XCHRX CHEKIANG FIRST BANK LTD. v. KO HOI LUEN AND ANOTHER

1998 HCMP No. 1950

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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J U D G M E N T

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Introduction

1. This is a mortgage action to which Ord. 88 of the Rules of the High Court applies. The premises to which the action relates are industrial premises in San Po Kong. They were mortgaged to the Plaintiff, Chekiang First Bank Ltd. ("the Bank"), by a legal charge dated 9th May 1995 executed by the Defendants to secure the repayment of sums lent by the Bank to the Defendants.

The facts

2. The unchallenged evidence is that the sum of $1.4m. was lent to the Defendants. That sum, together with the interest which would be accruing on it, was repayable by 96 equal instalments of $21,430.00 a month. The first instalment was due on 8th June 1995. Those repayments were secured by the charge. The charge contained the usual provision that if the Defendants failed to pay any of the instalments on the due dates, the whole of the outstanding loan and interest became payable immediately, and that if the Defendants failed to pay that amount immediately, the Bank could take such steps as it chose to realise its security.

3. It is not disputed that the Defendants failed to pay to the Bank the instalment due on 8th April 1998. Accordingly, by a letter dated 28th April 1998, the Bank's solicitors wrote to the Defendants demanding payment of the whole of the outstanding amount and interest, which then amounted to $906,419.80. Only a small sum was paid towards that indebtedness, and accordingly the Bank commenced these proceedings by an originating summons filed on 5th May 1998. The Bank sought payment of the whole of the outstanding amount and interest, which was then $889,796.70, and the delivery-up of vacant possession of the premises.

The hearing before the master

4. The summons eventually came before the master on 10th March 1999. By then, further payments had been made to the Bank, but the Defendants were (on the assumption that the monthly instalments remained at $21,430.00) $48,470.80 in arrears. That had reduced the outstanding amount and interest which was then due to $778,994.21. The Defendants were not represented at the hearing, but the 2nd Defendant appeared and she requested time to pay. However, the master's understanding of what she was actually asking for was different from that of the assistant solicitor in the firm of solicitors instructed by the Bank who attended the hearing. The solicitor's understanding was that the 2nd Defendant was saying that she intended to pay the whole of the outstanding amount and interest by the end of the month. The master thought that she was saying that she could pay off the arrears of instalments by the end of the month. The note which the master made at the time reads:

"Court: In view of the payment by Defendants will adjourn this application to enable Defendants to pay off all arrears of instalments.

Order: Adjourned to a date to be fixed (in Ord. 88 Court) (not to be restored before 31st March). Costs reserved."

He was subsequently asked to clarify whether he really meant to refer to the arrears of instalments as opposed to the whole of the outstanding amount and interest due. The master commented as follows:

"The matter was adjourned to see whether the Defendants are able to repay all the arrears of instalments within one month of March 1999. If the Defendants are able to repay them, then is the Plaintiff prepared to consider not to proceed with the application further. However, if the Plaintiff decides to proceed with the matter irrespective of whether the Defendants have paid all the arrears or not, the Plaintiff is entitled to restore the matter after March 1999."

The Bank now appeals from the order which the master made. It contends that it was entitled as of right to an order for possession of the premises.

The appeal

5. There is one well-recognised exception to the rule that where the whole of the sums advanced have become due, a mortgagee is entitled as of right to an order for possession of the mortgaged premises (unless, of course, the mortgage deed provides otherwise). In Birmingham Citizens Permanent Building Society v. Caunt [1962] Ch. 883, it was held that the court can adjourn the hearing of the application for an order for possession for a short time to give the borrower the chance to pay off the mortgage in full, though that power should only be exercised if there is a reasonable prospect of payment being made. Other jurisdictions mitigate the effect of this rule in relation to dwelling-houses, but no such statutory modification to the common law rule has been enacted in Hong Kong so far as I know, and in any event the premises in the present case are not a dwelling-house.

6. It follows that the master was not entitled to adjourn the hearing of the summons to enable the Defendants to pay off the arrears of instalments. He was only entitled to adjourn the hearing to enable the Defendants to pay off the whole of the outstanding amount due under the charge plus interest, and even then only if the Defendants had demonstrated that they could do that in a short time. The Defendants did not assert that they could have done that. Nor do they assert today that they could do that. Indeed, apart from a payment of $4,000.00, no payments have been made to the Bank since the hearing before the master. Accordingly, I have no alternative but to allow the appeal, to set aside the order which the master made, and to substitute for the order which the master made the following orders:

(i) an order for payment by the Defendants to the Bank of the sum of $774,994.21,

(ii) an order for the delivery-up by the Defendants to the Bank of vacant possession of the premises, and

(iii) an order for the redelivery-up by the Bank to the Defendants of vacant possession of the premises in the event of the Defendants paying to the Bank all the sums secured by the legal charge, though that order for redelivery-up is subject and without prejudice to the due exercise by the Bank of the power of sale for the time being vested in it.

I shall hear from the parties as to the rate of interest on the judgment debt, and the date from which it should run, and also as to the date by which the Defendants should be required to deliver up vacant possession of the premises.