INDUSTRIAL AND COMMERCIAL BANK OF CHINA (ASIA) LTD v. INTERPRO MANUFACTURING LTD AND OTHERS

HCMP 1619/2016

[2025] HKCFI 177

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1619 OF 2016

________________________

________________________

BETWEEN

(by Original Action)

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AND BETWEEN

(by Counterclaim)

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JUDGMENT

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Introduction

1.  This is the claim by the plaintiff (“ICBC”) against the 3^rd defendant (“Tse”) under a guarantee dated 22 January 2016 (the “2016 Guarantee”) and Tse’s counterclaim for a rescission of the Guarantee and damages for ICBC selling a secured property at an undervalue.

2.  Default Judgment had been entered against the 1^st defendant (the “Company”), which is now in liquidation. The 2^nd defendant (“Sun”) is a former director and shareholder of the Company who had been bankrupted in November 2016 by reason of a guarantee with Citibank for the Company’s indebtedness. ICBC has not proceeded with its claim against Sun. The trial is therefore only between ICBC and Tse.

Background

3.  ICBC is a licensed bank incorporated in Hong Kong. The Company was incorporated in Hong Kong in 1993 and was engaged in the business of exporting general merchandise particularly from China to the United States and acting as a commercial agent. Tse became a director of the Company in 2003 and as from 3 November 2016, she was the sole director. Tse held 35,000 out of 50,000 shares in the Company from 2016 onwards.

4.  The Company was wound up in July 2017. The petitioning creditor was another bank, ANZ Bank.

5.  The Company owned various properties including House 102, The Portofino, 88-188 Pak To Avenue, Clearwater Bay (the “Portofino Property”) and Unit 201, 2/F, 481 Castle Peak Road, Kowloon (the “Castle Peak Road Property”). The Portofino Property was the former matrimonial home of Tse and her husband, who was a former director of the Company.

6.  Between about 2003 and 2016, ICBC, and several other banks, granted various financial facilities to the Company. The facilities provided by ICBC included an overdraft facility, a trade finance facility, an instalment loan and foreign exchange (“FX”) forward contract facility. A total of 8 FX forward contracts (the “Accumulator Contracts”) were entered into between ICBC and the Company.

7.  The timing of the issue of facility letters, mortgages, various guarantees and the entering into of Accumulator Contracts (in bold) are as follows:

Date	Facility Letters/Accumulator Contracts
13 June 2003	Facility Letter
23 October 2006	Facility Letter (with FX facilities being offered for the first time)
11 February 2008	Facility Letter
29 February 2008	Portofino Mortgage (as defined below)
11 March 2008	Facility Letter
2 October 2009	USDCNY Target Digital Bonus Knock Out Forward
3 November 2010	USDCNY Capped Ratio Forward
8 February 2011	Facility Letter (with FX facilities being extended to include one-off interest rate swaps)
25 February 2011	Guarantee from Tse and Sun for up to HK$93,900,000
8 March 2011	Facility Letter
28 March 2011	Guarantee from Tse and Sun for up to HK$114,844,000
31 March 2011	Castle Peak Road Mortgage (as defined below)
24 May 2011	Facility Letter
28 June 2011	Facility Letter
8 September 2011	USD/CNY Structured Ratio Forward
13 February 2012	Facility Letter
5 March 2013	Offshore Deliverable USD/CNH Target Redemption Forward
13 August 2013	Facility Letter
22 November 2013	Offshore Deliverable USD/CNH Target Redemption Forward
29 January 2014	Offshore Deliverable USD/CNH Target Redemption Forward
11 February 2014	Facility Letter
16 July 2014	ISDA 2002 Master Agreement (the “ISDA Master Agreement”)
21 January 2015	Offshore Deliverable USD/CNH Target Redemption Forward
2 June 2015	Facility Letter
17 July 2015	USD/CNY Non-Delivery Target Redemption Forward
13 January 2016	Facility Letter
22 January 2016	2016 Guarantee from Tse and Sun for up to HK$142,000,000
5 February 2016	Letter from ICBC to withdraw facilities

8.  As security for the bank facilities, the Company granted mortgages over its properties. The Portofino Property was mortgaged to ICBC on 29 February 2008 (the “Portofino Mortgage”). The Castle Peak Road Property was mortgaged to ICBC on 31 March 2011 (the “Castle Peak Road Mortgage”).

9.  The Company failed to pay its indebtedness to ICBC when it became due.

10.  By Originating Summons dated 24 June 2016, ICBC commenced this present Action.

11.  On 22 November 2016, in default of any defence from the Company, Master Lai ordered that (the “Judgment”):

(1) ICBC do recover against the Company the sums of HK$33,441,104.67 and US$3,512,406.51, being the total sums due secured by the various mortgages and further interest on the sums at Judgment rate from 23 November 2016 until payment.

(2) The Company do within 14 days after service of the Judgment deliver to ICBC vacant possession of the Portofino Property and the Castle Peak Road Property.

12.  On 28 June 2017, the Castle Peak Road Property was sold by ICBC in accordance with its powers as mortgagee under the terms of the Castle Peak Road Mortgage for the sum of HK$11,090,000.

13.  On 20 April 2018, the Portofino Property was sold by ICBC in accordance with its powers as mortgagee under the terms of the Portofino Mortgage for the sum of HK$48,000,000.

14.  The proceeds of sale of the Portofino Property and the Castle Peak Road Property were insufficient to satisfy the full amount of the Company’s indebtedness to ICBC – taking into account the Judgment sum and ongoing interest.

15.  By letter of demand dated 8 August 2019, ICBC notified Tse that:

(1) The remainder of the Judgment debt was HK$1,134,965.30 and US$1,165,535.38 (including interest) as at 8 August 2019 (the “Outstanding Sum”); and

(2) ICBC claims against Tse under the terms of the 2016 Guarantee for such remainder of the Judgment debt (and interest), being the Company’s indebtedness to ICBC.

16.  Tse failed to make any repayment.

17.  As shown in the table in paragraph 7 hereinabove, Tse had entered into 3 personal guarantees in total whereby she had respectively guaranteed as primary obligor and not merely as surety to pay to ICBC all monies and discharge all liabilities by the Company to ICBC. In the present claim, ICBC relies on the 2016 Guarantee to claim against Tse for the Outstanding Sum.

Tse’s Defences

18.  Tse’s defences are as follows:

(1) The “Regulatory Codes Defence”: ICBC should not have sold the Accumulator Contracts to the Company when it knew or should have known that the Company had no need for FX facilities. In doing so, ICBC had breached various regulatory codes:

(a) The Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission published under the Securities and Futures Ordinance (Cap. 571) (the “SFO”) in 2010 and revised thereafter (the “SFC Code”).

(b) The Circular on Selling Accumulators of December 2010 (the “Circular”) issued by the Hong Kong Monetary Authority (“HKMA”).

(c) The Code of Banking Practice published under The Hong Kong Association of Banks Ordinance (Cap. 364) (The “Banking Code”).

(2) The “Lack of Authority Defence”: Sun never had authority to sign on behalf of the Company the documents relied upon by ICBC.

(3) The “Lack of Knowledge Defence”: Tse had no knowledge of the Accumulators.

19.  Tse also counterclaims for:

(1) rescission of the 2016 Guarantee by reason of ICBC’s misconduct and misrepresentation, and

(2) damages sustained and/or reduction of liability due to the Portofino Property being sold below current market valuations at a significant undervalue in breach of ICBC’s legal obligations.

20.  There is no dispute that Tse bears the burden of proving these defences and the counterclaims.

Witnesses

21.  Mr Gary Chow (ex-ICBC employee) and Mr Nicholas Brooke (as expert) gave evidence for ICBC. Tse, Sun and Mr Gareth Williams (as expert) gave evidence for Tse.

22.  In assessing credibility of the witnesses, I adopt the often cited principles in Hui Cheung Fai and Other v Daiwa Development Limited and Others^[1] by Deputy High Court Judge Eugene Fung SC at §§76-82:-

“76. In making my findings of fact in this case, I am guided by a number of general principles which judges apply as to fact finding and the assessment of credibility.

77. Generally speaking, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility: Onassis v Vergottis [1968] 2 Lloyd’s Rep 403 at 431 (Lord Pearce)…

78. In deciding whether to accept a witness’ account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events: eg Lam Rogerio Sou Fung v Tan Soon Gin George (unreported, HCA 2576/2005, 5 May 2011) §39 (Chu J).

79. In determining a witness’ credibility, I have also attached importance to the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence. The latter type of consistency is often tested by a comparison between the witness’ oral testimony and his or her witness statement.

80. I have cautioned myself against the dangers of too readily drawing conclusions about truthfulness and reliability solely or mainly from the appearance of witnesses (Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336 at §§36-37 (Bokhary PJ)), or from the assessment of the witnesses’ character (Esquire (Electronics) Ltd v HSBC [2007] 3 HKLRD 439 at §135 (Stock JA))…” [emphasis added]

23.  In Star Glory Investment Limited v Kai Tuo (H.K.) Technology Company Limited & Ors^[2], Chung J adopted the following test:

“There are two objective tests for assessing a witness’ credibility regarding a matter to which he has testified: -

a) Whether that part of his testimony is inherently plausible or implausible;

b) Whether that part of his testimony is, in a material way, contradicted by other evidence which is undisputed or indisputable (an example often given of such evidence is contemporaneous documents).

Further, where it is shown that a witness has been discredited over one or more matters to which he has testified (using the above tests), this fact is relevant to the assessment of his overall credibility. Likewise, regard may be had to a witness’ motive for deliberately not giving truthful testimony. For example, telling the truth may prejudice his interest, or a just determination of the litigation may affect his interest.”

The Lack of Authority Defence/The Lack of Knowledge Defence

24.  Mr Edward Alder and Ms Jasmine Cheung, counsel for Tse, contended that Sun did not have authority to bind the Company to the Accumulator Contracts or the ISDA Master Agreement based on the following:

(1) ICBC’s initial dealings with the Company only involved standard bank accounts and trade finance facilities such as letters of credit. ICBC formerly required certified and signed copies of proper written directors’ resolutions when dealing with the Company. From about 2011 onwards, ICBC accepted documents provided by Sun or Chung (as defined below) which Tse did not know about and did not authorise.

(2) Tse did not control or oversee the Company’s finances. Sun was the one who was responsible for the finance side of the Company. An ex-Hang Seng Bank employee Richard Chung (“Chung”) was appointed by Sun as a consultant to the Company since 2002. Chung later became the financial controller of the Company in 2009. Tse wholly trusted Sun, who together with Chung fully controlled the Company’s finances to the exclusion of Tse. Tse trusted Sun on preparing the necessary finance documents for her to sign as a director.

(3) The Company’s Articles of Association required a quorum of 2 directors for directors’ meetings. There is no board resolution for authorising Sun to enter into the relevant Accumulator Contracts or to issue the Letter of Authorisation dated 26 November 2016 (the “Letter of Authorisation”).

(4) Mr Alder criticised the “extract of director’s resolutions” dated 1 July 2011, 5 September 2013 and 10 June 2015 respectively on the bases that:

(a) there was no underlying board of directors minutes that the “extracts” were purportedly from.

(b) These were standard forms of ICBC and were not real resolutions of the Company.

(5) The account opening form dated 18 October 2006 (the “Account Opening Form”) only covered securities account and did not relate to FX transactions. As such, the authorisation of Sun as the authorised signatory only relates to the securities account with ICBC. Such authorisation does not cover other accounts such as FX accounts.

(6) Despite the facility letters having been issued and signed by Sun and counter-signed by Tse, there needs to be separate authorisation for the entering into of individual loans and accumulators as and when they were offered.

(7) The board resolutions dated 27 December 2007 (the “2007 Board Resolution”) whereby the Portofino Property was pledged as security only authorised the grant of banking facilities for the Company’s need for working capital for its business. No authorisation was given for other transactions such as the Accumulator Contracts.

25.  Based on the following, I reject the above submissions on lack of authority/knowledge on Tse’s part:

(1) It is contradictory for Tse to on the one hand admit that she wholly trusted Sun, who together with Chung fully controlled the Company’s finances and on the other hand allege that Sun and Chung did not have authority to enter into transactions with ICBC on behalf of the Company. It is clear that at all times Sun had actual authority to deal with ICBC and to enter into all of the bank documents, including the facility letters and Accumulator Contracts:

(a) Sun and Tse’s husband (“Friedman”) agreed to set up a joint venture business for the manufacturing and design of consumer products for USA clients and the Company was set up in 1994. At that time, the Company only had two directors, being Sun and Friedman. Sun’s evidence was that during his time as a director of the Company, he was responsible for managing the Company’s finances as he was solely financing its operations. As Sun was bankrolling the business, Friedman left the management of the Company’s financial affairs solely to Sun. Friedman and Tse were at no time involved with the Company’s financial affairs as they trusted Sun’s judgment and left him to do his job.

(b) The Company’s portfolio branched into real estate investment in about 2002. By mid-2015, due to Sun’s expertise in real estate investment, the Company has a property portfolio of 13 properties in Hong Kong with a total value of over HK$300 million.

(c) At the beginning, the Company only had accounts with ICBC, Hang Seng Bank, Citibank and Bank of East Asia. In early 1990s, Sun met Chung who was a private banking relationship manager with Hang Seng Bank. Chung handled the Company’s banking business with Hang Seng between 1994 and 1997. Subsequently, Chung left Hang Seng Bank and set up his own consultancy business. Given Chung’s background and knowledge of the Company’s business, Sun decided to retain Chung as the Company’s consultant in 2002. After retaining Chung as the financial controller, the Company established banking relationship with 3 additional banks, namely HSBC, Standard Chartered Bank and ANZ Bank (the “New Banks”).

(d) Although Sun was at pains to stress that Tse and Friedman were not involved in retaining Chung as the financial controller of the Company, Tse most certainly was aware of Chung’s role as the consultant, and later on, financial controller as he was the one who negotiated facilities with the banks, including ICBC, and handed bank documents for Tse to sign on numerous occasions. Tse had not at any time queried Chung’s role within the Company. Sun’s evidence was that Tse and Friedman came to know of Chung’s retention as the Company’s consultant to assist Sun with the Company’s financial affairs from about 2003 onwards.

(e) Sun’s evidence was that Chung persuaded him to “give face” to the banks by giving them more business to obtain better rates on bank products such as property loans. Based on Chung’s recommendation, Sun in his capacity as director caused the Company to establish FX forward contract facilities with the banks.

(f) Tse had agreed to give Chung a 5% commission on the profits made by the Company as a direct result of his investment activities. This clearly indicated that there was approval for the Company to engage in investments, other than its trading business.

(g) When Sun was diagnosed with cancer in 2009, Chung offered to take over the day-to-day management of the Company’s financial affairs during Sun’s treatment. Chung was given the title of “Financial Controller” and was paid monthly, although Sun insisted that he was not an employee of the Company. Despite claiming to have not known anything about accumulators, Sun agreed to sign the Accumulator Contracts due to Chung’s repeated requests and the fact that he was sick. However, no allegation of undue influence or lack of will was made.

(h) By 2010, Sun became increasingly reliant on Chung to manage the Company’s finances and to deal with the banks. Sun admitted to have signed Letter of Authorisation giving Chung authority to trade in facilities. Sun claimed that he thought he only gave Chung authority to act on behalf of the Company so that he could attend to the day-to-day management of new facilities and open new accounts. Tse and Friedman did not know about the authorisation as Sun did not seek their consent.

(i) Sun admitted to have signed paperwork that permitted the Company to increase its facility limits for FX from HK$5 million in 2008 to US$25.5 million in February 2011. The FX forward contract was initially profitable. This prompted Sun to adopt Chung’s recommendation to establish similar accounts with the New Banks.

(j) By mid-2013, Sun noticed that every other month a new bank document needed his signature. This pattern continued from 2013 to 2014. Sun explained that every time he thought each transaction was limited to a modest fixed sum without risk and for the express purpose of giving face to the banks only.

(k) Sun was told of the huge loss incurred by the Company after the fall in the value of RMB in mid-August 2015 and this was the first time he heard of the Accumulators and learnt how they worked. Sun claimed to have been completely shocked by the information at the time. Chung was terminated in September 2015 and was replaced by Alan Kong, who was recommended by the Company’s accountant.

(l) From the above history, it is difficult to see on what bases Sun or Tse could contend that the Accumulator Contracts were unauthorised by the Company. Sun was clearly authorised by Friedman and/or Tse, during their respective times as directors of the Company, to be responsible for all financial matters of the Company. Indeed, Tse in her own oral evidence time and again reiterated that she was responsible only for the merchandising and trading side of the business and she was the “face” of the Company with the customers whereas Sun was the “face” of the Company when dealing with banks. Sun represented the Company to deal with the Banks. Tse had clearly knowingly left all financial aspects and dealings with the banks to Sun. Sun also agreed that Tse and Friedman relied on his judgment for all aspects of the Company’s finances. It was Tse’s case that she and Friedman had had no contact with the banks whatsoever. This necessarily means that the only other director, Sun, was vested with the responsibility and authority to deal with the banks.

(2) Sun’s evidence corroborated with Tse’s evidence in that as far as the banks were concerned, he and Chung were the “face” of the Company and the bank officers knew that Sun was the one responsible for giving them the Company’s business, not Friedman or Tse.

(3) Sun’s oral evidence was that Tse trusted him 100% with money matters. This necessarily meant that Tse had authorized him to deal with the financial side of the Company’s matters.

(4) Sun had in turn chosen to trust Chung and had chosen to enter into the various facility letters and transactions despite not knowing what they were or what liability the Company incurred. There was no evidence to suggest that Sun could not have read through the various facility letters if he had chosen to do so.

(5) I reject any suggestion that only the signing pages of all relevant bank documents were available to Sun for signing. In particular, in relation to the 3 guarantees that Sun executed, they were either printed on one single booklet or printed on a folded large single sheet of paper. It would not have been possible for only the signing page to have been presented for Sun to sign.

(6) I find Sun to have deliberately downplayed his role in entering into the relevant transactions. I also find Sun’s evidence that he was not aware of the extent of his liability under the various guarantees and the extent of the Company’s liability inconceivable. He has admitted to have been the person that the banks deemed as responsible for the Company’s matters. If he had wanted to, there would have been numerous opportunities for him as a director to find out from the bank officers what the transactions were. Sun had simply not done so. Even if he were truly oblivious to the extent of the Company’s liability as well as his own liability, it was due to his deliberate turning a blind eye to the obvious.

(7) Tse had said in her oral evidence that the Company had never had any directors’ meeting. However, it was not suggested that none of the acts carried out by Tse or Sun were authorized due to a lack of such directors’ resolution. Against the context where Sun and Tse both deposed to the fact that they had mutually trusted each other with the respective areas of the Company’s business, the fact that there was never any formal board meeting held between the directors further supports the conclusion that there must have been implicit understanding and authorisation as between the directors as to what they were in fact respectively authorized to do.

(8) Sun also admitted that as a director he was responsible for signing all forms to and from the banks on behalf of the Company. Sun also agreed during cross-examination that he could delegate some of his duties to other staff but ultimately, he remained responsible. Tse and Sun’s complaints in hindsight that Chung had misled them cannot mean that the contracts entered into at the material time by Sun were unauthorised by the Company. The Company’s recourse and Tse’s recourse (if any) lies in a claim against Sun and Chung, if there is evidence of a breach of duty on their parts.

(9) In choosing to delegate all financial matters to Sun and/or Chung, Tse, as a director, must have authorised their acts on behalf of the Company vis-à-vis ICBC.

(10) Tse, on her own case, found out about the Company having entered into the Accumulator Contracts in August/September 2015. She said she was shocked to learn that Sun had procured the Company to enter into the Accumulator Contracts. Yet, despite having found out about the Accumulator Contracts, the Company still continued to seek further facilities from ICBC. This is evidenced by the Facility Letter dated 13 January 2016 (the “2016 FL”), which provided for, amongst other things, structured FX products / decomposable digital structure FX products on revolving basis up to the notional amount of US$48 million and booking of forward exchange contract for the booking non-deliverable forward / booking of forward exchange contract for the booking deliverable forward on uncommitted basis up to the notional amount of US$5 million.

(11) If Tse was genuinely shocked that Sun had entered into the Accumulator Contracts or if such Accumulator Contracts were unauthorised, there is no explanation why Alan Kong, the new Chief Financial Officer who replaced Chung, continued to request ICBC for provision of further facilities by email dated 14 January 2016. This request was copied to Tse and Sun. This clearly shows that Tse was all along kept informed of the process of Alan Kong seeking further facilities on behalf the Company.

(12) Alan Kong then advised ICBC that the 2016 FL was duly signed and would be handed over by email dated 21 January 2016, which was again copied to Tse and Sun. Tse and Sun had signed on the 2016 FL as Guarantors, indicating “[t]he Guarantor(s) hereby confirms their understanding of the contents of this Facility Letter and agrees to obtain independent professional advice in good time prior to the execution of the guarantee.” Tse should have sought advice on what the 2016 FL entailed if she had any doubts. Having signed the 2016 FL, it is difficult for Tse to deny knowledge that the 2016 FL included facilities which covered the accumulators. It is no answer for Tse to simply say that she never understood what accumulators were; be appending her signature to the 2016 FL, she has confirmed her understanding of the contents thereof.

(13) Further, if Tse had genuinely disagreed with the Company entering into the Accumulator Contracts, by this time in 2016 at least, she should have made sure that further facilities granted by ICBC should not allow the Company to enter into further such contracts. This she had not done. No objections were raised by Tse to the Accumulator Contracts until ICBC began enforcement of the 2016 Guarantee.

(14) The 2016 Guarantee was also arranged by Alan Kong to be signed by Sun and Tse, the directors and the only shareholders of the Company.

(15) Based on the above, I reject any suggestion that Tse had no knowledge of the Accumulator Contracts or that she has not authorised them.

26.  I am thus of the conclusion that based on Sun’s evidence and Tse’s evidence, Sun and Chung had actual authority at all material times to enter into the relevant transactions, including the Accumulator Contracts, on behalf of the Company and to sign all necessary documents as the authorised signatory of the Company.

27.  When the oral evidence of Tse and Sun alone is sufficient to establish that Sun and Chung were in fact authorised by the Company to enter into the various transactions with ICBC, whether the documentary evidence produced by ICBC in relation to authority is defective is of less importance. In any event, I am of the view that the following documents signed by Sun were effective for the following reasons:

(1) The Letter of Authorisation – this document concerned the Company’s bank account and was signed by Sun for and on behalf of the Company. It clearly authorized Chung to deal with the Bank and to enter into transactions for and on behalf of the Bank:

“Notwithstanding the terms of any existing or future mandate or other agreement or course of dealing between the Bank and me/us, I/We, the undersigned hereby authorize and empower the person(s) whose particular are set out in part I below (each an “Authorized Person”) for and on my/our behalf to do or execute all or any of the acts and things set out in Part II below:

Part I – Particulars of Authorized Person(s)

[Chung] – [ID no.] –Financial Controller

…

Part II Authorization

(1) To give the Bank verbal, notices, directions, orders or instructions of whatever nature for entering into or in relation to or in respect of:

(a) transactions under or pursuant to, including, without limitation, the terms and conditions with respect to various products offered by the Bank (including but not limited to unit trusts investment service, bond investment, monthly savings plan, securities, equity-linked deposit or currency-linked deposit);

(b) operation of my/our investment account t(s), including, without limitation, accounts for unit trusts investment, monthly savings plan, bond investment, securities, equity-linked deposit, or currency-linked deposit; and

...

(2) With respect to all matters, dealings or transactions between the Bank and me/us under or pursuant to the authorisation referred to in paragraph 1 above, to act as fully and effectually for all intends and purposes as if I/we were personally present and were acting in the manners, dealings and transactions aforesaid.

I/We hereby agree that all acts, things, matters and transactions done, performed, entered into or effected by the Authorized Person(s) singly on or pursuant to the authority conferred upon them under the authorization referred to in paragraph 1 above shall in all respects be binding upon me/us. The Authorized Person(s) shall have such continuous authority to deal with the Bank, for and on behalf of me/us and the instruction of the Authorized Persons shall be a sufficient authority and shall bind me/us in all respects, and the Bank is entitled to act and rely on such authority of the Authorized Person(s) unless:

(1) The Bank has actually received an instruction in writing from me/us revoking, amending or varying the authority conferred upon or the composition of the Authorized Person(s) or the arrangement as set out in Part II and

(2) Such instruction is completed in a form prescribed by the Bank or is otherwise found by the Bank to be satisfactory and evidence of due authorization thereto by me/us have been furnished to the Bank.

…”

As analysed above, Sun had admitted to having signed this authority on 26 November 2010. There is no basis to support Sun’s assertion that he only authorized Chung to deal with the day-to-day management of new facilities and open new accounts. The authorization clearly covered all transactions and operation of the investment accounts. At no time did Sun allege that he could not read English. In fact, it was clear throughout his cross examination that he understood English well. There was also no allegation of undue influence by ICBC in his signing of the authorization. Tse, having delegated all financial matters to Sun therefore must have also implicitly authorised Sun’s signing of this authorization.

(2) A Mandate for Limited Company Accounts from the Company dated 28 May 2003 (the “2003 Mandate”) whereby two directors of the Company, being Sun and Sun Hon Yin (Sun’s son) at the time, confirmed for and on behalf of the Company that Sun was an Authorized Signatory and:

(a) “Authorized Signatory(ies) be authorized and empowered on behalf of the Company: … to enter into contracts with [ICBC] for the purchase or sale of, or other dealings in … foreign exchange, either spot or forward, and to (i) execute and deliver documents to [ICBC] which evidence such contracts”,

(b) ICBC “be authorized if so instructed by the Authorized Signatory(ies) to act upon and/or comply with any other directions given for or in connection with any account(s) of the Company with [ICBC]” and “[ICBC] be and is hereby authorized to act upon or comply with any instructions given by the Authorized Signatory(ies) …”.

There is no merit in the argument that as the Company at that time had only opened a Hong Kong savings account, a foreign currency savings account, a current account and a time deposit account, the 2003 Mandate is limited to the operation of such accounts. This is because in Clause 1 of the 2003 Mandate provided that:

“[ICBC] be appointed the Company’s bankers and that one or more accounts be opened and/or continued with [ICBC] from time to time, such account(s) to include but not be limited to current, savings, call and/or time deposit accounts whether in Hong Kong currency or in any foreign currencies and that the person(s) named below who are so authorized and empowered by the Company in accordance with the signing instructions set out below … may direct [ICBC] in writing to open further account(s) with [ICBC] …”.

It was clearly contemplated that further accounts might be opened from time to time, and the 2003 Mandate is not limited to the accounts already in existence or being opened by the Company at the time.

(3) The fact that there was another securities account opening form with another mandate in 2006 (the “2006 Mandate”) does not negate the effect of the 2003 Mandate. It is therefore irrelevant whether the 2006 Mandate only covered the securities account, as the 2003 Mandate was already sufficient in appointing Sun as the Authorized Signatory for all transactions with ICBC.

(4) Similarly, the board minutes of the Company dated 27 December 2007 (the “2007 Board Minutes”) set out: “the Company required additional working capital for its business and had applied to [ICBC] for the grant of banking facilities to such extent as [ICBC] might from time to time determine (the ‘Facilities’).” (emphasis added) The 2007 Board Resolution (as defined in paragraph 24(7) above) unanimously resolved, among other things, “[t]hat it was in the interest of the Company to its commercial benefit and in furtherance of its objects that the Company do accept the said terms and conditions and the grant by [ICBC] of the Facilities…” As such, I am of the view that the 2007 Board Resolution that:

(a) Any one director of the Company be authorized to execute “other documents on such terms and conditions as [ICBC] may require on behalf of the Company…”; and

(b) Any one director of the Company be authorized to sign a Director’s Certificate and give the same to ICBC.

was valid.

(5) Even if I were wrong on the interpretation of the 2007 Board Minutes and the 2007 Board Resolution did not cover the Letter of Authorisation, I am of the view that Sun clearly had authority to issue the Letter of Authorisation based on my analysis hereinabove on actual authority and ICBC does not need to rely on the 2007 Board Minutes to prove Sun’s authority in issuing the Letter of Authorisation. In Sun’s oral evidence during cross examination, he acknowledged that he had authorised Chung in signing the relevant bank documents.

28.  The Lack of Authority Defence/The Lack of Knowledge Defence is thus rejected.

The Regulatory Codes Defence

29.  Mr Alder submitted that ICBC knew or should have known that the Company had no need for FX facilities and should not have sold the Accumulator Contracts to the Company. In doing so, ICBC was prioritising its own interests and profits and had breached various regulatory codes:

(1) the SFC Code.

(2) the Circular.

(3) the Banking Code.

30.  The following content in the Circular was relied upon by Tse:

(1) Main body:

“…

AIs [(authorized institutions)] should adopt a cautious selling approach and ensure that accumulators are only sold to customers who can fully understand the structure and risks, have the risk appetite for acquiring the underlying assets (e.g. stock, foreign currency) with leverage … ability to withstand the potential financial loss. …

… should ensure that the suitability of the recommendation or solicitation for the customer is reasonable …

… maintain adequate documentary evidence to demonstrate compliance …

…”

(2) Annex:

“… should assign the highest risk rating to such products …

… only sell these products to customers with experience in investing in structured investment products … assure themselves that the customer understands the nature and risks of the products and has sufficient net worth to be able to assume the risks and bear the potential losses …

… should ensure that the potential financial impact on the customer, particularly in adverse market conditions, is fully taken into account, in addition to their own credit risks …

… refrain from making any solicitation or recommendation of accumulator contracts to customers who already have high concentration …

… should also provide customers with reasonable alternative investment products with lower risks and/or less complex structure …

… As a general principle, … should only sell such products to professional investors …

… provide appropriate advice as to whether the transaction is suitable for the customer (footnote: … may be proper justification for selling foreign currency accumulators to such customers such as for hedging of the customer’s risk exposure, subject to proper controls…).

… For customers who intend to enter into [FX] accumulator contracts for hedging purpose, AIs should put in place proper procedures to establish whether the accumulator is indeed a suitable instrument …

… if the proposed maximum exposure associated with [FX] accumulator contracts (or the resulting total maximum exposure after taking into account other outstanding accumulator contracts as well) for a customer is materially higher than his/her positions or anticipated cash outflows in the relevant … currency, the customer will be over exposed …

… should maintain adequate and unambiguous (written and audio) records to demonstrate … proper suitability assessment and risk disclosures …”

31.  Tse complained that ICBC never took any adequate steps to satisfy itself that:

(1) ICBC had met all its regulatory obligations by proper communications with the Company’s board of directors;

(2) The Company had formally authorized the facility letters or had considered understood and approved of the Accumulator Contracts.

32.  ICBC relied on Chung (being the financial controller) and Sun as the authorized persons acting for and on behalf of the Company and the execution of the Accumulator Contracts by Sun. Tse contended that this was problematic as Chung and Sun did not have authority. ICBC’s reliance on various resolutions are said to be misplaced as they did not cover the Accumulator Contracts.

33.  As analysed hereinabove, particularly in paragraphs 25 to 26, I find that Chung and Sun were both all along properly authorized by the Company to enter into the Accumulator Contracts. There is thus no merit in the argument that ICBC was at fault in treating Chung and Sun’s instructions as valid and authorized by the Company concerning the Accumulator Contracts.

34.  The facility letters expressly state “Kindly note that your acceptance of the Facility Letter will not be construed as establishing business relationship between the parties herein unless and until customer due diligence has been satisfactorily conducted by the Bank on the Borrower in accordance with the guideline, rules and regulations of the [HKMA]”. Tse contended that this amounts to representations that ICBC would conduct customer due diligence in accordance with guideline, rules and regulations of the HKMA. In failing to do so, Tse claimed she had a claim against ICBC on misrepresentation.

35.  Mr Alder criticized ICBC for marketing the accumulators to the Company despite there was no need, or very little need for the Company to use RMB or FX products except for occasional spot USD/CNY exchange transactions to defray CNY expenses. It had no need for high-risk and long term FX products designed for professional speculation in the FX markets. It was said that Chung had used his connections with banks to earn commissions from the banks for the Company’s commitment of bank products. As such, it was submitted that ICBC marketed the accumulators to the Company purely for its own interests.

36.  Mr Luxton, counsel for ICBC, submitted that ICBC had taken sufficient steps to assess and ascertain the Company’s needs in relation to RMB:

(1) There is evidence on ICBC having considered whether accumulator products were suitable for the Company:

(a) In an internal credit opinion dated 7 June 2011 which was compiled pursuant to a credit request for adding a FX line called “USD/CNY Discrete Knock Out Forward”, it was recorded by the credit analyst that the Company’s account payable and account receivables were 75% and 80% respectively, as such they are hedged naturally. But at the same time, it was also recorded that the Company’s RMB requirement was 13% of sales as account payables, which the client needed to convert from about US$1,090,000. After taking into account of the Company’s contracts with other banks, it was recommended that US$500,000 to be within the Company’s requirement with 18 months of fixing, leading to the notional amount to be US$9 million.

(b) Two years later in another internal ICBC document: Request for Special Approval (Corporate Banking) dated 14 June 2013, the process of looking at the Company’s overall indebtedness position and available facilities was carried out. In the comments section, it was recorded that the financial controller of the Company (there being no dispute that this referred to Chung), 90% of account receivables are denominated in USD and 90% of account payables are denominated in RMB, and payables in RMB were expected to increase in future as more suppliers requested to receive RMB for procurement. It was after analysis that it was concluded that the proposed new limit of a notional US$1 million with 24 months fixing was suitable.

(c) In another internal credit opinion of ICBC dated 14 December 2015, it was recorded that the monthly requirement to convert USD to RMB is US$3.4 million.

37.  I am of the view that ICBC had taken sufficient steps to assess the Company’s requirements in RMB and in deciding to sell the Accumulator Contracts to the Company:

(1) The fact that the Company might not have needed as much RMB as the Accumulator Contracts provided for does not automatically lead to the conclusion that ICBC had mis-sold such products to the Company. It needs to be borne in mind that there is no dispute that Chung was the person who negotiated with ICBC in relation to the Accumulator Contracts. Chung was a banker who was well-versed in complex financial products such as accumulators. There cannot be any doubt that Chung fully understood the potential risks of such products.

(2) It is also not correct to say that the Accumulator Contracts would only be entered into where there are genuine hedging needs. It is not disputed that they can also be used for speculation purposes. The Company, upon the advice and recommendation of Chung began engaging in such speculative transactions. At first, such Accumulator Contracts were profitable. There was no suggestion by Tse or Sun that such profits gained by the Company should be disgorged due to the alleged lack of authority. It was only upon the unexpected devaluation of RMB in August 2015 that landed the Company in a big loss.

(3) Despite Tse’s insistence that Chung had no authority to engage the Company in such high-risk investments, the fact is that she and Sun had acquiesced to Chung’s role within the Company. They were content to have left financial matters with banks to Chung. They were well aware that Chung was handling the Company’s banking matters and they chose to simply sign whatever documents that were handed to them by Chung. This shows that Tse and Sun had authorized and indeed had trusted Chung to be handling all banking matters. As such, there is no room for any argument that Chung did not have the authority to so represent the Company.

(4) On the same basis, I also do not see why ICBC could not rely on Chung’s representation of the Company’s needs on RMB. I reject Mr Alder’s suggestion that ICBC had the obligation to confirm such needs by looking at the Company’s invoices.

(5) In the various facility letters, the provision of FX products was on the condition that the Company’s engagement in the relevant product was for “genuine hedging needs” or for “hedging purpose only”. Sun had signed on the facility letters for and on behalf of the Company. Tse had also signed on them as guarantor, the security provider of the facilities upon the terms and conditions in the facility letters. If Tse had wished to dispute the Company’s needs for hedging, she should have raised it before signing on the facility letters. Instead, it was clear, from Tse’s oral evidence, that she did not care what the terms and conditions were. All she cared about was the granting of facilities by ICBC for the Company’s business. She willingly and repeatedly signed on all documents that were handed to her without reading them. It is not open for her to now dispute the legal effect of such documents simply because she chose not to read them or to seek advice on the legal implications of such legal banking documents before signing[3].

(6) The Company’s 2008 Annual Report also made reference to the Company having purchased forward FX contracts in 2007 and 2008: “The company is exposed to foreign currency risk primarily through sales and purchases that are denominated in a currency other than the functional currency of the operations to which they relate. The currencies giving rise to this risk are primarily, United States dollars and Renminbi.” Despite Tse having denied having seen this annual report and disputed its accuracy, there is no reason put forward on why the accountants of the Company would have fabricated such statement.

(7) I am of the view that as seen from the various internal ICBC documents such as credit reports, ICBC had examined and considered the Company’s position before extending various facilities. There is no evidence pointing to ICBC having fabricated the reference therein about the Company’s need for RMB. Sun’s evidence is that Chung provided such information to ICBC. As analysed above, ICBC is entitled to rely on the information provided by Chung, who was an authorized representative of the Company.

38.  In terms of informing the Company of the risks involved in the Accumulator Contracts, I am of the view that ICBC had sufficiently brought them to the Company’s attention:

(1) Although it is accepted that ICBC has obligations under various Regulatory Codes, such obligations do not translate to a duty owed by ICBC to its customer[4].

(2) Heavy reliance was placed by Tse on the Circular. However, as explained in DBS Bank v San-Hot[5], the Circular was only a general statement on the risks involved in accumulator contracts:

“The Monetary Authority was, in the letter, making a general statement as to the risk involved in accumulators. As to how significant the risk is, it would depend on a myriad of factors peculiar to any given investor. In particular, his financial resources; cash flow condition; holding power; and the amount that he chooses to transact within a certain time horizon all make the difference. The prevailing market conditions and economic environment are also important factors. The discount from spot rate at which a customer is required to take up shares in any given contract would also significantly affect the overall risk involved.”

(3) The terms of the ISDA Master Agreement provided that the Company was making its own independent decisions to enter into the FX contracts, and it was not relying on any communication by ICBC as independent advice or as a recommendation to enter into the FX contracts. Information provided by ICBC was not to be considered investment advice or as a recommendation to enter into the FX contracts. Further, it was specified that ICBC was not acting as a fiduciary or adviser of the Company.

(4) Banks are not normally under a duty to advise customers on the merits of investments or warn them of risks. Where the parties have agreed on their respective rights and duties by way of contract, this will normally preclude any wider duty of care from arising at common law[6].

(5) The degree of risks had been adequately disclosed by ICBC. In the Accumulator Contracts, various scenario of profit or loss had been set out for the Company’s information. Of relevance is the Accumulator Contract dated 17 July 2015, under which substantial loss was incurred by the Company after the surprise devaluation of the RMB in August 2015. It was also specified under a heading of “Risk Disclosure” that:

(a) This is a structured product which involves derivatives. Do not invest in it unless the Company fully understand and are willing to assume the risks associated with it.

(b) There are significant risks associated with the Accumulator Contracts, including FX risk, liquidity risk, early termination risk and credit risk.

(c) The Company should consult its own financial, legal, accounting and tax advisors about the risks associated with the Accumulator Contracts, the appropriate tools to analyse the Accumulator Contracts, and suitability of the Accumulator Contracts for the Company’s circumstances.

(d) No customer should purchase the Accumulator Contracts unless the customer understands and has sufficient financial resources to bear the market, liquidity, structure, redemption and other risks associated with the product.

(e) The Company cannot terminate the product before maturity date unless approved by ICBC whereas ICBC could terminate at its sole and absolute discretion. There may be a loss incurred by the Company on early termination. ICBC does not act as the Company’s advisor or in a fiduciary capacity in respect of the transaction, and accepts no liability with respect to the transaction. Before execution, the Company should take steps to ensure that it understands the transaction, and has made an independent assessment of its appropriateness in light of the Company’s circumstances. (emphasis added)

(f) Payoff from the Accumulator Contracts will be affected by fluctuations in the relevant currency exchange rates. The Company may suffer substantial loss as the Company would be bound by the contracts embedded in the Accumulator Contracts to take up periodically the agreed amount of the underlying asset at Strike Price when the market falls below the Strike Price.

(6) Sun had signed the Accumulator Contracts. It is accepted by Mr Alder that despite Sun’s allegation that he had signed them without reading them, he would nonetheless be bound by the terms therein.

(7) As I already found that Sun was authorized by the Company to enter into such contracts, the Company would be bound by the terms therein.

(8) As such, parties had expressly agreed to the terms in the Accumulator Contracts and there is no room to argue that ICBC was under any obligation to advise the Company on whether the Company should enter into the Accumulator Contracts.

39.  Based on the above, I am of the view that Regulatory Codes Defence fails.

Lack of Explanation of the 2016 Guarantee at a Meeting

40.  A lot of emphasis was placed during cross-examination on whether there was a separate meeting held during which ICBC explained to Tse the relevant risks under the various guarantees that Tse had signed. It was submitted as there was no meeting whereby ICBC had explained the 2016 Guarantee to Tse, ICBC had comprehensively failed to meet its regulatory responsibilities and duties of care regarding the Accumulator Contracts.

41.  I am of the view that this is a red herring because a bank owes no duty to guarantors to advise them or warn them of risks of entering into a guarantee[7].

42.  Further, Tse accepted that she did sign on the 2016 Guarantee. She also signed all documents required as she was keen to obtain the facilities from ICBC for the Company’s use. As such, even if there was no separate meeting, it would not invalidate the 2016 Guarantee because:

(1) When the facility letters were issued by ICBC, it invariably required the directors of the Company to provide a personal guarantee. Tse had repeatedly executed such guarantees. As analysed above, she was advised to seek independent legal advice but had chosen not to do so.

(2) When Tse signed the 2016 Guarantee, a risk disclosure notice dated 22 January 2016 was provided by ICBC to Tse and Tse had signed it. It was specified that as the Company had applied for a new facility or for an extension of an existing facility, a guarantee was required and by entering into the guarantee, Tse would become liable. She was reminded to seek independent legal advice before entering into the 2016 Guarantee. In the schedule, the Company’s liability at the time (HK$54,368,714.58 and US$56,000,000) was clearly set out. Tse had signed such risk disclosure notice. This signified that she had understood the content of such notice.

(3) Despite raising allegations that she was never explained the contents of the 2016 Guarantee and the various facility letters, at no point did Tse suggest that if she had known about the potential liability, she would not have entered into the 2016 Guarantee or signed on all facility letters. Instead, what is clear from Tse’s oral evidence is that she was informed by Sun/Chung that the 2016 Guarantee and other documentation were necessary requirements by ICBC for extending trade facilities to the Company. As she was keen to obtain financing for the Company’s operation, she had agreed to sign all documentation required. It is therefore clear that she decided to enter into the 2016 Guarantee regardless of the risks that came with it[8].

43.  As such, even if I were to accept Tse’s version that no face-to-face meeting in fact took place as shown in the “Record of Meeting” dated 2 February 2016, it would not invalidate the 2016 Guarantee.

44.  Based on the above, I am also the view that Tse is bound by and is liable under the 2016 Guarantee for the Outstanding Sum.

Alleged breach of mortgagee’s duty – the Portofino Property

45.  Tse’s allegation is that ICBC sold the Portofino Property other than in accordance with its powers as mortgagee under the terms of the Portofino Mortgage, as the sale price of HK$48 million was vastly below the market value at the time and the fact that there were insufficient advertising efforts.

46.  It is accepted by Mr Luxton that when a mortgagee exercises a power of sale under a mortgage, he owes the mortgagor a duty to take reasonable care to obtain a proper price or the true market value for the mortgaged property at the date on which he decides to sell it[9].

47.  In 張秀琼 v 利星行信貸有限公司[10], the principles are further set out:

(1) The power of sale is given to the mortgagee for his own benefit, to enable him the better to realise his debt. Accordingly, his own interests come before those of the mortgagee. Nonetheless, the mortgagee must act fairly toward the mortgagor[11].

(2) A mortgagee will not breach its duty to the mortgagor if, in the exercise of its power to sell the mortgaged property, it exercises its judgment reasonably. Where the judgment involves assessing the market value of mortgaged property, the mortgagee will have acted reasonably if its assessment falls within an acceptable margin of error[12].

(3) The burden of proof is on the mortgagor, or other person seeking to set aside the sale, to prove breach of duty by the mortgagee[13].

(4) A mortgagee is entitled to exercise the power of sale in the way it considers appropriate. There is no duty for the mortgagee to consult the mortgagor, let alone keep it informed of the progress of sale[14].

48.  Mr Luxton also relied on the following cases on examples where a mortgagee duty was held to not have been breached:

(1) In Re Lai Ka Hing, the petitioner had obtained a writ of possession against the debtor’s residential property and had sold the property by auction. After deducting the net proceeds of sale, there was a balance outstanding. The petitioner issued a bankruptcy petition with respect to the outstanding sum, which was opposed by the debtor on the basis that the property could have been sold for a better price. Poon J (as he then was) rejected this argument, on the basis that there had been 4 auctions, resulting in no bids at the first 3 auctions, and sale at the 4^th auction at the market price valued by a surveyor[15].

(2) Re Tamang Sureshkumar Steven[16] concerned similar circumstances – a bankruptcy petition based on the outstanding balance after sale of a mortgaged property. Barma J held that the bank was in no way negligent in how it handled the mortgagee sale, and “[t]he evidence of the various attempts to sell the property by auction makes this abundantly clear.”

(3) In 張秀琼 v 利星行信貸有限公司, the plaintiffs sought to set aside the mortgagee sale of a property. During the sale process, there were two auctions, but no bids were made. The defendant engaged an estate agent to sell the property by private sale, and had surveyors assess the value of the property (which were assessed at sale price). DHCJ Linda Chan SC (as she then was) made the following points:

(a) The manner in which the property was sold, which involved two public auctions followed by sale through agent, was reasonable and proper[17].

(b) The fact that there were no bids at the auctions was sufficient to refute any suggestion the property could be sold at a higher price suggested by the plaintiffs[18].

(c) It was reasonable for the defendant to rely on the professional opinions of surveyors as an indication of market price[19].

(d) In such circumstances, the plaintiffs have not discharged the burden of showing the defendant had breached its duty as mortgagee. Accordingly, it was unnecessary to consider the different opinions of experts on valuation[20].

(4) Where there is direct evidence of lack of offers for a property after reasonable attempts to sell have been made by a reputable agent, this is highly persuasive if not conclusive evidence of the property’s value, and far more persuasive than a valuer’s opinion[21].

49.  Applying the above principles, I do not agree that ICBC was in any way in breach of its obligations as the mortgagee in the sale of the Portofino Property:

(1) First and foremost, it needs to be borne in mind, and indeed it is accepted, that the interests of ICBC, Tse and the Company were aligned, in that it was in all parties’ interests that the Portofino Property be sold at the highest price possible. ICBC had hoped that if the sale proceeds of the Portofino Property and the Castle Peak Road Property were sufficient to cover the Company’s indebtedness, there would not have been a need to proceed with the action against Tse.

(2) On 12 October 2016, ICBC appointed Deloitte as receivers and managers to take possession of the Portofino Property, and to arrange for its sale.

(3) By January 2017, Deloitte had (i) engaged three property agencies, namely Centaline Property Agency, Black Rock and Homelife; (ii) hold an open day at the Portofino Property in October 2016; (iii) arranged for one of the real estate agents to circulate flyers about the Portofino Property in November 2016; (iv) advertised the sale of the Portofino Property in the Sing Tao Daily newspaper in December 2016.

(4) By late January 2017, about 15 groups of prospective purchasers had inspected the Portofino Property, but no offers for purchase were put forward.

(5) Deloitte had also through their internal network identified potential purchasers.

(6) A private tender was held for the Portofino Property from 27 January 2017 and closing on 22 February 2017, but there were no bids.

(7) Deloitte arranged for the Portofino Property to be auctioned on 13 June 2017 engaging AA Property Auctioneers Limited, but there were no bids.

(8) Further auctions were held for the Portofino Property by CS Auctioneers Limited on 26 July and 6 September 2017, but there were no bids. The reserve price was set at HK$56,500,000 on both occasions, and the opening bid price was HK$54,000,000.

(9) In relation to the auction on 26 July 2017, (i) the auction was advertised on 18, 19, 20, 21, 22, 24, 25 and 26 July 2017 in various newspapers including Wen Wei Po and Sing Tao daily; and (ii) about 25 people attended the auction.

(10) In relation to the auction on 6 September 2017, (i) the auction was advertised on 24, 25, 28, 29, 30 and 31 August 2017 and on 1, 2, 4, 5 and 6 September 2017 in various newspapers including Wen Wei Po and Sing Tao daily; and (ii) about 10 people attended the auction. For this auction, it was specified that the asking price was HK$54,000,00, but if there were no bids, then the asking price should be reduced to HK$52,000,000.

(11) In September 2017, Deloitte’s engagement as receivers and managers of the Portofino Property ended.

(12) ICBC entered into negotiations with a client of Talent-Sign Properties Limited, whereby such client initially offered a sum of HK$40,000,000 for the Portofino Property. In December 2017, such client increased its offer to the sum of HK$48,000,000.

(13) ICBC kept the Portofino Property on the books of various property agencies, including Centaline Property Agency, Midland Realty, Ricacorp Properties, Century 21, Ka Wai Property Agency, Qfang, China Hong Lok Yuen Property Agency, United Properties, Sunshine Property Consultant and A&A Property Consultant.

(14) A further auction was held for the Portofino Property by AA Property Auctioneers Limited on 23 January 2018, at which 70 people attended. The opening price was HK$53 million and the reserve price was HK$58 million. There were no bids.

(15) A final auction was held for the Portofino Property by AA Property Auctioneers Limited on 6 February 2018, at which 40 people attended. The opening price was HK$48 million and the reserve price was HK$56 million. There were no bids.

(16) It was against this history that ICBC eventually entered into a provisional agreement with a buyer for sale and purchase of the Portofino Property for the sum of HK$48,000,000. This purchaser was the client of Talent-Sign Properties Limited set out in (12) above.

(17) At the time of the sale of the property, ICBC had obtained various valuations of the Portofino Property, based on its current market value and forced sale prices (sale under repossession):

(a) Valuation of Prudential Surveyors (Hong Kong) Ltd – HK$60 million (current market value); HK$48 million (forced sale) as of 15 January 2018;

(b) Vigers Appraisal and Consulting Ltd – HK$60 million (current market value); HK$51 million (forced sale) as of 13 February 2018 (and for the preceding 3 months);

(c) RHL Appraisal Ltd – HK$67 million (current market value); HK$50.2 million (forced sale) as of 15 January 2018.

(18) The Building Authority had registered an instrument on the Portofino Property title, specifying illegal structures on the property. The illegal structures included (i) a structure erected over the entrance on level 2; (ii) floor slab on level 3; (iii) a structure erected on and over the flat roof on level 5; (iv) an opening in level 1 and staircase erected into the area below; (v) removal of unexcavated areas at level 1 and below; and (vi) site formation works in the rear garden and related structures. The owners were ordered to remove the illegal structures and reinstate the premises.

(19) Tse was warned by Deloitte that such illegal structures would have a negative impact on offers from potential buyers.

(20) Mr Brooke, ICBC’s valuation expert and Mr Williams, Tse’s valuation expert each provided their expert opinion and had filed a joint statement. I am of the view that it is not necessary for me to come to a view on whose valuation is “correct” because it is clear from the above history that ICBC had carried out the sale of the Portofino Property reasonably. ICBC had held a private tender and 4 auctions which were advertised and attended by various potential purchasers. It is a fact that no bids were received. After the initial bid of HK$40 million was put in, ICBC had negotiated it to a higher bid of HK$48 million, which was accepted by the purchaser. However ICBC did not immediately closed the sale, instead, it held another 2 auctions with the respective opening price at HK$53 million, then at HK$48 million. No bids were made. This shows that no one was interested in purchasing the Portofino Property for more than HK$48 million. In these circumstances, I cannot see how ICBC could be faulted in deciding to sell the Portofino Property at HK$48 million. Tse had not discharged the burden of showing the defendant had breached its duty as mortgagee.

(21) In any event, both experts concentrated on and took into account different factors they each felt were more relevant in valuing the Portofino Property. Suffice to say I do not find Mr Brooke’s valuation, the comparable that he used and the methodology he used was erroneous or faulty, such that his valuation can be said to be wrong.

(22) There is no evidence that the way the Portofino Property was marketed was unusual or inappropriate.

(23) Tse’s expert Mr Williams also could not explain why, despite his valuation of the Portofino Property at HK$65 million, there was zero interest. All he could suggest was that Hong Kong was going through “a funny period of time” in 2018 and somehow there was simply no interest. He also agreed that nothing suggests that ICBC was deliberately not selling the Portofino Property at the best price possible.

50.  There is no merit in Tse’s allegation that ICBC was in breach of its duty as the mortgagee.

Determination

51.  For the reasons set out hereinabove, Tse’s defences and counterclaims thus fail.

Orders

52.  I will grant the following orders/declarations:

(1) The plaintiff is entitled to judgment against the 3^rd defendant in the sum of HK$1,134,965.30 and US$1,165,535.38, together with interest at prime rate + 1% from 9 August 2019 until judgment, and thereafter at judgment rate until payment.

(2) There be a costs order nisi that costs of the action, including all costs reserved, be paid by the 3^rd defendant to the plaintiff on an indemnity basis (based on clause 10.4 of the January 2016 Facility Letter and Clause 1.01 of the 2016 Guarantee), to be taxed, if not agreed.

(3) The costs order nisi will become absolute if no application is taken out to vary it within 14 days hereof.