MANULIFE (INTERNATIONAL) LTD v. OH CHAN SIU PING MARGARET

DCCJ 16/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 16 OF 2008

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JUDGMENT

1.  Manulife (the Plaintiff) entered into a settlement agreement in 2004 with Chan (the Defendant) and her son.  Pursuant to the agreement, they assigned their residence to Manulife while Manulife in turn granted a fixed-term licence to Chan to remain in occupation of it.  Manulife now seeks, among other things, possession of the property on the basis that the licence term has expired.  Chan filed her defence.  Taking the view that what she pleaded amounts to no defence, Manulife applies for summary judgment.  Chan, now legally represented, opposes the application.

BACKGROUND

2.  Chan and her late husband had a daughter and a son.  The daughter passed away in 2000.  In 2001, the family acquired the property in question.  They have since been residing there.  Chan, her husband and their son were the registered owners of the property.

3.  Chan’s husband had been an insurance agent of Manulife since the 1980’s.  In September 2004, Manulife agreed to lend and the owners of the property agreed to borrow a loan of approximately HK$4.9 million subject to the terms and conditions contained in a facility letter dated 10 September 2004.  One of the conditions was that the borrowers would execute a legal charge of the property in favour of Manulife as security for the loan.

4.  The owners signed the facility letter and various documents dated 14 September 2004 incidental to the loan arrangement.  On 16 September 2004, the owners of the property executed the legal charge.  The charge was duly registered with the Land Registry.  A sum in excess of HK$4.8 million was advanced to the owners.  The loan was used to pay off the two existing mortgages over the property and the miscellaneous indebtedness of the members of the family.

5.  The repayment of the loan by monthly instalment began in November 2004 and continued until the husband passed away on 16 May 2006.  The debt became immediately due and repayable upon default.  Interest also accrued.  In October 2006, Manulife through its solicitors wrote to Chan and the son and demanded the settlement of the debt in excess of HK$4.7 million.

6.  On 19 December 2006, Manulife, Chan and the son entered into a settlement deed.  By the deed, Chan and the son agreed to assign the property to Manulife and Manulife agreed to accept such assignment in full and final settlement of the debt (clauses 3 and 11).  Upon execution of the assignment, Chan would be granted a gratuitous licence to continue occupying the property until 30 June 2007 (clause 6).  By the end of the licence, Chan shall deliver up vacant possession of the property to Manulife (clause 7).  Chan and the son also executed the assignment in favour of Manulife accordingly.  The assignment was duly registered with the Lands Registry.

7.  The settlement deed was supplemented by a supplemental deed of settlement, also of the same date.  By the supplemental deed, Manulife agreed to pay on an ex gratia basis a compassionate allowance of HK$4,200 per month to Chan for 15 years from 1 July 2007 (clause 1).  But if Chan failed to deliver up vacant possession of the property by 30 June 2007 as agreed, Manulife would have no such payment obligation and its such agreement would be regard as void ab initio (clause 2).

8.  By letter dated 6 June 2007, Manulife through its solicitors reminded Chan of the forthcoming expiry of the licence on 30 June 2007.  By letter dated 21 June 2007, Manulife through its solicitors gratuitously extended the licence to 31 August 2007.  The new deadline for the delivery up of vacant possession was however made of the essence by the same letter.  Despite demands including letter from Manulife’s solicitors dated 12 December 2007, Chan has yet to deliver up vacant possession of the property to Manulife.

9.  The above background events are basically common ground and largely evidenced by contemporaneous documents.  Manulife commenced the present action for, among other things, possession of the property and mesne profit.

THE PRINCIPLES

10.  The question is whether the defence raises real issues in dispute which ought to be tried or there are some other reasons for which the case ought to proceed to trial: O.14, rr.3-4 of the Rules of the District Court.  The test is whether the defence is believable but the court shall not embark on a mini-trial on affidavits: see Hong Kong Civil Procedure 2008 (Vol.1) at 14/4/8-14/4/9.

THE DEFENCE

11.  In her handwritten Chinese defence, Chan claims that she has never heard her husband mentioned in his lifetime a loan of HK$4,700,000.  Yet, she asked that the property be sold to repay the debt with the balance of the sales proceeds accounted to her so that she could find another residence.  Not surprisingly, in view of the above documented factual background, Manulife saw not much of a valid defence and took out the present application.

12.  Chan now has legal assistance.  No amendment has yet been proposed to the Defence.  But Mr Cheuk for Chan suggested the defence as follows:

(1)  The legal charge in 2004 should be set aside as the same was obtained as a result of the undue influence of Chan’s husband.  If the legal charge falls away, the settlement and the incidental assignment must be set aside accordingly.

(2)  Further, the settlement in 2006 should be set aside due to misrepresentation or duress by or undue influence of the agent of Manulife.

THE LEGAL CHARGE

13.  Mr Cheuk argued that the legal charge in 2004 was obtained as a result of the undue influence of the husband on Chan.  Chan was able to read and write basic Chinese and to understand very little English.  She always depended on her husband.  In 2004, the husband repeatedly persuaded her to stand surety for him.  Chan did not form an independent and informed judgment when her husband asked her to execute the legal charge.  She had no independent advice.  The money advanced was not even passed to Chan.

14.  Alternatively, Mr Cheuk argued that undue influence of the husband is presumed.  He argued that Chan reposed trust and confidence in her husband.  The transaction was not to her advantage in that she was asked to stand as surety for her husband’s debt.  This called for an explanation.  Manulife was put on enquiry and should have taken reasonable steps to ensure that Chan understood the nature and effect of the transaction.  But Manulife did not advise Chan to obtain independent legal advice.

15.  Mr Cheuk referred to the often cited cases of Barclays Bank plc v O’Brien [1994] 1 AC 180 and Royal Bank of Scotland v Etridge (No 2) [2002] 2 AC 773.  Whether it was actual undue influence or undue influence as a result of the dominating party abusing the trust and confidence that the subservient party reposed in him, this is a question of fact and inference rather than a question of application of presumption: see Li Sau Ying v Bank of China (Hong Kong) Ltd (2004) 7 HKCFAR 579 at 593-596.  Does this mean whether the alleged undue influence existed become a triable issue?  I think not.

16.  My reason is this: Contrary to Mr Cheuk’s submission, the husband did not ask Chan to stand as surety of his debt.  At most, Chan was persuaded to agree with her husband so that both of them and the son would borrow from Manulife.  This was in fact what she stated in her affirmation too.  They charged the property in return for a loan from Manulife.  The loan was not only for discharge of the husband’s own debt but was also applied to discharge the previous mortgages under which the owners, including Chan and the son, were jointly liable.  According to the breakdown attached to the facility letter mentioned above, part of the loan even went to discharge the amounts owed by Chan and the son under their personal credit card respectively. Like her husband, Chan agreed with Manulife to accept primary liability as the borrower.  The loan money might not have passed to the hands of Chan.  But this is irrelevant as there is no dispute that the loan was applied to discharge the two previous mortgages and other liabilities of the borrowers.

17.  Miss Cheung relied on Bank of China (Hong Kong) Limited v Fung Chin Kan & Anor [2002] 5 HKCFAR 515 at paras.61-62.  Mr Cheuk, through those instructing him, filed supplemental submissions seeking to distinguish the present case from Fung Chin Kan (above).  First, he drew distinction in the nature and extent of the husbands’ influence on the wives in that case and the present case.  In my view, the distinction is irrelevant.  Secondly, he pointed out that in Fung Chin Kan, the interest of the husband and the wife were somehow identical because both mortgaged their home to secure the indebtedness of another company’s debt.  He submitted that that explained why Litton NPJ held that that case differed from the normal undue influence cases like Barclay’s Bank plc v O’Brien.  I see the distinction he drew.  Yet in my view, the circumstances of this case explained above are still somewhat removed from the facts of cases such as Barclays Bank v O’Brien (above), as Litton NPJ put it.

18.  As to whether Chan knew the nature and effect of the legal charge, I notice that one of the documents for arranging the legal charge that the owners then signed was a letter from Messrs Baker & McKenize, then solicitors for Manulife.  By the letter, the owners acknowledged that the owners understood the documents and have been advised by the firm to seek independent legal advice before signing the documents.  For the purpose of this application, I accept that this letter is self-serving and should not be considered as conclusive proof of its content.

19.  Though according to Chan, Manulife’s then solicitors gave some brief explanation of the loan documents and she did not understand the technical terms, she acknowledged that since the legal charge in 2004, the loan was repaid by instalments until her husband’s death in 2006.  Even upon default and demand by Manulife, Chan never suggested that she did not realise she had executed a legal charge of the property.  She explained that she encountered financial problems in repaying the loan.  In the absence of any alleged peculiar features of the legal charge, what more about the nature and effect of the legal charge did Chan had to know?  After all, she never claims any problem at all in understanding her obligations under the previous mortgages over the property, which the legal charge discharged.  In the absence of vitiating factors known to the law, the legal charge does not fall away simply because Chan might not be aware of its contents: see Ming Shiu Chung & Ors v Ming Shiu Sum & Ors (2006) 9 HKCFAR 334 at paras.83-87.

SETTLEMENT

20.  Regarding the settlement in 2006, it is alleged that a Mr Lee of Manulife kept calling Chan and exerting constant pressure on her to accept one of various proposals.  In the course of that, Lee misrepresented that her family would not be able to obtain from Manulife her late husband’s employment benefits, if she did not agree to their terms of settlement.  When the settlement deed was signed, Manulife’s solicitors explained the document only very briefly to her.  They explained the document to the son only at a later date.  They did not take any independent legal advice.  Manulife therefore took unfair advantage of them in obtaining the property at allegedly undervalue.  Chan also complained that notwithstanding the settlement, Manulife has yet to pay part of the employment benefits to Chan’s family.  She also never received the monthly payment of HK$4,200.

21.  By affirmation, Mr Li, whom Chan referred to as Mr Lee, explained how he negotiated with her during the 2 to 3 months prior to the settlement.  This included meetings where social worker and hand-sign interpreter also attended for the benefit of the son.  But again, for the purpose of this application, I would assume what Chan stated in her affirmation (at paragraphs 7 and 8) were true.

Misrepresentation

22.  Mr Cheuk for Chan argued that there is triable issue of whether Li of Manulife misrepresented to Chan that her family’s entitlement to her husband’s employment benefits would depend on her agreeing to Manulife’s terms of settlement.  Chan was referring to a group life insurance policy underwritten by Manulife (as employer) for the benefit of the estate of Chan’s husband (as employee) upon his death.  According to the beneficiary designation form signed by the husband in 1985, the husband designated Chan, the daughter and the son as the beneficiaries.

23.  Upon the husband’s death, a sum in excess of HK$ million was payable under the policy.  There is no real dispute about this.  Mr Cheuk referred to clause 10 of the settlement deed that stipulated the distribution of this sum only upon Chan’s execution of the settlement deed and her delivery of vacant possession of the property upon the expiry of the licence.  This, Mr Cheuk submitted, corroborates the alleged misrepresentation.

24.  The above terms of the settlement deed may corroborate that such representation took place.  As mentioned above, I would even assume that such representation did take place.  But it is still the burden of Chan to establish where the falsity of the representation lies.  Was it false that Chan’s family would not be able to obtain the benefits, if she did not reach a settlement with Manulife?  In my view, this was in fact the perfectly true situation at the time.

25.  Pursuant to the legal charge, Manulife had the right, without notice and at any time, to set off and apply any credit balance on any account of the husband with Manulife and any other indebtedness owing by Manulife to the husband, against any monies, obligations and liabilities of the husband to Manulife on any other account or in any other respect (clause 11.1).  The husband also covenanted to permit Manulife at its option to retain towards the discharge of the secured indebtedness the amount of all bonus funds, emoluments or all other monies which might from time to time become payable to the husband in connection with or by reason of his employment with Manulife (clause 11.2).  Therefore, by representing to Chan that her husband’s group life insurance benefits would be withheld in the absence of a settlement of the debt, Manulife was stating precisely what clause 11 of the legal charge afforded them to do.  There was no falsity at all in such representation, even if made as Chan alleged.

26.  In court, Mr Cheuk attempted various alternative arguments.  First, he suggested that clause 11 of the legal charge is not wide enough to give Manulife the right to retain the sum, which was in connection with his employment, towards the discharge of the indebtedness under the legal charge.  This must be wrong, in view of the wordings of clause 11.2.  The wordings of the beneficiary designation form mentioned above also explain the context in which the benefits came to exist.  Even Chan described that as employment benefits in her affirmation.

27.  Secondly, Mr Cheuk submitted that even if the clause is wide enough, the court should somehow refrain from such construction, as this would cause harsh result.  This argument is completely against the golden rules of construction of contractual documents and I disagree with the suggestion in any event.

28.  Thirdly, Mr Cheuk submitted that I should not rule out the possibility that the representation was false insofar as it was made to represent the terms of the group life insurance policy.  But the fact is Chan never suggested that in her affirmation at all.  Such suggestion was obviously made without true regard to the burden of Chan in these proceedings and I must reject it.

29.  Lastly, according to the supplemental deed (clauses 1 and 2), the HK$4,200 monthly payment would have been payable on 1 July 2007 subject to the condition precedent that Chan indeed delivered up vacant possession of the property by then.  In the circumstances, there is no surprise why Chan never received such monthly payment.  No misrepresentation could be inferred from the non-payment of the HK$4,200 monthly amount.

Duress

30.  Mr Cheuk for Chan submitted that Manulife’s threat to withhold the husband’s employment benefits from Chan amounted to duress.  In my view, such threat by Manulife, even if true, was in line with its existing contractual rights under the legal charge, whether to commence legal proceedings to enforce the charge or to withhold the husband’s employment benefits.  There was no suggestion that the threat was coupled with any demand which went, substantially or at all, beyond what Manulife was afforded by the legal charge: see Chitty on Contracts (29^th ed) Vol.1 at 7-036; 7-041.  Threat of enforcing the rights under the legal charge, even if made as Chan alleged, could only be Manulife’s legitimate exercise of its contractual rights.

Undue influence

31.  Mr Cheuk for Chan again suggested undue influence.  But this time, he suggested that the persuasion or pressure from Li constituted undue influence on Chan when reaching the settlement.

32.  In his written submission, Mr Cheuk referred to the instance where a father charged a property to the bank to guarantee his son’s debt; but the bank neither explained nor suggested the father to obtain independent legal advice.  But how could this instance be an example of the alleged undue influence by effectively a creditor (Manulife) on a debtor (Chan)?

33.  In court, Mr Cheuk submitted that the basis for undue influence by Manulife on Chan was that throughout the negotiation for settlement, Chan reposed trust and confidence in Li of Manulife.  But to begin with, I see no trace in Chan’s affirmation that she ever reposed any trust and confidence in Li during the negotiation or at all.  It is also difficult to reconcile Chan’s interpretation of Li’s representation as allegedly threat and duress on the one hand and her alleged reposing of trust and confidence in him on the other hand.  In my view, this argument is an artificial one for no purpose other than to exhaust all perceivable defences.  The correct footing for suggesting undue influence simply did not exist here.

Unfair advantage

34.  It is alleged that the current market value of the property is HK$5.5-6 million and thus exceeding the indebtedness.  Chan complains that Manulife took unfair advantage of her by causing her assign the property at an effectively undervalue.

35.  Apart from asserting that the alleged current market value was the information recently provided by the estate agent, there is no valuation evidence at all.  More importantly, the relevant time is not now but when the settlement was reached in December 2006.  Manulife produced a valuation report stating that the property was worth HK$3.35 million as at 19 December 2006, i.e., the date of the settlement deed.  In view of the indebtedness in excess of HK$4.6 million owed under the legal charge to Manulife, the property was effectively a negative equity at the relevant time.  Mr Cheuk for Chan suggested that the market value of the property at the relevant time might not be as low as what Manulife suggested.  He suggested that this could somehow be inferred from the current market value alleged by Chan.  I do not see the logic behind or the basis for that.

36.  Even assuming that the current market value of the property is higher than that in December 2006, I see no suggestion whatsoever that Manulife either knew or expected at the time of the settlement that the property value would rise to such a level that the settlement and the incidental assignment of the property was tantamount to an unfair advantage taken of Chan at the relevant time.  Chan has simply not put forward any credible case of unfair advantage on the basis of the value of the property.

37.  I also do not see any other hallmark of a truly unconscionable bargain (see Hart v O’Connor [1985] AC 1000) so that the settlement might be liable to be impugned.

CONCLUSION

38.  There has been no allegation whatsoever about the legal charge since 2004. This remained to be the case even after Manulife sent letters of demand and reminders to Chan upon her default in the repayment.  To satisfy the indebtedness, Manulife could have enforced the legal charge by withholding the employment benefits of Chan’s husband and applying for possession and probably sale of the property.  Manulife chose to enter into the settlement with Chan instead.  The result was that the property, already subject to charge to Manulife, was formally assigned to Manulife.  But Chan and her family could remain at the property for another half a year.  The husband’s employment benefits would be distributed and were in fact partly distributed notwithstanding the conditions precedent set in the settlement deed.  Manulife also offered a temporary job to Chan.  When the licence expired, Manulife also unilaterally extended the term.

39.  Against the undisputed facts above, it is rather unfortunate for Chan to make such allegations that Manulife used various improper means to take unfair advantage of her first in 2004 and again in 2006.  I can conclude at this stage that there is no credible defence or issue to be tried with a view to setting aside either the 2004 legal charge or the 2006 settlement.

RELIEF

40.  Order for possession should be granted.  Having heard counsel in advance, I shall give 6 months for the compliance with the order.

41.  Manulife claims mesne profit for Chan’s occupation of the property after the expiry of the extended term of the licence on 31 August 2007.  In the absence of evidence for quantification at this stage, Miss Cheung asked for an order for mesne profit since 1 September 2007 to be assessed.  I agree.

42.  The settlement deed provided the basis for Manulife to claim costs incurred in connection with or arising out of any action taken to enforce the deed upon the default of Chan (clause 12).  I see no reason why costs should not be awarded on this contractual basis.

ORDER

43.  I give judgment in favour of Manulife as follows:

(1)  Chan shall deliver up vacant possession of the property to Manulife within 6 months from the date of service of this order.

(2)  Chan shall pay to Manulife:

(a)  mesne profit from 1 September 2007 up to the delivery up of vacant possession of the property to be assessed;

(b) rates at the rate of HK$503.00 per month or at the rate as may be determined by the authority from time to time from 1 April 2008 up to the delivery up of vacant possession of the property;

(c)  government rent at the rate of HK$302.00 per month or at the rate as may be determined by the authority from time to time from 1 January 2008 up to the delivery up of vacant possession of the property; and

(d) management fee at the rate of HK$1,357.00 per month or as may be payable from time to time from 1 October 2007 up to the delivery up of vacant possession of the property.

(3)  Chan shall pay Manulife the costs of this action.  Costs shall be taxed (on indemnity basis), if not agreed.  For clarity, I certify the engagement of counsel.  This costs order is nisi and shall become absolute in the absence of any appointment within 14 days to argue costs.

Representation: