Dah Sing Bank, Ltd v. Rich Star Investment Development Ltd and Others
Read the full judgment text of HCMP 1893/2016 on BabelCite. This High Court CFI judgment was delivered on 18 June 2020.
1. In this action, which has been commenced by Originating Summons issued on 25 July 2016, the plaintiff seeks a money judgement against the defendants on the basis of the 1 st defendant’s liability to the plaintiff for the sums of HK$3,127,197.40 and US$2,725,868.66, together with vacant possession of three properties which have been mortgaged to the plaintiff by the 2 nd defendant, the 4 th defendant and the 5 th defendant. In addition to the 3 mortgages there are also various cross guarantees
Cited by 1 case · Cites 2 cases
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HCMP 1893/2016 [2020] HKCFI 1251 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO 1893 OF 2016 ____________________
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_______________ J U D G M E N T _______________ 1.In this action, which has been commenced by Originating Summons issued on 25 July 2016, the plaintiff seeks a money judgement against the defendants on the basis of the 1st defendant’s liability to the plaintiff for the sums of HK$3,127,197.40 and US$2,725,868.66, together with vacant possession of three properties which have been mortgaged to the plaintiff by the 2nd defendant, the 4th defendant and the 5th defendant. In addition to the 3 mortgages there are also various cross guarantees between the various defendants and the plaintiff which cover the liability. 2.The amounts due and owing by the 1st defendant arise under general banking facilities offered by the plaintiff to the 1st and 2nd defendant in or around 2014. The banking facilities are governed by a General Agreement for Commercial Business dated 3 January 2014 for the 1st defendant and 30 December 2013 for the 2nd defendant. 3.In addition, by a facility letter dated 14 April 2014 the plaintiff provided various trade finance facilities to the 1st and 2nd defendants, including invoice financing, overdrafts, an instalment loan and treasury products, including one known as Participating Forward Contracts. This facility letter is one of 3 such letters entered into between the plaintiff and the 1st defendant. 4.According to the 2nd affirmation of Ho Yau Keung, the following amounts are due and owing by the 1st defendant as at 25 July 2017 under those facilities:
5.Those amounts are secured by a suite of security documentation relevantly including:
6.No guarantee appears to have been provided by the 5th defendant. However, the 5th defendant was a mortgagor of 6th Floor, 792 Cheung Sha Wan Road. The plaintiff claims against the 5th defendant for the same monetary judgment in respect of the 1st defendant’s liabilities. Any liability of the 5th defendant for the sums owed by the 1st defendant therefore arises under clause 1(a) of the mortgage, which provides a covenant that the mortgagor shall, on written demand, pay to the mortgagee all present and future indebtedness of the 1st defendant to the mortgagor. A written demand was made on 28 April 2016. 7.The facilities and the security documents are all admitted and there is no dispute as to their terms. However, the defendants run a myriad of defences.
8.In the light of the various defences the defendants contend that Originating Summons should be dismissed, or alternatively that the proceedings should be continued as if the matter had been begun by writ, there should be pleadings and the matter should proceed through to trial in the ordinary way. The defendants have taken out a summons dated 26 March 2018 for the provision of those directions. The procedural history of this summons is unfortunate. I do not recite it, because it is set out in a judgement of Deputy High Court Judge Leung dated 1 August 2019 arising out of a hearing of the defendants’ summons held on 29 August 2018. Suffice it to say that the Deputy High Court Judge ordered the “Originating summons to proceed to substantive argument, and the defendants summons under order 28 rule 8 to be considered pending and immediately after that”. 9.I shall proceed on the assumption that this effectively requires me to determine the originating summons in the knowledge that there is an application for the matter to proceed as if it were begun by writ. It is only if I am of the view that judgement should not be given on the originating summons, and that it should not be dismissed, that I need to determine the question of whether the proceedings should proceed as if commenced by writ. The parties have not addressed any arguments, other than on the substantive merits of the originating summons, directed to the question as to whether or not the matter should proceed as if begun by writ. It therefore appears to me that the parties accept that in the event that judgement should not be given on the originating summons, and it is not to be dismissed, then the matter should proceed with pleadings in the normal way. A. THE CORRECT APPROACH 10.The correct approach has been identified by Deputy High Court Judge Keith Yeung SC (as Yeung J then was) in DBS Bank (Hong Kong) Limited v Guanxiang (HK) Trading Limited and Others[2018] HKFCI 1392 at [47] to [48]:
B. THE WRONGFUL APPROPRIATION OF FUNDS 11.I am satisfied that the allegation that the plaintiff wrongfully applied funds to the USD overdraft rather than to the Invoice Financing and Instalment Loan does not give rise to a matter which should be taken to trial. 12.As a matter of principle the right of appropriation of payments to particular debts would lie with the party making payment, but if he makes no choice then the receiving party may elect as to which obligation should be treated as covered by the payment received. In this case the defendant did not identify any particular appropriation which should be adopted, and in those circumstances the choice as to which debts the payments should be appropriated to lies with the plaintiff bank. 13.I have looked in the General Agreement for Commercial Business and can find no term which specifically allows for the bank to make an appropriation. The closest that one gets is Clause 24 which states that “all credit balances… in our name may be appropriated by you at an exchange rate to be absolutely determined by you towards payment of any liability to you of whatever kind and irrespective of when the same may be due or maybe held by you as security for any contingent all future liability to you.” This clause does not specifically deal with payments being made to the bank, but would seem to indicate an overall intention consistent with the general proposition that I have indicated above, namely that the plaintiff is entitled to decide the appropriation. In those circumstances it seems to me that the Bank was entitled to appropriate the payment to whichever debts owed by the defendants that it considered appropriate. 14.The rationale for the complaint by the defendants is that they contend that the plaintiff knew that there were disputes in existence concerning the FXPF contracts which had given rise to the USD overdraft. Hence, according to the defendants the plaintiff should not have appropriated money to the repayment of the overdraft but should have appropriated it elsewhere, to areas where there was no dispute. No authority for the proposition that the plaintiff was under this obligation has been identified, and it seems to me that it is contrary to principle. 15.The plaintiff, on the other hand, says that the USD overdraft had a very high interest rate, and thus it was in fact in the interests of the defendants to appropriate any repayments to repayment of that overdraft. I have not been provided with any comparative analysis of the various charges or interest rates under the various accounts and am therefore unable to ascertain the validity of that submission. 16.However, notwithstanding my inability to test the submissions of the plaintiff in this respect I remain satisfied that as a matter of principle the plaintiff was entitled to appropriate the sums to whichever of the debts owed by the defendants it so chose. In the circumstances I do not think that this complaint gives rise to a triable issue. C. INVALIDITY OF THE THREE FXPF CONTRACTS 17.This is the issue which can probably be described as central to the defendants defence. C.1 Outside Hong Kong 18.The fact that the FXPF Contracts were entered into and signed by the defendants at a time when the signor was outside of Hong Kong does not render them null and void. 19.Neither does it support the proposition articulated by Mr Lui, to the effect that they have been entered into in breach of established industry practice and regulations of the Hong Kong Monetary Authority. The defendants have identified various guidelines from the Hong Kong Monetary authority in an email dated 26 August 2016, and although Mr Lui has not developed any defence based on those guidelines, I shall take that email as identifying the ones said to be breached. 20.Those guidelines generally referred to adequate supervision of frontline staff to ensure that appropriate sales means and control measures are taken, proper product due diligence is done and an appropriate sales procedure is adopted. It is not clear to me, even having read the detailed description as to the way in which the FXPF Contracts were signed as contained in paragraph 34 of the affirmation of Lin Rong Yi, how or why it is said that there has been a breach of those regulations. During the course of this hearing, the defendants have not developed this aspect of their defence at all. It is not sufficient simply to raise an assertion of a breach of this nature without identifying the particulars relied upon. Therefore I do not think that the defendants have raised a triable issue in this respect (even assuming that a breach of the regulations might give rise to a defence – which is an issue which is subject to considerable doubt, and about which some argument would inevitably be necessary). 21.Insofar as the allegation of a breach of industry practice is concerned, the defendants have not adduced any evidence of what is industry practice. All they seem to do is rely upon the case of Chang Pui Yin v Bank of Singapore Ltd [2017] 4 HKLRD in which certain contracts were signed by the plaintiffs in that case whilst they were overseas, and the Court of Appeal held that the contracts contained clauses which were not fair and reasonable causes for the purposes of the Unconscionable Contracts Ordinance and Control of Exemption Causes Ordinance (Cap 71). 22.I do not believe that case assists the defendants at all. It is a case which, on its facts, is very different from the facts of this case. Without undertaking a detailed analysis of the decision in that case, what the Court of Appeal effectively stated was that one should take into account all the circumstances in order to assess the appropriateness of various clauses for the purposes of assessing the applicability of the Unconscionable Contracts Ordinance and the Control of Exemption Causes Ordinance, and whether the circumstances would justify any holding that the clauses in question were void. 23.However the defendants have not even begun to identify why they fall within the protective provisions of the Unconscionable Contract Ordinance (in which one party needs to deal as a consumer), or why the Control of Exemption Causes Ordinance would be relevant either. On the face of the evidence the Defendants have not even begun to identify a triable issue on these points. 24.Consequently I take no further cognizance of the fact that the contracts were signed whilst the defendants were outside of Hong Kong. C.2 Duress and Unfair Contractual Terms 25.The duress which is alleged is difficult to understand. It seems to be suggested that the 2nd and 3rd FXPF Contracts were entered into at the urging of the plaintiff in order to compensate for the losses sustained in the 1st and 2nd FXPF contracts respectively. The defendants were never offered any opportunity to discuss or counteroffer on terms. 26.I do not recognise any of the normal requirements of the defence of duress as having been made out or even hinted at. In order to establish duress it is necessary to identify some form of illegitimate pressure or threat having been imposed upon the victim. Not all pressure is illegitimate. In ordinary commercial activity pressure, and even threats, are both commonplace and often perfectly proper. Even accepting the proposition by the defendants that there was pressure placed upon the defendants to enter into the 2nd and 3rd FXPF contracts nothing is suggested in the evidence to suggest that the pressure was illegitimate. 27.Further, the illegitimate threat or pressure must have some causal effect on the victim’s decision to enter into the contract. There is no sensible suggestion contained within the evidence that the defendants had no choice. Therefore I reject the proposition of duress as being even remotely arguable. 28.As to the unfair contractual terms, the defendants have not identified the particular terms which they consider to be unfair. It is not the job of this court to make up, or articulate the case of the defendants. If they wished to contend that particular terms are unfair then it was incumbent upon them to identify those terms, and to identify the way in which they were unfair. For this reason alone I reject this defence as arguable. 29.However even if particular terms had been identified is not clear to me why they could be said to render the contract void or voidable. The 1st defendant was not dealing as a consumer so the Unconscionable Contract Ordinance would not apply. And there is no explanation as to why the Control of Exemptions Clauses Ordinance would apply either. There is no substance in the points being made by the defendants. C.3 Excessive Risk Exposure 30.There is no substance in this point either, and it is really just a continuation of the proposition that the defendants now do not like the terms of the contracts that they entered into. I do not believe there is a triable issue in relation to this. D. EARLY TERMINATION CHARGES 31.The early termination charges arise under the 2nd and 3rd FXPF Contracts, which were terminated by the plaintiff on 24 December 2015 as a result of an event of default. The provision entitling the plaintiff to make an Early Termination Charge is contained in the Master Agreement for Foreign Exchange and Interest Rate Derivatives dated 28 November 2011 and signed by the 1st defendant on 23 January 2014. It provides, at clause 6(e),:
32.The defendants contend that the Early Termination Amount is a purely speculative estimation of the potential gain or loss which may occur in the future had the contracts not been prematurely terminated. They contend that the estimations are calculated in favour of the plaintiff and do not represent a reasonable pre-estimate of the loss purportedly suffered. They are, according to the defendants, contradicted by the plaintiff’s own genuine calculation of the mark-to-market loss. 33.The plaintiff says that the mark to market loss does not give a direct correlation of its loss, and the Early Termination Amount is actually the same amount as the plaintiff has been charged, having sold the early terminated contracts to the interbank market. 34.However, irrespective of that factual position, in my view the defendant had not begun to establish a proposition that the Early Termination Clause is voidable as being a penalty. At the time that the Master Agreement was drafted (in 2011) the law relating to penalties was generally considered to require a clause to provide for a genuine pre-estimate of damages in order to avoid being considered penal. However in 2015 the Supreme Court in the United Kingdom redefined the correct test in Cavendish Square Holdings BD v Tala El Makdessi [2015] UKSC 67 at [32] per Lords Neuberger and Sumption:
35.In this case, the defendants have not made any attempt to identify either that the Early Termination Amount cannot have been a genuine pre-estimate of the loss suffered by the plaintiff in the event of a breach of contract, or that the clause is a secondary obligation which imposes a detriment on the contract breaker out of all proportion to any legitimate interest of the plaintiff. All that is said is that it bears no relationship to the mark to market loss. But as the plaintiff’s evidence demonstrates, that is irrelevant. 36.In the circumstances I do not believe that the Early Termination dispute is a matter which ought properly to go to trial. E. THE INTEREST RATE DISPUTE 37.The General Agreement for Commercial Business at clause 30 provides:
38.The essence of this argument is that despite this clause, no interest rate was determined or notified. The plaintiff has charged an overdraft rate at 10% plus USD Prime Rate (which is currently at 5% per annum). The defendants say that this amount was never notified to them, although they accept that it was advertised on the plaintiff’s website. 39.I accept that notification of the interest rates charged by the plaintiff by advertisement on its website is sufficient on any construction of this clause. Accordingly I do not accept that any triable issue has been raised. F. THE SALE OF THE PROPERTY AT AN UNDERVALUE 40.The defendants say that the sale prices that were agreed for the 1st defendant’s property on 13 April 2016 (HK$54,800,000) and the 2nd defendant’s property on 23 January 2017 (HK$30 million) were much lower than the market value of the properties. However the defendants have adduced no evidence to suggest what was in fact the market value of the properties, instead complaining that the plaintiff has not produced that evidence. 41.It is said that the lower prices were agreed by the defendants in those sales because of the “incessant threats and demands” made for repayment of the amounts owed to the plaintiff, which were secured by mortgages over the property. There is nothing in this argument. The plaintiff is perfectly entitled to demand what is legitimately owed to it and is also entitled to enforce its security. There is no evidence or suggestion of anything illegal having been done by the plaintiff and I reject this as giving rise to a triable issue. G. THE MISSING HK$14,523,199.52 42.It seems to me that this issue is similar to the appropriations issue identified above. The plaintiff was entitled to appropriate the payment to whatever debts it saw fit in the absence of any instructions to the contrary from the defendants. There was no contrary instruction, and hence the plaintiff was entitled to appropriate that sum to the HKD current account balance. On the evidence there is no suggestion of any misappropriation, and the highest that the defendants could put their case is that they were not told of the appropriation. But that does not amount to a defence to the claim and does not create a triable issue. H. STATUTORY REQUIREMENTS 43.The defendants complain that the plaintiff’s affidavit has failed to comply with RHC Order 28 Rule 5(3) in that it does not identify:
44.As the plaintiff points out, this requirement is subject to the court’s discretion. It is a requirement more normally suited to domestic mortgages securing a simple loan. It is not a requirement that sits comfortably with a mortgage entered into for the purposes of securing a commercial banking facility which does not have specific periodic payments, or interest payments, or amounts regularly outstanding under the mortgage. 45.The affidavit in support of the originating summons did identify the amounts that were outstanding, and it did identify the default which justified the action on the mortgage. In all the circumstances I am satisfied that there is no breach which would justify requiring a trial of this matter, or which would justify withholding summary Judgment. I. CONCLUSIONS 46.In the circumstances, it is appropriate to enter a money judgment in the amount outstanding from the 1st defendant to the plaintiff. That amount has been guaranteed by each of the 2nd to 6th defendants except the 5th defendant, but the 5th defendant is liable in respect of the same amount pursuant to clause1(a) of the mortgage in respect of 6th Floor, 792 Cheung Sha Wan Road. 47.No defence has been suggested by any of them other than those which I have discussed and dismissed above. Consequently judgment should be entered as against each of them. 48.Equally, vacant possession should be granted under the Mortgages as against the 2nd, 4th and 5th defendants. 49.The application to convert the originating summons into a writ action should be dismissed. 50.At the conclusion of the hearing, at the court’s suggestion, the plaintiff produced a draft of the order that it was seeking. The defendants were given an opportunity to make written submissions on the terms of the draft sought, and made various suggestions. Having taken that all into account I accept that the order should be made in the form suggested by the Defendants. 51.That order includes provision for the costs to be paid by the 1st to 6th Defendants to be taxed if not agreed. I note that the Plaintiff has asked for indemnity costs. I do not agree that indemnity costs should be paid, and I make the order as suggested by the defendants. 52.The parties are to draw up the order.
Mr Paul Leung, instructed by P C Woo & Co, for the Plaintiff Mr Victor Lui, instructed by Deannie Yew & Associates, for the 1st to 6th Defendants | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
IN THE MATTER OF ALL THAT ONE equal undivided 7thpart or share of and in ALL THAT piece or parcel of ground registered in the Land Registry as SECTION D OF SUBSECTION 4 OF SECTION B OF NEW KOWLOON INLAND LOT NO. 3516 (“the Lot”) And of and in the messuages erections and buildings thereon now knows as “NO. 792 CHEUNG SHA WAN ROAD, KOWLOON” (“the Building”) TOGETHER with the sole and exclusive right and privilege to hold use occupy and enjoy ALL THAT SIXTH FLOOR of the Building (“Amos’s Property”)
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