The Hong Kong and Shanghai Banking Corporation Ltd v. Chan Heng Fung

HCMP 728/2024

[2025] HKCFI 860

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 728 OF 2024

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D E C I S I O N

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A.  Introduction

1.The Plaintiff is a bank.

2.The Defendant is the registered owner of Unit B, 62^nd Floor, Tower 3, Island Resort, No.28 Siu Wai Wan Road, Hong Kong (the “Property”).

3.By a mortgage deed dated 18 February 2020 (the “Mortgage”), the Property has been charged in favour of the Plaintiff to secure the indebtedness under a facility agreement dated 13 February 2020 (the “Facility Agreement”). The Defendant’s indebtedness under a personal loan granted on 3 February 2023 (the “Personal Loan”) is also covered by the Mortgage.

4.On 28 August 2024, a master (the “Master”) ordered the Defendant to (i) pay the outstanding indebtedness in the sum of HK$10,627,813.60 together with interest thereon; (ii) deliver vacant possession of the Property; and (iii) pay the costs of these proceedings (the “Order”).

5.The Defendant seeks to appeal against the Order made by the Master by a notice of appeal dated 2 October 2024.

6.As will be elaborated below, at the hearing on 15 November 2024, DHCJ KC Chan dismissed part of the Defendant’s appeal and provided directions for dealing with two remaining issues (the “Remaining Issues”).

7.The present Decision concerns the two Remaining Issues.

B.  Material Background

8.Under the Facility Agreement, the Plaintiff granted a mortgage loan of HK$8,200,000 to the Defendant. Pursuant to the terms of the Mortgage, the indebtedness under the Facility Agreement has been secured against the Property.

9.For present purposes, the following provisions of the Mortgage are relevant:-

(1)  The Defendant shall pay the Plaintiff all “secured liabilities”, which mean all monies, debts and liabilities owed to the Plaintiff then or in the future.

(2)  In the event that the Defendant fails to pay the “secured liabilities”, the Defendant shall pay default interest at the rate specified in the Mortgage, which accrues immediately on the Plaintiff’s demand.

(3)  If the Defendant fails to make payment or observe any term of the Facility Agreement or the Mortgage, the Mortgage shall become enforceable and the “secured liabilities” shall become immediately due and payable.

10.By a letter dated 3 February 2023, the Plaintiff further granted the Defendant the Personal Loan of HK$2.5 million. This Personal Loan (which is also secured by the Mortgage) is repayable in 48 months and each monthly instalment is HK$55,583.40.

11.Prior to September 2023, the Defendant punctually repaid the indebtedness under the Facility Letter and the Personal Loan. It is not in dispute that the Defendant encountered difficulty as a result of being involved in the litigation under HCA 649/2020.

12.On 2 May 2023, the plaintiffs in HCA 649/2023 obtained a Mareva and/or proprietary injunction (the “Injunction Order”) against, inter alios, the Defendant.

13.The said Injunction Order was varied and continued pursuant to the orders made by the court on 12 May 2023, 2 June 2023 and 7 December 2023.

14.For present purposes, the following terms and provisions of the Injunction Order (as varied) are relevant:-

(1)  The Defendant is prohibited from disposing of or dealing with assets within Hong Kong up to the value of HK$22,760,000[1].

(2)  In particular, the Defendant is prohibited from disposing of or dealing with (i) the funds in the bank account numbered 175155787888 maintained with the Plaintiff (the “Specified Account”); and (ii) the Property.

(3)  As exceptions to the prohibition, the Injunction Order does not restrain the Defendant from spending:-

(a)  HK$10,000 per week towards living expenses;

(b)  HK$5,000 per week towards ordinary and proper business expenses; and

(c)  HK$75,000 per week towards legal advice and representation.

(4)  The Defendant is restrained from dealing with or disposing of the funds of HK$4,270,000, HK$16,350,000 and HK$2,140,000 that were received via the Specified Account[2].

15.The Defendant said that due to the Injunction Order, he could not operate the bank accounts maintained with the Plaintiff. Thus, starting on 18 September 2023, he defaulted on making repayments pursuant to the terms of the Facility Agreement and the Personal Loan.

16.On 24 January 2024, the Plaintiff issued a demand letter (the “Demand Letter”) to the Defendant. The Defendant was demanded to immediately repay all the indebtedness that was secured by the Mortgage (ie the principal sums and interest under the Facility Agreement and the Personal Loan).

17.The Plaintiff had not received any repayment from the Defendant.

18.Thus, the Plaintiff commenced the present proceedings on 2 May 2024.

19.At the hearing on 28 August 2024 (which the Defendant did not attend)[3], the Master made the Order in question against the Defendant. As mentioned, the Defendant was ordered to (i) pay the outstanding indebtedness owed to the Plaintiff together with interest; (ii) deliver vacant possession of the Property; and (iii) pay costs.

20.On 2 September 2024 and 10 September 2024, the Defendant took out two respective summonses asking the court to (i) annul the Master’s Order; (ii) arrange a re-hearing; and/or (iii) stay the execution of the Master’s Order.

21.On 23 September 2024, the Master dismissed the Defendant’s summonses dated 2 September 2024 and 10 September 2024 with costs.

22.In the circumstances, on 2 October 2024, the Defendant took out a notice of appeal seeking to appeal against the Master’s Order.

23.The Defendant’s appeal came before DHCJ KC Chan on 15 November 2024. The learned Deputy Judge:-

(1)  dismissed the Defendant’s appeal in respect of the principal indebtedness of (i) HK$7,580,812.85 under the Facility Agreement; and (ii) HK$2,444,522.81 under the Personal Loan;

(2)  granted leave for the Defendant to file and serve a supplemental affirmation to address the two Remaining Issues, namely:-

(a)  whether the Plaintiff ought to utilize the exceptions provided in the Injunction Order to repay the indebtedness owed by the Defendant (the “Exception Issue”); and

(b)  whether the Plaintiff ought to utilize the income or interest arising from the Defendant’s bank accounts to repay the indebtedness owed by the Defendant (the “Interest Issue”).

(3)  provided directions for disposing of the two Remaining Issues.

24.Pursuant to the directions made by DHCJ KC Chan, the parties have filed further affirmations, which I have considered.

C.  Deliberation

25.It is trite that an appeal from a master’s decision to a judge in chambers is a de novo hearing[4], and the judge will deal with the matter in question as if it came before him or her for the first time: see Hong Kong Civil Procedure (2025) at para 58/1/2.

26.For the following reasons, I answer the Exception Issue and the Interest Issue in favour of the Plaintiff. I am of the view that the Defendant has failed to raise any valid defence to the Plaintiff’s claims in these proceedings.

C1.  The Exception Issue

27.Mr Zenith Chan (for the Plaintiff) pointed out that the Defendant had never instructed the Plaintiff to utilize the funds in his accounts for repaying the indebtedness under the Facility Agreement, the Personal Loan and/or the Mortgage. Accordingly, the Plaintiff could not be faulted.

28.For the following reasons, I agree with Mr Chan’s submissions:-

(1)  In Joachimson v Swiss Bank Corpn [1921] 3 KB 110 at 127, Atkin LJ stated:-

“The bank undertakes to receive money and to collect bills for its customer’s account. The proceeds so received are not to be held in trust for the customer, but the bank borrows the proceeds and undertakes to repay them. The promise to repay is to repay at the branch of the bank where the account is kept, and during banking hours. It includes a promise to repay any part of the amount due against the written order of the customer addressed to the bank at the branch…I think it is necessarily a term of such a contract that the bank is not liable to pay the customer the full amount of his balance until he demands payment from the bank at the branch at which the current account is kept.” (emphasis added)

(2)  Atkin LJ’s proposition was cited in Paget’s Law of Banking (16^th Ed) at para 4.2. There, the learned authors stated:-

“…the bank is obliged to repay the customer on demand, but again that is not on the basis of any obligation to return the actual money (which would in any event be impossible since money is a fungible thing) but simply on the basis that the bank has become a debtor to the customer and is accordingly obliged to repay its debt once demanded” (emphasis added)

(3)  In the premises, until and unless the Defendant gives proper instruction to the Plaintiff in respect of the funds in his accounts, the Plaintiff is not under any duty or obligation to utilize the same for the purposes of repaying the indebtedness covered by the Mortgage. I cannot see the basis for alleging such duty or obligation exists.

29.In any event:-

(1)  In light of the Injunction Order, the Plaintiff is not in a position to utilize the funds in the Defendant’s accounts to repay the indebtedness in question. Even if the Defendant gives proper instruction, the Plaintiff would not be in a position to comply with the same.

(2)  The Defendant has misunderstood the effect of the exceptions stated in the Injunction Order. Whilst the Injunction Order provides that the Defendant may spend HK$10,000 per week towards his “ordinary living expenses”, it does not follow that the Plaintiff may utilize the Defendant’s funds for repaying the indebtedness in question. As pointed out by Mr Chan, whilst “ordinary living expenses” would subsume expenses on food and commute etc, it does not ipso facto subsume the indebtedness under a sophisticated loan arrangement.

(3)  This was exactly why in Securities and Futures Commission v Leung Anita Fung Yee Maria [2024] HKCFI 1210 at para 5.33, DHCJ Jonathan Wong stated that in allowing a generous exception under the heading of “ordinary living expenses”, he specifically inserted a sub-category that catered for payment of mortgage instalments and other property-related expenses.

(4)  In the present case, there is no evidence showing that when the court granted and continued the Injunction Order, it took into account the monthly instalments covered by the Mortgage. In my view, there is no room to infer that the weekly exception under the Injunction Order took into account the Defendant’s indebtedness owed to the Plaintiff. In this regard, it is observed that the weekly exception of HK$10,000 is not even sufficient to cover the instalments under the Mortgage. Had the court intended to cover the Defendant’s indebtedness under this exception, the amount under the exception would have been much more generous.

30.For completeness, it should also be pointed out that:-

(1)  The exception relating to “ordinary and proper business expenses” is inapplicable. The Property is for residential use. There is no evidence showing that the same has been used for the Defendant’s business purposes.

(2)  The exception relating to “legal advice and representation” is plainly inapplicable.

(3)  Whilst the “ceiling” of the Injunction Order is HK$22,760,000, there is no evidence showing that the Defendant has assets exceeding HK$22,760,000. As such, the Plaintiff[5] is not in a position to deal with or dispose of the funds in the Defendant’s accounts.

31.For all the above reasons, I answer the Exception Issue in favour of the Plaintiff. I reject the Defendant’s contention that the Plaintiff is under a duty or obligation to utilize the funds in his accounts to repay the indebtedness under the Mortgage.

C2.  The Interest Issue

32.The Defendant contends that the Plaintiff could have utilized the interest freshly accrued on his accounts to repay the indebtedness covered by the Mortgage.

33.I do accept the Defendant’s contention.

34.First of all:-

(1)  As pointed out by Mr Chan, the Defendant had not instructed the Plaintiff to utilize the interest income arising from the funds in his accounts to repay his indebtedness, and he only mentioned about the interest income when he had telephone conversations with the Plaintiff’s staff in September 2024. This was a year after the Defendant started defaulting on making repayments.

(2)  For the same reasons set out in Section C1 above, without receiving proper instruction from the Defendant, the Plaintiff was not under any duty or obligation to utilize the interest income to repay the indebtedness owed by the Defendant: see Joachimson (supra) at 127; and Paget’s Law of Banking (16^th Ed) at para 4.2.

35.Second:-

(1)  The Injunction Order covers and extends to newly acquired assets.

(2)  In Cretanor Maritime Co Ltd v Irish Marine Management Ltd [1978] 1 WLR 966 at 973D-E, Buckley LJ stated:-

“Where the injunction refers to a body of unspecified assets it must be capable of having an ambulatory effect so as to apply to all the assets of the defendant which at any time while the injunction remains on foot may be within the jurisdiction. In such a case once an asset had come within the operation of the injunction it would not be capable of being thereafter removed from the jurisdiction during the continuance of the injunction without a breach.”

(3)  In Third Chandris Shipping Corpn v Unimarine SA [1979] QB 645, at pp.651-652, Mustill J (as he then was) stated:-

“It is true that, as Buckley LJ pointed out in Cretanor Maritime Co Ltd v Irish Marine Management Ltd [1978] 1 WLR 966, 973, a Mareva order in the form currently adopted gives the injunction an ambulatory effect, so that it attaches to whatever assets there may be or may thereafter come to be within the jurisdiction.”

(emphasis added)

(4)  In the premises, the Injunction Order bites on the interest accrued on the funds in the Defendant’s accounts. Having said that there is no evidence showing the Defendant has assets exceeding HK$22,760,000, the Plaintiff cannot not utilize the interest income to repay the indebtedness owed by the Defendant.

36.For the above reasons, I answer the Interest Issue in favour of the Plaintiff. I disagree with the Defendant’s suggestion that the Plaintiff has a duty or obligation to utilize the interest accrued on the funds in his accounts to repay the indebtedness covered by the Mortgage.

D.  Order and Disposition

37.In the premises, I dismiss the remaining part of the Defendant’s appeal in respect of the Exception Issue and the Interest Issue.

38.In my view, the Master was correct in making the Order on 28 August 2024.

39.Since the Defendant’s appeal fails in its entirety, there is no reason why he should not bear costs.

40.In this connection, the Mortgage provides that[6] the Defendant shall indemnify the Plaintiff with regard to the costs and expenses (including legal costs) that are incurred as a result of enforcing the obligations thereunder.

41.Accordingly, I order the Defendant to pay the costs of the appeal, including the costs of the present hearing and all costs previously reserved, to be taxed if not agreed on an indemnity basis (with certificate for counsel).

E.  Other Matters

42.I express my gratitude to Mr Zenith Chan for his helpful assistance.

Mr Zenith Chan, instructed by Johnson Stokes & Master, for the Plaintiff

The Defendant appeared in person