Wealth Duke Ltd and Others v. Bank of China (Hong Kong) Ltd

FACV No. 2 of 2011

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 2 OF 2011 (CIVIL)

(ON APPEAL FROM CACV NO. 124 OF 2009)

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Between :

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J U D G M E N T

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Mr Justice Bokhary PJ :

1.The time has come – indeed is long overdue – to bring this Court in line with other courts of last resort by abolishing appeals as of right.  Such appeals are incompatible with the Court’s role.  Brought as of right, appeals devoid of merit are a source of vexation to respondents.  They do not benefit appellants, serving only to saddle them with more costs to pay.  Weeding them out is in the legitimate interests of both sides and also in the public interest.  Abolishing appeals as of right would not prevent any meritorious case reaching the Court. 

2.As for the result of this appeal, I agree with the judgment of Mr Justice Chan PJ.  I add only an expression of my appreciation of the way in which Madam Lam Ying addressed us on her own behalf and on behalf of the other appellants.  She did so with unfailing courtesy to the Court despite the strain which she must have been under.  It is a sad case.

Mr Justice Chan PJ :

3.This is an appeal as of right. It arose from a mortgagee action by the plaintiff bank (“the Bank”) against its customers, the defendants (“D1, D2 and D3”), for the recovery of the outstanding debts owed to the Bank and vacant possession of the mortgaged properties pursuant to Order 88 of the Rules of the High Court. The defendants counterclaimed on the grounds of breach of an oral agreement and misrepresentation on the part of the Bank. The trial judge gave judgment against them and dismissed their counterclaim. This was upheld by the Court of Appeal.

Background

4.D2 and D3 (the 2^nd and 3^rd appellants) are husband and wife and the shareholders and directors of D1 (the 1^st appellant). In September 1997, D1 obtained a loan of $3,450,000 from the National Commercial Bank (before its merger with the Bank) for the purpose of acquiring a property in Pearl Island Garden (“Pearl Island Garden”). D1 was also granted an overdraft facility of $300,000. Both the loan and OD facility were secured by a mortgage on this property to the Bank and personal guarantees provided by D2 and D3.

5.In October 1999, in the wake of the financial crisis, D1 began to default in its monthly repayments towards the Bank. In January 2000, D3 on behalf of D1 wanted to negotiate with the Bank for a re-structuring of its debts, which amounted to $3,766,846.14 as at 9 February 2000. This was refused by the Bank which threatened to commence legal proceedings. D1 then repaid two installments in February and June 2000 but did not make any further repayment thereafter. Its account with the Bank was frozen on 5 October 2000.

6.It was under those circumstances that D2 and D3 negotiated again with Mr Chan Hung (“Mr Chan”), the Manager of the Chai Wan Branch of the Bank, to re-structure their outstanding debts. Pursuant to such negotiation, they made an application to the Bank through the Chai Wan Branch. This application was later considered and processed by the Bank’s Credit Department. As a result, in November 2000, the Bank agreed to and did provide two loans and an OD facility to the defendants for 12 months upon certain terms and conditions (including a mortgage on Pearl Island Garden and another property) which were accepted by the defendants.

7.When the defendants defaulted in repaying these loans, the Bank commenced the present action in 2002. The defendants disputed the terms on which the Bank had granted the loans and OD facility to them and counterclaimed damages, alleging that the Bank had breached an oral agreement reached between them and Mr Chan on behalf of the Bank and that Mr Chan had also made certain misrepresentations to them. There was an alternative claim for punitive damages in the sum of $38,000,000 for breach of fiduciary duty, economic duress and undue influence.

The dispute between the parties

8.The dispute at the trial was thus: what were the terms and conditions upon which the Bank granted the two loans and the OD facility to the defendants; and whether there was any oral agreement between the parties or misrepresentation made by Mr Chan which contradicted those express terms and conditions.

Terms and conditions as evidenced by the Bank documents  

9.The Bank’s case was mainly based on the Bank documents. Mr Chan was not called by the Bank to rebut the defendants’ allegations as he had already retired. Nor was he called by the defendants (who were represented by counsel at the trial) to support their case. As the relevant terms and conditions of the loans and facility were disputed, it is necessary to state briefly how they came about.

10.On 3 September 2000, D2 and D3 indicated (in a “Personal Loan Application Form”) that they were willing to transfer the mortgage on another property (“Gold Mine Shop”) to the Bank as part of the debt re-structuring proposal. The Bank’s solicitors followed up on this on 30 September 2000 by asking to be provided with the title deeds of that property and also the amount of outstanding indebtedness due to the mortgagee, Hang Seng Finance.

11.Then, on 17 October 2000, Mr Lam Koon Kei of the Chai Wan Branch of the Bank submitted a proposal to the Bank’s Credit Department in a “Credit Facilities Application”. The details contained in this proposal must undoubtedly have reflected what D2 and D3 were then prepared to agree with, for otherwise they would not have been put forth for the consideration of the Bank. It would appear that this proposal had the support of the Branch Manager (as it was initialed in the application form). However, it was also clear that the application required the approval of the Credit Department and the General Manager of the Bank since there were spaces in the form for their views and signatures.

12.The proposal asked for the granting of a fixed term loan of $3,600,000 at a certain interest rate for the purpose of repaying the outstanding indebtedness then owing to the Bank; another fixed term loan of $1,700,000 at the same interest rate to repay the outstanding indebtedness to Hang Seng Finance in order to discharge the mortgage on the Gold Mine Shop; and an OD facility of $700,000 to be used for the repayment of the loans. The loans were proposed to be for a term of 15 years and the OD facility for one year which was renewable and they were to be secured by a mortgage on both Pearl Island Garden (already mortgaged to the Bank) and the Gold Mine Shop (after discharging the mortgage to Hang Seng Finance) and personal guarantees provided by D2 and D3. Notwithstanding that the proposed term of the loans was 15 years, it was however anticipated, as it was clearly stated in the application form, that there would be a “sale of property as soon as possible” and for that purpose there would be no interest penalty for early repayment.

13.When the application came to be considered by the Credit Department, that Department however expressed a rather negative opinion (in its “Credit Department Review Opinions” dated 19 October 2000) that since “the source of repayment for this account depends on the sale of property, it is not a case suitable for long term repayment”, that the case should be reviewed every 6 months and that the bank officer should put pressure on the customers to sell the property. It was suggested that the loans and OD facility should be granted only for one year. The Assistant and Deputy Managers signified their agreement with such opinions and suggestion on 21 and 23 October 2000 respectively.

14.The final decision appeared to have been made on 24 October 2000 (as evidenced in a separate document from the Credit Department) that both fixed term loans and the OD facility were restricted to a time limit of one year at different interest rates; the OD facility was to be used only for the repayment of the two loans; the defendants were to pay at least $15,000 per month towards the payment of part of the interest with the balance of interest to be deducted from the $700,000 OD facility. That document ended with the following remark:

“The source of repayment for this account can only rely mainly from sale of the property. The Chai Wan Branch shall encourage the clients to speed up selling the property during the debt re-structuring period. If the above instructions could not be executed, legal actions shall be taken to expedite recovery.”

15.It is quite clear from these documents that whatever might have been the views of the branch officers, the initial proposal for the two 15 year loans was obviously not acceptable to the Bank’s Credit Department which was only prepared to grant the loans for one more year upon the further security in the form of a mortgage on the Gold Mine Shop and that the defendants would be encouraged to sell the properties as soon as possible. And if these were not agreeable to the defendants, the Bank would take legal action to pursue the existing indebtedness against them.

16.Following this approval, three facility letters all dated 2 November 2000 were written to D1, indicating that the Bank was prepared to extend banking facilities to D1 in accordance with the terms and conditions stated in the letters. The first two letters related to the fixed term loans of $3,887,743.55 and $1,700,000. In each of these letters, it was clearly stated (in bold letters) that the loan was for a term of 12 months only and “to be wholly repaid after 12 months from the date of advance”.  

17.On 10 November 2000, D2 and D3 attended the office of the Bank’s solicitors. They signed on the three letters which were dated 2 November 2000 and executed a legal charge on the Gold Mine Shop and their personal guarantees. However, D2 and D3 did not bring along with them the company chop of D1 and they had to take the letters home to append the chop on the documents before returning them to the solicitors’ office on the following day. It would also appear that the exact amount of the outstanding indebtedness was inserted in the first facility letter at a later stage after the exact figure was ascertained. A staff member (Ms Wong) of the solicitors firm testified that she had followed the usual procedure for explaining the contents of the legal documents to the defendants before execution.

18.Upon the execution of the relevant documents, the loans and facility were drawn down on 13 November 2000. Thereafter, the defendants deposited $15,000 each month into their account as payment of part of the interest payable under the loans and the Bank debited the balance from the same account utilizing the OD facility. 

The defendants’ default

19.The term for the loans and facilities expired on 13 November 2001. The defendants did not repay the loans. Nor did they sell any of the mortgaged properties. The Bank thus ceased to deduct payment from D1’s accounts, although D2 and D3 continued the monthly payments of $15,000.

The defendants’ case

20.The defendants did not dispute that the Bank had granted the loans and OD facility to them, but alleged that the terms and conditions were different. They relied on an oral agreement and misrepresentation made by Mr Chan.

21.The existence of this alleged oral agreement was only raised for the first time in a letter from D2 and D3 which was somehow dated 29 January 2001 but only received by the Bank on 29 January 2002. In that letter, they alleged that there was an oral agreement with Mr Chan in October 2000 whereby they would transfer the mortgage in respect of the Gold Mine Shop to the Bank in return for the Bank giving them a grace period of two years during which they did not have to repay the principal but only monthly interest of $15,000. They asked the Bank to renew this arrangement for another year. The Bank did not respond to this request. In May 2002, the defendants ceased the $15,000 monthly payment.

22.This allegation was however inconsistent with their case as presented to the court at the trial. It was said that on 3 September 2000, there was an oral agreement reached between the defendants and Mr Chan on behalf of the Bank that the loan of $3,600,000 was for a term of 25 years and the loan of $1,700,000 was for a term of 15 years; that for the first two to three years, the defendants would only have to pay interest and not the principal of these loans; and that the Bank would also grant an OD facility of $700,000 for two to three years and the defendants would only have to pay $15,000 a month.

23.The allegation of misrepresentation was first raised by D3 only on 5 October 2004, more than two years after the present proceedings were commenced, in an affirmation in opposition to the Bank’s application for judgment under Order 88. It was alleged that on 10 November 2000, when D2 and D3 went to execute the relevant documents in the solicitors’ office, they became aware that the loans were only for a term of 12 months. So D3 called Mr Chan at around 7 to 8 p.m. and was told by Mr Chan that the OD facility of $700,000 would be renewed every 12 months and that the defendants would only have to repay interest and not the principal for two to three years.

Proceedings in the lower courts

24.The Bank applied for judgment under Order 88. It was successful before the Master and a judge in chambers, but the judgment obtained in its favour was overturned by the Court of Appeal which considered that the case ought to go to trial. These courts dealt with the matter only on the basis of affirmations filed by the parties. There is clearly no question of a decision binding on the trial judge who had to hear viva voce evidence and make a decision on the merits.

25.In his judgment, the trial judge analyzed all the evidence and held against the defendants both on the claim and the counterclaim. He found D2 evasive and insincere and his evidence inconsistent and incredible. As to D3, he considered her evidence to be extremely vague, unbelievable and inherently improbable. He also found that she had given different versions of the alleged oral agreement and misrepresentation which were contradicted by the contemporaneous documents produced by herself and the Bank.

26.It was submitted at the trial on behalf of the defendants that in the absence of any evidence from Mr Chan to rebut D3’s allegations, the court ought to prefer her evidence and hold against the Bank. The judge held that since the evidence given by D2 and D3 was found to be unbelievable, the defendants had failed to discharge the burden of proving to the court’s satisfaction the existence of the alleged oral agreement and misrepresentation; the failure by the Bank to call Mr Chan would not have affected the outcome and no adverse inference could be drawn against the Bank.

27.The defendants also raised the issue that there were discrepancies in the original and copies of the documents kept by the Bank, suggesting that there had been concealment, alterations and even falsification of some documents by the Bank staff. This allegation was considered by the judge in the light of all the documents and evidence and was rejected by him. The application and other relevant documents had to go through various staff officers of the Bank and it was not surprising that comments were added on these documents at different stages in the process of the defendants’ application. The judge concluded that the so-called discrepancies did not affect the outcome of this case.

28.On appeal, the Court of Appeal considered the submissions and the grounds of appeal on behalf of the defendants and took the view that the judge was entitled on the evidence to make the findings he did and that he was right to give judgment for the Bank and to dismiss the defendants’ counterclaim.

This appeal

29.In this appeal, the defendants are not legally represented. D2 and D3 (D3 also acting for D1 in her capacity as director) had filed an Appellants’ Case and a Supplemental Case. D3 also made oral submissions to the Court. In these written materials and oral submissions, the defendants rehearse their evidence and arguments presented to the lower courts all over again, criticizing the trial judge’s reasons for rejecting the defendants’ evidence and accepting the Bank’s evidence.

30.I have carefully considered the defendants’ materials and D3’s submissions. They seek to do no more than challenging the findings made by the trial judge and confirmed by the Court of Appeal. In particular, the defendants placed great emphasis on the effect of the Bank’s failure to call Mr Chan as a witness and the alleged discrepancies in the Bank documents. These points had all been adequately dealt with by judge and the Court of Appeal. There is no reason to consider them again. Finally, the defendants complain that the judge was biased against them. This is in effect an attack on the judge for disbelieving D3’s evidence. There is nothing in this argument.

31.This Court has repeatedly stated that the Court would not disturb concurrent findings of fact made by the lower courts save in exceptional and rare circumstances where there is a miscarriage of justice or violation of some principle of law or procedure. Sky Heart Ltd v Lee Hysan Co Ltd (1997-98) 1 HKCFAR 318, 333-338. Wu Yee Pak v Un Fong Leung & others (2004) 7 HKCFAR 498, 503. The Court also requires the party who seeks to overturn concurrent findings of fact to state clearly what the special circumstances are before it would embark on an examination of the evidence in order to review those concurrent findings. See Chan Wai Sun v Law Shiu Kai (2007) 10 HKCFAR 601, 610, and Tam Mei Kam v HSBC International Trustee Ltd & others FACV No. 11 of 2010.

32.Notwithstanding the defendants’ detailed submissions, I fail to see any special and exceptional circumstance which calls for a review by this Court of the concurrent findings of fact in this case. The evidence was quite overwhelming: D3 admitted she knew the loans and facility were for 12 months only and there were good and sufficient reasons to reject her allegations of an oral agreement and misrepresentation to the contrary. There is no merit in this appeal which must be dismissed. I would also propose an order nisi that the defendants should pay the Bank’s costs of this appeal.

33.Before leaving this appeal, I would like to express my full agreement with the remark made by the Appeal Committee in paragraph 107 of its Determination in Chinachem Charitable Foundation Ltd v Chan Chun Chuen & another, FAMV No. 20 of 2011 (28 October 2011), regarding the “as of right” provision in s.22(1)(a) of the Court’s statute. The present appeal which has come to this Court on this basis is totally unmeritorious. It is a complete waste of judicial time and legal costs and has also unfairly delayed execution of the judgment obtained by the winning party by two years. The primary role of the Court of Final Appeal, like that of the final appellate courts in many Common Law jurisdictions, is to consider and decide points of law of great general or public importance. As the Appeal Committee put it in paragraph 57 of the Chinachem case, the “as of right” ground of appeal is anomalous and becoming rare in Common Law jurisdictions around the world. I would strongly urge the authority to give serious consideration to abolishing this ground of appeal. It is clearly in the public interest to do so.  

Mr Justice Ribeiro PJ :

34.I agree with the judgment of Mr Justice Chan PJ.

Mr Justice Litton NPJ :

35.I agree with Mr Justice Chan PJ’s judgment, and with Mr Justice Bokhary PJ’s observations concerning the need to abolish appeals to this Court as of right in civil matters.

36.Before China’s resumption of sovereignty over Hong Kong, appeals from the Hong Kong courts to the highest appellate tribunal, the Privy Council in London, were regulated by the Order in Council of 10 August 1909.  The monetary limit set in 1909 had never kept up with inflation.  As at 30 June 1997 there was an appeal as of right to the Privy Council where “the matter in dispute on the appeal amounted to or was of the value of $500,000 or upwards….”.

37.The Basic Law for Hong Kong had been promulgated by the President of the People’s Republic of China on 4 April 1990, providing for the continuation of the legal system in Hong Kong after the handover.  There was much uncertainty in the community at that time as to how things would in practice work out.  It is understandable therefore that, when the Hong Kong Court of Final Appeal Ordinance, Cap.484, was passed by the Legislative Council, it was considered desirable to avoid any impression that the spirit of the Basic Law was not being adhered to as closely as possible, increasing the monetary limit for appeals to this Court to no more than $1 million (s.22(1) of Cap.484).

38.The reasons for reform, as expressed by Mr Justice Bokhary PJ, are self-evident.  Appeals in civil matters, if the reforms proposed were implemented, would in every case be by leave of the Court of Appeal or of this Court.  Hopeless appeals would be weeded out at an early stage, saving all parties from unnecessary costs, freeing up the system for meritorious appeals.

Lord Scott NPJ :  

39.I am in full agreement with the reasons given by Mr Justice Chan PJ for dismissing this appeal.  I agree also with the comments made by him and made also by Mr Justice Bokhary PJ and Mr Justice Litton NPJ about appeals to this Court as of right in civil matters. 

Mr Justice Bokhary PJ :

40.The appeal is unanimously dismissed.  We make an order nisi that the appellants do pay the costs of the respondent in this appeal.  In the event that either party contends that a different order as to costs should be made, that party must lodge written submissions with the Registrar within 21 days of the date of this judgment and any written submissions in reply should be lodged within 21 days thereafter.  Failing this, the costs order nisi will become absolute. 

The 1^st appellant represented by its director Ms Lam Ying, present

Mr Law Hung Nung, the 2^nd appellant, acting in person, present

Ms Lam Ying, the 3^rd appellant, acting in person, present

Ms Eva Sit (instructed by Messrs Tsang, Chan & Wong) for the respondent