DBS BANK (HONG KONG) LTD v. NGAI YIM SHING AND ANOTHER

HCA 897/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 897 OF 2000

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J U D G M E N T

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1. The plaintiff claims in this action as mortgagee in respect of 5 properties under 4 legal charges whereby the 1st defendant as the mortgagor charged to the plaintiff the 5 properties as collateral for banking facilities which the plaintiff provided to the 2nd defendant as the borrower. The plaintiff also claims against the 1st defendant as a guarantor under a guarantee dated 12 July 1996 ("the guarantee") whereby the 1st defendant in consideration of the plaintiff making or continuing advances or otherwise giving credit or affording banking facilities for the account of the 2nd defendant undertook to pay to the plaintiff on demand all sums of money which were then or should at any time thereafter be owing to the plaintiff by the 2nd defendant on any account whatsoever together with all interest commission and other charges due to the plaintiff on a full indemnity basis.

2. The plaintiff is a bank. At all material times, the 1st defendant was a director and shareholder of the 2nd defendant, the borrower. These proceedings concern 5 properties as follows :

(1) All Those 44 equal undivided 3,232nd parts or shares of and in All That piece or parcel of ground registered in the Tsuen Wan New Territories Land Registry as Tsuen Wan Town Lot No. 229 And of and in the messuages erections and buildings thereon now known as "Mega Trade Centre (時貿中心)" together with the sole and exclusive right and privilege to hold use occupy and enjoy All Those Workshops Nos. 4, 5 and 6 on the Thirteenth Floor of Mega Trade Centre ("the 1st property");

(2) All Those 286 equal undivided 754,000th parts or shares of and in All That piece or parcel of land lying and situate at Area 10L, Kwai Chung, New Territories and registered in the Tsuen Wan New Territories Land Registry as Kwai Chung Town Lot No. 398 And of and in the messuages erections and buildings thereon now known as Kwai Chung Plaza (葵涌廣場) together with the sole and exclusive right and privilege to hold use occupy and enjoy All That Shop Unit No. 3055 on the Third Floor (Level 5) Kwai Chung Plaza ("the 2nd property");

(3) All That the estate right title benefit and interest of and in All Those 160 equal undivided 611,133rd parts or shares of and in All Those 80,000 equal undivided 100,000th parts or shares of and in All That piece or parcel of ground registered in the Land Registry as New Kowloon Inland Lot No. 6046 And of and in the messuages erections and buildings thereon known as "Sceneway Garden (匯景花園)" together with the sole and excusive right and privilege to hold use occupy and enjoy All That Flat H on the Eleventh Floor of Block 16 of Sceneway Garden ("the 3rd property");

(4) All That the estate right title benefit and interest of and in All Those 7 equal undivided 611,133rd parts or shares of and in All Those 80,000 equal undivided 100,000th parts or shares of and in All That piece or parcel of ground registered in the Land Registry as New Kowloon Inland Lot No. 6046 And of and in the messuages erections and buildings thereon now known as "Sceneway Garden (滙景花園)" together with the sole and exclusive right and privilege to hold use occupy and enjoy All That Car Parking Space No. CP56 on Level 29.65 (L4) on Site 2 of Sceneway Garden ("the 4th property");

(5) All That one equal undivided 28th part or share of in All That piece or parcel of ground registered in the Land Registry as The Remaining Portion of Subsection Nine of Section A of Kowloon Inland Lot No. 1992 And The Extension thereto And of and in the messuages erections and buildings thereon known at the date hereof as Nos. 21 and 23 Yin On Street and Nos. 22 and 24 Shim Luen Street together with the sole and exclusive right and privilege to hold use occupy and enjoy All That Ground Floor of the said No. 23 Yin On Street ("the 5th property");

3. By a legal charge dated 15 July 1996 and registered in the Tsuen Wan New Territories Land Registry by memorial number TW1091079 ("the 1st legal charge") and made between the 1st defendant as the mortgagor of the first part, the 2nd defendant as the borrower of the second part and the plaintiff as the bank of the third part, the 1st defendant by way of legal charge charged the 1st property and the 2nd property to the plaintiff to secure general banking facilities and interest granted by the plaintiff to the 2nd defendant.

4. By a legal charge dated 3rd March 1997 and registered in the Urban Land Registry by memorial numbers 7253776 and 7417157 ("the 2nd legal charge") and made between the 1st defendant as the mortgagor of the first part, the 2nd defendant as the borrower of the 2nd part and the plaintiff as the bank of the 3rd part, the 1st defendant by way of legal charge charged the 3rd property to the plaintiff to secure general banking facilities to any extent and interest granted by the plaintiff to the 2nd defendant.

5. By a legal charge dated 3 June 1997 and registered in the Urban Land Registry by memorial number 7147386 ("the 3rd legal charge") and made between the 1st defendant as the mortgagor of the first part, the 2nd defendant as the borrower of the second part and the plaintiff as the bank of the third part, the 1st defendant by way of legal charge charged the 4th property to the plaintiff to secure general banking facilities and interest granted by the plaintiff to the 2nd defendant.

6. By a legal charge dated 21 October 1997 and registered in the Urban Land Registry by memorial number 7337281 ("the 4th legal charge") and made between the 1st defendant as the mortgagor of the first part, the 2nd defendant as the borrower of the second part and the plaintiff as the bank of the third part, the 1st defendant by way of legal charge charged the 5th property to the plaintiff to secure general banking facilities and interest granted by the plaintiff to the 2nd defendant.

7. There has been default in repayment of amounts under the legal charges. Despite demands the 1st and 2nd defendants have failed to repay the plaintiff the amounts outstanding.

8. A bankruptcy order dated 2 December 2002 has been made against the 1st defendant.

9. The plaintiff applied for and was granted leave with the consent of the Official Receiver to proceed with this action against the 1st defendant in his own name. By order dated 24 June 2003 Master S. Kwang made an order by consent between the plaintiff and the Official Receiver that notwithstanding the bankruptcy order dated 2 December 2002 against the 1st defendant leave should be granted to the plaintiff to proceed with this action against the 1st defendant subject to the conditions as stated in the schedule to the order for, inter alia, :

(1) recovery of vacant possession of the 5 properties;

(2) money judgment for payment of the money due to the plaintiff under and secured by the 1st legal charge, the 2nd legal charge, the 3rd legal charge and the 4th legal charge; and

(3) costs.

10. The schedule provided that :

(1) no judgment or order obtained by the plaintiff (other than judgment or order for possession of the 1st property, the 2nd property, the 3rd property, the 4th property and the 5th property) shall be enforced against the 1st defendant without leave of the court; and

(2) the plaintiff shall not apply for an order for costs personally against the Official Receiver or the trustee in bankruptcy.

11. A winding-up order was made against the 2nd defendant on 9 October 2002. The effect of this is that no action or proceeding shall be proceeded with against the 2nd defendant except by leave of the court (Section 186 Companies Ordinance Cap. 32). No such leave has been sought and the action against the 2nd defendant cannot be proceeded with. The plaintiff does not seek to proceed with this action against the 2nd defendant.

12. I am only concerned with the plaintiff's claims against the 1st defendant at the trial of this action.

13. The 1st defendant has served a defence and counterclaim. There is no issue as to the execution and validity of any of the legal charges executed by the 1st defendant and the 2nd defendant. There is also no issue as to the execution and validity of the guarantee executed by the 1st defendant. That the 1st defendant is the registered owner of the 1st property, the 2nd property, the 3rd property, the 4th property and the 5th property is also not disputed.

14. By para. (3) of his defence the 1st defendant asserted that the legal charges are not connected to one another. He pleaded as follows :

“ The above mortgages are not connected to one another. The Plaintiff also promised that if one of the properties was to be sold, the balance for that individual property would be calculated. After the balance had been paid, it would discharge the mortgage of (that property) independently. Other loans would not be affected at all. When the Defendant negotiated with the Plaintiff over the terms of the loans, the Defendant repeatedly made this principle clear, and the Plaintiff agreed (with that) unequivocally."

15. He also pleaded at para. (8) as follows :

“ This litigation, based on the above facts, was purely caused by the Plaintiff's improper conduct, as a result of which the Defendant suffered substantial damages :

(a)	Misleading the Defendant
	When the Mortgage Loan Agreements were entered into, the Plaintiff clearly undertook that each mortgage loan would be independently calculated. As long as the Defendant could repay the specific mortgage loan, it could be freely sold. In fact, the Plaintiff misled the Defendant into believing that the undertaking previously made by the Plaintiff was valid, as a result of which the Defendant accepted the loans from the Plaintiff."

16. In essence, the 1st defendant alleged that there was an agreement to the effect that each of the 5 properties were separately and independently charged to the plaintiff under the 1st legal charge, the 2nd legal charge, the 3rd legal charge and the 4th legal charge to secure separate and specific loans so that each of the properties could be separately and independently redeemed so long as the related loans had been repaid. The plaintiff is alleged to have been in breach of the agreement and as a result the 1st defendant has suffered loss and damage. It is also alleged that there was a misrepresentation made by the plaintiff to the 1st defendant to the same effect as a result of which the 1st defendant suffered loss and damage.

17. It is also alleged at para. 8(b) of the defence that "only after the execution of the loan document did the Plaintiff issue a supplementary letter saying that the individual property would be calculated together with (other) mortgage loans".

18. There is also a counterclaim for loss and damage suffered by the 1st defendant.

19. There is also an allegation that after execution of the loan documents the plaintiff changed the handling fee and interest. By para. (11) of the counterclaim the 1st defendant alleged that the plaintiff overcharged the sum of HK$19,500.00 for handling fee. By para. (12) of the counterclaim the 1st defendant alleged that the plaintiff overcharged interest of HK$31,500.00. It is alleged that the interest rate for the mortgage loan should be prime lending rate plus 0.5% but the rate charged by the plaintiff was prime lending rate plus 0.75%. This was in relation to the 2nd legal charge whereby the 3rd property was charged.

20. Although the 1st defendant has served a defence and counterclaim he did not appear at the trial. The Official Receiver has also not appeared at the trial. No evidence has been adduced on behalf of the 1st defendant.

21. I heard evidence from Ms Tang Siu Fong, a manager of the plaintiff. I ordered that her witness statement dated 3 July 2002 and her supplemental witness statement dated 10 May 2004 should stand as her evidence-in-chief. I found her to be a truthful and honest witness and I have no hesitation in accepting her evidence. She produced the 1st legal charge, the 2nd legal charge, the 3rd legal charge and the 4th legal charge in evidence as well as the related loan agreements. She also produced the guarantee.

22. As I have said there was no evidence adduced on behalf of the 1st defendant. The burden is on him to establish the alleged agreement and the misrepresentation relied on in his defence and counterclaim. He has failed to do so. In any event there is no merit in the defences raised.

23. The assertion that each of the 5 properties were separately and independently charged to the plaintiff under the legal charges is contradicted by the very terms of the 1st legal charge, the 2nd legal charge, the 3rd legal charge and the 4th legal charge. It is clear from clause 2 of each of the legal charges that the 1st defendant's covenant to repay covered all debts owed by the 2nd defendant. Clause 3 made it clear that the legal charges were for unlimited amounts. And clause 4 made it clear that the 1st defendant's right of redemption was subject to repayment of all the debts owed by the 2nd defendant.

24. His assertions are also contradicted by

(a) the confirmatory letters signed by the 1st defendant being exhibits P13A, P13B and P13C; and

(b) the facilities' letter signed by the 1st defendant on behalf of the 2nd defendant being exhibit P12.

25. There is also no merit in the allegation that the plaintiff has overcharged HK$19,500.00 handling fee. This was said to be in relation to another property, not one of the 5 properties under the 4 legal charges. No evidence has been adduced on behalf of the 1st defendant to establish this allegation.

26. As to the allegation that interest has been overcharged in respect of the 2nd legal charge, exhibit P4 makes it plain that the interest on the loan that was agreed was 0.75% over prime lending rate. There was no question of the plaintiff changing the rate later on. There is also no merit in this allegation.

27. Ms Tang has by exhibit P14 set up the amounts outstanding and due by the 1st defendant as at today's date. I have no hesitation in accepting her evidence. This shows that the sum of HK$24,138,412.24 is due and owing by the 1st defendant to the plaintiff up to today.

28. I am satisfied that the plaintiff has proved its case. I reject the matters raised in the defence and counterclaim.

29. I am satisfied that the plaintiff is entitled to judgment as claimed. I give judgment in favour of the plaintiff against the 1st defendant as follows :

(1) The plaintiff do recover against the 1st defendant the total sum of HK$24,138,412.24 together with interest on the respective principal sums of HK$2,719,273.20, HK$4,105,234.70, HK$490,222.70, HK$999,518.20, HK$4,620,221.90 and HK$3,779,846.74 at judgment rate from 25 May 2004 until payment;

(2) The 1st defendant do within 28 days after service upon him of this order, deliver to the plaintiff vacant possession of

(a) the 1st property and the 2nd property, both under the 1st legal charge;

(b) the 3rd property under the 2nd legal charge;

(c) the 4th property under the 3rd legal charge; and

(d) the 5th property under the 4th legal charge.

(3) Upon the plaintiff being paid the money hereby ordered to be paid by the 1st defendant and other moneys (if any) secured to the Plaintiff by the 1st, 2nd, 3rd and 4th legal charges and guarantee respectively, the plaintiff (subject and without prejudice to the due exercise of any power of sale for the time being vested in them) do re-deliver possession of the 1st, 2nd, 3rd, 4th and 5th properties and release the securities by the1st, 2nd, 3rd and 4th legal charges to whatever party as this Honourable Court may direct, and there be liberty to apply for this purpose;

(4) The 1st defendant's counterclaim be dismissed;

(5) The 1st defendant do pay costs of the action on a solicitor-and-own-client basis to the plaintiff to be taxed if not agreed;

(6) There be liberty to apply.

30. I have ordered costs to be paid on a solicitor-and-own-client basis as this is clearly provided for by clause 2(d) in each of the legal charges.