THE HONGKONG AND SHANGHAI BANKING CORPORATION LTD v. YANG WAI MAN

HCMP 1003/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. HCMP 1003 OF 2006

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J U D G M E N T

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1. This is a mortgagee action where the Plaintiff claims against the Defendant for money due under a Charge on the property owned by the Defendant and also, in default of payment, for delivery of possession of the property.  The action was commenced by way of originating summons.  The Defendant failed to file any acknowledgement of service.  Pursuant to Order 88 of the Rules of High Court (Cap. 4A), the Plaintiff gave the Notice of Appointment supported by affirmation and applied for judgment.

2. The hearing took place in 25^th July 2006 and I entered judgment for parts of the sums claimed together with possession order but adjourned the claim for “overdue (late payment) interests” for further hearing.  The issue of overdue interest appears in various forms in different cases.  I have adjourned quite a number of the cases for consideration.  Messrs. Johnson Stokes & Master have chosen this case as the sample case for decision.  Because of various reasons, there has been some delay; the resumed hearing took place on 28 February 2007.

3.  I have ascertained from Mr. P. Lam of counsel for the Plaintiff that the calculation of interests in this case is as follows:

(a)	Interest on the outstanding principal at the rate of 5.65% per annum from 21.04.2006 to 18.05.2006		$4,386.51
(b)	Overdue (late payment) interest on the 4 instalments at the following rates:		$624.18
	(i)	12.00% per annum from 22.02.2006 to 29.03.2006 and
	(ii)	12.25% per annum from 30.03.2006 to 18.05.2006
(c)	Overdue (late payment) interest on the outstanding principal at 12.25% from 19.05.2006 to 05.06.2006		$6,280.04

4. It is very clear from the above that “overdue (late payment) interest” appears in two different contexts.  In paragraph 5(b) above, the phrase refers to an extra sum by the Plaintiff for failure to pay the instalments in time from 22 February 2006 to 18 May 2006 calculated at rates above specified on the instalments from the due date of each instalment to the date of commencement of this proceeding.

5. In paragraph 5(c), the overdue (late payment) interest is calculated at a rate (i.e. 12.25%) higher than the usual contractual rate on the outstanding principal from a day after commencement of proceeding to the date of affirmation.

6. The Plaintiff produced as evidence 3 documents in support of the application viz. (a) the Charge, (b) Letter of Demand and (c) Facility Letter dated 28 May 2001 which was confirmed and signed by the Defendant on 14 June 2001.  The Facility Letter sets out the terms and conditions of the loan to be granted by the Plaintiff.  The Facility Letter can be viewed as a preliminary conditional agreement as set out in term 11:

“11. The offer of the loan on the above terms is conditional upon your being granted a second loan (“second loan”) by The Hong Kong Housing Society (“HKHS”) under the Home Starter Loan Scheme and we reserve the absolute right to cancel or withdraw our offer if you fail to drawdown the second loan or if your eligibility for the second loan is revoked by HKHS.  You should notify us promptly of the occurrence of any of such events.”

7. I trust the condition mentioned in term 11 was fulfilled.  The Defendant executed the Charge on 20 June 2001.  The Defendant made default in payment of 4 instalments at the time of commencement of this action.  I have compared the terms of the Facility Letter and those of the Charge.  I find that some of terms are missing in the Charge, in particular, term 6 which states:

“6. Interest will be calculated daily on any sums due but not paid at 4.25% per annum over our Best Lending Rate.  Such interest will be payable monthly in arrears to the debit of your account 004-472-2-004845.”

8. The Plaintiff relies heavily on term 6 of the Facility letter to show that the Defendant is liable for payment of the overdue (late payment) interests, whatever its meaning maybe. Mr. Lam claims that term 6 has been incorporated into the Charge and appears in the form of Clause 3(a).  Clause 3(a) states as follows:

“(a) Interest on the Sum shall be charged at such rate or rates as may from time to time be stipulated under the terms of the Facility Letter.”

9. Clause 3(a) refers to the word “Sum”.  Sum is defined in the Charge in Clause 1(a) which refers to Part 4 of the Schedule.  The Sum means the sum of $1,145,200.00 being the amount advanced or to be advanced by the Plaintiff to the Defendant under the Charge.  It gives no power to the Plaintiff to capitalize the interest and to charge interest on interest.  Term 6 is different: the higher rate of interest is allowed on “any sums due but not paid”.  It is my judgment that the word “Sum” does not cover this.  I do not consider that term 6 has been incorporated as a term of the Charge.

10. In this case, according to the demand letter dated 22 February 2006, the outstanding principal was $1,033,444.28 as at 22 February 2006.  The Assistant Manager in her affirmation states that the outstanding sum as at the date of affirmation i.e. 5 June 2006 was $1,039,553.92.  I understand from Mr. Lam that the interest unpaid of $6,109.64 has been capitalized and included in the outstanding principal.

11. It has been argued that it is the bank practice to include overdue interest to become part of the outstanding principal sum.  I do not think that it is a general practice prevalent.  It very much depends on the type of loans.  If it is overdraft or commercial loan, I have no doubt Mr. Lam is right.

12. But, for home purchase loan, I think it is different, particularly the subject matter in this case which is usually called “Home Starter Loan Scheme”.  The intention is to facilitate and attract the new home buyers.  I do not think it is the intention of the parties to follow the Plaintiff’s general “bank practice” for commercial cases.  The word “Sum” is clearly defined: it means the sum advanced.

13. As to the 1^st item of overdue (late payment) interest (i.e. paragraph 3(b) above), it is an interest charged on the instalments in arrear.  I do not find any clause in the Charge that has the same meaning as term 6 of the Facility Letter.  I do not think it is right to allow it.

14. As to the 2^nd item of overdue (late payment) interest (i.e. paragraph 3(c) above), it is an interest charged on the outstanding sum at a higher rate as stipulated in term 6 of the Facility Letter.  Again as the Charge has not provided for it, I do not think I should allow it.

15. The order and judgment I made on 25 July 2006 should be varied to give the following effect that the Defendant has to pay:

(a) the outstanding principal of $1,033,448.28

(b) Interest on the outstanding principal from 21 April 2006 to 25 July 2006 at the rate of 5.65%

and    (c) Interest on the outstanding principal from 26 July 2006 to payment at judgment rate.

16. I direct and order that the order and judgment on 25 July 2006 be amended accordingly.

17. Subject to Order 42 rule 5B(6) of the Rules of High Court I make an order nisi that there be no order as to costs in respect of the claim for overdue (late payment) interest.