The New Territories Housing Development Co Ltd v. The Hongkong & Shanghai Banking Corporation
Read the full judgment text of HCA 2316/1975 on BabelCite. This High Court CFI judgment.
1. The Plaintiff, as mortgagor, by its amended Statement of Claim claims against the Defendant damages for breach of duty as a mortgagee for, when selling a property under its power of sale, failing to obtain the true market value or price.
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HCA002316/1975
----------------- Coram: Zimmern, J. Date of Judgment: 25th September, 1978. ----------------- JUDGMENT ----------------- 1. The Plaintiff, as mortgagor, by its amended Statement of Claim claims against the Defendant damages for breach of duty as a mortgagee for, when selling a property under its power of sale, failing to obtain the true market value or price. 2. First, the Plaintiff claims the property was sold for $4 million on the 10th November, 1970 when the true market value or price was $6.35 million intended for $6.4 million. Secondly, the Plaintiff, by its particulars with leave served at the hearing alleged inter alia lack of bona fide and recklessness by proceeding with the sale in the manner the Defendant did. 3. The Plaintiff is a private company which I shall call "the Company" and at material times was managed and controlled by one Mr. L.Y. WONG. The Defendant is the Hongkong & Shanghai Banking Corporation which I shall call "the Bank". 4. The Bank besides denying the allegations contained in the Statement of Claim, counter-claims the sum of $2,427,000 approximately with interest from the 31st July, 1978 on the mortgage debt and a further debt due under a debenture less proceeds of sale. The Property 5. Under an Agreement and Conditions of Exchange dated 20th of March, 1962, the Company became the grantee of the Crown a property which I might term a hill with an area of approximately 1/4 million square feet on the western extremity of the town of Tsuen Wan, after agreeing to observe and perform the Conditions of Exchange. The Plaintiff acquired the land for the purpose of developing thereon for sale a series of low cost housing blocks limited to six storeys each. 6. Of some importance to this case are 4(a) of the General Conditions, 3(a) of the Special Conditions and 5 of the Special Conditions which I need not set out. 7. On the evidence there can be no doubt that by the standards and conditions prevailing in 1962 the intended development was a novel private venture on a most difficult terrain. Plans were drawn up by Architects and approved by the Government. The building of the blocks was to be by three stages. The Mortgage 8. By an indenture of mortgage dated 20th of July, 1963, the Company mortgaged the property to the Bank for banking facilities to the extent of $4 million with interest thereon to be calculated with quarterly rests. The mortgage was in terms a Building Mortgage with the right of the mortgagee upon default to enter into possession and sell by public auction or by private contract. 9. On the same day the Company issued a Debenture for securing General Banking Facilities to the extent of $1/4 million to the Bank. Events Subsequent 10. The Company's Contractors commenced work, and so far as one can see, the first Architect's Certificate was issued on the 1st November, 1963 and the last 18th April, 1967. What work was actually completed is not important save to say certain retaining walls had been built, site for Stage I partly formed, piling for four blocks out of eleven completed and the outline of the access road formed. It is common ground between the parties that by the time of the political and economic turmoil of 1967 all works had stopped. They never recommenced. It is not in dispute when the Bank called on the Company to repay on the 18th September, 1970, the Company was owing the Bank under the Mortgage and Debenture over $5 million. It is not in dispute that the Company was unable to pay its debts and the covenant to repay under the Indenture of Mortgage was worth nothing and all the Bank could rely on was its security. Indeed there is evidence that the Company was unable to pay the Annual Crown Rent of $2,922 which the Bank had to pay on its behalf. 11. Mr. Wong told the court that the Bank ceased its support in 1967, at time of the disturbances. He had tried without success to raise $2 million for the structure of the first four blocks in Stage I as nobody was interested. The Company was then owing the Bank about $3 million. 12. In November, 1968, Mr. Mosley, then the Chief Accountant of the Bank, called for Mr. Wong and told him that the Bank would consider releasing the security to the Company for $2 million. Mr. Wong said nobody was interested. There is an internal memorandum in the Bank to this effect being document Exhibit A49. 13. After a nebulous offer to the Bank on the 24th February, 1969 bringing in the name of a Mr. T.T. NG Which offer was turned down, the Company wrote to the Bank on the 16th April, 1969 offering $2 million for the security on instalment basis with a building mortgage to a new entity per Exhibit A53. Mr. Wong was told by Mr. Mosley that the offer was unacceptable and that the Bank was then thinking in terms of $3 million because of the increase in land prices. The Company persevered with its price of $2 million during June, July, 1969 but to no avail and on 30th July, the Bank wrote to the Company in these terms,
On 6th of August, 1969, the Company made an offer of $2.3 million which was not acceptable to the Bank. 14. In the meantime, the Government had extended time for completion of the three stages. Both the Bank and the Company were looking for potential developers or buyers for this lot and amongst those contacted were the Hong Kong Housing Society and Hutchison International and various other private developers. 15. On 19th of May, 1970, the Company wrote to the Bank in terms,
16. In July, 1970 the Property Manager of the Bank had an interview with Mr. Whitelegge of the Government who said that the Government might be amenable to changing certain of the Conditions of Grant but that the Government would not be prepared to deal with anybody other than the registered owner of the property and as the Company had failed to complete their obligations under Conditions of Exchange, the Government was not prepared to deal with that company any longer. 17. On the 10th August, 1970, the Company wrote to the Bank offering $3 million payable by interest free instalments. Mr. Purves, the then Chief Accountant of the Bank, replied on 14th August, 1970 in terms.
Mr. Purves told the court he after consultation with his colleagues including experts in the property field had in mind the sum of $4 million. 18. Mr. Wong took the intended purchaser, the same T.T. Ng, to his solicitors, Mr. Nigel of Johnson, Stokes & Master who were and are also the Bank's solicitors. The object of the exercise was to see whether Government would signify its agreement to a transfer of the property to Hung Hsing Construction Co., Ltd., which is the corporate arm of Mr. T.T. Ng; secondly, to see whether the Government will consider modification of the building covenant -
This is contained in a letter dated 20th of August, 1970 from Messrs. Johnson, Stokes and Master to the District Commissioner of New Territories. 19. I do not accept Mr. Wong's evidence that at the time of the letter the Bank had agreed on a price of $3 million. Mr. Purves in evidence said otherwise. In April, 1970, the Bank instructed Eric Cumine Associates to prepare a survey of the property the particulars of which are incorporated in Exhibit A73 reading as follows:
20. In September, 1970 a Mr. Goei, a developer from Singapore, was introduced to Mr. Purves as a person who might be interested in the property. He was told that the Bank was looking for offers in the region of $4 million and that it was negotiating with another party. Mr. Goei asked for an option on the property for a month but was refused. Mr. Purves then contacted the Bank's Branch in Singapore to check on Mr. Goei and was informed he was a successful property developer there with a good track record. 21. On the 7th September, 1970, Mr. Goei offered the Bank $3.5 million subject to certain terms and conditions which was later in the afternoon raised to $3.75 million. Mr. Wong told the court that he did not know of the negotiations between the Bank and Mr. Goei till the signing of the agreement which would be sometime in November. This must be a lapse of memory for when he was shown Mr. Purves' internal memo of the 9th September, 1970 setting out inter alia a meeting between he and Mr. Purves that morning, he said Mr. Purves never told him the police. I do not accept this and find as a fact that the Bank had kept him well informed. He agreed he was upset on that day. 22. On the 24th September, 1970, Mr. Goei wrote to the Plaintiff c/o the Bank his offer of $4 million for the property subject to the terms and conditions contained in a copy which is Exhibit A97. 23. On the 26th September, 1970, Mr. Wong wrote to the Bank insinuating that the Bank had reneged on its agreement to sell the property to him and Mr. T.T. Ng trading as Hung Hsing Construction Co., Ltd. for $3 million. The last paragraph of the letter reads.
24. This letter, in my view, puts Mr. Wong in poor light. He knew then of Mr. Goei's offer of certainly no less than $3.75 million for the property. What prompted him to write thus was in my view the state of his mind. He was obssessed with the thought that the Bank under the Conditions of Sale could not sell to a third party without his consent. He thought that he held a whipping hand over the Bank. Well did he deserve the reply from Mr. Purves dated the 28th September, 1970 being Exhibit A103 the ultimate paragraph of which reads,
25. On the 3rd October, 1970, the Company wrote to the Bank requesting for relevant documents of the competitor's offer for consideration. By a letter dated 5th October, the Bank sent the documents to the Plaintiff and stated.
26. Mr. Wong said he received the letter but denied that the documents were enclosed. I do not believe him. Mr. Purves said that if Mr. Wong had not received the documents, he would have been quickly around to get them. The request for the offer of the Plaintiff was quite unequivocal. Yet, having received it and admitted to having received it by the 7th, the Plaintiff still made an offer not in terms with either of the alternatives contained in the Bank's letter. 27. The Bank did not answer. It is not clear when exactly the Bank entered into an oral contract with Mr. Goei but we know the Sale and Purchase Agreement was executed on the 10th November, 1970 between the Bank and Mr. Goei's corporate vehicle Goldhill Investments Limited. 28. On the 4th November, Messrs. C.P. Lai & Co. on behalf of Mr. T.T. Ng's corporate vehicle made a matching offer in these terms:
The Bank rejected this offer and the rejection is really the cause of the Plaintiff's complaint. Valuation 29. Mr. Tang for the Plaintiff argues that the burden of proving that the Defendant did not sell at an undervalue was on the Defendant relying on the Farrar case(1). He says that the burden generally on the Plaintiff shifted to the Defendant by reason that Mr. Nigel, partner of Johnson, Stokes and Master acted for both the Bank and Mr. Goei and was a subscriber member of Goei's corporate vehicle, Goldhill Investments Ltd. and held at one time some preference shares in Goldhill also. He relies on the passage in the Judgment of Lord Justice Lindley at page 410.
30. There is no resemblance between the two cases. Mr. Purves said that Mr. Nigel did not participate in the negotiations between himself and Mr. Goei and I am satisfied that Mr. Nigel's tasks were no more than quickly bringing into existence Goldhill Investments Ltd. doing the formal work consequential on the agreement entered into between the Bank and Mr. Goei. Mr. Nigel had no beneficial interest in the property at all. I therefore hold that the burden of proof is on the Plaintiff. 31. The Plaintiff called Mr. Albert George Doran, a partner in the firm of Tony Petty and Associates, Chartered Surveyors and Estate Agents. He produced his report of proof of evidence (Exhibit C.) He was instructed to value the property as at 10th December, 1970. When he was instructed I do not know, but probably just a few months ago. He had never visited the site in its state in 1970. He did not know that blasting was not permitted in certain areas within the site. Based on the area of about 1/4 million square feet with permitted residential user limited to six storeys in three stages, he estimated a value as at 10th December, 1970 of $6.4 million. This is based on a land value of $50 per square foot less certain interest allowances and costs of road works and site formation. This $50 per square foot was derived by comparable values of land sold around that time. The values of a few small lots were taken from the town of Tsuen Wan and one from Shatin. In my opinion and so I hold, they do not constitute any comparable values with the property in issue. I cannot accept the value of $6.4 million calculated in the manner it was as the market value of property in November 1970 between a willing buyer and a willing seller. Mr. Doran then gave a valuation of $5.2 million to the property based on an intention or necessity to develop in accordance with the plans then approved. This was on the residual system. Again there are uncertainties. Mr. Roberts, another expert, who did a valuation for the Bank came to a valuation of $4.3 to $4.7 million. They were apparently both pleased with one another that they were so close. This system is based on the estimated selling price of flats when built less costs of building, contingencies and profit leaving the remainder as the valuation of the land. Again, I am unable to accept this valuation of $5.2 million as the market price of the property in November, 1970. The Plaintiff in my view has completely failed to prove that the Defendant sold the property at an undervalue but in view of the way Mr. Tang has argued the case under the particulars served I shall deal with them. Law 32. I am most grateful to Mr. Wright and Mr. Tang for their industry and research into law as regards the duties of a mortgagee exercising its power of sale. If I do not go into the law with the same thoroughness as they have, may I just say this, that this case is so clear that the court does not have to go into refined arguments as to whether a mortgagor's complaint ought to be on the footing of wilful default or breach of Common Law duty nor need I have to distinguish the cases submitted and argued, such as the Kennedy v. De Trafford(2) case, the Cuckmere Brick(3) case. Once it is accepted and agreed that the Bank as a mortgagee had the power of sale and the mortgagor had no right to postpone the sale, there was in my view and I so hold nothing which the Bank had done was in any way negligent, reckless or lacking in bona fide. It doesn't matter which way it is put. It would appear that in the course of the last hundred years the duties imposed by the law on a mortgagee exercising its power of a sale appear to be getting more onerous but putting it at its highest, I still do not see how in any way the Bank could be faulted in this case. 33. I would go into the details or some of the details of Mr. Tang's arguments. He said when the Bank received C.P. Lai's letter of the 4th November, it was incumbent upon the Bank to go back to Goldhill and say, "Look, here is a matching offer. Can you improve on it?" I do not see that at all. The Plaintiff, Mr. Wong and Mr. T.T. Ng, were told in the clearest terms that if they had an offer to make, it must come by the date fixed by the letter. That offer was never made within the time limit set by the Bank. Assuming all being equal, could anyone blame the Bank for preferring and accepting the offer of Mr. Goei whom they had checked on in Singapore and about whom they had heard that he was a successful developer in Singapore with a good track record compared to Mr. T.T. Ng, a party unknown to the Bank? 34. It is said that the Bank did not receive a valuation. The Bank indeed did receive a valuation from Mr. Roberts albeit orally made, according to Mr. Purves, of between $4 to $5 million. According to Mr. Roberts' report, which was received after the agreement, it was $4.3 to $4.7 million which Mr. Purves decided was close enough. It must not be forgotten that this is not just a matter of a professional valuation. This piece of land had been in the market certainly not later than 1967, possibly very much earlier. Mr. Purves told the court, and I accept his evidence, that in 1970, every developer in town knew about this property. There were in 1970 no property developing companies like there are today and during the few years, the only offer the Bank had ever received was from Mr. Goei. He certainly was not going to take a chance of losing Mr. Goei's bid to cater for the whim and fancy of Mr. Wong or Mr. T.T. Ng. 35. Mr. Purves told the court that there was urgency in this matter as far as Mr. Goei was concerned, and let me repeat, it was a property which had been in the market for a long time with nobody interested in it at all. I certainly can feel a sense of grievance on the part of Mr. Wong. He thought, as I have already said, he had a whipping hand over the Bank. He thought he could delay the Bank selling. He failed to do so. This writ which in the first instance was not incidentally for selling at an undervaluation, was not issued till 1975. Much water had flowed under the bridge since 1970 including the boom of 1972 and 1973. Mr. Wong no doubt, looking back in 1974 and 1975, would have in mind "If I had been able to retain this property, I would have made a substantial fortune out of it." but that he did not do so is entirely through his own fault and nobody else's. 36. For the reasons given, there will be judgment for the Defendant on the claim and there will be judgment for the Bank on the counter-claim and as far as the figures are concerned in the counter claim, there will be judgment in the sum of $2,427,699.28 under the Building Mortgage and judgment on the counter-claim in the sum of $1,755,995.16 with interest at 8% per annum from the 10th of January, 1972 to date of judgment, to today's date. Costs to the Defendant on both the claim and the counter-claim. Representation: Robert Tang (Hastings & Co.) for the Plaintiff D.A.L. Wright (Johnson, Stokes & Master) for the Defendant (1) (1889) 40 Ch.D., 395 at 410 (2) (1896) 1 Ch. 762 (3) (1971) 1 Ch. 949 |