WAYFOONG CREDIT LTD v. LI CHI KIN AND ANOTHER

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. In this matter the plaintiff, Wayfoong Credit Ltd., is suing two defendants, Li Chi Kin and Leung Lai Yee, to recover money said to be owing under a mortgage dated the 16th March 1983 made between the defendants as mortgagors and the plaintiff as mortgagee. This mortgage of a domestic apartment at 5 Boyce Road was made to secure the repayment of a "term loan" of $810,000 and "general credit facilities" to the extent of $540,000 granted by the plaintiff to the defendants. With regard to the "term loan" it was provided in the mortgage that "the mortgagor will truly and punctually repay to the Company the principal sum of $810,000 Hong Kong currency with interest thereon at the rate of 12% or such other rate as is from time to time charged by the Company on advances of a similar nature, such interest to be calculated with the usual monthly rests by equal monthly instalments of $13,165 until the said principal sum with interest thereon as aforesaid shall be fully paid and satisfied, the first of such payments to be made on the 1st April 1983 and all subsequent monthly instalments to be made on the first day of each and every succeeding month ...". The provision as to the "general credit facilities" of $540,000 stated that "the mortgagor will pay to the Company on demand in writing of the Company made to the mortgagor all sums of money due and payable by the mortgagor to the Company in respect of all or any of the general credit facilities as described in the First Schedule hereto granted or to be granted by the Company to the mortgagor to the extent of $540,000 at any one time with interest thereon at the rate of 14% or such other rate as is from time to time charged by the Company on credit facilities of a similar nature, such interest to be calculated with the usual monthly rests".

2. The writ goes on to claim that on the 24th August 1984 the defendant repaid a sum of $850,000 in repayment of the "terms (sic) loan and credit facilities and obtained a Reassignment of the property executed by the plaintiff". It is then claimed that "after setting off the amount received, the defendants were still indebted to the plaintiff by way of credit facilities in the sum of $667,263.62 as at the 8th March 1985 with further interest at $184.93 from 9th March 1985 onwards, which sum the defendants are liable to repay on demand pursuant to their joint and several personal covenant to repay under the Deed of Mortgage referred to in paragraph (2) hereof".

3. The plaintiff succeeded in entering a default judgment against the 1st defendant which was set aside by the Master and it is against that Order that the 1st defendant now appeals to this Court. The 1st defendant sought before the Master to have the judgment set aside on two grounds. The first ground, and the one upon which it appears the Master relied, was that the writ was never served upon him. It was submitted that this irregularity entitled him, as of right, to have the default judgment set aside. While the 1st defendant said in his affidavit that the writ had not been served upon him, he did not state that he was relying upon this ground in his summons. 02 r.2 states that such a ground "must be specified" in the summons. It is suggested that this Court can overlook this failure to specify the ground as the plaintiff has been caused no prejudice thereby and as the irregularity was mentioned in the affidavit and canvassed in front of the Master. I do not consider that I can properly so act. The rule is clear and mandatory and failure to comply therewith cannot but have the effect of depriving the lot defendant of the opportunity to rely upon the alleged irregularity. I am satisfied that the 1st defendant was not entitled to succeed upon that ground.

4. The 1st defendant also submitted that he was entitled to have the judgment set aside on the merits. He submitted that, when all of the affidavits that had been filed in the matter were read, they disclosed an arguable defence. It is important in this regard to remember that the mortgage secured both the "term loan" of $810,000 and the "general credit facilities" to the extent of $540,000, as I have already indicated there was, on the 24th august 1984, a Reassignment of the interest mortgaged. The 1st defendant, when arguing that there is a triable issue, relies in part upon the words of that Reassignment. It states that "the reassignors do hereby assign and release unto the reassignee all those premises ... to hold the said premises unto the reassignee as joint tenants absolutely ... free and absolutely discharged of and from the said indenture and of and from all principal interest and other monies there by secured and of and from all claims and demands for or in respect of the same or in anywise relating thereto ..."'. To put this Reassignment in its context one must look at a letter (Ex. LCR2 to Dl's affidavit) dated the 10th August 1984, some 14 days before the reassignment. As has already been noted both the "term loan" and the "general credit facilities" were secured by the mortgage. The Reassignment makes no distinction in this regard but simply says that "the reassignors do hereby assign and release unto the reassignee all  those premises .. to hold the said premises unto the reassignee as joint tenants ... but freed and absolutely discharged of and from the said indenture and of and from all principal interest and other monies thereby secured and of and from all claims and demands for or in respect of the same or in anywise relating thereto." The letter of the 10th August says " We are instructed by our clients to inform you that the amount payable by your client to ours upon reassignment on or before the 17th day of August 1984 is $850,000 provided that all instalments and arrears (if any) up to the date of receipt of payment by our clients is fully satisfied". This paragraph, when read with the Reassignment, seems to be saying that if the defendants paid all instalments and arrears on or before the 17th August and then paid a further $850,000 their indebtedness to the plaintiff would be cleared and the property would be reassigned to them. The letter went on to say "The enclosed title deeds and documents are sent to you against your strict personal undertaking to hold the same to our order returnable on demand until all sums of money and interest thereon payable on reassignment of the said premises have been fully paid and also subject to payment of our production fee, cost and disbursement hereon (exclusive of registration fees and filing fees) in the sum of HK$2,150". It seems to have been contemplated in this letter that, as at the date of reassignment, all indebtedness would have been extinguished.  It would appear that, although the defendants did not pay all instalments and arrears, the plaintiff went ahead with the reassignment. The plaintiff pleads that after the reassignment the defendants were still indebted to it by way of "credit facilities" and that this sum with interest amounted, by the 8th March, to $667,263.62. The writ does not set out the extent to which the "credit facilities" are made up of indebtedness incurred because of the "term loan", on one hand, and by use of the general credit facilities", on the other. The plaintiff now claims $667,263.62 setting out in his Statement of Claim that the defendants "are liable to repay (it) on demand pursuant to their joint and several personal covenant to repay under the Deed of Mortgage". I find it difficult to see how such a claim can be maintained as it seemed clear that they had been released from their covenants under the mortgage. The letter of the 10th August requested them to enter into a "strict personal undertaking" to pay all monies owing to the plaintiff. Mrs. Marita Wong Li Mr-har filed an affidavit on behalf of the plaintiff in which she said that "Some time in August 1984 the defendants intended to resell the premises and the plaintiff agreed to a reassignment of the premises on receipt of the purchase price of $870,000 leaving an outstanding sum of $667,263.62 due and payable by the defendants as unsecured debt and by way of principal and interest. The Reassignment only released the property from the debt but that did not release the defendants from their liability to repay". The suggestion in this letter that the sum of $667,263.62 was owing in August 1984 is, it is to be noted, not in accord with the pleading which states that that amount did not come to be owing until 8th March 1985. It may be that the defendants were not released by the Reassignment from their liability to repay but what is of particular interest is the statement by Mrs. Wong that the amount owing became an "unsecured debt". This does not seem to be in accord with the pleading which states that the defendants are liable to repay "on demand pursuant to their joint and several personal covenant to repay under the Deed of Mortgage".

5. The matter is further complicated by facts raised by Mr. Cheng Tat-shang who also filed an affidavit on behalf of the plaintiff. A facility letter (C-1) exhibited to that affidavit, dated the 11th February 1983, sets out that the defendants had had advanced to them a mortgage loan of $810,000 repayable by 96 monthly instalments of $13,165 and that they had been given an "overdraft" facility in the sum of $540,000 which was secured by a mortgage over their apartment at 5 Boyce Road. The "mortgage" is, it seems clear, the "term loan" referred to in the writ and the "overdraft" is the "general credit facilities". Mr. Cheng also exhibited 3 monthly statements of account (C-2). These, which deal with the $810,000 loan, indicate that only two repayments had been made up the 20th August 1984, when the $850,000 was repaid, and that $85,808 was left owing. Mrs. Wong in her affidavit stated that the total amount owing after the repayment of $850,000, was $667,263.83. As I have pointed out there is some confusion as to the date on which this amount came to be owing Mrs. Wong suggests that  it was in August 1984 while the writ pleads that it was 8th of March 1985. However that may be it would appear that the indebtedness in the overdraft account on 20th August 1984 must have been in excess of $500,000.

6. The plaintiff wrote a letter (C-3) on the 7th September 1984 to the defendants saying :

This is to advise that we have cancelled the above overdraft facility on 5th September 1984 and set up a term loan for HKD540,000 - in name of your company in settlement of overdraft outstanding. Please let us have your repayment plan of the above loan as soon as possible."

This letter says that "in settlement" of the overdraft outstanding, which must have been in excess of $500,000, a term loan of $540,000 had been set up. The Company referred to was the kin Shing Motors Company (the Motors Company) and there has been no denial that D1 traded under this name. It seems to me arguable, whatever may have been the effect of the Reassignment, that the indebtedness with regard to the overdraft (general credit facilities) had been settled and had been replaced by a "term loan" which was to be repaid by the Motors Company.

7. Mr. Chan who appears for the plaintiff argues that this has no effect because it is not disputed that the 1st defendant trades as the Motors Company. He submits that he can be sued in his own name for amounts owed by the Motors Company, that this is what the writ does and that the debt is, therefore, recoverable against him.

8. One must however look to see how the Reassignment, after which Mrs. Wong says only an unsecured debt remained, and the "settlement" of a large part of that debt by the creation of a new "term loan", sit with the pleadings.

9. It is pleaded that the defendants (plural) are still indebted to the plaintiff by way of credit facilities in the sum of $667,263.62 which sum they are liable to repay "pursuant to their joint and several personal covenant to repay under the Deed of Mortgage". If they are indebted as regards the balance of the "term loan" of $810,000, which seems to be an amount of $85,808, can this amount be said to be owing under a covariant to repay under the extinguished Deed of Mortgage. I think it very arguable that it cannot.

10. Can the amount that is said to have come to be owing as a consequence of the grant of "general credit facilities to the extent of $540,000" be said to be owing "pursuant to their joint and several personal covenant to repay under the Deed of Mortgage". Again I think it very arguable that it cannot. Not only has the Deed of Mortgage been extinguished but any surviving indebtedness that there may be would now seem to be owing by the 1st defendant under a "term loan" to the Motors Company which, it can be argued, has nothing to do with the mortgage.

11. Mr. Chan conceded that the pleading was not as elegant as it might have been. I am not concerned faith any question of elegance but with whether the 1st defendant has an arguable defence on the merits to the claim being made against him that he owes $667,263.62 pursuant to a joint and several personal covenant entered into by himself and the 2nd defendant to repay that amount under the Deed of Mortgage of the 16th March 1983.

12. I am satisfied that there is an arguable defence to this claim and that the application must therefore be dismissed.