BANK OF CHINA (HONG KONG) LTD v. TSANG SHEUNG BUN

HCMP 5256/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 5256 OF 2003

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BETWEEN

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J U D G M E N T

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1.  By virtue of the Bank of China (Hong Kong) Limited Merger Ordinance, Cap 1167, with effect from 1 October 2001 the plaintiff became the successor of all the undertakings of, inter alia, Sin Hua Bank Limited (“the bank”).

2.  The plaintiff’s claims against the defendant is for vacant possession of a property known as 10^th floor, Rich Building, 28 Ormsby Street, Hong Kong (“the property”) and for monies pursuant to a legal charge dated 14 November 1997 made between the defendant as the mortgagor of the property, Universal Taxi Limited (“Universal Taxi”) as the borrower and the bank as the lender (“the legal charge”).

3.  There is no dispute that the defendant signed the legal charge at the offices of Messrs Chow Griffiths & Chan(“CGC”), solicitors in November 1997.  There is also no dispute that Lam Tin Loi (“Lam”) and Fung Man Yin (“Fung”) also signed the legal charge on the same occasion that the defendant signed it at the offices of CGC.

4.  The plaintiff’s case is that the legal charge was signed by the defendant as well as by Lam and Fung, as the directors of Universal Taxi, on 13 November 1997.  The defendant’s case is that it was signed on 14 November 1997.  It matters not whether it was signed on 13 or 14 November.  It is common ground that it was signed by them at the offices of CGC.

5.  Although the defendant did sign the legal charge it is his case that he is not liable for his obligations thereunder.  He has pleaded a number of defences.

The agreed issues

6.  The agreed issues between the parties are:

(1)  Whether the legal charge is void on the ground of non est factum:

(i)  Whether the defendant was under any inability to understand the legal charge;

(ii)  If yes, whether the legal charge was fundamentally, radically or totally different from what he thought it was;

(iii) If yes, whether the defendant was careless.

(2) Whether the legal charge is voidable on the ground of misrepresentation:

(i) Whether Fung or Lam had made any misrepresentation to the defendant;

(ii) If yes, whether the defendant was induced by such misrepresentation to execute the legal charge;

(iii) If yes, whether Fung or Lam had made the representation as the bank’s agent;

(iv) If no to (iii), whether the bank was put on inquiry as to such misrepresentation.

(a) Whether the bank knew of any relationship which indicated the risk of abuse;

(b) If yes, whether, from the eyes of the bank, the nature of the transaction was apparently disadvantageous to the surety.

(v) If yes to (iv), whether the Bank had taken reasonable steps to dispel constructive notice.

(3) Whether the legal charge is voidable on the ground of undue influence:

(i) Whether Fung or Lam had unduly influenced the defendant into executing the legal charge;

(ii) If yes, whether Fung or Lam had so unduly influenced the defendant as the bank’s agent;

(iii) If no to (ii), whether the bank was put on inquiry as to such undue influence.

(a) Whether the bank knew of any relationship which indicated the risk of abuse;

(b) If yes, whether, from the eyes of the bank, the nature of the transaction was apparently disadvantageous to the surety.

(iv) If yes to (iii), whether the bank had taken reasonable steps to dispel constructive notice.

(4) Whether the legal charge is liable to be set aside as an unconscionable bargain:

(i) Whether the bargain is oppressive to the defendant in overall terms;

(ii) If yes, whether the defendant was suffering from a sufficient weakness;

(iii) If yes, whether the bank had acted unconscionably and behaved in a morally reprehensible manner which affected its conscience.

7.  Mr Chong, for the defendant, at the outset of the trial informed me that there was no issue as to the amount of the plaintiff’s claim.  The amount was agreed in the sum of HK$71,174,892.74 which included interest calculated up to 4 October 2012.

8.  There is also a counterclaim by the defendant for a declaration that the legal charge is null and void and of no legal effect, an order that the registration of the legal charge be set aside and for the sum of HK$84,548.27 said to have been wrongly debited to the defendant’s account with the bank.

9.  Mr Chong accepted that the burden of proof of all the defences raised was on the defendant.

The witnesses

10.  I heard evidence from Wong Chi Keung (“Wong”), the Assets Recovery Manager of the Risk Management Department of the plaintiff, Leung Kwai Han (“Leung”), a conveyancing clerk of CGC at all material times, and Jeanna Hau Nang Man (“Hau”) a partner of CGC at all material times.

11.  I also heard evidence from the defendant.

12.  I found Wong, Leung and Hau to honest, truthful and reliable witnesses.  Wong’s evidence was based on the documentary records of the bank in the possession of the plaintiff.  Wong was never employed by the bank.

13.  Both Leung and Hau gave evidence of their practice when working at CGC and when dealing with clients and attesting the signatures to documents signed at CGC in their presence.  Both Leung and Hau gave honest and truthful evidence.  As one would expect, neither of them could remember the actual events of the signing and attestation of the various documents referred to in view of the long lapse of time between the events and when they were first asked about the same.  However, both said that they carried out their normal practice when dealing with clients and when attesting the various documents referred to.  There was no reason for any departure from the normal practice.  I have no hesitation in accepting their evidence.

14.  The defendant, on the other hand, was an untruthful and unreliable witness.  He was also an evasive witness.  Where his evidence was at variance with the evidence of Leung and Hau, I have no hesitation in preferring the evidence of Leung and Hau, which I accept, to the evidence of the defendant, which I reject.

The evidence and findings

15.  The undisputed background is that by about 1978 the defendant became a full time taxi driver.  He was friends with another taxi driver Lam and Lam’s wife, Fung .

16.  The defendant first purchased a taxi with the advice of Lam in the 1980s on instalment payment terms.  The taxi was managed by Lam.

17.  Subsequently in about 1983 the defendant paid off all outstanding payments of a bank loan to finance the purchase of the said taxi.

18.  Thereafter Lam persuaded the defendant to purchase further taxis on instalment payment terms.  These taxis were also managed by Lam.

19.  In about 1985 Lam set up his own taxi business by the name of Universal Taxi Company.  This was later incorporated into Universal Taxi.

20.  The defendant said that by about the end of 1986 he owned  2 taxis which were fully paid up by that time.

21.  The defendant said, and I accept, that he entrusted the management of all his taxis to Lam.  His taxis were managed by Lam and Universal Taxi so that they were leased out and rentals were collected on his behalf.  The taxi registrations were transferred into the name of Fung so that the management of the defendant’s taxis could be conveniently managed by Universal Taxi.

22.  The defendant left Hong Kong in about the end of 1986 to return to the Mainland and to get married.  In about 1987 he got married in his village in the Mainland.

23.  Whist he was living in the Mainland he returned to Hong Kong from time to time to collect the rentals collected for him which were paid to him punctually by Lam.

24.  The defendant also opened an account with Universal Finance Ltd, a company controlled by Fung, so that the rentals earned for the defendant from the management of his taxis could be deposited into his account with Universal Finance Ltd.

25.  The defendant was also persuaded by Lam to purchase a minibus in 1994 which he did and that was also leased out for rent on his behalf by Universal Taxi.

26.  The defendant said that by September 1994 he was receiving a monthly rental income of HK$39,000 from the rentals of his taxis and minibus which he received punctually from Universal Taxi.

27.  The above facts have not been challenged.

28.  It seems clear, and I so find, that the defendant did entrust the management of his taxis and minibus to Lam and Universal Taxi.  He obviously had the trust and confidence in Lam and Fung to look after his affairs in the management of his taxis.

29.  In 1996 the defendant’s wife obtained a single entry permit to enter Hong Kong.  In September 1997 his son obtained a single entry permit to enter Hong Kong. It was the defendant’s plan to bring his family over to settle in Hong Kong.

30.  By August 1997 the defendant’s deposits in Universal Finance Ltd amounted to about HK$1,000,000 and he had a monthly rental income of HK$39,000 paid to him by Universal Taxi for managing his taxis and minibus.

31.  By September 1997 the defendant’s wife and son came over to settle in Hong Kong.  At about that time the defendant discussed with Lam about looking for a residence and Lam persuaded him to purchase a residence.  He agreed and Lam said that he would look for a suitable property for the defendant.

32.  The defendant went with Lam to look at another property before viewing the property.  The defendant said that on or about 1 October 1997 he viewed the property with Lam and he was satisfied with it but he did not indicate that he was willing to purchase it.  The asking price was HK$2,880,000.

33.  The defendant said that on or about 2 October 1997 he learnt from Lam that the owner of the property was Fung and that she was willing to bring the price down to HK$2,600,000.  The defendant said that he orally agreed with Lam to purchase the property at that price. 

34.  The defendant said that he agreed with Lam that his deposits amounting to HK$1,505,000 which he had with Universal Finance Ltd would be used as part of the purchase price and the balance of about HK$1,100,000 would be paid by approximately 40 monthly payments each of HK$29,000.  This would still leave him with a monthly payment of HK$10,000 out of the HK$39,000 that he regularly received from Universal Taxi.  Lam had agreed to pay all the handling fees including the legal costs of the conveyance, decoration fees of the property and purchase of furniture and payment of utilities and rates on his behalf.  The defendant said that he left all the arrangements to Lam to handle.

35.  Universal Taxi was a customer of the bank at all material times.

36.  According to the bank’s internal documents on Universal Taxi, namely, the risk analysis and guarantor/ security information chart dated 30 October 1997, Universal Taxi was seeking a revision of facilities from the bank to total facilities of HK$66,290,000.

37.  Universal Taxi was regarded by the bank as a sizeable business with Universal Taxi and its associates holding more than 100 urban taxi licences.  It also had in excess of 10 minibuses operating in fixed routes.  The bank had already obtained securities for the facilities including deposit instruments and the pledging of properties as security.  According to the agreed valuation dated 7 September 2012 signed by the solicitors for the parties, the total market value in August 1997 of the secured properties held by the bank was HK$74,947,000.

38.  The bank’s approval for further facilities to Universal Taxi appears to have been granted by the bank on 5 November 1997. According to the contemporaneous bank documentation namely, the credit account assessment table (Bundle C pages 438-444), which has not been disputed, the aggregate credit facilities which the bank granted to Universal Taxi were increased from HK$58,300,000 to HK$66,279,000 which were approved by the approving officer on 5 November 1997.  The revised facilities were adequately secured by deposit instruments with the bank, guarantees by Fung and Lam, and mortgages on 8 properties which included the property.  The property was valued by the bank at HK$2,100,000.

39.  It seems that Lam had put forward the property to the bank as one of the properties to be mortgaged or charged to the bank for the purpose of seeking an increase in facilities from the bank to Universal Taxi.

40.  The defendant denied any knowledge of signing a mortgage or a legal charge whereby the property was charged to the bank.  It was his evidence that he was asked to go to CGC by Lam to sign documents in relation to the purchase of the property from Fung and nothing else.

41.  Leung gave evidence that on or about 21 October 1997 CGC received by fax from the bank a copy of the provisional agreement for sale and purchase of the property dated 3 October 1997 signed by the defendant as the purchaser and Fung as the vendor (“the provisional agreement”).  By that date the defendant had already signed the provisional agreement to purchase the property at HK$2,280,000, a price lower than what he said was the agreed price of HK$2,600,000. 

42.  The defendant denied that he had signed the provisional agreement with the particulars filled in. His evidence was that when he signed it the price was not filled in.  He was adamant that he signed it on an occasion much later in time to the occasion when he went to CGC.  He denied any knowledge that the purchase price mentioned in the provisional agreement was HK$2,280,000.  I do not believe him  and reject the defendant’s evidence.

43.  It is clear, and I so find, that the defendant did sign the provisional agreement well before the occasion when he went to CGC in November, be it on 13 or 14 November 1997.  The provisional agreement was stamped by the assistant Collector of Stamp Revenue on 6 November 1997 with the stamp as shown on the provisional agreement.  There can be no doubt that the provisional agreement was completed and signed by the defendant as the purchaser and Fung as the vendor of the property well before the date when the defendant attended the offices of CGC with Fung and Lam.

44.  It was the defendant’s case and his evidence that with the financial arrangements that he had agreed with Lam there was no need to obtain a mortgage on the property to finance any part of the purchase price of the property.  He was adamant that when he attended CGC on the occasion when the documents were signed he did not know that he was signing a mortgage or legal charge on the property.  He said that he was never requested by Lam to sign any mortgage or charge and he had never agreed to provide the property as security for the facilities of Universal Taxi.  I do not believe him. 

45.  By a letter dated 10 November 1997 the bank gave instructions to CGC, for the attention of Leung, to prepare the charge/mortgage of the property in favour of the bank with the mortgagor being the defendant and the requesting party being Universal Taxi.  As was mentioned in the letter, this was to secure general banking facilities to an unlimited extent.  The instructions were to prepare all documents in the bank’s usual form unless otherwise approved by them.  The letter set out the instructions to CGC who were also asked to confirm that the consideration in the assignment of the property was HK$2,280,000 with vacant possession on completion.

46.  Also enclosed with the said letter from the bank was the fire insurance application form, the direct debit authorization letter, the undertaking for repayment of overdraft, application for banking facilities and deed of guarantee to be executed by the relevant parties.  The said letter also enclosed a copy of the provisional agreement

47.  There is a dispute of fact as to what happened at the offices of CGC on the occasion when the documents were signed.  On this dispute I much prefer the evidence of Leung and Hau, which I accept, to the evidence of the defendant, which I reject.

48.  On the evidence of Leung and Hau, which I have no hesitation accepting, I find that the defendant must have known that he was signing the legal charge with the defendant as the mortgagor of the property, Universal Taxi as the borrower and the bank as the lender.  

49.  Leung gave evidence of her explanation of the various documents that Lam, Fung and the defendant signed on that occasion. The explanations were given in the presence of all 3 of them.  She said, and I accept, that as part of her usual practice she would have explained the relevant covenants in the legal charge to the borrower Universal Taxi, represented by Lam and Fung, and the defendant as the mortgagor.  These would include the covenants in the legal charge, including clauses 2.1, 2.3, 3, 3.1, and 3.8 of the legal charge, which Leung said she explained to those in her presence namely, Lam, Fung and the defendant.

50.  Leung’s evidence was that she explained the various documents in the presence of all the 3 persons who were in attendance on that occasion in a conference room at CGC namely, Lam, Fung and the defendant.

51.  The defendant denied that there was any explanation of any of the documents.  It was his evidence that he spent only about 15 minutes at the offices of CGC and that he signed the documents in the reception area.

52.  Both Leung and Hau said that the signatures were appended in a conference room where Lam, Fung and the defendant were in and where the documents were explained to them.

53.  The defendant also denied that he saw anyone other than Leung on that occasion.  He said that after he and the others signed the documents, Leung took the documents somewhere else and returned later telling them that they could leave the offices of CGC.  On his evidence, Hau never attended to him and never attested his signature on any document.

54.  I reject the defendant’s evidence and accept the evidence of Leung and Hau on these matters.

55.  I find that, as Leung said, she explained the various documents to all 3 of them who were present at the same time in the room that they were shown into at CGC.

56.  I am satisfied and find that the defendant knew that he was mortgaging the property to the bank by the legal charge.  He knew that he was undertaking joint and several obligations with Universal Taxi to the bank.  He also knew that he was obliged to repay on demand by the bank all sums of money whether past, present or future which were then or may at any time thereafter become due and owing to the bank by Universal Taxi.

57.  Leung said, and I accept, that she also explained the assignment to the defendant in the presence of Lam and Fung.  Despite the defendant’s denial, which I reject, he must have known that the purchase price as stated in the assignment was HK$2,280,000 and not HK$2,600,000 which was the price that the defendant said that he had agreed to pay.  The defendant said that if he had known that the price was as stated in the assignment he would have raised the matter with Lam.  I do not believe him.  He must have known when the assignment was explained to him that the price stated was HK$2,280,000 and not HK$2,600,000.  Yet he did not raise any query with anyone. This demonstrates, in my view, that he knew that a price lower than what had been agreed was put in the formal documents.  The defendant agreed to this.  There is, however, no evidence as to the reasons why the lower figure of HK$2,280,000 was stated as the consideration in the provisional agreement and the assignment.

58.  The other documents that were signed on that occasion included a direct debit authorization in respect of the account of Universal Taxi.  The direct debit authorization mentioned the defendant and the property to be charged to the bank.

59.  There was also a fire insurance application form which was signed by the defendant to insure the property for HK$1,160,040.  The defendant denied that he signed this form on the same occasion at CGC but said that he signed it subsequently when Lam provided the same for his signature.  I reject the defendant’s evidence.  In the explanation of this document given by Leung to the defendant the defendant would have known that he was insuring the property for the sum of $1,160,040.  

60.  Although the defendant denied that he signed the fire insurance application form on the same occasion as when he signed the assignment at CGC, it is clear from the contemporaneous documentary evidence that he must have signed it on the same occasion.  By letter dated 14 November 1997 CGC sent to the bank the various documents executed in accordance with the bank’s instructions of 10 November 1997.  Among the documents enclosed was the duly signed fire insurance application form which had been signed by the defendant.

61.  I am satisfied and find that the defendant also signed the fire insurance application form on the same occasion at CGC after it had been explained to him.  In my view, this further supports the plaintiff’s case that the defendant knew all along that he was mortgaging his property to the bank and that he was required to take out fire insurance.

62.  I also find that the defendant was present when the deed of guarantee was explained by Leung to Lam and Fung.  The deed of guarantee was for the amount of HK$45,000,000 and the defendant would have known that Lam and Fung were guaranteeing the facilities of the bank to Universal Taxi to the extent of HK $45,000,000.

63.  The undertaking for repayment of overdraft to Universal Taxi was also explained before it was signed.  I so find.  The explanation was given in the presence of the defendant and he would have known that the overdraft limit to Universal Taxi was HK$60,000,000.

64.  I find that Leung also explained the application for banking facilities to be signed by the representatives of the borrower Universal Taxi.  The explanation was also given in the presence of the defendant.  I find that the defendant would have known that he was providing the property as security for the banking facilities that were applied for namely, overdraft facilities of HK$1,160,000.

65.  I find also that Leung explained, in the defendant’s presence, the letter dated 11 November 1997 from the bank addressed to the directors of Universal Taxi which set out the detailed facilities which the bank was prepared to grant to Universal Taxi.  The defendant would have known the extent of the facilities provided by the bank to Universal Taxi.  It was also provided there that as part of the securities to be provided to the bank was an all monies first legal charge on the property with the defendant as the mortgagor, as well as the personal guarantees of Lam and Fung to the extent of HK$45,000,000.

66.  I am also satisfied and find that Leung also explained the resolutions of Universal Taxi being the directors resolution and the shareholders resolution both dated 13 November 1997.  The resolutions clearly referred to the property being provided by the defendant as security for the banking facilities granted and to be granted to Universal Taxi by the bank and that payment may be made by Universal Taxi to pay the balance of the purchase price of the property for the defendant.  I find that these resolutions were explained in the presence of the defendant by Leung and that the defendant would have known that part of the facilities that Universal Taxi would obtain from the bank would be used to finance his purchase of the property.  He also knew that he was providing his property to the bank to secure the banking facilities granted or to be granted to Universal Taxi by the bank.

67.  Leung said, and I accept, that after she explained the relevant documents to Lam, Fung and the defendant she asked them if they had any questions and as far as she could remember none of them raised any queries.  The supervising solicitor was Fong Ping Wah but, as he was engaged at that time, she reported the matter to Hau so that she could come and attest the execution of the assignment, the legal charge and the security documents.  She went out of the room where Fung, Lam and the defendant were and she came back after a while with Hau.

68.  Hau confirmed in evidence that on that occasion as Fong Ping Wah, the supervising solicitor, was not available, she was requested by Leung to go to the conference room to witness the signing of the assignment, the legal charge and the related documents.  She went to the conference room and in accordance with her usual practice she would have asked the mortgagor and the borrower whether they understood the nature of the documents they were going to sign.  She would also ask whether they were satisfied with the conveyancing clerk’s interpretation and whether they understood the documents and whether they had any queries they wanted her to explain or clarify. 

69.  Hau said that she would also, in the case of attesting the signatures to an all monies third party mortgage, always remind the mortgagor that the mortgage was to secure general banking facilities granted by the bank to the borrower and that the liability was unlimited.  She would also explain that this meant that the liability of the mortgagor and also the borrower was not just limited to the secured property or the present amount of the facility offered by the bank. 

70.  She said that would also explain to the mortgagor that he had to personally shoulder all the liabilities and all the outstanding amount owed by the borrower Universal Taxi.  She would also tell them that if there were no questions then they could sign the document and she would witness their signature when they signed. 

71.  As regards the deed of guarantee, Hau said that she would say that her colleague had earlier explained that document to them which was a guarantee by Lam and Fung to guarantee the liabilities of Universal Taxi to the extent of HK$45,000,000. 

72.  Hau said she would also ask if there were any questions and if they had no problem with the document they could sign and she would witness their signatures. 

73.  As for the undertaking for repayment Hau said she would mention that the document was an undertaking for repayment of overdraft which her colleague had already explained.  She would also mention the amount mentioned in the document which was HK$60,000,000 and if she found anything crossed out, as was the case with this document, she would ask her colleague and the parties to initial the same.  And again, she would ask if they had any questions and if not, they would be asked to sign that document also.  Hau could not recall any questions being raised on that occasion and she signed on the document to witness the defendant’s signature and the signatures of Lam and Fung.

74.  Hau said, and I accept, that in accordance with her usual practice she would have told the defendant, who was the purchaser, that the assignment had already been explained by her colleague and if there was no problem with the explanation that the defendant should sign the same and she would attest his signature on the document.  She confirmed her signature on the document below where the defendant signed. 

75.  As regards the legal charge, Hau confirmed in evidence that she attested the signature of the defendant in accordance with her usual practice in the firm.

76.  Hau confirmed in evidence that she was carrying out her normal practice when attesting signatures to the documents such as the ones she attested on that occasion.  She saw no reason not to follow her usual practice on that occasion.  I believe her and accept her evidence.  I find that she must have followed her usual practice on that occasion.

77.  I have no hesitation in finding that the defendant knew that he was signing the legal charge and that he had mortgaged his property.  He knew that he had a liability to repay in the event of default by Universal Taxi of the facilities to it by the bank.

78.  I would observe the defendant’s previous affirmations show that he knew that he was going to CGC to sign a mortgage in connection with the sale and purchase of the property.  In his 2^nd affirmation affirmed on 13 April 2004 the defendant mentioned that

“Therefore in respect of this transaction, all matter relating to the signing of the sale and purchase agreement, the arranging of the property mortgage of the Premises, the payment arrangement, all money due to be paid and the instruction of lawyers were all handled by Mr Lam for me……” (emphasis supplied).”

79.  He also mentioned in the same affirmation that

“What I only intended was to go to the law firm to sign the sale and purchase agreement and the mortgage contract for the premises that I bought” (emphasis supplied).”

80.  The same matters were repeated in the defendant’s 3^rd affirmation affirmed on 11 May 2004.

81.  However, at paragraph 2 of his 5^th affirmation affirmed on 9 February 2006 the defendant sought to retract what he had said as set out above in his 2^nd and 3^rd affirmations by saying that they were “typo-error”.

82.  In cross-examination the defendant said that the 2^nd and 3^rd affirmations were prepared for him to sign by Lam’s brother who was also sued by the plaintiff at that time.  Lam’s brother was also working for Universal Taxi.  Although he accepted that he had read the 2^nd and 3^rd affirmations and confirmed the contents to be correct when he made his affirmations, he said that he could not be sure that he did not misread any of the characters in the affirmations that had been prepared for him.

83.  I reject the defendant’s evidence on this.  It is absurd to suggest that these were typographical errors as he said in his 3^rd affirmation.  This was but a feeble attempt to try and distance himself from his earlier 2^nd and 3^rd affirmations where it was mentioned that he knew that he was also going to sign a mortgage at CGC.  As no doubt this was contrary to his case, it seems to me that the defendant was trying to distance himself from what he had earlier said by saying that they were typographical errors which clearly they were not.

84.  I would also observe that in the income and expenditure account prepared by Lam for the defendant (Bundle D2 page 884, translation at pages 887 to 888), it is clearly stated that there was a “property mortgage 1,160,000”.  The property price was stated to be HK$2,600,000 , and this supports the defendant’s evidence that he had agreed with Lam to purchase the property at that price.  However, as I have said, the defendant must have agreed with Lam and Fung that the lower figure of HK$2,280,000 be put down as the purchase price in the provisional agreement and the assignment for some unexplained reason.

85.  The fact that Lam clearly mentioned “property mortgage 1,160,000” in the contemporaneous income and expenditure account also demonstrates that the defendant knew that he had signed a mortgage at CGC, contrary to his case.  He was evasive when cross-examined about these matters.  The defendant said that he did not go through the document carefully at the time Lam gave it to him.  He said that he did not pay full attention to the words in the document. I do not believe him.

86.  The defendant also contradicted himself.  He said for the first time in cross-examination that he understood that he had mortgaged the property to Universal Taxi.  This was never mentioned before in any of his previous affirmations or his witness statement.  In my view, the defendant made this up when giving evidence in cross-examination.  I reject his evidence.

87.  In another income and expenditure account prepared by Lam and given to the defendant by Lam (Bundle D2 page 880, translation pages 882 to 883) it was clearly stated as part of the expenses that interest had been paid for the “OD 1,160,000”.  The defendant said that this was given to him around May or June 1998.  He said that he could not read English and did not know what “OD” meant.  However, he was unable to explain why he had to pay interest in the sums as set out in that document.  The defendant gave evidence that Lam did not mention anything about the payment of interest when he agreed to purchase the property. He said that he only found out about having to pay interest when he received the income and expenditure account from Lam.  I do not believe him. 

88.  The defendant received the income and expenditure accounts in 1998 from Lam and these contemporaneous documents show that the defendant must have agreed to pay interest on the overdraft facilities of HK$1,160,000 which was used to partly finance the purchase of the property.  That, in my view, explains why he did not raise any query with Lam as to the payment of interest when he received the accounts from him.

89.  I find that the defendant knew full well that he had executed the legal charge and that he had to pay interest in respect of the overdraft obtained by Universal Taxi for about HK$1,160,000.  I would observe that in the application for banking facilities, which was explained by Leung in his presence at CGC, the amount of overdraft facilities was HK$1,160,040.

90.  The defendant agreed to provide the property to the bank to secure the banking facilities of Universal Taxi from the bank although he was neither a shareholder or director of Universal Taxi.  The defendant knew that part of the facilities to Universal Taxi was an overdraft of HK$1,160,040 which was to finance part of the purchase price of the property.  This is evidenced by the application for overdraft facilities and the resolutions of the shareholders and directors of Universal Taxi which were explained and signed at CGC.

91.  Although the defendant adamantly denied that he had any knowledge that he was signing a mortgage or charge at CGC, I reject his evidence and find that he has been untruthful and unreliable.

Issue (1)

92.  As to whether the legal charge is void on the ground of non est factum, it is well established that in order to succeed in this defence the defendant must establish three things:

(a)  a permanent or temporary inability to understand the document;

(b)  that the document must be fundamentally, radically or totally different from what he believed it to be; and

(c)  that he was not careless in signing it.

(paragraphs 13-55 to 13-58 Cartwright’s Misrepresentation, Mistake and Non-disclosure 3^rd edn).

93.  The defendant’s case is that he has limited secondary school education.  He does not know English and his command of Chinese is limited.  In my view, he did not display any difficulty with the Chinese language when giving evidence.

94.  Apart from being a taxi driver, he was also in the business of owning and renting out taxis.  He had a business as sole proprietor in the name of Tsang Sheung Bun Taxi Company which later became a partnership.  He claimed in evidence that he did not know that it had been changed into a partnership.  He tried to distance himself away from his business dealings but it is clear that he was a man of business who was running a business of renting taxis and a minibus albeit with the assistance of Lam.  He had also purchased vehicles on instalment payment terms.  The defendant is not a country bumpkin who knew nothing about matters of business and finance.  I so find

95.  As to issue (1)(i), I am satisfied and find that the defendant was not under any inability to understand the legal charge.  It was explained to him before he signed it.  On the evidence of Leung and Hau, which I accept, the defendant must have known that he was also signing the legal charge and not just an assignment of the property to him. 

96.  The answer to issue (1)(i) is no.  That being so, Issues (1) (ii) and (iii) do not arise.

97.  In my judgment the legal charge is not void on the ground of non est factum.

Issue (2)

98.  As to whether the legal charge is voidable on the ground of misrepresentation, the first question to consider is whether Fung or Lam had made any misrepresentation to the defendant.

99.  The defendant’s case is that his signature on the legal charge was obtained as a result of fraud and/or fraudulent misrepresentation on the part of Lam and Fung (paragraph 12 of the amended defence and counterclaim and the particulars relied on).

100.  In his witness statement the defendant said that Lam had told him on 13 November 1997 that he was to go to CGC on the morning of 14 November 1997 to sign an assignment of the premises to him.  He also said that when he went to CGC accompanied by Lam and Fung, they told him that the purpose of going there was solely for transferring the property into his name “and there were no other matters”.  Mr Man, for the plaintiff, pointed out that this allegation of there being no other matters was never pleaded nor mentioned by the defendant in any of his previous affirmations before it appeared for the first time in his witness statement made in April 2011, some 14 years after the event. In cross-examination the defendant contradicted himself by saying that Lam had only asked him to go to CGC to sign documents for the transfer of the property and that was the only thing he said.

101.  As I have said, the defendant knew that he was signing the legal charge which had been explained to him.

102.  Lam and Fung accompanied the defendant to CGC for the purpose of executing the various documents on that occasion on 13 November 1997.  If Lam or Fung had indeed misrepresented matters to the defendant, they would have been exposed very quickly when the documents were explained by the staff at CGC.  There is no suggestion that anyone in CGC was party to the misrepresentations or fraud alleged against Lam and Fung.  There was no reason whatsoever for Lam and Fung to think that the legal charge would not be explained to the defendant by the staff of CGC.  

103.  There is no merit in the allegation that Lam or Fung had made the alleged misrepresentations to the defendant.  The answer to issue (2)(i) is no.  That being so, issues (2)(ii) to (v) do not arise.

104.  In my judgment the legal charge is not voidable on the ground of misrepresentation.

Issue (3)

105.  Certain relationships e.g. solicitor and client, medical advisor and patient, as a matter of law raise the presumption that a person has been induced to enter into a transaction by the undue influence of another.  This has been referred to as a Class 2A type of relationship (Barclays Bank Plc v O’Brien and another [1994] AC 180).

106.  There is no dispute that the relationship between Lam and Fung with the defendant was not a Class 2A type of relationship.  The relationship was a Class 2B type of relationship.

107.  In Barclays Bank Lord Browne-Wilkinson said at page 189

“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.”

108.  In considering what Lord Browne-Wilkinson said in the passage set out above in Barclays Bank, Lord Scott, giving the reasons of the Court of Final Appeal in Li Sau Ying v Bank of China (Hong Kong) Ltd (2004) 7 HKCFAR 579 said at page 594

“29. Lord Browne-Wilkinson’s approach in Barclays Bank Plc v O’Brien [1994] 1 AC 180 was broadly endorsed and built upon by the House of Lords in Royal Bank of Scotland Plc v Etridge (No 2) [2001] UKHL 44 but the use of the expression “presumed undue influence” and, in particular, its use in connection with Class 2B cases was deprecated. Lord Nicholls of Birkenhead at paras. 16 and 17 made clear that the expression connoted no more than a shift in the evidential burden of proof, “the equitable counterpart of common law cases where the principle of res ipsa loquitur is invoked”. 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 was 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) [2001] UKHL 44 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.”

109.  As to the issue whether the legal charge is voidable on the ground of undue influence, in considering the evidence I am not satisfied that Fung or Lam unduly influenced the defendant into executing the legal charge.  The defendant’s case is that he did not know that he was signing the legal charge and that he thought that he was signing an assignment of the property to him.  I have already found against him on this.

110.  In any event, it was the defendant’s evidence that had he known that he was being asked to sign the legal charge he would not have signed it.

111.  He also said that he did not know when signing the assignment that the lower purchase price of HK$2,280,000 was stated as the purchase price instead of HK$2,600,000.  If he had known that he would have asked questions about that.

112.  I am satisfied that the defendant was not a person who would have been unduly influenced to sign the legal charge.  He was quite capable of refusing to sign the legal charge if he did not want to sign it.  I so find.

113.  On my findings the defendant knew what he was signing and by signing the legal charge he agreed to it.

114.  The defendant fails to satisfy me that Fung or Lam had unduly uninfluenced him into executing the legal charge.

115.  The answer to issue (3)(i) is no.

116.  Issues (3)(ii) to (iv) do not arise.  In my judgment the legal charge is not voidable on the ground of undue influence.

Issue (4)

117.  As to issue (4), for a contract to be set aside as being an unconscionable bargain, three things must be shown:

(1)  the bargain must be oppressive to the complainant in overall terms;

(2)  the complainant was suffering from certain types of bargaining weakness; and

(3)  the other party must have acted unconscionably in the sense of having knowingly taken advantage of the complainant.

(para 7-129 Chitty on Contracts 13^th edn.)

118.  Where relief has been granted the transaction has been not merely hard or improvident, but overreaching and oppressive such that its terms, together with the conduct of the stronger party “shock the conscience of the court” (para 7-130 Chitty on Contracts).

119.  Also, a contract will not be set aside as an unconscionable bargain because the aggrieved party did not have independent advice and the consideration was inadequate. It must also be shown that the other party engaged in unconscionable conduct or an unconscientous use of power.  He must have behaved in a morally reprehensible manner which affects his conscience. (para 7-132 Chitty on Contracts).

120.  Mr Chong relied on Lo Wo & others v Cheung Chan Ka & another [2000] 2 HKLRD 370 where Waung J set aside the transaction on his finding that there was an unconscionable bargain on the facts of that case.  Lo Wo is clearly distinguishable on its facts and, in my view, provides no assistance to the defendant.

121.  From the bank’s perspective, Universal Taxi was already at that time a well established business when it was seeking further facilities.  At that time, the bank already had the valuable securities as set out in the bank documentation. A charge on the property was also to be provided as further security to the bank.

122.  I would observe that at the time of the purchase of the property the defendant’s only assets were the taxis and the minibus which were not in his name but had been transferred to Fung for her to hold on his behalf.  He was able to partly pay for the purchase of the property from his deposits with Universal Finance Ltd and the monthly sum that he was receiving from Universal Taxi for the management of his vehicles.  However, as his vehicles were not registered in his name, it would have been difficult for him to obtain a mortgage to finance the purchase of the property.  It does not seem to me that when the legal charge was executed there was any reason to believe that the financial situation of Universal Taxi and that of Lam and Fung would become precarious.  Although the obligation to repay the past, present and future liabilities of Universal Taxi was harsh on the defendant, the legal charge does not, in my view, shock the conscience of the court.

123.  It is clear that CGC acted for the bank as well as for the defendant as the mortgagor and the borrower Universal Taxi.  It would obviously have been better if the defendant had been separately advised but the fact that he was not independently advised by another firm of solicitors does not, in my view, render the legal charge an unconscionable bargain.

124.  As to issue (4), I find

(1)  that the bargain was not oppressive to the defendant in overall terms;

(2)  that the defendant was not suffering from a sufficient weakness; and

(3)  that the bank did not act unconscionably and behave in a morally reprehensible manner which affected its conscience.

125.  I give judgment to the plaintiff against the defendant in the sum of HK$71,174,892.74 secured by the legal charge with interest on the sum of HK$31,190,034.28 at the rate of 11% per annum from 4 October 2012 to date hereof and thereafter at judgment rate until payment. 

126.  I also make an order that the defendant do within 28 days of the service of the order deliver to the plaintiff vacant possession of the property.  

127.  The defendant’s counterclaim is dismissed.

128.  I also make an order nisi that the costs of this action and the costs of the counterclaim be paid by the defendant to the plaintiff on a full indemnity basis such costs to be taxed if not agreed.  The defendant’s own costs are to be taxed in accordance with Legal Aid Regulations.