Read the full judgment text of CACV 184/2017 on BabelCite. This Court of Appeal judgment was delivered on 19 March 2019 before Lam VP, Kwan JA, Chu JA.
Civil law – banking – loan agreements – conditional indulgence – summary judgment – appeal – Bank of China (Hong Kong) Limited sued Eddy Technology Company Limited (1st Defendant) and guarantors Tang Chi Hung (2nd Defendant) and Yeung Choi Hung (3rd Defendant) in respect of three loans, overdraft and time loan facilities – Plaintiff being successor of Sin Hua Bank Limited – $2.2 million property sale proceeds in 2004 applied to overdraft, time loan and partial repayment of one loan – Letter dated 11 June 2009 granting conditional and revocable indulgence with partial waiver of overdue interest, interest at prime rate, repayment of principal before interest, and quarterly instalments, with default clause at para 3 entitling Plaintiff to revoke and recalculate at default rates upon any default – Defendants countersigned the Letter – 1st Defendant paid instalments up to first quarter of 2014 and then defaulted – demand for $3,070,247.76 followed by writ – summary judgment by Master Ho for $3,070,247.76 plus interest and costs – appeal to judge dismissed – further appeal to Court of Appeal – whether default clause entitled Plaintiff to revert to original terms upon default – held yes, default clause clearly provided for revocation of all benefits upon any default in punctual payment of instalments – whether para 1(3) of the Letter constituted effective appropriation directions that survived revocation of conditional indulgence – held yes, the right of appropriation is conferred by law (Chitty on Contracts, 33rd Edn, paragraphs 21-061 to 21-069; Deeley v Lloyds Bank [1912] AC 756) and is not negated by the default clause – default clause only revoked the benefits under paras 1(1) and 1(2) (waiver of part of overdue interest and waiver of default rates from 13 May 2009) – Plaintiff was obliged to apply the post-Letter instalment payments to reduce principal first – after recalculation, parties agreed correct figure was $2,481,864.95, representing accrued interest up to 8 March 2019 with all principals repaid – whether the Letter was tainted by misrepresentation or unconscionable conduct – held no, allegations inherently incredible in light of Defendants' own proposals, correspondence acknowledging the outstanding balances, and the application of sale proceeds to other substantial debts which Defendants could not have failed to notice – whether charging of default interest upon revocation constituted a penalty – held no, default interest reflects credit risk (Cine Bes Filmcilik ve Yapimcilik AS v United International Pictures [2003] EWCA Civ 1669, approved in Cavendish Square Holding BV v Makdessi [2016] AC 1172; Lordsdale Finance plc v Bank of Zambia [1996] QB 752), and no evidence that default rates were extravagant or unconscionable – appeal allowed to limited extent of substituting the judgment sum with $2,481,864.95 – paragraphs (b) to (d) of Master Ho's interest order set aside – no pre-judgment interest on accrued interests, but substituted judgment sum to carry interest at judgment rate from date of judgment – Defendants awarded 50% of appeal costs (excluding fresh evidence application) – Plaintiff awarded costs of action and Order 14 application – each party to bear own costs of appeal to judge.
Legal issues: Effect of the default clause (para 3) of the Letter on the Plaintiff's right to revert to original loan terms · Whether para 1(3) of the Letter constituted effective directions on appropriation that survived revocation of the conditional indulgence · Whether the Letter was tainted by misrepresentation or unconscionable conduct · Whether the charging of default interest upon revocation of the conditional indulgence constituted a penalty
Outcome: Appeal allowed to the limited extent of substituting the judgment sum; judgment sum reduced from $3,070,247.76 to $2,481,864.95; Defendants' other grounds of appeal (including misrepresentation, unconscionability and penalty) dismissed.
Cited by 3 cases · Cites 1 case