XCHRX CHEKIANG FIRST BANK LTD. v. KWONG CHUNG TAK AND ANOTHER

HCMP 2708/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2708 OF 2001

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

______________________

J U D G M E N T

______________________

1. These proceedings concern the following properties :

(1) Flat C, 7/F, Sovereign Mansion, No. 126 Austin Road, Kowloon

("the 1st property");

(2) Workshops A & B, 24/F and Flat Roof, Superluck Industrial Centre, Phase 2, 57, Sha Tsui Road, Tsuen Wan, New Territories

("the 2nd property");

(3) 2/F, Hing Fat Building, 696, Shanghai Street, Kowloon

("the 3rd property"); and

(4) 3/F, No. 6, Min Fat Street, Hong Kong

("the 4th property").

2. The four mortgages in respect of the four properties were executed in favour of the plaintiff as all monies mortgages to secure all monies obligations and liabilities from time to time due owing or incurred by Sino Legend International Enterprise Limited ("Sino"). Sino was the mortgagor under the mortgage in respect of the 1st property and the borrower under the mortgages in respect of the 2nd, 3rd and 4th properties. Save for the 2nd defendant in HCMP 2708 of 2001, the other defendants are the mortgagors in respect of the 2nd, 3rd and 4th properties.

3. It is not disputed that Sino did not make any repayments under the mortgages since about March 2001. The plaintiff brought these proceedings against the defendants and obtained orders from Master Cannon on 27 December 2001.

4. In HCMP 2708 of 2001 she ordered that the plaintiff do recover against Sino the sum of HK$1,689,621.48 and US$337,867.25 or equivalent to Hong Kong dollars at the time of payment secured by the mortgages mentioned in the order together with interest as specified in the order. She also ordered that the plaintiff do recover the said sums together with interest against the 2nd defendant pursuant to two guarantees dated 31 March 2000 and 2 June 2000. It was also ordered that Sino do within 42 days after service of the order deliver to the plaintiff vacant possession of the properties set out in the order. Costs were also ordered to be paid on an indemnity basis together with certificate for counsel.

5. In HCMP 2709 of 2001 the master ordered that the plaintiff do recover against Sino and the other defendant the sum of HK$1,698,746.40 and US$340,295.06 or equivalent to Hong Kong dollars at the time of payment secured by the mortgage mentioned therein together with interest as specified in the order. It was also ordered that the 1st defendant do within 42 days after service of the order deliver to the plaintiff vacant possession of the property set out in the order. Costs were also ordered to be paid on an indemnity basis together with certificate for counsel.

6. In HCMP 2710 of 2001 the master ordered that the plaintiff do recover against Sino and the other defendant the sum of HK$1,698,746.40 and US$340,295.06 or equivalent to Hong Kong dollars at the time of payment secured by the mortgage set out therein together with interest as specified in the order. The 1st defendant was also ordered to deliver vacant possession within 42 days after service of the order of the property set out in the order. Costs of the proceedings were also ordered to be paid to the plaintiff on an indemnity basis together with certificate for counsel.

7. All the defendants have appealed against the orders of the master and these are before me today except for the appeal by the 2nd defendant in HCMP 2708 of 2001 who was sued as a guarantor. He has separately appealed against the order and this is not a matter before me. As I understand the position his appeal has already been heard and judgment has been reserved.

8. Mr. Tsang, counsel for the defendants, submitted that the defendants have raised the defence of promissory estoppel and that as there are substantial issues of fact between the parties the matter ought to be resolved at trial.

9. Mr. Tsang relied on paras. 6 to 10 of the affirmation of Mr. Mui Yuk Ching. In para. 6 he stated :

" After Sino was in receipt of the Plaintiff's letters of demand dated 2nd May 2001, Mr. Vicent Chan, the General Manager of Sino had a discussion with Mr. Lau regarding the repayment of the outstanding debt owing for the Plaintiff by Sino. Mr. Lau agreed that Sino as well as the owner/mortgagors be allowed to sell the mortgaged properties provided that the prices are close to the open market values aforesaid. The proceeds of sale has to be paid into Sino's account and the Plaintiff would lend title deeds and execute partial releases to enable the sales to be carried out."

The Mr. Lau referred to there is a Mr. Richard Lau, the general manager of the Tsuen Wan branch of the plaintiff.

10. In para. 7 he stated :

" In reliance on Mr. Lau's promises but not otherwise, Sino tried to find potential purchaser for its mortgaged properties and asked the other mortgagors to do the same in respect of their properties."

11. In para. 8 he said :

" In late May or early June, after Sino received the Originating Summons in these proceedings, both Vincent Chan and I were surprised. Vincent Chan had further discussion with Mr. Lau and he was reassured that Sino and the other mortgagors may sell the mortgaged properties and Sino can arrange for repayment of the balance of its debt after the mortgaged properties were sold and the proceeds applied to reduce the indebtedness."

12. And in para. 9 he stated :

" In reliance on the assurance said above, Sino looked diligently for purchasers because mortgagee sale whether by private treaty or public auction are often concluded at 20 to 30% below the fair open market value without forced sale situation. This would be disastrous to Sino and the other mortgagors and also detrimental to the Plaintiff's own interest."

13. And in para. 10 he stated :

" As far as Sino's properties are concerned, Estate agent informed Mr. Vincent Chan of Sino that the 1st property was valued at about HK$1.65 M and potential purchaser was prepared to make an offer shortly. Sino agreed to sell the 2nd and 3rd properties together at $1.0 M. As regards the other mortgaged properties, Ho Man Kong has agreed to sell the 4th property for 0.7 M and Kwong Chung Tak also agreed to sell the 5th property for $0.7 M. There is now produced and shown to me marked "MYC-3", "MYC-4" and "MYC-5" a true copy of the Provisional Sale and Purchase Agreements in respect of the 2nd, 3rd, 4th and 5th properties."

These are provisional sale and purchase agreements in respect of the 2nd, 3rd and 4th properties. There was no agreement reached as regards the 1st property.

14. The assertions of the defendants are denied by the plaintiff and there is a dispute of fact between the parties. Do the assertions however give the defendants a defence of promissory estoppel? As is stated in para. 3-085 of Chitty on Contracts, 28th edn., Vol. 1 :

" The promise or representation must be "clear" or unequivocal." or "precise and unambiguous." This requirement seems to have originated in the law relating to estoppel by representation; and it is now frequently stated in relation to "waiver" and "promissory estoppel. It does not mean that the promise or representation must be express; it may equally well be implied. For example in Hughes v. Metropolitan Ry itself the landlord made no express promise that he would not enforce his right to forfeit the lease; but an implication of such a promise fairly arose from the course of the negotiations between the parties. There is some support for the view that the promise must have the same degree of certainty as would be needed to give it contractual effect if it were supported by consideration. Thus if the statement could not take effect as a contract because it was too vague, or if it was insufficiently precise to amount to an offer, it will not bring the equitable doctrine into operation."

And is stated in para. 3-086 :

" The purpose of the requirement that the promise or representation must be "clear" or "unequivocal" is to prevent a party from losing his legal rights under a contract merely because he has granted some indulgence by failing to insist throughout on strict performance of the contract; or because he has offered some concession in the course of negotiations for the settlement of a dispute arising out of the contract."

15. The alleged agreement that the mortgagors be allowed to sell the properties provided that the prices are "close to the open market values aforesaid" is neither clear nor precise. It is much too vague in my view. There is also no certainty as to time. How much time is to be given to the defendants to sell the mortgaged properties? No time is specified. It seems to me that as the promise relied on is neither clear nor precise and unambiguous the defendants have failed to show that they have a reasonably arguable defence of promissory estoppel.

16. The evidence shows that in respect of the 1st property this has not been the subject of any sale by the mortgagor even up to now. As regards the other properties the position now is that the completion in respect of some of the properties has been postponed, so that the completion in respect of the other properties will now take place on 31 March 2002. What is clear, however, from the evidence is that deposits have in fact been received by the mortgagors in respect of the 2nd, 3rd and 4th properties. The deponent, Mr. Mui Yuk Ching, said that it was agreed that the proceeds of sale had to be paid into Sino's account and the plaintiff would lend the title deeds and execute partial releases to enable the sales to be carried out. However, despite the evidence that the mortgagors had received the deposits in respect of the 2nd, 3rd and 4th properties some time ago, none of these was ever paid into Sino's account with the plaintiff.

17. As is stated in para. 16.16 of Fisher and Lightwood's Law of Mortgage, 11th Edn :

" The mortgagee may be prevented from enforcing his remedies by a collateral agreement not to enforce the security if, and for so long as, the debtor observes certain conditions. However, if the debtor has failed to observe such conditions, the creditor will not be prevented from enforcing the security on that basis."

18. It seems to me that it is clear that even if the alleged promise was made, as the defendants have failed to observe the condition that the proceeds of sale be paid into Sino's account, and the deposits are after all part of the proceeds of sale, the plaintiff as creditor is not prevented from enforcing the security.

19. Mr. Chan, counsel for the plaintiff, referred me to Chekiang First Bank Ltd. v. Ko Hoi Luen and another [1999] 3 HKLRD 360 where it was held that there was one well recognised exception to the rule that where the whole of the sums advanced became due, a mortgagee was entitled as of right to an order for possession of the mortgaged premises (unless, of course, the mortgage deed provided otherwise). A court could adjourn the hearing of an application for an order for possession for a short time to give the borrower the chance to pay off the mortgage in full, though that power should only be exercised if there was a reasonable prospect of payment being made.

20. Mr. Tsang handed up a calculation sheet to show the state of the account between Sino and the plaintiff projected to 31 March 2002. It is clear to me, and as shown in the calculation sheet, that even if the sale of the 2nd, 3rd and 4th properties were completed on 31 March 2002 and even if it can be assumed that the 1st property can be sold at the stated open market price of $1,650,000.00 there would inevitably still be a shortfall due to the plaintiff under the mortgages to the extent of about HK$660,000.00. There is no cogent evidence to show that the defendants can settle the mortgage debts and interest in full within a reasonable time.

21. Sino relies on a joint venture it has with Great Pacific (Far East) Ltd. and the estimated profits due to Sino from December 1999 to October 2000 which is estimated to be slightly over HK$1,000,000.00 as regards Sino's half share. But, as Mr. Chan rightly pointed out, under the joint venture agreement any profit receivable by Sino shall be applied first to satisfy or reduce the loan from Great Pacific (Far East) Ltd. to Sino. There is no evidence at all what this loan is, what amounts remain outstanding on the loan and how much of the estimated profits has or will be applied to satisfy or reduce that loan. Indeed there is also no evidence at all that Sino has received or will soon receive its share of the estimated profits. There is also no evidence that the estimated profits did in fact materialize. It seems to me that the defendants are unable to show that they will be able to discharge the undisputed mortgage debts and interest in full within a reasonable time.

22. An important matter to bear in mind is that the thrust of the defendants' case is that they be allowed to take over or have control over the manner in which the sales of the properties are conducted. It is not a question of them wishing to be in possession of the properties. They wish to sell.

23. The case of International Bank of Asia Ltd. v. Ho Lai Lan (Civil Appeal No. 634/2000) is, as was submitted by Mr. Chan, clearly distinguishable on its own facts and provides no assistance to the defendants. There the effect of the promise relied on was that the defendant would be allowed to be still in possession of the property so as to enable the defendant to let it out at market rent. Here there is no question of the defendants wishing to be in possession of the properties as the defendants wish to sell their properties but they want to control the manner of the sale.

24. Mr. Tsang submitted that the concern was that sales by mortgagees are often concluded at prices remarkably below the fair market value. I am unable to accept this submission.

25. It is stated in para. 16.13 Fisher and Lightwood's Law of Mortgage, 11th Edn :

" Powers conferred on a mortgagee must be exercised in good faith for the purpose of obtaining repayment of the debt although, subject to that rule, powers conferred on a mortgagee may be exercised even though the consequences may be disadvantageous to the borrower."

26. In Downsview Nominees Ltd. and another v. First City corporation Ltd. and another, Lord Templeman in his speech at page 312 said :

" Several centuries ago equity evolved principles for the enforcement of mortgages and the protection of borrowers. The most basic principles were, first, that a mortgage is security for the repayment of a debt and, secondly, that a security for repayment of a debt is only a mortgage. From these principles flowed two rules, first, that powers conferred on a mortgagee must be exercised in good faith for the purpose of obtaining repayment and secondly, that, subject to the first rule, powers conferred on a mortgagee may be exercised although the consequences may be disadvantageous to the borrower. These principles and rules apply also to a receiver and manager appointed by the mortgagee."

27. In any event I do not think that the concern of the defendants is well found. Mortgagees have a clear duty to obtain the best price reasonably obtainable in any sale. No doubt when the plaintiff exercises its power of sale under the mortgages, directions will have to be sought as to the sale and the mortgagors may wish to make representations on the directions to be given.

28. I am satisfied that there is no merit in any of the appeals and the appeals are dismissed. I am also satisfied that the costs of the proceedings and the appeal should be paid by the defendants on a full indemnity basis as this is provided for under the mortgages and there is no reason to deprive the plaintiff of what the parties have contracted.