BANK OF CHINA (HONG KONG) LTD v. NG AI KHENG JASMINE Defendant

HCA741/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 741 OF 2004

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J U D G M E N T

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1.  This is the defendant’s appeal against the decision of the Master ordering summary judgment be entered for the plaintiff’s claim with damages to be assessed.

The Facts

2.  By a mortgage dated 15 October 1997, the defendant and her former husband, David Chi Yu Cheng (“Cheng”), mortgaged to the plaintiff their property at Flat G 23/F. Maple Mansion, Harbour View Gardens, No.18 Taikoo Wan Road, Taikooshing, Hong Kong (“the Property”).

3.  By a Facility Letter dated 18 May 2001 (“the Facility Letter”), the plaintiff granted to the defendant and Cheng a revision of a term loan facility up to HK$8.4 million together with interest thereon to be repaid by 205 monthly instalments, subject to the terms and conditions contained therein.  The loan was secured by the mortgage on the Property.  The defendant and Cheng had both signed the Facility Letter as acceptance of the terms and conditions therein.

4.  At the request of the defendant and Cheng, the plaintiff by letter dated 5 May 2003 consented to them letting the Property to a Citichem International Limited (“the Tenant”).

5.  Since 5 April 2003, the defendant and Cheng have defaulted in making repayment under the terms of the Facility Letter.   

6.  By letters dated 23 July 2003, the plaintiff demanded payment from the defendant and Cheng of all sums due and owing.

7.  By letter dated 15 September 2003, the plaintiff required the Tenant to pay rent to the plaintiff.  It is the plaintiff’s case that by so doing, it had entered into possession of the Property.   By letter dated 16 September 2003, the plaintiff gave notice to the defendant and Cheng that it had entered into possession of the property. 

8.  Subsequently on 15 December 2003, the plaintiff sold the Property at the price of HK$4,850,000.  The net proceeds from the sale are insufficient to cover the indebtedness due under the Facility Letter.

9.  In the meantime on 12 August 2003, Cheng was adjudged bankrupt.

10.  On 29 December 2003, the Family Court in FCMC 7626/2003 made a decree nisi dissolving the marriage between the defendant and Cheng.  The Court further made an order by consent for the payment by Cheng of $50,000 monthly maintenance to the defendant. 

11.  On 27 March 2004, the plaintiff commenced these proceedings to recover the balance of the indebtedness, being the amount of HK$3,015,846.63, together with further interest and costs.  The calculation of the indebtedness was set out in the Statement of Claim and in a certificate of indebtedness exhibited to the 2^nd Affirmation of Au Wai Kwong Arthur leading the summary judgment application.

12.  The defendant filed a Defence and Counterclaim on 16 December 2004.

13.  By summons filed on 28 December 2004, the plaintiff applied for summary judgment.  In a reserved decision handed down on 2 September 2005, the Master entered summary judgment on the claim with damages to be assessed together with interest and costs.

14.  On 16 September 2005, the defendant filed the present notice of appeal.  At the same time, she also filed an affidavit in support of the appeal.  At the commencement of the appeal hearing, Mr Cheung pointed out that no leave had been given for the filing of the affidavit and asked the court not to have regard to its contents.  In the end, I granted leave to the defendant to rely and use the affidavit for the appeal.  While it is correct that there is no right to file further affidavit upon an appeal from a Master’s decision, and the leave of the court must be obtained for the introduction of further evidence, I note that the defendant’s affidavit contains in substance her grounds for appealing.  Although affidavit should only depose to facts and not arguments, I consider that overall there is no prejudice to the plaintiff and the appeal would be conducted more expediently by allowing the defendant to rely on the affidavit as her arguments for the appeal. 

Relevant legal principles on summary judgment application

15.  The general law on summary judgment application is well settled: see Hong Kong Civil Procedure 2004 vol.1 paras.14/4/1 to 14/4/10.  For the present purpose, it is sufficient to note the most basic principle.  It is that where the plaintiff has established a prima facie case, it is for the defendant to show there is a triable issue or an arguable defence that would entitle him to defend the action.

The defendant’s defence to the claim

16.  It is the defendant’s contention that her defence contains triable issues such that the Master erred in entering summary judgment on liability against her.  The matters relied upon by her in defending the claim are as follows:

(1)	Without taking out proceedings under Order 88 of Rules of the High Court or other legal proceedings, the plaintiff has no right to collect rent from the Tenant, to take possession of the Property and ultimately to sell it.
(2)	The plaintiff had harassed and caused disturbance to the Tenant by writing to demand that rent be paid to it.
(3)	The sale of the Property in December 2003 was untimely as the property market was at its lowest.  The sale has caused loss to the defendant.
(4)	The defendant has no knowledge of how the loan was repaid and also the amount of the outstanding indebtedness.  She needs and wishes to seek the assistance of Cheng.
(5)	Cheng had been ordered by the Family Court to pay maintenance to the defendant.  The Official Receiver has not complied with the Family Court Order.  As a result, she cannot make the repayments to the plaintiff.  The defendant therefore intends to join the Official Receiver as the Third Party to the proceedings.
(6)	The defendant’s personal properties on the Property were lost as a result of the plaintiff’s sale of the Property.  The defendant is counterclaiming against the plaintiff for her loss and damages.

17.  Before dealing with these defences, I need to point out that as the appeal is by way of rehearing and this court is exercising the discretion afresh, it is not necessary to address the defendant’s counter-arguments against and criticisms of the reasons given by the Master for his decision.  What is crucial is whether on the materials before me, the defendant ought to be given leave to defend.

The plaintiff’s right to collect rent, enter into possession

and sell the Property

18.  It is clear law that if a mortgaged property is in the occupation of a tenant whose tenancy was created with the approval of, and is binding on, the mortgagee, the mortgagee can exercise his right of entry by giving the tenant notice to pay the rent to him: see Halsburys’ Laws of England (Fourth Edition Re-Issue) vol. 32 at para.609.

19.  The mortgagee, on going into possession, is entitled to take the rents and profits of the Property by virtue of his legal or equitable ownership which the mortgage confers upon him: See Halsbury’s Laws of England (Fourth Edition Re-Issue) vol. 32  at para.618.

20.  In the present case, given that the tenancy in favour of the Tenant was created with the consent of and binding on the plaintiff, the plaintiff had by giving notice to the Tenant to pay rent to it, entered into possession of the Property.  Once entered into possession, it was entitled to receive the rent from the Tenant.  It can also validly exercised its right to sell the Property.

21.  Accordingly, there is no need for the plaintiff to resort to Order 88 proceedings or to issue legal proceedings before it can take possession of and sell the Property.  This point has also been stated in WS Clarke, Hong Kong Civil Court Procedure (2004 edition) p. 954 at para.88.1.13, an authority cited by the defendant.      

22.  The first two points of defence must fail.

The sale of the Property

23.  In China and South Sea Bank Ltd. v. Tan Soon Gin [1990] 1AC 536, the Privy Council held that a mortgagee could decide on its own interest whether to sell the mortgaged property and when to do so.  The law only puts the mortgagee under a duty to take reasonable care that the actual sale price represents the proper or true market value of the property at the time of sale: Cuckmere Brick Co. Ltd v. Mutual Finance Ltd  [1971] 1 Ch 949.

24.  The complaint that the plaintiff sold the Property at the bottom of the property market is thus unarguable.  The expert evidence adduced by the plaintiff further shows that the sale was above the market price at the time.  At any rate, any complaint that the defendant may have as to the price of the sale of the Property can only go to the quantum, and not the defendant’s liability on the claim.

The defendant’s knowledge of the indebtedness

25.  The plaintiff has observed that the defendant appears to remain in contact and on amicable terms with Cheng despite their divorce.  That aside, the defendant’s knowledge of the details of the repayments and the exact amount of the outstanding balance under the Facility Letter is irrelevant to the issue of liability.  The defendant has neither in the Defence nor in the affidavits disputed the fact of indebtedness.

26.  Further, the plaintiff has exhibited a certificate signed by its authorized officers, certifying the statement of account relating to the indebtedness.  By clause 15 of the terms and conditions contained in the Facility Letter, the defendant had accepted that the certificate operated as conclusive evidence of her indebtedness to the plaintiff.

The proposed joinder of the Official Receiver

27.  The Official Receiver had by letter dated 3 July 2004 advised the defendant that the monthly maintenance payable under the Family Court order is not a debt that can be proved in bankruptcy, and that the defendant should not look to the estate of Cheng for payment of maintenance.  The view of the Official Receiver cannot be faulted.  As a matter of law, the defendant has no cause for complaint against the Official Receiver.  

28.  Secondly, as early as April 2003, the defendant and Cheng had defaulted in repayment under the Facility Letter.  This was long before the bankruptcy of Cheng and the appointment of the Official Receiver.  The defendant’s contention that the Official Receiver’s refusal to pay her maintenance was the cause of her failure to repay is therefore unsustainable.

29.  Thirdly, when the consent order on maintenance was made, Cheng was already adjudged bankrupt.  It is not the defendant’s case that she did not know of the bankruptcy order against Cheng.  In the circumstances, she could not realistically expect that the maintenance order will be met in full or at all.  This is particularly so when the evidence does not suggest that the Official Receiver had given approval to the maintenance agreement.  Independent of the legal position, the defendant could not reasonably expect that the Official Receiver will give effect to the maintenance arrangement, even though it was also made an order of the court.

30.  Finally, the statement by a defendant that he is entitled to be indemnified by a third party is no answer to the plaintiff’s claim, unless the third party has discharged the plaintiff’s claim: Hong Kong Civil Procedure 2004 vol.1 para.14/4/8.  It follows that the proposed joinder of the Official Receiver as the Third Party to the plaintiff’s claim cannot afford the defendant with an arguable defence, quite apart from the point that the defendant cannot possibly have any claim against the Official Receiver on the issue of her maintenance.

Loss of personal properties

31.  The defendant counterclaims for loss of valuables and personal properties on the Property, but she has not particularised the loss in the pleading.  Neither has she condescended upon the particulars in her affidavits.

32.  The mounting of a counterclaim does not by itself operate as a set-off.  The defendant’s claim for loss of personal properties does not afford her with an arguable defence to the plaintiff’s claim.

33.  Even if the counterclaim can amount to a set-off, it will only go to the quantum and not liability on the plaintiff’s claim.  Since the claim on loss of personal properties is only estimated at $100,000, it is hardly sufficient to extinguish the plaintiff’s claim.  It does not present a bar to the plaintiff obtaining judgment on liability.

Conclusion

34.  For the above reasons, the defendant’s defence raises no triable issue.  It follows that this appeal has no merits.  The defendant’s appeal is therefore dismissed.  Costs should follow event.  There is an order nisi that the defendant pays the plaintiff the costs of the appeal, to be taxed if not agreed.