HANG SENG BANK LTD v. LAM CHING HAM AND ANOTHER
- Citation
- HANG SENG BANK LTD v. LAM CHING HAM AND ANOTHER
- Status
- Judgment
- Jurisdiction
- Hong Kong
- Court
- Court of First Instance
- Decision
- 31 July 2007
- Posture
- Mortgage Proceedings Under Order 88 of the Rules of the High Court / Judgment Varying Earlier Money Orders and Determining Entitlement to Overdue (late Payment) Interest
- Case number
- HCMP2179/2006
- Language
- English
More details
- Court
- Court of First Instance
- Decision
- 31 July 2007
- Posture
- Mortgage Proceedings Under Order 88 of the Rules of the High Court / Judgment Varying Earlier Money Orders and Determining Entitlement to Overdue (late Payment) Interest
- Case number
- HCMP2179/2006
- Language
- English
On this page
Professional case brief
Research organized from the available case record
01
Holding and result
Where a mortgage charge contains no express clause authorising interest on instalments in arrear, the mortgagee cannot charge such interest; however, if a facility letter expressly provides for charging a higher rate on any sum due but unpaid and that right is referable to the outstanding Sum under the charge, the mortgagee may charge that higher rate from the relevant date. If neither the charge nor the facility letter provides for an increased rate on default, such increased interest is not allowed.
Court disposition
Money judgments varied: interest on instalments in arrear disallowed; higher post-default rate allowed for the two HSBC cases where facility letter provided for it and disallowed for the Hang Seng case where no such provision existed; order nisi that there be no order as to costs in respect of the overdue interest claim subject to Order 42 rule 4B(6).
Orders
- HCMP 1318/2006: judgment for $1432452.50; interest at 5.5% p.a. from 1 July 2006 to 4 July 2006 amounting to $835.35; further interest on $1432452.50 at 12.25% p.a. from 5 July 2006 to date of judgment; further interest from date of judgment to full payment at judgment rate.
- HCMP 1589/2006: judgment for $1184680.95; interest at 6.5% p.a. from 16 July 2006 to 7 August 2006 amounting to $4665.11; further interest on $1184680.95 at 12.25% p.a. from 8 August 2006 to date of judgment; further interest from date of judgment to full payment at judgment rate.
- HCMP 2179/2006: judgment for $1325406.02; interest on that sum from 15 October 2006 to date of judgment at 5.7% p.a.; further interest from date of judgment to full payment at judgment rate.
- Order nisi that there be no order as to costs in respect of the claim for overdue (late payment) interest subject to Order 42 rule 4B(6).
02
Material facts
Parties
THE HONGKONG AND SHANGHAU BANKING CORPORATION LIMITED
Plaintiff (hcmp 1318/2006) Counsel: Mr. J. Yeung (Messrs. Johnson Stokes & Master)LEE DARWIN MAN KIT
1st Defendant (hcmp 1318/2006)CHAN KA MAN
2nd Defendant (hcmp 1318/2006)THE HONGKONG AND SHANGHAU BANKING CORPORATION LIMITED
Plaintiff (hcmp 1589/2006) Counsel: Ms. N. Leung (Messrs. Johnson Stokes & Master)YAN KING TAI ALBERT
1st Defendant (hcmp 1589/2006)HO PEI YING
2nd Defendant (hcmp 1589/2006)HANG SENG BANK LIMITED
Plaintiff (hcmp 2179/2006) Counsel: Ms. M. Fung (Messrs. Johnson Stokes & Master)LAM CHING HAM
1st Defendant (hcmp 2179/2006)TSOI MEI NOG
2nd Defendant (hcmp 2179/2006)Amounts and remedies
- HCMP 1318 Principal Sum: HKD 1,432,452.5
- HCMP 1318 Pre Judgment Interest Amount (1 July 2006 to 4 July 2006): HKD 835.35
- HCMP 1589 Principal Sum: HKD 1,184,680.95
- HCMP 1589 Pre Judgment Interest Amount (16 July 2006 to 7 August 2006): HKD 4,665.11
- HCMP 2179 Principal Sum: HKD 1,325,406.02
03
Procedural history
Posture
Mortgage Proceedings Under Order 88 of the Rules of the High Court / Judgment Varying Earlier Money Orders and Determining Entitlement to Overdue (late Payment) Interest
04
Questions and positions
Legal issues
- 01
Whether the mortgagee may charge interest on instalments in arrear under the charge
- 02
Whether the facility letter entitles the mortgagee to charge a higher rate on the outstanding sum after default
- 03
Whether terms of the facility letter are incorporated into or superseded by the charge
- 04
Whether customary banking practice can supply a contractual entitlement to arrears interest
Party arguments
- Applicant
- The bank contended it was entitled to claim overdue (late payment) interest: interest on instalments in arrear and a higher rate on the outstanding sum after default pursuant to the facility letter and prevailing banking practice.
- Respondent
- The defendants contended the charge does not provide for interest on instalments in arrear and that terms in the facility letter are not incorporated into the charge; therefore no entitlement to arrears interest or enhanced post-default rate where the charge is silent.
05
Court’s reasoning
Legal principles
- 01
Clause 2 and definition of Loan in the charges (as applied by the Registrar)
Contractual terms govern entitlement to interest; express provision is required to charge interest on instalments in arrear under a charge
- 02
Clause 3(a) of the charges and the facility letters as construed in the judgment
Terms of a facility letter are not operative to vary the charge unless they are expressly incorporated; where the facility letter expressly provides for higher interest on sums due and unpaid that right can be exercised in respect of the outstanding Sum
06
Ratio, limits and disposition
Ratio decidendi
Where a mortgage charge contains no express clause authorising interest on instalments in arrear, the mortgagee cannot charge such interest; however, if a facility letter expressly provides for charging a higher rate on any sum due but unpaid and that right is referable to the outstanding Sum under the charge, the mortgagee may charge that higher rate from the relevant date. If neither the charge nor the facility letter provides for an increased rate on default, such increased interest is not allowed.
Obiter and limits
- Prevalent banking practice to charge arrears interest depends on loan type; Home Starter Loans are concessional and must be construed by their specific terms rather than commercial practice.
- Overdrafts or commercial loans may attract different considerations regarding arrears interest, but those do not apply to the Home Starter Loans in these cases.
Court disposition
Money judgments varied: interest on instalments in arrear disallowed; higher post-default rate allowed for the two HSBC cases where facility letter provided for it and disallowed for the Hang Seng case where no such provision existed; order nisi that there be no order as to costs in respect of the overdue interest claim subject to Order 42 rule 4B(6).
- HCMP 1318/2006: judgment for $1432452.50; interest at 5.5% p.a. from 1 July 2006 to 4 July 2006 amounting to $835.35; further interest on $1432452.50 at 12.25% p.a. from 5 July 2006 to date of judgment; further interest from date of judgment to full payment at judgment rate.
- HCMP 1589/2006: judgment for $1184680.95; interest at 6.5% p.a. from 16 July 2006 to 7 August 2006 amounting to $4665.11; further interest on $1184680.95 at 12.25% p.a. from 8 August 2006 to date of judgment; further interest from date of judgment to full payment at judgment rate.
- HCMP 2179/2006: judgment for $1325406.02; interest on that sum from 15 October 2006 to date of judgment at 5.7% p.a.; further interest from date of judgment to full payment at judgment rate.
- Order nisi that there be no order as to costs in respect of the claim for overdue (late payment) interest subject to Order 42 rule 4B(6).
Source and reliance status
Court of First Instance · 31 July 2007
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Judgment reading view
Judgment text
The complete available source text.
Court of First Instance
Judgment· 31 July 2007
bjbj HCMP 1318/2006
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO. 1318 OF 2006 ____ IN THE MATTER OF Order 88 of the Rules of the High Court and IN THE MATTER OF All That Flat A on 3rd Floor and the Flat Roof appurtenant thereto, Fortune Court, No. 55 Java Road, Hong Kong
BETWEEN
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED Plaintiff and
LEE DARWIN MAN KIT 1st Defendant
CHAN KA MAN 2nd Defendant ____ HCMP 1589/2006
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO. 1589 OF 2006 ____ IN THE MATTER OF Order 88 of the Rules of the High Court and IN THE MATTER OF All That Flat C on 21st Floor, Jadeview Court, No. 38 Hill Road, Hong Kong
BETWEEN
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED Plaintiff and
YAN KING TAI ALBERT 1st Defendant
HO PEI YING 2nd Defendant ____ HCMP 2179/2006
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO. 2179 OF 2006 ____ IN THE MATTER OF Order 88 of the Rules of the High Court and IN THE MATTER OF All That Flat C on 7th Floor of Block 2 of City Garden, No. 233 Electric Road, Hong Kong
BETWEEN
HANG SENG BANK LIMITED Plaintiff and
LAM CHING HAM 1st Defendant
TSOI MEI NOG 2nd Defendant ____ Coram : Before Mr. Registrar C. Chan in Chambers Date of Hearing : 12 September 2006, 17 October 2006 and 9 January 2007 Date of Judgment : 31 July 2007 ___
J U D G M E N T ___ The above three proceedings are all mortgage actions taken out by the mortgagees, namely the Hongkong and Shanghai Banking Corporation Limited in the first two cases and Hang Seng Bank Limited in the remaining third case against the three different mortgagors for the following relief: Money due under the three different charges on three different properties owned by the Defendants in the above proceedings respectively; and In default of payment of the sums mentioned in (a) above, delivery of possession of the properties to the Plaintiff.
2. The three charges, as I find them, were prepared according to the same specimen form and have the same terms and conditions with variations in the amount of the loan and the particulars of the mortgagors. I had heard the cases at different time and entered judgment on possession and also on parts of the monetary claim but adjourned the issue relating to overdue (late payment) interests for further consideration. I had the chance of hearing the same issue in a similar case (i.e. HCMP 1003 of 2006) also handled by the same solicitor firm for the Hongkong and Shanghai Banking Corporation. I gave my judgment thereon on 16 March 2007 as varied by a corrigendum dated 31 March 2007.
3. As the issue has been decided I could give judgment in respect of the above three cases at the same time. For the sake of clarity I briefly outline my decision in the following paragraphs.
4. There are two types of overdue (late payment) interest claimed by the Plaintiff in each of the cases: The interest on the instalments in arrear, and The interest to be charged after the default being made.
5. The calculation of the first type of overdue (late payment) interest i.e. the interests on the instalments in arrear is found in the following affirmations in support in the subject proceedings: (a) in HCMP 1318 of 2006 in paragraph 6(g) of the affirmation of Fok Siu Lan filed herein on 7 August 2006 Overdue (late payment) interest at (12% p.a. from 9/1/06 to 29/3/06) (12.25% p.a. from 30/3/06 to 4/7/06) $1,760.40 (b) in HCMP 1589 of 2006 in paragraph 6(g) of the affirmation of Fok Siu Lan filed herein on 6 September 2006 Overdue (late payment) interest at 12.25% p.a. From 8/6/06 to 7/8/06 $976.51 (c) in HCMP 2179 of 2006 in paragraph 7(g) of the affirmation of Lau Yuk Lan filed herein on 24 November 2006 Overdue (late payment) interest at 12.75% p.a. on the following sums for the following periods: $13,538.70 from 31.07.06 to 14.08.06 $54,154.80 from 15.08.06 to 29.08.06 $27,154.80 from 30.08.06 to 14.09.06 $40,693.50 from 15.09.06 to 14.10.06 $54,232.20 from 15.10.06 to 24.10.06 $1,121.83 6. The Plaintiff in each case produced 3 documents in support of its application, namely (a) the relevant charge, (b) the letter of demand and (c) facility letter. In each case the facility letter can be regarded as a conditional agreement conditional upon the granting of a second loan by the Hong Kong Housing Society. For the purpose of this decision I could safely assume that the condition was fulfilled as the relevant charge was executed in each case. Money was advanced by the Plaintiff as mortgagee pursuant to the terms of the relevant charge. I take the view that the terms of the facility letter were superseded by the terms of the charge unless expressly incorporated or referred to.
7. I do not find in each of the relevant charges any clause that allows the Plaintiff to charge any interest on the instalments in arrear. According to clause 2 of the charges if the borrower, i.e. the Defendant in each case, made default in payment of any of the instalments the borrower has to pay on demand the whole of the Loan. The word Loan is defined as the whole or any part of the Sum and any interest thereon. The word is also defined as the sum set out in Part 4 of the Schedule to the charge which is advanced or to be advanced by the lender (i.e. the Plaintiff in each of the cases) to the borrower (i.e. the Defendant in each of the cases) under the charge. No provision in the charge states that the Plaintiff is entitled to charge interest on any instalment in arrear. For this reason I do not allow this type of overdue (late payment) interests i.e. interests on the instalments in arrear.
8. It has been submitted to me that it is a prevalent general practice for the bank to charge interest on instalment in arrear. I must say it depends on the type of the loans. If it is an overdraft or commercial loan, I may have other consideration. But, in case of Home Starter Loans like those mortgages in question, the purpose of granting the loans is to encourage the first-time buyers to acquire their flats for their own use; favourable terms are given to them. I have to construe the transaction according to the terms of the agreements entered by the parties. I do not consider that the loan was made on the prevalent commercial terms. Further, there is no evidence to support such a practice.
9. As to the 2nd type of Overdue (late payment) interest , in effect it is interest on the outstanding Sum at a higher interest rate. Clause 3(a) of each of the charges states: Interest on the Sum shall be charged at such rate or rates as may from time to time be stipulated under the terms of the facility letter . I have to consider the terms of the facility in each case.
10. In each of the first two subject proceedings relating to the Hongkong and Shanghai Banking Corporation as the mortgagee, there is a term in the facility letter providing that interest will be charged daily on any sum due but not paid at 4.25% per annum over the Best Lending Rate. I have ruled that no interest is chargeable on the arrear instalments for the reasons set out in paragraphs 7 and 8. But, when the Sum or any part of the Sum is due but not paid, pursuant to that clause the Plaintiff is entitled to charge interests at a higher rate. As the Defendants have made default in payment of the instalments, the Plaintiff has the right to demand repayment of the whole Sum then outstanding and the Defendants have failed to make repayment. Accordingly I allow interest at such rate as from the day after the filing of the writ.
11. The money order and judgment I made in respect of the monetary orders in the following proceedings on the previous occasions shall be varied to give effect to my aforesaid decision that the Defendant has to pay: In HCMP 1318 of 2006 the sum of $1,432,452.50; interest thereon at the rate of 5.5% p.a. from 1 July 2006 to 4 July 2006 amounting to $835.35; further interest on the sum of $1,432,452.50 at the rate of 12.25% p.a. from 5 July 2006 to the date of the judgment; and further interest on the sum of $1,432,452.50 from the date of judgment to full payment at the judgment rate. In HCMP 1589 of 2006 (a) the sum of $1,184,680.95; interest thereon at the rate of 6.5% p.a. from 16 July 2006 to 7 August 2006 amounting to $4,665.11; further interest on the sum of $1,184,680.95 at the rate of 12.25% p.a. from 8 August 2006 to the date of the judgment; and further interest on the sum of $1,184,680.95 from the date of judgment to full payment at the judgment rate.
12. In HCMP 2179 of 2006 where Hang Seng Bank Limited is the Plaintiff, the mortgagee, I do not find any clause in the charge or the facility letter that provides for variation of interest rate in case of default. For this reason I am of the view that the 2nd type of overdue (late instalment) interest should not be allowed. The money order and judgment I made on 9 January 2007 shall be varied to give the following effect: (a) the sum of $1,325,406.02; (b) interest thereon from 15 October 2006 to the date of judgment at the rate of 5.7% p.a.; and (c) further interest on the said sum of $1,325,406.02 at judgment rate from the date of judgment to full payment.
13. Subject to Order 42 rule 4B(6) I make an order nisi that there be no order as to costs in respect of the claim for overdue (late payment) interest. (Christopher C. Chan) Registrar Mr. J. Yeung of Messrs. Johnson Stokes & Master for the Plaintiff of HCMP 1318/2006. 1st and 2nd Defendants of HCMP 1318/2006 absent. Ms. N. Leung of Messrs. Johnson Stokes & Master for the Plaintiff of HCMP 1589/2006. 1st and 2nd Defendants of HCMP 1589/2006 appearing in person. Ms. M. Fung of Messrs. Johnson Stokes & Master for the Plaintiff of HCMP 2179/2006. 1st and 2nd Defendants of HCMP 2179/2006 absent. -
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