Hung Kai Finance Co Ltd v. Faith Ltd and Another

HCA011475/1982

IN THE HIGH COURT OF JUSTICE

BETWEEN

Coram: Hon. Mantell J.

Date: 7th October, 1983.

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JUDGMENT

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1. On 19th September 1981, the plaintiff lent the 1st defendant to this action a substantial sum of money and it is sufficient to say for present purposes that it was an excess of HK$5,500,000. That loan was secured by a legal charge over premises in Castle Peak Road, Kowloon. The terms of the agreement between the parties provided for the repayment of the loan and for interest at a given rate.

2. The 1st defendant was in breach of its obligation to repayas required under that agreement and by November 1982, the total deficiency amounted to HK$681,206.24. It appears that the 1st defendant was at that stage in some difficulties in making good its default and negotiations were entered into between the 1st defendant and the plaintiff which resulted in what has been described to me as a restructuring of the mortgage. What it really amounted to was a straightforward compromise of a potential action existing between the plaintiff and the 1st defendant under which, the plaintiff would have been wale to enforce its rights as contained in the mortgage agreement.

3. The bones of the new agreement are set out in a letter dated 12th November 1982 which Miss Mok on behalf of both defendants has admitted, constituted a binding agreement not only between the plaintiff and the1st defendant but also between the plaintiff and the 2nd defendant whose role in all of this I have yet to describe.

4. what it really comes to is that the 1st defendant was to be given a period of grace or an extension in which to fulfil its obligations. The amount of the debt then accrued was to be repaid as to $227,456.24 immediately and the balance of $453,750 was to be regarded as a further advance by the plaintiff to the defendants and to be repayable over a period of time and subject to interest. Not unnaturally, the plaintiff wished to secure its position no less effectively that it had attempted to do so when the first agreement was entered into and the first charge created. It required the 1st defendant to give security by executing a further charge over the same property with regard to the additional advance so as to secure the $453,750 and in addition to that, it required the 2nd defendant who, I have taken to be an officer of the 1st defendant, to give his personal guarantee for the repayment of that sum. To put it very shortly, the 1st defendant has fallen into default under that so called restructuring or compromise agreement in that, it has, since12th November 1982, failed to make payments as required under the agreement either in relation to the original sum advanced or in relation to the new loan. Neither has it made the payment of the $227,456 which was required to be paid forthwith.

5. When this matter came on for hearing this morning, Miss Mok who appears for both defendants made a number of admissions of fact. They were in the first place that the very material letter of12th November 1982, had been signed by both defendants. Secondly, that the agreement contained in the letter of 12th November 1982 was binding upon both the 1st defendant and the 2nd defendant. She further admitted that the 1st defendant was in breach of that agreement. Her submission was at that stage that there remained a live issue as to whether or not the 2nd defendant was in breach of the agreement and she indicated, helpfully, so as to isolate the issues that her answer to the allegation that the 2nd defendant was in breach was founded upon two matters. They were in the first place, that the guarantee which he entered into under that agreement was conditional upon the execution of the second mortgage which had never been executed by the 1st defendant and, therefore, that the guarantee had not come into operation, and secondly, that there was no consideration for the contract of guarantee because the sum of $453,750 which was the subject matter of the charge and the guarantee had never been advanced.

6. Well, at the very outset, Mr. Allman-Brown for the plaintiff moved under 0.27 r.3 for judgment on the basis of the pleadings, those various admissions and the agreed documents and that is a matter which, in the event, I have had to determine and I indicate immediately that I have found that the plaintiff is entitled to judgment against both the 1st defendant and the 2nd defendant. Now, I reserve for the moment my judgment as to the appropriate orders which flow.

7. Mr. Allman-Brown's submission has been that once the breach of agreement is conceded, judgment must follow as against the 1st defendant and I agree. Miss Mok has submitted that although judgment must follow against the 1st defendant in the sum of $227,456,24, that sum being due immediately following upon the agreement or at least within a limited time having expired following upon the agreement. But the sum of $453,750 is not due and, therefore, there should not be judgment in that amount because she says it has not been advanced and if she is wrong in that, she says then, specific performance should not lie because that sum never having been credited, as I understand the argument, to the 1st defendant, the 1st defendant has been paying more interest than it ought to have been paid and consequently, specific performance being a discretionary remedy should not follow.  I am not quite sure whether Miss Mok also applies to the case of the 1st defendant the argument which she advanced in the case of the 2nd defendant namely that in any event, damages being a sufficient remedy in itself, specific performance should not lie but I take it that she does.  Miss look has referred me to the case of Rogers v. Challis, ⁽¹⁾ I do not find that that case provides a great deal of assistance on the facts of this case but let me deal with her submissions in turn. First, as to the failure of the plaintiff to credit the amount of the advance. Well, it is perfectly true that the statement of account does not show any entry reflecting the making of that advance in November 1982. But I reject the submission that had such an entry be made, it would have served to reduce the balance shown as owing by the 1st defendant to the plaintiff. The balance as shown is achieved by adding together the principal originally advanced and the amount of interest having accrued on that principal which is to be taken in part, at any rate, as the further advance under the second mortgage. Consequently, I find that there is nothing in that first submission. As to the second, I take the view in the exercise of my discretion that what was being sought perfectly, properly in November 1982 by the plaintiff in arm's length negotiations between the parties was security for its further advance. It chose to exact from the 1st defendant security in the form of a further charge. To be deprived of that security in the absence of certain knowledge that any money judgment will be met is to be deprived of a remedy which cannot be sustituted for by the money judgment alone. Consequently, I. reject that second submission also.

8. So far as the 2nd defendant is concerned, Miss Mok has submitted that his obligation under the terms of the guarantee only came into existence so soon as the mortgage has been executed by the 1st defendant. I do not agree. On my reading of the documents and in particular of the letter of 12th November, the obligation came into existence quite independently upon the fulfilment by the 1st defendant of its obligation to execute that mortgage. Since, I find that the letter dated12th November together with the acceptance of its terms, which in turn incorporated, I find, the terms of the draft mortgage deed, constituted an equitable mortgage between the plaintiff and the 1st defendant, it would follow that the issue of the writ itself amounts to a demand made of the 2nd defendant to fulfil his obligation under the guarantee.

9. I ought to make it plain that Miss Mok has told me that there would be no matters of fact which she would wish to lay before the court so as to make judgment under this rule inappropriate. Consequently, I give judgment not only as against the 1st defendant under 0.27 r.3 but also against the 2nd defendant. There will be judgment for the plaintiff against the 1st defendant in the sum of $227,456.24 under paragraph 1 of the prayer. There will be judgment for the plaintiff against the 1st defendant in the sum of $453,750 under paragraph 2 of the prayer as amended. I make the declaration sought under paragraph 3 of the prayer. It is not appropriate in the circumstances and I do not give any relief under paragraph 4 of the prayer. I make a declaration that the plaintiff is entitled to interest on the sum of $453,750 to be calculated as from 26th October 1982. There will be judgment for the plaintiff against the 1st defendant in the sum of $60,000 as claimed in paragraph 6 of the prayer as amended. I give judgment for the Plaintiff against the 1st defendant under paragraph 7 of the Prayer in the sum of $180,000. There will he judgment for the plaintiff against the 2nd defendant in the sum of $453,750 plus the amount by which that sum is to be increased by the additional interest as calculated under paragraph 5 of the prayer for relief against the 1st defendant. The interest appropriate to the sum of $453,750 both in the case of the 1st defendant and the 2nd defendant is by consent to be at 2 7/8% above prime lending rate from 26th October 1982 until payment. So far as the interest to be awarded on the sum of $227,456.24 is concerned, having beard argument and riot without some degree of hesitation, I think the appropriate rate ought to be 11½%

10. Now, Miss Mok, I am not sure whether in the course of giving judgment, I adverted to one of your arguments. In case I did not, I mention it now. It was, as I recall, that the obligation not only of the 2nd defendant under the terms of the guarantee but also that the obligation of the 1st defendant with regard to repayment only arose after execution of the mortgage. It is an argument which I did explicitly reject during the course of argument and I should do so in the course of my judgment. It cannot be right, I find that the obligation on the 1st defendant under the loan agreement should rest solely upon its obligation to execute the mortgage deed. That would lead, in my judgment, to an absurd result. The obligation ran from the moment of the agreement and the fact that the 1st defendant was in default in failing, to execute the agreement, as I find it was, could not in any way delay its obligation to make repayment as agreed.

(1) [1859] reported in 27 Bear at p. 174

Representation:

Mr. A. Allman-Brown (J.S.M.) for Plaintiff

Miss A. Mok (Philip K.H. Wong & Co.) for both Defendants.