XCHRX KINCHENG BANKING CORPORATION v. CENTRESIGN CO. LTD.

HCMP7239/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 7239 OF 1999

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REASONS FOR JUDGMENT

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1. At the conclusion of the hearing on 14 June 2000, I granted leave to the plaintiff to appeal against the master's decision out of time. I also allowed the appeal. These are my reasons.

The plaintiff's claim

2. The plaintiff is a bank and applied by way of originating summons for possession of the property known as the 11th Floor of Tower II of Admiralty Centre, Hong Kong ("the property") and for payment of money due to the plaintiff under a mortgage dated 4 April 1997 ("the mortgage") in respect of the property made between the plaintiff as the lender and the defendant as the borrower. The plaintiff had granted banking facilities to the defendant pursuant to the terms of the mortgage. Since about late 1998, the defendant had been in arrears with payment of its monthly instalments.

3. On 3 April 2000, the master ordered that the plaintiff's originating summons was to stand as a writ of summons and the defendant was to file and serve a defence within 21 days. On 7 June 2000, the plaintiff applied for leave to appeal against the order out of time and for judgment as claimed in the originating summons.

The defence

4. The defendant did not dispute that the plaintiff is otherwise entitled to its claim. However, it stated that there are disputed and substantive questions of fact to be tried which are not suitable for resolution by an originating summons. The defendant avers that by an oral agreement ("the agreement") made on 17 May 1999 between the plaintiff and the defendant, it was agreed that :

1. Mr Suthi Tejavibulya, the director of the defendant, would mortgage his land in Thailand ("the land") to the plaintiff as an additional security for the indebtedness, and he would deliver to the plaintiff a copy of the title deed of the land.

2. Upon execution of the mortgage of the land, the defendant would pay the plaintiff a sum of HK$1 million as part payment of the indebtedness.

3. The defendant would deposit all the rentals collected from the tenants of the property into the defendant's bank account with the plaintiff, so that the plaintiff could debit them in reduction of the indebtedness.

4. The plaintiff would not enforce its rights under the mortgage until the end of 2000 when it would review the matter with the defendant.

5. Pursuant to the agreement, in or about the end of May or the beginning of June of 1999, the defendant sent a copy of the title deed of the land to the plaintiff. In or about June 1999, the defendant raised a sum of HK$1 million for part payment of the indebtedness, to be paid to the plaintiff upon the intended execution of the mortgage of the land. Further, since the date of the agreement, the defendant had been depositing all the rentals collected from the tenants of the property into the defendant's account with the plaintiff and the plaintiff had deducted various sums from the account in reduction of the indebtedness.

6. The defendant alleged that there was sufficient part performance of the agreement on its part but in breach of the agreement, the plaintiff has refused to accept the mortgage of the land. Further, in October 1999, the Assistant General Manager of the plaintiff who had replaced the one who entered into the agreement with the defendant stated that the plaintiff did not consider the agreement binding. The defendant stated that it was ready and willing to fulfil its obligations under the agreement.

The plaintiff denied the agreement

7. The plaintiff denied there was any agreement as alleged or otherwise reached at the meeting. The plaintiff accepted that there was a meeting in which the defendant proposed to suspend the repayment of the principal sum but continue with the payment of the interest. It offered a piece of land in Thailand as an additional security and it would pay HK$1 million to reduce the arrears in the monthly repayments of the mortgage loan. The plaintiff stated that the proposal was unacceptable. For the plaintiff to consider any proposal, the defendant must meet a precondition, namely, to clear all arrears in the monthly repayments of the mortgage loan. The plaintiff did give the defendant a few months to come up with a concrete proposal with details so that it could be presented to the senior management of the plaintiff for consideration. However, no proposal was received except the copy of the title deed in the Thai language.

Defence not credible

8. It was not disputed by the defendant that the court may, on the hearing of an originating summons, 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.

9. Mr Leong, SC, counsel for the plaintiff, submitted that there are no triable issues because the defence raised by the defendant is simply not credible. I agree.

The proper perspective

10. While there may seem to be a conflict of evidence between the case of the respective parties, the test is whether the matters raised by the defendant is credible or not. The defendant's case is that a firm, binding agreement came into existence on 17 May 1999. It was not merely the start of a negotiation, but a deal was concluded on that day.

11. In order to deal with this matter, one must put the case in its proper perspective. This is a case where the bank had granted large sums of money to a client on the security of a prime property in a commercial district of Hong Kong. The lending was properly documented. Pursuant to the mortgage, the plaintiff had granted two loans to the defendant : the mortgage loan was $80 million while the time loan was $6 million. The outstanding principal of the mortgage loan was about $77,900,000, the interest accruing on this sum was about $29,000 per day. It was not disputed by the defendant that as of 15 May 1999, which was two days before the agreement, the defendant had been in arrears of nine instalments, totalling HK$7,952,719.74. As of the date of the originating summons, namely 22 November 1999, the defendant was in arrears of 15 instalments. The defendant had in fact on 4 January 1999 requested the plaintiff to defer payment of the principal of the monthly instalments from October 1998 to 4 January 2000, for a period of 15 months. The defendant would only pay interest during this period. This request was rejected.

12. In the light of this background, it is simply not credible that the plaintiff would have agreed immediately to the defendant's proposal to take a piece of land in Thailand as further security when details of the land had not even been furnished and when valuation had not even made by the plaintiff. All that the defendant had informed the plaintiff was that Mr Tejavibulya "had a piece of land in Thailand which was valued at over $5 million and he would be willing to have it mortgaged to the plaintiff". It was said that Mr Lam of the plaintiff was "delighted with the idea" and told him that since the Bank of China had a branch office in Bangkok, it should not be difficult for that to be arranged. When the defendant eventually sent a copy of the title deed of the land to the plaintiff, there was no covering letter referring to the agreement allegedly reached on 17 May 1999. In my view, this is not the way commercial transactions are being conducted.

13. As to the $1 million, what Mr Tejavibulya said was that :

"I had tried very hard to meet the terms of the said agreement in raising the HK$1 million which was supposed to be paid to the plaintiff upon executing the mortgage of the said land."

If there was indeed an agreement, one would expect the defendant to pay the money to the plaintiff even though the mortgage was not yet executed. Instead, we find the defendant taking the position that because the plaintiff refused to execute the mortgage, therefore it did not have to pay the $1 million to the plaintiff. After all, the defendant was indeed indebted to the plaintiff.

14. As to the payment of rentals, the defendant in fact had been depositing rental receipts from the various units of the property into its account with the plaintiff well before 17 May 1999. Since the commencement of the mortgage, the defendant had authorized the plaintiff to make direct debit from the account in satisfaction of any debt owed to the plaintiff at any time. It was simply continuing with the same practice after May 1999. The plaintiff exhibited the bank statements showing the payment of the rentals and the deduction for the period from October 1998 to February 2000. The plaintiff further stated that no further rental was paid since 17 December 1999 except a sum of $199,759.10 which was paid on 7 January 2000 to reduce the indebtedness of the time loan.

15. Furthermore, according to the agreement, the plaintiff would not enforce its rights under the mortgage until the end of 2000 when it would "review" the matter with the defendant. This being the case, the agreement was an open ended one and the plaintiff could not even enforce its rights at the end of 2000. At the meantime, the plaintiff was required to suspend the receipts of monthly instalments for a period of 18 months.

16. The defendant submitted that the plaintiff was not asked to waive the instalments but merely to give a grace period to the defendant. At that time, the property market in Hong Kong had collapsed and the property might not fetch a high price if it was disposed of at that time.

17. These are clearly matters that could be advanced on behalf of the defendant, but what remains is that of the three requirements of the agreement, two had not been performed. In my view, one must look at the matter from a commercial and common sense point of view. It is nonsensical that the plaintiff would have agreed immediately on 17 May 1999 to the proposals put forward when it was not even in a position to confirm that the land in Thailand was actually worth $5 million. In my view, the defendant had not satisfied the threshold of showing that there are really triable issues in this case.

Leave to appeal and appeal

18. The principles governing application for leave to appeal out of time are fully set out in the judgment of Keith J (as he then was) in Chiu Sin-chung v. Yu Yan-yan, Angela and Another [1993] 1 HKLR 225. The delay in this case is about two months. The explanation given by the plaintiff for the delay is that the plaintiff misunderstood that it could still be able to apply for summary judgment pursuant to Order 14 notwithstanding the directions that had been given by the master. The misunderstanding had not been addressed until the plaintiff consulted counsel on 15 May 2000 and received the advice from counsel on 22 May 2000. After that, the plaintiff had to obtain internal clearance to proceed. This was received on 2 June 2000 and the plaintiff's solicitors delivered instructions to counsel.

19. This is not a case where the defendant had obtained a substantial relief from the court. The order of the master was directional in nature. In considering these factors and the overall merits of the case, I extended the time to appeal and allowed the appeal accordingly.

Costs

20. The costs relating to the affirmation of Wong Tze Choy of the plaintiff which dealt with the application for leave to appeal, should be given to the defendant. Other than that, the plaintiff is entitled to have the costs of the action including the costs of this appeal and the hearing before the master. There will be certificate for one counsel.