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HCMP 2412/2016
[2026] HKCFI 1664
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
MISCELLANEOUS PROCEEDINGS NO 2412 OF 2016
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IN THE MATTER of the property known as ALL THAT piece or parcel of ground registered in the Land Registry as Lot No. 1876 in D.D. 100 TOGETHER with the exclusive right and privilege to hold use occupy and enjoy it |
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and |
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IN THE MATTER of the property known as ALL THAT piece or parcel of ground registered in the Land Registry as Lot No. 1906 in D.D. 100 TOGETHER with the exclusive right and privilege to hold use occupy and enjoy it |
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and |
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IN THE MATTER of the property known as ALL THOSE 46 equal undivided 2490th parts or shares of and in ALL THOSE pieces or parcels of ground registered in the Land Registry as SHAU KEI WAN INLAND LOT NO.785, SHAU KEI WAN INLAND LOT NO.612 and SHAU KEI WAN INLAND LOT NO.654 (“the Land”) And of and in the messuages erections and buildings thereon now known as “HOI SHUN BUILDING (海順大廈)”, Nos. 142 & 144 Sai Wan Ho Street, Hong Kong (“the Building”) TOGETHER with the sole and exclusive right and privilege to hold use occupy and enjoy ALL THAT FLAT A on 9th FLOOR of the Building (Flat A, 9th Floor, Hoi Shun Building, Nos.142 & 144 Sai Wan Ho Street, Hong Kong) |
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and |
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IN THE MATTER of a Deed of Three-party Mortgage dated 26th November 2014 and registered in the Land Registry by Memorial No.14122401880025 |
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and |
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IN THE MATTER of a Deed of Three-party Mortgage dated 26th November 2014 and registered in the Land Registry by Memorial No.14122401880068 |
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and |
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IN THE MATTER of a Deed of Three-party Second Mortgage dated 26th November 2014 and registered in the Land Registry by Memorial No.14122401880044 |
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and |
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IN THE MATTER of a Deed of Guarantee dated 26th November 2014 by the 2nd Defendant as Guarantor in favour of MAN SANG CREDIT LIMITED, the Plaintiff |
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and |
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IN THE MATTER of Order 83A and Order 88 of the Rules of the High Court |
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BETWEEN
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MAN SANG CREDIT LIMITED |
Plaintiff |
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IP KWOK KIN |
1st Defendant |
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SOONG LONG YIN ZOIZE |
2nd Defendant |
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NG MEI LAN ELEANOR |
3rd Defendant |
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SOONG KWOK YIN JOHNNY |
4th Defendant |
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| Before: |
Hon Winnie Tsui J in Court |
| Dates of Trial: |
15-19, 22-26, 29-30 January and 14 March 2024 |
| Date of Judgment: |
31 March 2026 |
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JUDGMENT
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Table of Contents
INTRODUCTION
1. This is the trial of the action brought by the plaintiff, a licensed money lender, to enforce the security given by the 2nd, 3rd and 4th defendants in respect of a loan of $18,000,000 advanced to the 1st defendant on 26 November and 8 December 2014 (“the Subject Loan”). The Subject Loan was made pursuant to a loan agreement signed on 5 and 8 December 2014 but backdated to 26 November 2014. For that reason, I shall call it “the Backdated Loan Agreement” in this judgment.
2. Judgment was entered against the 1st defendant in November 2017. This trial therefore does not concern him as a party. However, the 1st defendant features prominently in the other defendants’ cases. He was not called to testify in this action. I shall call the 1st defendant by his last name “Ip” below. When I refer to the other three defendants together in this judgment, I shall call them “the defendants”.
3. The plaintiff seeks to enforce the security given in the following documents, which are all dated 26 November 2014 (“the Security Documents”):
(1) As against the 2nd defendant:
(i) a personal guarantee; and
(ii) a three-party mortgage deed in respect of Lot 1906 in Demarcation District 100 solely owned by him.
(2) As against the 3rd defendant, a three-party second mortgage deed in respect of a flat in Hoi Shun Building in Sai Wan Ho, Hong Kong co-owned by Ip and the 3rd defendant (“the Sai Wan Ho Flat”).
(3) As against the 4th defendant, a three-party mortgage deed in respect of Lot 1876 in Demarcation District 100 solely owned by him.
4. The properties mortgaged by the 2nd and 4th defendants are “ding” houses, which are subject to non-alienation restriction in their respective land grants. I shall call them “the 2nd defendant’s ding house” and “the 4th defendant’s ding house” below. As we shall see, the restriction forms the basis of one of the defences of the 2nd defendant.
5. In the judgment, I shall use capitalised terms to refer to the individual Security Documents, eg, “the 2nd defendant’s Guarantee” or “the Mortgage of the 3rd defendant”. These capitalised terms serve to distinguish the Security Documents signed on 26 November 2014 from similar security documents signed on an earlier occasion.
Dramatis personae
6. The plaintiff first obtained its money lender licence in August 2012. Ms Cheng Mei Sze Annie (“Annie”) is its executive director. Her father, Mr Cheng Tai Po (“Cheng”), is a shareholder. Mr Chan Kwok Man (“Chan”), who passed away in 2015, was a former shareholder. Mr Lee Kwok Kin (“Lee”) was employed by the plaintiff from 2014 to early 2016 as manager. On the plaintiff’s case, Annie and Lee were closely involved in the Subject Loan whereas Cheng and Chan were involved in the due diligence process.
7. At the material time, Ip, through his majority shareholding in a BVI company called Charm Best Investments Inc, owned 55% of the shares in China Land Holdings International Ltd (“China Land Holdings”), a Hong Kong company. China Land Holdings in turn owned a majority shareholding in China Land Shanghai Group Ltd (“China Land Shanghai”), a Mainland Chinese company. China Land Holdings also owned shares in a number of Mainland Chinese companies. The identity of these companies is not material in this trial. I shall broadly refer to them as “Ip’s company” or “Ip’s companies”. The evidence suggests that Ip, through his companies, invested in property projects in the Mainland, including shopping malls in a few Chinese cities. According to the plaintiff’s case, Ip required the Subject Loan for an ongoing development project of a shopping mall in Shenzhen.
8. The 2nd defendant was employed by China Land Shanghai. At the time of the Subject Loan, his title was Financial Controller (財務總監).
9. The 4th defendant is the 2nd defendant’s father. At the time of the Subject Loan, the 4th defendant was not employed by China Land Shanghai or any of Ip’s companies.
10. The 3rd defendant is Ip’s wife.
The defences
11. It is not disputed that the defendants signed the Security Documents. The terms are therefore binding on them unless they can show that their apparent consent is vitiated by some factors recognised in law such that the Security Documents should be set aside or held to be unenforceable: Ming Shiu Chung v Ming Shiu Sum (2006) 9 HKCFAR 334, paras 84 to 87.
12. The 2nd defendant puts forward the following defences:
(1) undue influence by Ip of which the plaintiff had notice;
(2) misrepresentation by Ip of which the plaintiff had notice;
(3) material non-disclosure by the plaintiff;
(4) his Guarantee does not cover the Backdated Loan Agreement (i) as a matter of construction, (ii) because the former predates the latter, and/or (iii) because there was a material change of obligations;
(5) his Mortgage is in breach of the non-alienation restriction in the land grant of his ding house;
(6) contravention of sections 20 and 27 of the Money Lenders Ordinance, Cap 163, by the plaintiff; and
(7) unconscionable bargain.
13. The 3rd defendant raises two defences:
(1) undue influence by Ip of which the plaintiff had notice; and
(2) her Guarantee does not cover the Backdated Loan Agreement.
14. The 4th defendant raises the following defences:
(1) undue influence by Ip (through the 2nd defendant) of which the plaintiff had notice;
(2) misrepresentation by Ip (through the 2nd defendant) of which the plaintiff had notice; and
(3) unconscionable bargain.
15. Each of the defendants counterclaims that his or her Security Document(s) be set aside.
The evidence
16. The material events took place from June to December 2014.
17. Before the Subject Loan, there was a prior loan in the sum of RMB10,000,000 advanced by Annie to Ip in June 2014 (“the June Loan”), the repayment of which was extended twice and the loan was repaid on 25 November 2014. The June Loan was supported by security given by various parties at different times.
18. While the June Loan is not the subject matter of the action and the counterclaims, there is no dispute that the events beginning from June 2014 in relation to it are relevant to the Subject Loan as the security given by the defendants in support of the Subject Loan was previously given in support of the June Loan. Therefore, when assessing the credibility of the rival factual narratives of the plaintiff on the one hand and the defendants on the other, the series of events which began from the June Loan up to the making of the Subject Loan in November and December should be looked at as a whole. The primary factual disputes are (1) the circumstances in which the defendants came to sign the previous security documents and the Security Documents, and (2) what steps were taken by the plaintiff and its solicitors in the signing processes.
19. The material events include four meetings during which the documentation was signed in respect of the June Loan and its first extension and, later, the Subject Loan. The participants of the meetings, what was said (and not said) at the meetings are all hotly disputed. The dates of the meetings are:
(1) 21 June 2014;
(2) 23 July 2014;
(3) 26 November 2014; and
(4) 5 December 2014.
20. I shall call them “the June meeting”, “the July meeting”, “the November meeting” and “the December meeting” below. I should state at the outset that the 2nd defendant’s case is that there were in fact two signing meetings on 26 November 2014.
21. It is also convenient to say at the outset that there were other parties to the June Loan and the Subject Loan. Security, in various forms including guarantees, mortgages and share pledges by Ip’s companies, were given in addition to the security given by the defendants. These other parties and other security documents do not concern us. Unless referred to in the contemporaneous documents, I shall not make references to them save for two which have been relied on by the parties to support their factual case. They are “the rental pledge” and “the share charge”, which I shall introduce in paras 36(3) and 80 below.
22. The legal principles governing the defences are well-established. The outcome of this case therefore turns primarily on the credibility of the witnesses. In this case, there are contemporaneous documents in the form of emails and WeChat messages which are helpful tools to test the parties’ cases. The cases are also to be assessed by reference to their inherent plausibility and their internal consistency.
23. At the trial, the plaintiff called four witnesses – Annie, Lee, Mr Yuen Ka Lok Ernest and Mr Wong Hoo Yee. Yuen is a solicitor and a partner of Messrs Yuen & Partners. He commenced practice in 1992. He prepared the documentation for the June Loan and its extensions and the Subject Loan for the plaintiff. Wong is a solicitor and was then the sole proprietor of Messrs Wongs. He commenced practice in 1998. He prepared the mortgage documents of the June Loan.
24. Each of the defendants testified without calling other witnesses.
25. The plaintiff was represented by Mr Johnny Ma, SC leading Mr Avery Chan. The 2nd defendant was represented by Mr Wong Cho Lik and Mr Jonathan Tai. The 3rd defendant acted in person. The 4th defendant was represented by Mr Jonathan Ah-Weng and Ms Renée Cheng.
THE PLAINTIFF’S CASE
26. The plaintiff’s factual case is fairly straightforward.
27. From June to December 2014, Ip was in need of short term funds for his shopping mall project in Shenzhen. The June Loan, its extensions and the Subject Loan were granted to him for that purpose. Personal guarantees was given by the 2nd defendant and mortgages were put up by the defendants over their properties to secure the loans.
28. The plaintiff had no notice, whether actual or constructive, as to the alleged undue influence exerted by Ip over the defendants, and/or the alleged misrepresentation made by Ip to them.
29. In any event, during the execution of the Security Documents, the defendants were explained their contents and effect by solicitors. They understood what they were signing.
30. As the defendants now claim that they had no knowledge of the terms of the Security Documents at the time of signing and they deny the plaintiff’s account of what happened during the signing processes, it is necessary to recite the plaintiff’s case in detail as to what took place during the signing meetings, in particular, the July meeting and the November meeting.
31. Furthermore, as the 2nd defendant now says that, notwithstanding his position of Financial Controller with China Land Shanghai, he was not involved in the negotiation of the June Loan, its extensions and the Subject Loan and had no knowledge of the details of the loan arrangements, it is necessary to reproduce some of the contemporaneous correspondence relied on by the plaintiff to rebut that allegation.
The June Loan
32. Since obtaining its licence in August 2012, the plaintiff had some trial run of the money lending business of relatively small amounts. By mid-2014, the plaintiff was not ready to take up lending of substantial amount as there were still matters to be fine-tuned. That was the reason why the June Loan was made by Annie to Ip, instead of by the plaintiff.
33. Some time in mid-2014, Chan approached Cheng and Annie and told them that he was acquainted with Ip and the 2nd defendant, who were involved in huge property investment projects but had temporary cash flow problem and would like to seek a loan of RMB10,000,000, and Ip would be the borrower and the 2nd defendant, his business associate, would be the guarantor.
34. A PowerPoint presentation was conducted by Ip and the 2nd defendant introducing Ip’s business to Cheng, Annie and Lee. As part of their due diligence, Cheng and Chan had made more than one site visit to Ip’s project in Shenzhen. Cheng, Chan, Annie and Lee met up with Ip and the 2nd defendant several times and evaluated their business. Annie and Lee once asked the 2nd defendant why he was willing to become a guarantor for Ip. The 2nd defendant indicated that he had faith in the companies managed by Ip, and that they had plans of going for an IPO and he would perhaps obtain some shares after the IPO.
35. It was then agreed that Annie would personally advance a loan of RMB10,000,000 to Ip in the Mainland. Annie retained Ernest Yuen to act for her in the transaction and to prepare the documentation. Ernest Yuen prepared first drafts of a loan agreement and guarantees of Ip and the 2nd defendant. Ernest Yuen emailed the first drafts to Annie and Lee on 18 June. By email, Ernest Yuen also asked Annie to “clarify the Hong Kong company name with [the 2nd defendant]”.
36. On the following two days, the 2nd defendant followed up through WeChat and emails on various matters. For instance:
(1) On WeChat, he asked Annie for details of the lender’s bank account.
“2nd defendant: 我需要账号跟名字
2nd defendant: 国内放款人
Annie: 公司名称:深圳市恒富华大投资管理有限公司，账号 [redacted]，开户行:中行华南城支行”
(2) On WeChat, he asked for Annie’s email address in order to send a business registration certificate to her.
“2nd defendant: pls.provide your email address
Annie: [email address redacted]
2nd defendant: br is send to your email
Annie: Got it”
(3) On WeChat, he sent a draft of a document entitled “租金收益權質押合同” to Annie. According to its terms, a loan of RMB10,000,000 to be advanced to China Land Holdings (Party A) by a Shenzhen company (Party B) would be secured by monthly rental payable by a company called “永遠二十一商業 (上海) 有限公司” (Party D) (which was a tenant of one of Ip’s shopping malls) to a company of Ip (Party C). That was followed by Annie’s reply that Party B should be changed to her name as she would be the lender of the loan. I shall call this document “the rental pledge”.
37. In the evening of 20 June, Ernest Yuen sent to the 2nd defendant a revised draft loan agreement and another document under the following email cover:
“Dear Mr. Soong,
Subject to our client’s final approval, we enclose the revised draft Loan Agreement and Deed of Share Charge for your consideration.
All our client’s rights are hereby reserved.”
38. What is significant about this email is that in the attached draft loan agreement, on page 1, the 2nd defendant was expressly stated to be “the 2nd Guarantor”, and para 2 of the Recital stated that he and Ip would execute a personal guarantee to guarantee the loan to Ip.
The June meeting
39. On the following day, 21 June, the June meeting took place at the office of Yuen & Partners.
40. Present at the meeting were Annie, Lee, Ip, the 2nd defendant, Evean Tang (who would sign the deed of share charge referred to in the above email) and Ernest Yuen. Documents relating to the June Loan were signed. Among them are:
(1) A loan agreement for RMB10,000,000 was signed by Ip as borrower and “the 1st Guarantor”, the 2nd defendant as “the 2nd Guarantor”, China Land Shanghai as “the 3rd Guarantor”, and Annie as lender.
(2) A personal guarantee was signed by Ip in favour of Annie.
(3) A personal guarantee was signed by the 2nd defendant in favour of Annie.
(4) A deed of share charged signed by Ip and Evean Tang.
41. Before the signing, Annie and Lee had had a chat with Ip and the 2nd defendant. Lee made some inquiry about the 2nd defendant’s position and was told by Ip and the 2nd defendant himself that he occupied a very senior position in Ip’s companies. Further, the two of them told Annie and Lee that the June Loan would be used by China Land Shanghai for a project in a Shenzhen shopping mall, and that the shares of Ip’s company would soon be offered to the public by IPO.
42. According to the evidence of Annie and Lee, before the signing, they had explained the gist of the documents signed by the 2nd defendant.
43. According to Ernest Yuen’s evidence, before the signing, he had explained the purpose of the meeting. He had explained the documents to the parties. In particular, he had explained the effect of each document and the more salient points of each document, such as the amount borrowed, the repayment schedule, and the effect of the personal guarantees. He recalled that at no point did anyone voice any complaint or show unwillingness to sign the documents. He had also asked Ip, the 2nd defendant and Evean Tang to look at the documents to ensure that there were no obvious typos or mistakes. He had asked them whether they understood the contents of the documents. None of them indicated to him that they were unwilling to sign or did not understand the documents.
44. While the documents were executed, there was some chatting. It was during such time that Ernest Yuen learnt a bit about China Land Holdings, especially the fact that Ip had big plans such as listing the company on the Hong Kong Stock Exchange. Ernest Yuen also learnt that the 2nd defendant was involved in the day-to-day operation of China Land Holdings.
45. Overall, Ernest Yuen’s impression was that the meeting was conducted in an amicable atmosphere throughout with no sign of hesitancy, reluctance or confusion seen in any of the parties present.
46. Ernest Yuen also asked them to sign standard disclaimer forms used by his firm confirming that they were free to seek independent legal advice, they understood the nature and consequence of the documents, and Ernest Yuen and his firm were not representing them in this matter. I reproduce below the one signed by the 2nd defendant:
“ 確 認 書
致 袁家樂律師行
有關 ：葉國堅、鄭美詩、宋朗言與新港商業 (上海) 有限公司於2014年6月21日簽訂之貸款合同及一切有關文件 (“上述文件”)
___________________________________________________
本人，宋朗言 (SOONG LONG YIN ZOIZE)，謹此聲明及確認 貴行曾建議本人就上述文件徵詢獨立之法律意見。雖則如此，本人無意徵詢獨立之法律意見。本人亦證實本人完全明白上述文件之性質及後果。袁家樂律師只是見證本人簽署上述文件，而袁家樂律師行並沒有給予任何法律意見。本人同意豁除一切袁家樂律師行之所有法律責任。此外，本人乃自願訂立上述文件而非受任何方面或任何人之影響或引導。
日期：2014年6月21日”
47. The whole meeting took place in the same room. While Ernest Yuen could not recall how long it lasted, he believed that it took more than one hour.
48. After the June meeting, in June and July, Ernest Yuen, the 2nd defendant and Annie exchanged emails and WeChat messages regarding the payment of legal costs for preparing the June Loan documents. Ip had agreed to bear the costs. After a few chasers, they were settled.
49. In the process, the following messages were sent by the 2nd defendant:
(1) By email, on 27 June:
“The bill will be settled next week, delay is only due to fund transfer from mainland to Hong Kong.”
(2) On WeChat, on 16 July:
“Annie: Hello 宋朗言！袁律師問我佢律師費點算？
2nd defendant: 我本周末回香港付，因没港币
thank u
Annie: Ok! 無問題。”
The July meeting
50. The due date of the June Loan was 23 July. A few days before that, Ip asked Chan, Cheng and Annie for a short extension. They told Ip that they would only be willing to do so if there could be further securities in the form of real properties. It was eventually agreed that the Sai Wan Ho Flat co-owned by Ip and the 3rd defendant, the 2nd defendant’s ding house and the 4th defendant’s ding house would be put up as further security for a two-month extension.
51. As to the offer of such further security, while Annie did not find it strange that the 2nd and 3rd defendants would offer them, she found it strange that the 4th defendant would do so. She said in her witness statement:
“It did not occur to me that there was anything untoward for Ip to offer his property as co-owned with his wife as security as he was indeed the borrower. It also did not seem odd to me for FC Soong [ie the 2nd defendant] to offer his property as security as he was a senior member of Ip’s company and was guarantor for repayment of the RMB 10 M Loan. However, I found it strange that FC Soong ‘s father was also willing to offer his property as security. I did ask FC Soong’s father why he was willing to do so, and he told us that he too had positive view on Ip’s company and that the company had potential for expansion.”
52. Annie instructed Ernest Yuen to liaise with Ip and the 2nd defendant to prepare for documents on the extension and the new security. Ernest Yuen proceeded to prepare the extension documents and asked Wong to prepare the mortgage documents. In his witness statement, he explained that it was because he was quite tied up at that time, he asked Wong, his acquaintance, to help out. In cross-examination, he gave a further reason that as he did not handle mortgages for money lenders in his practice, he sought help from Wong.
53. In the evening of 22 July, Ernest Yuen emailed a draft extension letter and a draft collateral deed to the 2nd defendant “for [his] comments”.
54. What is significant about this email is that both draft documents already had stated in them the specific lot numbers of the 2nd and 4th defendants’ ding houses. In her oral testimony, Annie said that the 2nd defendant had given her the addresses, which she then passed on to Ernest Yuen. And that was why the latter was able to insert the lot numbers into the drafts attached to the email of 22 July.
55. On the following day, 23 July, the July meeting took place at the office of Yuen & Partners.
56. Present at the meeting were Annie, Lee, Ip, the 2nd defendant, the 3rd defendant, the 4th defendant, Ernest Yuen and Wong. Ernest Yuen introduced Wong to the parties and explained that he would be responsible for the mortgage documents.
57. The following documents relating to the extension were first signed:
(1) the extension letter signed by Annie, Ip, the 2nd defendant and China Land Shanghai; and
(2) the collateral deed signed by the same parties.
58. According to Ernest Yuen’s evidence, before the signing, he had explained the documents to the parties. He recalled that at no point did anyone voice any complaint or show unwillingness to sign the documents.
59. Ernest Yuen had arranged Wong to sit in the small room adjacent to the conference room where everybody was. After the signing of the extension documents, the defendants were led one by one to meet with Wong to sign their respective mortgage documents.
60. According to Wong’s evidence, in these one-to-one meetings, he explained to the defendants the mortgage to be signed. He ascertained whether they understood the effect of the mortgage and asked whether they needed time to digest the documents. He said that they were free to consult their own lawyer before executing the documents. He also said that if they were unclear about the documents, they should not sign on that day and he would inform the lender. Each of them told Wong that they understood the effect and implication of the mortgage, and that they completely understood what was going on and did not need independent legal advice.
61. In the process, Wong in particular explained to the defendants that if the borrower did not repay the loan, then Annie would have a claim against their properties, including obtaining possession. There was no sign that the defendants did not understand the mortgage documents. In fact, they were all clear and well aware of their nature and effect.
62. Wong then witnessed the execution by each of the defendants of their respective mortgage documents. Wong also asked the defendants to sign confirmations in Chinese indicating that they did not need independent legal advice. The confirmations were prepared and provided to Wong by Ernest Yuen’s staff. The contents of the confirmations are identical to the confirmation reproduced in para 46 above, save for the title, the date, and the name of the law firm.
63. Wong’s impression was that the overall atmosphere of the meeting was relaxed. He had stayed for around 35 to 40 minutes.
64. After the July meeting, the 2nd defendant liaised with Annie on the payment of interest of the June Loan. For instance:
(1) On 24 July, by email, Annie told the 2nd defendant that the amount due on that day would be $500,000 and RMB70,105.50 would be due latest by 28 July.
(2) On 24 July, on WeChat, he sent to Annie a copy of a bank deposit slip for the sum of $440,000 into her bank account and wrote:
“another HKD60000 will be transferred later today”
(3) On 29 July, on WeChat, the 2nd defendant confirmed with Annie that the remaining RMB70,105.50 had been transferred.
65. As extended, the due date of the June Loan was 23 September. However, on that day, Ip sought another extension. On 24 September, Ip and Annie attended the office of Yuen & Partners to execute documents to further extend the repayment date to 23 October for RMB5,000,000 and 23 November for the remaining RMB5,000,000.
66. Same as before, the 2nd defendant also liaised with Annie for the repayment of the principal and interest. For instance:
(1) On 23 October, on WeChat, the 2nd defendant agreed with Annie that a sum of RMB4,500,000 would be repaid on 24 October, with the remaining RMB700,000 (comprising the remaining principal of RMB500,000 and interest of RMB200,000) to be repaid on the following Monday or Tuesday. See the following exchange:
“Annie: Hello 宋朗言，想請問是不是明天會入賬520萬？
麻煩入賬後請whatsapp收據:)
2nd defendant: 好，明白
Annie: Thank you thank you
2nd defendant: 500万没问题
20万我明早看一看
…
2nd defendant: Annie我算好了，明天中午可以先还450万到你们深圳公司，余下70万我们会在周一跟周二补足，你觉得可以吗？
…
Annie: Ok no problem！”
(2) On 24 October, on WeChat, the 2nd defendant informed Annie of the repayment of the sum of RMB4,500,000.
(3) On 21 November, the 2nd defendant informed Annie of the repayment of RMB720,000.
The November meeting
67. On 24 November, a dinner meeting was attended by Cheng, Chan, Annie, Lee, Ip and Ernest Yuen in Tsim Sha Tsui. Ip requested to borrow a further loan for a longer period as his project required further funds. Ip said that he could make repayment of the June Loan the following day and procure the same security given for the June Loan for a fresh loan of $18,000,000. It was then decided that if Ip could repay the June Loan, the plaintiff would advance the $18,000,000 loan he asked for. It was also decided that the new loan would be advanced by the plaintiff rather than Annie. This was because by that time the plaintiff’s loan procedure had been fine-tuned.
68. As Ip urgently required the money, it was agreed that the new loan would be entered into on or before 26 November. Ernest Yuen told Annie that he had no problem with the timeframe even though it was tight.
69. It is Ernest Yuen’s evidence that as the task was urgent, he used his firm’s standard loan agreement for the transaction. He forgot that the plaintiff was a money lender and the formalities under the Money Lenders Ordinance had to be complied with. Like last time, he asked Wong to prepare the mortgage documents. But Wong told him that he was out of town and he would ask his assistant solicitor, Mr Tse Yin Fung, to take care of the matter.
70. On 25 November, Ip repaid the June Loan in full. On the same day, a new WeChat group was created comprising Annie, Chan, Ip and the 2nd defendant. In late afternoon, the 2nd defendant informed the group that the documents would be ready for signing at 4 pm at Ernest Yuen’s office. He wrote:
“你好，袁律师说明天四点钟可以到他的事务所签字”
71. On the following day, 26 November, the November meeting took place at the office of Yuen & Partners in the afternoon.
72. The plaintiff highlights that before the meeting, in the WeChat group, at 1:38 pm, the 2nd defendant gave Annie a bank account number of China Land Holdings as the receiving account (“以下香港账号为收款账户”). Immediately, at 1:46 pm, Annie forwarded the same to Ernest Yuen, to which the latter replied “Noted”.
73. Present at the November meeting were initially Annie, Lee, Ip, the 2nd defendant, the 3rd defendant, the 4th defendant and Ernest Yuen.
74. Ernest Yuen started to explain the terms of the new loan agreement. It was during his explanation that Tse Yin Fung arrived. Documents relating to the Subject Loan were signed. Among them are:
(1) A loan agreement for $18,000,000 was signed by Ip as borrower, the 2nd defendant as “the 1st Guarantor”, China Land Shanghai as “the 2nd Guarantor”, another Mainland company as “the 3rd Guarantor”, and the plaintiff as lender. For reasons which I will come to shortly, I shall call it “the Original Loan Agreement”. I should also add that the bank account details referred to the above WeChat message appeared in the body of the Original Loan Agreement.
(2) The 2nd defendant’s Guarantee.
75. According to Ernest Yuen’s evidence, before the signing, he had explained the documents to the parties. He had asked them whether they understood what they were about to sign. He went through the important clauses, such as the amount borrowed and the repayment time. He recalled that at no point did anyone voice any complaint or show unwillingness to sign the documents. He had afforded time for them to read the documents. They went through the documents themselves for about 15 minutes and indicated that they were ready to sign. They then proceeded to sign. As before, Ernest Yuen also asked them to sign confirmations regarding their right to seek independent legal advice.
76. It is also the evidence of Annie and Lee that as Ernest Yuen explained the documents, the two of them verbally repeated the terms to the other parties.
77. The process took more than 30 minutes or so. After that, Tse Yin Fung handled the mortgage documents. Unlike the arrangement in the July meeting, Tse stayed in the same conference room to do so.
78. According to the evidence of Annie and Lee, Tse told Ip, the 2nd defendant, the 3rd defendant and the 4th defendant that the mortgages over their properties for securing the June Loan would be discharged and new mortgages would be made in favour of the plaintiff for securing the Subject Loan. All of them told Tse that they understood. Tse explained the mortgages to them. No question was raised. The defendants proceeded to execute their respective mortgages.
79. Overall, Ernest Yuen’s impression of the meeting was that the parties were very cordial with each other.
80. It transpired in Ernest Yuen’s oral evidence that after the loan documents were signed, he left the meeting. His colleague, Ms Clare Au-Young, helped witness the execution of a share charge signed by Evean Tang who arrived late. I shall call it “the share charge”.
81. According to the oral evidence of Annie, copies of the documents signed were given to the parties by Ernest Yuen’s secretary.
82. On 26 November, the first tranche of the Subject Loan in the sum of $8,000,000 was advanced to China Land Holdings.
The December meeting
83. After the signing of the Original Loan Agreement, Ernest Yuen reviewed it and discovered that the formalities prescribed in the Money Lenders Ordinance were not complied with. It was decided that a supplemental loan agreement should be made. To avoid confusion, it was to bear the same date as the Original Loan Agreement, ie 26 November 2014. That would be the Backdated Loan Agreement. It is the latter document which the plaintiff now relies on to claim against the defendants.
84. On 5 December, Ip and the 2nd defendant attended the office of Yuen & Partners. That would be the December meeting. Ernest Yuen explained to them the key terms of the Backdated Loan Agreement. He stressed to them that it contained the same terms as the Original Loan Agreement and it was to fulfil the legal requirements under the Money Lenders Ordinance. Neither of them raised any query and they told Ernest Yuen that they understood the position. They proceeded to sign.
85. In cross-examination, Ernest Yuen said that a copy of the Backdated Loan Agreement was given to the 2nd defendant in the December meeting.
86. Subsequently, on 8 December, Annie signed the Backdated Loan Agreement.
87. The second tranche of the Subject Loan of $10,000,000 was advanced on the same day.
Default
88. On 5 April 2015, Ip defaulted on the monthly interest instalment and the principal of $8,000,000 which fell due. After that, Ip continued to default on all subsequent monthly interest instalments when they fell due. He also failed to repay the principal of $10,000,000 when it fell due on 5 August 2015.
89. The plaintiff commenced the present action in September 2016.
THE 2ND DEFENDANT’S CASE
90. The 2nd defendant’s case is, in summary, this. He was not involved in the negotiation or discussion of the June Loan, its subsequent extensions and the Subject Loan, and he had no knowledge of the terms or details of the loan arrangements. On each occasion, he was asked by Ip to sign the documents. He had had no opportunity to read them before signing. The terms were not explained to him. He did not know the terms when he signed. He was not given copies after signing. It was not until the documents were disclosed in these proceedings that he came to know what documents had been signed by him and what their contents were.
Personal background
91. The 2nd defendant attended a boarding school in the UK from around the age of 12. He was bullied at school, and suffered from psychological problems for a long time. He had had suicidal attempts. Even after he returned to Hong Kong after graduation from university in 2006, his situation was not stable. His employment was unstable, and with it, his emotion was also not stable.
92. Things started to turn for him in 2010, when he started to work for Ip. He was employed by China Land Shanghai and worked in the Mainland. It was the only stable job which he had since he graduated. He was happier than before, and he treasured his job. He was devoted to his work. He worked long hours.
93. In his oral testimony, the 2nd defendant described his relationship with Ip as one of commander and soldier, and he had to follow Ip’s instructions. The 2nd defendant described Ip as a boss who trusted him.
94. Things started to turn again in early 2014. The 2nd defendant’s emotion became unstable. He committed suicide after he quarrelled with his then girlfriend. Also, he was planning to get married, and he therefore needed a stable job in order to earn a stable income to support his living.
95. The 2nd defendant says that it was against such background that he was led to sign the documents for the June Loan, its subsequent extensions and the Subject Loan.
The June meeting
96. One day in June, Ip instructed the 2nd defendant to take the company seal of China Land Shanghai and attend the office of Yuen & Partners with him to execute an agreement for a RMB10,000,000 loan.
97. On 21 June, Ip and the 2nd defendant attended the June meeting. Also present were Evean Tang and Ernest Yuen. Contrary to what the plaintiff now says, Annie and Lee were not present.
98. It was only at the law firm that the 2nd defendant was told that he would give a personal guarantee. He immediately clarified that he was not a guarantor. But Ip took him out of the conference room and pressured him to give his personal guarantee for the loan. Ip told him that he had spent a lot on the project and the project would fail if the 2nd defendant did not agree. The 2nd defendant had always trusted Ip and was fearful of his authority as his superior. It was under such pressure that the 2nd defendant agreed to sign on the loan documents, even though he was reluctant to do so. There was no time for him to consider, and he was worried about losing his job.
99. Ip and the 2nd defendant then went back to the conference room. The 2nd defendant signed the loan documents under pressure and without knowing the contents and the effect. No one explained the documents to him.
100. As for the email sent to the 2nd defendant in the evening of 20 June (see para 37 above), he explained in cross-examination that he was then on the plane from Shanghai to Hong Kong, and he did not check his email account until he went to the office of Yuen & Partners the following day.
The July meeting
101. On about 22 July, Ip told the 2nd defendant to attend the office of Yuen & Partners the following day to “renew” the loan. Ip also asked him to bring along his father (ie the 4th defendant). Ip demanded the 2nd defendant to offer his ding house and the 4th defendant’s ding house as guarantee.
102. The 2nd defendant was initially reluctant to accede to Ip’s demand. But Ip said that the renewal of the loan was necessary.
103. Ip said that he had to use his own landed properties and his shares in a Shenzhen company as security, together with the two ding houses, in order to renew the loan.
104. Ip also told the 2nd defendant that the two ding houses would only be used by the lender as “internal guarantee” (內部擔保文件) and would not be registered with the Land Registry, and there was no need to hand over the title deeds to the lender.
105. Ip threatened the 2nd defendant that if he could not handle such a trivial matter, he might as well not go to work any more.
106. That night, the 2nd defendant asked the 4th defendant for help as he had promised Ip and he was afraid of losing his job. The 4th defendant initially refused. But upon the 2nd defendant’s repeated requests, he finally agreed.
107. The following day, the 2nd and 4th defendants attended the July meeting. Also present were Ip, the 3rd defendant, Annie, Lee and Wong. Contrary to what the plaintiff now says, Ernest Yuen was not present, and the attendees all along stayed in one conference room to sign the documents, and did not go to another room.
108. Wong took out several documents from a large pile and asked each person to sign in turn. The signing process lasted for only about 10 minutes. At no time did Wong or any other person explain to the 2nd defendant the contents of the documents and the consequence of Ip not repaying the loan. The 2nd defendant had no knowledge of what was contained in the documents. He had not been given the opportunity to read the documents or seek independent legal advice before signing and he was not given a copy of the documents which he signed.
109. As for the email sent to the 2nd defendant in the evening of 22 July (see para 53 above), he explained in cross-examination that he was then on the plane from Shanghai to Hong Kong. He did not check his email account until he went to the office of Yuen & Partners the following day.
110. The plaintiff now relies on the same email to show that by the time the email was sent, Ernest Yuen had already been given the lot numbers of the two ding houses, and this corroborates Annie’s evidence that the lot numbers had previously been given to her by the 2nd defendant. To this, in cross-examination, the 2nd defendant said that as early as March 2013, Ip was already aware of the existence and details of the two ding houses. This is because the 2nd defendant took leave from work on a weekday in March 2013 to go to Hong Kong for a worshipping ceremony for commencing construction works at Lot 1906. On that occasion, the 4th defendant retrieved the title deeds of the two ding houses on enquiry from a relative. In the spirit of celebration, the 2nd defendant took a photograph of the front pages of the title deeds and circulated it with a few people, including Ip.
The November meeting
111. On about 25 November, Ip instructed the 2nd defendant to take the company seals of China Land Shanghai and another Mainland company, and bring along the 4th defendant to attend the office of Yuen & Partners the following day for renewal of the loan.
112. On the same night, the 2nd defendant asked the 4th defendant to go to the law firm the following day for the renewal of Ip’s loan.
113. The following day, 26 November, Ip first asked the 2nd defendant to join him to go to the plaintiff’s office in Tsim Sha Tsui to sign some documents. At the office, Ip and the 2nd defendant signed on a document which he now believes to be the Original Loan Agreement. At no time did anyone explain to the 2nd defendant the contents of the document and the consequence of not repaying the loan. The 2nd defendant had no knowledge of what was contained in the document. He had not been given the opportunity to read it or seek independent legal advice before signing and he was not given a copy of the document.
114. Then, in the afternoon, the 2nd defendant went to the office of Yuen & Partners by himself. That would be the November meeting. Ip, the 3rd defendant, the 4th defendant, and Annie then arrived. There was also a male lawyer which the 2nd defendant now believes to be Tse Ying Fung. Contrary to what the plaintiff now says, Lee and Ernest Yuen were not present. The lawyer asked each person to sign on some documents in turn. This process lasted only about 10 minutes.
115. At no time did the lawyer or any other person explain to the 2nd defendant the contents of the documents and the consequence of Ip not repaying the loan. He had no knowledge of what was contained in the documents. He had not been given the opportunity to read them before signing. He had not been given a copy of the documents he signed.
116. The 2nd defendant says that he was not clear how many documents he had signed that day. The lawyer asked him to sign a few documents. He simply signed as asked by the lawyer. He did not know at that time that the documents which he signed included a personal guarantee given by him. He did not know that if Ip failed to repay the loan, he would be held responsible for it. Nor did he know that the effect of the mortgage deed which he signed that day was to mortgage his ding house as security for Ip’s loan. He believed that the document which he signed in relation to his ding house was only for internal use of the lender. This is what he said in his witness statement:
“17. 我不知道我在2014年11月26日簽的三方按揭是把我的丁屋作為抵押品來保證葉先生的貸款。若是抵押品，屋契應該交給原告人，但原告人從來沒有要求我交出屋契，我的丁屋屋契仍在我父母的保管中。我以為我簽的丁屋擔保文件只是給放債人內部用，律師沒有告訴我會把我的丁屋擔保文件放到土地註冊處登記。再者，我和我父親的丁屋未補地價，是不能出售或者做按揭的。
18. 我不知道原告人第一份誓詞附件“CMS-6”是我的個人擔保，我不知道我曾經簽過這份擔保書。在Yuen & Partners律師樓簽文件時，除了三方按揭外，律師曾經叫我簽了幾份文件，究竟有幾多份文件我也不清楚，總之律師叫我簽名，我就簽名。我不知道我簽的文件內是包括我的個人擔保，我不知道若葉先生沒有錢還債，我要負責還債；我更加不知道該擔保是要我永遠承擔葉先生的債務。我只是葉先生的僱員，每年從他公司賺取人民幣50萬元工資，我這輩子也無法償還如此巨大的債務。更何況我在有關貸款交易當中沒有任何個人得益。假如當時有人告訴我簽的文件包括該個人擔保及該擔保的嚴重後果，我是絕對不會簽名的。”
117. As to the confirmation which he signed, as the lawyer asked him to sign, he simply relied on the lawyer and proceeded to sign. The lawyer never told him that he did not represent him.
The December meeting
118. On about 4 December, Ip instructed the 2nd defendant to join him to go to the office of Yuen & Partners the following day to sign some documents. But Ip did not say why they had to go there again.
119. The following day, 5 December, the 2nd defendant attended the office. That would be the December meeting. Ernest Yuen was there but he did not explain to the 2nd defendant why he was required to sign documents again.
Responses to the plaintiff’s evidence
120. Overall speaking, the 2nd defendant denies that he was involved in the negotiation or discussion of the loans advanced to Ip. Even though he held the title of Financial Controller of China Land Shanghai, he said in cross-examination that he was only responsible for the budget and costing of specific projects, and he was not responsible for fund raising or cash flow of Ip’s companies. Nor did he have access to the bank account balances of Ip’s companies.
121. The plaintiff alleges that there was a conversation between Annie and Lee and the 2nd defendant that the 2nd defendant indicated that he had faith in Ip’s companies and he would perhaps obtain some shares after an IPO. The 2nd defendant denies that such conversation had ever occurred.
122. Furthermore, the plaintiff now contends that Yuen & Partners acted only for it as lender. On this, the 2nd defendant was under the wrong impression that Yuen & Partners also represented the parties from the borrower side, including himself. In fact, in the legal bills issued by Yuen & Partners in respect of the June Loan and its subsequent extensions and the Subject Loan, Ip was expressly identified as the client.
123. Based on the above factual case, the 2nd defendant raises seven defences.
Undue influence
124. It is the 2nd defendant’s primary case that he was subject to actual undue influence from Ip in entering into his Guarantee and his Mortgage. Ip threatened him that if he could not make available his ding house and the 4th defendant’s ding house as guarantee, he might as well lose his job. The 2nd defendant contends that the effect of the threat has to be understood against his personal background, namely that he had mental problems and was in need of a stable job at the time.
125. Alternatively, the 2nd defendant says that he was under presumed undue influence of Ip. He had reposed substantial trust and confidence in Ip. He had had a history of depression. He had never had a stable job before he joined China Land Shanghai. He therefore treasured his job very much. The objective fact is that his monthly salary started at $15,000 in 2010 and was increased to about $42,000 in 2013. At the time, the 2nd defendant did not own any share in China Land Shanghai. By contrast, the Subject Loan was for the substantial sum of $18 million. Having no financial interest in China Land Shanghai, the 2nd defendant would not have any benefit or interest in the Subject Loan. Yet, the execution of his Guarantee and his Mortgage has exposed him to a substantial risk of personal liability and the risk of losing his ding house. This is therefore a case where the relationship of trust and confidence between Ip as employer and the 2nd defendant as employee had been improperly exploited by the former and the case falls within class 2(B) of presumed undue influence, as explained in Barclays Bank v O’Brien [1994] 1 AC 1980.
126. The 2nd defendant contends that the plaintiff was put on inquiry. The relationship of Ip and the 2nd defendant was not commercial in nature. The terms of the Guarantee and the Mortgage were manifestly disadvantageous to the 2nd defendant. The Mortgage was created over a substantial asset of the 2nd defendant. The execution of the Backdated Loan Agreement, the Guarantee and the Mortgage was a transaction which could not be readily explained by the relationship of the parties.
127. The plaintiff has, however, failed to take reasonable steps to reduce or eliminate the risk of him entering into the transaction under any misapprehension or as a result of undue influence.
128. Mr Wong (counsel for the 2nd defendant) refers to the Law Society Guidance Note issued on 19 May 2003, in which guidelines are set out to assist solicitors to fulfil their professional obligations in the conduct of three-party security transactions, which are susceptible to claims of undue influence (“the Law Society Guidelines”). He submits that Ernest Yuen and Wong had not fully complied with them:
(1) As between the plaintiff and the solicitors, it had not been made clear who was responsible for giving the requisite information and advice to the 2nd defendant. This is not in line with para 11 of the Guidelines.
(2) As the solicitors were acting only for the lender, they should make sure that they receive a warning notice from the lender similar to the form attached to the Guidelines before proceeding with the signing of the documents. Here, no such warning notice was received by either Ernest Yuen or Wong before signing. The confirmations which were actually signed was deficient when compared with the prescribed warning notice. That is not in line with para 19 of the Guidelines.
(3) The plaintiff and the solicitors had not discussed with the 2nd defendant the financial position of Ip, including the amount of his indebtedness. That is not in line with what is suggested in para 5 of the warning notice.
(4) In the November meeting, there was no private meeting between the plaintiff and the 2nd defendant, in the absence of Ip, to warn the 2nd defendant of the amount of his potential liability and of the risks involved and to advise him to take independent legal advice.
(5) On each of the four occasions when the 2nd defendant attended the office of Yuen & Partners, the understanding was that the documents were to be executed on the day. There was no sufficient time to allow the 2nd defendant to consider whether or not to sign the documents.
129. Accordingly, the 2nd defendant’s Guarantee and Mortgage should be set aside on the ground of undue influence.
Misrepresentation
130. The 2nd defendant contends that Ip made the following three misrepresentations:
(1) The documents to be signed in relation to the 2nd defendant’s ding house and the 4th defendant’s ding house would only be used by the lender as “internal guarantee documents”.
(2) Those documents would not be registered with the Land Registry.
(3) The transaction in November was for the renewal of the existing June Loan. Ip had never mentioned about the new loan of $18 million.
131. The 2nd defendant was induced by the above misrepresentations to enter into his Guarantee and his Mortgage. The plaintiff is fixed with constructive notice of the above misrepresentations. As the plaintiff has failed to take reasonable steps to bring home to him the risks associated with the transaction, the Guarantee and the Mortgage should be set aside on the ground of misrepresentation.
Material non-disclosure
132. The 2nd defendant contends that the signing of the Backdated Loan Agreement, his Guarantee and his Mortgage was procured by material non-disclosure on the part of the plaintiff.
133. The particulars of the non-disclosure are as follows:
(1) The Guarantee contained exceptionally onerous terms in that the 2nd defendant would be liable under it as if he were the principal debtor, and not merely as a surety.
(2) Under the Mortgage, the 2nd defendant personally covenanted to pay or discharge all liabilities as they fall due under any credit facility offered by the plaintiff to Ip.
(3) The Guarantee and the Mortgage were manifestly disadvantageous to the 2nd defendant in that they were for all monies with unlimited scope and amount.
(4) Yuen & Partners were not acting for the borrower or the surety and were there merely to witness the signature. The 2nd defendant had not been given any opportunity to consider the need to obtain independent legal advice.
(5) Unbeknownst to the 2nd defendant, the Backdated Loan Agreement which he was made to sign on 5 December 2014 was backdated to 26 November 2014.
134. The above matters were within the plaintiff’s knowledge but could not usually have been expected by the 2nd defendant. In the circumstances, the plaintiff in effect impliedly represented to the 2nd defendant that there were no unusual features in the transaction. Such representation was false. The Guarantee and the Mortgage should be set aside for that reason.
His Guarantee does not cover the Backdated Loan Agreement
135. The 2nd defendant contends that his Guarantee does not cover the Backdated Loan Agreement. There are three limbs to this defence.
136. First, as a matter of construction of its wording, the Guarantee does not cover the obligations arising under the Backdated Loan Agreement. This contention arises from the use of the terms “Guaranteed Obligations” and “Security Documents” in the document.
137. Clause 2.1 is the operative clause in the Guarantee. It provides as follows:
“The Guarantor hereby unconditionally and irrevocably to guarantee to the Lender the due and punctual performance and observance of and compliance with the Guaranteed Obligations by the Purchaser …” (underline added)
138. The term “Guaranteed Obligations” is defined in clause 1.2:
“In this Guarantee, the expression “Guaranteed Obligations” means all covenants, agreements, conditions and provisions expressed or implied on the part of the Borrower and/or the Guarantor to be performed, observed or complied with under the Security Documents including but without limitation the obligations of the Borrower and/or the Guarantor to pay any sum payable or expressed to be payable by them under the Security Documents in the amount(s), by the time(s) and on the date(s) specified or determined in accordance with the Security Documents (whether on the normal due date, on acceleration or otherwise).” (underline added)
139. However, the Guarantee does not contain any definition of the capitalised term “Security Documents”.
140. The 2nd defendant therefore argues that in the absence of such a definition, the Guarantee cannot be interpreted to mean that it covers the obligations arising under the Backdated Loan Agreement.
141. Secondly, the 2nd defendant points out that his Guarantee predates the Backdated Loan Agreement, and the former cannot cover obligations arising under the latter.
142. He relies on the recital in the Guarantee which reads:
“(A) By a loan agreement dated 26th November 2014 (“Loan Agreement” which expression shall include the same as may be from time to time amended or added to and any security or other documents ancillary thereto or amended into pursuant thereto or in contemplation thereof all as from time to time amended or added to) made between (1) IP KWOK KIN (葉國堅) (“Borrower”); (2) the Lender; (3) the Guarantor; (4) 新港商業 (上海) 有限公司 and (5) 深圳前海新港商業有限公司, the Lender has agreed, inter alia, to make available to the Borrower a term loan facility in the sum of HK$18,000,000.00 on the terms and subject to the conditions therein contained including the execution of this Guarantee.
(B) A copy of the Loan Agreement was made available to the Guarantor before execution of this Guarantee.”
143. The 2nd defendant argues that the “Loan Agreement” referred to in the recital must have been a reference to the Original Loan Agreement, and could not have been the Backdated Loan Agreement because the latter did not even exist when the Guarantee was signed. For the same reason, it could not have been the case that a copy of the Backdated Loan Agreement was made available to the guarantor before he executed the Guarantee.
144. Thirdly, as an alternative, if the court finds that the Guarantee does cover the Backdated Loan Agreement because (i) the latter was a variation or amendment of the Original Loan Agreement, and (ii) the term “Guaranteed Obligations” does extend to the liability arising under the Backdated Loan Agreement as a matter of construction, the 2nd defendant submits that applying the rule in Holme v Brunskill (1878) 3 QBD 495, since there was a material change of the obligations in the Backdated Loan Agreement, he should be discharged from his Guarantee.
His Mortgage is in breach of the land grant
145. The land grant of Lot 1906 contains the following restriction against alienation, as set out in clause 5 in the Special Conditions:
“(a) Except as provided in sub-clauses (b), (c) and (d) of this Special Condition, the Grantee (which expression shall, for the purpose of this Special Condition, include any mortgagee, whether legal or equitable, or an assignee of such mortgagee), having obtained this grant by way of private treaty at a concessionary premium, shall not assign, partition, mortgage, charge, demise, underlet, part with the possession of or otherwise dispose of the lot or any part thereof or any interest therein or any building or part of any building thereon or enter into any agreement so to do, whether directly or indirectly, or whether by way of direct or indirect reservation, grant of any right of first refusal, option, power of attorney, building agreement or through a solicitor, agent, contractor, trustee or otherwise howsoever.
…
(d) Upon certification by the District Lands Officer that these Conditions have been complied with to his satisfaction the Grantee may, with the prior written consent of the District Lands Officer and on such conditions as may be imposed by him (including the payment of such fee as may be required by him), assign (but not partition), mortgage or charge the lot (as a whole only and not a part thereof) or, subject to sub-clause (e) of this Special Condition, any interest or undivided share therein or part with possession of the lot and the building thereon or part with possession of part of the building on the lot, or enter into any agreement so to do but only to:
…
(ii) a person other than a person referred to in sub-clause (d)(i) of this Special Condition provided the Grantee shall have first paid to the Government an additional premium equivalent to the difference between the amount of premium (if any) paid by the Grantee to the Government at the date of this grant and the full market value of the lot as at the date of the application to the District Lands Officer for such consent, such value to be determined by the District Lands Officer whose decision shall be final and binding upon the Grantee, whereupon, such additional premium having been paid and such consent having been obtained, sub-clauses (a), (b), (c) and (d) of this Special Condition shall be null and void and shall cease to have effect.” (underline added)
146. No written consent to the 2nd defendant’s Mortgage has ever been obtained from the District Lands Officer. No additional premium has been paid. In the circumstances, the Mortgage is unenforceable for violation of the terms of the land grant.
Contravention of sections 20 and 27 of the Money Lenders Ordinance
147. Section 20 of the Money Lenders Ordinance imposes a duty on the money lender to give information to the surety of a loan agreement and any security document. If the money lender fails to comply with the requirement, he shall not be entitled to enforce the security while the default continues.
148. The 2nd defendant’s case is that the plaintiff has failed to provide to him the documents specified in section 20, including the Backdated Loan Agreement, the Guarantee and the Mortgage. In particular, while the Backdated Loan Agreement was signed by the 2nd defendant on 5 December 2014, on the plaintiff’s case, Annie only signed it a few days later. Hence, a copy of the final version of the Backdated Loan Agreement could not have been given to the 2nd defendant on 5 December 2014.
149. In light of the non-compliance with section 20, the 2nd defendant says that the plaintiff is not entitled to enforce the security.
150. In addition, section 27 restricts the recovery by the money lender of costs, charges and expenses in connection with the loan. Yuen & Partners issued a legal bill dated 26 November 2014 to Ip in the sum of $81,500 for services rendered in relation to the Subject Loan. The 2nd defendant relies on a cheque sent by Ip in the sum of $99,500 to settle the the legal costs. The cheque was however dishonoured. Mr Wong submits that, even though dishonoured, the cheque is as good as cash for the purpose of section 27 and the sum of $81,500 should be set off against the amount actually lent to Ip.
Unconscionable bargain
151. Lastly, the 2nd defendant contends that in light of the factual circumstances, the Guarantee and the Mortgage should be set aside on the ground of unconscionable bargain.
THE 3RD DEFENDANT’S CASE
152. The 3rd defendant raises two defences. First, her Mortgage was entered into under undue influence exerted by Ip over her, of which the plaintiff had notice. Second, her Mortgage was entered into to secure Ip’s obligations under the Original Loan Agreement, but that was later replaced by the Backdated Loan Agreement. As such, her Mortgage ceased to have effect from that time onwards, and the Backdated Loan Agreement does not concern her at all.
Personal background and relationship with Ip
153. The 3rd defendant was trained at the School of Nursing of Hong Kong Sanatorium & Hospital for over three years. She graduated in around 1979 with a diploma in nursing.
154. Save for working part-time for around one year in the mid-90s, she has been a housewife and has never been in any employment.
155. Ip has been the sole breadwinner of the family. He ran his business in the Mainland. The 3rd defendant was not a shareholder of his companies. She had never been involved in his business and had little knowledge of it.
156. Over the years, as she had been spending her time between Shenzhen and Hong Kong to look after her elderly grandmother and mother, she never took up any position in Ip’s companies or participated in his business. As a result, Ip always felt that the 3rd defendant did not fully support his business. This led to a deterioration of their relationship, almost to the point of a breakdown in their marriage. The 3rd defendant put in a lot of time and efforts to mend the relationship. Therefore, she was always cautious in not doing things which might lead Ip to think that she was not supportive of his business.
The July meeting
157. On 22 July 2014, Ip told her to go with him to a law firm to sign documents. He said he needed her to guarantee a loan to him in order to solve the financial crisis his company was facing. His attitude was very firm. The 3rd defendant did not dare disagree as she feared that Ip would think that she was not being supportive. The 3rd defendant did not know that by signing the guarantee document, she and Ip would be putting up their real property as security.
158. The following day, 23 July, the 3rd defendant attended the July meeting with Ip. Also present were the 2nd defendant, the 4th defendant, Annie and Lee and a male solicitor. They were all present in the same room.
159. Contrary to what the plaintiff now says, the solicitor did not explain to her what documents she was signing. Nor did he explain the contents or the consequence and risks of signing the documents to her. The signing only lasted for about 10 minutes. No copy of the documents which she had signed was given to her. She did not know what documents she had signed. She said this in her affirmation:
“我根本不知道簽了一些什麼文件，而整個簽名过程約在短短10分鐘後結束，之後那律師也沒有給我任何副本或中文翻譯本。完成簽名手續後，我們就離開律師樓。”
The November meeting
160. On 25 November, Ip told the 3rd defendant to go to the law firm the following day to sign documents. He said that he could not repay the loan which he borrowed on 23 July on time and therefore a renewal was needed.
161. On the following day, 26 November, Ip and the 3rd defendant attended the November meeting. Also present were the 2nd defendant, the 4th defendant and Annie. There was a male solicitor who asked them to sign documents. Contrary to what the plaintiff now says, Ernest Yuen, Lee and Evean Tang were not present.
162. Like in the July meeting, the solicitor did not explain the contents or the consequence and risks of signing the documents to them. No copies of the documents were given to them. The signing process took about only 10 minutes.
163. The 3rd defendant denies that she had been asked to sign a confirmation by Ernest Yuen to the effect that she had been reminded of the right to seek independent legal advice. Ernest Yuen did not attend the meeting. And the confirmations now produced by him do not include one signed by her.
164. It was only when the plaintiff commenced this action that the 3rd defendant found out that the lender was changed from Annie to the plaintiff but the lender did not inform her of the change when the loan was renewed in November.
165. The 3rd defendant points out that an address in Sheung Shui was stated in the two mortgage deeds which she signed in July and November as her address. However, that was not her address. It shows that she had not been given the opportunity to read the documents and had not been explained their contents, as otherwise she would have spotted the wrong address.
Undue influence
166. On the above factual basis, the 3rd defendant raises the defence of undue influence.
167. It is her pleaded case that she relied on and acted in accordance with Ip’s wishes and directions in respect of the business and financial matters of Ip and his companies. Insofar as these matters are concerned, Ip had acquired ascendancy or domination over her as his wife. She reposed absolute trust and confidence in Ip in these matters.
168. The plaintiff had constructive notice of the undue influence exercised by Ip on her, as the Mortgage was disadvantageous to her and required detailed explanation. It was disadvantageous because:
(1) She was not a party to the Subject Loan.
(2) The Subject Loan was solely for the benefit of Ip and his companies, of which the 3rd defendant was neither a shareholder, director nor an officer.
(3) She received no benefit for standing as surety for all the liabilities of Ip and his companies.
169. The plaintiff did not take any steps to inform her of her exposure under the Mortgage.
170. She therefore contends that the Mortgage should be set aside.
Her Guarantee does not cover the Backdated Loan Agreement
171. Her second defence is that her Mortgage was entered into to secure Ip’s obligations under the Original Loan Agreement, which was later replaced by the Backdated Loan Agreement. As such, her Mortgage ceased to have effect from that time onwards, and should be discharged.
172. Mr Ma submits that the 3rd defendant is not allowed to run this defence as it is not part of her pleaded case.
THE 4TH DEFENDANT’S CASE
173. The 4th defendant contends that his Mortgage should be set aside. His case relies on what the 2nd defendant represented to him in July and November 2014. It is submitted by Mr Ah-Weng that to that extent there is an overlap between the two defendants’ cases. However, it is emphasised that the 4th defendant had no knowledge of what took place between the 2nd defendant and Ip, or what took place between the 2nd defendant and the plaintiff.
Personal background
174. The 4th defendant received education up to Form 5 level. He is able to read and write basic English. He was in the Hong Kong Police Force from around 1977 to 1993. When he left, he was a senior inspector. He continued to work after that. He officially retired in 2013, from which time he became eligible to receive payouts from his government pension. In other words, by 2014, he had retired for a little over one year. At the time of the trial, his pension payout was about $13,000 a month. He had never worked as a businessman or in the commercial or financial sector.
175. The 4th defendant and Ip were ex-colleagues in the Police Force. However, they were not close friends. They had only a few encounters at the workplace from around the late 1970s to the early 1980s. After that, the 4th defendant ran into Ip a few times. That is the extent of their acquaintance.
The 2nd defendant’s mental issues
176. The 2nd defendant is the 4th defendant’s only son. The 2nd defendant had depression and a history of suicidal attempts. The mental condition of the 2nd defendant is an important part of the 4th defendant’s case. In his oral testimony, the 4th defendant gave a detailed account of the mental issues experienced by the 2nd defendant. In the cross-examination of the 2nd defendant by the 4th defendant’s counsel, an effort was clearly made to adduce evidence from the 2nd defendant on this topic. The 4th defendant also relies on certificates and reports from the medical professionals who had treated the 2nd defendant over the years. They are Dr Hong, a psychiatrist in private practice, and Prof Pong, a clinical psychologist with the Chinese University of Hong Kong.
177. The 4th defendant and his wife sent the 2nd defendant to a boarding school in the UK when he was around 12 years old. He later changed to a local day school in Glasgow, and stayed with the 4th defendant’s sister. The 2nd defendant felt isolated and lonely because he could not make friends. He repeatedly requested to return to Hong Kong. The 4th defendant and his wife refused. The 2nd defendant sought therapy in 1999, when he was about 16 years old.
178. Through meeting with Prof Pong in June 2014, the 4th defendant understood that his son’s mental issues originated from him being sent away to the UK. The true reason for sending him to a boarding school was that at that time the 4th defendant and his wife were having marital problems as he was having an affair and he did not want his son to witness that.
179. The 2nd defendant graduated with a degree in Economics from the School of Oriental and African Studies, University of London. It took him five years to complete the three-year course. The delay was due to his poor mental condition. He tried to commit suicide twice during this time. The 4th defendant and his wife moved to London to stay with him for some time. According to Prof Pong, the 2nd defendant acted out to get attention. His frustration was fuelled by anger against his parents for the neglect of his difficulties during adolescence.
180. After graduating in 2006, he returned to Hong Kong. He worked in Ernst & Young from 2008 to around January 2010. However, he resigned due to work pressure and worsening mental condition. In the summer of 2010, he briefly worked as an assistant to a banker in ABN Amro. At the bank, he worked on financial models for products known as “accumulators”.
181. In November 2009, the 2nd defendant’s mother bumped into Ip. She later introduced him to the 2nd defendant. She mentioned the 2nd defendant’s mental issues to Ip.
182. From October 2010 onwards, the 2nd defendant started to work for Ip in Shanghai.
183. In 2014, and prior to the June Loan, the 2nd defendant attempted suicide twice, the first time after argument with his girlfriend, and the second time after argument with Ip’s chauffeur.
184. The 4th defendant’s case is that it is clear from the medical history of the 2nd defendant that he had long-standing psychological issues and was all along prone to emotional outbursts. This is the context in which to understand what happened in July 2014.
Ip’s knowledge of the 2nd defendant’s mental issues
185. By the time of the June Loan, Ip was aware of the 2nd defendant’s long-term mental issues. It was the 2nd defendant’s mother who had told Ip about them as she wanted Ip to help persuade the 2nd defendant to see a psychiatrist. This was consistently the mother’s behaviour, as she would constantly ask friends to help persuade the 2nd defendant to see a doctor.
186. According to the 2nd defendant, after joining China Land Shanghai, he and Ip worked closely together. They were also close socially in Shanghai. The 2nd defendant thought that Ip was very capable and hardworking. The 2nd defendant felt appreciated at work. His time with China Land Shanghai was his longest employment. With his job, he had financial independence.
187. The two of them spoke for hours daily. The 2nd defendant confided his personal matters to Ip. The 2nd defendant trusted and looked up to Ip. At the same time, he revered and feared Ip. Ip would have known that the 2nd defendant valued his job.
188. Ip would also have known that the 4th defendant and his wife cared greatly for the 2nd defendant.
189. It is highlighted by the 4th defendant that in light of the 2nd defendant’s mental issues and Ip’s knowledge of them and also of the relationship between the 2nd and 4th defendants, it was no coincidence that Ip pressured the 2nd defendant to offer his and his father’s ding houses for security of his loans.
190. As to the relationship between the 4th defendant and Ip, they were not close friends. The 4th defendant had no commercial ties with Ip, his business, or his loans. He was not an investor, consultant or staff.
Before the July meeting
191. In the evening of 22 July, the 2nd defendant returned home from Shanghai. He asked the 4th defendant to go with him to a law firm to sign documents the following day. And that was for the purpose of putting up the 4th defendant’s ding house to secure Ip’s loan. This is called the “New Loan Representation” in the pleadings. The 4th defendant disagreed.
192. Then, the 2nd defendant became very emotional and said a number of things. The 4th defendant’s case is that the things said were representations made by the 2nd defendant, as agent of Ip, acting on his instructions and for his benefit. I shall adopt the 4th defendant’s pleaded terms for these representations. The 2nd defendant said:
(1) Ip had asked him to secure Ip’s loan with the ding houses of the 2nd and 4th defendants, otherwise he would fire the 2nd defendant if he could not do so. This is the “Fire D2 Representation”.
(2) Ip had already pledged his shares in his company, which was worth $50 to 60 million, as collateral for Ip’s loan. This is the “Shares Value Representation”.
(3) Ip had also used his own real property in Hong Kong, which was worth over $10 million, as collateral for the loan. This is the “Flat Value Representation”.
(4) The amount of Ip’s loan was only $10 million. This is the “Loan Value Representation”.
(5) Any documents signed in relation to the ding house would only be used as “internal guarantee document” by the plaintiff, and that the lender would not register any of the documents at the Land Registry as collateral for the loan. This is the “Internal Guarantee Representation”.
(6) Both the 2nd and 4th defendants would not have to give the title deeds of the ding houses to the plaintiff. This is the “Title Deeds Representation”.
193. The above representations are referred to as the “22 July Representations” in the pleadings.
194. The 4th defendant told the 2nd defendant that he needed time to think. But the 2nd defendant began to lash out at him and started to cry. The 4th defendant signalled for his wife to remove a nearby soup bowl. The 2nd defendant then said the following:
(1) It took a long time for him to work at Ip’s company with an increase in salary from RMB 14,000 a month to RMB 500,000 a year.
(2) He did not want to lose his job.
(3) He was unhappy working Hong Kong. No one appreciated him. He felt he had no value.
(4) It took a lot of hard work for him to get to his current achievements. Now he needed help, the 4th defendant refused to give it.
(5) When he was sent to live with his aunt in the UK, his uncle disliked him and he was bullied by the locals. But all that the 4th defendant and his wife said then was to ask him to tolerate.
(6) He wanted to get married and he needed to be able to afford to look after his wife and children.
(7) He asked if his parents wished for his death and, if so, he would show them.
195. The 2nd defendant became increasingly irate and went for the knife stand in the kitchen. The 4th defendant feared that if he did not accede to the 2nd defendant’s request, his mental condition would deteriorate and he would commit suicide again if he were to lose his job.
196. For that reason, the 4th defendant reluctantly agreed to the 2nd defendant’s request.
197. That night, the 4th defendant discussed the matter with his wife. Relying on the 22 July Representations, in particular that Ip had pledged his own assets as security, the 4th defendant did not need to submit his title deeds, and the document would not be registered in the Land Registry, he thought that it was safe to sign the documents the following day. He thought that the document to be signed was for show only and for the lender’s internal record. He thought that it was to be signed at a law firm out of convenience. He considered that not having to submit the title deeds to be crucial. In the past, he had bought a flat and a car on mortgage. The title documents were always kept by the lender.
The July meeting
198. The 4th defendant attended the July meeting. Apart from him and the 2nd defendant, Ip, the 3rd defendant, Annie, Lee and Wong were also present. Contrary to what the plaintiff says, Ernest Yuen was not there.
199. Wong did not introduce himself. The 4th defendant did not know that he was not a solicitor of Yuen & Partners. Wong took out the documents and asked the parties to sign. Everyone signed in the same conference room. The whole process lasted about 10 minutes.
200. At no time during the meeting did Wong explain to the 4th defendant the nature and effect of the signed documents, the contents, and the legal consequences for the 4th defendant if Ip did not make repayment of his loan. The 4th defendant had not been told of the amount of the loan. He had not been given a chance to read the documents. He was not given any opportunity to seek independent legal advice. He was not provided with copies of the signed documents after the signing. It is submitted that the casualness of the process reinforced the representations that the documents were for show only and would not be registered or used by the lender.
201. At the time of signing, the 4th defendant had no knowledge of the content, nature and effect of any of the documents which he signed during the July meeting.
The November meeting
202. In the afternoon of 25 November, the 2nd and 4th defendants met at a café in Hong Kong. The 2nd defendant told the 4th defendant that they needed to go to sign documents at a law firm for an extension the following day. The 4th defendant asked whether the loan was repaid. The 2nd defendant said that only half was repaid. The 4th defendant suggested that they should discuss the matter later.
203. That evening, the 2nd defendant asked the 4th defendant to sign documents the following day like last time simply to “renew” the existing loan of Ip. This is the “25 November (Renewal) Representation”.
204. Having in mind the 22 July Representation and the 25 November (Renewal) Representation, and given the 2nd defendant’s depression and history of suicide attempts, the 4th defendant again feared that if he did not accede to the request, the 2nd defendant’s mental condition would deteriorate and he would commit suicide if he were to lose his job. Therefore, the 4th defendant reluctantly acceded to the request, believing that the documents he had to sign were only for renewing Ip’s loan.
205. The following day, 26 November, the 4th defendant attended the November meeting. Apart from him and the 2nd defendant, Ip, the 3rd defendant, Annie and a male lawyer who should be Tse Yin Fung were present. Contrary to what the plaintiff now says, Lee and Ernest Yuen were not there.
206. Tse did not introduce himself. The 4th defendant did not know that he was not a solicitor of Yuen & Partners. Tse asked the parties to sign the documents. The whole process lasted about 10 minutes.
207. Same as in the July meeting, at no time during the meeting did Tse explain to the 4th defendant the nature and effect of the signed documents, the contents, and the legal consequences for the 4th defendant if Ip did not make repayment of his loan. The 4th defendant had not been told of the amount of the loan. He had not been given a chance to read the documents. He was not given any opportunity to seek independent legal advice. He was not provided with copies of the signed documents.
208. At the time of signing, the 4th defendant had no knowledge of the content, nature and effect of any of the documents which he signed during the November meeting.
After the November meeting
209. On 5 December, the 2nd defendant called the 4th defendant saying that he would come back home for dinner that day, but he had to go with Ip to the law firm to sign some documents first. The 4th defendant found it strange that the 2nd defendant had to sign documents again. To verify that the 4th defendant was in fact not a guarantor for the previously signed documents, he asked the 2nd defendant for copies of documents showing that Ip’s company was indeed the guarantor, not the 4th defendant.
210. The 2nd defendant therefore created a WeChat group including himself, the 4th defendant and Annie on that day. The 2nd defendant and Annie had a chat in which Annie explained that she had some problems to resolve and she would only be able to send over the first page of the loan agreement to the group.
211. I reproduce the following brief exchange:
“2nd defendant: Annie
Annie, 请回电
…
2nd defendant: Johnny [ie the 4th defendant], Annie will pic u the first.page of loan contract
4th defendant: Ok
Annie: Ok Give me couple mins
…
Annie: [Image]
…
4th defendant: ok”
212. The image sent by Annie was page 1 of the Original Loan Agreement. It was stated there that there were three guarantors of the loan. The 4th defendant was not named as one of them.
Undue influence
213. Based on the above factual narrative, the 4th defendant contends that he executed his Mortgage under the undue influence exerted by the 2nd defendant, as agent of Ip and/or employee of China Land Shanghai. It is a case of actual undue influence. Alternatively, there was presumed undue influence on the ground that with Ip’s knowledge of the 2nd defendant’s circumstances, Ip had dominated the 4th defendant over via his pressure over the 2nd defendant.
214. The 4th defendant does not know what had passed between Ip and the 2nd defendant in relation to the loan extension in July and the Subject Loan in November 2014. However, according to the 2nd defendant’s case, Ip exerted pressure on the 2nd defendant as early as in June 2014. It is submitted that Ip had all along sought to prey on the 2nd defendant.
215. Also, according to the 2nd defendant’s evidence, on 22 July, Ip spoke to him, putting pressure on him to get him and the 4th defendant to offer their ding houses as security for his loan. In doing that, Ip would have had in mind the 2nd defendant’s mental vulnerabilities, and his trust and confidence in him.
216. On Ip’s instructions, the 2nd defendant pressured the 4th defendant into agreeing to go to sign documents the following day. Ip must have known that the 4th defendant would not have agreed to put up his ding house as security, without the 2nd defendant applying pressure.
217. On 25 November, Ip demanded the 2nd defendant to ask the 4th defendant to sign documents again, reminding him of the importance of securing the extension of the loan. Ip would have understood that what he said to the 2nd defendant in July worked on the 2nd and 4th defendants. Having in mind the 22 July Representations and the 25 November (Renewal) Representation, and given his continuing concerns over the 2nd defendant’s mental condition, the undue influence on the 4th defendant from Ip (via the 2nd defendant) continued to operate.
218. The 4th defendant contends that the plaintiff was put on enquiry because:
(1) All along, Annie knew that the 4th defendant was unconnected to Ip or his business. His name never appeared in any documents in relation to the June Loan.
(2) She must have been aware that the terms of the Mortgage were to the complete disadvantage of the 4th defendant.
219. The plaintiff should take reasonable steps to satisfy itself that there was no undue influence before accepting the 4th defendant’s Mortgage as security. The plaintiff, however, has failed to do so.
220. Like Mr Wong, Mr Ah-Weng refers to the Law Society Guidelines and makes the same point that the solicitors involved did not comply with them. Mr Ah-Weng also cites the decision in Bank of China (Hong Kong) Ltd v Wong King Sing [2002] 1 HKLRD 358 in which the court, at para 69, laid down four reasonable steps a lender should take in this type of circumstances:
(1) It should insist that the surety attend a private meeting with the lender in the absence of the borrower.
(2) It should tell the surety the extent of his liability.
(3) It should warn the surety of the risk he is running in entering into the transaction.
(4) It should urge the surety to take legal advice and, in exceptional cases, to insist on it.
221. The 4th defendant says that the plaintiff failed to follow the four reasonable steps. In both the July and November meetings, there was no private meeting arranged between him and the plaintiff or its representative in Ip’s absence. No one told him about the extent of his liability under the Mortgage. He was not given warning of the risks which he undertook.
Misrepresentation
222. The 4th defendant’s second defence is misrepresentation.
223. It is his pleaded case that in making the 22 July Representations, the 2nd defendant made a number of implied representations to him which resulted in his following understanding:
(1) The Flat Value Representation implied that Ip’s own property was sufficiently unencumbered so as to act as security for his liabilities.
(2) The New Loan Representation, the Shares Value Representation, the Flat Value Representation and the Loan Value Representation together implied that Ip pledged as security his own assets, and the total value far exceeded his liability under the loan. This is called the “Overvalued Security Understanding”.
(3) The Internal Documents Representation implied that the 4th defendant’s signing of any documents that involved giving of security of his ding house would not be executed upon by any lender, even if Ip were to default on his loan. This is called the “Internal Documents Understanding”.
(4) The Title Deeds Representation implied that the 2nd and 4th defendants’ security over the two ding houses would not and could not be enforced against by any lender, even if Ip were to default on his loan. This is called the “Title Deeds Understanding”.
224. Furthermore, the 25 November (Renewal) Representation impliedly represented to the 4th defendant that the above understanding derived from the 22 July Representations remained the same and would apply to the documents to be signed by the 2nd and 4th defendants in the November meeting. This is called the “Status Quo Understanding”.
225. All of the above representations and understanding as pleaded were made by the 2nd defendant, as agent of Ip and/or employee of Ip’s company, to the 4th defendant fraudulently or recklessly. The 4th defendant was induced by them to enter into the Mortgage. These representations and understanding were false.
226. The plaintiff was put on notice of the misrepresentation but failed to take reasonable steps to ensure that the 4th defendant gave proper consent to his Mortgage.
Unconscionable bargain
227. The 4th defendant’s third defence is unconscionable bargain.
228. It is submitted that the terms of the Mortgage were to the complete disadvantage of the 4th defendant. It was an “all monies” mortgage, meaning that the 4th defendant would be personally liable for all liabilities incurred by Ip when the actual loan amount was $18 million. Overall speaking, it was an oppressive bargain. However, at no time was he given an opportunity to seek independent legal advice. And the plaintiff knew all along that the 4th defendant had no interest in Ip’s business.
229. The Mortgage should therefore be set aside.
CREDIBILITY
230. The outcome of the case primarily turns on the credibility of the witnesses. I would first make two general observations.
231. First, each defendant has put forward a case of how he or she was induced or misled by Ip to execute the Security Documents. The plaintiff has no positive case on the interactions between:
(1) the 2nd defendant and Ip;
(2) the 3rd defendant and Ip; and
(3) the 4th defendant and the 2nd defendant.
232. On such interactions, we only have the assertions of the defendants. There is no documentary proof of what Ip said to them and the relationship between each of them with Ip, and also between the 2nd and 4th defendants. In other words, it is just their words. Whether to accept their words as giving a true account of the events will therefore turn to a large extent on the overall credibility of their evidence.
233. Second, as to what took place in the June meeting, the July meeting, the November meeting and the December meeting, the court is presented with rival accounts of events. The plaintiff’s case and the defendants’ cases can be said to be diametrically opposite on the key dispute, namely what steps Annie, Lee, Ernest Yuen, Wong and Tse Yin Fung took before (and after) the defendants signed the documents. All the defendants now say that each time, it was a quick process lasting only about 10 minutes. They were not explained the terms or effect of the documents. They were not given the opportunity to read the documents or seek independent legal advice. On the other hand, all the plaintiff’s witnesses now say that various steps to explain the documents had been taken and it was an elaborate process.
234. Whether these alleged steps, if found as facts, amount to reasonable steps under the principles governing undue influence and misrepresentation will be dealt with in the “Rulings” section below. In this section, I shall focus on which of the two factual accounts I should accept. It is a matter of choosing between the two accounts, as it is not a case where there are disputes over the precise contents of what was said and done. In that situation, sometimes, the differences between the parties may be attributable to reasons other than the witnesses being untruthful (eg forgetfulness), and therefore there may be some truth in both parties’ accounts. Here, put crudely, one side is saying that a whole host of things were said in the meetings and the other side is saying that none of that happened. It must therefore be the case that one side is not telling the truth in this action.
235. I should add here that I should assess the credibility of the rival accounts, bearing in mind that there was a time lapse between the events (June to December 2014) and the making of the affirmations or witness statements (between late 2016 and 2021). Where there are inconsistencies within a witness’s evidence, in particular over details of a particular event, when considering whether that raises a doubt over that witness’s credibility, I should be alive to the possibility that the inconsistencies may be due to an inaccurate recollection of events due to the lapse of time.
236. In evaluating the factual evidence, the credibility of the witnesses is to be measured by the well-known evidential yardstick of inherent plausibility, consistency with contemporaneous documents, internal consistency and (to a lesser extent) the demeanour of witnesses.
237. In my judgment, the plaintiff’s factual account is to be preferred to the defendants’.
238. In summary, I find that the 2nd defendant’s evidence is at odds with, if not contradicted by, the contemporaneous documents and, taking into account his educational background and work experiences, his belief in what Ip allegedly told him is inherently implausible and unbelievable. Similarly, by reason of the 3rd defendant’s background and training, I find her alleged belief that she did not know what she was signing to be inherently implausible and unbelievable. As for the 4th defendant, his factual case is built upon the 2nd defendant’s factual case, and with the latter not found to be credible, the former has no proper basis to stand on. In any event, in light of his background, his work experiences and his coming across as a clear-headed and astute person when testifying, his belief in the alleged representations (such as his Mortgage being only an “internal document”) is inherently implausible and unbelievable.
239. On the other hand, the plaintiff’s factual case based on the evidence of Annie, Lee, Ernest Yuen and Wong is inherently plausible, coherent and largely consistent. There have been some internal inconsistencies identified in the evidence. However, those are not the kind of inconsistencies which should cast doubt over the credibility of the witnesses.
240. In arriving at the above conclusion, I have found the following matters to be the material considerations in the evaluation exercise.
The 2nd defendant
241. The core allegation made by the 2nd defendant is that he was not involved in the negotiation or discussion of Ip’s loans with the plaintiff and he had no knowledge of the terms or details of the documents when he signed them in each of the four meetings. There was an obvious effort in his oral evidence to distance himself from the handling of the loans and to downplay his role in the whole process.
242. However, the contemporaneous documents paint a very different picture. The emails and WeChat messages exchanged at the time really speak for themselves.
243. The messages amply show that the 2nd defendant was the person (or at least one of the people) from Ip’s side who actively and closely liaised with the lender’s side in relation to not only the preparation of the documents in advance of execution but also payment of principal and interest when they fell due. He was the counterparty with whom Annie and Ernest Yuen dealt. For instance, Ernest Yuen sent him draft documents “for [his] consideration”. A further example is that the 2nd defendant was able to give details to Annie when asked, such as proposed dates and amounts of repayment.
244. All these are consistent with the 2nd defendant being the Financial Controller of China Land Shanghai. His insistence in cross-examination that he was only responsible for budget and costing of specific projects and was not responsible for fund raising or cash flow of Ip’s companies sits awkwardly with the contemporaneous messages.
245. The messages also contradict an allegation which he made for the first time in cross-examination that he did not generally check his emails unless he was expressly reminded to do so. In his submissions, Mr Ma refers to a number of email chains in which the 2nd defendant either replied to a message or forwarded it to someone else very quickly upon receipt. For instance, on 20 June, the 2nd defendant received an email regarding the rental pledge from Forever 21 (the tenant) at 11:08 am. Upon receipt, he forwarded the message to Annie at 11:12 am. Another example given by Mr Ma is the email by Ernest Yuen to the 2nd defendant on 27 June chasing for payment of his legal bill. The email was sent at 2:45 pm and the 2nd defendant immediately replied at 2:50 pm.
246. I set out below the more specific instances where the 2nd defendant’s case diverges from what the contemporaneous messages show.
247. First, the 2nd defendant now says that he did not know that he would be a guarantor of the June Loan before the June meeting. The contemporaneous messages in paras 36 and 37 above however show that he knew about the loan and he worked on the loan details beforehand. Most relevantly, Ernest Yuen emailed him the day before draft documents in which he was explicitly stated to be the guarantor.
248. His explanation that he had not checked Ernest Yuen’s email because he was on the plane and he did not check his emails after landing in Hong Kong came out for the first time in his cross-examination, and is unconvincing. Nor does it accord with the pattern that he responded to emails promptly as seen above.
249. Second, the 2nd defendant says that he was not responsible for handling the cash flow of Ip’s companies. The contemporaneous messages in paras 64 to 66 above however show that he was very much on top of the repayment details of the June Loan in October and November, and he personally worked on the repayment. See his messages:
“20万我明早看一看”
“Annie我算好了，明天中午可以先还450万到你们深圳公司，余下70万我们会在周一跟周二补足” (underline added)
250. Third, the 2nd defendant says that on 26 November, he and Ip went to the plaintiff’s office to sign the Original Loan Agreement, and that took place before the November meeting held in the afternoon in the office of Yuen & Partners. However, the WeChat messages in para 72 above show that as late as 1:38 pm on that day, the 2nd defendant was still sending the bank account details of China Land Holdings to Annie, which details can be found in the Original Loan Agreement. This suggests that the Original Loan Agreement was still being finalised at that time. It therefore seems more likely that the final version was signed later that day, contrary to the 2nd defendant’s case.
251. Fourth, the 2nd defendant now says that Ip told him on 25 November that the Subject Loan was a renewal of the June Loan, and the 2nd defendant believed it. However, the above WeChat messages show that the 2nd defendant must have been aware that the Subject Loan was not a renewal but a fresh loan as otherwise he would not have needed to send to Annie China Land Holdings’ bank account details as the receiving account (“收款账户”), as there would be no new money to be received. In cross-examination, when confronted with this, the 2nd defendant said he did not know the purpose of the information.
252. On the whole, the contemporaneous documents before the court are against the 2nd defendant’s case. In fact, as remarked earlier on, he has not adduced any documentary evidence in support of his own case. The exception is his mental condition, which, I accept, is supported by medical records, in particular Prof Pong’s report. As regards his relationship with Ip and how they interacted with each other, the 2nd defendant’s case is built solely on his words. He says that he was close to Ip both at work and socially. However, no one single message has been produced to substantiate that. Worse still, the 2nd defendant spoke to the incident in March 2013 in which he shared a photograph of the front pages of the title deeds of the ding houses with Ip. The message should therefore exist but has not been disclosed. The allegation remains a bare allegation. Its believability is in doubt. In turn, it casts doubt on his allegation that Ip himself had provided the details of the ding houses to the plaintiff.
253. Apart from contemporaneous documents, the credibility of the 2nd defendant’s factual account is, in my view, doubtful when one analyses it in terms of inherent plausibility.
254. The 2nd defendant says that he believed Ip when Ip said that the documents to be signed in relation to the two ding houses would only be used by the lender as “internal guarantee documents”. I find it difficult to believe that to be true. It is worth repeating the 2nd defendant’s background. He holds a degree in Economics. He had working experiences with an international audit firm and a European bank. It is inherently implausible that he would believe in what Ip said about “internal guarantee documents”. It is not immediately apparent why a money lender in Hong Kong would need some “internal guarantee documents” which were to be prepared formally by a solicitor for what appears to be a straightforward loan.
255. The 2nd defendant’s alleged belief that the mortgages would serve as some “internal guarantee documents” also does not sit well with what he said in cross-examination. He said that after the July meeting, his mother was unhappy and kept asking him when the loan would be repaid by Ip. The 2nd defendant was also concerned and kept asking Ip weekly when the loan would be repaid in full. Mr Ma submits, and I agree, that such conduct (if true) demonstrates fear of enforcement of the mortgages. This goes counter to the 2nd defendant’s belief that the mortgages are just some “internal guarantee documents”.
256. I should record here that in his oral testimony, the 2nd defendant at one point suggested that in the June meeting, Ip told him, and he believed, what he was required to do under the “guarantee” which he was asked to sign was that he would bring Chan to the Mainland to receive rental should Ip default. This is of course a completely new revelation, and is a departure from the pleaded case of “internal guarantee documents”. The new revelation is also plainly inherently unbelievable.
257. For the above reasons, I have grave doubt over the credibility of the 2nd defendant’s evidence.
The 3rd defendant
258. The 3rd defendant has two core allegations. First, she relied on and acted in accordance with Ip’s wishes and directions in respect of the Ip’s business and financial matters. Second, she had no idea what documents she had signed in the July meeting and the November meeting.
259. As to the first allegation, as remarked before, we only have her words in support of her case. There is no contemporaneous document against which her evidence can be tested.
260. On both allegations, her evidence is short. There is no internal inconsistency.
261. On the whole, I think the most useful tool to assess her credibility is the inherent plausibility of her case. She gained her qualification in nursing in the 1970s. At the trial, she came across as an articulate and clear-headed witness. When it was her turn to cross-examine the other witnesses, she was able to pose her questions in a clear manner. It seems inherently implausible that a person of that calibre would have absolutely no idea at all what she was signing in the July meeting and the November meeting. In particular, the plaintiff has produced a confirmation signed by the 3rd defendant in the July meeting. It is in Chinese and appears on its face to be a simple document. The 3rd defendant’s wholesale denial of any knowledge of the documents she had signed is inherently incredible.
262. Furthermore, what is most puzzling is what she said in cross-examination about her understanding of how a mortgage works in general. She was asked whether she had had experiences in executing a mortgage before 2014. In that line of questions, she said that she understood that if a borrower defaults, the bank would chase for payment. When asked to confirm that the bank would also take possession of the mortgaged property, she said that it never occurred to her that it would work that way. She did not have that understanding at the time. It was only after this action that she knew about this potential consequence.
263. This professed lack of understanding on the consequences of defaulting on mortgage repayments is inherently incredible.
264. For the above reasons, I have grave reservation over the credibility of the 3rd defendant’s evidence.
The 4th defendant
265. The 4th defendant’s factual case is built upon the 2nd defendant’s. In particular, it is the 4th defendant’s case that the 2nd defendant was repeating to him what Ip had said to the 2nd defendant.
266. In his written closing submissions, Mr Ah-Weng formulates his argument as follows:
“D4 submits that on the facts, on 22.7.2014 when D1 phoned D2 to demand D2 to persuade D4 to offer up his ding house as security, D1 must have known/intended that in pressuring D2 to do so, D2 would use D1’s words as told to D2. There is no doubt that when D2 spoke with D4, D2 was acting on D1’s instructions, for the benefit of D1, and/or in the capacity as D1’s agent. Had D1 not called D2, D2 would not have made the representations to D4. D1’s representations were then repeated in D2’s representations to D4 …” (original emphasis not reproduced)
267. I have already expressed my doubt over the credibility of the 2nd defendant’s case. That will certainly have a knock-on effect on the 4th defendant’s case. If the 2nd defendant’s factual case is rejected, it should follow that the 4th defendant’s case cannot be upheld.
268. Separately, it is a key allegation of the 4th defendant that in the July meeting and the November meeting, he did not know what documents he was signing. He was induced to sign because he believed in Ip’s representations. Among them was the Internal Guarantee Representation and the Internal Documents Understanding. He believed that any security document he signed with regard to his ding house would not be executed even if Ip were to default on his loan. Had he known about the true effect of the documents, he would not have signed.
269. He made this point very clearly in his witness statement:
“如當時Yuen & Partners有盡責任解釋給本人知道有關的三方按揭內容和後果，我是絕對不會簽署的。”
270. He made the same point in his supplemental witness statement:
“當時本人經已退休，而且太太亦沒有工作，若然當時本人知道事實的真相，本人是絕對不會因為第二被告人的工作而為其老闆，即葉先生，押上用作養老用途的唯一物業。”
271. I find the 4th defendant’s belief that notwithstanding that formal legal documents were signed in a law firm in the presence of a solicitor, those documents would not be enforced by the lender in the event of default to be inherently implausible. I have come to this view having considered the 4th defendant’s professional background and his astute character which was amply displayed in the course of his oral testimony.
272. On his background, he left the police force as a senior inspector. It is said that he had not worked in the financial or business sector before. But I do not consider that to be particularly relevant. What Ip allegedly said to him (via the 2nd defendant) is not exactly very complicated.
273. In the trial, he testified in a calm and composed manner. He listened to the questions attentively and sought clarification when he did not fully understand the questions. He spoke fluently, methodically and with care. When reciting his conversations with the 2nd defendant, he would often start with the remark that he could not recall the conversations word for word and could only tell the court the gist or substance of the conversations. While one could tell that some of his answers were prepared in advance of the trial, the manner in which he recounted the events was impressive in that while the answers were lengthy, the contents were not repetitive. He was also able to explain things from a common sense angle.
274. I believe that he was telling the truth when he recounted the mental issues experienced by the 2nd defendant and how he and his wife had tried to help their son to resolve them over the years. The mental issues are documented in Prof Pong’s report. There is no reason to disbelieve what the 2nd defendant, the 4th defendant and the wife told the professor at the time of the treatment.
275. The main point here, however, is that for a person of the 4th defendant’s background and calibre, it is inherently improbable that he would genuinely believe that the mortgage documents were for show only and that they were signed at a law firm out of convenience.
276. Lastly, the 4th defendant’s alleged belief that his Mortgage would not be enforced cannot be reconciled with the new revelation made in the 2nd defendant’s cross-examination that after the July meeting, his mother was very concerned with whether Ip was repaying the loan and she was unhappy about it.
(1) The 4th defendant’s evidence was that on the evening of 22 July, after the emotional encounter with the 2nd defendant, the 4th defendant and his wife had a discussion. It was thought that it would be safe to sign the documents the following day because of the 22 July Representations.
(2) If that is the case, then there would be no reason for the mother to be so concerned with Ip’s repayment. It is therefore not understood why she would feel unhappy about the situation.
(3) When asked why the mother would feel unhappy when they believed that the Mortgage would not be enforced by the lender, the 4th defendant said that he did not know why.
277. This matter, in my view, also casts doubt on the credibility of the 4th defendant’s alleged belief.
278. For the above reasons, the credibility of the 4th defendant’s evidence is open to serious doubt.
Annie, Lee, Ernest Yuen and Wong
279. On the other hand, I find the evidence of Annie, Lee, Ernest Yuen and Wong to be inherently plausible, coherent and largely consistent.
280. The main criticism directed at their evidence by Mr Wong and Mr Ah-Weng is its internal inconsistency. Annie’s evidence is in particular criticised for being internally inconsistent.
281. Here, I should set out some procedural background. These proceedings were commenced by an originating summons. Annie filed a total of three affirmations between late 2016 and late 2017. After the proceedings were ordered to be turned into a writ format, Annie made a witness statement in 2019 and a supplemental witness statement in 2021.
282. It is submitted that there are material differences between her affirmations and her witness statements, which cast doubt on the reliability of her evidence. I set out below the most notable ones.
283. The inconsistencies mainly arise from the following two paragraphs in Annie’s second affirmation in which she spoke about the November meeting.
“10. As to the subject loans, the relevant documentation had been exhibited as “CMS-5” to my 1st Affirmation filed herein on 14th December 2016. This had been duly explained by me and the said Mr. Lee Kwok Kin to the Defendants as to the subject loan in November 2014. … Mr. Wong Hoo Yee of Messrs. Wong, Solicitors retained by the Plaintiff (but not the Defendants) for the subject conveyancing transactions was also present at the signing of the said Mortgage …
11. … I had further been advised by Mr. Ernest Yuen of Yuen & Partners and verily believe that he had explained in gist the Mortgages dated 26th November 2014 to all the Defendants.”
284. First, Exhibit “CMS-5” is the Backdated Loan Agreement. Mr Wong submits that Annie and Lee could not have explained this document in the November meeting as it had not yet come into existence on that day.
285. Second, according to the above paragraphs, Wong was present at the November meeting. According to her witness statement, however, Wong was not present. The solicitor who was present was Tse Yin Fung.
286. Third, according to the above paragraphs, Ernest Yuen explained the mortgage deeds to the defendants. According to her witness statement, however, it was Tse Yin Fung who explained the mortgages.
287. Mr Wong submits that Lee’s evidence also suffers from the same problem of internal inconsistency. In his witness statement, he described what happened in the November meeting:
“After some chatting, Ernest Yuen came to explain about the terms of the 26/11/2014 Loan Agreement. Cheng and I read out the Loan Agreement to them, as requested by the Money Lenders Ordinance (Cap. 163). Ernest Yuen explained the documents to them and we verbally repeated the terms to them.” (underline added)
288. In his oral testimony, however, when it was pointed out to him that in her witness statement, Annie described their involvement as “assisting in the process”, then Lee said that he and Annie did not “read out” the terms of the agreement.
289. In my view, these discrepancies are certainly matters which the court should take into account in assessing the credibility of Annie and Lee’s evidence. The question to ask is whether they show that the witnesses are were not telling the truth or they were genuine mistakes which the witnesses made when trying to recall the details after a considerable lapse of time. Here, I am inclined to think that it is the latter situation. The main thrust of the plaintiff’s case is that explanation was given in the November meeting. As remarked earlier, the defendants’ side is not disputing the contents of the explanation. It is saying that no explanation was given at all. In light of the binary nature of the dispute, the discrepancies which go to the details of the explanation do seem to me to be mistakes genuinely made due to inaccurate recollection.
290. Another criticism is made over Ernest Yuen’s oral evidence that in the November meeting, after the loan documents were signed, he left the meeting and his colleague, Ms Clare Au-Young, helped witness the execution of the share charged signed by Evean Tang who arrived late. And that explains why Clare Au-Young was stated to be the witness in the execution page of the share charge.
291. Mr Wong submits that Ernest Yuen’s oral evidence is inconsistent with Annie’s written evidence, as there was nothing in the latter suggesting that Evean Tang was late on that day. Mr Ah-Weng submits that none of Annie, Lee and Ernest Yuen had mentioned Clare Au-Young being present in the November meeting in their written evidence at all.
292. I do not consider that these submissions undermine the credibility of the plaintiff’s evidence. The inconsistency appears to me to be minor in nature. Furthermore, Ernest Yuen explained that as the share charge does not concern the defendants, that was not the concern of the action. I think that is a reasonable explanation, which accounts for why he omitted to mention the involvement of Clare Au-Young in his statement.
293. As for Ernest Yuen and Wong, I find their evidence to be straightforward, inherently plausible, internally consistent, and generally credible.
294. In his submissions, Mr Ah-Weng points out that no attendance notes were kept by either solicitor for the meetings and he says that this is strange, highly suspicious and uncommon.
295. On the absence of attendance notes, Mr Ma accepted in his oral submissions that one normally expects a lawyer to prepare attendance notes for meetings. However, he pointed out that the issue of attendance notes was not really canvassed in the cross-examination of the two solicitors.
296. It is correct that the absence of attendance notes was not fully explored in cross-examination. Towards the end of Mr Ah-Weng’s cross-examination of Ernest Yuen, counsel asked about attendance notes or records. To that, Ernest Yuen replied that usually for signing of loan contracts, he would not keep attendance notes. It was then suggested to him that he had indeed kept records but did not disclose them in this action. Ernest Yuen denied.
297. Insofar as Mr Ah-Weng is suggesting that since the absence of attendance notes is strange, highly suspicious and uncommon, Ernest Yuen and Wong’s accounts of events which are uncorroborated by attendance notes should be rejected, I do not think I can accept that submission. The absence of attendance notes is only one matter which I should take into account. When all the evidence is considered on an overall basis, I find Ernest Yuen and Wong to be credible witnesses.
Factual findings
298. On the whole, I find the plaintiff’s evidence to be more credible than the defendants’. I accept the plaintiff’s account of events as true and reject the defendants’ accounts insofar as they are in conflict with the plaintiff’s. I also reject the defendants’ evidence concerning (1) the relationship between each of them and Ip, (2) what was said between each of them and Ip, and (3) in the case of the 4th defendant, what was said between him and the 2nd defendant.
RULINGS
299. Based on the above factual findings, I now address the defences put forward by the defendants.
The 2nd defendant
300. In my judgment, none of the seven defences raised by the 2nd defendant are made out.
301. First, the defence of undue influence fails because:
(1) The 2nd defendant fails to prove his factual case on his relationship with Ip and what was said between the two of them from June to December 2014.
(2) He therefore fails to show that he executed his Guarantee and Mortgage under Ip’s undue influence, whether actual or presumed.
302. It is therefore not necessary to decide whether his Guarantee and Mortgage should be set aside as against the plaintiff. But in case I am wrong above, I shall state my conclusion.
303. In my view, the plaintiff was not put on enquiry as to whether the 2nd defendant was offering security under the undue influence of Ip. While the relationship between the 2nd defendant and Ip was not commercial in nature (as accepted by Mr Ma), the giving of security was not on its face to the disadvantage of the 2nd defendant. On the facts as found, the 2nd defendant told Annie and Lee that he had faith in the companies managed by Ip, and that they had plans of going for an IPO and he would perhaps obtain some shares after the IPO. It is true that the 2nd defendant was running the risk of Ip defaulting on a substantial loan of $18,000,000. But he made it clear that in return he was having in mind the prospect of obtaining IPO shares in the future.
304. In any event, I am of the view that, on the facts as found, the plaintiff, through Annie, Lee, Ernest Yuen, Wong and Tse Yin Fung, had taken reasonable steps to bring home to the 2nd defendant the implications of the Guarantee and the Mortgage. Mr Wong and Mr Ah-Weng both correctly point out that Ernest Yuen, Wong and Tse Yin Fung did not fully comply with the Law Society Guidelines in a number of respects. That is unsatisfactory. However, when one looks at the matter on an overall basis and in substance, the steps which they had taken were, in my view, effective steps to bring to the 2nd defendant an understanding of the potential consequences of executing the Guarantee and the Mortgage.
305. The most glaring omission is Tse’s failure to meet with the 2nd defendant in a private session, in the absence of Ip, in the November meeting. To explain the documents to a surety in the presence of the debtor has been said to be ineffective in reducing the risk of the surety acting as a result of the debtor’s undue influence: Bank of China (Hong Kong) Ltd v Wong Kam Ho [2014] 1 HKLRD 41 at para 63. However, in the present case, it will be recalled that the defendants were giving the same security in the November meeting as that which they gave in the July meeting, and one-to-one sessions were properly held by Wong with the defendants in the July meeting. In these circumstances, despite the failure to arrange a private session with the 2nd defendant, I am inclined to conclude that the explanation done in the November meeting was still effective.
306. Second, the defence of misrepresentation. This fails because:
(1) The 2nd defendant fails to prove his factual case on his relationship with Ip and what was said between the two of them from June to December 2014.
(2) He therefore fails to show that the execution of his Guarantee and his Mortgage was induced by Ip’s representations.
307. Third, the defence of material non-disclosure.
308. There is no general duty to disclose material facts by a lender to a surety. It is the surety who has the obligation to make all necessary inquiries. However, where there exist facts of which the surety is unaware and which he could not, in the circumstances, be expected to know, but which materially affect his liability or potential liability, it is then incumbent on the creditor to disclose such facts to the surety. A failure to disclose would result in the creditor being unable to enforce the surety contract: Bank of China (Hong Kong) Ltd v Wong King Sing, paras 27 and 28.
309. Here, the non-disclosure matters set out in para 133(1) to (3) are set out in the Guarantee and the Mortgage. The 2nd defendant would know about them from the explanation given in the November meeting or could have found out about them by reading the documents himself. As for the matter set out in para 133(4) , the 2nd defendant knew that Yuen & Partners did not act for him. The matter in sub-para (5) is not made out on the facts.
310. Accordingly, there was no material non-disclosure.
311. Fourth, the 2nd defendant argues that his Guarantee does not cover the Backdated Loan Agreement.
312. I should say at the outset that this defence only applies to the 2nd defendant’s Guarantee. Even if it succeeds, the plaintiff may still enforce the 2nd defendant’s Mortgage. Therefore, this defence really serves no useful purpose.
313. In any event, I reject the three contentions of the 2nd defendant.
314. As regards the first and second contentions, Mr Ma submits that it cannot be seriously disputed that the term “Security Documents” would include the Original Loan Agreement, when the other provisions of the Guarantee are read together. These include:
(1) Clause (A) in the recital expressly referred to “a loan agreement dated 26th November 2014”.
(2) The clause further provided that the expression “Loan Agreement” should include “the same as may be from time to time amended or added to and any security or other documents ancillary thereto or amended into pursuant thereto or in contemplation therefore all as from time to time amended or added to”.
(3) Clause 3.1(b) provided that the 2nd defendant’s liability under the Guarantee shall not be affected by “any amendment to the Loan Agreement”.
(4) Clause 4.2 provided that the Guarantee shall cease and be discharged “[u]pon payment of the outstanding balance pursuant to the Loan Agreement”.
315. I agree that when construed against the above context, the term “Security Documents” plainly includes the Original Loan Agreement.
316. Further, I agree with Mr Ma’s submission that the Backdated Loan Agreement is an amendment or variation of the Original Loan Agreement, as opposed to a replacement. The matter is to be looked at in substance. Here:
(1) I have accepted the plaintiff’s evidence that the Backdated Loan Agreement was made to comply with the Money Lenders Ordinance.
(2) The key commercial terms are identical in the two agreements. The principal sum of the loan, the term and the interest rate are all the same.
(3) The changes include the deletion of the default interest provision, certain changes to the events of default, and the addition of an obligation for the 2nd defendant to insure against fire risks.
(4) Given the nature of the changes, objectively speaking, it cannot be said that the intention was to replace the Original Loan Agreement by the Backdated Loan Agreement. The objective intention was plainly to amend the former.
317. That being the case, by operation of clause (A) of the recital and clause 3.1(b), the term “Security Documents” would also include the Backdated Loan Agreement.
318. I also reject the third contention of the 2nd defendant. There is no dispute that the principle in Holme v Brunskill applies. However, here, the 2nd defendant was a party to the Backdated Loan Agreement. By signing it himself, he has consented to its terms. Therefore, even if there is a material change of obligations in the Backdated Loan Agreement, the 2nd defendant would still be bound by his Guarantee.
319. In any event, I do not find that there is any material change of obligations arising from the amendments set out in para 316 above.
320. Fifth, the 2nd defendant argues that his Mortgage is in breach of the non-alienation clause in the land grant for his ding house.
321. This argument is contrary to the position confirmed by the Court of Appeal in Li Pui Wan v Wong Mei Yin [1998] 1 HKLRD 84 and Lau Kwai Kiu v Bian Xintian [2012] 2 HKLRD 954, para 62, which have been followed in a number of first instance decisions, including, eg, Leong Wing Sum v Ng Kai Man [2018] HKCFI 1580, paras 40 and 41. Entering into an agreement to sell a ding house without at the same time paying a premium to the government is not illegal or against public policy, when it is the parties’ intention to pay the premium prior to the completion of the sale. This is considered to be merely “jumping the gun”.
322. In my view, this position should be equally applicable to a mortgage created over a ding house.
323. I therefore reject the 2nd defendant’s submission that the Mortgage should not be enforced by reason of the non-payment of the premium.
324. Sixth, the 2nd defendant argues that the plaintiff was in contravention of sections 20 and 27 of the Money Lenders Ordinance. This defence fails because:
(1) As regards section 20, on the facts as found, there was no breach as copies of the Backdated Loan Agreement, the Guarantee and the Mortgage were given to the 2nd defendant.
(2) The submission in relation to section 27 is plainly untenable. As a fact, the cheque issued by Ip was dishonoured. A dishonoured cheque cannot possibly be treated as “money or money’s worth” under the section. No sum should be set off against the loan amount.
325. Seventh, the defence of unconscionable bargain. This defence fails on the facts as found. Applying the principles in Lo Wo v Cheung Chan Ka [2000] 2 HKLRD 370, 381D-382F:
(1) The 2nd defendant was not at any serious disadvantage which could be exploited by the plaintiff. The facts are that he was the Financial Controller of Ip’s company and he was having in mind the prospect of potential IPO shares in the future when he signed the Guarantee and the Mortgage.
(2) There was no oppressive behaviour on the part of the plaintiff.
(3) More fundamentally, having explained the terms of the Guarantee and the Mortgage to the 2nd defendant and reminded him of his right to seek independent legal advice in the November meeting, it cannot be seriously suggested that the plaintiff was taking any unfair advantage of the 2nd defendant.
The 3rd defendant
326. In my judgment, neither of the two defences raised by the 3rd defendant are made out.
327. First, the defence of undue influence fails because:
(1) The 3rd defendant fails to prove her factual case on her relationship with Ip and what was said between the two of them from July to November 2014.
(2) She therefore fails to show that she executed her Mortgage under Ip’s undue influence, whether actual or presumed.
328. It is therefore not necessary to decide whether her Mortgage should be set aside as against the plaintiff. But in case I am wrong above, I shall state my conclusion.
329. In my view, applying Wong Kam Ho (at para 55), by virtue of the husband and wife relationship, the plaintiff was put on enquiry as to whether the 3rd defendant was offering security under the undue influence of Ip. However, for the same reasons set out above, I am of the view that the plaintiff had taken reasonable steps to bring home to the 3rd defendant the implications of the Mortgage. The defence of undue influence would therefore fail also for this reason.
330. Second, the 3rd defendant argues that her Mortgage was entered into to secure Ip’s obligations under the Original Loan Agreement, which was later replaced by the Backdated Loan Agreement. As such, her Mortgage ceased to have effect from that time onwards, and should be discharged.
331. In reply to this, Mr Ma submits that it is not open to the 3rd defendant to run the defence as it is not pleaded. I am inclined to agree with this, as the question of whether the Original Loan Agreement was replaced by the Backdated Loan Agreement, or whether it was simply amended, turns on the objective intention of the parties and is hence a question of fact, which should be properly pleaded.
332. In any event, as I have held that the Backdated Loan Agreement was an amendment, and not a replacement, of the Original Loan Agreement, the factual basis of the 3rd defendant’s defence is not made out.
333. Furthermore, in substantive response to the defence, Mr Ma refers to clause 27.2(b) of the 3rd defendant’s Mortgage, which provided that the plaintiff may at any time vary any obligations or liabilities of Ip without affecting any of its rights under the Mortgage. The objective intention of the clause is clearly that the 3rd defendant would not be discharged from the Mortgage solely by reason of any variation to the Original Loan Agreement: see Wong Bik Har v Gang Piao Jia Marketing Ltd [2023] HKCFI 3223, para 30(c) to (e). I agree with that submission. The defence also fails for this reason.
The 4th defendant
334. In my judgment, none of the three defences put up by the 4th defendant are established.
335. First, the defence of undue influence fails because:
(1) The 4th defendant fails to prove his factual case on what was said (i) between Ip and the 2nd defendant, and (ii) between the 2nd defendant and him, from June to December 2014.
(2) He therefore fails to show that he executed his Mortgage under the undue influence, whether actual or presumed, exerted on him by Ip via the 2nd defendant.
336. It is therefore not necessary to decide whether his Mortgage should be set aside as against the plaintiff. But in case I am wrong above, I shall state my conclusion.
337. In my view, the plaintiff was put on enquiry as to whether the 4th defendant was offering security under the undue influence of Ip.
338. As accepted by Mr Ma, the relationship between the 4th defendant and Ip was not commercial in nature. Further, unlike the 2nd defendant, the 4th defendant did not hold any position within Ip’s companies and did not appear to stand to gain by supporting Ip. Hence, the giving of security was on its face to the disadvantage of the 4th defendant.
339. However, for reasons explained above, the plaintiff had taken reasonable steps to bring home to the 4th defendant the implications of his Mortgage. The defence of undue influence would therefore fail.
340. Second, the defence of misrepresentation. This fails because:
(1) The 4th defendant fails to prove his factual case on what was said (i) between Ip and the 2nd defendant, and (ii) between the 2nd defendant and him, from June to December 2014.
(2) He therefore fails to show that the execution of his Mortgage was induced by Ip’s representations (made via the 2nd defendant).
341. Third, the defence of unconscionable bargain. This fails as there was no oppressive behaviour on the part of the plaintiff and the terms of his Mortgage were explained to him.
CONCLUSION
342. For the above reasons, the defendants fail to make out their defences and the Security Documents are therefore enforceable against them in accordance with their terms. They have not taken issue with the calculations which the plaintiff comes up with in the closing submissions.
343. I therefore enter judgment in favour of the plaintiff as follows:
(1) The 2nd, 3rd and 4th defendants do jointly and severally pay (i) the sum of $66,767,112.91, which sum includes the outstanding principal of $17,853,459.45 and interest of $48,913,653.46 accrued up to 14 March 2024, and (ii) interest accruing at $17,608.89 per day from 15 March 2024 until full payment.
(2) Upon payment of any outstanding premium and an approval, consent, or certificate (or any document to such effect) (“the Consent Document”) issued by the District Lands Officer pursuant to Special Condition 5(d) of the New Grant for Lot 1906, the 2nd defendant do give vacant possession of the lot to the plaintiff within 35 days after the issuance of the Consent Document.
(3) Upon payment of any outstanding premium and the issuance of Consent Document pursuant to Special Condition 5(d) of the New Grant for Lot 1876, the 4th defendant do give vacant possession of the lot to the plaintiff within 35 days after the issuance of the Consent Document.
(4) The 3rd defendant do deliver vacant possession of the Sai Wan Ho Flat within 35 days of the service of this order.
344. I further order that the counterclaims of the 2nd, 3rd and 4th defendants be dismissed.
345. I make a costs order nisi that the plaintiff do have costs of the action and the counterclaims against each of the 2nd, 3rd, and 4th defendants, with all reserved costs, to be taxed if not agreed, with a certificate for two counsel.
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( Winnie Tsui ) |
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Judge of the Court of First Instance |
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High Court |
Mr Johnny Ma, SC and Mr Avery Chan, instructed by Deacons, for the plaintiff
Mr Wong Cho Lik and Mr Jonathan Tai, instructed by Cheung & Co, for the 2nd defendant
The 3rd defendant acted in person
Mr Jonathan Ah-Weng and Ms Renée Cheng (on all days except 14 March 2024), instructed by Lee Chan Cheng, for the 4th defendant
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