Re Mok Tsan San (Debtor) [2025] 2 HKLRD 827, [2025] HKCFI 499 (Lydia Leung)
Lydia Leung represented the debtor in Re Mok Tsan San (Debtor) [2025] 2 HKLRD 827, [2025] HKCFI 499.
Under a credit facility agreement executed among Ps as lenders and D as one of the individual guarantors (the Facility Agreement), a first loan of $100 million was advanced for the borrower for the purpose of acquiring a distressed residential property (the Property) by bidding in a mortgagee sale. A mortgagee of the Property terminated the mortgagee sale, triggering the issuance of a notice of Acquisition Termination Event (ATE) under the Facility Agreement, which required repayment of all loans in full together with accrued interest and fees. Upon the default of the borrower, statutory demands were issued to D and, on D’s non-compliance, Ps presented a bankruptcy petition against D (the Petition). On the other hand, the mortgagee’s default judgment against the then sole owner of the Property was set aside, affecting the legality of the mortgagee sale. D opposed the Petition on the grounds of: (i) potential invalidity of the Facility Agreement due to a common mistake; (ii) non-occurrence of an ATE; and (iii) premature enforcement against him. On costs, Ps sought indemnity costs to be paid out of the bankruptcy estate, relying on cl.14.3 of the Facility Agreement which provided that D shall pay all costs and expenses (including legal fees) incurred by Ps in connection with the enforcement of the Facility Agreement.
Held, granting the Petition and ordering costs to be taxed on indemnity basis to be paid out of the bankruptcy estate, that:
(1) D’s argument on common mistake ground lacked merit due to the absence of the last two essential elements as set out at para.23 of the present judgment. While there was a common assumption that the mortgagee was able to carry out the mortgagee sale (which state of affairs was not warranted by either party and its non-occurrence was not their fault), the contractual adventure of the Facility Agreement was not rendered essentially and radically different by the non-completion of the mortgagee sale. The parties were in full agreement on the terms and subject of their contract, including the consequences of the occurrence of an ATE. It was plain that the non-completion of the mortgagee sale of the Property would not render the Facility Agreement void (Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB 679, Bank of China (HK) Ltd v Keen Lloyd Energy Ltd (CACV 132/2011, [2012] HKEC 421) applied). (See paras.23, 29, 33-41.)
(2) There were no merits in D’s other grounds because the notice of the ATE was solid evidence of the occurrence of the ATE; and there was no alleged premature enforcement as the remedies available to a creditor could be exercised at any time simultaneously or contemporaneously or successively or not at all. D failed to show a bona fide dispute to the debt on substantial grounds or a defence of substance (China and South Sea Bank v Tan Soon Gin [1990] 1 AC 536 applied). (See paras.44, 50-53.)
(3) Ps should be granted indemnity costs to be paid out of the bankruptcy estate with reference to the wording of cl.14.3 of the Facility Agreement. Although Ps were not suing on the Facility Agreement by the Petition, giving effect to the contractual terms of the Facility Agreement by way of an indemnity costs order would not be unfair to other creditors of D, if any. After all, the underlying liability of D had to be determined with reference to all the contractual terms of the Facility Agreement including cl.14.3. Ps would suffer injustice if their right to a full recovery of their legal costs under the Facility Agreement was denied (Tele-Art Inc v Bank of China (Hong Kong) Ltd [2012] 1 HKLRD 484, X v Y [2019] HKCFI 2880, Re Yu Pun Hoi [2024] 4 HKC 270 applied; Re Leung Ka Chun [2024] HKCFI 3042 considered). (See paras.56-60, 62-63.)
[The above is excerpted from the headnote to the report in HKLRD.]
