WING HANG BANK LTD v. LI KWAN YIU AND ANOTHER

HCMP2367/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2367 OF 2010

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J U D G M E N T

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I.  INTRODUCTION

1.  The 1^st defendant was the former registered owner of the property known as Flat A on the 6^th Floor of Block 1 of Phase 1A of Hong Kong Gold Coast, No.1 Castle Peak Road, Castle Peak Bay, Tuen Mun, New Territories (“Property”).  The 1^st defendant and his son the 2^nd defendant were customers of the plaintiff.

2.  According to the land search record dated 10 January 2011, the 1^st defendant became the registered owner of the Property on 20 February 1991.  The Property was mortgaged in favour of Security Pacific Asian Bank Limited by way of a legal charge of the same date, and in favour of The Financial Secretary Incorporated by way of a second legal charge dated 21 March 1991.

3.  By a letter dated 28 August 1997 from the plaintiff to the 1^st and 2^nd defendants and countersigned by the 1^st defendant as owner of the Property and by the 1^st and 2^nd defendants as borrower (“Facility Letter”), the plaintiff agreed to extend general banking facilities to the 1^st and 2^nd defendants, ie an instalment loan of HK$2,600,000.00 with interest at 0.5% pa above the plaintiff’s prime lending rate (“PL Rate”) to be repaid by 240 equal monthly instalments of HK$23,813.00 each (“Loan”).

4.  The following were express terms of the Facility Letter:

(a) as security the plaintiff required a First Charge on the Property to be executed in their favour within 30 days, subject to approval of title thereto by a solicitor designated by them (clause 1);

(b) the interest rate stated above was subject to fluctuation at the plaintiff’s discretion (clause 2) (“FL Clause 2”);

(c)  if the interest rate changed, either the amount of monthly instalment or the number of monthly instalments might be varied (clause 4) (“FL Clause 4”);

(d) overdue instalment payment would be subject to a late charge (FL Clause 4);

(e)  the banking facilities stated therein might be reviewed by the plaintiff from time to time at their discretion (clause 5) (“FL Clause 5”);

(f)   the plaintiff reserved their customary overriding right to revise or call in demand the facilities together with accrued interest (FL Clause 5);

(g) any accrued interest shall become an addition to the original loan and interest shall be computed thereon (clause 8) (“FL Clause 8”).

5.  Pursuant to the Facility Letter, the 1^st defendant as mortgagor, the 1^st and 2^nd defendants as borrower and the plaintiff as lender executed a Legal Charge dated 18 September 1997 in respect of the Property (“Legal Charge”).  The Legal Charge was registered at the Land Registry by memorial no.814984.  The legal charges in favour of Security Pacific Asian Bank Limited and The Financial Secretary Incorporated were discharged on the same day.

6.  The Legal Charge was a deed made under seal, ie the 1^st defendant as mortgagor and the 1^st and 2^nd defendants as borrower respectively “signed, sealed and delivered” the Legal Charge in the presence of a solicitor, and a seal was affixed against each of their signatures.  In my view, such mode of execution of the Legal Charge was compliant with section 19 of the Conveyancing and Property Ordinance Cap.219.

7.  By the Legal Charge, the 1^st defendant charged the Property by way of legal charge in favour of the plaintiff as security for the Secured Indebtedness (as defined in the Legal Charge) granted by the plaintiff as lender to the 1^st and 2^nd defendants as borrower (“Indebtedness”). Extracts of the relevant express terms of the Legal Charge are set out in the Schedule to this judgment (“Schedule”).

8.  The 2^nd defendant claimed that the 1^st defendant mortgaged the Property to raise the Loan for purchasing Flat F, 25^th Floor, Hong Kong Gold Coast, Phase 1, Tuen Mun, New Territories (“New Property”).  The 1^st defendant intended to improve his family’s living condition by moving his family from the Property to the New Property, and then sell the Property and repay the Loan with the sale proceeds.  The 2^nd defendant claimed it did not go according to plan because with the financial crisis property prices fell and the 1^st defendant was unable to sell the Property.

9.  For the purpose of the application before me, there is no dispute that:

(a) the New Property was acquired with the Loan and a mortgage in favour of Standard Chartered Bank (“SCB”);

(b) the 1^st defendant did not sell the Property after acquisition of the New Property;

(c)  the 1^st and 2^nd defendants paid mortgage instalment payments to both the plaintiff and SCB;

(d) after a while the 1^st and 2^nd defendants defaulted in paying instalment payments due under the Legal Charge;

(e)  the 1^st defendant surrendered vacant possession of the Property to the plaintiff on 26 May 2000;

(f)   the plaintiff sold the Property in exercise of their power of sale under the Legal Charge;

(g) such mortgagee sale of the Property by the plaintiff was completed on 25 August 2000;

(h) the plaintiff applied the net proceeds of sale in part payment of the Indebtedness;

(i)   from September 2000 until March 2001, the 1^st and/or 2^nd defendants paid a total sum of HK$144,020.57 (being past due interest of HK$13,036.27 and principal payment of HK$130,984.30) in part payment of the then outstanding Indebtedness;

(j)   from April 2001 to August 2003, the 1^st defendant made monthly principal payments of HK$4,000.00 each to the plaintiff in part payment of the then outstanding Indebtedness save that he paid HK$8,000.00 for each of July 2001, September 2002 and May 2003;

(k) the 1^st defendant paid principal payments of HK$3,000.00 and HK$9,000.00 in October and December 2003 respectively in part payment of the then outstanding Indebtedness;

(l)   the plaintiff accounted for the payments in (i)-(k) above as shown in an internal Loan Account Payment History dated 20 May 2011 for the period from 1 August 1998 to 20 May 2011;

(m)    the 1^st and/or 2^nd defendants did not make any further payment in respect of the outstanding Indebtedness after 16 December 2003 when the 1^st defendant retired;

(n) vacant possession of the New Property was surrendered to SCB in 2004;

(o) the New Property was sold by SCB in/about February 2006.

10.  On 20 October 2010, the plaintiff’s solicitors issued demand letters to the 1^st and 2^nd defendants respectively demanding immediate payment of the outstanding Indebtedness due to the plaintiff together with overdue and accrued interest in the total sum of HK$2,785,427.08 (with breakdown as below) within 7 days, failing which legal action would be taken without further notice (“Demand Letters”):

	HK$
Outstanding principal	644,871.59
35th to 156th instalments in arrears	1,254,609.00
Overdue interest up to 12 October 2010	883,609.94
Accrued interest up to 12 October 2010	2,336.55
	2,785,427.08

11.  The Demand Letters also gave notice that (a) additional interest would be charged at 0.5% pa above the PL Rate on the outstanding principal and at 6.5% pa above the PL Rate as at the due date of each of the overdue instalments from 13 October 2010 until full payment, (b) the plaintiff’s then PL Rate was 5.25% pa, and (c) the plaintiff reserved the right to change the PL Rate at their sole discretion.

12.  On 12 November 2010, the plaintiff commenced the present action by Originating Summons to claim for payment of all monies due to them by the 1^st and 2^nd defendants under the several covenants/obligations contained in the Legal Charge together with interest thereon, and costs on an indemnity basis.

13.  No acknowledgment of service was filed by the 1^st and/or 2^nd defendants.

14.  On 6 January 2011, the plaintiff filed Notice of Appointment for Hearing of the Originating Summons.

15.  On 21 January and 24 May 2011, the plaintiff filed the 1^st and 2^nd affirmations of their senior officer Mr Cheung Ping Kuen (“Mr Cheung”) in support of the Originating Summons (“Cheung 1^st and 2^nd Affirmations”).  On 17 June 2011, the 2^nd defendant filed his affirmation in opposition (“D2 1^st Affirmation”).  On 9 July and 21 September 2011, the plaintiff respectively filed Mr Cheung’s 3^rd and 4^th affirmations (“Cheung 3^rd and 4^th Affirmations”).  On 14 October 2011, the 2^nd defendant filed his 2^nd affirmation in opposition (“D2 2^nd Affirmation”).

16.  By his order dated 25 August 2011 (“25/8/11 Order”), Master Roy Yu directed that (a) this action be continued as if it were commenced by Writ of Summons, (b) Cheung 1^st and 2^nd Affirmations shall stand as the plaintiff’s Statement of Claim, (c) D2 1^st Affirmation shall stand as the 1^st and 2^nd Defendants’ Defence, and (d) Cheung 3^rd Affirmation shall stand as the plaintiff’s Reply.

17.  Pursuant to the 25/8/11 Order, Master Roy Yu further directed the plaintiff to take out an application for summary judgment with 28 days, failing which they shall take out a case management summons.  Pursuant to such direction, the plaintiff issued a summons for summary judgment seeking payment of the sums set out in paragraphs 26-27 below together with costs of the action, including costs of and occasioned by such application, to be taxed on indemnity basis (“Summons”). Cheung 4^th Affirmation and D2 2^nd Affirmation were filed in support of and in opposition to the Summons respectively.

18.  The Summons came before me for hearing on 11 January 2012 (“Hearing”) with the 1^st and 2^nd defendants appearing in person.  It transpired that notwithstanding the 25/8/11 Order, the 1^st and 2^nd defendants were not directed to and did not file their respective acknowledgment of service in respect of the Originating Summons.  Nevertheless it is plain from the tenor of the 25/8/11 Order and D2 1^st and 2^nd Affirmations that the 1^st and 2^nd defendants intended to defend the plaintiff’s claim in this action.  For the sake of good order and without objection from Mr Tai, solicitor for the plaintiff, I granted extension of time until 18 February 2012 for the 1^st and 2^nd defendants to respectively file acknowledgment of service in this action to give notice of intention to defend.  They did so on 11 January 2012 after the Hearing.

II.  LEGAL PRINCIPLES ON SUMMARY JUDGMENT

19.  The relevant legal principles for summary judgment are well-settled.  A plaintiff may invoke the procedure under Order 14 of the Rules of the High Court where there is no arguable defence to his claim or otherwise a triable issue.  The rationale was set out in Hong Kong Civil Procedure 2012 Vol.1, para.14/4/1 at p.244:

“The underlying policy of the summary procedure is to prevent a defendant from delaying the plaintiff from obtaining judgment in case in which the defendant clearly has no defence to the plaintiff's claim: Man Earn Ltd v. Wing Ting Fong [1996] 1 H.K.C. 225.  “Order 14 proceedings for summary judgment when there is no defence to a claim are an important feature of the legal process.  It enables plaintiffs in cases where there is no defence to obtain expeditious summary judgment to avoid unnecessary delay.  When applied for, it is for the defendant to show that there is a triable issue or an arguable defence if he is to be allowed his day in court.  To deny him his day in court, if he shows a triable issue or an arguable defence, is indeed a fearful injustice.  On the other hand, if he has no defence and he obtains leave to defence, equally, there is injustice to the plaintiff” (per Mortimer J.A. in Manciple Ltd. v Chan On Man [1995] 3 H.K.C. 459 at 466).  The machinery of O.14 works on the basis that if the plaintiff's application is properly constituted, he is prima facie entitled to judgment unless the defendant shows cause to the contrary or the application is dismissed.”

20.  In Ng Shou Chun v Hung Chun San [1994] 1 HKC 155, Godfrey J noted it is not appropriate to embark on a mini-trial of the action on affidavit evidence.  The court should ask itself the question whether what the defendant says is credible or believable.  If so, he must have leave to defend; if not, the plaintiff is entitled to summary judgment.

21.  Hong Kong Civil Procedure 2012 Vol.1, para.14/4/9 at p.248 went on to say that:

“It is trite law that the mere assertion in an affidavit of a given situation does not, ipso facto, provide leave to defend, since the defendant must satisfy the court that he has a fair or reasonable probability of showing a real or bona fide defence, i.e. that his evidence is reasonably capable of belief …… “There is a difficulty because the court cannot resolve issues of fact on affidavits. However, there are some cases in which the defendant’s own case, although apparently it raises issues which, if found in his favour, would provide him with a defence, are so incredible or so contradicted by contemporaneous documents or circumstances that it becomes clear that his defence is a sham”: per Mortimer J.A. in Manciple Ltd. v. Chan On Man [1995] 2 H.K.C. 459 at 466. Two tests are appropriate, namely “Is what the defendant says credible?” and “Is there a fair or reasonable probability of the defendant having a real or bona fide defence?” Where an issue of fact is raised, the first question must be answered in the affirmative before considering the second.”

22.  Hong Kong Civil Procedure 2012 Vol.1 para.14/4/3 at p.245 stated that ““[a] desire to investigate alleged obscurities and a hope that something will turn up on the investigation cannot, separately or together, amount to a sufficient reason for refusing to enter judgment for the plaintiff. You do not get leave to defend by putting forward a case that is all surmise and Micawberism” (per Megarry V.-C. in Lady Anne Tennant v. Associated Newspapers Group Ltd [1979] F.S.R. 298)”.

III.  PLAINTIFF’S CASE

23.  According to Mr Cheung, the state of account between the plaintiff and the 1^st and 2^nd defendants at the date of the Originating Summons (12 November 2010) was as follows:

	HK$
Outstanding principal (excluding instalments in arrears)	638,474.68
35th to 157th instalments in arrears	1,263,952.00
Overdue interest up to 12 November 2010	897,428.22
Accrued interest up to 12 November 2010	2,514.54
	2,802,369.44

Breakdown of overdue and accrued interest up to 12 November 2010 was exhibited as “CPK-4” of Cheung 1^st Affirmation.

24.  According to Mr Cheung, the state of account between the plaintiff and the 1^st and 2^nd defendants at the date of Cheung 1^st Affirmation (20 January 2011) was as follows:

	HK$
Outstanding principal (excluding instalments in arrears)	619,609.81
35th to 160th instalments in arrears	1,291,981.00
Overdue interest up to 20 January 2011	928,560.60
Accrued interest up to 20 January 2011	195.22
	2,840,346.63

Breakdown of overdue and accrued interest up to 20 January 2011 was exhibited as “CPK-5” of Cheung’s 1^st Affirmation.

25.  By Cheung 1^st Affirmation, the plaintiff claimed that further interest would accrue from 21 January 2011 until full payment:

(a) on the outstanding principal of HK$619,609.81 at the rate of 5.75% pa (ie 0.5% pa above the current PL Rate of 5.25% pa) or HK$97.61 (ie HK$619,609.81 x 5.75% pa ÷ 365 days) per day (subject to interest fluctuation);

(b) on past due instalments (35^th to 160^th instalments) at the rate of 11.75% pa (ie 6.5% pa above the current PL Rate of 5.25% pa) or HK$455.46 per day (subject to interest fluctuation).

A schedule of the PL Rate for the period from 22 May 2000 to 20 January 2011 and a full breakdown of the calculation of the daily rate of interest of HK$455.46 in (b) above were respectively exhibited as “CPK-5” and “CPK-6” of Cheung 1^st Affirmation.

26.  According to Mr Cheung, the state of account between the plaintiff and the 1^st and 2^nd defendants as at the date of Cheung 2^nd Affirmation (24 May 2011) was as follows:

	HK$
Outstanding principal (excluding instalments in arrears)	593,774.33
35th to 164th instalments in arrears	1,329,353.00
Overdue interest up to 24 May 2011	985,613.68
Accrued interest up to 24 May 2011	561.24
	2,909,302.25

Breakdown of overdue and accrued interest up to 24 May 2011 was exhibited as “CPK-8” of Cheung 2^nd Affirmation.

27.  By Cheung 2^nd and 4^th Affirmations, the plaintiff claimed that further interest would accrue from 25 May 2011 until full payment:

(a) on the outstanding principal of HK$593,774.33 at the rate of 5.75% pa (ie 0.5% pa above the current PL Rate of 5.25% pa) or HK$93.54 (ie HK$593,774.33 x 5.75% pa ÷ 365 days) per day (subject to interest fluctuation);

(b) on past due instalments (35^th to 164^th instalments) at the rate of HK$467.50 per day (subject to interest fluctuation).

A full breakdown of the calculation of the daily rate of interest of HK$467.50 in (b) above was exhibited as “CPK-8” of Cheung 2^nd Affirmation.  Mr Cheung confirmed that the PL Rate remained the same at 5.25% pa.

28.  Alternatively, Mr Cheung in Cheung 2^nd and 4^th Affirmations stated that if the plaintiff were not entitled to interest at 6.5% pa over the PL Rate on the past due instalments (which the plaintiff disagreed), the plaintiff would still be entitled to interest at the rate of 0.5% pa above the PL Rate on the  past due instalments pursuant to the Facility Letter.  On such basis, the state of account between the plaintiff and the 1^st and 2^nd defendants as at the date of Cheung 2^nd Affirmation (24 May 2011) was as follows:

	HK$
Outstanding principal (excluding instalments in arrears)	593,774.33
35th to 164th instalments in arrears	1,329,353.00
Overdue interest up to 24 May 2011	533,938.81
Accrued interest up to 24 May 2011	561.24
	2,457,627.38

29.  By Cheung 2^nd and 4^th Affirmations, the plaintiff claimed that on such basis further interest would accrue from 25 May 2011 until full payment:

(a) on the outstanding principal of HK$593,774.33 at the rate of 5.75% pa (ie 0.5% pa above the current PL Rate of 5.25% pa) or HK$93.54 (ie HK$593,774.33 x 5.75% pa ÷ 365 days) per day (subject to interest fluctuation);

(b) on  past due instalments (35^th to 164^th instalments) at the rate of HK$248.78 per day (subject to interest fluctuation).

A schedule with full breakdown of the calculation of the daily rate of interest of HK$248.78 in (b) above was exhibited as “CPK-10” of Cheung 2^nd Affirmation.

IV.  DISCUSSION

30.  The 1^st and 2^nd defendants’ grounds for opposing the Summons were found in D2 1^st and 2^nd Affirmations and their oral submissions at the Hearing.  I shall set out and discuss each of their defence allegations below.

(a)  Legal Charge

31.  In D2 2^nd Affirmation, the 2^nd defendant claimed that “[he]與[the 1^st defendant]均不能代表對方於這次樓宇按揭, [the 2^nd defendant]只在辦理樓宇按揭時於[the plaintiff]簽名一次，事後亦無收到任何有關該次樓宇按揭的信件”.

32.  In my view, such allegation does not amount to any viable defence against the plaintiff’s claim against the 1^st and 2^nd defendants for payment of the outstanding Indebtedness.  The 1^st and 2^nd defendants did not deny that they countersigned the Facility Letter and executed the Legal Charge as borrower (1^st and 2^nd defendants) and owner/mortgagor of the Property (1^st defendant) and/or that they knew and understood the nature of the Facility Letter and Legal Charge.  Such allegation is wholly insufficient to raise any defence of misrepresentation, mistake or non est factum.  In any event, the 1^st and 2^nd defendants already had the benefit of the Loan, which according to the 2^nd defendant was utilised to acquire the New Property, and they had made instalment payments thereunder to the Plaintiff.

(b)  Alleged agreement to reduce the monthly instalment sum

33.  The 2^nd defendant in D2 1^st Affirmation claimed that on 15 August 2000, the 1^st defendant attended the plaintiff’s head office to meet bank officers “陳柏堅經理” (ie Mr Chan Pak Kin Patrick, “Mr Chan”) and “霍銳廣主任” (“Mr Fok”) and was told the Property had been sold for HK$1,320,000.00.  The 2^nd defendant claimed he was aware that the 1^st Defendant and Mr Chan orally “同意” (agreed) to repayment of HK$4,000.00 per month (ie “每月還款$4000.00”) to pay off the outstanding indebtedness of HK$1,188,000.00 due to the plaintiff after the sale of the Property, and that Mr Chan did so on behalf of the plaintiff even though (a) such arrangement was not reduced into writing, (b) there was no mention of the total repayment amount and interest payable thereon, (c) the plaintiff did not send any confirmatory letter or document to the 1^st defendant even when he subsequently made monthly payments of HK$4,000.00 each to the plaintiff, and (d) the Plaintiff did not reply to the 1^st defendant’s letters of 7 and 15 September 2003 and 20 September 2004 that requested for particulars of the total repayment amount and the calculation of interest payable thereon.  The 2^nd defendant further claimed “一直以來都認為[the 1^st defendant]與[the plaintiff]商討好還款方法，[the 2^nd defendant]無參與及了解，因為[the 2^nd defendant]於2000年搬離[the Property]組織新家庭宜[the 2^nd defendant]一直都無收過[the plaintiff]任何文件信件向[the 2^nd defendant]追討拍賣樓宇之差額欠款”.

34.  In D2 2^nd Affirmation, the 2^nd defendant claimed that “直至[the 1^st defendant]將[the Property]交回[the plaintiff]作銀主盤拍賣後，扣除借款後之餘額$11880000, 當時[the 1^st defendant]向[the plaintiff’s Mr Chan]口頭承諾可每月還款$4000，[the 1^st defendant]亦多次去信要求[the plaintiff]停止計算利息及確認還款期數，唯[the plaintiff]並無回覆”.

35.  On the other hand, Mr Cheung in Cheung 3^rd Affirmation claimed that the plaintiff had record of a meeting on/about 15 August 2000 with the 1^st defendant at the plaintiff’s head office to discuss repayment of the outstanding Indebtedness.  At the meeting, the 1^st defendant offered to repay the outstanding Indebtedness by making monthly repayments of HK$4,000.00 each, but no agreement was reached.  The 1^st defendant failed to provide any documentary proof of the 1^st and 2^nd defendants’ income or to formally apply to restructure the outstanding Indebtedness, so the plaintiff was not in a position to accept or process the 1^st defendant’s unilateral offer.  All the plaintiff could do was to account for all payments subsequently made by the 1^st and/or 2^nd defendants in part payment of the outstanding Indebtedness.

36.  I am not persuaded that the assertion by 1^st and 2^nd defendants that Mr Chan on behalf of the plaintiff and the 1^st defendant on behalf of the 1^st and 2^nd defendants reached an oral agreement on 15 August 2000 to pay off the outstanding Indebtedness after the sale of the Property in the sum of HK$1,188,000.00 by making repayment of HK$4,000.00 per month to the plaintiff raised any triable issue or arguable defence.

37.  First of all, I am of the view that the 1^st and 2^nd defendants well knew that after the mortgagee sale of the Property the outstanding Indebtedness was not HK$1,188,000.00, which undermines the 2^nd defendant’s assertion as to the alleged oral agreement.

38.  The 2^nd defendant exhibited to D2 1^st Affirmation a statement of account allegedly dated 20 September 2004 (“Mortgagee Account”), which was the plaintiff’s mortgagee account of the proceeds from the sale of the Property.  In Cheung 3^rd Affirmation, Mr Cheung claimed that the Mortgagee Account was in fact dated 20 September 2000 and not 20 September 2004. In my view, since the sale of the Property was completed on 25 August 2000, the plaintiff would have prepared the Mortgagee Account in September 2000 and not 4 years later in September 2004.  Further, the letters or alleged letters by the 1^st defendant to the plaintiff referred in paragraphs 41-53 below show that prior to 2004 the 1^st defendant was already aware of the plaintiff’s mortgagee account of the sale proceeds in respect of the Property, which meant the Mortgagee Account could not have been dated 20 September 2004.

39.  According to the Mortgagee Account, the Property was sold for HK$1,320,000.00 of which the initial deposit was HK$132,000.00 and the balance of the sale price was HK$1,188,000.00.  Of the initial deposit, after deducting a valuation fee of HK$1,900.00, the balance of HK$130,100.00 was used to reduce the then outstanding Indebtedness.  Of the balance of the sale price, after deducting the expenses in the apportionment account of HK$1,278.75 and an auction fee of HK$6,000.00, the remaining balance of HK$1,180,121.25 was applied in partial settlement of the then outstanding Indebtedness.  Thus, according to the Mortgagee Account, the sum of HK$1,188,000.00 was the balance of the sale price after deducting the initial deposit and not the remaining outstanding Indebtedness owed by the 1^st and 2^nd defendants.  In my view, it is improbable for the plaintiff’s Mr Chan to enter into the alleged oral agreement with the 1^st defendant premised on an outstanding indebtedness of HK$1,188,000.00, which was plainly erroneous.

40.  Secondly, although the 1^st defendant was available and appeared in person throughout the present action and at the Hearing, he did not file/serve any affidavit in opposition verifying the oral agreement that he allegedly made with Mr Chan on 15 August 2000.  Such alleged oral agreement was only alluded to in D2 1^st Affirmation, but the 2^nd defendant admitted he was not present when such oral agreement was allegedly made.  No explanation was forthcoming in respect of the 1^st defendant’s failure to depose to the alleged oral agreement.

41.  Thirdly, the 2^nd defendant in D2 1^st Affirmation claimed he sent a letter dated 28 August 2000 to the 1^st defendant (“Alleged 28/8/00 Letter”), but Mr Cheung in Cheung 3^rd Affirmation said the plaintiff had no record of having received such letter.  However, the Alleged 28/8/00 Letter would not have assisted the 1^st and 2^nd defendants even if it had been sent to the plaintiff.  On its face, it was clear that by 28 August 2000 the 1^st defendant purportedly confirmed he already had notice from the plaintiff that the then outstanding Indebtedness was HK$2,501,687.73, and that no agreement had been reached between him and Mr Chan on 15 August 2000 as alleged.  This also adds weight to my conclusion in paragraph 39 above.

42.  The Alleged 28/8/00 Letter provided as follows:

“本人[the 1^st defendant]已於2000/05/21將[the Property]交回[the plaintiff]處理，貸款A/CXXXXXX-XXX[ie in respect of the Loan]亦收到[the plaintiff]通知欠款數目為2501687元。

於2008/8/15應約前往香港皇后大道中[the plaintiff’s]總行面談有關銀行已將[the Property]拍賣咗相談有關日後還款每月嘅數目。

當日在[the plaintiff]貸款部一名[Mr Chan]及[Mr Fok]由[Mr Chan]口頭通知[the Property]已拍賣咗1320000.00元及承認在[the 1^st defendant]欠款數目內再撇賬280000元，因[the 1^st defendant]仍有[the New Property]在[SCB]貸款現時仍需供款，故[the 1^st defendant]要求每月還款數目為4000.00元，當時未有答覆，要請示[the plaintiff]上層人員。

[The 1^stdefendant]現時已準備賣出[the New Property]與[SCB]聯絡安排賣該單位，現等侯[SCB]回覆，有回覆仍需一段日子賣出該單位現希望有五個月時間。

在該5個月期間內[the 1^st defendant]於2000/9/1開始每月還4000.00元[the plaintiff]直至賣咗該單位後再向[he Plaintiff]及[SCB]面談日後還款事，[the 1st defendant]要求將現時所欠之數目及有關之詳情用文件通知[the 1^st defendant]” (my emphasis)

It is evident on the face of the Alleged 28/8/00 Letter that at the meeting on 15 August 2000 the plaintiff did not accept the 1^st defendant’s request to repay the then outstanding Indebtedness by monthly payments of HK$4,000.00 each, and that such request was pending instructions from the plaintiff’s senior management.  Clearly, this undermines the oral agreement between Mr Chan and the 1^st defendant as alleged by the 1^st and 2^nd defendants.

43.  Fourthly, the 2^nd defendant in D2 1^st Affirmation claimed that he had sent a letter to the plaintiff dated 7 September 2003 (“Alleged 7/9/03 Letter”).  On the other hand, Mr Cheung claimed in Cheung 3^rd Affirmation that according to the plaintiff’s record they had never received the Alleged 7/9/03 Letter.  Interestingly, such letter as exhibited to D2 1^st Affirmation was the original letter in blue ink.  The 2^nd defendant did not offer any explanation why he would still have the original Alleged 7/9/03 Letter in his possession when he made D2 1^st Affirmation in June 2011 when, according to him, such letter had been sent to the plaintiff in 2003.  In any event, in my view, the Alleged 7/9/03 Letter would not have assisted the 1^st and 2^nd defendants even if it had been sent to the plaintiff.

44.  The Alleged 7/9/03 Letter stated inter alia as follows:

“本人[the 1^st defendant]2003年9月5日用電話向蕭主任要求減低每月還款由4000.00元減至3000.00元因[the 1^st defendant]無能力負擔，及要求知道現時重欠[the plaintiff]款項總數利息如何計法，因[the 1^st defendant]於2000年9月開始至今每月都供款4000.00元都未收到[the plaintiff]任何文件。[The 1^st defendant]之通訊地址已於2000年8月15日在[the plaintiff]總行通知[the plaintiff’s Mr Chan]地點[the New Property]，由蕭主任口中得知現時由2000年9月開始至每月供款4000.00元全部都係利息，現時重欠[the plaintiff]超過1600000.00元。[The 1^st defendant]覺得[the plaintiff]為何未通知還款總數利息點計法故現時2003年8月份之供款暫時未供住等10月後有答覆再供回無論[the plaintiff]點計利息都望能商討減息。” (my emphasis)

45.  Quite plainly, the Alleged 7/9/03 Letter on its face confirmed that the 1^st defendant had been informed the then outstanding Indebtedness due to the plaintiff was over HK$1,600,000.00, which again adds weight to my conclusion in paragraph 39 above.  Further, the 1^st defendant also confirmed in such letter that he had not received any confirmatory document from the plaintiff since September 2000 when he started to repay HK$4,000.00 per month to the plaintiff.  This again supports the plaintiff’s contentions that there was no oral agreement made on 15 August 2000 as alleged and that the plaintiff merely accounted for payments received from the 1^st and/or 2^nd defendants in part payment of the then outstanding Indebtedness.

46.  Fifthly, the 2^nd defendant in D2 1^st Affirmation claimed that he had sent a letter to the plaintiff dated 15 September 2003 (“Alleged 15/9/03 Letter”).  On the other hand, in Cheung 3^rd Affirmation, Mr Cheung claimed that according to the plaintiff’s record they had never received the Alleged 15/9/03 Letter.  Interestingly, such letter as exhibited to D2 1^st Affirmation was the original letter in blue ink.  The 2^nd defendant did not offer any explanation why he would still have the original Alleged 15/9/03 Letter in his possession when he made D2 1^st Affirmation in June 2011 when, according to him, such letter had been sent to the plaintiff in 2003.  But, in my view, the Alleged 15/9/03 Letter would not have assisted the 1^st and 2^nd defendants even if it had been sent to the plaintiff.

47.  The Alleged 15/9/03 Letter stated inter alia as follows:

“已收[the plaintiff]寄給有關欠款資料，[the Property]銀主盤賣後仍欠[the plaintiff]尾數1072501.15元。

由35期至71期供樓會37期共欠426083.00

過期利息106986.51

現時合共欠[the plaintiff] 1605570.66

[The 1^stdefendant]於2000/9/1開始每日還款4000.00至2003/8月合共以還款140000.00元

自從2000/8/15應約往香港皇后大道中[the plaintiff]總行會見[the plaintiff’s Mr Chan]及[Mr Fok]商談有關還款事宜，[the 1^st defendant]亦將新地址[the New Property]除每月依時入錢[the plaintiff]還錢，直至3年都未有接獲[the plaintiff][the 1^st defendant]拖欠[the plaintiff]之欠款總數，現時利息係點計算。

現時收到[the plaintiff’s]蕭主任接獲[the 1^st defendant]於2003/9/5投訴要求了解欠[the plaintiff]之款總欠數目及利息計算方法，[the plaintiff’s]蕭主任答覆一直都有寫資料俾[the 1^st defendant]地址係[the Property]，但該地址樓宇已由[the plaintiff]用銀主盤賣出，不明有[the 1^st defendant]之新地址不寄仍寄拍賣咗之舊地址。

現時希望[the plaintiff]能儘快將利息計算利率能列出嚟，[the 1^st defendant]唔同意[the plaintiff]列出之總欠數，能否約定日期時間面對面商談” (my emphasis)

48.  On the face of the Alleged 15/9/03 Letter, the 1^st defendant acknowledged receipt of information concerning the then outstanding Indebtedness provided by the plaintiff, which information was the same as that contained in a statement of account titled “Outstanding as at 4 September 2003” exhibited as “CPK-12” to Cheung 3^rd Affirmation (such statement of account, according to Mr Cheung, was sent by post on 5 September 2003 to the 1^st defendant at the New Property, which address was provided by the 1^st defendant to the plaintiff as the last known address of the 1^st and 2^nd defendants at the material time) as follows:

“Outstanding as at 4 September 2003
[the 1st and 2nd Defendants] (XXXXXX)
Instalment Loan (A/C No.XXXXXX-XXX)
Outstanding principal	HKD1,072,501.15
35th – 71st Instalment in arrears	426,083.00
Past due interest up to 04-09-03	104,239.15
Accrued interest up to 04-09-03	2,747.36
Total	HKD1,605,570.66”

49.  There was also no mention of the alleged oral agreement between Mr Chan and the 1^st defendant on 15 August 2000 in the Alleged 15/9/03 Letter.  In my view, the Alleged 28/8/00, 7/9/03 and 15/9/03 Letters do not support the oral agreement as alleged by the 2^nd defendant and/or any allegation that the plaintiff had agreed to waive any part of the outstanding Indebtedness and/or any interest thereon.

50.  Sixthly, the plaintiff very fairly disclosed 2 letters from the 1^st defendant to the plaintiff dated 19 September 2003 and 10 January 2004 respectively as exhibit “CPK-12” in Cheung 3^rd Affirmation.

51.  The letter from the 1^st defendant to the plaintiff dated 19 September 2003 stated inter alia as follows:

“已收到[the plaintiff]寄給[the 1^st defendant][the Property]銀主盤拍賣後仍欠[the plaintiff]尾數1072501.15元

於2008/8/15應約往香港皇后大道中[the plaintiff’s]總行內會見[the plaintiff’s Mr Chan and Mr Fok]面談有關還款事宜，由[the plaintiff’s Mr Chan]同意每月還款4000.00元作為償還欠[the plaintiff]尾數由2000/9/1開始

現時[the 1^st defendant]因退休收入減少要求將還款減至每月3000.00元及免除利息，要求與[the plaintiff’s Mr Chan]會面再次商談還款事宜，希望能儘快書面回覆安排日期時間。”

52.  The letter from the 1^st defendant to the plaintiff dated 10 January 2004 stated inter alia as follows:

“[The 1^stdefendant]與[the plaintiff]一向保持良好關係，[the 1^st defendant]準時還款與[SCB]商討有關債務重組，[SCB]堅持要[the 1^st defendant]每月還款14300.00，[the 1^st defendant]基於收入未能負擔[SCB]之提議每月還款，[the 1^st defendant]現時全無鬥志，精神全面崩潰，無法維持落去，為有接受現實，將[SCB]按揭物業[the New Property]交回[SCB]處理，[SCB]係一手造成[the 1^st defendant]踏上破產途徑，故現時[the 1^st defendant]無法再繼續每月還款俾[the plaintiff]。

現附上[SCB]信件副本。”

53.  Although the former letter in paragraph 51 above referred to Mr Chan’s alleged agreement to repay the then outstanding Indebtedness by HK$4,000.00 each month as from 1 September 2000, it was nothing more than a bare assertion made in the context of the 1^st defendant’s inability to pay even a monthly sum of HK$4,000.00 as a result of his retirement and pressure by SCB.  Such assertion also does not sit well with the letters allegedly sent to the plaintiff by the 1^st defendant as disclosed by the 2^nd defendant.

54.  Seventhly, notwithstanding the 2^nd defendant’s assertion in D2 1^st Affirmation of the alleged oral agreement made between the 1^st defendant and Mr Chan on 15 August 2000 (see paragraph 33 above), he did not refer to such alleged agreement in D2 2^nd Affirmation.  Rather, the 2^nd defendant merely asserted in D2 2^nd Affirmation that the 1^st defendant offered or undertook to Mr Chan to repay HK$4,000.00 per month, but there was no reply from the plaintiff (see paragraph 34 above).  This does not sit well with any suggestion of the alleged oral agreement.

55.  In any event, the monthly payment of HK$4,000.00 was less than the regular monthly instalment sum specified in the Facility Letter.  In the absence of variation by agreement, “the payment of part of a liquidated sum of money due to the creditor is not a discharge of the whole debt, even though the creditor purports to release the remaining obligation, since there is no consideration for the release” (see Chitty on Contracts 13^th ed Vol.1 para.21-052 at p.1431).  This is also enchoed in clause 16.01 of the Legal Charge (see paragraph 7 of the Schedule).

56.  In all the circumstances, I am not persuaded that the 1^st and 2^nd defendants have raised any arguable defence or triable issue by this line of defence.  Such defence argument is severely undermined by the documents disclosed by the 2^nd defendant.  In any event, even if there were such alleged oral agreement between the plaintiff and the 1^st defendant made on 15 August 2000 for repayment of the then outstanding Indebtedness by monthly payments of HK$4,000.00 each, the 1^st and 2^nd defendants had defaulted in making such payments after 16 December 2003, and could hardly rely on such alleged agreement as defence to the plaintiff’s claim.

(c)  Dispute over interest claimed by the plaintiff

57.  The 2^nd defendant claimed he “極唔同意[the plaintiff]之利息計算”.  In D2 1^st Affirmation, the 2^nd defendant claimed that at the hearing on 8 February 2011 the 1^st defendant queried how the indebtedness of HK$2,802,369.44 (see paragraph 23 above) was calculated.  He also pointed out that “事隔數月” there was “相差三十多萬” in respect of the indebtedness, ie HK$2,802,369.44 (see paragraph 23 above) and HK$2,457,627.38 (see paragraph 28 above), “覺得計算好唔正確, [the 2^nd defendant]本身有責任還款, 但[the plaintiff]有責任用文件信件通知[the 2^nd defendant]拍賣咗[the Property]之差額尾數係點計算利息”.

58.  Mr Tai referred to the calculation of the Indebtedness with breakdown of interest in paragraphs 10-11 and 23-29 above.  The plaintiff claimed that as at 24 May 2011 the outstanding principal (excluding instalments in arrears) was HK$593,774.33 and the 35^th to 164^th instalments in arrears were HK$1,329,353.00 (see paragraph 26 above).  However, as at 12 October 2010 (as specified in the Demand Letters), the outstanding principal (excluding instalments in arrears) was HK$644,871.59 and the 35^th to 156^th instalments in arrears were HK$1,254,609.00 (see paragraph 10 above).  Apparently, the difference was due to the alleged accrual of 8 instalments (ie the 157^th to 164^th instaments) between 12 October 2010 and 24 May 2011.

59.  Is such calculation of the outstanding principal and instalments in arrears correct?  I note that although the 1^st and 2^nd defendants disputed the calculation of the outstanding Indebtedness, they did not put forward their version of the outstanding principal and instalments in arrears (if any) or specify where and how the plaintiff’s calculation went into error.

60.  The first question is whether past due instalments in arrears would continue to accrue after the plaintiff issued the Demand Letters to the 1^st and 2^nd defendants.  If the answer to this question is negative, then the 157^th to 164^th instalments would not accrue in arrears, and (as explained in paragraph 62 below) the interest element of such instalments would not be capitalised or be added to the principal to attract further interest.  In my view, the answer to this question is found in FL Clause 5 which reserved the plaintiff’s customary overriding right of demand to call in the Loan together with accrued interest (see paragraph 4(f) above), and clause 5.02 of the Legal Charge which provided that after the occurrence of an Event of Default the Indebtedness shall become repayable immediately on demand together with interest accrued thereon of the date of repayment in full (see paragraph 6 of the Schedule).  In such circumstances, upon service of the Demand Letters, the whole outstanding Indebtedness being the outstanding principal, past due instalments in arrears and accrued interest were immediately repayable by the 1^st and 2^nd defendants as borrower to the plaintiff.  Since the whole outstanding Indebtedness became due and payable by the exercise of the plaintiff’s overriding right of demand, it is logically inconsistent for further instalments to continue to accrue and then fall into arrears.

61.  In the circumstances, I am persuaded that it is inappropriate to rely on the calculation of the outstanding principal and instalments in arrears as at 24 May 2011 (see paragraphs 26-27 above).  Rather, the correct amounts of the outstanding principal and the instalments in arrears (35^th to 156^th instalments) as at 20 October 2010 and 24 May 2011 were HK$644,871.59 and HK$1,254,609.00 as shown in paragraph 10 above.

62.  Next, according to the Facility Letter, the Loan was to be repaid by 240 equal monthly instalments (see paragraph 3 above) although the amount or number of the monthly instalments might be varied if there was change in the interest rate (see FL Clause 4), which interest rate was subject to fluctuation at the Plaintiff’s discretion (see FL Clause 2) (see paragraph 4(b)-(c) above).  More importantly, the Facility Letter provided that any accrued interest shall become an addition to the original loan and interest shall be computed thereon (see FL Clause 8 and paragraph 4(g) above).  This is echoed in clause 2.01(xii) of the Legal Charge which provided that “if any interest or any interest payable on the arrears of interest capitalised under this Sub-clause shall remain unpaid after the day on which the same ought to be paid then and in every such case the interest so in arrear shall thenceforth be capitalised and added for all purposes to the principal hereby secured and shall thenceforth bear interest to be computed from the date on which the same ought to have been paid and to be payable at the rate aforesaid and all the covenants and provisions contained in [the Legal Charge] and all powers and remedies conferred by law or by [the Legal Charge] and all rules of law or equity in relation to the principal and the interest thereon shall equally apply to such capitalised arrears and to interest on such arrears” (see paragraph 4 of the Schedule).

63.  Cheung 2^nd Affirmation explained that each instalment payment payable by the 1^st and 2^nd defendants as borrower under the Facility Letter and the Legal Charge comprised principal and interest elements.  The various provisions referred to in the above paragraph mean that if the 1^st and 2^nd defendants defaulted in payment of any instalment sum on the due date, the interest element of such past due instalment in arrears shall be capitalised and added to the outstanding principal of the Loan, and interest would be computed thereon.  In light of the express provisions of the Facility Letter and the Legal Charge (countersigned and executed by the 1^st and 2^nd Defendants), such computation of interest was plainly known to the 1^st and 2^nd defendants.

64.  There is no doubt that the contractual rate of interest as provided in the Facility Letter was 0.5% pa above the PL Rate (see paragraph 3 above).  Mr Cheung exhibited a schedule of the PL Rate for the period from 22 May 2000 to 20 January 2011 as “CPK-5” of Cheung 1^st Affirmation, and he confirmed in Cheung 2^nd and 4^th Affirmations that the PL Rate remained unchanged thereafter at 5.25% pa.  The 1^st and 2^nd defendants did not raise any or any arguable or triable challenge to the PL Rate over the years or to the contractual rate of interest premised on the PL Rate.  Time and again after the mortgagee sale of the Property and in the course of the present action, the 1^st and/or 2^nd defendants allegedly complained or complained of unawareness as to the methodology in calculating the interest payable to the plaintiff, but the contractual rate of interest was all along specified in the Facility Letter and plainly known to them.  In my view, there can be no doubt that the plaintiff is entitled to receive interest on the outstanding principal and on the past due instalments in arrears at the contractual rate of 0.5% pa above the PL Rate.

65.  The disputed issue is whether the plaintiff was entitled to recover overdue interest on past due instalments at the default rate of 6.5% pa over the PL Rate instead of the contractual rate.  In Cheung 2^nd and 3^rd Affirmations, Mr Cheung claimed that the plaintiff was entitled to do so pursuant to FL Clauses 2 and 5, and that the 1^st and 2^nd defendants had been notified of such default rate.  In support thereof, Mr Cheung stated that from time to time when there was overdue interest the plaintiff would send Past Due Interest Advices to notify the 1^st and 2^nd defendants of the accrual of overdue interest and the default rate at which such overdue interest was calculated.  Copies of 3 Past Due Interest Advices dated 15 February, 15 March and 28 August 2000 respectively (which according to Mr Cheung were sent by the plaintiff to the 1^st and 2^nd defendants at the Property on/about the same dates of such notices) in exhibit “CPK-9” of Cheung 2^nd Affirmation stated that overdue interest on (a) the 25^th instalment, (b) the 25^th instalment and (c) the 26^th to 35^th instalments respectively had fallen due, and the 1^st and 2^nd defendants were required to pay overdue interest to the plaintiff at the default rate of 15% pa (ie 6.5% pa over the then PL Rate of 8.5% pa).

66.  On the above basis, Mr Tai argued that the plaintiff was entitled to overdue interest on the past due instalments in arrears at the default rate of 6.5% pa over the PL Rate, so that overdue interest on past due instalments calculated up to 24 May 2011 was HK$985,613.68 (see paragraph 26 above).  Alternatively, Mr Tai contended that even if the court disagreed that the plaintiff was entitled to any overdue interest on past due instalments in arrears, the plaintiff would still be entitled to interest at the contractual rate of 0.5% pa above the PL Rate pursuant to FL Clauses 2 and 5 of the Facility Letter and clause 2.01(xii) of the Legal Charge, so that on such alternative basis the plaintiff would be entitled to overdue interest on past due instalments calculated up to 24 May 2011 in the sum of HK$533,938.81 (see paragraph 28 above).

67.  In light of the plaintiff’s contentions which were put on an alternative basis depending on the applicable rate of interest, I am not persuaded there was an unexplained reduction of about HK$300,000.00 odd in interest payable on the outstanding Indebtedness within a few months as alleged by the 2^nd defendant (see paragraph 57 above).

68.  Is the plaintiff entitled to claim overdue interest on past due instalments in arrears at the default rate of 6.5% pa over the PL Rate?  I am not persuaded that FL Clauses 2 and 5 (see paragraph 4(b) and (e) above) assist the plaintiff.  FL Clause 2 provided that the “interest rate stated above” (ie the contractual rate of interest in respect of the Loan) was subject to fluctuation at the plaintiff’s discretion, but did not provide for a differently calculated default rate of interest chargeable specifically on past due instalments in arrears.  FL Clause 5 provided that “[the] banking facilities stated herein” (ie the Loan) might be reviewed by the plaintiff from time to time at their discretion, but did not provide for the plaintiff to maintain the banking facilities granted to the 1^st and 2^nd defendants (ie the Loan) and the contractual rate of interest but charge a different default rate of interest on past due instalments in arrears.

69.  Further, although clause 2.01(xii) of the Legal Charge (see paragraph 4 of the Schedule) allowed the interest element of past due instalments in arrears to be capitalised and added to the outstanding principal , it did not expand the plaintiff’s right to interest beyond the terms of the Facility Letter.

70.  In short, apart from FL Clause 4 referred to in the paragraph below, there is no express provision for charging overdue interest at an increased default rate that applies after default by the 1^st and/or 2^nd defendants in making instalment payments on the due dates.

71.  FL Clause 4 provided that overdue instalment payment would be subject to a late charge.  However, neither the Facility Letter nor the Legal Charge contained any provision as to how the late charge was to be calculated and/or charged. Further, there was no provision that permitted the plaintiff to separately notify the 1^st and 2^nd defendants as to the rate of the late charge and/or that such notification be applicable and binding on the 1^st and 2^nd defendants.  Mr Cheung referred to the rate of 6.5% pa above the PL Rate specified in Past Due Interest Advices (see paragraph 65 above), but such notifications were made after the 1^st and 2^nd defendants had defaulted in paying the relevant instalments which had already become overdue.  There was no affirmation evidence before me of any prior notice given or made available to the 1^st and 2^nd defendants as to the rate or calculation of the late charge.

72.  In such circumstances, I find that the plaintiff was not entitled to overdue interest on past due instalments in arrears at the default rate of 6.5% pa above the PL Rate.  But I agree with the plaintiff’s alternative contention that under the Facility Letter and the Legal Charge the plaintiff was still entitled to charge (and the 1^st and 2^nd defendants had agreed to pay) interest on the outstanding principal and overdue interest on past due instalments in arrears at the contractual rate of 0.5% pa above the PL Rate.  There is therefore no need for me to consider whether the default rate of interest at 6.5% pa above the PL Rate is a penalty as being a stipulation for payment of money in terrorem of the offending party rather than a genuine pre-estimate of damage (see Lordsvale Finance plc v Bank of Zambia [1996] 3 All ER 156 and The China and South Sea Bank Limited, Hong Kong Branch v Suthi Tejavibulya & anor HCA 2222/2000, DHCJ Gill (unreported, 10 August 2001)).

73.  For the avoidance of doubt, I note that the 1^st and 2^nd defendants’ aforesaid liability to pay the outstanding principal, past due instalments in arrears, overdue interest on the past due instalements and accrued interest on the outstanding principal in respect of the Indebtedness arose not just from the Facility Letter but also from the Legal Charge.  By clause 2.01(i), (viii) and (xi)-(xii) and clause 5.01(i)-(iv) of the Legal Charge, the 1^st Defendant as mortgagor and the 1^st and 2^nd defendants as borrower covenanted to pay to the Plaintiff the Indebtedness and the sums of money and interest due and payable under the Facility Letter (see paragraphs 4-5 of the Schedule).

74.  In summary, on the basis of the outstanding principal of HK$644,871.59 and 35^th to 156^th instalment in arrears of HK$1,254,609.00 (see paragraph 61 above), overdue interest on the past due 35^th to 156^th instalments at the rate of 0.5% pa above the PL Rate calculated up to 24 May 2011 was HK$532,633.29 (being HK$533,938.81 less overdue interest on the alleged past due 157^th to 164^th instalments in the total sum of HK$1,305.52 shown in the schedule in “CPK-10” of Cheung 2^nd Affirmation), and accrued interest on the outstanding principal of HK$664,871.59 at the rate of 0.5% pa above the PL Rate of 5.75% pa from 19 to 24 May 2011 was HK$628.44 (being HK$664,871.59 x 5.75% pa x 6 days ÷ 365 days).  Further interest would continue to accrue from 25 May 2011 until payment:

(a) on the outstanding principal of HK$664,871.59 at the rate of 5.75% pa (ie 0.5% pa above the PL Rate of 5.25% pa) or HK$104.74 per day;

(b) on past due 35^th to 156^th instalments at the rate of HK$237.02 per day (being HK$248.78 less daily interest on the alleged past due 157^th to 164^th instalments in the total sum of HK$11.76 shown in the schedule in “CPK-10” of Cheung 2^nd Affirmation).

75.  Thus, subject to discussions on the other lines of defence raised by the 1^st and 2^nd defendants below, the plaintiff is entitled to recover from the 1^st and 2^nd defendants the sums specified in the above paragraph.

(d)  Alleged failure to make demand of the 1^st and/or 2^nd defendants before October 2010

76.  In D2 1^st Affirmation, the 2^nd defendant claimed that since July 1999 he maintained a bank account with the plaintiff for his salary deposits.  Hence, the plaintiff had record of his contact address, telephone number and other details.  But “[the 2^nd defendant]一直在10/2010年之前都無收過[the plaintiff]有關[the Property]追討欠款之任何文件或信件，對[the 2^nd defendant]極之唔公平”.  The 2^nd defendant claimed that it was only upon receipt of the Demand Letters that “才知道[the 1^st defendant]在12/2003年因退休及身體唔好經濟問題無能力供款”.  The 2^nd defendant in D2 1^st Affirmation stated that “本身有責任還款，但[the plaintiff]有責任用文件信件通知[the 2^nd defendant]拍賣咗[the Property]之差額尾數係點計算利息”, and in D2 2^nd Affirmation added that “明白有責任去了解[the 1^st defendant]還款情況及承擔還款按揭債項，唯[the plaintiff]均有責任於2003年[the plaintiff]停止供款後，通知發信或電話[the 2^nd defendant]還款。現[the plaintiff]於多年後才發信通知多年滾存之債項及利息，[the 2^nd defendant]認為是次[the plaintiff]之追討並不合理”.

77.  In D2 2^nd Affirmation, the 2^nd defendant claimed that “[the Plaintiff]在收樓及拍賣及改變還款數目，或[the 1^st defendant]停止還款均沒有發信通知。[The 2^nd defendant]持有出糧戶口 …… 於[the plaintiff]，銀行應擁有[the 2^nd defendant’s]之詳細資料，如當時銀行能於收樓拍賣前通知[the 2^nd defendant]，[the 2^nd defendant]定當負責還款，並無必要將樓宇拍賣。直至2000年8月[the 2^nd defendant]才收到[the plaintiff]委托律師之信件，向[the 2^nd defendant]追討賣樓後所欠之款項$11880000，合共利息$2802369”.

78.  In D2 2^nd Affirmation, the 2^nd defendant further claimed that “現時[the Demand Letters]均同時通知[the 2^nd defendant]及[the 1^st defendant]，與過往只通知[the 1^st defendant]大相徑庭。[The plaintiff]於更改是次樓宇按揭供款及利息時，理應通知[the 2^nd defendant]及[the 1^st defendant]。唯[the plaintiff]於2003年[the 1^st defendant]停止供款後亦無發信通知向[the 2^nd defendant]追討。唯[the 2^nd defendant]深信[the 1^st defendant]仍然繼續供款。直至[the plaintiff]於2010年8月通知，才得知[the 1^st defendant]於2003年停止供款，及後[the plaintiff]向[the 2^nd defendant]追討款項$11880000及利息$1614369，合共$2802369。現修定為$2457627”.

79.  The above arguments can be summarised as follows:

(a) the plaintiff failed to notify the 2^nd defendant of default in payment of the instalments prior to the mortgagee sale of the Property otherwise the 2^nd defendant would have made repayments and such mortgagee sale would have been avoided;

(b) the plaintiff failed to notify the 1^st and 2^nd defendants of the amount of the outstanding Indebtedness and method for calculating the interest payable to the plaintiff after the mortgagee sale of the Property;

(c)  the plaintiff failed to notify the 2^nd defendant of the 1^st defendant’s cessation in making repayment of the Indebtedness after December 2003;

(d) the plaintiff failed to issue demand against the 1^st and/or 2^nd defendants in respect of the outstanding Indebtedness prior to the October 2010.

It will be noted that the lines of defence in (a) and (c) above are particular to the 2^nd defendant and not open to the 1^st defendant who clearly knew of his own default (i) in paying the instalments that led to his surrender of vacant possession of the Property to the plaintiff and (ii) in making any further repayment to the plaintiff after his retirement in December 2003.

80.  I am not persuaded that such arguments raise any arguable defence or triable issue.  First, default in payment of instalment payments and overdue interest on past due instalments were events of default within the meaning of clause 5.01 of the Legal Charge (see paragraph 5 of the Schedule).  According to such provision, when an event of default occurred, the obligation fell on the 1^st defendant as mortgagor and the 1^st and 2^nd defendants as borrower to notify the plaintiff as lender in writing of the occurrence of such event.  It was not for the plaintiff to notify the 1^st and 2^nd defendants of such event.  There is no merit to the argument in paragraph 79(c) above.

81.  Secondly, there is no dispute that the 1^st and 2^nd defendants were aware of the disposal of the net proceeds of sale of the Property as evident from the Mortgagee Account dated 20 September 2000 (see paragraphs 37-39 above).  The Mortgagee Account clearly showed that a total sum of HK$1,310,221.25 out of the proceeds of sale of the Property was used to reduce the outstanding Indebtedness.  As explained in paragraph 39 above, the sum of HK$1,188,000.00 shown in the Mortgagee Account represented the balance of the sale price after deducting the initial deposit of HK$132,000.00 and did not represent the remaining outstanding Indebtedness at that time.

82.  The 1^st defendant’s surrender of vacant possession of the Property, the sale of the Property and the application of the net proceeds to settle instalments in arrears would not alter the monthly instalment payments and the contractual rate of interest.  It was only if there was any change in the interest rate that either the amount of monthly instalment or the number of monthly instalments might be varied (see FL Clause 4 and paragraph 4(c) above). But there was no change in the contractual rate of interest.

83.  From the Facility Letter, the 1^st and 2^nd defendants well knew the amount of the Loan and the contractual rate of interest.  They also knew the monthly instalment payments paid by them up to the time of the mortgagee sale of the Property since such sums would be deducted from the 1^st defendant’s bank account and recorded in his bank passbook.

84.  In such circumstances, the 1^st and 2^nd defendants would have a clear picture of the outstanding Indebtedness from the available information.  Their complaints were apparently premised on the assumption, as evident in the letters and/or alleged letters referred to in paragraphs 41-53 above and which in my view is erroneous, that after the mortgagee sale of the Property the terms as to monthly instalment payments and the calculation of interest would be renegotiated.  The sale of the Property merely extinguished the security for the banking facilities (ie the Loan) granted by the plaintiff as lender to the 1^st and 2^nd defendants as borrower and reduced the outstanding Indebtedness due to the plaintiff, but it in no way altered the terms of repayment and/or interest payment in respect of the Loan.

85.  Thirdly, as explained in paragraph 48 above, on 5 September 2003 the plaintiff sent by post to the 1^st defendant at the New Property (which address was provided by the 1^st defendant to the plaintiff as the last known address of the 1^st and 2^nd defendants at the material time) a statement titled “Outstanding as at 4 September 2003” specifying the amounts of the then outstanding principal, past due instalments in arrears, overdue interest on the past due instalments and accrued interest on the outstanding principal. Such information was set out in the Alleged 15/9/03 Letter (see paragraph 47 above), so even on the 1^st and 2^nd defendants’ own case they must have received such statement from the plaintiff before mid-September 2003, which in turn refutes their arguments in paragraph 79(b) above.  Further, in his letter dated 19 September 2003 to the plaintiff (see paragraph 51 above), the 1^st defendant confirmed receipt of the plaintiff’s notification of the auction sale of the Property and of the then outstanding principal of HK$1,072,501.15 due to the plaintiff.

86.  Fourthly, although the 2^nd defendant claimed that he had another bank account with the plaintiff for which he provided his contact details, the 1^st and 2^nd defendants did not deny Mr Cheung’s complaint that after surrender of vacant possession of the New Property to SCB they did not provide their contact address to the plaintiff in respect of the Loan account, and that they only contacted the plaintiff again after the commencement of the present action.

87.  Fifthly, I further note that despite the 1^st and 2^nd defendants’ complaints about the plaintiff’s failure to notify them of the outstanding Indebtedness and interest calculation, no further repayment in any sum whatsoever was made by the 1^st and/or 2^nd defendants even after full breakdown of the outstanding principal and calculation of interest were given in the exhibits to Cheung 1^st, 2^nd, 3^rd and 4^th Affirmations.  In my view, there is no substance to the lines of defence in paragraph 79(a)-(c) above, and in particular as to the 1^st and 2^nd defendants’ assertions that had they been notified of the outstanding Indebtedness and interest calculation earlier, the mortgagee sale of the Property would have been avoided and/or the 2^nd defendant would have made repayments to prevent accrual of interest over the years.

88.  Sixthly, Mr Cheung in Cheung 3^rd Affirmation claimed that the 1^st and 2^nd defendants as borrower under the Legal Charge (and hence debtors of the plaintiff) were obliged to make punctual instalment payments to the plaintiff on the due dates, and that the plaintiff had no obligation to demand for payment of the instalments due to them.  I agree.  In Chitty on Contracts 13^th ed Vol.1 para.21-010 at p.1404, it is stated that “[normally, no request or demand for performance is necessary and the promisor is bound to perform his contractual obligation without being requested to do so; an illustration is the common case of a promise to pay a sum of money, ether in general terms or on a specified day”.  Further, “the general rule is that it is the debtor’s duty to seek the creditor in order to pay him at his place of business ……” (see Chitty on Contracts 13^th ed Vol.1 para.21-054 at p.1432 and Lam Che v Foung Sheu Kwun HCA 486/2010, DHCJ Carlson (unreported, 2 August 2010)).  There is no merit to the argument in paragraph 79(d) above.

89.  Seventhly, according to Mr Cheung in Cheung 3^rd Affirmation, all along the 1^st defendant had taken up the role of liaising with the plaintiff on behalf of the 1^st and 2^nd defendants, eg surrendering vacant possession of the Property to the plaintiff, negotiating terms with the plaintiff, making repayments to the plaintiff after the sale of the Property.  If the 2^nd defendant (as he claimed) only became aware in October 2010 of the 1^st defendant’s default in making repayment to the plaintiff since December 2003, Mr Cheung said it was the 1^st defendant’s obligation to tell the 2^nd defendant of such default, and the plaintiff should not be blamed for the 1^st defendant’s failure to do so.

90.  In my view, the 2^nd defendant as a co-borrower was primarily liable to the plaintiff (see clause 18.01 of the Legal Charge and paragraph 9 of the Schedule) and it was his duty as a joint and several obligor/borrower (see clauses 1.01(iii), 1.04 and 2.01 of the Legal Charge and paragraphs 1 and 3-4 of the Schedule) to ascertain from the 1^st defendant and make sure the instalments under the Loan were punctually to the plaintiff on the due dates.  In any event, the 2^nd defendant’s assertion that he was unaware of his father’s default in repaying the Indebtedness is a bare assertion not supported by any affidavit evidence from the 1^st defendant even though he was available and present throughout the present action.  There is no metit to the argument in paragraph 79(c) above.

91.  In summary, the 1^st and/or 2^nd defendants have not raised any arguable defence or triable issue by reason of their assertions in paragraphs 76-79 above.

(e)  Plaintiff’s claim allegedly time-barred

92.  The 2^nd defendant in D2 1^st Affirmation claimed that  although the 1^st defendant ceased repayment in December 2003，“唔知點解要等到10/2010年，8年後才聯絡[the 2^nd defendant]，[the plaintiff]一直都有[the 2^nd defendant]之詳細地址資料：如及早聯絡[the 2^nd defendant]相信利息都唔會積累到咁多，…… 追討時間已超過6年宜[the 2^nd defendant]一直在10/2010年之前都無收過[the plaintiff]有關[the Property]追討欠款之任何文件或信件，對[the 2^nd defendant]極之唔公平”.

93.  I agree with Mr Tai that the plaintiff’s claim is not time-barred.  First, the plaintiff’s claim as pleaded rested on the 1^st and 2^nd defendants’ obligations under the Legal Charge and as such it was a claim for payment of a specialty debt based on a deed (in contra-distinction to a simple loan) (see clauses 1.01(ix), 2.01, 5.01 and 5.02 of the Legal Charge and paragraphs 2 and 4-6 of the Schedule).  Section 4(3) of the Limitation Ordinance Cap.347 provided that “[an] action upon a specialty shall not be brought after the expiration of 12 years from the date on which the cause of action accrued”.  “The word ‘specialty’ is sometimes used to denote any contract under seal ……, but it is more often used in the sense of meaning a specialty debt, that is, an obligation under seal securing a debt ……” (see The Annotated Ordinances of Hong Kong : Limitation Ordinance (Cap.347) 2006 reissue para.[4.16] at p.18 and Whittall Builders Co Ltd v Chester-le-Street District Council (1986) 11 Con LR 40, 46).  As explained in paragraph 6 above, the Legal Charge complied with all formal requirements for a deed, and hence the plaintiff could take advantage of the 12 years limitation period.

94.  Since the plaintiff’s cause of action was founded on contract, time ran from when the breach occurred.  Even if it is assumed that the breach occurred at the earliest possible time immediately after completion of the mortgagee sale of the Property, ie immediately after 25 August 2000, the present action was commenced well within the relevant limitation period of 12 years on 12 November 2010.

95.  However, Mr Cheung in Cheung 3^rd Affirmation claimed that although the mortgagee sale of the Property was completed on 25 August 2000, the 1^st and/or 2^nd defendants continued to make part payment to the Plaintiff in partial satisfaction of the outstanding Indebtedness until 16 December 2003, so the plaintiff’s cause of action against the 1^st and 2^nd defendants in fact accrued on 16 December 2003.

96.  Section 25(5) of the Limitation Ordinance Cap.347 provided that “[an] acknowledgment of any debt or other liquidated pecuniary claim shall bind the acknowledger and his successors but not any other person ……”  So if the 1^st and/or 2^nd defendants being liable for the Indebtedness due to the plaintiff acknowledged it, it was to be treated as accruing on the date of the acknowledgment and not at any earlier time.  Here, the 1^st and 2^nd defendants admitted that after the mortgagee sale of the Property the 1^st defendant continued to make monthly payments of HK$4,000.00 to the plaintiff to reduce the Indebtedness.  In my view, this is plainly an acknowledgment of the outstanding Indebtedness due to the plaintiff.  Further, it has been held that any acknowledgment or part payment of a debt by one of a number of joint and several debtors is binding on all (see McGee, Limitation Periods 6^th ed para.18.026 at pp.401-402).  Here, the 1^st and 2^nd defendants are joint and several obligors/debtors under the Legal Charge (see paragraph 90 above), so the 1^st defendant’s acknowledgment of the outstanding Indebtedness binds the 2^nd defendant as well.  Hence, time did not start to run until 16 December 2003, and has not expired when the Originating Summons was issued on 12 November 2010.

V.  CONCLUSION

97.  I am satisfied that the 1^st and 2^nd defendants have failed to raise any triable issue or arguable defence to the plaintiff’s claim, and I therefore grant judgment in favour of the plaintiff.  I hereby order the 1^st and 2^nd defendants to jointly and severally pay the plaintiff the following sums:

(a) outstanding principal in the sum of HK$644,871.59;

(b) 35^th to 156^th instalment in arrears in the sum of HK$1,254,609.00;

(c)  overdue interest on the past due 35^th to 156^th instalments calculated up to 24 May 2011 in the sum of HK$532,633.29;

(d) accrued interest on the outstanding principal of HK$664,871.59 from 19 to 24 May 2011 in the sum of HK$628.44;

(e)  further interest on the outstanding principal of HK$664,871.59 at the rate of HK$104.74 per day from 25 May 2011 until full payment;

(f)   further interest on past due 35^th to 156^th instalments at the rate of HK$237.02 per day from 25 May 2011 until full payment.

98.  The plaintiff claimed for costs of this action including costs of and occasioned by the Summons to be taxed on indemnity basis.  In my view, there is no reason why costs should not follow event.  Turning to the basis of taxation, a plaintiff’s entitlement to costs in a case where there is expressly provided for a contractual entitlement to costs on a particular basis, whilst the court does nonetheless retain an unfettered discretion in relation to costs, the court would normally exercise its discretion in accordance with the contractual provisions save in exceptional circumstances (see Chekiang First Bank v Fong Siu Kin [1997] 2 HKC 302, Yeung Kwok Fan v Standard Chartered Bank [2001] 4 HKC 486).  I can find no exceptional circumstances in the present action.

99.  I am minded to make an order in relation to costs that would reflect the contractual entitlement of the plaintiff in the present action.  But clause 17.01(ii) of the Legal Charge (see paragraph 8 of the Schedule) referred to a solicitor and own client basis for legal costs incurred by the plaintiff in suing or recovering any sum due from the 1^st and 2^nd defendants under the Legal Charge.  However, the court has an unfettered discretion in the matter; and all I need to do is to make an order that reflects the contractual entitlement of the plaintiff relating to costs.

100.  In the circumstances, I grant a cost order nisi that the 1^st and 2^nd defendants do pay the plaintiff costs of this action including costs of and occasioned by the Summons and costs reserved (if any) to be taxed if not agreed on indemnity basis.  A similar costs order was made by DHCJ A Cheung (as he then was) in Incorporated Owners of Fu Ning Garden & anor v Grantwin Development Limited & anor HCA 7747/2002 (unreported, 28 June 2002).  DHCJ A Cheung (as he then was) suggested that Order 62 rule 28(4)(a) of the Rules of the High Court provides for the payment of indemnity costs, the definition of which is similar to the definition of costs payable on a solicitor and own client basis.

101.  Should the 1^st and/or 2^nd defendants require translation of this judgment into punti language, they can contact my clerk to arrange an appointment for a court interpreter to verbally translate this judgment to them at the High Court Building at a mutually convenient date and time.

Schedule

1. Clause 1.01(iii): “…… each and all of the covenants and agreements entered into herein by the Borrower [ie the 1^st and 2^nd Defendants] with the Lender [ie the Plaintiff] shall be deemed to have been made jointly and severally”;

2. Clause 1.01(ix): ““Secured Indebtedness” means all sums from time to time advanced by the Lender [ie the Plaintiff] to the Borrower [ie the 1^st and 2^nd Defendants] and outstanding in respect of the general banking facilities granted by the Lender [ie the Plaintiff] to the Borrower [ie the 1^st and 2^nd Defendants] and all interest thereon and all other moneys and obligations in respect of moneys which the Mortgagor [ie the 1^st Defendant] and the Borrower [ie 1^st and 2^nd Defendants] covenant to pay to the Lender [ie the Plaintiff] under the provisions of Clause 2 [of the Legal Charge] and/or all sums of moneys or banking facilities from time to time advanced or granted by the Lender [ie the Plaintiff] to the Mortgagor [ie 1^st Defendant] and all interest thereon or otherwise under the terms of [the Legal Charge]”;

3. Clause 1.04: “[each] and every covenant, agreement and undertaking contained in [the Legal Charge] to be observed and performed by the Mortgagor [ie the 1^st Defendant] and the Borrower [ie the 1^st and 2^nd Defendants] shall be joint and several”;

4. Clause 2.01: “[in] consideration of the Lender [ie the Plaintiff], at the request of the Mortgagor [ie the 1^st Defendant], agreement to grant to the Borrower [ie the 1^st and 2^nd Defendants] the general banking facilities applied for, the Mortgagor [ie the 1^st Defendant] and the Borrower [ie the 1^st and 2^nd Defendants] HEREBY JOINTLY AND SEVERALLY COVENANT with the Lender [ie the Plaintiff] that, subject as hereinafter provided, they will on demand by notice in writing of the Lender [ie the Plaintiff] made to the Mortgagor [ie the 1^st Defendant] and/or the Borrower [ie the 1^st and 2^nd Defendants] as hereinafter provided pay make good and discharge to the Lender [ie the Plaintiff]:

(i) all sums of money which at the date of such demand may be outstanding and according to the books of the Lender [ie the Plaintiff]  payable by the Borrower [ie the 1^st and 2^nd Defendants] in respect of any account whatsoever between the Borrower [ie the 1^st and 2^nd Defendants] and the Lender [ie the Plaintiff];

……

(viii)  all principal, interest and any other moneys which are now or may from time to time become due and payable by the Borrower [ie the 1^st and 2^nd Defendants] to the Lender [ie the Plaintiff] in respect of any loan facility advanced by the Lender [ie the Plaintiff] to the Borrower [ie the 1^st and 2^nd Defendants] pursuant to the terms and conditions of any facility letter or any agreement between the Lender [ie the Plaintiff] and the Borrower [ie the 1^st and 2^nd Defendants] relating to such loan facility as amended or supplemented from time to time;

……

(xi)    all moneys for the time being owing to the Lender [ie the Plaintiff] in respect of any liability whatsoever of the Borrower [ie the 1^st and 2^nd Defendants] to the Lender [ie the Plaintiff] which may be incurred or arise in any manner whatsoever, whether the actual conditions under which such liability may be incurred or arise or have not been specifically mentioned and provided for by the agreements and covenants and conditions in [the Legal Charge] and whether such liability shall be a liability incurred or arising: – (a) under circumstances or conditions incidental to any form of contractual relationship between the Borrower [ie the 1^st and 2^nd Defendants] and the Lender [ie the Plaintiff] which comes properly and strictly within the meaning of the term “general banking facilities”; or (b) under circumstances or conditions incidental to any other form of contractual relationship whatsoever ……;

(xii)    interest on all sums advanced and all other moneys payable hereunder at such rate(s) per annum as is/are applicable under the terms relating to any facility(ies) granted to the Borrower [ie the 1^st and 2^nd Defendants] or as is determined by the Lender [ie the Plaintiff] (which determination shall be conclusive and binding on the Borrower [ie the 1^st and 2^nd Defendants] and the Mortgagor [ie the 1^st Defendant]).  Interest on all sums advanced and all other moneys payable hereunder denominated in Hong Kong Dollar …… shall accrue from day to day and shall be computed on the basis of a year of thee hundred and sixty five (365) days and for the actual number of days elapsed …… and shall be paid monthly in arrears on such date in each succeeding calendar month as the Lender [ie the Plaintiff] shall stipulate.  Provided that if any interest or any interest payable on the arrears of interest capitalised under this Sub-clause shall remain unpaid after the day on which the same ought to be paid then and in every such case the interest so in arrear shall thenceforth be capitalised and added for all purposes to the principal hereby secured and shall thenceforth bear interest to be computed from the date on which the same ought to have been paid and to be payable at the rate aforesaid and all the covenants and provisions contained in [the Legal Charge] and all powers and remedies conferred by law or by [the Legal Charge] and all rules of law or equity in relation to the principal and the interest thereon shall equally apply to such capitalised arrears and to interest on such arrears”;

5. Clause 5.01:“[it] is hereby agreed and declared that if: -

(i) the Mortgagor [ie the 1^st Defendant] and/or the Borrower [ie the 1^st and 2^nd Defendants] makes default in the payment of the Secured Indebtedness; or

(ii) the Mortgagor [ie the 1^st Defendant] and/or the Borrower [ie the 1^st and 2^nd Defendants]makes default in the payment on the due date of and in accordance with the terms and conditions relating thereto of any principal or interest or other moneys outstanding and payable by the Borrower [ie the 1^st and 2^nd Defendants] under any term loan account (whether demanded or not); or

(iii)   the Mortgagor [ie the 1^st Defendant] and/or the Borrower [ie the 1^st and 2^nd Defendants] commits any breach of or omits to observe any of the agreements covenants or obligations under this [Legal Charge]; or

(iv) either the Mortgagor [ie the 1^st Defendant] or the Borrower [ie the 1^st and 2^nd Defendants] becomes bound to repay prematurely any other loan or similar obligation for borrowed money, after any applicable grace period, by reason of a default by either of them in its obligations in respect of the same or fails to make any payment in respect thereof on the date, after any applicable grace period, such payment becomes due unless contested in good faith; or

……

then and in any such case the Mortgagor [ie the 1^st Defendant] and/or the Borrower [ie the 1^st and 2^nd Defendants] will notify the Lender [ie the Plaintiff] forthwith in writing of the occurrence of such event and regardless of whether notice of such event has or has not been given by the Mortgagor [ie the 1^st Defendant] and/or the Borrower [ie the 1^st and 2^nd Defendants] to the Lender [ie the Plaintiff] as required above, an Event of Default shall have occurred”;

6. Clause 5.02: “[notwithstanding] anything to the contrary, express or implied, contained in any facility letter, instrument, or other agreement or document to which the Mortgagor [ie the 1^st Defendant] and/or the Borrower [ie the 1^st and 2^nd Defendants] and/or the Lender [the Plaintiff] is a party, the Lender [ie the Plaintiff] shall be under no liability at any time after the occurrence of an Event of Default to honour any further obligations hereunder and the Secured Indebtedness and all term loans and other moneys, obligations and liabilities hereby secured not otherwise so repayable, shall become repayable immediately on demand, together with interest accrued thereon of the date of repayment in full, and cash cover shall be provided on demand for all contingent liabilities notwithstanding that the maturity thereof shall not have arrived or that the Mortgagor [ie the 1^st Defendant] and/or the Borrower [ie the 1^st and 2^nd Defendants] shall not have been called upon to pay thereunder”;

7. Clause 16.01: “[no] failure to exercise and no delay in exercising on the part of the Lender [ie the Plaintiff] any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any other right, power or privilege.  The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law”;

8. Clause 17.01(ii): “[the] Mortgagor [ie the 1^st Defendant] and/or the Borrower [ie the 1^st and 2^nd Defendants] shall with the object and intention of affording to the Lender [ie the Plaintiff] a full indemnity for all amounts actually dispersed or incurred by the Lender [ie the Plaintiff] pursuant to the terms hereof pay or reimburse to the Lender [ie the Plaintiff] or (as the case may be) to any Receiver, on demand: – …… (ii) all reasonable expenses (including legal expenses on solicitors own client basis) …… incurred by the Lender [ie the Plaintiff] in suing for or recovering any sum due from the Mortgagor [ie the 1^st Defendant] and/or the Borrower [ie the 1^st and 2^nd Defendants] to the Lender [ie the Plaintiff] hereunder or in connection with the protection or enforcement of this Security; ……”;

9. Clause 18.01: “[it] has been agreed between the Borrower [ie the 1^st and 2^nd Defendants] and the Mortgagor [ie the 1^st Defendant] that, as between the Borrower [ie the 1^st and 2^nd Defendants] and the Mortgagor [ie the 1^st Defendant], the Borrower [ie the 1^st and 2^nd Defendants] shall be primarily liable for the repayment to the Lender [ie the Plaintiff] of the Secured Indebtedness”;

10.  Clause 18.02(i) and (ii): “[notwithstanding] the foreging agreement between the Borrower [ie the 1^st and 2^nd Defendants] and the Mortgagor [ie the 1^st Defendant]: – (i) as between the Mortgagor [ie the 1^st Defendant] and the Lender [ie the Plaintiff], the Mortgagor [ie the 1^st Defendant] shall be deemed a principal debtor in respect of the Secured Indebtedness; (ii) the liability of the Mortgagor [ie the 1^st Defendant] shall not be affected by any extension of time for payment or other indulgence being granted or shown to the Borrower [ie the 1^st and 2^nd Defendants] or any modification of the terms relating to the Facilities granted hereunder and the interest thereon and/or the Secured Indebtedness or any other matter or thing whereby the liability of the Mortgagor [ie the 1^st Defendant] would but for this provision have been discharged; ……”