XCHRX HKCB FINANCE LTD. v. CLASS LEADER INVESTMENT LTD. AND OTHERS

HCMP 355/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 355 OF 2001

____________

____________

_____________________________________

REASONS FOR DECISION

_____________________________________

Introduction

1. This is the defendants' appeal against the order of Master Jones dated 7 June 2001 whereby he entered monetary judgment against the 3 defendants. After hearing the defendants, I refused their application to adjourn the appeal hearing and, subsequently, dismissed the appeal, and indicated that reasons for doing so would be handed down later. These are the reasons.

2. This action is commonly known to practitioners as a mortgagee action. The plaintiff brings this action against the defendants on the strength of loan and mortgage documents (in relation to the 1st defendant ("D1")) and personal guarantees (in relation to the 2nd defendant ("D2") and the 3rd defendant ("D3")).

3. D2 is a practicing solicitor and D3 is his wife. D2 acted for all 3 defendants at the hearing before the learned Master and in this appeal. A letter from D2's firm was sent to court on Tuesday 3 July 2001 indicating that the defendants wished to adjourn the appeal hearing on Thursday 5 July. The reason given was that the transcript of the hearing before the Master was only received by the defence on Friday 29 June 2001 (some 4 working days before 5 July) and time was needed to prepare the appeal. At the appeal hearing, D2 further indicated that the defence wanted to instruct counsel to advise on the appeal and surveyor(s) to provide a valuation report of the suit property.

The Application for Adjournment

4. I refused the application for adjournment for the following reasons:-

(a) an appeal from the Master to the Judge in chambers is by way of actual re-hearing. What transpired at the hearing before the Master is usually irrelevant to the merits of the appeal. Having considered the relevant materials, including the transcript of the Master's hearing and the issues raised in the appeal, I did not find any exceptional circumstances;

(b) D2 represented the defence at the hearing before the Master and there should not be any need for him to spend much time to find out whether any matter in the transcript is relevant to this appeal. In the event, no reference was made to the transcript during D2's submissions at the appeal hearing;

(c) in any event, it took me less than half an hour to peruse the transcript of the hearing before the Master;

(d) there was about one month's time available to the defence to instruct counsel and expert before this appeal came to be heard. After hearing D2, I considered that the defence had not acted reasonably promptly in doing so.

The Dismissal of the Appeal

5. In brief, the following arguments were advanced by D2 on the defendants' behalf:-

(a) as a matter of law, (it is at least arguable that) when the value of the propert(ies) provided as securit(ies) for a loan is sufficient to pay off the debt, a creditor is barred or estopped from instituting legal action against the debtor (or guarantor) and is bound to sell off the security first;

(b) alternatively, when the suit property was surrendered to the plaintiff, it was done so upon the parties' common understanding that the plaintiff would sell it off first and only have recourse to the defendants if its value is less than the debt. The plaintiff is therefore barred or estopped from bringing this action against the defendants because the suit property is worth more than the debt;

(c) the plaintiff acted with malice in bringing this action;

(d) there is a practice among financial institutions that guarantors would not be sued unless and until the value of the security is less than the debt. The plaintiff should act in accordance with such practice.

These points were also argued before the learned Master and, by entering judgment, he must have rejected them. For the reasons set out, I also find that these points are unmeritorious. I assume in favour of the defence that the value of the security is (at least arguably) worth more than the debt when considering these points.

6. In relation to point (a) above, D2 was unable to refer to any judgment or textbooks to substantiate his argument. The argument is contrary to the whole notion of a mortgage which essentially is aimed at providing a creditor with security to ensure the repayment of the debt. Further,

(a) D1 covenanted to pay the debt on demand by virtue of clause 2.01 of the mortgage document;

(b) clause 8.08 thereof provides that the powers of the plaintiff should be construed in the widest possible sense to the intent that the plaintiff should be afforded as wide and flexible a range of powers as possible;

(c) clause 18.03 provides that the mortgage may be enforced without the plaintiff first having recourse to any other security or rights or taking any other steps or proceedings against D1 or any other person or may be enforced for any balance due after resorting to any one or more other means of obtaining payment.

In relation to D2 and D3,

(1) clause 1.01 of the guarantee document provides that they as primary obligator and not merely as surety guarantee the punctual payment by D1;

(2) clause 4 thereof provides that the guarantee is in addition to and may be enforced notwithstanding any other guarantee, assurance, pledge, lien, bill, note, mortgage, charge and so on.

7. The amount of the outstanding principal debt is undisputed at the time of appeal and is about $4.45 million. The interest payable is more than $400,000. The plaintiff has filed evidence showing that the value of the suit property is $4.5 million: see the 3rd affirmation of Wong Shing dated 21 May 2001 (and the surveyor report exhibited thereto). D2 deposed that the plaintiff had confirmed orally that the suit property was worth about $5.5 million but this is denied by the plaintiff. By reason of the matters set out above, I do not find it relevant whether the plaintiff's valuation or the defendants' is correct.

8. In relation to point (b) above, I do not find that there is sufficient evidence that there was a common understanding no legal action would be commenced upon the surrender of the suit property. The evidence relied upon by D2 regarding this is para. 8 and 12 of his affirmation. Para. 8 thereof only refers to D2's own intention when D1's letter dated 14 November 2000 was sent to the plaintiff. Para. 12 thereof only refers to the fact of the surrender. It must also be noted that despite the said letter of 14 November 2000 (according to para. 9 to 11 of D2's affirmation), disagreement between the parties continued at least in relation to the hire purchase agreement of the defendants' car.

9. In relation to points (c) and (d) above, I do not find that there is any proper evidence in support. Further, in relation to the practice contended for by the defence, the court's experience in relation to mortgagee actions certainly do not support such a practice.

10. Other points were made before the learned Master, including alleged insufficiencies in the plaintiff's supporting evidence, excessive interest being claimed and the lack of notice of the assignment of the debt to the plaintiff. These other points were (correctly) not advanced by D2 in the appeal. I would have agreed with the Master that there is no merit in these points if they had been raised.

11. For the above reasons, the appeal was dismissed with costs.