CREDIT SUISSE AG, HONG KONG BRANCH v. MAN TIN CHOW

HCA 2294/2016

[2018] HKCFI 1671

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2294 OF 2016

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J U D G M E N T

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Introduction

1.  On 20 November 2017, Master Simon Kwang ordered summary judgment be entered in favour of the Plaintiff (“Bank”) against the Defendant in the sum of HK$65,420,178 together with interest.  This is the Defendant’s appeal against the Order of Master Kwang.

Background Facts

2.  The Bank’s claim is essentially for the recovery of a debt due and owing by the Defendant.

3.  The relationship between the parties began in about December 2012 when the Defendant opened an account (“Account”) with the Bank in Hong Kong.

4.  By a facility letter dated 24 April 2015 (“Facility Letter”), the Bank made available to the Defendant credit facilities of up to US$30 million. The Facility Letter incorporated the terms of (1) the Account Opening Terms and Conditions (“Account Terms and Conditions”) and (2) the Standard Facility Terms and Conditions (“Facility Terms and Conditions”), as amended and supplemented from time to time (collectively “Facility Documents”). The Facility Letter was signed by the Defendant and since then, the Defendant has from time to time utilised the facilities. By a Notification of Amendment of Interest Rate dated 7 July 2016 (“Notification”), the Bank notified the Defendant of the amended interest rate applicable to the facilities. The Notification was also signed by the Defendant.

5.  Since about February 2016, there had been a continuous shortfall in the Account when the Aggregate Collateral Value of the Security had fallen below the Bank’s Exposure Level, as defined in the Account Terms and Conditions. By a letter dated 26 February 2016 (“February Top-Up Notice”), pursuant to express terms in the Facility Documents, the Bank required the Defendant to deposit into the Account cash, cash equivalent or other marketable securities in the sum of US$694,000 (“1^st Top Up Amount”). The Defendant has failed to comply with the Bank’s request in the said notice.

6.  By a letter dated 28 July 2016 (“July Top‑Up Notice”), pursuant to express terms in the Facility Documents, the Bank required the Defendant to deposit into the Account cash, cash‑equivalent or other marketable securities in the sum of US$9,717,000 (“2^nd Top‑Up Amount”) by 5 pm on 29 July 2016.  In the July Top‑Up Notice, the Bank warned the Defendant that failure to do so might result in withdrawal of the facilities or a declaration of an Event of Default.  The Bank also reserved its rights to close out the Defendant’s trade positions with it and to liquidate and realise all the Charged Assets at prevailing market prices without further notice.

7.  By a letter dated 29 July 2016 (“Close‑Out Notice”), the Bank notified the Defendant that it was entitled, under the express terms of the Facility Documents, to close out his trade positions, to realise the Security without further reference to him and to liquidate the Charged Assets at the earliest practicable opportunity as it deemed appropriate.

8.  On 29 July and 1 August 2016, the Bank liquidated the securities in the Account in partial set‑off the Defendant’s indebtedness to the Bank.  The proceeds of sale amounted to HK$30,504,774.65, which was far from enough to cover the shortfall in the Account.  By a letter dated 4 August 2016 to the Defendant, the Bank’s solicitors demanded repayment of the outstanding principal and interest of US$7,916,375.10 together with all fees, costs and expenses etc owed by the Defendant under the Facility Letter.  The amount claimed was expressly stated to be the outstanding balance after the Bank’s liquidation of the securities in the Account.

9.  Upon the Defendant’s failure to meet the said demand, on 5 September 2016, the Bank issued the writ of summons herein.

Deliberation

10.  It is trite law that an appeal from a Master to a Judge is by way of actual re‑hearing of the application and the Judge treats the matter as though it came before him for the first time: Killenny Limited & Ors v AG unrep; CACV 157 of 1995, 20 October 1995 at p 8 (per Litton VP, as he then was).  The Judge will give the weight it deserves to the decision of the Master but he is in no way bound by it: Hong Kong Civil Procedure 2018 Vol 1 para 58/1/2.

11.  It is also trite law that in a RHC O 14 application, the defendant bears the burden of satisfying the Court, in respect of the claim or part of the claim, that there is an issue or question in dispute which ought to be tried or that there ought for some other reason to be a trial of that claim or part.  If the defendant fails to do so, the court may give judgment for the plaintiff.

12.  In Re Safe Rich Industries Ltd unrep; CACV 81 of 1994, 3 November 1994 at [13], Bokhary JA (as he then was) observed that:

“ The test at the summary stage is indeed as simple as whether the Defendant’s assertions are believable. But it must be recognized — because failure to recognize it would create a debt‑dodger’s charter — that whether the defendant’s assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as is either undisputed or beyond reasonable dispute.”

13.  Similarly, In Paul Y Management Ltd v Eternal Unity Development Ltd & Ors unrep; CACV 16 of 2008, 12 August 2008, at [19] Cheung JA observed:

“ … In considering whether there are triable issues the Court will, of course, not take the alleged defence on its face value but test it against the evidence disclosed in the affidavit including matters such as contemporaneous documents, whether the alleged defence is inconsistent with the defence previously put forward or whether the defence is only recently raised despite opportunity being given to the defendant to respond earlier. The Court will also consider the inherent probability of the defence.”

14.  Lastly, a defendant is required to “condescend upon particulars” in his affidavit and state clearly what the defence is and what facts are relied on to support it.  A mere general denial by the defendant that he is indebted will not suffice: Hong Kong Civil Procedure 2018 Vol 1 para 14/4/4.

15.  With the above principles in mind, this court now turns to the Defence and the affirmation in opposition.

16.  In the 3‑page Defence filed on 25 January 2017, it was pleaded that:

(1)  The Defendant had received education up to Form 1 high school level at a village school in Hong Kong with limited ability to read and understand other than simple English and the Bank did not explain the terms of the Facility Documents or provide any Chinese translation to him: paragraphs 4(a) and (b).

(2)  Without any prior notification to or authorization from the Defendant, the Bank unilaterally liquidated his portfolio resulting in substantial losses of his assets: paragraph 5.

(3)  The Defendant has issued a writ of summons in HCA 2272 of 2016 (“HCA 2272”) against the Bank: paragraph 7.

(4)  The Defendant denied being in breach of the Facility Documents: paragraph 8.

17.  The Defendant’s main affirmation in opposition does not take the matter much further.  All that the Defendant added was:

(1)  a summary of his causes of action in HCA 2272 against the Bank ie

i.  no intention to enter into the facilities agreements, alternatively, non est factum;

ii.  misrepresentation;

iii.  unconscionable contract;

iv.  exemption clauses not enforceable under the Control of Exemption Clauses Ordinance;

v.  breach of implied terms;

vi.  breach of duty of care;

(2)  a denial of having received the July Top‑Up Notice;

(3)  an allegation that if he had been informed of the close out time, he could have obtained funds to cover any shortfall so that the Bank would have had no right to close out the Account;

(4)  an allegation that the Bank should be liable for wrongful disposal of his securities.

18.  In this court’s view, none of the matters raised by the Defendant in opposition to the Bank’s claim constitutes a triable issue or a sufficient reason for the claim to go to trial.  The reasons are as follows.

Inability to understand English/the Facility Documents

19.  If the Defendant is seeking to disavow the Facility Documents, the short answer can be found in two Court of Final Appeal authorities.

20.  First, in Ming Shiu Chung & Ors v Ming Shiu Sum & Ors (2006) 9 HKCFAR 334 at [84], Ribeiro PJ stated:

“ … Reliance is universally placed on signatures appended to documents by persons of full age and understanding as signifying the signatory’s assent or adherence to what that document states. Where such a person has signed a document which purports to have legal effect, the law has never regarded it as enough to show that he signed without knowing its contents for the document to be disavowed. It is an everyday occurrence that people sign documents without reading the small (or even the large) print and therefore sign without actually knowing the terms (or all the terms) of the document signed. But they are held to the documents which they have chosen to sign unless there is shown to be a recognized legal basis for concluding that their apparent consent has been in some way vitiated or that reliance on that document by some other person falls into some category of unconscionable conduct justifying relief in equity.”

21.  Second, in Bank of China (Hong Kong) Ltd v Fung Chin Kan & Another (2002) 5 HKCFAR 515 at [51], Litton NPJ acknowledged:

“ … the fundamental principle that, generally speaking, when a person signs a legal document, he or she is bound by the act of signature: As a matter of general law, it is no defence to say that he or she did not understand the contents of a legal document; that person takes the chance of being bound by its terms, as he or she can take the simple precaution of not signing until its contents have been fully explained and understood.”

22.  The Defendant cannot rely on non est factum as the “recognised legal basis” to vitiate the Facilities Documents by reason of his lack of understanding of the English language.  This is because in order to invoke the doctrine, the person who signed the document must prove that he has taken all reasonable precautions in the circumstances.  There is no evidence at all as to what precautions, reasonable or otherwise, the Defendant had taken before he signed the Facility Letter.  The plea cannot be available to anyone who is content to sign without taking the trouble to try to find out at least the general effect of the document: Saunders v Anglia Building Society [1971] AC 1004 at 1016 per Lord Reid.

Bank’s unilateral liquidation of securities

23.  In relation to this complaint, this court accepts Ms Cheng’s submissions at Section D1 of her written submissions.

24.  First, the Defendant has not adduced any evidence to substantiate the bare assertion that he could have obtained funds to cover the shortfall on 29 July 2016.  Rather, the assertion is contradicted by the fact that there had been a shortfall in the Account since February 2016 which he was unable to rectify and by contemporaneous telephone record that in a phone conversation at round 3 pm on 29 July 2016, the Defendant told the Bank’s staff that he was unable to do anything further about the shortfall.  

25.  Second, on the evidence, the Defendant had been notified repeatedly by the Bank’s staff of the Bank’s intention to close out his trade positions on 29 July 2016.  In addition to the July Top‑Up Notice and the Close‑Out Notice, the Bank’s staff had on various occasions in July 2016 reminded the Defendant about the shortfall and the Bank’s intention to close out, as shown by various contemporaneous telephone records.

26.  Third, in terms of contractual rights, under Clause 9 of the Facility Letter, Clause 11.1(ii) of the Facility Terms and Conditions and Clause 13 of the Memorandum of Charge on Assets, the Bank was entitled to liquidate the Defendant’s securities, whether or not it had notified the Defendant of its intention to do so.

27.  Fourth, the reference to a marketing brochure of the Bank viz the Lombard Loan Brochure and the Unconscionable Contracts Ordinance (“UCO”) Cap 458 in paragraphs 10 to 18 of Mr Poon’s skeleton submissions do not assist the Defendant at all.  The Lombard Loan Brochure is merely marketing material rather than a contractual document and its terms have not been incorporated into the Facilities Letter.  Further, the UCO was not pleaded in the Defence and importantly Mr Poon has not identified which terms of the Facility Documents were contrary to the UCO or the reasons why that was so.  All that Mr Poon said at paragraph 16 of his skeleton submissions is this:

“  Another issue of general public importance arise:- if a bank seeks to enforce a standard term which is entirely different from its promotional material, should such provisions be void and unenforceable under the Unconscionable Contracts Ordinance (Cap.458) (“UCO”)?”

28.  The reference to “issue of general public importance” is curious and irrelevant.  What is relevant for the present purpose is that the Defendant has failed to raise a triable issue, important or otherwise, based on UCO.

HCA 2272

29.  For reasons set out in Section D2 of Ms Cheng’s skeleton submissions which this court accepts, the Defendant’s reliance on the existence of his separate action against the Bank in HCA 2272 is equally misconceived.

30.  First, in HCA 2272, the Defendant seeks inter alia a declaration that certain documents are void or invalid or have been rescinded.  The Facility Letter is not among those documents.

31.  Second, if any of the causes of action raised by the Defendant in HCA 2272 are relied upon as showing a triable issue in the present action, they should have been pleaded, whether as a defence of set off, a counterclaim or otherwise, and adduced in evidence in the present action.  This was not done.  As stated in paragraphs 16 and 17 above, all that the Defendant had done was referring to the existence of HCA 2272 and giving a brief summary of his alleged causes of action.  In line with the well‑established principles applicable to RHC O 14 applications, it cannot possibly be suggested that the mere existence of a separate action involving the same parties is sufficient to give the Defendant leave to defend.

Forbearance/Some other reason for trial

32.  Lastly, this court has considered Mr Poon’s skeleton submissions in which he alluded to the Bank having made a “representation of forbearance” and there being “some other reason for trial”.  Suffice it to say there is no evidential or legal foundation in support of those submissions. In this court's view, those submissions are wholly devoid of merits and should be rejected outright.

Conclusion

33.  To conclude, this is a straightforward case of debt recovery.  The Defendant has failed to raise any triable issue or provide any reason why the Bank’s claim against him should go to trial.

Disposition and costs order nisi

34.  The Defendant’s appeal is hereby dismissed with costs to be taxed if not agreed on full indemnity basis and paid forthwith, with certificate for counsel.