XCHRX STANDARD CHARTERED BANK v. YORKFAIR ENTERPRISES LTD. AND OTHERS

HCA3477/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3477 OF 1999

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J U D G M E N T

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1. This is the 1st Defendant's appeal against the Master's Order dated 15th June 1999 dismissing its application to strike out the Statement of Claim herein.

2. The Plaintiff is a bank. The 1st Defendant is the registered owner of the suit property. The Plaintiff's claim herein, according to the Statement of Claim, is that at one stage the 1st Defendant has instructed its Solicitors to deposit title documents relating to the suit property for the purpose of creating a legal charge over it. In the Statement of Claim, the Plaintiff asserted that there was an agreement that conditional upon the creation of such a legal charge, the Plaintiff would forbear to sue the 2nd and 3rd Defendants for the debts due from them to the Plaintiff.

3. While it appears from the evidence filed by the parties that there is no dispute that the title documents of the suit property have at one stage been deposited with the Plaintiff's Solicitors with the consent of the 1st Defendant given through its Solicitors, the purpose or reason for such deposit is a matter over which the parties' evidence differs.

4. On the part of the 1st Defendant, evidence was adduced to the effect that :

(1) it has no dealings of any kind with the Plaintiff;

(2) the 1st Defendant was discussing with a Tse Yu Hong Group ("TYH Group") through a Mr Benjamin Lau regarding the sale of the suit property to the TYH Group;

(3) Mr Benjamin Lau of the TYH Group informed the 1st Defendant that the Plaintiff was TYH Group's bankers and he asked the 1st Defendant to give the title documents of the suit property to the Plaintiff's Solicitors to examine;

(4) those title documents were given to the Plaintiff's Solicitors only for the aforesaid purpose.

5. The Plaintiff denies the above and contended in its evidence that :

(1) there is evidence to infer that the said Mr Benjamin Lau was an authorised agent of the 1st Defendant : see, for example, the documents at pages 75-78 of the Bundle;

(2) there is evidence to infer that the said Mr Benjamin Lau was authorised by the 1st Defendant specifically in relation to the deposit of those title deeds with the Plaintiff's Solicitors : see letter at p.203 of the Bundle;

(3) there is evidence to infer that the 1st Defendant's Solicitors were aware of the purpose for depositing those title documents (as set out below);

(4) the TYH Group was indebted to the Plaintiff;

(5) the said Mr Benjamin Lau representing the TYH Group, offered two properties, including the suit property, to the Plaintiff as additional securities in exchange for the Plaintiff's forbearance to sue for the said sum;

(6) the Plaintiff agreed to do so and asked Mr Benjamin Lau to procure those title documents to be given to the Plaintiff's Solicitors for them to examine and to prepare the necessary documents;

(7) the 1st Defendant, through its agents, Mr Benjamin Lau and Pang, Kung & Company, agreed to and did supply the title documents to the Plaintiff's Solicitors for the said purpose.

6. Mr Chan for the 1st Defendant argued that the Statement of Claim is so defective that it fails to plead a reasonable cause of action. I do not agree. The operative paragraphs in the Statement of Claim include paragraphs 11, 13, 15, 16 and 18. The pleas in these paragraphs have to be read together with the matters set out in paragraphs 1-12 of the Statement of Claim. In essence, the Plaintiff is alleging that the 1st Defendant agreed to and did deposit the title documents with the Plaintiff (through the Plaintiff's Solicitors) such that an equitable mortgage was created, and in advancing such a claim, the Plaintiff asserted in the Statement of Claim that the 1st Defendant did so through two agents, Mr Benjamin Lau and Mr Leung of Pang, Kung & Co.

7. In a letter dated 22nd November 1998, the Plaintiff's Solicitors offered an undertaking to return the title documents upon demand. This undertaking was demanded in a letter dated 26th November 1998 from the 1st Defendant's Solicitors. Mr Chan contended that two points against the Plaintiff's claim arise out of these two letters.

8. Mr Chan argued that the undertaking given by the Plaintiff's Solicitors to return the title documents is a point conclusively against the Plaintiff's claim as a matter of law. He relied on the Privy Council case of Damodaran v. Choe [1980] AC 497 (especially at p.502D-F) in support of this agreement. That case was an action between the vendor of a property and his former solicitors where the solicitors had given an undertaking to the vendor to pay over the price. The present action is, however, not between the Plaintiff's Solicitors and the 1st Defendant but between the Plaintiff itself and the 1st Defendant. I do not agree with Mr Chan's argument. The Privy Council has not decided in the said appeal that the undertaking given by the solicitors would constitute a bar to a claim brought by the client. I consider that it is not plainly and obviously untenable for the Plaintiff to argue that the Plaintiff is not barred by the Plaintiff's Solicitors' said undertaking as a matter of law.

9. Mr Chan further argued that this undertaking negatived any intention to deposit the title documents for the purpose of creating an equitable mortgage, this is because the title documents were held "to the order of" the 1st Defendant. To put it in another way, the title documents were only "lent" to the Plaintiff's Solicitors. This may be the case if one takes into consideration only the two letters. However, the Plaintiff's evidence is that the 1st Defendant was well aware of the true nature of the transaction under which the title documents were supplied by the 1st Defendant's Solicitors and held by the Plaintiff's Solicitors (see for example paragraph 3 of the affirmation of Shirley So dated 4th June 1999). This alleged knowledge was also said to have come from Mr Benjamin Lau who the Plaintiff claimed was another of the 1st Defendant's agents.

10. I consider that it is arguable that the nature of the possession of the title documents by the Plaintiff's Solicitors has to be ascertained not merely by looking at the two letters but also the surrounding circumstances. I also consider that the surrounding circumstances are not plainly or obviously against the case advanced by the Plaintiff such as to justify a striking out of the Statement of Claim.

11. Mr Chan also contended that there are deficiencies in both the Plaintiff's pleadings and evidence regarding :

(1) the issue of whether Mr Benjamin Lau or Tony Tong was the 1st Defendant agent;

(2) the issue of whether the Plaintiff in fact forbore to sue by reason of the creation of the equitable mortgage.

12. Whatever criticisms one may make of these matters, I consider that they may be matters more appropriate to be raised on other occasions but they are not so plain or obvious to ground an application for striking out. I have come to the same conclusion regarding Mr Chan's argument relating to the alleged telephone conversation between Miss So of the Plaintiff's Solicitor and Mr Leung of the 1st Defendant's Solicitor.

13. As regards the law, the Plaintiff's case herein is based on the principles featured in Fisher & Lightwood Law of Mortgage, 1988, 10 Ed. p.66, and 32 Halsbury's Laws of England, 429 text to note 3 and 430 text to note 5. In short, the principle relied upon by the Plaintiff is "there will be an equitable mortgage if the deeds are deposited under promise to forbear suing, even though they may be deposited only for the purpose of preparing a further mortgage, for in such a case the deeds are given as part of the security".

14. I understand that it is accepted by both parties that it is only in plain and obvious cases that a Statement of Claim should be struck out. I consider that neither the relevant facts as disclosed in the affidavit evidence, nor the applicable law in this action are so plainly and obviously against the Plaintiff that its Statement of Claim ought to be struck out. For this reason, the appeal is dismissed.