DBS BANK (HONG KONG) LTD v. CHENG MEI LING AND OTHERS

HCMP 1825/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1825 OF 2016

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JUDGMENT

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Introduction

1.  This action was commenced by the plaintiff, DBS Bank (Hong Kong) Limited (the “Bank”) by Originating Summons filed on 18 July 2016. By the present application, the Bank as mortgagee seeks, amongst other relief, delivery of vacant possession of a property known as Flat B, 22^nd Floor, Sunrise Villa, No 33 Sung On Street, Kowloon (the “1^st Mortgaged Property”) as against the registered owner and mortgagor, the 1^st defendant, pursuant to a mortgage dated 3 July 2015 (the “Plaintiff’s Mortgage”).

Parties and background

2.  The 3^rd defendant is a limited company incorporated in Hong Kong, of which the 5^th defendant is the sole shareholder.  The directors of the 3^rd defendant are the 4^th and 5^th defendants who the court was informed are brothers.  The 1^st defendant is the daughter of the 5^th defendant, the company secretary of the 3^rd defendant and at the material time was employed by the 3^rd defendant as the secretary of the 5^th defendant (her father).  The 2^nd defendant is the wife of the 5^th defendant and the mother of the 1^st defendant but apparently was not otherwise involved in the business of the 3^rd defendant.

3.  In short, the 3^rd defendant has the appearance of a typical family business with which all of the individual defendants, being relatives of each other, were either directly involved or (in the case of the 2^nd defendant) had a connection by marriage.

4.  The present application is the latest in a series of applications by the Bank in the action.  Previously it has obtained judgments:

(a) against the 2^nd defendant as mortgagor in respect of a property which is referred to in this judgment as the 2^nd Mortgaged Property;

(b) against the 3^rd defendant as borrower; and

(c) against the 4^th and 5^th defendants as guarantors (of the debts of the 3^rd defendant).

The underlying indebtedness

5.  The action is part of efforts by the Bank to seek to recover monies advanced by the Bank to the 3^rd defendant. In April 2006, the 3^rd defendant entered into an agreement with the Bank by which it agreed to repay all sums paid or advanced by the Bank to the 3^rd defendant.  There is no dispute between the parties that over the subsequent 10 years substantial sums were paid or advanced by the Bank to the 3^rd defendant a large part of which remains due and owing.

6.  The 3^rd defendant having fallen into arrears with the required payments to the Bank, the Bank commenced the action to, inter alia, enforce rights in favour of the Bank given under mortgages entered into by the 1^st and 2^nd defendants and guarantees provided by the 4^th and 5^th defendants, the said rights provided by the individual defendants being additional security for the indebtedness of the 3^rd defendant.

The 1^st Mortgaged Property

7.  The 1^st defendant is the sole registered owner of the 1^st Mortgaged Property.  As I view it as material background to the matters the court has to decide, I set out below the history of the 1^st defendant’s ownership and dealings with the 1^st Mortgaged Property as shown by the Land Registry record produced in evidence by the plaintiff.  Before doing so I observe that little or none of this history is dealt with in the affidavit evidence of the 1^st defendant.

8.  The 1^st defendant first acquired an interest in the 1^st Mortgaged Property in January 2008 when she purchased the property as joint tenants with a second person for a price of HK$2.95 million.

9.  Simultaneous with the said purchase there was registered at the Land Registry a mortgage/legal charge, described as “all monies”, in favour of Standard Chartered Bank (Hong Kong) Limited.  In respect of the said mortgage/legal charge, the record includes the remark “By [second person] and [the 1^st defendant]”.

10.  In May 2010 the 1^st Mortgaged Property was re-mortgaged.  The record shows the discharge of the mortgage in favour of Standard Chartered Bank (Hong Kong) Limited and its replacement by a legal charge/‌mortgage, again “all moneys”, in favour of The Bank of East Asia Limited.

11.  In October 2013 the 1^st defendant acquired sole ownership of the 1^st Mortgaged Property for a price of HK$2.0 million and the mortgage in favour of The Bank of East Asia Limited was discharged.  At this point the property was free of any registered incumbrance.

12.  In January 2014, some two months after the 1^st defendant acquired sole ownership of the 1^st Mortgaged Property (apparently free of mortgage), a new mortgage was entered into, again “all moneys”, in favour of Australia and New Zealand Banking Group Limited.  The circumstances in which this mortgage came into being are the subject of affidavit evidence from the 1^st defendant, who claims that she was unaware at the time that the mortgage had been created and registered and only discovered this after these proceedings were commenced by the Bank.  The 1^st defendant does not make the claim expressly, but, based on her account of events, it would appear that she alleges that she was tricked or misled into creating the mortgage by the 5^th defendant (and perhaps others).‌  

13.  Finally, in July 2015, the mortgage in favour of the Australia and New Zealand Banking Group Limited was released and the Plaintiff’s Mortgage which gives rise to the action and which is the subject of the present application before the court was registered.

The plaintiff’s application

14.  The plaintiff’s counsel, relying on the affirmation evidence filed in the action, ie on a summary basis, submitted that the 1^st defendant has no defence to the plaintiff’s claim and sought judgment against the 1^st defendant in the terms of a draft order submitted to the court, which provides, inter alia, that the 1^st defendant do deliver to the plaintiff vacant possession of the 1^st Mortgaged Property with costs to the plaintiff on an indemnity basis (as is provided for by the Plaintiff’s Mortgage).  In my view, the evidence of the Bank is sufficient to establish a prima facie case for the relief it seeks and therefore the burden shifts to the 1^st defendant to show, based on believable evidence, that she has a credible defence that warrants the matter proceeding to trial (in one or other form).

The 1^st defendant’s defence

15.  The 1^st defendant claims that she entered into the Plaintiff’s Mortgage under the undue influence of her father, the 5^th defendant and her counsel submitted that on the affidavit evidence filed there is sufficient indication of disputes of fact and/or triable issues as regards the 1^st defendant’s claims, such that the application should not be disposed of summarily.  Counsel for the 1^st defendant submitted that either:

(a) The plaintiff’s Originating Summons in so far as it relates to the 1^st defendant should be continued as if the action had been begun by Writ under Order 28, rule 8 of the Rules of the High Court (“RHC”);

(b) Alternatively, the application should be heard with oral evidence or partly on oral evidence and partly on affidavit evidence, with or without cross examination of any of the deponents, so as to resolve the triable issues, under Order 28, rule 4(3) of the RHC.

The 1^st defendant’s evidence

16.  The 1^st defendant’s evidence before me consisted of three affidavits:

 (a) Affidavit dated and filed 9 February 2017 (“First Affidavit”);

 (b) Second Affidavit dated and filed 4 July 2017; and

 (c) Third Affidavit dated and filed 4 July 2017.

17.  The 1^st defendant’s Second and Third Affidavits (the latter seemingly being intended to replace the former) were largely directed to clarifying the position as regards certain factual matters which it was said were wrongly described in the First Affidavit.  No doubt those advising the 1^st defendant were rightly concerned that on an application such as the present it is incumbent on a party to ensure that the evidence they place before the court (which is to be untested by cross-examination) is truthful and full, and further that a defendant seeking to oppose an application brought by Originating Summons, which in the normal course is a summary procedure determined on the basis of affidavit evidence only, must clearly state their case and as part of this ‘descend upon particulars’.  That the 1^st defendant’s case, even after filing three affidavits, in my view remains in important respects both unclear and unparticularised is something to which I am bound to have regard when I consider if the evidence of the 1^st defendant is believable.

18.  Both the 1^st defendant’s Second and Third Affidavits were served and filed on 4 July 2017 only very shortly prior to the hearing commencing before me on 6 July 2017.  In the case of the 1^st defendant’s Third Affidavit an application was made by way of Summons also dated 4 July 2017 seeking leave to file and serve the affidavit late.  No such application was made in respect of the Second Affidavit presumably because it was quickly sought to be replaced by the Third Affidavit.  Whatever the reason, the lateness of the service and filing of the 1^st defendant’s further evidence (in relation to a hearing notice of which was given on 12 April 2017) is something that should have been avoided as it put at risk the continuation of the hearing on 6 July 2017.

19.  After hearing counsel for both parties I allowed a short adjournment to give counsel for the plaintiff an opportunity to take instructions.  Following the break, while maintaining strong objection to the late service and filing of the 1^st defendant’s further evidence, counsel for the plaintiff indicated that the Bank did not wish to put in further evidence of its own in reply and, accordingly, I determined to proceed with the hearing and allow both the 1^st defendant’s Second and Third Affidavits to be referred to and relied upon de bene esse.  In the event, for the reasons I shall explain, even after having regard to the 1^st defendant’s Second and Third Affidavits, my view on the matters that I need to decide is unchanged. 

20.  I will now review each of the principal factual allegations or matters relied upon by the 1^st defendant in turn.

Control of the title deeds

21.  It is the 1^st defendant’s case that at all material times and in particular in 2009 the 5^th defendant had control of the title deeds of the 1^st Mortgaged Property against her wishes (paragraph 6 of her First Affidavit, paragraph 5 of her Second Affidavit and paragraph 4 of her Third Affidavit).  The 1^st defendant refers to this alleged fact and then claims that the 5^th defendant had asked her in 2009 to be allowed to make use of the title deeds for “…an unknown purpose…”, which request she says she refused (paragraphs 5 and 6 of the 1^st defendant’s First Affidavit and paragraph 4 of the 1^st defendant’s Third Affidavit).  The pressure that this alleged series of events is said to have exerted on the relationship between the 1^st defendant and the 5^th defendant is used by the 1^st defendant to lay the groundwork for her claims that thereafter she was susceptible to undue influence exerted by the 5^th defendant and in particular was subject to such influence when she executed the Plaintiff’s Mortgage in July 2015.

22.  However, the 1^st defendant’s evidence as regards the 5^th defendant always having had custody of the title deeds to the 1^st Mortgaged Property is open to serious question.  As I have set out above, according to the Land Registry record, at all material times, save for a brief period between October 2013 and January 2014, the 1^st Mortgaged Property was mortgaged to a succession of banks which, presumably, it being an entirely standard condition of the grant of any mortgage, would have required possession of the title deeds.  Therefore, it seems inherently implausible that the 5^th defendant could have had custody of the title deeds in 2009 and therefore there have been an argument between the 1^st and 5^th defendants as regards their use as the 1^st defendant alleges.

The immediately prior mortgage

23.  As I have said, the 1^st defendant further claims that she was unaware that she had signed the January 2014 mortgage in favour of Australia and New Zealand Banking Group Limited until she received the Originating Summons in these proceedings in July 2016.  Her evidence is that at the 5^th defendant’s request she attended a solicitors’ office (the same solicitors who acted on the Plaintiff’s Mortgage two years later) on 31 January 2013 and while there and in the presence of the 5^th defendant (paragraph 6 of her Third Affidavit) she signed some blank documents as “…a documentary procedure called notarization…” “…without any explanation of the details and terms within.” (paragraph 8 of her First Affidavit).  She offers this incident as the only explanation for how the Land Registry record comes to show that she mortgaged the 1^st Mortgaged Property to Australia and New Zealand Banking Group Limited some nearly one year later on 24 January 2014.

24.  For a mortgage to come into being and be registered with the Land Registry requires substantial documentation.  That this should have been the outcome of the 1^st defendant having attended at a solicitors’ office some one year prior and signed various blank pieces of paper would have required a series of acts on the part of almost certainly more than one person which, if this is what occurred, cries out for further investigation.  However, despite having had ample opportunity, the 1^st defendant does not appear to have made any, let alone any meaningful, attempt to investigate what in fact happened so as to be in a position to explain the matter further to the court.  I find this surprising to say the very least.

25.  I bear in mind that on the present application the court is concerned only with the Plaintiff’s Mortgage entered into in 2015 and the competing claims of the plaintiff and 1^st defendant as regards the validity and enforcement of that document.  The court is not concerned with a challenge to the validity of the immediately prior January 2014 mortgage.

26.  However, like the 1^st defendant’s claim in relation to custody of the title deeds, the circumstances of the creation of the immediately prior mortgage are relied upon by the 1^st defendant in support of her claim that she was the subject of undue influence during the period prior to and continuing through to when she executed the Plaintiff’s Mortgage.  Therefore, I view both this and the claim regarding custody of the title deeds, while they are background matters, as material to the issues before the court.  Not least, the 1^st defendant’s allegations and the evidence she relies on in support are matters which I consider that I am entitled to have regard to when assessing the overall believability and credibility of her evidence and potential defence.

The position of the 2^nd defendant

27.  I have previously noted that the 2^nd defendant is both the mother of the 1^st defendant and the wife of the 5^th defendant. Further, while apparently not directly involved in the business of her husband’s company, she, at the same time and in the same manner as the 1^st defendant,executed a mortgage over the 2^nd Mortgaged Property in favour of the Bank, again to secure the indebtedness of the business.

28.  The Land Registry records show a series of transactions as regards both the 1^st Mortgaged Property and the 2^nd Mortgaged Property which bear very close similarities, to an extent that appears to be more than coincidence:

(a) the 1^st and 2^nd defendants purchased their respective properties on the same date namely 28 October 2013 (though prior to this date the 1^st defendant already owned her property jointly).  The record shows that the 2^nd defendant bought her property from the 5^th defendant, her husband (and the 1^st defendant’s father).

(b) the 1^st and 2^nd defendants both executed mortgages in favour of Australia and New Zealand Banking Group Limited on the same day namely 24 January 2014.  As I have previously observed, the 1^st defendant claims that she was unaware of the existence of this mortgage until she received notice of these proceedings (but again her evidence is silent on whether she was aware at the time or subsequently that her mother had also mortgaged her property).

(c) the 1^st and 2^nd defendants both entered into their respective mortgages in relation to the 1^st Mortgaged Property and the 2^nd Mortgaged Property which are the subject of this action on the same date namely 3 July 2015 (though again the 1^st defendant’s evidence is silent on whether she was aware at the time that her mother had also mortgaged her property).

Lack of evidence of past dealings

29.  As I have observed, very little of what I have set out above, regarding both the 1^st defendant’s past dealings with the 1^st Mortgaged Property or the coincidence of her dealings when compared with the 2^nd defendant’s dealings with the 2^nd Mortgaged Property, were matters dealt with in the affirmation evidence of either party placed before the court.  Nevertheless, they are matters clearly recorded in the records of the Land Registry which were exhibited to the affirmation of Ma Ho Kin filed on 8 September 2016 on behalf of the Bank and therefore were in evidence before me.

30.  That the mortgages of the respective properties of the 1^st defendant and 2^nd defendant were handled by the Bank effectively as a single transaction was confirmed during the course of the hearing when the plaintiff’s counsel handed up a letter to the Bank from solicitors Chan, Wong & Yip dated 30 June 2015, reporting (in one letter) on the completion of the documentation in respect of both the 1^st Mortgaged Property and the 2^nd Mortgaged Property.  In particular, the letter reads:

“ We also confirm on each of the following:

a) The individual third party security provider instruct us to advise him/her on the execution of the Charge.

b) We have fully explained the nature and effect of the Charge and the legal and practical implications that it may have on the individual third party security provider.

c) We have also explained that the confirmation would have the effect that the individual third party security provider should not be able to dispute the binding effect of his/her obligations under the Charge.

d) We have the authority from the individual third party security provider to issue the confirmation to your Bank.”

The term “individual third party security provider” referred to in the said letter refers to both the 1^st and 2^nd defendants, and therefore the statements in the letter apply equally to both of them.

31.  Despite the apparent connection between the respective mortgages, the evidence of the 1^st defendant is entirely silent on whether, and, if so, to what extent, she had any knowledge of how the 2^nd defendant, her mother, came to enter into a mortgage for the same reason and at the same time as she did or as regards whether there was any communication or discussion between them prior to or at the time of signing.  The lack of evidence from the 1^st defendant as to these matters (or even of unsuccessful efforts to obtain such evidence) inevitably raises the issue of whether her evidence is as full and particularised as the court requires on a matter of this nature.

The relationship between the 1^st defendant and 5^th defendant

32.  The 1^st defendant’s case relies heavily on the daughter/father relationship between her and the 5^th defendant, which she claims was known to the Bank, and counsel for the 1^st defendant argues that it raises a presumption of undue influence which shifts the burden back to the Bank.  He says that as a result the Bank had constructive notice of the potential for impropriety sufficient to put it on inquiry and as a result was required to take (and needs to show that it did take) reasonable steps to dispel constructive notice (which the 1^st defendant claims it failed to do).

33.  The 1^st defendant refers to being emotionally dependant on the 5^th defendant and feeling uncomfortable when he became angry with her, as she claims he did over the incident regarding the title deeds said to have occurred in 2009 (but as to which, as I have observed, the 1^st defendant’s evidence is open to serious question).  However, save for unsupported assertions of the 1^st defendant regarding her employment being under threat there is no other evidence (beyond that I have already outlined in this judgment) before the court that backs up her claims.  In particular, there is no evidence, even from only the 1^st defendant, of behaviour by the5^th defendant that might be argued to amount to oppression or victimization.

34.  The submissions of counsel for the 1^st defendant describe the relationship between the 1^st defendant and the 5^th defendant as one of trust and confidence but save for the fact of their daughter/father relationship there is no evidence of the 1^st defendant actually reposing trust and confidence in the 5^th defendant in the past.  However, counsel says that a presumption arises solely from their relationship and the 1^st defendant is not required to present evidence that she ever actually reposed trust and confidence in her father.

The 1^st defendant’s limited education and English ability

35.  The 1^st defendant makes reference to her limited education and claims that her level of English comprehension is only good enough for her to understand simple English documents, and not complex legal documents.  However, the extent of the 1^st defendant’s past property dealings casts significant doubt on this claim.  The records of the Land Registry show that originally she purchased the 1^st Mortgaged Property jointly with a second person and that she had mortgaged it twice previously (both mortgages I observe being ‘all monies’ mortgages) before either of the mortgage transactions in 2013/2014 and 2015 of which she now makes complaint.  Her evidence also refers to her owning two properties (paragraph 11 of her Third Affidavit), and the court was informed by counsel for the 1^st defendant that the 1^st Mortgaged Property is not occupied by the 1^st defendant but rented out to a tenant.

36.  The 1^st defendant has both been employed by and formally appointed as the company secretary of the 3^rd defendant for many years.  While she claims no knowledge of the financial situation of the company, the family nature of the business and her role as the 5^th defendant’s secretary (paragraph 5 of her First Affidavit and paragraph 3 of her Third Affidavit) again casts doubt on her claim that she was unaware of the financial position of the company and therefore the risks of providing the mortgage.  As I have observed, the evidence also clearly shows that she had had past exposure on several previous occasions to the term ‘all monies’ mortgage.

37.  In the 1^st defendant’s evidence (paragraph 11 of the Third Affidavit), she refers to the 5^th defendant in 2014 selling “…one of his properties…” that was charged to the Bank, with the result that the Bank sought alternative security.  It is unclear from the 1^st defendant’s evidence whether she was aware of this at the time or became aware of it after these proceedings were commenced.  However, if she knew about the sale in or about 2014, it is clear that she had at least some knowledge of the company’s finances and the need for it to provide security to the Bank.  In any event, as I have said, as the daughter and secretary of the owner and the company secretary it is hardly believable that she had no knowledge of the company’s financial position.

38.  Counsel for the 1^st defendant referred to several authorities in support of the proposition that the parent and child relationship, even in respect of an adult child, gives rise to a presumption of undue influence and does so, he submitted, without further evidence.  He referred to, amongst others, the cases of Bank of China (Hong Kong) Ltd v Wong King Sing & ors[2002] 1 HKC 83, Lancashire Loans Limited v Black[1934] 1 KB 380 and Commonwealth Bank of Australia v Ridout Nominees Pty Ltd[2000] WASC 37.  However, with respect to counsel, in my view these authorities do not go this far.  I find the greatest assistance in the decision of the English Court of Appeal in Lancashire Loans Limited v Black[1934] 1 KB 380, a case which concerned a mother/daughter relationship but one in which the daughter had reached the age of majority, married and no longer resided with her parents.  Amongst the issues considered by the court was whether the parental dominion which the law implies in the case of the parent/child relationship survives the technical legal emancipation of the child.  In response to the proposition that the fact that the daughter had married and left home left no room for the presumption to apply, Lord Justice Lawrence said at page 410:

“ In my judgment that is putting the proposition too high. The fact that a daughter has married and gone to live with her husband is no doubt a circumstance of great importance in determining whether or not the dominion of a mother over her daughter has completely terminated, but it is not conclusive. …”

and at 411, the Honourable Lord Justice said: 

“ … I am of the opinion that the true answer to the respondents’ contention is that it is a question of fact depending on the particular circumstances of each case whether or not the parental dominion has completely ceased to exist, and that there is no hard and fast rule that in every case where a daughter has married and left the home of her parents the parental dominion must necessarily be taken to have completely ended.”

39.  In the present case the undisputed evidence is that the 1^st defendant is a mature women in her mid to late thirties who had lived separately (albeit in the same apartment block) from her parents for several years at the time the Plaintiff’s Mortgage was signed.  In my view, the evidence also does not suggest that the 1^st defendant is someone completely inexperienced, an ‘innocent’, when dealing with banking and property matters.  On the contrary, the record shows that she had had several past dealings with the 1^st Mortgaged Property, in respect of which, save for the last two, the Plaintiff’s Mortgage and the January 2014 mortgage in favour of Australia and New Zealand Banking Group Limited, there is no dispute.

40.  In all the circumstances, and having regard to the authorities which demonstrate that when the court is concerned with a child who is an adult it is a matter of fact dependent on the circumstances of each case, in my view, the 1^st defendant has not demonstrated that the 5^th defendant’s parental dominion of her continued such that a presumption of undue influence arises.

41.  Counsel for the plaintiff referred to the judgment of the Court of Final Appeal in Li Sau Ying v Bank of China (Hong Kong) Ltd[2004] 7 HKCFAR 579, in which Lord Scott said this:

“ 28. This is not a case in which the relationship between the appellant and Mr Li was one of the well established categories of relationship where the relationship as such would lead the court to presume that undue influence had been exerted unless evidence was adduced proving the contrary…. It was not, using Slade LJ’s categorisation, a Class 2A case. Both the Deputy Judge and Le Pichon JA asked themselves whether the case was a Class 2B case, ie a case in which on its particular facts a relationship not falling within the Class 2A category had been shown to have become such as to justify the court in applying the same presumption ….

29. Lord Browne‑Wilkinson’s approach in Barclays Blank Plc v O’Brien was broadly endorsed and built upon by the House of Lords in Royal Bank of Scotland Plc v Etridge (No 2) but the use of the expression ‘presumed undue influence’ and, in particular, its use in connection with Class 2B cases was deprecated. …. Lord Hobhouse of Woodborough said, at para.98 that the Class 2A and Class 2B categorisation derived from the Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923 case had been ‘the source of much of the confusion which has ensued’ and, at para.105, that ‘the language of presumption is likely to confuse rather than assist’. He said that:

…If at the end of the trial the wife succeeds on the issue of undue influence, it will be because that is the right conclusion of fact on the state of the evidence at the end of the trial, not because of some artificial legal presumption that there must have been undue influence. (para.106)

Lord Hobhouse concluded that:

… the so‑called Class 2(B) presumption should not be adopted. It is not a useful forensic tool. (para.107)

And I expressed similar views at para.161:

For my part, I doubt the utility of the Class 2B classification‌… The presumption in Class 2B cases, … is doing no more than recognising that evidence of the relationship between the dominant and subservient parties, coupled with whatever other evidence is for the time being available, may be sufficient to justify a finding of undue influence on the balance of probabilities …

30. The strong message from Royal Bank of Scotland Plc v Etridge (No 2) therefore is that, particularly in Class 2B cases, concentration on a so‑called presumption of undue influence is likely to detract from the real issue, namely, whether the evidence justifies a conclusion that the impugned transaction was procured by undue influence.” (emphases added)

42.  In Bank of China (Hong Kong) Ltd v Wong King Sing & ors[2002] 1 HKLRD 358 at [34], Recorder Ma SC (as he then was) said:

“ 34. I should preface the discussion of this defence with the observation that, as with all aspects of the law, one has to apply a large degree of common sense to the matter … 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 victimization 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…” (emphasis added)

43.  Counsel for the plaintiff also referred to the recent decision of the Honourable Mr Justice Ng in Re Leung Lai Hing Cindy (the debtor)HCB 6777/2015, unreported, 3 April 2017.  The matter involved bankruptcy proceedings, which as counsel observed are also summary in nature, the debtor opposing the petition on two grounds, including the allegation that she was under undue influence when she signed the subject documentation making her liable for the debts of her then husband for which it was sought to make her bankrupt.

44.  The evidence of the debtor in that case was to the effect that:

(a) The bank knew about the husband/wife relationship of the borrower and the debtor;

(b) the debtor reposed trust and confidence in her husband;

(c) the subject transaction was manifestly disadvantageous to the debtor as she had no participation or financial interest in her husband’s business;

(d) despite, according to the debtor, being put on inquiry, the bank did not take reasonable steps to ensure that the debtor was not the subject of undue influence, such as arrange private meetings with her in the absence of the husband, translate the documents which were in a language she could not read or have her seek independent legal advice.

45.  However, His Lordship rejected the debtor’s defence of undue influence in that matter, finding that her unsupported affirmation evidence included bare assertions which were not believable, lacked precision or particulars, and in particular did not show that she had been “…forced, tricked or misled…” into signing the subject documentation.  His Lordship observed that while the debtor may or may not have been under the influence of her husband she had not shown by believable evidence that there was anything undue or, putting it another way, that there was no informed consent on her part when she signed the documents.

46.  Counsel for the plaintiff also referred to the judgment of the Court of Appeal in Bank of China (Hong Kong) Ltd v Tsang Sheung Bun[2013] 5 HKLRD 62, (a matter that went to trial and then on appeal) in which the Honourable Kwan JA said this:

“ 40. Where the evidence does not justify the inference that ona balance of probabilities the impugned transaction was procured by undue influence, it cannot be said that the Bank would have constructive notice of any alleged impropriety in relation to the transaction or that it should have been put on inquiry such that it could not rely on the apparent consent of the defendant to the transaction. There being no question of constructive notice, it is unnecessary to consider if the bank had taken reasonable steps to dispel constructive notice (Bank of China (Hong Kong) Ltd v Personal Representatives of Fu Kit Keung [2009] 5 HKLRD 713, [65]–[66]).”

47.  Counsel for the plaintiff and the 1^st defendant both accepted that a person is bound by their signature to a document whether or not they read it or understood it unless there is shown to be a recognised legal basis for concluding that their apparent consent has been in some way vitiated.  Therefore, in my view, in the present case the issue comes down simply to whether the consent evidenced by the 1^st defendant’s signing of the Mortgage which the law presumes was ‘informed consent’ or only the result of undue influence exerted by the 5^th defendant.

48.  For present purposes, I am prepared to accept that the Bank was very probably aware of the 1^st and 5^th defendants’ relationship, though this fact is not dealt with in the Bank’s evidence.  Given the obviously family nature of the 3^rd defendant and the Bank’s long history of dealings with the business it would be surprising if the account handling officers at the Bank were not so aware.  However, if the Bank was aware of this aspect, for the same reasons it was very likely equally almost certainly aware:

(a) that the 1^st defendant was employed by the 3^rd defendant, worked as the 5^th defendant’s secretary and was the company’s appointed company secretary;

(b) that (and whatever the circumstances as now alleged by the 1^st defendant) the 1^st defendant had previously mortgaged the 1^st Mortgaged Property to another bank in January 2014 in order to provide additional security and thereby financial support to the business of the 3^rd defendant apparently in very similar circumstances (which objectively suggests that the 1^st defendant had already considered and come to a view on whether the intended re-mortgage transaction, whether manifestly financially disadvantageous to her or not, was one that she was prepared to enter into); and

(c) that the both the 1^st defendant and 2^nd defendant (the 1^st defendant’s mother and 5^th defendant’s wife) intended as part of connected series of transactions to re-mortgage their respective properties to support the business of the 3^rd defendant which was owned by the 5^th defendant.

49.  However, against this background, I am of the view that the Bank, whether aware or not of the daughter/father relationship of the 1^st defendant and the 5^th defendant, was entitled to view the re-mortgages in its favour as little more than replacements for those granted by the 1^st and 2^nd defendants to support the 3^rd defendant’s business only some 18 months previously.  Further, in my view there was nothing else in the nature of the transaction that gave the Bank constructive notice of any potential impropriety so as to require that it take additional steps over and above those that were already part of its standard procedures when security is given by an “individual third party security provider”.

50.  For the reasons I have set out previously, I do not view the 1^st defendant and 5^th defendant’s daughter/father relationship of itself as giving rise to a presumption of undue influence (and thereby putting the Bank on constructive notice) without more. I also have regard to what I view as the inherently implausible nature of the 1^st defendant’s evidence as regards the issue of custody of title deeds and also her unsupported claims as the circumstances in which the prior mortgage in January 2014 came into existence (and her failure to apparently make any effort to make inquiry in this regard).  Finally, I have regard to the fact that the 1^st defendant’s claims of being emotionally dependent and/or oppression are no more than bare assertions (even if made on affidavit) to which in all the circumstances I am unable to give any great weight.

51.  I have previously referred to the judgment of the Honourable Kwan JA in Bank of China (Hong Kong) Ltd v Tsang Sheung Bun[2013] 5 HKLRD 62 in which the court concluded that if there is not sufficient evidence of constructive notice, it is unnecessary to consider if a bank has taken reasonable steps to dispel constructive notice.

52.  While Bank of China (Hong Kong) Limited v Tsang Sheung Bun [2013] 5 HKLRD 62 was a matter that went to trial, I have also previously referred to the judgment of the Honourable Mr Justice Ng in Re Leung Lai Hing Cindy (the debtor)HCB 6777/2015, a matter decided on a summary basis, in which His Lordship rejected a defence of undue influence which he found was based on bare assertions which were not believable, lacked precision or particulars and did not show the defendant has been “… forced, tricked or misled …” into signing the subject documentation.  As I have observed, every such case is very much dependent on its own facts, but I would echo what His Lordship said in Re Leung Lai Hing Cindy (the debtor)HCB 6777/2015.

53.  After considering all of the evidence and the circumstances, for the reasons set out in my judgment I do not view the evidence of the 1^st defendant that she only entered into the Plaintiff’s Mortgage due to the undue influence of the 5^th defendant as believable and therefore giving rise to triable issues which might amount to a credible defence.  Accordingly, I refuse the application of the 1^st defendant that the plaintiff’s Originating Summons be continued as if begun by writ or alternatively that it be heard (wholly or in part) on oral evidence and therefore I give judgment for the plaintiff.  The plaintiff’s counsel provided a draft order to the court for the hearing on 6 July 2017.  I make an order nisi in the terms of the said draft on terms that if any party seeks a variation to the draft they shall apply within 14 days of the date of handing down of judgment by letter to my clerk setting out the variation they seek.  However, I would encourage the parties to first seek to agree the terms of a draft order and if agreed jointly submit a draft for approval.