INDUSTRIAL AND COMMERCIAL BANK OF CHINA (ASIA) LTD v. TRACKER INVESTMENTS LTD AND ANOTHER

HCMP1960/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.1960 OF 2002

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J U D G M E N T

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1. This is a mortgage action. The plaintiff is the lender and mortgagee. The 1st defendant, to which I will refer as "Tracker" is the borrower. The persons named as the 2nd defendant are guarantors. The property is the 23rd and 25th to 28th floors of a building at 133 Wanchai Road, Hong Kong. On 21 May 2002 the plaintiff by issued an Originating Summons by which it sought from Tracker vacant possession of the property, except for the 27th floor which had already been redeemed and sold, and payment of the outstanding debt by it and the guarantors. According to the affirmation of the plaintiff's officer Mr Kong Che Wing, as at 19 June 2002 that amounted to a total including principal, interest and overdue interest of $37,222,203.32, with interest accruing at the rate provided for in the mortgage.

2. On 20 November 2002 Master Shum ordered the proceedings to continue as if begun by Writ and that the parties file pleadings on the issues disclosed in the affidavit evidence except that the 1st and 5th named of the 2nd defendants' defence of non est factum which has no merit should be struck out. The plaintiff appeals against the order, except that it seeks to have that part of the order which strikes out the defence of non est factum advanced by Wong Chi Muk ("Mr Wong") and Lik Sang (Wong's) Holding Company Ltd ("Lik Sang") upheld, and in place of the Master's order seeks summary judgment. This is a rehearing. Mr Wong and Lik Sang seek to have that part of the order which strikes out their defence set aside.

3. It is the defendant's case that such significant factual issues exist and they can only be resolved at trial. In particular, there were various agreements by the plaintiff for forbearance to sue, or alternatively there were representations made by the plaintiff which estopped it from enforcing the mortgage and the guarantees. By reason of the plaintiff's agreement to give time to the principal debtor, Tracker, the guarantors are discharged. Mr Wong did not understand the effect of the guarantees he signed on his own behalf and that of Lik Sang.

4. It is the plaintiff's case that there were no such agreements to forbear to sue, or representations on which estoppel could be based, and in particular that the defendants' evidence is incredible.

5. It is not in dispute that the plaintiff, by way of a facilities letter dated 8 June 1998 required Tracker to execute a mortgage in its favour of the property which is the subject of the action and also the 27th floor of the same building, as well as several corporate and personal guarantees. Tracker - then known as Sheen Million Investment Ltd - duly executed the mortgage on 15 July 1998. The mortgage was signed by its directors, Mr Wong and Kwok Lin.

6. The persons named as the 2nd defendant each signed a guarantee dated 14 July 1998. They are Mr Wong, Kwok Lin, Crabec Co. Ltd ("Crabec"), Times Properties Ltd ("Times") and Lik Sang. Mr Wong is a director of Lik Sang and executed the guarantee on its behalf. Kwok Lin is a director of Times and executed the guarantee on its behalf.

Evidence for Tracker

7. Evidence for Tracker comes from its directors Kwan Po Wan Helen ("Ms Kwan") and Kwok Lin. In brief their evidence is this. The original banking facilities were due to expire on 15 July 1999. Since about June 1999 there were negotiations between Tracker and the plaintiff on the terms and conditions of their extension. No agreement was reached by the due date but the plaintiff allowed Tracker to continue under the existing terms and conditions and there was a common understanding between the parties that the plaintiff would not call for full repayment pending the outcome of the negotiations and further that no overdue interest or penalty would be charged in the interim.

8. Then on 17 December 1998, the shareholders of Tracker executed a Deed of Variation to distribute the properties of Tracker among its shareholders. It was agreed between them that the properties were to be sold to one Worldmart Development Ltd ("Worldmart") as nominee of Jumbo Regent Development Ltd ("Jumbo"), a company owned and controlled by Mr Wong, at a price of over $13,000,000.00 per floor. Jumbo Regent and Mr Wong were to pay off the plaintiff. Crabec, Times and Kwok Lin were released from all liabilities to the plaintiff. The remaining shareholders were to pay $3,485,000.00 to the plaintiff as partial repayment of the debt due by Tracker. Meanwhile, Tracker was to remain the registered owner and negotiations with the plaintiff were to continue.

9. The plaintiff was consulted before the shareholders signed this Deed of Variation. The plaintiff said that it would consent to the release of the liabilities of Kwok Lin, Crabec and Times provided that Tracker paid it $3,485,000.00.

10. In early January 2000, there was a meeting between the plaintiff's representatives and a Miss Sindy Tsui of Tracker, at which it was agreed that the banking facilities should continue until 31 July 2000, provided that Tracker made certain payments to the plaintiff between February and July 2000; and that the plaintiff would waive all overdue interest, penalties or charges for the period from 16 July 1999 to the date of renewal of the facilities.

11. It was intended that Worldmart would obtain finance from another company, Canadian Eastern Finance Ltd ("CEFL") for the purchase of the mortgaged property. However, the plaintiff's officer Mr Antonio Lee told Miss Sindy Tsui that the plaintiff would be able to offer better facilities, on more favourable terms. Documents were sent to the plaintiff for its consideration in granting the new facilities to Worldmart. In the meantime the 1st defendant was allowed to carry on the existing banking facilities after 31 July 2000.

12. Mr Antonio Lee Ka Fai left the plaintiff in about August 2000 and his work was carried on there by Mr Vincent Hui Tze Lok. According to Tracker's witnesses they were repeatedly assured orally that the only remaining matters for the new credit package for Worldmart were formalities. Negotiations continued, but in mid-2001 the plaintiff indicated that it would not beat CEFL's offer, and demanded repayment of part of the debt owed.

13. Tracker and Worldmart protested. The value of the property had decreased. CEFL's offer was no longer open. There were further negotiations at which it was agreed that the plaintiff would grant indulgence to Tracker either to re-finance the mortgaged properties with another bank, or to redeem them out of the proceeds of sale to Worldmart at a selling price of $8,250,000.00 per floor. Meantime the plaintiff would waive all overdue interest, penalties or charges from 1 August 2000 onwards.

14. Worldmart then sub-sold the 27th floor to a third party. It was agreed that the plaintiff would release that floor to enable completion. Tracker or Worldmart would pay about $7,200,000.00 to the plaintiff from the proceeds of sale plus a further $1,000,000.00 to reduce the debt owed by Tracker. The plaintiff would grant further time for Tracker and Worldmart to re-mortgage or sub-sell the other floors.

15. On 13 August 2001 the plaintiff wrote to Tracker demanding payment of overdue interest of over $1.66 million plus a handling fee of $412,000.00 but at the same time offered to waive the overdue interest if Tracker would pay 90% of the handling fee. There were further discussions between Miss Sindy Tsui and the plaintiff whose representative threatened not to release the 27th floor unless payment was made. Payment was accordingly made, with an agreement that the sum paid would only be accounted for in the final account when all the floors had been re-mortgaged or redeemed. Again the plaintiff agreed not to charge overdue interest or penalties. The sub-sale of the 27th floor was completed in December 2001 and the agreed payments were made from the proceeds.

16. In January 2002, Worldmart entered into provisional agreements to sub-sell the 23rd, 25th and 26th floors. The plaintiff was told of this and sent copies of the agreements. The sales were to be completed on 18 June 2002. However, the plaintiff without consultation with Tracker appointed receivers in respect of the mortgaged property on 24 April 2002. Tracker tried to negotiate with the receivers but to no avail; so the proposed sales could not proceed.

Evidence for the plaintiff

17. Evidence for the plaintiff comes from Kong Che Wing, a senior manager who deals with the figures. Hui Tze Lok, also known as Vincent Hui, a senior relationship manager affirms to the dealings he had with the plaintiff as does Lee Ka Fai, also known as Antonio Lee, an accounts officer. It appears that Mr Lee was dealing with the plaintiff up to about August 2000 when he left the plaintiff. Mr Hui then took over. His affirmation condescends to particulars, even for the period before he took over; but Mr Lee's affirmation, though it is in the form of a blanket denial of what is said on behalf of the plaintiff, simply refers to and confirms Mr Hui's.

18. Mr Hui specifically denies that there was any common understanding as alleged by Ms Kwan. He says that Tracker did approach the plaintiff for renewal of the banking facilities, but this was not acceptable because the value of the mortgaged property had substantially decreased. The value at May 1998 was $85,400.000.00 but by 6 September 1999 it was $45,100,000.00; the plaintiff would only grant facilities up to 70% of that figure, i.e. $31,570,000.00. At that stage Tracker was owing $48,000,000.00. The value further dropped to $28.35 million by January 2002. Though some repayments were made the outstanding principal never came into the acceptable range. In fact demands were made for repayment in September, November and October 1999.

19. Mr Hui says that the plaintiff had no knowledge of the Deed of Variation. However it does appear from his table of payments, as well as a computer record containing various comments which was exhibited to his second affirmation, that $3,450,000.00 was paid to the plaintiff in December 1999. He also says that there was no agreement to waive overdue interest and penalties, as Ms Kwan says there was in January 2000. The defendants rely in support of this contention on a letter from Tracker, signed by Mr Wong dated 7 January 2000 bearing to record the agreement. There is no written record from the plaintiff but Mr Hui's tables do appear to show that payments between January and July were made in accordance with the figures set out in the letter.

20. So far as the refinancing by CEFL is concerned Mr Hui says that Tracker made two applications to CEFL in May 2000 and May 2001. He comments that Tracker has produced no evidence that the earlier application was successful but simply says that the plaintiff would not have made a better offer given that it was then trying to recover its money. As to the later application, it appears from a letter by CEFL to its own solicitor that it was offering $35,000,000.00 of facilities against a mortgage of all five floors. At that stage Tracker was owing over $41,000,000.00. He does not seem to draw a conclusion but the implication is that the plaintiff would not in any event have made a better offer given that it would lend 70% of the value of the security.

21. As to the further agreements alleged by Ms Kwan, Mr Hui says that the only agreement was for the release of the 27th floor against payment of a total of $8,250,000.00. The rest of the alleged agreements are denied. As to the allegation of an agreement to extend the facilities in January 2000 Mr Hui says that there was a meeting on 29 January 1999, but that no agreement was reached as set out in the letter from Tracker of 7 January 2000.

22. Mr Hui relies on the plaintiff's letter of 13 August 2001 as indicative of the fact that the plaintiff was all along seeking repayment. He says that it is also typical documentation of concrete terms offered by the plaintiff, but on which agreement was never in fact reached; because contrary to what Ms Kwan says, Tracker never paid the sum of $370,935.00 put forward by the plaintiff, and the plaintiff's offer lapsed.

23. In his second affirmation Mr Hui exhibits the plaintiff's "Classified Account Exposure Summary Report". This is a computer record which contains, as well as figures, notes of dealings with Tracker and others including representatives of Lik Sang.

24. In particular an entry dated 10 October 2000 shows that "a restructuring agreement has been reached with the client" whereby Lik Sang was to pay $3,450,000.00 to reduce the loan outstanding to 70% of the security. Mr Hui however comments that this was subject to approval of a written credit application by his superiors in the bank.

25. Entries thereafter show continuing negotiation with interest being "settled as usual". A grace period was given up to 31 May 2001 to transfer to another bank. It appears that in August 2001 CEFL was in the picture, as well as the Fortis Bank. It is noted that Tracker requested the plaintiff to waive overdue interest and part of the handling fee and that in September the management "approved to allow subject to carry out property redemption in two stages and waive overdue interest and 15% accrued handling fee". Whether this was communicated to Tracker is not clear; there is no document and Mr Hui does not say whether or not there was oral communication.

26. The record shows that by November 2001 there was an agreement that the 27th floor should be sold and payment made from the proceeds. At the same time it was agreed that the other floors would be released, with Tracker repaying $8.25 million on each release. The financing banks were to be Fortis Bank for the 28th floor, and CEFL or Wing Hang Bank for the rest. Then in January 2002 the plaintiff "in order to give subject more pressure" threatened legal action unless $3 million was paid in two instalments by the end of January. This was not done but on 2 February it is noted that Tracker had confirmed the sales of three floors, paid $1,000,000.00 on 12 January and paid interest as usual. A new action plan was submitted for the approval of management which required early takeover of the 28th floor, payment of the deposits received for the sales when available, and repayment of $300,000.00 per month from February 2002. Despite a further meeting with Mr Wong on 25 February "to reinforce their compliance of the repayment schedule" at which Mr Wong was given a week to discuss this with the other shareholders in Tracker, it appears that nothing was received.

The arguments

27. The plaintiff's position as stated by counsel is that there was never any agreement between itself and Tracker to defer action on the mortgage. There is no written evidence of such agreement. There is no evidence of forbearance to sue, or of any consideration for forbearance. At best there was indulgence and the giving of time for Tracker to re-arrange its finances. If there was forbearance up to July 2000 on consideration of payments agreed in January, it would only avail Tracker for that period and no longer. The same would apply to any estoppel. In any event, insofar as the defendants are relying on estoppel there was never any unequivocal promise on which they could rely.

28. The defendants' position is that there was a series of agreements to defer collection and allow the defendants to re-negotiate the loan, which the plaintiff breached. Alternatively there was a series of representations by the plaintiff on which the defendants relied so that the plaintiff is estopped from enforcing the mortgage and guarantees, and must allow the defendant to re-negotiate the renewal of banking facilities.

29. Order 28, rule 4 provides :

"(1) The Court by whom an originating summons is heard may, if the liability of the defendant to the plaintiff in respect of any claim made by the plaintiff is established, make such order in favour of the plaintiff as the nature of the case may require, but where the Court makes an order under this paragraph against a defendant who does not appear at the hearing, the order may be varied or revoked by a subsequent order of the Court on such terms as it thinks just.

(2) In any case where the Court does not dispose of any originating summons altogether at a hearing or order the cause or matter begun by it to be transferred to a District Court or some other court or makes an order under rule 8, the Court shall give such directions as to the further conduct of the proceedings as it thinks best adapted to secure the just, expeditious and economical disposal thereof.

(3) Without prejudice to the generality of paragraph (2), the Court shall, at as early a stage of the proceedings on the summons as appears to it to be practicable, consider whether there is or may be a dispute as to fact and whether the just, expeditious and economical disposal of the proceedings can accordingly best be secured by hearing the summons on oral evidence or mainly on oral evidence and, if it thinks fit, may order that no further evidence shall be filed and that the summons shall be heard on oral evidence or partly on oral evidence and partly on affidavit evidence, with or without cross-examination of any of the deponents, as it may direct.

(4) Without prejudice to the generality of paragraph (2), and subject to paragraph (3), the Court may give directions as to the filing of evidence and as to the attendance of deponents for cross-examination and any directions which it could give under Order 25 if the cause or matter had been begun by writ and the summons were a summons for directions under that Order."

30. Sub-rule (3) means in effect that the court must consider whether there are significant factual issues requiring determination. If there are not, judgment may be given. If there are, it is inappropriate to have resort to the originating summons procedure; the action should proceed as if begun by Writ. See Shum Wah Ming v. The Estate of Chen King Ngo, CACV 21 of 1996. In that case some doubt was cast on the proposition that Order 14 principles apply and the court should consider whether the defendant had been able to demonstrate that there was a triable issue. Given the wording of sub-rule (3), it seems to me that the principle is somewhat different here from that under Order 14. There are two considerations; the first being whether there is or may be a dispute as to fact and the second, whether the just, expeditious and economical disposal of the case can best be secured at a trial.

Conclusion

31. Looking at the computer record in particular, it is difficult to rule out an agreement or series of agreements to defer action and to waive charges for overdue interest and penalty. It is true that there is no documentation of any agreement, which one would certainly expect; but there were ongoing contacts between Mr Hui and representatives of Tracker, in particular Miss Sindy Tsui and Mr Wong. It seems to me impossible to hold at least on the basis of affidavit evidence that no oral agreement could have been made between representatives of the parties, or that no unequivocal representation could have been made by a representative of the plaintiff.

32. Obviously the plaintiff is owed at least the principal sum and outstanding interest. However there is a dispute over additional interest and penalty and a dispute as to whether there was an agreement to allow the sale of three floors which the plaintiff breached. If the defendants can prove such agreements that might affect the final figure payable. There are therefore significant factual issues as between the plaintiff and Tracker which require determination. The only just way to dispose of them is by letting the matter go to trial.

33. Arguments have been advanced on behalf of the guarantors that because the principal debtor was given time, they are discharged from liability. I do not think I need go into this, because whether or not they were discharged will depend on whether or not there was an agreement or series of agreements to give time, and that is a matter for trial.

Non est factum

34. The remaining issue is that of non est factum. There are two letters of guarantee concerned. Each is written in English but at the top of the first page there are three Chinese characters which counsel agree translate as "Guarantee". In the first paragraph of the first page, the amount guaranteed is set out in words and figures. One guarantee bears to have been signed by Mr Wong on his own behalf and the other to have been signed by him over Lik Sang's chop. Each is witnessed by a solicitor, Mr Charles Chu Chia Chin.

35. Mr Wong says that he is not sure whether he signed the guarantees at all because he was out of Hong Kong on 14 July 1998. He cannot understand English. No one ever explained the contents of the guarantees to him, and he would not have agreed to such guarantees, for various reasons. He says that he most probably signed them in the mistaken belief that they were just usual commercial documents which he signed on behalf of Tracker or Lik Sang.

36. Mr Chu has not filed an affirmation, but he has written a letter explaining that Mr Wong signed the documents at his office on 10 July 1998. His firm was acting for Tracker. He had not been involved in negotiations for the mortgage or guarantees. He had received the documents from the plaintiff's solicitors. He asked Tracker why, because he thought those solicitors were acting for the financiers and borrowers and was told that because he knew the people better it would be more convenient for him to arrange for the execution of the documents.

37. He said that although Mr Wong had been in a hurry and had declined an offer to go through all the documents, he had explained the nature and effect of the documents, including the two guarantees. He had specifically explained the limit of the guarantees and Mr Wong's different capacities involved in signing them.

38. There is now no real dispute that Mr Wong actually signed the documents.

39. A plea of non est factum is one which has to be treated with some scepticism. The principle was enunciated in Saunders v. Anglia Building Society [1971] AC 1004. At page 1,032 Lord Pearson said :

"I must, however, deal specifically with the broad principle stated by the Master of the Rolls as his conclusion from his investigation of the law, at pp.36-37:

' ... whenever a man of full age and understanding, who can read and write, signs a legal document which is put before him for signature - by which I mean a document which, it is apparent on the face of it, is intended to have legal consequences - then, if he does not take the trouble to read it, but signs it as it is, relying on the word of another as to its character or contents or effect, he cannot be heard to say that it is not his document. By his conduct in signing it he has represented, to all those into whose hands it may come, that it is his document; and once they act upon it as being his document, he cannot go back on it, and say it was a nullity from the beginning.'

In applying the principle to the present case, the Master of the Rolls said, at p.37 :

'... Mrs. Gallie cannot in this case say that the deed of assignment was not her deed. She signed it without reading it, relying on the assurance of Lee that it was a deed of gift to Wally. It turned out to be a deed of assignment to Lee. But it was obviously a legal document. She signed it: and the building society advanced money on the faith of it being her document. She cannot now be allowed to disavow her signature.'

There can be no doubt that this statement of principle by the Master of the Rolls is not only a clear and concise formulation but also a valuable guide to the right decision to be given by a court in any ordinary case. The danger of giving an undue extension to the plea of non est factum has been pointed out in a number of cases.'

40. However, Mr Swaine who appears for Mr Wong and Lik Sang says that the point here is that Mr Wong says that he does not understand English. He was signing in two capacities, and looking to Mr Chu as a solicitor to explain things to him. The accounts of what explanation he got, if any, differ markedly. To the extent that they do that must be issue for trial. There are also policy considerations which arise after 1997 from the execution of an English document by a person who does not understand that language.

41. He relies in particular on the following passages in Saunders, by Lord Wilberforce at page 1,027 :

"As to persons who are illiterate, or blind, or lacking in understanding, the law is in a dilemma. On the one hand, the law is traditionally, and rightly, ready to relieve them against hardship and imposition. On the other hand, regard has to be paid to the position of innocent third parties who cannot be expected, and often would have no means, to know the condition or status of the signer. I do not think that a defined solution can be provided for all cases. The law ought, in my opinion, to give relief if satisfied that consent was truly lacking but will require of signers even in this class that they act responsibly and carefully according to their circumstances in putting their signature to legal documents."

and Lord Pearson at page 1,034:

"In my opinion, the plea of non est factum ought to be available in a proper case for the relief of a person who for permanent or temporary reasons (not limited to blindness or illiteracy) is not capable of both reading and sufficiently understanding the deed or other document to be signed. By 'sufficiently understanding' I mean understanding at least to the point of detecting a fundamental difference between the actual document and the document as the signer had believed it to be. There must be a proper case for such relief. There would not be a proper case if (a) the signature of the document was brought about by negligence of the signer in failing to take precautions which he ought to have taken, or (b) the actual document was not fundamentally different from the document as the signer believed it to be."

42. It will be seen from these passages that one who signs a document cannot simply say he was illiterate, and so did not understand what he signed. He must show that he was not negligent in failing to take precautions which he ought to have taken and that he acted responsibly and carefully according to his circumstances.

43. Here Mr Wong must have known that he was signing guarantees because each one said so, in Chinese, at the top of the first page. He must have known that a figure of $48,200,000.00 was involved because each one says so, at the foot of the first paragraph. He may be illiterate in English, but he does not say that he cannot read Arabic numerals. In Hong Kong, such numerals are commonly known and used by persons who are only literate in Chinese, or even illiterate in that language. A fortiori Mr Wong as a director of property development companies must necessarily be able to read Arabic numerals. He must also have known that he was signing one document in his own capacity because it has no other indication such as a chop and he must have known that he was signing the other on behalf of Lik Sang, because it has that company's chop.

44. To my mind Mr Wong's story is incredible. He must have known what he was signing and intended to sign it. But if he did sign these guarantees without understanding their content, he was negligent in failing to take precautions which he ought to have taken and he did not act responsibly and carefully according to his circumstances as a director of a property development company, dealing in large sums. That would apply even if Mr Chu had explained nothing at all to him.

45. I do not think I need go into the question of policy considerations. Mr Swaine relies on a judgment by Godfrey JA (sitting as a High Court Judge) but that was concerned with interpretation of section 9 of the Law Amendment and Reform (Consolidation) Ordinance, Cap.23 as it applies to a notice given by an assignee of a debt to a debtor, and does not assist here. It is also, I think, unnecessary to go into his other point which is that the guarantees are indemnities as well, and this would have to be explained to the signatory.

46. While there is a dispute of fact over the issue of non est factum, then, it would be neither just, economical or convenient to allow it to go to trial.

47. I conclude that the Master was right to make the order which he made. The appeal is dismissed with costs (nisi) to the defendants in any event.