DAO HENG BANK LTD. v. YICK WAI KIT HENRY & ANOTHER

HCMP 4144/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 4144 OF 2001

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J U D G M E N T

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1. This is an appeal by the 1st Defendant against the order of Master Cannon of 10 October 2001 whereby she entered judgment against him and the 2nd Defendant in respect of moneys due under banking facilities granted by the Plaintiff bank to the 2nd Defendant which were secured by a legal charge on the 1st Defendant's property, a flat in Amoy Garden, Ngau Tau Kok Road, Kowloon ("The mortgaged property"). The 1st Defendant undertook to pay the Plaintiff "all sums of money which at the date of such demand may be outstanding and according to the books of the (Plaintiff) payable". The Master also ordered that the 1st Defendant deliver vacant possession of the mortgaged property to the Plaintiff within 42 days, and provided for the release of the mortgaged property to the 1st Defendant, if the 1st Defendant and 2nd Defendant should pay the moneys then due to the Plaintiff.

2. At the hearing before Master Cannon, the 1st Defendant was not represented. He says that he sought to put forward his case to the Master orally and to produce letters in support but he was not permitted to do so because he had not made any affirmation in support. There is no complaint against Master Cannon in this regard.

3. He has now made an affirmation dated 1 November 2001 for the purpose of this appeal which is before the court.

4. The position is that the 1st Defendant charged the mortgaged property to the bank by a legal charge dated 7 October 1986 "as security for the due payment of all moneys which are now payable or may at any time hereafter or from time to time become payable to" the Plaintiff by the 1st Defendant or Sam Hing Electroplating Factory.

5. It appears from the affirmation of Mr Cheung Chun Fai, of the Plaintiff that the money claimed to be due to the Plaintiff arose from General Banking facilities granted to the 2nd Defendant in six facility letters dated 25 August 1994, 21 November 1995, 25 January 1997, 9 March 1998, 23 October 1999 and 27 June 2000. The facility letters stipulate that the mortgaged property was to be part of the security for these facilities.

6. The 1st Defendant's case in his affirmation is that he, the 2nd Defendant and a Mr Ho Wai Yip had formed a partnership in 1986 which carried on business of electroplating under the name of Sam Hing Electroplating Factory ("Sam Hing"). It was in those circumstances that he had executed the charge on his property dated 7 October 1986. On 30 June 1993, Sam Hing had ceased business. It was agreed between him and the 2nd Defendant that money owing under Sam Hing's banking facilities would be repaid by 31 August 1994.

7. On 18 May 1994, he had written to the Plaintiff informing it that he understood that the banking facilities would be repaid in full by 31 August 1994 and asking it to return the title deeds to him after the repayment was made.

8. On 29 September 1994, the Plaintiff wrote to the 1st Defendant informing him that there were still amounts outstanding and that therefore the mortgaged property could not be released.

9. On 27 April 1995, the 1st Defendant wrote to the bank informing them that Sam Hing had ceased operating since 30 June 1993 and asking, inter alia, why the bank should be continuing to grant facilities to a company with no actual business activities and suggesting that the credit line in favour of Sam Hing was being used to finance other companies controlled by the 2nd Defendant.

10. Mr Yeung, for the 1st Defendant, has raised a number of matters which he contends are triable issues in this case. It is unnecessary for the purpose of this appeal for me to deal with them all.

11. Mr Yeung has referred to the power of the court in equity to discharge a surety if the person guaranteed does any act injurious to the surety or omits to do any act which his duty enjoins him to do (see Watts v Shuttleworth (1860) 5 H & N 235).

12. He also referred to the duties in law a bank owes to its customers whether they arise in contract or in tort, and in particular to the principles to which Steyn J (as he then was) referred in Barclays Bank v Quincecare Ltd [1992] 4 All ER 363 at 376.

13. I consider that the 1st Defendant has demonstrated that there is an issue to be tried as to whether the Plaintiff bank was in breach of its duty to him. The 1st Defendant's letter of 27 April 1993 was on its face a warning that Sam Hing was no longer carrying on business and suggesting that its proprietor, Mr Liu Lai Shing, might have been using its name to obtain credit from the bank for other purposes. If the 1st Defendant can establish the truth of his assertion that Sam Hing had ceased to carry on business, he might be able to establish at trial, depending on the evidence, that the Plaintiff, having been put on enquiry, failed to discharge its duty towards him. This is not a case where the assertion of the 1st Defendant that Sam Hing had ceased business in 1993 can simply be dismissed without giving 1st Defendant the opportunity of having the matter decided at trial, nor is it a case in which the court can simply conclude the Plaintiff's evidence of the steps it took were adequate discharge of any duty it owed. These are matters for trial.

14. I accordingly allow the appeal of the 1st Defendant against the order of Master Cannon in so far as it affects him. As a consequence, the order of Master Cannon in paragraph 1 of her order is therefore discharged in so far as it relates to the 1st Defendant. Paragraphs 2 and 3 of her order are similarly discharged.