CITIBANK (HONG KONG) LTD v. CHAN CHI TAK

DCCJ 1262 / 2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1262 OF 2007

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REASONS FOR DECISION

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1.  The Defendant (“Mr Chan”) has since 1993 been issued with a credit card by Citibank International Hong Kong Branch. The credit card has been regularly renewed and used by Mr Chan since then.  In 2004, Citibank International assigned and transferred its credit card business in Hong Kong to Citibank (Hong Kong) Ltd (“Citibank HK”).  Citibank HK now seeks summary judgment against Mr Chan for HK$87,583.40 as outstanding principal and interest.

2.  As I understand it, although not disputing that he has been using the credit card issued to him, and admitting that he has not been making any repayment since November 2006, Mr Chan disputes the claim on the following grounds:

(1)	Citibank HK has no locus to claim against him, since he has not been notified with the transfer of the credit card business from Citibank International to Citibank HK. He therefore has no contractual relationship with Citibank HK.
(2)	The effective interest rate charged by Citibank HK is above 60% and thus is against the Money Lenders Ordinance (Cap 163) (“MLO”).  The outstanding sum is thus not recoverable as the transaction is not enforceable as a matter of law.
(3)	Citibank HK wrongly charged him the interest rate applicable to a Platinum credit card, when he is only holding a Gold credit card.  As such, the claimed sum is incorrectly calculated.
(4)	Citibank HK wrongly charged him compound interest when it is not provided in the agreement either in its original form or as amended that it could do so.  As such, the claimed sum is again incorrectly calculated.
(5)	In any event, without his knowledge and consent, Citibank HK has unilaterally added items of finance charges and increased the various interest rates and fees for the use of the credit card.  He has not agreed to such additions and increases, and therefore Citibank HK is not entitled to charge him the same.   Since the claimed sum is largely made up of these un-consented to charges and interests, Citibank HK has not shown that the sum is truly due and owing.

3.  For the present purpose, the question I have to decide is whether Mr Chan has shown a triable issue by credible evidence on any of the above defences.

Applicable principles

4.  The principles applicable to a summary judgment application are well known.  The burden is on the defendant to show a triable defence which is not practically moonshine and is worthy of belief.   The defendant should also condescend to particulars in support of the defences raised.  See:  Hong Kong Civil Procedure 2007, paras 14/4/3, 14/4/4, 14/4/9.

Are there triable defences

Citibank HK has no locus

5.  Under clause 11.1 of the 1998 agreement governing the use of the credit card issued by Citibank International, which terms Mr Chan does not deny that he is bound, it is provided that the bank may at anytime transfer or assign any or all of its rights or obligations under the credit card agreement to any person without notice. 

6.  Citibank HK has provided as evidence a copy the agreement between itself and Citibank International the transfer and assignment of the credit card business.  It has also provided a copy of the standard letter jointly issued by it and Citibank International to its credit card customers about the transfer.  Its officer has also affirmed that it is the bank’s practice to issue the letter to all its credit card customers, who should include Mr Chan.

7.  Mr Chan however denies in his affirmation that he has received the notice of transfer of business.

8.  Notwithstanding Mr Chan’s denial of receipt of the notice, given the assignment agreement and clause 11.1 of the credit card agreement, the transfer of business is effective and thus would not affect Citibank HK’s right to sue in the present case. 

9.  I am therefore satisfied that there is no triable issue under this defence.

MLO’s defence

10.  Mr Chan apparently relies on section 24 of MLO to support his defence that, if the effective interest rate charged by Citibank HK is in fact above 60% as alleged, the loan is not enforceable and thus he is not liable to repay as claimed.

11.  Mr Chan has tried to set out in his affirmation various calculations to support his defence that the effective interest rate charged by Citibank HK is above 60%.

12.  The burden is on Mr Chan to show that it is arguable that the interest levied under his credit card is not in accordance with the annualized rates set out under the terms and conditions (which are below 60%) but above 60%. 

13.  However, despite my inquiry and Mr Chan’s submissions, I do not understand the basis on which the calculations set out in Mr Chan’s affirmation are worked out.  I am therefore not satisfied that they are prima facie correct.

14.  But more importantly, section 3 of MLO provides that the ordinance shall not apply to an authorized institution within the meaning of the Banking Ordinance (Cap 155). 

15.  Citibank HK has provided evidence to confirm that it is an institution so authorized under the Banking Ordinance.  In the premises, whether or not Citibank in fact charges interest with an effective rate over 60% is neither here nor there as the MLO does not apply to the present transaction.

16.  For the above reasons, Mr Chan has failed to show any triable issue under this defence.

Citibank wrongly charges Mr Chan default interest rate applicable to platinum card when he holds only a gold card

17.  Mr Chan says the 34% default interest rate levied on him only applies to a Platinum credit card but not a Gold credit card as the one held by him. The applicable rate to gold card should only be 31.5%.  In support of his defence, he relies on the a provision set out in a Notice of Changes dated 9 November 2006 issued by Citibank HK, a copy of which is provided by Citibank HK in this application.

18.  The provision reads as follows:

“	The current applicable rates of default finance charge for your Citibank Classic Card, Citibank Gold Card and Citibank Platinum Card are as follows:
	(i)	The default finance charge is 31.5% per annum (equivalent to Annualized Percentage Rate of 36.47% for Transactions other than cash advance and Annualized Percentage Rate of 38.32% for cash advance inclusive of a cash advance fee) if the Minimum Payment Due of the Previous Statement is not received by the Company on or before the Payment Due Date specified in the Previous Statement.
	(ii)	The default finance charge is 31.5% per annum (equivalent to Annualized Percentage Rate of 36.47% for Transactions other than cash advance and Annualized Percentage Rate of 38.32% for cash advance inclusive of a cash advance fee) if there are two or more instances where the Minimum Payment Due is not received by the Company on or before the Payment Due Date specified in the respective Previous Statement.
	(iii)	The default finance charge is 34% per annum (equivalent to Annualized Percentage Rate of 39.83% for Transactions other than cash advance and Annualized Percentage Rate of 41.73% for cash advance inclusive of a cash advance fee) if there are one or more instances where the Minimum Payment Due is not received by the Company on or before the respective Payment Due Date for two or more consecutive statements.”  (emphasis added)

19.  Ms Leung for Citibank HK submits that Mr Chan’s argument is simply wrong. It is her submission that on a proper reading, the above provision sets out the different default finance charges applicable to different degree of default scenarios, with the 34% rate applicable to the most serious one as in Mr Chan’s case. These rates however apply equally to all three types of credit card listed in the notice.

20.  I agree with Ms Leung’s submissions.  In my view, it is the clear meaning of the provision that all the rates provided therein apply equally to all three types of credit card, with the most serious default attracting a 34% default interest rate. 

21.  I therefore also find that there is no triable issue under this defence.

No provision in the agreement to enable Citibank HK to charge compound interest

22.  Mr Chan says there is no express provision in the credit card agreement to entitle Citibank HK to charge compound interest, as it has done.

23.  Ms Leung refers me to clause 4.3(d) of the 1998 agreement and submits that it effectively provides the bank with the right to charge compound interest on advanced sum under the credit card which is not fully repaid when due.  The relevant part of this clause provides as follows:

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…If the entire amount of the Statement Balance stated in any statement (‘First Statement’) is not received, a finance charge (currently 2% per month (annualized 24% per annum) subject to a minimum of HK$10.00 per month) on the unpaid balance will be charged from the date of the First Statement until payment is credited to the Account.  All new Transactions incurred since the date of the First Statement will be added to the unpaid balance for the purpose of assessing finance charge as from the respective dates of such Transactions notwithstanding that such Transactions will not be payable until the Payment Due Date stated in the next statement.  All finance charges will be calculated and accrued on a daily basis.”

24.  I accept Ms Leung’s submissions.  There is thus no triable merit under this defence.

Mr Chan has never received any of the notices concerning amendments to the terms and conditions

25.  Citibank HK has provided as evidence various standard form notices issued to its credit card customers at different times concerning the addition of items of finance charges or increases in these charges or interest rates applicable to the credit cards.  Its officer affirms that it is the bank’s practice to send by post these notices to all its credit card customers.  Although it does not now have any specific formal postage record of sending these notices to Mr Chan, according to the bank’s practice, they should have been so sent to him.

26.  Mr Chan however denies having received any of these notices.  He therefore has no notice of the amendments and has not agreed to them.  The amended terms therefore do not bind him although he has continued to use the credit card.

27.  Ms Leung submits that this is nothing but a mere denial, and the Court should accept the usual practice of the bank and come to the conclusion that the notices have been properly sent to Mr Chan.

28.  This is a summary judgment application.  In light of Mr Chan’s denial on oath and the lack of specific documentary proof that these notices have been sent Mr Chan, I do not think I can decide summarily that the notices must have been sent to him with the evidence before me. 

29.  Having said that, I do have a serious doubt on Mr Chan’s denial: although on one hand he says he has received not even one of various notices that have been issued by the bank, at the same time he has received all the monthly statements sent to him by the bank. 

30.  In the circumstances, although in my view there is a triable issue raised under this defence, I find it but a shadowy one.  I am therefore of the view that only conditional leave should be granted to Mr Chan to defend the case.   This is particularly so, since even if he succeeds in this issue at trial, this will only give him a partial defence.  He would still be required to pay the original outstanding principal with the interest and finance charges chargeable as if the disputed amendments were not effected.

Conclusion

31.  For the above reasons, I will give conditional leave to Mr Chan to defend the claim.

32.  At the hearing, albeit in the absence of any affirmation evidence, both parties are prepared to make submissions on what is the proper condition that should be imposed.  Both of them do not ask for time to file any evidence in this regard.  I therefore proceed to hear them on this issue. 

33.  Ms Leung produces to the Court a land search record showing that Mr Chan and his wife are the joint registered owners of a landed property.  She submits that with the property, Mr Chan should be in a position to make full payment of the claimed sum into Court as a condition.

34.  Mr Chan confirms the record but says he does not want to involve his wife or other persons in relation to his own financial dispute.  He also says that he now has a saving of HK$20,000.00 and he could save up HK$10,000.00 each month with his present new employment.  He therefore says if he is required to make payment into Court the full claimed sum, he would only be able to do that in 8 months’ time.

35.  After hearing their submissions, and upon my inquiry, Mr Chan however confirms that he should be in a position to comply with the condition that he should make payment into Court in the sum of HK$50,000.00 within 2 months.

36.  In the circumstances, and having had regard to all the circumstances of the present case and the parties’ submissions, I make the following orders:

(1)	Leave is granted to Mr Chan to defend if he makes payment into Court in the sum of HK$50,000.00 within 60 days from today.
(2)	If Mr Chan fails to satisfy the above condition, judgment be entered against him in the sum of HK$87,583.40 with interest on the said sum at the rate of 34% per annum from 9 March 2007 until judgment and thereafter at judgment rate until payment.
(3)	Costs of this application be in the course of the action if the condition set out in paragraph (1) is satisfied.  If the condition is not satisfied, and with the judgment having entered in accordance with paragraph (2) above, costs of the action including the costs of this application be to the Plaintiff to be taxed if not agreed.