Bank of China (Hong Kong) Ltd v. Fu Ming Kong Michael and Another

HCA 7769/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 7769 OF 2000

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BETWEEN

AND

HCMP 3909/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 3909 OF 2000

____________

BETWEEN

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(By Original Writ of Summons and Order to carry on)
(Consolidated pursuant to the Order of Master Wong dated
28^th September 2001)

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Before: Mr Recorder Kwok, S. C. in Court

Dates of Hearing: 21-24, 27-30 June, 4-8 July 2005

Date of Judgment: 8 July 2005

Date of Reasons for Judgment: 22 July 2005

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REASONS  FOR  JUDGMENT

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Introduction

1.In these proceedings, Bank of China (Hong Kong) Limited, the plaintiff, a bank, claimed against:-

(a)   Mr Fu Ming Kong, Michael, the 1st defendant, as guarantor; and

(b)   First China Trading Limited, the 2nd defendant, as mortgagor;

in respect of the amount owed by the borrower, Top Fashion Trading Limited, to the plaintiff.

2.First China Trading Limited and Top Fashion Trading Limited were Mr Fu Ming Kong, Michael’s companies. 

3.The indebtedness of Top Fashion Trading Limited to the plaintiff was admitted in a letter dated 10 July 2000 written by Mr Fu Ming Kong, Michael, to the plaintiff.

4.In their Amended Defence, Mr Fu Ming Kong, Michael, and the 2nd defendant alleged 2 oral agreements, one allegedly made on 18 January 2000 and the other allegedly made on 4 July 2000.  The plaintiff disputed both alleged agreements.

5.An issue which arose in the course of the hearing was in relation to the Order 88 rule 5(2) requirement to produce the original mortgage at the hearing of the summons.

6.At the end of the trial, I made the following order and pronounced the following judgment and said that reasons for my judgment would be handed down on 22 July 2005:-

“This action having been tried before Mr. Recorder Kenneth Kwok, SC without a jury, at the High Court of the Hong Kong Special Administrative Region Court of First Instance and Mr. Recorder Kenneth Kwok, SC having on the 8th day of July 2005, ordered that judgment as hereinafter provided be entered for the Plaintiff.
It is adjudged that the 1st and 2nd Defendants do pay the Plaintiff:-
(i)	the sum of HK$14,210,402.63 in which HK$8,869,042.03 being principal and HK$5,341,360.60 being interest accrued from 2 June 2000 up to 8 July 2005;
(ii)	further interest on the principal sum of HK$8,869,042.03 at the judgment rate from 9 July 2005 until repayment in full; and
(iii)	costs of this action on full indemnity basis to be taxed if not agreed.

It is further adjudged that the 2^nd Defendant do deliver to the Plaintiff by 4:00 p.m. on 5 August 2005 (Friday) vacant possession of the property comprised in a Mortgage dated 2 December 1991 and registered in the Land Registry by Memorial No.5136511 (the ‘Mortgage’) made between the Plaintiff as the Lender and the 2^nd Defendant as the Mortgagor and known as the Whole of 10^th Floor, Seaview Centre, Nos.139-141 Hoi Bun Road, Kowloon (the ‘Property’).

Upon the 2^nd Defendant paying to the Plaintiff the money hereby ordered to be paid and all other moneys (if any) secured to the Plaintiff by the Mortgage, the Plaintiff (subject and without prejudice to the due exercise of any power of sale for the time being vested in it) do re-deliver to the 2^nd Defendant vacant possession of the Property and do release to the 2^nd Defendant the security constituted by the Mortgage as the 2^nd Defendant may agree or this Honourable Court may direct.”

7.My reasons follow.

Facilities letters and securities documents

Mortgage dated 2 December 1991

8.By a mortgage dated 2 December 1991 (“the Mortgage”), the 2^nd defendant, as borrower, charged the Property to the plaintiff to secure the 2^nd defendant’s indebtedness to the plaintiff and covenanted to pay on demand all sums of money which at the date of such demand might be outstanding and according to the books of the plaintiff payable by the 2^nd defendant to the plaintiff (clauses 3 and 2.1).

9.Clause 17 of the Mortgage provided, inter alia, for the payment by the 2^nd defendant of the plaintiff’s legal expenses, on solicitors own client basis, incurred in suing for or recovering any sum due from the 2^nd defendant to the plaintiff or in connection with the protection or enforcement of the security.

The Deed of Variation of Mortgage dated 18 January 1993

10.A Deed of Variation of Mortgage dated 18 January 1993 (“the Variation Deed”) was made between the plaintiff, the 2^nd defendant and Top Fashion Trading Limited to vary the terms of the Mortgage.  The Variation Deed recited in recital (d) that the 2^nd defendant and Top Fashion Trading Limited had requested the plaintiff to provide banking facilities to Top Fashion Trading Limited to the exclusion of the 2^nd defendant which the plaintiff had agreed to do subject to the terms and conditions of the Variation Deed.

11.Clause 1 of the Variation Deed provided that the plaintiff accepted Top Fashion Trading Limited to take the place of the 2^nd defendant to enjoy the benefit of the banking facilities to the intent that the benefit of the facilities was thereby transferred to Top Fashion Trading Limited as if it had been an additional party to the Mortgage.

12.By Clause 3 of the Variation Deed, the 2^nd defendant covenanted with the plaintiff that the Property should stand charged with and remain as continuing security as first fixed mortgage to secure the due payment of all monies payable to the plaintiff by the 2^nd defendant and Top Fashion Trading Limited together with interest thereon and the due fulfilment by the 2^nd defendant and Top Fashion Trading Limited of the covenants conditions and stipulations contained in the Mortgage and the Variation Deed.

2 facilities letters dated 4 May 1999

13.By letter dated 4 May 1999, the plaintiff informed Top Fashion Trading Limited of the grant of banking facilities, i.e. overdraft up to  $1,500,000 and letters of credit issuance and inward bills facility up to $2,000,000 (within which trust receipt facility for period up to 90 days up to $2,000,000 was available), on revised terms (clause 1).  Default interest was 4.25% per annum over the plaintiff’s prime rate or overnight inter-bank rate or the plaintiff’s cost of fund, whichever was higher (clause 2.4).  The facilities were repayable on demand (clause 4.1) and the plaintiff had the sole and absolute right to appropriate either at the time of payment or at any time thereafter any moneys paid to the plaintiff or otherwise coming into its possession or control from Top Fashion Trading Limited in or towards discharging whichever part or parts of Top Fashion Trading Limited’s liabilities to the plaintiff as the plaintiff should think fit and any such appropriation should override any purported appropriation by Top Fashion Trading Limited (clause 4.4).  Any statement of account relating to the facilities signed as correct by any one of the plaintiff’s officers should be conclusive evidence of Top Fashion Trading Limited’s indebtedness to the plaintiff and be binding on Top Fashion Trading Limited, save for manifest errors (clause 5).  Legal fees incurred by the plaintiff in connection with the facilities or any enforcement or attempted enforcement of the plaintiff’s rights under the facilities letter were to be borne by Top Fashion Trading Limited on a full indemnity basis (clause 12).  Mr Fu Ming Kong, Michael, signed on behalf of Top Fashion Trading Limited accepting the facilities and dated his acceptance 28 May 1999.  Ms Wong Lai Fan signed as witness. 

14.By another letter dated 4 May 1999, the plaintiff informed Top Fashion Trading Limited of the revision of the terms of the original term loan of $9,840,000 granted in July 1991.  The amount outstanding as at the date of the letter was $6,494,299.87, with 88 remaining monthly instalments.  The loan was subject to the plaintiff’s overriding right to demand for immediate repayment (clause 4(a)).  The plaintiff had the sole and absolute right to appropriate either at the time of payment or at any time thereafter any moneys paid to the plaintiff or otherwise coming into its possession or control from Top Fashion Trading Limited in or towards discharging whichever part or parts of Top Fashion Trading Limited’s liabilities to the plaintiff as the plaintiff should think fit and any such appropriation should override any purported appropriation by Top Fashion Trading Limited (clause 4(d)).  Default interest was 4.25% per annum over the plaintiff’s prime rate or the plaintiff’s cost of fund, whichever was higher (clause 7(a)).  Legal fees incurred by the plaintiff in connection with the term loan or any enforcement or attempted enforcement of the plaintiff’s rights under the letter were to be borne by Top Fashion Trading Limited on a full indemnity basis (clause 12).  Mr Fu Ming Kong, Michael, signed on behalf of Top Fashion Trading Limited accepting the terms and dated his acceptance 28 May 1999.  Ms Wong Lai Fan signed as witness.

Fu Ming Kong, Michael’s written guarantee dated 28 May 1999

15.By a continuing guarantee dated 28 May 1999 (“the Guarantee”), Mr Fu Ming Kong, Michael, agreed to pay and satisfy to the plaintiff on demand in writing all sums of money debt and liabilities due but unpaid to the plaintiff from or by Top Fashion Trading Limited, including legal or other costs, expenses, disbursements and payments incurred by the plaintiff in relation to Top Fashion Trading Limited or the Guarantee on a full indemnity basis.  The Guarantee was limited to $10,050,000, together with interest and costs (clauses B and C4).  Any admission or acknowledgment in writing by Top Fashion Trading Limited of the amount of its indebtedness to the plaintiff should be binding and conclusive on and against Mr Fu Ming Kong, Michael, and a certificate by any of the plaintiff’s duly authorised officers as to the moneys and liabilities for the time being due or owing to the plaintiff from or by Top Fashion Trading Limited should be binding on Mr Fu Ming Kong, Michael, and conclusive evidence in any legal proceedings (clause C8).  Ms Wong Lai Fan signed as witness.

Defendants’ indebtedness

16.The defendants made no attempt to dispute the amount of the indebtedness by Top Fashion Trading Limited to the plaintiff.

17.By 3 letters of demand all dated 20 June 2000, the plaintiff, through its former solicitors, Messrs Koo & Partners, wrote to Top Fashion Trading Limited, Mr Fu Ming Kong, Michael, and the 2^nd defendant demanding payment of the total indebtedness due by Top Fashion Trading Limited to the plaintiff.  The total amount said to be due as at 1 June 2000 was $9,589,206.51. 

Outstanding principal amounted to $8,869,042.03.  Interest was claimed on the trust receipt and term loan components (in other words, no interest was claimed in respect of the overdraft component) at 13.75% per annum as from 1 June 2000 or a daily rate of $2,768.16. 

18.On the plaintiff’s computations, the total amount due as at 10 July 2002 would be $9,589,206.51 + $2,768.16 x 40 = $9,699,932.91.

19.By 2 letters both dated 27 June 2000, Mr Fu Ming Kong, Michael, wrote on behalf of Top Fashion Trading Limited to Messrs Koo & Partners and to the plaintiff’s Kwun Tong Sub-branch.  There was no dispute in either letter of the amount due by Top Fashion Trading Limited to the plaintiff.

20.By letter dated 10 July 2000, Mr Fu Ming Kong, Michael, wrote on behalf of Top Fashion Trading Limited to Mr Brian Chu of the plaintiff’s Credit & Risk Control Department.  Again, there was no dispute of the amount due by Top Fashion Trading Limited to the plaintiff.  Mr Fu Ming Kong, Michael, alleged that they were actively marketing the Property and that they expected to sell the Property by August and in any event not later than September 2000. Mr Fu Ming Kong, Michael, went on to state that:-

“The sale proceeds would first be used to cover our indebtedness.  Should we market at around HK$1000 square foot (sic), our outstanding would be covered at once.  If we market at HK$900 or HK$850 we have following schedule:-
Proceeds of Property	Indebtedness	Shortage	Propose (sic) Monthly Installment
HK$	HK$	HK$	HK$
$900 x 10085’ = $9,076,500.00	roughly 9,800,000.00	723,500.00	over 18 months
$850 x 10085’ = $8,572,250.00	roughly 9,800,000.00	1,227,750.00	over 24 months”

21.The defendants made no attempt to explain how the sum of $9,800,000 was arrived at.  $9,800,000 is more than the sum of $9,699,932.91 due as at 10 July 2000 on the plaintiff’s computations.

The 18 January 2000 alleged agreement

22.Mr Fu Ming Kong, Michael, and the 2^nd defendant alleged in the first paragraph 7 of their Amended Defence the following oral agreement said to be made on 18 January 2000:-

“	(1)	The 1st Defendant is a Director of the Borrower.  On 18th January 2000, the Defendant (sic) in his dual capacities as Guarantor and Director of the Borrower, held a meeting with Mr. Lee Man Kwok (‘Lee’), the branch manager of the Kwun Tong Branch of the Plaintiff in the presence of Mr. Ip Kwok Chuen (‘Mr. Ip’), the assistant of Lee, and Miss Ip Fung Ngo (‘Miss Ip’), the assistant of the 1st Defendant, during which the 1st Defendant and Lee similarly discussed ways to re-activate the Borrower’s Facilities under the Facilities letter, which was at the material times ‘frozen’ by the Plaintiff, due inter alia to the late settlement of the T/R facility by the Borrower to the Plaintiff including HK$245,435.00 under T/R No. R-50819.
	(2)	Lee, on behalf of the Plaintiff orally agreed with the 1st Defendant to the effect that if the outstanding amount due on the said TR No. R-50819 was paid by the Borrower, the Facilities of the Borrower would be re-activated (hereinafter called ‘the 1st Oral Agreement’).”

23.What Mr Lee Man Kwok (“Mr Lee”) allegedly said was also pleaded by the defendants as representations.

24.Whether Mr Lee had said what the defendants imputed to him and whether the alleged 18 January 2000 agreement existed were questions of fact.  I found against the defendants on these questions.

25.The alleged 18 January 2000 agreement flew in the face of contemporaneous documents (including, in particular, letters written by Mr Fu Ming Kong, Michael); was inherently improbable; and did not sit comfortably with objective facts.  I also found that both witnesses called by the defence were anything but truthful witnesses.

26.By letter dated 14 September 1999, the plaintiff wrote to Top Fashion Trading Limited demanding payment of the total amount of $9,553,598.10 due as at 14 September 1999 and notifying the suspension with immediate effect of all credit facilities.

27.By letter dated 7 October 1999, the plaintiff wrote to Top Fashion Trading Limited demanding payment of the total amount of $9,581,269.14 due as at 7 October 1999 and notifying the suspension with immediate effect of all credit facilities.

28.The amount of indebtedness was substantial.  The period of default was long.  Instead of making any payment to the plaintiff, Mr Fu Ming Kong, Michael, resorted to delaying tactics.  He wrote a letter dated 21 October to Mr Lee.  In his letter, Mr Fu Ming Kong, Michael, claimed to be sorry for the defaults, but declined to meet Mr Lee, as requested by Mr Lee through Ms Wong Lai Fan.  Significantly, Mr Fu Ming Kong, Michael, acknowledged the pressure on Mr Lee and said that he knew that Mr Lee had tried his best if the bank declined to grant indulgence or could not be flexible.  It was plain from Mr Fu Ming Kong, Michael’s own letter that he knew that the matter was beyond Mr Lee’s powers.

29.By letter dated 28 December 1999 to the plaintiff, Mr Fu Ming Kong, Michael, tried to delay the matter further by claiming that he “was informed money would be forthcoming anytime now as the customer was slightly behind with cash”.  Mr Fu Ming Kong, Michael, was clearly not in a hurry to meet Mr Lee or to request for the opening of any letter of credit because the proposed meeting was scheduled for 12 January 2000, some 2 weeks later.  In the event, the meeting was not held until 18 January 2000.

30.Under cross-examination, Mr Fu Ming Kong, Michael, said that at the meeting on 18 January 2000, people in the bank said that it was a matter which would require approval from headquarters.  The alleged 18 January 2000 agreement was one which to Mr Lee’s knowledge was beyond his authority.  In my judgment, Mr Lee was a competent and prudent banker and it was inherently improbable for Mr Lee to have made an agreement knowingly beyond his authority.

31.In the light of Mr Fu Ming Kong, Michael’s letter dated 21 October (1999), and in the light of the bank officers’ explanation on 18 January 2000 that the matter was one for headquarters, it was plain and utter nonsense for Mr Fu Ming Kong, Michael, to allege that he acted on or relied on what Mr Lee was alleged in the Amended Defence to have said.  I rejected his allegation.

32.The current account statement of Top Fashion Trading Limited showed that on 20 January 2000, a cheque for $50,000.00 was deposited, followed by a deposit of another cheque for $245,435.00, and that on 21 January 2000, a cash deposit of $16,000.00 was made.  The defendants accepted that the 2 cheques were deposited on separate occasion.  In my judgment, the deposit of the cheque for $50,000.00 was made before the deposit of $245,435.00.  The sequence in which these deposits appeared in the current account statement was decisive on this point.  The sequential reference numbers generated and printed by the computer on the deposit slips (0341399 for the $50,000.00 cheque and 0343571 for the $245,435.00 cheque)  and the cheque numbers (626064 for the $50,000.00 cheque and 626065 for the $245,435.00 cheque) also pointed to the same conclusion.  The time spent on this point demonstrated Mr Fu Ming Kong, Michael’s tenacity in wasting the Court’s time and the plaintiff’s costs.

33.$245,435.00 was the precise amount of T/R No. 50819.  On 21 January 2000, the plaintiff appropriated $245,811.56 to Top Fashion Trading Limited’s bills account.

34.By letter dated 28 January 2000 (i.e. 10 days after the 18 January 2000 meeting), Mr Fu Ming Kong, Michael, wrote to the Mr Lee in these terms (written exactly as in the original):-

“28/1/2000

Dear Mr Lee/Mr Yip

This is a brief follow up

We met 18/1/2000 in your bank and it was to be understood that I would do best to cover T/R No. R-50819 and a big part or all of T/R No R-50840 plus O. D. about HK50000.  I requested your assistance that my company be allowed to open L/C for needed fabric – about 80% of the T/R money I was to pay in.  Mr Lee informed he would request on my behalf and advised I could pay in first any amount to cover R-50819 as a token of sincerity.

On 20/1/2000 we paid in HK245435 to cover the whole R-50819 and HK66000 to cover the O. D. as requested by Mr Yip.

My staff has sent in one L/C application on 25/1/2000.  Would you assist?”

It was plain from Mr Fu Ming Kong, Michael’s account of the 18 January 2000 meeting that all that Mr Lee could be said to have agreed was to request on his behalf to allow his company to open letters of credit to the extent of 80% of trust receipt repayments.  Any repayment which Mr Fu Ming Kong, Michael, might make to cover R50819 was to serve “as a token of sincerity”.  The alleged 18 January 2000 agreement was concocted after the event.

35.I should mention that I did not accept that the “Mandate and appointment of authorized signatory(ies) undermaster (sic) agreement for bills transactions and trade finance (by a limited company)” dated 18 January 2000 was a document handed to Mr Fu Ming Kong, Michael, and completed by him and Ms Ip Fung Ngo at the bank’s Kwun Tong sub-branch on 18 January 2000.  In my judgment, it was another concoction by Mr Fu Ming Kong, Michael.  There was no mention of this alleged event, whether in correspondence or in the defendants’ pleadings.  The existence of numerous ticks and crosses at places for relevant information to be filled in and for signatures suggested that the form was taken away for completion and signature.  The document was used because of a change in mandate and a change in mandate was a matter for the customer and there was no reason why the plaintiff should have refused to accept the change in mandate at a time when the banking facilities were merely suspended.  While a bank officer should not sign as witness to a document which he did not in fact witness, this practice was not extraordinary for customers known to the bank officer.  

Credibility of witnesses

36.4 witnesses gave evidence on the crucial 18 January 2000 and 4 July 2000 meetings.  I have carefully observed their demeanours and considered their evidence. 

37.Mr Lee impressed me as a truthful witness.  There was no or no real challenge by Mr Fu Ming Kong, Michael of Mr Lee’s veracity.  I accepted all the testimony by Mr Lee.

38.Mr Lee’s assistant, Mr Ip, also gave evidence.  Mr Ip was not an impressive witness.  There were times when Mr Ip tried to reconstruct events on the basis of documents in the bundle.  That Mr Ip was not an impressive witness did not detract from the fact that Mr Lee was.

39.Mr Fu Ming Kong, Michael, was anything but a truthful witness.  Sometimes, he distorted.  At other times, he simply lied.

40.Ms Ip Fung Ngo claimed to have ceased to be employed by Mr Fu Ming Kong, Michael, as secretary.  Ms Ip Fung Ngo was an actress and a liar, and a poor one at that.  Ms Ip Fung Ngo pretended to try to recall events and then regurgitated her script.  Basically, what Ms Ip Fung Ngo did was to regurgitate the same scripts and there was only a few of them.

The 4 July 2000 alleged agreement

41.Mr Fu Ming Kong, Michael, and the 2^nd defendant alleged in the first paragraph 7 of their Amended Defence the following oral agreement said to be made on 4 July 2000:-

“	(12)	On 4th July 2000, the 1st Defendant held a meeting with Lee of the Plaintiff at the Plaintiff’s Kwun Tong Branch Office in the presence of Mr. Ip and Miss Ip concerning the sudden letters of demand issued by the Plaintiff’s solicitors, Messrs. Koo & Partners, to the Borrower, and the 1st Defendant demanding settlement of the indebtedness to the Plaintiff.
	(13)	Lee was apologetic to the 1st Defendant on the failure of the Plaintiff to approve the L/C application of the Borrower.  Saying that the debt owed by the Borrower is better to be settled by the sale of the mortgaged property, namely, 10/F., Seaview Centre, Nos. 139-141 Hoi Bun Road, Kowloon (‘the mortgaged property’) and that the mortgaged property could be sold at a higher price by the 1st Defendant than the Plaintiff, Lee agreed with the 1st Defendant and/or represented to the 1st Defendant that the intended legal action against the Borrower, and the 1st Defendant could be avoided simply by the 1st Defendant writing to Mr. Brian Chu of the Credit and Risk Control Department of the Plaintiff with the written proposal for  sale of the mortgaged property through the 1st Defendant as a matter of formality. (‘the 2nd Oral Agreement’).”

42.The pleading asserted that Mr Fu Ming Kong, Michael, believed what Mr Lee allegedly said and was misled by Mr Lee.

43.Whether Mr Lee had said what the defendants imputed to him and whether the alleged 4 July 2000 agreement existed were questions of fact.  I found against the defendants on these questions.

44.The alleged 4 July 2000 agreement flew in the face of contemporaneous documents (including, in particular, letters written by Mr Fu Ming Kong, Michael); was inherently improbable; and did not sit comfortably with objective facts.  In any event, the defence evidence did not establish the alleged 4 July 2000 agreement.

45.Although I have put the 2 alleged agreements under different main subject headings, the 2 sections should be read together.

46.By letter dated 23 February 2000, Mr Fu Ming Kong, Michael, wrote on behalf of Top Fashion Trading Limited to the plaintiff requesting the plaintiff to reduce the interest for the mortgage loan from March 2000 onwards.

47.By letter dated 24 February 2000, Mr Fu Ming Kong, Michael, wrote on behalf of Top Fashion Trading Limited to the plaintiff requesting the plaintiff to waive default interest as from March 2000. 

48.It was clear from the 2 letters dated 23 and 24 February 2000 that Mr Fu Ming Kong, Michael, accepted that the indebtedness by Top Fashion Trading Limited to the plaintiff was repayable with interest.  These 2 letters supported my finding that the alleged 18 January 2000 agreement did not exist.  However, if, contrary to my finding, the alleged 18 January 2000 agreement existed, Mr Fu Ming Kong, Michael, proceeded on the basis that the indebtedness was repayable with interest despite the alleged 18 January 2000 agreement.

49.By letter dated 24 February 2000, Mr Fu Ming Kong, Michael, wrote to the plaintiff to thank Mr Lee and Mr Ip for their co-operation in the past year and stated that the “phone message from Mr. Yip to Gloria has been well received”.  The evidence given by Mr Fu Ming Kong, Michael, and Ms Ip Fung Ngo was to the effect that Mr Lee asked Mr Ip to inform Mr Fu Ming Kong, Michael that Mr Lee wanted to issue the letter of credit but was stopped by the bank.  According to the evidence of Mr Fu Ming Kong, Michael, he knew that Mr Lee wished to help but Mr Lee was unable to.

50.On 8 March 2000, Ms Wong Lai Fan and another presented a winding up petition against Top Fashion Trading Limited.

51.By letter dated 16 March 2000, Mr Fu Ming Kong, Michael, wrote on behalf of Top Fashion Trading Limited to the plaintiff requesting the transfer of the banking facilities from Top Fashion Trading Limited to Linmate Garments Limited “for us to continue normal trading activities”.  This belied the allegation in the Amended Defence that Mr Fu Ming Kong, Michael, “simply had to stop accepting any new purchase orders” and his “business therefore came to an abrupt close”.

52.By letter dated 11 May 2000, Mr Fu Ming Kong, Michael, wrote on behalf of Gold Gate Enterprises Limited to the plaintiff requesting the transfer of the banking facilities from Top Fashion Trading Limited to Gold Gate Enterprises Limited “in order to continue our normal trading activities”.  This belied the allegation in the Amended Defence that Mr Fu Ming Kong, Michael, “simply had to stop accepting any new purchase orders” and his “business therefore came to an abrupt close”.  The letter went on to state that:-

“As regard payments in arrear (sic) under your facility package we would confirm hereby all outstanding will be met.  With long years of relationship with your bank, our past record and integrity should support our committement (sic).

We have concrete plan to sell 10th floor Seaview Centre to associate in the garment industry from the United States who will visit us in July this year to conclude the matter.  You will be informed all the way and total proceeds will be used to settle the bank’s outstanding.  We expect by the third quarter of this year, that is, End September 2000, we would clear our outstanding liabilities.”

53.Again, it was clear from this letter that Mr Fu Ming Kong, Michael, accepted that all outstanding by Top Fashion Trading Limited to the plaintiff would be met.  This letter supported my finding that the alleged 18 January 2000 agreement did not exist.  However, if, contrary to my finding, the alleged 18 January 2000 agreement existed, Mr Fu Ming Kong, Michael, proceeded on the basis that the alleged 18 January 2000 agreement did not excuse repayment. 

54.It should be noted that the plaintiff was told in May 2000 by this letter of the defendants’ alleged plan to sell the Property.

55.Messrs Koo & Partners sent the 3 letters dated 20 June 2000 referred to in paragraph 17 above.

56.By letter dated 27 June 2000, Mr Michael Fu wrote on behalf of Top Fashion Trading Limited to the plaintiff stating that (written exactly as in the original):-

“All along we are aware of our problem at hand and making effort to settlement our indebtedness to you.  We have written to you 11th May to inform you the visit of good potential buyer of our office from the United States which is fixed now between 26-28 July 2000.  And we have also appointed property agent Flourish Property Agency (HK) Ltd. to market the property without delay.  A copy of Flourish’s appointment is herewith attached.”

Mr Fu Ming Kong, Michael acknowledged liability to settle indebtedness.  The plaintiff was again informed of the alleged marketing of the Property.

57.By letter dated 10 July 2000 (i.e. 6 days after the 4 July 2000 meeting), Mr Fu Ming Kong, Michael, wrote on behalf of Top Fashion Trading Limited to Mr Brian Chu of the plaintiff’s Credit & Risk Control Department in these terms (written exactly as in the original):-

“Dear Mr. Chu,

Re: Koo and Partners’ letter ref DCT/0058829/LWP/MY/AYH dated 20 the June 2000

We are in receipt of captioned letter and have subsequently written both to your Kwun Tong Branch and Koo And Partners Solicitors & Notaries.

On 4 July 2000 we had a meeting with your Mr. Lee and Mr. Yip of Kwun Tong Branch to communicate our sincerity in settling our indebtedness to Bank of China.  Both Mr. Lee and Mr. Yip were so kind to point out they had no doubt about our sincerity but suggested it would serve the bank well if we could outline a concrete proposal towards settlement of our outstanding.  And we are writing to you in this direction.

We are actively marketing our Seaview Centre office privately and through property agent such as Fourish Property Agency.  A copy of signed contract is herewith attached for your record.  We put up our office for HK$1000 per square foot inclusive of good-standard furnishing, central air-condition and certain furniture.  This target price already represents an adjustment.  Mr. Lee, however, advised us to be flexible with our offering so as not to delay transaction.  We are taking his advise and we expect to sell our property by August and in any event not later than September 2000.

[passage quoted in paragraph 20 above]

We have been a loyal client of Bank of China for over 10 years and managed our accounts in orderly manner.  We have no record of defaulting any banks and we have the slightest intention to begin with you.  Our company and the undersigned are determined to maintain our business intergrity and should very much appreciate if you would assist us.  We guarantee and are confident the bank will not lose one dime of principal and interest.”

58.Top Fashion Trading Limited and the defendants had not repaid a single cent to the plaintiff since the cash deposit of $16,000.00 on 21 January 2000.  The amount due was substantial and the period of default was long.  A winding up petition had been presented against Top Fashion Trading Limited.  By 4 July 2000, the plaintiff was repeatedly made aware of the defendants’ alleged intention and proposal to sell the Property.  In his evidence in chief, Mr Fu Ming Kong, Michael, said that Mr Lee told him about the seriousness of his overdue situation; that his file had been passed to another department; that it was called the Risk Department; and that Mr Lee could not do anything.  Against this background, the pleaded case that Mr Lee agreed that the intended legal action against Top Fashion Trading Limited and Mr Fu Ming Kong, Michael, “could be avoided simply by [Mr Fu Ming Kong, Michael] writing to Mr Brian Chu of the Credit and Risk Control Department of the plaintiff with the written proposal for sale of the mortgaged property through [Mr Fu Ming Kong, Michael] as a matter of formality” was so absurd that it should be laughed out of Court.  When Mr Fu Ming Kong, Michael, was confronted with his own letter dated 10 July 2000, the absurdity of his case probably dawned on him. 

“	Q	4 July meeting, according to the evidence you gave to this Court, you said during the meeting, after seated, Mr Lee told you about the seriousness of your overdue situation, he then told you that your file was passed to another department and he told you that it was called the Risk Department, and then he said he could not do anything, that’s your evidence.  Given what Mr Lee has said, according to your evidence, what was your basis for to believe that he could make any promise relating to the handling of your legal action?  On what basis did you believe that Mr Lee had any power to make any promise in relation to the handling of your legal action?
	A	This was Mr Lee’s promise.  He told me to take the initiative to sell the property.  He should know what his superior had in mind.  He said that and I could only believe in him.
	…
	Q	B300 [10 July 2000 letter].  This letter was drafted by you in your own words.
	A	I wrote this proposal to Brian Chu.  I signed it.  Yes.
	Q	When you recounted on 4 July was it an accurate depiction of what transpired?
	A	No
	Q	Why was it not accurate?  Why did you write an inaccurate account?
	A	This was like when after Mr Lee failed to have LC issued, I had reservation even when I wrote to him and Mr Ip. This was the same situation.  And this was a more serious situation.  It was submitted to his superior …  If I mentioned in this letter any agreement with Mr Lee saying that he said that he could stop legal action that I am really submitting this proposal for Mr Chu’s perusal, if I wrote this to Mr Chu I was showing disrespect to Mr Chu.  I could not treat this matter as a matte of formality telling him that there would be a stop of the legal action, if I said that Mr Lee had already agreed, then does it also mean that we were treating Mr Chu as non-existent and I would be putting Mr Lee on the spot if I did that.  I did not want that to happen.  I was writing this letter courteously thinking that he could help me this time.  Perhaps it was my childish thought that since he was unable to help me on the last occasion, he should be offering assistance on this occasion.  That was simply what I had in mind at that time.
	Q	Mr Fu.  P. 301, the second last sentence of your letter, were you not seeking the assistance of Mr Chu, when you wrote ‘should very much appreciate if you would assist us’.
	A	Yes.  The same.
	Q	I suggest to you Mr Fu that you wrote the letter in these terms because you knew fully well that Mr Brian Chu was the person that has the power to handle the litigation process, not Mr Lee.
	A	I do not agree.  I do not deny that Mr Brian Chu had this power.  But I did not say Mr Lee did not have this power.  And looking back we could see that Mr Brian Chu could exercise greater flexibility than Mr Lee.  Looking back Mr Brian Chu did not want us to die.  He gave us chance so that we could earn money to repay the debt.  He just wished that we could sell the property because there were only few of us suggesting that we sell the property.  Mr Lee suggested that we sell the property.  This was in accordance with Mr Brian Chu’s intention.  That was what happened.”

59.Another important aspect was that Mr Fu Ming Kong, Michael, said that Mr Lee told him to take the initiative to sell the Property.  If Mr Fu Ming Kong, Michael, did in fact sell the Property and apply the proceeds in discharge of Top Fashion Trading Limited’s indebtedness, the threatened legal action might well not take place or be stopped.  But this was quite different from the alleged 4 July 2000 agreement that simply writing a proposal, any proposal, to sell would do.  The evidence of Mr Fu Ming Kong, Michael, did not make out the alleged 4 July 2000 agreement.

60.Likewise, the evidence of Ms Ip Fung Ngo did not make out the alleged 4 July 2000 agreement.  What she regurgitated in her evidence in chief was that:-

“	Q:	I want to talk about a meeting on 4 July 2000.  Do you remember that we had a meeting in the bank on 4 July 2000
	A	Yes
	Q	Who took part in this meeting
	A	Mr Lee, Mr Ip of BOC Mr Fu & myself
	Q	Did you know at that time what was the purpose of attending this meeting
	A	To go there to ask them not to sue
	Q	Why did we ask them not to sue
	A	Before we went there a solicitor’s letter from Koo & Partners was received pressing for repayment
	Q	When the meeting started, what did Mr Fu and Mr Lee talk about
	A	Mr Fu received a solicitor’s letter.  He asked Mr Lee not to sue
	Q	What was Mr Lee’s reply
	A	Mr Lee said he was unable to follow up, that the file was passed to another department
	Ct	Ms Ip, can you try your best to recall what was said in the  meeting and give an account as you remember it.  If you don’t remember, don’t remember.  So far as you remember, give an account of what was said at the meeting
	A	On the 4th July we went to BOC and met with Mr Lee & Mr Ip.  Mr Fu told Mr Lee that a solicitor’s letter from Koo & partners was received.  First of all, Mr Lee said something to the effect that on the last occasion LC could not be opened, that he was apologetic.  And then he said that he could not follow up on this matter - the file had been passed to another department.  And Mr Fu begged him.  Mr Lee then that said it would be best to sell the pledged property in Seaview Centre in order to repay the money.  And Mr Lee said to Mr Fu that if the property is sold by Mr Fu it could be sold at a higher price, the bank could not sell it at too high a price.  He said sell the property and tell such and such department, I could not remember the Chinese name that was said, tell the department that the property is sold and they would not sue you.  And such legal action is just a matter of legal formality, don’t worry.  Then Mr Fu agreed and said he would sell the property.  Then Mr Lee wrote on a piece of paper the name of a department, called ‘Credit and Risk Control Department’, the name of a person ‘Brian Chu’ was also written.  We were also given an address and were told to write to this department.  Then nothing in particular was said.  He said thank you and left.

61.The Property had not been sold.  Not a single cent had been paid to the plaintiff.

Order 88 rule 5(2) requirement to produce the original mortgage

Loss of the Mortgage and the Variation Deed

Proof of loss of the deeds

62.The plaintiff did not produce the original Mortgage or the original Variation Deed.  Its case was that both deeds had been lost while they were with the plaintiff’s former solicitors, Messrs Koo & Partners.  The plaintiff sought to produce a statutory declaration made by a solicitor who was then in the employ of Messrs Koo & Partners to prove the loss.  I questioned whether I should look at a statutory declaration instead of hearing oral evidence.  Mr Fu Ming Kong, Michael, said he wanted the solicitor to give evidence.  In the event, the solicitor gave evidence.  When the plaintiff sought to call another solicitor, the case handler before the solicitor who had just given oral evidence in Court, Mr Fu Ming Kong, Michael, objected.  I heard the evidence de bene esse.  My ruling on this point was that having heard the evidence of the second case handler, I saw no reason to exclude the evidence of the first case handler and no injustice to the defendants.  I admitted the evidence.

63.Having heard the evidence of the 2 solicitors, I accepted their evidence and was satisfied on a balance of probabilities that the original Mortgage and the original Variation Deed were lost while they were with Messrs Koo & Partners.  I bore in mind that there was potential professional liability for loss of documents entrusted by a client to a solicitor.  Unless the solicitors were sure that they had received the original Mortgage and the original Variation Deed and that they had made a diligent search for them and could not find them, they would not say so on oath. 

Whether Order 88 rule 5(2) applied to this case

64.The plaintiff seemed to open the case on the basis that Order 88 rule 5(2) applied but submitted that it did not after I had raised certain points with the plaintiff.

65.A mortgage action could be commenced by writ or by originating summons.  Order 88 rule 5(1) and (2) provide that:-

“	(1)	The affidavit in support of the originating summons by which an action to which this rule applies is begun must comply with the following provisions of this rule.
		This rule applies to a mortgage action begun by originating summons in which the plaintiff is the mortgagee and claims delivery of possession or payment of moneys secured by the mortgage or both.
	(2)	The affidavit must exhibit a true copy of the mortgage and the original mortgage must be produced at the hearing of the summons.”

66.It is clear that the requirement to produce the original mortgage applies only to mortgage actions begun by originating summons. 

67.Order 88 contains no requirement for the original mortgage to be produced in mortgage actions begun by writ, not even for an application for default judgment under Order 88 rule 6 which provides that:-

“	(1)	Notwithstanding anything in Order 13 or Order 19, in a mortgage action begun by writ judgment on failure to give notice of intention to defend or in default of defence shall not be entered except with the leave of the Court.
	(2)	An application for the grant of leave under this rule must be made by summons and the summons must, notwithstanding anything in Order 65, rule 9, be served on the defendant.
	(3)	Where a summons for leave under this rule is issued, rule 4(2) to (7) shall apply in relation to the action subject to the modification that for references therein to the originating summons, and for the reference in paragraph (2) to the notice of appointment, there shall be substituted references to the summons.
	(4)	Where a summons for leave under this rule is issued in an action to which rule 5 would apply had the action been begun by originating summons, the affidavit in support of the summons must contain the information required by that rule.”

The reference in rule 6(4) to rule 5 is restricted to the contents of the affidavit, and is silent on the requirement to produce the original mortgage at the hearing.

68.Order 28 rule 8(1) provides that:-

“Where, in the case of a cause or matter begun by originating summons, it appears to the Court at any stage of the proceedings that the proceedings should for any reason be continued as if the cause or matter had been begun by writ, it may order the proceedings to continue as if the cause or matter had been so begun and may, in particular, order that any affidavits shall stand as pleadings, with or without liberty to any of the parties to add thereto or to apply for particulars thereof.”

69.By an Order dated 28 September 2001 made by consent of the parties, Master Wong order in the original summons proceedings, i.e. HCMP 3909/2000 that:-

“the proceedings herein begun by originating summons dated the 3rd day of August 2000, be continued as if they had been begun by the issue of a writ of summons on the said 3rd day of August 2000 on the ground of dispute of fact”.

70.This Order and another Order also made on 26 September 2001 gave directions for the consolidation of HCMP 3909/2000 and HCA 7769/2000 and for the further conduct of the consolidated proceedings.

71.In view of the Order that the originating summons proceedings be continued as if they had been begun by the issue of a writ of summons, the requirement in Order 88 rule 5(2) to produce the original mortgage at the hearing did not apply to the trial of the consolidated action.

72.Paragraph 12 of the Consolidated Statement of Claim pleaded the Mortgage and paragraph 13 pleaded clauses 2 and 17.2 of the Mortgage.  Paragraph 14 pleaded the Variation Deed and paragraph 15 pleaded clauses 1 – 5 of the Variation Deed.  There was no specific denial in the Amended Defence and paragraphs 12 – 15 of the Consolidated Statement of Claim were deemed by Order 18 rule 13 to have been admitted by Mr Fu Ming Kong, Michael, and the 2^nd defendant.

73.A “Bundle of documents for use at trial”, containing a copy of the Mortgage and a copy of the Variation Deed, was prepared by the plaintiff as one of the trial bundles.  There was no dispute by Mr Fu Ming Kong, Michael, or the 2^nd defendant of the authenticity of these copy documents. 

74.It is clear beyond peradventure in this case that there was no dispute about the execution of the Mortgage and the Variation Deed in the plaintiff’s favour and no issue about the contents of the Mortgage or the Variation Deed.

75.According to the learned editors of Fisher and Lightwood’s Law of Mortgage, 11th edition, the mortgagee will not be deprived of the benefit of his security by reason of the loss of the title deeds, if the court is satisfied that a security was effected and that they have really been lost, see paragraph 28.81.

76.I requested the plaintiff’s team to assist me on how the Order 88 rule 5 requirement came about.  I must pay tribute to the industry of and thank the plaintiff’s legal team led by Mr Jason Pow, SC, in coming up overnight with a very impressive submission.  No discourtesy is intended in not referring any further to this submission.  The reason was simply that I considered the above sufficient to decide the case in favour of the plaintiff against the defendants.

Conclusion

77.There must be judgment for the plaintiff against both defendants as pronounced by me on 8 July 2005.

Mr Jason Pow, SC leading Mr Kevin C. Wong, instructed by Messrs Gallant Y.T. Ho & Co., for the plaintiff

1^st defendant, in person

2^nd defendant, represented by the 1^st defendant, in person