Standard Chartered Bank (Hong Kong) Ltd v. Wonggenos Enterprises Co Ltd and Others
Read the full judgment text of DCMP 878/2018 on BabelCite. This District Court judgment was delivered on 28 October 2019.
1. This is a mortgage action brought by the plaintiff, a licensed bank, under Order 88 of the Rules of the District Court. The mortgage in question was executed by the 1 st defendant and dated 9 March 2007 in respect of Flat C, 25 th Floor, St Louis Mansion, No 20 MacDonnell Road, Hong Kong (“the Property”). The amount advanced under the mortgage loan was $2,112,500.
Cited by 1 case · Cites 6 cases
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DCMP 878/2018 [2019] HKDC 1466 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION MISCELLANEOUS PROCEEDINGS NO 878 OF 2018 -------------------------
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--------------------- JUDGMENT ---------------------- Introduction 1.This is a mortgage action brought by the plaintiff, a licensed bank, under Order 88 of the Rules of the District Court. The mortgage in question was executed by the 1st defendant and dated 9 March 2007 in respect of Flat C, 25th Floor, St Louis Mansion, No 20 MacDonnell Road, Hong Kong (“the Property”). The amount advanced under the mortgage loan was $2,112,500. 2.The 1st defendant is a limited company in Hong Kong. The 2nd defendant is its sole director and shareholder. The 2nd defendant executed a guarantee dated 8 March 2007 in favour of the plaintiff in respect of moneys and other liabilities owing by the 1st defendant to the plaintiff, subject to a cap on the principal sum. 3.The 2nd and 3rd defendants are daughter and father. They, together with the 1st defendant, were parties to the High Court action numbered HCA 899/2012. In that action, the 3rd defendant claimed against the 1st and 2nd defendants, alleging that the proceeds of sale of two properties, also located at MacDonnell Road, and the Property are held on constructive trust by the 1st defendant and/or the 2nd defendant for him. After trial, the court found in the 3rd defendant’s favour. Judgment was handed down by Recorder Lisa K Y Wong SC (as she then was) on 30 September 2016 (“the Judgment”). It was registered at the Land Registry on 13 October 2016. 4.Relevantly for present purposes, it was held that the Property was held by the 1st defendant on constructive trust for the 3rd defendant. This was based on the finding that the money (in the form of down payment) used to purchase the Property was subject to constructive trusts held by the 1st defendant and/or the 2nd defendant for the 3rd defendant. See the recount of the parties’ cases in this regard in paras 43 to 52 and the ruling in paras 94 and 95 of the Judgment. 5.The plaintiff now says that when the mortgage was executed, there was no publicly available information showing that the Property was not beneficially owned by the 1st defendant. It was not aware of the High Court action and only learnt of it when the 1st and 2nd defendants filed their opposing affirmations in the present action in May 2018. 6.The plaintiff’s case here is that the 1st defendant has failed to make the instalment payment since December 2017. Notwithstanding demand letters sent on 1 March 2018, the 1st and 2nd defendants have to date failed to pay the sums due under the mortgage and the guarantee respectively. 7.Accordingly, the plaintiff claims payment by the 1st defendant of all sums due under the mortgage, payment by the 2nd defendant of all sums due under the guarantee, vacant possession of the Property and declarations to the effect that the plaintiff’s legal interest in the Property has priority over and ranks ahead of the 3rd defendant’s equitable interest. Procedural history 8.The plaintiff commenced the present action by originating summons on 23 March 2018. At that time, the claim was made against the 1st and 2nd defendants only, for payment and vacant possession. 9.After discovery of the High Court action, the plaintiff applied to join the 3rd defendant as a party and to amend the originating summons seeking declaratory relief against him. Leave was granted on 3 December 2018. 10.In this action, the 1st and 2nd defendants acted in person. They filed affirmations opposing the plaintiff’s claim in May 2018 and January 2019. 11.The 3rd defendant is legally aided. While he indicated that he intended to contest the proceedings when he lodged his acknowledgment of service, he made clear in his affirmation filed in January 2019 that he does not oppose the reliefs sought in the amended originating summons, save the issue of costs. 12.The plaintiff now claims an outstanding sum of $883,340.02 (as at the date of the demand letter) together with interest. The rateable value of the Property in the year of 2018/2019 was $173,640. I am therefore satisfied that the present claim falls within the jurisdiction of the District Court under sections 32 and 35 of the District Court Ordinance. 13.I am also satisfied that the requirements set out in Order 88, rule 5 concerning the plaintiff’s supporting affidavits are complied with. The claim and the defence 14.The plaintiff’s claim is a straightforward claim by a mortgagee to seek redress upon default by the mortgagor and its guarantor. The mortgage incorporated “The Mortgage Conditions (Two-party Version) (2003 Edition)”. 15.As the 1st defendant has failed to make the instalment payment since December 2017, the outstanding principal became immediately due and payable pursuant to the terms of the mortgage. 16.As set out in the affirmation in support, the plaintiff claims that the following sums are due from the 1st defendant under the terms of the mortgage:-
17.The plaintiff further claims that under the terms of the guarantee, the 2nd defendant is liable to pay to the plaintiff money owed by the 1st defendant to the plaintiff, subject to the pre-set cap. 18.Furthermore, pursuant to the terms of the mortgage, the plaintiff seeks delivery of vacant possession of the Property. To the best of the plaintiff’s knowledge, it has not been let out and the 1st defendant is in possession and control. The 2nd defendant confirmed at today’s hearing that she resides at the Property. 19.As confirmed in his affirmation, the 3rd defendant has no objection to the above reliefs sought against the 1st and 2nd defendants. In addition, he has no objection to the declaratory reliefs sought by the plaintiff against him. 20.In the High Court action, it was ordered, amongst others, that the 1st defendant do transfer the Property to the 3rd defendant. To date, the 1st defendant has not complied with that order. The 3rd defendant took out an application seeking an order that the 1st defendant do execute an assignment of the Property to him absolutely within 28 days. On 27 June 2018, the application came before Lisa Wong J. In light of the present action, that application was adjourned sine die. See paras 4 to 7 of the decision at [2018] HKCFI 1482. 21.The 3rd defendant’s present position is this. In the event of a sale of the Property, which is currently valued at about $8.6 million, any net sale proceeds after deduction of expenses and indebtedness owed to the plaintiff should be paid into court, instead of being handed over to the 1st defendant. 22.The plaintiff confirms that it has no objection to this. Defence of the 1st and 2nd defendants 23.As revealed in their opposing affirmations and in their written submissions, the 1st and 2nd defendants’ defence is, in essence, that the judge had reached the wrong decision in the High Court action and they are in the process of seeking an appeal from the decision. For that reason, the present action should “be set aside until the Court of Appeal has a hearing” or, alternatively, it should be transferred to the High Court “to be dealt with all in one”. In her latest affirmation filed in January 2019, the 2nd defendant goes further and asks this court to declare that the 1st and 2nd defendants are the beneficial owner of the Property. 24.In her oral submissions this morning, the 2nd defendant argued that the 1st defendant was in fact not in default under the mortgage. In a normal situation, the 1st defendant would be considered as being in default when it stopped servicing the mortgage repayments. However, here, it is now ruled that the 1st defendant has no interest in the Property, but only holds its title. The 1st and 2nd defendants therefore had to make the difficult choice of halting mortgage repayments, given that the 1st defendant no longer owns the property and therefore has no further role insofar as the mortgage is concerned. As such, the 1st and 2nd defendants, they contend, are not in default. Discussion 25.The defence put forward by the 1st and 2nd defendants has no merit. 26.The following chronology relating to the High Court action is relevant:-
27.It is plain and clear that as regards the dispute over the Property between the 1st and 2nd defendants on the one hand and the 3rd defendant on the other, it has been disposed of in the High Court action. 28.The Court of Appeal has refused to extend time for the 1st and 2nd defendants to lodge an appeal. This means that there will not be a substantive appeal hearing of the Judgment. 29.As things presently stand, the Judgment is binding on the 1st, 2nd and 3rd defendants. On the materials before me, there does not appear to be any room for it to be set aside either at the first instance level or at the Court of Appeal. There is also no reason why the present action should be transferred to the High Court, so that it can be dealt with together with the High Court action. There is no outstanding matter there save for the enforcement of the judge’s ruling. 30.In sum, as things stand, the 3rd defendant is the beneficial owner of the Property. And he does not oppose to the reliefs sought by the plaintiff in this action. 31.However, even taking the 1st and 2nd defendants’ case at its theoretical highest, and assuming that the Judgment can be overturned, that does not assist the 1st and 2nd defendants in any way to resist the plaintiff’s present mortgage action. Even if the 1st defendant owns the Property beneficially, the 1st and 2nd defendants have not attempted to dispute the validity of the mortgage and the guarantee, the fact that there has been a default and that sums remain outstanding and owing and due by the 1st and 2nd defendants, and the legal entitlement of the plaintiff in such event. All these have been proved by the affirmation evidence put forward by the plaintiff. 32.Lastly, the contention that the 1st and 2nd defendants are not in default is also without merit. From the perspective of the plaintiff, notwithstanding the High Court ruling, the 1st defendant remains the borrower of the mortgage loan and the 2nd defendant the guarantor of the loan. This contractual relationship, as agreed by the parties in the mortgage documents, is not altered by the High Court ruling that the 3rd defendant is in fact the beneficial owner of the Property all along. 33.The obligation to pay on the part of the 1st and 2nd defendants remains binding. Hence, they are in default. 34.In the circumstances, the plaintiff is entitled to the reliefs as sought pursuant to the terms of the mortgage and the guarantee. 35.The plaintiff proposes that vacant possession be delivered within 28 days. The 1st and 2nd defendants ask for around three months to do so, because there may be room for them to discuss with the plaintiff regarding the repayments and the 2nd defendant also mentioned that she would have to deal with the year-end audit of her own business. 36.The period of 28 days is fairly standard. Given that the Property is a residential flat at the Mid-Levels, it is a reasonable period. The 1st and 2nd defendants have not put forward any good reason for a lengthier period. If they wish to make any alternative arrangement with the bank, it is open to them to do so expeditiously within the period. Order 37.For the above reasons, I make the following orders:-
38.That is based on the undertaking that in the event the plaintiff exercises its power of sale, insofar as there will be any net sale proceeds after the sale of the Property and payment of the outstanding indebtedness and expenses owed by the 1st and 2nd defendants to the plaintiff, the plaintiff do pay into court the net sale proceeds of the Property. Costs 39.As for costs, the starting point here is, as always, that costs should follow the event. 40.In respect of the plaintiff’s costs incurred as against the 1st and 2nd defendants, the position is straightforward. The plaintiff should have its costs. 41.As regards the basis for taxation or assessment, the mortgage does not expressly provide that the plaintiff’s legal costs be granted on an indemnity basis whereas the guarantee does. It is in theory possible to award the plaintiff costs against the 1st and 2nd defendants on a party and party basis and on an indemnity basis, respectively. However, taking an overall and pragmatic view of the matter, the present action being a composite action against the defendants and a substantive part of the relief being vacant possession against the 1st defendant, I would award the costs on a party and party basis. 42.In respect of the plaintiff’s costs incurred as against the 3rd defendant, the latter’s position is that no order should be made on these costs as he is not the wrongdoer here and if anything he is as much a victim as the plaintiff. 43.In my view, one (again) needs to take an overall and practical approach on the issue of costs. The plaintiff commenced the present mortgage action to recover the debts owed by the 1st and 2nd defendants and enforce its security rights against the Property. When the mortgage was executed in 2007, the plaintiff was not aware of the 3rd defendant’s right in it. On the other hand, it was the 3rd defendant’s case in the High Court action that the 2nd defendant acquired the Property in the 1st defendant’s name after consulting him and obtaining his agreement and he was apparently aware that a mortgage would be required to complete the purchase – see paras 43 and 50 of the Judgment. 44.While the High Court action was in progress, the plaintiff was in the dark about it and the 3rd defendant’s efforts to assert his right in the Property. 45.Upon learning of the ruling, the plaintiff took step to join the 3rd defendant as a party in the present action. It was clearly proper and reasonable for the plaintiff to do so in order to protect its interest in the Property. In the end, the plaintiff successfully obtains declarations that its rights rank prior to the 3rd defendant’s. 46.As between the plaintiff and the 3rd defendant, there is no reason why the plaintiff should not have its costs. After all, to secure its interest in the Property vis-à-vis the 3rd defendant is a necessary step to enforce its security interest in the circumstances of the present case. The 3rd defendant being its beneficial owner, I fail to see how he can escape the consequence of bearing such of the plaintiff’s costs. 47.For the above reasons, I order that the 1st, 2nd and 3rd defendants do pay to the plaintiff its costs of the action. I grant a certificate for counsel. 48.The 3rd defendant’s own costs be taxed in accordance with the Legal Aid Regulations. [Submissions on quantum of costs] 49.The plaintiff’s costs be summarily assessed in the sum of $160,000.
Mr Adrian Leung, instructed by Gallant, for the plaintiff The 1st defendant appeared in person and was represented by its director Ms Wong Po Ling, the 2nd defendant The 2nd defendant appeared in person Mr Paul HM Leung, instructed by Edmund Cheung & Co, assigned by the Director of Legal Aid, for the 3rd defendant | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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