BANK OF CHINA (HONG KONG) LTD. v. KEEN LLOYD RESOURCES LTD.

CACV 1787/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 1787 OF 2001

(ON APPEAL FROM HCMP NO. 4696 of 2000)

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J U D G M E N T

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Hon Yeung J (giving the judgment of the Court)

1. The plaintiff, Bank of China (Hong Kong) Limited (formerly The Kwangtung Provincial Bank) by way of Originating Summons commenced the present proceedings against the defendant, Keen Lloyd Resources Limited (formerly known as Keen Lloyd (Holding) Limited for delivery of vacant possession of a charged property known as No. 14, La Hacienda, 29 Mount Kellett Road with two car parking spaces (the said property) and the payment of outstanding sums under a Legal Charge dated 29 June 1998 made between the plaintiff as the mortgagee and the defendant as the mortgagor.

2. At the hearing of the Originating Summons, the plaintiff applied for judgment. Master Jones (as he then was) refused the application and ordered that the proceedings to be continued as if begun by Writ. He also gave the necessary consequential directions.

3. The defendant took the matter to Chu J by way of an appeal. Chu J allowed the appeal. She set aside the order of Master Jones and granted judgment in favour of the plaintiff for:

" (a) all money and interest due under the Charge;

(b) delivery up of vacant possession of the said property;

(c) the costs of the action on indemnity basis pursuant to Clause I(x) of the Charge."

4. The defendant appeals against the judgment of Chu J.

5. In her Reasons For Decision dated 14 August 2001, Chu J succinctly set out the events leading to the present proceedings which we respectfully adopt as follows: -

"Pursuant to a facility letter dated 31 March 1998 ('the Facility Letter'), the plaintiff granted to the defendant banking facilities in the form of trust receipts ('T/R') and letters of credit ('L/C') to the extent of HK$46.8 million. The T/R facilities had a tenor of 90 days. Clause 1 of the Facility Letter provides for the Revision Date of the banking facilities to be 30 June 1999. The Facility Letter further contains the following provisions:

'Clause V- AVAILABILITY: Subject to your acceptance of and full compliance with the terms set out in this letter and completion of all appropriate documentation to our satisfaction and the fulfillment of all conditions precedent (if any) as stated herein before, the foregoing banking facilities will be available for use until the date of review as specified above or such other time as we shall notify you in writing.

Clause VI- REPAYMENT:

(1) All banking facilities are repayable on demand.

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XVI. OTHER CONDITIONS:

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(7) The facilities granted hereunder are available subject to there being no material adverse change in the Financial condition of the Borrower/hirer, the Guarantor(s), Chargor(s), Pledgor(s) and/or Morgagor(s) as specified above and their normal credit factors remaining unchanged. The foregoing facilities are subject to periodic review and may be amended and/or cancelled at our sole discretion. All outstanding balance will then become immediately due and repayable on demand...'

Pursuant to Clause II of the Facility Letter, the Charge was executed. The banking facilities were also secured by a personal guarantee given by Mr Chun Kam Chiu, a director of the defendant ('Mr Chun'). Under Clause 1 of the Charge, the defendant covenanted to pay to the plaintiff on demand all sums of money owed to the plaintiff in respect of the banking facilities granted to it.

The arrangement between the plaintiff and the defendant over the banking facilities was this. Upon the defendant's application, the plaintiff would issue L/C and effect payment to the beneficiary upon presentation of the L/C and the supporting documentation. When the goods covered by the L/C arrived at the destination, the defendant would take delivery of the goods against signing T/R. The defendant then has 90 days in which to pay the T/R. Interest was payable during the 90 days and overdue interest would be charged thereafter.

Since 6 October 1998, the defendant has defaulted in making payments of principals and interests to the plaintiff as they fell due under eight sets of L/C. Two letters of demand dated 12 January 1999 and 28 August 2000 were issued by the plaintiff's solicitors to the defendant. Some payments totalling over US$3.3 million had been paid, but the bulk of the indebtedness remained outstanding. Hence, on 7 September 2000, the plaintiff issued the originating summons herein. On 12 September 2000, the plaintiff also issued HCA8971/2000 against Mr Chun claiming under the personal guarantee. On 14 September 2000, partial payment in the amount of US$27,098.24 was paid by the defendant. As at 5 October 2000, when the affirmation in support of the application for judgment was filed, the defendant was indebted to the plaintiff in the sum of HK$23,025,395.32 and US$3,043,159.07."

6. The defendant agrees with the aforesaid events and that it has defaulted in payment since October 1998. The defendant however contends that prior to the execution of the Legal Charge, on or around 27 March 1998, there was a meeting between Mr Chun and four senior staff members of the plaintiff and it was agreed that the banking facilities would be granted for a fixed term of 5 years and hence could not be withdrawn without consent.

7. It is not disputed that the said property was originally mortgaged to the plaintiff by Smartex Properties Limited (Smartex). Smartex had defaulted and on 20 March 1998 the plaintiff appointed a receiver in respect of the said property.

8. On 31 August 1997, the defendant entered into a provisional sale and purchase agreement with Smartex to buy the said property for $65 million. The formal sale and purchase agreement was signed on 19 September 1997 and completion was scheduled for 31 March 1998.

9. The said property was then subject to a tenancy agreement, which was due to expire on 22 March 1998.

10. It is the defendant's case that Smartex was unable to comply with a term of the supplemental agreement executed on 1 September 1997 which allowed the defendant to inspect the said property before completion and the defendant was therefore entitled to rescind from the purchase.

11. The defendant contends that the plaintiff was anxious that the purchase would be completed otherwise it could not recover the sums owed to it by Smartex. The suggestion is that there was a drastic decline in property market and it would be difficult to get another buyer at the price agreed between the defendant and Smartex.

12. As an inducement to the defendant so that it would not exercise its right to rescind, a Mr Yuen on behalf of the plaintiff was prepared to make a significant concession and offered to grant the banking facilities to the defendant for a fixed term of 5 years which offer was accepted by Mr Chun and hence the parties' rights and liability are subject to such collateral oral agreement.

13. Chu J took the view that a plaintiff in an originating summons, as in other proceedings has to make good the claim. But if the defendant raises no dispute to the factual matters upon which the claim is based, judgment would be granted in favour of the plaintiff. On the other hand, where the defendant does not dispute the basic facts supporting the claim but raises other matters as a defence to the claim, the defendant must make good his case by credible evidence.

14. The defendant agrees to the terms of the Facility Letter and the Charge. The defendant also agrees that since October 1998, it has defaulted in making payments of principals and interests to the plaintiff and under the terms of the Facility Letter and the Charge, the plaintiff is entitled to its claim. The defendant is simply saying that the terms of the Facility Letter and the Charge should not be given effect to as the parties had by an oral agreement reached terms, which superseded those in the Facility Letter and the Charge. The defendant must therefore make good such assertion by credible evidence.

15. Chu J, after a careful analysis of the defendant's assertion against the background of the case, including the uncontroversial documents and the conduct of the parties in the course of the transactions, concluded that the defendant's assertion defies common sense and commercial reality and is incapable of belief.

16. Chu J also found that the alleged oral agreement, even if it existed, was vague and uncertain and could not therefore be enforced.

17. Mr Sussex SC, on behalf of the defendant criticizes Chu J's approach and suggests that the case involves significant disputes as to facts and those disputes must be identified by way of pleadings and properly resolved by way of a trial. He suggests that a Mortgage Action under Order 88, unlike actions under Order 14 or Order 86, imposes a burden on the plaintiff to prove its case.

18. With respect, a plaintiff must prove its case to the required standard whether it is a case under Order14, Order 86 or Order 88 and if the case involves disputes as to facts which disputes need to be resolved before the case can be properly adjudicated upon, then such disputes must be resolved, if necessary by way of a trial.

19. On the other hand, Order 28, rule 4 gives the court a wide discretion to "make such order in favour of the plaintiff as the nature of the case may require..." If the case can be dealt with summarily and the nature of the case requires, there is no reason not to grant summary judgment in favour of the plaintiff. This is the approach adopted in Kincheng Banking Corporation v. Centresign Company Limited HCMP7239/1999 (unreported). This is the approach we adopt.

20. The defendant agrees with the basic facts, which support the plaintiff's claim. The only defence raised by the defendant was found to be unbelievable. What then are the issues that need to be resolved by way of a trial?

21. The only disputes as to facts relate to the veracity of the alleged collateral oral agreement to the effect that the defendant would be granted the banking facilities for a fixed term of 5 years. Chu J, after a detailed and careful analysis found such assertion unbelievable, a conclusion we respectfully agree. Mr Sussex SC, despite his able submission, fails to persuade us otherwise.

22. The issues of facts had been correctly identified and properly resolved. The base upon which the defendant's defence rests has disappeared altogether. There are no other issues that need to be resolved by way of a trial.

23. We have indicated our agreement with Chu J's analysis and conclusion when she found the assertion of the defendant unbelievable. We would only add the following brief remarks:

24. If the defendant was entitled to rescind from the purchase of the said property from Smartex, it required very strong incentive for the defendant to agree to complete the transaction when the price of the said property had fallen from $65 million to $41 million by March 1998 and then $37 million at or around the time of completion. Banking facilities of $46.8 million, even for a period of 5 years could hardly have justified an immediate loss of $24 million or more.

25. If the defendant were prepared to put up with the $24 million loss in order to obtain the banking facilities for 5 years, Mr Chun would never have agreed to omit such term in the written documents. The defendant's solicitor, who was present at the meeting in which the alleged oral agreement was reached, would not have omitted to refer to such term in the letter written to the plaintiff's solicitors the very same day.

26. The defendant's assertion of course contradicts the clear terms of the written documents.

27. The Facility Letter provides that "the availability of the facilities are subject to review and to there being no material change in the financial condition of the defendant, and that the facilities are repayable on demand and may be amended or cancelled at the plaintiff's sole discretion." The Legal Charge also gives the plaintiff an overriding right to demand repayment at any time.

28. Mr Chun would not have allowed such terms to appear in the written documents just because he was told that "the agreed terms" "would not conform to the practice and/or regulations of the bank."

29. We agree with the conclusion of Chu J that the defendant's defence is not credible, premised as it is on the alleged oral agreement which defies belief.

30. The defence based on the alleged oral agreement cannot succeed on any footing and Chu J was right in rejecting it.

31. Chu J did not deal with the issue of whether the alleged oral agreement was too vague and uncertain to be enforceable in any details. We also do not find it necessary to deal with the matter. Suffice it for us to say that there is plainly no merit in this appeal.

32. We would dismiss the appeal with an order for costs to be taxed if not agreed in favour of the plaintiff.