Nanyang Commercial Bank Ltd v. Wong Man Hung and Another
Read the full judgment text of HCMP 344/1986 on BabelCite. This High Court CFI judgment was delivered on 2 December 1986.
1. This is an appeal from the decision of a Master when at the hearing of the originating summons herein, he dismissed the plaintiff's claim against the 2nd defendant.
|
HCMP000344/1986 1986 No. MP 344 IN THE SUPREME COURT OF HONG KONG HIGH COURT _______
BETWEEN
_____________ Coram: Hon. Hooper, J. in Chambers Date of hearing: 11 November 1986 Date of delivery of judgment: 2 December 1986 ___________ JUDGMENT ___________ 1. This is an appeal from the decision of a Master when at the hearing of the originating summons herein, he dismissed the plaintiff's claim against the 2nd defendant. 2. The plaintiff had brought these proceedings to recover monies advanced under a Deed of Mortgage dated the 21st of May 1976 and three further charges dated the 11th of July 1978, the 2nd of January 1980 and the 31st of March 1981 and to enforce the terms of the said mortgage and further charges. 3. The mortgage was made between the 1st defendant as Mortgagor the 2nd defendant as Confirmor and the plaintiff as Mortgagee. By this mortgage, the plaintiff at the request of the 1st defendant and 2nd defendant agreed to grant to the 1st defendant general banking facilities to the extent of HK$140,000 upon the 1st defendant at the request and by the direction of the 2nd defendant assigning to the plaintiff 2 premises, one in King's Road and the other in Argyle Street. By the same mortgage, the 1st defendant and the 2nd defendant further jointly and severally covenanted with the plaintiff, inter alia, that they would on demand in writing of the plaintiff, pay to the plaintiff all sums of money then and thereafter owing to the plaintiff on account of the general banking facilities granted to the 1st defendant together with interest at the rate of HK$9.50 per HK$1,000 per calendar month or at such higher rate of interest as the plaintiff might from time to time charge with monthly rests and all commission and other usual charges and lawful charges and all costs and expenses which might be incurred in respect thereof. 4. By the three further charges between the same parties, the plaintiff agreed to grant to the 1st defendant further general banking facilities to the extent of HK$660,000 making with the general banking facilities granted under the mortgage, the total extent of HK$800,000, upon the 1st and the 2nd defendants' covenanting (inter alia) that the 1st defendant at the request and by the direction of the 2nd defendant further charging to the plaintiff the mortgaged property as security for and henceforth to stand charged with the payment to the plaintiff of all moneys owing to the plaintiff by the 1st and the 2nd defendants. 5. It is common ground that on the 19th of April 1983, there was an Indenture of Partial Reassignment executed by the same parties. This Indenture released the King's Road property from the mortgage and at the same time reduced the general banking facilities limit on the mortgage and further charges from HK$800,000 to HK$300,000. 6. Mr. Li Chi Hung, a clerk of the Loans Department of the plaintiff bank, has deposed in an affirmation to the effect that the plaintiff has advanced more than $1.8m to the 1st defendant and though their solicitors have demanded repayment on the 5th of June 1985, despite repeated demands the same has not been repaid. 7. The plaintiff therefore seeks in its originating summons payment of all monies and interest due under the mortgage and further charges, delivery by the 1st and 2nd defendants to the plaintiff of vacant possession of the mortgaged property and costs. 8. The originating summons came before the Master for hearing on the 13th of May 1986 when judgment was entered against the 1st defendant that, (1) "The plaintiff do recover against the 1st defendant HK$2,058,289.37 secured by a mortgage dated 21st May 1986 and three further charges with interest on HK$1,894,373.45 at the rate of HK$553.77 per day from the 28th of March 1986 to the date hereof" and thereafter at the judgment rate until full payment, (2) Application for possession of the mortgaged property be adjourned sine die with liberty to restore and (3) The costs of these proceedings including costs of this application be to the plaintiff in any event. 9. It was also ordered that (1) The hearing of the Order 88 application against the 2nd defendant be adjourned sine die with liberty to restore (2) The plaintiff do have leave to file an affirmation in reply within 14 days and (3) The costs of these proceedings against 2nd defendant be reserved. 10. The matter came on for hearing again on the 3rd of September when an order was made by the Master in the following terms:
11. It is against this order that the plaintiff now appeals. By its notice of appeal, the plaintiff asks that: -
12. This notice of appeal was served on the 2nd defendant and only the 2nd defendant was represented at the hearing of this appeal. 13. The determination of this appeal depends upon the construction to be placed on the mortgage, the three charges and the Indenture of Reassignment. The central bone of contention in this case is whether when the plaintiff advanced up to HK$1.8m to the 1st defendant without obtaining the consent or agreement of the 2nd defendant to the variation of the terms as to the limit of the general banking facilities, the 2nd defendant is thereby at law discharged from any liability to the plaintiff. 14. The material parts of the mortgage for the purposes of the arguments before me are as follows:
15. The three subsequent charges on the two properties are in identical terms to one another except As to the "total extent". The first of these dated the 11th of July 1978 was in the following terms:-
16. Mr Chan for the plaintiff lays emphasis on the words in the mortgage immediately after the words "AND IT IS HEREBY DECLARED AND AGREED". He argues that these words give the bank wide powers to vary the terms of the credit, including the amount and also to deal with the debtors by giving time and other accommodation and also to deal with other securities which might be given in respect of the same indebtedness. The word "vary" must mean both increasing the facilities as well as decreasing them, he says. 17. He further submits that the limit of HK$140,000 is really an overall limit in respect of any of the forms of banking facilities provided for. The amount guaranteed is not really referring to a particular debt, but rather to an outstanding balance. The limit is at most being capable of being construed as the limitation of the liability of the surety. It could not in any way be read as a provision which would render the liberty of the bank to vary the credit as being inoperative, he says. 18. So far as the charges are concerned, he points out that there is an admission in the recitals that the mortgage is still valid and subsisting with the increase in the banking facilities. He draws attention to the words "any account whatsoever" in para. 1 in the body of the charge. He refers to para. 3 in the body of the charge and points out that there is no change in the terms of the mortgage save and except that the amount of facilities had been increased. 19. The other two charges operated the same way and resulted in the security being extended to general banking facilities of HK$800,000. 20. He then turns to the Partial Reassignment dated the 19th of April 1983 which is again signed by the same three parties. 21. The relevant part of that deed for the purposes of these proceedings is set out as follows: -
22. Mr Chan submits that these words are very clear and that they do not affect the terms of the mortgage, save and except that the premises mortgaged are now only the Argyle Street premises in respect of only HK$300,000.00. However, there is nothing in the Partial Reassignment, he says, which would take away the liberty of the bank under the original mortgage to determine or vary the credit of the mortgagor or ever to refuse to lend up to the amount of HK$300,000. It follows therefore, he says, that the 2nd defendant as Confirmor is liable for HK$300,000. 23. In support of his contention, he relies on Perry v. National Provincial Bank of England(1) and Laurie P.O. v. Scholefeld(2). 24. The latter case is referred to in Rowlatt on "Principal and Surety" 4th Edition at p. 81 as one of the authorities supporting the following proposition:-
25. Following this sentence is a sentence which expressly refers to the same case. It reads:
26. Mr Yu for the 2nd defendant relies on the general principle stated in Halsbury's Laws of England, 4th edition at para. 253 that:-
27. An example of this principle is given in the same volume of Halsbury at para. 255 under the heading "Release of Property Pledged". It reads:-
28. This principle was followed in Pauline Burnes v. Trade Credits Ltd.(3) where there was a variation of the mortgage without the guarantor's consent, the variation being the increasing of mortgage interest and an extension of the time for paying the mortgage sum and it was held that the guarantor was discharged from his liability under the guarantee. 29. The same principle was applied in National Bank of Nigeria Ltd. v. Oba M.S. Awolesi(4) where the Privy Council held that a surety was discharged by the bank's action in opening a second account for the principal debtor, through which all transactions were passed. The action was held to be a substantial variation of the contract unknown and detrimental to the surety, the guarantee being expressed to be in consideration of the bank "continuing the existing account" inspite of the fact that the surety guaranteed payments of "all advances, overdrafts, liabilities ................ etc. " 30. The same principle was followed in the Hong Kong Court of Appeal in Asian International Acceptances & Capital Ltd. v. Samuel Macomber Churn(5) where it was held that an agreement by the principal debtor made without the consent of the surety to pay a higher rate of interest in consequence of the giving of time by the creditor would discharge the surety from his undertaking. 31. In referring to the cases relied upon by Mr Chan, Mr Yu argues that Perry's(1) case says no more than this - that if the surety has given his consent to the variation by way of an express clause in the guarantee, then of course any variation or release made pursuant to such consent between the creditor and the principal debtor will not discharge the surety. However, he argues that after the signing of the mortgage the 2nd defendant's consent was sought to the 3 increases of the limit which took place as a result of the 3 further charges, but what was even more important is that in April 1983 the deed of Partial Reassignment expressly limited the facilities to HK$300,000. 32. He also argues that having regard to the conduct of the parties, one would have expected the bank to get the consent of the 2nd defendant again before varying the terms to increase the facilities to $1.4m. If the bank were to place reliance on the terms of the mortgage back in 1976 to give them liberty to vary the credit without affecting the security, he argues that that right must have been waived, or extinguished or superseded by the Partial Reassignment. 33. Mr Yu seeks to distinguish the Laurie P.O. v. Scholefeld(2) case on the basis that the document in that case was completely different from the Partial Reassignment in the present case. In the Partial Reassignment he says that there is no doubt that the parties are not referring to the limit of liability of the guarantor as in Laurie P. O. v. Scholefeld(2), where the wording was ambiguous. The wording is not ambiguous in the present case, he says. 34. He further argues that Laurie's(2) case was decided in the last century long before the decisions of the Bank of Nigeria(4) and the Pauline Burnes'(3) case which latter cases show the strict view which the court now takes where there are variations in the original contract without the consent of the surety or guarantor. 35. With the greatest respect to Mr Yu I agree with Mr Chan that the 2nd defendant is still bound by the mortgage agreement. In the recitals to that document the facilities were stated in very wide terms. The security was to be provided not in respect of a single debt, but in respect of all moneys owing to the bank in respect of the matters referred to beforehand in that document and afterwards in that document. In particular, it was agreed and declared that the bank should be at liberty at any time to determine or vary the credit of the mortgagor ................ without discharging or affecting the security. I agree with Mr Chan that neither the charges nor the reassignment have taken away from the plaintiff the power to vary the credit without destroying or affecting the security. The limit of HK$140,000 in the mortgage was clearly the limit of the security rather than the limit of the banking facilities. That power was kept alive by para. 3 of the 3 further charges. Furthermore, I agree with Mr Chan that nothing in the Partial Reassignment takes away from that power. The use of the word "limited" in that document is in my view intended to stipulate the limit of the security. It was declared in that document nothing contained therein should prejudicially affect the security of the reassignor (the bank) under the said indentures (the mortgage and the 3 charges). The liberty of the bank to vary the credit is therefore preserved. 36. With the greatest of respect to Mr Yu, I do not agree with his argument that there was a waiver of any sort by the execution by the 2nd defendant of the further charges and the Partial Reassignment. His signature was necessary to affect the increases and decrease in the security being offered. 37. Mr. Yu submits that even if I am against him in respect of the construction to be placed on these documents, judgment should not be entered for the plaintiff but that directions should be given for trial on the basis that the full financial position between the creditor and the principal debtor has not been revealed in the affirmations. In my view, the evidence in this case is sufficient for me to enter judgment for the plaintiff forthwith against the 2nd defendant in respect of the secured sum of HK$300,000 and interest thereon at a rate to be fixed after further argument, on the basis that the mortgage has not been discharged.
(1) [1910] 1 Ch. 464 Representation: Mr Edward Chan (inst'd by M/S Charles Yeung Clement Lam & Co.) for Plaintiff Mr Benjamin Yu (Inst'd by M/S Ng & Fang) for 2nd Defendant |