ABN AMRO BANK NV v. MANHARLAL TRIKAMAS MODY AND ANOTHER

CACV 434/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 434 of 2002

(ON APPEAL FROM HCMP 4724 of 2001)

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JUDGMENT

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Hon Cheung JA:

1. I agree with the judgment of Yuen JA.

Hon Yuen JA:

2. This is the 2nd Defendant's appeal from a judgment of Deputy Judge Andrew Cheung (as he then was) refusing her application to appeal out of time Master Au-yeung's order of 16 November 2001.

Master's order

3. The master had ordered (amongst other things) that the Defendants deliver up possession of a flat they jointly owned, which they had mortgaged to the Plaintiff bank as security for a loan which the Plaintiff had made to them both.

4. This order was not a consent order, but it had not been contested by the Defendants, who were represented at the time by solicitors.

5. On 30 September 2002, some 10 months after the master's order, the Defendants applied to appeal the order out of time. The 1st Defendant subsequently abandoned his appeal and it has been pursued only by the 2nd Defendant.

Judge's order

6. The judge refused the application. In his written decision, the judge set out the well-established principle that in the exercise of the court's discretion in such an application, regard should be had to (i) the length of delay, (ii) the reason for the delay, (iii) the merits of the intended appeal and (iv) the degree of prejudice, if any, to the other party if the application were granted.

7. The length of delay was, by any measure, substantial. The judge considered that the 2nd Defendant had failed to adequately explain the delay and more importantly, that her case on the merits was very weak, if not totally unarguable.

8. The 2nd Defendant appealed the judge's decision and has sought to adduce fresh evidence on appeal. At the hearing, we indicated that we would consider the fresh evidence de bene esse.

Background Facts

9. It is necessary first to recount the relevant background facts.

10. The 1st and 2nd Defendants are husband and wife. They are both in their 60's. They live in Singapore, although they also have a residence in Hong Kong, the mortgaged property.

11. A Singaporean company by the name of MTM Trading Pte Ltd ("MTM") has been referred to by the 2nd Defendant as "the family company". The 1st Defendant is a director but not a shareholder. The 2nd Defendant is a director and 20% shareholder. The other shares are held by their children.

12. The 2nd Defendant was also the registered sole proprietor of a firm by the name of Brightex (Hong Kong) Corporation, which had, at some stage, carried on business in Hong Kong . In December 1998 - January 1999, the 2nd Defendant (trading as Brightex) was adjudged to pay Nan Ya Plastics (Hong Kong) Corporation Ltd., for arrears of rent and mesne profits, a sum of approximately $121,000, interest thereon at judgment rate and costs.

13. Prior to the mortgage to the Plaintiff, the property had been mortgaged first to IBU International Finance Ltd and then to the Standard Chartered Bank, Singapore ("SCB-S").

SCB-S mortgage

14. The mortgage in favour of SCB-S was given in 1997 as security for the maintenance of banking facilities given by that bank to MTM, the family company. It would appear however that soon after the mortgage was executed, the business relationship between SCB-S and MTM broke down after SCB-S reduced the facilities. This resulted in litigation between SCB-S and the company.

Nan Ya charging order

15. In 1999, Nan Ya obtained a Charging Order against the property in respect of Brightex's judgment debt. This was by way of a second charge on the property, as it was subject to the prior SCB-S mortgage.

Proposed mortgage to Plaintiff

16. The mortgage to the Plaintiff was given in 2000. According to the 2nd Defendant's affirmations (which on this aspect was not contradicted), it was the 1st Defendant who undertook negotiations with the Singapore branch of the Plaintiff.

Facility Letter

17. Banking facilities were offered by the Plaintiff to the 1st and 2nd Defendants (not to MTM). The facility letter dated 25 April 2000, which was signed by both Defendants, stated:

"The Bank agrees to assist with providing accommodation to the Obligors [identified as "the 1st Defendant and/or 2nd Defendant"] through the Bank's Singapore Branch up to a maximum amount of HKD4,900,000 subject to periodic credit review with effective limit to be adjusted according to the Collateral Value of the Charged Property . ...

The advance ratio of the Charged Property for the time being is 70%. Should at any time the outstanding under the accommodation exceed the advance ratio of the then market value of the Charged Property (the 'Collateral Value') as determined by the Bank, the Obligors shall forthwith place with the Bank sufficient securities acceptable to the Bank and/or reduce the outstanding in the Bank's Singapore Branch so that the Collateral Value shall be no less than the principal outstanding, in which case the accommodation will be reduced accordingly".

Conveyancing transaction

18. As the collateral was to be a First Legal Charge over the property, the SCB-S mortgage and Nan Ya's Charging Order had to be cleared. The conveyancing therefore involved a number of different parties and solicitors representing them.

19. The Plaintiff's solicitors were Joseph SC Chan & Co ("JSCC"). SCB-S's solicitors in Hong Kong were Lovells and in Singapore were Rajah & Tann. Nan Ya's solicitors were Kwok Ng & Chan. The Defendants were in Singapore, where John Tan & Chan ("JTC") represented MTM. JTC's position vis-a-vis the 2nd Defendant will be examined later in this judgment.

Correspondence

20. In June 2000, there was a series of correspondence between these firms, some of which is relevant to the 2nd Defendant's allegation that she had not been given independent advice before executing the mortgage. There are in this series, 7 letters which are relevant to this Judgment. Although it will be necessary to recount the contents of these letters at some length, the picture that ultimately emerges from them is clear and simple.

21. JSCC, the Plaintiff's solicitors, first wrote to Lovells (SBC-S's Hong Kong solicitors) and Kwok Ng & Chan (Nan Ya's solicitors) enquiring about the discharge of the mortgage and charging order respectively. Replies were duly given which are not pertinent to this Judgment.

22. On 15 June 2000, JTC wrote to JSCC ("Letter 1"). JTC was aware that JSCC were acting for the Plaintiff in its loan to the 1st and 2nd Defendants, but JTC

(a)	thought that JSCC also acted for the 1st and 2nd Defendants in their discharge of their existing mortgage (to SCB-S) and in respect of the mortgage to the Plaintiff;
(b)	said they understood that the 1st and 2nd Defendants had instructed JSCC to arrange for Nan Ya's Charging Order to be discharged;
(c)	asked for copies of the approved discharge of the existing mortgage and the new mortgage and security documents as soon as possible;
(d)	informed JSCC that the discharge of the SCB-S mortgage would be contemporaneous with the disbursement (by the Plaintiff) of the loan to "Mrs Mody" (ie the 2nd Defendant) and another loan to MTM which would occur in Singapore on 26th June 2000. JTC said it acted for MTM in relation to the said loans.

The letter was copied by JTC to "clients". It has recently been alleged by Mr Tan of JTC that the reference to "Mrs Mody" as the recipient of the loan from the Plaintiff was a typographical error and that what they meant to say was "Mr & Mrs Mody". Be that as it may, the 2nd Defendant remained a recipient of the loan.

23. Letter 1 from JTC was followed by communications between the Defendants and Kwok Ng & Chan, from which it was clear that the Defendants understood that JSCC did not act for them in the discharge of the charging order. This was confirmed in separate correspondence between JSCC and Kwok Ng & Chan.

24. On 17 June 2000, JSCC wrote to JTC ("Letter 2"), stating "we act for [the Plaintiff], the proposed mortgagee of the ... property" and asked for the title deeds (which were then in the possession of JTC) on the usual understanding of solicitors in a conveyancing transaction.

25. The same day, JTC sent the title deeds to JSCC ("Letter 3"). In this letter, JTC asked the Plaintiff's solicitors to "kindly urgently prepare the necessary mortgage documents for our clients' signatures and fax us copies for our perusal". This letter was also copied by JTC to "clients". Although there was no identification of JTC's clients by name, the only persons who were to sign the mortgage were the Defendants. MTM would not be signing the mortgage because it was not a mortgagor. Nor was MTM a borrower. The facility letter showed that the only borrowers were the 1st and 2nd Defendants. At most (on the basis of Letter 1), MTM was to be only a recipient of funds on the instructions of the Defendants.

26. On 21 June 2000, JSCC wrote to JTC ("Letter 4"). With reference to the representation of parties referred to in JTC's Letter 1 (see paras. 22(a) and (b) above), JSCC clarified that they only acted for the Plaintiff in the proposed mortgage, and stated clearly "we do not act for Mr & Mrs Mody in the mortgage transaction, the discharge of the existing [SCB-S] mortgage, nor in the discharge of the [Nan Ya] charging order", although they would liaise with Nan Ya's solicitors and SCB-S's solicitors.

27. As for JTC's request for the draft mortgage, contained in Letter 1 (see para. 22 (c) above) and Letter 3 (see para. 25 above), JSCC said "if you confirm by return that you act for Mr & Mrs Mody in approving the Mortgage, we shall send you the mortgage form by facsimile. Because of the attestation requirement and the many parties involved, please advise Mr & Mrs Mody to come to Hong Kong for execution of the Mortgage deed".

28. Although all correspondence was sent by fax and mail, Letter 4 apparently crossed with a letter of the same date from JTC to JSCC (Letter 5). In this letter, JTC

(a)	asked again for "photocopies of the mortgage documents which our clients will be signing";
(b)	said they understood from the 1st and 2nd Defendants that the Plaintiff's Singapore office had said that it would be in order for them to sign the mortgage documents in Singapore before one of the bank's officers or before a lawyer, and to be couriered to JSCC for registration;
(c)	asked JSCC to confirm that that was acceptable and to let them [JTC] have the documents within 2 days, there being at the time 5 days before the completion date scheduled for 26 June 2000;
(d)	gave disbursement and drawdown instructions;
(e)	repeated their [JTC's] understanding that JSCC were acting for the 1st and 2nd Defendants in the discharge of the existing (SCB-S) mortgage and (Nan Ya) charge on the property, and asked for details of the documents required and sums payable.

29. It would be noted that in Letter 5, JTC was again requesting for the mortgage documents which "our clients" would be signing. As noted above, the only signatories of the mortgage would be the borrower-mortgagors, i.e. the 1st and 2nd Defendants. The only reasonable inference was that JTC was acting for the 1st and 2nd Defendants.

30. That inference was corroborated by JTC giving instructions for disbursements and drawdown, instructions which would be given by borrower-mortgagors.

31. After receipt of this letter, JSCC sent a second letter later the same day to JTC ("Letter 6"). Noting that Letter 4 and Letter 5 had crossed, JSCC said, in reply to JTC's request for photocopies of the mortgage documents which JTC's clients would be signing, that they would be sent the next morning. JSCC said yet again that "as clarified in our first letter, we do not act for Mr & Mrs Mody" and said that they were negotiating with Nan Ya direct.

32. The next day, JSCC sent the draft mortgage to JTC ("Letter 7"). This is consistent with their position in Letter 4 (see para. 27 above) that they would provide copies of the mortgage to JTC if they (JTC) confirmed that they were acting for the Defendants, and with JTC's references to the Defendants as their clients in Letters 3 and 5.

Execution of mortgage document

33. The mortgage was executed in Singapore on 24 June 2000. The execution by the Defendants was attested by Miss Alison Pun of JSCC but took place at JTC's office. Miss Pun has deposed on affirmation that she was received by Mr Tan and that before the mortgage was executed, the Defendants had confirmed with her that (a) the contents had been explained to them by their lawyer Mr Tan and (b) they were fully aware of its nature and legal effect. The Defendants then executed the mortgage in the presence of herself and Mr Tan.

34. It is noted that in the 2nd Defendant's affirmation in reply before the judge , she did not deny Miss Pun's assertion that she (the 2nd Defendant) had confirmed the matters set out in (a) and (b) of the preceding paragraph.

35. The 2nd Defendant instead only said that Miss Pun knew that she was the 1st Defendant's wife, that it was "obvious" that she was a homemaker and that the banking facility was only going to be "handled" by the 1st Defendant. She said Miss Pun was only there for a few minutes to execute the mortgage. She said she was "not explained anything in detail regarding the transaction [she] was entering into nor the risks that were involved in mortgaging the property to the Plaintiff Bank. Besides, [she] was never advised to seek independent legal advice nor did [she] have a private meeting with any solicitors or banker".

36. As will be discussed later in this judgment, it would not have been necessary for Miss Pun to do so in view of Letters 3 and 5 from JTC indicating that they acted for the 2nd Defendant and when the 2nd Defendant had given her the confirmation referred to in para. 33 above. What is significant for present purposes is not whether the 2nd Defendant had in fact been given advice by JTC, but that the 2nd Defendant told Miss Pun that she had (a fact affirmed by Miss Pun and not denied by the 2nd Defendant).

Proceedings

37. About a year later, as a result of the reduction in value of the property, the Defendants were unable to meet demands for payment and the Plaintiff instituted proceedings.

38. As noted earlier, the Defendants instructed solicitors in Hong Kong who did not contest the Originating Summons. Miss Mody has said in her 1st affirmation that that position was taken because "our highly respectable solicitors suggested that since we had already made re-financing arrangements, it would be best for all parties to cooperate and resolve this matter amicably without incurring further costs".

39. In fact, the Defendants had executed in escrow various documents with another bank in Hong Kong, the Dao Heng Bank, for the proposed re-financing. Amongst the documents signed by the 2nd Defendant by February 2002 was a declaration to the effect that she was not under the undue influence of the 1st Defendant.

Events after master's order

40. As it turned out, however, the refinancing fell through as funds from India, which were expected to cover a shortfall, did not arrive.

41. The Plaintiff issued a writ of possession in May 2002.

42. The Defendants, acting through their solicitors, at first successfully applied for a stay of execution of the order for possession.

43. On 31 August 2002, the Defendants gave notice that they would act in person. A further application for a stay of execution proved ultimately to be unsuccessful.

44. On 30 September 2002, the Defendants were issued with a final notice to quit by the bailiff.

Application for extension of time to appeal master's order

45. The same day, the Defendants commenced the present application and an affirmation of Miss Sonal Mody, the Defendants' daughter, was filed on behalf of the 1st Defendant.

46. On 2 October 2002, Miss Mody filed a 2nd affirmation, this time on behalf of the 2nd Defendant, seeking to set aside the master's order on the ground that she (the 2nd Defendant) had been unduly influenced by the 1st Defendant to execute the mortgage.

47. Miss Mody's affirmation was followed by 2 affirmations made by the 2nd Defendant herself, affirmations in opposition made by Mr Aaron Chow and by Miss Pun, and the 2nd Defendant's affirmation in reply.

48. The 2nd Defendant requested that the appeal be conducted by Miss Mody. Although this went beyond the usual ambit of a Mackenzie friend's liberties, we granted the request for the sole reason that Miss Mody had been permitted to conduct the proceedings before the judge. This is not to be taken as a criticism of Miss Mody who conducted the appeal with competence and courtesy.

2nd Defendant's case

49. Put briefly, the 2nd Defendant's case on the merits was that she had been unduly influenced by her husband the 1st Defendant to enter into the mortgage transaction. She said that mortgaging her home (in Hong Kong) to any bank had always meant a great deal to her, but he had told her that the facilities would be used for conducting foreign exchange business, and that the limit of $4.9m would not be exceeded. She trusted him and followed his advice.

50. The 2nd Defendant claimed that she was within Class 2B in Barclays Bank v O'Brien [1994] 1 AC 180, i.e. that there de facto existed a relationship under which she generally reposed trust and confidence in the 1st Defendant, such that undue influence would be presumed.

51. The 2nd Defendant does not assert misrepresentation on the part of the 1st Defendant. She says the facilities were in fact used for conducting foreign exchange business, and the limit of $4.9m was, as he promised, not exceeded. However, she says she had not realised that the Plaintiff could take steps to possess the property when its market value depreciated and the shortfall was not satisfied.

52. As for the Plaintiff, which is a third party to the alleged undue influence, the 2nd Defendant has not alleged that the 1st Defendant was its agent in exercising the undue influence, but she has alleged that the mortgage should nevertheless be set aside as against the Plaintiff, because she should have been given a private interview so that the risks of executing the mortgage could have been explained to her, and she should have been advised to seek independent legal advice.

53. For the reasons appearing below, I do not consider that this court would be justified in overturning the judge's exercise of his discretion upon his view of the lack of merits in the 2nd Defendant's case.

Principles in appeals from discretionary orders

54. It is well-established law that an appellate court should not interfere with the exercise of a judge's discretion unless it is satisfied that the judge has erred in law or in principle, or if he has taken into account some matter which he should not have taken into account, or has left out of account some matter which he should have taken into account, or if the decision was so plainly wrong that it must have been reached by a faulty assessment of the weights of the different factors which have to be taken into account (cf Alltrans Express Ltd v CVA Holdings Ltd [1984] 1 WLR 394, applied in Lakhan v Wu Wing Tat [1987] 3 HKC 54).

55. None of those conditions applies here. The judge showed in his written decision that he had the applicable principles firmly in mind, and the decision he arrived at was clearly open to him.

Application to adduce further evidence

56. As for the further evidence that had not been adduced before the judge, this comprised a further affirmation of the 2nd Defendant made on 13 December 2002, an affirmation of Mr Tan made on 16 December 2003 and another affirmation of the 2nd Defendant made on 20 June 2003.

57. It was common ground between the parties that the conditions in Ladd v Marshall [1954] 1 WLR 1489 applied to the application. The conditions are:

(1)	it must be shown (by party seeking to adduce the evidence) that the evidence could not have been obtained with reasonable diligence for use at the hearing;
(2)	the evidence must be such that, if adduced before the judge, would probably have an important influence on the result, though it need not be decisive;
(3)	the evidence must be such as presumably to be believed, in other words, it must be apparently credible, though it need not be incontrovertible.

58. I am not persuaded that the new evidence should be admitted. The 2nd Defendant has failed to show why she could not have sought and adduced this evidence at the hearing before the judge. It is not a sufficient explanation for a party to say that the judgment below led her to pursue new lines of inquiry or to look for evidence which she could have sought before.

59. Nevertheless, even if the new evidence were to be admitted, the 2nd Defendant's reasons for delay (due to her other daughter's hospitalization from the end of July 2002 to the end of August 2002) covers only part of the period of 10 months, and her case on the merits is still so weak that on the principles set out in paragraph 6 above, the application must be dismissed.

Plaintiff had no constructive notice

60. I shall assume for present purposes that the 2nd Defendant can prove as a matter of fact that she was in a relationship under which she generally reposed trust and confidence in her husband the 1st Defendant and that she can place herself within Class 2B of O'Brien. That presumption of undue influence would only entitle her to set aside the transaction vis-a-vis the 1st Defendant.

61. To set aside the transaction vis-a-vis a third party (ie the Plaintiff), she would have to show that the 1st Defendant was the Plaintiff's agent (of which there is no evidence in this case); alternatively, the transaction could be set aside if the Plaintiff had actual or constructive notice of the 1st Defendant's wrongdoing.

62. There was no evidence of actual notice. As for constructive notice, the relevant issues are (i) whether the Plaintiff knew of any facts putting it on inquiry of the 2nd Defendant's rights and (ii) whether it had taken reasonable steps to verify if the 2nd Defendant was asserting those rights (O'Brien, CIBC v Pitt [1994] 1 AC 200, Royal Bank of Scotland plc v Etridge (No.2) [2002] 2 AC 773). In considering these issues, the focus is on how the transaction appeared to the third party (the Plaintiff) rather than the party unduly influenced (the 2nd Defendant).

Plaintiff not put on inquiry because joint advance to defendants

63. In relation to (i), there was nothing to put the Plaintiff on inquiry of the 2nd Defendant's rights. This was not a transaction which was on its face not to her financial advantage because, unlike the situation in O'Brien, the funds were to be advanced for the joint benefit of herself and her husband.

64. In CIBC, the House of Lords held that where there was an advance to husband and wife for their joint benefit, there was no manifest disadvantage to the wife which would have put the third party on notice (p.211). In the present case, the facility was given for the joint benefit of the 1st and 2nd Defendants. This was clear in the facility letter signed by both defendants.

65. Nevertheless, even in a situation of a joint advance, the third party may still be put on inquiry if it was actually aware that the loan was for only one borrower's purposes (CIBC p.210F-G). However, in the present case, it was clear from JTC's Letter 1 that at least part of the loan from the Plaintiff was to be disbursed to the 2nd Defendant (see para.22(d) above). In the light of that representation, it is of little relevance that the Plaintiff might have discovered (if it had checked the 2nd Defendant's income records in Singapore) that she had not received dividends from MTM or made drawings from Brightex.

Advice from own solicitors

66. In relation to (ii), the question of legal advice for the 2nd Defendant, it is clear from Letter 3 and Letter 5 sent by JTC to JSCC that they (JTC) were asking for a copy of the mortgage so as to advise their clients who were to sign it. At the risk of repetition, the only persons who were to sign the mortgage were the defendants. Therefore, the "clients" JTC referred to could only have been the defendants, to whom copies of these letters were sent.

67. Accordingly, it would have appeared to the Plaintiff that JTC were advising the 2nd Defendant in the mortgage transaction. How they gave advice to the 2nd Defendant was a matter for them. This is supported by Miss Pun's evidence of the confirmation she received from the 2nd Defendant, which in this important respect was not denied (see paras. 33-35 above).

Order

68. In the circumstances set out above, it is clear that, even if the new evidence were to be admitted, the 2nd Defendant's lack of merits, coupled with the substantial period of delay and the lack of reasons for delay for most of that period, are such that the court cannot be satisfied that it should exercise its discretion in her favour.

69. The appeal is accordingly dismissed with an order nisi that the Plaintiff is to have the costs.