DBS BANK (HONG KONG) LTD v. CHAN CHESTA (formerly known as CHAN SAU CHU) AND ANOTHER

HCMP 281/2017

[2018] HKCFI 978

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 281 OF 2017

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J U D G M E N T

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1.  This is a mortgage action commenced by DBS Bank (Hong Kong) Limited (“the Bank”) against the 1^st defendant Chan Chesta (“Madam Chan”), the 2^nd defendant FIE Company Limited (“the Company”) (collectively “the defendants”) for vacant possession of the mortgaged properties (hereinafter defined), payment of all monies due to the Bank (together with interest thereon) as well as monies payable under two guarantees provided by Madam Chan together with interest and costs. The total outstanding indebtedness as at 28 February 2017 stood at HK$33,959,259.86, EUR 1072.11 and US$1,344,852.49. At the conclusion of the hearing judgment was reserved which I now give.

2.  At the commencement of the hearing, Madam Chan gave notice to act in person.  The Company’s solicitors Messrs Tanner De Witt (“TDW”) were present at the hearing but had seen fit to dispense with the services of counsel whom they had earlier instructed and who (on the Company’s behalf albeit in disregard of the timeline laid down in the practice direction) had submitted short written submissions to the court the previous afternoon. Surprisingly, TDW requested that Madam Chan be permitted to represent the Company as well when TDW was still on record as representing the Company.

3.  Absent a notice filed pursuant to Order 67, rule 6 (solicitor ceasing to act) and an order obtained from the Practice Master for the Company to be represented by its director, the court refused the application. 

4.  TDW then sought the court’s indulgence for a short adjournment.  Upon resumption of the hearing, the court declined to further adjourn the hearing pending the attendance of counsel for the Company who, apparently, was instructed during the adjournment.

Background facts

5.  At all material times, Madam Chan acted for and on behalf of the Company of which she was director and shareholder.  The banking facilities granted by the Bank and enjoyed by the Company are not disputed.  In view of the defence relied on at the hearing, no more than a brief summary of the underlying documentation will be necessary.

6.  It suffices to state that between 2012 and 2016, the Bank and Madam Chan acting for and on behalf of the Company entered into what has been referred to at the hearing and in the written submissions as “the 1^st facility letter” being a facility letter from the Bank to the Company dated 4 September 2012.  That was varied by four subsequent facility letters respectively referred to as the 2^nd, 3^rd,6^th and 8^th facility letters.

7.  The Bank offered the Company further banking facilities by facility letters (referred to by the parties as the 4^th, 5^th and 10^th facility letters) which Madam Chan confirmed and accepted for and on behalf of the Company subject to the terms and conditions therein.  The terms and conditions of the 5^th facility letter continued subject to variations subsequently made by facility letters referred to as the 7^th and 9^th facility letters.

8.  On 13 September 2012, the Bank and Madam Chan on behalf of the Company entered into a General Commercial Agreement.  On the same day Madam Chan provided the Bank with a guarantee and indemnity (“the 1^st guarantee”) in consideration of the Bank granting the Company banking facilities at the request of Madam Chan who agreed to pay the Bank all monies owing to the Bank by the Company.

9.  On 6 October 2014, Madam Chan gave a further guarantee (“the 2^nd guarantee”) similar in terms to the 1^st guarantee.  Madam Chan’s liabilities under the guarantees were unlimited.

10.  By a Mortgage dated 17 February 2015 Madam Chan charged Apartment F, 5^th Floor, Block A-1 and car parking space no 4 of Scenic Villas, Pokfulam (“the mortgaged properties”) which she owned to secure all monies (including all interest, costs, charges and expenses) owed by the Company as borrower to the Bank. 

11.  By letters dated 9 January 2017 to each of the defendants, the Bank demanded repayment of the outstanding indebtedness within 7 days together with interest due failing which legal proceedings would be instituted for recovery for payment of the outstanding amounts and for vacant possession of the mortgaged properties.

12.  The originating summons was issued on 7 February 2017.

The defence

13.  Only one affirmation dated 26 May 2017 has been filed in opposition to the originating summons on behalf of the defendants.  It contains various unparticularised and unsubstantiated assertions which appear to pertain to allegations of misrepresentation, undue influence and non est factum.  The defendants’ application for the originating summons to be converted into a writ action was dismissed by Master Liu on 15 November 2017.  No further evidence has been filed.

14.  At the hearing, Madam Chan applied for leave to file further evidence, ostensibly relying on the fact that she had sustained two accidents which affected her physically and mentally.  The application was refused.  Quite apart from the fact that Madam Chan’s affirmation in opposition made almost two years after the alleged accidents made no mention of her not being in a fit state when the relevant documents were signed, it transpired that those accidents actually did not take place until after the guarantees and the mortgage had all been signed. Moreover, there is no evidence that the alleged accidents affected Madam Chan’s ability to recall events in order to respond to the Bank’s claims. In those circumstances, the alleged accidents could not have had any impact on her capacity whether at the time she assumed the obligations and liabilities or her ability to defend the proceedings.

15.  At the hearing, Madam Chan acknowledged that she had been negligent in not reading the documents she signed with care.  In those circumstances, leaving aside the absence of particulars and the generality of the allegations, there is no question of any of the above-‌mentioned defences of misrepresentation, undue influence and non est factum, (based as they are on a lack of proper consent) succeeding.

16.  It was then submitted that to render her liable would be totally unfair.  It was said that despite various requests, the Bank had refused to provide particulars of how the interest on the indebtedness was calculated.  Those complaints also formed the basis of the submissions of Mr Chung counsel for the Company to which I now turn.

17.  The only defences Mr Chung relied on were those outlined in §§3 and 4 of his written skeleton which he elaborated at the hearing.  Essentially two points were taken: the first - the “prevailing rates” point - related to additional interest at “prevailing rates” applicable in case of late payment or default; the second - the conclusive evidence point - related to whether the conclusive evidence provision in the facility letters, the guarantees and the mortgage is applicable.

(1)   The “prevailing rates” point

18.  §11.4 of the “Terms and Conditions Governing Banking Facilities and Services” (“the Terms and Conditions”) attached to the 1^st facility letter form an integral part of not only the 1^st facility letter but also the subsequent ones and provides as follows:

“ If any amount under the Banking Facility Letter is unpaid on due date or exceeds the permitted facility limit, such overdue or excess sum will be subject to the Bank’s then prevailing overdue or over limit interest rate, and may be compounded monthly or at such other intervals as the Bank may determine. The Bank may, without prejudice to its other rights, increase the interest rate on the entire amount outstanding under the Banking Facilities Letters if any amount becomes overdue.”

19.  The initial complaint in the defendants’ affirmation in opposition related to the size of the font in §11.4 which was said to be too small. At the hearing, it became a complaint that the Bank could have but chose not to state upfront in the loan documentation (ie the facility letters) that overdue payments attract default interest of an additional 7% over and above the contract rate. It was common ground that the prevailing rate at all material times in the present case was 7% over the contract rate. The tenor of the defendants’ submission was that, instead, the default rate was ‘buried’ or ‘hidden’ in the Bank Charges Schedule (“the Schedule”). It was submitted that it gave rise to an issue whether the default rate had been properly brought to Madam Chan’s notice.

20.  Mr Kok, counsel for the Bank, pointed out that the reason why the 7% was not written into each and every single one of the facility letters was because the rate in the Schedule was capable of being changed at any time.  That is clear from the opening paragraph of the Schedule which states that the “charges are subject to change and the Bank reserves the right to introduce service charges not included in this booklet” (emphasis added).  So while the prevailing rate of 7% happened not to change in the present case, it was capable of being changed unilaterally by the Bank at any time after the date of any of the facility letters.

21.  Under item 8 of section VII (relating to loan services) of the Schedule, interest for late payment is expressed as “Contract Rate + 7% p.a. (except otherwise agreed with the Bank)” (emphasis added).  It was further ubmitted that quite apart from the Bank’s option to change the prevailing rate, situations could arise where, by agreement with the customer, a different rate of default interest could have been charged.

22.  In my view, the Bank’s option to change the prevailing rate was a valid explanation as to why the facility letters did not state that the prevailing rate. The Schedule is published by the Bank in booklet form and is also readily accessible on the Bank’s website. I do not accept the suggestion that the Bank acted unconscionably or contrived to conceal the default interest rate in the circumstances.

23.  A related aspect of the prevailing rates complaint was the Bank’s alleged failure to provide the defendants with interest calculations (of both the default rate as well as the normal interestrate) for the period prior to the date of the originating summons.  It was said that the defendants have not been put in a position of being able to verify whether the calculations of the indebtedness are correct.

24.  That aspect also turned out to be a red herring. Mr Kok referred to the exhibit marked “MHK 1” to the affirmation dated 7 July 2017 of Ma Ho Kin (“Mr Ma”), (an officer of the Bank) which is a  statement of account as at 7 February 2017. The first 3 pages of the exhibit (at B373 – 375) demonstrate the falsity of the defendants’ allegation. Those pages inter alia contain a detailed breakdown of calculations and supporting statements in relation to each item of the indebtedness.

25.  The interest calculations appear on the right hand column of B374 and 375 bearing the following heading: “For reference: Excel calculation formula”.  The information provided under the calculation formula includes (i) the relevant interest rate, (ii) the period of interest in question, (iii) the number of days involved, (iv) the total amount of interest and (v) the daily interest amount. 

26.  I am more than satisfied that full particulars and breakdowns have been given.  It may well be that the defendants did not bother to analyse the exhibits and it would appear that they never raised any questions with the Bank had they had difficulty comprehending any of the entries. In short, the objection is wholly without merit.

(2)   The conclusive evidence clause

27.  Mr Chung submitted that because the Bank ‘admitted’ that there was an error in the accounts, the conclusive evidence clause should not apply.  He referred to the 2^nd table in §27 of the affirmation of Chan Mee Ying Brenda, a vice president of Special Assets Management Department of the Bank dated 28 February 2017 which shows a total amount of indebtedness inter alia of HK$12,915,115.28 as at 7 February 2017 and contrasted that with the total amount of HK $12,915,837.49 arrived at by Mr Ma set out in the 2^nd table in §3 of his affirmation made 4 months later. That, it was said, amounted to an ‘admission’ by the Bank of a clear calculation error.  It was submitted that for that reason the conclusive evidence clause should not apply.

28.  Had the affirmations been properly read, the arithmetical error that came to light as a result of Mr Ma’s review of the earlier calculations and which was corrected was not the difference of HK$700 odd between the 2 amounts on which Mr Chung placed reliance. Rather, the true difference is approximately HK$3750 in the defendants’ favour.

29.  If Mr Chung’s submissions are valid, any arithmetical error however insignificant would negate the effect of a conclusive evidence clause.  What the Bank sought to do washave Mr Ma review the earlier calculations to verify their accuracy. Theamounts stated in Mr Ma’s affirmation supersede those given by Brenda Chan earlier. It is not the case of the defendants being able to demonstrate that there is something seriously wrong with Mr Ma’s calculations. The notion that any correction made by the Bank would have the effect of negating a conclusive evidence clause is contrary to common sense. I am not prepared to accept that proposition in the absence of clear authority and none was cited. 

Conclusion

30.  I reject the last-ditch defences the defendants have put forward . They are devoid of merit. Accordingly, there is to be an order in terms of the originating summons.