NG WING SHING v. SECRETARY FOR JUSTICE

DCCJ 4599/ 2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4599 OF 2004

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REASONS FOR DECISION

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The plaintiff’s case

1.  The plaintiff was a public officer being granted a housing loan.  According to the loan agreement, the defendant could make monthly deductions for repayment of principal and interest from his salary.  He would pay up the balance upon retirement from his commuted pension.  According to the loan agreement, if he ceased to own the property, the defendant could demand immediate full repayment of the balance.  If no repayment were made, interest at 5% over the basic rate would apply. 

2.  In the course of the deductions, he became bankrupt.  He was unable to repay the outstanding balance.  The property became vested in the Official Receiver.  As a result of his bankruptcy, the defendant was of the view that it could no longer make the deductions from his salary.  It filed a Proof of Debts as an ordinary creditor.  It suspended deductions for the subsequent 39 months until a court decision in another case hence a legal advice came into being.  It was advised that it had priority over other creditors with immediate effect but not retrospectively. 

3.  The plaintiff blamed the defendant for not making the deductions for the 39 months so that such monies could go towards repayment of the housing loan, at the expense of his unsecured creditors.  He contended over the 5% extra interest on the outstanding balance for the 39 months.  The defendant eventually waived the extra interest and only kept the basic interest. 

4.  The plaintiff now claims a sum representing the 39 months’ non-deductions as well as any interest he still had to pay due to the non-reductions of the outstanding balance for the 39 months. 

The defendant’s case

5. According to the loan agreement, the defendant could, but have no duty in contract or in tort to, make any deductions at any time or at all.  It could not have resumed the deductions earlier than the legal advice.  It had no duty to maximize the plaintiff’s benefits at the expense of his unsecured creditors.   

The issues to be determined

6. I have to determine:

(1)	Whether the defendant had a duty under contract to continue with the deductions for the 39 months;
(2)	Whether the defendant had a duty under tort to continue with the deductions for the 39 months;
(3)	The plaintiff’s remedies, if any.

A special note

7. In this action, the defendant represents the Government of the HKSAR (“the Government”).  We will see references to the Director of Accounting Services (“DAS”), the Treasury (“Treasury”), the Civil Service Bureau (“CSB”), and the Department of Justice (“DOJ”).  For the purpose of this action, it is not necessary to distinguish them as separate entities as they act in line with each other.  However, references to the Official Receiver (“OR”) should stand alone because OR has a different role from the other said entities.  OR represents the creditors entitled to partake of the plaintiff’s bankruptcy estate.

The plaintiff’s evidence

8.  The plaintiff gives evidence.  He calls no other witnesses.  His witness statement is admitted into evidence [A21 – 23].  His evidence hereinbelow will also include evidence not in dispute by the defence.  I do so in order to give a complete picture as soon as possible. 

9.  On 19 April 1978, he joined the Civil Aviation Department.

10.  On 20 January 1995, he submitted an Initial Application for joining the Home Purchase Scheme (“HPS”). 

11.  On 18 April 1995, he obtained Approval-in-principle from DAS. 

12.  On 20 May 1995, he submitted a formal application under HPS addressed to DAS for a downpayment loan of $540,000 to purchase a residential property (“the Property”).  It included an Agreement Form for Repayment of Downpayment Loan (“the Loan Agreement”).  He understood the terms of the Loan Agreement. 

13.  On 30 May 1995, he was granted formal approval for a downpayment loan of $540,000.00.  The defendant had a second legal charge over the Property.  The first legal charge had been in favour of a finance company.  Pursuant to the Loan Agreement, DAS began to make monthly deductions from his salaries. 

14.  On 28 July 1999, he was adjudged bankrupt.  OR informed DAS of his bankruptcy order on the same date [A41].  By operation of law, the Property vested in OR.  He had to pay the downpayment loan in full by virtue of para. 31(3)(a) of Civil Service Bureau Circular (“CSBC”) 22/93 Annex A.  DAS ceased monthly deductions from his salary.  As no income payment order was made in the bankruptcy order, the defendant paid his whole salary to him.  As arranged with OR, he himself was to pay $23,600.00 each month to OR for the repayment of debts proved to his creditors. 

15.  As at 31 July 1999, the outstanding balance under the Loan Agreement stood at $367,695.18 [B309].  

16.  On 1 August 19 99, as he could not repay the balance, DAS charged a higher rate of interest, namely 5% p.a. above the prevailing basic rate under HPS by virtue of para. 31(3)(b) of CSBC 22/93.

17.  On 16 August 1999, DAS filed a completed Proof of Debts for his outstanding debt of $367,695.18 with OR.

18.  On 27 November 2000, the sum was admitted to proof by a Notice of Adjudication. 

19.  On 4 January 2001, OR distributed to DAS a first dividend of 22,466.00 from his bankruptcy estate. 

20.  On 10 January 2002, OR distributed to DAS a second dividend of 16,362.40 from his bankruptcy estate. 

21.  On 19 November 2002, DAS wrote to inform OR of a legal advice from DOJ [B284 – 285].  DAS should be regarded as a secured creditor over the plaintiff’s salaries, pension, and any monies owed to DAS.  Therefore DAS would resume deducting the sum of $5,918.36 from his monthly salaries with effect from 1 November 2002. 

22.  On 1 November 2002, DAS resumed deducting the sum of $5,918.36 from his monthly salary. 

23.  On 22 January 2003, OR informed DAS that OR was about to declare a third dividend from his bankruptcy estate.  OR required DAS to assess the value of its security.  Meanwhile the Property had been repossessed and sold by the first mortgagee.  The proceeds were insufficient to discharge the first mortgage, hence no surplus for DAS under the second legal charge.

24.  On 7 April 2003, SAS informed OR that the outstanding debt due from P was adequately secured.  Hence DAS withdrew the Proof of Debts. 

25.  On 13 June 2003, DAS refunded the first and the second dividends previously received to OR.  

26.  On 28 July 2003, he was discharged from bankruptcy. 

27.  On 7 November 2003, he wrote to the DAS to ask for waiver of the higher rate of interest, namely 5% p.a. above the prevailing basic rate [B310]. 

28.  On 2 December 2003, he retired.  For the 13 months prior to this date, DAS had made 13 monthly deductions of $5,918.36, total $76,938.68, from P’s salaries.  The final outstanding balance was $481,994.80.  Pursuant to the Loan Agreement, from his commuted pension was deducted the same sum [B311, B312]. 

29.  On 18 March 2004, he wrote to the Secretary for Civil Services to complain about the non-deductions over the 39 months and the charging of additional interest [B316 – 317]. 

30.  On 3 August 2004, The Civil Service Bureau wrote to exceptionally waive $83819.53, namely the 5% additional interest charged above the prevailing basis rate [B318 – 319]. 

31.  On 5 August 2004, he obtained the refund of additional interest in the sum of $83,819.53 [B322]. 

32.  On 8 August 2004, the plaintiff repeated his complaint about the non-deductions for the 39 months [B321]. 

33.  On 24 August 2004, the Civil Service Bureau replied in justification of the non-deductions. 

34.  On 1 September 2004, discontent with the reply, he took out the present action by a Writ of Summons.  He sought to recover the sum of around $340,000.00, representing the 39 months’ non-deductions as well as the basic interest he still had to pay due to the non-reductions. 

The defendant’s evidence

35. The defendant calls 1 witness: Mr. Lo Wai Man.  His witness statement is admitted into evidence [A24 – 57]. 

36. He is a Senior Accounting Officer of Treasury.  His responsibilities included the administration of housing benefits to public officers provided by the Government. 

37. Clause 1 of the loan agreement between the plaintiff and the Government provided as follows:

1.	In consideration of the Government granting to the officer a Downpayment Loan …(…’the advance’) under the Terms and Conditions of the Home Purchase Scheme set out in Civil Service Branch Circular (now referred as “Civil Service Bureau Circular”) No. 2/95 dated 6.1.95 …-
	(a)	On retirement, the officer shall exercise his option … such that the amount of the commuted pension gratuity would not be less than the total of the outstanding principal amount of the advance and the interest thereon on which such gratuity becomes payable; and
	(b)	The officer shall repay by equal monthly instalments the principal amount of the advance together with interest … over a period of ten years or until the officer’s … retirement  … whichever repayment period is the shorter …
	(c)	The advance or any balance thereof remaining outstanding that becomes due under any of the circumstances set out in the Terms and Conditions referred to in Section 1 above may be recovered by the Government in the following manner –
		(i)	from any sums payable to the officer or his estate … as a debt due to the Government …; and/or
		(ii)	from any salary or any other sums of money whatsoever due to the officer or his estate …
		…
	(e)	No delay or omission of the Government in exercising any right, power or privilege under this Agreement shall impair such right, power or privilege or be construed as a waiver of such right, power or privilege, nor shall any single or partial exercise of any such right, power or privilege preclude any further exercise of them or the exercise of any other right, power or privilege.  The rights and remedies of the Government provided in this Agreement are cumulative and not exclusive of any rights or remedies provided by law and the Government shall not be obliged to exercise or resort to any of its rights or remedies under this Agreement, which shall be without prejudice and in addition to any rights and remedies to which it is at any time otherwise entitled (whether by operation of law, contract or otherwise).

38. Para. 13 of CSBC 2/95 [B172] referred to CSBC 22/93 [B63 – 64].  Para. 31(3) of the latter provided as follows:

(a)	Any outstanding loan due from the officer shall be repayable in full –
	…
	(viii)	on the day of cessation of ownership … [of] a property in respect of which the loan was granted …
(b)	If the outstanding loan is not so repaid as required, an interest rate of 5% per annum above the prevailing interest rate chargeable under the scheme shall be charged on the outstanding balance of the loan as from the day following the repayment due date …
(c)	The Director of Accounting Services shall be entitled to recover the outstanding balance of the loan together with interest as accrued, from any monies due for whatever reason to the officer from the Government.

39. On 28 July 1999, when OR informed DAS that a bankruptcy order had that day been made against the plaintiff, OR asked the Government forthwith to cease making monthly deductions from the plaintiff’s salary [A41].  OR further enclosed a Proof of Debt – General Form for DAS’s completion [A43 – 46].  The defendant ceased making deductions and filed a Proof of Debt accordingly. 

This Court’s findings

40. I have considered the evidence and both parties’ submissions.  There is no dispute of facts.  

Whether the defendant had a duty under contract to continue with the deductions for the 39 months

41. The express terms of the loan agreement provided in effect that the Government might make monthly deductions from the plaintiff’s salary [Clause 1(b)].  The defendant could elect whether to exercise such a right or not [Clause 1(e)]. 

42. The plaintiff is complaining about the defendant’s decision to suspend deductions for the 39 months. 

43. No implied terms for a duty to make deductions were pleaded in the Statement of Claim.  Let us assume that this was pleaded.  For a term to be implied into a contract, the following conditions must be satisfied [Kensland Realty Ltd v Whale View Investment Ltd (2001) 4 HKCFAR 381, 391 – 392, 401 adopting Lord Simon of Glaisdale’s view in BP Refinery (Westernpoint) Pty Ltd v Shire of Hastings (1978) 52 ALJR 20, at p. 26]:

(1)	It must be reasonable and equitable;
(2)	It must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;
(3)	It must be so obvious that “it goes without saying”;
(4)	It must be capable of clear expression;
(5)	It must not contradict any express term of the contract.

Whilst a duty to make deductions may satisfy condition (4), it does not satisfy any of the others.  I do not accept that it can be implied into the Loan Agreement. 

44.  I find that no express or implied terms of the loan agreement would compel the defendant to make any deductions during the 39 months or at all.  The plaintiff did not protest when DAS began and continue to suspend the deductions.  Neither he nor DAS thought of the defendant’s security right over his salary until after DOJ’s legal advice.  He then blamed the defendant for not taking a prophetic view.  This accusation is unfair and unmeritorious. 

45. Incidental to the non-deduction was the impact of interest.  The express terms of the loan agreement provided in effect that the defendant might continue to charge interest whilst proving in his bankruptcy.  The defendant might charge interest at 5% above the prevailing basic rate if he failed to repay the outstanding balance [para. 31(3) of CSBC 22/93: B63 – 64].  The plaintiff does not find fault with such express terms.  He is complaining about the defendant’s actually charging an additional interest because it was not him but the defendant who suspended the deductions for the 39 months.   He is also complaining about the basic interest snowballing for the 39 months.     

46. I see no reason that these terms should not be enforced.  They were the defendant’s contractual rights under the Loan Agreement.    

Whether the defendant had a duty under tort to continue with the deductions for the 39 months

47. No duty of care owed by the defendant to the plaintiff to make deductions was pleaded in the Statement of Claim.  Let us assume that this was pleaded.  The defendant refers to Downsview Nominees v First City Corp [1993] AC 295 for the proposition that a secured creditor is not obliged to resort to his security.  He can elect to claim repayment by the debtor personally [Re BCCI (No. 8) [1998] AC 214, 222, per Lord Hoffmann, citing China and South Sea Bank v Tan [1990] 1 AC 536]. 

48. I see no room for such a duty to care to be imposed upon the defendant. 

The plaintiff’s remedies, if any

49. As the plaintiff has no viable cause of action against the defendant either in contract or in tort, he can have no remedies. 

Costs

50. There is no apparent reason why costs should not follow the event.  The defendant shall have costs of the action with certificate for counsel.  This order nisi shall become absolute after 14 days from today.

Dated this 17 March 2006