XCHRX BANK OF COMMUNICATIONS v. LOONGFUNG HINGYIP (HOLDINGS) LTD.

HCMP 1460/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1460 OF 2000

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REASONS FOR DECISION

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1. This is the Defendant's appeal against Master Cannon's decision made on 14 August 2000 ordering the Defendant to pay about HK$26,000,000 plus US$260,000 odd and to deliver vacant possession of 5 mortgaged properties to the Plaintiff.

2. It is not disputed that under three legal charges, the Defendant obtained banking facilities from the Plaintiff and agreed to repay on demand to the Plaintiff all outstanding debts, liabilities, costs, charges and expenses.

3. Under the three legal charges, the Defendant also charged the 5 properties to the Plaintiff.

4. On 15 February 2000, the Plaintiff through its then solicitors demanded the payment of the amount under the three legal charges totalling over HK$31,000,000 plus about US$260,000. The Defendant was unable to meet the demand.

5. It is also not disputed that in June 2000, the Defendant had redeemed part of the 5 properties and the total amount of the Defendant's indebtedness was then reduced to the said sums of HK$26,000,000 and about US$260,000.

6. In this appeal, Mr Lai on behalf of the Defendant, firstly relied on certain alleged procedural irregularities pertaining to the second affirmation of the Defendant's officer, Mr Cheng Man Yuet. The suggestion is that the said affirmation was wrongly served on the Defendant's previous solicitors and the copy that was sent to the Defendant's office was not received until after the hearing before Master Cannon. In the circumstances, the judgment was an irregular judgment. In any event, the learned Master should have granted an adjournment sought by the Defendant to enable the Defendant to properly meet the matters raised in the affirmation.

7. From the affirmation filed today by Mr Chick Tsz Kwan, there is clear evidence that the affirmation in question was despatched to the Defendant's office on 9 August 2000. I do not want to speculate as to why the Defendant claims not to have received it until after the hearing before Master Cannon. But that is not a matter that concerns or faults the Plaintiff.

8. Putting aside the fact that the Defendant's present solicitors did not file any Notice to Act until 9 August 2000 and technically when the affirmation was served on the Defendant's previous solicitors on 8 August 2000, the service was actually regular and proper, the affirmation in question, with respect is not relevant to the issue that the learned Master had to decide at all.

9. Clearly because of the redemption of part of the 5 properties subsequent to the taking out of the originating summons, the Defendant's indebtedness had been reduced and there is no dispute about the amount.

10. I agree that the Plaintiff by filing the affirmation in question was just trying to update the situation with regard to the Defendant's indebtedness. As the amount of the Defendant indebtedness is not in dispute, there can be no prejudice whatsoever to the Defendant even if the affirmation was never served.

11. In my view, the alleged irregularity if any, can be disregarded. Not that I think there is any irregularity but even if there is, it is of no relevance to the issue in question. It is the merits of the Defendant's proposed defence that should be examined.

12. The Defendant has raised only one matter. According to Mr Xu Zhiji, the Defendant's Managing Director, there had been prolonged negotiation between the parties on the restructuring of the Defendant's debt and on 29 May 2000, an oral agreement was reached with the General Manager of the Plaintiff, Mr Cheng Yu Chee that the Plaintiff will discontinue or adjourn the proceeding on condition that the Defendant would sell part of the properties, the subject matter of legal charges. The proceeds of sale of about HK$12,000,000 would be paid to the Plaintiff and the balance of the Defendant's debt of about HK$19,000,000 would be repaid to the Plaintiff by 36 monthly instalments.

13. Subsequent to the agreement so the Defendant claims, the Defendant sold part of the charged properties for HK$6,380,000 on 26 June 2000 which sum was then paid to the Plaintiff in partial satisfaction of the Defendant's debt. Another part of the charged properties could have been sold but for the fact that the Plaintiff did not agree with the proposed price.

14. In the circumstances, it is suggested by the Defendant that to allow the Plaintiff to get judgment is to ignore the oral agreement, reached between the parties on 29 May 2000 and will result in grave injustice to the Defendant.

15. The Plaintiff flatly denies the alleged oral agreement. Apparently a minute of the meeting on 29 May 2000 was kept and that minute suggests that Mr Xu Zhiji only proposed to sell part of the properties to repay, firstly HK$12,000,000 to the Plaintiff and then the balance could be repaid in 3 years, with 20% on the first year and 40% for each of the second and third years. The minute kept by the Plaintiff of the meeting also suggests that Mr Cheng Yu Chee insisted that concrete and credible evidence on the source of repayment had to be produced by the Defendant before the proposal put forward by the Defendant could be considered.

16. It is, of course, not for the court to resolve the dispute as to fact on an interlocutory application. But it is trite law that the mere assertion in an affirmation of a given situation which is to be the basis of a defence does not itself provide leave to defend to the Defendant. The Defendant has to satisfy the court that there is a fair or reasonable probability of the Defendant having a real or bona fide defence.

17. Given the background of the matter, it would not be unusual for the parties to discuss about how the debt was to be repaid. Indeed, clearly on the evidence, there had been prolonged negotiation well before 29 May 2000. It would also not be unusual for a debtor such as the Defendant to take some measures including partial repayment or the assignment of certain legal action to the creditor with a view to reduce the indebtedness or to persuade the creditor to take a more lenient approach.

18. The undisputed fact of the case supports such a view and is consistent with such an approach. But those matters are not themselves proof of a binding agreement not to enforce the contractual right that the Plaintiff is entitled to under the legal charges in question by withdrawing or staying the court proceedings that had been instituted.

19. Much had been said about an alleged attempt by the Defendant not to disclose a letter. It may not be such an important matter. It is agreed that the Defendant sent a letter dated 31 May 2000 which the Plaintiff received on 8 June 2000.

20. This letter mentioned of certain principles, agreed in an atmosphere of understanding and in friendness, as well as the formation of certain repayment scheme. I have looked at this letter, both its original in Chinese as well as the English translation. The contents of this letter is clearly consistent with the minute of the meeting on 29 May 2000 kept by the Plaintiff, that the parties were still working on a workable or agreeable solution on the indebtedness of the Defendant.

21. In my view, it certainly is not consistent with the Defendant's case that a binding agreement had been reached. Further, there is no dispute that the repayment schedule mentioned in the letter dated 31 May 2000 was not implemented. There are also correspondences between the parties on the restructuring of the Defendant's indebtedness and a letter was sent to the Plaintiff by the Defendant's solicitors, on the same day as the Notice to Act was filed. I have considered those correspondences.

22. I do not find it necessary or desirable to deal with each of those correspondences individually. Suffice it to say that the entire content of the correspondences between the parties, including the minute kept by the Plaintiff of the meeting on 29 May 2000 and the letter by the Defendant two days later, is inconsistent with and indeed contradictory to the Defendant's contention of a binding agreement reached on 31 May 2000 on terms as suggested by the Defendant.

23. Having looked at those documents in their entirety, I am persuaded that the Defendant's assertion of a binding oral agreement had no credibility and no chance of success at the trial.

24. Further I am also in doubt as to whether the alleged oral agreement, if any, is supported by any valid consideration. As I have not heard counsel's submission on the matter, I shall refrain from making any decision which will be academic anyway in the light of my earlier decision.

25. There is no valid basis upon which the court should overturn the decision of the learned Master. In the circumstances, the appeal has to be dismissed and I so order.