THE NATIONAL COMMERCIAL BANK LTD HONG KONG BRANCH v. WONG SHING LEE AND OTHERS

HCMP4695/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 4695 OF 2001

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J U D G M E N T

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1. The 1st defendant, who also represents the 2nd defendant’s estate by a carry on order, is appealing against the decision of the Master  ordering the delivery of possession of the charged property to the plaintiff mortgagee bank and repayment of $2,257,683.43 with interest.

2. The 1st and 2nd defendants have charged their property to the plaintiff to secure the granting of general banking facilities to the 3rd defendant.

3. Under clause 1 of the Deed of Mortgage:

“In pursuance of such agreement and in consideration of the premises the Mortgagor (1st and 2nd defendants) and the Principal (3rd defendant), jointly and separately covenant with the Mortgagee that the Mortgagor and/or the Principal will on demand in writing of the Mortgagee sent by post to the Mortgagor and/or the Principal at their last known place of abode or business or registered office or left on some part of the premises hereby charged and /or assigned (as the case may be) pay to the Mortgagee all sums of money now or hereafter owing to the Mortgagee according to the books of the Mortgagee on account of the said general banking facilities granted to the Principal or in respect of any account whatsoever between the Principal and the Mortgagee although the total of such sums may exceed the extent as set out in Part II of the First Schedule hereto either alone or jointly with other persons firms or corporations in respect of the matters aforesaid together with interest at such rate as set out in Part III of the First Schedule hereto with monthly rests and all commission or other usual or lawful charges and all costs and expenses which may be incurred in respect thereof.”

4. Under Part II of the First Schedule, the extent of facilities was stated as:

“to secure general banking facilities to whatever extent as the Mortgagee may at its absolute discretion determine from time to time.”

5. In relation to the “said general banking facilities granted”, under paragraph 3 of the preamble it is stated that:

“The Principal may have been and may from time to time be indebted to the Mortgage in respect of general banking facilities granted by the Mortgagee to the Principal and in particular in respect of advances made by the Mortgagee to or on account of the Principal or in respect of credits opened in connection with bills or acceptances discounted or negotiated for the Principal or for the constituents customers or agents of the Principal or otherwise or in respect of exchange contracts made with the Mortgagee or release of merchandise to the Principal or to other persons upon the request or the guarantee of or under trust receipts signed by the Principal whether in each case the liability of the Principal shall be separate and sole or joint with other persons firms or corporations or in respect of advances made or other facilities granted by the Mortgagee on account of the Principal or to any other person firm or corporation upon the request or the guarantee of the Principal or in respect of any credit opened at the request of the Principal in favour of any firm or corporation in any place.”

6. Under clause 4(a) of the Deed of Mortgage:

“The Mortgagee shall be at liberty at any time without prior notice (which is waived by the Mortgagor and the Principal) to determine or vary the credit of the Principal to vary exchange or release any securities held by the Mortgagee from or on account of the Principal to renew bills or promissory notes and to grant time or other accommodation to or compound with the Principal or any other person or persons liable on any bill note or other security without discharging or affecting this security.”

7. At the hearing before the Master, the 2nd defendant filed an affidavit stating that in 1989 the 3rd defendant asked her to use the title deeds of the property to secure $400,000 owed by the 3rd defendant.   After some time the 2nd defendant asked for the return of the title deed but the 3rd defendant pleaded with her to continue the security whereby the 2nd defendant did not withdraw the security.

8. Upon the appeal, the 1st defendant raised certain new matters which were not objected to by Miss Cheung for the plaintiff.  The 1st defendant said that the transaction was obtained by undue influence by the 3rd defendant and he and the 2nd defendant had no independent legal advice. They did not read the content of the mortgage deed, nor was it explained to them.  They did not know that the mortgage was to cover any amount over and above $400,000.  They were not notified by the plaintiff of any further lending to the 3rd defendant.  The 1st defendant submitted that even if they were liable, the amount should not be above $400, 000 or, at any rate, the value of the charged property.

9. The 1st and 2nd defendant knew that they were signing a mortgage.  They said the mortgage was not explained to them.  At the end of the mortgage it was stated to have been interpreted by one Charles Shum, clerk to Messrs Tsang, Chan & Wong, Solicitors, Hong Kong.  The 1st defendant, apart from raising the fact that it was not read over to him, did not give any particulars as to what happened at the signing of the mortgage. 

10. According to Bank of China (Hong Kong) Ltd. v. Fung Chin-kan and Another [2003] 1 HKLRD 181, in the judgment of Litton NPJ at p.197, para.51, his Lordship stated that:

“In reaching, as the Court of Appeal did, the conclusion that the transaction here must be set aside, that court was in no way disturbing the fundamental principle that, generally speaking, when a person signs a legal document, he or she is bound by the act of signature:As a matter of general law, it is no defence to say that he or she did not understand the contents of a legal document; that person takes the chance of being bound by its terms, as he or she can take the simple precaution of not signing until its contents have been fully explained and understood.  But there are circumstances where the burden is thrown on the other party, under the principles of what are broadly called equitable fraud.”

11. The law as to undue influence affecting the mortgagee bank is laid down in Royal Bank of Scotland v. Etridge (No.2) [2001] 4 All ER 449, which has been considered and adopted in Bank of China (Hong Kong) Limited v. Wong King-sang [2001] 1 HKC 83 per Recorder Ma SC (as the Chief Judge then was).

12. In Royal Bank of Scotland v. Etridge, at 1054, paragraph 101, Lord Hobhouse laid down a three-step consideration of undue influence:

“(1) Has the wife proved what is necessary for the court to be satisfied that the transaction was affected by the undue influence of the husband?  (2) Was the lender put on inquiry?  (3) If so, did the lender take reasonable steps to satisfy itself that there was no undue influence?”

13. Miss Cheung submitted that the 3rd defendant was not acting as an agent for the plaintiff.  The 1st, 2nd and 3rd defendants were mere friends.  They were not in any position of presumed undue influence. There is only the mere assertion of misrepresentation by the 3^rd defendant.  There is no allegation of actual notice by the bank and the particulars disclosed did not indicate that the bank should have constructive notice.

14. In the circumstances, the evidential burden of raising undue influence is not met.  The 1st and 2nd defendant, having signed the mortgage, knowing the nature of its being a mortgage, are bound by its terms. The terms squarely covered the 1st defendant’s arguments as to limit of the secured amount, as well as the giving of notice for further lending.

15. In such circumstances, I do not see any real or bona fide defence raised by the 1st and 2nd defendant.  The decision of the Master is affirmed, and the appeal is dismissed.

(Discussion on costs)

16. Costs to be paid by the 1st and the 2nd defendant to the plaintiff, to be taxed if not agreed.