HANG SENG BANK LTD v. LAM CHING HAM AND ANOTHER

HCMP 1318/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1318 OF 2006

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HCMP 1589/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1589 OF 2006

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HCMP 2179/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2179 OF 2006

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J U D G M E N T

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The above three proceedings are all mortgage actions taken out by the mortgagees, namely the Hongkong and Shanghai Banking Corporation Limited in the first two cases and Hang Seng Bank Limited in the remaining third case against the three different mortgagors for the following relief:

a.	Money due under the three different charges on three different properties owned by the Defendants in the above proceedings respectively; and
b.	In default of payment of the sums mentioned in (a) above, delivery of possession of the properties to the Plaintiff.

2. The three charges, as I find them, were prepared according to the same specimen form and have the same terms and conditions with variations in the amount of the loan and the particulars of the mortgagors.  I had heard the cases at different time and entered judgment on possession and also on parts of the monetary claim but adjourned the issue relating to “overdue (late payment) interests” for further consideration.  I had the chance of hearing the same issue in a similar case (i.e. HCMP 1003 of 2006) also handled by the same solicitor firm for the Hongkong and Shanghai Banking Corporation.  I gave my judgment thereon on 16 March 2007 as varied by a corrigendum dated 31 March 2007.

3. As the issue has been decided I could give judgment in respect of the above three cases at the same time.  For the sake of clarity I briefly outline my decision in the following paragraphs.

4.  There are two types of “overdue (late payment) interest” claimed by the Plaintiff in each of the cases:

a.	The interest on the instalments in arrear, and
b.	The interest to be charged after the default being made.

5. The calculation of the first type of “overdue (late payment) interest” i.e. the interests on the instalments in arrear is found in the following affirmations in support in the subject proceedings:

(a)	in HCMP 1318 of 2006 in paragraph 6(g) of the affirmation of Fok Siu Lan filed herein on 7 August 2006
	Overdue (late payment) interest at
	(12% p.a. from 9/1/06 to 29/3/06)
	(12.25% p.a. from 30/3/06 to 4/7/06)		$1,760.40
(b)	in HCMP 1589 of 2006 in paragraph 6(g) of the affirmation of Fok Siu Lan filed herein on 6 September 2006
	Overdue (late payment) interest at 12.25% p.a.
	From 8/6/06 to 7/8/06		$976.51
(c)	in HCMP 2179 of 2006 in paragraph 7(g) of the affirmation of Lau Yuk Lan filed herein on 24 November 2006
	Overdue (late payment) interest at 12.75% p.a. on the following sums for the following periods:
	(i)	$13,538.70 from 31.07.06 to 14.08.06
	(ii)	$54,154.80 from 15.08.06 to 29.08.06
	(iii)	$27,154.80 from 30.08.06 to 14.09.06
	(iv)	$40,693.50 from 15.09.06 to 14.10.06
	(v)	$54,232.20 from 15.10.06 to 24.10.06	$1,121.83

6. The Plaintiff in each case produced 3 documents in support of its application, namely (a) the relevant charge, (b) the letter of demand and (c) facility letter.  In each case the facility letter can be regarded as a conditional agreement conditional upon the granting of a second loan by the Hong Kong Housing Society.  For the purpose of this decision I could safely assume that the condition was fulfilled as the relevant charge was executed in each case.  Money was advanced by the Plaintiff as mortgagee pursuant to the terms of the relevant charge.  I take the view that the terms of the facility letter were superseded by the terms of the charge unless expressly incorporated or referred to.

7. I do not find in each of the relevant charges any clause that allows the Plaintiff to charge any interest on the instalments in arrear.  According to clause 2 of the charges if the borrower, i.e. the Defendant in each case, made default in payment of any of the instalments the borrower has to pay on demand the whole of the Loan.  The word “Loan” is defined as the whole or any part of the Sum and any interest thereon.  The word “Sum” is also defined as the sum set out in Part 4 of the Schedule to the charge which is advanced or to be advanced by the lender (i.e. the Plaintiff in each of the cases) to the borrower (i.e. the Defendant in each of the cases) under the charge.  No provision in the charge states that the Plaintiff is entitled to charge interest on any instalment in arrear.  For this reason I do not allow this type of overdue (late payment) interests i.e. interests on the instalments in arrear.

8. It has been submitted to me that it is a prevalent general practice for the bank to charge interest on instalment in arrear.  I must say it depends on the type of the loans.  If it is an overdraft or commercial loan, I may have other consideration.  But, in case of “Home Starter Loans” like those mortgages in question, the purpose of granting the loans is to encourage the first-time buyers to acquire their flats for their own use; favourable terms are given to them.  I have to construe the transaction according to the terms of the agreements entered by the parties.  I do not consider that the loan was made on the prevalent commercial terms.  Further, there is no evidence to support such a practice.

9. As to the 2^nd type of “Overdue (late payment) interest”, in effect it is interest on the outstanding Sum at a higher interest rate.  Clause 3(a) of each of the charges states: “Interest on the Sum shall be charged at such rate or rates as may from time to time be stipulated under the terms of the facility letter”.  I have to consider the terms of the facility in each case.

10. In each of the first two subject proceedings relating to the Hongkong and Shanghai Banking Corporation as the mortgagee, there is a term in the facility letter providing that interest will be charged daily on any sum due but not paid at 4.25% per annum over the Best Lending Rate.  I have ruled that no interest is chargeable on the arrear instalments for the reasons set out in  paragraphs 7 and 8.  But, when the Sum or any part of the Sum is due but not paid, pursuant to that clause the Plaintiff is entitled to charge interests at a higher rate.  As the Defendants have made default in payment of the instalments, the Plaintiff has the right to demand repayment of the whole Sum then outstanding and the Defendants have failed to make repayment.  Accordingly I allow interest at such rate as from the day after the filing of the writ.

11. The money order and judgment I made in respect of the monetary orders in the following proceedings on the previous occasions shall be varied to give effect to my aforesaid decision that the Defendant has to pay:

	In HCMP 1318 of 2006
(a)	the sum of $1,432,452.50;
(b)	interest thereon at the rate of 5.5% p.a. from 1 July 2006 to 4 July 2006 amounting to $835.35;
(c)	further interest on the sum of $1,432,452.50 at the rate of 12.25% p.a. from 5 July 2006 to the date of the judgment; and
(d)	further interest on the sum of  $1,432,452.50 from the date of judgment to full payment at the judgment rate.
	In HCMP 1589 of 2006
(a)	the sum of $1,184,680.95;
(b)	interest thereon at the rate of 6.5% p.a. from 16 July 2006 to 7 August 2006 amounting to $4,665.11;
(c)	further interest on the sum of $1,184,680.95 at the rate of 12.25% p.a. from 8 August 2006 to the date of the judgment; and
(d)	further interest on the sum of  $1,184,680.95 from the date of judgment to full payment at the judgment rate.

12. In HCMP 2179 of 2006 where Hang Seng Bank Limited is the Plaintiff, the mortgagee, I do not find any clause in the charge or the facility letter that provides for variation of interest rate in case of default.  For this reason I am of the view that the 2^nd type of overdue (late instalment) interest should not be allowed.  The money order and judgment I made on 9 January 2007 shall be varied to give the following effect:

(a)	the sum of $1,325,406.02;
(b)	interest thereon from 15 October 2006 to the date of judgment at the rate of 5.7% p.a.; and
(c)	further interest on the said sum of $1,325,406.02 at judgment rate from the date of judgment to full payment.

13. Subject to Order 42 rule 4B(6) I make an order nisi that there be no order as to costs in respect of the claim for overdue (late payment) interest.