KOWLOON DEVELOPMENT FINANCE LTD v. PENDEX INDUSTRIES LTD AND OTHERS

HCA813/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 813 OF 2006

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BETWEEN

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JUDGMENT

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1.  The plaintiff which conducts the business as a licensed money lender is suing D1 in respect of loans made to it and D2 and D3 who are directors of D1 under guarantees they entered into to secure its indebtedness. Also the plaintiff is claiming from D1 vacant possession of premises being Ground Floor, 1^st and 2^nd Floor and car park spaces no. 1, 3, 5, 8, 11, 15 and 16 on the Lower Ground Floor of Canberra Villa, section B of Lot 757 in Demarcation District No. 179, Shatin, New Territories (“the Mortgaged Property”) being property which D1 mortgaged to the plaintiff as additional security for the said indebtedness.

2.  The loan took the form of an instalment loan and was a revolving loan which was evidenced by six facilities letters which were entered into between 11 December 1997 and 7 August 2002.

3.  According to the last facilities letter the amount of the debt as consolidated was $20,855,029.89.  The interest rate was prime rate or HIBOR plus 3½% per annum whichever was higher.  There was also provision for additional interest at the rate of 2% per annum to be payable in the event of default. 

4.  The arrangement under the documentation was that repayment should be effected by monthly payments and that at the end of each year there would be a review and agreement could then be concluded as to the amount of the instalments which should be payable during the next year.

5.  The 1^st Facility Letter was in this form.

“Dear Sirs

Re : Loan Facilities

We, hereinafter referred as the Lender, are pleased to advise that the following loan facilities have been made available to Pendex Industries Ltd. hereinafter referred as the Borrower, and Mr. Chan Wah Sun and Ms. Yu Ka Yee, hereinafter referred as the Guarantors.

The terms and conditions of the loan facilities are as follows :

1. Installment Loan

(1 year)

Amount:	HK$10,000,000.00
Drawdown:	A date to be agreed by the Lender and the Borrower.
Interest Rate:	3.0% per annum over HKD Prime Rate as determined by Hong Kong Bankers’ Association or over HIBOR (Hong Kong Interbank Offering Rate), whichever is the higher.
Repayment:	Amortized over 12 years period and repayable by 12 monthly instalments of HK$134,385.73 each inclusive of principal and interest commencing one month after loan drawdown or any amount of instalment as from time to time determined by us.  Balance of the loan is to be repaid after one year if not renewed.
Revision of Terms & Conditions:	The Lender has sole option to revise terms and conditions every year subject to satisfactory and acceptable financial statements of the Borrowers.
Prepayment Penalty:	An amount equivalent to three months interest on early prepayment of the instalment loan.

2. Revolving Loan

(1 year)

Amount :	HK$10,000,000.00
Drawdown :	Not less than two working days notice be given to the Lender at multiple drawdown of HK$500,000.00 each. Interest payment is calculated for a month period and payable in arrears of the drawdown date.  Principal is repayable every month after drawdown and rollover allowed.
Interest Rate :	3.5% per annum over HKD Prime Rate as determined by Hong Kong Bankers’ Association or over HIBOR (Hong Kong Interbank Offering Rate), whichever is the higher.

The availability of the above loan facilities is subject to satisfactory documentation and your agreement as follows :

1.   A loan facility fee of HK$100,000.00 payable upon the acceptance of this letter.  An annual arrangement fee @0.357% on Revolving Loan outstanding shall be charged.

2.   A first legal mortgage in favour of the Lender on the property located at :

a) Lot 767, DD179 S.A., Block B, Tung Lo Wan, Shatin (with 7 covered car parks).

b) 1/F, B2, Alnwick Road, Beacon Hill, Kowloon.

3.   Personal guarantees for unlimited amount by Mr. Chan Wah Sun and Ms Yu Ka Yee.

4.   An adequate fire insurance cover on the above mortgaged property in favour of the Lender shall require.  The insurance cover will take effect on the day when the loan is advanced.

5.   In the event of default, additional 2% p.a. be imposed on the default instalment.

6.   A written appraisal on the mortgaged property for a total of no less than HK$35,000,000.00.  Lender may request an annual appraisal report if necessary.

7.   All out of pocket expenses for account of the Borrower.  The Lender may from time to time receives commission of handling fees payable by any such offices or agency in respect thereof.

Lastly, but not least, the continuity of the aforementioned facilities are subject to our usual annual review and no adverse change in the financial condition of the Borrowers.  Notwithstanding the aforementioned, we, the Lender, reserve the overriding right of repayment of the loan facilities on demand.

This offer letter will expiry on 19 December 1997; kindly indicate your agreement and acceptance by signing and returning to us the duplicate of this letter on or before the above expiry date.  We thank you for the opportunity to be of service to you and look forward to a mutually satisfactory business relationship.”

6.  The subsequent facility letters were in a similar form save that they were adapted to meet the ongoing circumstances as they developed. 

7.  In 2003 D1 experienced cash flow problems which resulted in its having difficulties in paying the instalments which had been agreed at the previous review.

8.  D2 wrote to the plaintiff as follows :

“Dear Miss Wai,

Re : Loan Facilities

Please find below is the Cash flow plan of our company from AUG to DEC 2003.

	Sales	Purchase	Gross Profit
AUG	HK$995670	HK$796540	HK$199130
SEPT	HK$1269840	HK$1015872	HK$253968
OCT	HK$1266720	HK$1013420	HK$253300
NOV	HK$1200000	HK$1000000	HK$200000
DEC	HK$1200000	HK$1000000	HK$200000

         As you can see from our Cash flow plan, our company is started to recover from the SARS effect but the cash flow is still tight due to own limited capital and lack of income in the past few months. Anyway, we would like to thank you very much for your kind support and understanding to us during the SARS period.  On the other hand, we would be most grateful if your company could kindly allow us to re-allocate our outstanding balance owing to your company into the new loan facility with monthly installment of HK$170000 starting from 15 AUG 2003.

         We understand that we have caused a lot of inconvenience to your company but please believe that we have already tried our very best and by mean of any effort to pay the installments in the past.  Therefore we deeply wish that you can help us to pass through this hard time and kindly accept our proposal.  We promised that this is the last time and we will pay our future installments punctually.

         Thank you for your attention and once again, we are very sorry for any inconvenience it caused and sincerely hope that we can continue our business relationship.”

9.  D1 was unable to make payments which were acceptable to the plaintiff and a letter of demand for the amount then outstanding of $21,036,862.73 inclusive of interest was sent to D1.

10.  As no payment was made the plaintiff instructed Messrs Chan & Partners, Solicitors to commence legal proceedings for the recovery of the indebtedness and vacant possession of the Mortgaged Property.

11.  This was the start of protracted litigation which has been keenly contested.

12.  Mr P.Y. Chan of Chan & Partners issued an Originating Summons in HCMP4679/2003 (the “2003 action”) on behalf of the plaintiff.

13.  The summons was supported by an affirmation affirmed by Ms Monica Wai (“Ms Wai”) who is a Qualified Accountant and was the officer in charge of the account in question.

14.  She gave evidence in the action before me and there will be a commentary later in this judgment concerning her testimony.

15.  It was her practice to delegate some of her responsibilities to her secretary Ms Cindy Yu (“Ms Yu”) who also gave evidence before me.

16.  The duties delegated to Ms Yu included negotiating terms with customers and then seeking Ms Wai’s approval thereto. Ms Yu was the main witness for the plaintiff before me in the present action.

17.  Ms Yu conducted negotiations with D2 and reached a form of settlement which was approved by Ms Wai.

18.  Instructions were then given to Mr P.Y. Chan to prepare a draft consent summons.  This was done and the draft was submitted to Messrs Foo Leung & Yeung, Solicitors (“FLY”) who were representing the defendants.

19.  The form of the draft summons was in these terms :

“ SCHEDULE

1. All the Defendants do pay the Plaintiff the sums of money upon signing this summons as follows :

(i) HK$340,000.00 being part of the outstanding loan and interests accurred;

(ii) HK$28,000.00 being the agreed legal costs and disbursements incurred by the Plaintiff in this action save this application; and

(iii) HK$9,600.00 being outstanding insurance premium of the Property.

2. All the Defendants do pay the Plaintiff 12 monthly mortgage instalments commencing on 21^st January 2004 by 24 post dated cheques and presented the same to the Plaintiff upon signing of this summons as follows :

Item No.	Date of the Cheque	Amount
1.	21-01-2004	HK$80,000.00
2.	21-01-2004	HK$90,000.00
3.	21-02-2004	HK$80,000.00
4.	21-02-2004	HK$90,000.00
5.	21-03-2004	HK$80,000.00
6.	21-03-2004	HK$90,000.00
7.	21-04-2004	HK$80,000.00
8.	21-04-2004	HK$90,000.00
9.	21-05-2004	HK$80,000.00
10.	21-05-2004	HK$90,000.00
11.	21-06-2004	HK$80,000.00
12.	21-06-2004	HK$90,000.00
13.	21-07-2004	HK$100,000.00
14.	21-07-2004	HK$90,000.00
15.	21-08-2004	HK$100,000.00
16.	21-08-2004	HK$90,000.00
17.	21-09-2004	HK$100,000.00
18.	21-09-2004	HK$90,000.00
19.	21-10-2004	HK$100,000.00
20.	21-10-2004	HK$90,000.00
21.	21-11-2004	HK$100,000.00
22.	21-11-2004	HK$90,000.00
23.	21-12-2004	HK$100,000.00
24.	21-12-2004	HK$90,000.00

3.   All the Defendants do pay the Plaintiff interests on the outstanding loan at the rate of 10 percent per annum from the date of arrears up to 18^th December 2003 and at the rate of 8 percent per annum thereafter;

4.   All the Defendants do assist the Plaintiff to collect rent of the Property direct from the Tenant thereof and such rent will be used to set off the equivalent amount of money stated in the aforesaid post dated cheques accordingly;

5.   All the Defendants do have the right to negotiate with the Tenant in relation to the amount of rental charge for the option to renew save any decisions and conclusion of the terms of the renewed term shall have the Plaintiff’s prior written consent;

6.   All the Defendants shall be liable for all the costs and disbursements of obtaining the Certificate of Compliance in respect of the Building Order duly registered in the Sha Tin New Territories Land Registry by Memorial No. 1264058 and carry out works to comply with all the works specified in the letter dated 24^th May 2002 issued by Environmental Protection Department, Local Control Office/Territory North to the 1^st Defendant within the prescribed time or as soon as practicable;

7.   This arrangement will be commenced from the date of this Summons till 21^st December 2004.  If all the Defendants comply with all the terms of the aforesaid arrangements for the aforesaid period, the Plaintiff will consider to renew the aforesaid arrangements annually thereafter.  If all the Defendants do not comply with any term of the aforesaid arrangements during any time of the aforesaid period, the Plaintiff shall be at liberty to restore this action and all the legal costs and disbursements arising therefrom shall be borne by the Defendant on an indemnity basis.

8.   All the Defendants are jointly and severally liable to pay to the Plaintiff as regards Clauses 1, 2 and 3 herein.  All the Defendants are jointly and severally liable for the works to be carried out as regards Clauses 4, 5, 6, and 7 herein.

9.   The hearing fixed at the High Court in Chambers, on Thursday, the 15^th day of January 2004 at 3:30 o’clock in afternoon be vacated; and

10.   There will be no order as to costs to this application.”

20.  Mr Yeung of FLY then requested Mr P.Y. Chan to delete the part of paragraph 7 which reads:

“If all the Defendants do not comply with any term of the aforesaid arrangements during any time of the aforesaid period, the Plaintiff shall be at liberty to restore this action and all the legal costs and disbursements arising therefrom shall be borne by the Defendant on an indemnity basis.”

21.  Apparently Mr P.Y. Chan advised Ms Wai to agree to this deletion.  According to her the basis of his advice was that if the defendants did not adhere to the terms of the settlement it would be open to the plaintiff to institute a further action against the defendants to obtain redress.

22.  Mr P.Y. Chan, some years ago, ceased to practise as a solicitor and I was informed that he can no longer be traced.

23.  The Master before whom the summons was placed declined to make an order on account of the fact that the amount of the outstanding loan had not been included in the Order.

24.  There were then further discussions between the parties and an amended form of summons was filed in the court.

25.  The court made a Tomlin Order in these terms on 8 January 2004 :

“ SCHEDULE

1. All the Defendants do pay the Plaintiff the sums of money upon signing this summons as follows :

(i) HK$340,000.00 being part of the outstanding loan and interests accurred;

(ii) HK$28,000.00 being the agreed legal costs and disbursements incurred by the Plaintiff in this action save this application; and

(iii) HK$9,600.00 being outstanding insurance premium of the Property.

2. All the Defendants do pay the Plaintiff 12 monthly mortgage instalments commencing on 21^st January 2004 by 24 post dated cheques and presented the same to the Plaintiff upon signing of this summons as follows :

Item No.	Date of the Cheque	Amount
1.	21-01-2004	HK$80,000.00
2.	21-01-2004	HK$90,000.00
3.	21-02-2004	HK$80,000.00
4.	21-02-2004	HK$90,000.00
5.	21-03-2004	HK$80,000.00
6.	21-03-2004	HK$90,000.00
7.	21-04-2004	HK$80,000.00
8.	21-04-2004	HK$90,000.00
9.	21-05-2004	HK$80,000.00
10.	21-05-2004	HK$90,000.00
11.	21-06-2004	HK$80,000.00
12.	21-06-2004	HK$90,000.00
13.	21-07-2004	HK$100,000.00
14.	21-07-2004	HK$90,000.00
15.	21-08-2004	HK$100,000.00
16.	21-08-2004	HK$90,000.00
17.	21-09-2004	HK$100,000.00
18.	21-09-2004	HK$90,000.00
19.	21-10-2004	HK$100,000.00
20.	21-10-2004	HK$90,000.00
21.	21-11-2004	HK$100,000.00
22.	21-11-2004	HK$90,000.00
23.	21-12-2004	HK$100,000.00
24.	21-12-2004	HK$90,000.00

3.   All the Defendants do pay the Plaintiff interests on the outstanding loan in the sum of HK$21,591,264.12 at the rate of 10 percent per annum from the date of arrears up to 18^th December 2003 and at the rate of 8 percent per annum thereafter;

4.   All the Defendants do assist the Plaintiff to collect rent of the Property in the sum of HK$90,000.00 each month direct from the Tenant thereof and such rent will be used to set off the same amount of money stated in the aforesaid post dated cheques accordingly;

5.   All the Defendants shall be liable for all the costs and disbursements for obtaining the Certificate of Compliance in respect of the Building Order duly registered in the Sha Tin New Territories Land Registry by Memorial No. 1264058 and carry out works to comply with all the works specified in the letter dated 24^th May 2002 issued by Environmental Protection Department, Local Control Office/Territory North to the 1^st Defendant within the prescribed time or as soon as practicable;

6.   This arrangement will be commenced from the date of this Summons till 21^st December 2004.  If all the Defendants do pay the plaintiff the total sum of HK$2,537,600.00 (i.e. HK$2,500,000.00 representing the outstanding loan and interests as stated in sub-paragraph (i) of paragraph 1 and paragraph 2 aforesaid; plus HK$28,000.00 representing the agreed legal costs as stated in the sub-paragraph (ii) of the paragraph 1 aforesaid; and HK$9,600.00 representing the outstanding insurance premium of the Property as stated in the sub-paragraph (iii) of the paragraph 1 aforesaid) during the aforesaid period, the Plaintiff will review the amount of repayment of Mortgage instalments annually thereafter;

7.   All the Defendants are jointly and severally liable to pay to the Plaintiff as regards Clauses 1, 2 and 3 herein.  All the Defendants are jointly and severally liable for the works to be carried out as regards Clauses 5 herein.

8.   The hearing fixed at the High Court in Chambers, on Thursday, the 15^th day of January 2004 at 3:30 o’clock in afternoon be vacated; and

9.   There will be no order as to costs to this application.”

This is referred to as the “2004 Consent Order”.

26.  It will be appreciated that the Order provided for the payments to be made until 21 December 2004 and that as a consequence of the deletion of the latter part of paragraph 7 of the draft summons the main sanction provided for in the event of default by the defendants in complying with the terms of the 2004 Consent Order would be that there would be no review for the instalments which would be payable for 2005.

27.  D1 basically complied with the terms of the 2004 Consent Order.

28.  It appears to be common ground that there were negotiations and discussions between Ms Yu and D2 between October and December 2004 and in 2005.

29.  There is however much disagreement as to what was agreed between the parties.

30.  It is the plaintiff’s case that the defendants accepted that they owed them something in the region of $20 million, the exact amount depending upon the time in question and that the purpose of the discussion was to determine how much the instalments for 2005 would be.  They claimed that it was always the intention of the parties that all of the loan would be recoverable in the event of any default on the part of the defendants.

31.  On the other hand it was the defendants’ case that a settlement was concluded between the parties whereby it was agreed that if the payments were made in accordance with the terms provided in the Consent Order it was contemplated would be made that it would be a complete discharge of all the defendants’ liabilities.

32.  The evidence of Ms Wai and Ms Yu for the plaintiff and D2 will be dealt with in detail later in this judgment.

33.  Ms Yu gave instructions to Mr P.Y. Chan to prepare a consent summons incorporating the terms which had been agreed.

34.  Her fax was in these terms :

“We verbally have confirmation with one of the Defendants, Mr CHAN Wah Sun and kindly arrange relevant legal documents commencing on 21^st January 2005. Details as follows :

All the Defendants do pay the Plaintiff the sums of money

1) HK$8,000.00 being the agreed legal costs and disbursements;

2) HK$9,600.00 being Fire Insurance Premium of the captioned Property; and

3) 12 monthly mortgage instalments of HK$325,000.00 each by 12 post dated cheques commencing on 21^st January 2005.

Your immediate action to this matter would be highly appreciated.”

35.  At this time the defendants did not have solicitors representing them.  It was necessary for D1 a limited company to be represented and Mr P.Y. Chan introduced D2 to a firm of solicitors practising as S.H. Chan & Co.

36.  Mr P.Y. Chan received cheques for the fire insurance premium referred to in the letter and 13 post-dated cheques in the sum of $325,000 each in favour of the plaintiff.

37.  A consent order was made by the court on 20 January 2005 as follows :

“ UPON the joint application of the Plaintiff and the Defendants by way of Consent Summons filed herein on 18^th January 2005

BY CONSENT IT IS ORDERED THAT :

1. The Defendants do pay the Plaintiff HK$9,600.00 being the Fire Insurance Premium of the property at Ground Floor, 1^st Floor & 2^nd Floor and Car Parking spaces Nos. 1, 3, 5, 8, 11, 15, and 16 Canberra Villa, Section B of Lot No. 767 in Demarcation District No. 179, Shatin, New Territories, Hong Kong.

2. The Defendants do pay the Plaintiff HK$325,000.00 in 12 equal monthly installments, by way of 12 post-dated cheques commencing from 21^st January 2005;

3. Notwithstanding the order of Master Lung dated 8^th January 2004, all further proceedings in this action be stayed, save that the Plaintiff be at liberty to apply for the purposes of carrying into effect of this Order; and

4. The Defendants do pay the Plaintiff HK$8,000.00 as the costs of this application.”

This consent order is referred to as the “2005 Consent Order”. 

38.  The post-dated cheque in respect of the February instalment was dishonoured on presentation to the bank.

39.  There were discussions between Ms Yu and D2. Notwithstanding this the cheques continued to be dishonoured and on 17 May 2005 Mr P.Y. Chan wrote a letter of demand to the defendants claiming the whole of the amount outstanding on the loan of $20,553,049.67.

40.  Shortly after this the plaintiff instructed Messrs Raymond Chan, Kenneth Yuen & Co., solicitors (“RCKY”) to represent them.  The solicitor having the conduct of the case was Mr Jerry Jim.

41.  On 13 September Mr Jim issued a summons in HCMP4679/2003 for the recovery of the loan and interest and for delivery up of vacant possession of the Mortgaged Property.  

42.  It is apparent at this stage that Mr Jim had come to realise that his clients faced some difficulties in connection with the summons he had issued on their behalf.

43.  The problems related to the wording of the two Consent Orders earlier cited in this judgment.

44.  His summons was undated but returnable on 12 December 2005 and sought relief as follows :

“LET ALL PARTIES CONCERNED attend before Mater de Souza of High Court sitting in Chambers at Court No. on [ ] Floor of High Court, Queensway, Hong Kong on Monday the 12^th day of December 2005 at 11:30 a.m. on the hearing of an application of the Plaintiff for an order that :

1.   Leave be granted to the Plaintiff to amend paragraph 3 of the order dated 20^th January 2005 made by Master S. Kwang of High Court as ‘Notwithstanding the order of Master Lung dated 8^th January 2004, all further proceedings in this action be stayed, save that the Plaintiff be at liberty to apply for leave to proceed with this action if the Defendants shall default in payment of any of the said 12 monthly installments’ in substitution for the original paragraph 3 of the said order;

2.   Alternatively, leave be granted to the Plaintiff to amend paragraph 3 of the said order as ‘Notwithstanding the order of Master Lung dated 8^th January 2004, all further proceedings in this action be stayed, save that the Plaintiff be at liberty to apply for the purpose of carrying into effects of this Order by enforcement or levying execution of this Order for the unpaid balance of the said 12 monthly installments if the Defendants shall default in payment of any of the said 12 monthly installments’ in substitution for the original paragraph 3 of the said order;

3.   Alternatively, the said order dated 20^th January 2005 made by Master S. Kwang be set aside on the ground of irregularity or mistake made by the Plaintiff’s former solicitors as mentioned in the Affirmation of Mak Koon Hung filed herein on 3^rd October 2005 in preparing the Consent Summons in terms of which such order was made, which was in clear contradiction to what the Plaintiff intended; and

4.   The costs of this application be provided for.”

45.  He issued a 2^nd Summons which applied to set aside the 2005 Consent Order on the basis of there having been a mistake.

46.  The return date of this Summons was the same date as the hearing of the 1^st Summons he had issued.

47.  At the hearing Mr Jim only argued the setting aside of the 2005 Order.  He placed reliance on the ground of mistake.

48.  Counsel for the defendants opposed this application on the ground that a fresh action should be commenced rather than attempting to deal with the matter as proposed by Mr Jim.

49.  The Master dismissed the Summons expressing the view that it lacked merit.  He did not however condescend to give reasons for his decision.

50.  It is apparent however from a reading of the transcript of the hearing that the Master accepted the validity of the submissions of defence counsel that the correct procedure was to institute fresh proceedings.

51.  On 14 December 2005 FLY wrote to RCKY enclosing a cheque for $1,950,000 representing the amounts payable on the 6^th to 11^th post-dated cheques.  This amount was accepted by the plaintiff.

52.  Shortly after this D1 wrote to the plaintiff stating that it had been surprised to receive the demands for payment as the whole outstanding matter had been finalised by virtue of the 2005 Consent Order and the defendants’ compliance with it.  It went on to request the release of the subject mortgage.

53.  Following this statutory demands were served on D2 and D3 in an attempt to have them adjudicated bankrupt.  These attempts were abortive and the notices were withdrawn.

54.  The present action was commenced on 12 April 2006 and was followed by a Statement of Claim, an Amended Statement of Claim and a Re-amended Statement of Claim.

55.  In these proceedings the plaintiff is making its claim against the defendants under 4 alternative heads:

(1)   On a proper construction of the 2004 and 2005 Consent Orders the defendants had to make the payments according to the Orders and to continue to make such payments as may be agreed in future reviews.  In the event of default the whole of the amount of principal and interest would become payable.  The defendants had evinced an intention not to abide by the terms of the Orders after the payments had been made under the 2005 Order.

(2)   The 2004 and 2005 Orders contained an implied term that the defendants were liable to continue the annual reviews of payments to be made until the whole of the principal and interest had been discharged.

(3)   That the 2004 and 2005 Orders should be rectified on the basis of mistake mutual or unilateral to embody the term that the defendants must continue to make payments in accordance with payments agreed under future reviews until all outstanding payments of principal and interest have been made.

(4)   That the 2005 Order should be set aside on the ground of mistake and the plaintiff should be permitted to enforce the Agreement pursuant to the 2004 Order.

56.  They also seek vacant possession of the property subject to the mortgage.

57.  The defendants’ main defence is that there was no mistake.  They contend that it was agreed between Ms Yu and D2 that if the terms which were contained in the 2005 Consent Order were complied with all of the defendants’ obligations would be discharged.  They also sought the discharge of the said mortgage.

58.  One of the matters which the defendants complain of is the plaintiff’s inordinate delay.

59.  The 2004 Consent Order was made on 8 January 2004.

60.  The allegation that there was an implied term in the said order entitling the plaintiff to recover the whole of the balance of the claim was not made until 29 July 2010.  At this time the plaintiff sought leave to substantially amend the Re-amended Statement of Claim.

61.  It is contended that this delay has been seriously prejudicial to the defendants as they are now unable to locate documentary evidence to support their defence.

62.  Mr C.P. Lin for the defendants also referred to the summons issued in HCMP4679/2003 and the fact that the summons had been dismissed by the Master.  There had been no appeal against these decisions.

63.  Mr Lin contended that it was not open to the plaintiff to seek to re-litigate the issue.

64.  On the subject of delay, Mr C.Y. Li who was representing the plaintiff referred to a whole series of misfortunes which had overtaken his client.

65.  Master Lung granted leave to set down the action for hearing on 13 June 2007.  The solicitor having the conduct of the matter Mr Jerry Jim, gave misleading information on this and failed to comply with Master Lung’s order.

66.  A complaint has been lodged with the Law Society in relation to this.

67.  The surrounding circumstances are dealt with in some detail in Ms Yu’s affidavit in support of the plaintiff’s application for leave to set the action down for hearing out of time.

68.  It would appear that it was not until the plaintiff instructed their present solicitors Messrs Vincent T.K. Cheung, Yap & Co. (“VTKC”) that they were able to move the case forward again.

69.  When VTKC did so they issued a summons on 20 July 2010 seeking leave to amend the Statement of Claim substantially and adduce additional witness statements which would cover the circumstances surrounding the making of the 2004 and 2005 Consent Orders.  This summons which was opposed was not heard until 26 November 2010.  Master A Ho granted the leave sought and ordered consequential directions which enabled the defendants to amend their Defence and serve additional witness statements.

70.  The defendants appealed against this Decision. The appeal was heard by Fok JA as an additional judge at First Instance and he dismissed it.

71.  The 1^st witness to give evidence for the plaintiff was Ms Yu.  She joined the plaintiff as a secretary in 1995.  She worked for Ms Wai who was a senior officer in the plaintiff who was responsible for granting loans to customers, agreeing terms of repayment and generally supervising the plaintiff’s business.

72.  Ms Wai left the plaintiff’s employment in June 2007 and she, Ms Yu was promoted to the position of senior operations officer.

73.  In addition to secretarial duties she was also required to conduct negotiations with customers concerning the repayment of debts or matters such as granting indulgence or latitude to them.

74.  She would usually conduct these discussions on the instructions of Ms Wai and would report back to her on the results.

75.  She would also undertake calculations for Ms Wai to assist her in seeing the amount of time it would take to discharge any particular debt.

76.  The procedure adopted by Ms Yu was to make a note on what was described as being an action sheet.

77.  She would make the notes contemporaneously.  By that she meant either the same day or the following day.

78.  The action sheets would be passed to Ms Wai who would herself initial them.  On some matters of importance Ms Yu would directly deal with Ms Wai verbally.

79.  Considerable importance attached to these action sheets.

80.  Due to the passage of time which had elapsed since the events forming the subject matter of this litigation it was necessary for Ms Yu to refer to the Action Sheets to refresh her memory.

81.  She agreed with counsel that she could only recollect the general gist of what had transpired and had difficulty in remembering some of the detail.

82.  The action sheets did form part of the documentation in the Trial Bundles.

83.  Ms Yu was adamant that there had been no selection process and that all of the action sheets had been delivered to the plaintiff’s solicitors for them to comply with their obligation for discovery of documents.

84.  From the outset D1 had not punctually discharged its obligations according to the provisions contained in the Facility Letters. She had had to chase D2 up on numerous occasions requiring him to make good the required payments.

85.  She referred to the letter the plaintiff had received on the 18 July 2003.  This has been cited earlier in this judgment.  Ms Wai instructed her that the proposals contained therein were not acceptable.  D2 was informed of this.

86.  A decision was made in October 2003 to institute HCMP4679/2003 so as to protect the plaintiff’s interests.

87.  Ms Yu was aware of the situation that it appeared that D1 had insufficient money or resources to discharge its indebtedness and that the value of the Mortgaged Property was insufficient to cover the loan. 

88.  D1 was anxious that the action should be discontinued.  She was instructed by Ms Wai to conduct negotiations with D2.

89.  There was no doubt in her mind that the framework of any discussions was to determine the time frame in which repayments of principal and interest could be made by D1.  There was never any question of the amount of the indebtedness being reduced or of D1 only being required to make payments for a period of two years.

90.  The negotiations were undertaken in the context of the review referred to in the relevant Facility Letter.

91.  Ms Yu conducted them in conversations with D2 over the telephone and records of the conversations are contained in the contemporaneous Action Sheets.

92.  In particular the Action Sheets of discussions on 3 and 4 December and 11 and 12 December were germane and recorded the terms which it was intended to constitute the Consent Order which would be made in HCMP4679/2003.

93.  It was decided that the plaintiff’s solicitors should be instructed to prepare an appropriate document for submission to the court.

94.  Ms Yu gave instructions to Mr P.Y. Chan to take the necessary action.

95.  She learnt that Mr P.Y. Chan had submitted a draft Consent Summons to FLY the solicitors representing the defendants and that they had proposed deleting the final paragraph of paragraph 7.  Ms Wai had informed her that she had agreed to this proposal on Mr P.Y. Chan’s advice.

96.  She had also borne in mind the telephone conversation with D2 when he had promised to make payments in accordance with the Review and that if he failed to do so action could be taken to recover the loan.

97.  In this connection D2 had requested that HCMP4679/2003 should be discontinued and this request had been refused.

98.  She had no doubt whatever that D2 fully realised that D1’s obligation was to discharge the whole of the loan and interest thereon in due course.

99.  Towards the end of 2004 the outstanding amount of the loan was $20,793,478.22.  Ms Yu realised that it would be necessary to increase the amounts payable on the 2005 Review.

100.  Ms Yu telephoned D2 on 27 October 2004.  She informed him of the amount outstanding and the necessity of increasing the monthly payments.

101.  D2 proposed making monthly payments of $210,000 for the first six months and $230,000 for the remainder of the year and that the interest rate should be reduced.

102.  Ms Yu informed D2 she would ascertain whether this proposal was acceptable to the plaintiff.

103.  The plaintiff caused valuations to be made of the Mortgaged Property by two valuers and it appeared that as at 27 October 2004 the value was $8.9 million.

104.  Ms Yu then prepared a spreadsheet for Ms Wai in which it could be seen that if D2’s proposal was to be accepted it would take 12 years for the money to be repaid.  It would take almost 8 years for it to be reduced to the value of the Mortgaged Property.

105.  Ms Wai informed her that the debt should be repaid in 5 years.  She was not prepared to reduce the interest payable.  This meant that the amount which should be payable under the 2005 Review should be $325,000 per month.

106.  Ms Yu was instructed to inform D2 of this.  She did so and informed D2 that action would be taken against D1 if there was default in the payments.

107.  D2 said that he had no alternative but to agree.  Ms Yu then informed him that instructions would be given to the lawyers to prepare the necessary documentation and that their fees would be $8,000 which would be payable by D1.

108.  At the request of Ms Wai she instructed Mr P.Y. Chan to proceed with the preparation of a consent summons.

109.  Mr P.Y. Chan informed her that he had at the request of D2 arranged for a firm of solicitors Messrs S.H. Chan & Co. to represent the defendants.

110.  A Consent Order was made pursuant to the Summons on 20 January 2005.  This was the 2005 Consent Order referred to earlier in this judgment.

111.  As with the 2004 Consent Order she had not herself studied the document carefully as she placed reliance upon the solicitors to incorporate terms which reflected the true intentions of the parties.

112.  She was entirely satisfied that D2 knew that the whole of the loan and interest thereon were payable.

113.  The post‑dated cheques which D2 had given the solicitor were not honoured on presentation.

114.  After sending a letter of demand to D2 for $20,553,049.67 and receiving no satisfactory response the plaintiff engaged the services of RCKY to represent them.

115.  Mr Jerry Jim the solicitor dealing with the matter issued two summons.

116.  The first was a summons for judgment in respect of all of the principal and interest outstanding and the second was a summons to set aside the 2005 Consent Order.

117.  She learnt that both summonses had been dismissed on 12 December 2005.

118.  On 15 December 2005 FLY sent a cheque to RCKY for $1,950,000 which moneys represented the amounts payable under the 6^th to 11^th instalments together with a receipt for the amount payable on the 12^th instalment.

119.  As the defendants had not evinced any intention to participate in a Review for payments to be made in 2006 the plaintiff issued a letter of demand for $20,553,049.67 being the amount outstanding on the loan at that time.

120.  D2 telephoned Ms Yu on 4 June 2006 saying that he had received the demand letter and that he would be making written proposals on how to repay the outstanding debt.

121.  To her surprise D3 who is the wife of D2 wrote on behalf of D1 that the payment of the outstanding loan had been fully dealt with by the 2005 Consent Order.

122.  Ms Yu was subjected to a lengthy and searching cross-examination by Mr Lin.

123.  She survived it remarkably well.  She accepted that she needed to place considerable reliance upon the Action Sheets but could remember at least the gist of the telephone conversations she had had with D2.

124.  What is perhaps most significant about her evidence was that it all hung together in a consistent and convincing manner.

125.  I accept her evidence concerning the office procedures which were adopted to maintain a record of what transpired and also that the Action Sheets almost entirely support the plaintiff’s case.

126.  It is also apparent from the action sheets that Ms Yu was fully aware of the outstanding situation as it developed and her explanation for not taking exception to the wording of the two Consent Orders is convincing.  Her superior had told her of the legal advice she had received from Mr P.Y. Chan and it is not reasonable to expect a person in her position to question the advice.

127.  Equally important I accept her evidence that she did not have any discussion with D2 to the effect that if he complied with the terms of the two Consent Orders this would discharge him from any further liability to the plaintiff.

128.  I also accept her evidence that she was entirely satisfied that D2 knew perfectly well that the parties had not agreed that D1 would be absolved in the manner he claimed.

129.  I accept her evidence that for all practical purposes the Action Sheets accurately record the discussions she had with D2 and that there were no matters of any importance in regard to the present litigation which were not included.

130.  The other witness to give evidence for the plaintiff was Ms Wai.  She joined the Kowloon Development Group to which the plaintiff belonged in 1986.

131.  She was the assistant general manager and was in charge of the affairs of the plaintiff.  She left the Group on 31 January 2009.

132.  Her 1^st witness statement was made on 2 March 2007.  In it she verified the contents of the various Facility Letters and gave a short resume of what had transpired concerning the subject matter of this litigation.

133.  However in the 2^nd witness statement dated 29 November 2010 she states that she had read Ms Yu’s statement and wished to adopt its contents as her evidence in so far as it related to her. She went on to say that if there were any discrepancies between what she had said in her 1^st witness statement and Ms Yu’s statement, the latter should be preferred as Ms Yu had referred to contemporaneous documents whereas she had not done so.

134.  I am satisfied that she was a truthful and honest witness.

135.  Calvin Chan Wah Sun (“D2”) was the only witness giving evidence for the defendants.

136.  He and his wife D3 are the only shareholders and directors of D1.  He said that his wife and an employee who was responsible for quality control were the only people working for D1.  However he did himself give advice and undertook negotiations on D1’s behalf.

137.  The business of D1 was sourcing textiles for customers.  D3 also designed clothes on an occasional basis.  In addition to these activities D2 was also the managing director of the Hong Kong branch of a Japanese company trading under the name JIONE.  He did not own any shares in that company.

138.  D1 commenced trading some time in 1992.  At that time it was supported by the Bank of China.  In 1997 D1 owed the Bank of China between $8 million to $10 million.  A substantial part of the loan which the company obtained from the plaintiff was used to discharge this indebtedness.

139.  The plaintiff had required D1 to provide security for the loans they were advancing.

140.  The property which was made available for this purpose was the Mortgaged Property at Shatin previously referred to in this judgment.

141.  There was some controversy concerning the value of the Mortgaged Property.

142.  According to the valuers engaged by the plaintiff in 2003 and 2004 the value of the property was approximately $8.9 million.

143.  The Mortgaged Property which was residential property had been converted for use as an elderly persons home.  It is relevant to add that at that time the tenant of the Mortgaged Propertywas paying a monthly rental of $90,000.

144.  D2 first gave evidence that the value of the Mortgaged Propertyat that time was $4 million and later said that the value was less than $2.5 million.

145.  The reason for this was that work was required to be undertaken on an adjoining slope and structural work had been ordered to be done on the premises by the Government.

146.  In passing I would observe that it is probably unlikely that the surveyors seized with the instructions to value the premises would have overlooked the obligations which would have to be complied with by the owners of the property.

147.  D2 gave evidence that in 2003 D1 had been experiencing difficult trading conditions partly on account of the SARS problem.

148.  On 18 July he had written the letter to the plaintiff referred to earlier in this judgment.

149.  He accepted that it was unlikely that the plaintiff would agree to the proposals for reduction in the amount of the instalments which were payable together with the reduction in the rate of interest payable.

150.  However he hoped that some form of compromise might be achieved and he and Ms Yu had numerous meetings when there were discussions on the topic.

151.  He did not agree that the Action Sheets by the plaintiff encapsulated all of the conversations which had taken place.

152.  He had kept some notes himself but due to the lapse of time since the events in question he had been unable to retrieve these notes.

153.  While he was unable to recollect all of the details of the conversations which had taken place he was able to remember the gist of what had been agreed.

154.  He said that the result of all the negotiations was that Ms Yu agreed he would only be required to make payments for two years and that the action would then be discontinued.

155.  He also said that the terms which were embodied in the 2004 and 2005 Consent Orders accurately reflected the agreement which had been concluded in these negotiations.

156.  D2 claimed that during the negotiations he had told Ms Yu that he was quite unable to repay the moneys due and owing.  If the plaintiff persisted in its claim he would become bankrupt and the plaintiff would then get nothing.

157.  He said D1 had paid all sums payable under the 2005 Consent Order and that being the case he had complied with the terms which had been negotiated.

158.  He also referred to the earlier case where the summons for judgment had been dismissed as also had the application made by the plaintiff to set aside in 2005 Consent Order.

159.  D2 was subjected to a lengthy cross-examination by Mr Li.  His responses to the questions were unconvincing on a number of critical issues.

160.  He equivocated on the subject of whether there was one or two settlement agreements with Ms Yu.

161.  It is significant that no reference was made to the alleged agreements either in his witness statements or in the affirmation lodged in opposition to the Judgment Summons and Setting Aside Application in HCMP4679/2003.

162.  While D2 maintained that the terms of the agreement had been accurately reflected in the two Consent Orders there was no reference in the Orders to his allegation that Ms Yu had agreed that the mortgage on the Mortgaged Property would be discharged and the property returned to D1.  In this connection it is also significant that no counterclaim has been made in the present action for the return of the Mortgaged Property.

163.  All of these matters lead to the more basic and fundamental problem which was, from a commercial point of view, it was highly improbable that the plaintiff would agree to conclude a settlement or settlements so obviously to their disadvantage.

164.  The total amount paid in accordance with the two Reviews was $3.9 million while the outstanding amount at the time of the alleged settlements was in excess of $18.5 million.

165.  Over and above this it was alleged by D2 that the plaintiff agreed to release the Mortgaged Property to D1.

166.  Issue was taken over the value of these premises between the parties.

167.  I have no doubt that the value of the premises would undoubtedly be in excess of $3.9 million and consequently it would have been more to the plaintiff’s advantage to simply realise their security rather than the hope of D1 making the payments under the Orders.

168.  In this connection I have borne in mind the undisputed evidence that the tenant of the premises was paying a rent of $90,000 per month.

169.  Overall I did not form a favourable impression of D2 as a witness.  I do not believe he was giving truthful evidence on a number of matters which were of crucial importance in this case. I regret that I formed the impression that he was a thoroughly dishonest witness.

170.  Certainly where there are conflicts between the evidence given by D2 and Ms Yu I much prefer the evidence of the latter.

171.  I find as a fact that D2 was fully aware when both Consent Orders were made there was no intention of there being an agreement between the parties that the plaintiff would be unable to recover all of the outstanding principal and interest.  That being the case there was a fundamental mistake in connection with these orders.

172.  It is also possible to come to this conclusion if consideration is given to the relevant documentation from which it is evident that the scheme which is adopted in the Facility Letters is for there to be a review each year to determine the amount of the instalments to be paid in the coming year.

173.  It is clear from Ms Yu’s evidence which I accept that the negotiations and discussions which she had with D2 were all considered upon the basis that what was being agreed was the amount of the instalments which would be payable for the following year.  It was not contemplated that any order should embrace the complete settlement of the indebtedness.

174.  This taken in conjunction with my findings of fact are all indicative that what has occurred is a mistake.

175.  While I accept that it is usually the case for the court to endeavour to analyse the wording of the relevant instalments and ascertain whether it is possible to construe the wording to produce the construction sought by the plaintiff, I have concluded that in the circumstances of the present case the interests of justice will be better served by determining whether or not rectification of the orders should be ordered on the grounds of there having been a mistake.

176.  It seems likely that it was a common mistake although for the reasons which have been given in this judgment the defendants appear to have been fully aware of it and chose to attempt to take advantage of it.

177.  Even if this is not the position and the mistake as a unilateral mistake the situation is dealt with in Chitty on Contracts, 13^th Edition, Vol. 1, Chapter 5-115 and 116:

“5-115 Unilateral mistake. Where the mistake is unilateral, that is of one party only, it was formerly thought that rectification would not be granted unless a case of fraud or misrepresentation, or unfair dealing, or perhaps sharp practice, could be shown. In Roberts & Co Ltd v Leicestershire CC it was said that the doctrine might be based on either fraud or estoppels, when:

‘… it is not essential ingredient of the right of action to establish any particular degree of obliquity to be attributed to the defendants in such circumstances.’

But in Thomas Bates Son v Wyndhams Ltd the Court of Appeal rejected these limits on the availability of the remedy of rectification. Where one party is mistaken as to the incorporation of the agreement in the document, and the other knows of the mistake, and does not draw it to the attention of the first party, it suffices that it would be inequitable to allow the second party to insist on the binding force of the document either because this would benefit him or because it would be detrimental to the mistaken party. Buckley L.J. said:

‘For this doctrine—that is to say the doctrine of A. Roberts & Co. Ltd v. Leicestershire County Council—to apply I think it must be shown: first, that one party A erroneously believed that the document sought to be rectified contained a particular term or provision, or possibly did not contain a particular term or provision which, mistakenly, it did contain; secondly, that the other party B was aware of the omission or the inclusion and that it was due to a mistake on the part of A; thirdly, that B has omitted to draw the mistake to the notice of A. And I think there must be a fourth element involved, namely, that the mistake must be one calculated to benefit B. If these requirements are satisfied, the court may regard it as inequitable to allow B to resist rectification to give effect to A’s intention on the ground that the mistake was not, at the time of execution of the document, a mutual mistake.’

There are at least two issues which require discussion: the degree of knowledge required and the ‘fourth element’, which may be put as whether in addition to knowing of the mistake the defendant must be guilty of some inequity.

5-116 Knowledge of the mistake. Even though sharp practice may not be required, unilateral mistake is not by itself a ground for rescinding or rectifying a contract unless the other party knew of the mistake. It appears that the knowledge must be actual knowledge. It is not enough that the party against whom rectification is sought may have suspected that a mistake had been made, but if a party willfully shuts its eyes to the obvious, or willfully and recklessly fails to make such inquiries as an honest and reasonable man would make, that will count as actual knowledge. The nature of the knowledge that A must be shown to have of B’s mistake if rectification is to be granted was discussed in detail by the Court of Appeal in George Wimpey UK Ltd v VI Construction Ltd. Using the analysis of the various forms of knowledge made by Peter Gibson J in Baden v Société Générale pour Favoriser le Développement du Commerce et de I’Industrie en France SA, it must be: (i) actual knowledge; (ii) willfully shutting one’s eyes to the obvious; or (iii) willfully and recklessly failing to make such inquiries as an honest and reasonable man would make. In Agip (Africa) Ltd v Jackson Millett J said that the true distinction is between honesty and dishonesty. In cases within (i)-(iii) A would not be acting honestly. The implication is that the same would not be true if A had merely (again using the categories of Peter Gibson J); (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man; or (v) knowledge of circumstances which would put an honest and reasonable man on inquiry;

‘The remedy of rectification for unilateral mistake is a drastic remedy, for it has the result of imposing on the defendant to the claim a contract which he did not, and did not intend to, make. Accordingly the conditions for the grant of such relief must be strictly satisfied.’

However, what amounts to sharp practice may depend on the comparative competence and resources of the parties.”

178.  What had to be borne in mind is my finding of fact that D2 did not enter into any discussions or agreements with Ms Yu to the effect that either order would have the effect of discharging the whole of D1’s liability to the plaintiff.

179.  For D2 to attempt to claim that there had in fact been such agreements or compromises would constitute misconduct sufficient to fully justify a court in granting rectification of the two orders on the grounds of there having been a mistake or mistakes.

180.  It is for this reason that I consider that of the alternatives being pursued by the plaintiff the most appropriate ones applicable to the surrounding circumstances are Alternatives 3 and 4.

181.  There is a useful commentary on the extent to which Tomlin Orders can be rectified for mistake in The Law and Practice of Compromise by the Justice Foskett, 7^th Edition, Sweet & Maxwell.  It is clear that when the Tomlin Order does not reflect the agreement which was concluded between the parties as a consequence of a mistake the courts will order rectification of the order in appropriate cases.

182.  In particular the editors refer to the English Court of Appeal case of Islam v Askar and Another, The Times, 20 October 1994, at pp. 2-5.

183.  At p. 4 of the judgment of Steyn LJ, he says:

“ That brings me to the fourth question and that is as follows, on the factual premises which I have outlined by way of findings and rulings does the court, in principle, have inherent power to order the rectification of a Tomlin Order where the order mistakenly does not reflect the agreement correctly and the counterparty is aware of that fact, his conscience being affected in equity, and he seeks to take advantage of that mistake. The submissions made before us are extremely technical. On the hypotheses that I have set out counsel said to us his point is not one of any merit; it is purely a technical one. What he submitted to us was this, he said that it would be possible to obtain rectification of the antecedent agreement in a separate action and, if that separate action was instituted, it would be possible to get a consequential amendment to the schedule to the Tomlin Order. But the submission is that it was not possible to do so in the very same proceedings. That is a curious submission because the purpose of the Tomlin Order is that these matters should all be dealt with in the same proceedings. When I said that it is a technical point that is raised, I am far from saying that technical points may not be important, but the precise nature of the technically here must be exposed.

Mr Yelton was not able to say to us, on the stated factual premises, there had to be any further exploration of any issue of law or of fact. All the facts are known and the law is perfectly clear yet he says there must be a separate action. He also said to us that there was no inherent jurisdiction to make such an order. For my part, I would content myself first by saying that the inherent power of the court is that power without which a court, as a court of the competent jurisdiction, cannot carry out its constitutional functions. Sir Jack Jacob in his valuable essay Inherent Jurisdiction of the Court (published in 1970 Current Legal Problems) put the point better than I have done. He said (at page 27):

‘For the essential character of a superior court of law necessarily involves that it should be invested with a power to maintain its authority and to prevent its process being obstructed and abused. Such a power is intrinsic in a superior court; it is its very life-blood, its very essence, its immanent attribute. Without such a power, the court would have form but would lack substance. The jurisdiction which is inherent in a superior court of law is that which enables it to fulfil itself as a court of law.’

It covers many powers vested in a court pertinent to the present case. Sir Jack observed (at page 39):

‘Again, under its inherent jurisdiction, the court can at any stage of the proceedings, even after judgment, vary, modify or extend its own order so as to express correctly its intention and meaning and thereby to ensure that the purposes of justice are not defeated.’

But Mr Yelton put another technical point to us and says that the schedule is not part of the order. To that I say, respectfully, so what. The purpose of a rectification would be, as my Lord Sir John May observed, simply to correct the record of the court. The fact that the schedule is not part of the order itself can be no possible objection to such a correction. For my part, I content myself by saying that the inherent power of the court is wide enough to cover the present case, and I would answer the question I have set out in the affirmative.

That brings me to the next issue, that is, if the court has in principle the power to rectify the order is it precluded from doing so by the failed and unappealed and application under the slip r O. 15, r. 5 of the County Court Rules. The question is whether the application which failed under that rule debars any application on a wider basis. Mr Yelton invokes res judicata. He invokes abuse of the process. For my part, I take the view that there is no substance in this at all. O 15, r. 5 is an extremely narrow power intended to deal only with clerical mistakes. It is sometimes not easy to say on which side of the line a case falls. It is understandable that a party would, in the first instance, resort to a simple procedure under O 15, r. 5. I, for my part, see no reason if the court rules that a case falls on the wrong side of the line the party should not invoke the wider power of the court. To this issue I would say the answer ought to be no.

If the analysis so far is correct there is, in my judgment, no reason at all why we should not now order rectification. On this supposition Mr Yelton, in fact, concedes that it would be appropriate to order rectification of the schedule to the order now. For my part, the order that I would make is to delete the word ‘monthly’ and to substitute for it ‘weekly’ and also to delete the reference to ‘other creditors.’

That leaves one other matter to be considered and that is whether there should be a monetary judgment now.  Mr Askar has paid not one penny.  The whole sum of #67,000 is due and owing.  He has received the benefit of the contract and has taken over the partnership.  The question is whether we should, therefore, substitute a monetary judgment now.  For my part, I see no difficulty about that because there was a separate action in which monetary relief was claimed, and there was an application for summary judgment before the judge and he could have entered judgment.  The only point taken by Mr Yelton here is that these separate proceedings were the wrong procedure to adopt.  He says the only remedy was to enforce the Tomlin Order.  Of course, it is right that that would be the normal remedy.  I do not understand the law to be that if a party unnecessarily institutes separately a proceeding that in itself renders these proceedings abortive.  I see no reason at all why we should not, therefore, substitute summary judgment in those proceedings.  I can see that in certain cases, and this may not be one, that that course may lead to adverse costs orders.  I am far from saying that is so in this case, but, in principle, I see no difficulty about granting summary judgment.”

184.  This case is of particular interest as the facts of the case are fairly similar to the instant case.

185.  The other judges sitting with Steyn LJ concurred in the judgment.

186.  If the principles laid down in that case are applied to the present case it is clear that the relief which is being sought by this plaintiff should be granted.

187.  It will also be noted from this page that it disposes of the complaint made by the defendants that the present action is an abuse of process as the relief presently being sought should have been litigated in the 2003 action.

188.  Steyn LJ makes the observation that it is not material whether a separate action is brought by the plaintiff to obtain rectification or whether the application is made in the proceedings where the issue arises.

189.  In this connection more recent cases such as Siries International Co. v. FAI General Insurance Ltd & Others, [2004] 1 WLR 3251 support the contention that it is the substance rather than the form of any proceedings which is of more importance.

190.  I am satisfied that there was a mistake in this case and that the circumstances surrounding the situation are sufficient justification for granting in relief which is sought by the plaintiff.

191.  The final matter to be considered is whether this relief should be withheld on account of delay and laches.

192.  D2 claims that there has been inordinate delay and that this has seriously prejudiced him in defending the plaintiff’s claim.

193.  He accepted in cross-examination that he had knowledge in general terms of the plaintiff’s claims as early as October 2005.  While it is true that he did not have specific knowledge of the action sheets at this time it must have been obvious to D2 that moneylenders would keep records of discussions with borrowers.  This being the case he should have realised that it would be imperative for him to keep any records he had of discussions he had with Ms Yu.

194.  As to the undoubted delay which occurred it was not the case that this was solely attributable to the plaintiff. 

195.  There were the usual delays arising out of the actual conduct of any litigation such as obtaining dates for hearing applications and awaiting their outcome.

196.  While I accept that there is considerably more delay in this case than would normally occur I am not of the view that this was excessive in the unusual circumstances of this case.

197.  In addition to this I am not satisfied that D2 has been prejudiced by this delay and accordingly it would be inequitable to enforce this claim in equity.

198.  The consequence of all of this is that I order that the 1^st and 2^nd Order and the schedules thereto be rectified so as to embody the terms that the defendants were to pay the instalment loan of $10 million and the revolving loan of $10 million according to the annual review undertaken by the plaintiff and in case the defendants failed to make payment according to the result of the review and/or failing such a review then the plaintiff would be at liberty to take action against the defendants for payment of the outstanding balance of the said loans and the interest thereon and that the agreement between the plaintiff and the defendants as contained in the said Orders be treated as being so rectified.

199.  The defendants do pay the plaintiff the sum of $19,394,898.73 secured by the said mortgage together with interest thereon at the rate of $6,565.14 per day from 21 March 2006 to the date hereof and thereafter at the judgment rate until payment.

200.  The defendants do within 28 days after service of this judgment upon them deliver up to the plaintiff possession of the properties secured by the said mortgage.

201.  If the said moneys ordered to be payable in this judgment are paid to the plaintiff then the plaintiff will discharge the said mortgage.

202.  There will be liberty to apply.

203.  I make an order nisi that the plaintiff will have their costs on an indemnity basis, to be taxed if not agreed.