JUMBO FAIR LTD AND OTHERS v. PACM SERIES 235 LTD

HCMP 1258/2021

[2022] HKCFI 3750

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1258 OF 2021

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JUDGMENT

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A. INTRODUCTORY REMARK

1.  Mortgage is commonplace in Hong Kong as the form of security for finance for business operation or residence purchase. This case is a redemption action. It concerns the kind of reasonable conduct which the mortgagor (the Plaintiffs) and mortgagee (the Defendant) are expected by law to carry out in mortgage redemption. The main issues are the validity of the Plaintiffs’ tender for redemption and the reasonableness of the Defendant’s charges upon redemption.

2.  In simple terms, the basic principle is that if a mortgagor wishes to redeem the mortgage and recover the property secured under the mortgage, he should keep aside the money that covers all the outstanding principal and full interest, and tender that amount together with all costs and expenses payable to the mortgagee unconditionally. If the mortgagee refuses to accept the tender, the mortgagor is entitled to go to court for an order to compel the mortgagee to return the title deeds to him in exchange for payment of all indebtedness (principal plus interest plus costs and expenses). An important consequence is that interest will cease to be running from the time of the tender which was refused by the mortgagee.

3.  It is therefore vital for the mortgagor to send a valid tender to the mortgagee, and for the mortgagee to assess whether the tender is valid. If the tender is valid and the mortgagee does not accept it, his right to interest will be curtailed, particularly in equity, and he may be served with a redemption action, like the Defendant in the present proceedings.

4.  It is this intricacy of the redemption process which lures a mortgagor, or a mortgagee, or both into “tender gaming”. I find the observation of Mr Daniel Alexander QC, sitting as a Deputy Judge of the Chancery Division of the English High Court, in Shearer v Spring Capital Ltd [2013] EWHC 3148 (Ch) at §§ 127 & 128, illuminating in the context of the present proceedings:

“127. These principles, like others in equity, provide opportunities for gaming on both sides. A mortgagor without the money or who is actually going on to use it for something else can make a spurious tender and use the fact that it had been made to try later to reduce the intervening interest bill when the mortgage is actually paid off. Such a person secretly hopes that the “tender” will be refused and he can go on using the money. Conversely, a mortgagee enjoying a high interest rate or some other advantage can throw spurious obstacles in the path of a tender being validly made in a host of more or less transparent ways as a way of increasing the interest bill or getting a commercial benefit. Such a person secretly hopes that the money tendered will prove to have been unavailable.

128. Tender gaming of various kinds has been a sport played probably since this equitable jurisdiction was devised albeit not perhaps since time immemorial and it continues today …”

5.  In this case, the Court is to examine whether the Plaintiffs’ tender is spurious and whether the Defendants’ obstacles are spurious.

B.  RELEVANT FACTS

6.  The Plaintiffs borrowed substantial loans from Chiyu Banking Corporation (the “Bank”).

7.  On various dates in 2014 and 2016, the following mortgages were entered between the Plaintiffs as mortgagors and the Bank as mortgagee:

(1)  the mortgage dated 9 October 2014 executed by the 1^st Plaintiff;

(2)  two mortgages both dated 17 October 2014 executed by the 2^nd Plaintiff;

(3)  the mortgage dated 20 December 2016 executed by the 3^rd Plaintiff;

(4)  the mortgage dated 20 December 2016 executed by the 4^th Plaintiff;

(5)  the mortgage dated 20 December 2016 executed by the 5^th Plaintiff; and

(6)  the mortgage dated 20 December 2016 executed by the 6^th Plaintiff.

These mortgages are collectively referred to below as the “Mortgages”.

8.  Under the Mortgages, the Plaintiffs mortgaged to the Bank various units in two industrial buildings, namely Wing Shing Industrial Building and Luen Ming Hing Factory Building (collectively the “Mortgaged Properties”) as security for indebtedness owed to the Bank,

9.  In May 2020, the Plaintiffs defaulted on the loans.

10.  On 21 June 2021, by a Deed of Assignment, the Bank assigned all the indebtedness under the loans and all the estates, rights, claims, titles, benefits, entitlements and interests under the Mortgages to the Defendant.

11.  On 23 June 2021, the Defendant gave written notices of the assignment of the Mortgages to the Plaintiff.

12.  On 24 June 2021, the Defendant appointed Mr Man Chun So and Mr Yat Kit Jong, both of PricewaterhouseCoopers Limited, as joint and several receivers and managers over the Mortgaged Properties (collectively the “Receivers”).

13.  The Plaintiffs then approached the Defendant to explore the possibility of reaching any arrangement with the Defendant such that the Defendant would agree to discharge the Receivers. Discussion ensued. Two meetings were held. Text messages and e-mails were exchanged. To put the long story short, the discussion bore no fruit. On 31 July 2021, the Defendant had sent to the Plaintiffs a proposed refinancing term sheet, but it was not accepted[1].

14.  It should be mentioned that apart from the Mortgages, the Mortgaged Properties were also subject to a second mortgages in favour of Maxcolm Finance Limited (the “Second Mortgages”). The Plaintiffs say that after the appointment of the Receivers, the Plaintiffs wished to come to an overall refinancing arrangement so that the indebtedness owed under not only the Mortgages but also the Second Mortgages could be restructured. This intention, as it seems to me, makes practical sense. In this regard, I note that the Defendant’s proposal did not cover the Second Mortgages. As such, even if the Plaintiffs and the Defendant reached a refinancing arrangement, the Plaintiffs would still have to find a solution to deal with the Second Mortgages. Therefore, a refinancing arrangement which covers all the existing debts would be far better from the Plaintiffs’ perspective.

15.  The Plaintiffs then managed to reach an agreement (the “Refinancing Agreement”) with a new lender, namely Dragons 221 Limited (the “new lender”), which is an investment vehicle of a private equity fund known as DCP Asia Credit Fund III, L.P. & DCP Asia Co-Investment Fund I, L.P. for the restructuring of all the debts owed by the Plaintiffs under the Mortgages and the Second Mortgages.

16.  On 4 and 6 August 2021, after the Refinancing Agreement was reached, the Plaintiffs, through their solicitors, issued letters to the Receivers in respect of each of the Mortgages, informing of the Plaintiffs’ intention to redeem the Mortgaged Properties, asking for the title documents of the Mortgaged Properties and asking for the outstanding balance of principal and interest payable on discharge of the Mortgaged Properties calculated up to 18 August 2021. In other words, the Plaintiffs’ intention was to pay up the debt and redeem the Mortgaged Properties on 18 August 2021.

17.  On 12 August 2021, Hogan Lovells acting for the Receivers sent a holding reply to the Plaintiffs’ solicitors. This reply is, in my view, unconducive to a smooth process of the requested redemption. It did not provide the amounts required for the requested redemption, saying only that they will be provided “in due course”, i.e. some unknown date in future. It did not agree to release the title documents until all amounts secured by the Mortgages were paid in full, instead of suggesting a more co-operative measure, such as releasing the title documents against the personal undertaking of the Plaintiffs’ solicitors to return them on demand. On the other hand, it asked the Plaintiffs to disclose their source of repayment as part of the Defendant’s “ongoing anti-money laundering obligations”.

18.  On 14 August 2021, the Plaintiffs’ solicitors replied, confirming the repayment would be made by solicitors’ cheque.

19.  On 16 August 2021, Hogan Lovells wrote to require that the repayment should instead be made by “a direct bank transfer of cleared funds” from the Plaintiffs’ own bank accounts to the Defendant’s bank account, and not to the Receivers or Hogan Lovells. The firm further stated that “the outstanding balance of principal, interest and costs (inclusive of the Mortgagee's and the Receivers' legal fees incurred and to be incurred) payable on discharge of the Mortgages calculated up to and inclusive of 20 August 2021 is HK$296,301,980.66.”

20.  On 18 August 2021, Mayer Brown acting for the Plaintiffs wrote an e-mail marked with “Very Urgent” to Ashurst Hong Kong, among other things, asking for a breakdown of the said figure of HK$296,301,980.66 and confirming that the redemption payment came from the new lender to the Plaintiffs and their firm would carry out their own due diligence on the new lender to satisfy their firm’s own anti-money laundering requirements for receipt of funds from the new lender.

21.  On 23 August 2021, Ashurst Hong Kong, acting on behalf of the Defendant, replied to Mayer Brown, stating that the total net redemption figure, assuming repayment would occur on 30 August 2021, was HK$298,262,287.91[2], the breakdown is as follows:

(1)  Principal: HK$250,365,819.74

(2)  Interest: HK$2,496,798.86

(3)  Fees and expenses: HK$18,999,669.31

(4)  Indemnity and break funding fees: HK$26,400,000.00

22.  The “Fees and expenses” and “Indemnity and break funding fees” amount to HK$45,399,669.31, which is more than eighteenfold of the amount of interest of HK$2,496,798.86. As to how this HK$45,399,669.31 comprised, the Defendant, through Ashurst Hong Kong, said this in paragraph 1 of the same letter:

“(b) You [i.e. Mayer Brown] will note that the settlement amount of around HKD260,000,000 proposed by PACM [i.e. the Defendant] earlier is smaller than the Total Net Redemption Figure [i.e. the said figure of HK$298,262,287.91]. As between the two figures, the Total Net Redemption Figure represents a more accurate reflection of PACM's losses and costs in connection with the mortgage loans.

(c) The settlement amount was proposed in view of a refinancing that was negotiated between PACM and the Borrowers ("PACM Refinancing"). Termsheets of the PACM Refinancing were negotiated and finalised, and were provided to the Borrowers on 31 July 2021 for execution[3]. PACM, in good faith and in consideration of the ongoing commercial and business relationship with the Borrowers and Mortgagors, was prepared to absorb a majority of the break funding costs, and other fees and expenses, for the purpose of closing the PACM Refinancing expeditiously. However, the termsheets were made redundant by a letter dated 4 August 2021 sent by DLA Piper to the Receivers.

(d) As far as PACM is concerned, the falling away of the PACM Refinancing meant that there is no longer any reason for PACM to absorb the costs and fees as previously contemplated, and such costs and fees thus are reinstated and reflected in the Total Net Redemption Figure.

(e) That said, provided that the PACM Refinancing could be brought to fruition, PACM remains open to negotiation and discussion with the Borrowers and Mortgagors as to the redemption figure and other mutually favourable commercial arrangements.”

23.  Two points worth of noting emerges from what was said in that letter: Firstly, the Defendant actually did not explain what the tremendous charge other than the principal and the interest included. Only very general description (“losses and costs in connection with the mortgage loans” and “the break funding costs, and other fees and expenses”) was provided. No reasonable mortgagor could tell what exactly these “losses and costs in connection with the mortgage loans” and “the break funding costs, and other fees and expenses” entailed and how they were incurred by the Defendant.

24.  Secondly, the Defendant looks quite clear as saying if the refinancing with the Plaintiffs was brought to fruition, the Defendant would not have charged (or would have “absorbed” in its own word) “a majority of the break funding costs, and other fees and expenses”.

25.  In the same letter, despite what Mayer Brown said (as mentioned in paragraph 20 above), Ashurst Hong Kong insisted that the Defendant would need to conduct its own anti-money laundering and counter-terrorist financing (“AML/CTF”) checks on the source of fund:

“Please note that Mayer Brown is not engaged by PACM and does not act on its behalf, so PACM is unable to rely on Mayer Brown's AML process, and will need to conduct independent AML/CTF checks on the source of funds, unless Mayer Brown consents in writing that it becomes an intermediary of PACM for the purpose of due diligence on the source of repayment funds and Mayer Brown will provide copies of any document, record, data or information obtained by it in its AML process to PACM without delay.”

26.  What the Plaintiffs had suggested was for its then solicitors Mayer Brown to conduct the AML/CTF investigation process and after clearance, to receive the repayment fund from the new lender. It was only after the AML/CTF clearance and receipt of the repayment fund from the new lender that Mayer Brown would issue a solicitors’ cheque to the Defendant or its solicitors (as the Defendant may designate) for the actual repayment and redemption of the Mortgaged Properties. As submitted by Mr Victor Dawes SC for the Plaintiffs, Mayer Brown was a reputable international firm of lawyers. Given the Plaintiffs’ proposal was to make the repayment by a solicitors’ cheque issued by Mayer Brown (which have undertaken to duly carry out the AML exercise) and not from the new lender, in my view, the Defendant’s insistence to press on for the information of the new lender for its own AML/CTF due diligence exercise (unless Mayer Brown were to act as the Defendant’s “intermediary”[4]) is unreasonable. I do not see how, and the Defendant did not explain, how receipt of a Mayer Brown’s cheque, coupled with their firm’s confirmation of the satisfaction of their AML check, would pose a risk that was reasonably unacceptable to the Defendant. Therefore, I agree with Mr Dawes that the Defendant’s insistence on this requirement could not have been genuine.

27.  Upon the Plaintiffs’ solicitors further query, on 27 August 2021, Ashurst Hong Kong provided breakdown of the fees and expenses charged upon the Plaintiffs, but the amount payable was increased by HK$187,200, from HK$18,999,669.31 (see paragraph 21 above) to HK$19,186,869.31:

(1)	“Legal counsel fees”:	HK$4,419,869.31
(2)	“Default Administration Charge”:	HK$45,000.00
(3)	“Asset Disposal Consultancy Fee”:	HK$12,495,000.00
(4)	“CBRE - Valuation Fee”:	HK$600,000.00
(5)	“PACM Disbursements – Bank fees and miscellaneous fees”:	HK$160,000.00
(6)	“Receivers' remuneration”	HK$1,467,000.00
Total:		HK$19,186,869.31

28.  In the same letter on 27 August 2021, Ashurst Hong Kong also continued to insist on the ATM/CLF process, that the Defendant had to be provided with the identity of the new lender and information on the new lender’s refinancing before the Defendant would accept the redemption payment. Or otherwise, as Ashurst Hong Kong intimated, the Plaintiffs had to revert to the primal method of direct bank transfer from the bank account of each of the 6 Plaintiffs to the Defendant’s bank account for each redemption payment for each of the Mortgages[5].

29.  Seeing that it was not possible to succumb and pay the hefty sum as demanded, on 30 August 2021, the Plaintiffs through their solicitors served a letter of tender on the Defendant (the “Tender”).

C.  THE TENDER AND ITS VALIDITY

C1.  Contents of the Tender

30.  The Tender was presented to the Defendant on 30 August 2021. As its effect significantly affects the parties’ rights, for completeness, its contents are set out below, with the important parts highlighted in bold:

“1. We refer to the mortgages executed between each of the captioned mortgagors (collectively, "Clients") and Chiyu Banking Corporation Limited ("Chiyu") on 9 October 2014, 17 October 2014 and 20 December 2016 (as the case may be), which mortgages have been assigned to you pursuant to Notices of Assignment dated 23 June 2021 ("Mortgages").

2. We write to confirm that a sum of HKD 261,000,000.00 has been made ready and available in a fund administrator's account for the purpose of redeeming the Mortgages, and it is our Clients' intention by this letter to tender under protest the said sum of HKD 261,000,000.00, being the principal sum, interest and costs up to the date of 31 August 2021 in discharge of their obligations under the respective Mortgages, and in redemption of the sums secured by the mortgaged properties which you retain.

3. The said sum of HKD261,000,000.00 is inclusive of (i) principal sum of HKD250,365,819.74, (ii) interest (up to 31 August 2021) of HKD2,592,829.59, and (iii) fees and expenses of approximately HKD8,000,000 tendered under protest.

4. Our Clients now make tender under protest in the sense that they reserve their right subsequently to apply to court for an account and/or determination of the sums properly due, but that will not affect the validity of the tender. For the avoidance of doubt, the tender is made without admission as to the amount of fees and expenses recoverable by you and our Clients expressly reserve their right to claim for any overpayment.

5. As you are well aware, the tender is made on account of monies made available by a new lender who has agreed, subject to the provision of satisfactory securities, to refinance our Clients’ indebtedness under the Mortgages. To facilitate the said refinancing arrangement, the above tender is made on the condition that the sum of HKD261,000,000 would be paid to you via the client account of Messrs. Mayer Brown on completion simultaneously with (i) the release by you of the Mortgages in respect of the said mortgaged properties; (ii) the resignation and/or removal of the receivers appointed on 24 June 2021 over the said mortgaged properties; and (iii) delivery of all title deed and documents relating to the said mortgaged properties which are in your possession / custody or otherwise, held to your order. We refer to the earlier correspondence between Messrs. Ashurst and Messrs. Mayer Brown, which have been copied to you, as regards to the mechanism of completion.

6. Please let us know by 2:30 pm on 31 August 2021 whether the above tender is accepted. You are put on notice that we have standing instructions to seek a mandatory injunction against you should you refuse to accept the tender. In that event, you will no longer be entitled to charge any continuing interest on any sums outstanding, and we will hold you liable for the costs of our Clients' claim for redemption.

7. All our clients' rights reserved.”

31.  On 31 August 2021, for the Defendant, Ashurst Hong Kong replied to the Plaintiffs’ solicitors. In this letter, the Tender was not accepted. Ashurst Hong Kong asked for (1) information and evidence showing the identity of the “fund administrator” (as the Plaintiffs’ solicitors said the sum of HK$261,000,000.00 (the “Tender Sum”) was “made ready and available in a fund administrator's account for the purpose of redeeming the Mortgages”), (2) that the Tender Sum was available in such account, and (3) the source of such funds.

32.  Whilst as indicated above I do not find the request for proof of the source of fund for AML/CTF purpose is genuine, I do consider the other two requests raised by Ashurst Hong Kong to be of critical relevance to the issue of the validity of the Tender, because they are related to the proof of whether the repayment fund had indeed been set aside for the Defendant’s benefit and made available to the Defendant for its use if the Tender was accepted. This will be explained in further detail in section C4 below.

C2.  The Originating Summons

33.  On 31 August 2021, the same day of Ashurst Hong Kong’s reply, the Plaintiffs issued the current proceedings, seeking (1) determination and declaration of the sum due under the Mortgages, (2) a declaration in the event that the sum found to be due under the Mortgages was less than the Tender Sum (i.e. HK$261,000,000), the Defendant should not be allowed interest, costs and expenses after the date of the Tender (i.e. 30 August 2021), (3) redemption of the Mortgages, (4) further or other relief and (5) costs.

C3.  The Plaintiffs’ right to redeem

34.  There is no dispute that the Plaintiffs’ right to redeem the Mortgages is contractual, provided in the Mortgages:

“4.01 If the Borrower shall on demand as aforesaid or otherwise pay to the Lender the Secured Indebtedness in full and upon production to the Lender of relevant receipts for management fee, government rent, rates and property tax (if any) chargeable on the Property covering the life of this Mortgage and there is no breach of any covenant terms agreements and conditions herein contained on the part of the Borrower to be observed and performed THEN THE LENDER SHALL upon the request and at the cost and charge of the Borrower execute a receipt or otherwise discharge the security hereby constituted or (as the case may be) reassign the Property to the Borrower or as the Borrower shall direct.”

35.  There is no suggestion that the Plaintiffs have breached any covenant or term of the Mortgages. So the only obligation of the Plaintiffs upon redemption is to pay all the moneys due to the Defendant under the Mortgages.

36.  In the present case, on 30 August 2021, the Plaintiffs did not actually pay any money due but presented the Tender to the Defendant, stating that the Tender Sum was “made ready and available in a fund administrator's account for the purpose of redeeming the Mortgages”. Is this Tender valid? I shall first look at the legal principles.

C4.  The law of tender & analysis of the Tender

37.  First of all, the starting and indeed overarching requirement is that a tender must be able to demonstrate that the mortgagor is at all times both willing and able to redeem the securities. See Cukurova Finance International Ltd v Alfa Telecom Turkey Ltd (Nos 3 to 5) [2016] AC 923 at §47 per Lord Mance JSC.

38.  Second, in a tender, the outstanding sum must be offered. If a lesser sum was offered, the tender will become invalid. This is so basic the principle that neither party disputes. See Fisher and Lightwood's Law of Mortgage, 15^th ed., 2019 at 47.37, the first paragraph; Shearer, ibid., §131.

39.  In the present case, if the Tender Sum is determined by this Court to be less than the outstanding sum, the Tender becomes invalid. This question will be considered in section D below.

40.  Third, prima facie, a valid tender must be unconditional but may be under protest. It has been said there is scope for debate on whether the mortgagor can impose in the tender (1) a condition regarding the form of release of security and (2) a condition that release of the security be simultaneous with payment of the outstanding sum, see the detailed discussion in Shearer §170-230. But since the Defendant does not take issue on this aspect of the Tender, it is not necessary for me to decide here.

41.  Fourth, in a proper tender, the money designated for repayment (the “designated money”) must be actually “shown” to the mortgagee. Not that the designated money has to be paid to the mortgagee already at the time of tender, but it has to be shown (or demonstrated) to the mortgagee that from the time of the tender the designated money has been set aside and kept ready by the mortgagor for payment to the mortgagee. The mortgagor must not make any use or make any profit of the designated money. I draw out this principle from:

(1)  Fisher and Lightwood's Law of Mortgage, ibid., at 47.42, where it reads:

“Generally, the money for the outstanding sum should be actually produced, but actual production may be dispensed with by the express declaration or equivalent act of the creditor if the tender is otherwise sufficient. So that if the creditor refuses to authorise his agent to take the money, or to take it himself, the tender will be good.”

It should be noted that “produced” does not mean “paid”. It is only upon the mortgagee’s indication of acceptance of the tender that the mortgagor is to “pay” the money “produced” under the tender.

(2)  Footnote 1 of 47.42 provided, in my view, a good rationale for this requirement: “For it was said that though the creditor may at first refuse, yet the sight of the money may tempt him to take it”. It then referred to an old judgment of Powney v Blomberg (1844) 8 Jur 746 where it was recorded to hold that tender by letter was held to be insufficient. It seems clear to me that it is all a requirement as to whether the mortgagor has produced sufficient evidence or proof that the mortgagor has set aside a sum of money sufficient to settle all the outstanding sums under the mortgage, so that if, and once, the mortgagee accepts the tender, the money can be immediately sent to the mortgagee for the mortgage repayment.

(3)  This requirement is resonant with the above starting point that a tender must be able to demonstrate that the mortgagor is at all times both willing and able to redeem the securities, as mentioned in Cukurova.

(4)  This requirement tallies with the calculation of interest upon a tender as expounded below.

42.  Fourth, the effect of a proper tender is that interest shall cease to run upon the mortgage debt from the time when a proper tender is shown to have been made, namely (1) that the tender is of the whole amount due, (2) that from the time of the tender the money was set aside and kept ready by the mortgagor and (3) that no profit was afterwards made by the mortgagor from the designated money set aside for repayment. Whether a proper tender is shown to have been made is a question of evidence in every case. See the third paragraph at 47.37, Fisher and Lightwood's Law of Mortgage, ibid.:

“Interest ceases to run upon the mortgage debt from the time at which a proper tender of the whole amount due is shown to have been made, provided that from the time of the tender the money was kept ready by the mortgagor and no profit was afterwards made from it. Upon proof to the contrary interest will still run. The money should be paid into court if there are proceedings pending in which this can be done or put on deposit, the mortgagor accounting for the interest thereon to the mortgagee. There must be an actual tender of the money due. The court will not stay the interest on proof of a proposal by the mortgagor to set off against the mortgage sums due to him from the mortgagee on another account between them.”

As mentioned by Footnote 16 to this paragraph, an assertion of willingness to pay is not enough, as in Devon Nominees Ltd v Hampstead Holdings Ltd [1981] 1 NZLR 477, at p.486 at line 20. There must be sufficient evidence to show the ready availability of the designated money which has been specifically set aside for the repayment, see §§155-158 in Shearer and §136 in Cukurova per Lord Neuberger of Abbotsbury PSC.

43.  At this juncture, in the present case, it is convenient for me to express the holding that I am not satisfied that the Plaintiffs as mortgagors have produced sufficient evidence to show that the Tender Sum was readily available at the time of the Tender, i.e. 30 August 2021.

44.  The Plaintiffs have adduced two letters to show that the Tender Sum was kept aside and ready to be paid once the Tender was accepted: (1) the Tender itself, i.e. the letter of tender issued by the Plaintiffs’ solicitors on 30 August 2021 and (2) a letter from the new lender dated 31 August 2022[6]. Both letters made the same assertions: that the Tender Sum had been made ready and available in a fund administrator’s account for the purpose of redeeming the Mortgages. There was no other information or evidence showing particulars of the account or the exact whereabouts of the fund. Vital questions, such as whether the account was kept under a bank account or bank accounts, and if so which bank or banks; whether the bank or banks was/were located in Hong Kong; the name(s) of the account holder(s); whether the Plaintiffs were in control of that/those account(s); or if they were not in control of that/those account(s), whether they had sufficient power to cause the Tender Sum to be paid to the Defendant for mortgage repayment at any designated time if and after the Defendant accepted the Tender; and whether the Tender Sum was kept for the benefit of the Defendant, such that e.g. any interest accrued in that/those account(s) would be accounted to the Defendant, were not answered. Without such objective information and evidence, it appears to me that the two letters from the Plaintiffs’ solicitors and from the new lender were no more than a bare assertion. Therefore, as mentioned in paragraphs 31 and 32 above, the questions asked by Ashurst Hong Kong are of critical relevance as to the validity of the Tender, but the Plaintiffs have failed to answer them.

45.  Therefore, I find that the Tender was invalid.

46.  Consequently, as explained in paragraph 42 above, as Ms Sit for the Defendant submits, interest would not cease to accrue because of the invalid Tender. I also agree with Ms Sit that it would continue to accrue until 15 September 2021[7], when the Plaintiffs made the payment in court, which will be dealt with in the next two sections.

C5.  Payment into court & redemption of the Mortgages

47.  As mentioned in paragraph 33 above, the present proceedings were commenced on 31 August 2021. On the same day, the Plaintiffs applied for an interlocutory injunction to compel the Defendant to effect a discharge of the Mortgages upon the Plaintiffs’ payment into the Court the Tender Sum.

48.  The hearing was heard before Mr Justice K Yeung on 3 September 2021. The learned Judge ordered that upon the Plaintiffs paying into Court a sum of HK$300,192,884.96 (the “Payment-in Sum”), which as I understand was the maximum amount of the redemption payment claimed by the Defendant on or before 17 September 2021, the Defendant do, among other things, deliver the relevant title deeds and effect a release/ discharge of the Mortgages.

49.  On 15 September 2021, pursuant to the said Order, the Payment-in Sum was paid into Court by the Plaintiffs. The Mortgages were since then discharged.

50.  After the discharge of the Mortgages, pursuant to a Consent Order made on 20 September 2021, HK$257,000,000, out of the Payment-in Sum, was paid out to the Defendant. The balance of HK$43,192,884.96, pursuant to paragraph 3 of the said Order of Mr Justice K Yeung dated 3 September 2021, was since remained in Court pending the final determination of this Action[8].

C5.  Conclusion on the validity of the Tender

51.  Since I have held in paragraph 45 above that the Tender was invalid, the date of the Tender, i.e. 30 August 2021, cannot be the cut-off date from which interest stopped to accrue and costs and expenses of the Defendant should not be allowed.

52.  As mentioned in paragraph 46 above, I agree with Ms Sit for the Defendant that interest would continue to accrue until 15 September 2021, when the Plaintiffs made the payment into court. Payment into court is generally accepted as an effective means of stopping the interest from being accrued after the date of the payment-in, which usually takes place after the mortgagee refused to accept the mortgagor’s tender and an redemption action has been commenced, see the third paragraph at 47.37, Fisher and Lightwood's Law of Mortgage quoted in paragraph 42 above, and the cases referred to in Footnote 15 thereof.

53.  In other words, the Plaintiffs are required to pay interests on the outstanding principals of the mortgage loans under the Mortgages up to and inclusive 15 September 2021. On the same basis, costs and expenses incurred by the Defendant after 15 September 2021 also shall not be allowed.

54.  I shall then deal with the question as to how much was owed by the Plaintiffs to the Defendant under the Mortgages as at 15 September 2021.

D.  AMOUNTS DUE UNDER THE MORTGAGES ON 15 SEPTEMBER 2021

D1.  The Plaintiffs’ concessions & the items in dispute

55.  In the Skeleton Submissions of the Defendant sent to the Court on 28 June 2022, i.e. two days before this hearing, the Defendant made two concessions.

56.  First, at paragraph 56 of the skeleton, the Defendant expressly abandoned its claim for the break funding fees of HK$26,400,000.00. As mentioned in paragraph 21(4) above, this item was provided to the Plaintiffs by Ashurst Hong Kong on 23 August 2021. As suggested by Mr Dawes for the Plaintiffs, this is a major concession. The sum of HK$26.4 million itself is a substantial sum. This sum accounts for more than half (58%) of the sum total of the “Fees and expenses” and “Indemnity and break funding fees”, i.e. HK$45,399,669.31 as claimed by the Defendant on 23 August 2021 (see paragraphs 21 and 22 above).

57.  Second, the legal fees of Ashurst Hong Kong that the Defendant claimed to be payable by the Plaintiffs were reduced from US$317,663.11[9], to US$274,957.41[10], and lastly to US$228,198.41[11].

58.  Overall, on the Defendant’s latest case, its claim on the redemption amount comprises the following[12]:

	Item	Amount (HK$)
(1)	Principal	250,365,819.74
(2)	Interest (up to 15 September 2021)	4,045,850.76[13]
(3a)	Default administrative charge	45,000.00
(3b)	CBRE valuation fees	600,000.00
(3c)	Legal fees   Appleby – HK$88,218.00   Deacons – HK$670,716.82   Walkers – HK$46,773.17   Ashurst - US$228,198.41 (~ HK$1,779,947.60)	2,585,655.60
(3d)	Receivers’ fees   HK$828,000   US$128,930.96 (~ HK$1,005,661.49)	1,833,661.49
(3e)	Fonto asset disposal consultancy fee	12,495,000
(3f)	Disbursements	160,000
(3g)	Interest on item 3 costs charges expenses	129,239.45
	Total	272,260,227.04

59.  In contrast, on the Plaintiffs’ case, their redemption amount comprises the following[14]:

	Item	Amount (HK$)
(1)	Principal	250,365,819.74
(2)	Interest (up to 31 August 2021)	2,592,830.54
(3a)	Default administrative charge	45,000.00
(3c)	Legal fees   Ashurst - US$105, 350.28 (see Annex III   to the Skeleton Submissions of the   Plaintiffs) (~ HK$821,732.18)	821,732.18
(3d)	Receivers' fees   HK$828, 000   US$128, 930. 96 (~HK$1,005,661.49)	1,833,661.49
(3f)	Disbursements	160,000.00
	Total:	255,819,043.95

60.  In respect of the calculation of the amount of interest on the principal, the only dispute is whether it should be accrued up to and inclusive of 31 August 2021 or 15 September 2021. I have held above that the interest should be accrued up to and inclusive of 15 September 2021. The Defendant ‘s figure, i.e. 4,045,850.76 should be adopted.

61.  There are 3 items in dispute: (1) CBRE valuation fees, (2) legal fees, and (3) Fonto asset disposal consultancy fee.

62.  Before I go to each item, I shall first summarize the applicable legal principles.

D2.  Applicable legal principles on costs, charges and expenses

63.  In the main, there is no dispute on the following applicable legal principles in relation to costs, charges and expenses:

(1)  The principle in law is that in order to redeem a mortgage, the mortgagor must pay to the mortgagee the principal of the mortgage debt together with the interest thereon, and the costs properly or reasonably incurred by the mortgagee in relation to the mortgage debt or the mortgage security, see In re Wallis (1890) 25 QBD 176 at 181 per Fry, L.J.; Snell’s Equity, 34^th ed., 2019, §38-034; Fisher and Lightwood, ibid., §55.1. Such costs are usually known as the price of redemption.

(2)  Whilst there are provisions in the Mortgages giving the Defendant’s such entitlement, the said principle in law (that the mortgagee’s entitlement is in relation to “the costs properly or reasonably incurred by the mortgagee in relation to the mortgage debt or the mortgage security”) is said to be underlying these contractual provisions, and should be borne in mind when construing them, see Fisher and Lightwood, ibid., §55.9.

(3)  Even if the terms of a mortgage are widely drafted, costs that were improperly or unreasonably incurred, or costs that were incurred in an improper or unreasonable amount, should be disallowed, as a matter of construction or on the grounds of public policy, see Fisher and Lightwood, ibid., §55.1; GE Capital (Hong Kong) Ltd v Lo Wai Man & Anor, HCMP 1249/2009, unreported, 16 February 2016 at §24 per DHCJ Paul Lam SC; Gomba Holdings Ltd v Minories Finance [1993] Ch 171 at 187H-188A per Scott LJ.

64.  Therefore, in considering whether to allow an item of costs, charges or expenses, the Court should decide firstly whether the item itself is properly or reasonably incurred in relation to the mortgage debt or the mortgage security, and secondly whether the amount incurred is reasonable or proper.

65.  In the present case, the Defendant, rightly in my view, did not go so far to suggest to this Court that the express provisions of the Mortgages compel a blanket admission of the costs, charges or expenses as claimed by it, without the need for the Court to assess the propriety or reasonableness as explained aforesaid.

66.  Before I move on to the assessment of the aforesaid 3 items in dispute, I wish to make a few comments on the contextual points raised by the Defendant:

(1)  The Defendant submits[15] that the recoverability of the debt or the enforcement against the Mortgaged Properties in this case was not a straightforward matter, as indicated by the fact that the debt had been in default for over a year, and despite the Bank holding first mortgage over the Mortgaged Properties, the Bank had not managed to enforce against the Mortgaged Properties to recover the outstanding debt from the Plaintiffs, or effect a restructuring of the debt with the Plaintiffs. I do not accept this submission. There is simply no evidence before this Court on questions such as whether the Bank had considered the question of enforcement and why it did so or did not do so; whether the Bank had incurred any costs and expenses[16] in considering how to enforce; why the Bank at the end of the day did not take any enforcement. This submission is derived only from the length of the default being “over a year”. I agree with Mr Dawes’ submission that the length of default does not necessarily have correlation with the degree of difficulty of enforcement. The Defendant is in effect inviting to speculate.

(2)  The Defendant submits[17] that the creditor's recovery would not be straightforward was reinforced by the public knowledge at the time that family members of the late Mr Tang Shing Bor (which controlled the Plaintiffs, and hence the Plaintiffs) had been in deep financial trouble for an extended period. This submission is neither here nor there. For most (if not all) cases, a mortgagor defaulted on mortgage debt because he has financial difficulty. Here the subject matter is enforcement against the mortgaged security and not enforcement of an unsecured loan. The mortgagor’s financial difficulty does not make an enforcement action against the mortgaged security less straightforward.

(3)  The Defendant submits[18] that as it is a private equity firm and operates on commercial principles with no prior dealings with the Plaintiffs or the Tang family, it would be extraordinary to suggest that an experienced commercial operator like the Defendant would deliberately “churn up” costs and expenses given the potential negative impact on the amounts recoverable by it to its own detriment. In my view, this “no commercial reason to churning up costs” submission is again speculative. Firstly, there are all sorts of commercial considerations that may prompt a mortgagee to “increase” the bill payable by the mortgagor. As highlighted in the beginning of this Judgment at paragraph 4 above, one possible scenario is the mortgagee does not want the tender to be valid. The lender, which is enjoying a high interest rate or some other advantage can throw spurious obstacles in the path of a tender being validly made in a host of more or less transparent ways as a way of increasing the interest bill or getting a commercial benefit. Secondly, the Defendant disclosed in evidence[19] that in fact it had obtained finance from various third parties for advancement and maintenance of credit to the Plaintiffs under the mortgage loans and accordingly had incurred significant ongoing liabilities and costs to maintain such credit, and that the Plaintiffs’ redemption would lead to various break funding cost obligations that the Defendant is liable for, and that (which in my view is telling) the default interest (payable by the Plaintiffs) is simply insufficient to reflect the Defendant’s costs in maintaining the mortgage loan. This seems more likely to me to be the real practical commercial reason which drove the Defendant to recoup as much money as possible from the Plaintiffs.

D3.  CBRE valuation fees of HK$600,000

67.  The Defendant stated[20] that CBRE Valuation & Advisory Services (“CBRE”) was engaged by the Defendant to conduct valuation and market research on the Mortgaged Properties and also the industry. Subsequently, the Defendant added that CBRE was engaged “in advance in case [the Defendant] needed to seek its advice on enforcement of the Mortgages via researching latest market development in the real estate market and analysis on the valuations of the properties”[21]. It was said CBRE charged HK$600,000 for this exercise, but despite the work was apparently completed more than one year ago, at the time of this hearing, the Defendant has only paid HK$300,000.

68.  I shall first examine whether this item of costs is properly or reasonably incurred in relation to the mortgage debt or the mortgage security.

69.  In this respect, the Plaintiffs’ principal complaint is against the timing of the Defendant engaging CBRE. This throws light on whether this item of costs was incurred in relation to the mortgage debt or the Mortgaged Properties:

(1)  CBRE’s letter of engagement issued to the Defendant was dated 22 June 2021. It stated that the letter was issued in response to the Defendant’s request for a quotation. The date of valuation was stated to be a “current date in June 2021”. The “Scope of Work” was stated to be “typical of a valuation engagement” and included “inspection of the subject Property [i.e. the Mortgaged Properties] and the surrounding environment” [22]. The valuation fees were stated to be HK$600,000.

(2)  CBRE issued two valuation reports of the Mortgaged Properties issued pursuant to the said letter of engagement. Both reports were dated 22 June 2021, the same date as the letter of instruction, with the valuation date also at 22 June 2021.

(3)  All of the above took place 1 day after 21 June 2021, where the Bank executed the Deed of Assignment, assigning the mortgage loans and all the estates, rights and claims etc. under the Mortgages to the Defendant, see paragraph 10 above.

(4)  Nonetheless, the date of inspection of the Mortgaged Properties was said to be held on 31 May 2021.

70.  According to the Defendant’s evidence, the whole exercise of valuation was initiated and completed within a span of 1 day:

(1)  On 21 June 2021, the Bank executed a deed of assignment assigning the Mortgages to the Defendant.

(2)  Some unknown time after the execution of the deed, the Defendant requested a quotation[23] from CBRE.

(3)  On 22 June 2021, CBRE issued a letter of engagement to the Defendant, quoting a fee of HK$600,000 for the valuation.

(4)  On the same date, the Defendant signed and return Schedule 1 of the letter of engagement accepting the terms of engagement in it.

(5)  On the same date CBRE issued two valuation reports of the Mortgaged Properties.

71.  In respect of inspection, although the letter of instruction mentioned that CBRE “will” carry out external and, where possible, internal inspections of the Mortgaged Properties, according to the valuation reports, the inspection in fact took place on 31 May 2021, i.e. before the letter of instruction. In fact only external inspection was carried out because, as explained in the reports[24], rather opaquely, “internal inspection” was unavailable (without further detail). Nonetheless, the external inspection which was conducted by CBRE before its engagement by the Defendant on 22 June 2022, was not carried out by CBRE for the Defendant. It was recently revealed by the Defendant[25] that coincidentally, CBRE had a previous engagement with another client in which they conducted site visit at the site exactly the same as that of the Defendant. It was said that CBRE then relied on their observations made during the previous site visit for another client for issuing their reports for the Defendant. This is, in my view, to say the least, very strange. In fact, CBRE did not only rely on their observations made during the previous site visit. They even used the photos taken on the last occasion for another client and reproduced in the two valuation reports issued to the Defendant. In the two reports, CBRE did not mention that the site visit was in fact done for another client[26]. Nor there was any explanation given as to why CBRE did not conduct a fresh inspection for the Defendant’s engagement, particularly given there was no deadline imposed in the letter of instruction[27]. There was nowhere in the evidence showing that the engagement was urgent.

72.  I fail to understand how it would be possible for CBRE to start and complete two valuation reports of 137 pages (with 55 pages of main body and the rest appendices) and 362 pages (inclusive of 53 pages of main body and the rest appendices) within 1 day. I also fail to understand the necessity of such a time frame.

73.  On the purpose of the reports, the Defendant clarifies[28] that CBRE was engaged in advance not of the assignment of the Mortgages on 21 June 2021[29] but of the notice of assignment on 23 June 2021[30], in case the Defendant needed to seek its advice on enforcement of the Mortgages[31]. That being so, I still find incredible for the entire exercise from enquiry for a quote to agreeing terms and price of engagement to preparing and completing two substantial reports to be completed within 1 day.

74.  In conclusion, for the above reasons, I find it compelling to be more likely that the Defendant actually engaged CBRE prior to the assignment of the Mortgages on 21 June 2021 for purposes other than enforcement of the Mortgaged Properties. It is not necessary for me to draw any conclusion on what was or were the real purpose(s) of the Defendant engaging CBRE but I accept, as raised by the Plaintiffs[32], that it was quite possible that the valuation reports were in fact commissioned by the Defendant for its own purpose of conducting due diligence on the assignment of the Mortgages which it was desirous of pursuing. I also note the Plaintiffs’ observation[33] that the inclusion of substantive analysis on incentives to redevelop the Mortgaged Properties and details regarding Hong Kong’s policy and revitalisation scheme was atypical to usual valuation reports commissioned for the purpose of a mortgagee’s exercise of its right of enforcement.

75.  I therefore find that CBRE’s two valuation reports were engaged before the Defendant became the assignee of the Mortgages and for its own purpose(s) and not related to or pursuant to the exercise of any power or right conferred on the mortgagee under the Mortgages. The Defendant is not entitled to claim the fees of CBRE against the Plaintiffs.

76.  Consequently, the valuation fees of HK$600,000 of CBRE are disallowed in whole.

77.  If I am held to be wrong on this finding, I would hold that the fee charged by CBRE is grossly excessive and unreasonable. The two comparable quotes from Jones Lang LaSalle Limited (“JLL”) – HK$70,000 for units in Luen Ming Hing Factory Building and from Vincorn Consulting and Appraisal Limited (“VCAL”) – HK$90,000 for units in Wing Shing Building, totalling HK$160,000, were much less than CBRE's fees of HK$600,000. The Defendant did not explain how and in what way the scope of services of CBRE was wider or contents of the reports would be better than JLL and VCAL. As submitted by Mr Dawes, that simply begs the question of whether it was reasonable for the Defendant to incur HK$600,000 for the purportedly more “in-depth” analysis at a time when there was no perceived necessity of any actual advice. As mentioned above, according to the Defendant’s evidence, CBRE was engaged in advance in case the Defendant needed to seek its advice on enforcement of the Mortgages. In other words, CBRE was engaged just as a provision if there was a need to seek advice on enforcement. This actually means there was no such need at that time. I note also that according to the Defendant’s case, a little later in June 2021, the Defendant instructed the Receivers to withhold enforcement action. Lastly, the Defendant has not sought to explain why it still did not pay the remaining fee of HK$300,000 due for a long time. As such, I cannot exclude the possibility that even the Defendant would regard CBRE’s fee to be unreasonable.

78.  If I am held to be wrong, i.e. CBRE’s valuation reports are found to be related to enforcement of the Mortgages instead, then for the above reasons, I would allow HK$160,000 as the reasonable fees payable by the Plaintiffs for the two valuation services provided by CBRE.

D4.  Legal Fees

79.  As set out in item 3c of paragraph 58 above, legal fees claimed to have been incurred by the Defendant total HK$2,585,655.60 and comprise those charged by Appleby – HK$88,218.00, Deacons – HK$670,716.82, Walkers – HK$46,773.17 and Ashurst – US$228,198.41 (about HK$1,779,947.60).

80.  The Plaintiffs contends that the all the legal fees charged by Appleby, Deacons and Walkers should not be allowed, because they are clearly not fees incurred by the Defendant in its capacity as the assignee of the Mortgages. At the time when these fees were incurred, the mortgage loans or the Mortgages have not yet been assigned to the Defendant. As such, these fees would not possibly have been incurred in connection with the mortgage loans or the Mortgages. Instead, they appear to relate to due diligence conducted before the assignment of the Mortgages to the Defendant and review of documents which the Defendant intended to execute in relation to (and of course prior to) the assignment:

(1)  The invoice issued by Appleby dated 13 July 2021 covers professional services rendered between 15 June 2021 and 25 June 2021 for the issuance of “BVI opinion on facility entered into by PACM Series 235 Limited and Pacific Aegies Holdings Limited.” The description of the work done clearly shows that the services were rendered before the assignment of the Mortgages.

(2)  The invoice issued by Deacons dated 18 August 2021 covers professional services rendered between 10 June 2021 to 25 June 2021. The 11 items of work done described therein all related to the “sale of loans from [the Bank] to [the Defendant]”, i.e. before the assignment of the Mortgages.

(3)  In the same way, the other invoice issued by Deacons on the same day covers professional services rendered between 10 June 2021 to 23 June 2021. The 11 items of work done described therein all related to the “transfer of mortgages from [the Bank] to [the Defendant]”, i.e. before the assignment of the Mortgages.

(4)  The invoice issued by Walkers dated 24 June 2021 states that the fees were charged in respect of “due diligence on (1) PACM Series 235 Limited [the Defendant] and (2) Pacific Aegis Holdings Limited”.

81.  Mr Dawes for the Plaintiffs submitted that all the fees charged by these 3 firms are legal and due diligence costs associated with the assignment of the Mortgages which the Defendant contemplated to enter into with the Bank. There is no reason why the Plaintiffs have to bear the costs of a transaction to which it is not a party and over which it has no control. These costs are extraneous to the Mortgages.

82.  I do not consider the Defendant has an answer to this contention. Ms Sit for the Defendant did not contend that the costs of Appleby, Deacons and Walkers were incurred post-assignment. Instead she categorized these costs as the assignment-related costs and relied on Clauses 18.01 and 20.01(a) of the Mortgages. These 2 clauses read as follows:

“18.01 The terms of this Mortgage shall be binding upon and enure to the benefit of the respective successors-in-title and; assigns of the parties hereto Provided however that the Borrower [i.e. the Plaintiffs] may not assign any of the Borrower's rights or obligations hereunder without the express prior written consent and approval of the Lender [i.e. the Defendant]. The Lender may at any time assign or transfer all or any part of its rights or benefits hereunder to any other person and in that event the assignee or transferee shall have the same rights and benefits as it would have had if it had been a party to this Mortgage.

20.01 The Borrower shall with the object and intention of affording to the Lender a full indemnity for all amounts actually disbursed or incurred by the Lender pursuant to the terms hereof pay or reimburse to the Lender or (as the case may be) to any Receiver, on demand:-

(a) All costs, charges and expenses incurred and all payments made by the Lender or any Receiver in the lawful exercise of the powers hereby conferred upon it or him (together with all remuneration payable to the Lender or to any such Receiver). …

and the same shall carry interest at the applicable rate as herein before provided from the date of the same being incurred or disbursed until payment and all such costs, charges, expenses and remuneration and all interest thereon shall be a charge on the Property and shall form part of the Secured Indebtedness.”

83.  It is argued by the Defendant that the right to assign the Mortgages permitted under Clause 18.01 is one of the means available to the creditor to recover its debt, by assigning it to someone else. As such, all costs, charges and expenses incurred and all payments made “in the lawful exercise of the powers hereby conferred” (which would include Clause 18.01 should be fully reimbursed by the Plaintiffs.

84.  In my judgment, this argument is misplaced:

(1)  Under the assignment of the Mortgages, the Defendant was the assignee. The costs here are the costs incurred by the Defendant in acquiring the rights, claims and interests in the Mortgages. They are not costs incurred by the Defendant for recovery of the mortgage loans.

(2)  The costs incurred by the Defendant before the assignment of the Mortgages, e.g. the costs of conducting due diligence or land title checking, are part of the costs of the Defendant in acquiring the Mortgages. In the event that the proposed assignment fell through, the Defendant has no right whatsoever to recover such costs under the Mortgages. The incurring of these costs could not possibly be costs incurred “in the lawful exercise of the powers hereby conferred upon it or him”. The conducting of due diligence or land title checking are not powers conferred to the Defendant by the Mortgages.

85.  In my judgment, the costs incurred pre-assignment, such as costs incurred in the negotiation, due diligence, land title checking, preparing of the agreement, assignment and other documents etc., are not costs incurred in relation to the enforcement of the Mortgages for recovery of the mortgage loan. They are only commercial costs of the Defendant, extraneous to and not related to “the lawful exercise of the powers” which can only be “conferred upon” the Defendant by the Mortgages after it became the mortgagee post-assignment.

86.  The last item of the dispute on “legal fees” concerns 3 invoices issued by Ashurst Hong Kong to the Defendant, respectively numbered and dated (1) 100006165 and 29 July 2021, (2) 100006437 and 1 September 2021 and (3)100006498 and 27 September 2021.

87.  As mentioned in paragraph 57 above, the Defendant has made two concessions, reducing its claim from US$317,663.11 down to US$274,957.41 and finally US$228,198.41. The Plaintiffs submitted that:

(1)  Initially, the Defendant initially claimed that these fees were “work done in relation to Plaintiffs' intended redemption of the Mortgages” [34].

(2)  After the Plaintiffs pointed out that the invoices referred to separate projects (e.g. “Project Airbus” and “Project Cirrus”) which bear no relationship with the present case, the Defendant revised its claim to US$274,957.41, based on its concession that certain items on pp. 2-4 of Ashurst Hong Kong's invoice dated 29 July 2021 (invoice no. 100006165) were unrelated to the mortgage loans and the Mortgages.

(3)  The latest reduction of the claim to US$228,198.41 is the Defendant’s further last-minute concession.

88.  However, on 28 June 2022, less than 2 days before this hearing, the Defendant issued a summons for leave to file the 3^rd Affirmation of Ng Francis Chi Yin dated 28 June 2022. Whilst the Plaintiffs do not object to the rest of the affirmation which were updating the interest calculation and clarifying the extent of the Defendant’s concession in relation to Ashurst Hong Kong’s legal fees, the Plaintiffs objected to the admission of paragraph 8 of this affirmation which seeks to introduce new factual matters elaborating on 4 particular items of work done by Ashurst Hong Kong under challenge by the Plaintiffs. At the hearing, I admitted also this paragraph on de bene esse basis.

89.  Having considered the new evidence in paragraph 8 of the said affirmation, particularly in the context of the Plaintiffs’ basis of challenge against the 4 items of work done being there is “no evidence to suggest that [these items] relate to enforcement or discharge of the Mortgages”, I decline to allow the admission of paragraph 8 as evidence, and order the Defendant to file with the Court and serve on the Plaintiffs within 14 days from the date of this Judgment the 3^rd Affirmation of Ng Francis Chi Yin as per the copy attached to the Defendant’s summons dated 28 June 2022 but with the said paragraph 8 duly removed. I made the said order for the following reasons:

(1)  The Defendant’s summons was issued too late, at the eleventh hour before this hearing.

(2)  The Defendant did not give any reason for such a delay.

(3)  Such a late filing deprived the Plaintiffs from providing the Court with a proper reply.

(4)  The Defendant has already filed two round of evidence. It is unfair for it to be given one extra bite of the cherry.

Consequently, I would not take account of paragraph 47.1 of the Skeleton Submissions of the Defendant, which is based on the ruled-out evidence in the said paragraph 8 of the 3^rd Affirmation.

90.  With respect to the Defendant’s latest claim of US$228,198.41, Mr Dawes submitted that despite the Defendant's concession, there remain a large number of items which relate to the pre-assignment stage and hence are not recoverable and which are not costs properly and/or reasonably incurred under the Mortgages. He submitted to the Court an Annex III to the Plaintiffs’ Skeleton Submissions, which I shall reproduce and attach to this Judgment.

91.  As to those items relating to the Defendant’s proposed refinancing of the Mortgages (e.g. the first few items at the beginning of the second Invoice 100006437 dated 1 September 2021, the Defendant argued[35] that they were for the fees incurred (1) in relation to the debt (specifically the repayment of the debt by the Plaintiffs), (2) on the specific and repeated requests of the Plaintiffs for term sheets which the Plaintiffs knew (and the Defendant’s representative had said so) that the Defendant would need the input of Ashurst Hong Kong and (3) given the representations made by the Plaintiffs’ representative, having seen and presented the term sheet sent on 29 July 2021 with liability to pay for all expenses to the Tang family, that the Tang family “basically sign off” the same, the Plaintiffs are estopped (by representation, convention, alternatively as a promissory estoppel) from setting up a position in these proceedings that is at variance with the representation/common premise, see Re Chung Winston (a debtor) [2013] 2 HKLRD 649, §87; First Laser Ltd v Fujian Enterprises (Holdings) Co Ltd (2012) 15 HKCFAR 569, §79.

92.  I agree with Mr Dawes that these arguments do not get off the ground. As submitted by Mr Dawes:

(1)  Those items are fees incurred in relation to the proposed refinancing (which did not materialise) rather than in relation to the Mortgages. See paragraphs 13-14 and Footnote 1 above. Such costs are not recoverable.

(2)  The Defendant relies on the requests made by the Plaintiffs. But the fact that the Plaintiffs had made the requests for term sheets is neither here nor there. The point is that the Defendant voluntarily agreed to entertain those requests in its capacity as the potential “new lender” who would provide re-financing (rather than qua mortgagee).

(3)  The Defendant relies on the new argument of estoppel. However, the argument simply cannot get off the ground due to the lack of “sufficiently certain” contents of the alleged "common assumption", First Laser at §79(5). Putting the Defendant's case at its highest, there was at best an assumption that the Tang family might sign the term sheets in the following week(s); there was no promise or certainty that they would do so. In those circumstances, there is no basis to hold the Plaintiffs liable for the fees and expenses the Defendant unilaterally and prematurely decided to incur.

93.  For the above reason, I hold the Plaintiffs’ criticisms of the first two invoices of Ashurst Hong Kong as contained in Annex III to be justified and would adopt its contents as my finding. Accordingly, the total amount that I find to be payable by the Plaintiffs to the Defendant for the legal fees of Ashurst Hong Kong is US$105,350.28 (about HK$821,732.18).

D4.  “Fonto asset disposal consultancy fee” of HK$12,495,000

94.  Apart from the “break funding fees” of HK$26,400,000 which has now been abandoned by the Defendant, this “asset disposal consultancy fee” of HK$12,495,000 charged by Fonto Holdings Limited (“Fonto”) is the most substantial cost claimed by the Defendant.

95.  According to the Consultancy Services Agreement, Fonto was engaged by the Defendant on 23 June 2021, which was the same day when the Notices of Assignment of the Mortgages were issued. One of the major product of the engagement was a report prepared by Fonto entitled “Suitability and Feasibility Study on the potential loan acquisition pertaining to the Two Industrial Premises in To Kwa Wan and Kwai Chung” (the “Fonto Report”). The title of the Fonto Report appeared to be an exercise done for the acquisition of the Mortgages. Hence it should have nothing to do with the enforcement of the Mortgages. It was dated July 2021, without specifying the date.

96.  It is telling to read the purpose of the Fonto Report:

“The purpose of this report is to analyze the available exit options for [the Defendant] having purchased the debt from [the Bank]. To deduce the best option for realizing the value of the debt, the options are then further considered in terms of time required (duration), risks, and level of difficulty/realizability (feasibility). This report aims to provide guidance in selecting the best option for the interest of [the Defendant]. [36]”

97.  4 available options were then identified by Fonto[37], namely (1) sale of the Mortgaged Properties, (2) redevelopment of the two buildings by acquiring the remaining ownership or to sell the portion owned by the Defendant to another party with the intention for redevelopment, (3) to provide refinancing or restructuring of the debtor companies, i.e. the Plaintiffs and (4) to sell the mortgage loan. The Fonto Report then set out the process and preparation of each option and discuss and compare the feasibility and suitability of the 4 options.

98.  It looks apparent to me that the Fonto Report is a piece of advice on business strategy. It is not related to the Mortgages or their enforcement.

99.  The Fonto Report is Fonto’s only work product shown to the Court. There is no evidence produced by the Defendant showing other works done by Fonto.

100.  I therefore do not agree with the Defendant’s suggestion that[38] that Fonto was engaged for its advice on enforcement of the Mortgages. Ms Sit for the Defendant referred[39] me to the Consultant Services Agreement with Fonto, Recital F (that “The Company wishes to engage the Consultant to provide asset advisory services in all the matters of in connection with Loans and the Properties to the Company on the terms and conditions of this Agreement.”). This recital obviously did not limit itself to enforcement of the Mortgages. As submitted by Mr Dawes, it is unreasonable for the Defendant to claim the very substantial Fonto’s fees in the guise of the Mortgages when these fees were incurred for the purpose of exploring alternatives other than direct enforcement (i.e. “the exit options”). The Defendant was looking beyond the Mortgages rather than seeking to enforce the same.

101.  Ms Sit further submitted that the engagement of an adviser with the necessary expertise was reasonable and necessary because firstly, the Defendant came into the debt and Mortgaged Properties with no prior understanding of the same, in circumstances where it was known that even the Bank had not managed to recover its debt for over a year notwithstanding that it was holding a first mortgage. The reasonable inference was that there must be complexities surrounding the enforcement and realization of the debt and Mortgaged Properties. The Defendant lumps in two matters in this argument: (1) its inexperience and (2) the difficulty of enforcement inferred from the Bank’s previous non-enforcement. I do not consider the first thing is relevant. The test is whether the cost incurred is in relation to the enforcement of the Mortgages. Whilst inexperience may justify engagement of business consultant, it cannot justify billing the Plaintiffs for the costs of the business advice which is not related to the enforcement of the Mortgages. On the second matter, i.e. the difficulty of enforcement, I have explained my disagreement with this argument, see paragraph 66(1) above.

102.  The Defendant’s emphasis of the services of Fonto to identify and introduce potential refinanciers who would be interested in and have the means to acquire the debt from the Defendant[40] show even more clearly that the work nature of Fonto concerned doing business (to find a re-financier in the market) and not of enforcement of the Mortgages.

103.  The Defendant further submitted that the question that should be asked is whether in exploring re-financing or other alternative, on the specific circumstances of this case, the Defendant acted unreasonably in doing so[41]. I do not agree that this is a correct question to be asked. The primal question is the nature of the costs incurred. If the costs incurred are not related to the enforcement of the Mortgages, whether such costs are reasonably incurred is neither here nor there. As explained above, I have found that finding a re-financier concerned doing business and not of the enforcement of the Mortgages.

104.  I therefore conclude that the engagement of Fonto, including the preparation of the Fonto Report, was not related to the enforcement of the Mortgages. I would disallow the costs under this item in whole.

105.  If I am held to be wrong, that Fonto were engaged in relation to the enforcement of the Mortgages, I agree with Mr Dawes that the amount of HK$12,495,000 charged by Fonto is wholly excessive and unreasonable.

106.  As submitted by Mr Dawes, VCAL quoted HK$150,000 and HK$180,000 respectively for a similar feasibility study report on each of the two buildings of the Mortgaged Properties. The aggregate of these quotations, i.e. HK$330,000, represents only 2.64% of Fonto's fees. The Defendant seeks to explain the difference between the quotations given by VCAL and Fonto by reference to the different scope of services. However, that only begs the question of how and why the more elaborate range of services was reasonably required for D's performance of its duties as mortgagee under the Mortgages. As I explained above, no justification is demonstrated. Even if such justification were shown, according to the revised quotation sought by the Plaintiffs from VCAL on the basis of the exact same scope of services as that charged by Fonto, the revised quotation came to HK$880,000, which was still substantially lower than Fonto's fees.

107.  As a fact, I also find it, to say the least, strange that out of such a vast sum of HK$12,495,000 charged by Fonto, only HK$350,000 has been paid by the Defendant, leaving HK$12,145,000 outstanding for more than a year[42].

108.  For the above reasons, if I am held to be wrong, and the Defendant’s engagement of Fonto is found to be related to the enforcement of the Mortgages, I would adopt the quotation of VCAL and hold that only HK$330,000 should be allowed to be payable by the Plaintiffs under this item of costs.

E.  CONCLUSION AND DISPOSAL

109.  I have found in the above that the interest on the principal of the mortgage loans should be calculated up to 15 September 2021, the date of the Plaintiffs’ payment into court, i.e. 4,045,850.76.

110.  On the Defendant’s costs and expenses, I allow the following items to be paid by the Plaintiffs:

	Item	Amount (HK$)
3a.	Default administrative charge	45,000.00
3c.	Legal fees   Ashurst - US$105,350.28 (~HK$821,732.18)	821,732.18
3d.	Receivers’ fees   HK$828,000   US$128,930.96 (~HK$1,005, 661.49)	1,833,661.49
3f.	Disbursements	160,000.00

111.  I agree with the Defendant that according to Clause 20.01 of the Mortgages (referred to in paragraph 82 above), it is entitled to interest on the above costs, charges and expenses that the Court has allowed from the respective dates on which they were incurred.

112.  I therefore further direct the parties to work out and attempt to agree with best endeavour with each other and submit to the Court within 14 days from the date of this Judgment (a) interest on the above costs, charges and expenses that the Court has allowed from the respective dates on which they were incurred and (b) the total final redemption amount calculated pursuant to the above findings. If these figures cannot be agreed, either party shall have the liberty to apply to the Court for adjudication.

113.  I further direct that within 14 days after the final redemption amount has been agreed by the parties and submitted to the Court, or failing which has been determined by the Court, the parties shall attempt to agree with best endeavour and submit to the Court a draft order (except on the question of costs, which shall be dealt with in accordance with the direction made in the following paragraph) based on the determinations in this Judgment, which shall include an order of payment out of court of the balance of the fund remaining in Court that was paid by the Plaintiffs into Court on 15 September 2021, after the payment out of Court pursuant to the Consent Order dated 7 September 2022. If the draft order cannot be agreed, either party shall have the liberty to apply to the Court for adjudication.

114.  On the question of costs, since I have held the Plaintiffs’ tender to be invalid but disallowed a number of items of costs, charges and expenses claimed by the Defendant, it would be fair for me to ask the parties to make written submissions on costs in light of (1) this Judgment and (2) the resultant figures (particularly the final redemption amount) for determination on paper. I therefore direct the Plaintiffs and the Defendant to file and serve their respective written submissions within 14 days after the date of the final redemption amount has been agreed by the parties and submitted to the Court, or otherwise has been determined by the Court.

115.  Lastly, I express my gratitude towards counsel for both parties for their able assistance.

Annexures