储惠敏 v. KWOK CHING CHING AND ANOTHER

HCA 89/2020 and HCA 90/2020

[2024] HKCFI 1380

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 89 OF 2020 AND ACTION NO 90 OF 2020

________________

(by Original Action)

________________

(by Counterclaim)

(Consolidated by the Order of Mr Registrar S. Kwang
dated the 27^th day of November 2020)

________________

J U D G M E N T

________________

Introduction

1.  This is the consolidated trial of the plaintiff’s claims for the repayment of two loans against the 1^st defendant (“D1”) and the 2^nd defendant (“D2”) and D1 and D2’s counterclaim for a declaration that the Two Loan Agreements (as defined below) are unenforceable.

2.  Pursuant to two loan agreements both dated 16 February 2015 (the Two Loan Agreements”), the plaintiff (“P”) agreed to lend and D1 agreed to borrow RMB 80,000,000 (the “Unit 17A Loan”) and RMB 70,000,000 (the “Unit 17B Loan”) (collectively the “Two Loans”) at a monthly interest of 1%. The date of repayment for the Two Loans was 28 August 2017.

3.  Under the Two Loan Agreements, D1 is the borrower of the Two Loans and the registered owner of Unit 17B, Tower 1, Regence Royale, 2 Bowen Road, Hong Kong (“Unit 17B”). D2 is the registered owner of Unit 17A, Tower 1, Regence Royale, 2 Bowen Road, Hong Kong (“Unit 17A”) and is a guarantor of the Unit 17A Loan.

4.  The Two Loans are secured by two second legal charges over the adjoining properties of Unit 17A (the “Unit 17A Legal Charge”) and Unit 17B (the “Unit 17B Legal Charge”) (together, the “Legal Charges”). Unit 17A is subject to a mortgage with Dah Sing Bank dated 7 October 2013 (with HK$37,000,000 being outstanding). Unit 17B is subject to a mortgage with Chong Hing Bank dated 25 September 2013 (with HK$35,800,000 being outstanding).

5.  Although there is no dispute that the sums advanced pursuant to the Two Loans had been transferred to D1’s account, D1’s case is that the sums were immediately transferred to a third party upon receipt and she never received the sums beneficially.

6.  The Unit 17A Loan and the Unit 17B Loan are due and owing.

7.  P’s claims in this case are straightforward. They are based on the Two Loan Agreements and the Legal Charges, in respect of which D1 and D2 do not dispute having signed or executed.

8.  D1 and D2 raised the following defences:

(1)  The Two Loans and the Legal Charges were procured by duress and/or illegitimate pressure by a “consortium of individuals” including P and her associates including a 秦嗣新 (“Qin”), a Mandy So (蘇敏) (“So”), and a 宋慶超 (“Song”) (together, “P and Associates”). It is D1 and D2’s case that P had actual or constructive notice of the vitiating factors which rendered the documentation for the Two Loans, the deeds of warranty and undertaking etc. voidable (the “Duress Defence”);

(2)  Further or alternatively, the Two Loans were procured by undue influence exercised by one Lau Hei Wing, Stephen (劉希泳) (“Lau”) over D1, for which P had or ought to have notice. D1 was never asked to obtain independent legal advice (the “Undue Influence Defence”);

(3)  Further or alternatively, the Two Loans were a sham in that neither parties intended that D1 would be borrowing any money from P, and D1 and D2 would be providing any security to secure the Two Loans (the “Sham Defence”);

(4)  P was a money lender within the definition of the Money Lenders Ordinance and was in breach thereof (the “MLO Defence”).

9.  There is no dispute that D1 and D2 bear the burden of proving these defences.

Credibility of Witnesses

10.  In assessing credibility of the witness, I adopt the often cited principles in Hui Cheung Fai and Other v Daiwa Development Limited and Others[1] by DHCJ Eugene Fung SC at §§76-82:-

“76. In making my findings of fact in this case, I am guided by a number of general principles which judges apply as to fact finding and the assessment of credibility.

77. Generally speaking, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility: Onassis v Vergottis [1968] 2 Lloyd’s Rep 403 at 431 (Lord Pearce)…

78. In deciding whether to accept a witness’ account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events: eg Lam Rogerio Sou Fung v Tan Soon Gin George (unreported, HCA 2576/2005, 5 May 2011) §39 (Chu J).

79. In determining a witness’ credibility, I have also attached importance to the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence. The latter type of consistency is often tested by a comparison between the witness’ oral testimony and his or her witness statement.

80. I have cautioned myself against the dangers of too readily drawing conclusions about truthfulness and reliability solely or mainly from the appearance of witnesses (Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336 at §§36-37 (Bokhary PJ)), or from the assessment of the witnesses’ character (Esquire (Electronics) Ltd v HSBC [2007] 3 HKLRD 439 at §135 (Stock JA))…” [emphasis added]

11.  In Star Glory Investment Limited v Kai Tuo (H.K.) Technology Company Limited & Ors[2], Chung J adopted the following test:

“There are two objective tests for assessing a witness’s credibility regarding a matter to which he has testified: -

a) Whether that part of his testimony is inherently plausible or implausible;

b) Whether that part of his testimony is, in a material way, contradicted by other evidence which is undisputed or indisputable (an example often given of such evidence is contemporaneous documents).

Further, where it is shown that a witness has been discredited over one or more matters to which he has testified (using the above tests), this fact is relevant to the assessment of his overall credibility. Likewise, regard may be had to a witness’s motive for deliberately not giving truthful testimony. For example, telling the truth may prejudice his interest, or a just determination of the litigation may affect his interest.”

Assessment of P’s evidence

12.  Although the documentary evidence seemed to suggest this is a typical loan arrangement with P extending the Two Loans to D1 which are respectively secured by Unit 17A and Unit 17B, the circumstances which the Two Loans were entered into were, to say the least, unusual:

1)  P engages in the business of property development and is not in the business of money lending. It is P’s evidence that this was the first time she had advanced loans on a personal basis to anyone. P readily admitted to not have known D1 before deciding to advance the Two Loans – in the total sum of RMB 150 million – to her.

2)  There is no evidence on how and to whom D1 had applied for such loans. There is also no evidence on why D1 needed the Two Loans.

3)  It is P’s evidence that in early February 2015, she came across the opportunity to advance the Two Loans through her friend 陳珂 (“Chen”) in Beijing. P was chatting with Chen and Chen told P that D1 needed money. As P had money to spare, she decided to advance the Two Loans to D1. The time between P first learnt of this opportunity from Chen and the execution of the Two Loan Agreements and the Legal Charges was a mere two weeks.

4)  From P’s oral evidence, it is apparent that P knew or cared very little about the terms of the Two Loans. During cross-examination, P avoided giving a straight answer to the simple question of whether she knew about the terms of the Two Loans before she decided to lend the money to D1. At one point, P said that Chen had informed her about the rate of the interest payable under the Two Loans through the lawyers. P kept stressing that she had instructed lawyers to do the loan documentation (“經過律師做文件”). However, when pressed on whether that meant that she did not know what the interest rate was when she decided to advance the Two Loans, she said that she could not remember clearly. When she was once again asked whether she knew what was the interest return at the time Chen had told her about the loan opportunity, P, without giving a straight answer, once again answered that she found out the terms through the lawyers.

5)  P eventually accepted that she had decided to advance the Two Loans without knowing the precise terms, which were known only after lawyers had been instructed. She also admitted that the lawyers knew the terms of the Two Loans better than she did. P stressed that she knew she would get back some advantage in the form of interest and that alone was sufficient for her.

6)  P also admitted having not negotiated the terms of the Two Loans and had entrusted everything to the lawyers. She depended on the provisions of the Two Loan Agreements and the Legal Charges to have her interest protected.

7)  It is clear that P did not care much about what were the terms of the Two Loan Agreements.

8)  Throughout cross-examination, P’s attitude was (to put it mildly) one of disdain. P did not come across as someone who was keen to recover the Two Loans nor the secured properties. I agree with the submission by Mr Vincent Chiu, counsel for D1 and D2, that P appeared wholly disinterested in the proceedings. Her attitude throughout was inconsistent with someone who had personal interest in the recovery of a substantial loan. Instead, her attitude was more consistent with someone who had been forced or instructed to give evidence on behalf of someone else.

Discussion – P’s Prima Facie Case

13.  On the evidence tendered by P, for the following reasons I find that the Two Loans and the Legal Charges were not meant to have operated as loans with properties as security as appeared on the face of the Two Loan Agreements and the Legal Charges:

1)  P, being the lender of a substantial sum of money, knew very little about the terms of the Two Loans. During cross-examination, whenever P could not answer a question on the terms of the Two Loans, her answer was invariably: “I had instructed lawyers and entrusted everything to them.”

2)  P claimed that she decided to extend the two Loans for RMB 150 million as she had money to spare. However, before she decided to extend the Two Loans to D1, P did not even enquire from banks by way of comparison what sort of return she would get from banks by way of fixed deposit or other investment products, which may have a comparable return and carry a much lower risk than lending to D1, who is a complete stranger to her.

3)  P claimed that despite not knowing D1 at all, she was happy to extend the Two Loans to D1 as she was assured by the Legal Charges being put up as security. However, no valuation report was commissioned for the value of Unit 17A and Unit 17B at the time the Two Loans were entered into. It is thus a myth on what basis did P consider if the Two Loans were viable and how P found comfort in Unit 17A and Unit 17B being offered as security when she did not even know what the equity value in those properties were (after taking into account the banks’ first legal charges on both Unit 17A and Unit 17B).

4)  P clearly realised during cross-examination that the lack of a valuation report was problematic, as P was evasive when she was cross-examined on whether there was a valuation report commissioned for Unit 17A and Unit 17B before she extended the Two Loans:

i)  As part of her answers by way of affirmation to D1 and D2’s Interrogatories in May 2021, P said that no such valuation report was in existence;

ii)  During cross examination however, she changed her stance to: the lawyers had done valuation reports on Unit 17A and Unit 17B;

iii)  After having been referred to the answer she gave in the Interrogatories, she changed her answer to; “it has been too long and I cannot remember clearly”;

iv)  P eventually confirmed during cross-examination that there were no valuation reports in existence for Unit 17A and Unit 17B.

5)  P’s oral evidence also demonstrated that she did not understand how the Two Loans operated (if they were genuine loan arrangements): under the Two Loan Agreements, the deadline for repayment of any interest or principal to the Two Loans only fell on 28 August 2017, which meant that there was no obligation to repay either interest or principal between 16 February 2015 to 27 August 2017. Yet, as admitted by P, shortly after the documentation for the Two Loans were signed, the keys to Unit 17A and Unit 17B had already been handed over by D1 to P. This indicates that Unit 17A and Unit 17B were not in fact securities for the repayment of the Two Loans, as they were handed over even before the loan or interest thereon became due.

6)  This is further reinforced by the fact that P had allowed her friend Chen (who had introduced the Two Loans to P), to live in Unit 17B and Unit 17A in return for him paying the monthly mortgage repayments for both Unit 17A and Unit 17B from May 2015 and June 2015 respectively. P’s explanation for Chen paying the monthly mortgage instalments of Unit 17A and Unit 17B was because “he was living in my property”.

7)  P candidly agreed that she had taken up the responsibility for the monthly mortgage repayments for both Unit 17A and 17B shortly after the keys to Unit 17A and Unit 17B had been handed over. It is not disputed that P had not demanded for the repayment of such mortgage instalments in her present claim.

8)  The only explanation for P having done so (as admitted by P) is that P had since the handing over of the keys in 2015 been treating Unit 17A and Unit 17B as her own. P also admitted during cross-examination that this arrangement is more akin to an outright transfer of Unit 17A and Unit 17B for RMB 150 million than to a loan secured by properties.

9)  The reality of this arrangement is clearly in direct conflict with the terms of the Two Loan Agreements and the Legal Charges.

10)  After the Two Loans expired on 28 August 2017, there was no written demand for repayment and P had not taken any enforcement action until 20 December 2019 (more than 2 years later), when P’s solicitors issued the first letter of demand. Against the background that P did not know D1 at all, P could not provide any reasonable explanation as to why P did not immediately demand repayment of RMB 150 million (with interest) and enforce the Legal Charges.

11)  In November 2019, a Betty Lo of Messrs. K.C. Ho & Fong, P’s solicitors, had drafted various documents for: 1) the assignment of Unit 17B to someone in the name of Chu Yajun (禇雅珺) for HK$87 million and 2) the change of ownership/control of Shing Ming Investment Limited, which is the sole shareholder of D2 (being the registered owner of Unit 17B) (together, the “2019 Draft Documents”).

12)  The 2019 Draft Documents were sent by Betty Lo via email to So (not P). The 2019 Draft Documents included a draft General Power of Attorney made by D1 in favour of Qin. Also included in the 2019 Draft Documents was a draft confirmation purportedly from P to D1, where it was acknowledged that the HK$87 million consideration for the assignment of Unit 17B would be paid to P after deducting all outstanding sums owed to Chong Hing Bank. These documents suggest that a change of ownership of Unit 17A and Unit 17B was contemplated.

13)  Curiously, despite the fact that P considered herself as the owner of both Unit 17A and Unit 17B, her evidence under cross-examination was that she had no knowledge of the 2019 Draft Documents or the transactions contemplated and she never gave instructions to her solicitors to draft those documents. Indeed, Betty Lo’s email was not sent to P, nor was it even copied or forwarded to her.

14)  There is no evidence tendered and no submission or explanation was provided by Mr Sunny Chan, counsel for P, on why Messrs. K.C. Ho & Fong had drafted the 2019 Draft Documents without instructions of P, if P’s evidence in this regard were to be believed.

15)  The possibilities are: 1) Messrs. K.C. Ho & Fong had drafted these documents without any instructions; 2) P was lying about not having given such instructions; or 3) Messrs. K.C. Ho & Fong had been instructed by someone else to draft such documents. It is highly unlikely that a firm of solicitors would have gone about on its own to draft some 29 pieces of documents without any instructions. P’s denial of knowledge is supported by fact that P was never included, nor copied in the distribution list in the email chain that circulated the 2019 Draft Documents. This leaves the possibility of another party having instructed Messrs. K.C. Ho & Fong to draft these documents, which party is the ultimate entity behind the whole arrangement. I do not make any factual finding on this issue as there is insufficient evidence and it is not necessary to do so in the present proceedings. Suffice to say, as P was never copied on the email where the 2019 Draft Documents were circulated, and there was no other evidence to the contrary, I accept P’s evidence that she was not aware of the 2019 Draft Documents.

14.  All of the above peculiar features indicate that the Two Loans and the Legal Charges were not intended and were nor carried out as a normal loan arrangement with properties charged as security.

15.  Mr Chan submitted that P’s credibility as a witness, how she understood the Two Loans to have been operated or that she thought the Legal Charges were direct transfers were all irrelevant, as the Two Loan Agreements and the Legal Charges are admitted to have been signed by D1. Mr Chan relied on the principle that, generally speaking, when a person signs a legal document, he or she is bound by the act of signature until proven otherwise by fraud or other vitiating factors. As a matter of general law, it is no defence to say that he or she did not understand the contents of a legal document; that person takes the chance of being bound by its terms, as he or she can take the simple precaution of not signing until its contents have been fully explained and understood[3].

16.  Whilst it is accepted that it is no defence to simply say that one does not understand the effect of a document after having signed a document, it is quite another matter to say that the court will simply take any signed document at face value and turn a blind eye to any irregularity of the underlying transaction. P as a claimant, in asking the court to grant relief as sought under the Two Loan Agreements and the Legal Charges, bears the burden to prove her prima facie case and that the documents relied upon are genuine transactions[4]. In the present case, the prima facie case that P needs to show is that the documentation for the Two Loans and the Legal Charges are genuine transactions and that P is entitled to the reliefs sought.

17.  As discussed above, I find that P has failed to establish the prima facie case that the Two Loans were genuine loan arrangements, or that the Legal Charges were intended to be operated as security documents in securing the Two Loans. P has failed to establish her entitlement to relief under the Two Loan Agreements and the Legal Charges.

18.  Even if I were wrong on the above conclusion and P has proven her prima facie case based on the Impugned Documents (as defined below) alone, her claim would still fail as one of D1 and D2s’ defences succeeds as analysed below.

Duress and Undue Influence

Applicable Legal Principles – Duress

19.  The applicable principles on duress were succinctly summarized by Linda Chan J in Pan Sutong v Bank of China [2022] HKCFI 1450, adopting the submissions made by Rimsky Yuen SC at §§29:

“(1) There are 2 elements in the wrong of duress: (a) illegitimate pressure amounting to compulsion of the will of the victim; and (b) causal effect of such pressure on the victim.

(2) The legitimacy of the pressure depends on: (a) whether the pressure is lawful; and (b) the nature of the demand which the pressure is applied to support. The threat of any unlawful action will generally be regarded as illegitimate (R v. AG for England and Wales [2003] E.M.L.R. 24 at §16). The question of legitimacy may also be examined by reference to a range of factors, including: (a) whether the person exerting the pressure acted in good faith; and (b) whether the victim had any realistic alternative but to submit to the pressure.

(3) The concept of duress to the person has its own rules of causation. ‘But for’ causation is not required. It is sufficient that the threat was a reason for the victim entering the contract. The victim does not have to show that he would not have entered the contract without the threat, or that he has no realistic alternative but to enter into the contract. Once it is shown that the threats to the person were made for the purpose of inducing the contract, the burden is reversed such that it is for the party who made the threats to prove that the threats were not even ‘a reason’ causing the victim to enter into the contract (Liao Zhiqiang v Cheung Sin Ling [2022] HKCFI 892 at §§90-91; Re Dai Yumin [2022] HKCFI 950 at §§106-110).

(4) …”

20.  The complainant only needs to prove that the pressure was a reason why he entered into the contract and the court will conclude that the illegitimate pressure induced the contract unless there is evidence that the illegitimate pressure in fact contributed nothing to the decision to enter the contract. It follows that it is unnecessary for the complainant in the case of threats to the person to demonstrate that he had no practical alternative but to enter into the challenged contract.[5]

Applicable Legal Principles – Undue Influence

21.  The principles of undue influence are well established. In the recent case of Ho Kueng & Others v Lau Yuet Hing[6], Ng J summarised them as:

“114. The essence of the defence of undue influence was neatly summarized in Bank of China (Hong Kong) Limited v Wong King Sing & Others [2002] 1 HKLRD 358, delivered shortly after the law was clarified in Royal Bank of Scotland v. Etridge (No.2) [2002] 2 AC 773. At [34] - [35] of the judgment, Recorder Ma SC (as he then was) observed:

‘34. … it is to be borne in mind that the defence of undue influence is ultimately a simple concept. It has all to do with informed consent. Once a court forms the view that consent was freely given with full knowledge of the consequences of entering into the relevant transaction, that is the end of the matter, however improvident the transaction may objectively appear. The rationale for the defence of undue influence is to prevent the victimisation of the complainant. It is there to protect people from being forced, tricked or misled in any way by others into entering into a disadvantageous transaction: see Allcard v. Skinner (1887) 36 Ch.D. 145, at 182–3; National Westminster Bank Plc v. Morgan [1985] AC 686, at 705. As Lord Nicholls of Birkenhead said in Royal Bank of Scotland v. Etridge at 1029 paragraph 8, the unacceptable conduct lies in 'a relationship between two persons where one has acquired over another a measure of influence, or ascendancy, of which the ascendant person then takes unfair advantage.

35. The burden is of course on the person seeking to set aside or avoid liability under the relevant transaction. It is not for the other party to prove that the transaction was entered into with full understanding of the nature and consequences of the transaction…’"

22.  The question faced by this court is simply whether “the evidence justifies the inference that, on a balance of probabilities, the impugned transaction was procured by undue influence, that is to say, by an abuse by the allegedly dominant party of the trust and confidence reposed in him by the allegedly subservient party”.[7]

23.  As to whether there exists a transaction calling for an explanation[8]:

1)   The transaction needs to be shown to be “not readily explicable by the relationship of the parties” or one that is “not to be reasonably accounted for on the ground of friendship, relationship, charity, or other ordinary motives on which ordinary men act”.

2)   The test of whether a transaction is one that calls for an explanation is an objective test. Therefore, the actual or objective effect of a transaction has to be assessed.

3)   The benefit conferred on the other side can be so large and out of proportion with the benefit (if any) to be received by the complainant, such that the transaction cannot be reasonably accounted for on the ground of friendship, relationship, charity, or other ordinary motives on which ordinary men act.

24.  As to the creditors being put on inquiry[9]:

1)  A third party creditor in a tripartite transaction with the influencer and the complainant would be “put on inquiry” where the third party creditor knows of the “non-commercial” relationship between the surety and the debtor is sufficient and where the transaction is on its face not to the financial advantage of the complainant.

2)  The threshold for a third party creditor to be put on inquiry is low.

3)  Once the third party creditor is put on inquiry, the third party creditor has to take reasonable steps to satisfy itself that there was no undue influence.

4)  What are reasonable steps will depend on the facts of each case.

25.  Mr Chan relies on the proposition that delay in raising undue influence is a weighty factor against such finding, and the fact that a defendant is unable to prove any alleged misrepresentation warrants a dismissal of the defence. In Kwan Shiu Yin Louis v Kwan Po Chuen Paula[10], Ng J said the following at §§62 to 63:-

“62. It is highly important that the plea of undue influence was introduced long after the Deceased had passed away. The Deceased himself had raised no such plea in his affirmation in support of the injunction or in the original Statement of Claim. Mr Chang SC submits that since whether the Defendant and/or her mother and/or her father had abused the trust and confidence of the Deceased and victimized him is a question of fact, without the evidence of the Deceased (nor even an allegation of abuse and victimization from him), it is difficult to see how the Plaintiff can make good the plea of undue influence.

63. Just as importantly, the only pleaded manner in which the Deceased's trust and confidence had been ‘abused’ and that he had been ‘tricked’ or ‘misled’ into parting with the Shares is by the First and the Second Representations, which are untrue and are said to have been made fraudulently and dishonestly. Mr Chang SC submits that these fraudulent and dishonest misrepresentations form the very bedrock of the Plaintiff's case, not just background information as Mr Pang SC chooses to describe it. If the Plaintiff fails to prove these fraudulent and dishonest misrepresentations with sufficiently cogent and compelling evidence to the requisite standard of Re H (Minors) [1996] AC 563, its case on undue influence has no leg to stand on. After all, the Plaintiff's case of abuse of the Deceased's trust and confidence is the making of the two fraudulent and dishonest Representations which the Deceased did not question because he trusted the Defendant, her mother and/or her father. There is force in Mr Chang SC's submission.”

Analysis of the Defence of Undue Influence

26.  D1 was the only witness who gave evidence on how she was allegedly pressured into executing the Impugned Documents (as defined below). No allegation is laid against P personally for having exerted such pressure.

27.  The alleged pressure came from 1) Lau, with whom D1 was in an intimate relationship and 2) Qin, who represented Lau’s creditor of gambling debts.

28.  D1’s case is that Lau was a successful businessman with vast contacts with influential people in the business and political circles. D1 first knew Lau in 2007 and was living with Lau in Hong Kong as a housewife with two young children. Lau was the only one she could rely upon. As such, it is said that D1 was in a relationship of influence with Lau and D1 reposed trust and confidence in him.

29.  In 2012, Lau confided in D1 that he was in heavy gaming debt to Qin. In 2013, D1 purchased Unit 17A and Unit 17B under her name. The funds for the purchase partly came from Lau, as gifts to D1, and partly from mortgage loans from Chong Hing Bank and Dah Sing Bank respectively.

30.  Since 2013, Qin had been chasing Lau for repayment of his gambling debts. The alleged debt-collecting acts by Qin became more frequent and severe by 2014 and included:

1)  Qin and his associates making a scene, spraying paint at Lau’s work place;

2)  Qin and his associates following Lau 24 hours a day, including during business trips abroad;

3)  Qin and his associates stationing outside their residence 24 hours a day.

31.  In 2014, Lau told D1 that the amount of his gambling debts was in the region of a few hundred million dollars. Lau further told D1 that if no significant repayment or security arrangement was made available to Qin, Qin would step up the action.

32.  Since 26 January 2015, more pressure and more serious threats were administered by Qin to demand repayment of the gaming debt from Lau, including taking Lau into their custody illegally.

33.  Given what Lau said to D1, and the threat of harassment and violence from Qin, D1 had no alternative but to accede to Lau’s request and offered Unit 17A and Unit 17B as security against her will. Lau had allegedly promised to D1 that he would redeem Unit 17A and Unit 17B in about 6 months to a year when his cashflow allowed him to do so.

34.  Qin then asked his associate, So, to demand D1 to sign and return a letter addressed to the company secretary of D2, directing D2’s company secretary to transfer company documents to So. At a meeting on 16 February 2015, Mr Qin requested D1 to execute certain documents against her will (the “16 February 2015 Meeting”). Copies of such documents were not given to D1 (together, the “Impugned Documents”). It turned out that the Impugned Documents included:

1)  the Two Loan Agreements;

2)  the Legal Charges;

3)  a deed of warranty and undertaking dated 16 February 2015 in respect of the Unit 17A Loan;

4)  a deed of warranty and undertaking dated 16 February 2015 in respect of the Unit 17B Loan;

5)  a declaration by borrower/mortgagor dated 16 February 2015 in respect of the Unit 17A Loan;

6)  a declaration by borrower/mortgagor dated 16 February 2015 in respect of the Unit 17B Loan;

7)  a warning notice dated 16 February 2015 in respect of the Unit 17A Loan.

35.  It is D1’s case that at the 16 February 2015 Meeting, Qin and So told D1 that:

1)  P is an associate of Qin;

2)  Pursuant to the Two Loan Agreements, P would wire RMB 150,000,000 to D1 but D1 would only act as a conduit of the funds, which would be received on behalf of another associate of Qin, namely, Song.

36.  Lau had since then passed away in March 2017. He did not redeem Unit 17A and Unit 17B as promised.

37.  As shown in the attached table extracted from the Amended Consolidated Defence and Counterclaim of D1 and D2, the entirety of the RMB 150,000,000 was transferred to Song (A/C: 0225880176021336) by D1 within a few hours of receipt from P (A/C: 001022418633). It is D1’s case that D1 never received any of such sums:

No.	Date & Time	From P to D1 [RMB]	From D1 to Song [RMB]
1	3 March 2015	20,000,000	/
	10:01:44
2	3 March 2015	/	20,000,000
	10:32:13
3	3 March 2015	30,000,000	/
	15:17:52
4	3 March 2015	/	30,000,000
	17:33:14
5	4 March 2015	30,000,000	/
	11:45:24
6	4 March 2015	/	30,000,000
	13:00:57
7	4 March 2015	30,000,000	/
	14:20:02
8	4 March 2015	/	30,000,000
	16:05:41
9	4 March 2015	30,000,000	/
	16:41:17
10	4 March 2015	/	30,000,000
	16:49:46
11	5 March 2015	10,000,000	/
	10:40:34
12	5 March 2015	/	10,000,000
	11:15:57
	Total :	150,000,000	150,000,000

38.  Mr Chan criticised D1’s case on duress and undue influence in the following ways:

1)  D1 has failed to tender any credible evidence to prove the existence of Lau and other individuals who were responsible for the duress and undue influence. No photos, WeChat records or other evidence were offered to substantiate the allegation of undue influence and duress.

2)  No evidence was tendered on the alleged gambling debt of Lau.

3)  D1 accepted that Qin never threatened D1 personally.

4)  D1 did not sue or counterclaim against Qin even though it is alleged that he was the one exerting illegitimate pressure on her.

5)  D1 never challenged Betty Lo, who had purported to have interpreted the Legal Charges and other English documents to her. D1 also did not call Betty Lo as a witness.

6)  D1 had not reported the duress exerted on her to the police, not even in 2020, when she was no longer under threat.

7)  Similarly, she did not seek to unravel the Impugned Documents.

8)  The alleged reasons for entering into the Two Loans and the Legal Charges did not make sense: the Two Loans were not said to be for the repayment of Lau’s debts. D1 could have just been asked to provide a guarantee to be secured by Unit 17A and Unit 17B instead of the Two Loans having been entered into, if the properties were required as securities for the repayment of Lau’s debts.

39.  I find D1 to be an overall truthful witness. Her evidence overall is consistent. Her account of events was also largely consistent with the documentary evidence (where available). Insofar as necessary, I accept the factual events as presented by her as set out in paragraphs 28 – 37 above. However, whether her various defence succeeds is another matter.

40.  For the following reasons, insofar as necessary, I find that the defence of undue influence fails:

1)  This is not one of the cases where the husband, being the stronger party, misled the wife into making the decision without giving her full information. D1 well understood the nature and the effect of the transactions in the sense that she knew Unit 17A and Unit 17B would be charged. D1 has also failed to show that she had relied on Lau’s opinion in entering into these transactions. This is supported by the fact that according to her evidence, despite Lau’s request, she had initially refused to put up Unit 17A and Unit 17B as security for the repayment of his debts. It thus cannot be said that D1 had no will of her own and depended on Lau to tell her what to do.

2)  Part of the reasons why she eventually agreed to sign the Impugned Documents was that she was assured by Lau that Unit 17A and Unit 17B would be redeemed in 6 months’ time. She had obviously taken into account various factors before she eventually agreed to Lau’s request.

3)  It cannot be presumed that whenever a transaction seems on the face of it to be to a wife’s disadvantage, the transaction would necessarily be procured by undue influence[11]. There are many reasons why a wife would decide to put up assets to assist a husband willingly. This may be for family comity, or for the chance of an investment opportunity or business venture. In the present case, I am of the view that the transactions were explicable by reason of the close relationship D1 had with Lau. I find that D1, after having weighed up her options, was willing and decided to help Lau with his gambling debts, despite her initial reluctance to do so.

Analysis of the Defence of Duress

41.  As for the defence of duress, I accept D1’s case and find that P was acting in concert with a group of individuals including Qin and So. This is borne out by the fact that P’s solicitors, in the 2019 Draft Documents, had included a draft General Power of Attorney to be executed by D1 in favour of Qin, with the entire Chinese name of Qin set out. There is thus no doubt that Qin was involved. Also included in the draft documents was a confirmation to be signed by P. These documents were later forwarded by So to D1, copied to Chen. The fact that P’s solicitors sent the 2019 Draft Documents to So and that Qin was named as D1’s attorney indicate that Qin features in these transactions. I accept D1’s evidence that P had acted in concert with So and Qin.

42.  However, despite having accepted that P was acting in concert with Qin, for the following reasons, insofar as necessary, I find that the defence of duress also fails:

1)  Whilst I accept D1’s evidence that there were harassing acts from Qin, it was admitted by D1 that such acts were never directed at D1, but only at Lau. Neither she nor her children were ever threatened or subjected to any physical harm.

2)  If D1 really felt that the pressure Qin had exerted when demanding repayment from Lau was illegitimate, one would have expected that she would have at least reported some of the incidents to the police. D1 claimed that she did not report the harassing acts all these years because she was afraid of what Qin and his associates might do. I reject this explanation: when Qin and his associates had requested D1 to execute documents in relation to the assignment of Unit 17B in November 2019, D1 had insisted on first getting back copies of the previous documents signed by her. I agree with Mr Chan’s submission that if D1 truly felt threatened by the illegitimate pressure being exerted on her by Qin, D1 would similarly not have been able to refuse such requests from Qin in November 2019. Yet she was able to refuse the request from Qin/So in 2019 to sign further documents.

43.  As a result, even though I accept D1’s evidence that Qin had carried out the alleged violent or illegal acts when he demanded for repayment from Lau, D1 has failed to prove that such acts had caused D1 to have executed the Impugned Documents. I find that D1 decided to execute the Impugned Documents because she had wanted to help Lau, and had decided to do so after analysing her options rather than due to duress as alleged.

Sham – Applicable Legal Principles

44.  The consequence of a transactional arrangement found to be a “sham” is that the transaction would be null and void[12].

45.  For the defence of sham to succeed, the relevant principles have been set out in Hui Cheung Fai & Anor v Daiwa Development Ltd & Ors by DHCJ Eugene Fung SC[13]:

“71. … A sham exists where (1) the parties intended that the documents or acts they have done would not create the legal rights or obligations they appear to create and (2) it was intended that the documents or acts would mislead a third party into believing the parties had created those rights and obligations…

72. In Hitch v Stone [2001] STC 214, Arden LJ at 230a-e gave the following guidance as to whether an act or document is a sham:

‘First, in the case of a document, the court is not restricted to examining the four corners of the document. It may examine external evidence. This will include the parties' explanations and circumstantial evidence, such as evidence of the subsequent conduct of the parties.

Second… the test of intention is subjective. The parties must have intended to create different rights and obligations from those appearing from (say) the relevant document, and in addition they must have intended to give a false impression of those rights and obligations to third parties.

Third, the fact that the act or document is uncommercial, or even artificial, does not mean that it is a sham. A distinction is to be drawn between the situation where parties make an agreement which is unfavourable to one of them, or artificial, and a situation where they intend some other arrangement to bind them. In the former situation, they intend the agreement to take effect according to its tenor. In the latter situation, the agreement is not to bind their relationship.

Fourth, the fact that parties subsequently depart from an agreement does not necessarily mean that they never intended the agreement to be effective and binding. The proper conclusion to draw may be that they agreed to vary their agreement and that they have become bound by the agreement as varied…

Fifth, the intention must be a common intention…’”

46.  Based on this, Mr Chan submitted that it was necessary to show that both P and D1 intended for the Two Loan Agreements and the Legal Charges to be a sham. Since P never met D1, it was submitted that there could not be any such common intention. I disagree that such common intention was a necessary ingredient.

47.  In Midland Bank Plc v Wyatt[14], where the defendant made a declaration of trust giving his interest in the matrimonial home to his wife and his two daughters, Deputy Judge Young QC held that the declaration was a sham since the defendant never intended to part with the beneficial interest and acted as though he had not done so:

“…a sham transaction will still remain a sham transaction even if one of the parties to it merely went along with the ‘shammer’ not either knowing or caring about what he or she was signing...

I do not accept, therefore, the defendants' contention that it is a necessary requirement for the plaintiff to establish that both Mr Wyatt and Mrs Wyatt had a common intention that the declaration of trust signed by them was not intended to take effect and be acted upon by them as from the time of its execution.”

48.  Ng J in Chen Yung Ngai Kenneth & Anor v Ho Yuk Wah David & Ors[15] agreed with the test as set out in A v A[16] that a party who goes along with a sham neither knowing nor caring what he is signing is to be taken as having the necessary intention. In other words, reckless indifference will be taken to constitute the necessary intention.

49.  Knox J in Chase Manhattan Equities Ltd v Goodman & Ors[17]also rejected the suggestion that requirement for knowing participation by both parties in the deliberate concealment of that underlying transaction as essential. It is also not necessary for both parties to a sham transaction to have the same motivation.

Analysis of the Defence of Sham

50.  For the reasons as set out above in paragraphs 12, 13 and 37 hereinabove, the conduct of both P and D1 demonstrated that neither party treated the arrangement as that shown by the Two Loan Agreements and the Legal Charges. Despite the provision in the Two Loan Agreements, P had treated the arrangement to have been an outright sale of Unit 17A and Unit 17B. D1 on the other hand had simply gone along and agreed to hand over the keys to Unit 17A and Unit 17B from the time when the Two Loan Agreements were executed. At the same time there is no challenge to D1’s statement of account which shows that the entirety of the funds from P had been transferred to Song immediately upon receipt into D1’s account. I find that the necessary ingredients for a sham transaction have been made out, as P clearly intended (and D1 went along) that the Impugned Documents or acts they have done would not create the legal rights or obligations they appear to create and that the Impugned Documents or acts would mislead a third party into believing the parties had created those rights and obligations.

51.  I agree with Mr Chiu’s submission that a pleading that has alleged a transaction is a sham is sufficient in itself[18]. In the present case, it has already been pleaded that the Impugned Documents were a sham and the parties did not intend to lend and borrow money and create a security over the Two Loans. There is no merit in Mr Chan’s contention that the particulars of the sham had not been pleaded.

52.  I find that the Impugned Documents were sham arrangements as they were not intended to create the legal rights and obligations as they appeared to create; and that it was intended that the Two Loan Agreements were to mislead a third party into believing that D1 had applied and received the benefit of the RMB 150 million. D1 and D2 succeed on this defence.

The MLO Defence

53.  Insofar as necessary, I find that the MLO defence fails as there is insufficient evidence that P is a money lender. It is insufficient for D1 and D2 to rely on the fact that P holds an interest in a company in Beijing called 北京市旺泰小額貸款有限責任公司and that P was prepared to advance a substantial loan to a stranger to prove that P is a money lender within the definition of the Money Lenders Ordinance.

Determination

54.  For the reasons set out hereinabove, P’s claim fails and the claim is dismissed. In any event, the sham defence is established. D1 and D2’s counterclaim that the Impugned Documents are a sham and hence are null and void is allowed.

Orders

55.  I will grant the following orders/declarations:

1)  The plaintiff’s claim is dismissed.

2)  A declaration that the Impugned Documents and the RMB 150,000,000 payment to the 1^st defendant’s account are sham arrangements and are void ab initio.

3)  The plaintiff do deliver up possession of Unit 17A and Unit 17B to the 2^nd defendant and the 1^st defendant respectively.

4)  The entry of the Second Legal Charges against Unit 17B (memorial number 15030601280049) and against Unit 17A (memorial number 15030601280050) be vacated from the records of the Land Registry forthwith.

5)  There be a costs order nisi that costs of the consolidated action be to the 1^st and 2^nd defendants, with certificate for counsel, to be taxed if not agreed. The costs order nisi will become absolute if no application is taken out to vary it within 14 days hereof.

56.  It remains for me to express my gratitude to counsel for their helpful assistance in this matter.