BANK OF CHINA (HONG KONG) LTD v. CERTAIN AIM LTD

HCMP 1272/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1272 OF 2007

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D E C I S I O N

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Background

1.  This is an application by the Defendant to set aside the default judgment dated 25 September 2007 on the ground that: -

(a)       it was an irregular judgment.

(b)       the Defendant has a meritorious defence to the claim with a real prospect of success.

2.  Defendant is a limited company registered in Hong Kong, shareholding of which belongs to Mr. Wong Chi Nang (“Mr. Wong”) and his wife Madam Yeung Chi Hung (“Madam Yeung”).

3.  Plaintiff’s claim is based on 2 all-monies legal charges which were executed by the Defendant for the purpose of securing due payment of all monies (including repayments of all loans and facilities) to the Plaintiff.  One was a mortgage loan, which has been wholly or nearly wholly repaid and the other was a gold loan whereby the Defendant borrowed 440 kilo of gold in the form of gold bars or bullions.  Security for this gold loan consist of, inter alia, mortgage of the residence of Mr. Wong and Madam Yeung, i.e. Duplex B and Open Yard of No. 9 Cambridge road, Kowloon (the “1^st Mortgaged Property”) and Car Park Nos. 5 and 6 on Ground Floor, Nos. 7-9 Cambridge Road, Kowloon (the “2^nd Mortgaged Property”).  Both properties situate in the same complex.

4.  On 5 July 2007 Plaintiff commenced mortgagee action against the Defendant by way of Originating Summons.  In default of acknowledgment of service, Plaintiff obtained judgment on 25 September 2007.

5.  There is no dispute that the Defendant defaulted in making due repayment and in return of good bars and that a demand letter was issued by the Plaintiff on 27 June 2007.

6.  Broadly, there are 2 issues in the case, i.e. whether the judgment is a regular judgment.  If the answer is yes, then the Court needs to consider whether the Defendant has a meritorious defence with a real prospect of success.  If the judgment is not regular, then the Court shall set aside the judgment.

Whether the judgment is a regular judgment

7.  Mr. Li Kam Kong (“Mr. Li”) clerk of Plaintiff’s former firm of solicitors in his first affirmation dated 20 July 2007 stated that the Originating Summons, the two sets of Acknowledgment of Service and copy Direction as to acknowledge of service issued regularly by High Court were served on the Defendant by leaving the same at the Defendant’s registered office in East Ocean Centre.  He also affirmed and said that another sealed copy of the Originating Summons was also posted up at a conspicuous place at each of 1^st Mortgaged Property and 2^nd Mortgaged Property.

8.  In the second affirmation of Mr. Li, he affirmed that true copy of Notice of Appointment to Hear Originating Summons dated 31 July 2007 were served on the Defendant by prepaid ordinary post properly addressed to the Defendant at their registered office on 1 August 2007.

9.  Mr. Li went on to say that on 3 August 2007, he had post up sealed copy of Notice to Occupants dated 31 July 2007 in this action upon a conspicuous place at the entrance to 1^st Mortgaged Property and at the 2^nd Mortgaged Property.

10.  Further still, he stated that on 18 September 2007, he did serve the Defendant with a true copy of affirmation of Luk Shing Chuen, then a witness for the Plaintiff, filed on 18 September 2007 together with exhibits by leaving the same at the registered office of the Defendant.

11.  In the 3^rd affirmation of Mr. Li, he stated that he had served sealed copy order dated 25 September 2007 i.e. the judgment on the Defendant by prepaid ordinary post properly addressed to the Defendant at their registered office.

12.  In face of the Defendant’s allegations that they were not served with the Originating Summons at the registered office and further that the same had not been posted at the 1^st and 2^nd Mortgaged Properties, Li replied that he had served the Originating Summons as he affirmed.

13.  He further said that before he posted up the Originating Summons at the 2^nd Mortgaged Property, he had asked a security guard as to the location of the same.  He reiterated that he had post up a sealed copy of the Originating Summons at each of the 2 car parks.  He said he then went on to post a sealed copy of the Originating Summons at the main entrance of the 1^st Mortgaged Property.

14.  On the other hand, Mr. Wong of the Defendant said he had checked his staffs and no record of such document were found.  He said the Defendant had not been served with the Originating Summons at the registered office.

15.  He said both himself and Madam Yeung are occupants of the 1^st and 2^nd Mortgaged Properties.

16.  He said he was only aware of the order against the Defendant in September 2008 when he was told by a business partner of the Defendant.

17.  Defendant also filed an affirmation by a former staff, So Kam Lau, allegedly the only staff working at the registered office, whom affirmed that she did not receive any Originating Summons at the registered office of the Defendant.

18.  Defendant also relied on an affirmation by a Mr. Wong Shing Leung, one of the caretaker of the complex wherein the Mortgaged Properties situate.  He affirmed and said that he did not notice any service or posting of documents at the Mortgaged Properties.  He went on to say he himself did not know where the 2^nd Mortgaged Property are.

19.  As counsel for the Plaintiff submitted, service of the Originating Summons is valid effected when the documents was left at or sent by ordinary prepaid post to the registered office of the Company in compliance with section 356 of the Companies Ordinance.  There is no need for the Plaintiff to establish that the Company has actual notice of the Originating Summons.  He cited on the case of United Venture Navigation Co. Ltd. v Shum Yuen Nim [1991] 2 HKC 93, 85E-86C, Fuad VP (as he then was).

20.  It was said also by the Plaintiff that Mr. Wong’s allegation that they were not aware of the proceedings in the circumstances is incredible because: -

(a)       By a letter dated 5 September 2007, the Defendant wrote to the Plaintiff requesting it to withhold the recovery of possession legal proceedings.

(b)       The Defendant, having failed to make repayment for a long time, suddenly made payment for the instalment loan in November 2007 (i.e. shortly after judgment was entered).

(c)       An Acknowledgment of Service allegedly signed by Ms. Yeung indicating not to contest the proceedings has been discovered, though at late stage of the proceedings although Madam Yeung denied that she signed on that document and suggested that the same was a forged document.

21.  It is difficult for this Court to accept, in the circumstances, the scenario put forward by the Defendant i.e. Mr. Li did not serve the Originating Summons and the letter documents on any of all these occasions as he affirmed.

22.  According to the occurrence book kept at the management office of the complex where the mortgaged properties situate, there are at least 3 caretakers looking after management of the complex.  The fact that the Plaintiff has adduced the affidavit of one of the caretakers to affirm that he had no notice of the posting of documents bears little if no weight.

23.  Even without taking into consideration the ‘Acknowledgment of Service’, on evidence before me, this Court is satisfied that the service of the Originating Summons is effected validly and the judgment is therefore a regular one.

Whether Defence has a real prospect of success

24.  It is established principle that once the Court is satisfied that the judgment obtained by the Plaintiff was a regular one, he has to decide whether the Defendant does have a meritorious defence to the Plaintiff’s claim with a real prospect of success.

25.  Default judgments were obtained by the Plaintiff both under the mortgage loan and the gold loan.  The mortgage loan judgment has been wholly or nearly wholly repaid.

26.  In this case, as counsel for the Plaintiff has pointed out, there is no dispute regarding the validity and contents of the legal charge executed in favour of the Plaintiff by the Defendant concerning the 1^st and 2^nd Mortgaged Properties nor the facility letter dated 10 November 1995 setting out terms of an instalment loan advanced to the Defendant, the facility letter dated 29 February 2000 setting out the terms of the instalment loan and the Gold Loan Agreement dated 24 February 2000.

27.  It is agreed that the Defendant has failed to make due repayment on instalment loan and return of gold bars and that as a result, demand letter was issued to the Defendant on 27 June 2007.

28.  The demand letter reads that should the Defendant default in full compliance of the demand, legal proceedings will be instituted against the Defendant for recovery of liquidation value (as defined in the Agreement) of the said gold bars together with the fee (as defined in the Agreement), all accrued interest and default interest on the liquidation value from 4 July 2007 to date of full repayment.

29.  Plaintiff in the present action claimed the value of gold bars calculated with reference to the market price of gold as at 4 July 2007.

30.  Defendant disagreed and argued that the price of gold has been fixed or “locked” at $3,824 per tael, pursuant to an agreement between the parties since 30 August 2003.  If that were accepted by the Court, the outstanding amount due to the Plaintiff under the gold loan account would be substantially lower than that in the judgment sum.

31.  Counsel for the Plaintiff argues that the alleged agreement is contrary to clause 9 of the Gold Loan Agreement which reads:

“9.  … the Bank is entitled at any time and from time to time (whether upon expiry of the period of loan of the gold bars or otherwise) by written notice (“the Demand Notice”) demand immediate repayment and return of all or any gold bars owing by the Borrower in full compliance of the Demand Notice, the Borrower shall be liable to pay the Bank the full Hong Kong dollar value of the gold bars owing by the Borrower (hereinafter called ‘the Liquidation Value’) at the closing selling price of the gold bars quoted by the Bank as on the last date when the gold bars should have been returned to the Bank pursuant to the Demand Notice, together with payment of the Fee and all interest accruing and outstanding.”

32.  It is the case of the Plaintiff that given the above term of the Gold Loan Agreement and the fluctuations of market value of gold, it is simply unbelievable that the Plaintiff would have fixed the gold price with the Defendant for “the sake of convenience” as alleged by Mr. Wong.

33.  Further, it is suggested that the Defendant’s case on fixing of the gold price directly contradicts its own documents, namely, the Defendant’s letters dated 28 September 2006 and 31 December 2007 to the Plaintiff.

34.  These letters, it was said, clearly show the Defendant’s awareness that they are liable to pay gold at the prevailing market price for repayment of the gold loan.

35.  Letter dated 31 December 2007 reads

“……但有見近日黃金價格持續高企，實難一下子在短期內償還全部債項……”

36.  Letter dated 28 September 2007 reads:

“現時黃金價格波動較大，本公司安排在六個月內以適當金價結算借貸之黃金，黃金價格擬以結算日之價位為最終定價。”

37.  Counsel for the Plaintiff further submitted that in the notes to financial statements of the audited account of the Defendant ended 31 March 2004, it spelt out clearly that gold loss are stated at the gold price prevailing at the close of business on the balance sheet date, which is contrary to the existence of the ‘locked price’ agreement between the parties.

38.  This set of audited accounts has since not been rectified although the Defendant said that their auditor made a mistake.

39.  Mr. Eric Li of the Plaintiff, Head of Business Management Corporate Banking and Financial Institutes section of the Plaintiff denies that he had ever made any such “locked price” agreement on behalf of the Plaintiff.  He said further that when parties met and discussed about return of the Defendant’s outstanding gold loan, the directors of the Defendant said they wanted to wait and see if the price of gold would drop.  He said in fact he had ceased handling the file dealing with the Defendant since 16 June 2003.

40.  Mr. Law Kin Fan (“Mr. Law”), Loans Manager of the Loans Division of the Plaintiff said he was one of the persons responsible for calculation of interest under the Gold Loan Agreement of the Defendant.

41.  He said under the facility letter dated 20 June 2003, interest was calculated by reference to price of gold as quoted by the Plaintiff on the repayment date.  He said the expiry date for such facility fell on 30 August 2003 and as the Defendant had defaulted, Plaintiff had since 30 August 2003 charged the Defendant interest by reference to $3,524 per tael which was actually the reference price of gold bar quoted by the Plaintiff on 30 August 2003.

42.  He said therefore calculation of interest on gold loan had since been based on $3,524 per tael.  He denied the existence of any “Locked Price” Agreement.

43.  In support of the contention that there was a “locked price” agreement, Mr. Wong of the Defendant alleged that for “sake of convenience”, parties agreed that gold price be locked at $3,524 per tael as from 30 August 2003.

44.  Defendant said they are willing to repay gold loan interest to the Plaintiff but they disagree the method of calculation as set out in the Gold Loan Agreement.

45.  They also relied on evidence of Mr. Luk Shing Chuen (“Mr. Luk”), former section head of collection of the Plaintiff who had affirmed earlier 2 affirmations as witness for the Plaintiff.

46.  Mr. Luk in his 3^rd affirmation said that the “locked price” agreement existed because he saw in all the internal documents of the relevant file from 1September 2003 to August 2008, the price of gold loaned to the Defendant being fixed at the locked price.  He said the same applies to the calculation of interest payable by the Defendant on gold loaned.  He said he handled the file since sometime in August 2003 and that the file was previously handled by Mr. Eric Li.

47.  Mr. Luk said that therefore he could not deny as he had in his previous affirmation that there was a “locked price” agreement.

48.  He further went on to say in paragraph 11 of his 3^rd affirmation that he had no personal knowledge of whether there was in fact such an agreement as alleged by the Defendant.  He said likewise, he could not say that the Plaintiff had charged interest on gold loan at the locked price as a “concession”, as he had previously affirmed.

49.  Mr. Luk in his 3^rd affirmation denied what he said in the previous affirmations, for example, that Ms. Yeung had in fact produced and handed to him sealed copy order when they met.  Mr. Luk now said he could not remember if such thing happened as that was long time ago.

50.  Firstly dealing with the evidence of Mr. Luk.  It seemed extraordinary for him to deny what he had previously affirmed.  I do not accept his explanation that he could not remember certain things as they happened long time ago.  If that was so, why would he be able to affirm something to the contrary just few months back.

51.  In any event, he admitted he had no personal knowledge of whether the “locked price” agreement existed.

52.  Further, according to the Defendant, the agreement existed on or about August 2003.  According to the evidence of Eric Li, which is not disupted, Mr. Luk was the one in charge of the file at that time.  Mr. Luk himself in his affirmation said he had taken up the file since August 2003.

53.  It is obviously not appropriate for me to give weight to the evidence of Mr. Luk as I do not find him a reliable witness.

54.  In my view, Mr. Law for the Plaintiff has also satisfactorily explained reason for calculation of interest using $3,524 per tael as the reference price.

55.  The said letters from the Defendant to the Plaintiff as well as the audited accounts of the Defendant clearly told us the fact that there was never an agreement for “locked price”.

56.  Mr. Wong and Ms. Yeung are both experienced businessmen in jewellery business.  Even if these letters were in deed drafted by Mr. Luk and even if both of them might be busy looking after their sick child in Gangzhou at the time, they would have read these letters before they signed and returned them to the Plaintiff.  Moreover, these letters are merely short Chinese letters.

57.  In addition, why would Mr. Luk draft the letter in such form if he was convinced at the time from the internal records of the Plaintiff that there was a “locked price” agreement.

58.  Furthermore, the Defendant had failed to give any particulars as to the circumstances under which the alleged agreement for locked price was entered into.

59.  Although Mr. Yao Lap Devon, the one who introduced gold loan business to the Plaintiff affirmed and commented on the alleged “concession” on interest by the Plaintiff, it is not been stated in his affirmation that he had the benefit of considering the facility letter dated 20 June 2003 between the parties before he made the comments.  He also had no personal knowledge of this case.

60.  It should also be noted that the Defendant did not deny receipt of the demand letter of the Plaintiff dated 27 June 2007.  The demand therein was based on price of gold calculated in accordance with the Gold Loan Agreement.  There is no evidence that Defendant did raise any objection then.

61.  I find in the circumstances it is highly improbable that the Defendant is able to establish the “locked price” agreement.  It means therefore that the Defendant does not have a meritorious defence with a real prospect of success.  Accordingly, I refuse the application of the Defendant to set aside the order dated 25 September 2007.  I also make an order nisi that costs of and incidental of the application (including all costs reserved, if any) be to the Plaintiff, the same to be taxed if not agreed.