IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
MISCELLANEOUS PROCEEDINGS NO. 3604 of 1999
MISCELLANEOUS PROCEEDINGS NO. 4999 of 1999
IN THE MATTER of the property comprised in the Schedule to a Legal Sub-Mortgage dated 14 April 1997 (the "Legal Sub-Mortgage") entered into between the Defendant as the chargor and the Plaintiff as the Lender and registered in the Land Registry by Memorial No.7063205
IN THE MATTER of the property comprised in the Schedule to a Legal Sub-Mortgage dated 3 June 1996 (the "Legal Sub-Mortgage") entered into between the Defendant as the chargor and the Plaintiff as the Lender and registered in the Land Registry by Memorial No.UB6662819
IN THE MATTER of Order 83A and Order 88 of the Rules of the High Court
|JAPAN LEASING (HONG KONG) LIMITED
(In Creditors' Voluntary Liquidation)
|SHUN KAI FINANCE COMPANY LIMITED
Coram: Mr Recorder Edward Chan SC in Chambers
Date of Hearing: 20 March 2001
Date of Judgment: 28 March 2001
J U D G M E N T
1. These 2 actions give rise to the same issues of facts and law. The parties are the same and the parties agree that the result of the two actions must be the same. Accordingly, for simplicity reason I would merely refer to the evidence filed in HCP 3604 of 1999.
2. The Plaintiff and the Defendant are both money lenders. The Plaintiff is now in creditors' voluntary liquidation. The special resolution for the winding up of the Plaintiff was passed on 29 September 1998. It is common ground that the Plaintiff is insolvent.
3. By an agreement dated 19 May 1993 (hereinafter called the "Master Loan Agreement"), the Plaintiff agreed to make available to the Defendant certain loan facilities to such extent and on such terms and conditions as shall from time to time be mutually agreed between the parties, and such agreed terms are to be found in the facility letter issued by the Plaintiff to the Defendant in respect of each of the loans. Under the arrangement as envisaged by the Master Loan Agreement, in respect of each of the loan (the "1st loan") granted by the Plaintiff to the Defendant, the Defendant would in turn lend the amount of the loan to its own customer (the "sub-borrower"). The amount so lent by the Defendant (the "2nd loan") may be larger in amount than the 1st loan. As a security for the 2nd loan, the Defendant would obtain a mortgage of landed property from the sub-borrower. As security for the 1st loan, the Defendant would give a sub-mortgage of the landed property to the Plaintiff.
4. It is plain that the parties intended that the terms of the Master Loan Agreement should govern their relationship. Clause 10 of the Master Loan Agreement provided that :
"This Loan Agreement shall be deemed to form part of and shall supplement the terms and conditions of the Sub-Mortgage. In the event of any conflict or inconsistency between the terms and conditions of the Sub-Mortgage and the terms and conditions hereof, the latter provisions shall prevail and override the former."
5. Under clause 5(a) of the Master Loan Agreement the Plaintiff agreed that subject to there being no default of repayment or in complying with the terms of the 1st loan by the Defendant, the Plaintiff authorised the Defendant as the Plaintiff's exclusive agent in demanding, suing for recovering, collecting and receiving from the borrower the monthly installments repayment in respect of the 2nd loan together with interest and all other money agreed to be paid by the sub-borrower. This clause further provided that the authorization may be revoked in respect of a particular loan transaction upon 7 working days' prior written notice if the Defendant shall make any default in repayment of the 1st loan and interest thereon or in complying with the terms of the relevant Sub-Mortgage and facility letter relating to the particular loan transaction. By clause 5(b) of the Master Loan Agreement, the Plaintiff agreed that so long as the Defendant would not make any default in punctual repayment of the 1st loan or in complying with the terms of the 1st loan, the Plaintiff shall not enforce the security under the Sub-Mortgage nor give any notice of assignment of the 2nd loan to the borrower.
6. In pursuance of the Master Loan Agreement the Defendant applied to the Plaintiff for a 10-years property sub-mortgage loan of $4.75 million. The Plaintiff agreed to grant such loan on terms set out in a facility letter dated 3 February 1997 and the Defendant also agreed to the terms of the letter. According to this letter, the loan together with interest thereon was repayable by monthly installments over a period of 10 years. The interest rate on the loan was 3.25% per annum over the one-month Hong Kong Inter Bank Offer Rate. The security for the loan was to be a sub-mortgage of the property of Units 01-3, 27th floor, Shun Fung International Building, 182 Queen's Road East, Hong Kong (hereinafter called the "property"). The loan was drawn on 14 April 1997 and accordingly, the 1st installment was due on 14 May 1997. According to the terms of the facility letter, the draw down of the loan was to be effected through Messrs Sin, Wong & Mui, solicitors.
7. By a facility letter dated 14 February 1997, the Defendant in turn agreed to lend the sum of $5.1 million to its customer Toprofit International Limited at the interest rate of 5.5% over the prime rate of the Hong Kong & Shanghai Bank. The loan and interest thereon were to be repayable by monthly installments over a period of 15 years. The security was a first legal mortgage on the property.
8. Toprofit drew on the loan on 14 April 1997 and on that day executed a mortgage of the property in favour of the Defendant. The Defendant in turn executed a sub-mortgage of the property in the Plaintiff's favour also on 14 April 1997.
9. By clause 4(A) of the Sub-Mortgage, the Plaintiff was entitled to declare an event of default by 7 days' notice in writing to the Defendant on the happening of the following events :
(a) The Defendant making default in payment of any money payable under the terms of the facility letter.
(b) The Defendant making default in payment of any money due or claimed by the Plaintiff to be due under any of the clauses, covenants or conditions contained in the sub-mortgage or the facility letter.
(c) There shall be any breach of any of the covenants contained in the sub-mortgage or any of the terms or condition of the facility letter.
In the event of such event of...