CMB WING LUNG BANK LTD v. LAM MAT CHUEN

HCMP 2000/2023

[2024] HKCFI 1956

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2000 OF 2023

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DECISION

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Introduction

1.  This is a mortgage action commenced by CMB Wing Lung Bank Limited (“the Bank”) against Mr Lam. By the Originating Summons dated 1 November 2023, the Bank asks for payment of all monies due to the Bank under the several covenants contained in a Deed of Mortgage dated 24 October 2018 made between Mr Lam as the borrower and the Bank as the lender registered in the Land Registry by Memorial No.18111602240152 dated 16 November 2018 (“the Mortgage”).

2.  By the Mortgage, the property known as Flat D on 17^th Floor, Block 4, City Garden, No.233 Electric Road, Hong Kong (“the Property”), a residential property, was charged by Mr Lam to the Bank to secure the due payment of all moneys, obligations and liabilities due, owing and incurred by Mr Lam from time to time to the Bank in respect of all or any banking or credit facility was granted or to be granted by the Bank at any time or from time to time in favour of Mr Lam and all interest thereon.

3.  The Bank further asks for delivery of vacant possession of the Property in default of payment of such sums as may be adjudged to be due under the Mortgage.

Background facts

4.  There is no dispute about the following background facts, which are largely taken from the skeleton submissions of Mr Kwan, for the Bank.

5.  The Bank is a limited company incorporated in Hong Kong and a bank licenced under the Banking Ordinance, Cap.155.

6.  By a Facility Letter dated 15 October 2018 (“the Facility Letter”), the Bank agreed to advance to Mr Lam a loan of HK$9,417,000 (“the Loan”) and Mr Lam agreed to:

(a)  repay the Loan by 300 monthly instalments, with interest thereon at the rate of 1.24% over HIBOR but not to exceed prime rate minus 3.1% (Clause 1); and

(b)  pay default interest at the rate of 7% p.a. over the contract rate on any overdue sum payable by Mr Lam (Clause 13).

7.  By the Mortgage, Mr Lam charged to the Bank the Property to secure the due payment of all monies payable by Mr Lam to the Bank.

8.  Clause 7.01(m) of the Mortgage provides that:

“during the continuance of this security the Borrower will not, without the prior written consent of the Lender, assign, mortgage, charge, sub-divide, otherwise encumber the Property or interest or cause or permit any second or further charge to be effected over the Property or in any way encumber the equity of redemption therein in favour of any third party or otherwise do or cause to be done anything which may or is likely to diminish, jeopardise or prejudice the security hereby afforded to the Lender…”

9.  Without the prior written consent of the Bank or any consent at all, in breach of Clause 7.01 of the Mortgage, Mr Lam created a Second Legal Charge and a Third Legal Charge over the Property on 21 December 2022 and 28 March 2023 respectively.

10.  By a letter dated 21 June 2023 (“the Demand Letter”), the Bank requested Mr Lam to remedy the said breach, failing which the interest rate chargeable on the Loan would be increased to 2.24% over HIBOR but not to exceed prime rate minus 2.1% with effect from 20 July 2023. Mr Lam has failed to comply with the demand of the Bank.

11.  Clause 9 of the Facility Letter provides that:

“The Facility is subject to the Bank’s overriding right at any time to cancel the Facility or any part thereof without notice and to demand immediate repayment of all outstanding amounts whether or not then due (whereupon you shall repay such amounts)”

12.  By two letters dated 25 August 2023, the solicitors acting for the Bank informed Mr Lam that:

(a)  Due to Mr Lam’s failure to comply with the demand in the Demand Letter, the Bank shall call in the facilities or advances made pursuant to the Mortgage and the Facility Letter.

(b)  The Bank demands Mr Lam to repay the outstanding amounts due and owing under the Loan, including (i) the outstanding principal and (ii) accrued interest.

13.  Despite the request of the Bank, Mr Lam failed and/or refused to pay the Bank the amounts due and owing under the Mortgage and the Facility Letter.

14.  Under Clause 5.01 of the Mortgage, an Event of Default shall have occurred, if:

(a)  Mr Lam makes default in the payment of the Secured Indebtedness or any part thereof following demand duly made (Clause 5.01(a)); or

(b)  There shall be any breach of or omission to observe any of the agreements, covenants, obligations, warranties, representations or undertakings under the Mortgage (Clause 5.01(c)).

15.  Under Clause 6.01(a) of the Mortgage, if any Event of Default shall have occurred, it shall be lawful for the Bank to:

“enter into and upon and take possession of the Property, and for that purpose to take any legal proceedings, and thenceforth to hold, possess and enjoy the Property and to receive the rents and profits thereof without any lawful interruption or disturbance by the Borrower or any other person…”

16.  The case of the Bank is that by reason of the matters set out above, an Event of Default has occurred under Clauses 5.01(a) and (c) of the Mortgage and the Bank is entitled to exercise its rights under Clause 6.01(a) of the Mortgage.

Evidence of the parties

17.  In support of the Bank’s application, Mr Lau Chung Cheung (“Mr Lau”) who is an Assistant Vice President of the Bank made 5 affirmations.

18.  Mr Lam has filed a 4-page affirmation dated 1 March 2024 in which he does not really deal with the allegations of the Bank. Mr Lam basically asks for 3 more months to sell the Property in open market with a view to repayment of the Mortgage.

19.  At the direction hearing before this court on 30 May 2024, Ms Lau, for Mr Lam, again asked for more time for Mr Lam to raise funds by an imminent sale of the Property.

20.  Two days before the present hearing, the solicitors for Mr Lam lodged with this court a skeleton submission in which several issues are raised in opposition to the application for the first time. There is no longer any mention about the intended sale of the Property. The skeleton submissions do not bear the signature of Ms Lau.

21.  Ms Lau, however, appeared at the present hearing and adopted the skeleton submission. She submits that there are triable issues and the Originating Summons should be continued as if begun by writ and directions should be given for pleadings to be filed by parties.

22.  Mr Kwan managed to file a supplemental skeleton submissions to deal with the new issues raised by Mr Lam, which, in my view, provides a complete answer to Mr Lam’s complaints made at the eleventh hour.

Discussion

23.  The first challenge is made to the unilateral alteration of the interest rate by the Demand Letter. Ms Lau submits that there is no provision in the Facility Letter or the Mortgage that entitles the Bank to issue the Demand Letter and to alter the contractual interest rate as agreed by the parties. The alternation is unilateral and constitutes a breach of the Facility Letter.

24.  Ms Lau has ignored Clause 29 of the Facility Letter which provides,

“The Bank reserves the right to act, vary, modify or amend the terms and conditions of the Facility at any time with prior notice.”

25.  A similar provision was held to be valid and hence entitled the mortgagee to make a variation in the interest rate unilaterally: United Overseas Bank Ltd v Gracewood International Ltd [2021] HKCFI 2950 at §§49-52.

26.  Ms Lau makes no submissions on the said provision. There is no merit in this complaint.

27.  Next, Ms Lau submits that Mr Lau could not have any personal knowledge of the matters stated in the Demand Letter. She points out that Mr Lau was not the one who handled the transactions and he did not appear to be the one who signed the Demand Letter, either. She submits, without any evidential basis, that the Demand Letter appeared to be signed by Mr Tony Choi of the Central District Branch of the Bank.

28.  This is an utter non-point. Mr Lau, assuming an important position of the Bank, is authorised by the Bank to file affirmations to support the present application. Mr Lau is entitled to depose to matters both within his personal knowledge or from the information or knowledge gleaned from the documents and records of the Bank. And he says so in each of his 5 affirmations.

29.  Next, Ms Lau submits that there appears to be inconsistencies as to the amount of interest payable. She first points to the Facility Letter and then various Statements of Account provided by the Bank covering different periods. It is submitted that the Bank failed to discharge the burden of proof under O.88 r.5 of the Rules of the High Court to illustrate the calculations of interests and reductions to the Principal Balance.

30.  Ms Lau makes no oral submissions on this complaint at the hearing.

31.  I find no substance in this complaint. As pointed out by Mr Kwan, the affirmations of Mr Lau clearly set out the necessary information and particulars pursuant to O.88 rr.3, 6 and 7. Ms Lau has not referred to such evidence and alleged any inadequacies at all.

32.  Mr Kwan also draws my attention to Clause 20 of the Facility Letter which provides,

“Records (in any form) of the Bank are conclusive and binding on you, and you agree nor to dispute them except for manifest error. You agree that they will be admissible in the courts as evidence of the facts and matters recorded in them.

Statement of the Bank as to a rate or an amount due from you is conclusive and binding on you, and you agree not to dispute them except for manifest error.”

33.  Such a conclusive evidence clause should debar Mr Lam from taking issue with the records produced by the Bank except for manifest errors: see Standard Chartered Bank (Hong Kong) Ltd v Pak Kwan Ho, HCA1269/2015 (unreported, 26.8.2016). Ms Lau does not suggest there is any manifest error.

34.  Lastly, it is submitted on behalf of Mr Lam that even if the Bank is justified to make a unilateral increase on interest, there are legal principles governing if the increase is excessive and should be considered as an unconscionable term.

35.  Ms Lau refers to sections 5 and 6 of the Unconscionable Contracts Ordinance, Cap.458 (“the UCO”). She emphasises that in determining whether a contractual term is unconscionable, the court should consider whether any undue influence or pressure was exerted.

36.  I am unable to understand this submission. There is no allegation of undue influence or pressure exerted on Mr Lam at all.

37.  I agree with Mr Kwan that Mr Lam should not raise this complaint by way of submission for the first time. Further, under section 6 of the UCO, the court is required to have regard to a number of factors. An allegation of violation of the UCO should be properly made in precise terms and the parties should be allowed to file evidence to substantiate or refute such a claim.

38.  In Supreme China Securities Limited v Ng Wing Yip and Ors. [2024] HKCFI 1196, DHCJ Winnie Tsui (as she then was) dealt with a similar situation in which the defendant argued in a summary judgment application that the plaintiff’s unilateral increase on the interest rate was an arbitrary exercise of the contractual discretion. The judge rejected this contention for want of a fair chance afforded to the plaintiff to file rebuttal evidence.

39.  By the same token, I refuse to accept this challenge made under the UCO by way of mere submission without evidential basis.

40.  I believe that I have dealt with all the contentions of Mr Lam. On the evidence, it is clear that there was an Event of Default and the Bank is entitled to call in the Loan.

41.  I have perused the original copy of the Mortgage and the latest land search record in respect of the Property. There is nothing causing any concern to me.

42.  Mr Kwan has annexed to his skeleton submissions a table showing the calculation of the outstanding amount. It seems to be in order. When asked to comment on the table, Ms Lau indicates that she has no submission about the figures therein.

Conclusion and Orders

43.  Mr Kwan has also annexed to his skeleton submissions a draft order. It is in line with the reliefs claimed in the Originating Summons and I am satisfied that the Bank is entitled to the same save that I would allow 60 days for Mr Lam to deliver vacant possession of the Property, which is his place of residence.

44.  In the draft order, the Bank asks for costs in the amount of HK$73,031.50 to be paid by Mr Lam. I have perused the Statement of Costs of the Bank and I am satisfied that the said amount is reasonable and should be allowed.

45.  Therefore, I enter judgment against Mr Lam and make an order in terms of the draft order as amended. And the costs order is made on a nisi basis.