XCHRX WING HANG CREDIT LTD. v. LEE BING WAI AND OTHERS

HCA 9844/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 9844 OF 1999

____________

_______________________

REASONS FOR DECISION

_______________________

1. This is an appeal from a decision of Master Christie who, on 13 December 1999, gave the 3rd defendant unconditional leave to defend. At the conclusion of the hearing before me I allowed the appeal and gave judgment for the plaintiff as claimed in the statement of claim. I now give my reasons for so doing.

2. The claim against the 3rd defendant is as guarantor of two loans made to the other defendants by the plaintiff in or about October 1997, one a fixed loan of $700,000.00 repayable on 22 October 1998, and the other a real estate loan of $2,000,000.00 secured by a charge over the 1st and 2nd defendants' property and repayable over 20 years. The 1st and 2nd defendants failed to repay the fixed loan when it became due, and from 21 November 1998 have failed to pay the instalments due on the real estate loan. On 15 March 1999, the plaintiff exercised its power of sale under the mortgage and the property was sold for $1,950,000.00, leaving a balance of principal and interest due on the two loans of a little over $900,000.00.

3. In the proceedings before Master Christie three defences were argued on behalf of the 3rd defendant: non est factum, undue influence and uncertainty of terms. Before me, Mr Shipp for the 3rd defendant argued only one, namely non est factum, conceding in effect that this was his only arguable point.

4. The 3rd defendant's case on this is that she was asked by the 1st defendant, her cousin, to act as guarantor for a bridging loan which he needed while he was selling his property to purchase another. He presented her with a number of blank forms which he asked her to sign, saying that they were application forms. She said that she signed them, took copies for herself, and returned them to the 1st defendant. She said that she heard no more about it until she was contacted in January 1999, first by a loan collection agent, and then by the plaintiff's solicitors, demanding payment of the sum outstanding.

5. I would add here that the plaintiff's evidence is somewhat different, in that they maintain that the forms were signed in the plaintiff's office after the effect was explained to the 3rd defendant. However, for the purposes of this appeal I propose to assume that the facts are as related by the 3rd defendant.

6. Mr Shipp contends that the evidence shows that, first, the 3rd defendant, in signing documents headed as application forms, was only inviting the plaintiff to make an offer to accept her as a guarantor, which offer she never received, and second, she believed that she was only signing in respect of a bridging loan for a limited period, not a 20 year mortgage. In either case, he says, she was making a fundamental mistake as to the nature of the documents signed.

7. In my view this argument is unsustainable both on the facts and the law.

8. As to the facts, on her own case these show that she signed a total of 10 documents, 5 "Guarantor Application" forms, and 5 guarantees. Three each of these were in respect of the $700,000.00 loan (there was originally a third borrower who appears to have dropped out of the picture) and two each in respect of the $2,000,000.00 mortgage. As I have said, she took copies for herself, and also supplied copies of her identity card, her business card, her tax demand, her bank book and a deposit receipt from China Light and Power. It has never been denied that the 3rd defendant does not speak and read English, and she clearly has a well paid position in an international company.

9. The law is clear that the defence of non est factum can only apply, in cases where the document has been signed, where there is a fundamental mistake as to the nature of the document, or an inability, without explanation, through illiteracy, lack of education or some other basic reason, to understand the nature and purport of it. Even then it cannot be relied on unless the person signing has taken all reasonable precautions. As Lord Reid said in Gallie v Lee [1971] AC 1004 at p. 1016:

So there must be a heavy burden of proof on the person who seeks to invoke this remedy. He must prove all the circumstances necessary to justify its being granted to him, and that necessarily involves his proving that he took all reasonable precautions in the circumstances. I do not say that the remedy can never be available to a man of full capacity. But that could only be in very exceptional circumstances: certainly not where his reason for not scrutinising the document before signing it was that he was too busy or too lazy. In general I do not think that he can be heard to say that he signed in reliance on someone he trusted.

10. There can be no doubt here that the 3rd defendant was aware of the general effect of the documents. She knew that they were in respect of a loan, and it is quite clear even from a cursory glance at the documents that they are applications to be a guarantor and forms of guarantee. The amounts to be guaranteed were in the documents at the time of signing. In effect, all the 3rd defendant can say is that she was mistaken as to the length of time over which the loan was repayable.

11. This is not a case of an illiterate and uneducated woman accepting legal liabilities without a proper understanding of the consequences. The purport of the documents was clear on the face of them. She had adequate opportunity to read and understand them, she provided evidence of her own creditworthiness, and carefully kept copies for her own records.

12. I am satisfied that the circumstances of this case fall far short of those required to establish an arguable defence on he ground of non est factum and that the plaintiff is entitled to judgment as claimed.