LEI SHING HONG CREDIT LTD v. MEI KWAN ENGINEERING CO LTD AND OTHERS

HCAJ 52/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO. 52 OF 2009

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Admiralty action in rem against:

1.	The Vessel “Flying Horse”	H.K. Licence No. B21494V
2.	The Vessel “Wo Sang”	H.K. Licence No. B22228Y
3.	The Vessel “Tai Mei Full”	H.K. Licence No. B21728V

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J U D G M E N T

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I.   INTRODUCTION

1.  Lei Shing Hong (LSH) loaned monies to Mei Kwan on the security of 3 of the latter’s vessels and personal guarantees from Mr Fok and Ms Chan (the Defendants).  Mei Kwan is a company controlled by the Defendants.

2.  The loans were restructured in July 2008 on the same securities.  In mid-May 2009, some $8.2 million of the loan (including simple interest at 4% per month) remained outstanding.  LSH now seeks summary judgment against Mei Kwan and the Defendants for the unpaid monies due on the relevant loan agreements.

3.  The Defendants say that Mei Kwan encountered financial hardship in meeting its obligations under the loan agreements.  They allege that in October 2008 Mr Lam Kam Leung (LSH’s General Manager) orally agreed that, in consideration of Mei Kwan and the Defendants trying their best to repay the outstanding sums, they could pay whatever amount they could afford and LSH would grant them further time to discharge their liabilities.

4.  Since then, the Defendants say that they have paid the following amounts to LSH: $59,362.19 on 29 August 2008; $55,652 on 23 September 2008; $54,818 on 10 November 2008; $50,000 on 18 December 2008; and $20,000 on 27 February 2009.

5.  The Defendants allege that in February 2009 LSH refused to accept the $20,000 tendered by the Defendants.  According to the Defendants, LSH said that it preferred to have the vessels, rather than the Defendants’ monies.

6.  The Defendants contend that, in light of the October 2008 oral agreement, LSH is estopped from bringing the present proceedings.

II.  DISCUSSION

7.  In my judgment, the defence by Mei Kwan and the Defendants raised is untenable at law.  I come to this conclusion for 3 reasons.

8.  First, it is inherently implausible that LSH should make the oral agreement alleged.  LSH may conceivably have been amenable to giving the Defendants more time to pay.  But that does not amount in law to a binding agreement preventing LSH from suing for the balance of monies dues on the restructured loan agreements.  I doubt that LSH, a commercial moneylender, would “agree” by way of an enforceable contractual promise that its creditors could pay whatever amounts they could, whenever they were able to do so.

9.  Second, even if there were such an agreement varying the repayment terms of the relevant loans, the agreement (if it is to be enforceable) must be supported by valid consideration moving from Mei Kwan and the Defendants to LSH.  It may be suggested that the consideration was Mei Kwan and the Defendants using their best endeavours to repay the loans as soon as possible.  However, Mei Kwan and the Defendants were already under an obligation to repay the loans on time.  By the alleged oral agreement, they would simply have been promising to do that which they were already bound to do.  They would not be promising anything new.  At law, their promise could not constitute valid consideration for any variation of the loan repayment terms.

10.  Third, insofar as there may have been an estoppel arising out of some informal (that is, non-contractually binding) willingness by LSH in October 2008 to afford the Defendants more time to pay, such an estoppel could only have been suspensory or temporary at law.  After a period of reasonable notice, LSH would be entitled to enforce its strict rights under the loan agreements as restructured in July 2008.  LSH sent numerous demands for repayment to Mei Kwan and the Defendants between October 2008 and April 2009.  The Writ here was issued in March 2009; a Statement of Claim was served in May 2009; and Defences were filed in July 2009.  However one looks at the matter, LSH must by now have given reasonable notice of an intention to insist on enforcing its strict rights under the restructured loan agreements.  The effectiveness of whatever estoppel there might possibly have been would have lapsed long ago.

III. CONCLUSION

11.  Mei Kwan and the Defendants have no arguable defence.  There will judgment against them in favour of LSH.  The Defendants are jointly and severally liable to pay the outstanding principal of $7.32 million.  Interest will run on that principal amount from 16 March 2009 (the date of Writ) to today at 1% over prime.  Thereafter, interest will run on the principal amount at the judgment rate until payment.

12.  I have given the Defendants the benefit of the doubt insofar as they may have tendered some repayments on the basis of the alleged October 2009 oral agreement and insofar as LSH may apparently have refused such tenders.  For that reason, I have not awarded interest between the date of Writ and of this Judgment at the 4% rate stated in the loan agreements.  In my view, the normal commercial rate of 1% over prime is fairer in the circumstances.

13.  There will be an Order Nisi that Mei Kwan and the Defendants pay LSH’s costs of this action (including LSH’s application for summary judgment).  Such costs are to be taxed if not agreed.

14.  I come to my Conclusion with some regret.

15.  I have taken on board the Defendants’ submission that they have not attempted to avoid their liabilities under the loan agreements.  According to Mr Fok, it was primarily because of the unfortunate sinking of one of the vessels on 2 occasions (once in 2008 and once in 2009) that the Defendants fell into financial hardship.  Repair of the sunken vessel in 2008 alone amounted to some $700,000.  The Defendants incurred a liability of $1 million in relation to the second sinking.  These liabilities have been difficult burdens to bear at a time when the shipping industry has itself been and remains in economic recession.

16.  Nonetheless, as I indicated to Mr Fok, the Court is constrained to determine this matter solely in accordance with the law.  Mr Fok noted that he had made a “without prejudice” settlement offer to LSH at the eve of the summary judgement hearing.  While his last minute attempts to settle the litigation in accordance with a party’s obligations under Order 1A are to be commended, I am ultimately unable to take those efforts into account when determining the strict legal merits of LSH’s claim.