INTERNATIONAL BANK OF ASIA v. HO LAI LAN

 [English Translation]
CACV 634/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 634 OF 2000

(ON APPEAL FROM HCMP NO. 639 OF 2000)

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JUDGMENT

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Hon Leong CJHC (giving the judgment of the Court):

1. In this case, the plaintiff (i.e. the appellant), International Bank of Asia is the mortgagee of the property situated at No. 57 Pinery Road South, Fairview Park, Yuen Long, New Territories (hereinafter called “the property”).  The defendant (i.e. the respondent), Ho Lai Lan is the mortgagor of the property.

2. In 1997, the defendant mortgaged the property to the plaintiff by way of a registered legal charge as a security for obtaining general banking facilities from the plaintiff.  According to the mortgage deed, the defendant agreed to make monthly repayments on the loan and pay interest at the annual rate prescribed by the plaintiff.  The parties also agreed that, if the defendant failed to fully repay all outstanding sums upon demand by the plaintiff, the plaintiff was entitled to take over and realise the property at any time.  The deed provided that the defendant had to make a monthly repayment of HK$24,648.58.

3. In 1999, the defendant met with financial difficulty and was unable to make the monthly repayment of more than $20,000.  She was in arrears for months.  Consequently, on 29 December 1999 the plaintiff issued a written demand notice to the defendant, requiring her to pay off within one month a total sum of HK$2,836,026 being outstanding loan and interest. The defendant was also reminded that if she failed to settle the outstanding sum within the time limit, the plaintiff was entitled to take over and realise the property in accordance with the mortgage deed.

4. On 2 February 2000, the plaintiff took out an originating summons in the High Court, seeking recovery of the outstanding sum from the defendant and delivery of possession of the property to the plaintiff.

5. The defendant filed an affirmation in defence, in which she had the following to say:

“… In mid-December 1999, my husband Chan Tin Cheuk contacted the International Bank of Asia (Whampoa Garden branch) on a number of occasions … [He] negotiated with a Mr Siu of the International Bank of Asia (Whampoa Garden branch) and made two requests.  First, he asked the bank to reduce the interest on the repayments.  Second, he asked the bank to permit me to rent out the said house, the rental value of which was around $15,000 at that time.  To lessen the burden of paying the mortgage loan, our family of four — including my husband, my son and my daughter — could rent a flat in Kingswood Villas, Tin Shui Wai for accommodation at a rental of around HK$4,000.  Mr Siu of the International Bank of Asia (Whampoa Garden branch) gave an oral promise to my husband over the phone that there would be no problem with the two requests, in particular, I would be permitted to rent out the property.  (According to the contract, I cannot rent out the property without the approval of the lending bank.)  Since the bank had confirmed its approval for me to rent out the property, I immediately went with my husband to the commercial centre of Fairview Park and instructed the estate agencies there to put up offers to rent out the property.  On the other hand, we went to Kingswood Villas in Tin Shui Wai to look for a suitable accommodation for rental. … By end of January 2000, we had selected one or two prospective tenants and were prepared to execute a provisional tenancy agreement so that it could be submitted to the International Bank of Asia (Whampoa Garden branch) for approval.  On the other hand, we had chosen a 700-odd square feet flat in Kingswood Villas.  I prepared to enter into an agreement to rent the Kingswood Villas flat immediately after I had entered into a lease to rent out my own house.  My husband had contacted Mr Siu of the International Bank of Asia (Whampoa Garden branch) in early January 2000 and promised that, upon receiving the deposit and the advance rental payment which equaled 3 months’ rent (a total of $45,000 on a monthly rent of $15,000), he would repay part of the outstanding mortgage loan first.  Furthermore, a document containing information which showed that I was owed more than HK$100,000 by my customers was faxed to Mr Siu, and my husband said that once this sum was received, it would immediately be used for settling all the arrears of mortgage payments.  Mr Siu was very satisfied with my husband’s suggestions.

       However, just as we had made all the arrangements (rented out our own house and rented a flat in Kingswood Villas), we suddenly received a summons from the High Court of the Hong Kong Special Administrative Region taken out by Wong, Shum & Co, the legal representative of the International Bank of Asia, demanding repayment of all outstanding sums and delivery of vacant possession of the mortgaged property to the bank, so I immediately raised objections to it …”

6. The defendant’s husband Mr Chan Tin Cheuk also gave similar evidence in his affirmation dated 23 June to support the defendant’s case.  He said:

“Every time when the employees of the International Bank of Asia such as Miss Ka, the manageress of the Whampoa Garden branch and Mr Siu got in touch with me, they would contact and negotiate with me directly.  In mid-1999, we were in financial difficulties and began to fall behind in the mortgage payments.  Every time Mr Siu of the Whampoa Garden branch of the International Bank of Asia telephoned me, we discussed the question of mortgage payments, and I would try my best to arrange for the payments.  By the end of 1999, with a diminution of our income, we could indeed no longer afford to make the monthly repayment which was between $20,000 and $30,000. In mid-December 1999, when Mr Siu of the Whampoa Garden branch of the International Bank of Asia telephoned me again to discuss the question of the mortgage payments, I made two requests to Mr Siu.  First, I asked the bank to reduce the interest on the repayments.  Second, I asked the bank to permit my wife Ho Lai Lan to rent out the said property which we used as our own accommodation, so as to lessen our burden in meeting the mortgage payments.  At that time, Mr Siu readily promised to me that there would be no problem with these requests, and therefore I had trust in the oral promise made by Mr Siu of the Whampoa Garden branch of the International Bank of Asia.  And this new oral promise varied the previous agreement between my wife Ho Lai Lan and the International Bank of Asia which required notices to be given in writing.”

7. Mr Siu Wing Chuen, the person in charge of the Whampoa Garden branch of the plaintiff bank, denied in his affirmation that he had entered into any oral agreement with the defendant to reduce the interest or permit her to rent out the property.  He said he contacted the defendant and/or Mr Chan Tin Cheuk in mid-October 1999 concerning the settlement of the arrears of mortgage payments, and at that time neither the defendant nor Mr Chan made any request for a reduction of interest or permission to rent out the property.  Even if the defendant or Mr Chan did make such requests in December, neither Mr Siu nor other staff members of the plaintiff had ever acceded to the requests.  As the defendant was unable to make repayments, Mr Siu issued a demand notice to her, demanding her to pay the arrears within one month.  Subsequently, he instructed the plaintiff’s legal representative to take legal action against the defendant for recovery of the outstanding loan and for taking possession of the property.

8. The plaintiff obtained judgment in its favour in August 2000, when Master Cannon ordered the defendant to repay HK$2,836,026 being outstanding loan and interest, and to deliver possession of the property to the plaintiff within 42 days from the service of the order upon her.  The Order further provided that, upon repayment of all sums that the defendant was ordered to repay, the plaintiff had to deliver possession of the property back to her.

9. The defendant appealed against the Master’s decision to the Court of First Instance of the High Court.

10. Mr Ng Cheuk Yin, a manager in the employment of the plaintiff, stated in his 2^nd affirmation of 15 September that, in his understanding, Mr Siu Wing Chuen had never agreed to restructure the defendant’s debt, nor did he have the power to make any debt restructuring agreement with a debtor.  Such power, Mr Ng said, only rested with the Credit Committee, which was an internal department of the plaintiff.  Furthermore, the repayment proposals as alleged by Mr Chan Tin Cheuk had never appeared in the plaintiff’s records.

11. Judge Yam of the Court of First Instance allowed the appeal.  He set aside the Master’s orders, ordered the plaintiff to submit a Chinese statement of claim within 28 days from the date of the order, and ordered the defendant to submit a defence within 21 days thereafter. Yam J further ordered that all the subsequent proceedings must be conducted in Chinese and that all documents to be submitted by and future correspondence between the parties must also be in Chinese.

12. Yam J said in his judgment:

“I am satisfied that the defendant Madam Ho has shown good reasons for raising the following triable issues of fact.  First, whether the bank had, by reason of its promise, waived the requirement of issuing a written permission for [the defendant and her husband] to rent out the property and had, by mutual agreement, temporarily withheld any recovery action so as to enable them to rent out the property.  Second, whether Mr Siu had made such a promise on behalf of the bank.  Third, whether the defendant had, on the basis of the bank’s promise, altered her position and suffered loss as a result.

       In my judgment, the defendant Madam Ho has demonstrated in her affirmation that this action involves issues on the law of waiver which have to be tried by the court.  The question regarding Mr Siu’s power is also one of mixed law and fact.  Therefore, I allow Madam Ho’s appeal. …”

13. The plaintiff now appeals to this court against the above decision. There are two main grounds of appeal.  First, Judge Yam erred in his findings of facts.  He should not have found that the plaintiff had promised to reduce the interest and stop demanding payment from the defendant for the time being.  He also should not have found that the defendant had relied on the plaintiff’s promise.  Secondly, even if the plaintiff had made the above promise, the plaintiff only promised not to demand payment from the defendant for the time being, and by issuing the demand notice to the defendant on 29 December 1999, the plaintiff had informed the defendant that the promise would come to an end and that the plaintiff would resume exercising its rights as a creditor to seek recovery of the outstanding loan and possession of the property.

14. Counsel for the plaintiff Mr Chan has cited a number of cases on the law of promise to support his arguments.  The legal principles involved in those cases are well-established and we see no need to restate and explain them here.  In our judgment, the main issue in this appeal is whether the defendant has an arguable defence to the plaintiff’s claim for recovery of the outstanding loan and possession of the property.  This was also what Yam J had to deal with when he heard the appeal lodged by the defendant.  The main consideration was whether the defendant had shown in the affirmations submitted — including Mr Chan Tin Cheuk’s affirmation — that there were arguable issues of fact and defence which had to be tried and determined by the court.  Yam J was not concerned with whether those grounds could be established in the end and whether the facts in question would be found to be true.  Yam J had not made any finding of fact.  Accordingly, the first ground of appeal cannot stand.

15. The evidence given by the defendant and Mr Chan Tin Cheuk in their affirmations serve to support the defendant’s assertion that Mr Siu Wing Chuen, the person in charge of the Whampoa Garden branch of the plaintiff, had verbally promised to them that the interest would be reduced and that the defendant would be allowed to rent out the property so as to lessen her burden and make it easier for her to continue with the repayments.  Having been given such a promise, the defendant proceeded to look for tenants and a suitable accommodation for rental.  By making the promise, the plaintiff was giving the defendant an opportunity to improve her financial situation so that she could repay part of the outstanding loan. The plaintiff did not expressly promise not to recover the outstanding loan and claim possession of the property; however, by allowing the defendant to rent out the property, the plaintiff had in effect promised not to exercise the rights of seeking recovery of the outstanding loan and possession of the property as set out in the mortgage deed, thereby permitting the defendant to keep possession of the property.  Whether Mr Siu did make such a promise, and whether he was entitled to make such a promise on behalf of the plaintiff, are both contentious issues of fact.  The defendant claimed that Mr Chan Tin Cheuk telephoned Mr Siu in January 2000 and proposed to settle part of the arrears with the deposit and advance rental payment — which equaled three months’ rent — to be received from renting out the property, and to pay off the balance immediately after she received money owed to her by her customers, and the proposal was allegedly accepted by Mr Siu.  As to whether the demand notice issued by the plaintiff on 29 December can be regarded as reasonable notice to the defendant for terminating the promise, the answer depends on whether the above allegations of the defendant are true.  This is another factual issue under dispute. Also under dispute is a more significant issue: if what the defendant says is true, namely, the plaintiff had made the above promise, then in equity, was the plaintiff estopped from denying its promise not to exercise, for the time being, its rights under the mortgage deed, i.e. not to demand the defendant to perform her obligation to make repayments?  And the length of time of withholding exercise of the plaintiff’s rights is yet another issue in dispute.

16. For the above reasons, we see nothing improper with Yam J’s decision. We therefore dismiss the appeal. We order that costs of this appeal shall be borne by the plaintiff and the defendant’s own costs are to be taxed in accordance with the Legal Aid Regulations.