GENERALE BELGIAN BANK v. SEALAND WATERPROOFING ENGINEERS CO LTD AND OTHERS

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS

ACTION NO. MP 1914 OF 1998

______________________________

______________________________

--------------------------------------------------------------------

ASSESSMENT of the DEFENDANTS' LIABILITY

--------------------------------------------------------------------

Background

1. By way of an Originating Summons the plaintiff bank sought payment due under the respective covenants contained in respect of a Legal Charge dated 18^th March 1986 ("the 1^st Legal Charge"), a Mortgage dated 2^nd October 1991 ("the Mortgage"), a Legal Charge dated 10^th March 1993 ("the 2^nd Legal Charge"), and a Deed of variation of Legal Charge and Mortgage dated 1^st November 1996 ("the Deed"); delivery of vacant possession of the mortgaged properties; and costs.

2. Three properties were mortgaged to the plaintiff by the defendants. The 1^st property was the property located at 3A Grampian road. The 2^nd property was located at 43 Boundary Street. The 3^rd property was located at 10 Fa Po Street, Yau Yat Chuen.

3. D1 executed the 1^st Legal Charge relating to the 1^st property in the capacity of Requesting Party. D1 executed the Mortgage relating the 2^nd property in the capacity of Borrower. D1 executed the 2^nd Legal Charge relating to the 3^rd property as Requesting Party.

4. In the capacity of Requesting Party, D2 was made a party to the 1^st Legal Charge, the Mortgage, and the 2^nd Legal Charge by the Deed.

5. D3 executed the 1^st Legal Charge relating to the 1^st property as Borrower. D3 executed the Mortgage relating the 2^nd property in the capacity of Mortgagor. D3 executed the 2^nd Legal Charge relating to the 3^rd property as Mortgagor.

6. In the capacity of Mortgagor D4 executed the 2^nd Legal Charge in relation to the 3^rd property.

7. In essence the defendants did not deny the loans. The 3^rd defendant was the only one to file any evidence in opposition.

8. On the 14^th of October 1998 Master Chu granted orders for possession of the mortgaged properties. She ordered a stay of execution of the order of delivery of possession until further order from the court. Master Chu also gave Interlocutory Judgment for the amount of principal, interest, legal costs and other claims covered by the scope of the Legal Charge dated 18^th March 1986, the Mortgage dated 2^nd October 1991, and the Legal Charge dated 10^th March 1993, with the assessment of the defendants' liability be adjourned.

The Hearing

9. The assessment of the defendants' liability was heard on the 2^nd June 1999. None of the defendants appeared. Having been satisfied that the defendants had been duly served, the assessment proceeded in their absence.

10. Having heard and considered the evidence put forward by the plaintiff, I was satisfied that the plaintiff had proved the liabilities of the defendants as set out in the plaintiff's 4^th affirmation. I entered final judgment for the plaintiff with costs, to be taxed if not agreed.

11. The analysis of the evidence on each matter raised and my reasons are stated herein below.

The evidence put forward

12. The plaintiff called one witness, Mr TONG Wing Key, a Special Assets Manager of the plaintiff. Mr Tong was the deponent of the plaintiff's supporting affirmations. Mr Tong gave evidence in answer to the points raised by D3 in the latter's affirmations dated 27^th July 1998 and 8^th February 1999. Mr Tong gave his evidence in a clear and confident manner. I found him to be a truthful and reliable witness.

13. D3's complaints were extremely brief, and on the whole unspecific. D3's affirmations basically raised two matters. He said that he did not understand how the plaintiff calculated some of the sums claimed; and he queried the right of the plaintiff to certain sums claimed.

14. Mr Tong began by explaining the indebtedness of the defendants by reference to a Facilities Letter dated 11^th July 1997 (a copy of which was exhibited in D3's 2^nd affirmation "Exh KTC-1").

15. There were various banking facilities granted to the defendants. These were:-

          (a) 2 loans made to D1. They were Loan No 617-1115663-00 and Loan No 617-117635-00.

          (b) 2 overdraft accounts. The one numbered 617-423548-125 was for The account of D1. The one numbered 617-503160-355 was for the account of D2.

          (c) 2 Bills Facilities for the account of D1 and D2.

16. The banking facilities were secured by the 1^st and 2^nd Legal Charges, the Mortgage and the Deed. Those documents were executed by the defendants, making the defendants jointly and severally liable for the advances made by the plaintiff. The originals of those documents were submitted for the court's inspection.

The points raised by D3 "in opposition"

17. D3 complained that there was no breakdown of the sums allegedly owed by the defendants. He said that paragraph 17 of Mr Tong's 1^st affirmation was wholly inadequate to show the state of accounts between the plaintiff and the defendants. That paragraph sets out the state of accounts between the parties. That affirmation only gave brief details, in the format usually adopted in O88 applications. For the purposes of the assessment, the plaintiff's 4^th affirmation dated 28^th May 1999 provided an updated breakdown of the state of accounts in greater detail. I was satisfied with the evidence presented, and considered that this complaint of D3 had been sufficiently addressed.

18. D3 complained that the plaintiff had never informed the defendants what the rate of interest would be in the event of default or overdue payment. Having perused the evidence I found that this complaint was groundless. The defendants must have known the way in which interest would be charged on overdue instalments. It was stated in the Facilities Letter dated 11^th July 1997 that interest would be "Prime + 2% (presently at 10.75% p.a). subject to fluctuation at our discretion, payable monthly." D3 possessed a copy of that Facilities Letter, because he exhibited the same in his affirmation. I therefore rejected this allegation.

19. D3 said that he could not understand page 56 of Mr Tong's 1^st affirmation where the latter had said:

20. The Facilities Letter dated 11^th July 1997 had provided "Any amount unpaid on the due date will be subject to additional interest at the Bank's then prevailing overdue interest rate."

21. Having heard the evidence I was satisfied the that the plaintiff was entitled to charge interest rates of 15.39%p.a. and 11.72%p.a. It was unfortunate that the figure of "14.39%p.a." in page 56 of the plaintiff's 1^st affirmation was a typing error, which should have read "15.39%p.a.".

22. D3 had challenged the right of the plaintiff to charge a reassignment fee. Mr Tong conceded that in the circumstances of the case no Reassignment Fee ought to be charged. He assured the court that such a sum had not in fact been charged by the plaintiff.

23. In his 2^nd affirmation D3 referred to Exh TKC-2 and complained that in relation to account No. 617-117635-00 the defendants could not possibly owe the plaintiff the sum stated in paragraph 4 of the plaintiff's 3^rd affirmation.

24. Mr Tong gave evidence that the sum stated in paragraph 4 of his 3^rd affirmation was correct. He explained that the statement dated 19.10.98 covered interest for the period up to 5.10.98. If one referred to the dates in Exh WKT-9, it can be seen that the dates therein did not overlap with the dates in the document referred to by D3.

25. D3 alleged that discrepancies could be found in relation to the statement of account of Loan No. 617-117635-00 if one looked at the contents of the 2^nd and 3^rd affirmations of the plaintiff. D3 drew attention to an unexplained and dramatic reduction in the principal sum allegedly owed, from $1,052,683.51 to $543,422.57.

26. Mr Tong explained that a sum of money had been paid into the account of Loan No. 617-117635-00. Mr Tong said that as a result of litigation, a third party Paul Y Construction Company had credited that sum to the plaintiff. The sum received from Paul Y was paid into loan account No.617-117635-00 by the plaintiff. This payment-in reduced the amount the defendants were indebted to the plaintiff.

27. I noted that this was a large sum of over half a million dollars. It was a sum that had been credited to the defendants. It is not feasible the defendants were not aware of such a payment-in. With respect, I did not think that D3's complaint on this point can be sustained.

28. I believe that D3's next complaint meant that it would be unlikely for the plaintiff not to charge interest on principal on loan account No. 617-117635-00.

29. Mr Tong confirmed that no interest had been charged on principal. It was because only 3 instalments remained to be paid on that loan. In circumstances where interest had already been charged on overdue instalments, no interest would be due on the principal. He referred the court to Exh WKT-9 of his 4^th affirmation, showing the computations by the bank on this issue. I found that the explanation had been proffered by the plaintiff was a reasonable one.

30. D3 queried the way in which interest was calculated in the 2^nd affirmation. D3 asked how the plaintiff could sustain 2 items of overdraft accounts and 2 items of trust receipt accounts.

31. Mr Tong explained that many "facilities" were provided by the bank within the umbrella of one "Bills Facility". In this case the plaintiff had extended various trust receipts facilities to D1 and D2. Mr Tong referred to page 4 and 5 of the plaintiff's 4^th affirmation by way of illustration. One group related to "T/R facilities" (trust receipt facilities) advanced to D1. Another group related to T/R facilities advanced to D2. Numerous copies of documents entitled "Interest Debit Advice" had been sent to the defendants informing the defendants of the status of those accounts. These are located in Bundle 2. The period of time covered by these documents and their contents show that the situation in relation to the various accounts would not have afforded D3 any room for confusion as to the number and types of accounts that the defendants had opened and utilised.

Conclusion

32. For the reasons given above, I accepted the figures put forward by Mr Tong in his 4^th affirmation, and entered final judgment jointly and severally against the 1^st, 2^nd, 3^rd and 4^th defendants.

33. I find that up to 28^th May 1999 the plaintiff is entitled to principal and interest in the sums of HK$17,649,830.73 and US$34,981.86 together with interest on the sums of HK$17,362,835.58 and US$34,981.86 at the daily rates of HK$6,414.66 and US$10.79 respectively from and including the 29^th of May 1999 to the day of Judgment 2^nd June 1999 and thereafter at judgment rate until payment in full, together with the costs of the action and the assessment. Such costs will be taxed if not agreed.

34. The stay of execution imposed by Master Chu on the 14^th October 1998 is hereby uplifted.