XCHRX CHINA STATE BANK LTD. v. SEE KIN YUET and Others

HCMP2364/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2364 OF 1997

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D E C I S I O N

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1. This is an appeal from the Order of a Master in a mortgage action begun by originating summons. The Master found the liability of the Defendants to the Plaintiff established, and ordered the 1st to 6th Defendants to pay the Plaintiff the sum of HK$10,549,922.74 which was secured by a Mortgage dated 30 October 1996 and registered in the Land Registry by Memorial No.UB6826301 ("the Mortgage") together with interest, and the delivery up of vacant possession of 5 properties mortgaged under the Mortgage.

2. Under the Mortgage, the 5 properties had been charged to secure general banking facilities to be granted by the Plaintiff to the 3rd Defendant. The Defendants do not dispute the sum said to be due by the 3rd Defendant to the Plaintiff, nor the execution of the Mortgage.

3. Their defence (as set out in an Affirmation of the 1st Defendant "Sze" and filed before the hearing before the Master) is that a misrepresentation was made by a representative of the Bank, a bank manager called Y.F. Wong ("Wong"), to the 1st, 2nd and 6th Defendants which induced them to sign the Mortgage even though the terms, particularly the terms of repayment, were unacceptable to them. The 1st, 2nd and 6th Defendants between them signed the Mortgage for all 6 Defendants i.e. the borrower (the 3rd Defendant) and the 5 mortgagors.

4. The Defendants' case is set out in Sze's Affirmation. He says, amongst other things, that the properties were previously mortgaged to 2 other banks and the period of repayment was some 10-12 years. He had various discussions with Wong for re-mortgaging the properties with the Plaintiff Bank in place of the original mortgagee banks.

5. He says that Wong told him that the Plaintiff Bank's proposed length of the term of repayment would not be worse than the existing arrangements (Sze, paragraph 18). A "long" repayment term for the loan was also emphasized by Sze in subsequent discussions with Wong, which was confirmed by Wong (Sze, paragraph 19).

6. However when the 1st, 2nd and 6th Defendants attended at the office of solicitors nominated by the Plaintiff Bank to execute the Mortgage, they found, amongst other things, that the term of repayment stated in the facility letter was only 7 years (Sze, paragraph 22).

7. The Defendants did not execute the Mortgage. They went straightaway to the Plaintiff Bank's office where they saw Wong and protested to him about the terms. According to Sze's Affirmation, "Mr. Wong promised us that he would revise the repayment terms of the 1st Mortgaged Property from 7 years to 20 years and the repayment term of the 2nd Mortgaged Property to the 5th Mortgaged Property from 7 years to 12 years. After making these re-assurances to the 6th Defendant and I, Mr. Wong asked us to sign the mortgage first and he would sort out the matter internally."

8. The Defendants say that relying upon the assurances and representations of Wong, they executed the Mortgage a few days later. The next month, Wong brought along a colleague Mr Cheung Fat Yao ("Cheung") to the Defendants' factory. Wong informed Sze that Cheung would be looking after the Defendants' account "and would sort out the length of repayment of all the properties for the Defendants".

9. Thereafter, according to the Defendants, they chased Cheung on numerous occasions and he promised to look into it, but no feed back was received. A few months later however, on 25 July 1997, the mortgage action was begun.

10. In reply to the Defendants' allegations, Wong filed an Affirmation after the hearing before the Master, which was placed before me with the consent of the Defendants. In it, he does not deny the meeting referred to in Sze's paragraph 22, but says that all he said was that revision of the terms would be considered if Sze could show that he had a good business and a good payment record after a certain period of time. In such event, he (Wong) might have grounds to persuade his superior to revise the mortgage terms.

11. There is therefore a dispute of fact between the Plaintiff and the Defendants over what was said at that meeting. Since this is a mortgage action begun by originating summons, judgment could only be given for the Plaintiff if it can show that no defence at law is shown by the Defendants, and the Defendants' evidence has for present purposes to be accepted. In the circumstances of this case, the Plaintiff would only succeed if it can show that the alleged misrepresentation is not actionable.

12. Counsel for the Plaintiff submitted that the alleged misrepresentation was not actionable because it was a representation as to intention or future conduct, which was not false. At the time of the representation, the Bank had the ability to revise the terms of the length of repayment; and there was no evidence to show that the Bank did not intend to revise the terms (which it might do if the Defendants had a good record), there being no representation as to when the terms would be revised.

13. It is true that even on Sze's evidence, Wong did not say that revision would take place at a particular time. But the alleged representation was unconditional: it did not require a good track record as a condition for revision. In the absence of such a condition, and in the light of Wong's previous representation that the length of repayment would not be worse than that given by the previous mortgagee banks, it is at least arguable that the inference was that revision would take effect, if not immediately, then at least within a reasonably short time after the Defendants' execution of the Mortgage. Wong's evidence was however that that would not take place: he could only recommend revision to his superiors after the Defendants had proven themselves to be good customers.

14. Accordingly, I find the evidence capable of establishing an actionable misrepresentation.

15. The Plaintiff further argued that there was no reliance by the Defendants. Mr. Tsui suggested that it was unthinkable for the Defendants not to have asked for details of repayment terms when Wong informed them of the approved facilities in August 1996. However, as recounted above, Sze says that Wong had told him that the Plaintiff Bank's proposed length of the term of repayment would not be worse than the existing arrangements (Sze, paragraph 18). Further, a "long" repayment term for the loan was emphasized by Sze, which was confirmed by Wong (Sze, paragraph 19). So there was evidence of discussion between them on this aspect.

16. The Plaintiff also submitted that the contract had been affirmed by the 3rd Defendant's drawdown of the loan or its request for Letter of Credit facilities in November (1 month after the alleged misrepresentation and execution of the Mortgage). Even if that could not amount to an election, the Defendants would be estopped from relying on the alleged misrepresentation because the law in such a case does not require the Bank to inquire of the Defendants whether they knew their legal rights (Coastal Estates Pty Ltd. v. Melevende [1965] VR 433, 443 quoted with approval in Peyman v. Lanjani and others [1985] 1 Ch 457, 495-6).

17. I am not prepared at this stage to hold that the 3rd Defendant's acts would amount to such an estoppel. The evidence was that the Defendants were, at the same time, chasing up Wong's colleague Cheung, who was to have sorted out the repayment terms as promised by Wong. The 3rd Defendant's use of the facilities in the meantime is consistent with the Defendants' position that the terms would be revised within a reasonably short time of the Mortgage.

18. In the circumstances, I must allow the Defendants' appeal and set aside the Master's order. In the light of the factual disputes, I would order that the matter be continued as if begun by writ, and give the following directions (with liberty to the parties to apply).

19. I order the Plaintiff to file and serve its Statement of Claim within 14 days of the date of handing down of this Decision, the Defendants to file and serve their Defence and Counterclaim (if any) within 14 days thereafter, and the Plaintiff to file its Reply and Defence to Counterclaim (if any) within 14 days thereafter. The parties are to file and exchange their Lists of Documents within 14 days after close of pleadings, with inspection of documents to take place within 7 days thereafter. Witness statements should be exchanged within 28 days after inspection.

20. As for costs, I make an order nisi that the costs of the hearing before the Master be in the cause, as I note that the Affirmation of the Defendants was not filed until the day before the hearing, giving the Plaintiff virtually no opportunity to reconsider its position. The costs should be in the cause as an appointment would have had to be taken out before the Master for directions anyway as to the further conduct of the case. As for the costs of the appeal, I make an order nisi that they follow the event, i.e. that they be to the Defendants in any event.

(MARIA YUEN)

Judge of the Court of First Instance
High Court