HU KEE PUI AND ANOTHER v. DAH SING BANK, LTD.

HCMP6841/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.6841 OF 1999

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J U D G M E N T

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1. This is an action by two plaintiffs Hu Kee Pui and Hu Teng Yueh O, administratrix of the estate of Mr Chen Wei Hann ("Mr Chen") who was the husband of Hu Kee Pui ("the 1st plaintiff") against the defendant, the Dah Sing Bank Limited ("the Bank"), in relation to the transactions between the Bank and its customer Mr Chen.

2. Mr Chen operated a sole proprietorship business in the name of Hanita Marking Company. Mr Chen's company, at the time of his death, had various accounts with the Bank. At the time of the death of Mr Chen, which took place on 29 June 1997, there were five accounts between Mr Chen and the Bank. There was firstly a current account credit of HK$589,245.64; secondly, there was a savings account credit of JPY2,996,934 and HK$177.50; thirdly, there was a fixed deposit account in the amount of JPY14,249,279; fourthly, there was a loan of HK$1,595,950.60 and lastly, there was a trust receipt loan of HK$239,025.95.

3. There was, first of all, a General Agreement for Commercial Business dated 22 May 1996 between Mr Chen and the Bank. The following are a number of the provisions of the agreement which are relevant to the case :

"1. To pay to you on demand all moneys advanced or paid whether by way of overdraft or otherwise or liabilities absolute or contingent incurred to or for me/us as a consequence direct or indirect of any of the matters aforesaid or of any other application or request made to you by me/us or any monies due or liabilities incurred on any account or in any manner whatever either alone or jointly with others in partnership or otherwise and whether as principal or surety now or at any time due owing or incurred in whatever currency denominated whether on any banking or other account including all liabilities in connection with foreign exchange transactions, together with interest to the date of payment at such rate as you may from time to time charge and all charges commissions fees costs and expenses (including legal costs on a solicitor and own client basis) as they appear in your books."

"2. (a) That all goods, stocks, coin, bullion, currency, margin and deposits, shares, bonds, debentures, fixed deposit receipts, certificates of deposit, warehouse or godown warrants, bills of lading, bills of exchange, shipping documents, delivery orders and the property thereby represented or other documents of title or evidences of value and all other property or securities of mine/ours, or in which I/we may have any interest, now or at any time hereafter come into your possession or into the possession of any of your agents, whether for the express purpose of being used by you as collateral security or for safe custody or for any other purpose (such goods property securities etc. are hereinafter collectively referred to as 'the said Securities') shall be pledged to you as security for the payment on demand to you of all amounts due to you from me/us either as principal guarantor, surety or endorser whether alone or jointly with any other person, firm or corporation including all interest ordinary bank charges, commission, stamp duties charges costs and fees for legal and other professional services paid by you all as they appear in your books (such amounts due to you from me/us are hereinafter collectively referred to as 'the said debts')."

"4. That this is a continuing agreement and all the rights, powers, and remedies hereunder shall apply to all my/our past, present, future and contingent obligations and liabilities to you including those arising under successive transaction which shall either continue existing obligations and liabilities, increase or decrease them or from time to time create new obligations or liabilities after any or all prior obligations and liabilities have been satisfied, and notwithstanding my/our death, incapacity, or bankruptcy or any other event or proceeding affecting me/us."

"22. That all of my/our obligations to you shall immediately become due and payable upon the happening of any of the following event:-

i. on demand by you;

ii. failure to keep or perform any of the terms of this or any other agreement between you and me/us;

iii. any deterioration or impairment of any security or any part thereof or any decline or depreciation in the value or market price thereof (whether actual or reasonably anticipated);

iv. the levy of any attachment, execution or other process against me/us;

v. the death or insolvency of me/any of us, the commission of any act of bankruptcy by me/any of us, any general assignment by me/any of us for the benefit of creditors, the filing of any petition in bankruptcy of by, or against me/us or any of my/our co-makers, accommodation makers, sureties or guarantors of any obligation to you, or any endorser of any note or other document evidencing any obligation to you. Then, and in any such case all my/our obligations and liabilities to you, actual or contingent, shall forthwith become due and payable, without demand or notice and I/we hereby authorize you or your Manager or Agent for the time being to exercise immediately all or any of the powers hereby or elsewhere conferred upon them or any of them."

"24. That each of the rights, powers and remedies given to you by this agreement shall be in addition to all other rights, powers and remedies given to you hereunder or by virtue of any other security, statute, or rule of law or equity. You may exercise a banker's lien or right or set-off with respect to any of my/our obligations to you in the same manner as if the obligations were unsecured and shall have a lien on all of my/our property or securities in your possession or custody whether for safekeeping or otherwise. All credit balances whether in Hongkong Dollars, Sterling or any other currency in all accounts in my/our name may be appropriated by you at an exchange rate to be absolutely determined by you towards payment of any liability to you of whatever kind and irrespective of when the same may be due or may be held by you as security for any contingent or future liability to you. Any forbearance or failure or delay by you in exercising any right, power or remedy shall not be deemed to be a waiver of such right, power or remedy, and any single or partial exercise of any right, power or remedy hereunder shall not preclude the further exercise thereof; and each of your rights, powers and remedies shall continue in full force and effect until such rights, powers or remedies are specifically waived by an instrument in writing executed by you."

"26. I/we also agree that where you have made any advance in Hong Kong Dollars to me/us, you may, at your discretion, apply any credit balances of my/our foreign currency accounts maintained with you towards partial or full repayment of such advance involved calculated at your buying rate for the foreign currency concerned prevailing on the date when advance was made by you or at your option on the date when such balances are being applied."

"30. That all moneys, payments, sums and amounts of money expressed herein to be payable by me/us to you shall include any and all interest payable thereon. I/we understand that no single rate can be fixed in respect of such interest, as the rate of interest in each case will vary according to the type of transaction. I/we know your policy on interest rates, however, and hereby agree to leave the determination of; the particular rate of interest applicable in each case in respect of the moneys, sums and amounts of money expressed herein to be payable by me/us to you solely in your hands and to pay the interest thus determined by you as if such particular rate of interest had been expressly agreed between us beforehand."

4. In relation to the loan, there was a Security Over Deposits dated 18 July 1996 which governs the loan advanced. The relevant provisions therein are as follows :

"1. In consideration of your granting or continuing to make available credit facilities or other financial accommodation, for so long as you may think fit, to me/us ('the Depositor') or (where applicable) to Hanita Marking Co.** ('the Borrower'), the Depositor as beneficial owner has deposited with you by way of first fixed charge the sums of money set out in the Schedule ('the Deposit', which expression shall include any currency into which such sum may from time to time be converted, and any renewal or substitute thereof) and all right title interest therein and all other moneys from time to time standing to the credit of any account of the Depositor with you as a continuing security for the punctual payment to you on the respective due dates of all moneys which are now or may at any time hereafter be or become from time to time due or owing to you by the Depositor or the Borrower on any account or otherwise in any manner whatsoever and including (without limitation) the amount of any loans, acceptances, deferred payments or other credits or advances made to the Depositor or the Borrower, for the accommodation or at the request of the Depositor or Borrower and of any notes or bills made, accepted, endorsed, discounted or paid, and of any liability under guarantees, indemnities, foreign exchange contracts (spot and forward) documentary or other credits or any instruments whatsoever, together with interest to date of payment at such rates and upon such terms as may from time to time be payable, commissions, discounts, fees and other charges, all disbursements and all expenses incurred by you in relation to the Deposit, or the preparation or enforcement hereof or any guarantees or securities for any moneys, obligations or liabilities hereby secured, including all legal costs and all other costs and expenses and any exchange control premiums, penalties or expenditure on a full indemnity basis."

"2.01 If the Depositor or Borrower has failed to pay any money hereby secured when due or is in default under any of the terms hereof or if the Depositor or Borrower is unable or admits inability to pay debts as they become due or in the event of any proceedings in or analogous to the bankruptcy, insolvency, winding-up or liquidation or composition of the Depositor or Borrower or if legal process is levied or enforced against any assets of the Depositor or Borrower, you may, without demand, notice, legal process or any other action, retain, apply or realise the Deposit or any part thereof for your own benefit, at any time and in any way which you may deem expedient, free from and discharged from all trusts, claims, rights of redemption and equities in or towards settlement of the liabilities undertaken herein."

"4.01 The Depositor and Borrower hereby jointly and severally agree that you may, at any time without notice, notwithstanding any settlement of account or other matter whatsoever, combine or consolidate all or any existing accounts of the Depositor or Borrower (of any nature or description whatsoever and whether subject to notice or not including the Deposit) and set-off or transfer any sum standing to the credit thereof in or towards satisfaction of any liabilities of the Depositor or Borrower referred to in Clause 1 or otherwise hereby secured, whether such liabilities be present or future, actual or contingent, primary or collateral, and several or joint and where such combination, set-off or transfer requires the conversion of one currency into another, such conversion shall be calculated at your spot buying rate of exchange (as conclusively determined by you) for the currency for which the Depositor or Borrower is liable against the existing currency so converted."

"5.01 This instrument shall be a continuing security and shall cover and secure the ultimate balance from time to time owing to you by the Depositor or Borrower and is in addition to and may be enforced notwithstanding any guarantee, indemnity, assurance, pledge, lien, bill, note, mortgage, charge, debenture, security, or other right, power or remedy now or hereafter held by or available to you. No waiver of any of your rights or powers or any consent by you shall be valid unless signed by you in writing. No failure or delay by you in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are not intended to be exclusive of any other remedy and each and every remedy shall be cumulative."

"5.04 This security shall be binding upon each successor, personal representative and person lawfully acting on behalf of the undersigned and binding notwithstanding any change in your constitution."

5. The loan of some $1.6 million was secured by the JPY deposits and the savings account deposits as well as by a mortgage over the premises of the workshop. The loan was repayable by monthly instalments of HK$22,685.51.

6. The Bank was notified of the death of Mr Chen a few days after his passing away, and the position in relation to the loan was that every month, after the death of Mr Chen, the monthly instalments continued to be paid to the Bank. The position, however, changed in the summer of 1998 : the instalment of June failed to be paid on 5 June 1998 and the next instalment of July failed to be paid on 3 July 1998.

7. The Bank, by letter of 3 August 1998, demanded the plaintiffs to settle the overdue instalments and the accrued interest within five days, failing which the Bank would require immediate repayment of all the indebtedness and exercise the Bank's right of set-off against the credit balances of the deposit accounts. There was no reply to that letter of the Bank.

8. By letter dated 8 September 1998, the Bank demanded the full repayment of the loan in the sum of HK$1,560,429.34. In the same letter the Bank stated that unless the outstanding loan sum plus accrued interest were settled within five days, the Bank would exercise its power of set-off without further notice. Again, there was no reply from the plaintiffs to the Bank's letter.

9. On 16 September 1998, pursuant to the terms of the contract between the Bank and its customer, Mr Chen, the Bank exercised its power of set-off, leaving an outstanding loan balance in the sum of HK$572,810.29, that is to say the Bank had uplifted the deposits of JPY, converted them into HK dollar at the relevant current exchange, applied the proceeds to pay off the debt, leaving a net balance in the sum indicated earlier.

10. A letter dated 17 September 1998 was sent by the Bank to the plaintiffs and their solicitors notifying them of the exercise of the Bank's power of set-off and informing the plaintiffs of the outstanding amount still owing to the Bank.

11. There were some correspondence following this. Eventually the outstanding balance demanded by the Bank was not paid, and on 3 November 1999, the plaintiffs issued the originating summons proceedings in this action against the defendant Bank. The Bank counterclaimed and its counterclaim substantially is for a judgment against the plaintiffs in the amount of the outstanding debt, together with an order for possession of the premises mortgaged to the Bank by reason of the default of the loan.

12. The two plaintiffs before me are Mrs Hu Kee Pui, the widow of the late Mr Chen ("the 1st plaintiff") and Ms Hu Teng Yueh O, the mother of Mrs Chen ("the 2nd plaintiff"). The Letters of Administration in respect of the estate of Mr Chen were taken out on 24 November 1998. It would be seen, therefore, that the Letters of Administration was granted after the set-off of the Bank on 16 September 1998.

13. The main complaint, and in fact the only issue at the trial of this action, is whether the Bank had the right to exercise a power of set-off or the combination of accounts before the Letters of Administration were issued.

14. At the hearing, the 1st plaintiff, who being handicapped by the lack of knowledge of the English language and the lack of knowledge of legal proceedings or the applicable Hong Kong law on this matter, did her best to assist the court. Mr Michael Liu, counsel for the Bank, had done considerable work and had guided the court through the unusual area of the law on the dispute.

15. The question raised by the administratrix is whether the Bank could lawfully exercise its power of set-off or combination of accounts before the issue of the Letters of Administration, and if not, whether there was intermeddling by the Bank which caused damages to the plaintiffs.

16. The law on the general right of a bank, in a relationship between a bank and a customer, to set-off is tolerably clear and it is no different from other contracts where situations of set-off would arise. So, prima facie, the right of set-off is applicable and it is not defeated by any death of the contracting parties - we are, of course, not talking about contract for personal services. But the position of the Bank, however, is unanswerable in relation to set-off because the contractual provisions make it clear that :

(1) they have the right of set-off;

(2) the right of set-off survives any death of the customer.

I need only to refer to Clauses 4, 24 and 26 of the General Agreement and Clauses 2.01, 4.01 and 5.04 of the Security over Deposit Agreement. The thrust of these provisions is that the right of set-off survives any death of the customer. So contractually, the Bank has the right to effect a set-off notwithstanding the passing away of the customer. There was, therefore, nothing wrong with the set-off done on 16 September 1998 and that exercise of the right by the Bank cannot be impeached.

17. This conclusion effectively disposed of the whole proceedings.

18. The alternative or additional case of the plaintiffs for intermeddling really does not arise as there can be no intermeddling if there is a right of set-off. The essence of intermeddling in relation to the assets of an estate is the taking possession of a part of the estate without lawful authority or excuse, a prime example of this can be seen in section 24 of the Estate Duty Ordinance. The relationship between a bank and its customer is that of creditor and debtor. Money that was deposited by a customer with a bank is money belonging to the bank, but by reason of the deposit, a relationship of creditor and debtor arises. When the bank uplifts a deposit and applies its proceeds to set off and settle outstanding loans, the bank is not taking possession of the estate, or any part of the estate, or even assets of the deceased. Furthermore, in this case, the Bank had every justification and authority from the contractual documents and the relationship to effect the set-off. So there could be no case of intermeddling when the Bank effected the set-off.

19. It follows that the plaintiffs' case for damages arising out of intermeddling must fail. In any event, I am of the view that the damages that have been claimed are too remote. It follows, therefore, that the claim by the plaintiffs must be dismissed with costs.

20. So far as the counterclaim is concerned, as follows from what had been said, that the defendant Bank is entitled to its prayer for counterclaim and, I make the following order :

(1) an order for possession in respect of the suit premises;

(2) judgment in the sum of HK$616,346.73; and

(3) costs of the counterclaim.