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HCB 4840/2005
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
BANKRUPTCYPROCEEDINGS NO. 4840 OF 2005
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| Re: |
TAMANG SURESHKUMAR STEVEN, a Debtor |
| Ex Parte: |
BANK OF CHINA (HONG KONG)
LIMITED (successor
banking corporation to the
China and South Sea Bank Limited
pursuant to Bank of China
(Hong Kong) Limited (Merger)
Ordinance Cap. 1167, a
Creditor |
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AND
HCB 4845/2005
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
BANKRUPTCYPROCEEDINGS NO. 4845 OF 2005
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| Re: |
BATALON SABINA S., a Debtor |
| Ex Parte: |
BANK OF CHINA (HONG KONG) LIMITED (successor
banking corporation to the
China and South Sea Bank Limited
pursuant to Bank of China
(Hong Kong) Limited (Merger)
Ordinance Cap. 1167, a
Creditor |
____________
Before: Hon Barma J in Court
Date of Hearing: 7 December 2005
Date of Judgment: 15 December 2005
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J U D G M E N T
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1. This was the hearing of two bankruptcy petitions presented by the Bank of China (Hong Kong) Limited (“the Bank”) against Mr Tamang Sureshkumar Steven (“Mr Tamang”) and Ms Sabina S. Batalon (“Ms Batalon”) (collectively “the Debtors”). The petitions are based on a judgment debt of HK$409,331.89 (plus interest) owed by the Debtors to the Bank pursuant to a judgment obtained against both the Debtors in HCMP 4432 of 2001on 30 August 2002, by which the Bank successfully recovered from the Debtors an outstanding mortgage loan, and vacant possession of the mortgaged property. The debt on which the petitions were founded represented the balance of the original judgment sum and interest after giving credit for the proceeds of sale of the mortgaged property. This balance not having been paid, the Bank issued statutory demands against each of the Debtors on 22 November 2004, which were duly served on each of the Debtors personally. No payment having been made thereafter, the petitions were filed on 30 June 2005.
2. At the hearing before me, the Bank was represented by Mr Paul Leung. The Debtors appeared in person, with Ms Batalon adopting the submissions made to me by Mr Tamang.
3. The basis on which the Debtors opposed the petitions appears from two joint affirmations made by them on 29 August 2005 and 6 December 2005. Although the latter affirmation was very late, Mr Leung did not object to it being placed before me, and I accordingly gave the Debtors leave to file it. The Bank’s evidence consisted principally of an affirmation of Mr Lau Yuk Kan (“Mr Lau”), an officer of the Bank who says that he dealt with this loan from about October 2001 onwards. There was also a short further affirmation filed by one of the Bank’s solicitors shortly before the hearing to exhibit a document which should have been exhibited to Mr Lau’s affirmation, but had been omitted, perhaps due to an oversight.
4. The Debtors say that they have counterclaims against the bank of over HK$2 million. This figure is made up as follows:-
(1) HK$192,050.67 in respect of interest paid by them to the Bank between 12 October 1999 and 15 November 2001. This claim is based on an allegation that when they approached the Bank requesting it to consider a reduction in the interest rate applicable to the mortgage loan to them, the Bank failed to disclose its true position (that no reduction would be considered) and instead left matters open by indicating that this would be considered, so that instead of taking steps to sell the property or otherwise to repay the loan, the Debtors allowed the loan to remain outstanding.
(2) HK$105,908.91 in respect of interest paid by them to the Bank between 15 November 2001 and 12 June 2002. This claim is based on an allegation that despite the Bank having been verbally informed by Mr Tamang in mid-November 2001 that the Debtors wished to surrender the mortgaged property to the Bank, the Bank unreasonably delayed in pursuing its legal proceedings against the Debtors until 12 June 2002.
(3) HK$106,912.58 in respect of interest paid by them to the Bank between 31 August 2002 and 13 November 2003. This claim is based on an allegation that despite obtaining an order for vacant possession on 30 August 2002, the Bank did not in fact sell the mortgaged property until 13 November 2003, more than a year later.
(4) HK$443,250 which is said to represent the amount by which the sale price of the property fell short of the market price at the time of the sale.
(5) HK$715,000 representing the difference between the price paid by the Debtors for the property and the sale price, on the basis that this loss was caused by the Bank’s delaying actions referred to above.
(6) HK$510,000 representing the amount of the Debtors indebtedness to the Housing Society in respect of a top up loan obtained by them from the Housing Society in connection with their purchase of the property, also on the basis that this loss was caused by the Bank’s delaying actions referred to above.
5. The factual background to these allegations is as set out below.
6. It is common ground that the Bank extended a mortgage loan of HK$1,190,000 to the Debtors on 12 October 1999, when the mortgaged property was acquired by the Debtors. This represented 70% of the purchase price of the property, with the remaining 30% being financed by the Housing Society, which took a second mortgage over the property. The salient terms of the mortgage loan were that repayments were to be made by instalments every two weeks over 15 years, and that the interest rate was 0.25% p.a. below prime, with overdue interest to be charged at 8% p.a. above prime.
7. According to Mr Tamang, shortly after the loan was taken out, he and Ms Batalon realised that the rate of interest being charged by the Bank was substantially in excess of the rates offered by other banks, from whom rates of as low as 2.7 or 2.8% p.a. below prime were apparently available. However, instead of refinancing the mortgage loan, they decided to approach the Bank to seek a reduction in the interest rate applicable to it. The Debtors say in their first affirmation that they were given to believe that the Bank would consider their request, but did not identify the bank officers concerned. This was, however, done in their second affirmation, where the officers concerned were identified as a Ms Chu and a Ms Chan.
8. The Debtors say that because of the delay in responding to their request, they decided to withhold payment of the monthly repayment instalments in protest in about mid-2000. This led the Bank to instruct solicitors to write to the Debtors on 11 December 2000, demanding repayment of the entire loan (as the Bank was entitled to do), a step which resulted in Mr Tamang going to discuss the matter with the Bank (presumably with Ms Chu or Ms Chan). On this occasion, Mr Tamang says that he was promised that the Bank would consider the request for a rate reduction, and on the strength of this promise arranged for the settlement of all outstanding instalments and overdue interest.
9. According to the Debtors, the Bank again failed to honour its promise to consider a rate reduction, and so they again withheld payment from about mid-May 2001 onwards. This resulted in the Bank commencing HCMP 4432 of 2001 against the Debtors on 15 August 2001. Mr Tamang says that on receiving the Originating Summons, he spoke to Mr Lau, who asked him to settle the outstanding balance, and make a written request for a rate reduction, which would then be considered. The Debtors say that, believing this, they promptly settled the outstanding balance (including interest), and wrote to the Bank on 22 August 2001, requesting a reduction in the interest rate, and an extension of the term of the loan from 15 years to 20 or 25 years.
10. Although Mr Tamang says that he spoke to Mr Lau, the letter was addressed to a Mr Li, and as I have noted, Mr Lau says that he did not become involved in this matter until around October 2001. Further, it is pertinent to note that this letter did not refer to any previous requests for a rate reduction, or to the suggestion that the rate being charged was substantially in excess of what other banks were charging, giving as the reason for the request “a slight change” in the Debtors’ financial circumstances. Mr Tamang explained at the hearing that this was a reference to the fact that they had had a new child at the beginning of that year, which they expected would mean higher monthly expenditures on domestic matters.
11. Mr Tamang says that when he contacted the Bank some time later, he was told that the Bank would not reduce the interest rate on their loan, but would be prepared to extend the loan term from 15 to 20 years. However, the Bank required that all overdue payments and its legal costs (of about HK$8,000, later negotiated down to HK$5,000) should be paid. This was confirmed by Mr Lau, who says that he told Mr Tamang this during conversations after October 2001. Mr Tamang was not willing to pay the legal costs, and no progress was made, although some further repayment instalments were paid.
12. The last payment made by the Debtors was on 15 November 2001. Mr Tamang says that at about this time, he told Mr Lau that the Bank could take over the property and dispose of it. Mr Lau says that thereafter, Mr Tamang told him on 4 December 2001 that he was going to refinance the property, and on 14 January 2002, told him that he was about to pay off the loan. Mr Lau told Mr Tamang that the Bank would take further legal action if the loan were not settled by 25 January 2002.
13. Nothing further appears to have happened until 8 April 2002, when Mr Lau says that Mr Tamang told him that the Debtors were willing to surrender the property to the Bank. The Bank prepared a standard form surrender letter, and Mr Lau asked Mr Tamang to sign it. At this stage, a valuation obtained by the Bank indicated that the property had an open market value of HK$1.28 million, with a forced sale value of HK$1.02 million. Mr Tamang was unhappy about the terms of the surrender letter. Eventually, on 13 May 2002, he told Mr Lau that he would prefer to sell the property himself. The Bank thereupon decided to proceed with HCMP 4432 of 2001, filing evidence in support of it. The originating summons was first heard by the Master on 13 June 2002, when it was adjourned for argument. The adjourned hearing was fixed for 30 August 2002, and in the meantime, further evidence was filed on both sides. The evidence filed by the Debtors set out substantially all of the matters which I have referred to above.
14. Mr Lau says that on 26 July 2002, Mr Tamang contacted him and told him that while he would not sign the surrender letter, he was prepared to let the Bank have possession of the property, provided the Bank undertook to sell it only at or above the market price. This was not acceptable to Mr Lau. On 30 August 2002, Master Mary Yuen heard the Bank’s originating summons and gave judgment for the Bank in respect of the outstanding mortgage loan, and made an order for vacant possession.
15. Vacant possession was eventually obtained with the assistance of the bailiff on 23 January 2003. Thereafter, says Mr Lau, the Bank tried to sell the property, but was unable to do so because of the poor state of the property market, which was aggravated by the SARS crisis that afflicted Hong Kong in the first part of 2003. In August 2003, the Bank tried again to sell the property, arranging for it to be put up for sale at three auctions in August, September and October 2003 respectively. The reserve price for the property was set at HK$980,000, HK$950,000 and HK$985,000 at the respective auctions. However, the property failed to attract any bids at the first two auctions, and it was not until the third auction that it was sold at its reserve price of HK$985,000. Reports from two firms of surveyors (who conducted the auctions) indicate that as at the date of the third auction, the property had an open market value of about HK$1.1 million, and a forced sale value of about HK$0.88 million. The sale price achieved thus fell in between these values.
16. At the hearing before me, Mr Tamang’s main complaint was that the bank had procrastinated in selling the property, and had thus failed to achieve the best price possible. He also complained about the Bank’s behaviour at the earlier stages, when he said that he was led to believe that it would give consideration to the Debtors’ requests for an interest rate reduction, but failed to do so.
17. I shall deal first with the suggestion that the Bank delayed in selling the property after obtaining the order for possession, and failed to achieve the best possible price for it. These allegations would appear to underpin the claims for alleged losses referred to in paragraphs 4(3) to (6) above.
18. I am afraid that I do not consider that there is any substance in these complaints. The duties of a mortgagee to his mortgagor in respect of the exercise of his power of sale over the mortgaged property are well established. Once the power to sell has accrued, the mortgagee is entitled to exercise it at a time of his choosing. He is not bound to try to sell the property at any particular time. He cannot be expected to get the market completely right, nor is he obliged to do so. His obligation is to act in good faith towards the mortgagor, and to take reasonable care to obtain the true market value of the property at such time as he decides to sell it (see Cuckmere Brick Co. Ltd v Mutual Finance Ltd [1971] 1 Ch 949, per Salmon LJ at 965G-966A and 966D-F).
19. I cannot see that there has been any breach of this obligation in this case. In the period from November 2001, when Mr Tamang indicated that the Debtors were prepared to let go of the property, up until the obtaining of the order for vacant possession, the Bank appears to have acted reasonably and properly. Following the suggestion in November 2001 that the Bank should sell the property, the Debtors’ position changed from time to time. While it may have remained their desire to sell the property, they were at times willing to surrender it to the Bank and at other times more inclined to try to sell it themselves. It is not surprising that the Bank was unwilling to sell the property on terms that they should achieve at least market price (or what Mr Tamang might have thought was the market price) for it - there could be no guarantee that they would be able to do so. Given the on and off discussions between November 2001 and May 2002, I can see no grounds for criticism of the Bank for failing to aggressively pursue the HCMP proceedings.
20. When those proceedings were reactivated, they would appear to have progressed with reasonable expedition, being disposed of within just over three months. Thereafter, vacant possession was obtained. Mr Leung suggested that the process of obtaining vacant possession pursuant to the court’s order would normally take about the length of time that it did in this case. I am not prepared to disagree with this. Once possession was obtained in January 2003, it would appear that the bank did make reasonable efforts to sell the property. That it was only able to achieve a sale in October 2003 and complete the transaction in November 2003 does not indicate that it was in any way negligent in the way in which it handled the sale. The evidence of the various attempts to sell the property by auction makes this abundantly clear.
21. In these circumstances, I do not consider that any of the alleged counterclaims mentioned in paragraphs 4(3) to (6) above have any prospect of success.
22. Quite apart from the fact that I cannot see that the Bank has acted unreasonably in its efforts to sell the property, it seems to me that there is in any event no basis at all for the complaints identified in paragraphs 4(4) to (6) above.
23. So far as the complaint in paragraph 4(4) is concerned, there is no evidence apart from the Debtors’ assertion, unsupported by any valuations or other evidence of value, that the property was worth some 45% more than it was in fact sold for. On the contrary, the available valuation evidence indicates that the sale price achieved at auction was within the range to be expected. Even if it had not been, the auction at which the property was sold would appear to have been properly advertised and conducted, and in these circumstances, no criticism could have attached to the Bank even if the price obtained had been lower than might have been expected.
24. As for the complaints in paragraphs 4(5) and (6), there is no basis for a claim based on the original purchase value of the property. At best, had the bank been in breach of their duty of care (which they were not), the amount of damages recoverable would have been the difference between the price achieved and the open market price at the time of the sale. The claim in paragraph 4(6) (if allowed) would also appear to involve duplication in recovery, since the loan from the Housing Society represented part of the price paid for the property.
25. That leaves the claims mentioned in paragraphs 4(1) and (2) above. These provide no basis for resisting the bankruptcy orders sought, as the substance of both of these claims was referred to in the evidence filed by the Debtors in HCMP 4432 of 2001. Notwithstanding that evidence, judgment was awarded against them following a hearing at which the Debtors were present and appear to have participated, and no appeal against that judgment was ever lodged. That being so, I do not think that it is open to the Debtors to seek to reopen these questions now.
26. Further, and in any event, the combined amount of the claims in respect of these matters falls well short of the amount for which the Debtors are indebted to the Bank. Even if these claims were well founded, there would remain a debt of about HK$130,000 outstanding, which the Debtors have not paid, and as to which there is no evidence to suggest that they are able to pay it.
27. I am therefore satisfied that the Debtors have failed to raise any bona fide dispute of substance in relation to the debt on which the petition is based, and shall therefore make the usual bankruptcy order, with costs in favour of the Bank, in each case.
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(Aarif Barma)
Judge of the Court of First Instance
High Court |
Mr Paul HM Leung, instructed by Messrs Ford, Kwan & Co., for the Petitioner
Debtor: (in HCB 4840/2005) Tamang Sureshkumar Steven, in person (present)
(in HCB 4845/2005) Batalon Sabina S., in person (present)
Attendance excused, for the Official Receiver
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