CHEKIANG FIRST BANK LTD v. FONG SIU KIN AND ANOTHER

1994 M.P. No. 2533

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. The Plaintiff is a bank; the 1st Defendant is the owner of Unit D on the First Floor of Selwyn Factory Building in Kwun Tong ("the Property"); and the 2nd Defendant is a businessman who wanted banking facilities. I will refer to the Plaintiff as "the Bank", the 1st Defendant as "Madam Fong" and the 2nd Defendant as "Mr Ma".

2. This case concerns a Legal Charge dated 19th May 1988 ("the Legal Charge") whereby Madam Fong charged the Property in favour of the Bank to secure the repayment to it of money advanced by it - at her request the Legal Charge states - to Mr Ma up to $380,000 plus interest thereon.

3. The Legal Charge also contains a covenant to repay by Madam Fong and Mr Ma jointly and severally.

4. Mr Ma has not defended these proceedings, which have been fought out as between the Bank and Madam Fong.

5. It has been proved by the Bank to my satisfaction that, subject to the defences raised by Madam Fong, the amount due to it from her and Mr Ma jointly and severally is $286,247.63 by way of principal plus interest in the sum of $107,760.57 in respect of the period 14th September 1994 - 31st August 1996 and at the rate of $176.44 per day from 1st September 1996 until judgment. Indeed, Madam Fong does not dispute those figures.

6. I am satisfied that Mr Ma has no defence to the Bank's claim against him. So at once I give the Bank judgment against him for $286,247.63 by way of principal plus interest in the sum of $107,760.57 in respect of the period 14th September 1994 - 31st August 1996 and at the rate of $176.44 per day from 1st September 1996 until judgment. I will deal with costs at the end of this judgment.

7. That leaves Madam Fong. She and the Bank are agreed that if her defences fail and the bank succeeds on liability, the judgment which the Bank should be given against her is for :

(i) payment within 28 days of $286,247.63 by way of principal plus interest in the sum of $107,760.57 in respect of the period 14th September 1994 - 31st August 1996 and at the rate of $176.44 per day from 1st September 1996 until judgment; and

(ii) in default of such payment, an order for the sale of the Property or, at its option, an order that she pay or cause to be paid to it all rents and profits on the Property in order to satisfy the obligation to make such payment.

8. In the event of there being judgment for the Bank, the parties would no doubt work out the precise wording of the formal order or come back to me under the liberty to apply which I would give for that purpose.

9. The defences which Madam Fong has pleaded begin with averments in paragraph 4 of her Amended Defence and Counterclaim that the Legal Charge was procured by the undue influence of the Bank, its servants and/or its agents over her and/or that it was improperly obtained by the Bank, its servants and/or agents. Those averments are followed by lengthy particulars which read:

"(1) At all the material times [Madam Fong] has not been the customer of the [Bank] and prior to the purported execution of the Legal Charge, the [Property] was not encumbered and not subject to any mortgages or charges, legal and/or equitable howsoever.

(2) When the Legal Charge was executed, [Madam Fong] was aged 61 and could neither read nor hear English; [Madam Fong] could speak Punti but could not read Chinese. The Legal Charge was entirely drawn up in English by F. Zimmern & Co. who has been the legal adviser of the [Bank] for a very long time. [Madam Fong] was not a client of F.Zimmern & Co. except in the said Legal Charge.

(3) Prior to the execution of the Legal Charge, Lam Yuk Lin, the daughter of [Madam Fong] (["Madam Fong's daughter"]) introduced [Mr Ma] to [Madam Fong]. [Madam Fong's daughter] told [Madam Fong] that [Mr Ma's wife] Wong Kit Jing was her former primary school schoolmate and that [Mr Ma] wanted to purchase a shop and was in need of money. [Madam Fong's daughter] said the need would last for 1 year. [Madam Fong] accepted that the lending or any other banking facilities provided by any financial institution to [Mr Ma] would last for 1 year only.

(4) A meeting was then held with the presence of [Madam Fong], [Mr Ma], [Madam Fong's daughter] and [Mr Ma's wife]. [Mr Ma] confirmed to [Madam Fong] in the meeting that the lending from any financial institution would only last for 1 year and asked [Madam Fong] to help him to borrow a sum of HK$380,000.00 from a bank by using the [property] as a security. [Mr Ma] emphasised to [Madam Fong] that he would not deceive [Madam Fong] and would surely let her have the title deeds back after 1 year.

(5) Prior to the visit of [Madam Fong] to the office of Messrs. F. Zimmern & Co., Solicitors ("F. Zimmern & Co.") for the execution of the Legal Charge, [Madam Fong] was never told informed by the [Bank], its agents or servants that who was going to be the mortgagee; nor [Madam Fong] was ever approached by F. Zimmern & Co. for instructions.

(6) Whilst [Mr Ma] was in the office of F. Zimmern & Co., immediately prior to the execution of the Legal Charge, a clerk of F. Zimmern & Co. told [Madam Fong] that it was a mortgage involving certain banking facilities to be extended by the [Bank] to [Mr Ma] secured on the [Property] guaranteeing [Mr Ma]. [Madam Fong] confirmed to the clerk that the lending should be limited to 1 year only commencing from the date of execution of the said Legal Charge. The clerk acted with the apparent and ostensible authority of F. Zimmern & Co. and/or the [Bank] confirmed to [Madam Fong] that it was a matter between [Madam Fong] and [Mr Ma] and the [Bank] would not care. [Mr Ma] then asked [Madam Fong] just to execute the Legal Charge and orally represented to [Madam Fong], inter alia, that things would be all right. The rest f the contents of the Legal Charge was not explained nor interpreted in Punti to [Madam Fong] by the [Bank], its agents or servants on or before the said Legal Charge was executed.

(7) In the Legal Charge, F. Zimmern & Co. acted as solicitors for all the parties to the Legal Charge, namely the [Bank] and [Madam Fong] in particular as agent of the [Bank] in exercising the said actual or presumed undue influence. [Madam Fong] was not informed or aware of the arrangement about that prior to its execution. [Madam Fong] had no independent legal advice in relation to the Legal Charge nor she was informed by the [Bank], its agents or servants that as a matter of law that, she should obtain independent legal advice in relation to the same nor she was given such an opportunity to do so prior to the execution of the Legal Charge and/or any other related instruments thereon."

10. Following these particulars, there are these averments in paragraphs 5 to 9 of the Amended Defence and Counterclaim:

"5. By facts pleaded above, at the time of the execution of the Legal Charge, there existed between [Madam Fong] and the [Bank] a relationship of trust and confidence and the Legal Charge was executed at the request, which was made under the above circumstances by [Mr Ma] personally and by [Mr Ma] as agent or servant of the [Bank] and by F. Zimmern & Co. as agent or servant of the [Bank],

6. The transaction embodied in the Legal Charge was manifestly disadvantageous to [Madam Fong] in that [Madam Fong] received no, or no valuable, consideration therefrom in return for eincumbering the [Property] with a potential liability to the [Bank] in the sum of HK$380,000.00 and/or such other liabilities, claims or indebtedness purportedly to be arise therefrom the Legal Charge for money or money's worth.

7. In the premises, [Madam Fong's] execution of the Legal Charge is to be presumed to have been procured by the undue influence of the [Bank], its agents or servants, over [Madam Fong] at the material time on or before the execution of the Legal Charge.

8. Further or alternatively, the Legal Charge was improperly obtained by the [Bank] from [Madam Fong] and is void by matters pleaded hereinabove.

9. In the premises, the Legal Charge ought to be set aside and should be cancelled and the same should not be enforceable against [Madam Fong] as claimed alleged by the [Bank] or at all."

11. Madam Fong has a counterclaim. She counterclaims for :

(i) a declaration that the Legal Charge ought to be set aside;

(ii) delivery up of the Legal Charge for cancellation; and

(iii) rectification of the Land Register deleting the entry thereon relating to the Legal Charge.

12. If the claim fails; the counterclaim would automatically succeed; and I would then grant the relief counterclaimed because it would be tidier to do so even though such relief may not be strictly necessary. If on the other hand, the claim succeeds, the counterclaim would naturally fail.

13. In respect of certain matters, there was no real controversy. Madam Fong was asked by Mr Ma to help him by putting up her property as security for facilities for him from the Bank. She agreed. And when it came to implementing the arrangement, the solicitors acted for her as well as for Mr Ma and the bank in drawing up and seeing to the execution of the Legal Charge.

14. On all matters of controversy however, Madam Fong's evidence was given in an unimpressive manner, was generally confused and often contradictory. I feel myself unable to place any reliance on her evidence on any matter of controversy for the purpose of meeting the case against her. Indeed, in some respects her evidence was of positive assistance to the other side.

15. The only evidence that Mr Ma had asked for the use of her title deeds for only one year came from her. I find myself unable to accept her evidence. So I do not find it as a fact that Mr Ma limited the matter to one year in that way.

16. As to what was or was not said or explained to her by the solicitors, Mr Nelson Chan who was the clerk in the solicitors firm dealing with the matter, gave evidence to the following effect.

17. He cannot now remember what happened during the execution of this particular legal charge. However, it was his invariable practice to give the parties to such things a full explanation. Such explanation would include: the parties involved; the amount of banking facilities involved; the interest rate; the liability of both the mortgagor and the borrower to make repayment; the right of redemption; and the right of the Bank to sell the property in case of default in repayment.

18. He cannot now remember what was said on this occasion. However, if Madam Fong had indeed - as she said in evidence she had - told him that the use of title deeds was for one year only, then he would have remembered it as something unusual and would have reported the matter to the Bank and to his superiors in the firm. So he did not think that he had been told any such thing.

19. Nor do I think that he had been. I found the manner and the matter of Mr Chan's evidence impressive and convincing. I accept his evidence; and I find that he did indeed follow his practice on this occasion and behaved properly.

20. Since I do not find that Mr Ma had asked Madam Fong for the use of her title deeds for one year only, it is not strictly necessary to deal with the submission of counsel for the Bank that such a thing alone would not avail Madam Fong even if it had happened. All I propose to say therefore is that the submission strikes me as sound.

21. I do not find that anybody exercised any undue influence on Madam Fong, did anything improper to obtain the Legal Charge or indeed did anything in anyway legally wrong in relation to the matters with which this case is concerned.

22. If any presumption of undue influence or the like ever arose, the same would have been rebutted by the whole of the evidence in this case.

23. In my judgment, the Bank's claim is established while all Madam Fong's defences and her counterclaim fail.

24. It is only right that I acknowledge with thanks the assistance which both counsel gave me on the law as well as the facts. Naturally, I have considered all the evidence and arguments with care. No useful purpose would have been served by my reciting the evidence at length. Therefore I have not done so. And in light of my findings of facts, no useful purpose would be served by a recitation of the relevant law. Therefore I have not given one.

25. I give judgment for the Bank on the claim and dismiss Madam Fong's counterclaim. I have already set out the judgment which the parties agree that the Bank should have if it succeeds. There will be such judgment for the Bank.

26. Costs were canvassed during the hearing. That was done not for the purpose of my making a final order as to costs but with a view to encouraging me to make an order nisi since such an order might avoid the expense of counsel having to come back after the handing down of this judgment.

27. The issue as to costs in the event of the Bank succeeding concerns the basis on which the Bank should get costs. In this connection, the Bank relies on Clause 2(d) of the Legal Charge which provides that Madam Fong and Mr Ma jointly and severally covenant with the Bank that they or either of them will on demand "Pay to the Bank all usual or lawful costs and charges (including all legal charges calculated on a solicitor and own client basis) incurred by the Bank under or in connection with any of the foregoing matters or under or in connection with any other matter arising under or in consequence of these presents or in connection with the premises hereinafter charged or expressed and intended so to be."

28. Counsel for the Bank says that the Bank is entitled to costs on a solicitor and own client basis as a matter of contract. Counsel for Madam Fong says that the basis of costs is in my discretion. Since it is only an order nisi which I am making now, I propose to do no more than to announce the result (without analysing the arguments which may have to be renewed if anyone wishes to re-open the matter before the costs order becomes absolute). The result is this. I make an order nisi as to costs awarding the Bank costs against Madam Fong and Mr Ma on a solicitor and own client basis.

29. There will be liberty to apply as to the precise form of the judgment for the Bank if there is any disagreement as to that.