DAH SING BANK LTD v. DYNASTY MANAGEMENT LTD AND OTHERS

HCA 2554/2018

[2020] HKCFI 1695

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2554 OF 2018

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BETWEEN

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D E C I S I O N

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1.  This is an appeal against the Order of Master Dick Ho dated 12 August 2019 entering summary judgment in the sum of HK$26,762,009.04 (together with interest thereon) against the 1^st to 3^rd Defendants for their joint and several liabilities arising from the debts due and owing to the Plaintiff under certain banking facilities.

2.  Miss Alison Choy of Counsel appeared on behalf of the Plaintiff.  The 2^nd and 3^rd Defendants appeared in person.  There is no solicitor on record acting for the 1^st Defendant.  Since no application has been made for the appointment of a representative under RHC O5, r6, the hearing proceeded on the basis that the 1^st Defendant was absent.

3.  At the hearing, only the 2^nd Defendant addressed the Court and the 3^rd Defendant was contented to adopt the submissions made by the 2^nd Defendant.  The hearing was conducted in English and a court interpreter was arranged for the benefit of the 2^nd and 3^rd Defendants.  In any case, it is evident that the 2^nd Defendant was well versed with the English language and he addressed the court in fluent English at times despite having elected to use Cantonese.

BACKGROUND

4.  The 1^st Defendant was a company incorporated in the Hong Kong and was the borrower of a loan as evidenced in (1) a “General Agreement for Commercial Business” dated 20 June 2010; (2) a Facility Letter dated 10 March 2016; and (3) a Supplemental Facility Letter dated 3 May 2016 (Exhibits LS 1 to LS-3).

5.  By a guarantee dated 30 June 2010 (Exhibit LS-4), the 2^nd and 3^rd Defendants agreed to act as guarantors of the loans advanced by the Plaintiff to the 1^st Defendant under the banking facilities and also as “primary obligors” (Clause 3).  The 2^nd Defendant was a director of the 1^st Defendant.  The role of the 3^rd Defendant in the 1^st Defendant company was not clear but she was a joint signatory of various documents executed by the 1^st Defendant, along with the 2^nd Defendant.

6.  The banking facilities were secured against a landed property owned by the 1^st Defendant situated at and known as Shop 1 on G/F, Chip Lee Building, Nos 18, 18A, 20 & 20A Mong Kok Road & Nos 178, 182 & 182A Sai Yeung Choi Street South Kowloon (the “Property”).

7.  On or about 22^nd June 2017, in order to cover the 1^st Defendant’s indebtedness under the banking facilities, the 1^st Defendant surrendered the Property to the Plaintiff with power of sales.  This was evidenced in an undated “Confirmation and Acknowledgment” (the “Letter of Surrender”) at Exhibit “CWS-1” and a letter from the Plaintiff to the 1^st Defendant dated 29 January 2018 notifying that a public auction of the Property was to be held on 6^th February 2018 (Exhibit LS-7).

8.  Under Clause 5 of the Letter of Surrender, the 1^st Defendant was entitled to be notified of any proposed sales of the Property by the Plaintiff to any potential purchaser and was at liberty to nominate, within 2 working days thereof, an alternative purchaser offering a price matching the offer of the potential purchaser identified by the Plaintiff.

9.  Between February 2018 and April 2018, the Property was put up for public auction held by AA Property Auctioneers Ltd on 6 February 2018 (reserved price of HK$38,500,000), 28 February 2018 (reserved price HK$36,600,000) and 13 March 2018 (reserved price HK$34,800,000) but no bid was received on each occasion (see Auction Reports at Exhibit LS-8).

10.  There is no evidence that the Auction Reports were sent to the Defendants at any stage. That said, the Open Bid was HK$35,000,000 for the first two auctions, which was reduced to HK$32,000,000 in the last auction.

11.  On 23 April 2018, a written offer was received by the Plaintiff from Sky Rainbow Investment Limited (“Sky Rainbow”) to purchase the Property at a price of HK$33,800,000 (Exhibit LS-15).

12.  On the Plaintiff’s case, a written notice of the proposed sales to Sky Rainbow (the “Notice of Sales”) by way of a letter dated 27 April 2018 marked with the business address of the 1^st Defendant at Suite A, 24/F, Gee Chang Hong Centre, 65 Wong Chuk Hang Road, Hong Kong (the “Business Address”) (Exhibit LS-8) was emailed by Mr Danial Yau, Relationship Manager, to the 2^nd Defendant on 27 April 2020 (Exhibit LS-11).  This is however disputed by the 2^nd Defendant (see below).

13.  In due course, a Provisional Sales and Purchase Agreement dated 17 May 2018 was entered into, which was followed by an Agreement for Sales and Purchase dated 31 May 2018.  Completion of the transaction thereunder took place on 28 June 2018 (see Land Search at Bundle D/236).

14.  Upon completion, the net proceeds of sales totalling (HK$20,584,527.37 + HK$12,811,864.96 + HK$23,128) = HK$33,419,520.33 was applied towards pro tanto discharge of the 1^st Defendant’s indebtedness towards the Plaintiff (see Statement of Account at Exhibit LS-5).

15.  As of 20 July 2018, the balance of the debts due and owing from the 1^st Defendant to the Plaintiff was HK$23,379,004.91 (together with accruing interest amounting to HK$3,111,476.33).  On the Plaintiff’s case, a demand letter was sent by Messrs K B Chan & Co (for the Plaintiff) to the Business Address. A similar demand letter was sent to the 2^nd and 3^rd Defendants at the Business Address and also their residential address at Apartment B-1, No. 45 Deep Water Bay, Hong Kong (see Paragraph 12 of the Affirmation of Shum Chi Kwan Lydia dated 28 November 2018 and Exhibit LS-5).  This is disputed by the Defendant (see below).

16.  As of 29 October 2018, the total indebtedness of the 1^st Defendant was HK$23,363,437.98 (together with accruing interest amounting to HK$3,298,571.06) as set out in updated Statement of Account (see Exhibit LS-13).

17.  The Writ of Summons herein was issued on 31^st October 2018 claiming against the 1^st to 3^rd Defendants for the outstanding sums as set out in Paragraph 16 hereinabove.  By a Summons dated 28 November 2018, the Plaintiff applied for Summary Judgment under RHC O14, r1.

18.  The substantive hearing of the application was heard before Master Dick Ho on 12 August 2019 whereupon Summary Judgment was entered against the 1^st to 3^rd Defendants.  A Notice of Appeal was filed on 16 September 2019, which was out of time.  However, the Plaintiff was prepared to deal with the merits of the appeal and rightly did not take issue with the late notice.

19.  The main thrust of the defence to the Plaintiff’s claim is that the Defendants did not receive any prior notification of the proposed sales to Sky Rainbow as the 1^st Defendant was entitled under the Letter of Surrender.  In particular, they denied having received the Notice of Sales. As a result, they were deprived of the opportunity to nominate an alternative buyer and the Property was sold to Sky Rainbow at grossly undervalue.  Along the same vein, it is alleged that the Plaintiff acted negligently in the exercise of its power of sales (Paragraphs 7 and 8 of the 1^st Affirmation of the 2^nd Defendant).

LIFTING OF STAY – LATE APPLICATION FOR LEGAL AID

20.  Initially, the appeal was scheduled to be heard before the Honourable Madam Justice B. Chu on 20 November 2019 (Wednesday).  However, the 2^nd and 3^rd Defendants applied for legal aid on 18 November 2019.  By operation of s.15 of the Legal Aid Ordinance, Cap 91 (as read with s 7A of the Legal Aid Regulations, Cap 91A), the appeal was stayed for a period of 42 days.

21.  In due course, the application of the 2^nd and 3^rd Defendants for legal aid was refused on 3 February 2020.  Due to the intervening General Adjourned Period imposed by the Court, a hearing date could not be fixed in the meantime.

22.  Whilst the 2^nd and 3^rd Defendants had carriage of the appeal, it was the Plaintiff who took the initiative to restore the hearing.  By three letters all dated 11 May 2020 and addressed to each of the 1^st to 3^rd Defendants at Room 2504-05, 25F Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong (ie the address for service stated in the Acknowledgement of Service of each of the Defendants (the “Address for Service”) filed on 22 November 2018), the Plaintiff’s solicitors informed the Defendants that their clerk would attend the Court Registry at 11:30 am on 18 June 2020 to fix a date for the hearing.

23.  Accordingly, a date for the hearing of the appeal was fixed for 22 July 2020 and a Notice of Hearing (dated 23 June 2020) was sent by the Court to each of the Defendants at the Address for Service.  Thereafter, by a letter to the Court dated 26 June 2020, the Defendants applied to re-fix of the hearing date alleging that:

“1. Neither one of us has ever been informed by way of written or of (sic) oral from the said K.B. Chau & Co. or from the Court for attendance at the office of the Deputy Clerk of Court (Civil) on 18 June 2020 for obtaining an appointment for the Hearing Date.” (emphasis added)

24.  In essence, the Defendants alleged that they had never received the Plaintiff’s letter dated 11 May 2020.  This is unbelievable. Firstly, it is self-evident in their letter dated 26 June 2020 that the Defendants were in receipt of the Notice of Hearing within a few days after it had been sent on 23 June 2020 to the Address for Service.  Secondly, the Defendants were able to recite the date of “18 June 2020” which is most probably to have been ascertained from the Plaintiff’s letter dated 11 May 2020.

25.  Another reason proffered by the Defendants was that the attendance of the 2^nd Defendant, as a principal of the 1^st Defendant, was essential.  However, he had booked a flight to travel to Chengdu to receive acupuncture over the period of time from 16 July to 4 September 2020.  It was also claimed that the 3^rd Defendant was also in ill-health and could not represent the Defendants.

26.  To accommodate the 2^nd Defendant, the hearing was moved forward to 15 July 2020 by order of the Honourable Madam Justice Queeny Au-Yeung. Accordingly, the Defendants were notified by a letter of the Court dated 2 July 2020.  Up to this point, nothing was mentioned by the Defendants of the intention of the 2^nd and 3^rd Defendants to re-apply for legal aid.

27.  Thereafter, on or about 8 July 2020, the Court was in receipt of two memoranda from the Director of Legal Aid notifying that the 2^nd and 3^rd Defendant had made an application for legal aid.  By operation of law, the proceedings herein were again stayed.

28.  By a letter from the Court dated 10 July 2020 and sent to the Defendants at their Address for Service, parties were notified that any application to lift the stay would first be dealt with at the hearing scheduled for 15 July 2020.  In anticipation of such application, directions for lodging of submissions were given.  Thereafter, the Plaintiff issued a summons on 10 July 2020 (the “Summons”) to apply to lift the stay but only managed to serve it on the Defendants at their Address for Service on 13 July 2020.

29.  The guiding principles for lifting of the statutory stay imposed by the relevant provisions under the Legal Aid Ordinance is well settled (see DHCJ Anson Wong SC in Choi Tak Man v Chan Yuk Lan, Didi & Anor, HCA 600/2005 (unrep), 20 January 2017 (at Paras 30 to 37 as endorsed by Court of Appeal in Tang Shuk Chun v Director of Food and Environmental Hygiene, CACV 5/2006 (unrep), 17 November 2017).  It is all a matter of fairness to the opposing party and proper administrative of justice. It is incumbent upon the party applying for legal aid to do it in good time so as to avoid unnecessary delay or to offer proper explanation as to why it could not be done. 

30.  At the hearing, the 2^nd Defendant claimed that he did not receive the Plaintiff’s Summons nor the Court’s letter dated 10 July 2020.  This is doubtful in light of the background as set out in Paragraph 24 hereinabove.  In any event, given the fact that legal aid had previously been refused on 3 February 2020, I would have entertained the Plaintiff’s application to lift the stay even without a summons in the circumstances.

31.  Importantly, it would appear that the Defendants were in any event prepared to attend Court for the hearing on 15 July 2020.  On or about 13 July 2020, the Court was in receipt of a written submissions from the Defendants (dated 9 July 2020) attaching a letter from Mr Francis KS Shum (Fellow member of the Royal Institution of Chartered Surveyors), the Chief Property Consultant of ROFTA Consulting dated 9 July 2020 (the “Surveyor’s Letter”). 

32.  It was stated in the Surveyor’s Letter that a meeting was held with the 2^nd and/or 3^rd Defendants on 30 June 2020 followed by an inspection of the Property carried out on 5 July 2020.  It was also stated therein that:

“Based on the available evidence, we have formulated our preliminary view that the Market Value of the Property as at 27 April 2018 should be grossly exceeding the amount quoted by you at HK$33,800,000”.

33.  At the hearing, the 2^nd Defendant explained that the Defendants were in financial ruin and could not afford private legal representation.  He received some informal assistance from his lawyer friends and they would not want to come on record to represent him since solicitors firms in general would not want to be on the opposite side of powerful institutions, such as the banks, which are a source of work for many of them.

34.  The 2^nd Defendant said all along he and the 3^rd Defendant had passed the means test for the purpose of the legal aid application.  However, legal aid was refused on the last occasion since they were not able to procure any expert opinion from a surveyor to demonstrate that the Property had been sold by the Plaintiff at undervalue.

35.  The 2^nd Defendant claimed that since about December 2019, he had entrusted a friend, whom he declined to identify despite request of the Court, to find an authoritative surveyor to assist him.  He did not have any particular surveyor in mind.  He was given the impression that most surveyors, like solicitors, would not want to antagonize the banks, which were a significant source of work.  He said it was not until June 2020 when his friend identified Mr Shum as the authoritative surveying expert and he only managed to line up a meeting on 30 June 2020 since Mr Shum was in high position and needed to assess his trustworthiness before deciding whether to act as his expert.

36.  Against the foregoing background, I have come to the firm view that the explanation given by the 2^nd Defendant (and the 3^rd Defendant through the 2^nd Defendant) as to the delay in their applications for legal aid is not believable and not satisfactory.

(a) Firstly, the difficulty in identifying a suitable surveying expert was mentioned for the first time in the 2^nd Defendant’s oral submission.

(b) Secondly, if the reason were genuine, it was extraordinary that when he applied to the Court to re-fix the hearing of the appeal by letter dated 26 June 2020, he did not inform the Court of this as well as their intention to re-apply for legal aid.

(c) Thirdly, there is no lack of qualified surveying experts in Hong Kong.  The 2^nd Defendant was all along aware of the need for expert evidence (see Transcripts of hearing before Master Dick Ho, at 50R, 51R and 53E).  It is unreasonable for the Defendants to do nothing to locate an expert and only waited for the “unidentified” friend months after months, even if it were truly the case.

(d) Fourthly, it was also unreasonable for the Defendants not to re-apply for legal aid in good time and alert the Plaintiff and the Court of his intention to do so.  No doubt, by the time the Plaintiff was informed on 8 July 2020 (ie only 1 week before the hearing), substantial legal costs had already been incurred by the Plaintiff.

37.  For the reasons set out hereinabove, the statutory stay by operation of s 15 of the Legal Aid Ordinance (Cap 91) was lifted.  It is further ordered that the costs of and occasioned by the Summons be paid by the 2^nd and 3^rd Defendants to the Plaintiff.  For the avoidance of doubt, I also grant an order for abridgement of time for service of the Summons.

THE APPEAL

38.  In Schindler Lifts (Hong Kong) Ltd. v Ocean Joy Investments Ltd [2003] 1 HKC 438, Ma, J (as the learned Chief Justice then was) succinctly summarised the approach towards an application for summary judgment as follows :

“10. In deciding whether or not summary judgment should be given, I bear in mind the standard approach in such applications:-

(1) Factually, it has to be determined whether what the defendant says is believable, rather than whether its version of events is to be believed:- see Ng Shou Chun v Hung Chun San [1994] 1 HKC 155, at 158 per Godfrey JA; Re Safe Rich Industries Limited, unreported, 3 November 1994, CACV 81/1994.

(2) As a matter of law, even if what the defendant says is believable, does it amount to an arguable defence in law?”

39.  In both his written and oral submissions, the 2^nd Defendant raised the following grounds of appeal:

(a) The learned Master was biased against the 2^nd Defendant, whom the Master seemed to have come across in a District Court case, and he was not afforded proper opportunity to present the defence case.

(b) In breach of the agreed terms under the Letter of Surrender, the Plaintiff failed to notify the 1^st Defendant of the proposed sales of the Property to Sky Rainbow at the material time. Therefore, the Defendants were deprived of the opportunity to nominate an alternative buyer.

(c) No proper valuation of the Property was done by the Plaintiff prior to the sales to Sky Rainbow resulting in the sales at the price of HK$33,800,000, which is grossly below the true market value of the Property at the material time.

40.  The first ground can be disposed of very quickly.  As explained to the 2^nd Defendant, this appeal is by way of a fresh hearing and therefore the alleged bias on the part of the learned Master is not relevant.

41.  As to the second ground, the relevant part of the Letter of Surrender provides as follows:

“We [1^st Defendant] hereby agree that you may sell the Property in exercise of your power of sale under the Mortgage … subject to your informing us of any and all offers from prospective purchasers for the purchase of the Property … whereupon we shall be at liberty to nominate a prospective purchaser (the “Nominated Purchaser”) to purchase the Property on the same or better terms … by giving a written notice of nomination within 2 days of receipt of notice of the [Offer] and you shall enter into a preliminary agreement for sale and purchaser with the Nominated Purchaser in respect of the Property.” (emphasis added)

42.  In the premises, the 2^nd Defendant alleged that the Plaintiff failed to inform the 1^st Defendant prior to the sales of the Property on 28 June 2018 (Paragraph 5 of the 1^st Affirmation of the 2^nd Defendant dated 4 February 2019).  In particular, the 2^nd Defendant denied having received the Notice of Sales dated 27 April 2018 (see Exhibit LS-9 and Paragraph 5 of the 2^nd Affirmation of the 2^nd Defendant (dated 25 March 2019), contradicting Paragraph 8 of the 2^nd Affirmation of Shum Chi Kwan Lydia of the Plaintiff (dated 18 February 2019).

43.  In this respect, the Plaintiff explained that the Notice of Sales was sent by way of an attachment to an email sent by Mr Daniel Yau at 5:37pm on 27 April 2018 to the email address (dg1668@netvigator.com) as appeared on the 2^nd Defendant’s name card (Exhibit LS-11) followed by confirmation with the 2^nd Defendant on the phone (see Paragraph 5 of the 3^rd Affirmation of Shum Chi Kwan Lydia (dated 4 April 2019).  Before the learned Master and this Court, Miss Choy confirmed that the Notice of Sales was however not sent by post or any other means (Transcript at 27B). 

44.  Remarkably, notwithstanding that the 2^nd and 3^rd Defendants appeared before Master Hui for a call-over hearing on 29 April 2019 whereupon directions were given for fixing of date for the substantive hearing, no further affirmation was filed by the Defendants.  Nor was there any application made by the Defendants to file further affirmation in reply to the 3^rd Affirmation of Shum Chi Kwan Lydia.

45.  Further, it is instructive to note that under the Letter of Surrender, only the 1^st Defendant was entitled to receive the Notice of Sales in respect whereof there was no provision as to the mode of service. As far as the 1^st Defendant is concerned, the mode of service is not provided for in “General Agreement for Commercial Business”, the two Facility Letters and the Letter of Surrender (Exhibits LS-1, LS-2, LS-3 and LS-9).

46.  Hence, the dispatch of the Notice of Sale as an attachment to the email sent to the 2^nd Defendant on 27 April 2018 is not objectionable (Exhibit LS-11).  The only issue is whether it is believable that the 2^nd Defendant in fact did not receive it.  

47.  At the hearing before this Court, the 2^nd Defendant went further to assert for the first time that the email service provided by “Netvigator” had been terminated at the material time since the 1^st Defendant could not afford to pay for the service charge.  Quite apart from the bare assertion without any documentary proof, the explanation was different from that proffered before the Master, namely, that he had switched to “hotmail” in the previous year (meaning 2018) because of the bad experience with hackers (Transcript 44T and 47G).

48.  Further, the 2^nd Defendant went so far as to assert in oral submission that in fact he did not even know about the sales of the Property until he received the Writ of Summons in about November 2018.  His attention was then drawn to the letter before action dated 20 July 2010 (Exhibit LS-5) which was sent to the Business Address.  He then claimed that the 1^st Defendant had become dormant since 2016 and he had not received the letter before action either. 

49.  Upon clarification, the 2^nd Defendant admitted that the 1^st Defendant continued to occupy the Business Address in 2018 since there was a subsisting tenancy.  However, he fell short of identifying the exact month when the 1^st Defendant vacated the Business Address. Further, he confirmed that he was in receipt of the 3 previous letters sent to the Business Address dated 29 January 2018, 26 February 2018 and 8 March 2018 (Exhibit LS-7) notifying the 1^st Defendant of the 3 public auctions (see Paragraph 9 hereinabove).

50.  Remarkably, a similar letter before action also dated 20 July 2018 (Exhibit LS-5) was sent to the 2^nd and 3^rd Defendant at the Business Address as well as their residential address at Deep Water Bay since they were the guarantors of the 1^st Defendant.  This is the residential address stated in the Guarantee (dated 30 June 2010) signed by them. Clause 26 thereof provided for service by post (Exhibit “LS-4”).  In essence, the 2^nd and 3^rd Defendants denied having received the letter before action sent to their residential address but no explanation was proffered.

51.  The significance of the letter before action is that there was an accompanying Statement of Account showing the outstanding balance of the debts due and owing from the 1^st Defendant to the Plaintiff.  The fact of the sales of the Property was reflected in such Statement of Account.

52.  Logically, if it is truly the case that the Defendants and, in particular the 2^nd Defendant, only learned about the sales of the Property upon receiving the Writ of Summons, it would have been quite outrageous and one would expect such fact to be included in the affirmation(s) of the 2^nd Defendant.  The lacking of such evidence is quite inexplicable.

53.  Whilst an application for summary judgment, and likewise this appeal, is not to be digressed into a mini-trial, looking at the evidence in the round, I am of the view that the bare assertion made by the 2^nd Defendant that the Notice of Sale was never received by email and hence did not come to the attention of any of the Defendants prior to sales of the Property is unbelievable.

54.  As to the 3^rd ground of appeal relating to the alleged sale of the Property at undervalue, the 2^nd Defendant asserted that there had been sales of similar shop premises in the vicinity of the Property at the relevant times and it would demonstrate that the Property was sold at grossly undervalue to Sky Rainbow. 

55.  In addition, the 2^nd Defendant boldly asserted that the purchaser was a connected party of the Plaintiff.  However, there is not a shred of evidence of that (see Paragraph 6 of the 1^st Affirmation of the 2^nd Defendant).

56.  In this connection, the 2^nd Defendant argued that the Valuation Report of Prudential Surveyor dated 13 June 2018 (Exhibit LS-6) produced by the Plaintiff was a sham to justify the sale below market value in favour of Sky Rainbow. 

57.  In the 4^th Affirmation of Shum Chi Kwan Lydia (dated 29 July 2019), it was explained that an oral valuation was first obtained from Prudential Surveyor on 16 April 2018 giving a Current Market Value of HK$40,000,000 and a Value for Sale under Repossession at HK$34,000,000.  This is evidenced in the series of contemporaneous emails at Exhibit LS-14.  The date of the valuation was also 16 April 2018 as stated Valuation Report (Exhibit LS-6, at p.6).

58.  It is instructive to note that the 2^nd Defendant admittedly attended all 3 public auctions, the last being held on13 March 2018.  On that occasion, the Open Bid was reduced from HK$35,000,000 (from the two previous auctions) to HK$32,000,000 but still no bid was received. There was no suggestion of any complaint made by the Defendants at the material times that the auctions were not properly conducted.  On the evidence before the Court, the sales price of HK$33,800,000 was within reasonable range.

59.  Apart from the bare assertion made in Paragraph 8 of the 2^nd Affirmation of the 2^nd Defendant, there is not a scintilla of evidence to show that the Defendants were in a position to nominate an alternative purchaser making an offer matching that of Sky Rainbow, let alone procuring a sales of the Property at a price which would have totally extinguished the indebtedness of the 1^st Defendant in a sum close to HK$60 m (ie total indebtedness before setting off against the proceeds of sales of the Property, see Statement of Balance dated 20 July 2018 at Exhibit LS-5).

60.  Importantly, the amount of the debt is not in dispute.  Looking at the evidence in the round, I am of the view that the Defendants failed to adduce any credible evidence to raise an arguable case that the 1^st Defendant would have been able to nominate an alternative purchaser if the Notice of Sale had come to their attention.

DISPOSAL

61.  In summary, I am not satisfied that the Defendants have shown any triable issues.  Accordingly, the appeal is dismissed with costs.