DAO HENG BANK LTD v. LAM YING BOR INVESTMENT CO LTD AND ANOTHER

IN THE COURT OF APPEAL

1986, No. 151
(Civil)

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Dates of hearing: 13th February, 1987.

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JUDGMENT

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Cons, V.-P.:

1. This is an appeal from His Honour Judge Leonard, sitting as a Deputy Judge of the High Court. The action from which it stems was between the Dao Heng Bank Ltd., which the judge called "the bank", Lam Ying Bor Investment Co., Ltd., which the judge called "the borrower", and Felix Lo Bar Kit, a director of that Company, whom the judge called "the guarantor". I shall continue to use the same terminology.

2. The situation from which the action arose is perhaps most easily understood by quoting the judge's own words -

"The bank lent $25 million to the borrower, who created a mortgage, in favour of the bank, of two properties. 'The arrangement was that the borrower would pay interest .to the bank at stated intervals and, that, after a grace period, he would repay the principal by instalments. The mortgage provided that if the borrower defaulted on any payment, the bank could, if it chose, by .a declaration communicated to the borrower, cause the whole of the principal and other moneys due to the bank to become payable immediately. There was also provision for the bank, in the event of default, to enter upon, let or sell the mortgaged properties.

It is common ground that the borrower defaulted on the payment of interest which fell due. The bank alleges that it has taken steps which have rendered the whole of the principal immediately payable"

The judge then referred to the exact amount of money claimed and the further claim for possession of the premises in question. He continued

“The borrower's position is that while interest was and is admittedly owing and the bank would have been entitled to take steps to render the principal immediately payable, it has failed so to do.

The guarantor signed a letter of guarantee in favour of the bank, which claims against him under that guarantee the principal sum 6f $25 million, with interest thereon at 15% per annum from the 16th March 1984. The guarantor's position is that the whole of the principal is not immediately payable and even, if it is, the bank cannot succeed against him because there was no valid demand made by the bank to him prior to the issue of the writ."

3. Clause 13.01 of the mortgage provided that certain events should be “Events of Default”. There is no need to go into detail, because it is admitted that event of default had occurred prior to the 16th March 1984.

4. Clause 13.03 of the mortgage provided what the bank might do when there was an event of default. It read -

“The Lender may .at any time after the happening of an Event of Default (whether or not any notice pursuant to Clause 13.02 shall have been given by the Borrower), unless and until that Event of Default and any others shall have been fully remedied to the satisfaction of the Lender, by notice in writing to the Borrower declare, that the Loan and all interest and other sums payable hereunder or secured hereby have become immediately due and payable.”

By its Statement of Claim the bank suggested some five ways in which it might have taken advantage of that clause. I need only refer to one, the letter to the borrower of the 16th March 1984 -

"We act for Dao Heng Bank Limited (formerly known as Grindlays Dao Heng Bank Limited), your Mortgagee of the above properties under and by virtue of a Mortgage dated the 29th day of July 1982 and registered in the Land Office by Memorial No. 2313757.

We are instructed to demand from you, which we hereby do, for immediate repayment of all the money advanced by our client to you under the said Mortgage totalling as at the 11th March 1984 HK$30,044,073.88 together with all the interest thereon accrued up to the date of such repayment. The said sum of HK$30,044,073.88 is computated as fo11ows:-

Principal as at 11/3/84 ……..	HK$29,658,185.20
Interest accrued up to 11/3/84 …	HK$ 385,888.68
	HK$ 30,044,073.88 ==============

Notice is hereby given that, if you fail to make the said repayment to our client in full as demanded herein within the next 30 days from the date hereof, our client will upon the expiration of the 30 days exercise its rights as conferred upon it under the said Mortgage which includes putting up the said properties for sale in the manner as stipulated therein without any further notice to you and without prejudice to any other of our client's rights against you for damages and/or remedies."

5. The judge found that to be a sufficient declaration within clause 13.03. He therefore gave judgment against the borrower for $25 million and made an order for possession. The amount of interest and the question of costs he reserved for later consideration if necessary.

6. He gave judgment for. a similar amount against the guarantor, with interest thereon from the 16th March 1984, on which date the bank had also sent a letter to the guarantor. Both, the borrower and the guarantor now appeal with respect to the $25 million.)

7. The only point taken on the appeal, one of the points taken below, is that the letter of the 16th March was not a sufficient declaration within Clause 13.01; it was a "demand", not a “declaration”. (A second ground of appeal relies on clause 14.01, but it is accepted that that is a mistyping.) The point is purely technical, but is no worse for that, provided that it is a good point.

8. Mr. Bunting, who appears for both the borrower and the guarantor, has taken us through the two cases referred to by the judge. In R. v. Vestry of St. Mary Islington[1] it was held that a churchwarden's letter requesting payment of £500 for the repair of certain graveyard walls was a "certificate" for the purpose of s.18 of the Burials Act 1855. Reliance Car Facilities v. Roding Motors[2], concerned the repossession of a car under a hire purchase agreement. It was an action between a finance company and the dealer who had sold the car to the hirer, the dealer having declined to repossess the' car at the request of the finance company when the hirer fell into arrears of payment. There was a right on non payment to declare the hiring terminated. Both counsel at that trial accepted that an unequivocal act amounting to a declaration would have been a sufficient "declaration" to bring the hiring to an end. That approach was approved by Denning L.J., although on the facts of the case the situation had not arisen. It is suggested that the judge below, in relying on what Denning L.J. said, took his words out of context. I am not sure that is correct, but it was perhaps, on the part of the judge below, an unnecessary analysis of the meaning of "declaration", which is a simply understood word of the English language.

9. The judge's decision is, I think, fairly summed up in two sentences from his judgment -

"In my judgment, a declaration that the whole sum is immediately due and payable is implicit in such a demand, which thus creates an obligation to make immediate payment. No further demand is necessary."

Mr. Bunting suggests that in coming to that conclusion the judge had given effect to subjective considerations, in particular the state of knowledge of the borrower as to the interest owing, whereas the true approach should have been objective, because the declaration might on occasion need to be shown to third parties. He indicated, as an example, a receiver appointed by the bank who, having sold the property would need to know how much was outstanding before he could properly repay. This seems to me to be a somewhat strained situation and, even if it arose, would only be of practical effect to the bank and the borrower. Nevertheless I do agree with Mr. Bunting that the approach should be objective. The correct test, as I take it, is to ask what would be the opinion of an independent observer to whom the letter of the 16th March was shown. What would his answer be if he were then asked the question: Taking that letter as a whole, is it a declaration by the bank that the whole of the loan is called in? Despite the eloquence and industry of Mr. Bunting I have no doubt that the answer of the observer would be in the affirmative.

10. For that reason I would dismiss the appeal.

Fuad, J.A.:

11. I agree that the appeal should be dismissed for the reasons given by my Lord the Vice President.

Power, J.:

12. I also agree.