plaintiff to the defendant and the complete transcripts of all the relevant telephone recordings and the telephone notes relating to these telephone conversations;

(ii)   notes of the meetings on 19 September and 14 October 2011;

(iii)   all relevant documents, including transcripts of the relevant telephone conversations, relating to the demand for the repayment under the credit facilities; and

(iv)   all internal emails and documents kept by the plaintiff relating to the credit facilities.

4.  The plaintiff opposed the Discovery Summons.  As the court did not have time to hear the Discovery Summons before the substantive hearing, I, in the hearing on 31 May 2013, adjourned the Discovery Summons to be heard together with the substantive hearing of the originating summons.

5.  In the substantive hearing on 18 June 2013, I first dismissed the Discovery Summons.  In this Judgment and Reasons for Decision, I will give my reasons for dismissing the Discovery Summons and the judgment of this case.

BACKGROUND  

6.  I would set out the following facts by way of background.  The defendant is controlled by the Dayaram family.  The Dayaram family is the controller of Days Equities Ltd, Days Dynasty Ltd, Days Impex Limited which was incorporated in Hong Kong (“Days Impex HK Ltd”), another Days Impex Limited which was incorporated in Liberia (“Days Impex Liberia Ltd”) and Days International Ltd, which together with the defendant form the Dayaram family’s company group (“the Days Group”).  Besides the defendant, the plaintiff also has banking relationships with all but one of the companies of the Days Group.

7.  According to the plaintiff, the main representatives of the Days Group were Mr Nanik Dayaram and his son Mr Mahesh Dayaram.

8.  Prior to the 2011 Facility, the plaintiff and the defendant had entered into 4 facilities letters (or extensions of the same) dated 13 March 2001, 15 August 2003, 30 June 2005 and 23 June 2006 (“the Prior Banking Facilities”).  All the Prior Banking Facilities were stated to be subject to repayment on demand.

9.  In April 2011, the plaintiff and the defendant negotiated for an increase in the amount of the credit facilities.  As a result of the negotiation, the plaintiff and the defendant entered into a “Short-term Demand Loan Banking Facility”, ie. the 2011 Facility.  The purpose was stated to be for “investment” and, like the Prior Banking Facilities, the 2011 Facility was “subject to recall and repayment on demand”.

10.  The 2001 and 2006 Legal Charges over the 1^st to the 3^rd Properties (“the Properties”), forming the security of the 2011 Facility, also contain express terms providing the right to repayment on demand in relation to the banking facilities, stating that the borrower will pay to the lender on demand all sums of money now or thereafter owing to the lender in whatever currency on account of banking facilities contained in the relevant schedule (see: clause 2.1 of the 2001 and 2006 Legal Charges).

11.  According to the plaintiff, it became aware of the changes in the financial position of the defendant, including but not limited to information on changes in the circumstances of the Days Group and the Dayaram family, through various events starting from the filing of the winding up petitions by HSBC against 2 companies of the Days Group, Days Impex HK Ltd and Days International Ltd, on 14 September 2011.  In mid September 2011, the plaintiff’s Risk and Credit Department asked for a review of the overall relationships with the Dayaram family and the Days Group due to the winding up petitions.

12.  On 30 September 2011, the defendant failed to make interest payment to the plaintiff in the sum of $187,500 that had fallen due.  The defendant had only about $4,800 in its account.  Given such circumstances, the plaintiff reassessed the defendant’s position and told the defendant that the credit facilities would be rolled-over for 1 month rather than the customary 3 months, but offered for interest to be paid on a quarterly basis.

13.  On 14 October 2011, the plaintiff and the defendant met and the plaintiff demanded for the repayment of the loan with interest.  The plaintiff also called for the repayment of the loans from Days Dynasty Ltd and Days Equities Ltd.

14.  On 12 December 2011, Days Impex HK Ltd and Days International Ltd were wound up by the court for failure to repay sums due to HSBC under other banking facilities.

15.  Bankruptcy petition was also presented by HSBC in December 2011 against Mr Nanik Dayaram who was the guarantor under the 2011 Facility.

16.  On 16 December 2011, the plaintiff commenced proceedings against Days Impex Liberia Ltd and Mr Nanik Dayaram as guarantors for Days Impex HK Ltd to recover amounts due and owing under credit facilities and a loan granted to the latter.

17.  The plaintiff commenced the present proceedings against the defendant on 15 March 2012 to claim for the repayment of the loan under the 2011 Facility.

18.  The defendant does not dispute the loan due under the 2011 Facility.  However, according to the 1^st affirmation filed by Mr Mahesh Dayaram on behalf of the defendant, the purpose of the various banking facilities granted by the plaintiff was to enable the defendant to purchase the Properties for the various family members of the Dayaram family. The plaintiff knew full well that the defendant was unable to purchase the Properties without financing in the form of long-term mortgage facilities, and so the defendant believed that a demand for immediate repayment would only be made if there was a good reason to justify repayment, and the banking facilities would be “rolled-over” at the end of each term unless there was a good reason for not doing so.

19.  Further, it is the defendant’s case that the plaintiff was making the demand for repayment in bad faith.  According to Mr Mahesh Dayaram, the normal practice was for the banking facilities to be rolled-over for a period of 3 months.  In September 2011, Mr Mahesh Dayaram attended a meeting with the representatives of the plaintiff’s private bank to discuss a situation that had arisen in relation to certain accounts of Days Impex HK Ltd, which according to Mr Mahesh Dayaram, was a company controlled by his father.

20.  During a telephone conversation on 30 September 2011, the plaintiff’s representative, Ms Stefanie Hon (“Ms Hon”), informed Mr Mahesh Dayaram that the credit facilities would only be rolled-over for 1 month instead of the usual 3 months’ period, the reason being that the plaintiff’s Credit Department wanted to monitor whether the defendant’s private bank accounts were related to the commercial bank accounts of Days Impex HK Ltd.

21.  In the subsequent meeting on 14 October 2011, the plaintiff’s representatives informed Mr Mahesh Dayaram that the plaintiff made an immediate demand for the repayment of the loan under the credit facilities.  No reason was given to Mr Mahesh Dayaram as to why the plaintiff recalled the loan.  Subsequently, he was informed by a senior executive of the plaintiff that the plaintiff was concerned with its commercial bank loans extended to Days Impex HK Ltd, and as a result the plaintiff’s commercial bank wished to overreach and to obtain further security from the defendant for the unsecured or under-secured loans granted to Days Impex HK Ltd.  Hence, it is the defendant’s case that the plaintiff recalled the credit facilities in bad faith in order to coerce the defendant into granting security in respect of the loans extended to Days Impex HK Ltd.

THE DISCOVERY SUMMONS

22.  In order to support its contentions, the defendant applies to the court for discovery of various documents and telephone recordings as mentioned above.

23.  I refuse the Discovery Summons firstly on the ground of delay.

24.  The plaintiff commenced the proceedings on 15 March 2012.  The plaintiff filed the affirmation in support of the application on 16 March 2012.  As the defendant’s solicitors refused to accept service, concurrent originating summons had to be served outside jurisdiction and it was served on the defendant on 13 July 2012.  On 15 August 2012, the plaintiff took out the Notice of Appointment to hear the originating summons.  On 16 October 2012, Master de Souza gave directions on the filing of affidavits and ordered that the originating summons be adjourned for argument.

25.  On 23 November 2012, the defendant filed the affirmation in opposition.  On 3 December 2012, the substantive hearing of the originating summons was fixed to be heard on 18 June 2013.  On 30 January 2013, the plaintiff filed its affirmations in reply.  The defendant only took out the Discovery Summons on 10 May 2013 which was about a month before the substantive hearing.

26.  If the court were to allow the Discovery Summons at such a late stage of the proceedings, it is certain that the substantive hearing would have to be adjourned.  Taking into account the scale of the discovery sought, in particular the plaintiff’s staff would have to listen to 11 years of telephone recordings, it is not an exaggeration to say that the plaintiff may need a few months to retrieve the documents and the relevant telephone recordings.  In addition, further affirmations may have to be filed to deal with the new documents and the telephone recordings, and so the substantive hearing may not be able to be heard in 9 to 12 months’ time.

27.  After the implementation of the CJR, there has been a new culture for the conduct of civil litigation.  Under O 1A r 1 of the RHC, the court is bound to consider the underlying objectives in exercising its power, including increasing cost-effectiveness and ensuring that a case is dealt with as expeditiously as is reasonably practicable.  The parties and their legal representatives also have to assist the court to further the underlying objectives (see: O 1A, r 3).   In order to discharge such duty, the parties’ legal representatives have to raise all relevant issues for consideration by the court at an early stage of the proceedings and to avoid late applications.  This is particularly the case if the issue would prolong and affect the time estimate of the trial (see: Chau Hoi Shuen Selina v SEEC Media Group Ltd [2012] 3 HKLRD 337, per DHCJ Lok in §16).

28.  O 25 r 1B also states that the trial date is a milestone date which will not be varied unless there are exceptional circumstances.  Although the substantive hearing of an originating summons is not strictly a milestone date, there is no reason why the same rationale is not applicable.  After the implementation of the CJR, adjournment of the trial is now considered as a serious prejudice to the parties involved in litigations, and the same kind of prejudice will be suffered by a party no matter whether there is an adjournment of the trial or the substantive hearing of an originating summons.  In particular, properties prices are volatile in Hong Kong, and delay in the enforcement of the securities of the loan may result in substantial losses to the plaintiff.  Hence, the court is reluctant to adjourn the substantive hearing.

29.  Further, parties of late applications are obliged to provide an explanation to the court to justify the delay.  In the present discovery application, the defendant attempts to explain the lateness of the application by stating that:

(i)   the defendant only wished to make the application after viewing the plaintiff’s affidavit evidence in reply;

(ii)   the defendant requested the plaintiff for voluntary discovery on 28 February 2013, which the plaintiff rejected; and

(iii)   the defendant’s past documents were stored in an e-archive, to which the defendant no longer had access after 14 September 2011.

30.  I do not accept these explanations.  The defendant is supposed to be aware of what its case is from the commencement of the proceedings.  There is no reason why it had to wait until the plaintiff’s affidavit in reply to make the request for documents.  Further, the defendant’s request for voluntary discovery was only made 1 month after the plaintiff filed its affirmations in reply.  On the contrary, the plaintiff responded to the defendant’s request in about a week’s time on 7 March 2013.  After that, the defendant, without any explanation, took more than 2 months to issue the Discovery Summons.  As to the defendant’s excuse of not having access to the documents in the e-archive, the defendant knew of this as early as September 2011, and there is no creditable explanation as to why it had to wait until May 2013 to make the discovery application.  Further, there is not an iota of evidence to suggest that the defendant had made any attempt to access the relevant documents from the provisional liquidators of Days Impex HK Ltd.

31.  The purpose of the discovery exercise is to help the defendant to support its factual allegations.  If it was the genuine intention of the defendant to obtain the documents to assist the court to resolve the factual disputes, one would expect the defendant to have informed the court at the early stage of the proceedings about the need to resolve the factual disputes and to take out the necessary applications for cross-examination of witnesses.  Up to now, no such application has been taken out by the defendant.  Hence, delay is a valid consideration to deny the Discovery Summons.

32.  I also refuse the Discovery Summons on the ground that the request is oppressive and out of proportion.  In HSBC Private Bank (Suisse) SA v Mission Bridge Limited & Ors, unreported, HCA 406/2008, HCA 2538/2009 and HCA 212/2012 (decision on 18 June 2012), I have held that time and effort for a bank to retrieve telephone records with its clients of a period of 9 months was an “immensely time consuming” retrieval process, as the bank had to ensure that client confidentiality and privacy remained protected, and it was a valid factor to be considered by the court in refusing to order discovery of the relevant telephone records.  Further, the consideration of oppressiveness is an increasingly important consideration after the CJR (see: Li Tak Yee Samuel v Societe Generale Bank and Trust & Ors, unreported, HCA 2478/2009 & HCA 1199/2011, 16 April 2013, per Anthony Chan J at §26).

33.  The defendant is asking for telephone logs and recordings spanning a decade.  Undoubtedly, the plaintiff would have to spend a lot of time and manpower in retrieving the relevant records of the telephone conversations between the plaintiff and the defendant.  Bearing in mind that proportionality and expediency are now underlying objectives of the civil procedural rules, this is not an appropriate case to order discovery against the plaintiff.

34.  Further and more importantly, the discovery is not necessary for the fair disposal of the case.  The purpose of the Discovery Summons is to locate documents and telephone records which can support the defendant’s factual allegations as contained in the existing affirmations in opposition.  The defendant is not allowed to “fish” for evidence with a view to support possibly new allegations against the plaintiff.

35.  As pointed out in the latter part of this Judgment, even putting the defendant’s factual allegations at the highest, they provide no defence to the plaintiff’s simple claim for the repayment of the loan.  On the strength of the “on demand” clauses in the various banking facilities, the plaintiff was entitled to call in the loan due from the defendant.  Further, given the undisputed evidence about the financial positions of the various companies of the Days Group including the defendant, there is simply no basis for the defendant to argue that the plaintiff made the demand for repayment in bad faith.  As the proposed discovery makes no difference to the outcome of the proceedings, the court should not order the plaintiff to conduct such massive discovery exercise.  I therefore refused the Discovery Summons.

MERITS OF THE PLAINTIFF’S CLAIM

(i)      Disposal of the mortgage action in originating summons proceedings

36.  I then turn to the merits of the plaintiff’s claim.

37.  O 88 r 5(1) of the RHC provides for mortgage action to be begun by originating summons in which the plaintiff is the mortgagee and claims delivery of possession or payment of moneys secured by the mortgage or both. 

38.  Mr Sheppard, counsel for the defendant, queries whether the plaintiff is entitled to invoke the O 88 procedures.  However, under O 88 r 1(2), mortgage includes a legal and equitable mortgage and a legal and equitable charge, and so the plaintiff is entitled to enforce the Legal Charges under O 88 of the RHC (see also: Wing Hang Bank Ltd v Kit Choy Development Ltd & Anr [2005] 3 HKC 312).  Further, this is a non-point.  The object of O 88 procedures is to provide additional protection to the borrowers by, for example, requiring the lenders to obtain the leave of the court in entering default judgments.  If O 88 procedures are not applicable, there is nothing to prevent the plaintiff from enforcing the loan and the Legal Charges in the usual way.

39.  Further, Mr Sheppard seems to rely on Wing Hang Bank Ltd v Kit Choy Development Ltd & Anr, supra, and argues that the O 88 r 5 affirmation filed by the plaintiff is defective because it has failed to specify the amount of the periodic payments required to be made under r 5(3)(b).  However, as observed by the Court of Appeal in the Wing Hang Bank case, O 88 applies to a mortgage action even if the form of the facility does not involve periodic payments.  As r 5(3) expressly gives the court the power to dispense with the requirement to comply with all the provisions in that sub-rule, and the alleged omission does not cause any prejudice to the parties involved in the proceedings, I am prepared to waive such technical requirement in the present case.

40.  The general rules relating to originating summons are contained in O 28 r 4 of the RHC.

41.  In Kwangtung Provisional Bank v Keen Lloyd Resources Ltd, unreported, HCMP 4696/2000 (decision on 14 August 2001), Chu J, as she then was, held that a plaintiff under an originating summons does not stand differently from that in proceedings commenced by other modes, in that he carries the burden of making good his claim and proving to the requisite standard the matters upon which the claim is grounded.  If on the affidavit evidence placed before the court, the plaintiff is able to discharge that burden, he is prima facie entitled to judgment on the hearing of the originating summons.  On the other hand, where the defendant raises other matters as a defence to the claim, the defendant must make good his case by creditable evidence. Chu J’s approach was affirmed by the Court of Appeal (CACV 1787/2001, unreported, decision on 26 February 2002, at §§18 & 19) (see also: Wing Hang Bank Ltd v Liu Kam Ying & Ors [2002] 2 HKC 57, per Ma J, as he then was, at §7).

42.  In the hearing of the originating summons, the court therefore has to determine whether there are triable issues raised and whether directions should be given for the conduct of the hearing.  If there are no triable issues, judgment may be entered against the defendant (see: Kincheng Banking Corporation v Centresign Co Ltd, unreported, HCMP 7239/1999, decision of P Cheung J, as he then was, on 22 June 2000).

43.  The defendant does not dispute the loan due under the 2011 Facility.  However, the defendant argues that the plaintiff was not entitled to demand for the repayment of the loan based on the following 2 grounds:

(i)   the 2011 Facility was intended by the parties to be a long-term mortgage facility, and so there had to be a good reason to justify the demand for the immediate repayment of the loan; and

(ii)   the plaintiff made the demand for repayment in bad faith.

44.  I will deal with these 2 defences in turn.

(ii)     The effect of the “on demand” clause

45.  It is common ground that the Prior Banking Facilities, the 2011 Facility and the 2001 and 2006 Legal Charges all contain “on demand” clauses.

46.  In the past, the courts have repeatedly emphasised the effect of “on demand” clauses.  An express term that the funds are repayable on demand means what it says and is enforceable, even where the facility is a term loan of a specified period.  In Lloyd’s Bank Plc v Lampert [1999] BCC 507 at 512B-C, Kennedy LJ said the following:

“I am really unpersuaded that the words ‘repayable on demand’ used in the facility letter do not mean what they say. It is in no way inconsistent for a bank, or any other lender, to grant a facility which it and the borrower both envisage will last for some time, but with the caveat that the lender retains the right to call for repayment at any time on demand.”

47.  In Socomex Ltd v Banque Bruxelles Lambert SA [1996] 1 Lloyd’s Rep 156, the borrower contended that its relationship with the bank should be considered not simply according to the strict terms of the facility letters but in the light of the background of their dealings and the nature of commodity trading.  The borrower sought to contend, in light of the banking relationship, an implied term that the bank would not terminate without reasonable notice.  The court rejected this argument, pointing out that there might be an ordinary expectation of notice in normal circumstances where a trusted customer carrying on an apparently sound business retained the confidence of its bankers, but this was not a legal obligation.

48.  The Hong Kong courts have adopted the same approach to the right to demand, finding that an implied term contradicting this overriding right cannot be allowed.  In Hang Seng Bank Limited v Perfecta Dyeing, Printing & Weaving Works Ltd & Ors, unreported, HCMP 1375/2008 (decision of DHCJ L Chan, as he then was, on 13 February 2009), the borrower alleged that there was an implied term that the bank would not unreasonably demand repayment.  Such contention was rejected by the court on the ground that it was not permissible for such implied term to contradict the express term conferring the overriding right to demand payment.

49.  In Hong Kong and Shanghai Banking Corporation v Ling Lee Kang & Anr [2001] 3 HKLRD 255, DHCJ Longley, adopting the dicta of Gibson J in William & Glyn’s Bank v Barnes [1981] Com LR 205, held that there was no inconsistency between a term loan which both parties anticipated would last the duration of the term and the lender retaining a right to call for repayment at any time on demand.  The learned judge therefore allowed the plaintiff bank to rely on the “on demand” clause to demand for the immediate repayment of the loan.

50.  The effect of an “on demand” clause was also explained by the Court of Appeal in Lloyd Bank International v Dericourt Investments  [1983] HKLR 409, in which Kempster J said at 413I to 414A:

“Looking at the document from the point of view of a potential borrower possessed of normal business acumen and expertise and no more, it is, in my view, to be construed as an offer of a term loan, or of the continued loan for a term of moneys already advanced, subject to conditions one of which reserves to the plaintiffs the right at all times and at their sole discretion to call it in. The intending borrowers would be aware that it was the lenders’ present intention, without guarantee as to the future, that the loan should run for some seven years. Making a commercial judgment, they expressly accepted loans on these terms with all the attendant risks.”

51.  In Ellinger’s Modern Banking Law (5 ed), the learned authors also explain the rationale of such principle at p 791:

“In follows from this that, when it examines a borrowing proposal to decide whether or not to lend, the bank does this for its own purposes as lender and not for the borrower’s benefit. There are sound policy and commercial reasons for this. Given the potential conflict between the bank’s responsibility to its shareholders as a commercial lender and the borrower’s interests in securing the loan, no general duty of care should be imposed on a lender vis-à-vis either the customer or a third party known by the bank to have a financial interest in the borrower’s affairs. Similarly, the bank owes no duty to assess the borrower’s capacity to repay. Moreover, where the bank requires the borrower to act in a certain way as a condition of granting the loan facility, the lender does not owe the borrower a duty to consider whether it is in fact a prudent course for the borrower to fulfil that particular condition precedent. … … …”

52.  Given the weight of these authorities, I cannot possibly see how the defendant’s defence about the implied term and the absence of good reason to recall the loan can possibly succeed.  Even assuming that the defendant’s factual allegations were the truth, and it was the common intention of the parties that the 2011 Facility was regarded as a long-term loan, such loan was subject to an express term conferring the overriding right to the plaintiff to demand immediate repayment of the loan.  As pointed out in Ellinger’s Modern Banking Law, the plaintiff advanced the loan to the defendant for its own purposes as lender.  The plaintiff did not owe any duty to the defendant to assess the latter’s financial affairs and capacity to repay, and it also owed no duty to the defendant as to whether the latter could repay the loan on demand.  In such circumstances, the plaintiff could exercise the right to call in the loan at its sole discretion, and there is no requirement in law that the plaintiff has to establish a good reason to demand the repayment of the loan.

53.  Mr Mahesh Dayaram seeks to undermine the effect of the “on demand” clause by claiming that the plaintiff’s representative, Ms Mina Yiu, had repeatedly given assurance to him that the plaintiff would never exercise the right to immediate repayment (see: §12(b) of his 1^st affirmation).  In my judgment, this allegation is wholly unbelievable and without merit.  Firstly, such assurance contradicts the express “on demand” clauses in the various banking facilities.  Secondly, I do not accept that any sensible bankers would have given such kind of assurance.  In effect, what the defendant is alleging is that the plaintiff can never demand the repayment of the loan and the loan has to be rolled over or renewed indefinitely, or at least for a “long term” the duration of which is uncertain.  This defies any common or business sense.  Thirdly, the defendant cannot even commit to its defence.  Is the defendant saying that the plaintiff, because of the alleged assurance, can never demand for the repayment of the loan, or the defendant is saying that the plaintiff can demand for the repayment of the loan but only with good reason (see: §10 of his 1^st affirmation)?  To me, the defendant is always shifting its defence which would only destroy the creditability of the defence case.

54.  As a further desperate attempt to evade liability, Mr Mahesh Dayaram also mentioned that the plaintiff or the plaintiff’s private bank was also providing professional trustee services to the defendant.  However, how does it affect the plaintiff’s right to immediate repayment of the loan?  The court does not even know the details of the trust services allegedly provided by the plaintiff.  As I see it, the defendant is just trying to make all sorts of excuses with a view to cloud the issues of this very simple claim.  In my judgment, there is no merit in the first ground of defence.

(iii)    The propriety of the demand

55.  The defendant also claims that the plaintiff was not entitled to call in the loan because the demand was made for improper purposes of overreaching and trying to obtain further security from the defendant for the unsecured or under-secured loans granted to Days Impex HK Ltd.

56.  Where it is alleged that the bank carries out activities for “unattractive or even improper purposes”, the courts have been ready to find that “as a matter of general principle”, that “does not … … make any difference”, so long as the bank is doing something which it is entitled to do.  Only in very exceptional circumstances can a bank, or any other organisation, be liable for doing that which it is plainly entitled to do simply because it is doing it for unattractive reasons (see: Triodos Bank v Ashlet Dobbs, Grant Thornton [2003] EWHC 897 (Ch), per Neuberger J (as he then was) at §17).

57.  As to the contention of bad faith in demanding payment, the courts have made similar comments.  In Triodos Bank, it was contended that the lenders’ acts in demanding repayment gave rise to misfeasance or bad faith.  Neuberger J expressed “strong reservations” as to whether such matters relied on would be found to justify any such contention (at §25).

58.  The defendant claims that the demand was made for an improper purpose of “overreaching”.  Generally, “overreaching” occurs in relation to an equitable interest under trust; and an interest by way of equitable or proprietary estoppel is also subject to overreaching (see: Birmingham Midshires Mortgage Services Ltd v Sabherwal (2000) 80 P & Cr 256, in which the main issue was the question of priority as between a mortgage lender and an individual claiming an equitable interest in the family home).

59.  In the context of contract, “overreaching” may arise as a feature of “unconscionable conduct”, which is a high threshold to prove.  In Chitty on Contracts (31 ed), the learned authors said the following at §7-136:

“Unconscionable conduct. A contract will not be set aside merely because the aggrieved party did not have independent advice and the consideration was inadequate. It must also be shown that the other party engaged in unconscionable conduct or an unconscientious use of power. He must have behaved:

‘in a morally reprehensible manner … which affects his conscience … The classic example of an unconscionable bargain is where advantage has been taken of a young, inexperienced or ignorant person to introduce a term which no sensible, well-advised … person would have accepted.’

If there has been no equitable fraud, victimisation, taking advantage, overreaching or other unconscionable conduct, relief will not be granted. … …

In Boustany v Piggott, Lord Templeman, delivering the judgment of the Privy Council, agreed in general terms with the submissions of counsel for the appellant:

(1) there must be unconscionability in the sense that objectionable terms have been imposed on the weaker party in a reprehensible manner;

(2) “unconscionability” refers not only to the unreasonable terms but to the behaviour of the stronger party, which must be morally culpable or reprehensible;

(3) unequal bargaining power or objectively unreasonable terms are no basis for interference in equity in the absence of unconscionable or extortionate abuse where, exceptionally and as a matter of commercial fairness, ‘it is unfair that the strong should be allowed to push the weak to the wall”;

(4) a contract will not be set aside as unconscionable in the absence of actual or constructive fraud or other unconscionable conduct; and

(5)the weaker party must show conscionable conduct, in that the stronger party took unconscientious advantage of the weaker party’s disabling condition or circumstances.”

60.  A transaction, even if improvident, does not amount to being “overreaching and oppressive”.  “Overreaching” only occurs if “the conscience of the court is shocked” (see: Portman Building Society v Dusangh & Ors (2000) 80 P & CRD 20, per Simon Brown LJ at D21).

61.  In my judgment, the defendant’s allegations are far from establishing the necessary threshold of unconscionable conduct which requires the interference of the court.  Firstly, all the banking facilities expressly state that the plaintiff was entitled to call in the loan on demand. As mentioned above, there is simply no implied term that the plaintiff had to justify the demand when exercising its right to do so, and the plaintiff could exercise its right at its sole discretion.

62.  Secondly, there is no dispute that winding up petitions were issued against 2 companies of the Days Group on 14 September 2011.  Further, although the defendant claims that it was only an oversight on its part, it is common ground that the defendant failed to make interest payment to the plaintiff in the sum of $187,500 on 30 September 2011.  Soon after the plaintiff issued its notice of demand, the plaintiff further discovered that Mr Nanik Dayaram, who was the defendant’s guarantor under the 2011 Facility, was subject to bankruptcy proceedings.  Under these circumstances, it was only reasonable that the plaintiff was concerned with the financial positions of all the companies of the Days Group including the defendant, and it is quite impossible for the defendant to say that the demand was made improperly or in bad faith.

63.  Obviously, the financial positions of the Days Group, the Dayaram family and the defendant were all interlinked.  The chain of events clearly showed a worsening trend in the financial positions of the Days Group, and the plaintiff was certainly entitled to take into account these considerations and undisputed facts in calling in the loan.

64.  I agree with Mr Dawes, counsel for the plaintiff, that the defendant cannot avoid its contractual liability to repay the loan by just making a bare assertion of bad faith.  As pointed out by the authors in Ellinger’s Modern Banking Law (see: §51 above), the plaintiff did advance the loan to the defendant for its own purposes as lender.  The plaintiff did not owe any duty to the defendant to assess the latter’s financial affairs and capacity to repay, and it also owed no duty to the defendant as to whether the latter could repay the loan on demand.

65.  Even if the defendant’s factual allegations were the truth, there was nothing to prevent the plaintiff to demand the loan because it was concerned with the financial positions of the other companies of the Days Group.  Applying the concept of “overreaching” in the context of a contract, there was no “unconscionable conduct” that could be said to “shock the conscience of the court”.  The defendant and its representatives are parties with commercial experience, and there is nothing to suggest that the plaintiff had unfairly imposed terms on them in a reprehensive manner.

66.  At the hearing, the defendant is shifting its defence again by making a new allegation.  In the submission of Mr Sheppard, the plaintiff was not entitled to rely on the “on demand” clause because the effect of such clause was superseded by the subsequent telephone conversations between the parties on 30 September 2011 (see: p 236 of the Hearing Bundle B).

67.  Again there is no merit in such allegation. According to the transcript of the relevant telephone conversations, it is clear that the plaintiff was concerned about the financial condition of the defendant.  Although Mr Hon of the plaintiff might try to ease some of the concern of Mr Mahesh Dayaram, it cannot be said that the plaintiff had waived the right to immediate repayment of the loan.  There is also no basis for the defendant to argue that, because of such telephone conversations, the subsequent demand for repayment was made by the plaintiff in bad faith.  To me, this is yet another excuse by the defendant to evade liability.

68.  This is a straightforward loan repayment claim. On the strength of the various “on demand” clauses in the banking facilities, the plaintiff was entitled to demand for the repayment of the loan and there is simply no defence to the plaintiff’s claim.   There are no genuine or substantial issues of fact which would affect the outcome of the claim, and it is an appropriate case for the court to dispose of the claim summarily.  I therefore grant judgment in favour of the plaintiff.

69.  The parties have not argued on the wording of the order, and so I make an order nisi in terms of the originating summons which shall be absolute 14 days after the date of the handing down of this Judgment.  The amount of the outstanding loan is the sum stated in the 1^st affirmation of Mr Tse Shiu Keung including the interest accrued up to the date hereof.  In the case of any disagreement on the final sum, the parties are at liberty to bring the matter before the court for determination.