Dah Sing Bank Ltd v. Sun Create Richly Holdings (Asia) Ltd and Another
Read the full judgment text of HCMP 457/2023 on BabelCite. This High Court CFI judgment was delivered on 4 June 2024.
1. This is the substantive hearing of the Originating Summons issued on 22 March 2023 (“OS”) by Dah Sing Bank, Limited (“the Plaintiff”), the mortgagee bank in a mortgage action against Sun Create Richly Holdings (Asia) Ltd (“D1”), the borrower and mortgagor and Qi Tao (“D2”), the guarantor, pursuant to RHC Order 88 for payment of monies and delivery of possession of the mortgaged property [1] described in the OS. At the conclusion of the hearing, judgment was reserved which I now give.
Cited by 5 cases · Cites 8 cases
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HCMP 457/2023 [2024] HKCFI 1512 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO 457 OF 2023 ____________________
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____________________ JUDGMENT ____________________ Introduction 1.This is the substantive hearing of the Originating Summons issued on 22 March 2023 (“OS”) by Dah Sing Bank, Limited (“the Plaintiff”), the mortgagee bank in a mortgage action against Sun Create Richly Holdings (Asia) Ltd (“D1”), the borrower and mortgagor and Qi Tao (“D2”), the guarantor, pursuant to RHC Order 88 for payment of monies and delivery of possession of the mortgaged property[1] described in the OS. At the conclusion of the hearing, judgment was reserved which I now give. Relevant background 2.By its facility letter dated 3 May 2021 (“the Facility Letter”), the Plaintiff made available to D1 the following facilities:
3.On 10 May 2021, D2 (as authorised signatory for D1) executed the Commercial Business Agreement. D1 and D2 are collectively referred to as “the Defendants”. 4.Also on 10 May 2021, D2 executed a Guarantee in favour of the Plaintiff in consideration of facilities granted by the Plaintiff to D1. D2 guaranteed to the Plaintiff payment on demand of all monies and liabilities owing by D1 without limit. 5.On 22 June 2021, (within the period prescribed by the Facility letter), D1 drew down approximately HKD 67.13 million which was applied to settle D1’s loan outstanding at the OCBC Bank. 6.On the same day, 22 June 2021, D2 as sole director of D1 executed a mortgage over the property (“the Mortgage”) as security for due payment of all indebtedness owing to the Plaintiff. 7.On 16 December 2021, D1 was further granted an investment loan in the amount of USD 140,000 (“the Investment Loan”). 8.On 22 March 2022, D1 as borrower/mortgage and D2 as guarantor executed a Supplemental Facility Letter in favour of the Plaintiff. It replaced Schedule 1 to the Facility Letter with updated “Reference Rate Terms” for US Dollars. 9.Since the drawdown and up to February 2023, D1 had made timely repayments of the facilities granted without issue. 10.On 6 March 2023, the Plaintiff issued a demand notice on D1 as borrower/mortgage and D2 as guarantor respectively demanding repayment of the amount outstanding under (inter alia) the Term Loan (“the demand notice”) as follows:
11.On 22 March 2023, the Plaintiff commenced this action seeking repayment of the following:
12.The Plaintiff also seeks against D1 delivery of vacant possession of the property and against D2 repayment of the same outstanding sums pursuant to the Guarantee. Legal principles 13.It is common ground that
14.The evidential requirements of proceedings under RHC Order 88 are set out in rule 5. Of particular relevance are the following sub- rules:
15.RHC Order 28 rule 8 (1) provides as follows:
16.For misrepresentation, an obvious requirement is that the statement relied on be false: see Chitty on Contracts, 34th Edn at §9-006. 17.For a bank to be held liable for misrepresentation, it is necessary to show that the misrepresentation was made either by the bank or by its agent acting within the scope of his authority or that the bank has either actual or constructive notice of the representation: see Bank of China (Hong Kong) Limited v Leung Wai Man [2011] 4 HKLRD 707 §§40-44. 18.The legal requirements for establishing a defence of non est factum can be found in Soshila Keswani v Motiram Keswani [2022] 2 HKLRD 822 at §34:
19.A person of age and capacity is normally bound by his signature to a document. Thus, in Ming Shiu Chung & Ors v Ming Shiu Sum & Ors (2006) 9 HKCFAR 334 at [84],
20.The plea of non est factum was further explained by Lord Reid in Saunders v Anglia Building Society [1971] AC 1004(at 1016E):
The Plaintiff’s case 21.The OS is supported by the affirmation of Shum Chi Kwan Lydia dated 12 July 2023 (“Shum 1st”) which stated (at §25) that D1 “has defaulted in repaying” the outstanding balances for the Term Loan and the Investment Loan. The demand notice showed (inter alia[2]) the total sum owing under the Term Loan of HKD 63,066,326.54[3] as at 6 March 2023 was then exhibited. 22.According to the conditions set out in the Facility Letter for the Term Loan, the “Interest Period” is one month commencing from drawdown and interest is payable in arrears at the end of each Interest Period. In the present case, the drawdown took place on 22 June 2021. Hence, the interest payments would fall due on the 22nd day of each month. 23.At the hearing, the Court queried the basis for issuing the demand letter of 6 March 2023 since all the calculations were based on or stemmed from the information set out in the demand letter. 24.Mr Chow referred to the following provision under the last heading “L. OTHER TERMS AND CONDITIONS” on page 12 of the 14-page Facility Letter as the basis of the demand letter:
25.I note that that particular provision is not given any prominence[4] in the Facility Letter but is tucked away at the tail end of a 14-page document. 26.Be that as it may, the state of account between the Defendants and the Plaintiff as at the date of the OS (22 March 2023) is set out in Shum 1st (at §31). The total amount of outstanding under the Term Loan had increased to HKD 63,257,066.86[5]. The difference of HKD 190,740.32 since the date of the demand notice is attributable to interest accruing during the intervening 14 day period which was said to be subject to a charge of overdue interest of 10% per annum above the Plaintiff’s HKD prime rate under the terms of the Facility Letter. 27.The Plaintiff set out its calculation of the interest for the outstanding balances as at 22 March 2023 and 12 July 2023 in exhibit SCKL-8[6]. 28.As earlier noted, up to February 2023, no issue arose as to timely payments. Indeed, a payment was due and made on 22 February 2023. 29.After the OS was issued, D1 made payments of USD 140,810.56 and HKD 8,722,700.99 on 4 April 2023. The defences 30.The Defendants oppose summary judgment on the following grounds:
31.As regards (2) above, it is D2’s case that at the meeting 3 May 2021 had with the Plaintiff’s officer, a Mr Bob Lam (“ Mr Lam”)
32.As regards the statutory requirements under Order 88, rule 5, in Dah Sing Bank Ltd v Rich Star Investment Development Limited, unrep., HCMP 1893/2016, 18 June 2020 Recorder Manzoni SC held (at §§43-45) that the statutory requirements of rule 5(3) are subject to the Court’s discretion, observing that they are more normally suited to domestic mortgages securing a simple loan and do not sit 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. 33.In other words, in such cases, there is no breach of the statutory requirements so long as the plaintiff could identify the amounts that were outstanding and the default which justified the action on the mortgage. 34.SCKL 8 contains the Plaintiff’s calculation of the interest for the outstanding balances as at 22 March 2023 and 12 July 2023. For present purposes, it suffices to set out its calculations for the Term Loan[7] as at (1) 22 March 2023; and (2) 12 July 2023 which are as follows:
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(2) As at 12 July 2023
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35.They show that the Plaintiff calculated the interest due on the basis that overdue interest was chargeable after default in payment of the amounts set out in the demand notice. In SCKL 8, the Plaintiff referred the Defendants to “the Facility Letter (p10) dated 3 May 2021 signed by the obligors” as the basis for charging overdue interest.
36.The relevant provision regarding the payment of ‘overdue interest’[8] stipulated that the Plaintiff is entitled to charge overdue interest on any amount(s) due but not paid on the due date(s) at 10% per annum above the Prime Rate quoted by the Plaintiff until the date of final repayment. Further, overdue interest “shall be payable within 2 working days after the 24th day of each month (the “working day” herein means a day other than Sunday or public holiday in Hong Kong)”.
37.The calculations shown in §34 above were made on the basis that overdue interest at the rate of 10% per annum above prime was chargeable on the outstanding balance (principal plus accrued interest) of the Term Loan for the periods
(i) of 3 days from 20 March 2023 to 22 March 2023 (both dates inclusive); and
(ii) from 23 March 2023 to 12 July 2023.
38.‘Chargeable’ and ‘payable’ are 2 different and distinct concepts. The demand notice required payment of the sums demanded before 19 March 2023, failing which overdue interest would be chargeable as from 20 March 2023 until payment.
39.Once default in payment occurs, the Plaintiff is entitled to charge overdue interest which has been pre-set at 10% over prime over the outstanding balance.
40.The Defendants submitted that even if it is accepted that the Plaintiff’s demand was made on 6 March 2023, overdue interest should only be payable on or after 27 March 2023 instead of 20 March 2023. That would appear to be a timing issue and has no bearing on the Plaintiff’s entitlement to charge overdue interest.
41.At the hearing, Mr Chow went through the entries in SCKL 8. He explained what each entry represented and how chargeable interest was calculated, the applicable rates and the relevant periods.
42.Ms Ho referred to the last sentence of the paragraph in the Facility Letter regarding overdue interest[9] which reads:
“The Bank shall have its sole and absolute discretion to change interest rate(s) applicable to the Borrower at any time and from time to time by giving prior notice.”
43.The complaint was that no prior notice was given to the Defendants. However, I do not see that the sentence set out in §42 is relevant to the present discussion. No question of ‘changing’ the interest rate arises.
44.So far as I can understand it, the Defendants’ complaint is that they did not know the exact amount they should pay. However, as they are not able to show that the calculations set out in SCKL 8 are wrong, the contention is hopeless.
B. Misrepresentation and non est factum
45.The misrepresentation on which D2 relies is set out in § 31 above. D2 referred to DBS Bank (Hong Kong) Limited v Guanxiang (HK) Trading Limited and Others, unrep., HCMP 1767/2017, 21 June 2018 which was also a mortgage action under Order 88. In that case, D3 had signed a guarantee but his evidence was that the nature of the document was not explained to him. He was led to believe that they were general banking documents. An important issue in that case was D3’s degree of literacy in English. D3 produced evidence of his Hong Kong Certificate of Education Examination Results Notice showing that he failed in English. The judge considered that D3’s claim that he was close to illiterate in English could not be dismissed of hand as being unbelievable.
46.In considering the evidence the judge noted (in §50) that the plaintiff did not adduce evidence from the relevant bank staff who had interacted with D3. The only evidence was from a bank officer who had no contemporaneous knowledge of the events that led to the issue of the originating summons and whose evidence was based solely on documents and records. In so far as the guarantee was concerned, at that stage, it was “D3’s words against nobody else”.
47.Lei Shing Hong Credit Limited v Kingsfine International Limited and Another, unrep., HCMP 1169/2016, 21 April 2017 is another case where the defendant also maintained that he did not know English. In that case, the judge noted that the 2nd defendant “received education up to primary 3 only, and he does not know English.”
48.The Plaintiff submitted that those 2 cases show that it is incumbent on the party asserting that he does not know a foreign language to provide evidence[10] as to his level of education in the language. The Plaintiff noted that in the present case, apart from stating that he does not read English and cannot comprehend the context of the Facility Letter, D2 has not adduced any evidence at all: there is no evidence as to whether he had studied English, and, if he had, the level attained.
49.To focus solely on D2’s knowledge of the English language misses the point. In assessing whether or not a defendant understood the nature of the document he was signing, regard must be had to all relevant circumstances of the particular case. The nub of D2’s defence is that he did not understand that by giving the Guarantee he would become jointly and severally liable with D1 as a primary obligor and that he was induced by Mr Lam’s misrepresentation into signing the Guarantee.
50.The evidence filed in support of the Plaintiff’s case consists of the affirmations by Ms Shum, a Special Asset Management Senior Manager employed by the Plaintiff who did not make the representation on which D2 relies. No evidence has been adduced from Mr Lam who directly interacted with D2. Mr Lam is said to have made the representation referred to in §31. Yet, there is no evidence from him in the Plaintiff’s reply evidence.
51.Mr Chow sought to demonstrate that D2 knows English and therefore knew what he was doing by referring to the fact that D2 had signed a director’s report that was only in English and further, that D1 has an associated company in Luxembourg engaged in the business of leasing a cruiser for leasing income, submitting that these 2 matters show that D2 knows English.
52.In my view, neither of those matters takes the Plaintiff’s case further. Signing a director’s report that is in English does not necessarily mean competency in that language and owning a business in a foreign country has no particular bearing on whether the owner is conversant with the language of that country.
53.The Plaintiff also relied on Facility Letters from OCBC Wing Hang Bank dated 9 May 2019 and the Bank of China dated 17 June 2019. While they refer to personal guarantees, the guarantees themselves have not been exhibited. It is unclear whether they provide for primary or only secondary liability.
54.The Plaintiff also relied on the fact that D2 signed the Guarantors/Security Provider Confirmation Letter (“the Confirmation Letter”) on 10 May 2021. The Confirmation Letter had the Chinese translation printed on the flipside but D2’s signature appears on the English side of the document. Absent evidence that D2 actually read the Chinese translation before signing the Confirmation Letter, the fact that the translation is on the flipside cannot assist.
55.In any event, as matters stand, the only evidence the Court has on the issue of misrepresentation is from D2. Clearly, the Court is not in a position to form any view on the allegations of misrepresentation at this stage. In these circumstances, D2 is entitled to have the benefit of the doubt. Accordingly, there is a triable issue on misrepresentation as regards D2. It follows that it has not shown that the Plaintiff is entitled to summary judgment against D2 on the guarantee.
56.As regards D1, Ms Ho did not articulate why D1 has a defence based on misrepresentation. It is not understood what representations were made to D1 that would entitle it to raise a defence of misrepresentation.
Conclusion
57.As against D1, there is to be an order in terms of the paragraphs 1 and 2 of the relief sought against D1 in the OS in favour of the Plaintiff with an order nisi of costs in favour of the Plaintiff, with certificate for counsel, on an indemnity basis, such costs to be summarily assessed and payable forthwith.
58.The relief sought against D2 in the OS is dismissed with an order of costs nisi in favour of D2, with certificate for counsel, such costs to be summarily assessed and payable forthwith.
59.It is further directed that:
(1) As against D1,
i. Plaintiff do lodge its statement of costs within 14 days;
ii. D1 do lodge its list of objections (not exceeding 2 pages) within 14 days thereafter; and
iii. Plaintiff do lodge its reply (not exceeding 2 pages if any) within 7 days thereafter.
(2) As against D2,
i. D2 do lodge his statement of costs within 14 days;
ii. Plaintiff do lodge its list of objections (not exceeding 2 pages) within 14 days thereafter; and
iii. D2 do lodge his reply (not exceeding 2 pages if any) within 7 days thereafter.
| (Doreen Le Pichon) | |
| Deputy High Court Judge |
| Mr Tony HH Chow, instructed by P C Woo & Co, for the Plaintiff |
| Ms Cyndi Ho, instructed by M C A Lai Solicitors LLP, for the 1st and 2nd Defendants |
[1] The property was D1’s registered office on the 12th floor of Rykadan Capital Tower and car parking spaces P5, P6, P7 and P8.
[2] It also provided similar information for the Investment Loan. For present purposes, it suffices to deal with the Term Loan aspect.
[3] This amount comprised (i) principal outstanding under the Term Loan of $62,958,016.12; and (ii) accrued interest of $108,310.42.
[4] Certain provisions in the Facility Letter appear in bold type and underlined.
[5] This amount comprised (i) principal outstanding under the Term Loan of $62,958,016.12; and (ii) accrued interest of $299,050.54.
[6] See §34 below.
[7] A similar exercise was carried out in respect of the Investment Loan.
[8] This is to be found on page 12 rather than page 10 of the Facility letter.
[9] See §36 above.
[10] While in the DBS case, examination results were reduced in evidence, in Lei Shing Hong, it seems there was nothing more than the defendant’s statement.
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