BANK OF CHINA (HONG KONG) LTD v. TWIN PROFIT LTD AND OTHERS

FAMV No 4 of 2012

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 4 OF 2012 (CIVIL)

(ON APPLICATION FOR LEAVE TO APPEAL

FROM CACV NO. 94 OF 2010)

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DETERMINATION

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Mr Justice Ribeiro PJ :

1.  At the hearing, we dismissed this application for leave to appeal with reasons to be delivered later.  These are our reasons.

The proceedings below

2.  The Master[1] gave judgment against the defendants jointly and severally in the sum of HK$265,840,469.02 plus interest, they having defaulted in repaying credit facilities extended by the plaintiff. They were also ordered to deliver up vacant possession of properties mortgaged to secure such facilities. 

3.  Their appeals to the Court of First Instance[2] and the Court of Appeal[3] were dismissed, with the defendants ordered in each case to pay costs on an indemnity basis.[4]  Their application for leave to appeal to this Court was dismissed by the Court of Appeal.[5]  They now renew their application both as to liability and indemnity costs.

The substantive application

4.  The debt owing to the plaintiff is undisputed. It had stood at HK$295 million at the start of the case but was reduced to the judgment amount after sale of what the loan documents call “the 1^st Charged Property”. 

5.  The defendants seek to raise a defence of set-off and counterclaim.  They allege that the plaintiff is in breach of an oral contract made in February 2000 with the 6^th and 7^th defendants (and another) to pay them HK$186 million, of which HK$136 million is outstanding.  They seek to set-off that sum and assert a counterclaim for unliquidated damages in respect of the alleged breach.

6.  The question for the courts below was whether triable issues are raised by the asserted set-off and counterclaim.  Their answer was “No”.  Applying the provisions of the Bank of China (Hong Kong) Limited (Merger) Ordinance (“the Ordinance”),[6] they held that the plaintiff is not the person against whom the set-off and counterclaim can be asserted.  Judgment was therefore entered for the plaintiff without going to trial on the purported defence.

7.  The defendants seek leave to appeal on both the “as of right”[7] and the discretionary[8] grounds. 

Leave as of right

8.  As Mr Russell Coleman SC[9] points out, the plaintiff’s claim is for a liquidated amount well exceeding $1 million.  That, he submits, entitles the defendants to leave as of right.  However, an entitlement to such leave only arises in relation to final judgments.  As Yuen JA correctly held, the test of what constitutes a final judgment for such purposes remains the “applications” test as laid down in Shell Hong Kong Limited v Yeung Wai Man Kiu Yip Co Ltd,[10] and Hip Hing Timber Co Ltd v Tang Man Kit.[11]  Lord Millett NPJ explained the test in the latter case:

“... an order is a final order if, whatever the outcome of the application on which it is made, it is finally determinative of the entire cause or matter. An order is also regarded as a final order if, although not finally determinative of the entire cause or matter, it is finally determinative of a crucial or substantial issue in the cause or matter.”[12]

9.  In Champion Concord Ltd v Lau Koon Foo,[13] the Court considered the new statutory rules[14] for determining whether an appeal from the Court of First Instance to the Court of Appeal is final or interlocutory.  It was held[15] that the rules for deciding whether leave to appeal is required apply equally to deciding whether a bench comprising two Justices of Appeal is properly constituted to hear an appeal.  Under those rules, judgments and orders determining the substantive rights of a party in a summary way are considered final.

10.  However, the judgment made it clear that that does not apply to applications for leave to appeal to the Court of Final Appeal.[16]  The Court’s statute has not been changed.  Since a party applying for leave to appeal to this Court is seeking to bring the case before at least a third tier of court,[17] the established policy (as explained on many occasions[18]) is to construe the “as of right” provisions narrowly, not least to avoid oppressing the successful party. 

11.  The plaintiff’s motion was in the nature of an application for summary judgment.  The proposed appeal does not pass the applications test.  It therefore does not qualify as a final judgment of the Court of Appeal for the purposes of section 22(1)(a) and leave is not as of right. 

Discretionary leave

12.  In order for the defence of set-off and counterclaim to succeed, the alleged oral agreement must bind the plaintiff. Having considered the evidence, the Courts below held that such a defence is not arguable.

13.  The defendants allege that in February 2000, the Beijing Branch of the Bank of China (“BOC-Beijing”) promised the 6^th and 7^th defendants that Kincheng Investments & Developments (China) Ltd, a subsidiary of Kincheng Bank, would pay them HK$186 million as part of the consideration for BOC-Beijing acquiring their interest (held through subsidiaries) in a building called “Beijing Central Plaza” with a view to using it as bank premises.

14.  At that stage, the plaintiff had not yet come into being.   It is the product of a statutory merger and re-structuring which took effect on 1 October 2001 pursuant to the Ordinance.

(a)  The re-structuring occurred around Po Sang Bank Limited (“Po Sang”), a bank incorporated in Hong Kong.  On 1 October 2001, Po Sang changed its name to that of the plaintiff[19] and various “Hong Kong branches of Mainland incorporated banks” (defined to include the Hong Kong branches of the Bank of China and Kincheng Bank) were transferred to and merged with Po Sang.[20]   

(b)  The Ordinance also defines “the Hong Kong branches of the Mainland incorporated banks” to mean, not any legal entities, but: “(a)  the businesses carried on by the Mainland incorporated banks in or from their branches in Hong Kong; and (b)  all existing property and liabilities of the Hong Kong branches of the Mainland incorporated banks ...”

(c)  “Existing” is defined as “existing, outstanding or in force immediately before the appointed time” that is, immediately before 1^st October 2001.

15.  Thus, on 1 October the plaintiff succeeded to the properties and liabilities then held or incurred as part of the businesses carried on in or from the Hong Kong branches of the banks concerned. 

16.  The Courts below concluded that it cannot arguably be asserted that the plaintiff thereby succeeded to liability for breach of the alleged oral agreement of February 2000.  No basis exists for finding that when BOC-Beijing entered into that agreement (assuming such facts can be proved), it did so as part of the businesses carried on by the Bank of China or by Kincheng Bank in or from their branches in Hong Kong.[21] The making of the agreement was, if anything, the business of BOC-Beijing involving the acquisition of premises for its own use in Beijing.

17.  In seeking discretionary leave to appeal under section 22(1)(b), the defendants list a number of questions of law concerning the construction of the Ordinance.  Mr Coleman SC understandably touched hardly at all on those questions.  They were questions which were not discussed in the judgments below.   There was obviously no difficulty construing the provisions which circumscribe the liabilities assumed by the plaintiff on 1 October 2001. Judgment was entered because it was held that evidentially, the defendants were unable to mount an arguable case for the alleged set-off and counterclaim.  The assessment of the evidence by the Courts below cannot be faulted and the suggested questions of law do not arise.

The application as to costs

18.  In a separate ruling, the majority of the Court of Appeal (as had Fok J) awarded costs against the defendants on an indemnity basis, taking account of the fact that this had been expressly agreed to in the mortgage documents.

19.  Referring to Gomba Holdings (UK) Ltd v Minories Finance Ltd,[22] and Chekiang First Bank v Fong Siu Kin,[23] Yuen JA set out the majority’s approach as follows:

“Where parties have entered into a commercial transaction on a certain basis, the court should be slow to disturb the parties’ agreement, unless the circumstances are such as to cause the court in the exercise of its discretion to intervene. For instance, the court may well consider intervention in the situation referred to in Gomba where the mortgagor is required to pay charges of an unreasonable amount or charges unreasonably incurred, but it is not suggested by the Defendants that that would be the case here.”[24]

20.  The defendants seek leave to appeal on costs, formulating the following question as one of great general or public importance, namely, as to:

“... the correct legal principles and proper approach to be applied to the question of costs and the exercise of discretion when awarding costs in circumstances where consumer contractual documents such as mortgages and guarantees contain ‘indemnity costs’ clauses or provisions, and whether the Court’s discretion is fettered or affected, and if so in what way or to what extent, and how (if any) the ‘indemnity costs’ clauses or provisions are to be given effect (if any) to or considered (if at all) in the balance of discretion.”

21.  That is not an apt question for the grant of leave.  As with all questions of costs, the Court has a discretion which it exercises judicially.  No one suggests that the discretion is fettered, Yuen JA having expressly noted the contrary.[25]  The parties’ agreement as to how costs should be dealt with provides the starting point for the discretionary exercise.  No change is warranted.  It would be counter-productive, were it possible, to try to lay down any less flexible “legal principles” as invited by the formulated question.

22.  The application was therefore dismissed with costs.