HCMP 1893/2016
[2020] HKCFI 1251
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
MISCELLANEOUS PROCEEDINGS NO 1893 OF 2016
____________________
IN THE MATTER OF ALL THOSE 3 equal undivided 20th parts or shares of and in ALL THOSE pieces or parcels of ground situate at Castle Peak Road Kowloon and respectively registered in the Land Registry as SECTION A OF SUBSECTION 3 OF SECTION B OF NEW KOWLOON INLAND LOT NO. 3516, SECTION B OF SUBSECTION 3 OF SECTION B OF NEW KOWLOON INLAND LOT NO. 3516 and SECTION C OF SUBSECTION 3 OF SECTION B OF NEW KOWLOON INLAND LOT NO. 3516 (“the Lots”) and of and in the messuages erections and buildings thereon now known as NOS. 483D and 483E CASTLE PEAK ROAD, KOWLOON (“the Building”) TOGETHER with the sole and exclusive right to hold use possession occupation and enjoyment of ALL THAT Portion of the FIRST FLOOR (now known as ALL THAT portion of the FIRST FLOOR “A”) of NOS. 483D and 483E CASTLE PEAK ROAD, KOWLOON of the Building (“Mobile Tech’s Property I”)
and
IN THE MATTER OF a Mortgage dated 10th January 2014 and registered in the Land Registry by Memorial No. 14012900530125 (“Mobile Tech’s Mortgage I”)
and
IN THE MATTER OF ALL THAT ONE equal undivided 7thpart or share of and in ALL THAT piece or parcel of ground registered in the Land Registry as THE REMAINING PORTION OF SUBSECTION 4 OF SECTION B OF NEW KOWLOON INLAND LOT NO. 3516 (“the Lot”) And of and in the messuages erections and buildings theron now as “NO. 790 CHEUNG SHA WAN ROAD”) (“the Building”) TOGETHER with the sole and exclusive right and privilege to hold use occupy and enjoy ALL THAT the FIFTH FLOOR of the Building (“Mobile Tech’s Property II”)
and
IN THE MATTER OF a Mortgage dated 23rd June 2014 and registered in the Land Registry by Memorial No.14071701890023 (“Mobile Tech’s Mortgage II”)
and
IN THE MATTER OF ALL THAT ONE equal undivided 7th part or share of and in ALL THAT piece or parcel of ground registered in the Land Registry as THE REMAINING PORTION OF SUBSECTION 4 OF SECTION B OF NEW KOWLOON INLAND LOT NO. 3516 (“the Lot”) And of and in the messuages erections and buildings thereon now knows as “NO. 790 CHEUNG SHA WAN ROAD” (“the Building”) TOGETHER with the sole and exclusive right and privilege to hold use occupy and enjoy ALL THAT SIXTH FLOOR of the Building (“ Art Profit’s Property”)
and
IN THE MATTER OF a Mortgage dated 23rd June 2014 and registered in the Land Registry by Memorial No.14071701890042 (“Art Profit’s Mortgage”)
and
and
IN THE MATTER OF a Mortgage dated 10th February 2014 and registered in the Land Registry by Memorial No. 14030400270175 (“Amos’s Mortgage”)
and
IN THE MATTER OF Guarantee and Indemnity dated 30thDecember 2013 in favour of Rich Star Investment Development Limited by Mobile Tech Corporation Limited (“Mobile Tech’s Guarantee for Rich Star”)
and
IN THE MATTER OF Guarantee and Indemnity dated 3rd January 2014 in favour of Rich Star Investment Development Limited by Ocean Rich Hong Kong Investment Limited (“Ocean Rich’s Guarantee for Rich Star”)
and
IN THE MATTER OF Guarantee and Indemnity dated 3rd January 2014 in favour of Rich Star Investment Development Limited by Art Profit Holdings Limited (“Art Profit’s Guarantee for Rich Star”)
and
IN THE MATTER OF Guarantee and Indemnity dated 3rd January 2014 in favour of Rich Star Investment Development Limited by Lin Tung Liang (“Lin’s Guarantee for Rich Star”)
and
IN THE MATTER OF Guarantee and Indemnity dated 3rd January 2014 in favour of Mobile Tech Corporation Limited by Rich Star Investment Development Limited (“Rich Star’s Guarantee for Mobile Tech”)
and
IN THE MATTER OF Guarantee and Indemnity dated 3rd January 2014 in favour of Mobile Tech Corporation Limited by Ocean Rich Hong Kong Investment Limited (“Ocean Rich’s Guarantee for Mobile Tech”)
and
IN THE MATTER OF Guarantee and Indemnity dated 3rd January 2014 in favour of Mobile Tech Corporation Limited by Art Profit Holdings Limited (“Art Profit’s Guarantee for Mobile Tech”)
and
IN THE MATTER OF Guarantee and Indemnity dated 3rd January 2014 in favour of Mobile Tech Corporation Limited by Lin Tung Liang (“Lin’s Guarantee for Mobile Tech”)
and
IN THE MATTER OF an application under Order 88, Rules of the High Court, Cap.4
____________________
BETWEEN
DAH SING BANK, LIMITED
Plaintiff
and
RICH STAR INVESTMENT DEVELOPMENT LIMITED (富星投資發展有限公司)
1st Defendant
MOBILE TECH CORPORATION LIMITED
2nd Defendant
(無比敵有限公司)
OCEAN RICH HONG KONG INVESTMENT LIMITED (海富香港投資有限公司)
3rd Defendant
ART PROFIT HOLDINGS LIMITED
4th Defendant
(雅利集團有限公司)
CHEUNG SAI KEUNG AMOS
5th Defendant
LIN TUNG LIANG
6th Defendant
____________________
Before:
Mr Recorder Manzoni SC in Court
Date of Hearing:
1 June 2020
Date of Judgment:
18 June 2020
_______________
J U D G M E N T
_______________
1. In this action, which has been commenced by Originating Summons issued on 25 July 2016, the plaintiff seeks a money judgement against the defendants on the basis of the 1st defendant’s liability to the plaintiff for the sums of HK$3,127,197.40 and US$2,725,868.66, together with vacant possession of three properties which have been mortgaged to the plaintiff by the 2nd defendant, the 4th defendant and the 5th defendant. In addition to the 3 mortgages there are also various cross guarantees between the various defendants and the plaintiff which cover the liability.
2. The amounts due and owing by the 1st defendant arise under general banking facilities offered by the plaintiff to the 1st and 2nd defendant in or around 2014. The banking facilities are governed by a General Agreement for Commercial Business dated 3 January 2014 for the 1st defendant and 30 December 2013 for the 2nd defendant.
3. In addition, by a facility letter dated 14 April 2014 the plaintiff provided various trade finance facilities to the 1st and 2nd defendants, including invoice financing, overdrafts, an instalment loan and treasury products, including one known as Participating Forward Contracts. This facility letter is one of 3 such letters entered into between the plaintiff and the 1st defendant.
4. According to the 2nd affirmation of Ho Yau Keung, the following amounts are due and owing by the 1st defendant as at 25 July 2017 under those facilities:
Invoice Financing Principal
HK$0.00
Invoice Financing Accrued Interest
HK$1,447,749.95
Instalment Loan Principal
HK$1,570,359.43
Instalment Loan Interest
HK$109,088.42
Overdraft Principal
US$2,658,303
Overdraft Interest
US$67,565.21
5. Those amounts are secured by a suite of security documentation relevantly including:
5.1 A mortgage dated 23 June 2014 entered into between the 1st and 2nd defendants as principal, the 2nd defendant as mortgagor and the plaintiff as mortgagee over property known as “The Remaining Portion of Sub- Section 4 of Section B of New Kowloon Inland Lot Number 3516”. Also known as 5th floor number 790 Cheung Sha Wan Road, Kowloon (“5th Floor, 790 Cheung Sha Wan Road”).
5.2 A mortgage dated 23 June 2014 entered into between the 1st and 2nd defendants as principal, the 4th defendant as mortgagor and the plaintiff as mortgagee over property known as “The Remaining Portion of Sub- Section 4 of Section B of New Kowloon Inland Lot Number 3516”. Also known as 6th floor number 790 Cheung Sha Wan Road, Kowloon (“6th Floor, 790 Cheung Sha Wan Road”).
5.3 A mortgage dated 23 June 2014 entered into between the 1st and 2nd defendants as principal, the 5th defendant as mortgagor and the plaintiff as mortgagee over property known as “Section D of Sub- Section 4 of Section B of New Kowloon Inland Lot Number 3516. Also known as 6th floor number 792 Cheung Sha Wan Road, Kowloon (“6th Floor, 792 Cheung Sha Wan Road”).
5.4 A guarantee dated 30 December 2013 given by the 2nd defendant in respect of the liabilities of the 1st defendant.
5.5 A guarantee dated 3 January 2014 given by the 3rd defendant in respect of the liabilities of the 1st defendant.
5.6 A guarantee dated 3 January 2014 given by the 4th defendant in respect of the liabilities of the 1st defendant.
5.7 A guarantee dated 3 January 2014 given by the 6th defendant in respect of the liabilities of the 1st defendant.
6. No guarantee appears to have been provided by the 5th defendant. However, the 5th defendant was a mortgagor of 6th Floor, 792 Cheung Sha Wan Road. The plaintiff claims against the 5th defendant for the same monetary judgment in respect of the 1st defendant’s liabilities. Any liability of the 5th defendant for the sums owed by the 1st defendant therefore arises under clause 1(a) of the mortgage, which provides a covenant that the mortgagor shall, on written demand, pay to the mortgagee all present and future indebtedness of the 1st defendant to the mortgagor. A written demand was made on 28 April 2016.
7. The facilities and the security documents are all admitted and there is no dispute as to their terms. However, the defendants run a myriad of defences.
7.1 They dispute that the 1st defendant owes the sum of HK$3,127,197.40 under the Invoice Financing and Instalment Loan, although precisely why is not clear. It appears to be because an amount of HK$5,094,364.74, being part of a sum of HK$50 million paid by the defendants to the plaintiff on or around 13 April 2016, following the sale of a property known as “Unit on the 26th floor and car parking spaces numbers P46, P47 and P48 on the 9th floor, Excel Centre, number 438 A Castle Peak Road Kowloon ” has been appropriated to the payment of the USD Overdraft. The defendants contend that such amount should not have been appropriated to the USD Overdraft, but instead should have been appropriated to the Invoice Financing and Instalment Loan. Had it been so appropriated it would have reduced the balance on those loans to zero. I have been unable to ascertain the precise figures in order to confirm whether this is true or not.
7.2 In relation to the USD overdraft, the defendants say that they have never been sent the bank statements, and that insofar as the overdraft arose out of various Foreign Exchange Participating Forward Contracts (“FXPF Contracts”) entered into between the plaintiff and the 1st defendant on various dates between January 2014 and May 2015, the 1st defendant should not be liable under those contracts because they are null and void.
7.3 There are three FXPF contracts, all of which were entered into as hedging contracts against the Chinese Yuan Offshore Currency. The contracts are dated 29 January 2014, 7 July 2014 and 29 May 2015. It is said that these contracts are null and void because:
7.3.1 The FXPF contracts were entered into or signed by the 1st defendant’s representative outside of Hong Kong. Mr Lui, counsel for the defendants, confirmed in his oral submissions that it was not suggested that the mere fact that the contracts were signed outside of Hong Kong rendered them null and void, but that they had been negotiated whilst the defendant’s representatives were outside of Hong Kong supported the proposition that they were entered into in breach of established industry practice and the (undefined) regulations of the Hong Kong Monetary Authority.
7.3.2 The FXPF Contracts were entered into under duress and/or contained unfair contractual terms.
7.3.3 The 2nd and 3rd FXPF Contracts resulted in excessive risk exposure for the 1st defendant.
7.4 The Early Termination Amount which has been charged by the plaintiff for early termination of the 2nd and 3rd FXPF Contracts is illegitimate because the FXPF Contracts are unfair and in any event the clause which provides for the Early Termination Amount is speculative and therefore a penalty.
7.5 The interest rate charged by the plaintiff on the 1st defendant’s overdraft, at 10% plus USD Prime Rate is illegitimate because the rate has never been notified to the defendants.
7.6 Had the plaintiff not wrongfully appropriated funds which were repaid by the defendants upon the sale of the 1st defendant’s property in a manner which was not approved by the defendants there would not have been any outstanding liability in respect of the Invoice Financing and Instalment Loans. Any outstanding liability would only be in respect of the overdraft, which the plaintiff knew all along was disputed.
7.7 The sale of two properties by the defendants were at an undervalue because of “incessant threats and demands made [by the plaintiff] against the defendants ”.
7.8 The plaintiff has not identified where a sum of HK$14,523,199.52 from the sale of the 2nd defendant’s 1st property has gone. The defendants therefore contend that this sum was missing, although the 2nd affidavit of Ho Yau Keung, at paragraph 41 has identified that the sum was applied to reduce the outstanding HKD Current Account debit of the 1st defendant in January 2017.
7.9 Various statutory requirements identified in Rules of the High Court Order 88 Rule 5(3) have not been complied with.
8. In the light of the various defences the defendants contend that Originating Summons should be dismissed, or alternatively that the proceedings should be continued as if the matter had been begun by writ, there should be pleadings and the matter should proceed through to trial in the ordinary way. The defendants have taken out a summons dated 26 March 2018 for the provision of those directions. The procedural history of this summons is unfortunate. I do not recite it, because it is set out in a judgement of Deputy High Court Judge Leung dated 1 August 2019 arising out of a hearing of the defendants’ summons held on 29 August 2018. Suffice it to say that the Deputy High Court Judge ordered the “Originating summons to proceed to substantive argument, and the defendants summons under order 28 rule 8 to be considered pending and immediately after that ”.
9. I shall proceed on the assumption that this effectively requires me to determine the originating summons in the knowledge that there is an application for the matter to proceed as if it were begun by writ. It is only if I am of the view that judgement should not be given on the originating summons, and that it should not be dismissed, that I need to determine the question of whether the proceedings should proceed as if commenced by writ. The parties have not addressed any arguments, other than on the substantive merits of the originating summons, directed to the question as to whether or not the matter should proceed as if begun by writ. It therefore appears to me that the parties accept that in the event that judgement should not be given on the originating summons, and it is not to be dismissed, then the matter should proceed with pleadings in the normal way.
A. THE CORRECT APPROACH
10. The correct approach has been identified by Deputy High Court Judge Keith Yeung SC (as Yeung J then was) in DBS Bank (Hong Kong) Limited v Guanxiang (HK) Trading Limited and Others [2018] HKFCI 1392 at [47] to [48]:
“47. The law in this regard is not in dispute. And Originating Summons is generally an inappropriate procedure where there is substantial dispute as to facts. In an action litigated by way of Order 88 procedure, judgement can summarily be given, but only if there is no triable issue on the evidence-[references omitted].
48. As to the approach to be adopted when considering whether the evidence discloses any triable issue, I agree with the observations made by Deputy Judge A To (as he then was) in Ip Kam Wah & Another v Fair City Group Limited [2005] 4 HKLRD 168, at paragraph 8, that:
‘I accept that, unlike the plaintiff in an O.14 application, the plaintiff in an originating summons procedure bears the burden of proof. When faced with conflicting affidavits from both parties, the court will be failing in its duty if it should take the assertions in the affidavit on their face value in isolation and jump to the conclusion that there is a triable issue without first considering whether the assertions in the affidavits are believable. I bearing mind the test laid down by Bokhary JA (as he then was) in Re Safe Rich Industries Ltd (unreported, Civ App No 81 of 1994), [1994] HKYL 183) that whether the assertions are believable is a question to be answered not by taking the assertions in isolation but by taking them in the context of so much of the background as was either undisputed or beyond reasonable dispute. In an originating summons procedure, it is only when the court is satisfied after having undertaken that exercise that factual disputes could not be resolved on affidavit evidence that oral evidence or trial should be considered.’”
B. THE WRONGFUL APPROPRIATION OF FUNDS
11. I am satisfied that the allegation that the plaintiff wrongfully applied funds to the USD overdraft rather than to the Invoice Financing and Instalment Loan does not give rise to a matter which should be taken to trial.
12. As a matter of principle the right of appropriation of payments to particular debts would lie with the party making payment, but if he makes no choice then the receiving party may elect as to which obligation should be treated as covered by the payment received. In this case the defendant did not identify any particular appropriation which should be adopted, and in those circumstances the choice as to which debts the payments should be appropriated to lies with the plaintiff bank.
13. I have looked in the General Agreement for Commercial Business and can find no term which specifically allows for the bank to make an appropriation. The closest that one gets is Clause 24 which states that “all credit balances… in our name may be appropriated by you at an exchange rate to be absolutely determined by you towards payment of any liability to you of whatever kind and irrespective of when the same may be due or maybe held by you as security for any contingent all future liability to you.” This clause does not specifically deal with payments being made to the bank, but would seem to indicate an overall intention consistent with the general proposition that I have indicated above, namely that the plaintiff is entitled to decide the appropriation. In those circumstances it seems to me that the Bank was entitled to appropriate the payment to whichever debts owed by the defendants that it considered appropriate.
14. The rationale for the complaint by the defendants is that they contend that the plaintiff knew that there were disputes in existence concerning the FXPF contracts which had given rise to the USD overdraft. Hence, according to the defendants the plaintiff should not have appropriated money to the repayment of the overdraft but should have appropriated it elsewhere, to areas where there was no dispute. No authority for the proposition that the plaintiff was under this obligation has been identified, and it seems to me that it is contrary to principle.
15. The plaintiff, on the other hand, says that the USD overdraft had a very high interest rate, and thus it was in fact in the interests of the defendants to appropriate any repayments to repayment of that overdraft. I have not been provided with any comparative analysis of the various charges or interest rates under the various accounts and am therefore unable to ascertain the validity of that submission.
16. However, notwithstanding my inability to test the submissions of the plaintiff in this respect I remain satisfied that as a matter of principle the plaintiff was entitled to appropriate the sums to whichever of the debts owed by the defendants it so chose. In the circumstances I do not think that this complaint gives rise to a triable issue.
C. INVALIDITY OF THE THREE FXPF CONTRACTS
17. This is the issue which can probably be described as central to the defendants defence.
C.1 Outside Hong Kong
18. The fact that the FXPF Contracts were entered into and signed by the defendants at a time when the signor was outside of Hong Kong does not render them null and void.
19. Neither does it support the proposition articulated by Mr Lui, to the effect that they have been entered into in breach of established industry practice and regulations of the Hong Kong Monetary Authority. The defendants have identified various guidelines from the Hong Kong Monetary authority in an email dated 26 August 2016, and although Mr Lui has not developed any defence based on those guidelines, I shall take that email as identifying the ones said to be breached.
20. Those guidelines generally referred to adequate supervision of frontline staff to ensure that appropriate sales means and control measures are taken, proper product due diligence is done and an appropriate sales procedure is adopted. It is not clear to me, even having read the detailed description as to the way in which the FXPF Contracts were signed as contained in paragraph 34 of the affirmation of Lin Rong Yi, how or why it is said that there has been a breach of those regulations. During the course of this hearing, the defendants have not developed this aspect of their defence at all. It is not sufficient simply to raise an assertion of a breach of this nature without identifying the particulars relied upon. Therefore I do not think that the defendants have raised a triable issue in this respect (even assuming that a breach of the regulations might give rise to a defence – which is an issue which is subject to considerable doubt, and about which some argument would inevitably be necessary).
21. Insofar as the allegation of a breach of industry practice is concerned, the defendants have not adduced any evidence of what is industry practice. All they seem to do is rely upon the case of Chang Pui Yin v Bank of Singapore Ltd [2017] 4 HKLRD in which certain contracts were signed by the plaintiffs in that case whilst they were overseas, and the Court of Appeal held that the contracts contained clauses which were not fair and reasonable causes for the purposes of the Unconscionable Contracts Ordinance and Control of Exemption Causes Ordinance (Cap 71).
22. I do not believe that case assists the defendants at all. It is a case which, on its facts, is very different from the facts of this case. Without undertaking a detailed analysis of the decision in that case, what the Court of Appeal effectively stated was that one should take into account all the circumstances in order to assess the appropriateness of various clauses for the purposes of assessing the applicability of the Unconscionable Contracts Ordinance and the Control of Exemption Causes Ordinance, and whether the circumstances would justify any holding that the clauses in question were void.
23. However the defendants have not even begun to identify why they fall within the protective provisions of the Unconscionable Contract Ordinance (in which one party needs to deal as a consumer), or why the Control of Exemption Causes Ordinance would be relevant either. On the face of the evidence the Defendants have not even begun to identify a triable issue on these points.
24. Consequently I take no further cognizance of the fact that the contracts were signed whilst the defendants were outside of Hong Kong.
C.2 Duress and Unfair Contractual Terms
25. The duress which is alleged is difficult to understand. It seems to be suggested that the 2nd and 3rd FXPF Contracts were entered into at the urging of the plaintiff in order to compensate for the losses sustained in the 1st and 2nd FXPF contracts respectively. The defendants were never offered any opportunity to discuss or counteroffer on terms.
26. I do not recognise any of the normal requirements of the defence of duress as having been made out or even hinted at. In order to establish duress it is necessary to identify some form of illegitimate pressure or threat having been imposed upon the victim. Not all pressure is illegitimate. In ordinary commercial activity pressure, and even threats, are both commonplace and often perfectly proper. Even accepting the proposition by the defendants that there was pressure placed upon the defendants to enter into the 2nd and 3rd FXPF contracts nothing is suggested in the evidence to suggest that the pressure was illegitimate.
27. Further, the illegitimate threat or pressure must have some causal effect on the victim’s decision to enter into the contract. There is no sensible suggestion contained within the evidence that the defendants had no choice. Therefore I reject the proposition of duress as being even remotely arguable.
28. As to the unfair contractual terms, the defendants have not identified the particular terms which they consider to be unfair. It is not the job of this court to make up, or articulate the case of the defendants. If they wished to contend that particular terms are unfair then it was incumbent upon them to identify those terms, and to identify the way in which they were unfair. For this reason alone I reject this defence as arguable.
29. However even if particular terms had been identified is not clear to me why they could be said to render the contract void or voidable. The 1st defendant was not dealing as a consumer so the Unconscionable Contract Ordinance would not apply. And there is no explanation as to why the Control of Exemptions Clauses Ordinance would apply either. There is no substance in the points being made by the defendants.
C.3 Excessive Risk Exposure
30. There is no substance in this point either, and it is really just a continuation of the proposition that the defendants now do not like the terms of the contracts that they entered into. I do not believe there is a triable issue in relation to this.
D. EARLY TERMINATION CHARGES
31. The early termination charges arise under the 2nd and 3rd FXPF Contracts, which were terminated by the plaintiff on 24 December 2015 as a result of an event of default. The provision entitling the plaintiff to make an Early Termination Charge is contained in the Master Agreement for Foreign Exchange and Interest Rate Derivatives dated 28 November 2011 and signed by the 1st defendant on 23 January 2014. It provides, at clause 6(e),:
“If and Early Termination Date occurs, the amount, if any, payable in respect of that Early Termination Date (the “Early Termination Amount”) will be determined pursuant to this Section 6(e) and will be subject to Section 6(f).
(i) Early Termination Amount. On the Early Termination Date, the Early Termination Amount will be an amount equal to (1) the sum of (A) the Termination Currency Equivalent of the Close-out Amount or Close-out Amounts (whether positive or negative) determined by the Bank for each Terminated Transaction and (B) the Termination Currency Equivalent of the Unpaid Amounts owing to the Bank less (2) the Termination Currency Equivalent of the Unpaid Amounts owing to the Customer. If the Early Termination Amount is a positive number, the Customer will pay to the Bank; if it is a negative number, the bank will pay the absolute value of the Early Termination Amount to the Customer.
(ii) …
(iii) Pre-Estimate. The parties agree that an amount recoverable under this Section 6(e) is a reasonable pre-estimate of loss and not a penalty. Such amount is payable for the loss of bargain and the loss of protection against future risks, and, except as otherwise provided in this Agreement, neither party will be entitled to recover any additional damages as a consequence of the termination of the Terminated Transaction.”
32. The defendants contend that the Early Termination Amount is a purely speculative estimation of the potential gain or loss which may occur in the future had the contracts not been prematurely terminated. They contend that the estimations are calculated in favour of the plaintiff and do not represent a reasonable pre-estimate of the loss purportedly suffered. They are, according to the defendants, contradicted by the plaintiff’s own genuine calculation of the mark-to-market loss.
33. The plaintiff says that the mark to market loss does not give a direct correlation of its loss, and the Early Termination Amount is actually the same amount as the plaintiff has been charged, having sold the early terminated contracts to the interbank market.
34. However, irrespective of that factual position, in my view the defendant had not begun to establish a proposition that the Early Termination Clause is voidable as being a penalty. At the time that the Master Agreement was drafted (in 2011) the law relating to penalties was generally considered to require a clause to provide for a genuine pre-estimate of damages in order to avoid being considered penal. However in 2015 the Supreme Court in the United Kingdom redefined the correct test in Cavendish Square Holdings BD v Tala El Makdessi [2015] UKSC 67 at [32] per Lords Neuberger and Sumption:
“32. The true test is whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation.”
35. In this case, the defendants have not made any attempt to identify either that the Early Termination Amount cannot have been a genuine pre-estimate of the loss suffered by the plaintiff in the event of a breach of contract, or that the clause is a secondary obligation which imposes a detriment on the contract breaker out of all proportion to any legitimate interest of the plaintiff. All that is said is that it bears no relationship to the mark to market loss. But as the plaintiff’s evidence demonstrates, that is irrelevant.
36. In the circumstances I do not believe that the Early Termination dispute is a matter which ought properly to go to trial.
E. THE INTEREST RATE DISPUTE
37. The General Agreement for Commercial Business at clause 30 provides:
“That all monies, payments, sums and amounts of money expressed herein to be payable by me/us to you shall include any and all interest payable thereon. I/we understand that no single rate can be fixed in respect of such interest, as the rate of interest in each case will vary according to the type of transaction involved, the credit risk involved and the general interest rates applicable at the time of such transaction. I/we know your policy on interest rates, however, and hereby agree to leave the determination of the particular rate of interest applicable in each case in respect of the monies, sums and amounts of money expressed herein to be payable by the/us to you solely in your hands and to pay the interest as determined and notified by you.”
38. The essence of this argument is that despite this clause, no interest rate was determined or notified. The plaintiff has charged an overdraft rate at 10% plus USD Prime Rate (which is currently at 5% per annum). The defendants say that this amount was never notified to them, although they accept that it was advertised on the plaintiff’s website.
39. I accept that notification of the interest rates charged by the plaintiff by advertisement on its website is sufficient on any construction of this clause. Accordingly I do not accept that any triable issue has been raised.
F. THE SALE OF THE PROPERTY AT AN UNDERVALUE
40. The defendants say that the sale prices that were agreed for the 1st defendant’s property on 13 April 2016 (HK$54,800,000) and the 2nd defendant’s property on 23 January 2017 (HK$30 million) were much lower than the market value of the properties. However the defendants have adduced no evidence to suggest what was in fact the market value of the properties, instead complaining that the plaintiff has not produced that evidence.
41. It is said that the lower prices were agreed by the defendants in those sales because of the “incessant threats and demands” made for repayment of the amounts owed to the plaintiff, which were secured by mortgages over the property. There is nothing in this argument. The plaintiff is perfectly entitled to demand what is legitimately owed to it and is also entitled to enforce its security. There is no evidence or suggestion of anything illegal having been done by the plaintiff and I reject this as giving rise to a triable issue.
G. THE MISSING HK$14,523,199.52
42. It seems to me that this issue is similar to the appropriations issue identified above. The plaintiff was entitled to appropriate the payment to whatever debts it saw fit in the absence of any instructions to the contrary from the defendants. There was no contrary instruction, and hence the plaintiff was entitled to appropriate that sum to the HKD current account balance. On the evidence there is no suggestion of any misappropriation, and the highest that the defendants could put their case is that they were not told of the appropriation. But that does not amount to a defence to the claim and does not create a triable issue.
H. STATUTORY REQUIREMENTS
43. The defendants complain that the plaintiff’s affidavit has failed to comply with RHC Order 28 Rule 5(3) in that it does not identify:
43.1 The amount of the advance.
43.2 The amount of the periodic payments to be made.
43.3 The amount of any instalments in arrears at the date of the originating summons and the date of the affidavit.
43.4 The amount remaining due under the mortgage.
44. As the plaintiff points out, this requirement is subject to the court’s discretion. It is a requirement more normally suited to domestic mortgages securing a simple loan. It is not a requirement that sits comfortably with a mortgage entered into for the purposes of securing a commercial banking facility which does not have specific periodic payments, or interest payments, or amounts regularly outstanding under the mortgage.
45. The affidavit in support of the originating summons did identify the amounts that were outstanding, and it did identify the default which justified the action on the mortgage. In all the circumstances I am satisfied that there is no breach which would justify requiring a trial of this matter, or which would justify withholding summary Judgment.
I. CONCLUSIONS
46. In the circumstances, it is appropriate to enter a money judgment in the amount outstanding from the 1st defendant to the plaintiff. That amount has been guaranteed by each of the 2nd to 6th defendants except the 5th defendant, but the 5th defendant is liable in respect of the same amount pursuant to clause1(a) of the mortgage in respect of 6th Floor, 792 Cheung Sha Wan Road.
47. No defence has been suggested by any of them other than those which I have discussed and dismissed above. Consequently judgment should be entered as against each of them.
48. Equally, vacant possession should be granted under the Mortgages as against the 2nd , 4th and 5th defendants.
49. The application to convert the originating summons into a writ action should be dismissed.
50. At the conclusion of the hearing, at the court’s suggestion, the plaintiff produced a draft of the order that it was seeking. The defendants were given an opportunity to make written submissions on the terms of the draft sought, and made various suggestions. Having taken that all into account I accept that the order should be made in the form suggested by the Defendants.
51. That order includes provision for the costs to be paid by the 1st to 6th Defendants to be taxed if not agreed. I note that the Plaintiff has asked for indemnity costs. I do not agree that indemnity costs should be paid, and I make the order as suggested by the defendants.
52. The parties are to draw up the order.
(Charles Manzoni SC)
Mr Paul Leung, instructed by P C Woo & Co, for the Plaintiff
Mr Victor Lui, instructed by Deannie Yew & Associates, for the 1st to 6th Defendants