NAN FUNG FINANCE LTD v. CHAN CHUN HUEN AND OTHERS

                 HCMP 2765/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2765 OF 2003

______________________

J U D G M E N T

______________________

1.  The plaintiff’s claim in these proceedings against the 1^st and 2^nd defendants is for payment of all moneys due and owing from them to the plaintiff under a mortgage dated 27 October 1997 and made between the 1^st and 2^nd defendants as borrowers and the plaintiff as lender and registered in the Land Registry by Memorial No. 7334217 (“the Mortgage”). 

2.  The plaintiff’s claim against the 3^rd and 4^th defendants is for all moneys due and owing by them under the terms and conditions contained in a Guarantee dated 27 October 1997 executed by the 3^rd and 4^th defendants and one Andy Ma Hon Wing (“Andy Ma”) in favour of the plaintiff whereby they guaranteedall the liabilities of the 1^st and 2^nd defendants to the plaintiff under the terms and conditions contained therein (“the Guarantee”). 

3.  The 3^rd defendant is the wife of Andy Ma.  The 4^th defendant is married to a Ms Ma Mei Ching.  She is also the sister of the 2^nd defendant and Andy Ma. 

4.  The 1^st and 2^nd defendants failed to make timely repayments of amounts owing to the plaintiff under the Mortgage.  The 3^rd and 4^th defendants also failed to make payments to the plaintiff under the terms of the Guarantee.  The plaintiff, therefore, brought these proceedings claiming the amounts owing to it. 

5.  No acknowledgement of service was filed by the 1^st, 2^nd and 3^rd defendants.  That being so, on 25 September 2003 Master de Souzaordered that the plaintiff do recover against the 1^st, 2^nd and 3^rd defendants the sum of HK$5,370,193.29 secured by the Mortgage together with interest on HK$4,949,030.86 at the rate of HK$1,186.41 per day from 5 August 2003 to the date of the Order and thereafter at the judgment rate until full payment.  It was also ordered that the costs of the proceedings be paid by the 1^st, 2^nd and 3^rd defendants to the plaintiff on full indemnity basis assessed at HK$28,750.00.

6.  This is the trial of the plaintiff’s claim against the 4^th defendant under the Guarantee.

7.  On or about 7 July 2003 the 1^st and 2^nd defendants delivered possession of the mortgaged property to the plaintiff.

8.  By the Order of Barma J made on 11 August 2004, it was ordered that the affirmations and the affidavits filed by the parties in these proceedings shall stand as evidence in chief at the trial.  It was also ordered that the deponents should attend the trial for cross-examination failing which their affirmations and affidavits shall be excluded. 

9.  At trial, the plaintiff relied on the affirmations of Eric Chung Chun Kwong (“Eric Chung”), a director of the plaintiff, Frank Chu Kwok Wah (“Frank Chu”), a solicitor and Yeung Po Ni (“Yeung”), of the plaintiff.  The 4^th defendant relied on his two affirmations.  The deponents also attended the trial for cross-examination and I heard their evidence.

The Issues

10.  Mr. Man, counsel for the plaintiff, helpfully prepared a list of issues which was revised at trial.  The issues are as follows :

Issue 1                    Whether the Guarantee was signed by the 4^th defendant in the offices of Messrs Peter C. Wong, Chow & Chow or at the plaintiff’s offices;

Issue 2                    Whether the Guarantee is liable to be set aside as against the 4^th defendant on the ground that it was procured by either of the following misrepresentation by the 4^th defendant’s wife, namely :

(A)           that the two properties owned by the 1^st and 2^nd defendants in the San Po Kong area, one of which was a shop, (“the said two properties”) were at that time free from any mortgages or similar encumbrances;

(B)            that the Guarantee was required purely as a matter of formality and to fulfil the technical and procedural requirements of the plaintiff.

          To decide Issue 2, the following sub-issues will have to be considered :

(1)                  Whether representation (A) above induced the 4^th defendant’s execution of the Guarantee;

(2)                  Whether representation (B) above was a representation of present fact and whether it induced the 4^th defendant’s execution of the Guarantee;

(3)                  Whether the plaintiff was “put on inquiry” in that it had knowledge of the involvement of the 4^th defendant’s wife; and

(4)                  Whether the plaintiff has taken sufficient steps to satisfy itself that the 4^th defendant’s agreement had been properly obtained.

                                               If sub-issues (1) and (2) are decided against the 4^th defendant it is not necessary to go further to decide any of the remaining sub-issues under Issue 2.  It is only if the Court decides sub-issue(1) or (2) in favour of the 4^th defendant that the Court would then go on to consider sub-issue (3).  And if the Court decides sub-issue (3) in the plaintiff’s favour, it is not necessary to go on to consider sub-issue (4).  However, if sub-issue (3) is decided in the 4^th defendant’s favour, then the Court would have to go on to consider sub-issue (4).  In other words, if both sub-issues (1) and (2) under Issue 2 are decided against the 4^th defendant, it is not necessary to consider sub-issues (3) and (4) under Issue 2 and the Court would then go on to consider Issue 3. 

Issue 3                    Whether the Guarantee is liable to be set aside as against the 4^th defendant on the ground that it was procured by the undue influence of the 4^th defendant’s wife.

To decide Issue 3 the following sub-issues will have to be considered :

(1)             Whether a presumption of undue influence has arisen, namely :

(a)                 Whether the 4^th defendant had placed a sufficient degree of trust and confidence in his wife; and

(b)                Whether the 4^th defendant’s execution of the Guarantee was not readily explicable by ordinary motives on which ordinary men act.

(2)             Whether the plaintiff was “put on inquiry” in that it had knowledge of the involvement of the 4^th defendant’s wife;

(3)             Whether the plaintiff has taken sufficient steps to satisfy itself that the 4^th defendant’s agreement had been properly obtained.

                                               As regards Issue 3 it is only if the answers to both (a) and (b) under sub-issue (1) are yes that the Court then goes on to consider sub-issue (2).  It is only if the answers to both sub-issues (1) and (2) are yes that the Court then goes on to consider sub-issue (3). 

11.  The background facts are that the 1^st and 2^nd defendants, who are husband and wife, borrowed money from the plaintiff for their purchase of a property in a newly developed building known as Unit B on the 22^nd Floor of Block 1, San Po Kong Plaza, No. 33 Shung Ling Street, Kowloon, Hong Kong (“the property”).  The 4^th defendant’s wife is the younger sister of the 2^nd defendant.  She is also Andy Ma’s sister. 

12.  The 4^th defendant’s evidence was that he was not close to the 1^st and 2^nd defendants save that they would meet during occasional family gatherings.  In or about 1997 the 4^th defendant’s wife told him that the 1^st and 2^nd defendants were purchasing the property.  She told him that they had obtained a loan of about HK$5 million but that they needed to have several guarantors for the loan.  She told him that the 2^nd defendant had asked her to be a guarantor but she did not have sufficient income to become a guarantor so the 2^nd defendant suggested to her sister that the 4^th defendant should be asked to act as a guarantor for the loan.  He asked his wife why there was such a need for someone other than the 1^st and 2^nd defendants to guarantee the loan and also the implications of providing a guarantee as he had never come across a transaction whether at work or in his personal capacity involving a guarantee.  His wife told him that at that time the 1^st and 2^nd defendants had ceased working and as they were unemployed, the plaintiff would only agree to provide the loan to them on condition that some persons with employment would guarantee the loan. 

13.  According to the 4^th defendant, he was not willing to be a guarantor as he “did not know exactly what kind of implications a guarantor would have to bear” and he did not know how it worked.  His wife, however, reassured him that there was no need to worry because :

(a)             the 1^st and 2^nd defendants owned the said two properties in the San Po Kong area and one of them was worth at least HK$7 million;

(b)            their sons and daughters were also working and would contribute towards the loan repayment to the plaintiff; 

(c)             the shop premises owned by them would yield a rental income of about HK$36,000.00 per month; and

(d)            the said two properties were at that time free from any mortgages or similar encumbrances. 

14.  She told him this to reassure him that they would have no problem in repaying the loan back to the plaintiff. 

15.  The 1^st and 2^nd defendants had also assured the 4^th defendant’s wife that they would sell the shop premises as soon as the then existing tenancy (which had about a year to run) expired so that they could repay the loan to the plaintiff.  He also said that his wife insisted that he could not refuse her sister as she had a very close relationship with her and that she had already promised her.  According to him, he quarrelled with his wife several times because of this and he did not want to let her down. 

16.  He subsequently learnt from his wife that other family members including Andy Ma and the 3^rd defendant also agreed to become guarantors.  His wife also told him that there could not be any risk as other family members also agreed to act and he thought that all the 1^st and 2^nd defendants needed from him was nothing but a favour and that it was a short term arrangement to see them through the purchase transaction. 

17.  The 4^th defendant also said that the payment obligations of the loan had never crossed his mind as his wife had assured him that the 1^st and 2^nd defendants would sell off the said shop premises to pay off the loan to the plaintiff shortly.  Acting on the belief that there could not be any risk to him to lend his name to the 1^st and 2^nd defendants as one of the three guarantors and on the reassurance by his wife as to the financial strength of the 1^st and 2^nd defendants, he agreed to become one of the three guarantors to execute the Guarantee. 

18.  The 4^th defendant also said that he had always trusted and relied on the advice of his wife over a lot of matters.  And as regards the financial position of the 1^st and 2^nd defendants he could solely rely on her information by reason of her relationship with the 2^nd defendant. 

19.  As regards the circumstances under which the 4^th defendant executed the Guarantee there is a dispute of fact between the parties. 

20.  In his affirmation the 4^th defendant said that on 25 October 1997 at about 9:30 a.m. he went with Andy Ma and the 3^rd defendant together with the 1^st and 2^nd defendants to an office in Central for the signing of the guarantee.  He could not remember the exact address and could not tell whether it was the plaintiff’s office or the office of the solicitors’ firm Messrs Peter C. Wong, Chow & Chow but he was sure that it was not situated at Room 2204, 22^nd Floor, Admiralty Centre, Tower 1.  In his affirmation, he said that they were ushered to a conference room and a young lady whose name he could not recall came and told them that she was responsible for arranging for the execution of the Guarantee which they were scheduled to sign on that date.  He was under the impression that she was a staff of the plaintiff.  That lady did not explain all the details and terms of the Guarantee to them because it took them only about five minutes to complete the signing of the Guarantee.  She never mentioned clearly the extent of their potential liabilities.  He remained under the impression that his signing of the Guarantee was only a procedural matter.  He says that apart from that lady, he did not meet any other staff members of the plaintiff or of Messrs. Peter C. Wong, Chow & Chow.  The full details and terms of the Guarantee were not explained to him.  He was not aware of his right to seek any independent legal advice.  The lady only told him where he should put his signature on the Guarantee in the presence of the other people including the 1^st and 2^nd defendants.  The 4^th defendant was adamant that no one interpreted the Guarantee to him. 

21.  The defendant accepts that he did sign the Guarantee, exhibit P1.  The Guarantee is dated 27 October 1997 although it is accepted that it was signed on 25 October 1997.  Exhibit P1 on its face shows that this was signed by the three guarantors including the 4^th defendant in the presence of Frank Chu.  There is also an interpretation clause to show that it was interpreted by Frank Chu.  The 4^th defendant adamantly denies that FrankChu had ever witnessed his signature or that he ever translated or interpreted the Guarantee to him.  He maintainedthat he signed the Guarantee in the presence of a lady staff member and he never saw Frank Chu at the material time. 

22.  Although the 4^th defendant was adamant in his affirmations that he did not go to the offices of Messrs. Peter C. Wong, Chow & Chow at Admiralty Centre to sign the Guarantee, when he gave evidence in Court he was not so sure.  And he said that it was very likely that he did go up to the offices at Admiralty Centre to sign the Guarantee.  The Admiralty Centre address is the address of the solicitors, not the address of the plaintiff.

23.  Frank Chu is a solicitor who was admitted to practise on 15 November 1997.  At the material time he was working as a trainee solicitor with Messrs. Peter C. Wong, Chow & Chow.  On 25 November 1997 he had completed his training contract but was waiting to get admitted.

24.  He gave evidence that as of 25 October 1997 he had handled about 200 conveyancing transactions as a trainee solicitor for his firm.  His principal was Ms Anna Chow, the senior partner of the firm which had mainly a conveyancing and commercial practice.  He gave evidence that the San Po Kong Plaza where the property was situated was a newly developed building and that the property was just one unit of about 300 units that his firm was handling at the time.  His firm was one of the solicitors firms representing the property developer.  As there were a large number of transactions that his firm was involved in he said that it was impossible for him to remember the particular transaction concerning the property and the Guarantee.  His firm was handling about 300 units in the San Po Kong Plaza. 

25.  Frank Chu confirmed that all the meetings that he attended for explaining and signing legal documents in relation to conveyancing transactions were held at the offices of his firm and not at any other place.  It was his evidence that, as shown at the execution page of Exhibit P1, he did interpret the Guarantee to the 4^th defendant and that the 4^th defendant signed the same in his presence.  He confirmed that his signatures over his printed name on the execution page of the Guarantee were signed by him.  He made it plain that if he had not interpreted the Guarantee to the 4^th defendant and had not witnessed his signature, he would not have put down his signature on the document indicating that had been done.

26.  He also gave evidence that when he attended the execution of a Guarantee he would explain about the relationship between it and the Mortgage.  He would also tell the guarantor that his firm would only act for the plaintiff and inform the guarantor of his right to instruct his own solicitors.  He would then briefly explain the contents of the guarantee to the guarantor.  He believed all this would take about ten to fifteen minutes.  He was not sure if the Mortgage was also executed on that day but he believed that it was.  He said that where a mortgage had also to be explained to a mortgagor, the time taken for the explanations would be longer than simply explaining a guarantee.  After explaining the guarantee to the guarantor, he would ask the guarantor to sign on the guarantee.  Sometimes he would immediately sign on the execution page as a witness and sometimes he would sign his name later to indicate that he had witnessed the signature. 

27.  Frank Chu also explained that it was not the policy of the firm for the clerical staff to witness signatures.  It could only be witnessed by solicitors or trainee solicitors. 

28.  He also explained that although the Guarantee was in fact signed on 25 October 1997, which was a Saturday, it was dated 27 October 1997.  This was dated 27 October 1997 to make it coincide with the completion date of the transaction and that was also the date for the drawdown of the loan under the Mortgage.  He explained that this was a common practice.

29.  Although there was some criticism by the 4^th defendant as to the Guarantee being dated 27 October 1997 instead of 25 October 1997, in my view nothing turns on this. 

30.  Having heard and seen the witnesses I have no hesitation in accepting Frank Chu as an honest witness who has told me the truth about these matters.  He has not exaggerated his evidence and has been frank enough to say that it was impossible for him to remember the details of this particular transaction.  I found him to be a credible and reliable witness who has told me the truth.  I accept his evidence.

31.  The 4^th defendant was adamant that he never met Frank Chu at the time when he signed the Guarantee and that it was a lady staff who asked him to sign the Guarantee which he did in her presence.  I do not believe him.  This is contrary to the practice of the firm and the evidence of Frank Chu.  I find that the 4^th defendant is not a truthful, credible or reliable witness.  I have no hesitation in preferring Frank Chu’s evidence to the evidence of the 4^th defendant on these matters.

32.  The 4^th defendant was sure in his affirmation that he did not go to Admiralty Centre to sign the Guarantee and the impression he got was that he went to the plaintiff’s offices to do the same.  However, he was not so sure when giving evidence in Court.  He accepted that it was very likely that he did go to Admiralty Centre to sign the Guarantee. 

33.  The 4^th defendant is 49 years old and has been educated up to Form 5 level.  At the time of the execution of the Guarantee he was 43 years old and had worked for more than 20 years.  He was the Assistant General Manager in Fourace Industries Ltd.  In evidence he said that his wife had told him that it was only a formality for him to sign the Guarantee and that he believed his wife when she told him that no legal consequences would flow from it.  However, his wife had never even read the Guarantee.  I do not believe him.  His evidence simply does not make sense.  He also said that it did not cross his mind as to why a finance company would want someone to sign a legal document which has no legal effect.  I find that he is neither a credible nor a reliable witness. 

34.  At para. 3 of his 2^nd affirmation he confirmed that he did give a copy of his identity card and tax return to Mr. Andy Ma because he was told by Andy Ma “that they were only submitted to the plaintiff for record purpose only”.  However, in evidence, he contradicted this when he said that he did not give the copy of his identity card and tax return to Andy Ma.  He retracted this later on in his evidence when para. 3 of his 2^nd affirmation was brought to his attention and he said that he believed that what was contained in para. 3 of his 2^nd affirmation was correct.  His financial position was obviously of interest to the plaintiff and the 4^th defendant knew that.  I do not believe that he thought that it would be submitted “for record purpose only”.  He knew that his wife had asked him to be a guarantor because he was in receipt of income.  It makes no sense for him to think that the Guarantee was required as a matter of formality without legal implications.  I do not believe the 4^th defendant. 

35.  The 4^th defendant in his 2^nd affirmation also said that he did not recall giving a copy of his bank passbook to any one in these proceedings.  However, Yeung’s evidence was that the copy passbook extracts from the 4^th defendant’s savings account at Standard Chartered Bank were given to the plaintiff by Andy Ma.  The 4^th defendant denied in evidence that he had given the copy extracts of his savings account passbook to Andy Ma.  He suspected that his wife had given them to Andy Ma without his knowledge.  I do not believe him.  If, as he eventually accepted, he did give a copy of his identity card and tax return to Andy Ma so that these could be supplied to the plaintiff, there is no reason whatsoever for him not to also give the copy extracts of his savings account passbook to Andy Ma for the same purpose as he knew full well that the plaintiff required a guarantor who was earning income.

36.  The 4^th defendant was adamant that he never met Frank Chu.  He met a lady staff member at the place where he signed the Guarantee.  Although in evidence he was adamant that no one interpreted the Guarantee to him, at para. 4 of his 2^nd affirmation he said :

“  I would like to endorse the contents of my 1^st affirmation by reiterating that no one ever interpreted to me and that the only person who interpreted the contents of the guarantee tome when I signed the guarantee was a lady staff member there”. 

37.  He was evasive and was unable to give a satisfactory explanation as to why he had said in his affirmation that the only person who interpreted the contentsof the Guarantee to him was the lady staff when, in his evidence, he was adamant that no one had ever interpreted the contents of the Guarantee to him in 1997. 

38.  As I have said, I find that the 4^th defendant is neither a credible nor reliable witness.

39.  I find as a fact that the Guarantee was signed by the 4^th defendant at the offices of the solicitors Messrs. Peter C. Wong, Chow & Chow.  Frank Chu explained in evidence that there was a female receptionist at the offices of the firm at the material time.  When clients came in they would be introduced to see a conveyancing clerk of the firm.  At that time they had two female conveyancing clerks.  The conveyancing clerk would usher the client into the conference room and would ask him to produce his identity card and then have a photocopy made.  The file together with the photocopy and the original of the identity card would be handed to the trainee solicitor for the trainee solicitor to handle the matter.  That was the practice that was adopted and which he followed.  I accept his evidence.  I find that Frank Chu briefly explained the contents of the Guarantee to the 4^th defendant.  I find that the Guarantee although dated 27 October 1997 was executed on 25 October 1997 in the presence of Frank Chu adopting the practice that he gave evidence about. 

Issue 1

40.  As regards Issue 1, I find that the Guarantee dated 27 October 1997 was signed by the 4^th defendant at the offices of Messrs. Peter C. Wong, Chow & Chow.  By a letter dated 13 October 1997 the plaintiff gave instructions to Messrs. Peter C. Wong, Chow & Chow to, inter alia, make arrangements with the borrowers and the guarantors for the execution of the mortgage documents.   The solicitorswere to attend to the execution of the guarantee.  By a letter dated 25 October 1997 from Messrs. Peter C. Wong, Chow & Chow to the plaintiff the solicitors reported to the plaintiff that, inter alia, a personal guarantee was duly executed by Andy Ma, the 3^rd defendant and the 4^th defendant.  In my judgment there is no doubt that the Guarantee was signed by the 4^th defendant at the offices of Messrs. Peter C. Wong, Chow & Chow. 

Issue 2

41.  Sub-issue (1) under Issue 2 is whether the misrepresentation (A) induced the 4^th defendant to execute the Guarantee.  Representation (A) is that the said two properties were at that time free from any mortgages or similar encumbrances.

42.  For a representation to have any legal effect it must operate on the mind of the representee (para. 6-031 Chitty On Contracts 29^th Edn. Vol. 1).  It follows that if the misrepresentation did not affect the representee’s mind because he was not influenced by it, he has no remedy.  When asked whether the 1^st and 2^nd defendants’ financial position was of concern to him in deciding whether to sign the Guarantee the 4^th defendant said in evidence that he did not think about it.  If he never thought about their financial position, it seems to me that the misrepresentation that the two said properties were free of any mortgages of similar encumbrances did not induce him to enter into the Guarantee.

43.  The misrepresentation (B) under sub-issue (2) in Issue 2 is that the Guarantee was purely a matter of formality and to fulfill the technical and procedural requirements of the plaintiff. 

44.  A misrepresentation must be a misrepresentation of fact not a statement of belief or of law. 

45.  The 4^th defendant’s evidence was that he was told by his wife that the Guarantee was of no legal effect and was of no consequence whatsoever.  This is a statement of opinion or belief, not a statement of fact.  This was only a statement made by his wife of her belief that the Guarantee was of no legal effect.  This could not,in my judgment, grant any relief based on misrepresentation of fact.  His wife had never even read the Guarantee and had no basis for saying that the Guarantee would have no legal effect.  The 4^th defendant knew full well that the plaintiff required a Guarantee from a person who was in receipt of income and for that reason he was asked by his wife to provide the Guarantee.  The 4^th defendant accepted that he was required as a guarantor because he had a higher income.  He had been an Assistant General Manager in a commercial enterprise for more than 20 years earning a good income at the material time.  Despite his denial, in my view, he must have known what in simple terms a guarantee was.  I do not believe him. 

46.  It is also difficult to see how any alleged wrongdoing by his wife can affect the plaintiff.  Yeung’s uncontradicted evidence was that when the 1^st and 2^nd defendants suggested the 4^th defendant as one of their guarantors they did not tell her anything about the relationship between the 4^th defendant and themselves.  There is no evidence that the plaintiff even knew about the relationship between the 4^th defendant and the borrowers.  There is no evidence that they even knew about the 4^th defendant’s wife.  I fail to see how any alleged wrongdoing by the 4^th defendant’s wife on him can affect the plaintiff.

47.  In my judgment sub-issues (1) and (2) under Issue 2 are decided in favour of the plaintiff.  I find that misrepresentation (A) did not induce the execution of the Guarantee.  I find that misrepresentation (B) was not a misrepresentation of present fact.  As sub-issues (1) and (2) are decided in favour of the plaintiff it is not necessary to go on to consider sub-issues (3) and (4) under Issue 2.

Issue 3

48.  Sub-issue (1)(a) on the question of whether a presumption of undue influence has arisen is whether the 4^th defendant had placed a sufficient degree of trust and confidence in his wife. 

49.  The 4^th defendant relies on the presumption of undue influence.  There are two classes of relationships which raise a presumption of undue influence.  These have been termed as Class 2(A) and Class (B) relationships.

50.  The applicable principles were stated by Lord Browne-Wilkinson in Barclays Banks Plc. v. O’Brien and Another [1994] 1 AC 180 at page 189 as follows :

“  Class 2 : Presumed undue influence

In these cases the complainant only has to show, in the first instance, that there was a relationship of trust and confidence between the complainant and the wrongdoer of such a nature that it is fair to presume that the wrongdoer abused that relationship in procuring the complainant to enter into the impugned transaction. In Class 2 cases therefore there is no need to produce evidence that actual undue influence was exerted in relation to the particular transaction impugned: once a confidential relationship has been proved, the burden then shifts to the wrongdoer to prove that the complainant entered into the impugned transaction freely, for example by showing that the complainant had independent advice. Such a confidential relationship can be established in two ways, viz.,

Class 2(A)

Certain relationships (for example solicitor and client, medical advisor and patient) as a matter of law raise the presumption that undue influence has been exercised.

Class 2(B)

Even if there is no relationship falling within Class 2(A), if the complainant proves the de facto existence of a relationship under which the complainant generally reposed trust and confidence in the wrongdoer, the existence of such relationship raises the presumption of undue influence. In a Class 2(B) case therefore, in the absence of evidence disproving undue influence, the complainant will succeed in setting aside the impugned transaction merely by proof that the complainant reposed trust and confidence in the wrongdoer without having to prove that the wrongdoer exerted actual undue influence or otherwise abused such trust and confidence in relation to the particular transaction impugned.”

51.  The relationship between the 4^th defendant and his wife did not fall under Class 2(A).  It seems that the 4^th defendant is relying on the Class 2(B) presumption.  The burden of proof of establishing the presumption of undue influence is on the 4^th defendant.  As to what is required, Lord Nicholls of Birkenhead in Royal Bank of Scotland plc. v. Etridge (No. 2)[2001] 3 WLR 1021 said at page 1032 :

“21.         As already noted, there are two prerequisites to the evidential shift in the burden of proof from the complainant to the other party.  First, that the complainant reposed trust and confidence in the other party, or the other party acquired ascendancy over the complainant.  Second, that the transaction is not readily explicable by the relationshipof the parties.”

52.  And as Recorder Ma SC (as he then was) said in Bank of China (Hong Kong) Ltd. v. Wong Kin Sing [2002] 1 HKC 83 at page 96 :

“  In Class 2 (B) cases, the complainant needs to do more before the presumption arises. Here, the complainant has first to show that :

(a)               he placed trust and confidence in the influencer or that the influencer had acquired an ascendancy or domination over him; and

(b)              the transaction cannot be readily explicable by the relationship of the parties.”

53.  Thus, it is clear that in order to raise the Class 2(B) presumption the 4^th defendant must show :

(1)             that he placed trust and confidence in his wife or that his wife had acquired an ascendancy or domination over him; and

(2)             that the transaction cannot be readily explicable by the relationship between the parties.

54.  I would also refer to the observations of Le Pichon JA inLi Sau Ying v. Bank of China (Hong Kong) Limited and another (Civil Appeal No. 309 of 2002, 11 April 2003) at para. 32 where she said :

“  Trust and confidence are not to be extrapolated from what, with hindsight, turned out to be improvident or ill-advised transactions. That was the gist of Sir John Salmond's observations in Brusewitz. What the plaintiff must do is to prove the circumstances of the relation between the parties as would establish a relation of superiority on the one side and inferiority on the other. In a very loose and general sense, one 'trusts' one's friends. But that does not mean that the friend is necessarily in a position of influence or dominance. That has to be established by evidence. If, for example, he had, in the relationship, acquired the role of 'confidant' or adviser or had been entrusted with the management of the former's financial affairs or everyday needs, that may well be sufficient. But that was not the case here.”

55.  The reference to Sir John Salmond's observations in Brusewitzis a reference to what Sir John Salmond said in Brusewitz v Brown(1922) 42 NZLR 1106 at pages 1109-1110 :

“  ... The Law is general leaves every man at liberty to make such bargains as he pleases, and to dispose of his own property as he chooses. However improvident, unreasonable or unjust such bargains or dispositions may be, they are binding on every party to them unless he can prove affirmatively the existence of one of the recognised invalidating circumstances, such as ... undue influence.”

56.  In my judgment the evidence shows clearly that the 4^th defendant did not repose trust and confidence in his wife in relation to the management of his financial affairs.  He was the major breadwinner of the family.  He had been working for more than 20 years in a commercial enterprise as the Assistant General Manager.  He even did not agree to providing the Guarantee immediately upon being requested by his wife.  He said that he quarrelled with her a few times before agreeing to sign the same.  His evidence was far short of showing that he reposed trust and confidence in his wife.  The evidence does not show that his wife had acquired an ascendancy or domination over him in relation to his financial affairs.  The 4^th defendant, in my judgment, fails to show that he had placed a sufficient degree of trust and confidence in his wife so as to raise the presumption of undue influence.

57.  The 4^th defendant also fails to show, in my judgment that the execution of the Guarantee was not readily explicable by the relationship between the parties.  He fails to show that the execution of the Guarantee was not readily explicable by ordinary motives on which ordinary men act.  It is clear that he regarded his relationship with his wife as important because as he said, he did not want to let his wife down.  Although he felt that he was pressured to sign the Guarantee because of his wife’s relationship with the 2^nd defendant, this falls far short in establishing a presumption of undue influence on the part of his wife.  He said that he did not want to disappoint his wife and therefore he signed.  That is a far cry from establishing that he had placed a sufficient degree of trust and confidence in his wife giving rise to a presumption of undue influence. 

58.  It seems to me that the execution of the guarantee is readily explicable by ordinary motives on which ordinary men act.  It is readily explicable by the relationship of the parties.  Although he initially quarrelled with his wife about providing the Guarantee, it is clear that eventually he did not want to disappoint her.  He was assured by his wife that the 1^st and 2^nd defendants would pay off the mortgage shortly and he was prepared to assist by providing the Guarantee.  It is,in my view, readily explicable by ordinary motives on which ordinary men act.  In my judgment he has failed to establish sub-issue (1) under Issue 3.  It is, therefore, not necessary to deal with sub-issues (2) and (3) under Issue 3. 

59.  Issue 3 is decided in favour of the plaintiff.  In my judgment the Guarantee is not liable to be set aside as against the 4^th defendant on the ground that it was procured by the undue influence of the 4^th defendant’s wife. 

60.  The 4^th defendant did not challenge the evidence and the affirmations of Eric Chung.  I accept his evidence.  The plaintiff was subsequently able to sell the property to a third party for HK$1,570,000.00 with the sale being completed on 14 November 2003. Apart from the sale proceeds the plaintiff has not received payment for any further sums in satisfaction of the judgment obtained against the 1^st, 2^nd and 3^rd defendants.  It has been established by the evidence of Eric Chung in his 2^nd affirmation that as at 8September 2004 the sum that remained due from the 1^st and 2^nd defendants to the plaintiff under the Order of Master de Souza is HK$4,224,434.11. 

61.  In my judgment the 4^th defendant is also liable to the plaintiff under the Guarantee for the sum of HK$4,224,434.11 as at 8 September 2004 with interest on the principal sum of HK$3,964,615.98 payable from 9 September 2004 at judgment rate until the date of full payment.  I give judgment to the plaintiff for the sum of HK$4,224,434.11 with interest on the principal sum of HK$3,964,615.98 payable from 9 September 2004 at judgment rate until full payment. 

62.  I also make an order nisi for costs in the plaintiff’s favour against the 4^th defendant such costs to be taxed on a full indemnity basis.  This is provided for in clause 1(i) of the Guarantee.