NANYANG COMMERCIAL BANK, LTD v. MA KUK t/a FOUNTAIN CO AND OTHERS

HCMP 2586/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2586 OF 2013

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1. This was a mortgage action pursuant to Order 88 by Nanyang Commercial Bank, Ltd (“the plaintiff”) against Ma Kuk trading as Fountain Co (“D1”), Fortune Past Development Ltd (“D2”) and Ma Yau Wing (“D3”) (collectively “the defendants”) for payment of all monies due (with interest) to the plaintiff secured by four mortgages, for vacant possession of the five properties secured respectively by those mortgages and indemnity costs. I made the order sought at the conclusion of the hearing. My reasons appear below.

2. Immediately prior to the hearing, the court heard an application by the former solicitors for the defendants to cease to act.  The defendants did not appear although the summons had been served on them.  The court on being satisfied that there was good reason to do so, granted the order sought.

3. None of the defendants appeared at the substantive hearing either and because the requirements of Order 67, rule 6(1) could not be complied with before the commencement of the hearing, Mr Wong being the handling solicitor, was in attendance at the hearing.

4. In view of the developments that morning, the absence of the defendants and the fact that their former solicitor was in attendance, it was appropriate for the matter to proceed in Chambers.

The defendants’ evidence

5. D1, who has factories in the PRC, has been carrying on business since the 1970s manufacturing plastic and rubber material for various products.  His relationship with the plaintiff began in June 2012.

6. On 22 June 2012 the plaintiff granted a term loan facility of $3 million to D1 repayable by instalments under a facility letter of that date (“the first facility letter”) guaranteed by the defendants.  The facility was granted under the SME Financing Guarantee Scheme (“the Scheme”).

7. On 16 April 2013, the plaintiff granted two further term loans and a demand loan facility under a second facility letter of that date (the second facility letter) which were not made under the Scheme.  Again, they were guaranteed by the defendants.

8. On 27 May 2013 four mortgages extending over five properties were executed in favour of the plaintiff to secure the facilities granted.  The properties and the mortgages are identified in the title to the Reasons for Judgment.

9. D1 and D3 have filed affirmations in these proceedings.  D3 is D1’s younger brother.  He merely stated that he had signed the first facility letter at the request of his elder brother and disclaimed any knowledge of the banking facilities or of D1’s business. 

10. There is no dispute that the facility letters and the mortgages were signed by the defendants.  The only issue taken is as to the circumstances in which the facility letters were executed with D1.

11. D1’s evidence was to the effect that on June 2012 he went to the plaintiff’s office in connection with his obtaining banking facilities.  He met with a senior relationship manager (“Mr Ng”); he signed the first facility letter without having been given an explanation of each and every clause; he was apprised only of the amount of the facility and the number of instalment repayments; he was not given an opportunity to read the documents by himself although he acknowledged that he would not have understood it had he been given the opportunity as his knowledge of English was very limited; he trusted and had every confidence in Mr Ng because Mr Ng was representing a well‑known bank; during the meeting Mr Ng did explain that each of the defendants was required to be a guarantor for the banking facility and needed to sign as guarantors.

12. D1 signed the facility in letter at the meeting but the signatures of the other defendants were obtained and returned to Mr Ng a few days later.

13. In relation to the second facility letter, D1 recalled that after signing it he was also asked to sign a few other documents and about 10 sheets of blank paper.  They were said to be necessary for the purpose of administering facilities.  He later found out that they were undertakings for repayment of loans and an assignment of debt with 10 notices of assignment.

14. The first meeting was said to take 30 minutes and the second 50 minutes.

15. In June 2013 D1 was informed by some of his customers that they had received notices of assignment of debt dated 19 April 2013 from the plaintiff.  That, allegedly, adversely affected his business.  D1 made a complaint to the plaintiff who promised to investigate the matter.

16. However he was never told of the result of the investigation.  Rather, the next event was the receipt of a demand letter dated 24 September 2013 from the plaintiff's solicitors. 

17. D1 denied signing the assignment of debt or any of the notices.  

18. In relation to Term Loans II and III under the second facility letter with a date of default of 27 September 2013, he considered the default letter premature as it pre‑dated the default.  D1 also sought to rely on an oral agreement the parties had allegedly reached in November 2013 to settle the matter.

19. The plaintiff does not accept D1’s account of the circumstances.  Mr Ng has set out his account in detail in his affirmation.

Triable issues?

20. For present purposes, it is assumed that D1’s version of events prevails.  But does it show any triable defence?  His former solicitor was unable to assist the court further as regards the defendants’ defence other than to confirm that the defendants’ affirmations in opposition were drawn up in accordance with the defendants’ instructions.

21. It is not disputed that the defendants’ signatures appear on the relevant documents.  A person signing the document will ordinarily be bound by the terms of that document whether he has read them or not and whether or not he is ignorant of the precise legal effect: Ming Shiu Chung & Ors v Ming Shiu Sum & Ors (2006) 9 HKCFAR 334, §§84‑87; Chitty on Contracts, 31^st edn, §12‑002.

22. While D1’s evidence might hint at vitiating factors such as misrepresentation, non est factum, duress and undue influence, in my view, even accepting his version, the evidence is not remotely sufficient to get any of those defences off the ground. 

23. Two further matters should be mentioned. 

24. First, it was suggested by D1 that he was asked to sign some blank sheets during the meeting in April 2013 which he later discovered to be notices of assignment to debtors which had then been issued to his customers and that his business suffered as a result.

25. Ms Cheng, counsel for the plaintiff, drew attention to the fact that one of the conditions precedent to the second facility letter was the execution of an assignment of debts of the “Approved Customers” in the plaintiff’s favour.  The list of “Approved Customers” forms part of the details of the export invoice discounting facility which itself is an integral part of the second facility letter.  Further, the assignment of debts to which D1 had appended his signature contained contact information of D1’s customers. 

26. It stands to reason that the plaintiff could only have obtained the relevant information from D1 and no one else, as indeed is the plaintiff’s evidence, namely, that the information had been provided by D1’s staff after D1’s meeting with the plaintiff.  D1’s evidence stretches one’s credulity and I do not consider D1’s evidence in this regard at all credible. 

27. It is also a fact that his signature is appended to the notices of assignment to debtors.  In my view, it is inherently improbable that an established bank such as the plaintiff would have asked D1 to sign blank sheets of paper when executing documents in connection with a loan transaction. 

28. In any event, those matters do not and cannot affect the validity or enforceability of the facility letters and the mortgages.

29. The remaining matter for mention is the allegation that the plaintiff through Mr Ng had orally accepted D1’s offer to settle the plaintiff’s claims on the basis of repayment of the loans except Term Loan I under the first facility letter. In other words, the plaintiff was required to drop its claim in respect of Term Loan I.  D1 asserted that the oral offer was made in early November 2013 and that it was orally accepted by Mr Ng in late November.  But what would be the plaintiff's reason to drop part of its claim when solicitors had already been engaged to issue written demands?

30. The plaintiff’s account was that D1’s proposal was to repay by instalments and is substantially consistent with what was recorded in a contemporaneous call report made by the plaintiff’s staff on 23 November 2013, not to mention the fact that it is inherently improbable for the plaintiff to conclude any oral agreement.

Conclusion

31. As no triable issue can be discerned from the defendants’ affirmations and the defendants have not taken the trouble to come to court to defend the plaintiff’s claim, there is no reason not to grant the order sought.